Gold gained almost 1% yesterday ahead of the US inflation data to be released today. The inflation report is closely monitored by investors looking for a hedge against rising prices.
The price of gold recovered from its lows, and now the market formed a possible bullish flag pattern. Ahead of the US inflation data to be released later in the trading day, the US dollar is offered on both the commodity and the currency markets.
The US equity indices had a great start to the trading week – all three major indices (S&P500, Dow Jones, Nasdaq 100) posted record-high closes. In Europe, the second trading session of the week started with the main indices consolidating. The Spanish index is down more than half a percentage point, while the DAX is unchanged. Only the FTSE100 followed the US equities higher, up 0.37% at the time of writing.
Oil found strong support at $70 and has climbed ever since. It is currently trading at $74.50 and may go as high as $77 per barrel.
The market participants’ attention today is on the US CPI report for the month of June. The expectations are that the prices of goods and services in the United States have increased further, by 0.5%, following a 0.6% increase in the previous month.
More importantly, deviations from the estimated Core CPI will impact the US dollar strongly because the Fed looks at the core data (i.e. excluding food and energy data) to measure inflation. The bias is that both the headline and core data will beat expectations due to the accommodative fiscal and monetary policies in place in the United States.
Markets to Watch
Gold, EUR/USD, EUR/AUD– markets in focus today.
There is no better day to talk about gold as an investment than the day that US inflation data is released. Gold has historically served as a hedge against inflation, and it is forecasted to rise for the rest of the year and perhaps even in the years to come.
From a technical perspective, the market appears to have formed a possible bullish flag pattern. While above $1,800, the price action remains bullish with a target of $1,875 if the bullish flag is confirmed by the future price action.
The main currency pair on the FX dashboard also bounced from its recent lows, and contrarian traders may argue that the market has formed a falling wedge pattern. If the price climbs above 1.19, bulls will try to push it back to 1.20 as the wedge will attract more technical interest.
EUR/AUD is viewed as a pair inversely correlated with the risk-on environment. Namely, when the US stock market indices rise, the EUR/AUD declines.
But lately, the correlation stalled. This market looks constructive, as it broke the previous lower high and now eyes a move back above 1.60. On any weakness on the US equity markets, the pair may break decisively above resistance.
Winners and Losers
US equity market remains strong, with major indices closing at record highs, while the Japanese yen is offered currently.