Can gold break out of consolidation with US PCE data on the way?

[Market Review].

The US Dollar Index traded weakly. Last week, the dollar index surged as high as 92.42 due to the hawkish Fed, however, by the end of the week, the dollar index failed to stabilize its gains and fell below the 92 mark.

Federal Reserve officials are divided. Federal Reserve officials such as Bullard and Kaplan continue to emphasize that bond purchases can be tapered early, but there are also senior officials like Williams who emphasize that inflation is temporary and it is not yet time to reduce stimulus. Even Fed Chairman Jerome Powell’s attitude was not as hawkish as last week. He said he would not raise interest rates early simply because of concerns about soaring inflation, nor would he raise rates because he felt employment was too high, but would wait patiently for evidence of actual inflation or other imbalances. Overall, officials’ speeches this week did not release a stronger signal in terms of tapering bond purchases, and the dollar failed to get a boost.

The overall performance of U.S. economic data was good. In terms of data, the Markit services and manufacturing PMI released this week both recorded good performance. Initial claims also declined, although analysts say that the lack of willing workers could hinder faster job growth in the near term. Although the overall performance of the data released this week was good, it only briefly supported the dollar and failed to break the consolidation trend. Next we can keep an eye on tonight’s inflation indicator PCE data.

Biden said he reached an infrastructure deal with senators from both parties. As for the U.S. economic stimulus package, President Joe Biden said he has reached a preliminary agreement with a bipartisan group of senators on a $559 billion infrastructure plan. The White House said the current size is equivalent to two-thirds of the previous Biden proposal. Funding for the bipartisan infrastructure deal would come from strategic oil reserves, proceeds from 5g spectrum auctions, and an extension of expiring customs user fees. But then U.S. Senate Minority Leader Mitch McConnell said that less than two hours after the agreement gained support, Biden took the “extraordinary step” of threatening to veto the agreement, turning pessimistic about the infrastructure bill.

Gold is shaking sideways. Next, let’s focus on gold. Although the dollar index has fallen, gold’s reaction to it has been muted. Gold prices traded mainly in the $1760-$1790 range this week.

Silver is in distress. The trend in silver was similar to that of gold. Silver prices hit a low of $25.50 and a high of $26.27 this week, hovering around $26 for most of the week.

The euro rebounded from the previous week. While the dollar weakened, non-U.S. currencies generally rebounded. Among them, the euro rose more than 80 points against the dollar during the week, currently trading at 1.1940 near.

The Bank of England put “doves” to suppress the pound. Then look at the pound, the pound against the dollar also rose more than 100 points during the week. However, last night, the Bank of England hawkish degree than expected, the pound short dive. On Thursday, the Bank of England resolution announced that the benchmark interest rate and the total size of asset purchases remain unchanged, while pointing out that premature tightening of policy will damage the recovery. Only Holden in the committee considered tapering bond purchases.

U.S. oil shocks up. Finally, take a look at the oil market. U.S. oil has been shaking up this week and is currently hovering around $73. U.S. API and EIA crude inventories continue to record big declines. Both the plunge in inventories and the surge in demand during the peak driving season have reinforced expectations of tightening supply. However, U.S.-Iranian negotiations continue, adding to the volatility of oil prices. On top of that, investors are turning their attention to the upcoming OPEC+ meeting. It is reported that Russia has proposed to increase production.

[Risk Warning].

Oil demand is strong but oil market vulnerability remains

ANZ expects the OPEC+ meeting to be held on July 1 to consider its oil production agreement. The increase in travel trips and strong economic growth may accelerate the economic recovery, which will lead to a tight oil market.

However, the current situation remains fragile amid the sudden outbreak of the new crown epidemic and the potential increase in supply from various sources. The market is calling for increased crude oil supplies. At the same time, there are concerns about the inflationary impact of higher oil prices.

As more countries withdraw easing, the yen may show its strength

Mitsubishi UFJ Bank said that while the prospect of a U.S. interest rate hike is pushing the dollar higher against the yen, a broader reduction in stimulus in other advanced economies could help support the yen against other major currencies. Premature withdrawal of monetary or fiscal support measures could lead to a slowdown in the global economic recovery. In this scenario, commodity-related currencies are particularly vulnerable relative to the yen. With the withdrawal of dovish policies, the yen’s weakness against other major currencies could reverse.

If the Australian Fed put “hawk” Australian dollar is expected to recover lost ground

The Commonwealth Bank of Australia expects the Australian Federal Reserve to be one of the first central banks to raise interest rates, and an early rate hike is expected to support the recovery of the Australian dollar. But in the short term, financial markets are more interested in other aspects of monetary policy, namely yield curve control and bond purchase programs. In terms of bond purchases, it is still expected that the Australian Fed will announce a cut in the size of bond purchases from A$10 billion to A$5 billion at its July meeting. If the Australian Fed announces a debt reduction, the Australian dollar is expected to recover most of its recent lost ground.

Key Forecast]

20:30 U.S. May PCE data or bright performance

First, to focus on the United States will be released PCE data. The data released in recent months continue to climb, April PCE price index annual rate recorded 3.1%, a record high since July 1992; core PCE price index monthly rate recorded 0.7%, a record high since October 2001. Some agencies commented that these data suggest that consumers have enough money to continue spending at a steady pace to provide more support for economic growth, even if the impact of the third round of stimulus measures wanes.

Currently, the market expects the U.S. core PCE price index for May at an annual rate of 3.8%, if the published value is better than expected, or positive for the dollar; if the published value is less than expected, or negative for the dollar.

At the same time, we should also pay attention to the monthly rate of PCE price index published at the same time, the market is expected to be 0.6%. You need to consider the impact of these two sets of data on the dollar index.

Saturday 03:00 Williams may maintain a cautious stance

Next, pay attention to the speech to be delivered by New York Fed President Williams. In the previous speech, Williams continued to emphasize that inflation is temporary and it is not yet time to taper stimulus. The Fed is still far from maximizing employment and will adjust rate hike expectations based on the progress of the Fed’s policy goals. On balance, Williams is likely to maintain a cautious stance this time around. However, one needs to be wary that if his stance unexpectedly turns hawkish, the dollar index is expected to strengthen.