13.05.2022: USD enters consolidation phase. Bears take upper hand ( USDX, USD/JPY, AUD/USD)
Hi everyone! The trading week is coming to an end, which means that you can slightly relax in anticipation of the weekend. Today, markets may still surprise you with profitable entry points. The bearish trend persists as traders avoid risky assets. Let’s discuss what happened in the Asian session.
Wall Street has been extending its losing streak for several months. At first, tech stocks faced a massive sell-off. Periods of rapid rises were followed by periods of sharp falls. For this reason, the NASDAQ index incurred the biggest losses, especially given the rising inflation and geopolitical risks. The S&P 500 index was also hurt by the sell-off. It slid into bearish territory yesterday. The index shed almost 20%, dropping below its historical January low. On Thursday, Jerome Powell made a speech. He confirmed that the central bank is likely to raise interest rates by a half percentage point at each of its next two meetings. Powell added that in its fight against inflation, the Fed may encounter certain difficulties. The regulator is ready to take more aggressive measures if necessary. Persistently high inflation and hawkish stance are the main negative factors for the stock market. Analysts stress that soon sellers may get rid of all high-risk shares.
So, demand for safe-haven assets is buoyant, with the US dollar taking the lead. The US dollar index soared to 104, the highest level since the end of 2002, versus its rivals. In the Asian session, it was holding above the 20-year high, trading at the level of 104.59. However, there is a slowdown in its rise today. As a result, the greenback is consolidating in the range of 104.49–104.86. Perhaps its trajectory will change in the US session. Apart from that, the US currency might have halted its rally flat after the release of the PPI index.
The producer price index climbed by 0.5% in April. The figure is below an upwardly revised 1.6% rise in March and mostly in line with market expectations. Nevertheless, the index continues to hover at its four-decade high. In addition, the report does not contain any hints that in the near future, inflation may weaken significantly.
Asian stock markets grew today despite a drop on Wall Street. The Bank of Japan made dovish statements again about the key rate. The BoJ governor believes that inflationary pressure in Japan is unlikely to be as strong as in the US and Europe. Japan's economy has not recovered yet from the pandemic crisis. This is why it is important to maintain an ultra-loose monetary policy even if it affects the market. Undoubtedly, the regulator is taking great risks by starting to buy government bonds for an indefinite period. This step has already triggered an increase in the money supply. In April, the indicator jumped to 3.6% against the forecast reading of 3.4% and the March figure of 3.5%.
The dovish monetary policy also has a negative impact on the yen. The US dollar is far stronger because of that. However, sometimes, it loses momentum. For instance, yesterday's sell-off in the US equity market and a fall in US Treasuries boosted the yen. As a result, the dollar/yen pair logged the biggest intraday drop since 2016. Today, it is still moving within the channel of 128.25–129.35. At the time of making the video, the pair was trading 128.79. So, perhaps, the yen will become the barometer showing how risk appetite pushes the government bond yields down.
The Australian stock market is also in the black on Friday despite Wall Street woes. Shares of companies from all sectors added gains, especially tech ones. At the same time, the widening rate gap between the Fed and the RBA exerts pressure on the Aussie. As a commodity currency, it is also losing momentum due to risk aversion and supply chain disruptions caused by lockdowns in China. In the Asian session, the AUD/USD pair managed to climb. At the moment of writing the article, the pair approached 0.6890. It was moving in the range of 0.6845 - 0.7814.
That’s all for now. I hope this week has been productive and lucrative for you! Perhaps you have opened some profitable positions thanks to our video reviews. Do not miss our next video review on InstaForex TV channel! See you!
00:23 Situation on the US stock market USA
02:21 US Producer Price Inflation
02:46 The situation in the Japanese market
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