KVB Market Analysis | 30 August: JPY Strengthens Against USD Amid Strong Q2 GDP and BoJ Rate Hike Speculation

Product: XAU/USD

Prediction: Increase

Fundamental Analysis: 

Gold prices rose in Asian trade on Thursday, staying close to record highs as a rebound in the dollar cooled ahead of key inflation data that is likely to factor into the outlook for interest rate cuts. Some safe haven demand also buoyed bullion prices, especially after some underwhelming earnings from market darling NVIDIA Corporation (NASDAQ:NVDA) rattled global equity markets. More closely watched will be PCE price index data on Friday. The print is the Feds preferred inflation gauge and is likely to factor into expectations for rate cuts. Markets are split between a 25 or 50 basis point cut in September, according to CME Fedwatch. The prospect of lower rates dented the dollar and buoyed broader metal markets, although they mostly lagged gold. 

Technical Analysis: 

From a technical point of view, the daily chart for the XAU/USD pair shows bulls have retaken control and aim to challenge the mentioned all-time high. Technical indicators turned higher within positive levels, and remain below their weekly highs, suggesting there is room to extend the current advance. At the same time, Gold develops above all its moving averages, with a bullish 20 Simple Moving Average (SMA) slowly grinding higher in the $2,470 region. The 100 and 200 SMAs, in the meantime, maintain their bullish slopes far below the shorter one. The risk skews to the upside in the near term, although the momentum is limited. In the 4-hour chart, XAU/USD recovered above a flat 20 SMA, although the 100 and 200 SMAs head firmly north below the current level.

Product: EUR/USD

Prediction: Increase

Fundamental Analysis: 

The pairs daily pullback was also accompanied by a generalised bounce in US yields across the curve and German 10-year bund yields, all against the backdrop of steady speculation of rate cuts by the Fed next month. Meanwhile, investors continued to watch for any signs regarding the size of the most likely interest rate cut by the Fed in September, after Fed Chair Jerome Powell suggested that the time may be right to consider recalibrating monetary policy. Powell also noted that “barring any unexpected developments, the labour market is unlikely in the near term to add significantly to upward pressures on inflation, and that the Fed doesn't want to see further cooling in labour market conditions”.

Technical Analysis: 

From a technical point of view, the daily chart for the XAU/USD pair shows bulls have retaken control and aim to challenge the mentioned all-time high. Technical indicators turned higher within positive levels, and remain below their weekly highs, suggesting there is room to extend the current advance. At the same time, Gold develops above all its moving averages, with a bullish 20 Simple Moving Average (SMA) slowly grinding higher in the $2,470 region. The 100 and 200 SMAs, in the meantime, maintain their bullish slopes far below the shorter one. The risk skews to the upside in the near term, although the momentum is limited. In the 4-hour chart, XAU/USD recovered above a flat 20 SMA, although the 100 and 200 SMAs head firmly north below the current level. Finally, technical indicators stabilised well above their midlines, lacking clear directional strength.

Product: USD/JPY

Prediction: Decrease

Fundamental Analysis: 

The Japanese Yen (JPY) gains ground against the US Dollar (USD) on Thursday. This upside occurred as Japans Gross Domestic Product (GDP) growth for the second quarter surpassed expectations, supporting the argument for a potential near-term interest rate hike by the Bank of Japan (BoJ). Japanese Economy Minister Yoshitaka Shindo stated that the economy is anticipated to recover gradually as wages and income improve. Shindo also added that the government will collaborate closely with the Bank of Japan to implement flexible macroeconomic policies. However, the USD/JPY pair received support from the improved US Dollar amid higher Treasury yields. However, the potential for further gains in the Greenback may be constrained by increasing expectations of at least a 25 basis point rate cut by the US Federal Reserve (Fed) in September.

Technical Analysis: 

The pair has attempted a pullback after the massive downtrend, which culminated after a softer US CPI print encouraged Japanese officials to intervene in the FX market to strengthen the yen. USD/JPY now trades lower while markets attempt to assess the next move. If the Fed adopts a bearish outlook while the BoJ continues to move forward with one more rate hike in December, it is possible there will be further weakness heading into the end of the year. Support lies at the spike low of 141.70, followed by 140.25 – a prior swing low from December last year. Resistance lies at the recent swing high of 149.40.

Product: SP500

Prediction: Decrease

Fundamental Analysis: 

The S&P 500 gave up the bulk of gains Thursday as the Nvidia dragged tech lower, though data pointing to a stronger U.S. economy allayed recession fears, keeping downside momentum in check. At 3:21 p.m. ET (1915 GMT), Dow Jones Industrial Average rose 311 points, or 0.8%, S&P 500 gained 0.1%, and NASDAQ Composite fell 0.1%. GDP growth surprises to upside in Q2, easing hard landing fears. Gross domestic product grew by 3% in the last quarter, a Commerce Department report showed in its second estimate, better than expectations of a 2.8% growth and a jump from the 1.4% annualised growth seen in the first three months of the year. Additionally, a Labor Department report showed initial claims for unemployment benefits for the week ending Aug. 24 stood at 231,000, marginally lower than economists' estimates of 232,000. 

Technical Analysis: 

On the daily chart, we can see that the S&P 500 briefly broke below the 5600 level but eventually rallied back above it. Thats been a key level as the market got stuck in a consolidation awaiting the key economic releases next week. It should act as a kind of a barometer for the sentiment with the price staying above it being more bullish and staying below it being more bearish.

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