Fed Easing and Economic Data Shape Currency and Commodity Trends (08.28.2024)

Fed easing expectations and upcoming economic data have been pivotal in recent market movements. The EUR/USD pair remains steady around 1.1165 as speculation about potential Federal Reserve rate cuts continues. The USD/JPY shows strength in the yen amid a weaker dollar and contrasting monetary policies between Japan and the US. Gold prices are steady below $2,520, with investors awaiting further Fed insights. GBP/USD reached a multi-year high at 1.3266, fueled by hopes for Fed rate cuts. Silver prices are stable above $30, with market participants focusing on upcoming economic data and Fed policy signals.

EUR/USD Holds Around 1.1165 Amid Speculation of Fed Easing

The dollar index traded around 100.6 and EUR/USD parity around 1.1165 on Wednesday, approaching DXY’s lowest levels since July 2023 as expectations of Federal Reserve interest rate cuts continued to weigh on the currency. Markets are pricing in about a one-third chance that the Fed will cut rates by 50 basis points in September, with over 100 basis points in total easing projected for this year. These expectations were bolstered by dovish comments from Fed officials, who are highlighting increasing risks to the labor market while maintaining confidence that inflation will eventually return to target. Investors are now awaiting the latest initial jobless claims and the Fed-preferred PCE price index report later this week for further insights into the rate trajectory.

In the pair, which has been trading sideways since the beginning of the week, the first support level is at 1.1150. If this level is breached, the next supports to watch will be 1.1100 and 1.1060. On the upside, the first resistance is at 1.1220; if this level is surpassed, the next targets will be 1.1250 and 1.1300.

Yen Gains as Dollar Weakens on Fed Easing Expectations and BOJ Hawkish Hints

The Japanese yen traded around 144 per dollar, nearing its strongest levels in three weeks as expectations of Federal Reserve interest rate cuts continued to pressure the US dollar and benefit other major currencies. Federal Reserve officials have expressed concerns about risks to the labor market while maintaining confidence that inflation will return to target, suggesting that they may soon reduce borrowing costs. Meanwhile, Bank of Japan Governor Kazuo Ueda indicated last week that the central bank might adjust its monetary policy if its economic forecasts are accurate, signaling a potential rate hike. This view was echoed by BOJ Deputy Governor Ryozo Himino, who stated this week that the central bank is prepared to raise rates if the economy and inflation trends persist.Top of FormBottom of Form

From a technical perspective, the first resistance level is at 145.15. If this level is surpassed, the next targets will be 145.75 and 146.30. On the downside, the initial support is at 143.75; if this level is breached, the next supports to watch will be 143.40 and 142.50.

Gold Steadies Below $2,520 as Investors Eye Key Fed DataBottom of Form

Gold prices fell slightly below $2,520 per ounce on Wednesday as investors awaited further indications on the Federal Reserve’s upcoming interest rate decision. This week’s economic data, including the PCE index (the Fed’s preferred measure of inflation) and the revised Q2 GDP figures, are being closely watched. According to the CME FedWatch Tool, traders currently estimate a 71% likelihood of a 25 basis point rate cut and a 29% chance of a more significant 50 basis point reduction in the anticipated September rate cut. Markets are also predicting a total of 100 basis points in rate cuts for the rest of the year, which would decrease the opportunity cost of holding non-interest-bearing assets. This outlook is supported by dovish statements from Federal Reserve officials, who have raised concerns about potential risks to the labor market while maintaining confidence that inflation will return to target. Additionally, gold’s appeal as a safe-haven asset has been reinforced by ongoing tensions in the Middle East.

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 2,525; if this level is surpassed, the next targets will be 2,550 and 2,585.

GBP/USD Peaks at 1.3266 with Fed Rate Cut in Focus

On Tuesday, GBP/USD reached its highest level in several years, peaking at 1.3266, as the British pound continued to benefit from a broad decline in the US dollar. Investors are optimistic about a potential rate cut from the Federal Reserve in September, while anticipation builds ahead of the US Personal Consumption Expenditure (PCE) inflation report, which is not due until Friday. Last Friday, Fed Chair Jerome Powell's remarks at the Jackson Hole Economic Symposium strongly suggested that the central bank is likely to begin a rate-cutting cycle on September 18, further fueling market enthusiasm. With limited significant economic data expected from the UK, Wednesday is set to be a relatively quiet day on both sides of the Atlantic. Traders will be watching for a speech from Fed Board of Governors member Christopher Waller early in the US session, and later, a speech from Bank of England (BoE) policymaker Catherine Mann, scheduled after the close of the London markets.

For GBP/USD, the initial support lies at 1.3230, followed by 1.3175 and 1.3130 below. On the upside, the first resistance is at 1.3265, with subsequent levels at 1.3300 and 1.3350 if the pair breaks above this resistance.

Silver Prices Stable Above $30 with Eyes on Upcoming Economic Data

On Wednesday, silver started above the $30 level, with market activity subdued ahead of key economic data releases such as the PCE index and GDP figures. In light of Powell's dovish comments, these upcoming data are expected to influence both the magnitude and timing of any potential interest rate cuts. Additionally, the stronger durable goods orders report released on Monday has raised questions among traders about whether silver, as an industrial metal, can overcome the pressures stemming from recession fears and labor market concerns. The market anticipates a total of 100 basis points in rate cuts from the Fed by the end of the year. Therefore, the data released later this week will be crucial in determining whether these expectations are revised or maintained.

From a technical perspective, silver is currently trapped within a narrow range. The first resistance level to watch is at 30.00. If silver breaks above this level, the next resistance levels to watch will be 30.30 and 30.75, respectively. On the downside, the initial support level is at 29.65, with subsequent support levels at 29.15 and 28.75.