USDJPY justifies Friday’s Doji to retreat ahead of BoJ

The risk complex appears slightly positive early Monday as traders brace for this week’s key PMIs and the Fed’s preferred inflation gauge, namely the Core PCE Price Index. Also allowing traders to consolidate previous moves is the absence of the Federal Reserve (Fed) officials ahead of next week’s FOMC.

It’s worth noting that last week’s upbeat US data downed the March Fed rate cut expectations and helped the US Dollar. The increasing geopolitical tensions in the Red Sea and China’s equity rout were additional reasons for the US Dollar Index (DXY) to post a three-week uptrend.

With this, the USDJPY retreats from an eight-week high while EURUSD extends Friday’s recovery. Further, GBPUSD also prints mild gains as the Greenback traces softer yields. However, the AUDUSD and NZDUSD remain pressured as the People’s Bank of China (PBoC) keeps the benchmark rates unchanged while economic signals from the Dragon Nation appear slightly offbeat.

The prices of Gold and Crude Oil also drop as traders await more clues to extend the previous week’s US Dollar run-up, especially amid Monday’s light calendar.

On a different page, BTCUSD and ETHUSD reversed the late 2023 rally as optimism surrounding spot Bitcoin ETF approvals faded while the Ethereum ETF approval is still in limbo.

Following are the latest moves of the key assets:

• Brent oil prints a three-day losing streak near $78.30, down 0.15% intraday at the latest.
• Gold price snaps two-day winning streak while printing mild losses around $2,020 as we write.
• USD Index lacks upside momentum near 103.30 by the press time, after posting a three-week uptrend.
• Wall Street again closed in the green and the Asia-Pacific stocks edged higher, despite a thin trading presence. That said, equities in the UK and Europe appear directionless during the initial hour.
• BTCUSD extends Friday’s losses to $40,800 but ETHUSD prints three-day losing streak to around $2,410.

Dicey markets keep US Dollar bulls hopeful…

Even if the US Dollar lacks bullish bias and allows some of the majors, including the USDJPY and EURUSD, to pare the recent moves, the market’s overall confidence remains tilted toward the Greenback. In doing so, traders justify the previous week’s drastic change in the Fed Fund Futures which previously confirmed March rate cuts but now shows a less than 50% chance for the event.

It’s worth observing that the Japanese policymakers’ readiness to act via market intervention to defend the JPY and some of the Bank of Japan (BoJ) officials’ push for higher rates also seemed to have allowed the USDJPY to consolidate the recent moves ahead of Tuesday’s BoJ monetary policy announcements.

The economic pessimism and a likely disinterest in the Red Sea tensions weigh on the Oil price even if the UK and the US join hands to escalate their fight against Houthis.

Further, the Chinese economic recovery’s exhaustion and rejection of instant dovish moves by the ECB officials, which previously seemed imminent, are also additional challenges to the overall market dynamics. The same underpins the US Dollar’s haven demand and weighs on commodities, as well as Antipodeans.

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

Nothing major on Monday…

Looking forward, a light calendar and mixed bias in the market could allow the US Dollar to pare recent gains. However, the broader view favoring the US Dollar’s haven demand, especially amid the hawkish Fed concerns and the geopolitical tensions, keeps the Greenback on the bull’s radar ahead of tomorrow’s BoJ and the start of the PMI releases for December. Following that, Friday’s US Core PCE Price Index will be the key to watch for clear directions ahead of next week’s FOMC. To sum up, the “wait for the watch” approach is likely to gain major attention and should be observed while resisting fresh positions ahead of the Fed monetary policy outcome.

May the trading luck be with you!