Gold braces for first weekly gain in three as Fed bets prod US Dollar bulls

The risk complex remains firmer early Thursday while defending the previous day’s optimism amid downbeat Treasury bond yields. The same exerts downside pressure on the US Dollar, pushing the US Dollar Index (DXY) towards the first daily negative in three, as traders brace for this week’s top-tier catalysts, namely the European Central Bank’s (ECB) Monetary Policy Meeting and the US employment report for May.

EURUSD remains on the front foot while expecting a hawkish rate cut from the ECB while the latest positive mood in the UK’s political observers allows GBPUSD to remain firmer for the second consecutive day. Moving on, USDJPY struggles to justify the Japanese officials’ signals suggesting a gradual reduction in the Bank of Japan’s (BoJ) stimulus.

AUDUSD and NZDUSD justify the risk-on mood and gain support from the local data to reverse the previous day’s losses. That said, the USDCAD retreats on firmer crude oil and softer US Dollar while ignoring the Bank of Canada’s (BoC) readiness for further rate cuts.

Crude Oil defends the previous day’s recovery from a four-month low whereas Gold rises to the highest level in a fortnight amid the recent increase in the odds favoring the Fed’s sooner rate cut. Also underpinning the Gold price upside is the optimism of the equity traders, mixed geopolitical headlines and downbeat yields.

BTCUSD and ETHUSD halt the previous advances amid the latest negatives for the crypto markets. That said, the US SEC mentioned a delay in the ETH ETF launch while an alleged breach in the prominent email vendor’s data bank gained major attention to prod buyers of Bitcoin and Ethereum.

Following are the latest moves of the key assets:

• WTI Crude oil defends the previous day’s recovery from a four-month low by posting mild gains around $74.50 at the latest.
• Gold renews a two-week high to $2,375 while keeping Wednesday’s run-up.
• The USD Index snaps a two-day recovery but lacks downside momentum around 104.20 by the press time.
• Wall Street closed in the green and helped the Asia-Pacific shares to remain firmer. That said, British and European shares trade mixed during the initial trading hour.
• BTCUSD and ETHUSD both print mild losses around $70,900 and $3,840 as we write.

US Dollar prepares for top-tier data/events…

US Dollar Index (DXY) marked the biggest daily gain in a week the previous day after the US ISM Services PMI rose to the highest level in nine months while the final readings of the S&P Global Composite PMI also improved. In doing so, the greenback ignored a softer print of the US ADP Employment Change, the early signal for Friday’s NFP, and the market’s risk-on mood.

Despite the previous day’s upbeat US PMIs, the recent weakness in the inflation clues and the Federal Reserve (Fed) officials’ inability to convince the policy hawks favor a gradual increase in the odds suggesting the Fed rate cuts in September, November, and December 2024. The same joins the market’s consolidation ahead of the ECB and the NFP to justify the Greenback’s latest weakness.

In addition to the US Dollar’s preparation for the week’s key data/events, risk-positive news from the US also allowed the Greenback to pare previous gains. That said, US Commerce Secretary Gina Raimondo said on Thursday, per Reuters, that private equity firms KKR and Global Infrastructure Partners (GIP) and the newly formed Indo-Pacific Partnership for Prosperity were forming a coalition to invest $25 billion in infrastructure in the Asia-Pacific region.

With this, the EURUSD pair halts a two-day losing streak while expecting fewer rate cuts from the European Central Bank (ECB) after announcing a 0.25% reduction to the benchmark rates during today’s monetary policy meeting. Additionally helping the Euro to better prepare for the ECB is the improvement in the German Factory Orders and Producer Price Index (PPI) for April. That said, GBPUSD ignored the US Dollar’s strength the previous day and is currently printing a two-day winning streak after the UK’s Composite PMI for May improved in its final readings. Furthermore, despite lacking support from the key data, the latest optimism about the Conservatives’ victory in the British elections and the Bank of England’s (BoE) hawkish bias, also helps the Pound Sterling to remain firmer.

The US Dollar’s retreat and increasing odds of witnessing more stimulus for the Asia-Pacific zone allowed AUDUSD to print the second-biggest gain among the G10 currency pair, just after the USDCHF. Also underpinning the Aussie pair’s gains is the upbeat print of the Australian trade balance for May. On the same line, NZDUSD also remains on the front foot amid a general US Dollar weakness and also due to the improvement in New Zealand’s ANZ Commodity Price Index for May.

Elsewhere, USDCAD prints the first daily loss in three amid a recovery in the Crude Oil prices, Canada’s main export. In doing so, the Loonie pair trims the previous gains inspired by the Bank of Canada’s (BoC) rate cut. On Wednesday, the BoC announced its first rate cut in 3.5 years and showed readiness to further reduce the rates in 2024.

Earlier in the day, Bank of Japan (BoJ) Governor Kazuo Ueda confirmed reductions of bond purchases from the Japanese central bank while citing gradually rising inflation expectations. This highlighted the BoJ’s readiness to exit from massive monetary stimulus and announce another rate hike if needed, which in turn tests the USDJPY bulls amid a pullback in the US Dollar and lackluster Treasury bond yields. That said, Japan’s government bond futures jumped during the initial hours of Thursday’s Asian session after a strong auction and exerted additional downside pressure on the Yen pair. It’s worth noting, however, that BoJ policy board member Toyoaki Nakamura defended the current framework of the Japanese central bank while saying that inflation may not reach 2% from FY 2025 on if consumption weakens, which in turn put a floor under the USDJPY pair heading into the European session.

Crude Oil prices marked the biggest daily in more than a week the previous day while snapping a five-day losing streak and bouncing off a four-month low. The black gold’s rebound could be linked to the market’s optimism and softer yields, as well as a comparatively lower crude oil build in the US inventories per the official data than the industry report.

On the same line is the Gold price that cheered a notable run-up in the equities and the downbeat yields while ignoring the US Dollar’s previous strength to recover on Wednesday. The precious metal defends the previous day’s gains while cheering the Greenback’s retreat early Thursday as tensions in the Middle East join the latest expectations suggesting the Fed’s rate cut in September and two more in 2024.

• Strong buy: USDCAD, USDJPY, US Dollar, Silver
• Strong sell: AUDUSD, NZDUSD, GBPUSD
• Buy: BTCUSD, ETHUSD, Nasdaq, Gold, DJI30, USDCNH
• Sell: DAX, FTSE 100, EURUSD, Crude Oil

Eurozone Retail Sales, ECB, mid-tier US data in the spotlight…

Although Eurozone Retail Sales and the US statistics about employment and trade also occupy Thursday’s economic calendar, major attention will be given to the ECB Monetary Policy Meeting announcements.

While the ECB is almost certain to offer a 0.25% rate cut and will drown the EURUSD initially, any hawkish comments in the statement or the press conference by President Christine Lagarde, which pushes back further rate cuts, could bolster the Euro pair’s latest upside. Apart from the ECB signals, unimpressive prints of the US Jobless Claims, Trade Balance, Nonfarm Productivity and Unit Labor Cost will also determine the EURUSD moves and can please the buyers, especially amid the recently dovish Fed bets. That said, the US Dollar’s retreat and downbeat performance of yields, not to forget the optimism on Wall Street, could allow the Gold buyers to again expect a run-up toward the $2,400 threshold.

May the trading luck be with you!