Markets remain volatile, driven by news about US tariffs, the Ukraine-Russia ceasefire, and tensions with Iran, which keep momentum traders on edge. The US JOLTS Job Openings report shows strong job growth, which contrasts with recession concerns and adds to the market jitters. The US Dollar Index (DXY) hit a 4.5-month low before recovering slightly, as traders await the crucial February Consumer Price Index (CPI).
Trump's tariff announcement on Canadian aluminum and steel, along with worries about a US economic slowdown and US-Iran tensions, dampened market sentiment. However, Ontario Premier Doug Ford's cancellation of an electricity surcharge, the US pulling back additional tariffs, Trump's dismissal of recession fears, and a 30-day Ukraine-Russia ceasefire helped ease concerns. The US House of Representatives also passed a funding bill to prevent a government shutdown, although it still requires Senate approval.
In the Middle East, Iran rejected talks with the US, and the Houthis threatened attacks on Israeli ships passing through the Red and Arabian seas, the Bab al-Mandab Strait, and the Gulf of Aden.
On Tuesday, EURUSD jumped to the highest level since early October 2024 amid a broadly weaker US Dollar and increasing optimism surrounding Germany’s spending plan helping the bloc to regain its economic pace. The run-up, however, faded early Wednesday as traders keenly await the US CPI and ECB President Christine Lagarde’s speech after ECB policymaker Olli Rehn said that the US tariffs could cut global output by more than 0.5% this year and the next.
GBPUSD appears comparatively fragile amid receding optimism surrounding the UK economic rebound, backed by recently firmer British data, amid dovish bias surrounding the Bank of England (BoE) and the UK-US trade tensions.
Meanwhile, USDJPY picks up bids to extend the previous day’s rebound from a five-month low. In doing so, the Yen pair justifies softer Japan inflation clues and mixed statements from Bank of Japan (BoJ) Governor Kazuo Ueda.
Unlike other major currencies, the Australian and New Zealand Dollars (the Antipodeans) lack recovery momentum, fading their bounce from a weekly low. AUDUSD and NZDUSD are resuming their downtrend, driven by concerns over US tariffs, Sino-American trade/political tensions, and growing expectations of further rate cuts from the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ). Australia's decision not to impose tariffs on the US, along with mixed New Zealand retail sales data, also challenge the Aussie and Kiwi traders of late.
USDCAD is recovering from the previous day's pullback, which formed a Doji candlestick at a one-week high. The Loonie pair is overlooking the previous day’s rebound in crude oil, Canada’s key export, due to rising concerns over the US-Canada trade tensions and a dovish outlook for the Bank of Canada (BoC). The BoC is expected to announce a 0.25% rate cut on Wednesday, which could push USDCAD higher if the US CPI data supports the recent rebound in the US Dollar.
Gold retreats from a month-long resistance level after ending a three-day winning streak, driven by the US Dollar’s rebound and market consolidation ahead of today’s US CPI. Easing US recession fears and expectations of no government shutdown also contributed to the pullback.
Meanwhile, rising geopolitical tensions between Israel and Iran are overshadowing a surprise increase in US private oil inventories, helping crude oil recover from a week’s low. However, oil struggles to gain momentum amid concerns over potential OPEC+ supply increases, weaker demand from major customers, and the resolution of geopolitical tensions, along with Trump’s push for more oil drilling.
Bitcoin (BTCUSD) and Ethereum (ETHUSD) both reverse their recent bounce from multi-month lows, weighed down by concerns over Mt. Gox’s $930 million Bitcoin repayment, disappointment over Trump’s Bitcoin reserve announcements and ETF outflows. Crypto buyers are now at a crossroads, torn between Trump-inspired optimism and ongoing tariff concerns, as well as a retreat from institutional investors.
Looking ahead, key events such as India and US inflation data, the BoC's monetary policy announcement, and ECB President Lagarde’s speech will highlight Wednesday’s economic calendar. Additionally, risk factors like tariff news, the US government shutdown, and the Ukraine ceasefire deal will be crucial for market direction.
A stronger US CPI, combined with ongoing risk aversion, could boost the US Dollar further, potentially driving USDCAD higher, especially with the BoC’s dovish rate cut. This could also extend recent pullbacks in EURUSD and GBPUSD, support a USDJPY rebound, and weigh on AUDUSD and NZDUSD. Crude oil might struggle to hold onto its recent gains, providing additional support for USDCAD, while Gold may reverse from technical resistance. Meanwhile, crypto bears could remain in control, and equities might continue to drift lower.
May the trading luck be with you!
