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MTrading Team • 2024-04-17

EURUSD stays pressured ahead of EU inflation, ECB President Lagarde’s speech

EURUSD stays pressured ahead of EU inflation, ECB President Lagarde’s speech

Market sentiment remains downbeat as hawkish comments from the Federal Reserve (Fed) officials join geopolitical woes surrounding the Middle East. Also weighing on the risk complex could be the latest update from the International Monetary Fund’s (IMF) Global Financial Stability Report (GFSR).

With this, the US Dollar Index (DXY) seesaws at the yearly high, lacking upside momentum of late, whereas Gold price retreats from the previous day’s high surrounding $2,400 by respecting Tuesday’s Doji candlestick on the daily chart.

That said, EURUSD portrays a seven-day downtrend while GBPUSD bounces off a five-month low despite mixed inflation data at home and unclear mood ahead of top-tier central bankers’ speeches from the European Central Bank (ECB) and the Bank of England (BoE).

USDJPY retreats from the 34-year high amid a pullback in the top-tier yields, ignoring downbeat Japan data, whereas Crude oil extends the previous day’s losses amid a firmer US Dollar and fears of energy demand.

At the last, the BTCUSD and ETHUSD lack clear directions as fears of a crypto market crash contrast with optimism about negative funding rates.

Following are the latest moves of the key assets:

  • Brent oil stays pressured for the second consecutive day as sellers attack $90.00 by the press time.
  • Gold price remains depressed at around $2,380 at the latest, justifying the previous day’s Doji candlestick.
  • The USD Index seesaws at the highest level since November 2023, posting mild losses near 106.25 as we write.
  • Wall Street closed mixed and so did the Asia-Pacific stocks. Further, European and UK shares lack clear directions during the initial trading hour.
  • BTCUSD and ETHUSD both print mild gains to around $64,000 and $3,100 at the latest.
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US Dollar edges higher on Fed Chair Powell’s statements, war fears…

US Dollar Index (DXY) seesaws at the highest level since November 2023 amid dicey markets early Wednesday. Even so, the greenback’s gauge versus the six major currencies stays on the bull’s radar amid hopes of witnessing no rate cuts soon from the Federal Reserve (Fed). Also underpinning the US Dollar could be the looming fears of the Israel-Iran war and the market chatters about worsening inflation conditions.

On Tuesday, Israeli media stated that the nation’s war cabinet decided to strike inside Iran and that it should begin "as soon as possible." On the same line, the Financial Times (FT) quoted an anonymous Israeli official saying, “The intent is to send a painful message to Iran.”

Further, White House National Security Adviser Jake Sullivan also tweeted that the US will impose new sanctions on Iran and added that the US allies and partners will soon be following suit.

Elsewhere, the International Monetary Fund (IMF) also released its Global Financial Stability Report (GFSR) and flagged inflation woes while stating, “Confidence in an economic 'soft landing' is growing in financial markets, but persistent inflation could trigger instability.” The IMF’s GFSR also suggested that central banks should avoid premature policy easing.

It should be noted that Fed Chair Powell also crossed wires Tuesday and said, “Despite the strong performance of the U.S. economy, there has been a persistent lack of progress on inflation this year, with recent data showing that core PCE inflation is expected to stabilize at around 2.8% for March.” The policymaker also mentioned that the restrictive monetary policy currently in effect needs additional time to demonstrate its full effects.

Federal Reserve Governor Philip Jefferson also pushed back the rate cut concerns while citing persistent inflation in a recent statement, indicating that if inflation continues to outpace expectations, it may be necessary to maintain the current restrictive monetary policy stance for an extended period. 

Apart from hawkish Fed comments and the geopolitical woes, upbeat prints of the Atlanta Fed’s GDPNow model showing 2.9% Q1 US GDP growth, versus 2.8% expected previously, also favored the US Dollar. On the same line were the US Industrial Production figures for March that matched market forecasts of printing 0.4% MoM figures versus the upwardly revised 0.4% mark.

Meanwhile, softer US Building Permits and Housing Starts for March joined the market’s consolidation to test the US Dollar bulls at the multi-day high.

On the other hand, ECB President Christine Lagarde, in an interview on CNBC, indicated that the European Central Bank is poised to reduce interest rates soon, assuming there are no significant unexpected developments. With this, EURUSD dropped to a fresh low since November 2023, pressured of late.

BOE Governor Bailey also commented on the disparity between US and European inflation saying that there is more demand pressure in the US. The policymaker also added, “I see strong evidence that the process of disinflation is working its way through.” It should be noted that the mixed UK inflation numbers, published early Wednesday, tested the GBPUSD bears at the multi-day low.

That said, Bank of Canada (BoC) Governor Tiff Macklem offered a public appearance and said that the Monetary policy is getting more traction in Canada (versus the US) while adding, “I think economic strength in Q1 will be sustained through 2024.” The same joined downbeat crude oil prices to propel the USDCAD price.

USDJPY retreats from the multi-year high while tracing a pullback in the US Treasury bond yields and ignoring mostly downbeat data at home. That said, the Reuters-Tankan survey of Japanese Manufacturers and Non-Manufacturers showed a reduction in confidence with respective indices falling in March. Also, the Japanese trade deficit widened amid downbeat import-export data.

Elsewhere, NZDUSD bounced off the yearly low to become the biggest gain among the G10 currency pairs even as New Zealand’s quarterly Consumer Price Index (CPI) eased to 4.0% YoY for the first quarter (Q1) of 2024 from 4.7% prior. The reason could be linked to upbeat prints in the Q1 2024 QoQ figures that improved to 0.6% versus 0.5% in previous remarks.

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

Inflation, central bankers eyed…

Looking forward, the final readings of the Eurozone inflation numbers will precede speeches from ECB President Christine Lagarde and BoE Governor Andrew Bailey to entertain intraday traders. Also important will be commentary from second-tier Fed officials, the Fed Beige Book, and weekly prints of the US official oil inventory data. While a likely easing in the EU inflation and dovish statements from ECB’s Lagarde could exert downside pressure on the EURUSD, the GBPUSD pair may extend the latest corrective bounce from a multi-day low if BoE’s Bailey chooses to defend his hawkish bias. That said, the ongoing geopolitical tensions in the Middle East and Fed officials’ rejections of early rate cuts could allow the US Dollar to edge higher, which in turn can challenge the buyers of gold and crude oil, as well as weigh on the Antipodeans.

May the trading luck be with you!