Gold Rises Above 2,300 Amid Escalating Middle East Tensions
Gold (XAU) moved sideways with high intraday volatility on Friday, caused by the nonfarm payroll report. The gold price tried to break below the support level at 2,300 twice but finished the session above this level.
Data released on Friday indicated that US employment growth in April was slower than expected, with the unemployment rate rising from 3.8% to 3.9%. The data reinforced expectations that the Federal Reserve (Fed) will begin lowering interest rates later this year. Market participants are now pricing in a 67% chance of a rate reduction by the Fed in September, according to the CME FedWatch Tool. Lower interest rates can reduce the opportunity cost of holding gold, potentially pushing XAU/USD higher.
On Sunday, prospects for a ceasefire in Gaza appeared vague as Hamas reiterated its demand for an end to the conflict in exchange for the release of hostages. However, Israeli Prime Minister Benjamin Netanyahu firmly stated that this was not possible. Israel is preparing to launch an operation in the Rafah area. Most Arab and some European countries have urged Israel not to initiate military action in Rafah, fearing it would cause a large number of casualties. Still, Israel's position remains the same as before. 'Israel can stand alone. Israel will fight on', Netanyahu said. These geopolitical developments strongly support gold.
XAU/USD was rising during the Asian and early European trading sessions. The pair broke above the 2,290–2,310 range and retested it. Today's economic calendar is relatively light. Overall, the main driver for XAU/USD will be geopolitical developments. Key levels to watch are 2,300 and 2,320.
The Euro Benefited From a Weaker-Than-Expected US Jobs Report
The euro (EUR) rose sharply on Friday after the US dollar dropped due to a weaker-than-expected US labour report.
US employment figures for March disappointed the market, with 175,000 jobs added compared to the forecasted 243,000. Meanwhile, February's figures were revised upwards to 315,000 from an initial report of 303,000. The unemployment rate slightly increased from 3.8% to 3.9%, and average hourly earnings year-over-year grew by 3.9%, marking the lowest increase since 2021. Additionally, the average workweek decreased slightly from 34.4 hours in the previous month to 34.3 hours. EUR/USD reached a new peak above 1.08000 after the disappointing NFP report fueled speculation of imminent rate cuts by the Federal Reserve (Fed).
April's ISM US Services Purchasing Managers' Index (PMI) figures unexpectedly declined to 49.4, marking a 16-month low and signalling a contraction. The numbers missed expectations significantly, as forecasts had predicted a rise to 52.0. The ISM Services Prices Paid Index rose from 53.4 to 59.2 in April, indicating accelerating business operating costs and cooling hopes for rate cuts. According to the CME FedWatch Tool, the likelihood of a rate cut by the Fed in September is now at 67%.
EUR/USD declined slightly during the Asian and early European trading sessions. Today, the economic calendar is relatively light, but the release of several European Services PMI reports due at 8:00 a.m. UTC could still trigger above-normal volatility in all EUR pairs. If the PMI figures exceed forecasts, the euro will rise. Conversely, figures smaller than expected may trigger a downward correction in EUR/USD. Key levels to watch are 1.07500 and 1.08000.
The Australian Dollar Rallied on Weak US Labour Data
The Australian dollar (AUD) surged by 0.69% on Friday as the US Dollar Index (DXY) fell sharply following the release of the weaker-than-expected nonfarm payroll (NFP) report. The data showed a smaller-than-expected increase in nonfarm payrolls and a rise in the unemployment rate.
DXY dropped to almost a one-month low on Friday after the NFP report showed that US job growth slowed more than expected in April, with wage growth cooling and the unemployment rate rising. The soft labour market report immediately raised traders' hopes that the Federal Reserve (Fed) might eventually deliver two rate cuts later this year. The market is currently pricing in a near 100% probability of a 25-basis-point (bps) rate cut in September and another in December. However, a single report cannot indicate a trend, so the market may be getting a bit too optimistic about rate cuts.
"An unemployment rate of 3.9% is not something disastrous. It indicates an economy that is not declining dramatically, but it does suggest a looser labour market", said Jason Pride, Chief of Investment Strategy and Research at Glenmede in Philadelphia.
Still, the bullish reaction in AUD/USD was quite strong, as the pair is very sensitive to risk and rallies noticeably whenever the Fed seems more likely to ease its monetary policy. Meanwhile, the market no longer expects the Reserve Bank of Australia (RBA) to cut its cash rate this year. On the contrary, according to interest rate swap market data, traders are pricing in a 50% probability of a 25-bps rate hike by the RBA in September. The fundamental divergence in monetary policy expectations favours AUD over USD.
AUD/USD was essentially unchanged in the Asian and early European trading sessions. Indeed, volatility may be relatively low today as the economic calendar is rather uneventful. Furthermore, traders may refrain from opening large orders in AUD pairs ahead of the RBA interest rate decision, due tomorrow at 4:30 a.m. UTC. The market expects the central bank to maintain its base rate at the current 4.35%. However, the regulator may adopt a more hawkish tone in its monetary policy statement and suggest that a rate hike is possible. If the RBA statement lacks hawkish comments, AUD/USD may drop. The resistance level at 0.66480 and the support level at 0.65800 are important to watch.