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MTrading Team • 2022-05-17

Risk-on sentiment favors ex-USD currencies, gold, oil struggle ahead of Fed’s Powell

Risk-on sentiment favors ex-USD currencies, gold, oil struggle ahead of Fed’s Powell

Softer US data joined NY Fed President Williams’ comments, as well as covid-linked optimism in China, to extend the week-start risk-on mood during early Tuesday. Firmer UK employment figures add strength to the risk appetite while Antipodeans and commodities cheer softer. Further, Euro extends its recent rebound amid hopes of ECB rate hikes in July.

Traders’ optimism could well be witnessed in the Asia-Pacific equities, as well as in Europe, even as the Wall Street benchmarks closed mixed. However, prices of gold and crude oil struggle to acquire bids as traders remain cautious ahead of US Retail Sales and Fed Chairman Jerome Powell’s speech.

Cryptocurrencies also benefit from the softer US dollar, following a downbeat start to the week, but the gains are limited by doubts over regulations.

Following is the list of major assets’ latest performances:

  • Brent oil reverses from seven-week high to snap four-day uptrend, down 0.20% around $113.00.
  • Gold struggles to defend the previous day’s rebound from three-month low around $1,820.
  • USD Index prints three-day downtrend as sellers attack 104.00.
  • FTSE 100 rises half percent while DAX and EUROSTOXX50 both gain around 1.5% daily by the press time.
  • Dow Jones rose 0.08% but S&P 500 dropped 0.39% whereas Nasdaq slipped 1.20% on Monday.
  • BTCUSD and ETHUSD both add around 2.0% intraday as buyers battle $30,450 and $2,080 of late.
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Mild optimism favors riskier assets

Although China State Planner conveyed fears of more economic downturn, Shanghai released further details of unlock as it witnessed the third consecutive day of zero covid outside the quarantine area, which in turn allowed markets to bank upon the previous risk-on mood.

Earlier, downbeat prints of the US NY Fed Manufacturing Index joined hints of 50 bps rate hikes from the Fed to keep markets hopeful of no major contraction in the easy money, to strike a balance between inflation and growth.

Furthermore, Japanese policymakers repeated the need for further easy money while the UK’s strong employment data confirmed faster rate hikes by the Bank of England (BOE). As a result, the JPY and the GBP stand out for the run-up. Also underpinning the yen’s strength were firmer yields and equities. AUD also stood in the line as RBA Minutes hint at 40 bps increases in the Official Cash Rate (OCR).

Elsewhere, increasing market chatters over the ECB’s July rate lift favored the Euro while USDCAD couldn’t benefit from the softer US dollar as oil prices remain pressured amid fears of growth and no major challenges on the supply side.

BTCUSD and ETHUSD consolidate the previous day’s losses, the first of the three, as the downbeat USD joined hopes of balanced moves by the global central banks to battle the inflation. However, fears of more regulatory hardships and Portugal’s removal of tax benefits for cryptos probe the bulls.

⏫ 🟢 Strong buy: USDJPY, USDCAD

⏬ 🔴 Strong sell: Nasdaq, silver, AUDUSD

⬆️ 🟢 Buy: USD Index, GBPUSD

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

Fed’s Powell eyed

Moving on, US Retail Sales for April will be watched closely amid recently mixed signals over inflation and consumption. Even so, major attention will be given to Fed’s Powell as he repeatedly backed 50 bps rate hikes for the next two meetings, which markets doubt.

It should be noted that the Brexit announcements from the UK and the Russia-Ukraine updates, not to forget Eurozone GDP, are some extra catalysts that traders should track for clear directions.

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