EURUSD targets fresh yearly high ahead of key data/events

Market Overview

Early Monday, market sentiment is largely positive as traders cheer the US Federal Reserve’s 0.50% rate cut and the US House's announcement of stop-gap funding to prevent a government shutdown through December 20. Focus now turns to this week’s preliminary September PMI readings, monetary policy meetings from the Reserve Bank of Australia (RBA) and Swiss National Bank (SNB), along with FOMC Chair Powell’s speech and Fed’s favorite inflation gauge, namely the US Core PCE Price Index.

The risk-on mood exerts downside pressure on the US Dollar, especially amid the dovish Fed bias, but anxiety ahead of the key data/events allows Greenback to lick its wounds. With this, the US Dollar Index (DXY) struggles at the lowest level since July 2023 after a three-week downtrend.

EURUSD, GBPUSD buyers keep the reins

Supported by a softer US Dollar and a dovish Fed outlook, the EURUSD pair is holding firm after achieving its largest weekly gain in four weeks. Improvements in Eurozone consumer sentiment for September and ECB officials' resistance to consecutive rate cuts also bolster this strength. However, caution surrounding the German elections is testing Euro bulls lately.

UK Chancellor Rachel Reeves has dampened expectations for higher taxes and austerity, challenging the GBPUSD's stability at a 31-month high. This follows positive UK retail sales and the Bank of England’s inaction. On the same line are hawkish comments from BoE policymaker Catherine Mann that continue to support Pound buyers' optimism ahead of this week’s key PMIs.

USDJPY bucks the trend

USDJPY has recently paused its two-week downtrend, edging higher early Monday despite the US Dollar’s weakness. Statements from Bank of Japan (BoJ) Governor Kazuo Ueda and new currency diplomat Atsushi Mimura haven’t impressed hawkish market expectations about the Japanese central bank. Additionally, Japan's holiday is limiting market activity in Asia, allowing the Yen to continue its recovery from last week's yearly low.

Bulls prefer Antipodeans, commodities

Traders also lean towards Antipodean currencies and commodities, fueled by a risk-on sentiment. Recent actions, such as the People’s Bank of China’s cut in the 14-day reverse repo rate, US President Kamala Harris’s economic optimism, and China’s targeted stimulus measures, have bolstered demand for riskier assets like the Australian, New Zealand, and Canadian Dollars, as well as commodities, equities, and cryptocurrencies.

However, economic challenges in Australia and New Zealand are testing buyers of AUDUSD and NZDUSD. Meanwhile, USDCAD struggles to capitalize on rising crude oil prices amid a dovish outlook from the Bank of Canada (BoC).

Crude oil has seen gains over the past two weeks, buoyed by geopolitical tensions, optimism linked to China, and a softer US Dollar. However, concerns about OPEC+ supply and demand dynamics are testing energy buyers.

Gold, on the other hand, is thriving amid uncertainty regarding global economic growth and central bank policies. The precious metal has reached new all-time highs, supported by the weaker US Dollar and a recent technical breakout.

Easing pessimism about Democratic victory boosts cryptocurrencies

With receding concerns about a Democratic victory and its effects on the crypto market, cryptocurrencies are seeing a renewed surge in interest and confidence. That said, the US Democratic Party Nominee Kamala Harris has expressed support for facilitating crypto trading, further boosting the market. Additionally, positive on-chain data and ETF inflows have strengthened the two-week uptrend for Bitcoin (BTCUSD) and Ethereum (ETHUSD), helping these leading cryptocurrencies remain firm recently.

Latest moves of key assets

• WTI Crude oil stays mildly bid around $71.50 after a two-week uptrend, up for the third consecutive day by the press time.
• Gold refreshes an all-time high near $2,630 during a three-day run-up.
• The USD Index lacks momentum around 100.80 after declining in the last three consecutive weeks.
• Wall Street closed mixed but the Asia-Pacific shares edged higher. European and British equities lack clear directions of late.
• BTCUSD and ETHUSD both remain on the front foot at the highest level in a month, printing minor gains around $63,700 and $2,660 respectively.

A busy week ahead

As September wraps up, the final week brings a wealth of top-tier data and events for momentum traders. Key highlights include US Federal Reserve Chairman Jerome Powell’s speech on Thursday and the Fed’s preferred inflation measure, Friday’s the US Core PCE Price Index. Additionally, the first readings of September PMIs and monetary policy meetings from the Reserve Bank of Australia (RBA) and the Swiss National Bank (SNB) will further enhance market liquidity.

With the Fed’s recent 0.50% rate cut and rising expectations for two more in 2024, US Dollar bears will need solid reasons to retreat. Therefore, strong PMIs, Fed Chair Powell’s comments, and a robust Core PCE Price Index are crucial for triggering a significant recovery in the USD. However, a corrective bounce from mixed data due to month-end and quarter-end trading pressures can't be overlooked.

EURUSD may struggle for upward momentum due to the German elections and mixed data, while GBPUSD could reach a new yearly peak thanks to the US Dollar's weakness. Meanwhile, USD/JPY might continue its recent rally as developments in Japan challenge the hawkish Bank of Japan stance. Additionally, AUDUSD, NZDUSD, and USDCAD could lose recent gains unless the US Dollar weakens further, while Crude and Gold might experience a pullback.

Predictions for Key Assets

• Recovery Expected: USDCAD, USDJPY, US Dollar, Silver
• Further Downside Likely: AUDUSD, NZDUSD, GBPUSD
• Mostly Sideways Expectations: BTCUSD, ETHUSD, Nasdaq, Gold, DJI30, USDCNH
• Slow & Gradual Fall Expected: DAX, FTSE 100, EURUSD, Crude Oil

May the trading luck be with you!