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MTrading Team • 2022-07-28

Fed drowned US dollar ahead of GDP, yields flash recession warning

Fed drowned US dollar ahead of GDP, yields flash recession warning

US Federal Reserve’s (Fed) 0.75% rate hike witnessed a sour response from the market as buyers turned optimistic after Powell’s speech, hoping for no aggressive rate hikes moving forward. The risk-on mood drowned the US dollar and propelled prices of crude oil and gold.

AUDUSD remains lackluster but USDJPY rose the most as BOJ policymakers tried to defend easy money policies.

EURUSD fails to cheer the risk-on mood, as well as the softer USD, amid fears of a recession in the Eurozone, Japan, as well as the US. 

Equities cheered a rebound in the yields but cryptocurrencies struggle for clear directions amid dismal concerns over the future of once-favorite e-currencies.

Following are the latest moves of the key assets:

  • Brent oil keeps the previous day’s gains around $108.00, up 0.80% intraday.
  • Gold also rises for the second consecutive day as bulls approach the $1,750 hurdle.
  • USD Index drops to the three-week low, down 0.30% around 106.00 at the latest.
  • FTSE 100 drops 0.70% but the losses of Eurostoxx and DAX both are smaller, respectively around 0.50% and 0.10%.
  • Wall Street rallied after the Fed’s verdict, Nasdaq led the run-up with 4.06% gains.
  • BTCUSD drops 0.30% to $22,900 while the ETHUSD losses more than 1.00% while declining to $1,615 daily at the latest.
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Fed-led disappointment trouble traders

Although the US central bank matched market expectations of announcing a 75 bps rate hike, Fed Chair Powell’s comments over neutral rates gave rise to chatters that the hawks are running out of steam. In addition to the FOMC-linked moves, strong US Durable Goods Orders growth also exerted downside pressure on the US dollar.

Euro, on the other hand, failed to cheer the USD’s weakness as gas supplies from Russia dropped to the fifth and hint at a zero level. That said, USDJPY is the biggest mover as yields rebound, despite keeping the recession woes on the table.

Further, AUDUSD struggled amid mixed data and downbeat economic forecasts from the Australian Treasurer.

Gold and crude oil extend the post-Fed recovery as traders await the first readings of the US Q2 GDP.

Elsewhere, BTCUSD reverses post-FOMC gains while the ETHUSD also retreats as the International Monetary Fund (IMF) joins US politicians to mention challenges emanating from crypto trading.

⏫ 🟢 Strong buy: USDCAD

⏬ 🔴 Strong sell: Nasdaq, silver, ETHUSD

⬆️ 🟢 Buy: USD Index, USDJPY

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

US GDP may soothe greenback’s pain

The flash readings of US Q2 GDP will be crucial going forward amid fears of a technical recession, known as two consecutive negative figures of growth. It’s worth noting, however, that multiple sources have already raised expectations that the US could avoid such signs and may print firmer than expected figures, which in turn could help the US dollar to reverse the post-FOMC losses. Also important will be talks between US President Biden and his Chinese counterpart Xi, as well as talks over the European gas crisis.

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