Gold Price remains on track to register losses for the week. Annual CPI in US rose to a fresh multi-decade high in September. The Fed is widely expected to hike its policy rate by 50 bps next week. Gold Price came under technical selling pressure after falling below the 200-day SMA on Friday and extended its slide with the initial reaction to the US inflation data. After having touched its lowest level since May 19 at $1,825, however, gold retraced a portion of its daily decline. Nevertheless, XAUUSD was last seen losing 1% on a weekly basis.  Buyers move to the sidelines The fact that XAUUSD failed to hold above the 200-day SMA suggests that buyers remain hesitant and stay on the sidelines. With the latest data from the US reminding markets that price pressures are yet to ease and that the Fed is likely to stick to its aggressive tightening stance, gold could find it difficult to attract investors.   Gold Price on the back foot after US inflation data Inflation in the United States, as measured by the Consumer Price Index, climbed to a multi-decade high of 8.6% on a yearly basis in May, the monthly data published by the US Bureau of Labor Statistics revealed on Friday. This print came in higher than the market expectation of 8.3%. The Core CPI, which excludes volatile food and energy prices, edged lower to 6% from 6.2% in the same period but surpassed analysts' estimate of 5.9%. With the immediate reaction, XAUUSD fell to its weakest point in three weeks and struggled to stage a meaningful rebound.  US bond yields turned north in the second half of the day on Friday with hot US inflation data pointing to further monetary tightening. The benchmark 10-year yield advanced beyond 3.1% for the first time since early May. It's also worth noting that Wall Street's main indexes suffered heavy losses and the negative shift witnessed in risk sentiment ramped up the demand for safe-haven bonds, limiting yields' upside for the time being. Next week, the Federal Reserve is widely expected to hike its policy rate by 50 basis points to the 1.25%-1.5% range. The Fed remains on track to opt for another 50 bps rate increase in July and it shouldn't be a surprise if that's confirmed. The main question is whether the Fed will pause hikes in September. "While more than two-thirds of respondents, 59 of 85, expected a 25 basis point hike in September, more than one-quarter, 23, saw the Fed hiking again by half a point," a recently conducted Reuters poll of economists revealed this week. In case the Fed or FOMC Chairman Jerome Powell pushes back against a rate hike in September, this could be seen as dovish guidance and cause US Treasury bond yields to decline. In that scenario, gold is likely to gather bullish momentum. On the other hand, the dollar should continue to outperform its rivals and weigh on XAUUSD if the Fed leaves the door open for another rate increase in September. Federal Reserve building in Washington D.C. The European Central Bank's (ECB) policy statement revealed on Thursday that the bank is not yet ready to commit to a 50 basis points rate hike in September and caused the shared currency to come under strong selling pressure. Next Friday, Eurostat will release the Harmonised Index of Consumer Prices (HICP) data. Investors expect the Core HICP to retreat to 3.5% in May from 3.8% in April. Since the ECB's rate outlook depends on inflation developments, a stronger-than-forecast HICP print could cause investors to start pricing a 50 bps rate increase in September. In that case, XAUEUR could decline sharply and make it difficult for XAUUSD to gain traction regardless of the dollar's market valuation.  Gold Price technical outlook Gold Price continues to trade below the key 200-day SMA, which is currently located at $1,840. In case gold makes a daily close below that level and starts using it as resistance, this could be seen as a significant bearish development and open the door for additional losses toward $1,810 (the endpoint of the latest downtrend) and $1,800 (psychological level) afterwards.  On the other hand, initial resistance aligns at $1,850 (Fibonacci 23.6% retracement). If a dovish Fed rate guidance causes the US yields to fall next week, gold could rise above that level and extend its recovery toward $1,875 (Fibonacci 38.2% retracement) and $1,890 (100-day SMA) next. Meanwhile, the Relative Strength Index (RSI) indicator on the daily chart is edging lower toward 40, suggesting that the slightly bearish bias stays intact in the near term. Gold Price Report: Commodity Super Cycle

