Market reviews

Although the US dollar index is now easing away from overbought conditions, it’s still trading around a two-month high.

The drama of the fiscal situation in the world’s biggest economy continues to be front and centre in the minds of investors.

The market’s twin themes of a debt ceiling resolution and the chances of a Fed pause at its June meeting will again drive price action this week.

The dollar is breaking higher today after recent consolidation of last week’s gains and its advance from a base built up over the last few weeks.

From a technical perspective, the USDInd has clambered back above its 50-day simple moving average (SMA), which is now being relied on for immediate support.

It’s CPI day, which means markets have been relatively subdued ahead of this marquee risk event.

The prospects of more BOE hikes relative to the Fed should help GBPUSD decisively overcome the 1.265 resistance.

Hawkish guidance by President Lagarde, perhaps relatively more hawkish than the Fed, may help bolster EURUSD later in the week.

Bloomberg’s FX model now points to a 73% chance that EURUSD will trade within the 1.0863 – 1.1135 range over the next one-week period.

FX markets have been relatively quiet in recent sessions though the bout of selling in US stocks overnight sparked a bid for the dollar.

However, the USD index is now resurfacing back towards its 21-day simple moving average (SMA), with this technical indicator having guided this dollar index lower in recent sessions.

It has the potential to be a volatile middle of the week with key data, a central bank meeting and the minutes from the most recent FOMC meeting all set to hit markets within a few hours of each other.

The debate around Fed rate hikes will be further guided by the latest US CPI data released on Wednesday, in a week that also features these potential market-moving events:

The world’s premier reverse currency is now down around 4% off its peak from early March just before the banking blow-ups.