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Gold Stabilizes as Focus Shifts to the NFP Report; USD/JPY Drops Sharply

By OctaMarket OverviewDec 07, 2023 04:52AM ET
www.investing.com/analysis/gold-stabilizes-as-focus-shifts-to-the-nfp-report-usdjpy-drops-sharply-200644205
Gold Stabilizes as Focus Shifts to the NFP Report; USD/JPY Drops Sharply
By Octa   |  Dec 07, 2023 04:52AM ET
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Gold Stabilizes Near 2,030 as Investor's Focus Shifts to the NFP Report

The gold (XAU) price increased by 0.27% on Wednesday after weaker-than-expected ADP employment figures.

Technically, XAU/USD is still in a bearish trend, yet the fundamental pressure remains predominantly bullish. The recent economic reports provided more evidence of a weakening U.S. labor market. Specifically, the latest data revealed that U.S. job openings dropped to their lowest in 2.5 years in October, while private payrolls increased less than anticipated in November. The reports support growing expectations for interest rate cuts soon.

"Anticipation of monetary easing is the biggest driver of gold now, and prices should move higher into next year," said Daniel Pavilonis, the senior market strategist at RJO Futures.

The market is currently pricing in a 59% probability that the Federal Reserve (Fed) will start decreasing the interest rate in March 2024. XAU/USD was relatively flat in the Asian and early European trading sessions. Investors are now turning their attention to the U.S. Nonfarm Payroll report on Friday, ahead of the Fed's upcoming policy meeting on 13 December.

"The expectation broadly will be for a lower non-farm number, so if it comes in at expectations or higher, you might expect a bit of a sell-off in gold," said Nicholas Frappell, the global head of institutional markets at ABC Refinery.

Today, gold may consolidate within a narrow range as investors will likely refrain from placing large orders ahead of the crucial Nonfarm Payroll report.

"Spot gold looks neutral in a range of $2,019 to $2,033 per ounce, and an escape could suggest a direction," said Reuters analyst Wang Tao.

USD/JPY Drops Sharply as BOJ Sees Progress on Tackling Inflation

The Japanese yen (JPY) lost 0.11% on Wednesday but gained almost 1% during today's Asian trading session after Bank of Japan's (BOJ) Governor, Kazuo Ueda, clarified his position on the monetary policy.

Ueda repeated that BOJ is yet to see convincing evidence that inflation can sustain near or above the central bank's official 2% target. Also, he mentioned that there were some positive developments in the economy, which can help reach the target. The Governor also mentioned the central bank has several options on what path interest rates may go once it pulls short-term borrowing costs out of negative territory.

"We could either keep the interest rate applied to reserves (financial institutions park with the central bank) or revert to a policy targeting the overnight call rate," Ueda said.

There was nothing explicitly hawkish in his remarks, but the market viewed them as bullish for the Japanese yen. Indeed, the speculation that BOJ may soon end its decades-long ultra-loose monetary policy and increase interest rates has been developing for several months.

USD/JPY plunged in the Asian session and continued to fall during the early European trading session, reaching a 3-month low near 145.70. Recent macroeconomic data releases also supported the Japanese yen. For example, Reuters reported that manufacturers' mood in December improved for the second straight month. Furthermore, inflation remains above the BOJ's target—the core consumer prices in Tokyo rose 2.3% in November from a year earlier. After today's sharp downward move, USD/JPY may temporarily stabilize at 145.500–146.000. However, more statistics will be released later today: Household Spending at 11:30 p.m. UTC and Gross Domestic Production (GDP) at 11:50 p.m. UTC. If the figures are better than expected, USD/JPY may drop to 145.000.

Gold Stabilizes as Focus Shifts to the NFP Report; USD/JPY Drops Sharply
 

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Gold Stabilizes as Focus Shifts to the NFP Report; USD/JPY Drops Sharply

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