Economic Data Weighs on Markets: Dollar Stabilizes, Yen Gains, and Gold Seesaws Ahead of Fed Decisions (09.05.2024)

The currency and commodity markets have shown mixed reactions during a backdrop of fluctuating economic data and central bank policy speculation. 

The dollar index holds steady as expectations adjust following recent job data, suggesting less aggressive rate cuts by the Fed. This has caused the EUR/USD to hover around 1.1045, closely watching for further data releases that might sway monetary policy. Concurrently, the yen has seen some strength against the dollar, buoyed by domestic wage growth and safe-haven demand, despite weak manufacturing outputs.

Gold's price fluctuates near $2,500 per ounce as investors parse through US economic reports, speculating on the extent and timing of Fed rate adjustments. Meanwhile, GBP/USD shows resilience, supported by optimistic retail spending figures from the UK and a relatively dovish stance expected from the Bank of England. Silver prices have ticked up, reflecting heightened expectations for a forthcoming Fed rate cut, as market participants eagerly await further job reports to solidify their forecasts for interest rate trajectories.

Job Openings Drop to Three-Year Low, Pressuring Dollar

On Thursday, the dollar index hovered around 101.3 after declining by half a percent in the previous session. The index was pressured by increasing expectations that the Federal Reserve may implement a substantial 50 basis point rate cut later this month due to weak economic data. Market projections now foresee approximately 125 basis points in total rate cuts this year, up from 100 basis points last week. The JOLTS report revealed an unexpected drop in job openings to a three-year low in July, intensifying concerns about a weakening labor market. This, coupled with a more significant-than-expected decline in domestic manufacturing activity as reported by the ISM PMI, has heightened recession fears. Investors are now focused on the latest weekly jobless claims data and the monthly jobs report due on Friday for further insights into the labor market.

In the EUR/USD pair, the first support level is at 1.1045. 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 1.1100; if this level is surpassed, the next targets will be 1.1150 and 1.1200.

Yen Strengthens on Safe-Haven Demand and Wage Growth

The Japanese yen sustained its recent gains, trading around 143.6 per dollar and nearing a one-month high, in reaction to data indicating that real wages in Japan rose for the second consecutive month in July. Inflation-adjusted real wages increased by 0.4%, while total cash earnings grew by 3.6%. This aligns with the Bank of Japan's forecast of moderate economic growth, rising wages, and higher inflation. Additionally, the yen benefited from heightened safe-haven demand amid concerns over a potential US recession, with markets anticipating that the Federal Reserve may need to cut rates more aggressively to prevent an economic downturn.

From a technical perspective, the first resistance level is at 144.40. If this level is surpassed, the next targets will be 145.00 and 145.40. On the downside, the initial support is at 143.20; if this level is breached, the next support levels to watch will be 142.40 and 141.50.

Gold Awaits US Jobs Report Amid Rate Cut SpeculationBottom of Form

Gold remained close to $2,500 per ounce on Thursday as investors awaited the crucial US jobs report for further insights into the Federal Reserve's potential interest rate cuts, which could lower the opportunity cost of holding non-yielding gold. On Wednesday, JOLTS data showed a much larger-than-expected decline in job openings, hitting 2021 lows and reinforcing expectations of a slowing labor market, which fueled speculation for a significant 50 basis point rate cut by the Fed this month. Additionally, the sharp drop in US factory activity reported by the ISM PMI has cast doubt on the US economy’s ability to withstand higher interest rates. Consequently, investors have increased their expectations to 125 basis points in rate cuts over the Fed's remaining three meetings this year, up from last week's consensus of 100 basis points. The key US jobs data is set to be released on Friday.

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 Maintains Positive Bias Amid BoE Rate Speculations

During the Asian session on Thursday, the GBP/USD pair traded with a positive bias in the mid-1.3100s, though it lacked strong follow-through buying and remained below the weekly high reached the previous day. The British Pound (GBP) continues to be supported by expectations that the Bank of England's (BoE) rate-cutting cycle will be slower compared to the Eurozone or the United States. This sentiment was bolstered by a British Retail Consortium survey showing a 1.0% year-on-year increase in spending for August, the strongest rise since March. Additionally, a weaker US Dollar (USD) has been a key factor driving the GBP/USD pair higher. The Job Openings and Labor Turnover Survey (JOLTS) released on Wednesday revealed a drop in job openings to 7.673 million in July, the lowest level since January 2021. Dovish comments from Fed officials have increased expectations for a significant interest rate cut at the upcoming FOMC meeting on September 17-18, pushing US Treasury bond yields to over a one-year low. This has kept USD bulls on the defensive and provided some support to the GBP/USD pair.

For GBP/USD, the initial support lies at 1.3090, followed by 1.3050 and 1.3000 below. On the upside, the first resistance is at 1.3150, with subsequent levels at 1.3190 and 1.3265 if the pair breaks above this resistance.

Silver Rebounds as Fed Rate Cut Expectations Grow

Silver prices rebounded in late trading on Wednesday, rising by over 0.74% to trade at $28.21 on Thursday morning.

Recent US data, particularly the JOLTS report, confirmed a cooling labor market, boosting expectations for a 50-basis point interest rate cut at the upcoming Fed meeting in two weeks. This led to a drop in US yields and weakened the Greenback, allowing silver to recover and surpass the $28.00 mark.

From a technical perspective, the first resistance level to watch is at 28.50. If silver breaks above this level, the next resistance levels to watch will be 29.00 and 29.50, respectively. On the downside, the initial support level is at 28.05, with subsequent support levels at 27.80 and 27.50.