Fed, ECB to keep traders on their toes, US dollar drifts lower

Cautious optimism prevails in the market ahead of the key central bank meetings. The bulls, however, remain cautious as hawkish bets are on the rise.

Mixed sentiment joined China and Japan’s bond-buying to weigh on Treasury yields, which underpinned the US dollar pullback.

EURUSD joins gold prices to cheer the softer USD but crude oil struggles to rebound amid growth fears. Antipodeans consolidate recent losses as traders brace for higher rates.

BTCUSD and ETHUSD fail to benefit from the greenback’s weakness amid fears of further drawdown.

Following are the latest moves of the key assets:

  • Brent oil stays defensive at around $121.00, grinding higher after refreshing the monthly top the previous day.
  • Gold looks set for the biggest daily gain in a week, up 0.70% intraday near $1,820.
  • USD Index reverses from the fresh high since 2002, down 0.50% around 105.00.
  • FTSE 100 gains 0.33% while DAX and EUROSTOXX50 are up around 0.50% each.
  • Wall Street benchmarks traded mixed on Tuesday but bears kept reins.
  • BTCUSD and ETHUSD remain pressured around multi-month low, dropping 6% and 10% in that order, as sellers attack $20,700 and $1,100 levels.

ECB surprise intensifies pre-Fed anxiety

Global markets portrayed a relief rally during early Wednesday as softer yields joined upbeat China data to favor intraday buyers, or maybe help position for the key events. Even so, ECB’s surprise meeting joins the Fed’s likely 75 bp rate hike chatters to weigh on the market’s optimism.

Escalated bond-buying from China and Japan added to the yields’ retreat and drowned the US dollar. The hopes of a hawkish outcome from the ECB also exert downside pressure on the greenback.

US dollar weakness allowed EURUSD to extend the previous day’s rebound from the monthly low ahead of the ECB while Antipodeans got an additional booster from China’s upbeat Retail Sales and Industrial Production to favor bulls.

It’s worth noting, however, that crude oil prices fail to impress buyers amid fears of a slowdown in demand due to incoming tighter monetary policies, as well as fresh covid fears from Asia. Though, the US dollar weakness puts a floor under the black gold prices.

BTCUSD and ETHUSD remain pressured around the lowest levels in 18 and 17 months respectively as CoinBase’s retrenchment join a swift sale of 65,000 ETH on Uniswap.

⏫ 🟢 Strong buy: USDCAD, USDTRY and USDCNY

⏬ 🔴 Strong sell: Nasdaq, silver, ETHUSD, Brent oil

⬆️ 🟢 Buy: USD Index, USDJPY

⬇️ 🔴 Sell: DAX, FTSE 100, gold, BTCUSD

Central bankers, US data to offer a busy day

Although the Fed is more likely to disappoint markets than ECB, considering aggressive hopes favoring a 0.75% rate lift, any surprises from Jerome Powell won’t be taken lightly and can roil the market’s latest cautious optimism.

Also important are the US Retail Sales for May and NY Fed Manufacturing Index, not to forget chatters surrounding Brexit.

To sum up, multiple data/events are likely to offer a busy day ahead, which in turn requires traders’ discretion even if the risk-aversion is up for a return.

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