GBPJPY defends recovery despite mixed UK employment data

On Monday, market movements were limited due to Japan’s holiday and a quiet economic calendar elsewhere. However, early Tuesday showed some cautious optimism as concerns about the Iran attack decreased. This optimism was also supported by the return of Japanese traders after a long weekend and expectations of rate cuts from the US Federal Reserve due to lower inflation expectations.

In this context, the US Dollar Index (DXY) stalled after falling for two days. Despite this, the EURUSD and GBPUSD currency pairs continued to recover. USDJPY remained strong, driven by a slightly positive mood and mixed views on the Bank of Japan (BoJ).

AUDUSD, USDCHF, and GBPJPY showed mild gains as risk indicators, while NZDUSD also remained strong, preparing for the Reserve Bank of New Zealand's interest rate decision on Wednesday.

USDCAD, however, retreated from its previous gains due to high crude oil prices and the US Dollar’s struggle. Oil prices stayed high for three weeks but lacked the strength to continue their recent four-day rise.

Gold prices pulled back from their highest level in over a week, ending a three-day rise as risk aversion eased and traders awaited major data and events this week.

In the cryptocurrency market, BTCUSD and ETHUSD both saw minor losses after recent gains. Ethereum’s losses were larger than Bitcoin’s due to news about a 20% rally driven by ETF investors.

Following are the latest moves of the key assets:

• WTI Crude oil struggles to defend buyers at a three-week high, after a four-day uptrend, as the prices seesaw near $79.50 by the press time.
• Gold prints the first daily loss in four while retreating from a two-week high to $2,462 at the latest.
• The USD Index stays defensive near 103.15 after declining in the last three consecutive days.
• Wall Street closed mixed and so did the Asia-Pacific shares. However, equities in Britain and Europe lack clear directions during the initial trading hour.
• BTCUSD and ETHUSD both reverse the previous day’s gains by falling to $59,250 and $2,650 as we write.

US Dollar dwindles amid mixed sentiment, softer inflation clues…

Market sentiment improved ahead of Tuesday’s European session after a rough start to the week. Fears of an imminent Iran attack on Israel decreased, especially after Axios contradicted Fox News reports suggesting an immediate threat. The US State Department also hinted at a possible ceasefire between Iran and Israel, which helped lift sentiment.

However, concerns remain about US Secretary of State Antony Blinken’s visit to Israel and Fitch’s potential credit rating cut for Israel due to worsening geopolitical risks. Additionally, anxiety about today’s US Producer Price Index (PPI) and recent weak US inflation expectations from the New York Federal Reserve challenge the US Dollar.

Despite this, EURUSD remains strong, benefiting from positive German Wholesale Prices and Current Account data. GBPUSD and GBPJPY also show gains as better-than-expected UK Average Earnings and a softer Unemployment Rate support buyers, even though Claimant Count Change increased. This data could help Bank of England Governor Andrew Bailey defend a more aggressive stance on interest rates, following comments about long-term wage pressures from Catherine Mann of the BoE’s Monetary Policy Committee.

In Japan, despite a stronger PPI, concerns about disappointing Machine Tool Orders and news about a possible special session in the Japanese Parliament to discuss the BoJ rate hike help support USDJPY. The Japanese government’s willingness to support the Yen also contributes to this.

AUDUSD remains strong despite mixed data on the Wage Price Index, Consumer Confidence, and NAB Business Sentiment. NZDUSD also edges higher ahead of Wednesday’s RBNZ announcements, even with a decline in Visitor Arrivals.

On the other hand, USDCAD’s recovery from a three-week low fades due to strong Crude Oil prices, influenced by geopolitical issues in the Middle East and hurricane fears in the Gulf. OPEC’s reduction of its 2024 Oil demand forecast due to concerns about China also challenges energy buyers. Meanwhile, Gold prices pull back from a two-week high due to mixed sentiment and technical resistance around $2,475.

• Strong Bullish: USDCAD, USDJPY, US Dollar, Silver
• Strong Bearish: AUDUSD, NZDUSD, GBPUSD, GBPJPY
• Bullish: BTCUSD, ETHUSD, Nasdaq, Gold, DJI30, USDCNH
• Bearish: DAX, FTSE 100, EURUSD, Crude Oil

Mid-tier data, risk headlines eyed for intraday directions…

After recent market swings, traders will focus on mid-tier US data and risk headlines to guide intraday moves. Key items to watch include the US Producer Price Index (PPI), a speech from Atlanta Fed President Raphael Bostic, and the American Petroleum Institute's (API) weekly US oil inventory report. Updates on the Iran-Israel conflict and US inflation signals will also be crucial and could impact markets during the US session.

The US Dollar is struggling to gain momentum and needs new signals to support the Fed’s hawkish stance and fresh risk-off mood to attract buyers. If it doesn’t, USDJPY sellers might return, and EURUSD and GBPUSD could continue to rise. BoE Governor Bailey’s speech will be important for GBP traders to maintain the strength seen on early Tuesday.

AUDUSD and NZDUSD might decline, while USDCAD could see more selling due to strong oil prices. Lastly, Gold and cryptocurrencies may give up recent gains as the market awaits key US consumer data, including the Consumer Price Index (CPI) later this week.

May the trading luck be with you!