EURUSD defends recovery amid US holiday, hawkish ECB talks

Global markets remain dicey early Monday despite multiple geopolitical events that took place over the weekend. The reason could be linked to the US holiday and a light calendar in Asia, as well as traders’ mixed bias about the Federal Reserve’s (Fed) next move.

Even so, the US Dollar lacks upside momentum and allows gold buyers to cheer the technical breakout. The same joins the hawkish comments from European Central Bank (ECB) officials to defend the EURUSD recovery.

That said, USDJPY traces downbeat yields and growing concerns about the Bank of Japan’s (BoJ) gradual exit from the easy-money policy. Further, AUDUSD and NZDUSD struggle to cheer the US Dollar’s weakness amid mixed feelings in the markets and growing cautiousness among Asia-Pacific traders.

Crude Oil licks its wounds as growing economic pessimism joins geopolitical tension in the Middle East and supply crunch woes.

Elsewhere, BTCUSD and ETHUSD recover as market players cheer spot ETF approvals and remain hopeful of more cash flow in the cryptocurrencies.

Following are the latest moves of the key assets:

• Brent oil lacks clear directions around $78.50 after posting weekly losses.
• Gold price remains mildly bid at the one-week high surrounding $2,055.
• USD Index remains dicey around 102.40, lacking clear directions of late.
• Wall Street closed mixed and so did the Asia-Pacific stocks. However, equities in the UK and Europe edge higher during the initial hour.
• BTCUSD and ETHUSD both reverse the previous week’s retreat from yearly highs to around $42,800 and $2,520 respectively.

Mixed bias for the US Dollar ahead of January FOMC…

US Dollar Index (DXY) posted a Doji candlestick on a weekly chart while showing indecision among the Greenback traders as last week’s Inflation numbers flashed mixed signals but failed to tame the market’s concerns for the Fed rate cuts in March.

During the last week, the headline Consumer Price Index (CPI) came in better than forecast but the details were unimpressive. On the same line, the Producer Price Index (PPI) reprinted -0.1% MoM figures versus 0.1% expected while the PPI ex Food & Energy (also known as the Core PPI) again marked 0.0% figures compared to the analysts’ estimations of 0.2%. However, the PPI improved on a yearly basis to 1.0% from a revised down 0.8% previous readings whereas the Core PPI eased to 1.8% against 1.9% expected and 2.0% prior.

On the other hand, European Central Bank (ECB) Chief Economist Philip Lane signaled during the weekend that data releases during June will be the key to rate cuts. The same joins the aforementioned catalysts to allow the EURUSD pair to recover from a two-month-old rising support line.

Even so, the latest rise in geopolitical tensions challenges the greenback sellers. That said, the Red Sea tension and Taiwain election results are among the key catalysts that probe the market optimists and put a floor under the US Dollar.

The US Central Command tweeted an anti-ship cruise missile fired at a US Navy ship after Washington and London undertook multiple airstrikes to free the cargo route from the Houthis. On a different page, William Lai from the pro-sovereignty Democratic Progressive Party (DPP) has been elected as Taiwan’s President. The DPP is said to have less friendliness with China and has ruled Taiwan for the last eight consecutive years, as well as securing the third consecutive presidential term.

Meanwhile, receding calls for the US government shutdown and the US holiday, as well as the People’s Bank of China’s (PBoC) status quo underpinned the market’s cautious optimism and weighed on the US Dollar. CNN reported that Senate Majority Leader Chuck Schumer and House Speaker Mike Johnson unveiled details of the stop-gap funding plan to avoid the government shutdown ahead of Friday’s deadline.

On a different page, the talks of no recession in the US as the Wall Street Journal (WSJ) survey reported more economists favoring the “soft landing” and putting a floor under the US Dollar.

With the market’s indecision about the Fed’s next move, even if the January rate cut is off the table, the traders are likely to defend their “Wait and Watch” approach, which in turn can challenge the US Dollar bulls ahead of January 30-31 Fed monetary policy meeting.

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

Fewer details, US Holiday will offer a boring day…

While the US Dollar failed to gain the market’s acceptance, traders are still hopeful of witnessing the Fed officials’ one last attempt to push back the dovish bias. The same joins the geopolitical tensions and economic pessimism outside the US to defend the Greenback. That said, today’s lack of data/events may test the USD bulls, especially amid the downbeat yields. It should be noted, however, that Canada's Wholesale Sales, India's Trade Deficit and Eurozone Industrial Production can offer intermediate moves.

May the trading luck be with you!