Crude Oil retreats after gap-up opening, focus on geopolitics, Fed and US NFP

The risk appetite remains sluggish early Monday as market players brace for this week’s top-tier data/events, namely the Federal Reserve’s (Fed) Interest Rate announcements and the US jobs report for January 2024. Also challenging the sentiment could be the recent escalation in geopolitical tensions and a lack of catalysts early in the day.

Against this backdrop, the US Dollar bulls take a breather after a four-week uptrend while the EURUSD licks its wounds at a seven-week low. That said, USDJPY retreats amid sluggish yields and fresh concerns that the Bank of Japan (BoJ) will re-think its defense of the easy-money policies.

It’s worth noting, however, that AUDUSD and NZDUSD edges higher while tracing upbeat prices of the commodities, especially when China braces for more stimulus and takes measures to tame the equity rout.

With this, the Gold Price rose after a two-week downtrend while Crude Oil began the week with an upside gap before retreating of late.

Elsewhere, BTCUSD and ETHUSD grind higher following the news suggesting Google’s change in policies to defend spot crypto ETFs.

Following are the latest moves of the key assets:

• Brent oil retreats from a two-month high while filling the week-start gap near $83.00 at the latest.
• Gold price rises more than half a percent to pare the previous two-week downtrend around $2,030.
• USD Index hovers at a six-week high, remaining indecisive near 103.50 as we write.
• Wall Street closed mixed but the Asia-Pacific stocks drifted lower. That said, equities in the UK and Europe appear dicey during the initial hour.
• BTCUSD remains clueless near $42,000 while ETHUSD posts minor gains near a three-week low of $2,260 at the latest.

US Dollar retreats, commodities edge higher as the key week begins…

The Fed’s preferred inflation gauge, namely the US Core PCE Price Index, dropped to the 33-month low on Friday and challenged the previous bias suggesting a delay in the US central bank’s interest rate cuts, which in turn tests the US Dollar bulls of late. Further, a cautious mood ahead of this week’s Federal Open Market Committee (FOMC) meeting and the US employment report for December also challenge the Greenback buyers.

While the US Dollar lacks upside momentum, escalated tensions in the Middle East and China’s equity rout, after Evergrade liquidation news, direct haven flows toward the XAUUSD, especially when the bullion funnels down the breakout point of the six-week-old symmetrical triangle. On the same line, the supply crunch fears from the Middle East propel the energy price but the fears of energy demand and cautious mood test the Crude oil buyers at the latest.

Elsewhere, China’s efforts to defend big managers of bad debts and strict policies to restrict short-selling, as well as the stimulus announcements, signal more commodity demand from one of the world’s biggest industrial players. It should be noted that US Treasury Secretary Janet Yellen also tamed fears about the Chinese equity rout and teased the bullion buyers. The policymaker said that the US officials received assurances that Chinese banks are “doing well”.

Meanwhile, the former Fed Governor and current Direction of the US National Economic Council (NEC) Lael Brainard renewed the US soft landing concerns and put a floor under the US Dollar. The official said that the (US) economy is 'upbeat' and inflation is getting anchored at 2%. This keeps the US Dollar buyers hopeful as the key week begins.

Moving on, European Central Bank (ECB) policymaker Klaas Knot said during the weekend that they now have a credible prospect of 2% inflation in 2025. ECB’s Knot also added that the only piece that's missing is the conviction that wage growth will adapt to lower inflation while also saying, “As soon as that piece of the puzzle falls in place, we will be able to lower interest rates a bit.” With such hawkish comments from the ECB official, the anxiety of the US Dollar bulls ahead of the key data/events weighed on the Greenback.

• Strong buy: USDCAD, USDJPY
• Strong sell: Crude Oil, US Dollar, GBPUSD
• Buy: BTCUSD, ETHUSD, Nasdaq, Gold
• Sell: DAX, FTSE 100, BTCUSD, AUDUSD, EURUSD

Second-tier US data, risk catalysts to entertain traders…

Monday is likely to offer a dull start for the key week as no major data/events occupy the economic calendar. Even so, the risk catalysts and the US Dallas Fed Manufacturing Index for January will entertain momentum traders. It’s more expected that the market players will brace for this week’s hawkish FOMC and may portray the bearish US Dollar moves ahead of the event, which in turn can join the risk-off mood to fuel the commodities and Antipodeans.

May the trading luck be with you!