Economic Uncertainty Drives Volatility in Precious Metals and Forex (11.29.2024)

Recent market dynamics saw significant shifts in precious metals and major currencies. Gold climbed to nearly $2,660 per ounce amid geopolitical tensions, including Putin's nuclear warnings, though it faced weekly losses due to resilient US economic data and Fed speculation. However, silver dropped below $30 per ounce, pressured by easing geopolitical risks and weak industrial demand, particularly from China. 

In the forex market, the euro hovered near two-year lows at $1.05 as inflation eased in key economies, while the yen surged 1% to a six-week high on Tokyo's inflation data. The pound approached $1.26 despite UK economic weakness, reflecting mixed investor sentiment.

German Inflation Falls Short, Eurozone Data in Focus

The euro hovered around $1.05, remaining close to two-year lows of $1.046 touched early in the month, as recent inflation figures reinforced bets the ECB will need to continue to reduce borrowing costs to curb a persistent economic gloom in Europe. Inflation in Germany rose less than expected and the harmonised rate remained unexpectedly steady at 2.4%, defying expectations of an increase to 2.6%. Inflation in Spain also increased to 2.4%, aligning with forecasts. All eyes will be on the Eurozone inflation data due Friday, with an acceleration already factored into market expectations. However, Germany's figures hint that the increase could be more modest than initially anticipated. Investors have already priced in another cut in the deposit rate next month, but the odds for a bigger 50bps reduction have been on the rise. However, ECB member Schnabel warned against aggressive cuts, suggesting that borrowing costs are nearing neutral levels and further easing could waste policy options.

Technically, the first resistance level will be 1.0600, and if broken, the next levels to watch will be 1.0660 and 1.0700. On the downside, 1.0540 is the first support level, and if it breaks, the levels to watch will be 1.0500 and 1.0450.

Yen Hits Six-Week High Amid Rising Tokyo Inflation

The Japanese yen surged 1% to around 150 per dollar on Friday, reaching a six-week high as investors reacted to data showing Tokyo’s inflation had risen above 2% in November. The inflation data raised expectations for another interest rate hike from the Bank of Japan in December. Markets are now pricing in a roughly 60% chance of a 25 basis point rate hike next month, up from about 50% a week ago. Tokyo's inflation figures are often seen as a leading indicator for national price trends, with nationwide CPI data typically following in about three weeks. However, the national CPI for November will not be released before the BOJ’s December monetary policy meeting. Meanwhile, the latest figures for industrial production, retail sales, and employment pointed to slowing economic activity in Japan. Externally, the yen gained support from a broad decline in the US dollar, as US PCE inflation data matched expectations, signaling little change in the Federal Reserve's approach to rate cuts.

Technically, the first resistance level will be 151.00, and if broken, the next levels to watch will be 152.00 and 153.00. On the downside, 150.10 is the first support level, and if it breaks, the levels to watch will be 148.70 and 148.20.

Gold Gains on Geopolitical Tensions and Softer Dollar

Gold rose to nearly $2,660 per ounce on Friday, gaining for the fourth straight session, supported by a softer US dollar and rising geopolitical tensions. Reports indicated that President Vladimir Putin warned of a potential new strike on Ukraine using a nuclear-capable ballistic missile, following Moscow's recent large-scale attack on critical energy infrastructure. However, the metal is set to decline by more than 2% for the week, as markets awaited further US data for additional insights into the Federal Reserve's monetary policy outlook. Earlier this week, core PCE prices in October met expectations, keeping investors anticipating another Fed rate cut in December. Yet, other data pointed to a resilient economy, reinforcing expectations that the Fed will adopt a cautious approach next year. Over the month, gold is set to decline for the first time since June.

Technically, the first resistance level will be 2665, and if broken, the next levels to watch will be 2675 and 2710. On the downside, 2630 is the first support level, and if it breaks, the levels to watch will be 2600 and 2575.

Pound Recovers Slightly Amid BoE Rate Cut Speculations

The GBP/USD pair climbed to a two-week high of 1.2715 during Friday’s Asian session, gaining over 200 pips from its weekly low near 1.2500, driven by weak US Dollar demand. The USD Index (DXY) remains near a two-week low, with a 70% chance of a 25 bps Fed rate cut in December and falling US Treasury yields weighing on the dollar.

The British Pound has strengthened as BoE rate cut expectations ease following October’s higher UK inflation data, supporting the GBP/USD recovery.

However, upside may be limited by stalled US inflation progress in October, hawkish FOMC minutes hinting at a pause in Fed rate cuts, and geopolitical risks boosting the USD’s safe-haven appeal.

Technically, the first resistance level will be 1.2720, and if broken, the next levels to watch will be 1.2750 and 1.2800. On the downside, 1.2650 is the first support level, and if it breaks, the levels to watch will be 1.2600 and 1.2550.

China's Economic Woes and Renewables Outlook Pressure Silver

Silver (XAG/USD) extended its gains on Friday, trading near $30.70, driven by geopolitical tensions and a weaker US Dollar. Russian President Putin’s warnings of potential nuclear-capable missile strikes on Ukraine and ongoing military operations in Gaza kept safe-haven demand elevated.

The US Dollar’s weakness has boosted silver demand, making it cheaper for international buyers. Additionally, the bond market strengthened after President-elect Trump appointed Scott Bessent as Treasury Secretary, signaling fiscal conservatism.

Markets await US economic data for insights on Fed policy, as October core PCE met expectations, supporting hopes for a December rate cut, though other data indicates economic resilience.

Technically, the first resistance level will be 31.00, and if broken, the next levels to watch will be 31.40 and 32.00. On the downside, 29.80 is the first support level, and if it breaks, the levels to watch will be 29.10 and 28.80.