Fed forward guidance hinting at slow economic recovery and low-interest rate for many years to come and covid-19 renewed outbreak scare keeps risk sentiment muted in the market.
Summary: Major equities and indices across key global markets are finally seeing their multi-week long positive recovery rally come to a grinding halt over US Fed’s forward guidance cues. US Federal Reserve officials during their press conference yesterday, post the two-day session, declared that the current scenario of ultra-low interest rates would continue to remain steady for years to come with no-plans for a hike in rates until the end of 2022.
This is clearly interpreted by traders from across the globe as a sign that impact from ongoing recession led by the global covid-19 outbreak isn’t going to disappear anytime soon as opposed to recent expectations that economic reopening across globe post ongoing lockdown measures will put global growth outlook and activity back to pre-lockdown levels. This, along with fears of renewed covid-19 breakout amid economic reopening activities, has caused major risk assets and key indices across key markets in Asian and European regions to tumble, posting sharp losses today.
Precious Metals: Rare metals edged higher in early Asian trading hours over escalating cautious tone in the market. But, the price action still turned dovish in European market hours as safe-haven assets lacked enough demand to cause a major surge in price rally despite dovish cloud cast over the global market following Fed forward guidance update.
Crude Oil: The price of crude oil futures on both international benchmarks across the international market today is clearly dovish. Both WTI and Brent indices have experienced a 4% decline in price action today as demand outlook remains muted over dull progress in global economic recovery activities and US weekly stockpile data, which saw a huge build this week affecting supply-demand ratio.
DXY: The US Dollar grew stronger in the international market over broad market dovish tone following Fed update yesterday. However, the impact from Fed’s decision for a prolonged low-interest-rate situation and government stimulus measures continue to pressure the USD keeping the greenback steady at the 96 handle in the index, which measures its strength against six rival global currencies.
On The Lookout: As Fed interest rate decision and forward guidance unveils, this week’s major event has come to pass, and traders are back to focusing on macro data updates for short term directional trading cues and profit opportunities.
The build in the US crude oil weekly inventory stockpile data across both API and EIA readings came as a major blow to the oil market, causing the price of crude oil to crash in the international market, which along with lacking demand outlook from the global market is causing renewed worries of glut scenario.
On the release front, the US calendar is set to see PPI data, WASDE Report, Initial Jobless Claims, and Continuing Jobless Claims data.
Trading Perspective: US Futures trading in the international market was down over broad-based cautious tone in the international market led by Fed update. Wall Street is set to tumble down at open today over the impact from previous session’s fed update and escalating concerns of a second covid-19 outbreak in the USA.
EUR/USD: The pair briefly tested the 1.14 handle earlier in the day over the news of the EU discussing further stimulus measures. But pessimism led by Fed forward guidance hinting at prolonged weak economic activity kept risk sentiment at bay, resulting in pair trading rangebound near the 1.135 handle. Traders now await US data for short term profit opportunities.
GBP/USD: The pair fell sharply from previous session highs all the way to lower half of 1.26 handle as GBP faces pressure from PM Johnson’s covid-19 policies. Further, Fed outlook, which hinted at a slow recovery of the US and global economy, also added pressure on British Pound, which along with firm USD, kept the pair trading in dovish momentum. Traders now await US macro data for short term profit opportunities.
USD/CAD: A sharp decline in the crude oil price helped the pair test 1.35 handle earlier in the day as CAD lost most of its fundamental support. But USD failed to build a recovery rally despite its firm strength and Loonie’s weakness over pressure stemming from Fed forward guidance update, which put considerable pressure on USD bulls. The pair is now holding firm above 1.345 while awaiting US data for short term profit opportunities and directional cues.
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