EUR/USD plunged to a near three-week low after the ECB announced its decision on Thursday. The lack of a clear signal for 50 bps disappointed investors and weighed on the shared currency. Elevated US bond yields, the risk-off mood benefitted the USD and contributed to the selling. The focus now shifts to the crucial US consumer inflation figures for May, due later this Friday. The EUR/USD pair witnessed a dramatic intraday turnaround on Thursday and tumbled over 150 pips from the weekly high after the European Central Bank (ECB) announced its policy decision. As was widely expected, the ECB decided to leave key interest rates unchanged and end its long-running asset purchase program as of July 1, 2022. In the accompanying policy statement, the central bank sent a clear signal that it would deliver its first rate hike since 2011 in July and left the door open for a potentially larger move in September. The shared currency did get a minor lift in the wake of the hawkish outlook, though it struggled to capitalize on the move. The ECB failed to specify the size of the rate hike in September and said that it would be dependent on the inflation forecasts at that time. In the post-meeting press conference, ECB President Christine Lagarde said that if September projections put 2024 inflation at 2.1% or higher, the rate hike would be bigger than 25 bps. The conditional jumbo hike in September and the lack of additional details disappointed some investors, which, in turn, was seen as a key factor that acted as a headwind for the common currency. Apart from this, resurgent US dollar demand exerted heavy downward pressure on the EUR/USD pair and contributed to the steep intraday decline. The ECB's forward guidance unnerved investors amid doubts that major central banks can hike interest rates to curb inflation without impacting economic growth. This, in turn, led to the overnight selloff in the US equity markets, which, along with elevated US Treasury bond yields, provided a strong boost to the safe-haven greenback. In fact, the yield on the benchmark 10-year US government bond held steady above the 3.0% threshold amid concerns about rising inflation, which might force the Fed to tighten its policy at a faster pace. Hence, the focus now shifts to the US consumer inflation figures for May, due later during the early North American on Friday. The crucial US CPI report could influence the scale and speed of the Fed's monetary tightening path. This would play a key role in driving the near-term USD demand and provide a fresh directional impetus to the EUR/USD pair. Heading into the key data risk, the USD was seen consolidating the overnight gains to a three-week peak, which, in turn, assisted the pair in gaining some positive traction during the Asian session. The upside, however, seems limited as investors might prefer to wait on the sidelines and wait for a fresh catalyst before placing aggressive bets. Technical outlook From a technical perspective, the overnight slide confirmed a near-term bearish breakdown through a two-and-half-week-old trading range. A subsequent fall below the previous monthly low, around the 1.0625 region, supports prospects for further losses. Some follow-through selling below the 1.0600 mark will reaffirm the negative bias and drag the EUR/USD pair towards the 1.0550-1.0545 area, or the 23.6% Fibonacci retracement level of the 1.1185-1.0350 fall. The downward trajectory could further get extended towards the 1.0500 psychological mark, which if broken would expose the YTD low, around mid-1.3000s with some intermediate support near the 1.0400 round figure. On the flip side, any meaningful recovery attempt now seems to confront stiff resistance near the 1.0670-1.0675 area, or the 38.2% Fibo. level. The said barrier now coincides with the 50-day SMA and should act as a pivotal point. Sustained strength beyond might trigger a short-covering rally and lift the EUR/USD pair further beyond the 1.0700 mark, towards testing the 1.0775-1.0780 supply zone, or the 50% Fibo. level.

