Risk profile improved after softer US inflation, gold rallied

A softer-than-expected US CPI confirmed the market’s hopes of an easy Fed rate hike and triggered the market’s risk-on mood the previous day, also during early Friday. In doing so, the traders ignored risk-negative headlines surrounding China’s covid conditions and the cautious mood ahead of the meeting between US President Joe Biden and Chinese President Xi Jinping.

With this, the US Dollar Index (DXY) slumped to the lowest levels in 11 weeks, which in turn allowed the buyers of EURUSD and gold to cheer the fresh run-up. AUDUSD is the biggest gainer among the G10 currency pairs due to its risk-barometer status while USDJPY occupies the other end amid chatters surrounding BOJ and Japan’s meddling to defend the yen.

Wall Street benchmarks posted the biggest daily gains in nearly 30 months and the Asian equities were positive too. That said, their European and British counterparts began the day on a greener side.

Even so, the cryptocurrencies failed to benefit from the firmer sentiment amid the FTX fiasco.

Following are the latest moves of the key assets:

• Brent oil gains 3.0% to extend the previous day’s rebound above $97.00.
• Gold remains firmer around the highest levels since late August, mildly bid near $1,760 of late.
• USD Index pokes a three-month low, down 0.13% near 107.80 by the press time.
• Stocks in Europe and the UK firmer while tracking Wall Street’s biggest daily gains in 2.5 years.
• BTCUSD and ETHUSD are exceptions to the risk-on play as they print mild losses near $17,300 and $1,270 as we write.

Markets were right!

The talks of the Fed’s pivot proved right and bolstered the investor’s confidence after the US CPI dropped to the lowest levels since March. Also adding to the optimism were softer prints of the Core CPI. As a result, the hawkish Fed bets took a U-turn and drowned the US dollar.

Contrasting to the US inflation-led optimism, China’s daily covid numbers jumped to the highest in seven months while those from Beijing refreshed more than a year top. The same joined virus updates from Europe, Australia and Japan to challenge the optimists. Furthermore, chatters surrounding Taiwan and the US-China headlines over the same ahead of the Biden-Xi meeting also probed the risk profile. Additionally, bank holidays in the US and Canada also tried to restrict the market’s upbeat sentiment, but failed.

Amid these plays, the US dollar marked the much-needed pullback and the equities rallied. Further, prices of Gold and crude oil were also positive but AUDUSD was the biggest gainer. 

It’s worth mentioning that the UK’s mixed data dump, including the softer-than-forecast contraction of the Q3 GDP, also tried to act as an additional filter to the GBPUSD pair’s trading but couldn’t gain major attention.

Elsewhere, BTCUSD and ETHUSD traders had to bear the burden of looming FTX bankruptcy and higher regulations.

⏫ 🟢 Strong buy: USDJPY

⏬ 🔴 Strong sell: ETHUSD

⬆️ 🟢 Buy: USD Index, USDCAD, Nasdaq, EURUSD

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

US sentiment data eyed

Although the risk-on mood is likely to prevail amid an absence of major data/events, details of the US Michigan Consumer Confidence survey for November will be watched as an extra confirmation of the dovish bias over the Fed’s next move. If the survey update suggests no major change in the inflation outlook, which is least expected, the US dollar may pare some of its latest losses.

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