USDJPY ends two-day loss, focus on US inflation and Fed Chair Powell's speech

A slow start after a volatile week

Market momentum looks uncertain early Monday, with holidays in the US and Canada and a quiet calendar elsewhere. Still, news about Trump’s victory, developments in China, and updates from Japan keep traders engaged during the Asia-Pacific session.

Last week’s US data, the Fed’s rate cut, and the US election helped strengthen the US Dollar Index (DXY). However, Moody’s warned that Trump’s potential victory could pose risks to US fiscal strength, putting some pressure on the Greenback. Despite this, talk of fewer rate cuts from the Fed, along with stronger US economic data, helped support the Dollar as traders look ahead to US inflation data and Fed Chair Jerome Powell's upcoming speech.

Meanwhile, the US imposed export restrictions on Taiwan Semiconductor Manufacturing Co. (TSMC) over advanced chips destined for China, which could impact AI and GPU technologies. In China, inflation remained weak, with CPI rising at its slowest pace in four months and PPI in deflation. However, rumors of China planning stronger fiscal policies for 2025 and efforts to counter Trump-era tariffs by offering incentives to Europe and Asia helped ease risk concerns, especially during the US and Canada holidays.

EURUSD, GBPUSD remain pressured, USDJPY pops up

Despite a weak US Dollar, EURUSD remains lower after posting its biggest weekly loss in five weeks. The Euro pair overlooks hawkish comments from Austria's central bank governor, Robert Holzmann, due to concerns over a potential German recession and political instability. These fears are tied to the upcoming confidence vote for Germany’s current leader.

GBPUSD struggles under the weight of the Bank of England’s (BoE) rate cut and concerns about the UK budget’s impact on the weak economy. A cautious mood ahead of this week’s British employment and growth data also keeps pressure on the Pound. It should be noted that BoE’s Chief Economist Huw Pill said Friday that there is scope for more rate cuts if disinflation continues.

USDJPY grabs attention as it moves the most among G10 currencies, driven by the Bank of Japan’s (BoJ) Summary of Opinions and political uncertainty in Tokyo. The BoJ raised concerns about further rate hikes in its October meeting, fueling speculation. Meanwhile, Japan’s Prime Minister Ishiba faces a leadership vote in parliament today, adding to the political tensions following a recent election win for the ruling coalition.

Antipodeans dwindle

AUDUSD remains flat, lacking momentum due to mixed news from China, a light economic calendar in Australia, and holidays in the US and Canada. Similarly, NZDUSD recovers after breaking a five-week downtrend, with New Zealand’s Reserve Bank (RBNZ) raising two-year inflation expectations slightly, while easing one-year forecasts.

USDCAD picks up upside momentum after a brief pause in its five-week rally, supported by softer Crude Oil prices—Canada’s key export—along with mixed data from Ottawa and ongoing holidays in the US and Canada.

Gold, Crude Oil hold lower grounds

Gold extends Friday’s retreat from a support-turned-resistance while Crude Oil struggles to maintain weekly gains as the US Dollar recovers amid mixed market sentiment. Reduced expectations for further Fed rate cuts and a lack of major negative news from the Middle East also weigh on demand for these commodities. Notably, Gold has dropped for three consecutive weeks, suggesting a potential pullback ahead of key market events this week.

Crypto bulls are in control

Bitcoin (BTCUSD) hits a new all-time high near $82,000 after its biggest weekly gain since late February. Meanwhile, Ethereum (ETHUSD) pulls back from a 15-week high, trimming its largest weekly gain since May 2021. Bitcoin buyers are buoyed by Trump’s victory and strong ETF inflows, while Ethereum faces headwinds from news that the US SEC is delaying its decision on the NYSE’s ETH ETF application.

Latest moves of key assets

• WTI crude oil drops half a percent as sellers attack $70.00 by press time.
• Gold extends Friday’s retreat, down 0.60% to around $2,670 at the latest.
• The USD Index edges higher around 105.00 after rising much on the previous day and week.
• Wall Street closed with mild gains and the Asia-Pacific shares also edged higher. However, European and British equities print mild losses during the initial trading hour.
• BTCUSD remains on the front foot despite easing from the all-time high to $80,800 whereas ETHUSD drops 1.8% intraday to $3,130 as we write.

A quiet start to a busy week

Looking ahead, partial holidays in the US and Canada, combined with a light economic calendar, will likely keep market moves subdued on Monday. However, key data releases, including US and Australian inflation figures, UK employment and growth numbers, and Fed Chair Powell's speech, will provide momentum traders opportunities throughout the week. Political developments in China, the US, and Japan could also keep markets active.

The US Dollar is expected to remain strong, especially with President Trump set to unveil new measures after taking office, which could weigh on the Antipodeans and commodities. However, any disappointment in US CPI and PPI data, coupled with Powell's dovish stance, may challenge the Greenback’s strength. In that case, Gold prices could see a rebound, while EURUSD and GBPUSD are unlikely to gain much due to ongoing negative sentiment in Europe and the UK. Meanwhile, USDJPY may stay in focus, supported by doubts over the BoJ’s rate hikes and political uncertainty in Japan.

Predictions for Key Assets

• Recovery Expected: USDCAD, USDJPY, US Dollar, Silver
• Further Downside Likely: AUDUSD, NZDUSD, GBPUSD
• Mostly Sideways Expectations: BTCUSD, ETHUSD, Nasdaq, Gold, DJI30, USDCNH
• Slow & Gradual Fall Expected: DAX, FTSE 100, EURUSD, Crude Oil

May the trading luck be with you!