Markets remain cautious early Thursday, with sentiment weighed down by unimpressive US inflation data and hawkish comments from Federal Reserve (Fed) officials. Traders are holding back as they await key events later in the day, including the Eurozone Q3 GDP data release and a speech from Fed Chairman Jerome Powell.
Although Wednesday’s US inflation data for October, including the Consumer Price Index (CPI), came in as expected, remarks from several Federal Reserve officials about a higher neutral interest rate and ongoing inflation pushed the US Dollar Index (DXY) to its highest level in a year. Key hawkish voices included St. Louis Fed President James Bullard, Kansas City Fed President Jeffrey Schmid, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan.
The strength of the US Dollar, combined with dovish remarks from European Central Bank (ECB) officials, has pushed EURUSD lower ahead of today’s Eurozone GDP data and Fed Chair Powell’s speech. The Euro is also under pressure from rising geopolitical tensions within the bloc and concerns over a potential economic crisis in Germany, leading EURUSD to hit a yearly low.
Meanwhile, Bank of England (BoE) officials have tried to reassure markets that UK inflation remains persistent, making further rate cuts unlikely. However, concerns over the UK’s economic transition, worsened by a weak budget and lack of confidence in the new government, have kept GBPUSD on a downward trajectory, now at a three-month low after five straight days of losses.
On the other hand, USDJPY has risen for the fourth consecutive day, reaching its highest level since late July, despite Japan’s government planning to extend electricity and gas price subsidies into next year. The continued rise of the Yen pair is also fueled by growing unease about the Bank of Japan’s (BoJ) stance on higher rates within the current coalition government.
Earlier in the day, Australia’s October jobs report showed disappointing results, combined with the stronger US Dollar, caused AUDUSD to fall. Despite this, Reserve Bank of Australia (RBA) Governor Michelle Bullock attempted to reassure markets, stating, "I think we are restrictive enough and will stay there until we're confident on inflation." Still, the Australian Dollar continued to slide, with the AUDUSD dropping to its lowest level since early August, extending its five-day losing streak.
Meanwhile, NZDUSD followed the same path as AUDUSD, hitting a 14-week low after New Zealand’s Food Price Index dropped to its lowest level in a year. On the other hand, USDCAD bulls remain in control, with the pair rising to its highest level since May 2020 during a five-day uptrend. The rally in USDCAD is largely driven by expectations of a dovish stance from the Bank of Canada (BoC) and weaker prices for Canada’s key export, crude oil.
On Wednesday, crude oil dropped to a two-week low, weighed down by a stronger US Dollar and worries over China’s economy. However, prices recovered after a surprise draw in weekly inventory data, as reported by the industry. Despite the rebound, oil prices lost steam early Thursday as traders awaited the official stockpile report and key US economic data and events.
Gold prices are under pressure from a stronger US Dollar and concerns about weaker demand from China, with sellers driving prices to a two-month low. The precious metal broke through a nine-month-old rising support line the day before and continued its five-day downtrend, hitting a multi-day low.
Bitcoin (BTCUSD) reached a new all-time high before pulling back from $93,500, while Ethereum (ETHUSD) also retreated from its highest levels since late July, pausing its recent downtrend of late. Crypto buyers seem to be taking a break as profit-taking kicks in at higher levels. Still, overall optimism in the industry, fueled by Donald Trump’s US election victory, remains strong.
Looking ahead, market participants will first focus on the second readings of Eurozone Q3 GDP, Employment, and September Industrial Production, which are expected to provide key insights into the region’s economic health. Following that, speeches from Bank of England (BoE) Governor Andrew Bailey and Federal Reserve Chair Jerome Powell will be in the spotlight, offering further direction on monetary policy expectations.
Overall, the US Dollar is likely to remain strong, with bulls pushing against a two-year-old resistance line, supported by hawkish Fed expectations and optimism around a potential economic boost under a Trump administration. This strength may continue to weigh on EURUSD, particularly if the Eurozone data disappoints. Meanwhile, the BoE’s failure to convince market hawks, combined with ongoing concerns about the UK economy, is expected to put downside pressure on GBPUSD.
In commodities, gold has broken key support around $2,600, which is now acting as resistance, and may head towards the 100-SMA support at $2,543 if bearish momentum continues. Crude oil prices are likely to remain stable around $68.00, unless there are surprises in the weekly inventory reports.
The Antipodean currencies are unlikely to recover soon, especially given ongoing concerns over China’s economic outlook, even if the US Dollar takes a temporary pause. Meanwhile, cryptocurrencies may extend their recent pullback, as the market lacks fresh bullish catalysts from industry news.
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