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- USD/JPY has shown a sharp decline to near 139.00 amid weakness in the USD Index.
- A collaboration of upbeat US Employment and job market data would leave no reason for the Fed to a neutral policy consideration.
- BoJ Ueda confirmed that bond-buying operations by the central bank would continue in order to keep inflation steadily above 2%.
The USD/JPY pair has witnessed an intense sell-off and has dropped to near 139.00 in the Asian session. The asset attracted significant offers as the US Dollar Index (DXY) extended its downside below 104.20. The USD Index has dropped to near 104.15 as investors are optimistic that US debt-ceiling proposal would secure sufficient votes.
S&P500 futures have posted some gains in early Asia after a bearish Wednesday. The risk appetite of the market participants has improved amid a drop in appeal for the USD Index.
On Wednesday, US JOLTS Job Openings data outperformed expectations. Despite higher interest rates from the Federal Reserve (Fed) and tight credit conditions by US regional banks, the US job market seems healthy.
Going forward, the US Nonfarm Payrolls (NFP) data (May) will be of utmost importance. As per the preliminary report, fresh 190K payrolls were added in the labor market in May, lower than the additions of 253K made in April. The Unemployment Rate is increased to 3.5% vs. the former release of 3.4%. Annual Average Hourly Earnings are seen steady at 4.4%.
A collaboration of better-than-anticipated US Employment and job market data would leave no reason for Fed chair Jerome Powell for a neutral interest rate policy consideration.
On the Japanese Yen front, Bank of Japan (BoJ) Governor Kazuo Ueda has confirmed that bond-buying operations by the central bank would continue in order to keep inflation steadily above 2%.
About USD/JPY’s outlook, Economists at MUFG Bank believe that “The debt ceiling issue has been resolved and a strong jobs report at the end of the week would likely see markets price more fully a Fed rate hike on 13th June that would likely then lead to further USD/JPY buying.”
“If events fuel another quick move to the 145 level, above there would certainly be in the range of intervention. It would in addition serve to highlight another unwelcome by-product of YCC and could play a role in swaying Governor Ueda to scrap YCC later this year.”
- Gold price remains on the front foot amid improvement in risk, US Dollar’s retreat.
- Easing fears of United States default, hopes of pause in Federal Reserve’s rate hike trajectory underpin XAU/USD demand.
- Uncertainty about US debt ceiling bill’s passage, market’s hawkish Fed bets weigh on the Gold Price amid mixed US data.
- US ADP Employment Change, PMI and US politics eyed for clear XAU/USD directions.
Gold Price (XAU/USD) picks up bids to refresh intraday high near $1,967 amid the early hours of Thursday’s Asian session as the US Dollar’s retreat joins hopes of the United States debt-ceiling bill’s passage through the House of Representatives. Adding strength to the XAU/USD upside could be the latest shift in the Federal Reserve (Fed) bias amid mixed data and unimpressive comments from the policymakers. Even so, the Gold buyers need validation from today's US ADP Employment Change for May, known as the early signal for Friday’s Nonfarm Payrolls (NFP), as well as from the multiple Purchasing Managers’ Indexes for the previous month.
Gold Price cheers United States debt ceiling optimism
Gold Price benefits from the receding fears of the United States default as some of the prominent US policymakers recently backed hopes of the US debt-ceiling bill’s passage through the House of Representatives during its vote at 00:30 GMT on Thursday.
Late on Wednesday, Republican leader Mitch McConnell conveyed expectations of the US debt ceiling bill passing and reaching the Senate on Thursday. The policymaker’s comments become the key for the debt-limit extension as Republicans control the House where the bill is currently discussed.
“A bill to suspend the U.S. government's $31.4 trillion debt ceiling and avert a disastrous default cleared a key procedural hurdle in the House of Representatives on Wednesday, setting the stage for a vote on the bipartisan debt deal itself,” said Reuters as the debate on the debt-ceiling bill began.
While the receding expectations of the US default underpin the Gold price upside, there are hardline Republicans like Chip Roy and Rand Paul who can delay the much-awaited announcements and can trigger the market’s risk-off mood. The same keeps the Gold buyers on their toes.
