Markets are quiet early Monday as traders await more data and events to build on last week’s volatility. Risk sentiment remains slightly positive, supported by China’s potential for more stimulus and fresh challenges for the Fed hawks, especially with a light economic calendar. This tests US Dollar bulls and allows other risk assets to consolidate recent losses. Meanwhile, USDJPY edges higher as concerns over aggressive Bank of Japan rate hikes ease.
That said, China took one more step to impress investors as Shanghai announced a reduction of a few taxes on real estate transactions. Meanwhile, the US authorized Ukraine to use long-range US weapons to strike inside Russia, which challenged the sentiment.
On Friday, mixed US Retail Sales and Industrial Production data dampened hawkish Fed expectations, especially as FOMC members hesitated to support slower rate cuts. This challenged the US Dollar bulls and allowed other major currencies, commodities, and Antipodean currencies to recover some weekly losses. Despite this, the US Dollar Index (DXY) posted its biggest weekly gain since late September, pushing Gold to its largest slump since June 2021. As a result, EURUSD, GBPUSD, AUDUSD, and NZDUSD all saw declines, while USDJPY edged higher, USDCAD rallied, and Crude Oil dropped.
While the US Dollar’s weakness gives EURUSD and GBPUSD bears a break, their rebound remains limited due to dovish comments from European Central Bank (ECB) officials and mixed UK data. Additionally, the European Commission's forecast of a German recession and weaker UK growth data, released on Friday, add further downside pressure on the Euro (EUR) and British Pound (GBP).
USDJPY marked the biggest drop in seven weeks the previous day, due to speculation of market intervention and a pullback in the US Dollar after mixed US data. However, the Yen pair bounced back on Monday, aided by Bank of Japan Governor Kuroda’s cautious stance on rate hikes, amid weak Japan Machinery Orders for September. Kuroda acknowledged rising inflation and moderate economic recovery in Japan, but also pointed out some weaker signs, stressing the need for caution before raising rates.
The US Dollar’s retreat, coupled with news of China’s stimulus, helps AUDUSD and NZDUSD pause their recent declines. However, the recovery looks uncertain as RBA policymaker Kent struggles to convince traders of a hawkish stance, while New Zealand’s data remains mixed. On a positive note, New Zealand’s Q3 PPI input and output improved, along with the nation’s Services PMI for October. However, the actual output still falls short of optimistic expectations.
Meanwhile, a weak performance in Canada’s key export, crude oil, along with a dovish outlook for the Bank of Canada (BoC) ahead of this week’s inflation data, boosts USDCAD. As a result, the Loonie pair remains slightly higher, trading at its highest level since May 2020.
Gold breaks a five-day losing streak, holding above last week’s three-month-old support level. However, it remains below a key nine-month resistance line, keeping sellers cautious. Similarly, Crude Oil stays under pressure after a sharp drop on Friday, with OPEC concerns and mixed geopolitical signals from the Middle East and Russia weighing on prices.
Bitcoin (BTCUSD) sees modest gains, staying near last week's all-time high, while Ethereum (ETHUSD) rebounds slightly after a weekly loss. Crypto investors are seeking new developments to sustain their optimism about the Trump presidency. However, stricter regulations in Europe also pose a challenge to these riskier investments.
Unlike last week, the economic calendar is light, with few catalysts ahead of Friday's preliminary PMIs for November. However, speeches from BOJ Governor Kuroda, ECB President Christine Lagarde, and several mid-tier FOMC members, along with inflation data from Canada and the UK, will keep traders engaged. While a quiet calendar and mixed news could allow the US Dollar to trim some of its recent gains, major currencies are unlikely to benefit due to their own negative catalysts. Gold might reverse earlier losses, but Crude Oil could remain under pressure from concerns over weaker demand and rising supply. Additionally, cryptocurrencies could face losses, with little new positive news following Trump’s election victory.
May the trading luck be with you!
