As traders prepare for today’s US inflation report, market movements for currencies and commodities, particularly EUR/USD and gold futures, have remained relatively muted. The anticipation of consumer price index (CPI) figures has led to cautious positioning, given the relationship between employment data and inflation isn’t always straightforward.
EUR/USD Technical Analysis
The recent rebound of the USD over the past eight trading days suggests potential further downside for EUR/USD. Key points to consider include:
Current Dynamics: If US data continues to outperform expectations and the European Central Bank (ECB) adopts a dovish stance in its upcoming decisions, EUR/USD may face additional pressure. The pair may be heading toward the 1.09 handle and the 200-day moving average.
RSI Indicators: The daily Relative Strength Index (RSI) has formed a bullish divergence within the oversold zone, indicating potential for a pullback. However, a significant pullback has yet to materialize.
Support and Resistance Levels: Currently, EUR/USD prices are trading near the 61.8% Fibonacci retracement level and are closely hugging Wednesday’s low. The lower 1-day implied volatility level sits just below the monthly S2 pivot, which could act as a support level. However, due to its psychological significance as a round number, a stronger bounce could be expected if it holds.
Market Sentiment: Should inflation data come in softer than expected, short covering in EUR/USD could trigger a minor bounce. However, bearish sentiment remains strong, with traders likely to capitalize on any signs of strength to fade positions. Ultimately, the outlook suggests that if the downward trend persists, prices may break below 1.09 toward the 200-day MA.
Gold Futures Technical Analysis
Gold futures remain within a well-established uptrend despite trading lower for the second consecutive week. Key observations include:
Price Levels: Gold is currently holding above the monthly pivot point and the August 5 trendline. The daily RSI has begun to rise from the oversold territory, suggesting potential for a recovery.
Momentum Loss: The 1-hour chart indicates a loss of bearish momentum after gold fell below the monthly value area high (VAH), allowing a bullish divergence to form while prices stayed above the weekly VAH.
Potential for Upside: Based on recent price action, gold appears poised to move higher from current levels. However, this upward movement is contingent on a softer-than-expected inflation report. Even if inflation data comes in hot, the potential downside for gold could be limited due to the prior four-day decline.
Conclusion
Both EUR/USD and gold futures are positioned for potential volatility as the market reacts to the upcoming US inflation report. A softer CPI reading could provide support for both assets, while stronger-than-expected inflation may reinforce the dollar’s strength and suppress gold prices. Traders should remain vigilant, monitoring technical levels and market sentiment closely in response to the data release.
