Dollar rebounds on China, faces busy week

With Covid cases hitting record levels in China and people are protesting against the country’s zero-Covid rules, this has sent the US dollar higher amid haven flows. This has been reflected in commodity dollars going down along with indices, copper and oil prices. Are we about to see a more profound dollar recovery?

Before we discuss the macro factors in greater detail, let’s a have quick look at the daily chart of the Dollar Index:

The DXY has certainly shown some signs of life around its 200-day average and support in the 1.0500-1.0540 area. But it is far too early to say whether this will turn into a full-on rally. However, it is a key support are and we are still inside a long-term bull trend. After the recent sell-off, the downside risks have now diminished in my view.

As well as the situation in China, investors will look ahead to a busy week for macro data, which will include the publications of US GDP and non-farm payrolls reports. Fed Chair Jerome Powell will also be speaking on Wednesday.

If Powell re-iterates the Fed's commitment to bringing inflation down through further rate rises and mentions that one or two inflation reports are not enough to suggest the Fed's job is done, then this could trigger a dollar recovery.

As mentioned, there will be lots of macro data to look forward to in the week ahead. US GDP is among those on Wednesday. The world’s largest economy grew at an annualized pace of 2.6% in Q3, beating forecasts of a 2.4% expansion and rising from two quarters of negative growth. Clearly, the US has been holding its own much better than some other regions in the world but faced with mounting evidence that the consumer is weakening amid hot inflation and interest rate hikes, the economy faces a bumpy road ahead.

The other big data release will be US non-farm payrolls report on Friday. While concerns over a potential recession are on the rise, the Fed has so far been reluctant to hit the brakes on rate hikes because of a healthy jobs market. The economy added a stronger-than-expected 261K jobs in October, which was well above forecasts and September’s numbers were revised higher. But if hiring slows down sharply then this could raise recession alarm bells, causing a re-think at the FOMC.

So, after a big drop, the Dollar Index will remain in focus. Investors will ponder whether they have sold the dollar too much in an overall still-positive macro backdrop for the greenback. The Fed is still tightening its policy and big macro risks remain elevated for Eurozone, China and elsewhere. A toxic mixture of still-very high inflation across the world and anaemic growth should keep the appetite for risk taking to a limit from here on.

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.