Fawad Razaqzada

For now, at least, my near-term gold outlook remains modestly bearish, even if I have a strong long-term bullish bias towards gold and especially silver.

Following the CPI-related drop yesterday, Nasdaq 100 futures have fallen further following a weak handover from Asian markets overnight. US stocks came under intense pressure after a hotter-than-expected inflation report revived bets on further Federal Reserve rate hikes and sent Treasury yields and the dollar higher. While both the dollar and yields subsequently dropped back to pre-CPI levels and more in the case of yields, the Nasdaq has failed to respond positively as concerns over AI trade remained.

Hotter-than-expected US inflation has pushed USD/JPY above its 200-day moving average, putting 160 and the risk of Bank of Japan intervention back in focus. The breakout still needs to hold, and a failure could send the pair sharply lower.

US index futures rebounded in the first half of Wednesday’s session, along with European indices ahead of the release of US CPI. Some slightly dovish remarks from the Fed’s Williams seem to have helped sentiment a little, but whether those comments will be backed by data remains to be seen. While slightly hotter than expected inflation data shouldn’t be enough for markets to price in an October Fed hike with more than a coin flip probability, it can nonetheless reinforce expectations of further tightening later in the year.

The EUR/USD forecast hinges on U.S. CPI after five straight weekly losses, with hawkish Fed bets and a fully priced ECB rate hike weighing on the euro.

The USD/JPY eased lower today with the greenback also declining against several other currencies. However, at the time of writing, oil prices were bouncing back and yields were off their lows again. The US dollar hadn’t moved much yet, but these forces could help it to regain its poise ahead of the release of US CPI on Wednesday.

Amid a lack of any major news, the FX markets have been largely in consolidation mode in the first half of Tuesday’s session. The US dollar eased along with bond yields and oil prices, allowing downbeat currencies like the euro to rebound modestly. With US CPI data due for release on Wednesday, don’t expect much in the way of a sharper decline in USD ahead of it. If anything, we could see the dollar buying resume, especially if crude oil prices catch a bid again amid the ongoing situation.

News over the weekend, including continued Houthi strikes in Riyadh has had negative impact on foreign currencies so far, especially those where the economy relies on energy imports. The EUR/USD is particularly vulnerable as lingering concerns over French fiscal policy continue to undermine the euro.

Gold came under renewed pressure in the first half of Monday’s session, alongside weakness across the major FX pairs, especially the EUR/USD. The gold weakness follows a relatively sharp two-day rally at the end of last week, which had raised hopes that the metal may finally have found a floor.