Federal Reserve hawks’ retreat, mixed US data also favor XAU/USD bulls
Apart from the hopes that the United States will be able to push back the default concerns, the recently mixed US data and comments suggesting a pause in the Federal Reserve’s (Fed) rate hike trajectory seem to also allow the Gold buyers to remain positive of late.
On Wednesday, US JOLTS Job Openings rose to 10.103M in April versus 9.375M expected and 9.745M prior whereas Chicago Purchasing Managers’ Index dropped to 40.4 for May from 48.6 prior and 47.0 market forecasts. Earlier in the week, the US consumer sentiment gauge improved but the details were unimpressive, which in turn teases the Gold buyers.
Considering the mixed data, Federal Reserve (Fed) Governor Michelle Bowman cited recovery in the residential real estate market while also adding, “The leveling out of home prices will have implications for the Fed's fight to lower inflation,” per Reuters. Before him, Cleveland Fed President Loretta Mester suggested that the Fed must go for a rate hike in June. Additionally, Fed Governor and vice chair nominee Philip Jefferson said that skipping a rate hike would allow the Fed "to see more data before making decisions about the extent of additional policy firming,” per Reuters. On the same line was Federal Reserve Bank of Philadelphia President Patrick Harker who also said on Wednesday that he is inclined to support a "skip" in interest rate hikes at the central bank's next meeting in June.
While justifying the same, Wall Street Journal’s (WSJ) Nick Timiraos signaled that Federal Open Market Committee (FOMC) is likely to hold interest rates steady in June, which in turn propel the XAU/USD price.
US data, risk catalysts are the key for Gold price
Moving on, the US House of Representatives is debating the US debt ceiling extension and will vote on it at around 00:30 GMT, which will be key to watching for clear directions of the Gold price. Should the policymakers manage to push the much-awaited bill towards the Senate voting on Thursday, they may be able to avoid the ‘disastrous’ US default, which in turn can allow the XAU/USD to remain firmer.
Additionally, early signals for Friday’s United States Nonfarm Payrolls (NFP) will decorate the calendar and hence will be crucial for the Gold Price watchers to observe. Among them, the ADP Employment Change, ISM Manufacturing PMI and S&P Global PMIs for May will be crucial to watch.
Also read: US ADP Employment, ISM Manufacturing PMI Preview: First down, then up for US Dollar?
Gold price technical analysis
Gold price justifies recovery from an 11-week-old horizontal support area, as well as an upside break of a descending trend line from early May, while bracing for the first weekly gain in three.
That said, the XAU/USD’s upside also takes clues from the Moving Average Convergence and Divergence (MACD) indicator’s bullish signals and the upbeat Relative Strength Index (RSI) line, placed at 14.
However, the RSI is quickly approaching the overbought territory and hence highlights a fortnight-long horizontal resistance zone surrounding $1,985 as the short-term key hurdle.
Following that, the 200-Simple Moving Average (SMA) level of around $1,992 and the $2,000 round figure can prod the Gold price upside before giving back control to the bulls.
On the contrary, XAU/USD pullback needs validation from the resistance-turned-support line stretched from May 03, close to $1,945 at the latest.
Even so, the previously stated horizontal support zone around $1,935-33 may challenge the Gold bears before welcoming them.
To sum up, the Gold price remains on the front foot but the road towards the north appears long and bumpy.
Gold price: Four-hour chart
Trend: Further upside expected
- The oil price is gauged intermediate support around $67.50, however, the downside seems favored as Fed to raise rates further.
- A sharp decline in China’s factory activity indicated a bleak outlook for oil demand.
- OPEC meeting will remain in focus as oil-producing nations are expected to announce more supply cuts to support energy prices.
West Texas Intermediate (WTI), futures on NYMEX, have gauged intermediate support around $67.50 in the Asian session. The pullback move in the oil price to near $69.50 was capitalized by the market participants as a selling opportunity amid multiple bearish catalysts.
As United States consumer spending turned out to be resilient in April and their labor market conditions are still healthy, it seems that the Federal Reserve (Fed) is preparing for a fresh rate hike despite announcing that more rate hikes are less certain amid tight credit conditions by the US regional banks. Further monetary policy tightening by the Fed would deepen hopes of a recession in the US economy, which will have a significant impact on the oil demand.
