Gold Awaits US Rate Decision this Week
The gold ( XAU/USD ) price closed around $3,240 on Friday. Traders now await the Federal Reserve (Fed) interest rate decision this week to understand gold’s prospects.
"The US dollar (USD) is looking subdued ahead of the Fed meeting this week, which is enabling gold to take a mild run higher", KCM Trade’s Chief Market Analyst Tim Waterer said. "We may see gold continue to operate in the $3,200–$3,350 range ahead of the Fed meeting. However, any new headlines on the trade deal could cause volatility to tick up once again".
The market is closely watching the upcoming US central bank policy decision and scheduled speeches from several Fed officials this week, seeking clues about the direction of future monetary policy. Following Friday’s US Labor Department report, which revealed stronger-than-expected job growth in April, traders are now pricing in 80 basis points of interest rate cuts beginning in July.
XAU/USD started the week by rising 0.5% during the Asian and early European trading sessions. Today, traders should focus on the US ISM Services Purchasing Managers’ Index (PMI) at 2:00 p.m. UTC. A higher-than-expected number will put downward pressure on XAU/USD, while lower-than-anticipated figures might suggest a bullish outlook for gold. Key levels to watch are support at $3,200 and resistance at $3,380.
Euro Is Rebounding from 1.13000
On Friday, the euro ( EUR/USD ) closed above 1.13000. Solid March US employment data supported the US dollar (USD), so markets are waiting for a hawkish Fed tone at this week’s meeting.
"The labour report leaves little doubt that the FOMC will keep rates on hold this week, and the bar for cutting is now even higher for June", said Michael Feroli, head of US economics at JPMorgan. "In a period of high uncertainty, with two-sided risks to the dual mandate, the Federal Reserve (Fed) Committee will prefer to remain patient until there is more clarity in the outlook".
The US dollar could be in the early stages of a major downtrend in the years to come, according to Deutsche Bank strategists George Saravelos and Tim Baker. Part of the bearish view on the dollar is because the rest of the world doesn’t want to finance the growing twin US deficits.
"In a world of extreme uncertainty and rapidly changing political norms, the risk of market turmoil and regime change remains high", Saravelos and Baker wrote.
EUR/USD was rising slightly during the Asian and early European trading sessions. Today’s macroeconomic calendar is rather uneventful, so the pair is unlikely to break out from its current trend. The key levels to watch today are support 1.12640 and resistance 1.13850.
Traders Are Buying Dips in British Pound
The British pound ( GBP/USD ) failed to update the weekly low of 1.32594 in the trading session on Friday.
The key event for GBP this week is the Bank of England’s meeting on Thursday. A widely anticipated 25-basis-point (bps) rate is expected at the meeting, with the base rate declining towards 4.25%. The decision may be accompanied by signals of a more aggressive easing monetary policy path.
"The reaction in U.K. gilts and GBP will come from the guidance and whether the door is sufficiently opened for a back-to-back cut at the June meeting and whether there is the appetite expressed in the statement to ease the bank rate to 3.5% by December", said Chris Weston, head of research at Pepperstone.
GBP/USD was rising slightly during the Asian and early European trading sessions. With today’s relatively quiet economic calendar and the highly anticipated US CPI report coming soon, market participants will likely be cautious, keeping volatility subdued. However, GBP traders should prepare for the U.K. Claimant Count report on Tuesday, U.K. and US Inflation reports on Wednesday, and U.K. Retail Sales data on Friday. The key levels to watch are support at 1.32600 and resistance at 1.33500.