Trading outlook remains cautious on Monday after a mostly positive week, as China faces deflation and concerns rise over US aluminum and steel tariffs. Markets also stayed in a holding pattern ahead of the US CPI data and the FOMC blackout. This allowed the US Dollar Index (DXY) to recover slightly from its four-month low after its biggest weekly drop since November 2022.
Concerns about US growth slowing, partly due to mixed data and trade war worries, combined with a lack of hawkish signals from the Federal Reserve, have recently hurt the USD. Additional pressure comes from fears of a US government shutdown and easing political tensions in Europe, Ukraine, and Russia. On Friday, the US Nonfarm Payrolls (NFP) report was slightly upbeat, but a rise in the unemployment rate and slower wage growth, along with Fed Chair Powell’s cautious stance, weighed on the USD.
EURUSD pauses at its highest level since November 2024 after a strong weekly gain, the biggest in 29 months, as traders reassess optimism about the Eurozone, fueled by hopes of increased German spending and reduced geopolitical tensions. However, the European Central Bank’s (ECB) cautious stance and upcoming speeches from ECB President Lagarde, along with Wednesday’s US CPI, could limit further Euro gains.
Meanwhile, USDJPY pulls back after bouncing from a five-month low, as Japan’s fastest wage growth in 32 years raises expectations for Bank of Japan (BoJ) rate hikes. However, Japan’s first current account deficit in two years, falling real wages, and a cautious outlook are limiting USDJPY's downside at multi-month lows.
The recent UK data improvement and broad US Dollar weakness helped GBPUSD post its best week since November 2022. However, concerns about the new British government’s ability to maintain growth, amid tariff issues and speculation about Bank of England rate cuts, are limiting further gains. Additionally, market uncertainty ahead of this week’s US inflation data, tariff announcements, and the UK’s monthly data release also test the Pound’s additional upside.
AUDUSD and NZDUSD rise to recover from the previous day’s losses, while USDCAD dips despite weaker crude oil prices and political unrest in Canada, trimming Friday’s gains, its first in four days. The Antipodean currencies struggle for direction as soft China inflation data, stimulus hopes, and dovish central bank stances weigh in. However, a weaker US Dollar helps them edge higher despite recent lackluster movements.
Despite concerns about weak demand from China and India, which recently tested Gold's technical resistance levels, the precious metal remains in an overall uptrend. Gold buyers continue to push higher, fueled by expectations of softer US inflation, which challenges the Fed's hawkish stance. Additionally, fears of global growth, driven by new tariffs and geopolitical tensions, drive traders toward Gold as a safe-haven asset.
While other commodities and currencies benefited from a weaker US Dollar, Crude Oil fell to a multi-week low due to fears of an OPEC+ supply increase in April. The drop was also fueled by Trump’s push for higher output and concerns about declining global energy demand amid growth fears.
Even as a generally positive White House Crypto Summit and news of US President Donald Trump’s Bitcoin reserve, the impact on Bitcoin (BTCUSD) and Ethereum (ETHUSD) sellers was limited. Trump’s reserve announcement was mostly negative, combined with waning interest from institutional investors, leading to a significant crypto decline last week.
The forex market is expected to have a quiet start to the week due to a light economic calendar and the pre-FOMC blackout period. However, traders will watch ECB President Christine Lagarde's speech, updates on US metal tariffs, and geopolitical tensions involving Canada, Russia, Ukraine, and Iran for potential market moves. If risk aversion persists during the North American session, the US Dollar could recover from last week's losses, potentially causing pullbacks in EURUSD and GBPUSD, especially with the ECB and BOE's dovish outlooks. USDJPY and Gold may remain stable, while Antipodean currencies could lack momentum, and crude oil might attract sellers. Cryptocurrencies could see continued selling, while equities may pause their recent gains.
This week, key data releases such as the US CPI on Wednesday, US PPI on Thursday, and Friday’s UoM Consumer Sentiment Index, along with economic reports from Japan, the UK, and Europe, will provide market insights, potentially helping the Greenback recover before next week’s FOMC meeting.
May the trading luck be with you!