MARKETS Equities are selling off again with a lot of macro data points to digest ahead of CPI later today, including China's Covid situation regressing and the hawkish pivot from several central banks this week triggering rates higher stock markets lower negative feedback loop. Not to mention the increasing number of corporate profit warnings, as inventories swell they tend not to age well. With monetary policy feeding lower growth expectations, there is a degree of circularity stagflation concerns building as central banks continue surprising to the hawkish side with no end in sight until inflation moves more convincingly towards the target. Indeed, this week highlights a broader point about central banks' implicit comfort in accepting lower asset prices. But worryingly, the markets are now concerned US CPI did not peak in March, and indeed there may be even higher prints in the coming months. Continued strong inflation prints would put the FOMC under pressure to move faster on rate hikes which would provide massive soundboard for the hard landing crowd. In any case, this stagflation narrative has begun to play out in broader macro, with curves flattening and commodities struggling to push on while the dollar remains bid. Therefore, it is unsurprising to see areas of the equity market sensitive to global growth get massively hit. OIL  After shaking off the China lockdown, for the most part, the oil complex has accepted China's stop and start economics; crude oil is taking a bit of a hit due to the stronger US dollar as stagflation concerns knock down broader markets again.  And another stifling point for energy bulls is since the ongoing global release of strategic reserves and the recent increase in OPEC+ production quotas are doing little to cool oil prices, they think US policymakers could grow increasingly desperate ahead of the November elections and may even allow Venezuelan export to Europe, which could be a price capper. But the clearest read-through for oil markets, regardless of what stock markets are doing, is as we head deeper into the US summer driving season, tight oil and product markets should still support oil.  Meanwhile, an explosion and fire at the Freeport LNG terminal support natural gas prices and provide a bullish knock-on effect across the energy spectrum. The US has been the biggest exporter of LNG this year and has played a significant role in alleviating some pressure on Europe as Russian gas exports have declined. The Freeport outage will support prices in the near term and recovering Asian demand may mean fewer LNG cargoes for redirection to Europe ahead of the 2022/23 winter season. The gas storage situation in Europe is looking less dire than at the start of the year, but there are still considerable risks in the coming months which mean it may be too early to count on gas prices beginning to normalize. FRIDAY's FOREX FOLLIES  EUR  The Euro is falling like a faulty hot air balloon where the action speaks louder than words. The ECB's message was clear about leaving the door open for more extensive hikes due to wage growth concerns and admission of faulty forecasting. But crucially, the much-talked-about spread control tool was merely hot air. After all, any buying program would have been hard to justify in the context of exit from APP and negative rates and PEPP reinvestments just will not cut it. Markets have priced out a 50 bp hike in July, while a 25 bp hike in July was already a foregone conclusion as far as the market was concerned. Now that the ECB has laid out its intentions regarding July being on the table, it is now a case of action speaks louder than words Why the ECB talked themselves into a corner by more or less committing to 25bp is not clear, but if they see the market become concerned about peripheral spreads, it is unlikely they would go 50bp in July before they have worked that out through some spread control tool. CNH Time for the USDJPY catch-up trade? One of the potential drivers of the USDCNH rally was CNHJPY hitting 20. With CNHJPY back up around 20 after the latest move in USDJPY, it is worth adding longs again, given the previous inclination for FX traders to play catch up with the USDJPY CAD IN an ominous signal, the loonie is lower despite a hawkish Tiff. And for us, that cut our FX chops trading CAD on Bay Street, and who refer to the loonie as the " truth," it is a gnarly sign for global growth.  Bank of Canada Governor Tiff Macklem sounded hawkish on the wires, saying chances of rates going above 3% have risen and more or more significant rate hikes could be on the cards, yet the Canadian dollar underperformed severely. For...

