Gold stays range-bound as US inflation week begins

Market Overview

Risk appetite is mixed early Monday, with a slight boost as traders hold onto hopes for a 0.25% Fed rate cut in September. Optimism is also supported by news of potential additional stimulus from China and the US Treasury Secretary’s dismissal of financial concerns. However, the cautious mood persists due to this week’s upcoming US inflation data and negative news from China, Russia, and the Middle East, especially following disappointing inflation figures from China.

Recent catalysts

The latest focus has been on Friday’s US employment report for August and comments from Federal Reserve officials. The Nonfarm Payrolls (NFP) rose less than expected, but the drop in the Unemployment Rate and strong wage growth, combined with Fed officials' resistance to a 0.50% rate cut, helped the US Dollar end the day positively, despite a weekly loss.

Additionally, US Treasury Secretary Janet Yellen’s positive outlook on the US economy and Monday’s weak inflation data from China also supported a slight increase in the US Dollar Index (DXY).

China’s Consumer Price Index (CPI) rose for the seventh consecutive month but fell short of expectations. The Producer Price Index (PPI) dropped for the 23rd month in a row, and at a faster pace than anticipated.

Germany’s warning about a potential Russian cyberattack on NATO and EU nations, along with ongoing issues in the Middle East and the trade tensions between Beijing and the West, added to the cautious mood, which supported the US Dollar.

Overall, the US Dollar Index (DXY) is holding on to Friday’s gains and impacting commodities, Antipodean currencies, and other major currencies.

EURUSD bulls struggle, GBPUSD stays pressured

Although the US Dollar’s weakness allowed EURUSD to print weekly gains, the major currency pair lacks upside momentum afterward amid mostly downbeat economics at home. That said, softer prints of the German Industrial Production, Eurozone Q2 GDP and dovish bias about the European Central Bank (ECB), ahead of Thursday’s monetary policy announcements, have weighed on the Euro pair of late.

Meanwhile, a monthly report from the Recruitment and Employment Confederation (REC) and KPMG showed a significant slowdown in the UK job market for August, which put pressure on GBPUSD prices.

USDJPY bears take a breather

USDJPY is bouncing back from its lowest point in a month, ending a four-day downtrend, as traders get ready for the US CPI data. Earlier, Japan’s Chief Cabinet Secretary Hayashi mentioned that Bank of Japan (BoJ) Governor Kazuo Ueda hinted at potential rate hikes. Despite this, Japan’s weaker Q2 GDP and the US Dollar’s rebound ahead of Wednesday’s US inflation data and next week’s FOMC meeting triggered the USDJPY pair’s recovery from a key support level established since late 2023.

Antipodeans remain depressed

Both the AUDUSD and NZDUSD pairs extended last week's losses due to weak inflation data from China, economic concerns in Australia and New Zealand, and the US Dollar's rebound amid mixed market sentiment.

Additionally, the USDCAD saw its biggest weekly gain since late August, driven by disappointing Canadian employment data and a drop in oil prices, which hurt Canada’s main exports.

Crude Oil licks its wounds

WTI Crude Oil saw its biggest weekly loss since early October 2023, partly due to reports that OPEC+ might increase production next year, according to S&P Global. Concerns about reduced oil demand from China also weighed on the market. Despite this, geopolitical tensions in the Middle East and fears of hurricanes in the Gulf of Mexico helped oil prices recover from their lowest point since June 2023.

Gold stays within an immediate trading range

Gold prices are stable after dropping over the past two weeks, hovering around $2,500 within a three-week range. Traders are finding it hard to benefit from the weaker US Dollar, especially with China’s gold buying paused since May. Concerns about major Fed rate cuts in 2024 have eased, and caution ahead of the US CPI and ECB policy announcements is affecting gold. However, with gold prices still close to record highs, there is a significant risk of a sharp price rally.

Cryptocurrencies are losing their allure

Cryptocurrencies are following the trends of commodities and Antipodean currencies, unable to benefit from the weaker US Dollar amid market uncertainty. BTCUSD and ETHUSD prices are also under pressure from reports of declining market liquidity and concerns about potential US regulations after the November Presidential Elections.

Latest moves of key assets

• WTI Crude oil licks its wounds at a 14-month low, mildly bid near $68.50 at the latest.
• Gold prints minor losses of around $2,490 while staying within a three-week-old trading range.
• The USD Index extends Friday’s corrective bounce to 101.50, up 0.30% intraday as we write.
• Wall Street closed in the red and challenged the Asia-Pacific buyers. European and British equities, however, lack clear directions of late.
• BTCUSD and ETHUSD both struggle to defend the weekend recovery around $55,000 and $2,300 respectively.

US inflation, ECB and UK data in focus ahead of September FOMC

The two-week blackout of Fed officials might slow market momentum ahead of next week's Federal Reserve monetary policy announcements. However, CPI data from the UK and the US, along with ECB monetary policy announcements, will keep momentum traders busy. Additionally, the UK GDP report, monthly data releases, and the upcoming US Presidential Debate will also be important.

After a weak US jobs report, Wednesday’s US CPI data will be crucial in determining the likelihood of substantial Fed rate cuts later in 2024, with a 0.25% cut already priced in for September. If headline inflation decreases, the Fed may have to cut rates further after September, which could weaken the US Dollar and boost Gold prices.

Economic challenges in the Eurozone and the UK could impact EURUSD and GBPUSD buyers. Meanwhile, USDJPY might continue its downtrend, and Antipodeans and USDCAD could be pressured by issues in China unless the US Dollar drops significantly. Equities lack upward momentum, and cryptocurrencies are expected to remain under pressure due to concerns about new regulations and economic uncertainty.

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!