China's Gold Demand and Weak US Economic Data Support XAU/USD
The gold (XAU) prices stabilised on Tuesday, with the decrease in US Treasury yields partly balancing a stronger US dollar.
Gold prices were virtually unchanged yesterday as investors await important data this week and 9 speeches from Federal Reserve (Fed) officials. The US Dollar Index (DXY) declined, making bullion more appealing to international buyers. 'A slight uptick in inflation data will pressure the gold market, but it is well supported at the $2,000 level by central bank buying. It is unlikely Fed officials will change their stance until more data,' said Phillip Streible, the chief market strategist at Blue Line Futures.
Recent statements from Fed representatives indicate that the US central bank isn't hurrying to lower interest rates. Yesterday's report revealed that US durable goods orders in January had the most significant decline in almost 4 years. XAU/USD received additional support as China's middle class strives 'to preserve their dwindling fortunes caused by the property market crisis and a prolonged stock market sell-off,' according to Ole Hansen, the head of commodity strategy at Saxo Bank. China is the largest gold consumer, and its net gold imports through Hong Kong in January reached the highest level since mid-2018, according to official records.
During the Asian trading session, XAU/USD rose but faced a downturn in the early European trading hours. Today, the market is awaiting the release of the US Gross Domestic Product (GDP) Growth Rate report at 1:30 p.m. UTC. Traders expect the US economy to expand by an annualized 3.3% in Q4 2023. If the figures are lower than the forecast, gold will likely gain bullish momentum. Otherwise, XAU/USD may drop towards 2,020. 'Spot gold may retest support at $2,025 per ounce, a break below could be followed by a drop to $2,015,' said Reuters analyst Wang Tao.
The Euro Drops Despite Softer-Than-Expected US Economic Data
Initially, the euro (EUR) rallied above the important 1.08500 level on Tuesday but later lost all the gains despite weaker-than-expected US economic data.
EUR/USD's recent weakness is somewhat surprising, given that the latest US macroeconomic reports disappointed investors. Both Durable Goods Orders and Consumer Confidence reports were weaker than expected, suggesting that the US economic growth could be slowing and the Federal Reserve (Fed) may decide to reduce its base rate in May. However, the eurozone data wasn't strong either. The European Central Bank (ECB) reported yesterday that bank lending to companies and households stagnated last month, indicating that the economic recovery in the eurozone is yet to begin. The latest data from the interest rate swap market shows that the market now expects the ECB to ease its monetary policy faster than the Fed. Traders anticipate 90 basis points (bps) worth of rate cuts by the ECB and only 70 bps by the Fed in 2024.
EUR/USD continued to fall during the Asian and early European trading sessions. Today's key event is the release of the US Gross Domestic Product (GDP) report for Q4 2023 at 1:30 p.m. UTC. Although the impact of the second GDP growth estimate on the exchange rates may be relatively muted, the report is still important as it might affect traders' interest rate expectations. The data may clarify the timing of the first rate cut. The current macroeconomic policy outlook is uncertain, so investors will closely study any fresh data. If the GDP figures are stronger than expected, the sell-off in EUR/USD may pause. A faster-than-expected GDP growth might bring EUR/USD below 1.08000.
USD/JPY May Experience a Downward Correction
The Japanese yen (JPY) gained 0.13% on Tuesday after data revealed that Japan's core consumer inflation exceeded forecasts, while US durable goods orders fell more than expected in January.
Japan's core consumer inflation slowed for the third consecutive month in January but still exceeded forecasts and remained at the central bank's 2% target. This reinforces expectations that the Bank of Japan (BOJ) will end negative interest rates by April. Meanwhile, orders for long-lasting US manufactured goods fell by more than 6% in January, marking the largest drop in four years. Although the divergence in data clearly favors the JPY, USD/JPY barely moved. The pair has risen in the Asian and early European trading sessions today as investors repositioned ahead of Thursday's US Personal Consumption Expenditure (PCE) report. Overall, USD/JPY continues to trade near multi-year highs, increasing the risk of a downward correction, especially if Japan's data continues to exceed forecasts. Currently, traders price in more than a 70% chance of the BOJ raising its base rate by 10 basis points (bps) in April.
Today, traders should focus on the release of the US Gross Domestic Product (GDP) report for Q4 2023 at 1:30 p.m. UTC. If the GDP figures are weaker than expected, USD/JPY may face a sharp sell-off because the pair faces strong resistance in the 151.000–152.000 area. Thus, many traders may close their long positions. However, if the GDP numbers are stronger than expected, USD/JPY may continue to rise slowly, potentially reaching 151.700.