USD tracks yields’ extended pullback from 40-month high, ECB in focus

US investors witnessed a positive day on Wednesday despite a strong Producer Price Index (PPI) and a mixed start to the unofficial Q1 2022 earnings season. The reason could be linked to the hopes that the markets will be able to rebound quickly after the geopolitical and covid woes fade.

The optimism weighed on yields and pushed the USD Index (DXY) to snap a nine-day uptrend while also favoring the Wall Street benchmarks to post the biggest daily gains in a week. 

The risk-on mood extends in Asia-Pacific despite India’s holiday while shares in Europe and the UK trade mixed with eyes on the European Central Bank (ECB) monetary policy meeting.

Gold and crude oil prices benefited from the USD’s weakness while BTCUSD has good news to recall the buyers.

Elsewhere, USDJPY eased from a multi-year high but the USDCAD struggles to digest the BOC-led fall, the biggest in a month.

Following is the list of major assets’ latest performances:

• BRENT OIL pares recent gains around $108.00, down 1.20% intraday.
• GOLD remains indecisive around $1,980 even as the USD Index drops below the 100 rate.
• Dow Jones, NASDAQ, and S&P 500 all rose over 1.0% on Wednesday.
• DAX rises near 0.50% but FTSE 100 loses 0.30% as it approaches 7,550 level.
• BTCUSD gains 0.30% to $14,300 rate but ETHUSD drops 0.15% to 3,115.

Bond buyers teased greenback bears amid holiday-shortened week

Even if the US factory-gate inflation rose more than expected in March, the US Treasury yields extended pullback from over three-year high marked earlier in the week. The same pushed the USD Index to print the first negative daily closing in 10 while reversing from a 23-month high.

The USD weakness helped the gold prices to refresh their monthly high, also favored Brent oil to print more than a week’s top. Also favoring the crude oil prices were news that a few of Germany’s policymakers visited Ukraine and returned with suggestions that Europe shouldn’t worry about economic conditions and levy an oil ban on Russia. However, news that China’s lockdown will add to the global supply chain and energy demand tested the black gold buyers.

Moving on, softer yields joined upbeat results from Delta Airlines and global policymakers’ cautious optimism to favor the US equity markets, which in turn favored stocks in Asia-Pacific and Europe at the latest.

On a different page, LUNA Foundation Guard’s (LFG) $100 million BTC buying joins Nexo’s crypto-based credit card to favor the BTCUSD bulls. Though, an announcement of further delays in the long-awaited Ethereum Merge stopped ETHUSD from luring the buyers.

⏫ 🟢 Strong buy: USDJPY

⏬ 🔴 Strong sell: ETH/USD

⬆️ 🟢 Buy: USD Index, gold, silver, Brent oil

⬇️ 🔴 Sell: DOW JONES, S&P 500, BTC/USD, DAX, FTSE 100

Will ECB follow RBNZ, BOC?

Despite the latest cautious optimism, fears prevail in the markets that the European Central Bank (ECB) may not follow the path of the Reserve Bank of New Zealand (RBNZ) and the Bank of Canada (BOC) as both of them announced 0.50% rate hikes. The reason could be linked to the old continent’s fragile economic conditions and the latest challenges from China, due to covid. That said, the USD may witness further downside if the ECB sounds hawkish, which in turn could allow EURUSD to extend the latest rebound.

Even so, market sentiment is likely to remain sour as the Ukraine-Russia crisis is far from over while China’s COVID-19 resurgence offers another challenge to the global economy.

On a different page, China and India increase hardships for cryptocurrency traders and the USD bears are still far from the entry gate, which in turn warns the BTCUSD optimists.

Furthermore, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley and Bank of America are in the pipeline for reporting the Q1 2022 earnings and will be observed closely for equity-market moves.

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