Fears revolving around rising inflationary pressures and rate hike jitters have certainly left investors skittish this trading week. Investors seem to be on edge about higher interest rates and as such, this continues to encourage global equity bulls and bears to engage in a tough tug of war.
Interestingly, Asian stocks ventured higher during early trading on Friday, after Wall Street bounced higher overnight from a two-day losing streak. European shares are set to open on a positive note, tracking gains from Asia this morning. While the bullish domino effect from Asia and Europe could support Wall Street this afternoon, it remains uncertain if such momentum will roll over into the new trading week.
With investors on guard as global stock markets become increasingly sensitive to the prospect of rising inflation and interest rates, equity bears could steal the show.
Dollar supported by rate hike expectations
The story defining the Dollar’s impressive appreciation this week continues to revolve around heightened speculations of higher U.S. interest rates in 2018.
With January’s hawkish FOMC meeting minutes reinforcing expectations of an interest rate increase in March and of more rate hikes ahead, the dollar could remain supported. Much attention will be focused on the speeches of three FOMC members this afternoon, which could offer fresh insight on rate hike timings. The dollar could receive a boost this afternoon if Fed speakers adopt a hawkish tone and give signs of a fourth rate hike being on the cards in 2018.
From a technical standpoint, the Dollar Index remains under pressure below the 90.55 lower high. For bulls to be truly back in the game, prices need to break above 90.20 and 90.55, respectively. A failure to break above 90.20 could result in a decline back towards 89.60. Sustained weakness below the 89.60 has the ability to trigger a decline lower to 89.00.
Commodity spotlight – Gold
An appreciating U.S. dollar has punished gold significantly this week, with the yellow metal currently trading around $1,329 during early trading on Friday.
It is becoming clear that the prospect of higher U.S. interest rates has soured appetite for gold which is zero-yielding. With the dollar likely to continue finding supporting rate hike talks, the yellow metal may be exposed to further pain moving forward. Focusing on the technical outlook, this has certainly been a bearish trading week for gold, with prices struggling to keep above $1,324.15. A breakdown below this level could encourage a decline lower towards $1,310 and $1,300, respectively. Alternatively, bulls have a chance to challenge $1,340 if an intraday breakout above $1,332 is achieved.
Bitcoin dips below $10,000
Bitcoin dipped below the psychological $10,000 level during Thursday’s trading session, with extended losses towards $9,600 during early trading on Friday.
Although the cryptocurrency has staged a recovery back towards $10,000 as of writing, the price action witnessed this week suggests that bulls are exhausted. Sustained weakness below $10,000 could spark discussions over the recent rebound being nothing more than a dead cat bounce.