Forex Today: Markets turn cautious ahead of key macroeconomic events

Here is what you need to know on Wednesday, July 20:

The dollar selloff seems to have taken a break on Wednesday with the US Dollar Index moving sideways above 106.50 after having erased more than 1% so far this week. The benchmark 10-year US Treasury bond yield fluctuates above 3% and US stock index futures trade flat following the impressive risk rally witnessed earlier in the week. Inflation data from Canada and June Existing Home Sales from the US will be featured in the US economic docket. During the American trading hours, the European Commission will release the preliminary Consumer Confidence Index data for July. Finally, investors will pay close attention to the 20-yeas US Treasury note auction, which is scheduled to take place at 1700 GMT.

China reported more than 1000 coronavirus cases for the first time since May 20 and investors grow increasingly concerned over Chinese officials introducing additional restriction measures. Meanwhile, markets continue to scale down 100 basis points (bps) Fed rate hike bets for July.

Earlier in the day, the data published by the UK's Office for National Statistics revealed that inflation in the UK, as measured by the Consumer Price Index, jumped to 9.4% on a yearly basis in June from 9.1% in May. Although this print came in higher than the market expectation of 9.3%, the British pound struggled to gather strength. Following Tuesday's upbeat labor market data and Bank of England (BOE) Governor Bailey's hawkish comments, investors seem to have already fully priced in a 50 bps BOE rate hike in August. As of writing, GBP/USD was posting modest daily gains above 1.2000.

EUR/USD closed the third straight reading day in the positive territory on Tuesday on reports suggesting that the European Central Bank could opt for a 50 basis points rate hike at the upcoming meeting on Thursday. The pair continues to trade in positive territory at around mid-1.0200s in the European morning. In the meantime, Nord Stream 1 pipeline will reportedly come back online after the completion of the annual maintenance on Thursday but the gas will be supplied at a reduced rate. 

ECB Preview: Three critical factors to watch, and why EUR/USD is set to plunge.

AUD/USD climbed to its highest level in three weeks above 0.6900 on Tuesday and seems to have gone into a consolidation phase early Wednesday. Reserve Bank of Australia's governor, Phillip Lowe, reiterated during the Asian session that further rate increases will be required over the months ahead.

Ahead of the Bank of Japan's policy announcements, USD/JPY continues to move sideways in a narrow band near 138.00. 

Gold extends its sideways grind above $1,700 for the fourth straight trading day and struggles to make a decisive move in either direction. Rising US T-bond yields don't allow XAU/USD to benefit from the broad-based selling pressure surrounding the dollar.

Bitcoin trades at its highest level in more than a month above $23,000 and Ethereum stays quiet near $1,500 after having registered small daily losses on Tuesday.