USDJPY grinds higher as US Dollar prepares for US CPI, FOMC Minutes

Trading sentiment remains unclear early Wednesday as the market players keenly await this week’s top-tier data/events scheduled for release today, namely the US inflation data for March and the Minutes of the latest Federal Reserve (Fed) monetary policy. Apart from the pre-data anxiety, the mixed headlines surrounding China and an absence of catalysts from the US also restrict the momentum.

Amid these plays, the US Dollar Index (DXY) snaps a two-day losing streak while defending the previous day’s rebound from the 50-day Exponential Moving Average (EMA). That said, the EURUSD stays depressed but the GBPUSD rises for the third consecutive day despite lacking upside momentum of late. Further, USDJPY also picks up bids to reverse the previous day’s losses whereas USDCAD and USDCHF fail to portray any major moves but stay pressured.

It’s worth observing that the NZDUSD prints the biggest intraday gains among the G10 currency pairs due to the Reserve Bank of New Zealand’s (RBNZ) hawkish halt.

On a different page, Gold price edges higher while making rounds to the all-time peak marked the previous day whereas Crude oil licks its wounds after falling the most in more than two weeks the previous day.

BTCUSD and ETHUSD both print mild gains to pare Tuesday’s heavy losses amid mixed headlines about the crypto market.

Following are the latest moves of the key assets:

• Brent oil edges higher past $90.00 as it prints mild gains to reverse the biggest daily loss in three weeks at the latest.
• Gold price seesaws around $2,355 as bulls seek more clues to cross the all-time high marked the previous day around $2,365.
• The USD Index prints the first daily gains in three despite lacking momentum around 104.20 by the press time.
• Wall Street closed mixed and so did the Asia-Pacific stocks. Further, shares in Europe and the UK print minor gains during the initial trading hour.
• BTCUSD and ETHUSD both reverse the previous day’s losses with mild gains to around $69,500 and $3,540 at the latest.

US Dollar rebounds ahead of key catalysts…

On Tuesday, Atlanta Fed President Raphael Bostic conveyed expectations of a slow pace of disinflation in 2024 while adding, “(I) cannot eliminate the possibility that rate cuts move even further out.” On the same line, White House economic advisor Lael Brainard also cited inflation woes while seeing steady progress on inflation in the coming months.

Hence, the hawkish Fed bias gains momentum and allows the US Dollar to lick its wounds even as Tuesday’s fall in the US Treasury bond yields challenged the greenback buyers of late. Apart from the Fed concerns, the mixed headlines about the key risk events also allow the US Dollar to grind higher.

Global rating agency Fitch revises down outlook on China to negative while keeping the credit rating unchanged at A+. In doing so, Fitch also said, “Do not forecast a prolonged period of deflation, with inflation of 0.7% by end-2024 and 1.3% by end-2025.”

Elsewhere, the Wall Street Journal (WSJ) came out with an update suggesting a 53% MoM jump in China’s Retail sales of passenger cars, 6.0% YoY, while citing an increase in the consumer demand recovered after the Lunar New Year in February.

Apart from the mixed signals from China, fears about the recent strength in the China-Russia ties and its negative impact on global geopolitics also challenge the market sentiment which in turn puts a floor under the US Dollar ahead of the key US inflation data and the Fed Minutes.

While the US Dollar pares weekly losses, the EURUSD extends the previous day’s retreat from a fortnight high amid dovish expectations from Thursday’s European Central Bank (ECB) monetary policy announcements. However, the GBPUSD pair edges higher during a three-day uptrend while trying to cheer early signals for the UK retail sales, as well as conquer expectations of witnessing a sooner rate cut from the Bank of England (BoE). Elsewhere, USDJPY stays mildly bid as buyers attack a multi-month-old resistance line surrounding 152.00 amid mixed catalysts surrounding the Bank of Japan’s (BoJ) next moves and a corrective bounce in the Treasury bond yields. That said, Bloomberg came out with news suggesting the odds of the BoJ’s upward revision to the inflation forecasts after the results of recent wage negotiations. On the other hand, BoJ Governor Kazuo Ueda said that he anticipates a continuation of the accommodative financial conditions for the time being.

It should be noted that the NZDUSD is the biggest gainer among the G10 currency pairs due to the Reserve Bank of New Zealand’s (RBNZ) hawkish halt. That said, the RBNZ kept the benchmark rates unchanged at today’s monetary policy meeting but also said that the committee is confident that maintaining the OCR at a restrictive level for a sustained period will return consumer price inflation to within the 1 to 3 percent target range this calendar year.

AUDUSD also traced the Kiwi pair, especially amid a cautious optimism in the market while USDCAD and USDCHF remain pressured by the press time.

Gold struggles to extend the latest north-run despite posting mild gains near the all-time high marked the previous day as the US Dollar’s corrective bounce joins mixed headlines about India and China, two of the world’s biggest customers of gold. Moving on, Crude Oil pares the biggest daily slump in more than two weeks as energy buyers await the official US weekly inventory data after the private survey showed a heavy build in the stockpile. Also challenging the black gold buyers is the news that the US Energy Information Administration (EIA) forecasted lower oil demand and higher production in 2024.

Talking about the crypto market, BTCUSD and ETHUSD consolidated the biggest daily loss in over a week amid dwindling trading volume ahead of the Bitcoin halving and mixed concerns about the Ethereum ETF approvals.

• Strong buy: USDCAD, USDJPY, US Dollar
• Strong sell: AUDUSD, NZDUSD, GBPUSD
• Buy: BTCUSD, ETHUSD, Nasdaq, Gold
• Sell: DAX, FTSE 100, BTCUSD, EURUSD

US inflation, BoC, and FOMC Minutes in the spotlight…

Looking ahead, the monthly prints of the US Consumer Price Index (CPI) for March, the monetary policy decision of the Bank of Canada (BoC), and the Minutes of the latest Federal Reserve (Fed) monetary policy meeting will be crucial to watch for clear directions.

Among them, the US CPI will gain major attention as the earlier inflation clues from the US have been supportive of the Fed talks suggesting a delay in the rate cut, which if confirmed could allow the US Dollar to extend the latest rebound. That said, the CPI is expected to recover to 3.4% YoY versus 3.2% prior while the CPI ex Food & Energy, also known as Core CPI, is likely to remain unchanged to 3.7% from 3.8% prior.

Further, the Bank of Canada (BoC) is expected to keep the benchmark rate unchanged at 5.0% but the dovish bias of the policymakers may exert downside pressure on the Canadian Dollar (CAD), which in turn can join the latest weakness in the Oil price to propel the USDCAD.

At the last, the FOMC Minutes need to confirm the Fed policymakers’ hawkish bias suggesting a delay in the rate cuts to renew the US Dollar buying, in the absence of which could drown the Greenback and allow the Gold price to refresh the all-time high.

May the trading luck be with you!