USDJPY eyes the first weekly gain in four amid quarter-end positioning, inflation in focus

Markets remain cautiously optimistic as receding bets of further Fed rate hikes contrasted with the cautious mood ahead of the top-tier inflation data from the Eurozone and the US. Also on the positive side were upbeat China PMI and final readings of the UK Q4 GDP. However, the slump in German Retail Sales and the softer Swiss Real Retail Sales joined the hawkish Fed talks to probe the optimism.

Amid these plays, the US Dollar licks its wounds near the weekly low while prices of Gold and Crude Oil grind higher.

It’s worth noting that the USDJPY rallied the most among the major currency pairs as quarter-end moves allowed traders pare the JPY positions. On the same line is the AUDUSD pair that bears the burden of dovish RBA bets and downbeat data at home. It should be observed that EURUSD, GBPUSD USDCHF appear mildly affected due to the US Dollar’s latest rebound while USDCAD gains as crude oil consolidates weekly run-up.

Moving on, Asia-Pacific equities are mostly firmer, ex-Japan, while S&P 500 Futures print mild gains and so do the shares in Europe and the UK.

Cryptocurrencies are also in consolidation mode as SEC Chairman hints at a tough time for BTCUSD and ETHUSD traders.

Following are the latest moves of the key assets:

• Brent oil prints mild losses around $78.50 as it pares the consecutive second weekly gain.
• Gold also dribbles around $1,980 but it is on the way to second weekly loss and can convince bears to return.
• USD Index prints corrective bounce off weekly low, up 0.20% intraday near 102.40 by the press time.
• Wall Street closed in the green and so did the equities in the Asia-Pacific region, apart from Japan. However, shares in Europe and the UK remain directionless after three-day uptrend.
• BTCUSD and ETHUSD struggles for clear directions near $27,700 and $1,800 respectively.

Cautious optimism it is…

Hopes of overcoming the banking crisis and easing hawkish bets on the major central banks, including the Fed, RBA and ECB, seem to keep traders hopeful of witnessing further rise of the riskier assets should today’s EU/US inflation arrive as softer, which is more likely. Adding strength to the positive bias is the recent data from major economies as they suggest an easing of price pressure within the key economies.

Even so, the policymakers remain ready to hike the rates should the inflation resists easing, which in turn keeps traders on their toes. It should also be noted that the officials keep signing that the banking crisis has just eased and hence the fears of a deadly round of bankruptcies lying ahead can’t be ruled out. The same adds strain to the risk-on mood.

On the other hand, China-US tension and the geopolitical woes surrounding nuclear weapon usage by Russia and North Korea also challenge the positive vibes.

Hence, today’s inflation numbers will be the key to clear market directions.

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

Inflation is crucial

Although banking woes and geopolitical fears are also on the table, markets seem more interested in inflation as the central bankers appear running out of steam and hence easing price pressure could fuel the market’s optimism. The same can result in the downbeat US dollar and firmer prices of Oil and Gold. With this, today’s EU HICP, CPI and the US Core PCE Price Index become the talk of the town.

May the trading luck be with you!