Dollar Strengthens as US Economic Data Shapes Currency and Commodity Trends (09.02.2024)

The dollar index holds steady at 101.7, with the EUR/USD trading at 1.1044 as market participants recalibrate expectations for Federal Reserve rate cuts in light of recent inflation data. The USD/JPY has weakened, falling to near a two-week low around 146 due to stronger dollar dynamics and ongoing considerations of potential BoJ rate hikes. Gold has dropped below $2,500, pressured by a stronger dollar and rising bond yields, while GBP/USD has rebounded to 1.3135 amid anticipation of the upcoming US Nonfarm Payrolls report. Silver remains at $28.45, showing a negative divergence from gold as mixed economic signals and recession fears influence its price movement.Bottom of Form

Dollar Index Holds at 101.7, EUR/USD at 1.1044

The dollar index remained around 101.7 and the EUR/USD 1.1044 on Monday. Investors have scaled back their expectations for aggressive Federal Reserve rate cuts following the latest inflation data and are now looking ahead to a crucial US jobs report later this week. Data released on Friday showed that US core PCE prices increased steadily in July, reducing the likelihood of a substantial 50 basis point rate cut by the Fed in September. Attention is now shifting to the August jobs report as the Fed's focus moves from inflation to the labor market. Recent comments from Fed policymakers have highlighted concerns about a weakening jobs market while expressing confidence that inflation will eventually meet its target. The dollar maintained its gains across major currencies, reaching a two-week high against the euro.

In the pair the first support level is at 1.1000. If this level is breached, the next supports to watch will be 1.0950 and 1.0900. On the upside, the first resistance is at 1.1100; if this level is surpassed, the next targets will be 1.1150 and 1.1200.

Yen Hits Near Two-Week Low Amid Dollar Strength

The Japanese yen fell below 146 per dollar, reaching nearly the lowest point in two weeks as it faced pressure from a stronger dollar. The latest US inflation data led traders to reduce expectations for an aggressive Federal Reserve rate cut. Market attention is now focused on an important US jobs report due this week as the Fed shifts its focus from inflation to the labor market. In Japan, investors are considering data showing a 7.4% increase in capital expenditure by Japanese companies in the second quarter, marking the 13th consecutive quarter of growth. Additionally, the country's manufacturing PMI was slightly revised upward to 49.8 from 49.5 in August, approaching a stabilization point. On the monetary policy front, Bank of Japan officials have recently suggested they are prepared to raise interest rates again if the economic and price outlooks meet expectations.

From a technical perspective, the first resistance level is at 146.30. If this level is surpassed, the next targets will be 147.50 and 148.70. On the downside, the initial support is at 145.50; if this level is breached, the next supports to watch will be 144.75 and 144.00.

Gold Drops Below $2,500 With a Stronger Dollar Value

Gold dropped below $2,500 per ounce on Monday, continuing its decline from last week's record highs due to a stronger dollar and rising bond yields. Recent economic data revealed that both US headline and core PCE prices rose by 0.2% in July, aligning with expectations. However, the annual inflation rates remained steady, contrary to predictions of an increase. This has dampened expectations for a significant 50 basis point rate cut by the Federal Reserve in September and reflects the economy's resilience to higher interest rates, following an upward revision to GDP. Despite this, markets are still forecasting 100 basis points in rate cuts over the Fed’s remaining three meetings this year. The European Central Bank is also anticipated to lower rates, given the significant slowdown in its inflation rate according to August's preliminary figures.

Technically, the first support level is at 2,485. If this level is breached, the next supports to watch will be 2,475 and 2,430. On the upside, the initial resistance is at 2,505; if this level is surpassed, the next targets will be 2,530 and 2,550.

GBP/USD Rebounds to 1.3135 in Early Asian Session

During Monday's early Asian session, the GBP/USD pair climbed to about 1.3135, reversing a losing trend for three days. With no significant economic data due from the UK this week, GBP/USD movements will largely hinge on the performance of the USD. The focus is now on the US Nonfarm Payrolls (NFP) report for August, scheduled for release on Friday. Current expectations of Federal Reserve easing are weighing on the dollar. Last week, Fed Chair Jerome Powell suggested that a rate cut might be on the horizon due to concerns about the labor market. According to the CME FedWatch tool, traders are now anticipating a nearly 70% chance of a 25 basis point rate cut by the Fed in September, with a 30% chance of a 50 basis point reduction. In contrast, investors are increasingly confident that the Bank of England (BoE) will pursue a gradual policy-easing approach for the rest of the year, which could strengthen the Pound Sterling. A Reuters poll indicates that economists expect the BoE to implement one more 25 basis point rate cut this year.

For GBP/USD, the initial support is at 1.3100, followed by 1.3050 and 1.3000 below. On the upside, the first resistance is at 1.3190, with subsequent levels at 1.3230 and 1.3265 if the pair breaks above this resistance.

Silver Diverges Negatively from Gold

Silver is trading at $28.45 on Monday morning. The metal, which has diverged negatively from gold in the past week, continues to show similar behavior this week. Historically, the white metal has never benefited from a strengthening dollar, and this trend persisted last week. With mixed economic data and recession fears leading to selling pressure, this week’s critical employment and PMI data will be crucial for silver’s outlook.

From a technical perspective, silver is currently trapped within a narrow range. The first resistance level to watch is at 29.00. If silver breaks above this level, the next resistance levels to watch will be 29.65 and 30.00, respectively. On the downside, the initial support level is at 28.00, with subsequent support levels at 27.50 and 27.00.