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The RSI is below its neutrality area at 50. The MACD is negative and below its signal line. The configuration is negative. Moreover, the price is trading under its 20 period moving average (43950) but above its 50 period moving average (43665).
WTI Crude Oil Futures: Huge rise of gasoline inventories
The U.S. Energy Department reported an increase of 10.9 million barrels of gasoline inventories (vs a reduction of 215,0000 barrels expected). Besides, crude oil stockpiles dropped by 5.5 million barrels (vs a withdrawal of 3.73 million barrels estimated.)
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Amidst a rapidly shifting global market, this discussion delves into the intricate dynamics of key Forex pairs – EUR/USD, GBP/USD, USD/JPY, and AUD/USD.
EUR/USD Exchange Rate Overview
The Euro to US Dollar (EUR/USD) exchange rate has seen some technical adjustments recently, with the rate stabilizing below 1.0950 early this Thursday. This follows a test of 1.0900 on Wednesday. The pair’s technical outlook doesn’t yet indicate a significant recovery as investors maintain caution pending key macroeconomic data releases.
US Dollar Performance and Federal Reserve’s Stance
The US Dollar (USD) has been outperforming the Euro due to a cautious market stance mid-week. The currency was further buoyed by a relatively hawkish tone in the minutes of the Federal Reserve’s (Fed) December meeting. The minutes revealed that several policymakers believe situations could warrant keeping the policy rate at its current level for longer than currently expected. Market predictions indicate a 72% chance that the Fed will reduce the policy rate by 25 basis points in March, a decrease from 85% earlier in the week.
Anticipated German Inflation Data
German inflation data will be closely monitored by market participants later in the session. Earlier, regional data from Germany indicated that annual inflation in North Rhine-Westphalia rose to 3.5% in December from 3% in November, as measured by the Consumer Price Index (CPI). Expectations are that the CPI will increase by 3.8% year-on-year. If the CPI print exceeds forecasts, the Euro could see increased demand in the early American session.
Upcoming US Economic Data
The US economic docket will feature the ADP Employment Change for December, which is projected to rise by 115,000. An upside surprise in the ADP report, with a print of 150,000 or above, ahead of Friday’s Nonfarm Payrolls (NFP) report, could challenge any bullish momentum for the EUR/USD, even if the initial reaction to the German inflation report is Euro-positive.
GBP/USD Trading Dynamics
The GBP/USD pair has struggled to capitalize on its modest recovery from near the 1.2600 mark, a nearly three-week low, as it continues to fluctuate narrowly this Thursday. Current spot prices hover around the 1.2660 region, showing little change for the day.
Due to the widespread strength of the US Dollar (USD), the GBP/USD pair took a downturn, dropping to its lowest point since mid-December near 1.2600 on Tuesday. Despite an early Wednesday recovery toward 1.2650, the technical outlook indicates that the bearish trend remains intact.
The Impact of US Treasury Bond Yields and Market Mood
The significant rebound in US Treasury bond yields on the first trading day of 2024 allowed the USD to outperform its major competitors. Furthermore, a shift towards risk aversion, reflected in falling US stocks, kept GBP/USD on the defensive.
During the European session, US stock index futures remained largely unchanged as investors avoided major positions before key macroeconomic data releases from the US.
Key Macroeconomic Data Releases
The ISM Manufacturing PMI is expected to show a slight improvement to 47.1 in December from 46.7 in November. JOLTS Job Openings in November are projected to rise slightly to 8.85 million from 8.73 million in October. If both these figures exceed analysts’ estimates, the USD could regain momentum. However, if the data is mixed, markets will likely await the Federal Reserve’s release of the December policy meeting minutes.
Market predictions currently suggest a 75% chance that the Fed will reduce the policy rate by 25 basis points in March, indicating potential for renewed USD weakness if the publication takes a dovish tone.
Japanese Yen Performance Against US Dollar
The Japanese Yen (JPY) has fallen for the third consecutive day on Thursday, reaching a new two-week low against the US Dollar (USD) as the European session begins. Earlier data showed Japan’s factory activity contracted at the sharpest rate in 10 months during December, following a devastating 7.6 magnitude earthquake on New Year’s Day, which has significantly undermined the JPY.
