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MTrading Team • 2022-07-29

Yen, gold rally as “technical recession” weighs on US dollar ahead of inflation data

Yen, gold rally as “technical recession” weighs on US dollar ahead of inflation data

US dollar stays on the way to the second consecutive weekly loss as economic slowdown fears push back hawkish Fed expectations. The same drowns the US Treasury yields and propels the yen to again become the biggest gainer among the G10 currencies. EURUSD also remained firmer but seemed reserved as ECB hawks retreat.

Gold prices also cheer softer USD to refresh a three-week high but oil remains sidelined as recession woes tame benefits from the downbeat greenback.

Market sentiment stays divided even if equities are positive as traders appear cautious about economic fears. Also challenging the bulls is the anxiety ahead of the Fed’s preferred inflation gauge, namely the US Core PCE Price Index.

Elsewhere, the key cryptocurrencies refreshed their monthly peaks before easing on concerns surrounding regulations.

Following are the latest moves of the key assets:

  • Brent oil remains firmer around $108.00, up 1.30% intraday.
  • Gold also rises for the third consecutive day as bulls approach the $1,773 hurdle, up 0.56% intraday at the three-week top.
  • USD Index refreshes the three-week low, down 0.35% around 105.80 at the latest.
  • FTSE 100 rises 0.30% but the Eurostoxx and DAX both rally more than 1.0%.
  • Wall Street marked another profit-making day with S&P 500 leading the bulls with 1.28% daily gains.
  • BTCUSD reverses early day gains to revisit $23,850 while the ETHUSD losses more than 1.00% while declining to $1,700 at the latest.
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Dollar on slippery grounds

The second consecutive negative GDP growth in the US increased the post-Fed pessimism for the rate hike seekers and drowned the US dollar. The same propelled commodities and the Antipodeans even as recession woes capped some of their gains. The US Treasury yields refreshed three-month low as traders rushed to bonds and yen for risk safety. On the same line are gold and NZDUSD. The AUDUSD pair, however, had to bear the burden of mixed data and fears of economic weakness in Australia, which in turn pares the daily gains.

In addition to the fears of lesser demand due to the economic slowdown, hints of a slight increase in the OPEC+ output and likely softness in China’s transition from the covid exert additional downside pressure on the oil prices.

BTCUSD retreats from a six-week high and the ETHUSD also turn negative after rising to the fresh high since June 10 as US policymakers tighten grips over cryptocurrency platforms. Also weighing on these currencies could be the fears that the economic slowdown could direct markets toward traditional mode of payment.

⏫ 🟢 Strong buy: USDCAD

⏬ 🔴 Strong sell: Nasdaq, silver, ETHUSD

⬆️ 🟢 Buy: USD Index, USDJPY

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

US Core PCE Price Index in focus

Fed’s preferred inflation gauge is likely to ease in July and may add to the US dollar’s losses, by indirectly confirming no more heavy rate hikes. However, any surprise increase in the data may not hesitate to trigger a notable rebound in the US dollar amid the month-end positioning.

Also important will be inflation and GDP numbers from the Eurozone and talks surrounding the US-China ties, not to forget pressure on the policymakers to avoid recession.

Overall, risk-aversion may take place going forward and hence the equity buyers should remain cautious.

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