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Gold price (XAU/USD) extends its losing streak for the sixth consecutive trading day on Wednesday. The precious metal has been battered by the upbeat US Dollar (USD), which has strengthened as traders are pricing out another Federal Reserve (Fed) larger-than-usual interest rate cut of 50 basis points (bps) in their next meeting in November.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, has extended its upside to near 102.70. An appreciation in the US Dollar makes investment in the Gold price an expensive bet for investors. 

Meanwhile, 10-year US Treasury yields drop to near 4.02% in Wednesday’s European session but is close to a more than two-month high. Higher yields on interest-bearing assets increase the opportunity cost of holding an investment in non-yielding assets, such as Gold. 

Traders have priced out Fed large rate cut bets as upbeat United States (US) Nonfarm Payrolls (NFP) data for September reduced the risk of an economic slowdown. The US job report showed that labor demand remained robust, the Unemployment Rate decelerated, and wage growth was stronger than expected.

However, the downside in Gold price is expected to remain limited due to escalating tensions in the Middle East region. The war between Israel and Iran-backed-Hezbollah intensified after the former killed Hezbollah leader Hassan Nasrallah and his subsequent replacements. Historically, the appeal of precious metals, such as Gold, improved amid geopolitical woes.

Daily digest market movers: Gold price drops as US Dollar extends upside

Gold price is expected to remain on tenterhooks with investors focusing on the Federal Open Market Committee (FOMC) Minutes of the September meeting, which will be published at 18:00 GMT. The FOMC Minutes will provide a detailed explanation behind the hefty rate cut and fresh cues about inflation and the economic outlook.

In September’s meeting, the Federal Reserve started the policy-easing cycle after maintaining a restrictive policy stance for more than two and a half years. Fed officials almost unanimously (with only Michelle Bowman dissenting) voted for a sizable rate cut of 50 bps as they were more concerned about reviving job growth, with confidence that inflation is on track to return sustainably to the bank’s target of 2%.

This week, investors will pay close attention to the US Consumer Price Index (CPI) data for September, which will be released on Thursday. Economists estimate the annual core CPI – which excludes volatile food and energy prices – to have grown steadily by 3.2%. Annual headline CPI is expected to have decelerated further to 2.3% from 2.5% in August.

The inflation data will significantly influence market expectations for the Fed’s interest rate outlook for the remainder of the year. According to the CME FedWatch tool, 30-day Federal Fund Futures pricing data shows that there will be a 25-bps interest rate cut in each of the two meetings remaining this year.

Technical Analysis: Gold price falls to near $2,610

Gold price extends its correction to near $2,610 from its all-time high of $2,685 as profit-booking remains intact. However, the overall trend of the Gold price remains bullish as the 20- and 50-day Exponential Moving Averages (EMAs) at $2,615 and $2,550, respectively, are sloping higher.

Upward-sloping trendline from the April 12 high of $2,431.60 will act as major support for the Gold price bulls.

The 14-day Relative Strength Index (RSI) falls into the 40.00-60.00 range, suggesting a weakening of momentum. However, the upside trend remains intact.

Source: FXSTREET

The Pound Sterling (GBP) is expected to trade in a sideways range of 1.3065/1.3135. In the longer run, price action suggests further GBP weakness; the next major support at 1.3000 may not come into view so soon, UOB Group Quek Ser Leang and Peter Chia note.

Moving slowly towards 1.3065

24-HOUR VIEW: “We expected GBP to edge lower yesterday, but we held the view that ‘any decline is likely limited to a test of 1.3050.’ Our view did not materialise, as after dipping briefly to 1.3065 in London trade, GBP traded sideways for the rest of the sessions. Momentum indicators are turning flat. Today, we expect GBP to trade in a sideways range of 1.3065/1.3135.”

1-3 WEEKS VIEW: “We have held a negative view in GBP since the middle of last week. In our most recent narrative from two days ago (07 Oct, spot at 1.3130), we indicated that “although the recent price action suggests further GBP weakness, conditions are oversold, and the next major support at 1.3000 may not come into so soon.” We will continue to hold the same view, as long as 1.3185 (no change in ‘strong resistance’ level from yesterday) is not breached.”

