EURUSD struggles to defend post-US Inflation, FOMC gains ahead of mid-tier EU/US data

Traders consolidate the previous day’s heavy moves, mostly against the US Dollar, amid early Thursday. In doing so, the market players also brace for today’s second-tier data from the US and Eurozone while considering the Fed's actions as hawkish in a second read. That said, the pre-data anxiety also joins the fresh challenges to sentiment and allows the US Dollar to pare the previous day’s losses.

The US Dollar dropped heavily the previous day despite the Federal Reserve’s (Fed) hawkish halt, as expected. The reason could be linked to softer US inflation data and the market’s lack of conviction in the FOMC’s one rate cut in the 2024 consensus.

Thursday’s corrective bounce in the US Dollar joins the political pessimism surrounding France and Germany to challenge the EURUSD bulls. On the same line, the cautious mood in the UK ahead of the July elections and recently downbeat British data prod the GBPUSD buyers after a three-day uptrend. Further, USDJPY also resumes the previous uptrend after posting the first daily loss in three.

AUDUSD pares the biggest daily jump in a month while NZDUSD also drops amid mixed data. That said, USDCAD extends Wednesday’s rebound from the 50-SMA as Oil buyers retreat from a two-week high amid demand-supply concerns. The cautious mood ahead of Bank of Canada (BoC) Governor Tiff Macklem’s speech also allows the Loonie pair traders to consolidate the previous day’s losses.

Gold rose in the last three consecutive days but dropped more than half a percent by the press time as the US Dollar’s recovery joins fears about the interest rates from major central banks. Also challenging the XAUUSD bulls could be the geopolitical tensions in the Middle East, China, the Eurozone, the UK and Russia.

BTCUSD and ETHUSD responded to the US Dollar’s weakness before resuming the previous fall amid the exhaustion of bullish sentiment after spot ETF approvals. It’s worth noting that the Bitcoin long positions hint at the retail traders’ “buy the dip” concerns.

Following are the latest moves of the key assets:

• WTI Crude oil extends pullback from a two-week high, down 0.12% intraday near $78.15 by the press time.
• Gold snaps a three-day uptrend while falling 0.65% intraday to $2,310 at the latest.
• The USD Index pares the biggest daily loss in eight days while posting minor gains near 104.80 as we write.
• Wall Street closed mixed but the Asia-Pacific shares edged lower. British and European shares printed minor gains during the initial trading hour.
• BTCUSD and ETHUSD both pare the previous day’s gains by falling nearly 1.0% each to $67,600 and $3,510 as we write.

US Dollar ignored hawkish Fed halt amid softer inflation…

US Dollar Index (DXY) marked the biggest daily slump in eight days the previous day as a softer-than-expected US Consumer Price Index (CPI) raised doubts about the US Federal Reserve’s (Fed) hawkish halt. That said, the CPI grew 3.3% YoY and 0.0% MoM in May versus 3.4% and 0.1% expected respectively. The Federal Open Market Committee (FOMC) left the benchmark Fed rate unchanged, as expected, but the dot plot suggested only one rate cut in 2024 while the Fed Statement mentioned there has been 'modest further progress' towards 2% inflation. It’s worth mentioning that Fed Chair Jerome Powell also said, “Regardless of the dots, everyone at the FOMC would say they're 'very data dependent'.”

With the US Dollar’s slump, EURUSD was in a better condition to cheer hawkish remarks from European Central Bank (ECB) Executive Board member Isabel Schnabel. On Wednesday, ECB’s Schnabel said that the "last mile" of the euro area's disinflation process is likely to be more difficult than previous stages. The hawkish ECB talks joined no change in the German inflation from the initial forecast to propel the Euro pair toward rising the most since December 21, 2023.

GBPUSD also rose for the third consecutive day to refresh a three-month high before retreating from 1.2860 amid a broadly weaker US Dollar and mixed concerns about the UK’s economic transition, as well as the British political mood ahead of July’s national elections.

USDJPY struggles to cheer the US Dollar’s weakness despite snapping a three-day uptrend, before recovering early Thursday. In doing so, the Yen pair portrays the market’s anxiety ahead of Friday’s Bank of Japan (BoJ) monetary policy announcements where a reduction in the BoJ’s bond purchase is expected to be announced. However, Thursday’s upbeat prints of Japan’s Q2 Business Sentiment Index, from -6.7 to -1.0, join mixed sentiment in the market to challenge the USDJPY bulls of late.

After a volatile day filled with top-tier data/events, the US Dollar licks its wounds amid the dicey markets. Apart from the market’s consolidation of the previous day’s moves, downbeat headlines from the risk complex also allow the US Dollar to lick its wounds, especially ahead of today’s US Producer Price Index (PPI) for May, the weekly Jobless Claims and a speech from New York Fed President John Williams.

Russia responds to the US and European sanctions by halting the US Dollar and Euro trades on the Moscow Exchange. The Russian central bank also stopped trading on the Hong Kong Dollar and challenged the sentiment. It should be noted, however, that these currencies are still tradeable via the Russian banks by way of the Over The Counter (OTC) method.

With the US Dollar’s rebound, AUDUSD pares the biggest daily jump in a month despite mostly upbeat Australian employment clues. Further, the NZDUSD snaps a three-day winning streak while extending the late Wednesday’s retreat from a five-month high amid mixed Electronic Card Retail Sales data from New Zealand. It should be noted that the USDCAD also marked the biggest daily slump in two weeks amid the softer US Dollar and slightly upbeat prices of Crude Oil, Canada’s key export. Also weighing on the Loonie pair were the hawkish comments from Bank of Canada (BoC) Governor Tiff Macklem who said that there is a limit to how far the Bank can diverge on rates from the Fed while also adding, “not close to that limit”.

Crude Oil rose to a two-week high the previous day before retreating from $79.28 as the official readings of the weekly US crude oil inventories, per the US Energy Information Administration (EIA), marked a surprise build in the stockpiles. Also challenging the black gold buyers were headlines from the International Energy Agency (IEA) predicting a lower energy demand in 2024.

Gold prices also rose in the last three consecutive days and refreshed the weekly high before reversing from the 50-SMA hurdle, down half a percent intraday around $2,310 by the press time. While the precious metal’s previous run-up could be linked to the broadly weaker US Dollar and hopes of witnessing China stimulus, the latest retreat in the bullion prices appears to react to the fresh consensus in the markets that the interest rates of the major central banks may not fall as much as previously expected.

• 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

A likely calmer day ahead…

Having witnessed mostly unexpected outcomes of the US inflation and FOMC announcements, traders will keep their eyes on the US Producer Price Index (PPI) for May and the weekly Jobless Claims, as well as a speech from New York Fed President John Williams. Also important will be the Eurozone Industrial Production for April and the US Energy Information Administration’s (EIA) weekly Crude Oil Storage Change data.

Apart from the aforementioned data/events, speeches from Bank of Canada (BoC) Governor Tiff Macklem and Deputy Governor Sharon Kozicki will also be important to watch for intraday directions.

Given the US Dollar’s failure to materialize the Fed’s hawkish halt amid softer US inflation, the Greenback’s likely recovery on firmer PPI and the favorable Jobless Claims data can’t be ruled out. However, the market momentum is likely to be a tad softer than witnessed yesterday.

May the trading luck be with you!