The market ended the Asian session in a mixed mood. The S&P 500 sheds some profit while the dollar is recovering a little of Tuesday’s net loss. Bitcoin returns to $40,000, leading the pace again. The focus will be on the FOMC report coming later today.
Chinese market plunged
China is feeling the biggest Covid-19 heat and there are worries especially with economies that have close ties with the world’s second-largest economy. Australian and New Zealand dollar plummeted on Tuesday, together with the sharp decline in the Chinese stock market.
Meanwhile, the dollar is recovering slowly ahead of London but the index is still down by nearly 0.5% this week but slightly up in July. The slow July volatility could soon be sharpened by a decisive Fed later today. Meanwhile, the US stock market remains firm as it makes fresh highs almost every week.
In the Forex market, the high-betas were the biggest losers on Tuesday. However, the Canadian dollar today is leading the gainers ahead of London. NZD and AUD have also recovered slightly. The Yen and Sterling led the gainers on Tuesday. However, both are seeing minor setbacks after hitting key resistance levels. The London session is expected to inject more volatility into the market although there are no major high-impact events to watch out for. The big show will be reserved for the New York session when the CAD CPI will be released before the mighty FOMC statement.
Gold returned bove 1800 on Wednesday after playing below the key area for a large part of Tuesday. The US bond yield looks set to fly and is expected to push the commodity below 1800. However, the yield is on the backfoot this week so far thus giving the Gold bulls some leverage to fight back and push the commodity back to the close range between 1810 and 1800. Today’s FOMC is very important for the near-term direction.
Meanwhile, the oil market continues to dictate its own pace. After returning to $72, the black gold has stayed range-bound this week so far. Concern that Covid 19 delta variant might cut down demand for oil after OPEC+ had already agreed to pump more was expected to force oil prices downwards. However, the massive sell-off has already happened and it now seems the oil market is back on its feet. WTI has recovered nearly two-third of the July 6-20 sell-off.
Bitcoin dominates again
Bitcoin has started a big recovery ahead of the altcoins. The big gun is close to taking 50% of the entire market share as it makes another attempt at $40,000. $42,000-45,000 is not far from reach. It remains to be seen whether this would be enough to save the crypto from the current bearish claws. On the other hand, many of the altcoins have been mute this week thus giving more dominance advantage to BTC.
By 6 PM GMT, the much-awaited FOMC statement will be released. In his last comment, Fed Chair Powell maintained that inflation is transitory. However, with the current outbreak of new variants of the virus, inflation at 5.4% and the unemployment rate at 5.9%, the Fed is in a difficult situation. What are the scenarios?
Overly dovish FOMC statements including the decision to keep the current pace of bond purchases with no will to increase the interest rate at a nearer timeline would drag the dollar to the downside while adding the gains to the US stock market. On the other hand, if the Fed decides to either cut down the current bond purchases or/and adjust the interest rate hike timeline forward, the dollar will surge. In whatever case, the market will react sharply with the initial spike. However, investors will like to know what will be said on inflation and interest rate. Those will have the biggest impact in the medium term.
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