Outlook: Today the main release is jobless claims and hardly anyone will try to make a mountain out of that molehill. The one important data this week is tomorrow’s CPI, likely an advance on the most recent numbers, 8.3% in April from 8.5% in March but perhaps back up to 8.4-8.5%. Bloomberg tells us to worry about the yen getting too weak, nearing a 24-year low that “may spark turmoil on the scale of the 1997 Asian Financial Crisis if it declines as far as 150 per dollar, according to veteran economist Jim O’Neill. Speculators are gathering around the beleaguered currency and positioning is by no means extended, suggesting there’s still room for bears to pile in. Some 74% of Japanese business managers say a weak yen is having a negative impact on the nation’s economy.” No, the Asian crisis was caused by over-extended credit to Thailand and other EMs, then a dawning realization that many emerging markets had borrowed too much, including Argentina and Russia. Those high-yielding bonds crashed on plain, old-fashioned sovereign credit risk. Currencies fell afterwards. While it’s true Japan has the most debt of any of the majors by any measure (per capita, etc.) most of it is owned by the Japanese themselves. Japan is not reliant on foreigners to buy its sovereign paper. So, the comparison is false. One thing is nothing like the other and to bring up the Asian crisis is a just glib showing off. Elsewhere, we see a somewhat peculiar relationship between currencies whose central banks have already raised rates losing upward momentum (to wit, NZD, AUD) in the “sell the news” manner, while those still in expectations mode are doing better, despite inferior relative returns, nominal and real. Oxford Economics says “The straightforward explanation is that there is little further tightening for the market to price in from here,” especially for currencies already a bit overvalued (NZD again). This implies “early movers are rewarded, but lack of follow through will be penalised. We see GBP and CAD moving into this camp in 2022H2, and the US Dollar in 2023.” We agree, on the whole, except maybe about the endless hikes expected from the Fed. If it’s expectations of future policy decisions that rules the roost and we can’t see the end for the Fed (if only due to pig-headedness in some quarters), maybe the Fed overshoots. So, does this mean the dollar falls even if and when the US real rate of return is higher than everyone else? Or does it mean the dollar crashes once it’s clear the Fed is done even though by then the US has the highest real return over everyone else? Rocky’s Rule #1: The only reason to make an investment denominated in another currency is to get a higher real return in your home currency after tax. The other issue is the institutional factor, in this case confidence in the central bank. It’s pretty high in Europe even as the ECB is obviously behind the curve and distracted by things like divergence in market-driven bond yields that may need some emergency actions. The US has nothing like this. Well, the US has nothing like Italy. Even Italy is not really (classic profligate) Italy anymore, not with Mr. Draghi at the helm. So, if the NZD early-mover saga has a parallel in the eurozone, that means the late-mover, the ECB and the euro, have a lot more breathing room than yields and expected yields would ordinarily dictate. Interesting folks, those Oxford Economists. The big story looming over us all is what, if anything, the ECB was going to do at the policy meeting today. The consensus was no rate change, however much the hawks squawk for even a little something (let alone the 50 bp they really want), but probably some reassuring noises about “maybe next time,” meaning July. Recall the ECB hasn’t been in the hiking mood since 2011. And this is exactly what we got. For one thing, the bank wants to end QE before hiking and that doesn’t happen until next month. For another, the core inflation rate is “only” 3.8%, up a measly 0.3% from the month before (vs. 8.1% in May from 7.4% in April). By July the core will be over the 2% target for a full year, which has the ring of justification. It doesn’t but can be made to sound that way.     Econoday opines that a hike will help tamp down wage demands in Germany (8.2%) and France (20%, yowza)–these are precisely the wage-push contributors to inflation most feared in Europe for decades now. This is probably a lost cause--the unions are far too savvy to believe that raising the cost of doing business via interest rates is in any way a benefit to them...

EUR/USD prolongs its rangebound price moves and remains confined in a familiar trading band. Expectations for an imminent ECB rate hike continued lending support to the common currency. Modest USD strength continued acting as a headwind ahead of the ECB monetary policy meeting. The EUR/USD pair attracted some buying on Wednesday, albeit lacked follow-through and remained confined in a familiar trading range held over the past two-and-half weeks or so. The shared currency drew support from an upward revision of the Eurozone GDP, showing that the region's economy expanded by 0.6% QoQ in the first quarter as against 0.3% estimated previously. Apart from this, expectations for imminent interest rate hikes by the European Central Bank (ECB) offered some support to the major, though modest US dollar strength acted as a headwind. Investors remain concerned that the global supply chain disruption caused by the Russia-Ukraine war might push consumer prices even higher. This continued fueling speculations that the Fed would tighten its monetary policy at a faster pace, which, in turn, triggered a fresh leg up in the US Treasury bond yields. This, along with the prevalent cautious mood, offered support to the safe-haven greenback. The market sentiment remains fragile amid worries that a more aggressive move by major central banks to control inflation could spark an economic slowdown. The aforementioned diverging forces held back traders from placing aggressive directional bets around the EUR/USD pair and led to subdued/range-bound price moves. Market participants also preferred to wait on the sidelines ahead