USDJPY extends week-start pullback on upbeat Japan PPI, softer US Dollar

The risk complex remained slightly upbeat after a positive start to the week, despite the risk-negative headlines from China and the Middle East. The reason could be linked to the US/UK holidays and Friday’s downbeat US data that challenged earlier bias suggesting only one Fed rate cut in 2024 versus the previously anticipated three.

With this, the US Dollar Index (DXY) drops for the third consecutive day, allowing the riskier assets to edge. That said, EURUSD benefits from the concerns that the European Central Bank (ECB) will struggle to extend the rate cuts after June whereas GBPUSD cheers hawkish comments from the Bank of England (BoE) officials. Further, USDJPY snapped a three-day the previous day and is pressured so far as firmer inflation clues from Japan join mixed headlines from the Bank of Japan (BoJ) conference.

AUDUSD rose for the third consecutive day as Australia’s Retail Sales grew in April. On the same line, NZDUSD jumps to a 10-week high, printing a five-day uptrend by the press time, as China stimulus news joins the Reserve Bank of New Zealand’s (RBNZ) takes measures to curb high debt to income loans.

Crude Oil defends Friday’s recovery from a multi-day low amid hopes of more energy demand from China and challenges to oil supplies due to the geopolitical tensions in the Middle East. It’s worth noting, however, that Gold Price struggles to extend the two-week winning streak.

Elsewhere, BTCUSD and ETHUSD pare the recent gains as traders await more positives about the spot ETF approvals.

Following are the latest moves of the key assets:

• WTI Crude oil prints a three-day winning streak while posting mild gains around $78.70 at the latest.
• Gold remains dicey, struggling to extend the two-day recovery near $2,345 by the press time.
• The USD Index stays pressured at a one-week low, down for the third consecutive day around 104.40 as we write.
• Asia-Pacific shares edge higher but the European and the British shares trade mixed during the initial trading hour.
• BTCUSD and ETHUSD print intraday losses to pare the previous gains near $67,800 and $3,850 as we write.

US Dollar stays pressured as full markets return…

Monday’s bank holidays in the US and the UK joined the previous day’s unimpressive US data to raise doubts about the Fed’s one rate cut signals that gained momentum and fuelled the US Dollar last week. The same joined cautious optimism emanating from clues of more stimulus from China, as well as the positive performance of equities, to exert downside pressure on the US Dollar. It’s worth observing that the return of the full markets on Tuesday failed to inspire the Greenback bulls as traders prepare for this week’s key data, namely the US Core PCE Price Index, also known as the Fed’s preferred inflation clues.

Given the US Dollar’s weakness, the Oil began the week on a positive note but the Gold lacks upside momentum amid mixed headlines from Asia and the Middle East earlier in the day. That said, China’s Foreign Ministry criticized the US ties with Taiwan and highlighted Washington’s efforts to gain control of the sea route to tame Beijing’s powers. Meanwhile, the geopolitical tensions in Rafah continue as an Egyptian soldier was killed after an exchange of gunfire with Israeli soldiers.

On the contrary, the softer US Dollar and news that Shanghai announced property sector support measures underpin a slightly positive mood early Tuesday.

As a result, the risk-barometer AUDUSD rises for the third consecutive day, backed by upbeat Aussie Retail Sales growth for April, +0.1% versus -0.4% prior, whereas the NZDUSD follows suit with the RBNZ’s qualitative measures to tame bad loans.

EURUSD rose to a one-week high, up for the third consecutive day, as most of the ECB officials confirmed the June rate cut but hesitated to provide more clues about the bloc’s monetary policy moves afterward. Among the key officials were ECB Chief Economist Philip Lane and the policymaker Francois Villeroy de Galhau. In the same way, BoE Deputy Governor Ben Broadbent tried to defend the British central bank’s hawkish bias while rejecting claims that the monetary policy committee acted too slowly because of groupthink. Also helping the GBPUSD pair to jump to a multi-day peak was the update from the British Retail Consortium (BRC) that said the UK Shop price inflation is ‘back to normal’ with 0.6% YoY growth for May, versus 1.0% expected and 0.8% prior.

USDJPY remains pressured for the second consecutive day as most of the BoJ officials challenge the market’s concerns about their capacity to lift rates again in 2024. Also helping the Yen pair sellers was the strongest Japan Producers Price Index (PPI) since May 2015. Furthermore, downbeat yields and the growing confidence in Japan’s ability to overcome the stagflation exerted additional downside pressure on the Yen pair.

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

A slew of second-tier data/events to entertain traders during full markets…

After a downbeat start to the week, traders will witness an active Tuesday as the UK and the US traders to the desks with mixed bias. Also likely to entertain the market players will be the presence of the US Conference Board’s (CB) Consumer Confidence and housing data on the calendar. Also important to watch will be the US Dallas Fed Manufacturing Business Index and Canada Industrial Production, not to forget public speeches from the mid-tier central bank officials from the ECB and the Fed.

It should be noted that the doubts about the number of the Fed’s rate cut in 2024 can keep challenging the US Dollar bulls unless today’s US data and statements from the FOMC officials justify the odds favoring only one action in the year. The same could keep the latest momentum in the riskier assets.

May the trading luck be with you!