GBPUSD stays defensive ahead of UK/US PMI, ADP Employment Change

The mixed US data joins upbeat China Caixin Services PMI to underpin cautious optimism early Wednesday, especially after mildly bid Wall Street. The same challenges the US Dollar Index’s (DXY) corrective bounce from a two-month low ahead of the key activity and employment clues from the US.

EURUSD and GBPUSD lack upside momentum ahead of this week’s top-tier catalysts: The European Central Bank (ECB) monetary policy announcements, the UK/US PMIs, and the US employment report. It should be observed that the political jitters in the UK add upside filters for the Pound Sterling even as the Bank of England (BoE) officials remain hawkish and put a floor under the Cable.

AUDUSD, NZDUSD, and commodities lick their wounds amid slightly better sentiment and firmer China data, ignoring mixed updates at home. However, USDCAD fails to cheer the oil price recovery ahead of today’s Bank of Canada (BoC) interest rate announcement.

USDJPY rebounds from the 50-SMA support to snap a two-day losing streak as improvement in Japan activity data fails to convince the Bank of Japan (BoJ) hawks, especially amid a corrective bounce in the US Treasury bond yields and minor recovery in the market sentiment.

BTCUSD rises for the fifth consecutive day to refresh a two-week high but ETHUSD pares the previous day’s gains with mild losses amid mixed sentiment in the crypto market.

Following are the latest moves of the key assets:

• WTI Crude oil rises half a percent intraday to $73.20 by the press time as energy bears lick their wounds at a four-month low.
• Gold pares the previous day’s losses while posting mild gains near $2,335 as we write.
• The USD Index defends recovery from a two-month low to print minor gains near 104.30 at the latest.
• Wall Street closed mildly bid and helped the Asia-Pacific shares to pare the previous day’s heavy losses. That said, British and European shares trade mixed during the initial trading hour.
• BTCUSD prints mild gains near $71,000 but the ETHUSD stays pressured around $3,800 as we write.

US Dollar pares prior moves as key data/events loom…

Market players portray a slightly positive mood early Wednesday while waiting for this week’s frontline data/events. The reason could be linked to upbeat prints of China’s Caixin Services PMI for May and the news that Israel considered accepting the US-directed ceasefire agreement about Gaza. Furthermore, news that most of the top-tier central banks are almost set to announce rate cuts in June adds strength to the risk appetite, which in turn challenges the US Dollar buyers. Even so, the static odds favoring the Fed’s fewer rate cuts in 2024, two currently, and hopes of witnessing upbeat US activity and employment statistics put a floor under the US Dollar, allowing the Greenback to pare the previous losses.

While Tuesday’s US Factory Orders came in better than expected and JOLTS Job Openings signaled receding employment market heat, comments from the US Treasury officials and previously downbeat data challenge the US Dollar’s recovery. That said, US Treasury Secretary Janet Yellen conveyed the market’s expectations of reducing the short-term rates while Deputy Treasury Secretary Wally Adeyemo promoted the idea of lower inflation.

Elsewhere, Australia’s Q1 GDP was softer and the monthly PMI also eased but New Zealand’s Terms of Trade Index improved. That said, Japan’s Jibun Bank Services PMI came in better than initial expectations while BoJ advocated for easing bond purchases as early as the June meeting, which in turn should have weighed on the USDJPY prices. However, the market’s lack of confidence in the Japanese central bank’s ability to lift the rates again, especially when major central banks are cutting the rates, restricts the Yen pair’s downside.

Crude oil pares recent losses while extending the previous day’s rebound from a four-month low. In doing so, the black gold justifies the slightly upbeat sentiment and China data while ignoring a surprise build in the US weekly inventory data per the American Petroleum Institute (API). On the other hand, Gold remains range-bound while portraying the cautious mood among the key players ahead of the ECB and NFP. Also restricting the XAUUSD’s moves are geopolitical tensions and the latest updates flashing mixed signals on the central bank buying of the bullion.

EURUSD remains on the back foot while extending the previous day’s retreat from the 11-week high as traders expect more rate cuts from the ECB after unleashing the method on Thursday. Further, GBPUSD justifies the escalating political tensions in the UK ahead of July’s general elections. The Cable pair’s latest weakness could be linked to the recent polls suggesting a strong challenge for the ruling conservatives to defend the government. Additionally, doubts about the BoE’s capacity to defend the current rates also test the Cable pair buyers even as the British statistics have been slightly upbeat of late.

• 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

A busy day ahead…

Unlike Monday and Tuesday, a slew of economic data and events stand ready to propel market liquidity on Wednesday. Among them, the final readings of May’s PMIs from the Eurozone and the UK will be the first catalysts to entertain the momentum traders. Following that, the US ADP Employment Change and Bank of Canada Interest Rate Decision will be crucial to watch. At last, the US ISM Services PMI and the final readings of the S&P Global PMI for May could test the latest moves.

While the EU/UK data may not result in major moves of the EURUSD and the GBPUSD, the US ADP figures and the BoC will entertain the USDCAD traders, more when the BoC is up for a rate cut. That said, the likely easing in the US data might challenge the US Dollar’s latest corrective bounce as the hawkish Fed bets have stabilized since last week.

May the trading luck be with you!