Pre-Inflation woes weigh on risk profile, USD pares weekly gains but oil extends losses

Financial markets affected by news on June 10

Having failed to cheer the ECB’s “limited” hawkish edition, global markets remained jittery amid anxiety ahead of the US Consumer Price Index (CPI) data for May. Also weighing on the mood were fears emanating from global central bankers’ comments portraying economic and inflation fears. Further, China’s covid fears joined mixed inflation data from the dragon nation to add to the risk-aversion.

The US dollar, however, fails to cheer the risk-off mood amid fears of disappointment from today’s inflation data as markets have high hopes of a firmer number. Also drowning the greenback are sluggish US Treasury yields.

Wall Street posted the biggest losses in a week and pressured markets in the Asia-Pacific region. The sour sentiment could also be witnessed during early Europe/UK trading.

Gold remains depressed and so does the Brent oil amid fears of global recession while NZDUSD leads the G10 buyers amid expectations of a faster RBNZ rate hike as softer NZ data allows the New Zealand central bank to act freely.

Cryptocurrencies portray a widening divide from the stocks but fail to cheer reports of rapid adoption.

Following is the list of major assets’ latest performances:

  • Brent oil extends pullback from three-month high while dropping for the second consecutive day, down 0.5% near $122 at the latest.
  • Gold stays pressured at around $1,840, eyeing the second weekly fall.
  • USD Index dribbles around 103.20 as bulls pause near three-week top.
  • FTSE 100 drops 0.20 but EUROSTOXX50 and DAX are down around 1.8% each amid market pessimism.
  • Wall Street benchmarks posted the week’s biggest losses on Thursday, led by 2.75% daily loss of the Nasdaq.
  • BTCUSD and ETHUSD oscillate around $30,000 and $1,800 in that order.

Fears dominate the markets but USD retreats

Be it the ECB’s downgraded economic forecasts or comments from the policymakers of the Bank of Canada and the Bank of Japan, not to forget US Treasury Secretary Janet Yellen, everything increases the pessimism surrounding the global economy. Adding to the risk-off mood were the fresh activity restrictions in Shanghai and Beijing, due to the covid resurgence, as well as the ongoing Russia-Ukraine crisis and cautious mood ahead of the US inflation release.

US Dollar Index (DXY) takes a U-turn from a three-week high to print the first daily negatives in three, which in turn allowed Antipodeans to pare weekly losses. However, prices of commodities like gold and crude oil fail to improve amid concerns surrounding the economic slowdown.

Equities posted a loss due to the risk-aversion wave but BTCUSD and ETHUSD remain sluggish for the second consecutive day, portraying a reduction in the correlation between stocks and cryptos that previously roiled the E-currencies market. Also supporting the cryptos were reports from Blockware Intelligence that suggests 10% adoption of such currencies by 2030, more than automobiles and electric power.

⏫ 🟢 Strong buy: USDCAD, USDTRY and USDCNY

⏬ 🔴 Strong sell: Nasdaq, silver, ETHUSD

⬆️ 🟢 Buy: USD Index, USDJPY

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

US CPI to pave the way for next week’s Fed action

The White House has already pushed the Fed for a hawkish appearance during the next week, via hopes of higher inflation numbers due to rising energy prices. However, the market consensus for May suggests otherwise. Also increasing excitement for the US CPI data are the inflation expectations that seesaw around a three-month high. Hence, today’s US price pressure figures will be crucial as the Fed’s September move suggests a divide between the market’s 50 bps expectations and the Fed’s 25 bps signals.

Should the inflation data arrive as fears, the risk-aversion will be amplified and could help the US dollar to regain its upside momentum, which in turn might drown the prices of gold, crude oil and Antipodeans.

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