Gold Continues to Decline, but the General Trend Remains Bullish
The gold (XAU) price declined by 0.76% on Friday as the US dollar continued to strengthen following the release of better-than-expected US macro statistics on Thursday.
XAU/USD has been in a short-term bearish trend ever since it hit an all-time high of 2,220 on 21 March. However, analysts doubt whether the sell-off can continue for very long. 'As long as we have lower real rates, continued central bank buying along with retail demand and political hedging, the depth of the correction in gold is limited. Gold would need to stay above support around $2,150–$2,145 to continue its bullish momentum,' said Phillip Streible, the chief market strategist at Blue Line Futures.
Fundamentally, the macro environment still supports safe-haven assets. Geopolitical tensions in Eastern Europe, as well as in the Middle East, haven't settled yet. Meanwhile, major central banks, including the Federal Reserve (Fed), have clearly intended to lower interest rates in 2024. Traders currently price in a 67% probability of a 25-basis-point (bps) rate cut by the Fed in June and expect roughly 80 bps worth of rate reductions in 2024 overall. Lower interest rates usually push the price of gold higher because the opportunity cost of holding non-yielding assets reduces. Still, some traders notice that the physical demand for gold is weakening.
"The set-up in gold has deteriorated, with macro traders positioned in line with rates market pricing, and Shanghai traders paring back their purchases following their epic buying activity over the last months," TD Securities wrote in a note.
XAU/USD was falling during the Asian and early European trading sessions. Today, the economic calendar is rather uneventful, so gold may continue moving downwards. Only the release of US New Home Sales data at 2:00 p.m. UTC may potentially trigger some volatility in XAU/USD. Better-than-expected figures may potentially increase the bearish pressure on the pair. 'Spot gold may break support at $2,161 per ounce and fall into a $2,147–$2,152 range,' said Reuters analyst Wang Tao.
The Euro Weakens as the SNB Cuts Interest Rates
The euro (EUR) reached a 3-week low following movements in the Swiss franc (USD/CHF) and declined by 0.5% due to the strengthening US dollar.
A notable shift in the global financial landscape happened last week as the Swiss National Bank (SNB) delivered a rate cut, while several emerging market central banks signaled their readiness to also ease monetary policy, setting the stage for a probable rate reduction by the European Central Bank (ECB) in June.
"We had a somewhat surprising cut from the SNB this week," commented Shaun Osborne, the chief FX strategist at Scotiabank in Toronto.
"People have been extrapolating, certainly from a signalling point of view, what that might mean for other central banks in Europe," he added.
The Federal Reserve maintained its benchmark interest rate between 5.25% and 5.5%, aligning with previous forecasts of 3 reductions by the end of the year. However, the regulator clarified that rate cuts would only occur once there is clear evidence that inflation is steadily declining towards the 2% goal. Market expectations for rate reductions this year have moderated to around 84 basis points (bps), a significant drop from about 160 bps at the beginning of the year. Nonetheless, the market has now been pricing more bps of rate reductions than earlier in the week, reflecting growing optimism for potential rate cuts. 'What happened out of the SNB and what happened with the BOE (Bank of England) really opening the door to rate cuts earlier than expected, that's putting the dollar in a better light,' commented Marvin Loh, the senior global macro strategist at State Street (NYSE:STT) in Boston, on the recent interest rate decisions.
EUR/USD rose slightly during the Asian and early European trading sessions. Today, the economic calendar is fairly light, so volatility may remain low for most of the day. The speech by ECB President Christine Lagarde and the US New Home Sales report at 10:00 a.m. UTC and 2:00 p.m. UTC, respectively, might potentially trigger some volatility in EUR pairs—but usually, their impact is rather mild. Technically, EUR/USD will probably remain under bearish pressure and try to consolidate above the important 1.08000 level. Breaking below the level will indicate the continuation of the bearish trend, with the next target at 1.07800.
The USD/JPY Rally Pauses as Japanese Authorities Discuss Possible Interventions
The Japanese yen (JPY) gained 0.13% on Friday as the recent rally in USD/JPY ran out of steam as it faced major resistance in the 152.000 area.
The threat of currency intervention from Japanese authorities apparently prevented the JPY from devaluing any further. Indeed, Japanese officials have been making some hawkish comments lately. Masato Kanda, the Vice Minister of Finance for International Affairs, has explicitly stated that the JPY's current weakness doesn't reflect fundamental factors. Meanwhile, Shunichi Suzuki, Japan's Finance Minister, said that the government was 'concerned' about the yen's recent fall. 'Japanese officials' verbal intervention is making 152.000 a very strong near-term resistance for USD/JPY,' said Carol Kong, the currency strategist at Commonwealth Bank of Australia. However, traders continue to expect the JPY to continue weakening, placing USD/JPY longs. Even after the Bank of Japan's (BOJ) landmark interest rate hike last week, the rate difference between Japan and the US is still quite large, supporting buy-and-hold strategies in USD/JPY.
USD/JPY was falling slightly during the Asian and early European trading sessions. Today's trading session is likely to be relatively quiet, as the formal macroeconomic calendar doesn't feature any major news releases. Only the publication of the US New Home Sales data at 2:00 p.m. UTC may potentially trigger some volatility in USD pairs. Higher-than-expected figures will put more upward pressure on USD/JPY, while lower-than-expected results may bring the pair down towards 150.500.