Weekly Market Outlook

Dollar Extends Gains, Crypto Sell-off Continues and Oil Slides

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Market Overview – US Dollar Extends Gains, Crypto Sell-off continues and Oil down 4%

USD Higher ahead of Powell’s Testimony

The US dollar recovered some of its losses encountered through previous sessions heading towards a 20-year high reached last week. The US dollar index (DXY) rose above 104.5 on Wednesday amid the risk aversion mode and growing expectations that the Federal Reserve will continue its aggressive policy tightening. Safe-haven inflows spurred by fears of a global economic slowdown have also benefited the US dollar.

The Fed raised its interest rate by 75 basis points last week, the largest increase since 1994, in an attempt to control soaring inflation.

Annual inflation unexpectedly hit 8.6% in May, the highest since 1981 and higher than market forecasts of 8.3%. Inflation is now more than 4 times higher than the Fed’s target at 2%.

All eyes are turned to Fed Chair Jerome Powell’s two-day testimony before the Congress on Wednesday and Thursday for fresh insights on policy plans. Market participants are pricing in another 75 bp rate hike in July, followed by a 50 bp hike in September.

A recent Reuters poll showed that 67 of 91 analysts are expecting a 75 bp rate hike in July.

FOMC member, Thomas Barkin, stated recently that a 75bp rate hike seems sensible confirming that the Fed will do what it takes to bring inflation back to normal levels.

Bitcoin leads crypto losses

Bitcoin tumbled again on Wednesday as risk-off mood returns on global recession fears. Experts are warning that Bitcoin may fall further. The biggest cryptocurrency is down 3.3% holding around the key $20,000 level, BTC is up 22% since touching a multi-year low below $17,700 printed on Saturday. The cryptocurrency is trading 56.5% lower since the start of this year.

Market Recap - US Dollar Extends Gains, Crypto Sell-off continue and Oil down 4%

Many factors contributed to this year’s crypto crash; high leverage is the top factor. Estimated leverage ratio for Bitcoin hit a new all-time high in early January, according to CryptoQuant’s analytic data. The elevated leverage ratio has pushed BTC price off a cliff and raised concerns about market liquidations in light of price declines.

The fragility of crypto sentiment has its role as well. Crypto influences and advocates are able to spur price volatility by just tweeting. Capital inflows and outflows are largely affected by sentiment levels surrounding the cryptocurrencies. The lower sentiment levels amid higher global inflation and fears of an economic slowdown have pushed investors away from risky assets.

The global crypto market cap is down 3.79% in the last 24 hours to $897.48B, according to CoinMarketCap.

Oil tumbles amid global turbulences

WTI crude oil is 5% near $104 per barrel on Wednesday, the lowest seen in a month, amid mounting concerns about the global economy and oil demand. Brent crude is trading slightly above $110 with daily losses of more than 4%.

US President Joe Biden call for a fuel tax cut and is scheduled to meet with seven large oil companies this week to discuss possible options for driving down fuel prices.

An embargo on Russian oil from several countries due to the war in Ukraine have pushed oil prices higher in recent months. Meanwhile the OPEC is incapable of pumping more oil amid demand uncertainty.  

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