Article by: ETO Markets
Forex markets this week have been dominated by US inflation data and comments from Federal Reserve officials. The August CPI data released by the Bureau of Labor Statistics showed that the headline inflation rate fell from 2.9% to 2.6%, in line with market expectations. However, core CPI was flat at 3.2 per cent year on year, slightly higher than expected, indicating that inflationary pressures remain. This triggered a reassessment of the Fed's rate cut path in the market, especially with the slightly higher core CPI data, the market's expectations of a large rate cut by the Fed have diminished.
The Fed is now expected to cut rates by at least 98 basis points this year, down from 108 basis points a day earlier, according to data from the Chicago Board of Trade. Still, dovish comments from several Fed officials continued to support market expectations for a rate cut. John Williams, president of the New York Fed, and Austan Goolsbee, president of the Chicago Fed, both said the rate cut was a necessary step to keep the economy balanced, further reinforcing market expectations that the Fed will cut rates at its September meeting.
There are multiple drivers behind gold's continued push higher this week and record highs. First of all, the increased expectation of the Federal Reserve to cut interest rates is one of the main drivers of gold's rise. U.S. producer price data on Thursday showed subdued inflation pressures, raising expectations that the Fed could cut interest rates by 50 basis points at its meeting next week. According to CME Group data, the probability of a 50 basis point cut is now more than 40%. Expectations of policy easing by the Federal Reserve have caused the dollar to fall, while Treasury yields have also remained low, further boosting gold's appeal. In addition to the Fed's policy outlook, geopolitical tensions are also one of the main reasons driving money to safe haven assets. In the next few days, the market's focus will turn to the upcoming release of the Michigan consumer confidence index in the United States and the Federal Reserve's monetary policy decision next week. Investors expect the Federal Reserve to start a new cycle of interest rate cuts, which will provide further support for gold prices. However, ahead of the Fed decision, the market is likely to remain cautious and trading volume may be reduced.
From a technical perspective, gold continued its strong uptrend and broke through the key $…- $… supply zone, a break that suggests buyer sentiment is strong and that upward momentum remains strong. The recent rise in gold prices constitutes an upward channel pattern, indicating that the bulls remain dominant. Gold is now heading toward the $… channel ceiling, a level seen as an important technical resistance ahead of next week's Fed meeting.
Volatility indicators show that sentiment remains positive, and the Relative Strength Index (RSI) on the daily chart is not yet in overbought territory, meaning gold still has room to rise further. In addition, gold prices are firmly above the 50-day simple Moving average (SMA), which further confirms the recent uptrend.
However, in the event of a corrective pullback, the $…-… supply zone could translate into key support levels, providing downside protection for gold. If gold breaks below this support level, the next important support will be at the psychological level of $…, with further support between $… and $…, which will be the focus of short-term traders. If the decline extends and breaks above $…, gold could further test the $…-… area, a level that contains the lower bound of the uptrend channel and the 50-day moving average.
Crude oil prices gave up some gains on Thursday after Posting their biggest one-day gain in two weeks on Wednesday. Although Tropical Storm Francine temporarily disrupted oil production in Louisiana, the impact was seen as short-term and oversupply issues continued to plague the oil market. In addition, the International Energy Agency report pointed out that Libya's daily oil production decline and Venezuela's crude oil shipments affected by sanctions have failed to effectively boost oil prices. At the same time, a stronger dollar further dampened the upside of crude oil, as U.S. consumer prices exceeded expectations, supporting expectations that the Federal Reserve will not cut interest rates sharply in the near term.
From a technical point of view, crude oil prices face strong resistance, especially at the key level of $…. If this level is breached, oil could retest the $… or even $… level. However, downward pressure remains and a break below the $… support could lead to a further fall towards the psychological support of $… or even $…. Overall, oil prices are likely to continue to fluctuate at current levels in the near term, awaiting further policy guidance from Opec.
