- According to economists at Nordea, central banks, including the Federal Reserve (Fed), will need to continue hiking rates for considerably longer, with risks remaining tilted toward this hiking cycle continuing. The Fed will likely need to bring the Fed funds rate up to around 6%, while the European Central Bank (ECB) may raise rates up to 4% later this year. Additionally, Nordea targets a 4.5% yield for the 10-year Treasury. Despite concerns about the potential impact of rising rates on the economy, St. Louis Federal Reserve President James Bullard said a soft landing is feasible in the US, provided that the post-pandemic regime shift is executed well. However, his comments did not appear to have a significant impact on the valuation of the US Dollar.
- Gold prices dropped to fresh weekly lows near $1,810 after US economic data showed that core PCE rose at the highest rate in six months, above expectations. As a result, the US Dollar and Treasury bond yields rose further, putting pressure on gold. XAU/USD is hovering around the lows, with the potential to drop to the $1,800 area. To alleviate the bearish pressure, bulls need to recover the $1,820 area. However, the downside extended following the release of January’s Personal Income and Spending numbers, which came in above expectations. Market participants looked into inflation numbers, with the Federal Reserve’s preferred inflation gauge, the core PCE, rising by 0.6%, to an annual rate of 4.7%, up from the 4.6% of December and against expectations of a decline.
- The strong US economic data caused the Dollar to gain momentum, with US yields soaring and equity prices tumbling. The context added pressure to gold, which is fighting to hold above $1,810. The 2-year Treasury yield is at 4.79%, the highest since November, and the 10-year is at 3.93%. The surge in yields and the Dollar’s strength may have a negative impact on gold, as higher yields tend to reduce the appeal of non-yielding assets like gold. Moreover, a strong Dollar makes gold more expensive for holders of other currencies, thereby reducing demand for the precious metal. As such, traders will likely continue to monitor US economic data and inflation figures to gauge the potential direction of gold prices.
EUR/USD: Room for a slide toward the 1.0330 area – MUFG
- MUFG Bank analysts predict that the US Dollar has room to rise further versus the Euro, potentially toward the 200-day Moving Average, which is currently around 1.0330.
- The recent move lower in EUR/USD has been mainly driven by the USD leg, as stronger US activity data combined with firmer inflation at the start of this year is encouraging market participants to price in a more hawkish outlook for Fed policy.
- Although euro-zone activity data still surprises on the upside, the scale of upside surprise is beginning to diminish. The EUR failed to strengthen on the back of the stronger PMI surveys over the past week, and there was a downward revision to German GDP in Q4 revealing a larger contraction.
GBP/JPY: GBP/JPY rebounds from weekly lows as BoJ candidate’s dovish remarks weigh on JPY
- GBP/JPY snaps two-day losing streak and attracts dip-buying near weekly lows
- Dovish remarks from BoJ Governor candidate Ueda weaken JPY and lend support to the cross
- Bets for additional BoE rate hikes underpin GBP, but economic headwinds and geopolitical tensions may limit gains.
GBP/USD: GBP/USD Dips Below Key Support Level as US Dollar Rallies
- GBP/USD falls to a one-week low of 1.1927, testing critical support around 1.1940.
- Strong US economic data and rising yields boost expectations of more Fed rate hikes.
- Dollar gains ground as market sentiment deteriorates, pushing GBP/USD below 1.2000.
AUD/USD: AUD/USD Struggles Near Two-Month Low Amid Stronger US Dollar:
- AUD/USD remains near its lowest level since January as the USD stays strong.
- The prospect of additional rate hikes by the Fed and recession fears continue to support the Greenback.
- The market awaits the release of the US Core PCE Price Index, which could provide a fresh directional impetus to the AUD/USD pair.
USD/CHF: USD/CHF Bears Target Trendline Support and Key Lows:
- USD/CHF bears are gaining strength after three days of higher closes.
- A break of trendline support could trigger a move into Wednesday’s highs near 0.9320 and Thursday’s lows near 0.9290.
- Trading between key support and resistance levels, the pair could trap breakout traders before moving to the downside.
GOLD: Gold Price Forecast: XAU/USD under pressure after US data, looking at $1,800.
- Gold prices drop further amid a stronger US Dollar and higher Treasury bond yields after US economic data.
- XAU/USD hits fresh weekly lows near $1,810, hovering around the lows and eyeing the $1,800 area.
- The Federal Reserve’s preferred inflation gauge, the core PCE, rose by 0.6%, to an annual rate of 4.7%, up from the 4.6% of December and against expectations of a decline.
- The Dollar gains momentum, US yields soar, and equity prices tumble, adding pressure to gold, which is fighting to hold above $1,810.
SILVER: XAG/USD Consolidates Near YTD Low, Bearish Bias Remains Intact
- XAG/USD enters a bearish consolidation phase and is vulnerable to further losses.
- Failure to breach the $22.00 resistance level triggers bearish sentiment among traders.
- The relative Strength Index (RSI) shows oversold conditions, suggesting a potential for a modest bounce.
- A downward trajectory could lead to a fall toward the $20.00 psychological mark, while a move beyond $22.15 could trigger a short-covering rally.
OIL: WTI crude oil shows a bullish breakout from a falling wedge pattern:
- WTI crude oil rebounds from a three-week low and confirms a bullish falling wedge chart pattern, signaling a favorable outlook for oil buyers.
- The bullish MACD signals further support the positive sentiment for WTI crude oil.
- Immediate upside targets for WTI crude oil are at the convergence of the 50-SMA and 100-SMA near $77.00-10.
- However, the $80.00 psychological level and a five-week-long resistance area near $82.60-70 could provide strong resistance for WTI crude oil.
Watch Out This Week
- On 1st March, the United States ISM Manufacturing PMI report will come out. A figure that is higher than anticipated should be viewed as positive (bullish) for the USD, while a figure that is lower than anticipated should be viewed as unfavorable (bearish)
- On the 2nd March, the Continuous Initial Jobless Claims report has a significant impact on USD, bond and stock markets. A higher-than-expected figure should be seen as negative (bearish) for the USD while a lower-than-expected figure should be seen as positive (bullish) for the USD.
- It is important to pay attention to the report on Australia’s Balance of Trade report on 7th March as it may have significant impacts on major currencies. A higher-than-expected figure should be seen as positive (bullish) for the USD while a lower-than-expected figure should be seen as negative (bearish) for the AUD.