Gold Remains Flat Ahead of the NFP Report
Despite a declining US dollar (USD), the gold (XAU/USD) price was mostly flat yesterday as the market focused on the upcoming US nonfarm payroll data, causing investors to refrain from opening large positions.
Meanwhile, trade war anxieties supported gold, keeping it above the crucial $2,900 mark.
"There's still buying interest out there now there's going to be some measure of caution ahead of Friday's payrolls data, but the underlying trend remains favourable", said Peter Grant, vice president and senior metals strategist at Zaner Metals.
Indeed, worries over US President Donald Trump's tariff measures have driven gold prices to record highs this year, peaking at $2,956 on 24 February and gaining 11% since the beginning of the year. In an address to Congress, Trump said that further tariffs would follow on 2 April, including 'reciprocal tariffs' and non-tariff actions aimed at balancing out years of trade imbalances.
Additionally, the latest US macro data has been coming out weaker than expected, improving the chances of additional rate cuts from the Federal Reserve (Fed) and providing further support to XAU/USD. Yesterday's ADP National Employment Report revealed a slowdown in US private payrolls growth in February. Data showed an increase of only 77,000 jobs, substantially below the forecast.
XAU/USD was relatively unchanged during the Asian and early European trading sessions. Today, the focus is on the European Central Bank (ECB) rate decision, due at 1:15 p.m. UTC. A dovish tone in the ECB statement may boost XAU/USD, whereas a hawkish stance might trigger a minor sell-off. Still, the major bullish trend will likely remain unchanged. A more important event is tomorrow's nonfarm payroll (NFP) report, so market participants will probably be cautious ahead of it.
"If the number comes out really bad, I would imagine gold sells off. If it comes out neutral, I don't think that's going to move the needle too much. But if it comes out bullish, then gold takes off, and we get pretty quick to $3,000, if not higher than that", said Daniel Pavilonis, senior market strategist at RJO Futures.
"Spot gold is poised to revisit its 25 February high of $2,956 per ounce, as suggested by an inverted head-and-shoulders", said Reuters analyst Wang Tao.
Euro Rockets as US Dollar Declines on Weak Economic Data
The euro (EUR/USD) rallied by 1.56% against the US dollar (USD) on Wednesday. EUR/USD reached a new four-month high as the greenback weakened despite better-than-expected ISM Services Purchasing Managers' Index (PMI) data.
EUR/USD is rising due to improved European economic growth expectations, driven by Germany's €500 billion ($531 billion) infrastructure plan. Meanwhile, the greenback is declining on fears of tariff-induced US economic slowdown and rising inflation. Kalish, a prediction market platform, now indicates a 42% probability of a US recession this year. 'We are experiencing a change in sentiment when it comes to relying on American markets. If things are headed towards restrictive protectionism, the financial system will start making adjustments, and right now, it seems shedding dollar positions is prudent.
"If tariffs and trade wars are perceived as negative on the American economy, we return to speculation over the chances for looser monetary policy", said Juan Perez, director of trading at Monex USA.
EUR/USD was rising during the Asian and early European trading sessions. Today's main event is the European Central Bank (ECB) rate decision at 1:15 p.m. UTC. The market expects the ECB to cut the rates by 25 basis points (bps). The monetary policy decision itself is unlikely to surprise the market. Instead, the market will focus on the details disclosed in the Monetary Policy Statement and during the press conference. Traders should focus on any subtle shifts in rhetoric or new policy signals that could impact market sentiment. A hawkish ECB tone may boost EUR/USD, whereas a dovish stance might trigger a sell-off.
Japanese Yen Benefits From Safe-Haven Inflows
The Japanese yen (USD/JPY) gained 0.62% against the US dollar (USD) on Wednesday as concerns over trade tariffs damaged the greenback appeal.
Yesterday's decline in the US Dollar Index (DXY) was a surprise, especially given that the US ISM Services Purchasing Managers's Index (PMI) data surpassed investors' expectations. Usually, such positive economic indicators would bolster the US dollar's value.
However, market participants clearly prefer a broader, more forward-looking perspective, prioritising the long-term implications of the incipient global trade war over economic indicators. This strategic shift in focus reflects a growing unease that protracted trade disputes might disrupt global supply chains, dampen economic growth, and ultimately erode investor confidence. Thus, traders adopt a more cautious stance, anticipating a potentially turbulent economic landscape.
Traditionally viewed as a safe-haven asset, the Japanese yen benefits from this heightened uncertainty. In times of economic and geopolitical instability, investors tend to flock to assets perceived as stable and secure. The current climate of trade tensions and economic anxieties drives increased demand for JPY, further contributing to its appreciation against the weakening US dollar.
USD/JPY was falling during the Asian and early European trading sessions. Today's macroeconomic calendar is relatively uneventful, so the probability of big moves is low. However, US Jobless Claims data at 1:30 p.m. UTC and a speech by FOMC member Christopher Waller at 8:30 p.m. UTC may trigger some volatility. USD/JPY traders should watch the critically important 148.000 level, as a break below might trigger a major sell-off.