Market Analysis: AUDUSD Breakout Looms and USDJPY Tanks on Dollar Weakness as Oil Prices Rally on Supply Concerns

• US Dollar under pressure after a pullback.
• AUDUSD breakout looms on dollar weakness.
• USDJPY bounce back stalls.
• Oil prices rally on supply concerns.
• Cryptocurrencies under pressure.

The US dollar was struggling for direction Monday morning after a recent pullback to two-month lows against the majors. The dollar index, which measures the greenback strength against the majors, has struggled to power through the 95.30 after a recent bounce back from lows of 94.46.

The dollar weakness stems from the Federal Reserve Chairman Jerome Powell sounding less hawkish recently, even on the US inflation powering to 40-year highs. The greenback continues to hold on to gains accrued on Friday as investors await the US Federal Reserve meeting report for January that could provide interest rate hike hints.

AUDUSD breakout looms

Meanwhile, AUDUSD is threatening to break out as the US dollar continues to lick its wounds. The pair has powered through the 0.7200 handle after a recent pull back from two-month highs to below the key psychological level.

The catalyst behind the renewed buying pressure on the pair is a string of positive data out of China, Australia’s biggest trading partner. China’s Q4 GDP rose past the 0.2% level and 1.1% to 1.6% quarter over quarter as the year-over-year figures grew to 4%. Industrial PMI for December also jumped to 4.3%, beating the market consensus of 3.8%.

USDJPY range-bound

Meanwhile, USDJPY bounced back from one-month lows of below the 115.00 level and is experiencing some resistance. The pair is struggling to power through the try 114.66 level as the dollar remains defensive against the yen.

In recent days, US treasury yields edging lower have continued to pile pressure on the dollar, all but favoring the Japanese yen, which has lost substantial ground. The pair looks set to remain range-bound between 114.00 and 115.00.

Chatter that the Bank of Japan could be planning an eventual rate hike at its next policy meeting on Tuesday should trigger increased volatility on the pair.

Oil price rally persists

In the commodity markets, oil prices continue to edge higher, with Brent crude touching levels not seen in three years. The rally in the oil markets stems from growing concerns about supplies. The market is reacting to growing talk that oil supply could remain tight even on-demand edging higher and remaining unperturbed by the Omicron variant.

Brent crude was up 0.5% Money to highs of $86.46 a barrel as US West Texas oil rose 0.7% to three-month highs of $84.40 a barrel. Oil prices look set to continue edging higher driven by supply outages as OPEC refrains from providing enough supply to meet strong global demand.

US benchmark sell-off

Meanwhile, US benchmark indices remain under pressure on US stocks, registering their second consecutive weekly decline driven by a drop in banking socks. The S&P 500 was down 0.3% last week, with NASDAQ also finished in the red.

The sell-off in the equity markets coincided with a $22 trillion Treasury bond market sell-off as investors continue to dump government debt. Yields, on the other hand, turned positive, climbing higher all but injecting volatility in the equity markets.

Investors remain cautious in the equity markets amid the growing debate that the Federal Reserve will hike interest rates sooner and faster.

Bitcoin and Ethereum bounce back stalls

In the cryptocurrency market, Bitcoin and Ethereum are also struggling for direction after a recent bounce back above key support levels. BTCUSD is struggling to power through the $43,000 level, with bears looking likely to steer a drop back to the $40,000 level.

Ethereum is also under pressure after a recent rejection above the $3,400. ETHUSD has since dropped to $3,200, with bear’s setting sights on the $3,000 psychological level.