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Denis Sergienko • 2022-09-08

Global markets dribble, DXY retreat as ECB, Fed’s Powell loom

Global markets dribble, DXY retreat as ECB, Fed’s Powell loom

US dollar extends pullback from 20-year high as the big day is finally here! The risk appetite improves amid hopes that the ECB may not be able to sound too hawkish and Fed Chair Powell might also have nothing major to support except for the 0.75% rate hike in September, which is already priced in.

The resulting moves help EURUSD to defend the previous day’s bounce off the yearly low while USDJPY remains pressured on downbeat yields. Even so, AUDUSD and NZDUSD hold lower grounds amid the market’s cautious mood ahead of the key ECB and Fed Chair Jerome Powell’s speech.

China’s covid woes and the Sino-American tension are extra filters that stop the optimists even as firmer statistics from the major economies push back recession woes.

Prices of gold and crude oil improve on the US dollar’s weakness but those of BTCUSD and ETHUSD keep the red.

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Following are the latest moves of the key assets:

  • Brent oil bounces off the lowest levels since late January, up 0.7% intraday near $89.40 at the latest.
  • Gold stays defensive around $1,720 after rising the most in a month the previous day.
  • USD Index struggles for clear directions below 110.00 after retreating from 20-year high.
  • DAX, FTST and Eurostoxx all remain indecisive with mild gains.
  • Wall Street marked a notable recovery led by Nasdaq’s 2.14% daily gains.
  • BTCUSD remains pressured around $19,200 while ETHUSD sellers also attack $1,600 mark by the press time.

Pre-event consolidation?

Markets reverse the course of action ahead of crucial events lying ahead. In doing so, the yields retreat from the monthly top and take the US dollar with it to step back from a two-decade high. The same helps commodities to lick their wounds but the Antipodeans fail to cheer the corrective bounces thanks to China.

Firmer prints of Eurozone GDP, US/Canada trade numbers and Japan’s GDP are likely favoring the sentiment of late. Even so, the hawkish bets on the ECB and the Fed seem to tame the optimism and so does the energy crisis in the bloc.

Stimulus from the UK, Europe and Washington are also on the positive side, not to forget China’s determination to restart the stalled housing schemes.

It should be noted that the cryptocurrencies also rebound as a softer USD joins optimism surrounding Ethereum’s Merge. Even so, whales liquidate heavy BTC holdings and challenge the positive vibes.

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

A nail-biting day ahead…

Although it is almost given that the European Central Bank (ECB) is ready to announce a 0.75% rate hike and Fed Chair Powell will defend further rate hikes, the ECB’s economic projections and Powell’s tone of speech will be crucial for near-term directions. The reason could be the recent positive data and the expectations of more stimulus. Should the policymakers highlight recovery hopes, the odds of witnessing further downside of the USD and extended run-up in commodities can’t be ruled out.

May the trading luck be with you!