Source: FXSTREET

Pessimistic eurozone outlook keeps Bund yields from ticking higher with oil prices

EUR rates have settled higher after that big US payrolls number last week and are likely to trade more range-bound in anticipation of the upcoming European Central Bank decision. The conviction of a 25bp cut next week is high and there will be little economic data until then that could persuade markets otherwise. Having said that, we do have oil prices to watch, which have shown quite some volatility of late. If we see more upside surprises from global growth, and at the same time headlines from the Middle East emerge, the risk of higher prices could be considerable.

Still, Bund yields reacted only moderately to the recent uptick in oil prices (see figure below), which emphasises markets’ diverging expectations between global and eurozone growth. The US labour market is showing signs of resilience (again), whilst Chinese growth expectations are improving on the back of broad stimulus measures, helping oil prices to go higher. The potential bright spots for the eurozone are more difficult to see and given growth concerns are getting more attention of late than inflation, the front end of the Bund curve is likely to remain anchored for now.

Whilst the ECB did mention the decline in oil prices as a supporting factor in its decision-making earlier, we would need to see a lot more to convince markets that an October cut may not be as obvious as priced in. Also on Tuesday various ECB speakers, including the known hawk Nagel, hinted at a willingness to cut in October. Nevertheless, the current pricing of 24bp for a cut may be stretched and a sudden push higher by oil could challenge that positioning.

EU to remain prominent in primary markets even after Tuesday's larger deal

The EU issued €11bn via the syndicated reopening of two bond lines, €5bn in a 3y and €6bn in a 15y. Investor appetite looked healthy with a combined book of €166bn and in the end the size of the transaction exceeded market expectations, and was also larger than the September deal. 

Among the European supra names EU, ESM, EFSF and EIB, the EU is the only issuer that still has a notable amount to fund this year. With close to €118bn issued, slightly more than €22bn remains to reach the indicated target of €140bn for 2024. ESM and EFSF have completed their funding for the year, and EIB said its 5Y EUR bond issued last week was the last EUR benchmark for the year with close to €62bn of its €65bn funding target reached.

In terms of spreads, the valuations of the sector versus swaps in the 10y area are still around 5-6bp cheaper versus the end of August, but there has been some stabilisation since the beginning of this month.

Today's events and market views

Relatively little data is scheduled, with US mortgage applications likely the highlight. In contrast, there are plenty of central bank speakers on the agenda. From the ECB, we have Villeroy speaking and from the Fed the list includes Bostic and Goolsbee. The FOMC meeting minutes from 18 September will also be published. 

In terms of issuance, Germany has scheduled a 12Y and 17Y Bund for a total of €1.5bn. From the UK we have a 10Y Gilt for £3.75bn. Lastly, the US will auction a 10Y Note for $39bn. 

Recent uptick in oil prices did not find its way to Bund yields

The USD/CAD pair scales higher for the sixth successive day on Wednesday and climbs to the 1.3670-1.3675 area, or its highest level since August 19 during the first half of the European session amid renewed US Dollar (USD) buying.

Following a brief consolidation over the past two days, the USD attracts fresh buyers amid firming expectations that the Federal Reserve (Fed) will go slow on interest rate cuts. In fact, traders are currently pricing in over an 85% chance that the US central bank will lower borrowing costs by 25 basis points in November amid signs of a still resilient labor market. This allows the yield on the benchmark 10-year US government bond to hold above the 4.0% threshold, which lifts the USD to its highest level since August 16 and continues to act as a tailwind for the USD/CAD pair. 

Meanwhile, news of a possible ceasefire between Lebanon's Hezbollah and Israel lowered the geopolitical risk premium in the markets. This led to the overnight slump in Crude Oil prices, which, along with bets for a jumbo interest rate cut by the Bank of Canada (BoC) later this month, undermines the commodity-linked Loonie and boosts the USD/CAD pair amid some follow-through technical buying above the 200-day Simple Moving Average (SMA). 

