- Gold broke above $2,760 on Indian demand and potential Fed rate cuts, while eyeing targets up to $2,790 before economic data impacts the market.
- The euro recovered against the dollar on weak US labor data and potential gains from China’s stimulus, but remains pressured by expected ECB rate cuts.
- USD/JPY traded sideways ahead of the BOJ meeting, with market focus on possible rate adjustments amid Japan's economic challenges.
The High Demand for Gold in India has Driven Prices Up
Gold (XAU/USD) rose by 1.17% yesterday and reached new highs. Following a breakout above the resistance level of $2,760, Gold Futures continued to grow steadily.
However, now a downward correction from the $2,780.00 mark is likely.
With the US presidential election less than a week away, additional uncertainty and market volatility are likely. The outcome of the US election significantly influences XAU/USD's price. Expectations for a decrease in the US Federal Reserve's (Fed) interest rate also support the gold price. The market expects a 25-basis-point (bps) rate reduction by the Fed next week. However, if US economic data show the labor market's resilience and persistent inflation this week, XAU/USD may drop sharply.
A positive factor for the gold market is the persistent high demand from India. Despite the record-high prices, Indian investors have continued to purchase gold in anticipation of the upcoming Dhanteras and Diwali holidays, hoping that the value of the precious metal will continue to grow and provide them with profits amid a slowing stock market. The demand from India could further support XAU/USD.
Several experts and analysts predict that gold will continue its upward trend after a brief correction. The price target is $2,790, after which there may be a slight pullback. On Wednesday, important US data on employment change and the Gross Domestic Product (GDP) report will be released, adding volatility to the market and affecting XAU/USD.
China's Stimulus and Soft US Jobs Figures Support the Euro
On Tuesday, the euro (EUR/USD) dropped towards 1.07700 against the US dollar (USD) but later recovered all the losses and finished the day essentially unchanged.
Worse-than-expected US labour market statistics pushed EUR/USD higher yesterday. The US Labor Department's JOLTS report revealed a significant decline in job openings in September—the lowest level in over three and a half years. September's data and a downward revision of the previous month's figures suggest a continued weakening of the US labour market. ‘We're still seeing the same pattern of a slowdown in jobs that has been the overall theme for the last few months, even if September's nonfarm payroll (NFP) number was well above expectations’, said Helen Given, associate director of trading at Monex USA. At the same time, US consumer confidence increased to a nine-month high in October, but investors have largely ignored the data.
Still, the US Dollar Index (DXY) is on track for its largest monthly gain in over two and a half years. It's currently near a three-month high, and traders are unlikely to open big trades ahead of next week's US election and this week's US economic data—Personal Consumption Expenditure (PCE) Price Index report on Thursday and Friday's NFP report.
The euro grew further following the news that China is contemplating the issuance of over 10 trillion yuan in additional debt to reinvigorate its fragile economy. Given China's status as the eurozone's primary export market, this could benefit European economies. Still, investors expect the European Central Bank (ECB) to remain on its rate-cutting path and price with an 89% chance of four 25-basis-point (bps) reductions by the end of March 2025. The chances for a similar move by the Federal Reserve (Fed) are slightly less than 80%. This fundamental divergence in monetary policy expectations continues to exert a bearish pressure on EUR/USD.
EUR/USD remained unchanged during the Asian and early European trading sessions. Today, investors will focus on German Gross Domestic Product (GDP) and Consumer Price Index (CPI) data due at 9:00 a.m. and 1:00 p.m. UTC. Additionally, the US GDP report is scheduled for 12:30 p.m. UTC. These releases may add volatility to today's trading session. Key levels to watch are support at 1.07640 and the resistance at 1.08400.
Japanese Yen Slows Down Ahead of BOJ Meeting
Yesterday, USD/JPY didn't break the 154.000 resistance level and finally went sideways, gaining 0.04% by the end of the day ahead of the Bank of Japan's (BOJ) meeting on Thursday.
The BOJ will likely keep rates unchanged at the meeting on 31 October. With weaker exports and household spending in summer and recent political changes in Japan, the central bank is unlikely to change the interest rates. BOJ might only hike the rates if economic data strengthens and inflation stays above 2%. However, many in Tokyo think the regulator could still raise rates before the year ends. The market will be watching for clues about the BOJ monetary policy plans.
Meanwhile, economic data shows some resilience. Tuesday's jobs report showed some strength, which could lead to more spending. Output is still weaker, but there's hope that the weaker Japanese yen (JPY) and increased export orders will help boost growth. Auto production should recover, too. While recent data shows some pullback in inflation, with domestic and imported goods prices still rising, most people expect any dips to be temporary. Prices in Japan won't keep falling, given the rise in commodity, energy, and global goods prices.
USD/JPY continues to trade sideways during Asian and early European trading hours. The most important event is tomorrow's BOJ rate decision at 3:00 a.m. Still, US ADP Employment Change report to be published at 12:15 p.m. UTC may influence the pair. A higher-than-expected figure should be considered bullish for the USD/JPY, while a lower-than-expected reading may push the pair into a downward correction.