Gold buyers stay optimistic despite firmer US Dollar, focus on ECB, US data

Market Overview

On Wednesday, the US Dollar managed to hold onto its weekly gains despite mostly unimpressive Consumer Price Index (CPI) data, aided by slightly positive Core CPI figures and ongoing geopolitical concerns. However, the cautious sentiment leading up to Thursday's Producer Price Index (PPI), the European Central Bank's (ECB) interest rate decision, and Friday's consumer-focused statistics are putting pressure on the Greenback. With a light economic calendar in Asia, the US Dollar Index (DXY) is finding it challenging to maintain its four-day uptrend at a one-week high while preparing for the end-of-week performance.

EURUSD, GBPUSD sellers await ECB, US data

The EURUSD pair has posted its first daily gain in five days, recovering from a one-month low. This bounce comes as traders anticipate the European Central Bank’s (ECB) upcoming interest rate decision. Early indications from the Eurozone suggest a potential 0.25% rate cut, but some market participants are speculating a more aggressive 0.50% cut. This uncertainty could lead to increased volatility in the Euro pair. Additionally, key economic indicators such as the University of Michigan Consumer Sentiment Index, inflation expectations for September, the US Producer Price Index, and Weekly Jobless Claims will be critical for traders to monitor.

In the UK, disappointing statistics related to activity, growth, and employment, combined with the lowest pay settlements since August 2022, are prompting expectations for further rate cuts from the Bank of England (BoE). This scenario is exerting downward pressure on GBPUSD, which is trading at a three-week low.

USDJPY bears take a breather

Despite a hawkish rate outlook from BoJ policymaker Naoki Tamura that aimed to continue the USDJPY pair’s two-day decline, the Yen pair saw its first daily gain in three days. This rebound from the lowest level since December 2023 was supported by a weak Japan Producer Price Index (PPI) and previous comments from BoJ’s Junko Nakagawa, which challenged the likelihood of consequent rate hikes.

AUDUSD, NZDUSD, and USDCAD pare weekly moves

Australian inflation expectations gradually decline but stay above the Reserve Bank of Australia’s (RBA) target level and hence allow the AUDUSD prices to remain firmer for the second consecutive day. On the same line, NZDUSD also ignores the firmer US Dollar to recover from a three-week low as New Zealand (NZ) Retail Sales improved for August. Moving on, USDCAD defends the previous day’s U-turn from the highest level in three weeks. In doing so, the Loonie pair bears the burden of a recovery in the Crude Oil prices, the biggest export of Canada, as well as the US Dollar’s retreat.

Crude Oil defends recovery from a 16-month low as market’s fears of economic slowdown recede and the weekly US Oil inventories print lesser than expected build in the stockpile. Further, talks about China stimulus and mixed concerns for the OPEC output increase also allow the energy prices to recover, which in turn exert downside pressure on the USDCAD prices. It should be noted that Russia’s latest warning to use export curbs to the West also challenge the sentiment and allow prices of crude oil and US Dollar, as well as Gold, to rise.

Gold buyers remain hopeful

Gold prices are encountering a crucial resistance level as buyers push to overcome it, despite prevailing mixed market sentiment. This key hurdle could determine whether gold continues its upward momentum or faces a reversal. The mixed sentiment in the market reflects a blend of factors, including geopolitical uncertainties, shifts in economic data, and fluctuations in interest rates, all of which are contributing to the volatility and cautious outlook surrounding gold. Traders will be closely watching how gold interacts with this resistance level and any upcoming economic releases or geopolitical developments that could influence its trajectory.

Cryptocurrencies pare earlier losses

BTCUSD (Bitcoin) and ETHUSD (Ethereum) consolidate previous losses amid upbeat on-chain data and the market’s optimism past US inflation release.

Latest moves of key assets

• WTI Crude oil prepares for the first weekly gain in five while extending recovery from yearly low, up 1.40% intraday to $68.20 by the press time.
• Gold stays mildly bid within a three-week-old trading range, close to $2,520 at the latest.
• The USD Index struggles to defend weekly gains around 101.80, pausing four-day uptrend as we write.
• Wall Street closed on the positive side and allowed the Asia-Pacific shares to edge higher. European and British equities also remain mildly bid of late.
• BTCUSD and ETHUSD both prepare for weekly gains around $58,000 and $2,360 respectively.

ECB, More US data important ahead of next week’s FOMC

Looking forward, ECB Interest Rate Decision will be the key event for the rest of the week, scheduled for Wednesday, as there prevails a lack of clarity about the outcome. Also important will be Thursday’s US Producer Price Index (PPI) and Friday’s first version of the University of Michigan Consumer Sentiment Index, inflation expectations for September. It should be observed that Thursday’s US Weekly Jobless Claims and geopolitical news surrounding China, Russia and the Middle East are additional catalysts to watch for clear directions.

Given the increasing odds of ECB’s 0.25% rate cut, an actual outcome per the market forecasts won’t make any much difference for the EURUSD bears. However, the same could allow the Euro pair to extend the latest rebound if the ECB Statement and President Lagarde chose hawkish words. On the same line, mixed US data is widely anticipated and hence may not help the US Dollar bulls unless providing positive surprise. It’s worth mentioning that the cautious mood ahead of the next week’s FOMC may restrict the market’s reaction to the aforementioned catalysts but defend the weekly moves going forward.

Predictions for Key Assets

• Recovery Expected: USDCAD, USDJPY, US Dollar, Silver
• Further Downside Likely: AUDUSD, NZDUSD, GBPUSD
• Mostly Sideways Expectations: BTCUSD, ETHUSD, Nasdaq, Gold, DJI30, USDCNH
• Slow & Gradual Fall Expected: DAX, FTSE 100, EURUSD, Crude Oil

May the trading luck be with you!