US dollar mounts as China, Russia add strength to Fed-linked risk-aversion

Risk-aversion runs at full steam during early Monday as weekend headlines add Russia and China to the prevailing Fed-impressed flight to safety.

The rush for risk-safety propelled the US dollar towards a fresh 20-year high, which in turn drowned prices of commodities and Antipodeans.

Gold prints the biggest daily loss in a week while Brent oil snaps a three-day uptrend. NZDUSD loses heavily among the G10 currency pairs while equities in the Asia-Pacific region, as well as during the early European session, see the red.

Cryptocurrencies also remain unsaved from the overall pessimism and broke the short-term key supports.

Following is the list of major assets’ latest performances:

• Brent oil snaps a three-day uptrend to drop back towards $111.00, down 1.8%.
• Gold extends the previous week’s losses around $1,870.
• USD Index stays firmer above 104.00 after refreshing two-decade high.
• FTSE 100 drops 0.64% but DAX remains indecisive even as EUROSTOXX50 print 0.70% intraday losses.
• Dow Jones and S&P 500 declined 0.30% and 0.57% respectively while Nasdaq shed over 1.40% on Friday.
• BTCUSD and ETHUSD both remain pressured around the lowest levels since January and February respectively, close to $33,500 and $2,450 in that order by the press time.

Covid, geopolitics amplify growth fears…

As if the anxiety over the Fed’s next move isn’t enough, the headlines from China and Russia offered extra strength to the US dollar due to its safe-haven appeal.

The DXY’s rush towards 2002 levels took clues from the chatter surrounding further strain on the global supply chain, as well as inflation, which in turn requires major central banks to dial back the easy money policies. 

China announced more stringent activity restrictions amid faster spreading coronavirus in the key cities like Shanghai and Beijing. On the other hand, Russia shrugs off the G7 sanctions and begins the World War II victory celebration which also aims to announce the Ukraine invasion as a formal goal.

Mixed trade numbers from Beijing and hawkish Fedspeak on Friday offered additional fuel to the USD buying, while also weighing the prices of AUDUSD and NZDUSD the most.

Shares in the Asia-Pacific region preceded their European counterpart to disappoint investors while BTCUSD and ETHUSD retest early 2022 levels.

⏫ 🟢 Strong buy: USDJPY

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

⬆️ 🟢 Buy: USD Index

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

Risk catalysts are the key ahead of US inflation

Given the light calendar and dominance of qualitative catalysts to weigh on the market, traders should pay close attention to the risk factors for short-term directions. However, monthly prints of the US Consumer Price Index (CPI) for April will be crucial as they help forecast the US Federal Reserve’s (Fed) next moves, after the latest indecision due to the last week’s zigzag move.

As risk appetite is likely to remain weak, at least before the US CPI, a further advance of the USD, as well as USDJPY, becomes more anticipated. However, the bears have dominated for a long and hence the risk of minor positive news to allow capitulation of the latest market sentiment can’t be ruled out. As a result, traders require discretion while taking positions ahead of Wednesday.

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