USDJPY ignores US Dollar’s rebound amid downbeat yields, BoJ concerns

Markets appear dicey on early Tuesday, carrying the week-start indecision, as expectations of more stimulus from China and extension of the Israel-Hamas ceasefire allow traders to remain optimistic but mostly downbeat data from top-tier economies flag recession fears. Also, the cautious mood ahead of this week’s headline events keeps traders on the edge.

With this, the US Dollar Index (DXY) portrays a corrective bounce from a three-month low despite sluggish yields. That said, the shares in Asia-Pacific markets drift lower but the US stock futures print mild gains.

Even so, USDJPY drops to the lowest level in a week and the AUDUSD prints minor gains whereas EURUSD and GBPUSD post small losses. That said, USDCAD also declined but USDCHF remains indecisive. Additionally, Gold buyers struggle to overcome key upside hurdle near $2,020 while Crude Oil fails to cheer OPEC+ concerns amid fears of softer energy demand.

Elsewhere, BTCUSD and ETHUSD drop for the third consecutive day as optimism about the Spot ETF approvals fade and month-end consolidation begins.

Following are the latest moves of the key assets:

• Brent oil remains pressured around $80.30, licking its wounds at one-week low by the press time.
• Gold price struggles to defend three-day uptrend near $2,015 after refreshing a six-month high the previous day.
• USD Index recovers from a three-month low on Monday, mildly bid near 103.30 at the latest.
• Wall Street closed with mild losses while Asia-Pacific stocks edged lower. Further, equities in Europe and the UK begin the day with mild losses.
• BTCUSD and ETHUSD both print minor losses to around $37,000 and $2,010 at the latest.

US Dollar recovers amid mixed markets

Although the disappointing US data keeps exerting downside pressure on the US Dollar, via increasing odds of the Fed’s policy pivot, the market’s anxiety ahead of the weekly key data/events joins comparatively worse data outside the US to prod the Greenback bears. The same challenges the sentiment and reduces demand for risk-free assets.

Meanwhile, the sentiment improved after Reuters quoted Qatar saying the Gaza truce has been extended for 2-days. On the same line, China's Premier Li Qiang showed a willingness to build closer supply chain linkages with all countries and favored optimism about the global trade cycle, as well as battles with the market’s fears of slowing economic growth in China. Furthermore, People’s Bank of China (PBoC) Governor Pan Gongsheng said that China's economy continues to gain momentum while adding, “inflation bottoming out,” which in turn helped keep the optimists on the table despite the hardship.

Recently, US New Home Sales eased to 0.679M for October from 0.719M prior, versus 0.725M expected, whereas the Dallas Fed manufacturing business index dropped to -19.9 for November versus -19.2 printed last month.

Elsewhere, European Central Bank (ECB) President Christine Lagarde said that Euro area activity has stagnated in recent quarters and is likely to remain weak for the rest of the year. ECB’s Lagarde was also rumored to signal the faster end to bond purchases and challenged the Euro buyers the previous day, which in turn put a floor under the US Dollar of late.

It should be noted that the news from the UK Health Security Agency (UKHSA) flagged virus fears after the UKHSA found a single confirmed human case of a strain that is similar to flu viruses currently circulating in pigs in Britain. On the same line, a slump in Beijing’s equity index and the policymakers’ urge to major shareholders to not liquidate their huge positions also amplified the market’s fears about China and favored the Greenback’s haven demand. Furthermore, surging demand for cash in Hong Kong also strains the Asian markets and helps the USD to lick its wounds.

On a different page, the speculations about the OPEC+ discussion on deepening the output cuts in this week’s meeting put a floor under the Oil price the previous day but failed to defend the black gold for long amid growing demand fears.

UK BRC Shop Price Inflation dropped to the lowest since June 2022, declining for the third consecutive month to 4.3% for November versus 5.2% prior. Even so, Bank of England (BoE) Deputy Governor David Ramsden said that the monetary policy is likely to need to be restrictive for an extended period to get inflation back to the 2% target.

That said, Australia’s Retail Sales for October dropped to -0.2% MoM versus 0.1% expected and 0.9% prior. The downbeat Aussie data joined unimpressive comments from Reserve Bank of Australia (RBA) Governor Michele Bullock to weigh on the Australian Dollar (AUD). That said, RBA’s Bullock cited uncertainty on inflation and interest rates during her speech on Tuesday.

Furthermore, doubts about the future of the Bank of Japan’s (BoJ) easy-money policy and the recent improvement in Japanese economics join downbeat yields to weigh on the USDJPY price despite the US Dollar’s rebound.

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

US data eyed

Against this backdrop, traders struggle to defend the Fed policy pivot concerns and seek more directions from today’s US CB Consumer Confidence, Richmond Fed Manufacturing Index and Housing Price Index, as well as Fed talks, for intraday signals. Should the US data/updates push back the Fed rate cut concerns, the US Dollar may witness further recovery. However, major attention will be given to Thursday’s US inflation clues and Friday’s speech from Fed Chair Jerome Powell.

May the trading luck be with you!