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MTrading Team • 2022-07-21

Markets appear dicey ahead of ECB, Russia’s Nord Stream 1 restoration weighs on oil

Markets appear dicey ahead of ECB, Russia’s Nord Stream 1 restoration weighs on oil

Global markets portray the typical pre-ECB volatility during early Thursday. The latest news from Russia’s Nord Stream 1 activated a risk-on mood after witnessing sour sentiment due to the recession fears, published earlier in the day.

Bank of Japan (BOJ) failed to impress traders even with its quarterly economic outlook as the Japanese central bank kept its monetary policy unchanged. 

China’s covid woes also played their role to tame the market’s optimism and so did fresh fears of economic contraction in the Eurozone led by Germany.

US dollar struggles to defend the previous day’s corrective pullback as traders brace for the ECB but the prices of gold and oil remain pressured. Cryptocurrencies also returned to the bear’s table after the previous weekly gain as smart money leaves the boat.

Following are the latest moves of the key assets:

  • Brent oil extends the previous day’s pullback from weekly top, down 1.90% at $105.40 by the press time.
  • Gold drops 0.50% intraday to refresh yearly low around $1,685.
  • USD Index prints mild gains around 107.20, up 0.15% intraday at the latest.
  • FTSE 100, STOXX50 and DAX are all printing mild losses after an upbeat start of the day.
  • Wall Street closed with mild gains but the bulls retreated by the end of the day.
  • BTCUSD declines 1.3% intraday as it break $23,000 mark while ETHUSD remains pressured around $1,500, down 2.5% intraday.
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Nord Stream 1 pleases buyers ahead of ECB

Even a partial restoration of gas supplies to Europe, by Russia’s Nord Stream 1 pipeline, triggered a risk-on mood earlier on Thursday. However, fears of a major setback for the bloc, in terms of Russian gas supplies, join the recession chatters to weigh on the market sentiment. The risk-off mood also takes clues from the latest forecasts of the International Monetary Fund (IMF) and the Asian Development Bank (ADB).

Above all, the pre-ECB caution dominates the traders’ minds as forecasts suggest a 0.25% rate hike and the markets have already priced in the 50 bps increase. Hence, the latest pullback in sentiment could be the preparations for a bleak outcome.

With this, the US dollar struggles to extend the bounce off a two-week low even as the US 10-year Treasury yields refresh a fortnight peak. This in turn drowns the AUDUSD and NZDUSD while also exerting downside pressure on the commodities.

Gold remains depressed at around yearly low and Crude oil has an additional burden to bear, in the name of Nord Stream 1. Further, USDJPY printed a three-day uptrend as BOJ left monetary policy unchanged and the quarterly outlook report hinted at firmer inflation, as well as growth fears.

Elsewhere, cryptocurrencies couldn’t be saved either as the market’s fears of more regulations and recession joined Tesla’s results that revealed a bumper sale of Bitcoin by the firm.

⏫ 🟢 Strong buy: USDCAD

⏬ 🔴 Strong sell: Nasdaq, silver, ETHUSD

⬆️ 🟢 Buy: USD Index, USDJPY

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

ECB is the key

Hopes that the ECB will disappoint markets appear to keep the US dollar on the front foot but the bloc’s leaders have been hawkish of late, which in turn hints at the risk of positive surprise and the Euro’s rally. Hence, traders should remain cautious and expect huge volatility during today’s ECB and should use discretion while trading.

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