EURUSD stays pressured as US Dollar rebound joins political pessimism in EU

Cautious optimism prevails in the market early Wednesday as traders reassess the odds of the Fed’s rate cut actions in 2024 amid recently mixed US data and “soft landing” concerns. Adding strength to the slightly positive mood could be the headlines suggesting more stimulus from China. However, the risk-negative news from Russia and France joins a corrective bounce in the US Dollar, backed by Tuesday’s data, challenges the sentiment and allows the Greenback to edge higher.

EURUSD bears the burden of the US Dollar’s recovery and the political pessimism in the bloc as the latest popularity of the political leaders challenging the ruling parties in France and Germany. GBPUSD, however, grinds higher amid the quarter-end consolidation even as traders lack conviction in the Bank of England’s (BoE) bullish bias. Further, USDJPY extends the previous day’s rebound toward 160.00 despite lacking upside momentum.

AUDUSD portrays a positive reaction to the Aussie inflation data while NZDUSD bears the burden of fears surrounding New Zealand’s economic hardships. Moving on, USDCAD struggles to defend the previous day’s U-turn from a three-week low as Crude Oil reverses Tuesday’s pullback from a multi-week high and Canada inflation rises.

Crude Oil reversed from the highest level since late April the previous day after the American Petroleum Institute (API) reported a surprise build in the weekly inventory levels. Also challenging the energy buyers at the multi-day high were headlines suggesting a strong US Dollar and a delay in the future rate cuts from the top-tier central banks. However, geopolitical news from Russia and the Middle East keeps the supply crunch fears on the table and defends black gold buyers.

Gold slips beneath the key $2,318 support confluence comprising the 50-EMA and a two-week-old rising trend line, suggesting further weakness in the prices of the precious metal, amid firmer US Dollar and yields, as well as the market’s consolidation of monthly and quarterly moves.

Elsewhere, BTCUSD and ETHUSD remain lackluster after taking a U-turn from the monthly low the previous day amid mixed concerns surrounding the ETF flows and the US SEC’s bias about the crypto players.

Following are the latest moves of the key assets:

• WTI Crude oil picks up bids to reverse the previous day’s retreat from a two-month high, up 0.70% intraday near $81.30 at the latest.
• Gold drops to the lowest level in a week after breaking key support, down 0.40% on a day to $2,310 as we write.
• The USD Index edges higher while defending the previous day’s rebound near 105.70.
• Wall Street closed mixed even as Tech shares recovered while the Asia-Pacific shares edged higher of late. That said, equities in Britain and Europe remain slightly positive during the initial trading hour.
• BTCUSD and ETHUSD both reverse the previous day’s rebound from multi-day lows while falling back to $61,600 and $3,390 respectively at the latest.

Dicey markets keep US Dollar on buyer’s radar ahead of top-tier data/events…

The US Dollar Index (DXY) pares the week-start losses while cheering upbeat US data and hawkish bias about the US Federal Reserve (Fed). Adding strength to the Greenback could be the rising geopolitical woes and political pessimism in Europe, the UK and Canada.

Tuesday’s upbeat prints of the US CB Consumer Confidence for June and Chicago Fed National Activity Index for May allowed the US Dollar to reverse Monday’s losses, as well as keep the Greenback on the front foot early Wednesday. In doing so, the DXY ignores softer housing data and the Dallas Fed Manufacturing Index while cheering Fed talks suggesting fewer or no rate cuts in 2024 versus the market’s current expectations of two such moves for the year.

Elsewhere, Russian Defense Minister Belousov warned US Defense Secretary Llyod Austin about the dangers of continued US arms supplies to Ukraine. On the same line, Europe, Canada and the US brace for more hardships to China products whereas Beijing shows dislike for the US-Taiwan ties.

On a different page, France heads to the by-election this weekend and early signals suggest major challenges for the ruling party after Marine Le Pen's far-right party trumped French President Emmanuel Macron's Renaissance party in the European parliamentary election in early June.

Apart from the political woes and the hawkish Fed, the traders’ lack of conviction in the European Central Bank (ECB) officials’ statements suggesting no more rate hikes also weigh on the EURUSD prices. On the same line is the latest print of Germany’s GfK Consumer Confidence Survey for July, -21.8 versus -18.9 expected and -21.0 prior.

GBPUSD appears less inclined to highlight the political uncertainty in the UK and the mixed British data as the BoE officials keep pushing back rate cut chatters. The Cable’s latest run-up can also be linked to the paring of the monthly and quarterly moves amid a light calendar at home. Moving on, USDJPY holds its head high as traders prepare for the BoJ’s rate hike in July and the bond market actions amid firmer yields.

Strong prints of the Australian Consumer Price Index (CPI) bolstered calls for the Reserve Bank of Australia’s (RBA) rate hike and allowed the AUDUSD to lead the G10 currency gainers versus the US Dollar. That said, the Aussie weighted CPI marked a six-month high of 4.0% versus 3.8% expected and 3.6% prior while fueling the chances of the RBA rate hike in September to 51%. Alternatively, NZDUSD drops for the second consecutive day after the New Zealand Treasury cites a weak economic transition. It’s worth noting that the USDCAD justifies upbeat prints of Canada’s inflation data and the latest strength of the nation’s key export item, namely Crude Oil. That said, Crude Oil picked up bids to reverse the previous day’s retreat from a two-month high ahead of the official inventory data from the US Energy Information Administration (EIA), especially after the API marked a surprise build in the stockpiles and pulled the black gold down.

Gold stays pressured within a 12-week-old trading range, falling toward the key $2,292 support by the press time, amid the firmer US Dollar and yields. In doing so, the precious metal fails to justify the growing geopolitical tensions and the market’s preference for the yellow metal in times of uncertainty. The bullion’s weakness could also be linked to a recent fall in China’s gold demand.

• 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

Not much to look forward to for intraday traders…

Looking forward, momentum traders may witness a dull day due to an absence of top-tier data/events. Also likely to challenge the market moves could be the cautious mood ahead of Thursday’s key Biden-Trump debate and Friday’s Fed inflation.

That said, the Swiss ZEW Economic Survey and the Swiss National Bank’s (SNB) Quarterly Bulletin will join the US Bank Stress Test Info and New Home Sales to populate the calendar. While the SNB rate cut has already weighed on the Swiss Franc (CHF), today’s updates might allow the USDCHF to retreat provided the US banks and housing data challenge the Fed’s tighter monetary policy. Elsewhere, the political plays in the Eurozone, the UK, and Canada will entertain the EURUSD, GBPUSD, and USDCAD traders while USDJPY may witness further upside amid firmer yields and traders’ preference for the 160.00 threshold.

May the trading luck be with you!