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MTrading Team • 2023-12-18

USDJPY licks its wounds at 4.5-month low with eyes on BoJ, Fed inflation

USDJPY licks its wounds at 4.5-month low with eyes on BoJ, Fed inflation

Holiday mood prevails during the final fortnight of 2023, especially amid a lack of major data/events. Also restricting the momentum could be the Fed policymakers’ latest defense of hawkish monetary policy and the mixed US data, as well as geopolitical concerns about China.

Against this backdrop, the US Dollar Index (DXY) fades the previous day’s corrective bounce off the 4.5-month low while the US Treasury bond yields remain depressed at the multi-month lows. That said, USDJPY lacks clear directions amid the Bank of Japan (BoJ) officials’ sustained preference for the easy-money policy and the hopes of Fed rate cuts in 2024. Further, AUDUSD and NZDUSD remain firmer due to slightly upbeat economics while USDCAD stays pressured.

Gold Price appears defensive after failing to cross the $2,055-60 resistance zone despite notable recovery. The crude oil, however, rises for the fourth consecutive day amid supply crunch fears, as well as due to hopes of witnessing more stimulus from China.

However, the BTCUSD and ETHUSD retreated amid a spike in the Bitcoin transaction fee and amid the positioning for spot ETF approvals.

Following are the latest moves of the key assets:

  • Brent oil prints a four-day uptrend while positing mild gains around $77.00 by the press time.
  • Gold price remains dicey around $2,025 at the latest, after retreating from the weekly high the previous day.
  • USD Index fades Friday’s recovery from a multi-month low while retreating to 102.45 at the latest.
  • Wall Street closed mixed and so did the Asia-Pacific stocks, as well as the equities in the UK and Europe.
  • BTCUSD and ETHUSD print mild losses to around $41,200 and $2,180 at the latest.
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Dicey Dollar ahead of US Core PCE Price Index…

US Dollar stays pressured after the Federal Reserve’s (Fed) forecast of rate cuts in early 2024, despite the latest inaction. Adding strength to the bearish bias were recently downbeat US data and the market’s cautious optimism. Apart from the Fed clues and US data, the comparatively hawkish tone of the Bank of England (BoE) and the European Central Bank (ECB), as well as China stimulus news, also contributed to the US Dollar’s weakness, which in turn allowed the Gold Price to remain firmer.

It’s worth noting, however, that the Greenback managed to bounce the previous day amid less disappointing US data than the rest of the major economies. Also, mixed headlines from Europe and the UK, as well as BoJ’s defense of easy-money policies added strength to the US Dollar.

Following the US data, Fed policymakers crossed wires while pushing back the dovish expectations from the US central bank. Among them, New York Fed President John C. Williams gained major attention as he said, “If we get the progress I'm hoping to see, it will be natural to cut.” Further, Atlanta Fed President Raphael Bostic also ruled out market expectations of imminent rate cuts but saw two 0.25-point cuts in 2024. However, Chicago Federal Reserve Bank President Austan Goolsbee said that there are still numerous “concerning data points” that may impact the "landing”, which in turn prod the US Dollar bulls and put a floor under the Gold price.

Elsewhere, China’s Central Finance Office was quoted by state media as saying, “China's economy in 2024 faces more opportunities than challenges.” Alternatively, the all-time high cold in China pushes policymakers at the dragon nation to prepare emergency measures to ward off the economic slowdown fears, allowing the Gold buyers to take a breather.

Talking about the Eurozone catalysts, Germany’s Bundesbank released the bi-annual economic forecast while seeing a contraction in activities during 2023, as well as a slight growth in output for 2024.

The comments from European Central Bank (ECB) policymaker Francois Villeroy de Galhau also tried to pamper the Euro bears but failed. ECB’s Villeroy reiterated his hawkish bias while saying, “Nobody suggested rate cuts at the latest meeting.” The policymaker, however, also said that the next policy move should be lowering rates barring any surprises. On the same line, ECB policymaker, Robert Holzmann also said that there was no discussion of a change to rates at the latest meeting while adding, “Wouldn't say we are at terminal rate but the chance has increased.” Further, ECB policymaker and Bundesbank Chief Joachim Nagel said, “It's too early to consider ECB cuts.”

That said, the poor readings of the Eurozone flash PMIs for December also challenged the Euro bulls on Friday.

Elsewhere, Bank of Canada (BoC) Governor Tiff Macklem said, “It's too early to start discussing whether to cut rates in Canada.” The same joined the recovery in Oil prices to weigh on the USDCAD.

It’s worth noting that the OPEC+ determination for more supply cuts joins hopes of witnessing more energy demand from Asia to favor the Oil buyers. On Friday, Russia’s Deputy Prime Minister Alexander Valentinovich Novak said that they’re considering additional oil export cuts of about 50,000 barrels per day (bpd) in December.

  • Strong buy: USDCAD
  • Strong sell: ETHUSD, GBPUSD, Gold
  • Buy: USD Index, Nasdaq, USDJPY

Second-tier data eyed ahead of Tuesday’s BoJ…

Germany’s IFO sentiment numbers for December will join the US NAHB Housing Market Index and Canada’s New Housing Price Index to entertain the intraday traders. In addition to the absence of major data/events, the year-end holiday mood and confirmation of rate cuts in 2024 by the key central banks in the last week will also limit the market moves on Monday. The same should allow the US Dollar to pare recent losses but the USDJPY may lack momentum as recently firmer Japan inflation clues contrast with the nation’s preference for the ultra-easy-money policy.

May the trading luck be with you!