The greenback extended its bullish sentiment last week increasing by approximately 0.6%, consequently pressuring other major currencies.
EUR/USD dropped by almost 1% after mixed signals from ECB President Lagarde regarding the monetary approach being implemented. Surprisingly, the GBP/USD pair was able to maintain its indecisive direction, closing exactly where its price opened last Monday at 1.20601.
On the other hand, USD/JPY moved higher on Monday, as the Japanese yen edged lower amid the election of a new BOJ governor, who is expected to maintain the central banks currently monetary policy tone.
USD/CHF movement is mixed in Monday’s session as inflation increased by 0.6% (MoM), much higher than its previous reading of -0.2%. This could lead the Swiss National Bank to potentially increase rates, which in turn could increase the value of the Swiss Franc in the short run.
Tuesday’s U.S. inflation report could be the trigger to further dollar gains, as the fall in inflation may not be happening as quick as the Federal Reserve would like. Now, as inflation's decent has started to slow, the Fed has hinted at further rate hikes.
Gold declined in the previous week from $1890 an ounce to close near the opening price at $1865 an ounce. The decline came following gains for the US Dollar, fueled by statements from the Fed Chairman and members indicating a continued path of raising interest rates to return inflation towards its target of 2%.
Investors are now awaiting tomorrow's US inflation data at 5:30 PM GST. The reading is of high importance considering its result will heavily influence the Fed's future interest rate decisions. If the data continues to appear stronger than what is expected, the US Federal Reserve be forced back to larger interest rate rises.
Analysts also expect Tuesday's inflation data to largely impact the movements of gold. If the reading comes in at or lower than expected, this may reflect positively on its price. However, a reading higher than previous reading or higher than expected may reflect negatively on gold.
Levels near $1872 an ounce are important resistance levels for gold's movements, and we will monitor its ability to target it.
As for silver, it is currently trading below the important support area near $22 an ounce, and the continuation of trading below those levels is considered negative.
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(Figure 1): XAUUSD, MetaTrader 5, CFI Brokerage
The earnings yield for US stocks is now close to turning negative versus the Fed Funds Rate for the first time since the tech bust consensus, adjusted S&P 500 2023 EPS has dropped beneath 2022's level to $222.10 vs. $222.80.
Among the sectors, energy, technology, health care, and materials are expected to have lower EPS in 2023 than in 2022. S&P500 aggregate earnings missed estimates for the first time since the 2008 financial crisis.
The S&P 500 and Nasdaq Composite lost 1.1% and 2.4%, respectively, while the Dow Jones declined 0.2%. On Tuesday, stocks rallied after Fed Chairman Powell repeated an earlier reference to the disinflation process starting. Markets are awaiting the anticipated CPI reading for more detail to reassess how high US interest rates could go this year.
In the oil markets, WTI and Brent are still in their weekly trading range. Both regained back losses from the start of the month, 8.9% for WTI and 8.4% for Brent, and closed at the upper boundary of the trading range.
Traders will be awaiting the latest US inflation reading and Russian market prices after announcing a planned cut in oil production by half a million barrels per day. In China, oil demand is rising with the reopening of the economy and relaxation of Covid restrictions. Saudi Arabia and Russia will be competing to meet the growing demand, accordingly.
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