Crude Oil Fails to cheer supply-crunch woes amid US Dollar rebound

Trading sentiment remains lackluster early Tuesday, after an unimpressive start of the week, as a lack of major data/events joined Monday’s holidays in major markets. Also challenging the risk appetite could be the hawkish commentary from the Federal Reserve (Fed) officials and geopolitical fears surrounding the Middle East and concerns about Chinese markets.

Amid these plays, the US Dollar Index (DXY) began the week on a front foot and edges higher heading into Tuesday’s European session. That said, EURUSD closed with mild losses even as most of the European markets were off. However, the GBPUSD stayed firmer on comments suggesting the Bank of England (BoE) policymakers’ hesitance in welcoming rate cuts.

USDJPY rises for the fourth consecutive day as Japanese policymakers appear less inclined to tame the Yen’s fall with the Bank of Japan’s (BoJ) another rate hike.

AUDUSD ignores the Reserve Bank of Australia’s (RBA) monetary policy meeting minutes suggesting the officials’ discussion on the rate hike, especially amid the fears about the economic transition in Australia and China. Furthermore, NZDUSD also dropped the most in May and is under pressure as traders prepare for the Reserve Bank of New Zealand’s (RBNZ) dovish halt amid fears of economic weakness in Wellington.

Gold price also retreated from the fresh record high, posting mild losses by the press time, on the absence of fresh bullish impetus whereas the Crude Oil fails to justify challenges to the energy supplies amid geopolitical fears emanating from the Middle East.

Elsewhere, BTCUSD rose the most since March before the latest retreat whereas ETHUSD marked the biggest daily jump in three years ahead of today’s pullback. In doing so, the cryptocurrency buyers cheered the recent increase in the odds favoring the spot ETH ETF approval, as well as the technical breakout.

Following are the latest moves of the key assets:

• WTI Crude oil stays pressured below $79.00, down for the second consecutive day.
• Gold snaps two-day winning streak while retreating from all-time high to $2,417 by the press time.
• The USD Index struggles for clear directions around mid-104.00s, fading the previous week’s recovery from the 100-SMA.
• Wall Street closed mixed and so do the Asia-Pacific shares. Further, British and European shares remain slightly weak during the initial trading hour.
• BTCUSD and ETHUSD pare the biggest daily jumps in multiple days by posting mild losses near $71,200 and $3,670 at the latest.

Sluggish trading, and hawkish Fed talks allow the US Dollar to pare recent losses

On Monday, a slew of Fed officials crossed wires and triggered a corrective bounce in the US Dollar by pushing back the odds of witnessing three rate cuts during 2024. The policymakers were also hesitating in welcoming the rate hikes but held the economic optimism. Among them, Cleveland Fed President Loretta Mester, Fed Governor Philip Jefferson, Michael Barr and Atlanta Fed President Raphael Bostic gained major attention. It should be noted that holidays in Canada, Switzerland and Europe also allowed the Greenback to pare the weekly losses on Monday.

Furthermore, geopolitical fears emanating from the Middle East, especially after the Iranian President died in a plane crash and chatters about Israel’s likely aggressive strikes to finish Hezbollah grabbed attention and also underpinned the US Dollar’s recovery. Additionally, concerns about the highest capital outflow from China since 2016 also favored the Greenback buyers.

It should be noted, however, that such concerns failed to impress the Oil buyers amid the IEA’s forecast of downbeat energy demand and fears that downbeat conditions in China’s economic environment will lead to slower Oil consumption from the world’s biggest commodity user. It’s worth noting that the energy traders should also be considered preparing for the next OPEC+ meeting wherein the producers are expected to extend the output cut policies.

Elsewhere, China’s push for more measures to lift domestic demand, especially in the real-estate sector, joins the market’s overall uncertainty about the rates and geopolitical conditions to underpin the bullish bias about Gold despite the latest retreat. The International Monetary Fund’s (IMF) update suggesting increases in Gold holdings of Russia and China also helped the XAUUSD to remain firmer.

ECB   policymaker Mārtiņš Kazāks said to Bloomberg on Monday that It's quite likely June will be when we start to cut rates. The policymaker, however, also added, “But the process needs to be gradual and we should not rush it.” On the other hand, BoE Deputy Governor Ben Broadbent mentioned, “It is possible that a rate cut could come this summer.” His comments propelled market bets for the BoE rate cuts for August and allowed the GBPUSD to remain firmer ahead of this week’s UK inflation and Retail Sales data.

The US Dollar’s strength joined with comments from Japan’s Finance Minister (FinMin) Sunichi Suzuki to propel the USDJPY pair. The FinMin cited pros and cons relating to Yen’s fall and advocated for market stability while pushing back concerns about the BoJ rate hikes.

Minutes of the RBA’s latest monetary policy meeting signaled that the policymakers discussed raising rates before agreeing on the status quo. The same should have helped the Australian Dollar (AUD) but failed as the latest Aussie data/events haven’t been impressive to the policy hawks. Also exerting downside pressure on the Aussie pair is the US Dollar’s corrective bounce and fears surrounding China. Further, the New Zealand (NZ) Treasury’s economic update suggesting no near-term turning point for the NZ economy amid lower retail spending and sector-wide business activity joined the pre-RBNZ consolidation to weigh on the NZDUSD prices.

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

Canada inflation, major central bank talks will entertain traders amid full markets

Having witnessed a slower start to the week, especially amid a light calendar and holidays in Europe, Canada and Switzerland, Tuesday’s trading momentum will pick up as traders return to their desks after a long weekend. Apart from the full markets, Canadian inflation numbers and speeches from top-tier central bankers from the US, the UK and Europe will also fuel liquidity into the markets. Above all, Thursday’s PMIs for May and Friday’s US Durable Goods Orders will be important catalysts to watch for clear directions. That said, firmer US data and the market’s recent acceptance of the hawkish Fed signals could allow the US Dollar to pare the previous week’s losses, which in turn might trigger the much-awaited pullback in prices of Gold, EURUSD and GBPUSD while allowing USDJPY to rise further. It should be noted that Crude Oil may remain firmer amid the increasing odds of supply crunch.

May the trading luck be with you!