Today's analysis: XAUUSD Faces Potential Decline Amid Fed's Rate Uncertainty

Product:XAU/USD

Prediction: Decrease

Fundamental Analysis:

Gold (XAU/USD) has been trading in a range between $2,270 and $2,450 in recent weeks, with volatility driven by various economic factors. The release of lower-than-expected US Producer Price Index (PPI) data for May suggests the Federal Reserve (Fed) may move to cut interest rates sooner, supporting gold by reducing its holding cost. However, the Fed's more sober assessment of future rate cuts, as shown in the Summary of Economic Projections (SEP), has tempered market optimism, leading to a pullback in gold prices. The cooler-than-expected Consumer Price Index (CPI) data also triggered a sell-off in the US Dollar, which is negatively correlated to gold. Despite a buoyant labor market and rising wages, the Fed's cautious approach has dampened expectations of lower interest rates, influencing gold's performance.

Technical Analysis:

Gold appears to be forming a bearish Head-and-Shoulders (H&S) pattern, which could signal a potential trend reversal. The formation of the left and right shoulders, along with the head, and a declining trading volume, corroborates the pattern. A decisive break below the neckline at $2,279 would validate the H&S and activate downside targets at $2,171 and $2,106. Conversely, a break above $2,345 could bring the H&S pattern into doubt and indicate a continuation towards the $2,450 peak.

Product:EUR/USD

Prediction:Decrease

Fundamental Analysis:

The EUR/USD pair remains below 1.0800 as the US dollar stays firm, despite softer US inflation data. While the PPI and CPI reports suggest a cooling inflation outlook, the Fed's hawkish guidance outweighs this. Investors are also monitoring the French parliamentary elections, with concerns that a far-right victory could trigger a debt crisis. Meanwhile, the ECB has refused to commit to a specific rate-cut path, warning about persistent inflation driven by wage growth in the services sector. The mixed economic signals and policy uncertainty continue to weigh on the EUR/USD, as market participants navigate the complex landscape of global monetary policy and political dynamics.

Technical Analysis:

The EUR/USD pair has declined to the 1.0800 level after reaching a three-day high near 1.0850. Earlier, the currency pair had recovered from an almost five-week low near 1.0710, breaking above a Symmetrical Triangle pattern on the daily chart, suggesting improved near-term outlook. The pair now aims for a two-month high around 1.0900.

However, the long-term outlook remains uncertain, as the pair hovers near the 200-day Exponential Moving Average around 1.0800. The 14-period Relative Strength Index has found support near 40.00, indicating that the current consolidation phase could persist, with the RSI expected to oscillate within the 40.00-60.00 range.

Product:USD/JPY

Prediction: Increase

Fundamental Analysis:

The US Dollar (USD) saw a brief decline after a softer-than-expected US CPI report, briefly boosting the Japanese Yen (JPY) against the USD. However, news of only one projected Fed rate cut this year lent support to the USD, as markets understood policy decisions preceded the data. USD/JPY returned to pre-data levels, with the JPY underperforming G10 peers. The JPY's soft stance suggests little scope for a hawkish surprise from the Bank of Japan, an ongoing market bearishness that may allow Governor BoJ Ueda to try and catch the consensus off guard.

Technical Analysis:

The USD/JPY trades around 156.90, exhibiting a bullish tone as it consolidates within an ascending channel. The 14-day RSI above 50 signals upward momentum. Immediate resistance is at 157.00, a break above which could guide the pair towards 158.00 and 158.80. Further resistance lies at 160.32, a multi-decade high. Downside support is near the 50-day EMA at 155.09, aligning with the lower channel. A breach below could intensify selling pressure, potentially driving the pair towards the 152.80 support area.

Product: Dollar Index (USDX)

Prediction:Increase

Fundamental Analysis:

The U.S. dollar rose on Thursday despite softer-than-expected May PPI, as the Fed adopted a hawkish stance. The May PPI showed an unexpected 0.2% decline, while the previous month had increased by 0.5%. The CPI data released earlier had triggered a dollar sell-off. However, the optimism surrounding cooling inflation was not enough to suppress the dollar, as the Fed unexpectedly projected only one rate cut this year, delaying easing until December, leading to a dollar rebound. The U.S. dollar index gained 0.33% to 105.06, after touching a four-week high of 105.46 on Tuesday.

Technical Analysis:

The dollar, which had earlier dipped around 0.8% against a basket of major currencies, has since recouped roughly half of its initial decline. Technically, the dollar index has drawn in buyers after testing the 200-day moving average, which has repeatedly provided support since April. Currently, the index is undergoing another test of the 50-day moving average, with a new attempt to maintain an upward trajectory in progress.

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