Markets are cautiously optimistic today, with news of China’s stimulus and hopes for a US Federal Reserve (Fed) rate cut boosting sentiment. However, concerns over China’s bond market signaling depression and the Sino-American trade/political tensions weigh on confidence ahead of key events.
The US Dollar is inching up, supported by strong retail sales, while the Euro (EURUSD) stays flat due to weak EU/German data and fears of a hawkish Fed.
GBPUSD is holding steady despite a slight pullback, as traders await UK inflation data after a positive jobs report. Further, the USDJPY is under pressure after a three-week high, and the Dollars of Australia, Canada, and New Zealand are at yearly lows.
Gold is lackluster after a bearish technical signal, while Crude Oil faces a three-day losing streak despite a large inventory draw. At last, Equities lack momentum, and cryptocurrencies are pulling back from recent highs.
EURUSD is making modest gains within its weekly range but lacks strong upward momentum. The multi-year low sentiment details from Germany and the Eurozone, along with political instability in the region, are putting pressure on the pair. Dovish comments from European Central Bank (ECB) officials and concerns about slower US Federal Reserve rate cuts in 2025 also limit the Euro’s potential. As a result, even if the Fed cuts rates by 0.25%, EURUSD may only see a small uptick. This is due to expectations that strong US growth, inflation, and employment data will prevent the Fed from making aggressive cuts in the future.
Unlike EURUSD, GBPUSD is gaining momentum after stronger UK employment data on Tuesday. The hope for positive UK inflation data on Wednesday also support the Cable pair. However, the Bank of England's dovish stance and economic concerns in the UK are limiting the Pound's upside.
USDJPY remains under pressure after pulling back from a three-week high. The pair continues to reflect its risk-sensitive nature, with traders also factoring in expectations for further rate hikes from the Bank of Japan (BoJ), even though no rate changes are expected in 2024.
The Australian (AUD), New Zealand (NZD), and Canadian (CAD) dollars are all facing pressure as cautious optimism in global markets meets hawkish Federal Reserve concerns and ongoing issues in China. AUDUSD and NZDUSD have slumped to multi-year lows, while USDCAD has surged to its highest levels since 2015.
A key factor driving the Loonie’s strength is the combination of weaker oil prices—Canada’s main export—and the dovish stance of the Bank of Canada (BoC). This has provided additional upward momentum to the USDCAD pair, despite the broader risk-off environment.
Gold remains under pressure, holding below the previous day's break of a month-old support line, which now acts as immediate resistance. The precious metal is weighed down by the hawkish Fed stance and concerns about China’s economic outlook. However, gold’s safe-haven appeal, coupled with hopes for more stimulus from China and the People’s Bank of China’s (PBoC) increase in gold reserves, is providing some support and preventing further declines.
Crude oil is under pressure from concerns over weak demand and rising supply, ignoring a surprise increase in the weekly inventory draw. As a result, WTI crude has fallen for the third consecutive day, with traders now focusing on upcoming FOMC decisions and official US crude oil stockpile data for further direction.
Bitcoin (BTCUSD) has ended a three-day winning streak, pulling back from its recent all-time high. Similarly, Ethereum (ETHUSD) remains under pressure after reversing from a multi-year high on Tuesday. Both cryptocurrencies reflect the cautious market sentiment as traders await the Fed’s rate cut decision and look to positive industry moves, including support from Donald Trump.
Inflation data from the UK, Eurozone, and US housing numbers are set to precede key Federal Reserve policy decisions, but they may not move the markets significantly. Traders are largely focused on hawkish expectations for the Fed, even though a 25 basis point rate cut is expected. Markets anticipate stronger US economic forecasts and slower rate cuts in 2025, which could boost the US Dollar.
If this occurs, the Euro (EURUSD) could face further downside pressure due to ongoing issues in the Eurozone, while Gold may continue its technical breakdown, targeting $2,633 support. AUDUSD and NZDUSD are likely to hit new multi-year lows, while USDCAD could see further gains. The GBPUSD and USDJPY reactions could be mixed, and Crude Oil might revisit its weekly low.
However, any unexpected weakness in the US Dollar is likely to be short-lived, as attention quickly turns to Thursday's US Q3 GDP data and Friday’s Core PCE Price Index—the Fed's preferred measure of inflation.
May the trading luck be with you!
