Today's analysis: XAU/USD Set for Gains as US Bond Yields Drop and Fed Rate Cut Expectations Rise

Product: EUR/USD

Prediction: Decrease

Fundamental Analysis: 

The EUR/USD currency pair traded in a tight range on Monday, with the US dollar gaining early before pulling back. Economic data was mixed, with weaker-than-expected German business sentiment but a slight improvement in the Dallas Fed Manufacturing Index. In the absence of major headlines, the pair tracked stock market movements. Looking ahead, the economic calendar is light, with US housing data and consumer confidence on tap. Investors will also focus on the upcoming FOMC meeting minutes and US PCE inflation data later in the week. Overall, the currency pair remained range-bound, reflecting a cautious market mood.

Technical Analysis: 

The EUR/USD pair's recovery appears to be a correction from a technical standpoint. On the daily chart, the pair is trading below its moving averages, with the bearish 20-day Simple Moving Average (SMA) crossing below the directionless 100 and 200-day SMAs in the 1.0780/90 price zone. Technical indicators are moving slightly higher, but still remain below their midlines. However, in the near-term, the picture shows buyers gaining traction. The pair is trading above the 20-day SMA, while the longer-term moving averages maintain their bearish slopes above the current level. Technical indicators are also pointing higher, but are still struggling to overcome their midlines. The pair would need to surpass 1.0760 to confirm the positive momentum and extend gains towards the 1.0810 price zone.

Product: GBP/USD

Prediction: Increase

Fundamental Analysis: 

The Pound Sterling has gained ground against the US Dollar, recovering from a previous sharp sell-off. This rebound is due to a pause in the US Dollar's upward momentum. However, the US Dollar's outlook has strengthened after June's PMI data showed faster-than-expected expansion in the manufacturing and service sectors. This has lifted the mood of the Federal Reserve, as it indicates cooling price pressures and alignment with the 2% inflation target.

Despite the Pound's gains, the Bank of England is expected to start cutting interest rates in August, as indicated by a slightly dovish policy statement. Investors are also concerned about the UK's economic outlook, as the service sector activity unexpectedly slowed in June, though manufacturing expanded at a faster pace.

Technical Analysis: 

The GBP/USD pair fell below the 100-day Simple Moving Average (SMA) at 1.2640 last Friday but closed the week above this level, indicating sellers' hesitation. The Relative Strength Index (RSI) on the 4-hour chart has recovered towards 50, suggesting a potential upward move. On the upside, the immediate resistance is the 200-period SMA on the 4-hour chart at 1.2700 and 1.2800 (psychological level, static level). If the GBP/USD drops below 1.2640 and starts using that level as resistance, the next bearish targets could be 1.2600 (psychological level, static level).

Product:XAU/USD

Prediction: Increase

Fundamental Analysis: 

Gold prices are rising near $2,315 as US bond yields decline, with investors anticipating two Federal Reserve (Fed) rate cuts this year. Easing inflationary pressures in the US have fueled these expectations, with the May CPI report and the June PMI report showing signs of moderating price pressures.

The CME FedWatch tool suggests a 66% probability of a rate cut in September, and the 30-day Federal Funds futures pricing data indicates that the central bank will start the policy-easing campaign in September and deliver another cut in November or December. 

However, the Fed's own projections suggest only one rate cut this year, as policymakers want to see sustained inflation declines before pivoting to policy normalisation.

Technical Analysis: 

Gold prices have been consolidating between $2,277 and $2,450 for more than two months. The 50-day Exponential Moving Average (EMA) near $2,318 is providing support to the bulls. The 14-day Relative Strength Index (RSI) is oscillating in the 40-60 range, indicating indecision among market participants.

If gold breaks below the May 3 low of $2,277, it could face further downward pressure and potentially reach the March 21 high of $2,223. Conversely, a break above the May 20 high of $2,450 could propel gold into uncharted territory. 

Overall, the gold market is in a holding pattern, waiting for a clear direction to emerge.

Product: USD/JPY

Prediction: Increase

Fundamental Analysis: 

The Japanese Yen (JPY) is holding its ground, potentially due to verbal intervention by Japanese authorities. The country's top currency diplomat, Masato Kanda, warned of taking appropriate measures to address excessive exchange rate movements, citing their negative economic impact.

Meanwhile, the Dollar Index has edged lower, influenced by the decline in US Treasury bond yields. However, this downside may be limited as the stronger-than-expected US Purchasing Managers Index (PMI) has fueled speculation that the first interest rate cut this year may be delayed. The CME FedWatch Tool now indicates a 66% probability of a rate cut in September, down from 70.2% a week earlier.

Technical Analysis: 

The USD/JPY pair is trading around 159.50, with a bullish bias evident on the daily chart. The pair is testing the upper boundary of an ascending channel pattern, and the 14-day Relative Strength Index (RSI) is above 50, suggesting upward momentum.

If the pair surpasses the upper channel threshold, it could approach the 160.32 level, which represents a major resistance. On the downside, the immediate support appears at the nine-day Exponential Moving Average (EMA) at 158.42. A breach below this level could intensify downward pressure, potentially driving the pair toward the lower channel boundary around 155.60 and further down to the throwback support around 152.80.

Overall, the USD/JPY pair is exhibiting a bullish bias, with the potential to reach new highs or retrace toward key support levels.

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