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MTrading Team • 2024-05-07

USDJPY extends recovery past 154.00 despite downbeat yields

USDJPY extends recovery past 154.00 despite downbeat yields

Global markets began the week on a positive note while extending benefits from a less hawkish Fed and downbeat US jobs report. The firmer sentiment also justified a three-year low of the US Employment Trends Index. In doing so, the traders paid little heed to the risk-negative geopolitical headlines and mixed Fed talks. However, the US Dollar Index (DXY) portrayed a corrective bounce from a four-week low, edging higher by the press time despite softer yields.

While the US Dollar pares the previous weekly losses, the EURUSD, GBPUSD and AUDUSD managed to stay firm on Monday before declining early Tuesday. That said, USDJPY rises for the second consecutive day while ignoring the downbeat yields. NZDUSD, however, stays on the back foot after an unimpressive start to the week.

Gold price reverses the previous day’s gains while retreating from a one-week high whereas crude oil fails to defend Monday’s corrective bounce from a seven-week low on fears of higher supplies and less energy demand.

In the case of cryptos, BTCUSD and ETHUSD snapped a four-day uptrend as the US Dollar’s rebound joined fears emanating from the US SEC’s role in the e-currency markets. However, hopes of witnessing more fund flows through the spot ETFs allowed the top-tier cryptocurrencies to recover early Tuesday.

Following are the latest moves of the key assets:

  • WTI Crude oil fades bounce off a three-week low while falling back to $78.60 by the press time.
  • Gold retreats to $2,320 while reversing the week-start rebound.
  • The USD Index rises for the second consecutive day despite lacking upside momentum near 105.20.
  • Wall Street closed with gains while the Asia-Pacific shares edged higher. Further, British and European shares remain firmer during the initial trading hour.
  • BTCUSD and ETHUSD both reverse Monday’s gains around $63,600 and $3,070 as we write.
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US Dollar extends recovery despite downbeat catalysts…

The US Dollar remains on the front foot despite the market’s peace with the Fed’s September rate cut and softer yields, as well as downbeat US employment clues. The reason could be linked to the mostly downbeat risk headlines and the market’s consolidation amid a light calendar.

Talking about the geopolitical news, the European Union (EU) proposed sanctions on Russian LNG exports that would hit about 25% of Moscow’s earnings. Further, Israel’s war cabinet unanimously decided to continue military operations in Rafah to exert pressure on Hamas. Additionally, the Russian Defense Ministry showed readiness to hold tactical nuclear weapons drills.

Among the Federal Reserve (Fed) officials, New York Fed President John Williams and his counterpart for the Federal Reserve Bank of Richmond Thomas Barkin crossed wires on Monday. Both the policymakers cited inflation risks in their speeches but kind of hesitated in advocating for rate hikes, which in turn copied the previous week’s statements from Fed Chair Jerome Powell and challenged the US Dollar bulls.

It should be noted that the US Employment Trend Index for April dropped to the lowest level since May 2021 while posting 111.25 versus 112.16 prior. The job trends followed Friday’s unimpressive employment numbers to bolster the odds of the Fed’s rate cut in September.

Even if the US Dollar improved, the EURUSD printed a four-day winning streak on Monday before retreating early Tuesday. The Euro pair’s latest run-up could be linked to the hawkish commentary from the European Central Bank (ECB) officials and an improvement in the Eurozone Sentix Investor Confidence for May, from -4.9 expected and -5.9% prior to -3.6. That said, ECB policymakers Boris Vujčić and Gediminas Šimkus pushed back concerns of repeated rate cuts, after the widely anticipated first action in June.

Not only the EURUSD but the GBPUSD also ignored the US Dollar’s corrective bounce to rise for the fourth consecutive day on Monday before marking mild losses by the press time. In doing so, the Cable pair could cheer the Bank of England (BoE) officials’ push for the delay in the rate cuts. However, the UK’s weakest consumer spending since February 2021, per the Barclay Card data, weighed on the Pound Sterling of late.

Elsewhere, AUDUSD bears the burden of the Reserve Bank of Australia’s (RBA) inability to convince hawks despite holding the monetary policy unchanged. Also exerting downside pressure on the Aussie pair could be Australia’s Q1 Retail Sales, -0.4% QoQ versus -0.2% expected and +0.3% prior. It should be noted that NZDUSD justifies Monday’s Doji candlestick to trace its Australian counterpart and post intraday losses despite having no major data/events to show at home.

USDJPY rose for the second consecutive day on fresh doubts about Japan’s further intervention to defend the Yen. It should be observed that firmer prints of the nation’s Jibun Services PMI for April, 54.3 vs. prior 54.1, failed to inspire the JPY buyers amid concerns that the Bank of Japan (BoJ) is done hiking rates after a once in many-year action.

Gold price fades the week-start recovery amid a firmer US Dollar and challenges for the physical buyers emanating from China, one of the world’s biggest Gold customers. Also likely to test the XAUUSD bulls is the market’s consolidation of the previous weekly move amid a light calendar. On the same line, Crude Oil also reverses the week-start recovery from a two-month low as US President Joe Biden’s Global Infrastructure and Energy Security Adviser Amos Hochstein said that there prevails sufficient supply in Strategic Petroleum Reserve (SPR) to address supply concerns. Also likely to have weighed on the black gold was the rejection of a rumor that suggested an assassination attempt on Saudi Crown Prince Mohammed bin Salman.

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

Eurozone Retail Sales, Canada PMI, and Fed talks in focus…

Although a light calendar is likely to allow traders to extend the day-start moves, the Eurozone Retail Sales for March and Canada’s Ivey PMI for April will join the Fed talks to offer intermediate jitters. That said, traders will be more interested in confirming the US central bank’s rate cut in September, which if confirmed could weigh on the US Dollar and allow the commodities, as well as the Antipodeans, to extend the previous run-ups.

May the trading luck be with you!