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MTrading Team • 2022-04-06

Fedspeak joins Ukraine woes to propel USD

Fedspeak joins Ukraine woes to propel USD

Risk aversion returns to the table on Tuesday, also keeping markets under pressure during early Wednesday, as a hawkish speech from Federal Reserve (Fed) Vice President Lael Brainard showed readiness for strong action. Also weighing on the mood were upcoming sanctions on Russia from the European Union (EU) and the US.  Additionally, worsening virus conditions in China and mixed PMIs gave extra reasons for traders to turn cautious.

The risk-off mood drowned Wall Street, with technology shares losing more than the recent gains amid strong yields. Asia-Pacific tracked their US counterparts with added negatives from China while equities from Europe and the UK remain mildly offered by the press time.

Stronger yields favor the USD Index (DXY) to refresh its 23-month high, which in turn dragged the prices of gold and Antipodeans while also fueling USDJPY to a one-week high. Brent oil prices remain firmer amid expectations that the US-Iran deal is far and keep the supply crunch fears on the table.

Cryptocurrencies also reported the biggest daily loss in over a week as bulls finally retreated after days of trying to keep the reins.

Following is the detailed performance report of the key financial assets:

  • BRENT OIL stays firmer with 1.40% intraday gains around $107.00.
  • GOLD remains mildly offered at around $1,920.
  • USD INDEX  prints five-day uptrend around 99.65 rate, up 0.20% intraday.
  • DOW JONES, NASDAQ and S&P 500 closed in the red with Nasdaq losing over 2.0%.
  • DAX drops 0.80% reaching 14,360 rate whereas FTSE 100 reaches 7,610 level, up 0.20% intraday.
  • BTC/USD remains downbeat around $45,350, ETH/USD also over 1.50% to $3,350 rate.
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Fed’s balance sheet reduction hints add to the market fears

On Tuesday, Fed Vice Chair Clarida signaled a combination of rate hikes and balance sheet reduction measures if inflation keeps hurting the investors. Her comments were backed by San Francisco Fed President Mary C. Daly and were enough for Wall Street to reverse recent gains and add more losses. The hawkish Fed comments joined mixed US PMIs to fuel the US Treasury yields, which in turn pleased the US dollar bulls.

Elsewhere, the EU is up for more sanctions on Russian energy imports and the US crackdown on Moscow extends, which in turn sour the mood. Furthermore, China’s covid conditions keep challenging the commodity traders and Antipodeans due to the dragon nation’s status as the world’s largest industrial player.

While firmer USD weighed on commodities and Antipodeans, downbeat equities acted as an extra challenge for the crypto traders and allowed the BTCUSD and the ETHUSD to print heavy losses.

On the other hand, oil prices remain firmer as dimming hopes of the US-Iran deal and worsening conditions for Russian energy flow keep the black gold prices firmer.

Current trends

Weaker risk appetite requires traders’ cautious mood ahead of the key data/events:

⏫ 🟢 Strong buy: USDJPY

⏬ 🔴 Strong sell: DOW JONES, S&P 500, DAX, FTSE 100, and BTC/USD

⬆️ 🟢 Buy: USD Index, ETH/USD, Nasdaq

⬇️ 🔴 Sell: Brent oil, Silver, Gold

Risk headlines can keep risk-takers at the bay, FOMC Minutes also eyed

Sour sentiment continues to weigh on the market and is likely to remain for a bit longer until the fresh headlines concerning Russia-Ukraine peace talks impress traders. Even so, the Fed policymakers keep rate hikes and balance sheet reductions on the table and may weigh on the risk appetite. As a result, riskier assets like equities, commodities and Antipodeans may remain weak.

That said, today’s FOMC Minutes may offer extra directions to the markets and hence become important to watch, in addition to the geopolitical and covid headlines.

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