Asian stocks remained under pressure on Tuesday as the selloff in financial markets left investors bloodied and worried. Although European futures are pointing to a positive open despite overall market caution, lack of risk appetite could limit upside gains. Growing fears over rising interest rates and slowing global economic growth hammered global sentiment yesterday, with risk assets taking a hit.
In the currency space, the king dollar rose to levels not seen in 20 years, thanks to risk aversion and rising Treasury yields which exceeded 3.20% for the first time since 2018. The markets Commodities also fell as investors searched for the sell button across all asset classes. . Although gold prices appear to be stabilizing this morning, the precious metal is likely to face headwinds in the form of dollar appreciation, higher Treasury yields and higher rate bets. from the Fed. Oil prices are not looking great as lockdowns in China and fears for global growth weigh on the demand outlook.
The negative mood and uncertainty in financial markets could encourage investors to maintain a safe distance from riskier assets this week, which would translate into a higher dollar and some support for gold. On the data front, the results of the ZEW Economic Confidence Survey in Germany will be released later this morning. Markets expect the sentiment index to slide to -42.0 in May from -41.0 in April. Later in the day, it all revolves around speeches from numerous Fed officials that could trigger some dollar volatility. However, the main course and key risk event of the week will be Wednesday’s US CPI report.
Unstoppable dollar advance?
Dollar bulls started the trading week with renewed vigor, rising to 20-year lows on Monday as US Treasury yields hit new cycle highs. The greenback has appreciated against all G10 currencies this quarter, fueled by Fed hike expectations and risk aversion stemming from lingering geopolitical risks.
With the Dollar Index (DXY) above 104.00, this may open doors to higher levels. However, a technical pullback could be the next course of action before the bulls kick into high gear. Given that the week ahead is filled with US economic data and speeches from Federal Reserve officials, dollar volatility should remain a key theme.
Later in the day, a slew of Fed speakers will be in the spotlight. If they adopt a hawkish tone and revive expectations around a 75 basis point rate hike in June, the dollar could extend its gains across the board. Tomorrow will see the release of the latest US inflation report, which is expected to show prices rising 8.1% year-on-year in April, from 8.5% in March. A number that exceeds market expectations could propel the Dollar higher, allowing the DXY to secure a strong close above the 104.00 level.
Oil prices fall amid lockdowns in China
Oil prices stumbled in the week, closing down 6% on Monday, due to a combination of factors weighing on the demand outlook.
The commodity came under pressure as Saudi Arabia slashed prices for customers in Asia and parts of Europe, while weaker export data from China deepened losses. on the decline. Growing concerns over rising interest rates, recession fears and Covid-19 restrictions in China leading to slower export growth are also weighing on prices. However, lingering geopolitical risks related to the conflict between Ukraine and Russia could cushion the losses.
As for the technicals, everything revolves around the $100 level on both raw benchmarks. If this point turns out to be unreliable support, we could see a selloff. Initial support for Brent is the 100-day simple moving average at $97.24.
Commodities Spotlight – Gold
The past few weeks have not been kind to gold. Dollar appreciation, rising Treasury yields and expectations that the Fed will continue to aggressively approach monetary policy have hurt the precious metal. While the greenback has recently reached levels not seen in 20 years, the way forward for gold remains difficult and fraught with pitfalls.
On a technical level, prices are bearish on the daily charts with support found at $1855. It will be interesting to see if the bulls can defend this level or if the bears drive prices even lower. The widely watched 200-day simple moving average sits at $1835. Whatever the outcome, volatility is certainly there.