US dollar rallies further on recession fears ahead of key data/events

Sour sentiment continues to underpin the US dollar strength even as the Treasury yields retreat from their monthly peak. Headlines from China also tried to tame the US dollar bulls but fears of economic slowdown joined hawkish Fed bets to keep the USD bulls in command.

USDJPY turned out to be an exception among the G10 currency major pairs as US Treasury bond coupons eased as traders turned cautious ahead of August month PMIs and Friday’s Jackson Hole Symposium.

Gold prices remain pressured but oil benefited from the hopes of an OPEC+ output cut. Also keeping the energy prices firmer were fears of escalated geopolitical tension between Russia and Ukraine.

Cryptocurrencies stay depressed around monthly low as traders fears that Jackson Hole could unveil some more regulations for trading amid a slew of downturns and volatility.

Following are the latest moves of the key assets:

• Brent oil rise nearly 1.0% to extend the week-start rebound to $98.50 at the latest.
• Gold holds lower grounds near $1,740 after six-day downtrend.
• USD Index renewed monthly high before retreating to 108.90 by the press time.
• FTSE 100 prints mild losses but DAX and Eurostoxx are up around 0.50% as we write.
• Wall Street closed with notable losses wherein Nasdaq led the bears with 2.55% loss.
• BTCUSD drops 0.60% to $21,300 while ETHUSD declines around 1.6% at the latest as sellers attack $1,600 mark.

Risk-off at its best!

The escalation of the European energy crisis, due to maintenance of the Nord Stream 1 pipeline, joins the US official’s comments suggesting a further rise of Russia’s artillery use in Ukraine to weigh on the market sentiment. Adding to the risk-aversion are the recently firmer US data and hawkish Fedspeak that increased hopes of a 0.75% rate hike. Furthermore, doubts about China’s ability to overcome the recession woes, despite huge stimulus, exert additional downside pressure on the risk profile.

With this, the USD Index (DXY) poke the multi-year high marked in July even as Treasury yields retreat from the monthly top. The reason for the DXY run-up could also be attributed to the market’s anxiety ahead of Fed Chair Jerome Powell’s speech at Jackson Hole Symposium on Friday.

Elsewhere, PMIs from Japan and Australia came in downbeat while those from Germany also failed to impress buyers.

It should be observed that a lack of major data/events and anxiety in the markets seem to have weighed on the equities and commodities as the US dollar and oil prices stay firmer. Also portraying the risk-off mood are the prices of BTCUSD and ETHUSD.

⏫ 🟢 Strong buy: USDJPY

⏬ 🔴 Strong sell: ETHUSD

⬆️ 🟢 Buy: USD Index, USDCAD, Nasdaq

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

PMIs may entertain traders

Given the looming fears of economic slowdown and the likely aggression by the major central banks, today’s first readings of August PMIs for the UK, Eurozone and the US will be important for short-term directions. Should the activity data match downbeat forecasts, the US dollar will have more upside to track, which in turn could exert additional downside pressure on the commodities and the Antipodeans. It’s worth noting, however, that the bearish move may appear limited as traders await the US Durable Goods Orders and Powell’s comments at the Jackson Hole.

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