The US dollar index climbed to the 95.2 area as the US Federal Reserve signalled no change in its tightening trajectory if the US economy stays on track, despite President Trump’s earlier criticism about the strong dollar.

Right now, market participants are pricing in a 90% chance of a Fed rate hike at the September FOMC meeting. Meanwhile, the central bank also acknowledged that trade disputes are the main source of risk and uncertainty. Technically, 95.2 is a key support level for the dollar index.

Risk sentiment across the globe continued to improve this week as US and China officials are back to the negotiation table following a two-month stand-off, bringing fresh hope to the market that a massive trade war can be contained or even resolved in a diplomatic way.

Separately, the 10-year and 2-year US treasury yield spread has tightened further to 22bps, the lowest level seen since year 2007. As the short-term treasury yield rises faster than the long-term yield, the treasury curve is getting flatter. If this scenario carries on alongside Fed rate hikes, we may soon see an inverted curve, which is widely interpreted as an early indicator of economic downturn. 

A weaker dollar has allowed a rebound in emerging markets over the last four days. The sustainability of this momentum is largely dependent on the direction of the dollar. The weaker dollar also led to a strong rebound in crude oil prices as well as the gold price.

The Hang Seng Index advanced for a fourth day to the 27,900 area, but the overall trend remained bearish with its SuperTrend (10,3) and 10-Day SMA both sloped downwards. Its immediate resistance level can be found at around 28,800 (38.2% Fibonacci retracement).

In Singapore, the Straits Times Index rallied 43 points, or 1.37% this morning, largely due to the advance in SingTel (+4.8%) and DBS (+1.7%). A 3% rebound in crude oil prices last night also lifted Singapore’s offshore and marine stocks, namely Sembcorp Marine and Sembcorp Industry.

Hong Kong 50 - Cash chart

By Margaret Yang in Singapore

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