EURUSD begins key week with a gap-up, fails to justify French election woes

Traders appear cautiously optimistic early Monday as softer inflation clues from the US join a likely compromised stabilization of political upheaval in major economies after the recent elections. However, anxiety ahead of this week’s UK elections, US employment numbers and the Minutes of the latest Federal Open Market Committee (FOMC) Meeting challenge momentum.

With this, the US Dollar Index (DXY) extends Friday’s losses and challenges the four-week uptrend whereas EURUSD leads the G10 currency pairs with a surprise gap towards the north despite downbeat exit polls from France. Further, GBPUSD also cheers the US Dollar’s pullback before top-tier catalysts while the USDJPY pair remains on the front foot around the highest level since 1986 marked the previous day.

That said, AUDUSD and NZDUSD struggle amid mixed data from China whereas USDCAD licks its wounds after a three-week downtrend despite strong prices of Canada’s main export item, namely Crude Oil.

Crude Oil stays firmer at the highest level in two months while ignoring the news of higher Oil production. It’s worth noting that the Gold price stays lackluster after posting a Doji candlestick on the monthly chart, especially amid mixed markets and a lack of buying from China.

Elsewhere, BTCUSD and ETHUSD both gain more than 1% each while defending the previous week’s recoveries amid fresh optimism surrounding the crypto markets due to higher participation before the spot ETF launch.

Following are the latest moves of the key assets:

• WTI Crude oil buyers flirt with $82.00 at the highest level in two months, up 0.60% intraday by the press time.
• Gold seesaws around $2,325 after bouncing off the key $2,293 support in the last week.
• The USD Index drops for the third consecutive day, challenging the previous four-week uptrend, while falling to 105.50 at the latest.
• Wall Street closed with minor losses while the Asia-Pacific shares edged higher. That said, equities in Britain and Europe posted mild gains during the initial trading hour.
• BTCUSD and ETHUSD both gain more than 1.0% as we write while printing $63,300 and $3,480 quotes respectively.

US Dollar bulls struggle as the key week begins…

Friday’s US Core PCE Price Index confirmed the market’s bias of witnessing at least two rate cuts from the US Federal Reserve (Fed) in 2024 after the headline inflation gauge eased for June. Also weighing on the US Dollar is the broad consensus that the political upheaval in major economies, due to the national elections, will eventually settle with the ruling parties’ compromises.

It should be observed that the softening of the US Core PCE Price Index and anticipated political settlement were the only reasons for the US Dollar’s latest fall, the weaker prints of the UoM Consumer Inflation Expectations and the Federal Reserve officials’ inability to defend “one rate cut” bias also weighed on the Greenback ahead of this week’s top-tier catalysts. Furthermore, mostly mixed prints of China’s PMI for July and optimism of the Asian policymakers also keep the risk appetite firmer and challenge the USD bulls.

On the other hand, French elections suggest the victory of the far-right party and should have drowned the EURUSD pair amid the harsh defeat of the ruling party. However, the details suggest that the current President Emmanuel Macron can still keep the government with slight adjustments and restore the balance of power with a coalition after the second round of elections. Additionally, the hopes of witnessing fewer rate cuts from the European Central Bank (ECB) after the recently announced one, backed by upbeat data, allowed the Euro to remain firmer amid the US Dollar’s pullback.

On the same line, hopes for the Tory party’s ability to keep power after Thursday’s UK elections join Friday’s upward revision of the Q1 2024 UK GDP to allow the GBPUSD prices to edge higher after snapping a three-week losing streak in the last.

Alternatively, USDJPY extends the three-week uptrend while posting mild gains around the multi-year high marked the last week as Japan PMIs and quarterly industrial surveys fall short of defending the Bank of Japan’s (BoJ) hawkish bias.

AUDUSD challenges the three-week uptrend while the NZDUSD stays pressured after falling in the last two weeks as China’s official and Caixin PMIs print unimpressive data for June. Even so, the policymakers’ readiness to improve ties with Pacific majors, as well as propel the domestic economy with more stimulus, put a floor under the commodities and Antipodeans. That said, USDCAD struggles for clear directions despite upbeat prints of Canada inflation and firmer Oil prices as the Bank of Canada (BoC) lacks a hawkish bias.

Crude Oil remains on the front foot after a three-week uptrend, making rounds to the two-month high marked the previous day, even as the US Energy Information Administration (EIA) data showed higher oil production in June. The reason for the black gold’s latest run-up could be linked to hopes of China stimulus and a continuation of geopolitical woes in Russia and the Middle East.

Gold price fails to justify its safe-haven appeal amid the dicey markets, as well as due to the bearish candlestick formation on the monthly chart, as traders await US Nonfarm Payrolls (NFP) and monthly PMIs.

• Strong buy: USDCAD, USDJPY, US Dollar, Silver
• Strong sell: AUDUSD, NZDUSD, GBPUSD
• Buy: BTCUSD, ETHUSD, Nasdaq, Gold, DJI30, USDCNH
• Sell: DAX, FTSE 100, EURUSD, Crude Oil

Mid-tier data to entertain momentum traders…

Be it the first readings of German inflation or the US S&P Global and ISM Manufacturing PMIs for June, not to forget the UK Manufacturing PMI for the last month, a slew of second-tier data are set to entertain the momentum traders on Monday. It’s worth noting, however, that the European and British political headlines and the US inflation clues will gain major attention and should be observed for clear directions amid the market’s consolidation after the month-end and quarter-end moves. Should the early signals suggest the normalization of previous Fed bias and political jitters, the US Dollar might regain upside momentum and weigh on the commodities, as well as the Antipodeans.

May the trading luck be with you!