The gold (XAU) price briefly dropped below 2,300 on Tuesday but later recovered after the U.S. Purchasing Managers' Index (PMI) figures came out lower than expected.
XAUUSD has lost around 3% over the past two trading sessions as fears of escalating Middle East tensions decreased. However, robust buying by central banks fuelled by rising uncertainty about the sustainability of the U.S. debt and disappointing U.S. PMI figures supported XAUUSD from falling further. Investors are now focusing on the U.S. macroeconomic indicators, especially after most Federal Reserve (Fed) officials suggested that they won't cut interest rates in June.
Still, the weaker-than-expected U.S. PMI report revived hopes of a possible rate reduction in summer, boosting the price of gold. The market currently prices in a 43% probability that the Fed will ease its monetary policy in July. The market will monitor the U.S. Gross Domestic Product data on Thursday and the Personal Consumption Expenditure Price Index figures on Friday to get more clues on the state of the U.S. economy and the timing of cuts.
XAUUSD was essentially unchanged during the Asian and early European trading sessions. Today, the U.S. will release its Durable Goods Orders report for March. Although this is a lagging indicator, it can still provoke some volatility in all USD pairs, especially if figures are weaker than expected, contradicting the latest hawkish Fed message. The market expects to see a 2.5% growth in goods orders. Lower-than-expected results might push XAUUSD towards 2,340, while higher-than-expected figures may bring the pair down towards 2,300. 'Spot gold may retest resistance at $2,336 per ounce as it managed to stabilise around key support at $2,311,' said Wang Tao, the Reuters analyst.
EUR/USD rises above 1.07000 on a weaker USD and positive eurozone PMI data
The euro (EUR) increased by 0.45% on Tuesday following higher-than-expected Germany's Services Composite Purchasing Managers' Index (PMI) figures.
In April, Germany's Manufacturing PMI slightly underperformed, reaching 42.2 instead of the forecasted 42.8. Meanwhile, the Services PMI exceeded expectations significantly and rose towards 53.3 against an expected 50.6. The data from the HCOB's preliminary business activity report showed a less-than-expected contraction in the manufacturing sector and a notable outperformance in services. Consequently, the EURUSD rallied towards 1.0700 on mixed PMI figures. Eurozone business activity accelerated, backed by a strong recovery in the service sector. The HCOB eurozone PMI Composite Index rose to 51.4, surpassing expectations of 50.8 and marking a nine-month high.
On the other hand, the U.S. preliminary S&P Global Composite PMI in April declined from 52.1 to 50.9, signalling a slowing expansion in manufacturing and services. Specifically, the Manufacturing PMI dropped from 51.9 to 49.9, and the Services PMI decreased from 51.7 to 50.9. The slowdown in business activity exerted downward pressure on the U.S. dollar (USD), pushing EURUSD higher.
EURUSD was slightly correcting during the Asian and early European trading sessions after gaining yesterday. Today, traders should closely monitor the U.S. Durable Goods Orders report at 12:30 p.m. UTC. The weaker-than-expected figures indicate a decline in U.S. economic activity and could heighten expectations for imminent U.S. rate cuts, potentially boosting EURUSD. Conversely, stronger-than-anticipated numbers may lead to a sharp decline in EURUSD, further diminishing the chances for rate reductions by the Fed.
USDCAD remains at a two-week low ahead of major data releases
The Canadian dollar (CAD) gained 0.27% on Tuesday as lower-than-expected U.S. Purchasing Managers' Index (PMI) figures pushed the U.S. dollar down.
USDCAD has lost almost 2% over the past week as risk-off flows in the U.S. dollar weakened due to the decreasing fears of a broader conflict in the Middle East. Meanwhile, Brent crude oil price—the main Canadian export commodity—remained above $84 per barrel. Fundamentally, the pressure on USDCAD remains bullish as the market expected the Bank of Canada (BOC) to pursue a more dovish monetary policy in 2024 than the Federal Reserve (Fed).
Specifically, traders price in a 100% probability of a rate cut by the BOC in July, while the Fed is not expected to start reducing the base rate before September. Furthermore, most economists in the latest Reuters poll said the BOC might begin easing monetary policy even sooner, with the first rate cut coming in June. If Canada's central bank eventually decides to decrease interest rates in June, traders should prepare for a strong rally in USDCAD.
USDCAD was flat during the Asian and early European trading sessions. Today, the release of two important macro reports may provoke significant volatility in USDCAD. Statistics Canada will publish its monthly Retail Sales report at 12:30 p.m. UTC, while the U.S. Census Bureau will release its Durable Goods Orders report. USDCAD may sharply drop if Canadian retail sales figures are stronger than expected and U.S. goods orders disappoint. Otherwise, the short-term bearish trend may reverse. Key levels to watch are 1.36000 and 1.37000.