Tech Earnings & AI

USD remains soft midweek as traders await clarity on several factors. The recent AI stock rout has left USD vulnerable with a big hit to near-term Fed tightening expectations despite the recent strength in US inflation data. AI funding fears rocked markets and as stocks plunged last week, so too did USD on the premise that market turmoil creates a strong barrier against near-term Fed tightening. While AI stocks have stabilised for now, a slew of big tech names reporting Q3 earnings this week presents big risks. If we see any weakness in those earnings, particularly in relation to AI business, this could revive the selling we saw last week, putting fresh pressure on USD as traders start to rethink December tightening expectations. On the other hand, if earnings come in strong, this could revive AI stocks, helping lift USD though October rate hike expectations should remain unchanged here.

Oil Flows

Oil prices are also a key input for USD though the recent AI issue looks to have dented USD’s ability to rise on a fresh oil rally given that near-term Fed tightening expectations remain muted. However, downside moves in oil are clearly impacting USD lower, seemingly strengthening the dovish repricing in near-term Fed rates expectations. As such, any news of fresh negotiations or a ceasefire between the US and Iran could pull USD lower via that same channel.

Technical Views

DXY

The index is continuing to drift lower beneath the 101.91 level here, fast approaching a retest of the broken bear trend line from summer highs and the bull channel lows. More broadly while price holds above the 100 level, focus is on an eventual resumption of the uptrend and a move to 103.20 next. For now, while 101.91 caps, further corrective action looks feasible.