KVB Market Analysis | 12 Sept: Gold Holds Above $2,500 as Inflation Softens Fed Rate Expectations

Product: EUR/USD

Prediction: Decrease

Fundamental Analysis:

The Euro is set to close Wednesday with slight losses against the U.S. Dollar, down 0.04% after the U.S. inflation report showed the core Consumer Price Index stalled in August. The EUR/USD trades around 1.1014, having peaked at 1.1055. The pair's weekly decline reached 1.1001, bouncing modestly before the close, and is heading into the Asian session around 1.1020 with a bearish outlook.

Markets turned risk-averse after the CPI release, reducing expectations for a 50 basis point rate cut by the Federal Reserve next week. The U.S. CPI rose 2.5% year-on-year in August, down from 2.9%. Investors are now focused on the European Central Bank, which is expected to cut interest rates by 25 basis points due to easing price pressures and recession concerns.

Technical Analysis:

The daily chart for the EUR/USD pair indicates that the risk is tilted toward the downside. The pair has continued to drop below a flat 20 Simple Moving Average (SMA), while the 100 SMA is losing momentum just above a flat 200 SMA, both significantly below the current price. Technical indicators have reduced their declines but remain in negative territory, showing no signs of a downward exhaustion.

On the 4-hour chart, readings suggest another downward move. The 20 SMA is gaining downward momentum beneath a flat 100 SMA, and after a modest bounce from the 200 SMA, indicators still lack strength. If the pair breaks below the 1.1000 level, it could push buyers out and attract more sellers, targeting a retest of the 1.0900 level.

Product: XAU/USD

Prediction: Increase

Fundamental Analysis:

Gold prices are holding above $2,500 on Thursday. Persistent U.S. inflation has reduced hopes for aggressive Fed policy easing, pushing the USD closer to its monthly high and limiting the upside for XAU/USD. Gold peaked at $2,528.95 during the mid-European session but then dropped towards $2,500 after U.S. economic data showed the August Consumer Price Index rose 2.5% year-on-year, easing from 2.9% in July but below the expected 2.6%. Core inflation matched expectations at 3.2%, while the monthly figure rose 0.3%, slightly above forecasts. These results have led to a more gradual Fed approach, with a 25 basis point cut expected next week. The European Central Bank will also meet on Thursday, likely trimming interest rates by 25 basis points.

Technical Analysis:

From a technical perspective, the daily chart for the XAU/USD pair indicates a bullish trend, despite a lack of upward momentum. The pair is trading above a positive 20 Simple Moving Average, with buyers supporting it. Meanwhile, the 100 and 200 SMAs also show bullish trends, remaining well below the current price. Technical indicators are in positive territory but lack clear directional strength, keeping the risk tilted upward.

In the short term, the 4-hour chart shows a neutral-to-bullish outlook. XAU/USD is above the converging 20 and 100 SMAs at around $2,507.00, with indicators rising from their midlines and maintaining an upward trajectory.

Product: GBP/USD

Prediction: Decrease

Fundamental Analysis:

The GBP/USD pair is under pressure, trading around 1.3045 as the market responds to recent U.S. inflation data. Economic reports released during the European session have added strain on the pound. Although headline inflation fell, the annual core CPI, which excludes food and energy prices, remained steady at 3.2% in August, matching expectations. However, both CPI and core CPI increased by 0.2% and 0.3% monthly, surpassing forecasts. This has led traders to lower the likelihood of a 50-basis-point rate cut by the Federal Reserve, now pricing in an 85% chance of a 25-basis-point cut.

The GBP was further weakened by disappointing GDP reports from the UK. Nonetheless, leading indicators suggest a potential rebound in UK economic activity, indicating that the Bank of England may not cut rates more than the expected 50 basis points by year-end, which could lend some support to the GBP.

Technical Analysis:

The decline of the GBP/USD pair to 1.3045 shows increasing bearish pressure, with key indicators like the Relative Strength Index near 50 and the Moving Average Convergence Divergence in negative territory. This suggests that bearish sentiment may continue, especially if the RSI falls below 50. While the overall uptrend is still intact, the drop below the 20-day moving average gives sellers an advantage in the short term.

If GBP/USD breaks below 1.3035, the first support level will be at 1.3028. Further weakness could see the pair drop to the 50-DMA at 1.2995, and a breach of that level may expose the March 8 high at 1.2894. On the other hand, if buyers maintain the price above 1.3150, it could lead to a recovery, with the first resistance at 1.3111, followed by the psychological level at 1.3150, and then the 1.3200 mark.

Product: USD/JPY

Prediction: Decrease

Fundamental Analysis:

The USD/JPY pair has struggled to maintain modest gains around 143.00 and appears stalled after recovering from a nearly nine-month low. Currently, prices are in the mid-143.00s, making them vulnerable to continuing the downtrend seen over the past two months. Despite signs of easing U.S. consumer prices, the core CPI shows persistent inflation, reducing expectations for a significant 50 basis point rate cut by the Federal Reserve next week. This helps the U.S. Dollar gain traction while undermining the safe-haven Japanese Yen.

Additionally, a surprise 0.2% decline in Japan's Producer Price Index for August weighed on the JPY. Traders are now awaiting the U.S. PPI release for further direction, though the outlook suggests a potential downward trend.

Technical Analysis:

The US Dollar is expected to trend downward, but the chance of breaking the key support level at 140.80 is low. Yesterday, we anticipated the USD would range between 142.40 and 144.00. It traded between 142.18 and 143.71, closing at 142.43, down 0.53%. While downward momentum is building, its not strong enough to indicate a prolonged decline. As long as the USD stays below 143.30 (with minor resistance at 142.70), it may continue to decline and possibly dip below July's low of 141.66. However, the significant support at 140.80 is not likely to be threatened.

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