USD Gains on Treasury Yields, Precious Metals Rally (10.31.2024)

The USD dollar strengthened against the euro and pound as resilient US economic data and rising Treasury yields dampened expectations of aggressive Fed easing.

The EUR/USD fell below the mid-1.0800s, facing resistance around 1.0880, while GBP/USD declined near 1.2950 with budget concerns and cautious sentiment ahead of the US elections. Meanwhile, precious metals like gold and silver held steady at high levels, supported by the upcoming US election. Gold stayed near $2,780, with resistance at $2,790, and silver hovered around $33.60, with key levels awaiting potential stimulus announcements from China.

USD Gains Ground on Yield Rise

The EUR/USD pair faced selling pressure during the Asian session on Thursday, retreating from the previous day's gains near 1.0870, a one-and-a-half-week high. This pullback came as renewed demand for the USD drove spot prices below the mid-1.0800s.

Recent US economic data indicates a resilient economy, which dampens expectations of aggressive Fed easing. For instance, ADP reported that private employers added 233,000 jobs in October, likely boosting consumer spending. Additionally, the US Bureau of Economic Analysis estimated a 2.8% annualized growth for April-June, down slightly from the prior quarter's 3% but having minimal effect on the Fed rate-cut outlook. Rising concerns over the US fiscal deficit have also increased Treasury yields, supporting the USD and pressuring EUR/USD.

Eurozone data on Wednesday showed continued inflationary pressure in Germany, where the economy grew unexpectedly by 0.2% quarter-on-quarter in Q3. This has led investors to temper expectations of significant ECB rate cuts, offering some support for the euro and EUR/USD ahead of Thursday's Eurozone inflation data.

The EUR/USD pair has support from a daily trendline and faces resistance in the 1.0870-1.0880 range, where it previously encountered resistance near the 200 SMA. If this level is broken, the next resistances are at 1.0910 and 1.0940, the latter aligning with the 0.38 Fibonacci retracement of the last correction wave starting September 25. On the downside, the initial support level is 1.0850 (20-day moving average), with further support at 1.0825. If this level fails, 1.0770 could act as additional support.

USD/JPY Breaks Triangle Pattern, Eyes 152.40 Support

The Japanese yen remained around 153.2, close to a three-month low, following the Bank of Japan's decision to maintain its policy rate at 0.25%, as expected. The central bank also reiterated its projection that inflation will stay near the 2% target in the coming years, demonstrating its commitment to ongoing policy normalization. Traders are now eager to hear insights from BoJ Governor Kazuo Ueda’s post-meeting briefing for clues on the potential pace and timing of future rate hikes.

Over the past month, the yen has experienced nearly a 7% decline against the dollar, marking its largest monthly loss since November 2016. This depreciation has been primarily driven by strong gains in the dollar and rising Treasury yields. Additionally, a political shake-up in Japan has increased uncertainty regarding the country’s fiscal and monetary policy outlook, further contributing to the yen's decline.

The triangle pattern we discussed yesterday has been broken to the downside. As a result, the first support level for USD/JPY is at 152.40, corresponding to a weekly gap closure. If the price cannot hold above this level, subsequent support levels to monitor are 151.40, aligning with the 200-day moving average, and 150.60.

On the upside, the 0.618 Fibonacci retracement level from the movement that began in July, located at 153.30, will serve as the initial resistance level. If this level is surpassed, the next resistance levels to watch are 154.50 and 156.60.

Gold Benefits from Rising Inflation Fears

Gold held above $2,780 per ounce on Thursday, maintaining record levels amid rising demand for safe-haven assets due to US election uncertainties and ongoing geopolitical risks. Markets are evaluating recent US economic data, which showed a 2.8% GDP growth for Q3, slightly below the expected 3%. Increased personal consumption and sales indicate consumer resilience, adding to inflation concerns, especially with unexpectedly high core PCE prices from the previous quarter. Expectations for potential Fed easing at the upcoming meeting are also supporting gold, as lower rates reduce the opportunity cost of holding non-yielding bullion. Investors now await PCE data and payroll figures due Thursday and Friday.

After reaching a new all-time high, gold struggled to stay above $2,790. Currently, it is trading within a tight range between $2,790 and $2,770, with $2,780 acting as the first support level. If the price cannot maintain this level, $2,770 will be the next support to watch. Should both of these levels be breached, $2,758 will be monitored as a third support level. On the upside, the first resistance is at $2,790, followed by $2,800 and $2,820.

Risk-Off Sentiment Weighs on GBP/USD

The GBP/USD pair extended its decline for the second day, trading near 1.2950 during Thursday’s Asian session. This drop reflects a stronger US dollar on cautious sentiment ahead of the US presidential election.

The Pound Sterling weakened following the release of the new Labour government's first budget on Wednesday, which includes £40 billion in tax increases aimed at addressing public finance shortfalls and funding public services. A key revenue measure in the budget is the increase in National Insurance (NI) contributions, which are taxes on earnings paid by employers.

Traders are also closely monitoring an upcoming keynote speech by Bank of England Deputy Governor Sarah Breeden at the joint conference held by the Hong Kong Monetary Authority and the Bank for International Settlements, focusing on the "Opportunities and Challenges of Emerging Technologies in the Financial Ecosystem."

GBP/USD has faced selling pressure after breaking a daily trendline on August 21 and falling below it on October 22. The pair is currently seeking support at the daily level of 1.2945. If this level is breached, the next support levels to watch are 1.2865, which corresponds to the 0.5 Fibonacci retracement level, and 1.2810, aligned with the 200-day moving average.

On the upside, the 20-day moving average at 1.2985 will serve as the first resistance level, followed by 1.3015, representing the daily trendline resistance. If these two levels fail to contain upward movements, 1.3040, yesterday's high, will be closely monitored as a third resistance level.

Silver Near $33.60 on China Stimulus Expectation

Silver continued its decline, trading near $33.60 during Thursday’s Asian session. However, increased safe-haven demand may limit further downside due to US election uncertainties and heightened Middle East tensions, particularly after Israel’s military chief warned of potential action against Iran amid ongoing missile attacks. Additionally, Lebanese Prime Minister Najib Mikati mentioned a possible ceasefire in the Israel-Hezbollah conflict by November 5.

Investors are also expecting China’s parliamentary meeting scheduled for November 4-8, where announcements regarding potential stimulus measures from Beijing are expected. Reports suggest that China is considering a stimulus package exceeding 10 trillion Yuan to support its economy. On the upside, the critical resistance levels to watch are 34.00, 34.50, and 34.90. On the downside, yesterday's sell-off at 33.50 remains as a significant first support level. If this level is breached, the next support levels to monitor are 33.00 and 32.00, respectively.