The US Dollar Index is trading flat
After losing almost 1% during the previous three sessions, the US Dollar Index is trading flat during the early part of Tuesday’s session. The markets are waiting for the testimony of the Chairman of the Federal Reserve in Congress later today. The general consensus is that Jerome Powell will show confidence in the recovery of the economy, but also provide assurances about the central bank’s commitment to its current accommodative monetary policy. Any hints of a plan to react to rising inflation by hiking interest rates could lead to a panic sale in the bond market and increase demand for the greenback. However, it is unlikely that Mr Powell will adopt such a strategy so we are more likely to see further dollar weakness in the aftermath of his testimony.
Ricardo Evangelista – Senior Analyst, ActivTrades
European equities opened mixed on Tuesday, with French and Italian shares trading slightly higher while benchmarks from Germany, Denmark and the Netherlands underperformed. The “wait and see” trading stance continues in investors’ minds ahead of key data from both Europe and the US today with inflation levels at the centre of every economic discussion. This week’s uncertainty stems from the economic recovery having been widely priced in for almost a year now so traders now lack near-term market drivers. The prospect of a less dovish tone from central banks, sparked by rising inflation, is causing stock traders to reduce their exposure to equities, especially overbought sectors like tech. Meanwhile, other cyclical and energy shares are benefiting from the tech rout with the potential for higher demand in those sectors already sustaining the trend on a short to medium-term basis. Today’s key macro news will come from both Europe and the US with the EU inflation report due later in the morning while Fed Chairman Jerome Powell will also be appearing before Congress, which should increase market volatility.
Pierre Veyret– Technical analyst, ActivTrades
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