The upcoming July personal consumption expenditures (PCE) index could confirm the Fed's progress towards its 2% inflation target. Economists expect a slight increase in PCE, which might shift focus to the labour market and influence the extent of the rate cut. The market has priced in the September rate cut. Despite early August volatility, major stock indexes are poised for gains, though challenges remain with upcoming economic data, geopolitical risks, and the US presidential election.
YEN
Despite the yen's recent strengthening, overseas investors see continued opportunities in Japanese stocks, which reached record levels earlier this year due to the weaker yen. The Bank of Japan’s interest rate hike in July led to the yen's appreciation, causing some market volatility, but investors are leveraging it to add on positions. Analysts believe the stronger yen will have a limited impact on corporate earnings, assuming global growth remains stable. Historical trends suggest that yen strength could benefit dollar-based investors, with Jefferies and Bank of America forecasting continued market recovery.
USDJPY (Daily). Officially broke the bullish projection line in mid-July, the pair is weakening confidently. Rebound to the 38.2% Fibonacci level amid different bank policies, USDJPY resumes its bearish momentum and heads towards the 141.70 level.
POUND
Bank of England Governor Andrew Bailey highlighted progress in reducing UK inflation in last Friday’s speech but warned that restrictive monetary policy may need to continue longer due to labour market shocks. While headline inflation has eased, reaching 2.2% in July, Bailey will caution that persistent inflation risks remain. He'll suggest that current restrictions may eventually self-correct but acknowledge the possibility of structural changes requiring prolonged policy tightening. Despite recent interest rate cuts, concerns over wage growth and the tight job market persist. Bailey sees a potential for steady disinflation with minimal economic disruption.
GBPUSD (Daily). Since April, the Pound has been stronger than the US dollar, which rose by 7.5%. The policy divergence caused the price to break through the resistance at 1.3000. As long as the Fed is more dovish than BOE, we expect the uptrend to continue.
OIL
US crude oil futures rose over 2% on Friday after Fed Chair Jerome Powell hinted at upcoming rate cuts, which could stimulate economic growth and boost oil demand. Despite the rise, oil prices fell for the week, with US crude down 2.4% mainly due to slowing demand in China. WTI stood at $74.83 per barrel. Traders are now more focused on these demand concerns rather than geopolitical risks.
WTIUSD (Daily). Oil formed a dynamic triple-bottom at the end of last week in its bearish projection line. The price rebounded strongly but remains inside the channel.
GOLD
Price jumped 1% as the dollar and Treasury yields fell after Fed Chair Jerome Powell signalled an interest rate cut in September. Spot gold rose to $2,511 per ounce. Powell's comments about nearing the Fed's 2% inflation target boosted expectations for policy easing. The dollar index dropped 0.8%. Analysts predict gold could reach $2,550-$2,600 ahead of the September Fed meeting. Silver also climbed 2.1% to $29.60 per ounce, supported by strong demand from India's solar and electronics sectors.
XAUUSD (H4). After hitting beyond $2,500 for the first time, the $2,480 level has become a strong support. We expect Gold to be trading within this range in the last week of August.
Fullerton Markets Research Team
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