Is dollar heading firmly lower?
Dollar declined on Tuesday to one-month lows against major rivals amid a selloff away from 20-year highs.
Is the dollar heading for truly bearish territory? we try to answer this in this report.
The Index
The dollar index fell 0.35% on Tuesday to 101.74, the lowest since April 26, after hitting 105 on May 13, a 20-year peak before tumbling on profit-taking.
Bearish Market
In order to firmly enter bearish territory, the dollar has to fall below 100, which is yet to happen.
So far it's a mild correction to collect profits on the large buy positions in the last few weeks.
Chinese Economy
China is starting to loosen up restrictions on movements in major cities as Covid 19 infections decline, while China's central bank took a bold move and cut interest rates to bolster economic activities.
Shanghai, a 25 million people city, is preparing to return to normal life by June 1.
Otherwise, the People's Bank of China cut five-year interest rates for loans by 15 basis points to 4.45%, the largest such decrease since 2019.
Bonds
US 10-year treasury yields tumbled to three-week lows at 2.774%, hurting dollar's standing, after negative reports by major US retailers.
Analysts are now genuinely concerned about a potential US economic recession as the Fed forges ahead in hiking interest rates in very rapid paces.
US output already slowed down by 1.4% in the first quarter, with deeper declines feared in the future.
Gold edges near two-week high as dollar slips
Gold prices climbed on Tuesday for the fifth session in a row, about to hit two-week highs as the dollar declines against major rivals.
Gold prices rose 0.4% to $1,860 an ounce, after rising 0.4% yesterday, the fourth profit in a row, marking two-week highs at $1,865.
The Dollar
The dollar index fell 0.35% on Tuesday for another session, marking month lows at 101.74 against major rivals.
Losses in dollar underpins gold prices, with risk appetite improving worldwide and hurting dollar demand.
Risk appetite improved as China loosens up restrictions as Covid 19 infections decline, while investors have completely priced in future US rate hikes with the dollar.
Safe Havens
Global markets continue their recovery, led by Wall Street, as risk appetite improves markedly amid hopes for recovery in China.
SPDR
Gold holdings at the SPDR Gold Trust rose 4.64 tones yesterday for the third day to a total of 1,068 tones, a May 10 high.
Euro extends gains after Lagarde's bullish remarks
Euro rose in European trade for another session against dollar, continuing its solid performance after bullish remarks by ECB President Christine Lagarde.
The dollar on the other hand is facing pressures as risk appetite improves in the market, especially with China.
EUR/USD rose over 0.4% on Tuesday to 1.0736, the highest since April 25, with a session-low at 1.0660.
Euro rose 1.2% yesterday against dollar, the biggest profit since March 9 after bullish remarks by Lagarde.
Lagarde
ECB President Lagarde said she expects bonds purchases to wrap up early in the third quarter, allowing for a rate hike in July.
She noted the importance of responding to the current record inflation, and bring rates back from the current negative territories.
Dollar
The dollar index slipped 0.35% on Tuesday for a second session to a month low at 101.74 against major rivals.
Risk appetite improved as China loosens up restrictions as Covid 19 infections decline, while investors have completely priced in future US rate hikes with the dollar.
Estimates
Now analysts expect euro to rebound strongly to 1.08 in the next three months, and potentially hit 1.1 throughout the next year.
