- Is the Federal Reserve’s hawkish stance on inflation causing Gold price to suffer?
- Are markets underestimating the Federal Reserve’s commitment to fighting inflation in 2023?
- Is the strong US labor market and economic rebound forcing the Federal Reserve to continue their rate hike path?
- Despite the cooling of inflation as seen in the Personal Consumption Expenditures (PCE) index for November, analysts at Brown Brothers Harriman believe markets are still not fully convinced of the Federal Reserve’s commitment to fighting inflation. The terminal rate as seen by the swaps market has fallen to around 5.0%, suggesting that markets are underestimating the Fed’s hawkish stance.
- Furthermore, the strong US labor market and economic rebound may force the Fed to continue their rate hike path, potentially weighing on the non-yielding asset of Gold. The precious metal is now on track for a second consecutive annual decline, as higher interest rates make it less attractive to investors.
EURUSD: An explosive holiday season breakout could be on the cards.
- EUR/USD bears are targeting a breakout below a trendline support.
- A break below 1.0575 could encourage bears to target a break of 1.0500.
- The Euro is currently on the front side of a dominant bullish trend, but bears are attempting to cap the bulls’ attempts to break higher.
USDJPY: In an effort to rectify the US Dollar’s day-old gain, USD/JPY is under pressure in Asia. As of this writing, the USD/JPY has decreased by about 0.28%, going from a high of 137.80 to a low of 137.35.Equity prices on Wall Street are declining on Friday, similar to what occurred on Thursday when positive economic reports led to a selloff. However, on Friday, bond yields are reacting more significantly, which is contributing to an increase in the value of USD/JPY.
- Japanese Yen is weak due to higher US Treasury yields.
- USD/JPY rises to highest level in three days due to US economic data and higher yields.
- USD/JPY is down for the week despite Friday’s increase.
GBP/USD: After briefly dropping to 1.2022, a new daily low, GBP/USD recovered some of its losses and reached towards daily highs. It is currently trading around the 1.2040 level as traders assess mixed economic data from the United States. On the one hand, the Personal Consumption Expenditures (PCE) Price Index increased by 5.5% year-over-year in November, down from 6.1% in October, suggesting that inflationary pressures in the country are easing.
- GBP/USD is having difficulty maintaining its value above 1.2000 as demand for the US dollar increases.
- US PCE inflation decreased as expected in November, but Durable Goods Orders were disappointing.
- Demand for the US dollar is increasing ahead of the long weekend.
AUD/USD: The value of the Australian dollar (AUD) compared to the US dollar (USD) has been going up due to positive news about China. However, some traders are worried about upcoming important economic data from the US and want to see confirmation from the Federal Reserve’s preferred measure of inflation before deciding to continue buying the AUD.
- The value of AUD/USD has been increasing due to optimism linked to China.
- This increase follows the People’s Bank of China providing the largest weekly cash injections in two months and positive news regarding Evergrande.
- However, traders are cautious ahead of the release of key US economic data, including the Personal Consumption Expenditures (PCE) Price Index and Durable Goods Orders.
- In order to continue increasing, AUD/USD sellers will need confirmation from the Federal Reserve’s preferred inflation gauge.
The value of the US dollar compared to the Swiss franc is fluctuating around its intraday high as traders wait for new information on Friday. This indecision reflects market caution ahead of important US data, despite the overall strength of the US dollar. Other factors that may challenge the value of USD/CHF include mixed economic data and the approaching end of the year.
- USD/CHF takes offers to reverse previous day’s bounce off 8.5-month low.
- Markets stabilize after global central banks portrayed a volatile day, allowing sellers to sneak in.
- Failure to cross support-turned-resistance directs bears towards three-week-old trend line support.
- Preliminary PMIs for December, risk catalysts will be important for a fresh start.
GOLD: XAU/USD bulls move back in, market remains coiled.
- Gold price has returned to the expected trajectory of either moving higher or remaining stable.
- If this does not occur, a significant decline in the Gold price may be imminent, with a potential target of $1,775.
- Gold price was supported by lower inflation data on Friday.
- Gold price found demand at a key trendline support area and has aligned with the overall bullish trend.
SILVER: XAG/USD bounces off 10-DMA to snap two-day losing streak below $24.00
- Silver price has gained for the first time in three days.
- A bullish trend channel and upward-sloping trend line from late October are supporting the upward trend.
- The MACD indicator is challenging the upward bias, but bears should be cautious about breaking through the $21.25 level.
- Silver price has risen to a new intraday high near $23.70 on Friday.
- Silver price has recovered from the 10-day moving average support at $23.55.
OIL: Crude oil is challenging $80.00 a barrel.
- Russia may cut oil production by 5%-7% in early 2023 due to price caps on crude and refined derivatives, potentially reducing output by 500,000-700,000 barrels per day.
- Russia has also accused the US of conducting a “proxy war” against Moscow, raising the risk of conflict between the two countries.
- Crude oil prices are rising on Friday, with West Texas Intermediate (WTI) approaching $80.00, despite a soft tone in equities and US dollar strength.
- US markets will close early on Friday due to the Christmas holiday, leading to expected limited volatility for the rest of the day.
Watch Out This Week
- Like for starters, on 27th December, USD Good Trade Balance 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 December 29th, the US initial jobless claim report will come out. The financial market is affected by the number of people who are applying for unemployment benefits for the first time, known as first-time jobless claims. If this number is higher than expected, it is considered negative for the value of the US Dollar. On the other hand, if the number is lower than expected, it is seen as positive for the US Dollar.
- On December 29th, the US United States EIA Crude Oil Stocks Change report will come out. A higher than expected increase in crude oil stocks indicates a negative (bearish) impact on the USD, while a lower than expected increase in crude oil stocks suggests a positive (bullish) impact on the USD.