Gold Continued Its Downward Correction
At the close of yesterday's trading session, the XAU/USD pair lost 0.91%, falling to the support level of $2,300.00. After a prolonged rise since the beginning of the week, a strong correction has set in, which may subsequently continue the overall bearish trend.
Following the Federal Reserve's announcement on Wednesday to keep the interest rate at 5.5%, the price of gold has been steadily declining. The negative reports on the dollar on the Producer Price Index and Jobless Claims released yesterday did not manage to strengthen the XAU/USD pair for an extended period. However, a slight easing followed these data releases. Investors regained optimism regarding two rate cuts this year. Despite the conflicting conclusions from the Fed meeting, the Producer Price Index and Jobless Claims reports managed to create some volatility in the gold market. The Producer Price Index data showed a decline, which could be an additional signal for reducing inflation after a sharp rise in the first quarter.
For the XAU/USD pair, weak US inflation would be preferable, as gold's appeal in a recessionary environment would increase with the expectation of rate cuts this year. The US Federal Reserve maintained the interest rate and postponed the start of cuts until December. However, declining inflation could bring this possibility closer to September. The Jobless Claims data also showed that the labor market is losing momentum, supporting hopes for a rate cut in September. Traders currently see a 65% probability of a cut in September, according to the CME Group's (NASDAQ:CME) FedWatch Tool.
Today, weak market activity is expected as the Michigan Consumer Sentiment data is released, which generally does not heavily influence the market. Gold may continue to test the support level of $2,300.00, after which relative clarity will ensue. Either there will be a retest and rise to $2,325.00 or a break and decline to $2,280.00.
Euro Falls Amid Softer US PPI and Rising Jobless Claims
The euro (EUR) fell by 0.66% on Thursday despite a softer-than-expected US Producer Price Index (PPI) report.
Factory gate prices in the US decreased by 0.2% month-on-month in May 2024, contrary to market expectations of a 0.1% increase and following a 0.5% rise in April. Prices for goods declined by 0.8%, marking the largest drop since October 2023. The US Initial Jobless Claims for the week ending 6 June rose to 242K, up from the previous week's 229K and exceeding the market consensus of 225K. Despite the weaker US economic data, the US dollar remained resilient against its rivals as the Federal Reserve (Fed) indicated it would only reduce its key interest rate by 25 basis points (bps) towards the end of 2024. Fed Chair Jerome Powell stated that only ‘modest’ progress had been made towards the target and that the central bank would require ‘good inflation readings’ before implementing rate cuts, according to the BBC.
The euro may face selling pressure against the US dollar due to ongoing political uncertainty in Europe and recent rate cuts by the European Central Bank (ECB). Last week, the ECB reduced interest rates by 25 basis points (bps) at its June meeting, a decision widely anticipated by market participants. This reduction lowers the ECB's key rate to 3.75%, down from a record 4% held since September 2023. Financial markets have already priced in one more rate cut for this year, but economists surveyed by Reuters last week predict two additional cuts towards the end of 2024.
EUR/USD moved sideways during the Asian and early European trading sessions. Investors are now focusing on the forthcoming US Michigan Consumer Sentiment report, scheduled for release at 2:00 p.m. UTC. If the report's figures fall below expectations, it could positively influence EUR/USD, potentially driving its price towards the 1.07700 mark. Conversely, if the reported figures exceed expectations, EUR/USD might experience a decline.
Bitcoin Falls Amid Fed Speculations and US Economic Data
Bitcoin (BTC) dropped by 2.26% as the US Dollar Index (DXY) rose despite lower-than-expected US Producer Price Index (PPI) numbers and higher-than-expected US Initial Jobless Claims figures.
The dollar index steadied above 105.2 on Thursday, poised for a second straight week of gains amid fears that the Federal Reserve could maintain higher interest rates longer. While the Fed kept its policy rate unchanged this week, it signalled only one rate cut this year, down from three cuts in March, despite softer-than-expected consumer inflation and a surprise decline in producer prices. Additionally, weekly initial unemployment claims rose to a ten-month high.
Bitcoin's price has responded positively to the Federal Reserve's recent change in tone. Earlier this week, the inflation rate, as measured by the Consumer Price Index (CPI), eased to 3.3% year over year. The research team at Bitfinex is optimistic about BTC's long-term growth. Bitfinex analysts told BeInCrypto:
"Since the Fed decided to maintain current rates, Bitcoin might experience short-term volatility as the market adjusts to the news. However, the overall trend could remain positive, especially if the broader economic outlook continues to improve."
BTC/USD rose slightly during the early European trading session. Investors are now turning their attention to the upcoming US Michigan Consumer Sentiment report, due at 2:00 p.m. UTC. A lower-than-expected outcome from this report could boost BTC/USD, potentially pushing its value above the 68,000 level. On the other hand, if the data surpasses expectations, we could see a downward correction in the BTC/USD pair.