Gold (XAU/USD) continued to rise after a minor correction last week, and the pair may now increase toward historical highs. The price has approached the resistance level at $2,760.
Two factors support XAU/USD: the upcoming US presidential election and geopolitical tensions in the Middle East. Uncertainty surrounding the election may further strengthen gold's role as a safe-haven asset during times of instability. The Federal Reserve (Fed) will also announce its interest rate decision next week.
Markets anticipate potential positive economic data that may lead to a more accommodative monetary policy from the regulator. Investors believe that gold prices will continue to receive support and that the interest rate may decrease by 25 basis points. According to the CME FedWatch Tool, the probability of a 25-basis-point reduction is approximately 98%.
As for the current geopolitical situation, the active phase of the Middle East conflict remains unchanged, and there is no certainty when the conflict will end. Israel continues to launch airstrikes in the eastern Bekaa Valley of Lebanon, resulting in casualties.
XAU/USD will likely continue rising today. If the pair breaks above the resistance level at $2,760, it may continue growing towards $2,788 and higher.
Euro Faces Headwinds from ECB Rate Cuts and Potential Trump Presidency
During a relatively quiet trading session on Monday, the euro (EUR/USD) gained 0.18% against the US dollar (USD).
The US Dollar Index (DXY) is heading for its largest monthly rise in two and a half years against a basket of major currencies. This surge is fuelled by a combination of factors: a strong US economy and expectations that Donald Trump will win a presidential election, which could result in major trade policy changes.
Indeed, better-than-expected US macroeconomic indicators have bolstered the greenback lately. In addition, the market is increasingly pricing in a Republican victory this November, with Trump winning the presidency and his party controlling both chambers of Congress.
Analysts warn that the euro could face additional pressure if the US implements a global baseline tariff, potentially leading to retaliation from other countries. This could result in higher US interest rates to combat inflation, further weakening EUR/USD. Moreover, increased bets on more aggressive rate cuts by the European Central Bank (ECB) are also weighing on the pair.
Investors are turning their attention to the US October employment report, which is expected to be impacted by the recent workers' strike at Boeing (NYSE:BA) and Hurricane Milton.
"The market will be looking quite closely for more signs into what's happening in December. (It's) going to be listening to what the reaction is to the stronger nonfarm payrolls numbers. It comes down to the Fed's reaction function", said Peter Vassallo, FX portfolio manager at BNP Paribas Asset Management.
At the same time, traders should note that the week leading up to the US election could be very volatile, with the potential for uncorrelated and sharp market moves due to unexpected economic data and political events amid limited liquidity.
EUR/USD was falling slightly during the Asian and early European trading sessions. Today, USD-related pairs may experience some extra volatility due to the release of two macroeconomic reports: JOLTS and CB Consumer Confidence at 2:00 p.m. UTC. The data and their results may noticeably impact EUR/USD. If the reports indicate the underlying strength in the US economy, EUR/USD will continue to fall, possibly below 1.07630. Conversely, weaker-than-expected results may provoke a rebound above 1.08400.
Australian dollar Continues to Decline as the US Dollar Rises
The Australian dollar (AUD/USD) lost 0.32% and renewed local lows on Monday due to rising US Treasury yields and the US Dollar Index (DXY).
The US dollar (USD) is increasing against other major currencies. The bullish momentum is likely due to the positive US economic data and the likelihood of Republican nominee Donald Trump winning the upcoming presidential election. Market analysts believe that if Trump becomes president, he will implement trade policy changes, which could increase the US dollar's value. Additionally, market participants believe that the Republican Party will likely gain control of Congress, further supporting the bullish trend. Some analysts speculate that if the US imposes tariffs on imported goods, it could weaken other currencies, such as the Australian dollar, and potentially lead to higher US interest rates.
Although AUD/USD has been in a downtrend since the beginning of October, the pair could receive some support from Q3 Consumer Price Index (CPI) data on Wednesday. Analysts expect headline inflation to have decreased towards 2.9% and core inflation measured by the trimmed mean to have increased by 0.7%, reaching an annual rate of 3.5%. Any uprise surprises in the CPI data may undermine the slim possibility of a rate reduction at the end of the year. At present, swaps indicate only a 34% probability that the Reserve Bank of Australia (RBA) will start reducing rates in December, with the first easing more likely to occur in April 2025. Additionally, Commonwealth Bank of Australia analysts have warned that their forecast for a December rate cut could be revised if the trimmed mean measure exceeds 0.7%.
AUD/USD continued to decline during Asian and early European trading hours. Market participants will await the US CB Consumer Confidence report at 2:00 p.m. UTC. Analysts expect confidence to increase from 98.7 towards 99.5. A higher-than-expected reading will put bearish pressure on AUD/USD, while a lower-than-expected figure may trigger an upward correction in the pair.