Gold buyers take a breather as Fed inflation looms

Market Overview

Markets are feeling uneasy as mixed economic data from major economies clash with expectations of rate cuts. Concerns about a weakening job market, slow economic growth, and geopolitical tensions are keeping investors on edge. Key events this week include the US Core PCE Price Index and Eurozone inflation readings, which are critical as the Federal Reserve (Fed) is expected to outpace the European Central Bank (ECB) in rate cuts, impacting the US Dollar.

Recent catalysts to watch

August’s US CB Consumer Confidence hit a five-month high but failed to boost the US Dollar, partly due to softer employment details. The Richmond Fed Manufacturing Index also fell short, adding to the Dollar’s weakness.

Geopolitical woes challenging the sentiment

Although mostly downbeat US data weighed on the US Dollar, geopolitical fears from the Middle East and Russia, as well as the cautious mood ahead of this week’s top-tier data put a floor under the Greenback.

Notable headlines include Russian Foreign Minister Sergey Lavrov’s criticism of Ukrainian demands and warnings to the West, and concerns about potential attacks on Israel from Iran. Israeli military actions in the West Bank are also in focus.

Oil retreats despite supply crunch woes, inventory draw

Oil prices fell despite ongoing supply concerns and a surprise draw in US oil inventories. WTI crude oil ended a three-day winning streak and is under pressure as traders await official inventory data and inflation clues.

Gold pares weekly gains amid market’s indecision

Gold has trimmed its weekly gains amid market uncertainty. US data indicates softer inflation and job market challenges, supporting the Fed’s rate cut bias but creating anxiety about whether the Fed can outperform the ECB in future rate cuts. Geopolitical concerns and a lack of strong bullish signals for equities and bonds are also limiting gold’s movement.

US Dollar Index licks its wounds

US Dollar Index (DXY), a gauge of the US Dollar versus six major currencies, licks its wounds at the lowest level since July 2023 as traders anticipate upbeat US inflation and fewer odds favoring the US soft-landing. Also challenging the greenback’s gauge are the risk-negative headlines and dicey momentum of equities and bond markets amid the month-end consolidation.

EURUSD seesaws at 13-month high

EURUSD bulls struggle to keep the reins despite the softer US Dollar as mixed data from Germany and likely easing inflation in the Eurozone backs the ECB officials’ dovish statements suggesting more rate cuts.

GBPUSD ignores mixed signals at 29-month high while USDJPY pares losses

GBPUSD fails to justify grim comments from UK Prime Minister Keir Starmer, suggesting a ‘painful’ October budget, amid an improvement in the British CBI Distributive Trades and hawkish comments from Bank of England (BoE) officials.

USDJPY pares recent losses as it bounces off a 13-month-old ascending support line amid mixed comments from BOJ Deputy Governor Ryozo Himino. The policymaker showed the Japanese central bank’s readiness to lift the rates but also highlighted the data dependency.

AUDUSD and NZDUSD grind higher, USDCAD stays bearish

AUDUSD rose to the fresh high since January 2024 as Australia’s Monthly Consumer Price Index (CPI) came in better than forecast for July. However, the details of Trimmed CPI and CPI ex-volatile items appeared less supportive to the Reserve Bank of Australia’s (RBA) hawkish bias, which in turn dragged the quote from the multi-month high afterward.

On the same line, NZDUSD also lacks upside momentum at the highest level since January 2024. That said, the Kiwi pair, however, remains more solid than its Aussie counterpart amid comparatively more hawkish bias about the Reserve Bank of New Zealand (RBNZ) than the RBA.

Moving on, USDCAD pauses a three-day losing streak at the lowest level since March as the recent weakness in the Crude Oil prices, Canada’s main export item, join the US Dollar’s corrective bounce ahead of the key US data.

Cryptocurrency bears keep the reins

Bitcoin (BTCUSD) and Ethereum (ETHUSD) experienced their biggest daily drop in three weeks on Tuesday. The decline reflects growing pessimism about US elections and fund outflows at month-end.

Latest moves of key assets

• WTI Crude oil extends the previous day’s retreat while posting mild losses near $75.50.
• Gold prints the first daily loss in four, down 0.75% intraday to $2,505 at the latest.
• The USD Index bounced off a 13-month low to 100.90 but stays pressured of late.
• Wall Street closed mildly bid, but Asia-Pacific shares drift lower. European and British equities lack clear directions.
• BTCUSD holds lower grounds near $59,300 after falling the most in three weeks but ETHUSD pares the recent losses by rising to around $2,465 by the press time.

Inflation is the key

Looking ahead, inflation data from the Eurozone and the US, set for release on Friday, will be closely watched as traders expect the Federal Reserve to outpace the European Central Bank in rate cuts. In the days leading up to this, Wednesday’s weekly US crude oil inventories and Thursday’s US Jobless Claims, along with Eurozone sentiment data, will keep the markets engaged. Additionally, early Friday’s Tokyo Consumer Price Index (CPI), Japan’s Unemployment Rate, and Industrial Production are also important indicators to watch for clear market direction.

The Japanese data release is likely to support the Bank of Japan’s (BoJ) hawkish stance and could put downward pressure on USDJPY. Conversely, an anticipated rise in the US Core PCE Price Index for July, which is the Fed’s preferred inflation gauge, might help the US Dollar recover from its recent yearly low if the details remain positive. Crude oil inventories might prompt a correction in oil prices after recent gains. Meanwhile, EURUSD is expected to remain stable as ECB officials are inclined towards further rate cuts, and Eurozone data is unlikely to cause significant movement.

Gold is expected to stay firm and could potentially reach new all-time highs due to softer US data, a dovish Fed outlook, and ongoing market uncertainty. This could lead to weaker performance in riskier assets such as equities and the Australian and New Zealand dollars.

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!