Gold Price Drops to a Two-Week Low As Middle East Tensions Ease
The gold (XAU) price plunged by 2.68% on Monday as geopolitical tensions in the Middle East subsided, pushing investors away from safe-haven assets.
"Some risk of an imminent retaliation in the Middle East has been removed, which has attracted some selling activity in gold. But the question is how much scope there is to the downside," said Daniel Ghali, the commodity strategist at TD Securities.
XAU/USD has so far stabilised just above 2,300. Still, a downward break seems likely if the U.S. inflation data due this Friday exceeds expectations or if general risk sentiment improves, prompting investors to buy equities and other currencies. Furthermore, the Federal Reserve's (Fed) tight monetary policy is exerting bearish pressure on all precious metals as traders expect U.S. interest rates to remain unchanged until September. At the same time, robust central bank buying will probably continue to support the price of gold, keeping it above the crucial 2,000 mark.
XAU/USD was rising during the Asian and early European trading sessions. Today, the focus will be on the Purchasing Managers' Indices (PMIs) reports for major industrialized economies. The U.S. PMI report is due at 1:45 p.m. UTC. Better-than-expected results will almost certainly remove any last chance of an interest rate cut this summer, bringing XAU/USD lower. However, if PMI figures are worse than expected, the possibility of a rate cut this summer will increase, pushing gold prices higher.
Still, strong moves in gold are unlikely as the market is waiting for the publication of the Personal Consumption Expenditure (PCE) price index this Friday. 'Gold could revisit all-time highs in case of a surprise PCE report that shows inflation cooling... We still expect buying activity out of Asia to remain resilient as gold is seen as a currency-appreciated hedge in Asia,' said Daniel Ghali, the commodity strategist at TD Securities.
"Spot gold may fall further into a range of $2,244–$2,270 per ounce as it briefly pierced below the key support of $2,311," said Reuters analyst Wang Tao.
EUR/USD Moves Sideways Ahead of Important PMI Reports
The euro (EUR) was essentially unchanged on Monday despite a minor drop in the US Dollar Index (DXY) induced by reducing worries over the Middle East conflict.
Fundamentally, the pressure on the euro remains bearish. Yesterday, Eurostat reported that consumer confidence in the eurozone improved slightly in April, but the figures were still lower than the market expected. Poor economic performance, depressed consumer mood, and decreasing inflation are the main reasons investors continue to expect the European Central Bank (ECB) to deliver its first rate cut in summer. They currently price in a 64% probability of a 25-basis-point (bps) reduction in June and anticipate roughly 72 bps worth of rate cuts by the ECB in 2024. At the same time, the market believes the Federal Reserve (Fed) will deliver only a 39 bps rate cut in 2024. The divergence in interest rate expectations between the Fed and the ECB favors the U.S. dollar. Thus, EUR/USD has been under bearish pressure for the past couple of months.
EUR/USD was relatively flat during the Asian and early European trading sessions. Today, the focus will be on Purchasing Managers' Indices (PMIs) reports. The German PMI report and the eurozone PMI data will come out at 7:30 a.m. and 8 a.m. UTC. Strong figures may undermine investors' confidence in the upcoming rate reduction by the ECB, pushing EUR/USD higher. Conversely, weak results will ensure that the general bearish trend in the pair remains intact. Traders should also monitor the U.S. PMI report at 1:45 p.m. UTC. If U.S. data is better than expected, EUR/USD may potentially drop below 1.06200. Weaker-than-expected U.S. PMIs may trigger an upward correction towards 1.07000.
AUD/USD Rises to a One-Week High as Safe-Haven Flows Reverse
On Monday, the Australian dollar (AUD) gained 0.5% against the US dollar (USD) as risk sentiment improved on easing tensions in the Middle East.
Risk-sensitive currencies like the Australian dollar tend to perform well whenever geopolitical tensions ease, as investors feel more optimistic about the future. Still, the general bearish trend in AUD/USD remains intact even though investors view the Reserve Bank of Australia (RBA) as less dovish than the Federal Reserve (Fed). According to interest rate swap market data, traders expect the RBA to deliver just 20 basis points (bps) worth of rate cuts in 2024 but anticipate a cut around 40 bps from the Fed over the same period. As investors switch their attention from the conflict in the Middle East to economic fundamentals, the Australian dollar may continue to rise and establish a new bullish trend.
AUD/USD was essentially unchanged during the Asian and early European trading sessions. Investors should monitor the release of the U.S. Purchasing Managers' Indices (PMI) data at 1:45 p.m. today. However, the key event for the Aussie will be tomorrow at 1:30 a.m. UTC, when the Australian Bureau of Statistics will release its inflation report. Analysts expect the Consumer Price Index (CPI) figures in Q1 to be at 0.8%, rising from 0.6%. Still, the annual rate will likely ease from 4.1% to 3.5%, being the lowest in two years.
"While the RBA has in the past shown little tolerance for inflation exceeding its forecasts, we do not think this will be enough for it to do an about-turn and consider a hike option at the May meeting, given the moderation in its policy stance," ANZ analysts said.
The technical bias remains bearish as the Australian dollar moves below the important intraweek level of 0.65000.