Gold Drops to a Three-Week Low Ahead of the U.S. CPI Report
The gold (XAU) price plunged by over 1% on Monday, reaching a three-week low as traders repositioned ahead of the crucial U.S. inflation report.
'Gold and silver traders are waiting for some new fundamental information that they're going to get this week,' said Jim Wyckoff, the senior analyst at Kitco Metals. The Federal Reserve (Fed), the Swiss National Bank, the Norges Bank, the Bank of England, and the European Central Bank will announce their interest rate decisions this week. The Fed meeting will be the most important event for investors. XAU/USD has been under substantial bearish pressure since the U.S. Nonfarm Payroll (NFP) report was stronger than expected. Previously, traders expected the Fed to begin interest rate cuts in March 2024, but the probability of this scenario has now dropped below 50%. As a result, non-yielding precious metals experienced significant downward pressure, with gold losing 2.3% over the past two trading sessions.
XAU/USD was rising during the Asian and early European sessions. Today, the most important event will be the U.S. Consumer Price Index (CPI) report due at 1:30 p.m. UTC. The headline CPI figure and its core number could substantially influence the Fed's monetary policy path, changing investors' interest rate expectations. 'Near-term chart posture for gold has deteriorated. If the CPI numbers are surprisingly high, that could produce some selling pressure on the gold market,' said Jim Wyckoff, the senior analyst at Kitco Metals. Economists polled by Reuters expect U.S. core inflation to remain steady at 4%, well above the Fed's 2% target. If the figures are higher than expected, XAU/USD may drop below 1,980. Otherwise, lower-than-expected numbers may push the pair towards 2,000 again. Now, the technical bias remains bearish as gold trades below 1992. 'Spot gold may retest a support of $1,977 per ounce, a break below which could open the way towards the $1,944–1,962 range,' said Reuters analyst Wang Tao.
EUR/USD Consolidates Above 1.07500, But its Next Move Is Unclear
EUR/USD was essentially unchanged on Monday even as the US Dollar Index (DXY) continued to rise slightly.
EUR/USD has consolidated above the critical 1.07500 level, but its next move is highly data-dependent. Currently, the fundamental pressure on EUR/USD remains bearish because the Federal Reserve (Fed) is pursuing a more hawkish monetary policy than the European Central Bank (ECB). According to the latest Reuters survey, economists expect the European Central Bank (ECB) to cut interest rates in Q2 2024, earlier than previously thought. Around 57% of analysts predict at least one rate cut before the ECB Governing Council meets in July 2024. In a similar survey on the Fed's interest rate path, economists predicted the Fed to hold the rates unchanged until July next year. Thus, the divergence between the ECB's and Fed's monetary policies should weaken the euro and introduce unwanted imported inflation.
EUR/USD was rising slightly during the Asian and early European sessions. Today, traders should prepare for increased volatility in most USD pairs, including EUR/USD, due to the U.S. inflation report at 1:30 p.m. UTC. The report will include November's headline Consumer Price Index (CPI) figures, which can greatly affect investors' interest rate expectations. If CPI exceeds the market's forecast, EUR/USD may drop below 1.07200. However, the pair may test 1.08500 if inflation numbers are lower than expected. Currently, the technical bias remains bullish as the pair trades above the important intraday level of 1.07400.