Oil Rally Could Overshadow Optimism

US indices gained for a second day as the FOMC minutes helped improve the investor mood. 

Fed minutes released on Wednesday weren’t as hawkish as many investors feared: the Fed deciders mostly agreed that inflation is too high and labour market is too tight, and that they should raise the rates by 50bps for the next two meetings. 

But, there was no sign that the Fed would go down the 75bp hike road. Some members thought the price pressures won’t get much worse, and the Atlanta Fed President Raphael Bostic even suggested that given the economic data has taken a step backward, the central bank could even pause on rate hikes in September!  

That’s perhaps a daring statement, as a single-month softness in inflation data doesn’t necessarily suggest that the US is out of the woods just yet; gas and food prices continue rising at pace and threaten the price stability. 

But the latest FOMC minutes confirm that the Fed is ready to scale back on tightening plans, if only it could!  

Rising oil prices could overshadow optimism 

The S&P 500 had a nice rebound this week, as the index regained the 4000 mark after testing the 3800 level last week. Nasdaq jumped the most.  

But the US futures are slightly in the negative at the time of writing, as the rally in energy prices certainly throws a shadow on the latest optimism, keeping inflation worries tight, as the soaring energy prices are one of the major factors responsible for the skyrocketing inflation.  

The barrel of US crude rallied above the $115 mark, and consolidates around this level this morning. 

Softening dollar… 

The US dollar index eases, as the US 10-year yield steadies around the 2.75% mark. 

Softer dollar plays in favour of the EURUSD. The pair is testing the 50-DMA offers (1.0750) to the upside. Less hawkish Fed, and more hawkish European Central Bank (ECB) comments justify a further recovery toward the 1.10 mark into the summer months. 

Gold remains bid above the 200-DMA ($1842 per ounce), but the upside momentum is fading as the improving risk appetite moves capital toward riskier, and better yielding assets. 

Bitcoin, on the other hand, didn’t benefit from the past sessions’ risk rally, and the price of the coin is now pushing below the $30K mark. The ECB warns that cryptocurrencies are a big threat to financial stability. There is a stronger case for a further drawback in Bitcoin’s price in the coming weeks, than a rebound.