Gold Surge on Soften Dollar

Market Summary

The Fed’s preferred inflation gauge, the Producer Price Index (PPI), was released yesterday, showing April PPI slightly above market consensus at 0.5%. Following the inflation data, Fed Chairman Jerome Powell reiterated that the U.S. central bank is likely to keep interest rates higher for longer to address persistently sticky inflation. Despite this, market sentiment is leaning towards an anticipated Fed rate cut this year, driving bond option volume to record highs and expectations for bond yields to fall below 4.3%. This outlook has weakened the dollar as bond prices surge.

Investors now turn their attention to today’s CPI and Retail Sales data, which are expected to significantly impact the dollar and bond prices. Meanwhile, gold prices rebounded strongly on the back of the softening U.S. dollar, while oil prices remained steady.

In Australia, the Wage Price Index was recently released, coming in lower than market expectations. Nonetheless, the Australian dollar remains bullish, particularly against the underperforming U.S. dollar.

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Current rate hike bets on 12nd June Fed interest rate decision: 

Source: CME Fedwatch Tool

0 bps (91.5%) VS -25 bps (8.5%)

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Market Overview

Economic Calendar

(MT4 System Time)

Source: MQL5  

Market Movements

DOLLAR_INDX

The Dollar Index initially gained bullish momentum following a much higher-than-expected inflation report. According to the US Bureau of Labor Statistics, the PPI for last month surged from -0.10% to 0.50%, surpassing market expectations of 0.30%. Hawkish statements from the Federal Reserve further fueled the rally. However, the US dollar later retracted as investors remain cautious ahead of the Consumer Price Index (CPI) data due later today, which is anticipated to create greater volatility compared to the Producer Price Index (PPI). Despite these factors including downbeat US PPI and hawkish stances from Fed, profit-taking strategies led to a pullback in the dollar, highlighting concerns about the forthcoming CPI data.

The Dollar Index is trading lower while currently near the support level. However, MACD has illustrated diminishing bearish momentum, while RSI is at 48, suggesting the index might experience technical correction since the RSI rebounded sharply from oversold territory. 

Resistance level: 105.85, 106.35

Support level: 105.05, 104.75

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XAU/USD

Gold prices continued their upward trajectory despite a worse-than-expected US PPI report and hawkish Fed statements. The bullish trend in gold is largely attributed to a successful breakout, prompting investors to reallocate their portfolios toward safe-haven assets. With the CPI data release looming, rising volatility has further shifted sentiment towards gold, reinforcing its appeal as a protective asset.

Gold prices are trading higher while currently testing the resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 62, suggesting the commodity might enter overbought territory. 

Resistance level: 2355.00, 2365.00

Support level: 2350.00, 2340.00

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GBP/USD

The GBP/USD pair extended its bullish trend, supported by a weakening dollar, but has once again encountered strong resistance at the 1.2595 level. The UK’s unemployment rate met expectations at 4.3% in March, while employment change declined less than anticipated, coming in at -177k. Despite the soft job data potentially hindering the Sterling, the recent uptrend has been buoyed by the lacklustre performance of the U.S. dollar.

GBP/USD has been trading in an uptrend for the past week but currently faces strong resistance at the 1.2595 level. The RSI is on the brink of breaking into the overbought zone, while the MACD edged higher after breaking above the zero line, suggesting that the bullish momentum is growing. 

Resistance level: 1.2600, 1.2660

Support level: 1.2540, 1.2475

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EUR/USD

The EUR/USD pair has firmly broken above its price consolidation range, suggesting a solid bullish signal. The pair surged to its monthly high, primarily driven by a softening dollar. Additionally, the euro was propelled by an improvement in the eurozone’s ZEW economic sentiment, which rose to 47 from 43.9. Euro traders will be closely watching today’s eurozone GDP release, followed by the U.S. CPI reading, both of which are expected to significantly impact the pair’s direction.

The pair has broken above its price consolidation range and traded to its monthly high, suggesting a bullish bias for the pair. The MACD continues to edge higher, while the RSI is on the brink of breaking into the overbought zone, suggesting the pair is trading with strong bullish momentum. 

Resistance level:1.0865, 1.0940

Support level: 1.0775, 1.0700

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Dow Jones

The US equity market extended its gains, shrugging off a hotter-than-expected inflation report, as the robust outlook for the technology sector continues to attract investors. The ongoing advancements in Artificial Intelligence (AI) have been a significant driver of this optimism. OpenAI recently launched a new AI model and desktop version of ChatGPT, featuring an updated user interface. The update, which includes the latest GPT-4 model, promises faster performance and enhanced capabilities in text, video, and audio. OpenAI’s technology chief, Mira Murati, highlighted that this marks a significant step forward in user experience, with plans to enable video chat with ChatGPT in the future. These advancements are expected to spur further growth and competition within the US tech sector.

The Dow Jones is trading higher following the prior breakout above the previous resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 72, suggesting the index might enter overbought territory. 

Resistance level: 39850.00, 41000.00

Support level: 39145.00, 37690.00

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AUD/USD

The AUD/USD pair has once again tested its strong resistance level at 0.665, awaiting more bullish catalysts to break above this threshold. The impact of the downbeat Australian wage price index was offset by a softening U.S. dollar, allowing the pair to surge further. Traders will be closely watching today’s U.S. CPI release to gauge the pair’s future direction.

The pair approached its strong resistance level at 0.665; a break above this level suggests a solid bullish signal for the pair. The RSI is breaking into the overbought zone, while the MACD is edging higher from above the zero line, suggesting bullish momentum is forming. 

Resistance level: 0.6680, 0.6730

Support level: 0.6600, 0.6540

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CL OIL

Crude oil prices remained in a consolidation phase due to a lack of clear market catalysts. On the bullish side, oil prices received a boost following the American Petroleum Institute (API) report, which showed a larger-than-expected decline in crude inventories, suggesting improving demand. Inventories fell by about 3.1 million barrels, compared to the market expectation of a 1.1-million-barrel decrease. However, the anticipation of several crucial events, including the US CPI data, has introduced volatility and prompted some selloff in high-risk commodities like oil. Investors are advised to monitor upcoming inventory data from the Energy Information Administration (EIA) and the US CPI report for further trading signals.

Oil prices are trading higher following the prior rebound from the support level. MACD has illustrated diminishing bearish momentum, while RSI is at 47, suggesting the commodity might extend its gains toward resistance level since the RSI stays above the midline. 

Resistance level: 80.40, 81.90

Support level: 77.90, 75.95

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