Article by: ETO Markets
The foreign exchange market has been volatile this week due to multiple factors. Growing expectations that the Fed could cut interest rates in September and December have weighed on the dollar. Fed Chairman Jerome Powell's testimony to Congress further reinforced market expectations of a Fed policy shift, which kept dollar bulls on the defensive.
The latest weak US economic data, released on Wednesday, further supported expectations of a rate cut. Nonfarm payrolls added 206,000 jobs, above expectations of 190,000, but April and May were revised sharply lower. In addition, the unemployment rate rose to 4.1%, while the annual growth rate of average hourly earnings fell to 3.9%. The data points to a slowdown in US economic activity, and market expectations for a Federal Reserve rate cut in September have risen to 77%.
On the other hand, the People's Bank of China suspended gold purchases for the second month in a row, affecting short-term demand for gold. Reduced demand from China, the world's largest consumer of gold, could put some pressure on prices.
Globally, increased geopolitical uncertainty in Europe and the Middle East has prompted investors to seek safe haven assets, which has formed some support for gold.
Gold prices (XAU/USD) rebounded to the $2,424-2,425 region following the release of the U.S. Consumer Price Index (CPI) data, the highest level since May 22. U.S. CPI data showed slowing inflation, further supporting market expectations for a Federal Reserve rate cut in September. However, a modest rebound in US Treasury yields revived demand for the US dollar, leading to some pullback in gold prices during Asian hours on Friday. In addition, the underlying bullish sentiment in equity markets has also led to safe haven flows out of gold. Still, the downside for gold prices appears limited as the market comes to terms with the possibility of the Fed starting a rate cut cycle sooner rather than later. Geopolitical risks, political uncertainty in the US and Europe, and concerns about a global economic slowdown are expected to continue to provide support for gold prices. Traders will be closely watching the upcoming release of the US Producer Price Index (PPI) and the University of Michigan consumer sentiment survey for further market movements.
From a technical point of view, the continued rally in gold prices broke through the $… mark, which is seen as a new trigger for bullish traders. The oscillators on the daily chart show positive traction but are still not in overbought territory, indicating a positive near-term outlook for gold prices. Any meaningful pullback could be seen as a buying opportunity, with declines expected to be limited. The key support is in the $... area, which is the June 8 and July 8 highs and the 61.8% Fibonacci retracement level. Further support is in the 50% Fibonacci retracement at $…- $… area. On the bank side, the overnight high of $… is an immediate resistance level, a break above which could see gold re-challenge the all-time high of $… hit in May.
The price of WTI crude fluctuated around $82.80 per barrel during Asian hours on Friday. Weak U.S. CPI data for June increased market expectations of a Federal Reserve rate cut in September, supporting crude oil prices. Lower borrowing costs have helped the U.S. economic recovery, boosting demand for crude oil. On a month-on-month basis, CPI fell 0.1% in June, the lowest level in more than three years. Core CPI rose 3.3 per cent from a year earlier, down from 3.4 per cent in May. That bolstered market expectations of a Fed rate cut. In addition, strong gasoline demand in the United States reached the highest level for the Independence Day holiday week since 2019, further supporting oil prices.
WTI prices found support near $… per barrel, with key support at $… and resistance at $…. A break above resistance could further challenge $…. Conversely, a break below the support level could lead to a pullback to the $… area.
