USDJPY stays in recovery mode even as US Dollar hovers ahead of key catalysts

Forex traders appear slightly optimistic early Monday as they await the top-tier data/events amid hopes of witnessing lower rates from developed economies, especially after Friday’s downbeat US data. However, mixed updates on the geopolitical front and mostly upbeat statistics from the Asia-Pacific zone, as well as the pre-data anxiety, restrict the market moves.

As a result, the US Dollar bears the burden of softer Fed inflation amid the FOMC blackout period whereas EURUSD edges higher even as the European Central Bank’s (ECB) is almost given. Further, GBPUSD remains defensive amid the mixed UK data and the Bank of England’s (BoE) hawkish bias. It’s worth observing that the USDJPY extends Friday’s recovery moves even though Japanese data/updates have been positive of late and the US Treasury bond yields are also down. The reason could be linked to the lack of conviction about the Bank of Japan’s (BoJ) next move.

Elsewhere, AUDUSD pares the previous gains but the NZDUSD grinds higher despite a holiday in New Zealand. Further, the USDCAD bounces off a two-week low, snapping a two-day losing streak, as softer Crude Oil joins the Loonie pair’s consolidation ahead of Friday’s Canada employment data.

Crude Oil fails to justify the OPEC+ decision to extend the supply cuts amid fears of lesser energy demand while Gold price also remains pressured as traders pare the previous gains ahead of the key June monetary policy decisions from the top-tier economies.

BTCUSD and ETHUSD pick up bids to reverse the previous weekly losses as optimism surrounding the spot ETF approvals supersede US President Joe Biden’s harsh stand on the cryptocurrencies.

Following are the latest moves of the key assets:

• WTI Crude oil drops for the fourth consecutive day to $76.70 by the press time.
• Gold extends the previous day’s losses toward a two-month-old rising support line, near $2,315 as we write.
• The USD Index remains side-lined around 104.60 after posting a weekly loss.
• Wall Street closed mixed but the Asia-Pacific shares edge higher. That said, British and European shares remain positive during the initial trading hour.
• BTCUSD and ETHUSD both remain positive around $68,900 and $3,825 as we write.

US Dollar struggles as the key week begins…

Friday’s US Core PCE Price Index, known as the Fed’s preferred inflation gauge, lures the US Dollar bears ahead of this week’s ISM PMIs and the monthly US employment data. The Greenback’s losses could also be linked to the “blackout” period for the FOMC members ahead of June Fed monetary policy meeting announcements, scheduled for next week.

Meanwhile, the geopolitical challenges to sentiment and mostly static odds of witnessing a delay in the Fed’s rate cuts put a floor under the US Dollar. That said, China stimulus news and mostly upbeat data from the Asia-Pacific zone entertain traders of the Antipodeans even as commodities fail to cheer the softer US currency.

Regarding China, the dragon nation recently announced a 6.4 billion Yuan vehicle trade-in subsidy while promoting its plans to propel domestic demand via stimulus. Beijing previously released measures to help the struggling realty sector as it flags concerns about the world’s second-biggest economy’s debt market collapse.

It should be observed that China’s official PMIs for May disappointed the commodity buyers on Friday but Monday’s upbeat releases of Caixin PMIs for the said month joined softer US Dollar to challenge the riskier assets’ fall.

Talking about the geopolitics, China alleges the UK of having two spies within the 'Chinese Central State Organs' and raises geopolitical tensions. On the same line are headlines suggesting Israel’s rejection of the US peace plan even as Hamas agrees to major requirements.

With this, the US Dollar Index (DXY) remains on the back foot after a two-day losing streak while prices of Gold and Crude Oil drop for the second and the fourth consecutive day respectively. It should be observed that Crude Oil fails to justify the OPEC+ verdict amid fears of lower energy demand from China. During the weekend, OPEC+ announced an extension of the previous supply cut agreement among the cartel members until the end of 2024, gradually rolling it back in 2025. However, the fears of easing demand and receding geopolitical tensions seem to exert downside pressure on the black gold. That said, the XAUUSD also holds lower grounds despite the softer US Dollar as China woes join a consolidation in the gold prices ahead of the key central bank announcements and employment/inflation data.

While the commodities fail to cheer the US Dollar’s weakness and China stimulus news, the Dollars of Australia, New Zealand and Canada struggle to defend the gains made in the last two days.

Australia’s inflation gauge from the Melbourne Institute rose past previous readings for May. However, the news of the minimum wage increase and improvement in the monthly PMIs, despite staying in the contraction region, restrict the AUDUSD moves, especially amid the mixed markets and cautious mood. The same joins a holiday in New Zealand to limit the NZDUSD moves while USDCAD lacks clear directions amid downbeat Oil prices and mixed bias about the policy divergence between the Fed and the Bank of Canada (BoC).

On the other hand, EURUSD rises for the third consecutive day as the Euro traders brace for this week’s European Central Bank (ECB) rate cut and the US employment data, especially when the ECB has already confirmed a rate cut but stays put on the future course of action. Further, GBPUSD also jostles with the bears as the British statistics have been less than enough to defend the BoE’s hawkish bias.

Moving on, USDJPY edges higher despite upbeat Japanese catalysts. Earlier in the day, Japan’s Minister of State for Economic and Fiscal Policy Yoshitaka Shindo crossed wires, saying, “Real growth in the economy of 1.3% in FY 2025 is not unrealistic.” The policymaker’s comments joined downbeat Treasury bond yields and firmer prints of Japan’s Jibun Bank Manufacturing PMI to challenge the USDJPY prices, especially when the US Dollar seesaws ahead of the key data/events. That said, the final readings of Japan’s Jibun Bank Manufacturing PMI for May marked the first expansion in a year.

• 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

US ISM Manufacturing PMI is eyed for the day but ECB and NFP are crucial for the week…

Given the presence of the US and Canadian employment data for May and the ECB Monetary policy meeting announcements, traders may remain cautious ahead of these events. However, today’s US ISM Manufacturing PMI for May could entertain the intraday traders. It’s worth observing that the ISM Services PMI, Australian GDP, and Swiss inflation numbers are the additional statistics that traders should keep an eye on. That said, the US Dollar might reverse the previous weekly losses on upbeat data but the moves should be timid as the Fed policymakers are experiencing a “blackout” ahead of next week’s FOMC monetary policy meeting.

May the trading luck be with you!