Stocks hover near records, Consumer Sentiment plummets, Dollar divided fundamentals

US stocks remain near record levels as Americans prepare for a long weekend.  Liquidity remains thin as most of Asia celebrates the Lunar New Year holiday.  Today’s lone data point was a surprise drop in US consumer sentiment.  The preliminary University of Michigan sentiment reading came in at 76.2, lower than both the consensus estimate of 80.9 and the prior reading of 79.0.  Wall Street was more focused on inflation expectations which saw the 1-year surge to 3.3%, a 7-year high.  The Fed has nicely telegraphed they are expecting a jump in yields, so financial markets will be comfortable with some hotter readings.  The key test will be in the summer if we continue to see US growth exceptionalism.

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Trading the dollar just got a little bit more complicated.  The Biden administration is nearing the passing of at least $1 trillion in COVID relief and starting infrastructure spending, but the dollar refuses to break as investors become fixated with the surge in Treasury yields.  US growth exceptionalism and a shift on how high the curve will steepen could mean the dollar might have some short-term strength.

The dollar is in for some pain this year as the long-term drivers of an enormous amount of stimulus, ballooning deficit, and the expectations that the Fed will be the last major central bank to move rates higher, will not change anytime soon.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geopolitical events and monetary policies around the world.

Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news.

Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC and Bloomberg, and is often quoted in leading publications including the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University.