Traders Still Expect a Pause by the Fed This Month

Gold and the US dollar haven’t moved strongly this week after the House of Representatives passed the debt deal on Wednesday night GMT as expected. The focus has now shifted onto the US job report on Friday and the outlook for the Fed’s next meeting on 14 June. This article summarises the latest news, expectations and activity on the charts of gold and euro-dollar.

The bill on the debt ceiling passed with an unexpectedly large vote in favour of 314. While it had been very unlikely that the USA would have defaulted this month given general bipartisan support for the bill, few analysts expected a majority of more than 50-60. This suggests that the focus for markets in the next few days is likely to shift away from American politics and back onto economic data and possibilities for monetary policy.

Comments from senior members of the Fed on Wednesday this week to the effect that more time is required to assess the impact of tightening so far led many participants in markets to expect a pause in hiking this month:

The majority once again expects a pause at 5-5.25% at least for now, a change from a week ago. The last release of non-core annual inflation for the USA showed 4.9% while annual change in personal consumption expenditures, the Fed’s usual measure of inflation, came in higher than expected at 4.4% last week.

On the whole, the timeline for a possible pivot has become much less clear in recent weeks with the Fed’s earlier warnings of ‘higher for longer’ being taken more seriously now by participants. Meanwhile yields from benchmark decade Treasury bonds have declined slightly more than 0.1% since the end of last week.

The upcoming NFP is expected to be weaker once again, with 190,000 the consensus for total nonfarm against April’s 253,000 and unemployment seen at 3.5% compared to the previous 3.4%. Given the general trend in 2023 of stronger than expected NFPs, a positive surprise seems to be possible, but as usual it’s less risky to wait for the actual release, at 12.30 GMT on Friday, and act based on that rather than trying to preempt.

Gold, Daily

Although there was some downward momentum later last week, gold’s move lower seems to have been rejected for now around $1,940. Depending on the results from the NFP, there might be scope for it to push back up to the 50 SMA around $1,975 or possibly even higher. The overall uptrend is still active and the slow stochastic completed an upward crossover in oversold on Tuesday. However, another break above $2,000 seems unfavourable for now. Usually, one would expect gold to be more volatile around the NFP than most forex pairs, so it might make sense to keep positions small ahead of the important releases.

Euro-dollar, Daily

Unlike gold, euro-dollar made a new low this week slightly below $1.07, influenced partially by the news of a technical recession in Germany. While inflation in the eurozone appears to be slowing down more than expected, at more than 6% across the bloc it remains significantly higher than in the USA. The European Central Bank is expected to call for another single hike to 4% at its meeting on Thursday 15 June, the day after the Fed.

The main arguments in favour of buying around the current area are the important support from the 200 SMA, lack of a clear break below $1.07 and a continuing oversold signal from the slow stochastic. The potential target could be within the value area between the 20 and 50 SMAs, but the 100 SMA around $1.08 might cap gains. It’d be unlikely to see a strong move by EURUSD ahead of the NFP; equally, if there’s a surprise in either direction from the actual release, the chart is likely to track that and possibly invalidate ideas formed now.

For more details about these or any other relevant instruments plus a detailed preview of the Fed’s meeting, please register for and attend Exness’ upcoming webinar on 12 June at 10.00 GMT.

The opinions in this article are personal to the writer. They do not reflect those of Exness or FX Empire.