Gold Traders Await More US Data This Week
Yesterday, the gold (XAU) price increased by 0.22%, continuing to move within 2,320–2,340 for the second day.
The price of gold hasn't changed significantly in the last few days. For XAU/USD to break through the resistance level of 2,340, new weak US data is needed. It would increase the likelihood of a rate cut by the Fed in September and give a bullish impulse for XAU/USD. Data released on Monday showed that US manufacturing activity contracted for the third consecutive month in June, while the decline in commodity prices reached a six-month low, indicating that inflation may continue to decline. The week will be full of important reports, which can provide additional information about the US interest rate path.
Now, many analysts expect an increase in investment demand for gold, which will be able to utilise almost the entire volume of supply at the mines in the coming year. However, some risks may exert downward pressure on gold. The main one is the decrease in optimistic forecasts of retail demand for gold in China due to import quotas. Other risks include weaker demand from central banks or a delay in the lowering of interest rates by the Fed. Reuters reports that,
"Fed Bank of New York President John Williams said he continues to believe price pressures are moderating back to the levels targeted by the central bank, in comments made on Sunday".
The further direction of XAU/USD this week may be determined today after a speech by Federal Reserve Chairman Jerome Powell at 1:30 p.m. UTC. If he sounds more dovish and supposes more rate cuts are possible this year, XAU/USD may reach 2,380 and move higher. However, any hawkish comments implying continuing inflation pressure may bring the pair down towards the 2,300 support level.
The Euro Briefly Rallied After Easing Worries Over French Elections
On Monday, the euro (EUR) gained 0.23% but failed to hold above the important 1.07500 level as political uncertainty has yet to subdue.
The victory by the French far-right party in the first round of parliamentary elections fell slightly short of expectations, making investors more optimistic and supporting the euro. However, the final result of the elections now depends on party deals before a second round next weekend. Analysts described yesterday's EUR/USD performance as a ‘relief rally’.
"It's an alleviation of risks. We're seeing a lot of hedges going into the French election getting unwound", said Simon Harvey, head of FX analysis at Monex Europe in London.
At the same time, recent macroeconomic reports might have paused the rally. Yesterday, official data showed that German inflation resumed its downward trend, falling lower than expected. Thus, easing inflation pressure might prompt the European Central Bank (ECB) to deliver another rate cut in September.
EUR/USD was falling during the Asian and early European trading sessions. Today, the pair will likely experience significant volatility throughout the day. Traders should focus on three events: the eurozone Consumer Price Index (CPI) report at 9:00 a.m. UTC, Federal Reserve Chair Jerome Powell's speech at 1:30 p.m. UTC, and US JOLTS Job Openings data at 2:00 p.m. UTC. All three events might trigger a sharp reaction in EUR/USD. The key levels to watch are 1.07000 and 1.07800.
Australian Dollar Struggles, But RBA's Hawkish Stance Encourages Bulls
The Australian dollar (AUD) lost 0.12% on Monday as the US dollar continued to rise despite the lower-than-expected ISM Manufacturing Index.
AUD/USD has been moving upwards since 10 June but has recently started to move sideways as the resistance level near 0.67000 proves hard to overcome. Still, fundamental pressure remains predominately bullish as the Reserve Bank of Australia (RBA) is one of only a few major central banks that may raise their base rate later this year. The protocols from the RBA's recent meeting underlined the hawkish outlook for domestic rates, revealing policymakers' concerns about whether current interest rates are high enough to control inflation effectively.
Now, the market is pricing in a 55% chance that Australia's cash rate will be higher by 25 basis points by 5 November. Moreover, the RBA reported yesterday that the decline in selling prices of exported commodities slowed to just −4.1%. Commodities account for over half of Australia's export earnings, so the price change is considered a leading indicator of the nation's trade balance and economic growth.
AUD/USD fell slightly during the Asian and early European trading sessions. Today, the focus is on the US data. Jerome Powell, the Federal Reserve Chairman, will give a speech at 1:30 p.m. UTC and may offer some forward guidance on the US monetary policy. If he sounds more dovish than previously, AUD/USD may finally break above the 0.67000 level. In addition, the US JOLTS Job Openings report at 2:00 p.m. UTC may stoke some volatility in all USD pairs. If the numbers are stronger than expected, AUD/USD may pull back towards 0.66000.