Trading sentiment improves amid hopes of softer US inflation, greenback pares recent gains

Having witnessed multiple days of bears’ ruling, global markets consolidate gains ahead of the key US Consumer Price Index (CPI) data for April.

The cautious optimism takes clues from downbeat US Treasury yields and contrasting comments from the Fed policymakers, which in turn allow USD bulls to take a breather.

The US dollar pullback helped prices of gold and Brent oil to recover whereas Antipodeans also cheer the risk-on mood, backed by China’s upbeat inflation numbers and news from Shanghai local authorities.

Cryptocurrencies, however, fail to benefit from the softer buck amid fears of larger corrections on the road and expectations that regulatory hurdles won’t allow e-currencies to supersede the traditional ones.

Following is the list of major assets’ latest performances:

• Brent oil recovers from 12-day low, up 3.0% around $105.00.
• Gold takes a U-turn from three-month bottom as buyers flirt with $1,850.
• USD Index stays depressed below 104.00, snapping four-day uptrend.
• FTSE 100 rises 0.20% but DAX loses half a percent while EUROSTOXX50 remain indecisive around 3,575.
• Dow Jones dropped 0.26% but S&P 500 rose 0.25% whereas Nasdaq added 1.0% on Tuesday.
• BTCUSD and ETHUSD both remain pressured around $30,000 and $2,300 in that order.

Risk-on lures buyers but not all are happy!

Although Fed’s Mester reiterated woes of Fed’s 75 bps and tried to tame the bulls, comments from Bostic shrugged off the hawkish pressure and helped riskier assets to stabilize after heavy selling in the last few days. Softer US inflation expectations and Shanghai’s zero spread in eight districts were additional reasons for the upbeat mood.

As a result, US Treasury yields and the US dollar eased, allowing gold and crude to bounce off multi-day low, followed by prices of AUDUSD and NZDUSD. Firmer-than-expected China CPI and PPI added strength to the dollars of Australia, New Zealand and Canada. It’s worth noting that the recovery in Brent oil offered additional support to the CAD versus its US counterpart.

However, BTCUSD and ETHUSD fade from the previous day’s rebound from the lowest levels in 10 and four months respectively. The reason could be linked to the disappointment from CoinBase and Microstrategy, the key firms relying on cryptos. Additionally weighing on these non-traditional currencies were fresh fears that the US and China crackdown on cryptos won’t ease anytime soon.

Above all, the cautious mood ahead of the US inflation kept the bulls in check, despite allowing them to breathe.

⏫ 🟢 Strong buy: USDJPY

⏬ 🔴 Strong sell: Nasdaq, silver, AUDUSD, GBPUSD

⬆️ 🟢 Buy: USD Index

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

ECB’s Lagarde is important too

While global markets are more inclined to read about the US CPI and how it could print a softer reading after multiple years, a speech from ECB President Christine Lagarde also becomes an important event amid chatters of a July rate hike by the bloc’s central bank. Furthermore, speeches from US President Biden and various central policymakers are also crucial for the short-term market moves.

That being said, the US inflation numbers are highly expected to ease but the volume surrounding the supply crunch and strong job numbers hasn’t eased, which in turn flashes the risk of the US dollar rally in case the CPI, or Core CPI, print a strong number.

To sum up, the latest recovery in the market mood isn’t a sign of trend reversal and hence traders should trade with discretion.

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