USDJPY licks its wounds at six-week low amid Japan intervention, US Dollar weakness

A cautious mood ahead of the European Central Bank (ECB) monetary policy meeting restricts market momentum early Thursday, especially when the previous optimism on Wall Street faded and the US data came in positive. However, the US Dollar Index (DXY) remains pressured amid hopes of witnessing sooner rate cuts from the Fed and future devaluation of the Greenback if Donald Trump becomes the US President, for which the odds are higher of late.

The US Dollar’s overall weakness joins increasing chances of the ECB’s hawkish halt to propel the EURUSD while the GBPUSD seesaws near the yearly high amid mixed UK jobs report and hawkish bets on the Bank of England (BoE). USDJPY bears the burden of Japan’s currency market intervention at the multi-day low.

AUDUSD licks its wounds but the NZDUSD and USDCAD fail to cheer the US Dollar’s weakness amid looming fears in the commodities’ markets due to mixed feelings about China's economic growth.

Crude Oil pares weekly losses amid a higher-than-expected inventory draw but China woes challenge the energy buyers. Meanwhile, a report that the People’s Bank of China (PBoC) will renew Gold buying, after a two-month halt, joined the US Dollar weakness to keep the XAUUSD buyers in command.

BTCUSD and ETHUSD both remain on the way to second weekly gains despite posting a negative daily close the previous day. In doing so, the top-tier cryptocurrency pairs justify optimism ahead of Tuesday’s potential launch of Ethereum ETF and hopes of witnessing more trading-friendly policies amid increasing odds of Donald Trump’s US Presidential Election victory.

Following are the latest moves of the key assets:

• WTI Crude oil picks up bids to extend the previous day’s recovery from the monthly low, up 0.60% intraday near $82.00 by the press time.
• Gold reverses the previous day’s retreat from the all-time high of $2,483, up half a percent intraday near $2,470 at the latest.
• The USD Index bounces off a four-month low while paring the biggest daily slump in six weeks near 103.85.
• Wall Street closed mixed but the Asia-Pacific shares edged higher. Further, equities in Britain and Europe lack clear directions during the initial trading hour.
• BTCUSD and ETHUSD both remain firmer around $64,950 and $3,440 respectively as we write.

US Dollar remains bearish…

Despite witnessing upbeat prints of the US Industrial Production and housing market numbers for June, the US Dollar Index (DXY) marked the biggest daily slump in five weeks while testing the lowest level since March. In doing so, the Greenback’s gauge versus six major currencies bears the burden of the dovish Fed talks and political uncertainty ahead of the US Presidential Elections.

On Wednesday, New York Fed President John Williams spoke to the Wall Street Journal (WSJ), “Rate cut could be warranted in the coming months.” On the same line, Fed Governor Christopher Waller also stated that the Time to cut rates is getting closer based on an analysis of potential scenarios. Furthermore, Richmond Fed President Thomas Barkin said, “No one 25 basis point interest rate cut matters one way or the other, the issue is when to change the narrative.”

It’s worth mentioning that the Fed’s monthly Beige Book cited a slowdown in economic activities and increasing indications of areas where growth is stalling or declining.

Politically, pressure is building on the current US President Joe Biden to step down from the rate amid health reasons, which helps the rival candidate Donald Trump gain popularity. The same bolsters the case for elevated US-China tensions and the US Dollar’s devaluation.

The US Dollar’s fall joined mostly upbeat catalysts elsewhere to propel other major currencies. However, Wall Street’s corrective pullback challenged the optimists.

Talking about the EURUSD, from the initial forecasts, no change in the Eurozone inflation for June joined expectations of hawkish remarks from ECB President Christine Lagarde and the recently higher dovish bets on the Fed to propel the EURUSD prices to a four-month high.

On the other hand, GBPUSD rose to a fresh high since July 2023 as traders trimmed Bank of England (BoE) rate cut bets for August after the upbeat UK inflation data. It’s worth noting that today’s mixed UK employment report joined the US Dollar’s corrective bounce to challenge the bulls at the yearly high.

Japan’s top currency diplomat Masato Kanda said to Kyodo News, “If speculators cause excessive moves in the FX market, we have no choice but to respond appropriately”. This strengthened the market’s belief that Tokyo is taking advantage of the US Dollar’s fall to pare the Yen’s previous losses. Meanwhile, downbeat Japan trade numbers for June allowed USDJPY to post a corrective bounce from a six-week low before recalling the sellers ahead of the European session.

The Dollars of Australia, New Zealand, and Canada appear exceptions and are well-set for a weekly loss against the US Dollar amid China's woes. That said, mixed employment and inflation data from Australia and Canada underpin calls for the rate cuts while the Reserve Bank of New Zealand’s (RBNZ) hesitance for further rate hikes joined mostly downbeat New Zealand (NZ) statistics to weigh on the NZDUSD.

Apart from the Antipodeans, Crude Oil also braces for the weekly loss despite marking a recovery from the monthly low on a higher-than-expected draw in the US weekly crude oil inventories.

Gold price remains upbeat at the all-time high, marked the previous day, amid reports suggesting China’s readiness for heavy buying. On Wednesday, Reuters cited an anonymous China policymaker stating that they would like to bring gold to 10% of reserves from 4.9% and that would require buying another $170 billion at current prices. The news also added, “That would be about 70% of all the gold mined globally in any given year and that 70 million ounces compared to the 7 million China bought last year.”

• Strong buy: USDCAD, USDJPY, US Dollar, Silver
• Strong sell: AUDUSD, NZDUSD, GBPUSD
• Buy: BTCUSD, ETHUSD, Nasdaq, Gold, DJI30, USDCNH
• Sell: DAX, FTSE 100, EURUSD, Crude Oil

ECB, US mid-tier data eyed…

All eyes on the European Central Bank’s (ECB) monetary policy announcements on Thursday even as the region’s central bank is widely expected to keep the measures unchanged. The reason for the market’s anxiety could be the recently downbeat Eurozone data and increasing odds of witnessing another rate cut from the ECB. Should the policymakers fail to convince the hawks, the EURUSD prices may pare the weekly gains while reversing from the multi-day high.

Apart from the ECB, the weekly US Jobless Claims and Philadelphia Fed Manufacturing Index will also entertain the market players. That said, more proof of the Fed’s rate cuts will be warranted to keep the US Dollar on the back foot in the absence of which can allow the Greenback to pare weekly loss at the multi-day low.

May the trading luck be with you!