As the transitory inflation narrative was bolstered by the sharp decline in US 10-year yields last week, so the low volatility has also helped stock markets hit new record highs with European bourses including the Dax following suit this morning. Falling rates obviously help interest rate-sensitive stocks which definitely means the Nasdaq has been enjoying the last few sessions.

The tech-laden index posted its fourth straight week of gains last week and futures are pointing up above the 14,000 level, with a record high in sight today. The classic growth sectors have led recent gains as investors rotate out of financials, although positive risk sentiment is buoyant today, if a little quiet, with the Vix hitting pre-pandemic levels on Friday.

EUR/USD trading above 1.21

The dollar enjoyed a short squeeze at the end of the last week and is in the middle the majors pack today. All eyes are on the FOMC meeting, new projections and press conference on Wednesday, with most analysts not expecting the taper talk dial to be moved. The Fed’s forecasts for inflation especially will need to be upgraded so it will be interesting to see how Chair Powell balances this with the recent policymaker chatter about “talking about talking about tapering”.


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EUR/USD touched once-month lows Friday and neared that 1.2092 mark today, but the 50-day SMA is proving handy support so far. The 1.21 handle is also where the early June low and a Fib level of this year’s high and low move sit. If dollar bulls get any hint of the Fed reigning in bond buys, the 100-day and 200-day SMA reside above and below 1.20 which will be their first target. A more sanguine outlook by Jay Powell will see more range trading as Summer, football and other sporting events provide potentially more excitement.

Oil kicks on

Brent hit new cycle highs above $73.50 today with the reports last week that the US had lifted sanctions against a former Iranian oil official a distant memory. Sanctions are still in place with last week’s US inflation data providing support to oil and the broader commodities complex as investors turn to the asset class as an inflation hedge.

With Brent edging higher and past this year’s high at $71.28, the next target for bulls is the April 2019 spike high at $75.58. before May 2018 and July 2018 resistance around the $79/80 level. It seems like prices will need to drop below the previous breakout level around $70 for there to be any kind of bearish turnaround.

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