Forex Today: Dollar Extends Correction Ahead of Key US Data and Powell Speech

This is what you need to know to trade today tuesday may 17:

The dollar weakened modestly against its rivals on Monday and the US dollar index closed the second consecutive day in negative territory. The greenback remains on the defensive on Tuesday amid improving market sentiment. Throughout the day, traders will closely monitor the Eurozone’s Q1 Gross Domestic Product data and US April Retail Sales and Industrial Production figures. During US trading hours, FOMC Chairman Jerome Powell will speak at an event hosted by the Wall Street Journal.

The city of Shanghai reported on Tuesday that it had achieved zero coronavirus infections in all districts. However, the authorities plan to start easing the restrictions gradually from May 21, with the aim that the confinement will be fully lifted on June 1. The Shanghai Composite Index is on track to close in positive territory and US stock index futures are up 0.35%-0.75%, reflecting market optimism.

The EUR/USD took advantage of dollar weakness and posted modest daily gains on Monday. The pair continues to rise in the European morning and was last seen trading near 1.0450. European Central Bank (ECB) Governing Council member François Villeroy de Galhau said on Monday that too weak a euro would go against the ECB’s price stability objective.

The GBP/USD staged a decisive bounce on Monday and broke above 1.2300. Earlier in the day, data released by the UK Office for National Statistics showed that the ILO unemployment rate fell to 3.7% from 3.8% in three months from January to March. Additionally, wage inflation, measured by average earnings including bonuses, jumped to 7% annually, beating the market expectation of 5.4% by a wide margin.

Meanwhile, Bank of England Governor Andrew Bailey said on Monday he was unhappy with the inflation outlook, explaining that more than 80% of the UK’s excess inflation was due to energy and tradable goods.

The AUD/USD picked up bullish momentum in the Asian session on Tuesday and broke above 0.7000. Minutes from the Reserve Bank of Australia (RBA) monetary policy meeting revealed in the Asian session that policymakers considered three options, raising the cash rate by 15 basis points, 25 basis points or 40 basis points. “Members agreed that further increases in interest rates are likely to be required to ensure inflation in Australia returns to target over time,” the post read.

The USD/JPY is struggling to make a decisive move in either direction and is trading in a relatively tight range above 129.00. Bank of Japan Deputy Governor Masayoshi Amamiya reiterated on Tuesday that it was important for them to continue the current powerful monetary easing to support economic activity.

The Prayed tested $1,800 amid rising US Treasury yields on Monday, but managed to reverse direction on broader dollar weakness. At press time, XAU/USD is posting modest daily gains near $1,830.

The Bitcoin lost nearly 5% on Monday but remains relatively resilient near $30,000 early Tuesday. Ethereum recovered $2,000 on Tuesday after moderating 5.7% on the first trading day of the week.