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MTrading Team • 2022-05-04

Markets turn cautious ahead of Fed’s “widely expected” rate hike but BTC rebounds

Markets turn cautious ahead of Fed’s “widely expected” rate hike but BTC rebounds

Having witnessed a cautiously optimistic start to the “Fed Day”, the risk profile deteriorates as traders brace for the European open, amid hopes that the US central bank won’t diverge from market expectations of a 0.50% rate lift and provide clues of balance sheet normalization.

The sour sentiment recently underpin the US dollar buying while the gold prices also improved of late, due to the metal’s traditional safe-haven appeal. Also contributing to the risk-aversion, as well as helping oil prices to recover, are the headlines from Europe conveying a total ban on Russian energy imports within the next six months.

The cryptocurrencies, however, posted notable recovery moves amid specific news suggesting wider use of BTC and escalating interests of small investors.

Moving on, the US data relating to services activities and private employment can entertain traders ahead of the all-important FOMC.

Following is the list of major assets’ latest performances:

  • Brent oil picks up bids towards $108.00, up 1.65% by the press time.
  • Gold reverses early Asian losses with mild gains around $1,870.
  • USD Index remains mostly steady around 103.45-50.
  • FTSE 100 drops 0.15% while DAX and EUROSTOXX50 add 0.30% and 0.60% respectively.
  • Dow Jones and Nasdaq rose nearly 0.20% each while S&P 500 gained 0.48% on Tuesday.
  • BTCUSD rise 2.8% to approach $39,000 whereas ETHUSD adds 1.9% to $2,830.
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Ifs and Buts keep traders sticking to safe-havens

Although 50 basis points (bps) of a Fed rate lift is widely expected and priced in, traders juggle between how the US central bank will make the bold move notable while everything that’s going to happen is known. The anxiety could also be linked to the escalating inflation pressure and fears of economic slowdown if the easy money policies end abruptly.

The traders’ indecision helped Wall Street to print mild gains amid firmer US data and earnings, which in turn helped stocks in Asia-Pacific markets. However, holidays in China and Japan restrict the bond moves and exerted downside pressure on the US dollar before the latest rebound.

Retail Sales data from Australia and New Zealand’s mixed Q1 jobs report failed to impress markets but helped AUDUSD to stay positive, while also keeping NZDUSD under pressure.

Elsewhere CoinBase’s first BTC-backed loan and statistics showing small investors’ rising appetite for cryptocurrencies help BTCUSD and ETHUSD to consolidate recent gains.

⏫ 🟢 Strong buy: USDJPY, USDCAD

⏬ 🔴 Strong sell: Nasdaq, silver

⬆️ 🟢 Buy: USD Index, DOW JONES, S&P 500, brent oil

⬇️ 🔴 Sell: DAX, FTSE 100, gold, ETH/USD, BTC/USD, USD Index

Nothing matters more than the Fed

The recently announced EU sanctions and economic fears emanating from covid resurgence will add to the market’s rush for risk-safety, which in turn can put a floor beneath the US dollar, brent oil and gold prices. The same, however, may challenge the latest recovery moves of the riskier assets like AUDUSD, equities and cryptocurrencies.

It’s worth noting that the Fed’s actual move becomes all the more important than the forecasts after the RBA’s surprise. Should the FOMC members adhere to strong measures than are widely chattered, the risk-off sentiment will magnify.

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