Precious Metals Rise on Fed and China Bets (12.11.2024)

The US dollar maintained its strength as investors awaited the US inflation report that could influence Federal Reserve policy.

The euro rose slightly, but concerns about the Eurozone economy and geopolitical tensions persisted. The Japanese yen edged up but remained near a two-week low. Gold prices surged on expectations of loose monetary policies and safe-haven demand. Silver prices climbed on Chinese stimulus hopes and potential Fed rate cuts. The British pound strengthened before key economic data and central bank meetings.

Dollar Maintains Strength Ahead of CPI Data

The euro rose above $1.05 as investors turned their attention to the European Central Bank's (ECB) upcoming monetary policy decision. The Eurozone economy continues to show signs of weakness, further impacted by political instability in France and Germany, alongside growing geopolitical concerns following Donald Trump's election.

ECB President Christine Lagarde's warning during a parliamentary session about a potential slowdown in Eurozone growth in the near future has added to the cautious mood, with a focus on the downside risks in the medium-term outlook. Meanwhile, the dollar index held steady at around 106.3 on Wednesday after three days of gains, as traders awaited a critical US inflation report that could influence Federal Reserve policy. A stronger-than-expected inflation reading might delay the Fed's plans to lower borrowing costs, potentially providing support for the dollar. Despite this, markets are currently pricing in an 86% chance of a 25-basis-point rate cut by the Fed later this month, although the outlook for 2025 remains highly uncertain.

Technically, the first resistance level will be 1.0600 level. In case of this level's breach, the next levels to watch would be 1.0660 and 1.0720. On the downside, 1.0500 will be the first support level. 1.0450 and 1.0400 are the next levels to monitor if the first support level is breached.

Japanese Yen Stays Close to Two-Week Low

The Japanese yen edged up to around 151.6 per dollar but stayed near its lowest level in two weeks as the dollar gained before an important US inflation report. The Reuters Tankan index turned negative in December, while the BSI manufacturing sentiment index showed improvement for the fourth quarter. Additionally, data showed that producer prices in Japan rose at their fastest pace in 16 months in November. On the monetary policy front, there is uncertainty about whether the Bank of Japan will raise interest rates in December or January. Recently, BoJ Governor Kazuo Ueda indicated that a rate hike could be close, citing economic performance in line with expectations. However, BoJ board member Toyoaki Nakamura expressed concerns about the sustainability of wage growth and highlighted signs of economic weakness, adding uncertainty to the future.

From a technical perspective, 152.20 appears to be the key initial resistance level, with a break above it potentially targeting 152.75 and 153.65. On the downside, 150.50 is the first major support, followed by 149.40 and 148.70 if the price moves lower.

Gold Reaches Two-Week High

Gold surged above $2,700 per ounce, marking its third day of gains and reaching a two-week peak. The rise was driven by expectations of loose monetary policies from major central banks and a growing demand for safe-haven assets. Traders are closely watching upcoming US inflation data, which could strengthen predictions of a third rate cut by the Federal Reserve next week. Such a move would make gold more attractive by lowering the cost of holding non-interest-bearing assets.

Key central banks, including the ECB, SNB, and BoC, are expected to cut rates this week. China further boosted sentiment with plans to implement a more relaxed monetary policy next year. The metal also gained momentum after the People's Bank of China resumed gold purchases following a six-month hiatus. Meanwhile, rising tensions in the Middle East, fueled by reports of the Syrian regime's collapse and ongoing Israeli airstrikes, continued to increase gold’s appeal as a safe-haven asset.

Technically, the first resistance level will be 2675 level. In case of this level's breach, the next levels to watch would be 2690 and 2710 consequently. On the downside, 2630 will be the first support level. 2600 and 2575 are the next levels to monitor if the first support level is breached.

Pound Surges Before Central Bank Meetings

The British pound rose to $1.28, approaching a four-week high before important economic data and central bank meetings. UK data, set to be released next Friday, is expected to show an economic rebound and a recovery in manufacturing for October. The Bank of England is mostly expected to keep interest rates unchanged at its meeting on December 19. In the US, markets are preparing for inflation data and have largely factored in a 0.25% rate cut by the Federal Reserve next week. Investors are also focused on the European Central Bank's meeting on Thursday, where a similar 0.25% rate cut is expected, bringing the ECB's deposit rate down to 3%.

The first resistance level for the pair will be 1.2815. In case of this level's breach, the next levels to watch would be 1.2960 and 1.3060. On the downside 1.2720 will be the first support level. 1.2615 and 1.2550 are the next levels to monitor if the first support level is breached.

Silver Prices Climb on Chinese Stimulus

Silver prices hovered around $31.8 per ounce on Wednesday, remaining near one-month highs as Chinese officials unveiled plans for further economic stimulus, strengthening the demand outlook in the world’s largest consumer of metals. The Politburo announced that China would adopt a "moderately loose" monetary policy and a "more proactive" fiscal stimulus approach next year, signaling a shift from the more cautious stance of the past decade. Silver, with other precious metals, also benefited from growing expectations that the US Federal Reserve will implement another interest rate cut this month. Markets are now pricing in a 90% probability of a 25-basis point rate cut, a significant increase from 73% just a week ago.

For silver, the first resistance level will be 32.00. In case of this level’s breach, the next levels to watch would be 32.50 and 33.00. On the downside 31.40 will be the first support level. 30.70 and 30.20 are the next levels to monitor if the first support level is breached.