Moving ahead, investors now look forward to the release of the FOMC meeting minutes, due later during the North American session. This, along with the US Consumer Price Index (CPI) and the US Producer Price Index (PPI) on Thursday and Friday, respectively, will be looked upon for cues about the Fed's rate-cut path. This, in turn, will drive the USD demand in the near term. Apart from this, Canadian monthly employment details on Friday should provide some meaningful impetus to the USD/CAD pair and help in determining the next leg of a directional move.

Source: FXSTREET

Gas stations in Florida are running out of fuel as people are evacuating ahead of Hurricane Milton, expected to be a once-in-a-century direct hit on Tampa late on Wednesday.

Late on Tuesday, the National Hurricane Center said that Milton is forecast to retain its major hurricane status and expand in size while it approaches the west coast of Florida. Tuesday was the last full day for Florida residents to get their families and homes ready, and evacuate if told so by local officials, the NHC added.

“Milton will move across the eastern Gulf of Mexico through Wednesday, make landfall along the west-central coast of Florida Wednesday night, and move off the east coast of Florida over the Atlantic Ocean on Thursday,” said the office of Florida Governor Ron DeSantis.

Parts of Florida are still recovering from Hurricane Helene in late September.

As of 11 p.m. ET on Tuesday, GasBuddy data was showing 21.6% of stations in Florida were out of gas, Patrick De Haan, head of petroleum analysis at GasBuddy, said.

Florida is the nation’s third-highest motor gasoline consumer, but it doesn’t have its own refineries so fuel needs to be brought in by tankers and trucks.

Fuel is flowing to Florida, but the sheer number of people evacuating is putting a strain on gasoline supplies at fuel stations, De Haan added.

In preparation for Hurricane Milton, Kinder Morgan shut on Tuesday its terminals and fuel racks in and around Tampa.

Ports in Florida have moved to restrict vessel navigation as Hurricane Milton intensifies as it makes its way toward the state’s coastline.

Oil and gas operations in the U.S. Gulf of Mexico have also been disrupted.

On Monday, Chevron said it had shut in its Blind Faith platform and evacuated all personnel from the facility in preparation for Hurricane Milton.

Source: OILPRICE

The AUD/USD pair attracts fresh sellers following an intraday uptick to the 0.6760 area and drifts into negative territory for the fifth straight day on Wednesday. Spot prices drop to the 0.6725-0.6720 region during the first half of the European session, closer to over a three-week low touched on Tuesday, with bears flirting with the 50-day Simple Moving Average (SMA). 

The Australian Dollar (AUD) continues to be undermined by the disappointment over China's stimulus update, which, along with a modest US Dollar (USD) uptick, exerts some downward pressure on the AUD/USD pair. China's National Development and Reform Commission stated on Tuesday that the economy is facing more complex internal and external environments and also fell short of announcing any new major stimulus plans. This, to a larger extent, overshadowed a relatively hawkish minutes from the Reserve Bank of Australia's (RBA) September meeting. 

Meanwhile, investors have been paring bets for a more aggressive policy easing by the Federal Reserve (Fed) and an oversized interest rate cut in November amid signs of a still resilient US labor market. This keeps the yield on the benchmark 10-year US government bond elevated above the 4% threshold and the USD Index (DXY), which tracks the Greenback against a basket of currencies, close to a seven-week high touched last Friday. Apart from this, a generally weaker tone around the equity markets benefits the safe-haven buck and weighs on the risk-sensitive Aussie. 

The fundamental backdrop supports prospects for an extension of the AUD/USD pair's recent retracement slide from the highest level since February 2023, around the 0.6940-0.6945 region touched last month. Bearish traders, however, seem reluctant and prefer to wait for more cues about the Fed's rate-cut path before placing fresh bets. Hence, the market focus will glued to the release of the FOMC meeting minutes later this Wednesday, which will be followed by the US Consumer Price Index (CPI) and the Producer Price Index (PPI) on Thursday and Friday, respectively.

Source: FXSTREET