China battles the bears even as surprise NFP propelled Fed rate hike expectations

Headlines concerning Beijing’s push for unlock join US President Joe Biden’s likely relief to China, as far as Trump-era tariffs are concerned, favored the market sentiment during early Monday. However, a surprise increase in Friday’s US Nonfarm Payrolls (NFP) increased the odds of the Fed’s faster/heavier rate hikes and challenged the risk-on mood amid sparse trading with holidays in New Zealand, Switzerland, Germany and France.

US Treasury yields pare the biggest weekly gains in four, which in turn weigh on the US dollar. The resulted moves, joined by China-linked news, allow prices of gold to recover. However, Brent oil reverses from a one-week high as rising chatters of faster monetary policy test energy buyers amid OPEC+ verdict to double the output.

NZDUSD benefits the most from the US dollar weakness while GBPUSD struggles to carry early-day gains ahead of the key no-confidence vote in UK PM Johnson.

Cryptocurrencies were also on the front foot for the third consecutive day as bears take a breather ahead of the active markets.

Following is the list of major assets’ latest performances:

• Brent oil reverses from one-week high to snap two-day rebound, down 0.65% near $112.00 at the latest.
• Gold struggles to keep the week-start rebound as traders flirt with $1,850.
• USD Index drop 0.20% to around 101.95 despite posting the first weekly gain in three by the end of Friday.
• FTSE 100 pares Friday’s losses with 1.0% gains near 7,625 but EUROSTOXX50 and DAX are both down around 1.20% at the latest.
• Nasdaq slumped 2.47% while S&P 500 and Dow Jones dropped 1.63% and 1.05% on Friday.
• BTCUSD and ETHUSD add around 5% each while picking up bids near $31,350 and $1,900 by the press time.

Traders portray cautious optimism amid light trading

Risk appetite improves on Monday amid China’s back-to-track efforts, as well as Biden’s readiness to improve relations with the world’s second-largest economy. The positive mood also gains clues from the holiday at multiple market bourses in Asia as well as in Europe. Furthermore, a pullback in the US Treasury yields and the market’s preparations for this week’s US inflation and the European Central Bank (ECB) meeting seems to allow for the bullish consolidation.

The risk-on mood failed to propel USDJPY due to softer yields and also couldn’t please oil buyers. However, NZDUSD, AUDUSD and gold seem to benefit from the move, even if a bit.

It's worth noting that a softer print of the Fed’s preferred gauge of inflation, namely the US Core PCE Price Index has already raised expectations of a softer US CPI, which in turn allows traders to lick their wounds after Friday’s heavy NFP fuelled Fed’s rate-hike expectations.

Elsewhere, BTCUSD and ETHUSD portray a notable jump as bears finally step back after multiple days of keeping reins inside the familiar range. Adding to the crypto run-up could be the softer USD.

⏫ 🟢 Strong buy: USDCAD, USDCHF and USDCNY

⏬ 🔴 Strong sell: Nasdaq, silver, ETHUSD

⬆️ 🟢 Buy: USD Index, USDJPY

⬇️ 🔴 Sell: DAX, FTSE 100, brent oil, gold, BTCUSD

A softer start to the key week

In addition to holidays in multiple markets, a light calendar and mixed mood also could restrict the moves during the start of the week. However, the volatility is expected to inflate from tomorrow, starting with the RBA’s rate hike.

European Central Bank (ECB) is eyed for fresh clues on the July rate hike but the absence of the US central bank speakers, due to the pre-Fed blackout, may keep EURUSD traders on their toes.

GBPUSD, on the other hand, could also entertain traders should UK PM Johnson manage to overcome the no-confidence vote, up for today.

Furthermore, gold prices remain on the bear’s table while crude oil may witness further downside, which in turn can propel USDCAD prices due to Canada’s heavy reliance on oil imports.

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