FX.co ★ 27.05.2022: Wall Street picks up steam. Bullish trend or short-lived rally? USDX, USD/JPY, AUD/USD

At Thursday's close, the Dow Jones gained 1.5%. The NASDAQ rose by almost 3%. In today’s Asian session, the US stock index futures kept growing. Hence, the stock market is likely to log the best weekly performance since March. As we know, everything may change rather quickly. For instance, optimism may wane and investors will again start abandoning stocks. Apart from that, analysts believe that aggressive tightening is already slowing down the economy. It is still very early to talk about the resumption of the bullish trend on Wall Street. The current rally is likely to be short-lived. So, a 4% rise just helped the market escape a steep decrease.

Risk appetite also affected Forex. The US dollar has tumbled to monthly lows for the first time since April 25, heading for a second consecutive weekly decline. Save the inverse correlation with the stock market and risk-on sentiment, other negative factors are also dragging the US currency down. US Treasury yields are in the red. The euro approached its highest level since April 25. Rumors about a pause in monetary policy tightening in September are also extremely bearish for the greenback. It lost its appeal with traders as a safe-haven asset. An increase in Asian stocks pushed the greenback lower today. At the time of making the video, the US dollar index, which measures the strength of currency against six main rivals, fell to 101.69. However, analysts reckon that the US dollar has not peaked yet. For this reason, it may be fluctuating for some time between the support level of 101 and the resistance level of 105. On the intraday chart, the index was consolidating in the range of 101.43–101.75.

As for the dollar/yen pair, analysts are sure it has reached its peak. However, in the medium term, its trajectory will depend on inflation data. Whereas in the US, only inflation expectations are declining, Japan can boast of a real drop in inflation. Right before the opening of trading floors in Tokyo, the consumer price index for May was unveiled. The indicator slightly fell to 2.4% from 2.5%. The core CPI index, excluding food and energy prices, also notched a small change, rising to 0.9% versus 0.8% on the annual basis. Japanese Prime Minister Fumio Kishida also said that the recent spike in prices occurred because of rising energy prices worldwide. The central bank and the government of Japan still strive to achieve the 2% inflation target.

As the Bank of Japan remains solid on a dovish stance and makes no drastic changes, the yen is taking advantage of it. Over the past three weeks, the dollar/yen pair has been gradually declining. It moved away from a 2-decade high of 131.35 to 127.03 in the Asian session. The yen also gained momentum amid the difference between Japanese and US Treasury bond yields. However, risk appetite undermined demand for the yen as a safe-haven asset. A rise in stocks facilitated the growth of the dollar/yen pair. Yet, concerns about a slowdown of the global economy dampened the optimism of traders. As a result, the yen managed to assert strength versus the falling US dollar. As seen on Friday's intraday chart, the yen kept rising against the US dollar, moving in the range of 126.65-127.21.

Expectations of a pause in the Fed’s tightening cycle are increasing, which is bearish for the US dollar. The RBA is, on the contrary, more hawkish now, which is beneficial for the Aussie. In addition, the Aussie as a commodity currency climbed higher amid rising oil prices. However, they have declined slightly today after hitting a 2-month high in the previous session. Yet, they are still hovering at high levels. Investors also took notice of reports about possible negotiations between the United States and Taiwan on deepening economic ties. The Australian dollar advanced amid such news as well as the risk-on sentiment. The AUD/USD pair lifted up by 0.5%, trading today near 0.7141. It is clearly seen on the chart that the Aussie is moving in the bullish channel of 0.7089-0.7153.