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The trading week continues, and for now gold remains under notable pressure in the short term. This can be seen in the performance of XAU/USD over the last three trading sessions, where the metal has declined by more than 2.00%, bringing a bearish bias back into focus after it had lost momentum in recent weeks.
Although the Mexican peso is attempting to regain some ground during today's session, price action throughout the week shows a gain of more than 1.00% in USD/MXN, highlighting buying momentum that continues to favor the U.S. dollar.
The Fed delivered a unanimous hike, stronger economic projections and a more hawkish dot plot, giving markets little reason to unwind aggressive tightening bets and keeping the dollar firmly supported.
Gold continues to face challenging conditions in the short term, with the precious metal already recording three consecutive losing sessions and posting a decline of nearly 2.3%. This price action continues to highlight a bearish bias that has become increasingly relevant within the market.
The usual USD/JPY rates relationship broke down sharply earlier this month, but with speculative shorts flushed out and Japan’s curve re-steepening, the pair heads into the Fed and BOJ with far more two-way risk.
Assuming the Fed delivers the expected hike, traders will want to know WHAT could prompt another hike, WHY they hiked this time, and HOW to interpret the dot plot.
The euro has started to face a more challenging period in the short term. The EUR/USD pair has already declined by nearly 0.81% over the last four trading sessions, a move that has begun to reinforce a meaningful bearish bias in favor of the U.S. dollar.
GBP/USD is locked within a tight technical range, with the Fed and BoE decisions poised to provide the catalyst for the next major move.
From 1994 and 1999 through to the dollar surge of 2022, history shows Fed tightening has produced very different outcomes for DXY.
As the trading week comes to an end, one of the most relevant developments has been the neutral behavior displayed by gold in the short term. Over the last four trading sessions, price action has registered only a modest move of around -0.36%, a dynamic that highlights the recent lack of momentum around the metal.
A rare surge in US-Japan yield spreads has failed to lift USD/JPY, but with bond yields still rising and the pair printing a bullish engulfing candle, reversal risk is rising.
A core CPI reading that rounds to 0.3% m/m or even an unrounded reading above 0.20% would signal that inflation is not slowing sufficiently, and a Fed rate hike may be necessary next week. What would that mean for the US dollar?
The trading week is getting underway and, for now, gold has struggled to maintain the strength that characterized its performance in previous weeks. Average price action over the last two sessions shows a decline of roughly 1.5%, reflecting a loss of momentum that has started to highlight a more neutral market environment.
