Today, the main focus of the market is still on the US Dollar.
The Dollar is moving stronger than most major currencies. This is actually not very strange because the US Treasury yield is still high.
In the market, when US yields rise, the Dollar will usually get support. That is why traders are now more inclined to look for opportunities to buy the Dollar, not against the Dollar.
The second thing the market is waiting for is the Fed minutes.
The minutes of this Fed meeting are important because the market wants to see to what extent the Fed's tone is starting to change towards a more hawkish one. In the previous Fed meeting, the market saw the Fed getting closer to the possibility of raising interest rates before the end of the year.
In fact, Fed fund futures are now starting to price not one, but two possible tightenings before December.
I still think the Fed may only do it once, but what is important now is not what the Fed does today. What is important is what signal the Fed gives for the coming months.
If the Fed minutes come out with an optimistic tone on the US economy, and are still worried about inflation, this could continue to support the US Dollar and yields.
At the same time, oil prices are also rising.
The main reason comes from tensions in the Middle East, especially issues around the Strait of Hormuz. There are reports of disruptions to ships in the area, so the market is starting to re-price the risk of supply disruption.
When oil rises, inflation can become more stubborn. When inflation is stubborn, the Fed has difficulty cutting rates. When the Fed has difficulty cutting rates, the Dollar continues to have a reason to remain strong.
As for the stock market, the movement is quite mixed.
Dow futures are up, but Nasdaq futures are down. This shows that the market is not necessarily in a big panic, but more of a sector rotation. Traders still have risk appetite, they are just starting to reduce exposure to tech stocks.
That is why the Nasdaq looks weaker than the Dow.
Gold is also rising.
Although a strong Dollar usually presses gold, this time gold is still supported by anxiety in the market, weakness in the Nasdaq, and geopolitical tensions. So gold is now moving not just because of the Dollar, but because the market is looking for protection when risks start to increase.
Another interesting thing is the Japanese Yen.
The Yen is strengthening compared to major currencies including the Dollar. This may be because traders started taking profits after USD/JPY was at a high level, coupled with the risk of intervention from Japan.
In conclusion, the market is now moving on four big things:
The US Dollar is strong because yields are rising.
The Fed minutes will be the main focus.
Oil is rising because of Middle East risks.
Gold is rising because of anxiety in the market.
For this week, traders have to be careful because the market can be more volatile, especially when the Fed minutes come out. If the Fed's tone is more hawkish, the Dollar can continue to be strong. But if the market starts to worry about geopolitics and the stock market, gold can also continue to receive attention.
This is why in the market, we don't just look at one data.
We have to connect the story between the Dollar, yields, Fed, oil, stock market and gold.
Only then will we see what the market is actually pricing.
