Fears of recession, central bank aggression propel US dollar, drown oil prices

Risk-aversion amplified during early Wednesday as fears of economic slowdown joined hawkish bets on the major central banks’ next moves. Sour sentiment propelled the US Dollar Index (DXY) to refresh its two-decade high but the EURUSD remains mildly offered around the multi-year low marked the previous day as traders await ECB and a speech from the Fed’s Powell.

That said, the Treasury yields also portrayed the market’s rush for safety and fuelled the USDJPY towards the highest levels since 1998. Further, data from Australia and China failed to provide any clear hints as risk-aversion kept the driver’s seat.

Prices of gold remained pressured while crude oil dropped to the lowest since late February amid fears of less energy demand due to the economic slowdown.

Cryptocurrencies are also not immune from the downbeat risk profile and marks losses around multi-day low.

Following are the latest moves of the key assets:

• Brent oil stays depressed near six-month low, down 1.0% at $96.00 by the press time.
• Gold struggles around $1,700 after two-day downtrend.
• USD Index rose to a fresh high since late 2002 before easing to 110.22.
• FTSE remains indecisive with mild losses but DAX and Eurostoxx drop nearly 0.50% on a day by the press time.
• Wall Street marked losses on Monday wherein Nasdaq dropped 0.74% daily.
• BTCUSD remains pressured around $18,800 while ETHUSD drops more than 2.0% as bears attack $1,500.

Economic pessimism, rate hike woes in focus

While the energy crisis and covid woes were on the top to amplify recession woes, fears of higher rates strengthened the risk-off mood and propelled the US dollar’s demand. The greenback also benefited from Tuesday’s upbeat ISM PMI, as well as hopes of 0.75% Fed rate hike.

EURUSD, however, resisted declining further as the market’s bets on the ECB’s 0.75% rate hike put a floor under the prices. USDJPY, on the other hand, had to rise further on firmer yields.

Further, mixed Aussie GDP and downbeat China trade figures weighed on prices of AUDUSD and NZDUSD, not to forget propelling the USDCNH run-up. Additionally, USDCAD also appeared cautiously bullish ahead of today’s BOC meeting.

On a different page, gold remains depressed around the yearly low and oil impressed bears at the seven-month bottom.

BTCUSD dropped back to a yearly low while ETHUSD pokes 100-DMA support around a one-week low.

• Strong buy: USDJPY
• Strong sell: ETHUSD
• Buy: USD Index, USDCAD, Nasdaq
• Sell: DAX, FTSE 100, gold, BTCUSD

Eyes on BOC, Fed policymakers and BOE’s Bailey

While the risk-off mood could keep the US dollar on the front foot, USDCAD may witness a pullback if the Canadian central bank surpasses market expectations of 0.75% rate hike, after 1.0% rate lift in the last meeting. Also, BOE Governor Bailey will face additional pressure as Liz Truss, an arch opponent of the British central bank’s slow response to inflation run-up. Furthermore, Fed speakers could amplify bullish bets on the next rate hike in September and may pave the hawkish ground ahead of Powell’s speech.

May the trading luck be with you!