Economic slowdown fears, cautious mood ahead of Fed’s Powell underpin USD rebound

Risk flows deteriorate as market players await Fed Chair Jerome Powell’s testimony. Adding to the sour sentiment were fears concerning recession as central bankers keep pushing for higher rates.

The downbeat mood renews US dollar strength, which in turn drowns commodities and Antipodeans. Treasury yields and equities, on the other hand, consolidate recent gains. 

In addition to the greenback’s strength, mixed data exert more downside pressure on GBPUSD and NZDUSD while AUDUSD performs its role of risk barometer.

Brent oil prices slump as US President Joe Biden braces for gas tax relief while supply concerns also recall the energy bears.

Cryptocurrencies extend pullbacks from the weekly top, snapping sluggish efforts to rebound from the multi-year low in the last three days.

Following are the latest moves of the key assets:

• Brent oil drops the most in a week to refresh its monthly low around $109.50.
• Gold declines for the fourth consecutive day, down 0.25% near $1,830 at the latest.
• USD Index adds 0.30% to snap a two-day downtrend around 104.70.
• FTSE 100 drops 1.15% but DAX and EUROSTOXX50 are losing more than 2.0% by the press time.
• Wall Street benchmarks pare the biggest weekly fall in two years during the first trading day of full markets.
• BTCUSD drops 2.8% as sellers attack the $20,000 mark while ETHUSD declines below $1,100, marking 4.60% daily loss as we write.

Markets return to the logical route

Having failed to impress buyers amid a lack of major data/events, markets return to the bear’s platter as traders fear hawkish comments from Fed’s Powell, as well as due to recession woes.

The risk-off mood propelled the US dollar to reverse the latest gains and weighed down riskier assets like equities, commodities and cryptocurrencies. Also portraying the sour sentiment were Antipodeans among which the NZDUSD dropped the most on softer GDT and trade numbers. Elsewhere, GBPUSD extends south-run as UK inflation data couldn’t convince buyers. Additionally, USDJPY refreshed its 24-year high but remained sluggish on softer yields.

US Treasury yields dropped as bond buyers step back from the recent short-covering ahead of the week’s key event.

It’s worth noting that the US dollar strength, fears of economic contraction and expectations that US President Biden will take steps to tame energy prices provided a trifecta negative for the UK Brent oil.

BTCUSD and ETHUSD drop towards yearly lows as crypto sellers remain unconvinced of the latest rebound.

⏫ 🟢 Strong buy: USDJPY, USDTRY and USDCNY

⏬ 🔴 Strong sell: Nasdaq, silver, ETHUSD, Brent oil

⬆️ 🟢 Buy: USD Index, USDCAD

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

Powell’s powerplay will be crucial

Fed Chair Powell has a tough task on hand to justify the biggest rate increase in 28 years amid the recession fears, which in turn makes today’s Testimony over the bi-annual Monetary Policy Report the key. 

US central banker may adhere to inflation woes to back the latest rate hike but will have to act boldly if he wishes to please USD bulls, failing to do so can repeat the latest pattern of greenback’s decline even as Fed appears hawkish.

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