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MTrading Team • 2023-05-03

USDJPY cheers softer USD amid sluggish markets ahead of FOMC

USDJPY cheers softer USD amid sluggish markets ahead of FOMC

Global markets print the pre-Fed positioning on early Wednesday, with the US Dollar’s decline adding strength to the ex-USD currencies amid cautious optimism. The reason for the greenback’s weakness could also be linked to the recently mixed data and concerns that the Fed has limited scope for being too hawkish considering the banking jitters.

Elsewhere, hopes of upbeat growth in Asia-Pacific and the US policymakers’ push for faster resolution to the looming debt ceiling expiration problem also add strength to the market’s slightly positive outlook, which in turn exerts additional downside pressure on the USD. It should be observed that comparatively more hawkish bets on the ECB and the BoE allowed Euro and Sterling to be stronger than the greenback.

With this, the USDJPY leads the ex-USD G10 gainers followed by GBPUSD and EURUSD. Further, Gold price grinds higher while Crude Oil also licks its wounds after falling heavily the previous day. Furthermore, New Zealand’s upbeat employment details and firmer Aussie Retail Sales growth add strength to the NZDUSD and AUDUSD in that order.

Alternatively, cryptocurrencies fail to benefit from the US Dollar’s downbeat performance amid regulatory fears, as well as tensions that the Fed’s higher rates can challenge the BTCUSD and ETHUSD traders.

Following are the latest moves of the key assets:

  • Brent oil drops for the third consecutive day to $75.00, down 0.60% intraday at the latest.
  • Gold price pares the biggest daily gains since September 2022 near $2,015.
  • USD Index extends the previous day’s pullback from a two-week high to 101.65 by the press time.
  • Wall Street closed with losses but the Asia-Pacific shares remain mixed. That said, equities in Europe print mild losses while those from the UK grind higher of late.
  • BTCUSD and ETHUSD grind lower around $28,600 and $1,860 as we write.
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Pre-Fed optimism crosses bank fears to confuse traders…

Trading sentiment turns surprisingly positive amid expectations that the central banks, mainly the Fed, have multiple reasons to pause the rate hike trajectory. On the same line were receding expectations of recession. However, fears that the US policymakers have a lot to do to avert the banking crisis and that the debt ceiling expiration act as an additional strain on the market’s risk profile. Elsewhere, Asia-Pacific currencies and equities remain firmer even as holidays in China and Japan restrict the market moves amid pre-Fed caution.

Furthermore, liquidation of positions in the crypto segment amid fears of strong US regulations and pre-Fed anxiety weigh on the BTCUSD and ETHUSD prices even as the US Dollar eased.

  • Strong buy: USDJPY
  • Strong sell: ETHUSD, GBPUSD
  • Buy: USD Index, USDCAD, Nasdaq, EURUSD
  • Sell: DAX, FTSE 100, gold, BTCUSD, AUDUSD

US data, FOMC become crucial

While the markets are more interested in the Fed’s policy pivot update, given the 0.25% rate hike is already known and priced in, the US ADP Employment Change and ISM Services PMI can entertain traders ahead of the key FOMC announcements. Additionally important are the updates from the White House and banking committee as fears of US default and banking turmoil amplify.

Should the Fed manage to convince the market of its ability to stay hawkish, equities and commodities may witness a downside while a surprise positive move won’t hesitate to propel the Gold price as it has recently crossed short-term resistance.

May the trading luck be with you!