The greenback appeared slightly weakened against a basket of major currencies on Wednesday, as market players directed their attention towards August’s U.S. inflation data release, that is scheduled for tomorrow.
Thursday’s CPI report is a big deal, especially when considering how concerns over stubbornly low inflation rates remain one of the key culprits weighing heavily on U.S. rate hike expectations. Price action suggests that dollar bears still remain in control, as investors become increasingly skeptical over the Federal Reserve’s ability to raise interest rates again before the end of the year. A soft inflation figure on Thursday that falls below market estimates is likely to dent the prospect of higher U.S. rates, consequently punishing the vulnerable dollar further.
Focusing on the technical outlook, the Dollar Index remains bearish on the daily charts. Sustained weakness back below 91.50 should encourage a further decline towards 91.00. In an alternative scenario, a daily close at 92.00 may open a path towards 92.25.
Gold was on standby on Wednesday, amid firmer word stocks and shaky U.S. dollar.
Although North Korean tensions have offered some support to the yellow metal, the upside could be capped ahead of Thursday’s inflation data. With the pending U.S. CPI release likely to influence expectations over when the Fed will raise rates, gold, which remains highly sensitive to rate hike expectations, will be directly impacted. A disappointing U.S. inflation figure should heavily support the zero-yielding metal.
I believe gold still remains attractive, despite the return of risk appetite, with further upside in the cards as heightened political uncertainty in Washington and geopolitical concerns encourage investors to seek safety.
From a technical standpoint, the metal still remains bullish on the daily charts. A breakout above $1340 should encourage a further appreciation higher towards $1350. In an alternative scenario, a breakdown and repeated weakness under $1325 is likely to encourage a decline towards $1315 and $1300, respectively.