US dollar drops further as inflation, growth fears fade, riskier assets recover

Markets hold onto the turnaround week’s optimism during early Monday, despite not-so-welcome updates from China and US President Joe Biden. The reason could be linked to the easing fears over inflation and growth as traders seemed to have topped fears of tighter monetary policies and rather concentrated on likely measures to help ease the pain, as signaled mostly by China, Japan and the UK of late. 

The risk-on mood drowned the US dollar towards a refreshing two-week low, which went well for the AUDUSD and gold prices. Brent oil also grinds higher but lacks upside momentum amid geopolitical woes concerning Russia and Taiwan.

Asian equities trade mixed but the European ones are on the front foot, following over 1.0% gain of the US stock futures and Treasury yields.

Cryptocurrencies also pause the multi-week downtrend on a softer buck but the fears of more regulations restrict immediate upside.

Following is the list of major assets’ latest performances:

• Brent oil print mild gains around $114.00 with eyes on the $116.00 hurdle.
• Gold renews two-week high around $1,860, up 0.55% by the press time.
• USD Index remains offered around a two-week low, down 0.35% near 102.50 of late.
• FTSE 100 and DAX rise nearly 1.0% but the EUROSTOXX50 could add only half a percent at the latest.
• Dow Jones and S&P 500 remained indecisive on Friday but Nasdaq dropped 0.30% amid a choppy session.
• BTCUSD and ETHUSD both print three-day uptrend with mild gains around $30,500 and $2,050 respectively.

It isn’t a trend reversal

Although market players seem buoyed by the latest risk-on mood, underpinning the US dollar’s much-awaited pullback, the broad pessimism isn’t gone away as policymakers struggle to find ways in which they can defend the respective economies and tame inflation woes together.

Beijing’s record daily new covid cases join Shanghai’s more activity restrictions and US President Biden’s readiness to use force to defend Taiwan to weigh on the market sentiment.

The cautious optimism, alternatively, could be linked to the overall weakness in mainland China’s virus figures and hopes that the worst is over, mainly due to the Fed’s refrain from heavier rate hikes than the 50bps.

Expectations of more help from the government and monetary policies joined the firmer risk appetite to underpin the gold’s run-up towards the two-week high whereas the US dollar remains battered as repetitive Fedspeak joins mixed data. 

AUDUSD portrayed the risk-on mood with over 1.0% gains as RBA’s Kent and a government change joined headlines from China. Crude prices, however, remain defensive despite the mild gains as the West remains at loggerheads with Russia and China.

BTCUSD and ETHUSD rise for the third consecutive day as some in the markets adhere to bottom fishing amid hopes that the upcoming regulations may not be as severe as expected.

⏫ 🟢 Strong buy: AUDUSD, NZDUSD

⏬ 🔴 Strong sell: Nasdaq, silver

⬆️ 🟢 Buy: USD Index, gold, USDJPY

⬇️ 🔴 Sell: DAX, FTSE 100, brent oil, gold, ETHUSD, BTCUSD

Risk catalysts and a busy week ahead

Be it the US Core PCE Price Index, the Fed’s preferred inflation gauge, or FOMC Minutes, not to forget the RBNZ and preliminary readings of May’s PMI, this week has everything that keeps traders busy. Not only the scheduled data/events but Quad summit, EU’s oil embargo and escalating geopolitical tussles in Mariupol, not to forget mixed covid signals from China, will also entertain momentum traders moving forward.

As a result, the latest risk-on mood may fade and the US dollar could regain its upside momentum. Hence, traders need to remain cautious while welcoming the optimists.

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