Rise remains capped as Fed warns of recession fears and oil rises

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  • Asian indices are slightly bullish as the DXY extended its losses after the Fed’s monetary policy.
  • Slowing retail demand dampened the Fed’s less hawkish optimism.
  • Oil prices are likely to extend gains as the EIA signaled lower oil inventories.

Markets in the Asian domain are showing modest strength as risk appetite has improved investors’ risk appetite. The announcement of an interest rate hike by the Federal Reserve (Fed) and less hawkish forecasts than expected weighed heavily on the US dollar index (DXY).

At press time, the Japanese Nikkei225 gained 0.20%, the China A50 gained 0.65%, Nifty50 jumped 0.69% while Hang Seng fell 0.37%.

It should be noted that the magnitude of the DXY weakness from Tuesday is vastly greater than the strength exhibited by Asian stocks. Besides the Fed’s less hawkish guidance, the reason for the DXY’s slide is the accelerating odds of a recession in the US economy.

Fed Chairman Jerome Powell pointed to the slowdown in retail demand in his commentary. A fall in aggregate demand driven by skyrocketing prices will mean less business for Asian markets and, therefore, lower profits for exporting companies.

Meanwhile, the DXY is likely to settle below 106.00 as it exploits the immediate support around the same with heavy pressure. Additionally, a pessimistic US Gross Domestic Product (GDP) release on Thursday will trigger another bearish impulse wave.

On the oil front, oil prices corrected slightly after attempting a break above the immediate 98.00 hurdle. On a broader note, black gold is advancing towards the critical $100.00 figure as oil inventories fell in the US, alongside an increase in gasoline demand. The Energy Information Administration (EIA) reported a drop in oil inventories of 4.5 million barrels last week.

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