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MTrading Team • 2022-07-27

Pre-Fed positioning weighs on the USD but sentiment remains mixed

Pre-Fed positioning weighs on the USD but sentiment remains mixed

Risk-aversion ebbs as traders brace for the Fed’s 0.75% rate hikes during early Wednesday. In doing so, the market participants also ignore Wall Street’s losses, as well as the recession fears amid hopes that the FOMC may repeat the recent risk-on instances even after the higher rate lifts. Further, headlines surrounding China and Europe’s gas crisis also underpinned the corrective pullback in the mood.

It’s worth noting, however, that the AUDUSD fails to cheer the softer US dollar due to downbeat Aussie inflation data. EURUSD and USDCAD were major gainers and so do oil prices as traders await the Fed’s verdict. 

Gold also teases buyers to trigger the much-awaited rebound from the yearly low, despite getting fewer acceptances.

BTCUSD and ETHUSD benefit from the US dollar weakness as both the key cryptocurrencies rebound from a one-week low. However, the upside momentum remains defensive.

Following are the latest moves of the key assets:

  • Brent oil reverses pullback from a one-week high, up 0.80% intraday near $105.30 at the latest.
  • Gold snaps two-day downtrend while picking up bids near $1,720.
  • USD Index pares the biggest daily losses in two weeks around 107.00, down 0.15% intraday by the press time.
  • FTSE 100 gains 0.70% but Eurostoxx and DAX both print around 0.30% intraday upside at the latest.
  • Wall Street closed in the red with Nasdaq’s 1.87% loss leading the bears.
  • BTCUSD rises 0.64% to $21,400 while the ETHUSD’s recovery dribbles around $1,475, up 1.55% daily at the latest.
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Bulls should wait for the Fed

The US dollar’s weakness joins firmer Treasury yields to underpin the rebound in the US stock futures and the Asia-Pacific shares. However, the markets aren’t out of the woods as fears of global slowdown and skyrocketing inflation remain on the table. That said, recent headlines that the European policymakers may manage to keep the bloc’s economy afloat and the US-China talks could resolve differences among the world’s top two economies appear to have backed the cautious optimism.

Even so, neither the US dollar weakness nor the mildly positive sentiment could underpin the AUDUSD pair’s rebound as Australia’s Q2 inflation data fails to match upbeat forecasts.

On the other hand, EURUSD and USDCAD could benefit from the softer USD, as well as a rebound in the oil prices, as traders prepare for the Fed’s another heavy rate increase.

Cryptocurrency buyers, however, remain cautiously optimistic as news that the US watchdog examines payments in great detail.

⏫ 🟢 Strong buy: USDCAD

⏬ 🔴 Strong sell: Nasdaq, silver, ETHUSD

⬆️ 🟢 Buy: USD Index, USDJPY

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

All eyes on Fed’s Powell

Today’s FOMC meeting is crucial for Fed Chairman Jerome Powell as the previous verdicts have failed to tame inflation and rather made fun of the key person while fueling the equities after the decisions. Also highlighting the importance of the event is the market’s hopes of the 100 bps rate hike versus the Fed’s readiness for a 0.75% increase.

Other than the Fed’s monetary policy meeting, US Durable Goods Orders and housing data will also be important for today’s market moves.

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