Despite being expected to be a quiet day, Wednesday saw volatile trading driven by several global concerns. Markets were anxious over the Iran-Israel ceasefire’s sustainability, with mixed reports about Iran’s uranium enrichment capabilities and its willingness to engage. Adding to the uncertainty, Iranian leader Ayatollah Ali Khamenei hadn’t made a public appearance for over a week. Additionally, there were conflicting discussions surrounding the US trade deal and the global reception to Trump’s tariffs, keeping traders on edge. The release of disappointing US housing data also weighed on sentiment.
Fed Chair Jerome Powell’s "wait and see" stance in his second testimony continued to fuel uncertainty. At the same time, Trump’s early nomination for the next Fed Chair raised concerns that political influence might affect central bank independence.
At the same time, China’s National Development and Reform Commission, along with Premier Li and Finance Minister Lan Fo'an, showed readiness for more economic stimulus, expressed economic optimism, and voiced frustration with US trade policies, which further dampened market risk appetite.
On the trade front, Italy accepted US tariffs, while Japan resisted tariffs on its auto industry. That said, Japan also witnessed a sharp rise in demand for Japanese Government Bonds (JGBs).
This combination of factors caused the US Dollar Index (DXY) to fall to its lowest level since March 2022, lifting EURUSD and GBPUSD to multi-month highs. Meanwhile, USDJPY reversed the previous day’s rebound, and AUDUSD and NZDUSD climbed for the fourth consecutive day. USDCAD also pulled back from Wednesday’s gains despite weaker Crude Oil prices, while cryptocurrencies saw slight gains.
In commodities, Crude Oil failed to respond to sustained depletion in the US weekly inventories, as there were no new supply fears from the Middle East. Gold, on the other hand, struggled to hold onto the previous day’s rebound from its 11-week-old support level. As a result, equities were mixed and bond markets remained jittery, with traders awaiting speeches from policymakers in the Eurozone and the UK, as well as key data releases from the US.
The broadly weaker US Dollar, combined with mixed domestic catalysts and technical breakouts, helped push EURUSD to its highest level since September 2021 and GBPUSD to its highest since January 2022. Despite European Central Bank (ECB) officials repeating their cautious economic outlook and defending the rate-cut bias, EURUSD continued its upward momentum, breaking through a two-month resistance level to reach a multi-month high. On the other hand, Bank of England (BoE) officials sounded somewhat more optimistic, though they acknowledged ongoing challenges with employment and inflation, along with a grim economic survey from private institutions in the UK.
Strong demand for 2-year Japanese Government Bonds (JGB) and the Bank of Japan's readiness for further rate hikes, supported by positive inflation data, are driving USDJPY lower. This follows the pair's rebound the previous day, and it now looks set for its biggest weekly loss in over a month. Additionally, market caution, along with the yen's appeal as a safe-haven currency, contributed to the pair's decline. It’s worth noting, however, that Tokyo’s open criticism of the US auto tariffs and upcoming elections in July challenge the USDJPY sellers of late, especially ahead of the key US data.
road market optimism, hints of China’s stimulus, and a weaker US Dollar helped AUDUSD and NZDUSD extend their four-day winning streak, despite a lack of strong local drivers. Meanwhile, USDCAD struggles to find momentum as falling crude oil prices, mixed Canadian inflation data, and the Bank of Canada’s dovish stance weigh on the pair.
Crude oil prices remain lower, pressured by the absence of supply concerns from the Middle East, despite downbeat US inventory levels, and are on track for their biggest weekly loss since March 2023. Meanwhile, gold struggles to capitalize on a weaker US Dollar, staying defensive even after a bounce from multi-week support, while ignoring China’s plans to stockpile more gold.
Bitcoin (BTCUSD) and Ethereum (ETHUSD) hit weekly highs on Thursday, boosted by a softer US Dollar, market optimism from the Iran-Israel ceasefire, and news that the Fed pushes mortgage providers to accept cryptocurrency as an asset. However, a cautious mood ahead of key US data releases later in the week seems to be limiting further gains for crypto buyers.
Looking ahead, speeches from ECB and BoE policymakers will attract attention, but the focus will be on US Durable Goods Orders, PCE, final Q1 GDP readings, Pending Home Sales, and Jobless Claims. Developments in the Middle East and US trade deals will also be key for market direction.
The US Dollar could react strongly if the data points to inflation woes, stronger growth, and improved employment conditions, along with mixed risk factors. However, USDJPY may not be impacted much due to its safe-haven appeal and the Bank of Japan’s hawkish stance. Other major currencies, along with the Antipodeans and cryptocurrencies, could face a pullback. Meanwhile, gold and crude oil may end June lower, while equities could see modest gains.
May the trading luck be with you!
