This article was submitted by Michael Stark, market analyst at Exness.
Riskier instruments such as oil and many shares have mostly made gains so far this week while yields from major nations’ bonds have declined. This is a major week of news for markets, with a wide range of releases from most major countries except the UK. This preview of weekly data looks at XAUUSD and EURAUD ahead of the critical meetings of the Fed and ECB.
Last week wasn’t very active among major central banks although Russia hiked 1% and Turkey 2.5%. Now the focus shifts onto the Fed and the European Central Bank, both of which are likely to call for single hikes. The Bank of Japan on Friday is expected to hold at negative 0.1%. The likelihood of a single hike by the Fed to 5.25-5.5% is around 99.8% according to CME FedWatch Tool, so traders’ attention will be on the press conference after the statement for possible clues on a continuation of hiking in the fourth quarter.
Regular data this week include inflation from Australia on Wednesday morning GMT, inflation and flash/preliminary GDP from and various European countries on Friday, German consumer confidence plus personal consumption expenditure from the USA. Despite the usual expectation for low volume in high summer, various markets could be quite active this week given the volume of important releases.
Gold-dollar, daily
Gold struggled for much of the second quarter as it became increasingly clear that the Fed was very unlikely to pivot until the first half of next year. Sentiment in stock markets has generally remained strong in recent months but, with many shares being flat or consolidating, growth by major indices has come from a small number of major companies. From a fundamental perspective, it’s not clear what narrative would push gold back above $2,000 in the near future. As rates in the USA are likely to remain above core inflation for at least several months, many investors might view savings and bonds as more attractive options.
On the chart, gold’s recovery in July wasn’t particularly strong and now seems vulnerable amid overbought conditions. ATR has declined in the last few months and Bollinger Bands contracted, but this is normal given seasonality. The main target for sellers is likely to remain around $1,900, the area of lows late last month and a strong support, while in the shorter term the 200-day moving average around $1,920 is likely to be a zone of demand. The upside at the moment seems unfavourable given the failure to break beyond the 100 SMA, but if the price does close above there for several days it might well continue upward after that and retest $2,000.
The focus for the Fed’s press conference on Wednesday night is on whether there’s any hint about a hike in the fourth quarter. Traders mostly expect this to be the last hike of this cycle for the moment, but it’s likely that the consensus will change at least slightly after Jerome Powell’s comments. Friday’s PCE is also important since this is the Fed’s main measure for inflation. Continuing decline as expected would weaken the hawkish case for the Fed.
The lack of a clear result from Spain’s elections has been somewhat negative for the euro, but the apparently worsening economic downturn in the eurozone would traditionally be more significant. However, inflation has declined steadily this year and the ECB has maintained its hawkish policy, Australian employment figures remain strong, suggesting ongoing inflationary pressure and possibly more hikes by the Reserve Bank of Australia. Assuming that the ECB delivers on a single hike on Thursday, buying EURAUD will yield a carry for the first time.
The triple top on the chart since 28 June would usually be a sell signal. However, the price remains in a weakly defined ascending triangle above all the moving averages and not in overbought on the daily chart based on the slow stochastic. $1.655 is an important resistance but if the price can break through it a retest of $1.67 sooner or later seems likely. To the downside, $1.60 is an important medium-term support as a round number which coincides with the 200 SMA.
Most traders currently expect the ECB to hike again on 14 September, so the press conference is important on Thursday as on Wednesday for the Fed. A direct confirmation is unlikely but mentions of inflation coming down too slowly or relative confidence in economic performance might solidify that consensus. It’s likely that participants will start looking ahead to October’s meeting of the ECB as well after digesting the overall impression from the press conference. Equally, Wednesday’s inflation from Australia might be higher than expected, which could bring some short-term gains for the Aussie dollar.
Key data this week
Bold indicates the most important releases for this symbol.
Tuesday 25 July
8:00 GMT: German Ifo Business Climate (July) – consensus 88, previous 88.4
Experienced writer and journalist, working in the global online trading sector, Steffy is the Editor of LeapRate. She has previous experience as a copywriter and has been with the company since January 2020. Steffy has a British and American Studies degree from St. Kliment Ochridski University in Sofia.
