USDJPY retreats as market awaits more clues to further propel US Dollar, yields

The risk complex appears dubious early Tuesday as traders seek more updates to confirm delaying rate cuts from the US Federal Reserve (Fed). Also keeping the market players on the edge are geopolitical concerns surrounding the Middle East and China rout. However, the early signals of a huge China stimulus package and a lack of risk-negative headlines during the initial hours prod the previous upsides of the US Dollar and the Treasury bond yields.

With this, the US Dollar Index (DXY) retreats from a three-month high while the benchmark US 10-year Treasury bond yields ease near the highest level of 2024, marked the previous day. Also, the commodities and Antipodeans lick their wounds after declining in the last two consecutive days whereas the equities and cryptocurrencies edge higher.

Apart from a pause in the US Dollar buying and a cautious optimism, the Reserve Bank of Australia’s (RBA) status quo also allowed the AUDUSD pair to lead the G10 currency gainers against the Greenback. Following that is the USDCAD as Crude Oil price recovers from a three-week low. Furthermore, Gold lacks clear directions but prods the previous two-day losing streak around the key $2,018 support confluence. With this, USDJPY eases from a 10-week high despite unimpressive Japan data, mostly due to hawkish BoJ concerns and a pullback in the yields.

Elsewhere, Fed Chair Powell’s speech and the on-chain details joined the optimism ahead of China New Year to underpin slightly positive sentiment for the BTCUSD and the ETHUSD traders.

Following are the latest moves of the key assets:

• Brent oil recovers from a three-week low to $78.50 by the press time.
• Gold price prods a two-day losing streak at the lowest level in a week, mildly bid near $2,026 as we write.
• USD Index retreats from a 12-week high while posting minor losses around 104.30 at the latest.
• Wall Street closed in the red but the Asia-Pacific stocks recovered the recent losses.
• BTCUSD and ETHUSD both post minor gains near $42,700 and $2,300 by the press time.

US Dollar bulls take a breather but keep the reins…

The strong points of US S&P Global and ISM PMIs for January joined the hawkish signals from the Federal Reserve (Fed) officials to underpin the bullish bias about the US Dollar. Also keeping the greenback firmer are the optimism surrounding the US economy and a reduction in the US Treasury borrowing, which in turn fuelled the yields, especially amid the market’s recent chatters about a delay in the Fed rate cuts.

That said, early Monday’s strong comments from Fed Chair Powell preceded the four-month high ISM Services PMI to favor the Greenback. Following that, Minneapolis Fed President Neel Kashkari (an alternate voting member) also appeared hawkish while citing the Core Inflation’s rapid progress towards the Fed’s target and added that there are some signs of weakness, including rising consumer delinquencies.

Elsewhere, Japan’s Overall Household Spending and Labor Cash Earnings improved in December but lagged behind the optimistic market forecasts. The same, however, contrasted with the early signals of inflation conditions in Japan and hawkish comments from the Bank of Japan (BoJ) officials, which in turn allowed the USDJPY buyers to take a breather.

Crude Oil prices also recover from a three-week low as the US prepares to retaliate killings of six US-backed Kurdish fighters in Syria. Previously, the US and the UK joined hands to up the ante versus the Houthis amid the Red Sea tension.

On the positive side, China’s widely chatters two trillion Yuan stimulus package to defend the world’s second-biggest economy favored optimism in the Asia-Pacific zone. The same joined the RBA’s status quo to propel the AUDUSD the most.

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

Multiple second-tier data/events eyed…

Moving forward, German Factory Orders and Eurozone Retail Sales for December will entertain the market players ahead of another round of central bankers’ speeches. Among them, Cleveland Fed President Loretta Mester and Bank of Canada (BoC) Governor Tiff Macklem will gain major attention. It’s worth noting that the market’s latest consolidation mode could last longer as traders brace for Chinese New Year holidays amid a light calendar. With this, further pullbacks in the US Dollar and yields can’t be ruled out. However, the growing market acceptance of a delay in the Fed rate cuts can keep the Greenback on the bull’s radar.

May the trading luck be with you!