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MTrading Team • 2023-10-31

EURUSD retreats as risk-aversion fuels US Dollar, Eurozone inflation eyed

EURUSD retreats as risk-aversion fuels US Dollar, Eurozone inflation eyed

The risk appetite turns sour again, after a slightly positive week-start, as tensions surrounding Gaza joined downbeat China PMI and softer German inflation figures. Adding to this, the Bank of Japan’s (BoJ) extension of JGB yield limits to 1.0% also prods the previous optimism.

With this, the US Treasury bond yields joined the US Dollar to regain the upside momentum while weighing on the riskier assets like shares, commodities and Antipodeans.

That said, the fears of witnessing softer Eurozone inflation and a prolonged policy pivot at the European Central Bank (ECB) allowed the Euro bears to return while the Yen was amongst the biggest losers among the G10 currencies. Further, the risk-off mood and the fresh fears about China’s economic recovery weighed on the AUDUSD, another risk barometer, while GBPUSD keeps bearing the burden of the UK’s economic woes.

Elsewhere, Gold Price extends the week-start pullback from the multi-month high while Crude Oil licks its wounds at the lowest level in two weeks. Further, US stock futures print mild losses and the Asia-Pacific shares edged lower while the Wall Street benchmarks closed positive.

Talking about the cryptos, ETHUSD fails to cheer a shortened supply of Ethereum due to the latest jump in demand while BTCUSD also retreats despite increasing optimism about the Bitcoin ETF approvals.

Following are the latest moves of the key assets:

  • Brent oil remains dicey at the two-week low, around $86.70 by the press time.
  • Gold price stays defensive around $1,995 after reversing from a 5.5-month high the previous day.
  • USD Index prints mild gains around 106.30 after a downbeat start to the week.
  • Wall Street closed with gains but the Asia-Pacific stocks edged lower. However, equities in Europe and the UK are dicey of late.
  • BTCUSD and ETHUSD both pare recent gains around $34,200 and $1,800 as we write.
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King Dollar returns to the Throne

Mostly downbeat data outside the US joined escalating fears from Gaza to intensify the risk-off mood, which in turn allowed the US Dollar to regain the upside momentum as market players await this week’s top-tier data/events.

That said, China’s official activity data from NBS failed to back hopes of faster economic recovery in the Dragon Nation as October’s Manufacturing PMI and Non-Manufacturing PMI both slipped beneath the market forecasts and priors.

Further, the Bank of Japan (BoJ) matched market consensus and refrained from any change in the current monetary policy, as well as defended the easy-money practices. Even so, the Japanese central bank’s tweak to the 10-year JGB yields, from 0.5% to 1.0%, weighed on the JPY and allowed the Greenback to float higher, especially amid the hawkish bias about the Fed.

On Monday, the downbeat prints of Germany’s inflation data for October and mixed GDP data for the Eurozone allowed the US Dollar to cheer the comparatively strong US fundamentals versus the bloc. The US Dollar strength could also be linked to the market’s consolidation ahead of the key data/events, as well as the paring of the latest gains amid risk-aversion.

Israel’s ground operation in Gaza extends despite Hamas’ claims of firing anti-tank missiles and using hostages. Reuters came out with the news saying that Israel said its troops freed a soldier from Hamas captivity, one of 239 hostages who Israel says were captured on Oct. 7. Hence, the geopolitical woes are likely to escalate for the next few days and may keep the US Dollar in demand.

  • Strong buy: USDCAD
  • Strong sell: ETHUSD, GBPUSD, Gold
  • Buy: USD Index, Nasdaq, USDJPY

Eurozone inflation is the key

The first readings of Eurozone inflation data, Chicago PMI for October and the US CB Consumer Confidence figures for the said month will decorate today’s economic calendar. It should be noted that a likely softening in the EU inflation will strengthen the dovish concerns about the European Central Bank (ECB) and help the US Dollar to extend the latest rebound. Additionally, firmer US consumer sentiment and activity data could bolster the hopes of witnessing one more Fed rate hike in 2023 and can act as an additional positive for the US Dollar.

May the trading luck be with you!