Influencing Factors: US Bonds and BoJ Stance
Uncertainty over early interest rate cuts by the Federal Reserve (Fed) is supporting US Treasury bond yields, which in turn is acting as a tailwind for the Greenback and the USD/JPY pair. However, USD bulls appear hesitant to make aggressive moves due to increasing bets that the US central bank will start cutting interest rates as early as March and ahead of critical US monthly employment details on Friday.
Meanwhile, strengthening expectations of an imminent shift in the Bank of Japan’s (BoJ) stance, coupled with a softer risk tone, should help limit losses for the safe-haven JPY. This could further restrict any further appreciation for the USD/JPY pair, suggesting caution for bullish traders.
EUR/USD Trading Status
As the US Dollar strengthens amidst a cautious market sentiment due to concerns about global growth, EUR/USD aims to recover its recent losses. The pair is trading near 1.0920 during the early European hours on Thursday. After testing 1.0900 on Wednesday, a technical correction was staged, and the pair stabilized below 1.0950. However, the pair’s technical outlook does not yet indicate a substantial recovery as investors await key macroeconomic data releases.
The Impact of the US Dollar and Federal Reserve’s Stance
The cautious market stance mid-week continues to favor the US Dollar (USD), allowing it to outperform the Euro. A relatively hawkish tone in the minutes from the Federal Reserve’s (Fed) December meeting further supported the USD. Policymakers in the Fed noted that current situations could warrant maintaining the policy rate at its current level for a longer duration than initially expected. Current market predictions suggest a 72% probability of a 25 basis point reduction in the Fed’s policy rate in March, down from 85% earlier in the week.
German Inflation Data and Expectations
Upcoming inflation data from Germany will be closely observed by market participants. Earlier, regional data indicated a rise in annual inflation in North Rhine-Westphalia to 3.5% in December from 3% in November, as measured by the Consumer Price Index (CPI). The markets anticipate a year-on-year increase of 3.8% in the CPI. A CPI print stronger than forecast could bolster demand for the Euro in the early American session.
Upcoming US Economic Data
The US economic docket will feature ADP Employment Change for December, projected to rise by 115,000. An upside surprise in the ADP report, with a print of 150,000 or higher, could challenge any bullish momentum for the EUR/USD, even if the initial reaction to the German inflation report is Euro-positive.
AUD/USD Performance Overview
The Australian Dollar (AUD) pauses its losing streak on Thursday, trading under pressure due to a risk-off sentiment and a generally bearish session in the commodities market. The softer Judo Bank Purchasing Managers Index (PMI) data further pressures the Aussie Dollar (AUD). However, improved Chinese services data could limit the AUD’s losses.
Impact of Australia’s Services Sector and China’s PMI Data
Australia’s Services sector contracted in December, as indicated by the latest Judo Bank Services PMI. The index reported a reading of 47.1, falling short of market expectations of 47.6. Additionally, the Composite PMI decreased to 46.9 from the previous figure of 47.4, marking the fastest pace of Services contraction since Q3 2021. Meanwhile, the Caixin Services PMI in China rose to 52.9 in December, exceeding the expected 51.6 and previous 51.5, which could help mitigate AUD losses.
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All information has been prepared by TraderFactor or partners. The information does not contain a record of TraderFactor or partner’s prices or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may read it. Past performance is not a reliable indicator of future performance.
Zahari Rangelov is an experienced professional Forex trader and trading mentor with knowledge in technical and fundamental analysis, medium-term trading strategies, risk management and diversification. He has been involved in the foreign exchange markets since 2005, when he opened his first live account in 2007. Currently, Zahari is the Head of Sales & Business Development at TraderFactor's London branch. He provides lectures during webinars and seminars for traders on topics such as; Psychology of market participants’ moods, Investments & speculation with different financial instruments and Automated Expert Advisors & signal providers. Zahari’s success lies in his application of research-backed techniques and practices that have helped him become a successful forex trader, a mentor to many traders, and a respected authority figure within the trading community.
