Nasdaq rockets – G7 Meetings Get Underway

USD on the backfoot following Powell’s recession warning last week. Risk assets enjoy recovery amidst USD weakness. Focus this week on G7 meeting and recession discussions. CAD leading FX for now, JPY the weakest. Commodities higher on soft USD. 

Key Factors for Today

• USD weaker as Powell warns of recession risks

• Equities rebound on softer US Dollar

• CAD leading in FX, JPY on the backfoot

• Commodities rallying amidst USD weakness

Coming Up 

• USD US durable goods

• USD US pending home sales

• G7 meetings all day 

USD Softer Following Powell Recession Warning

The US Dollar starts the new week with a more muted tone, remaining under pressure from the sell-off across last week. The Dollar Index is down around 2% from the recent highs. The driver behind the current weakness is the slight shift in sentiment we’ve seen. In response to comments from Fed chairman Powell last week. Powell was heard warning lawmakers over the risks of recession across the remainder of the year. Traders appear to have interpreted this as an indication that monetary tightening might not end up being as sharp as currently projected. Traders will now be looking to the G7 meetings which are taking place all week with a great deal of focus likely to be places on global recession risks over the remainder of the year. 

Risk On as USD Weakens

Equities markets have a seen a softer start across the European open on Monday, on the back of solid gains last week. USD weakness on the back of Powell’s comments last week has paved the way for a wave of demand in equities prices. This week, traders will be keeping an eye on ECB’s Lagarde and Fed’s Powell who both speak at the ECB’s Sintra Forum on Wednesday. Despite near-term hawkish expectations for both banks, if the discussion around recession risks continues to grow in prominence, this will likely keep equities supported on the view a slower pace of tightening later in the year. 

CAD Leading in FX

In FX, the Canadian Dollar has been the strongest performer over late Asian and early European trading on Monday. A weaker US Dollar and better performance in risk assets has helped boost CAD. Meanwhile, JPY has been the softest of the G10 currencies at the start of the week. The reversal higher in risk sentiment over last week saw reduced safe-haven demand for the currency. Traders will now be looking to see how risk sentiment develops across the rest of today’s action. 

Metals Rebounding on USD Weakness

Gold and silver prices have started the new week with a more bid-tone, owing to the broad USD weakness we are seeing. Despite the fresh upside impetus on Monday, both metals remain within recent ranges and have some work to do in order to confirm a sincere bullish shift. For now, the action is yet further range-rotation. 

Oil Prices Stabilise Following Recent Losses

Oil prices are seeing a better start across the European open on Monday, helped by USD weakness. Crude prices were in decline last week as fresh concerns over the risk of a global slowdown took centre stage. However, despite the current decline there are still clear upside risks for oil prices as EU sanctions on Russian supplies take hold over the remainder of the year.  Today we’ll have the delayed update from the EIA which is forecast to show an almost 2-million-barrel drawdown.