USDJPY recovers after four-week downtrend, focus on US inflation, Fed

Traders remain cautious on early Monday as the previous day’s US jobs report pushed back dovish bias about the US Federal Reserve (Fed) ahead of this week’s US inflation and FOMC. Apart from the pre-event anxiety, a light calendar and the weekend releases from China also prod the momentum traders.

With this, the US Dollar Index (DXY) traces recovery in yields after posting the first weekly gain in four. The same exerts downside pressure on Gold prices, especially amid China's woes, whereas Crude Oil manages to edge higher on concerns about the Oil supply crunch due to Saudi Arabia’s push for more output cuts.

USDJPY rises the most among the G10 currency pairs as the firmer US Dollar joins increasing defense of the Bank of Japan’s (BoJ) easy-money policy. Further, upbeat yields and a slightly positive mood also underpin the Yen pair’s rebound. Additionally, EURUSD, GBPUSD and USDCAD remain mostly unchanged while AUDUSD print mild losses due to the pair’s risk-barometer status.

Elsewhere, BTCUSD and ETHUSD drops more than 4.0% intraday each as market players consolidate recent gains near the yearly high after long liquidation.

Following are the latest moves of the key assets:

• Brent oil extends recovery from a five-month low, mildly bid at $76.50 by the press time.
• Gold price drops to a two-week low while extending Friday’s fall, down 0.36% near $1,997 at the latest.
• USD Index stays firmer for the second consecutive day, up 0.10% on a day near 104.10 as we write.
• Wall Street closed positive but Asia-Pacific stocks struggle while equities in the UK and Europe remain dicey at the latest.
• BTCUSD and ETHUSD drop more than 4.0% each to around $42,000 and $2,230 by the press time.

US Dollar recovers during a softer start of the key week…

Strong US employment report derailed expectations of the Federal Reserve’s (Fed) rate cuts in early 2024, which in turn bolstered the US Dollar on hopes of witnessing a hawkish halt during Wednesday’s FOMC. The same weighed on the Gold price, especially after China reported downbeat inflation data during the weekend.

On Friday, the headline US Nonfarm Payrolls (NFP) grew more than the expected 180K, as well as the prior release of 150K, to 199K in November, whereas the Unemployment Rate also dropped to 3.7% versus the market forecasts favoring a reprint of 3.9% for the said month. Further, the University of Michigan’s (UoM) Consumer Sentiment for December also rose to a four-month high of 69.4 compared to the previous readings of 61.3 and analysts’ estimation of 62.0. Alternatively, a softer print of the UoM’s 5-year Consumer Inflation Expectations, to 2.8% from 3.2%, keeps the US Dollar bulls in check ahead of the key week comprising the Federal Open Market Committee’s (FOMC) monetary policy meeting.

In addition to the upbeat US jobs report, updates from the Wall Street Journal’s (WSJ) Fed watcher Nick Timiraos also favored the US Dollar bulls as he said that the US central bank is unlikely to talk about rate cuts and perhaps may not for several months. However, the CME’s FedWatch tool also indicates rate cuts in March and May of 2024.

China's inflation numbers for November renewed expectations of slowing economic recovery in the world’s second-largest economy, as well as one of the biggest Gold customers. The important Consumer Price Index (CPI) marked the biggest fall since December 2020 while posting the -0.5% figures whereas the Producer Price Index (PPI) also reported a three-month low with -3.0% YoY numbers compared to -2.8% expected and -2.6% prior.

Moreover, a news report stated that the US is in talks with the Gulf allies on military action against Yemen Houthis. The same joins the global dislike for Russia and the US-China jitters to prod the risk-on mood and underpins the US Dollar’s haven demand, especially amid recently easing dovish Fed bets.

It should be noted that the firmer US Dollar and yields joined dovish concerns about the Bank of Japan (BoJ) to supersede the upbeat prints of Japan’s Machine Tool Orders for November, -13.6% versus 20.6% prior, which in turn propels the USDJPY.

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

Light calendar ahead…

Looking ahead, Monday’s light calendar will join the cautious mood ahead of this week’s key data/events to restrict the market moves. With this, the riskier assets may consolidate recent losses.

May the trading luck be with you!