- Fed, ECB speeches - as well as Fed minutes - will guide the US dollar's direction in the first week of H2
- French elections may increase EUR/USD volatility
- Key support for the DXY is 106, with crucial data potentially affecting gold prices.
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Despite the US holiday on Thursday, investors have plenty of events to monitor as we enter the second half of the year. Among these, speeches from the FED and ECB Presidents and central bank minutes will be especially important in determining the US dollar's direction going forward.
EUR/USD investors should also pay close attention to the French election. After the right-wing landslide in the first round yesterday, we're bound to see more volatility in the currency pair moving closer to the second round on July 7th.
Additionally, the UK is holding elections this week. Depending on the outcomes, economic policies in both countries may change, adding another layer of uncertainty for the markets.
Let's take a look at the most important trading levels for the greenback as well as for the EUR/USD, and for gold looking into the week ahead.
US Dollar Hangs on 106 Support - But for How Long?
Although the DXY maintained its trend throughout June, it faced persistent pressure at the 106 level. During this period, the dollar index, largely influenced by the Fed's cautious stance on interest rates and prevailing market uncertainties, rose by 1.17%, recovering some of the losses incurred in the previous month.
Overall, the DXY continues to move along the lower boundary of the upward band that has persisted since the beginning of the year, disregarding the short-term downward volatility seen in early June.
Technically, the dollar index is likely to maintain its upward trend as long as it stays above this trend line, making the current average level of 105.5 an important support point.
A break below this level could push the DXY down to 104 during the month. Therefore, Powell's speech this week, along with the Non-Farm Employment and unemployment data to be released on Friday, is of critical importance.
If Powell makes a hawkish statement followed by signs of deterioration in employment, the dollar might retreat as it would increase the likelihood of a rate cut in September. Otherwise, the dollar may continue to strengthen against the six major currencies, which would mean continued pressure on risky markets.
Waiting process under ounce continues
With many factors in play, gold keeps on searching for direction. Examining its short-term price movement, bulls are using the approximately $2,330 as a pivot level after retreating from $2,450 in May.
Normally, increased geopolitical risk worldwide would be expected to drive a rapid orientation towards gold, but this risk has started to normalize recently. Specifically, the steps taken by Russia in recent days have been perceived as a significant risk factor, yet the course of gold prices has remained stable.
However, at this point, uncertainty about the Fed's interest rate decisions, closely followed by global markets, impacts gold more significantly.
Technically, gold started the week around $2,330. Moderate messages from the Fed and US data may lead to a test of the $2,360 resistance on the upside. A weekly close above this resistance point could lead to new peaks above $2,450 during the month.
Conversely, strong employment data and hawkish statements from the Fed could create pressure, potentially causing a swing towards $2,260.
On top of these factors, the Eurozone will release inflation figures on Tuesday. A moderate inflation figure could strengthen the likelihood of a second interest rate cut by the ECB. Moreover, both the Fed and the minutes from the ECB's June meeting will be announced this week. Divergent notes in the minutes could increase market volatility.
In conclusion, global markets will start July with a busy agenda, pricing in data from multiple sources. This will make it difficult for the gold market to find a new direction and increases the likelihood that the price of gold will oscillate within the current range for a while.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.