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Gold, Euro Plunge Ahead of Powell's Testimony

Published 07/09/2024, 04:27 AM
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Gold Plunges Amid Investors' Profit-Taking

XAU/USD pair declined by 1.38% yesterday, as many investors took profits after Friday's growth. Now traders are waiting for Federal Reserve (Fed) Chairman Jerome Powell's speech to Congress and the June US inflation data to assess prospects for gold.

Powell will address Congress today after the speech in the Senate. He will also give comments on Wednesday in the House of Representatives. Investors expect to receive more information about the likely direction of interest rate changes following his statements. According to the CME FedWatch Tool, the market is pricing in a 77% chance of a rate cut in September by the Fed. Investors hope for two rate cuts by the end of 2024 and are waiting for dovish signals from Powell. If he highlights the weakening of the US economy, it will positively impact gold.

Reuters refers to a report by the New York Fed, which comments that "the expected increase in inflation in the US in the coming years generally softened in June amid lower forecasts for price increases for a wide range of consumer goods and services".

This week, important US reports on the Consumer Price Index (CPI) and the Producer Price Index (PPI) for June will be released. The market expects a slowing inflation rate, further supporting hopes for an interest rate cut.

Today, investors began cautiously buying gold after yesterday's plunge. Many are waiting for Jerome Powell's testimony at 2:00 p.m. UTC, which may clarify the situation in the US economy. The support level for XAU/USD is 2,340, and the resistance is 2,380, which the pair have been testing for two days.

Euro Weakened Ahead of Powell's Testimony

EUR/USD lost 0.13% on Monday following the French election, which pointed to a deadlock in the parliament. The pair had been moving sideways for most of the session and closed just above the 1.08300 resistance level.

Yesterday, French President Emmanuel Macron asked his Prime Minister to remain in his position while difficult negotiations to form a new government continue following the unexpected victory of the left-wing party, which resulted in a hung parliament.

"We're still waiting to see if the coalition can get the 240 to 250 lawmakers together to have any semblance of a, what is it, I think in France, a working government. We're in wait-and-see mode there", said Garth Appelt, head of foreign exchange and emerging markets derivatives at Mizuho Americas.

Concerns about a possible French departure from the eurozone have been alleviated after the eurosceptic National Rally party, led by Marine Le Pen, failed to achieve a majority.

Jerome Powell, Chairman of the Federal Reserve (Fed), will be delivering two days of testimony before Congress. He will start giving comments to the Senate on Tuesday afternoon, continuing with the House of Representatives on Wednesday. If Powell suggests that the US economy is slowing, it will negatively affect the gold price and positively impact the euro. The jobs report released on Friday showed that the US labor market has lost momentum, with the unemployment rate increasing towards 4.1%. According to the CME FedWatch Tool, markets are currently pricing in a 77.1% probability of a rate reduction at the September Federal Open Market Committee meeting, with an additional rate reduction expected by December.

The euro has been moving sideways between 1.08200 and 1.08300 during Asian and early European trading hours. There are no major macroeconomic events scheduled for Europe today, so the market will likely focus on Powell's speech to Congress at 2:00 p.m. UTC.

Australian Dollars Bullish Trend Slows as Traders Await Powell's Speech

The Australian dollar (AUD) lost 0.19% on Monday as the failure to consolidate above a new high in the 0.67500 area triggered a wave of selling.

AUD/USD reached a six-month high last Friday, but now the bullish trend demonstrates some signs of exhaustion. The pair's recent strength has been mostly the result of the US dollars (USD) weakness as traders increased bets on the Federal Reserve's (Fed) rate cut in September following the release of weaker-than-expected US macro statistics. Therefore, the pair needs a strong fundamental impulse from Australian data to move higher, which hasn't come so far.

Moreover, the latest domestic data pointed to softness in consumption and employment. Tuesday's surveys showed that Australia's high borrowing costs were working to restrain demand, with business conditions worsening in June and consumer confidence declining in July. Still, there is a very strong bullish divergence in monetary policy expectations between the Fed and the Reserve Bank of Australia (RBA). The recent interest rates swap market data implies 50 basis points (bps) worth of cuts by the Fed and roughly 10 bps of hikes by the RBA by the end of 2024.

AUD/USD was rising marginally during the Asian and early European trading sessions. Although the Westpac Consumer Confidence Index was weaker than expected, the pair remains in a strong bullish trend.

"The push above recent range resistance has opened the potential for moves into the 0.68200–0.70000 area, but will be dependent upon how the potential of US disinflation unfolds this week", said Tim Riddell, a macro strategist at Westpac.

Today, Jerome Powell, the Fed Chair, will testify about the Semi-Annual Monetary Policy Report before the Senate Banking Committee at 2:00 p.m. UTC. His remarks may offer clues about future US monetary policy changes, potentially impacting all USD pairs.

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