Cautious Markets Eye US Inflation Data as Forex and Commodities React (09.11.2024)

The forex and commodities markets remained cautious ahead of key US CPI data. EUR/USD rebounded slightly around 1.1050 as a weakening US Dollar and declining Treasury yields supported the pair. Meanwhile, the Japanese yen strengthened against the dollar amid diverging monetary policies between the Bank of Japan and the Federal Reserve. Gold held steady near $2,520 per ounce as traders awaited inflation data that could influence the Fed’s rate cut decision. The British Pound faced pressure due to stalled UK growth, while GBP/USD struggled to sustain gains beyond 1.3100. Silver prices hovered around $28.80, with markets bracing for potential volatility following the US CPI release.

EUR/USD Rebounds as Dollar Weakens Ahead of US CPI Data

EUR/USD ended its losing streak for the last three days and traded around 1.1050 during Wednesday’s Asian session. This rebound is attributed to a weakening US Dollar (USD) ahead of the US Consumer Price Index (CPI) data, due to be released later in North American trading hours. The CPI report could provide new insights into the potential scale of the Federal Reserve's (Fed) interest rate cut this September. The US Dollar is facing headwinds as US Treasury yields continue to decline. The US Dollar Index (DXY), which gauges the USD's strength against six major currencies, paused its three-day winning streak, trading around 101.40. At the time of writing, the 2-year and 10-year US Treasury yields are at 3.57% and 3.62%, respectively. Last week’s labor market report increased uncertainty regarding the likelihood of a substantial rate cut by the Fed. According to the CME FedWatch Tool, markets are expecting at least a 25 basis point (bps) rate cut in September, though the probability of a 50 bps cut has slightly decreased to 31.0%, down from 38.0% the previous week. In contrast, the Euro has faced downward pressure following recent German inflation data. The Harmonized Index of Consumer Prices (HICP) reflected a 2.0% increase compared to the same period last year in August, aligning with expectations, while the monthly index fell by 0.2%, also in line with forecasts. Similarly, the Consumer Price Index (CPI) remained steady at 1.9% compared to the same month last year for August. Looking ahead, traders expect the European Central Bank (ECB) to lower interest rates to 4.0% by implementing a 25 basis point cut at its policy meeting on Thursday.

In the pair, the first support level is at 1.1015. If this level is breached, the next supports to watch will be 1.1000 and 1.0950. On the upside, the first resistance is at 1.1060; if this level is surpassed, the next targets will be 1.1100 and 1.1150.

Yen Strengthens as Diverging Monetary Policies Drive Gains

The Japanese yen strengthened past 142 per dollar, approaching its highest level of the year as Japan's and the US's monetary policies diverge. Bank of Japan board member Junko Nakagawa indicated that the central bank might continue to raise interest rates if inflation aligns with its forecasts. She noted that a tight job market and rising import prices could pose additional upward risks to inflation. Despite the rate hike in July, Nakagawa pointed out that real interest rates in Japan remain deeply negative. In contrast, the US Federal Reserve is widely anticipated to begin cutting rates this month, with policymakers cautioning about increasing risks to the labor market. Meanwhile, a private survey revealed that manufacturing sentiment in Japan fell to a seven-month low in September, reflecting concerns about weak demand from China. From a technical perspective, the first resistance level is at 141.70. If this level is surpassed, the next target levels will be 142.30 and 143.00. On the downside, the initial support is at 140.50; if this level is breached, the next support levels to watch will be 139.50 and 139.00.

Gold Prices Hold Firm Ahead of US Inflation Report

On Wednesday, gold prices held steady at around $2,520 per ounce as investors awaited the US inflation report later in the day for indications of the Federal Reserve’s potential rate cut. The previous week’s jobs report offered limited clarity, showing fewer job additions than expected while the unemployment rate edged lower. The annual inflation rate in the US is projected to decelerate for a fifth consecutive month to 2.6% in August, down from 2.9% in July, with the monthly inflation rate expected to hold steady at 0.2%. Market expectations now indicate a 67% probability of a 25 basis point rate cut at next week’s Fed meeting, with a 33% chance of a 50 basis point reduction, according to the CME FedWatch tool. A less restrictive monetary policy tends to benefit gold by lowering the opportunity cost of holding non-interest-bearing assets. Additionally, traders are keeping a close eye on the first debate between US presidential candidates Kamala Harris and Donald Trump in anticipation of the November election.

Technically the first support level is at 2,510. If this level is breached, the next supports to watch will be 2,495 and 2,470. On the upside, the initial resistance is at 2,530; if this level is surpassed, the next targets will be 2,550 and 2,585.

Pound Faces Pressure as UK Growth Stalls, Eyes on US CPI

The GBP/USD pair has extended its modest recovery from the 1.3050-1.3045 range, its lowest level in three weeks, gaining momentum for the second consecutive day on Wednesday. However, it has struggled to maintain momentum beyond the 1.3100 level and pulled back slightly in the last hour following the release of UK economic data. According to the UK Office for National Statistics, economic growth was flat in July, falling short of expectations for a modest 0.2% increase. Additionally, both Industrial and Manufacturing Production unexpectedly contracted, and wage growth in the UK showed signs of slowing. This has raised concerns about potential interest rate cuts by the Bank of England (BoE), putting pressure on the British Pound (GBP). Looking ahead, the upcoming US Consumer Price Index (CPI) report is anticipated to impact market expectations regarding the Federal Reserve’s rate cut decision at its policy meeting on September 17-18. This report will be crucial in shaping near-term USD demand and could influence the GBP/USD pair. Given the current economic landscape, caution is warranted before betting on further gains for the currency pair.

For GBP/USD, the initial support lies at 1.3040, followed by 1.3000 and 1.2950 below. On the upside, the first resistance is at 1.3100, with subsequent levels at 1.3140 and 1.3190 if the pair breaks above this resistance.

Silver Steady at $28.80 as Markets Brace for US CPI Release

Silver began Wednesday morning around $28.80. As the day progresses, the US inflation data set to be released later is expected to introduce significant volatility to silver prices, which have been suppressed by ongoing recession concerns and its widespread industrial use.

From a technical perspective, the first resistance level to watch is at 29.00. If silver breaks above this level, the next resistance levels to watch will be 29.50 and 30.00, respectively. On the downside, the initial support level is at 28.40, with subsequent support levels at 27.70 and 27.20.