Gold stays defensive above $2,300 ahead of US CPI, FOMC

Market players brace for this week’s top-tier data/events early Wednesday, which restricts the momentum amid mixed bias about the US inflation and the Federal Reserve’s (Fed) next moves. The same allows the US Dollar to defend the previous gains despite lacking upside momentum, especially after last week’s strong US jobs report and recently upbeat World Bank (WB) report for the US.

While the US Federal Reserve (Fed) talks appear mostly hawkish, the European Central Bank’s (ECB) latest rate cut exerts downside pressure on the EURUSD pair, despite the latest corrective bounce off a six-week low. Also weighing on the Euro are the political jitters in France and Germany. Further, USDJPY also rises for the fourth consecutive day while making rounds to the highest level in a week as traders prepare for Friday’s likely hawkish halt of the Bank of Japan (BoJ).

On the contrary, GBPUSD prints a three-day uptrend even as mostly downbeat UK data join political fears ahead of July’s elections. That said, AUDUSD and NZDUSD also print intraday gains by the press time as headlines from China signal more stimulus and mixed inflation data. Moving on, USDCAD justifies the previous day’s Doji at a two-month high while posting intraday losses. The Loonie pair’s run-up could be linked to the recent run-up in the Crude Oil prices, Canada’s main export.

Crude Oil refreshes monthly high as a surprise draw in the US weekly inventories joined optimistic energy demand forecasts from the Energy Information Administration (EIA). On the other hand, Gold price fades the week-start recovery from a multi-day-old support line amid global economic woes and doubts about China’s recovery, not to forget the growing concerns about the Fed’s delayed rate cuts.

BTCUSD and ETHUSD both portray corrective bounces after marking a heavy fall the previous day. That said, Apple’s failed move at the WWDC and technical breakdown appear responsible for the cryptocurrencies’ latest fall.

Following are the latest moves of the key assets:

• WTI Crude oil refreshes monthly high around $78.50, up half a percent intraday by the press time.
• Gold struggles to defend a two-day recovery from a 10-week-old rising support line, indecisive near $2,315 at the latest.
• The USD Index lacks upside momentum at the highest level in five weeks, makes rounds to 105.30 as we write.
• Wall Street closed mixed but the Asia-Pacific shares edged higher. British and European shares printed minor gains during the initial trading hour.
• BTCUSD and ETHUSD both pare the previous day’s losses by flashing $67,300 and $3,520 prices as we write.

US Dollar prepares for the key day…

US Dollar Index (DXY) portrays the market’s cautious mood ahead of the Consumer Price Index (CPI) for May and the Federal Reserve (Fed) monetary policy announcements. In doing so, the Greenback’s gauge versus the six major currencies struggles to extend the previous three-day uptrend.

However, the latest update from China and the World Bank (WB) joins hawkish bias about the US central bank to put a floor under the prices. Additionally, the European Union’s (EU) push for more sanctions on Russian companies and the geopolitical tensions in the Middle East, the UK, and Europe challenge the risk appetite and allow the US Dollar to defend the latest gains.

As per the World Bank’s (WB) latest report, “The world economy, in short, appears to be in final approach for a soft landing.” The WB also lifted the global growth forecasts for 2024 from 2.4% to 2.6%, mainly led by the US growth seen at 2.5% vs 1.6% in January. The same should have joined the growing concerns about the Fed’s delayed rate cuts to underpin the US Dollar’s demand.

It should be noted that a five-month-high of the US NFIB Small Business Optimism Index, from 89.7 to 90.5, allowed the US Dollar to refresh the monthly high ahead of today’s key inflation and FOMC catalysts.

Apart from the upbeat US data and the hawkish FOMC bias, mixed headlines about China and Russia also underpin the US Dollar’s haven demand. That said, Chatters about China’s additional stimulus for the ailing housing market in the third plenary session of the 20th Communist Party of China (CPC) Central Committee, to be held in July, put a floor under the commodities and the Antipodeans. However, the Dragon Nation’s monthly Consumer Price Index (CPI) and Producer Price Index (PPI) eased in May and challenged the risk-on mood, as well as the anticipated rebound of the commodities and Antipodeans.

On a different page, the International Monetary Fund (IMF) scolded the Bank of Canada (BoC) for a lack of clear communication about the monetary policy, especially after the BoC tried to defend the hawkish bias even after announcing a rate cut. The same, however, contrasted with the strong Oil prices and pushed the USDCAD toward posting a bearish Doji at a one-month high, which in turn dragged the Loonie pair downwards of late. On the same line, AUDUSD and NZDUSD also justify the latest rebound in the Oil price and hopes of witnessing more stimulus from China, their major customer.

Crude Oil reached a one-week high after gaining support from the weekly inventory report from the industry source, namely the American Petroleum Institute (API), as well as the EIA’s expectations of higher energy demand for 2024 and 2025. Moving on, Gold prices lack upside momentum as most market consensus favors a delayed rate cut from the Fed and the US soft landing. Also, mixed bias about China’s economic recovery, one of the world’s biggest gold customers, challenges the XAUUSD bulls.

Elsewhere, the global rating agency Fitch raised concerns about French fiscal and reform conditions after the national leader announced a snap election. This joined the market’s expectations of witnessing more rate cuts from the ECB to weigh on the EURUSD. Moving on, USDJPY remains on the front foot even after Japan’s PPI marked strong growth for May. The reason could be linked to the widely debated reductions in the BoJ’s bond purchases and the officials’ hesitance for further rate increases. It should be noted that the UK’s mostly downbeat employment, Industrial Production, Manufacturing Production, and the monthly GDP fail to challenge the GBPUSD rebound.

• 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

All eyes on US inflation and FOMC…

While inflation numbers from India and a slew of central bankers’ speeches from Europe and Canada also occupy today’s economic calendar, major attention will be given to the US CPI for May and the FOMC, especially when the Fed hesitates to welcome the rate cut bias.

That said, the US CPI is likely to portray easing price pressure and can help the Fed to defend the current monetary policy, as expected. However, any surprise increase in inflation could help the FOMC members and the dot-plot to rule out the market’s three rate cut expectations for 2024 and propel the US Dollar. Apart from the dot plot, Powell’s speech and the US economic projections will also be important to watch for clear directions.

Given the presence of the top-tier catalysts, traders are advised to wait for the outcomes and read details carefully before taking any major positions, especially in Gold prices.

May the trading luck be with you!