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MTrading Team • 2024-05-09

EURUSD prints three-day losing streak as firmer yields add to US Dollar strength

EURUSD prints three-day losing streak as firmer yields add to US Dollar strength

A recovery in the US Treasury bond yields joins mostly hawkish Fed talks to underpin the US Dollar’s strength amid a sluggish trading session. That said, traders await this week’s top-tier data/events while defending the previous moves in favor of the Greenback early Thursday, despite lacking momentum.

With this, the US Dollar Index (DXY) prints a four-day uptrend whereas the US 10-year and 30-year bond yields extend the previous day’s rebound while the two-year counterpart rises for the fourth consecutive day.

That said, EURUSD drops for the third consecutive day while justifying the US Dollar's strength amid holidays in multiple European markets. Further, GBPUSD also remains on the back foot while preparing for the Bank of England (BoE) induced “Super Thursday” trading.

USDJPY stays on the front foot despite mixed updates whereas AUDUSD and NZDUSD lack momentum as Chinese factors trouble momentum traders.

Further, Crude Oil defends Wednesday’s recovery from a two-month low whereas Gold price snaps a two-day losing streak within a seven-week-old falling wedge bullish chart formation.

On a different page, BTCUSD and ETHUSD print the first daily gains in four while extending a rebound from the weekly low. It’s worth noting that speculations about US President Joe Biden’s threat to veto the Bitcoin custody among trusted custodians challenged the crypto traders the previous day.

Following are the latest moves of the key assets:

  • WTI Crude oil defends the previous day’s rebound from a two-month low with mild gains around $79.40 by the press time.
  • Gold picks up bids to snap a two-day losing streak by posting mild gains near $2,315 at the latest.
  • The USD Index rises for the fourth consecutive day despite lacking upside momentum near 105.60.
  • Wall Street closed mixed but the Asia-Pacific shares edged higher. Further, British and European shares remain dicey during the initial trading hour.
  • BTCUSD and ETHUSD both print the first daily gains in four near $61,500 and $3,000 as we write.
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US Dollar stays firmer despite lackluster markets…

On Wednesday, Boston Fed President Susan Collins defended the current Fed rate status while warning about a prolonged path to the inflation target. On the other hand, Federal Reserve Governor Lisa D. Cook cited that “sizable but manageable” risk from commercial real estate while citing no harm to the financial system's resilience.

Apart from the mixed Fed talks, mostly hawkish, upbeat prints of Atlanta Federal Reserve’s (Fed) GDPNow model’s upbeat forecast of the US Q2 GDP, from 3.3% to 4.2%, also favored the US Dollar bulls, especially when the Treasury bond yields recovered. Further, strong prints of the US MBA Mortgage Applications for the week ending on May 03, to 2.6% from -2.3% prior, joined the fresh fears emanating from China and the Sino-American woes to challenge the sentiment and allow the Greenback to remain firmer.

Reuters cited sources familiar with the matter to mention that the US is eyeing a move to safeguard US AI from China, with initial plans to protect the most advanced AI models first and foremost.

China’s top-tier real-estate developer Country Garden said it will delay the 3.95% state-guaranteed bond coupon payment from the initial deadline of May 09 to May 13. The property developer cited slower sales than expected as a catalyst behind the inability to pay on time.

In contrast to the property sector woes, China’s Trade Balance for April improved on both CNY and USD basis, which in turn allowed commodities to extend the late Wednesday’s recovery amid a sluggish session and push back the risk aversion wave. It’s worth observing that the AUDUSD and NZDUSD stay inactive amid mixed signals from China.

The US Dollar’s ability to stay firmer joined mostly unimpressive comments from the European Central Bank (ECB) officials to weigh on the EURUSD prices despite an absence of major data/events. That said, ECB Governing Council Member Pierre Wunsch said he sees a path for initiating rate cuts this year. Another policymaker Robert Holzmann mentioned, “I don’t see a reason to lower rates too much too quickly.”

GBPUSD pares the previous weekly gains ahead of today’s BoE action, especially amid hopes of witnessing a hawkish halt from the British central bank. It should be noted, however, that chatters about the UK’s economic fragility tested the Pound Sterling buyers of late, especially when the US Dollar recovers.

On the other hand, as per the Reuters’ report of the latest Summary of Opinions for the Bank of Japan’s (BoJ) April 25-26 meeting, the BoJ board members turned overwhelmingly hawkish with many calling for steady interest rate hikes to forestall risks of an inflation overshoot. The Summary, however, also cited expectations for easy monetary conditions to continue. BoJ Governor Kazuo Ueda also crossed wires and disliked the sharp, one-sided Yen fall. The policymaker also said, “If FX volatility affects, or risks affecting trend inflation, BOJ must respond with monetary policy.” The BoJ-linked updates failed to tame the USDJPY pair’s four-day uptrend amid a recovery in the US Treasury bond yields and mixed prints of Japan statistics. That said, Japan’s real wages dropped for the consecutive 24th month in March while Coincident Index and Leading Index for March also came in unimpressive.

Crude Oil marked a stellar recovery on Wednesday, after falling to the lowest level in two months, as talks of the US refiling of the Strategic Petroleum Reserve (SPR) joined geopolitical woes in the Middle East and a surprise fall in the US weekly oil inventories.

Moving on, Gold dropped in the last two consecutive days before posting a corrective early on Thursday. The precious metal, however, stays within a two-month-long falling wedge bullish chart formation amid a light calendar and mixed market mood, not to forget the firmer US Dollar.

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

BoE, US data and central bank talks are the key…

Given the presence of the BoE’s quarterly Monetary Policy Report, the GBPUSD pair is likely to grab the spotlight on Thursday. Even if the “Old Lady”, as the BoE is informally known, isn’t expected to alter the current monetary policy, traders will keep an eye on the economic projections and Governor Andrew Bailey’s speech for clear directions. Overall, the Pound Sterling is less likely to benefit from today’s BoE unless it offers too extreme measures, which aren’t expected to gain any credibility and pull the pair back after an initial run-up.

In addition to the BoE, the weekly readings of the US Jobless Claims and speeches from the Canadian and European central bank officials will also offer momentum. However, holidays in multiple European markets could join the light US data/events and mixed Fed talks to challenge the volatility, which in turn might help the US Dollar to defend the latest gains unless witnessing any drastic negatives.

May the trading luck be with you!