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Global Rally In Need of Fresh Legs

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Taking the lead from the US, Asian markets moved higher, hitting one month highs. As with Wall Street signs of fatigue set in as investors questioned the US and Chinas ability to reach a deal and resolve the ongoing IP issues.

Sentiment is greatly improved, and trade talk optimism has helped boost risk appetite across the week. However, traders are acutely aware that there is a lack of anything concrete between the US and China. The reality is that whilst both sides are working hard for a deal, there is a huge amount of ground to cover. Any deal right now would need to be extremely far reaching. The market wants to see more, which could stall the rally quickly.

Dollar drops on dovish Powell

The dollar stayed on the back foot overnight, as traders continued to digest further dovish commentary from Fed Chair Powell. Just last month the Fed was looking to hike 2-3 times across the year and now there are growing indications that they could instead pause the hiking cycle. Fed Chair Powell reiterated on Thursday evening the Feds flexible outlook, with softer inflation enabling the central bank to adopt a wait and see approach.

US CPI to drag dollar lower?

The release of US inflation numbers later today could provide the market with further evidence in support of Powell. Inflation was riding at 2.2% in November, it is expected to have fallen to 1.9% year on year. On a monthly basis inflation is expected to have declined -0.1%. Prints at these levels or weaker would be music to the ears of dollar bears. Meanwhile US stocks could rally on the prospect of borrowing costs remaining stable, or in fact decreasing if the Feds Vice Chair Clarida is to be believed.

Richard Clarida reinforced the Feds message of patience. He added that the Fed was prepared to take action if necessary, to protect the US economy from global crosswinds.The change in stance from the Fed has felt quite abrupt and the dollars sell off has reflected this. The greenback is trading some 2% lower versus a basket of currencies than it was as recently as December.

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About the author

Jasper joined the market analyst team in the London office in 2016, and has accumulated over ten years experience working in the financial markets.
He delivers regular commentary, seminars and webinars on market news, trading analysis, strategyand psychology. He is regularly interviewed by BBC News, Bloomberg, CNBC and Sky News, and has featured in The Times, Guardian and Daily Telegraph.

Before joining LCG, Jasper worked as a market analyst and as a market strategist at two other well-known broker-dealers in the City of London and on Wall Street.
He writes a widely-followed daily market wrap, plus commentaries on US, European and UK stock markets, FX and commodities. Jasper also hosts a weekly charting analysis webinar.
Jasper uses both technical and fundamental analysis. Fundamental analysis includes taking apart company earnings reports as well as reviewing economic data and the moves from central banks.
From a technical perspective he uses a systematic, trend following approach to trading. This typically involves a blend of price-action orientated trend and pattern analysis with the relative strength index (RSI) technical indicator to confirm changes in momentum.
He is qualified as a Chartered Market Technician (CMT) with the Market Technician Association, and has a degree in Finance and Economics.

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