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On April 27th, Allianz Chief Economic Advisor Mohamed A. El-Erian published an article stating that the price shock triggered by the Middle East wars has pushed market expectations towards an environment where interest rates remain at higher levels for an extended period, affecting almost all systemically important central banks, with the sole exception being the Bank of Japan, although the differences have recently narrowed, its policy framework remains self-contained. He pointed out that the current situation is not merely a simple price shock, but also accompanied by a negative demand shock from the "second-round effect," and in addition to these direct economic impacts, there is a potential risk of contagion to financial instability. He added, "All of this underscores the uncertainty of the outlook: central banks will face a series of difficult trade-offs, and I think these decisions likely (or should) boil down to a sobering question: Of all the mistakes we can make, which is the least irreversible? For central banks with a single mandate, such as the Bank of England and the European Central Bank, this question is relatively easier to answer; but for the Federal Reserve, which has a dual mandate, the situation is much more complex."According to Irans Tasnim News Agency, an Iranian parliamentary committee has passed a proposal to establish a crisis management ministry.On April 27th, the National Energy Administration held its quarterly press conference. According to the press conference, 24 provinces (autonomous regions and municipalities) have issued or formulated supporting policies for direct green power connections, and 99 direct green power connection projects nationwide have been approved, corresponding to a total installed capacity of 34.05 million kilowatts of new energy. Recently, based on the single-user direct green power connection policy, a multi-user direct green power connection policy has been formulated, allowing new energy sources to directly supply green electricity to multiple users through dedicated lines. This will promote the accelerated clean energy substitution in industrial parks and zero-carbon parks, and facilitate the wider consumption of new energy. The relevant policies will be released soon.On April 27, Iranian Parliament Speaker Mohammad al-Kassym-Jomart Ghalibaf posted on social media on the 26th that the United States has exaggerated its bargaining chips in the energy game. Ghalibaf stated that the US has used numerous tactics, and its related strategies are in a predicament. The summer travel peak will exacerbate the pressure on the US, while Iran still holds unused "key trump cards."On April 27, the State Administration for Market Regulation selected seven provinces and municipalities—Beijing, Hebei, Jiangsu, Zhejiang, Henan, Sichuan, and Guangdong—to conduct a pilot program allowing registration authorities to apply to the Peoples Courts for compulsory liquidation. The pilot programs main tasks include three aspects: First, establishing a working mechanism. Market regulation departments in the pilot areas will proactively connect with the Peoples Courts, conduct in-depth research, and determine the timetable, roadmap, and safeguard measures for the pilot program in their respective regions. Second, improving the standardization of the liquidation system. This involves establishing a corporate screening mechanism to clarify the scope of application, streamlining the various stages and material requirements for administrative and judicial coordination, supporting the liquidation team in fulfilling its duties, and encouraging the establishment of dedicated windows for efficient handling of matters such as file inquiries and deregistration. Third, strengthening business data sharing. This involves promoting the establishment of data interfaces with the Peoples Courts to achieve information sharing, and improving the functions of the "one-stop" online service platform for deregistration, providing "fully online" services for compulsory liquidation and deregistration of bankrupt enterprises.

The US Dollar Index (DXY) Hit a Two-Year High of 101.851 in the Face of Risk Aversion

Drake Hampton

Apr 26, 2022 10:04

The US Dollar Index, which measures the greenback's value against a basket of six currencies, concluded the day up 0.62 percent to 101.735, just shy of the two-year high achieved earlier in the day at 101.851.

 

The market sentiment remains pessimistic, as evidenced by the continued decline in Asian equity futures. Concerns about China's coronavirus outbreak are growing. In Shanghai, the ban was extended to some parts of Beijing, keeping dealers on their toes. Fears of broader Chinese curbs have alarmed investors already concerned about the potential of a global downturn as the Federal Reserve raises interest rates to rein in inflation.

 

Additionally, the Fed's remarks last week increased demand for the greenback. According to the CME FedWatch Tool, investors have fully priced in a 100 percent possibility of a 0.50 percent rate hike at the May meeting.

 

Meanwhile, the 10-year US Treasury yield, the benchmark note, has fallen ten basis points from last week's highs at 2.981 percent, to 2.818 percent.

Fed Speaking Summary from Last Week

On Thursday of last week, Fed Chairman Jerome Powell signaled his support for a half-point rate hike by the May 4-5 meeting. Additionally, San Francisco Fed President Mary Daly stated that the Fed "will almost certainly" hike rates by 50 basis points in the coming months. Daly underlined that the Fed should proceed cautiously with rate hikes and aim to raise interest rates to 2.5 percent by the end of the year.

 

Elsewhere, St. Louis Fed President James Bullard acknowledged that the Fed is behind the curve, but not as much as many believe, while noting that the Fed has previously lifted 75 basis points without the world imploding.

 

Loretta Mester, president of the Federal Reserve Bank of Cleveland, stated last Friday that she hoped to achieve neutrality at 2.5 percent by the end of the year. Mester noted that "we don't need to get there" when asked about 75-bps rises. Additionally, she favored a 50-bps hike in May and a few additional increases thereafter.

 

The US economic calendar would include March Durable Goods Orders, the US GDP for the first quarter, and March Core Personal Consumption Expenditure (PCE) on annual and monthly basis, in addition to the Chicago PMI.

 

According to ING analysts, the US economy increased at a 1-1.5 percent annualized pace in Q1, which would be lower than the 6.9 percent rate recorded in Q4 of 2021, reflecting the pandemic's Omicron wave, which had a significant impact on mobility.

Forecast for the US Dollar Index (DXY): Technical Outlook

As indicated by the daily chart, the US Dollar Index (DXY) maintains an upward tilt. The 50 and 200-day moving averages (DMAs), which are placed at 98.596 and 95.504, respectively, are significantly below the DXY value, reinforcing the upside bias. At 71.24, the Relative Strength Index (RSI) is in overbought zone, indicating that the DXY trend is about to reverse.

 

DXY's initial resistance level would be 102.00. A break above would reveal March's 24 daily high of 102.21, March's 2020 daily high of 102.99, and then the aforementioned 103.82 swing high.

 

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