Gold buyers struggle amid holiday trading and China news, eyes on US Data, ECB

A softer start to a holiday-shortened week

Early Monday trading is subdued, influenced by holidays in the US, Japan, and Canada, alongside a light economic calendar elsewhere. Downbeat news from China and hawkish Federal Reserve expectations are supporting demand for the US Dollar, putting pressure on gold buyers. However, a light US economic calendar this week and fresh uncertainty about the Fed’s next rate cuts are limiting the Dollar’s upward momentum, helping to stabilize gold prices.

Despite promises of more stimulus from China, details have been lacking for nearly two years. Additionally, news of military drills in the Taiwan Strait is weighing on market risk sentiment. China’s inflation data for September came in softer than expected, further testing market optimism and creating challenges for commodity and Antipodean buyers during a lackluster Asian session.

Elsewhere, Friday’s US data was mixed with PPI following CPI slightly higher while University of Michigan (UoM) sentiment and inflation expectations missed to the downside slightly. Despite mixed US data, Dallas Fed President Lorrie Logan said, “Less restrictive policy will still cool inflation.” Her comments renewed the US Dollar demand late Friday and allowed the Greenback to rise for the second consecutive week.

In this context, the US Dollar Index (DXY), which measures the Dollar against six major currencies, has increased for the second consecutive week, putting pressure on major currencies and Antipodean currencies. Notably, commodities had mixed performance: both gold and crude oil saw weekly gains, while base metals faced challenges.

Major currencies decline against US Dollar on hawkish Fed expectations

The US Dollar’s upside move, backed by mostly positive US inflation numbers and hawkish Fed talks, joined dovish bias about other major central banks to weigh on the respective currencies. Among them, EURUSD gained major attention as most of the European Central Bank (ECB) policymakers have confirmed further rate cuts during this week’s monetary policy meeting.

On the other hand, the Bank of England (BoE) hesitates to welcome rate cuts but the UK statistics haven’t supported their optimism. That said, UK GDP grew marginally in August but failed to push back rate cut bias about the Bank of England (BoE) ahead of a speech from BoE Monetary Policy Committee member Swati Dhingra. With this, the GBPUSD remains pressured at a one-month low after a two-week downtrend.

USDJPY edges higher as hawkish bias about the Bank of Japan (BoJ) fades. Even so, mostly upbeat Japanese data and monetary policy divergence between the BoJ and the Fed challenge the Yen pair buyers.

Antipodeans drop, commodities edge higher

China’s inability to lift optimism with a slew of stimulus announcements joined the US Dollar’s recovery to challenge the Dollars of Australia, New Zealand and Canada.

Earlier in the day, New Zealand services PMI for September remained in the contraction region despite recovering from 45.5 to 45.7. Further, New Zealand Electronic Card Retail Sales slumped the most in three years and exerted more downside pressure on the NZDUSD prices, especially amid China-linked pessimism.

It’s worth noting that AUDUSD drops comparatively less as Australian statistics have been a tad higher and the Reserve Bank of Australia (RBA) tried to push back dovish bets.

USDCAD failed to justify the upbeat Canada employment report and rose for the eighth consecutive day as downbeat Bank of Canada (BoC) business outlook survey details joined a pullback in the Crude Oil prices, Canada’s main export item.

Gold prices posted weekly gains, defying the weakness of the US Dollar and approaching a two-week resistance level. Market uncertainty is prompting traders to seek safety in gold, especially with hopes for lower rates from major central banks.

Crude oil prices ended the week positively, overlooking the strength of the US Dollar. Fears of a supply crunch from the Middle East and news of stimulus from China contributed to this uptick. However, concerns about potential OPEC+ supply increases, rising stockpiles, and a mild hurricane season are posing challenges for energy bulls.

Cryptocurrencies consolidate previous losses

Bitcoin (BTCUSD) and Ethereum (ETHUSD) barely missed the negative weekly closing amid ETF inflows. However, the US SEC’s latest measures against major industry players challenge buyers of cryptocurrencies.

Latest moves of key assets

• WTI Crude oil remains pressured after reversing from a one-week high the previous day, down 1.2% intraday near $74.54.
• Gold prints a three-day uptrend while rising to $2,665 at the latest.
• The USD Index seesaws around 103.00 after rising to a two-month high the previous week.
• Wall Street closed with mild gains but the Asia-Pacific shares drifted lower. Further, European and British equities lack clear directions during the initial trading hour.
• BTCUSD and ETHUSD both rise more than 2.0% on a day to around $64,000 and $2,530 respectively.

US Retail Sales, ECB in the spotlight

Looking ahead, Monday's trading will be quieter due to the absence of major players. Key events later in the week include US Retail Sales and monetary policy announcements from the ECB on Thursday. Additionally, UK inflation and employment figures, along with New Zealand inflation and Australia's jobs report, will engage momentum traders.

A light economic calendar in the US may raise doubts about the hawkish stance of the Fed, potentially leading to a consolidation of the US Dollar. This could help commodities and Antipodean currencies recover from recent losses. However, the EURUSD may remain under pressure unless the ECB rules out further rate cuts for the rest of 2024, despite expectations of a 0.25% cut in October. Conversely, GBPUSD could recover if UK data supports the Bank of England’s resistance to further rate cuts, while USDJPY might decline due to a hawkish Bank of Japan and a pullback in Treasury bond yields.

NZDUSD and AUDUSD may struggle to recover amid concerns from China, while USDCAD could retreat as Crude Oil prices firm.

Gold is positioned to test all-time highs as it breaks through a 12-day falling resistance line, bolstered by a flight to safety and hopes for Chinese stimulus.

Similarly, Crude Oil may rise if the monthly OPEC+ report alleviates output increase concerns and tensions between Israel and Iran escalate.

Overall, the market is likely to experience consolidation, but the outlook for gold prices remains positive.

Predictions for Key Assets

• Recovery Expected: USDCAD, USDJPY, US Dollar, Silver
• Further Downside Likely: AUDUSD, NZDUSD, GBPUSD
• Mostly Sideways Expectations: BTCUSD, ETHUSD, Nasdaq, Gold, DJI30, USDCNH
• Slow & Gradual Fall Expected: DAX, FTSE 100, EURUSD, Crude Oil

May the trading luck be with you!