Friday’s strong US employment report raised doubts about the Federal Reserve’s expected two rate cuts of 0.50% in November and December. This shift in sentiment, combined with early-week remarks from Fed Chair Jerome Powell and ongoing geopolitical tensions in the Middle East, helped the US Dollar recover from previous losses. However, weekend news regarding Israel and Iran adds complexity to the situation.
As we await potential stimulus announcements from China and the US inflation data, the market remains cautiously optimistic. With a light economic calendar and holidays in Canberra and Beijing on Monday, the Greenback’s strength will face scrutiny.
US Dollar Index (DXY), a US Dollar’s gauge versus six major currencies, jumped the most in a week since September 2022. The Greenback’s run-up portrayed the EURUSD pair’s biggest slump in six months. It should be observed that Germany’s sustained recession fears and ECB officials’ push for more rate cuts join softer EU inflation to weigh on the EURUSD.
On the same line, GBPUSD marked the heaviest fall since January 2023 amid downbeat UK wage growth and hiring data exert downside pressure on the GBPUSD pair.
Above all, USDJPY printed a stellar run-up, the most since February 2009, amid doubts about the Bank of Japan’s (BoJ) next rate hikes and hawkish Fed bias. Early Monday, the Bank of Japan’s (BoJ) quarterly economic assessment cited price hikes and wage increases to defend its hawkish bias even if it only revised up assessments for two of nine regional areas in Japan.
AUDUSD has broken a three-week uptrend, while the NZDUSD also saw a significant decline. Meanwhile, USDCAD didn’t capitalize on the recent rise in crude oil prices—Canada’s key export—marking its first weekly gains in three weeks.
Gold prices have retreated from their all-time high, ending a three-week climb, while crude oil experienced its biggest jump since March 2023.
Notably, China has refrained from increasing its gold reserves for the fifth consecutive month in September, which, alongside the Fed’s hawkish stance, poses challenges for gold buyers. Even though economic concerns and lower rate expectations may support the precious metal, the outlook remains uncertain.
In the energy market, US President Joe Biden’s decision not to support an Israeli attack on Iran’s oilfields, combined with OPEC+’s readiness to boost output, puts pressure on crude oil buyers. Nevertheless, geopolitical tensions and hopes for Chinese stimulus could still favor energy bulls.
The recent strength of the U.S. Dollar is putting pressure on Bitcoin (BTCUSD) and Ethereum (ETHUSD) buyers, especially with uncertainty surrounding the U.S. SEC’s actions following the Presidential Elections. Despite this, significant inflows into ETFs and positive chain data are keeping crypto buyers optimistic. As the market anticipates key U.S. data and events this week, traders are hopeful for potential shifts that could impact the cryptocurrency landscape
Following a busy week, forex traders may experience a brief slowdown on Monday due to China’s holiday and a lighter economic calendar elsewhere, apart from the Eurozone Retail Sales. However, the return of the Dragon Nation from holidays on Tuesday and potential stimulus announcements could reignite market activity.
That said, Monetary policy updates from the Reserve Bank of New Zealand (RBNZ) will be in focus, along with the minutes from recent meetings of the Reserve Bank of Australia (RBA), European Central Bank (ECB), and U.S. Federal Reserve (Fed). These will certainly pique the interest of momentum traders.
Additionally, keep an eye on the US Consumer Price Index (CPI), the University of Michigan’s Consumer Sentiment Index, and inflation expectations, as well as Canada’s monthly employment report. These indicators could provide significant insights and influence market trends.
With the market adjusting to a hawkish stance from the Federal Reserve, supported by strong US employment data, the US Dollar is positioned to maintain its recent gains. This week’s US CPI and Fed Minutes could further bolster the positive outlook for the economy and monetary policy.
As a result, the EURUSD and GBPUSD pairs may face increased downward pressure due to ongoing economic challenges in the Eurozone and the UK. On the other hand, the USDJPY may lose some of its recent strength, especially with the possibility of Japanese yen intervention and new support for Bank of Japan rate hikes.
In the commodities market, gold prices could see a pullback as China hesitates to increase its gold reserves and the US Dollar strengthens. However, a bullish pennant formation might challenge bearish sentiment for XAUUSD amid an uncertain economic landscape.
Crude oil prices may also retreat from recent gains as the US remains cautious about intervening in the Middle East conflict, coupled with an improving supply outlook. This scenario, along with a dovish stance from the Bank of Canada and potential weakness in the Canadian employment report, could lift USDCAD prices.
Meanwhile, the AUDUSD and NZDUSD pairs might benefit from expected Chinese stimulus and a hawkish outlook from the Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ), even as the RBNZ is likely to consider rate cuts.
May the trading luck be with you!
