Gold Is Stuck in a Range as Traders Await More Data
Gold (XAU/USD) moved within the $2,640–2,660 range on Monday due to a lack of important events and low volatility.
XAU/USD has formed a triangle pattern, and the range is tightening. The trigger for breaking out of the triangle could be events like the FOMC Meeting Minutes or the US Consumer Price Index report, scheduled for Wednesday and Thursday. Until then, traders prefer to avoid making big bets.
The sideways movement is also supported by offsetting factors: uncertainty ahead of the US elections, conflicts in the Middle East, and reduced recession risks in the US due to the release of strong macroeconomic data. Markets currently see an 86% chance of the Federal Reserve (Fed) making a small 25-basis-point (bps) rate cut in November. Lower rates decrease the opportunity cost of holding non-yielding gold.
St. Louis Fed President Alberto Musalem stated on Monday that a gradual pace of rate cuts is appropriate for the current state of the economy.
"I view the costs of easing too much, too soon as greater than the costs of easing too little, too late", he said during a speech to the Money Marketeers of New York University, a group of economists focused on financial markets. He emphasised that moving too fast "would mean that sticky or higher inflation would pose a threat to the Fed's credibility and to future employment and economic activity".
XAU/USD was essentially unchanged during the Asian trading session. Today, the formal macroeconomic calendar doesn't feature any major events that could shake the market.
"Spot gold is biased to break support at $2,633 per ounce and fall towards $2,611 to $2,619 range", said Reuters analyst Wang Tao.
Euro Recovers After a Sharp (OTC:SHCAY) Drop, But Fundamental Disparities Persist
Initially, the euro (EUR/USD) was declining against the US dollar (USD) on Monday but later recouped all the losses and finished the day essentially unchanged.
EUR/USD has been moving higher this week. However, the upward trend looks more like a technical rebound, which is expected movement after the pair dropped sharply to almost a two-month low last Friday. In addition, traders may be reassessing their long positions in the US Dollar Index (DXY) as fears of a wider Middle East conflict seem to have subsided lately. However, the US economy remains in a much better shape than the eurozone's, still grappling with lingering production slowdown and a more fragmented fiscal policy.
Yesterday, the latest data from Germany indicated that industrial orders dropped by 5.8% in August, the steepest decline in almost a year. As a result, the European Central Bank (ECB), unlike the Federal Reserve (Fed), may soon speed up the easing of its monetary policy. Joachim Nagel, Bundesbank President, said he was open to considering another interest rate cut at its meeting next week, adding that German economic growth in the second half of the year would be weaker than expected.
EUR/USD was rising slightly during the Asian and early European trading sessions. Today's macroeconomic calendar is packed with minor events from Europe and the US, but none are expected to impact EUR/USD significantly. Traders may refrain from placing large orders ahead of the FOMC Meeting Minutes, which are due tomorrow at 6:00 p.m. UTC and ahead of the US Consumer Price Index (CPI) report due on Thursday. As a result, a minor short-term bullish trend in EUR/USD may continue for the next 24 hours, but the fundamental long-term pressure remains bearish.
British Pound Trajectory Is Uncertain Due to the Lack of Major Drivers
The British pound (GBP/USD) has been trading within a range of 1.31300 and 1.30600 on Monday and lost 0.24%, while the US Dollar Index (DXY) rose towards a seven-week maximum.
Since the beginning of this week, the GBP/USD exchange rate hasn't shown any clear patterns. Investors are contemplating the future of US interest rates in light of the robust employment report released last week, which dashed expectations for substantial rate cuts. Additionally, the escalating tensions in the Middle East have dampened risk sentiment.
Also, traders have significantly adjusted their expectations regarding the Federal Reserve (Fed) monetary policy path this year. The markets no longer anticipate a rate cut in November, and the CME's FedWatch Tool indicates an 86% likelihood of a 25-basis point (bps) reduction. Currently, only 50 bps of easing are priced in for December, down from over 70 bps a week ago. The president of the St. Louis Fed, Alberto Musalem, stated on Monday that he favors additional rate reductions as the economy progresses along a targeted trajectory. However, he emphasized the importance of being prudent and avoiding excessive rate cuts.
GBP/USD has been moving sideways during Asian and early European trading hours. No major events that can impact the pair are scheduled for today. The market is waiting for the US FOMC Meeting Minutes tomorrow at 6:00 p.m. UTC. This event will give market participants hints on the future US interest rate path.