Gold May Move Sharply Today Due to the US Inflation Report
The gold (XAU) price continued to move within a tight range on Wednesday as investors refrained from opening large positions ahead of the US inflation report.
XAU/USD has been in a downtrend this year. The long-term bullish trend in the pair, which began in October 2023 following the breakout of the conflict between Israel and Hamas, seems to be broken. However, a new bearish trend is relatively weak as investors doubt whether the Federal Reserve (Fed) will deliver its first rate cut in March. Previously, the probability of a 25-basis point (bps) rate cut in March was close to 100%, but last week's surprisingly strong nonfarm payroll report shifted the chance towards only 70%. Investors now await the US inflation data as it can affect the Fed's decisions and investors' interest rate expectations.
XAU/USD rose during the Asian and early European trading sessions and managed to break above 2,030. Today, traders should focus on the release of the US Consumer Price Index (CPI) report at 1:30 p.m. UTC. Economists polled by Reuters expect year-on-year inflation to be at 3.2% in December but think that annual core inflation fell towards 3.8%—the lowest point since mid-2021. 'Cooler-than-expected inflation data will give the Fed more reason to cut rates this year, which should move gold prices higher,' said Bob Haberkorn, the senior market strategist at RJO Futures. Indeed, XAU/USD may attempt to retest 2,060 if CPI figures come out substantially lower than expected. Otherwise, higher-than-expected inflation figures will likely bring down the gold price towards the psychologically important 2,000 mark. 'Spot gold may break support of $2,023 per ounce and fall into the $2,006–$2,016 range,' said Reuters analyst Wang Tao.
EUR/USD Approaches 1.10000 Ahead of the US CPI Report
The euro (EUR) gained 0.37% on Wednesday as the US Dollar Index (DXY) declined.
Fundamentally, the divergence between US and eurozone monetary policies isn't significant, so the outlook on EUR/USD is rather mixed. Investors expect the Federal Reserve (Fed) and the European Central Bank (ECB) to cut interest rates substantially in 2024. However, the market believes the Fed will be the first central bank to ease monetary policy. Therefore, EUR/USD has been rising lately.
Still, ECB policymakers don't sound hawkish. Yesterday, several officials said that the eurozone's economic prospects are not looking good. 'There is evidence that sentiment indicators are bottoming out, but the near-term economic outlook remains weak in line with our projections,' wrote ECB board member Isabel Schnabel on social media platform X. 'Soft indicators point to an economic contraction in December, confirming the possibility of a technical recession in the second half of 2023 and weak prospects for the near term,' added Luis de Guindos, the ECB Vice-President.
EUR/USD continued to rise during the Asian and early European trading sessions as investors now await US inflation data for more clues on when the Fed will begin cutting the interest rate. Today’s US CPI report will be released at 1:30 p.m. UTC and may trigger substantial volatility in all USD pairs. Analysts expect the report to show that core inflation rose by 0.3% in December and by 3.8% annually. Lower-than-expected numbers may push EUR/USD above 1.10000, while higher numbers may trigger a sharp downward correction.
USD/JPY Break Above 145.000 on Weak Macro Statistics From Japan
The Japanese yen (JPY) lost nearly 0.9% on Wednesday, and USD/JPY almost reached a 1-month high due to weak macroeconomic statistics.
Data on Wednesday showed that real wages in Japan kept falling for the 20th consecutive month. Inflation-adjusted earnings, which have a major impact on consumer purchasing power, fell by 3% in November compared to a year earlier. Also, core inflation in Tokyo slowed for the second month in December. Worse-than-expected macroeconomic statistics have lowered the probability that the Bank of Japan (BOJ) will raise its interest rate this month. 'A vocal minority were talking about a rate hike at the end of this month when the Bank of Japan meets, but I think that people feel more comfortable with an April move,' said Marc Chandler, the chief market strategist at Bannockburn Forex.
USD/JPY was falling slightly during the Asian and early European trading sessions. Today, traders await an important US inflation report to be released at 1:30 p.m. UTC. The report will have a major impact on investors' interest rate expectations in the US If the data shows that prices, especially the core component, in the US remain elevated and don't decrease, USD/JPY may surge above 146.00. However, lower-than-expected figures may reverse the bullish trend in USD/JPY.