of the key central bank event risk - the highly-anticipated ECB monetary policy meeting on Thursday. The ECB is expected to take a hawkish stance and lay the groundwork for an interest rate hike in July. The prospect of a 50 bps rate hike has gathered steam following the recent data showing that inflation hit a record high in May. Furthermore, the markets are currently betting on a 75 bps of tightening by September and a total of 130 bps by year-end, implying a jumbo rise at one of the four meetings after June. This raises the risk of disappointment if ECB President Christine Lagarde sticks to her previous stance for 25 bps rake hikes in July and September. Meanwhile, dovish members of the governing council remain wary of a sharp shift in policy amid expectations for inflation to cool. The positioning suggests that the euro could weaken if ECB fails to signal a 50 bps rate hike. Technical outlook From a technical perspective, nothing seems to have changed for the pair and the rangebound price moves point to indecision among traders over the next leg of a directional move. Meanwhile, the recent strong rebound from the YTD low stalled near the 50% Fibonacci retracement level of the 1.1185-1.0350 fall. The said barrier, around the 1.0775-1.0780 region, should act as a pivotal point, which if cleared might be seen as a fresh trigger for bullish traders. Some follow-through buying beyond the 1.0800 mark would reaffirm the constructive outlook and lift spot prices to the next relevant hurdle near the mid-1.0800s. The momentum could further get extended towards the 61.8% Fibo. level, around the 1.0880 zone en-route the 1.0900 round figure and 1.0935-1.0940 supply zone. On the flip side, weakness below the 1.0700 mark is likely to find decent support near the 38.2% Fibo. level, around the 1.0670 region. This is followed by last week’s swing low, around the 1.0625 region, and the 1.0600 mark. Failure to defend the said support levels would prompt aggressive technical selling and darg the EUR/USD pair back towards the 23.6% Fibo. level, around the 1.0550-1.0545 area. Bears might eventually aim to challenge the 1.0500 psychological mark, which if broken would make the pair vulnerable to break below the 1.0400 mark and retest the YTD low, around mid-1.0300s touched in May.

The ECB is likely to keep key rates unchanged while hinting at a July lift-off. Details on the pace of the rate increases will rock the euro. The ECB is set to confirm an end of its QE program in Q3, economic projections closely eyed. The European Central Bank’s (ECB) June 9 monetary policy decision is likely to be a highly significant one, as the central bank is seen signaling its first-rate hike in over a decade. Increasing signs of inflation broadening out in the old continent have compelled the ECB to prepare for a lift-off sooner than previously expected. ECB rate hike forecasts hold the key The ECB is unanimously expected to hold its benchmark deposit rate at -0.50% when it meets this Thursday to decide on its monetary policy. Although the central bank could announce an end of its regular asset purchase programme (APP) on July 1. Despite being the laggards of the central banks to embark on the tightening cycle, ECB President Christine Lagarde has well telegraphed the upcoming rate hike track. A clear signal for a July lift-off will be on the table, which will likely move the current deposit rate for the first time since 2014. It will be the first increase in the rates since 2011. The specifics on the pace of the central bank’s tightening path, combined with the central bank’s growth and inflation forecasts will be closely examined. Last week's Eurozone inflation print hit a new all-time high at 8.1% YoY in May and core CPI accelerated 3.8% on an annualized basis. As inflationary pressures broaden, markets will be more inclined to know if Lagarde and Company debated a 50 basis points (bps) rate hike for July or a smaller 25 bps hike, leaving room for rapid or double-dose rate hikes in the coming months. Heading into the ECB decision, money markets are pricing in over 130 bps hikes by year-end, with a 50 bps move at a single meeting fully priced in by October. Meanwhile, the central bank’s economic projections will be watched out for, given that a July rate hike is already baked in. Amidst looming recession risks, in the face of higher energy costs and supply chain crisis, a downgrade to the euro area growth estimates will not go down well with the EUR market should the ECB up its inflation forecasts. Trading EUR/USD with the ECB Risks remain skewed to the downside for EUR/USD in the run-up to the ECB showdown, as the main currency pair has confirmed a rising wedge breakdown on the daily chart on Wednesday. EUR/USD: Daily chart Meanwhile, the US dollar keeps the upper hand amid the renewed upside in the Treasury yields ahead of Friday’s inflation data. Against this backdrop, EUR/USD could fall towards 1.0600 on the ‘sell the fact, buy the rumor’ trading should the ECB confirm the much-priced July rate hike. Any hints on a probable double-dose lift-off could briefly power EUR bulls, which could be offset by any cautious remarks from the ECB Chief or by the growth forecast downgrade. The upside in the major is likely to remain capped at around 1.0750. In case of a major hawkish surprise, hinting at aggressive ECB tightening, the previous week’s high near 1.0800 could be tested.