Thursday didn’t turn into a “Turnaround Day” as markets stayed cautious amid mixed signals on US trade, Iran tensions, and mostly weak US data. Fed officials remained dovish, reinforcing expectations of rate cuts by year-end, now priced at around 65 basis points.
In trade news, US officials described the rare-earth agreement with China as merely an “understanding,” not a finalized deal. The US also sent a new trade proposal to the EU, though optimism was capped by France’s threat to retaliate against US tariffs and Japan’s ongoing opposition to auto tariffs.
On geopolitics, Iranian sources denied any agreement with Washington on nuclear talks. At the same time, other reports said Iran has stored enriched uranium in protected tunnels, casting doubt on any efforts to dismantle its nuclear capacity.
Economic data painted a mixed global picture: Japan’s inflation, retail sales, and jobs data disappointed, and China’s industrial profits declined. In the US, a wider trade deficit and downwardly revised Q1 GDP clashed with better-than-expected durable goods orders and softer jobless claims.
Fed officials echoed Powell’s earlier “wait and see” stance, further boosting dovish bets. Meanwhile, New Zealand’s inflation expectations rose, and Canada’s average weekly earnings increased, supporting a hawkish tilt from the Bank of Canada.
Crude oil rebounded slightly after news of delays in US Strategic Petroleum Reserve (SPR) contributions, but lacked strong momentum due to easing supply concerns and the potential for increased OPEC+ output. Gold extended its slide to a monthly low near $3,280 despite a weaker US Dollar Index (DXY), now at its lowest since February 2022.
Major currencies, Antipodeans, and equities paused recent gains ahead of today’s key US Core PCE Price Index — the Fed’s preferred inflation measure. Meanwhile, cryptocurrencies resumed their upward trend after a brief pullback.
The euro and pound eased after reaching their highest levels since late 2021, as weak German consumer confidence, mixed US-EU trade updates, and cautious ECB comments pressured EURUSD, ending its six-day winning streak. GBPUSD also turned defensive after hitting its highest since October 2021. Still, broad US dollar weakness, market relief over ceasefire news, and recent technical breakouts keep the bullish outlook intact.
Meanwhile, USDJPY remains under pressure after dropping to a one-week low. Japan’s core inflation slowed for the first time in four months, retail sales growth eased, and unemployment held steady at 2.5%. Earlier, strong demand for Japanese Government Bonds (JGBs) boosted BoJ rate hike expectations and added to USDJPY weakness amid a soft dollar.
AUDUSD and NZDUSD lose steam after a four-day winning streak, as markets turn cautious ahead of key Fed inflation data. NZDUSD finds some support from strong New Zealand inflation expectations. USDCAD remains pressured after its biggest daily drop in over a month, weighed down by strong Canadian data and US-Canada trade optimism, which boost hopes of a BoC rate cut pause. However, weaker crude oil prices limit USDCAD’s decline, as oil is a major Canadian export.
Gold is heading toward a six-month-old ascending trendline near $3,280, eyeing a second straight weekly loss. This comes despite a weaker US Dollar and signs of rising demand from China. Another report also shows gold has overtaken the euro as the second-largest reserve asset among global central banks. Still, historical May-June pullbacks and repeated failure to break the $3,435 resistance keep pressure on the metal.
Like gold, crude oil fails to benefit from a softer US dollar, weighed down by easing Middle East supply fears, expectations of higher OPEC+ output, and concerns over US trade and political policies. A slight price bounce followed the US Energy Department's comments about delayed 2025 SPR deliveries, but it lacked a strong impact.
Meanwhile, Bitcoin (BTCUSD) and Ethereum (ETHUSD) rebound, recovering from the previous day’s dip. Crypto sentiment improves on positive industry news, a weaker dollar, and optimism following the Israel-Iran ceasefire deal.
After a quiet start to Friday, volatility is expected during the European and US sessions as key central bankers from the ECB, BoE, and Fed speak. The main focus will be the US Core PCE Price Index for May — the Fed’s preferred inflation gauge. If the data shows easing price pressures, the US Dollar may weaken further, supporting gains in major currencies, Antipodeans, and commodities.
Crude oil’s rebound could strengthen on Middle East peace signals, while gold must bounce from $3,280 and close higher to attract fresh buying, which seems unlikely. Equities and cryptocurrencies may stay firm, and bond yields could drop unless hit by negative surprises from US trade or geopolitical developments.
May the trading luck be with you!