On Wednesday, a sharp decline in China’s factory activity displayed a bleak outlook for oil demand. China’s National Bureau of Statistics (NBS) reported Manufacturing PMI at 48.8, lower than the estimates of 49.4 and the former release of 49.2. A figure below 50.0 is itself considered a contraction. It is worth mentioning that China is the largest importer of oil in the world and weak economic activities in China would have a significant impact on the oil price.
Meanwhile, the US Dollar Index (DXY) has found some cushion near 104.20 ahead of the US Employment data, which will provide guidance about the Fed’s interest rate policy.
Later this weekend, the OPEC meeting will remain in focus as oil-producing nations are expected to announce more supply cuts to support energy prices. Tensions between Russia and Saudi Arabia have remained elevated as the former has disrespected the pledge and pumping cheap oil into the global economy. The notion of production cuts by OPEC+ could be faded if Moscow continues to deliver oil at cheaper rates.
Regarding oil outlook, economists at Rabobank cited “Right now, we see OPEC+ staying the course and continuing the April cuts of 1.6m bpd. The surprise April cut boosted prices by $5-$7 for about three weeks. A second cut would display their fears more openly and indicates greater weakness; we construe a second cut as a bearish signal unless the cuts are extremely substantive.”
Going forward, oil inventory data for the week ending May 26 by the US Energy Information Administration (EIA) will be keenly watched. Investors should note that US American Petroleum Institute (API) reported a build-up of oil stockpiles on Tuesday by 5.202M barrels.
USD/CAD takes offers to refresh the intraday low near 1.3560 amid the early hours of Thursday’s Asian session. In doing so, the Loonie pair takes clues from the options market, as well as the latest retreat in the US Dollar, ahead of a slew of top-tier data and events from the US.
One-month Risk Reversal (RR) of the USD/CAD pair, a measure of the spread between call and put prices, dropped the most in a month by the end of Wednesday’s Asian session. That said, the RR dropped to -0.093 in its latest readings per the options market data from Reuters.
Not only on a daily basis, but the monthly RR also flashed red marks with a -0.110 figure whereas the weekly numbers pleased the USD/CAD sellers with a -0.093 level.
Additionally, the upbeat Canadian GDP and the latest shift in the Federal Reserve (Fed) officials’ push for a pause in the rate hike trajectory, as well as hopes that members of the US House of Representatives will support the debt ceiling bill’s passage, also weigh on the pair.
Also read: USD/CAD Price Analysis: Bears are in the market, but bulls flexing
- US Dollar Index retreats from the highest levels in 11 weeks.
- Positive expectations about US debt ceiling bill, mixed US data weigh on DXY.
- Recent Fed talks suggest pain for hawks as June rate hike concerns pushed back.
- US House of Representatives voting on debt ceiling bill, ADP Employment Change and PMIs eyed.
US Dollar Index (DXY) remains sidelined after retreating from the highest levels since mid-March 2023 amid early Thursday morning in Asia. The DXY initially rose to the highest levels since March 15 before retreating from 104.70 by the end of Wednesday’s North American trading session.
In doing so, the greenback’s gauge versus the six major currencies justifies the latest shift in the Federal Reserve (Fed) officials’ push for a pause in the rate hike trajectory, as well as hopes that members of the US House of Representatives will support the debt ceiling bill’s passage.
That said, the hope of US debt ceiling passage from the House of Representatives increased after US Senate Republican Leader McConnell conveyed expectations of the US debt ceiling bill passing and reaching the Senate on Thursday.
On the other hand, US JOLTS Job Openings rose to 10.103M in April versus 9.375M expected and 9.745M prior whereas Chicago Purchasing Managers’ Index dropped to 40.4 for May from 48.6 prior and 47.0 market forecasts.
The mixed US data allowed the Federal Reserve (Fed) officials to retreat from the previously hawkish bias and weighed on the US Dollar late Wednesday. That said, Federal Reserve (Fed) Governor Michelle Bowman cited recovery in the residential real estate market while also adding, “The leveling out of home prices will have implications for the Fed's fight to lower inflation,” per Reuters. Before him, Clevland Fed President Loretta Mester suggested that the Fed must go for a rate hike in June.
Additionally, Fed Governor and vice chair nominee Philip Jefferson said that s