USDJPY traces recovery in yields, justifies Japan economic fears

Markets appear dicey on early Wednesday, slight risk-off prevails, amid fresh concerns about the US soft landing and the geopolitical woes, not to forget fears of witnessing softer economic growth in the UK, Europe and Japan. That said, mixed chatters about China and India also entertained traders of late.

With this, the US Dollar defends the previous day’s recovery from a near three-month low while helping the US Treasury bond yields to snap a two-day losing streak. That said, commodities stay defensive while riskier assets lose their charm ahead of several US data.

That said, USDJPY and NZDUSD portray the biggest US Dollar gains versus the respective currencies while USDCHF and EURUSD appear mostly indecisive. That said, GBPUSD extends the previous day’s fall ahead of the UK autumn statement as the government plans to hint at tax cuts after a wage lift to avoid the economic slowdown.

Elsewhere, BTCUSD and ETHUSD ignore the US Dollar recovery to reverse the previous day’s losses amid hopes of witnessing more fund flow due to the latest optimism surrounding the spot ETF approvals.

Following are the latest moves of the key assets:

• Brent oil stays defensive around $82.80 at the latest.
• Gold price remains firmer at the highest level in two weeks, around $2,000 as we write.
• USD Index recovers from the lowest level in 11 weeks, close to 103.70 by the press time.
• Wall Street closed with mild losses and the Asia-Pacific stocks edged lower. That said, equities in Europe and the UK begin the day with indecision.
• BTCUSD and ETHUSD both reverse the previous day’s losses to around $36,400 and $2,000 at the latest.

US Dollar defends recovery…

The US Dollar Index (DXY) recovered from a three-month low the previous day, mildly bid near 103.75 by the press time, as the Fed Minutes appear slightly hawkish and the market sentiment sours. That said, the minutes of the latest Federal Open Market Committee (FOMC) meeting, released on Tuesday, stated that the policymakers defended their hawkish bias and pushed back the rate cut chatters. However, the Fed’s way forward was cited as dependent on the incoming data and needs more careful investigation. Alternatively, the US Existing Home Sales for October eased to 3.7M from 3.96M prior, versus 3.9M expected, while the Chicago Fed National Activity Index for the said month also disappointed with -0. 49 figure compared to 0.02 previous readings.

On a different page, the Bank of England (BoE) Governor Andrew Bailey said that the approach to monetary policy can be characterized as being watchful, and responsive. However, BoE Deputy Governor David Ramsden mentioned, “Speed limit of the UK economy is low now,” which in turn flags the UK’s economic concerns and backs the US Dollar’s haven demand. It’s worth noting that the British Government raised the minimum wage to £11.44 per hour from £10.42 ahead of today’s autumn statement and tried lifting the Cable but failed so far.

In the same line, European Central Bank (ECB) President Christine Lagarde said, “This is not the time to start declaring victory.” Additionally, the Japanese Cabinet Office slashed its view on the economy while marking the first such downgrade in 10 months. It should be noted that the softer Canada inflation data and the crude oil’s inability to defend the previous week’s run-up weighed on the Canadian Dollar, which in turn allowed the US Dollar to recover.

Talking about the geopolitics, Israeli Leader Benjamin Netanyahu said that the war would continue after the pause for hostage change. On the same line, the US Central Command conveyed the news of military strikes against two Iran-backed facilities in Iraq. With this, the geopolitical fears renew and put a floor under the US Dollar.

Further, Chinese Government advisers keep their growth target intact for 2024, per Reuters, while citing the need to step up fiscal stimulus. The same flags fears of witnessing a lag in the dragon nation’s economic recovery and favor the US Dollar’s haven demand. Also, the Reserve Bank of India’s (RBI) latest moves to tighten credit conditions and become more watchful on the penalty framework flag fears of witnessing a sooner end to the rate hike cycle. The same joins the downbeat monthly economic bulletin citing the inflation woes to lure the US Dollar bulls.

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

US data eyed ahead of Thanksgiving

Looking ahead, the US Durable Goods Orders for October, Weekly Jobless Claims and the second readings of the UoM Michigan Consumer Sentiment will entertain the market players ahead of a likely dull day of Thanksgiving. Given the recent shift in the market’s attention from the Fed policy pivot concerns to the US soft landing, the US Dollar is likely to extend the latest rebound if the scheduled data appears strong.

May the trading luck be with you!