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MTrading Team • 2024-02-13

EURUSD stays defensive with eyes on US inflation

EURUSD stays defensive with eyes on US inflation

The risk complex appears dicey early Tuesday amid the typical pre-data anxiety, as well as due to China’s week-long holidays. Also keeping the traders on the edge are the mixed signals from the US and a pause in the previous rally of equities.

It’s worth noting, however, that the US Treasury bond yields and the US Dollar edge higher as traders appear mostly convinced of a delay in the Federal Reserve’s (Fed) rate cuts, irrespective of today’s US Consumer Price Index (CPI).

Even so, the European Central Bank (ECB) policymakers’ cautious optimism prods the EURUSD sellers ahead of this week’s first readings of the Eurozone Q4 GDP. However, the GBPUSD extends the week-start rebound amid upbeat UK jobs report.

Elsewhere, NZDUSD remains on the back foot amid the receding hawkish hopes from the Reserve Bank of New Zealand (RBNZ) whereas USDJPY rises to the 11-week high amid firmer yields and dovish concerns about the Bank of Japan (BoJ).

Meanwhile, the price of gold rebounded from a two-week low, snapping a four-day losing streak whereas Crude Oil also remains firmer amid supply crunch fears.

It should be observed that the equities lack upside momentum as bulls await fresh clues to extend the run-up to the multi-year highs.

Talking about the cryptos, the BTCUSD stays mildly bid at the highest level since December 2021 but the ETHUSD retreats from the highest level in a month.

Following are the latest moves of the key assets:

  • Brent oil posts minor gains at $82.50, making rounds to the two-week high marked Friday.
  • Gold price prods a four-day losing streak while bouncing off a two-month-long support line surrounding $2,020, around $2,025 at the latest.
  • USD Index edges higher past 104.00 while posting mild gains after a four-week uptrend.
  • Wall Street closed mixed and so did the Asia-Pacific stocks. That said, shares in Europe and the UK print mild losses during the initial hour of trading.
  • BTCUSD prints mild gains at the multi-month high near $50,100 by the press time while ETHUSD retreats to $2,660 as we write.
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US Dollar bulls keep the reins ahead of CPI…

On Monday, the US Dollar ignored the downbeat US data and cautious optimism among equity traders amid hopes of witnessing delays in the Fed rate cuts. That said, the US Federal Budget Deficit for January came in $22.0 billion versus $21.0 billion expected and $129.0 billion marked in December. Further, the New York Federal Reserve’s (NY Fed’s) monthly inflation expectations data showed an easing in the price pressure as the three-year forecasts came in at 2.4% versus 2.6% prior. Also, the one-year and five-year inflation expectations reprinted the 3.0% and 2.5% respective figures.

Alternatively, comments from Federal Reserve (Fed) Governor Michelle Bowman defended the policy hawks and allowed the US Dollar, as well as the yields, to remain firmer. That said, Fed’s Bowman mentioned Monday that it is too soon to project when and how much the Fed will cut.

It should be noted that the geopolitical tensions also contributed to the US Dollar’s strength as news that the Houthi Militants fired two missiles from Yemen and could do minor damage to the two ships transporting rations to Iran challenged the market’s early optimism and allowed the US Dollar to edge higher, due to its traditional haven status. On the same line were updates from the European Union (EU) suggesting new trade restrictions on some Chinese firms that allegedly aid Russia in its war with Ukraine.

On the same line, the International Monetary Fund (IMF) Managing Director Kristalina Georgieva also crossed wires while supporting the most major central bankers trying to push back the imminent rate cuts. That said, IMF’s Georgieva mentioned that she expects interest rates to start coming down from the middle of the year.

Even if the US Dollar remains firmer the EURUSD lacks downside momentum as the ECB officials, namely Cipollone and Wunsch were the latest, hesitate to advocate the rate cut bias. The same could be said for the GBPUSD wherein the Bank of England (BoE) Governor Andrew Bailey signals a sturdy economic transition and the need for keeping rates higher for longer. Also, the latest UK employment figures were impressive and allowed the Cable to remain firmer.

On the contrary, downbeat prints of Japan’s PPI for January allow the market players to strengthen the previous bias supporting the BoJ’s sooner exit from the loose monetary policy, which in turn propels the USDJPY pair to a multi-month high. Additionally, the downbeat prints of New Zealand inflation expectations pushed back the RBNZ’s hawkish bias and weighed on the NZDUSD whereas softer Aussie sentiment figures joined the broad US Dollar strength to check the AUDUSD rebound.

Gold seesaws around the key support line whereas the geopolitical tensions in the Red Sea join Saudi Arabia’s readiness to alter the energy supplies to favor the Crude oil buyers.

Moving on, BTCUSD jumps to a multi-month high while extending the run-up triggered after the Bitcoin spot ETF approvals. Further, the ETHUSD pares recent gains as crypto traders seek more clues to defend the latest rally of the BTCUSD and the ETHUSD.

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

US CPI in the spotlight…

Having witnessed an unimpressive change in the 2023 revision of inflation data, today’s US CPI will be observed for possible hints of the Fed’s rate cuts in 2024. That said, the headline US CPI is expected to reprint 0.2% MoM figures but ease on YoY to 2.9% versus 3.2% prior. Further, the US CPI ex Food & Energy, also known as the Core CPI, is likely to mark a 0.3% MoM figure once again while the YoY might ease to 3.7% from 3.9%. Given the likely softening in the data, the US Dollar might witness an immediate retreat but the Greenback’s weakness remains elusive amid the broadly hawkish Fed concerns. Hence, today’s US CPI is important for the intraday moves but may not offer any major change in the market’s prevalent conditions unless it posts extreme outcomes.

May the trading luck be with you!