USDJPY marches to six-week high on upbeat yields, US data eyed

Market sentiment remains dicey, mostly downbeat, amid receding dovish bets on the US Federal Reserve. Adding strength to the risk-off mood could be the US strikes on Houthis and China’s mixed data and easing population growth that challenges the economic transition of the dragon nation.

With this, the US Dollar Index (DXY) prints a four-day uptrend while poking the highest levels last seen on December 13, mildly bid near 103.50 at the latest

The strong US Dollar exerts downside pressure on gold and crude prices, especially amid downbeat yields. That said, the US 10-year and 30-year Treasury bond yields jumped the most in 10 weeks while the two-year counterpart also printed the biggest daily rise in five weeks. As a result, the USDJPY marks the biggest US Dollar strength versus the G10 currencies.

Elsewhere, EURUSD bears the burden of the mixed comments from the European Central Bank (ECB) officials, as well as the recent firmer US fundamentals. However, GBPUSD reverses from a multi-day low amid surprisingly strong UK inflation while ignoring pessimism about the UK economic transition and Bank of England (BoE) Governor Andrew Bailey’s inability to defend hawkish bias.

The firmer US Dollar also joins fresh worries at the crypto markets to prod BTCUSD and ETHUSD buyers after their two-day dominance.

Following are the latest moves of the key assets:

• Brent oil remains pressured for the second consecutive day, down 0.30% intraday near $77.70 at the latest.
• Gold price holds lower ground near the one-week low, close to $2,048 by the press time.
• USD Index rises to a five-week high of around 103.50, up for the fourth consecutive day as we write.
• Wall Street closed in the red and the Asia-Pacific stocks edged lower. That said, equities in the UK and Europe post minor losses during the initial hour.
• BTCUSD and ETHUSD snap two-day winning streak to around $42,700 and $2,550 respectively.

US Dollar cheers hawkish Fed bias, risk-off mood…

Fed Governor Christopher Waller defended the previous bias and justified the US employment and inflation data to underpin market players’ skepticism about the Fed cuts in 2024. The Fed concerns supersede the worst US Empire Fed Manufacturing Survey in 20 years, ignoring the pandemic period, to bolster the US Dollar. That said, the CME’s FedWatch Tool suggests a steep rise in the market’s rejections of January 2024 rate cuts from the US central bank, from 94.8% to 97.8% within a week. Additionally, reductions in the probabilities suggesting the previously confirmed Fed rate cuts in March, from 76.9% to 63.3%, also push back the dovish Fed bias.

On a different page, China’s Q4 GDP matched government expectations and the Industrial Production for December also improved. However, slower Retail Sales growth and downbeat Housing Price Index, as well as the easing population growth, flag fears about physical demand from one of the world’s biggest commodity users. Further, US military strikes on Houthi terrorists continue and the UK, as well as some parts of the West, also favor the fight to free the global trading route via the Red Sea. The same signals more price pressure due to the supply crunch and challenges for the rate cuts at the major central banks including the Fed.

• Strong buy: USDCAD, USDJPY
• Strong sell: Crude Oil, US Dollar, GBPUSD
• Buy: BTCUSD, ETHUSD, Nasdaq, Gold
• Sell: DAX, FTSE 100, BTCUSD, AUDUSD, EURUSD

US Retail Sales and ECB’s Lagarde eyed…

Despite the latest jump in the US Dollar, as well as an increase in the hawkish Fed bias, the overall easing in inflation keeps the hopes of Fed rate cuts on the table and challenges the Greenback buyers. As a result, today’s US Retail Sales, expected 0.4% MoM versus 0.3% prior, as well as the Industrial Production, expected to ease to 0.0% from 0.2%, will be crucial to watch after recently firmer US jobs report and mostly upbeat US inflation numbers. Should the incoming data suggest intact economic activities and challenges to the price pressure, the US Dollar will rally to the late 2023 peak.

On a different page, hawkish comments from ECB President Christine Lagarde become necessary to prod the EURUSD bears as the recent indecision among the policymakers joins downbeat EU data to weigh on the Euro.

May the trading luck be with you!