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08/11/2023 - 09:34 UTCThe U.S. Dollar gained on Tuesday as last week’s sharp selloff seems to be done in the short term. The Dollar Index (USDX) added 0.24% daily gains on Tuesday extending the rebound from Monday ending the day at 105.377. The key event later today will be a speech from Federal Reserve Chair Jerome Powell .While Fed officials do not rule out further tightening, it appears that the Fed is done raising interest rates. However, the decline of the US Dollar remains limited and exposed to important correction as fundamentals still favor the US.
Sentiment towards Asian markets remained constrained, as traders remained on edge over any more hawkish signals from the Fed. The Chinese Yuan rose 0.1% early on Wednesday, benefiting chiefly from a stronger daily midpoint fix by the People’s Bank of China. But weak economic data from the country put a cap on any major gains. Data on Tuesday showed that Chinese exports fell more than expected, while the country’s trade balance shrank to a 17-month low in October. The Reserve bank of Australia raised interest rates as expected but flagged a more data-dependent approach to future hikes.
Energy prices retreated on Tuesday as crude prices hit near seven-month with Brent and WTI Oil ending the day with losses of 4.41% and 4.72% respectively, as disappointing trade date from China raised concerns about the economic health of the world’s largest crude importer.
A busy day on the corporate calendar today, including earnings from Adidas, Airbus, Bayer, continental and Credit Agricole.
While the Fed outlook dominates investors' attention, there is plenty of central bank speak in store from Europe as well. ECB President Christine Lagarde, ECB chief economist Philip Lane, Bundesbank President Joachim Nagel, Bank of Spain Governor Pablo Hernandez de Cos and Bank of England Governor Andrew Bailey, among others, take the podium at various events around the region. Meanwhile, euro area finance ministers will be meeting to discuss inflation and policy coordination.
The EUR/USD pair ended the session with losses for a second consecutive session posting losses of 0.21% as a modest US Dollar uptick amid a cautious mood and positive US Treasury bond yields is weighing on the pair.
In Eurozone on Tuesday data showing a larger-than-expected fall in German Industrial Production in September might continue to undermine the Euro and contribute to capping the EUR/USD pair. This, along with expectations that additional rate hikes by the European Central Bank (ECB) may be off the table, suggests that the path of least resistance for spot prices is to the downside.
Market participants now look to the release of the final German CPI print and the Eurozone Retail Sales for some impetus ahead of Powell's speech.
Gold hit a two-week low on Tuesday as a safe-haven rally triggered by Middle East tensions lost steam with the market focus turning to interest rate cues from Federal Reserve officials. Gold prices fell 0.40% on Tuesday ending the session just below the level of $1970.00 per ounce.
Gold is holding at these levels on expectations the Fed is done raising rates as Lower interest rates boost the appeal of zero-yield bullion.
Oil prices posted a sharp decline on Tuesday, with the WTI contract on iForex platform ending the session with massive losses of 4.72%. Disappointing trade data from Chine raised concerns about the economic health of the country which is the world’s largest crude importer.
Moreover, Data from the American Petroleum institute showed that U.S. crude inventories surged 11.9 million barrels (mb) in the week to November 3, much more than expectations for a draw of 0.3 mb. The reading indicated that U.S. stockpiles were increasing amid slowing fuel demand, especially as the winter season limits travel.
US stock futures were trading higher during Tuesday's, following a positive session for major benchmark averages as easing yields boosted sentiment, while investors digested a fresh slew of corporate earnings results.
The US 500 and US 30 ended the session 0.43% and 0.30% higher while US Tech 100 added more than 1% to its daily gains.
Expectations that the Fed's rate hike cycle is at an end have increased in recent days, but the market remains sensitive to the possibility of more hikes, and central bank officials have been cautious in comments on the future rate path.
Ahead in Wednesday’s trade, market participants will be watching for wholesale inventories and trade sales data as well as key speeches from Powell, Williams and Barr.
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