Gold Remains in Uncertainty
The XAU/USD pair has been trading within a sideways range of $2,300.00—$2,333.00 since the start of the week. Yesterday, it saw a modest increase of 0.45%. The US retail sales report fell short of investor expectations, leading to a decline in theUS Dollar Index (DXY). However, the market responded cautiously to this news.
"The relatively subdued US Retail Sales data has strengthened expectations for an imminent Federal Reserve rate cut. The data indicated a growth of 0.1% compared to the expected 0.3%, suggesting sluggish economic activity in the second quarter. Coupled with previous figures, this has heightened investor anticipations for a rate reduction possibly as early as September this year.
Currently, traders are divided into two camps. Some view the decline in US Treasury yields and the restrained fluctuations in the dollar as potential catalysts for a decrease in gold prices. Conversely, others, based on the latest economic indicators, anticipate a rate cut that could bolster the XAU/USD pair. According to FedWatch, traders expect a 67% likelihood of a rate cut in September."
As reported by Reuters,
"Federal Reserve officials, heartened by recent data, are seeking further confirmation that inflation is cooling and monitoring signs from a robust labour market as they cautiously steer towards anticipated interest rate cuts by year-end."
Additionally, according to the annual review by the World Gold Council (WGC), more central banks plan to bolster their gold reserves this year, with many expecting others to follow suit despite high precious metal prices. However, it's notable that central banks paused their gold purchases in May, and the continuation of this trend poses a risk to gold price growth.
Today, no significant reports are anticipated. The market volatility is expected to be moderate. The XAU/USD pair is poised to test the resistance level at $2,340.00. The support level is anticipated at the previous day's low of $2,306.00.
Euro Flat Despite Weak US Data, Eyes on French Elections
The euro (EUR) experienced a rather volatile trading session on Tuesday but finished the day essentially unchanged despite the weaker-than-expected US Retail Sales report.
"The US Retail Sales growth slowed in May due to lower gasoline and motor vehicle prices, which reduced revenue at service stations and auto dealerships. The data had a bearish impact on the US Dollar Index (DXY), pushing EUR/USD higher.
"'A softer pace of consumption may actually be welcomed by the Fed [Federal Reserve], as it makes the task of returning CPI [Consumer Price Index] back to target that much easier, especially given the key role domestic consumption plays in driving the US economic activity," said Stuart Cole, chief economist at Equiti Capital.
Indeed, the probability of two rate cuts by the Fed in 2024 increased yesterday, making the euro more attractive for investors.
An additional bullish factor for the euro was that the eurozone ZEW Economic Index came out higher than expected, even as German figures missed analysts' forecasts. Overall, the market expects the European Central Bank (ECB) to be less dovish compared to the Fed, pricing in one rate cut in October and the second one only in January or March 2025.
The major risks for the eurozone, however, stem from upcoming political events. The parliamentary elections in France may bring an unwelcome result and steer instability in the debt market. A recent survey by Ernst & Young, published yesterday, revealed that business leaders believe Europe must foster greater political stability, cut the red tape, and reduce energy price volatility to reverse a declining trend in foreign investment.
EUR/USD was relatively flat during the Asian and early European trading sessions. Today’s formal macroeconomic calendar does not feature any major events that could have a significant impact on the euro pairs. An established short-term bearish trend will likely persist, but some consolidation in the range of 1.0725-1.0760 is possible ahead of tomorrow’s US Initial Jobless Claims.
Japanese Yen Faces Correction After US Retail Sales
The Japanese yen (JPY) fell on Tuesday, but a lower-than-expected US Retail Sales release triggered a correction in the USD/JPY pair.
The USD Index (DXY), which tracks the US dollar against a basket of currencies, remains close to the weekly low reached after weaker-than-expected US Retail Sales data was released on Tuesday. The data indicated signs of consumer exhaustion in the US, increasing speculation of an imminent rate cut by the Federal Reserve (Fed) later this year. This has caused an overnight decline in US Treasury bond yields, further pushing the USD lower.
USD/JPY remained relatively stable following the release of the Bank of Japan (BoJ) April meeting minutes, staying close to the highest level since late April, which was retested the previous day. The minutes revealed that BoJ board members discussed the risks of a weak Japanese yen (JPY) on underlying inflation and considered the possibility of raising interest rates sooner than expected if inflation overshoots. However, this did little to impress JPY bulls or provide significant impetus to the USD/JPY pair. The subdued US dollar index (DXY) price action continues to act as a headwind for spot prices.
USD/JPY traded in a tight range between 105.240 and 105.300 during the Asian and early European trading sessions. Today, the formal macroeconomic calendar does not feature any major events that could potentially stoke the market. USD/JPY may continue to fall after consolidation. The key levels to watch are 105.200 and 105.300.