Gold Continues to Move Below the Important 2,000 Level
The gold (XAU) price dropped below 1,980 on Wednesday. XAU/USD later recovered yet continued to trade below the critical 2,000 mark.
"Gold is trading lower on the heat of the CPI data. It's going to be hard for gold to rally because part of its rally north of 2,000 was on the expectation of Fed rate cuts coming sooner," said Bob Haberkorn, senior market strategist at RJO Futures.
Indeed, there was no sharp rebound above 2,000, as investors have essentially abandoned their expectations of the Fed's interest rate cut in March.
However, the gold price may soon rebound as the US central bank doesn't view the latest inflation figures as problematic. Austan Goolsbee, the President of the Chicago Fed, stated on Wednesday that the Fed's plans to reach a 2% inflation target will remain on track, even if prices increase faster than expected over the next few months. In other words, the Fed believes that a single report can't alter its plans for normalising monetary policy in 2024.
XAU/USD was essentially flat during the Asian and early European trading sessions. Today, gold traders should prepare for extra volatility as the US will publish a string of macroeconomic reports. These data could trigger sharp moves in USD pairs. Retail Sales, Jobless Claims, and Manufacturing Indices for Philadelphia and New York will be released at 1:30 p.m. UTC. Gold bulls are hoping for worse-than-expected figures—a drop in core retail sales or a significant rise in unemployment claims. Data indicating weakness in the US economy increases the chances of an interest rate cut, which may drive XAU/USD higher. Conversely, if the figures are stronger than expected, the bearish trend in gold may continue.
"Spot gold may bounce into a range of $1,999 to $2,002 per ounce before resuming its decline towards a zone of $1,971–$1,977," said Reuters analyst Wang Tao.
The Euro Rose Slightly After Correction in the US Dollar
The euro (EUR) gained 0.15% yesterday as the US Dollar Index (DXY) corrected slightly after a strong rally on Tuesday.
EUR/USD rose on Wednesday as bears consolidated gains following a major sell-off the day prior. Overall, EUR/USD remains in a clear bearish trend, as the divergence between eurozone and US monetary policies favours the greenback. Indeed, the bearish trend in EUR/USD has strengthened after a surprisingly strong US inflation report reduced the chance of an interest rate cut in March to almost zero and increased the uncertainty about the potential rate cut in May. Still, the bullish trend in DXY is already quite sustainable, and the key question is how long it can continue. The market changes its interest rate expectations rapidly, so traders should pay attention to any news that might impact these expectations. Strong economic growth, sticky inflation, and a tight labour market positively impact the currency. Meanwhile, sluggish economic performance, slowing inflation, and rising unemployment have the opposite effect.
EUR/USD was weakening during the Asian and early European trading sessions. Today, the US will release macroeconomic reports that could impact investors' interest rate expectations, extending or pausing the bearish trend in EUR/USD. The US will release 4 reports: Retail Sales, Jobless Claims, and Manufacturing Indices for Philadelphia and New York at 1:30 p.m. UTC. Better-than-expected data—strong growth in retail sales, low unemployment claims or rising manufacturing indices—may bring EUR/USD below 1.07000. Conversely, worse-than-expected figures may trigger a strong upward correction in EUR/USD, possibly pushing the pair above 1.07500.
The GDP Data Showed Japan's Economy Is Entering a Recession
The Japanese yen (JPY) gained 0.16% on Wednesday after a strong US Dollar Index (DXY) rally prompted some traders to take profit on their long positions.
Although the sell-off in USD/JPY accelerated in the Asian and early European trading sessions, the pair remains in a clear bullish trend. The recent Japan's Gross Domestic Product (GDP) data published earlier today further lowered the probability of an interest rate hike by the Bank of Japan (BOJ), which should, in theory, exert upward pressure on USD/JPY. Official data showed that Japan's economy contracted by an annualised 0.4% in Q4 after a 3.3% slump in the previous quarter. In other words, Japan is now officially in a recession. Reuters reported that the country has lost its title as the world's third-biggest economy to Germany. The market now expects BOJ to hike its base rate by 25 basis points no earlier than in July, shifting from June. Technically, USD/JPY may correct to 149.500. However, the relative monetary policy between the Federal Reserve (Fed) and the BOJ favours the greenback.
Today, USD/JPY traders will focus on several important macroeconomic reports that the US will release at 1:30 p.m. UTC. Retail Sales, Jobless Claims, and Manufacturing Indices from Philadelphia and New York could trigger above-normal volatility in all USD pairs. A short-term bearish trend in USD/JPY may accelerate if the figures are worse than expected and indicate weaknesses in the US economy. However, this bearish trend may break if the figures—especially core retail sales—are better than expected. The short-term technical bias remains bearish as the Japanese yen trades below the important intraday level of 150.200.