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MTrading Team • 2023-05-04

EURUSD defends Fed-led rally ahead of ECB, markets turn dicey

EURUSD defends Fed-led rally ahead of ECB, markets turn dicey

Market sentiment remains mildly positive as the Fed signals, indirectly, the readiness to pause the rate hike trajectory. However, fears surrounding banking fallouts and US debt ceiling expiration prod the optimism, which in turn allows the US Dollar bears to take a breather.

Even so, the EURUSD grinds higher amid hawkish hopes from the ECB. On the same line is the GBPUSD as markets fear higher for longer rates and economic challenges moving forward.

USDJPY struggles amid Japan’s holiday but USDCHF rises the most among the G10 currency pairs amid the market’s consolidation after US policymakers’ readiness to tame the banking crisis.

Furthermore, AUDUSD hesitates in cheering upbeat Australia trade numbers as softer China Caixin Manufacturing PMI weighs on Antipodeans, together with the Fed’s 0.25% rate hike.

Elsewhere, BTCUSD and ETHUSD initially rallied after the US SEC reconsidered framing the crypto asset’s definition. However, the looming concerns about banking rout prod the once-favored investment avenues.

Following are the latest moves of the key assets:

  • Brent oil rebounds from six-week low as buyers approach $73.00 at the latest.
  • Gold eases from an all-time high of $2,080 to $2,035 by the press time.
  • USD Index remains pressured near 101.30, licking its wounds at weekly bottom.
  • Wall Street closed with losses but the Asia-Pacific shares edged higher. That said, equities in Europe and the UK printed mild losses of late.
  • BTCUSD and ETHUSD grind higher around $29,100 and $1,900 as we write.
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Fed’s dovish hike precedes ECB’s likely struggle

Fed announced an increase in the benchmark rate by 25 basis points (bps) to make it the highest since 2007. However, the details of the FOMC statement and Fed Chair Jerome Powell’s speech raised fears of policy pivot and drowned the US Dollar despite the rate hike move.

While the Fed’s dovish hike allowed markets to take a sigh of relief, the looming fears of more bank fallouts in the US and default in paying bond coupons by June weighed on the sentiment, which in turn pushed Wall Street benchmarks to post losses.

It’s worth noting that the markets in Asia concentrated more on Fed’s signal for policy pivot than the banking woes as US decision-makers show readiness to tame the banking crisis. The same exerted more downside pressure on the US Dollar before the pre-ECB anxiety put a floor under the greenback.

  • Strong buy: USDJPY
  • Strong sell: ETHUSD, GBPUSD
  • Buy: USD Index, USDCAD, Nasdaq, EURUSD
  • Sell: DAX, FTSE 100, gold, BTCUSD, AUDUSD

ECB is the key

The European Central Bank (ECB) is more likely to follow the footsteps of the Fed, mainly amid recently downbeat statistics from the bloc and fears that higher rates negatively impact the old continent’s credit conditions. With this, the market players anticipate a 0.25% rate lift and a dovish guidance, which in turn can help the US Dollar to pare recent losses. However, any surprises from the bloc’s central bank won’t be taken lightly as some on the floor do expect a 50 bps rate increase.

May the trading luck be with you!