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MTrading Team • 2024-05-01

Crude Oil begins May on a negative note amid firmer US Dollar ahead of FOMC and demand-supply woes

Crude Oil begins May on a negative note amid firmer US Dollar ahead of FOMC and demand-supply woes

The usual pre-Fed inaction gains extra support from holidays in Europe, China and India to offer a sluggish start to May early Wednesday. In doing so, the traders also justify a lack of major data/events ahead of the much-awaited monetary policy announcements from the Federal Open Market Committee (FOMC).

With this, the US Dollar Index (DXY) edges higher around the fortnight peak after posting a four-month advance while commodities, Antipodeans and other riskier assets like equities and cryptocurrencies remain pressured.

EURUSD fails to cheer hawkish comments from the European Central Bank (ECB) officials and a better-than-forecast Q1 2024 GDP while GBPUSD also ignores the Bank of England (BoE) policymaker’s rejections of early rate cuts.

Further, USDJPY stays firmer around the multi-year high despite Japan’s backdoor defense of the Yen (JPY) whereas USDCAD bears the burden of a downbeat February GDP and weak oil prices, Canada’s main export.

Gold price remains depressed at a one-month low after breaking short-term key support whereas Crude Oil snapped a three-month winning streak and holds lower grounds by the press time.

On a different page, BTCUSD and ETHUSD both marked the biggest monthly fall since June 2022 in April and have been trading softer so far as market players recheck optimism surrounding the spot ETF approvals and a slump in the mining fees.

Following are the latest moves of the key assets:

  • Brent oil remains pressured for the third consecutive day, down 0.50% intraday near $86.30 by the press time.
  • Gold licks its wounds at a one-month low surrounding $2,290-85 at the latest.
  • The USD Index rises to the highest level in two weeks, up 0.13% on a day near 106.45 as we write.
  • Wall Street closed in the red while the Asia-Pacific shares drifted lower amid holidays in China and India. Further, UK shares trade mixed during the initial trading hour.
  • BTCUSD and ETHUSD both post nearly 1.5% intraday losses each to around $59,800 and $2,970 at the latest.
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King Dollar rallies ahead of Fed verdict…

On Tuesday, Chicago Purchasing Managers’ Index for April dropped to the lowest level since November 2022 while posting a 37.9 figure whereas the Texas service sector outlook deteriorated to -10.6 for the said month versus 5.5 prior. Further, the US CB Consumer Confidence for April marked a surprise slump to a 38-month low with the 97.0 figure.

However, a one-year high US Employment Cost Index for the first quarter (Q1) of 2024, 1.2% QoQ versus 1.0% expected and 0.9% prior, bolstered hawkish bias about the US Federal Reserve (Fed) and allowed the US Dollar Index (DXY) to end April on a firmer footing by posting a four-month uptrend.

With strong US employment clues fueling the Greenback, other currencies and Antipodeans slumped the previous day. Among them, the prices of Gold, Crude Oil, and the Dollars of Australia, New Zealand, and Canada gained major attention.

That said, an increase in New Zealand’s Q1 2024 Unemployment Rate and downbeat Employment Change joined pessimistic comments from Reserve Bank of New Zealand (RBNZ) Deputy Governor Christian Hawkesby to weigh on the NZDUSD prices early Wednesday. The policymaker cited inflation woes and the negative impacts of higher rates on the employment market in his latest speech.

On the same line, softer prints of Australia’s AiG PMIs for March and the Judo Bank Manufacturing PMI for April joined the broadly negative sentiment against the riskier assets to weigh on the AUDUSD prices even if China’s holiday restricts the momentum in the Asia-Pacific zone.

USDJPY stays on the front foot as traders anticipate further widening of the monetary policy divergence between the Bank of Japan (BoJ) and the US Federal Reserve (Fed). It’s worth noting that the BoJ’s rate hike and the Japanese policymakers’ verbal intervention after the Yen’s slump to a 34-year low failed to challenge the USDJPY buyers. That said, Reuters cited Sankei's report while saying that Japan may introduce measures to provide tax breaks for companies converting foreign profits into the yen and include it in the government's annual mid-year policy blueprint compiled in the summer.

Talking about the crude oil, the black gold marked the biggest daily fall in a fortnight the previous day after a private survey of Oil inventories, namely the API Crude Oil stock report, showed a surprise build in the weekly stockpile. Also exerting downside pressure on energy prices were easing geopolitical tensions in the Middle East and fears of witnessing softer demand amid downbeat inflation and activity data from major economies.

Elsewhere, Gold Price also dropped heavily as the broad US Dollar strength joined a technical break of a five-week-old rising support line, now immediate resistance near $2,330.

EURUSD was no exception in portraying the US Dollar's strength despite hawkish comments from a European Central Bank (ECB) official. In doing so, the Euro pair justified the market’s firm belief about the ECB rate cut in June, as well as mixed EU data. On Tuesday, the preliminary readings of the Eurozone Q1 GDP came in better-than-forecast but the inflation clues for April were sluggish and drowned the major currency pair. That said, ECB Governing Council Member Robert Holzmann advocated for a pause in the rate cuts after June in his speech on Tuesday. In doing so, the policymaker also said, “We have no new information in July, so I would refrain from taking any further steps.”

On the same line, GBPUSD also closed with more than 1.0% daily loss to end April on a negative note even as the Bank of England (BoE) officials push back the rate cuts. The reason could be linked to the growing doubts about the British economic transition.

  • Strong buy: USDCAD, USDJPY, US Dollar
  • Strong sell: AUDUSD, NZDUSD, GBPUSD
  • Buy: BTCUSD, ETHUSD, Nasdaq, Gold

All eyes on Powell’s defense of hawks and US employment clues…

Moving on, the pre-Fed anxiety will join holidays in Europe, as well as a light calendar elsewhere, to restrict the market moves ahead of the North American trading session, which in turn could allow the traders to consolidate the previous day’s moves. However, the broadly hawkish bias about the US central bank and hopes of witnessing clues for a delayed rate cut could keep the Greenback buyers positive.

Should the FOMC statement and Fed Chair Powell’s press conference manage to meet the market’s high expectations, the US Dollar will extend the latest run-up and weigh on the prices of commodities, as well as the Antipodeans. Though any miss on the part of the US central bank updates to confirm hawkish bias won’t hesitate to drag the Greenback toward reversing the previous day’s gains.

Apart from the Fed updates, US ADP Employment Change, ISM Manufacturing PMI, and JOLTS Job Openings, as well as the weekly official Oil inventory data, will also be important to watch for clear directions.

Overall, it’s going to be a volatile Wednesday evening and hence traders are advised to take new positions with enough care.

May the trading luck be with you!