Gold extends retreat from record high despite softer US Dollar

The market sentiment remains cautiously optimistic with the previous day's positive momentum, albeit tempered by anticipation surrounding today's significant economic data and events. Recent US job data and Fed Minutes have fueled hopes for the Federal Reserve's potential rate cuts, which has weakened the US Dollar and boosted the appeal of riskier assets.

EURUSD and GBPUSD have surged to yearly highs, driven by the weaker US Dollar and prospects of Fed rate cuts. However, USDJPY struggles to gain traction due to mixed signals about the Bank of Japan's (BoJ) policy direction and disappointing August PMIs. AUDUSD and NZDUSD lack upward momentum, despite reaching monthly highs, influenced by concerns over China's economic growth. USDCAD continues to face pressure despite softer Crude Oil prices, as positive Canadian Producer Price Index (PPI) data provides support.

Crude Oil traders saw a higher-than-expected draw in weekly inventories but failed to defend the black gold due to concerns about slowing demand and easing supply issues from the Middle East.

Further, Gold experienced a pullback from its recent all-time high, as US 30-year Treasury bond yields rebounded from a 13-day low.

BTCUSD and ETHUSD both experienced significant gains, driven by a weaker US Dollar and renewed optimism that former President Donald Trump might influence a favorable environment for cryptocurrencies if re-elected. However, a substantial transfer of Bitcoin from a Mt. Gox wallet has raised some concerns about the stability of recent gains.

Overall, the market is navigating a complex landscape with mixed signals, as optimism from potential Fed rate cuts and positive news for cryptocurrencies is counterbalanced by economic uncertainties and geopolitical concerns.

Following are the latest moves of the key assets:

• WTI Crude oil remains pressured at the lowest level since February, down for the fifth consecutive day near $71.80 by the press time.
• Gold prints mild losses near $2,510 while defending the previous day’s retreat from the yearly high.
• USD Index licks its wounds at the lowest level since December 2023, mildly bid near 101.20 as we write.
• Wall Street closed with minor gains but the Asia-Pacific shares trade mixed. On the same line, equities in Britain and Europe lack clear directions during the initial trading hour.
• BTCUSD and ETHUSD both reverse the previous day’s gains with mild losses to $60,800 and $2,630 as we write.

Market consolidates ahead of key data/events…

The preliminary revisions of the Non-Farm Payrolls (NFP) for the year ending in March 2024, released by the US Bureau of Labor Statistics (BLS), revealed a significant downward adjustment of -818K. This revision indicates a monthly average decline of 68K jobs, bringing the average down to 174K. This slower job growth has contributed to a bearish sentiment around the US labor market.

In response to the weaker job data and ongoing discussions about potential policy adjustments, the US Dollar has faced downward pressure. The Federal Reserve’s recent Minutes from the Federal Open Market Committee (FOMC) meeting revealed that a “vast majority” of policymakers believed a rate cut would likely be appropriate at the next meeting. This dovish stance has further contributed to the weakening of the US Dollar.

As a result, the US Dollar Index (DXY), which measures the strength of the US Dollar against a basket of six major currencies, fell for the fourth consecutive day and touched a yearly low near 100.90. However, the index posted mild gains during Thursday’s Asian session, suggesting some potential stabilization or a temporary rebound.

The US Dollar’s decline has propelled the EURUSD to a yearly high. This rise occurred despite dovish remarks from European Central Bank (ECB) Governing Council Member Fabio Panetta, indicating that the Euro has gained significantly due to the US Dollar's weakness rather than strong support from ECB policies.

Similarly, the GBPUSD has reached a fresh high not seen since July 2023. This increase comes despite mixed UK economic data and the Bank of England's (BoE) continued defense of higher rates, suggesting that the market is more focused on the US Dollar's decline than on recent UK statistics.

The USDJPY remains relatively stable, struggling to find direction. Mixed PMI data from Japan and uncertainty over the Bank of Japan’s (BoJ) ability to raise rates further have contributed to a lack of momentum in this pair.

AUDUSD and NZDUSD are both showing signs of consolidation after recent gains. AUDUSD is defending its position following a retreat from a monthly high, supported by positive Australian PMI data. However, the NZDUSD has paused its four-day uptrend amid ongoing concerns about China’s economic growth. Meanwhile, the NZDUSD pair is under pressure despite softer Crude Oil prices, as stronger Canadian inflation data outweighs the impact of declining oil prices.

The US Energy Information Administration (EIA) reported a larger-than-expected draw in Crude Oil inventories, with stockpiles decreasing by 4649K barrels versus the anticipated 2672K. Despite this, concerns over lower energy demand from China and reduced geopolitical tensions in the Middle East have kept WTI Crude Oil prices at their lowest levels since February.

After reaching a yearly high, Gold (XAUUSD) has experienced a pullback for the second consecutive day. The metal’s weakness is linked to a cautious market sentiment ahead of key upcoming data, including the first readings of August PMIs and the annual central bankers’ event at the Jackson Hole Symposium.

• Strong Bullish: USDCAD, USDJPY, US Dollar, Silver
• Strong Bearish: AUDUSD, NZDUSD, GBPUSD, GBPJPY
• Bullish: BTCUSD, ETHUSD, Nasdaq, Gold, DJI30, USDCNH
• Bearish: DAX, FTSE 100, EURUSD, Crude Oil

PMIs, the start of Jackson Hole in the spotlight…

Looking ahead, market players will focus on signs of economic slowdown due to higher rates, which could impact currencies. In doing so, traders will focus on the first readings of the August PMIs for major economies.

The US Dollar may remain weak if the Fed proceeds with rate cuts starting in September. Attention will also be on the Jackson Hole Symposium for hints of further rate cuts and their potential impact on riskier assets. August PMIs will be crucial for assessing economic health and influencing currency movements.

May the trading luck be with you!