This looks to be a bit of a breather after the action on Thursday and Friday mostly, which saw the dollar hold its ground while stocks suffered a beat
This looks to be a bit of a breather after the action on Thursday and Friday mostly, which saw the dollar hold its ground while stocks suffered a beating. European indices are up around 0.3% to 0.6% on the day, but that comes off the back of 2% to over 3% losses last week. Meanwhile, S&P 500 futures are up 8 points, or 0.2%, on the day currently.
Despite the light bounce, the technical overview for equities is quite ominous after having seen the S&P 500 broke below its 100-day moving average last week:
The double-top pattern near 4,100 suggests a breakdown towards 3,760 next potentially.
As for the dollar, some slight weakness today puts into consideration some key levels as noted earlier in the posts below:
But as we move towards the Christmas holiday, thinner liquidity conditions will make it tough to really read into the market moves as a whole. Even today, there is a bit of a mixed picture with bonds falling as we see 10-year Treasury yields hold higher by 3 bps to 3.52%.
The move higher in Japanese bond yields earlier in the day has helped somewhat with the move, amid chatter that the government and BOJ might look to revise its joint statement on policy and inflation
Inflation
Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market. Read this Term target/outlook.