News Summary:
On Tuesday (June 18), due to disappointing economic data, the US Dollar Index gave back all of its intraday gains and turned lower, but still remained above the 105 threshold, ultimately closing down 0.07% at 105.26. The yield on the 10-year US Treasury note fell back slightly, settling at 4.227%. The yield on the 2-year Treasury note, which is highly sensitive to changes in the Federal Reserve's policy rate, closed at 4.725%.
Gold prices rose by 0.45% on Tuesday (June 18), closing at $2329.24 per ounce, boosted by weaker-than-expected US retail sales data, which reinforced hopes for a Fed rate cut this year, leading to a decline in both the dollar and US Treasury yields.
Due to continued attacks by Ukraine on Russian refineries and escalating tensions in the Middle East, oil prices continued to rise by nearly 1%, reaching a new one-month high. WTI crude oil settled above the $80 mark on Tuesday (June 18), closing up 0.95% at $80.67 per barrel; Brent crude oil closed up 0.98% at $84.79 per barrel.
Data and news from the previous day:
Weaker-than-expected US retail sales and improved market risk appetite led to a decline in the dollar against a basket of currencies except the yen on the 18th. The US Dollar Index rose in overnight trading but fell sharply in early trading before trimming losses and stabilizing in the afternoon. By the end of the day, the US Dollar Index fell 0.06%, closing at 105.256.
Data released by the US Department of Commerce in the morning showed that US retail and food services sales for May were $703.1 billion, a 0.1% increase month-over-month, below the market expectation of 0.3%. April's data was revised from flat to a 0.2% decline month-over-month.
Comerica Bank's Chief Economist, Bill Adams, stated that weaker-than-expected US retail data increases the likelihood that the Federal Reserve will start cutting rates in a few months.
CME's FedWatch Tool, released at 5:55 PM on the 18th, showed that the probability of the Federal Reserve maintaining its current rate at its September meeting dropped from 38.5% on the 17th to 32.3%.
Equiti Capital UK's Chief Macro Strategist, Stuart Cole, noted that although the rate hike might come later than initially expected, the Federal Reserve's tightening of financial conditions seems to be starting to constrain household spending this year.
Cole added that slower growth in consumption might actually be welcomed by the Fed, making it easier to bring inflation down to target levels, especially given the critical role of domestic demand in driving US economic activity.
Jefferies Financial Group strategist, Mohit Kumar, stated that recent safe-haven demand in the forex market is partly driven by concerns over a potential "Frexit" and the disintegration of the Eurozone, which he believes are overstated. Marine Le Pen, leader of France's far-right National Rally, indicated over the past weekend that she is prepared to cooperate with the current French President Macron and does not seek his resignation.
Economists at Macquarie Group expect that the recent decline in inflation will lead the Federal Reserve to start easing monetary policy from December, rather than the first quarter of 2025.
Economist David Doyle wrote on Tuesday, referring to the May CPI report, "The breadth indicators show clear improvement, favoring a reduction in inflation," further stating that this improvement coupled with more mixed signals from the labor market prompted them to bring forward their baseline forecast of FOMC policy easing.
Macquarie now expects a 25 basis point rate cut in December, having previously forecast this for the first quarter of 2025.
In early trading on Wednesday (June 19) in the Asian market, spot gold held onto its overnight gains, currently trading around $2328.20 per ounce. Gold prices rose 0.45% on Tuesday, closing at $2329.24 per ounce, due to weaker-than-expected US retail sales data, which strengthened hopes for a Fed rate cut this year, driving down the dollar and US Treasury yields.
Senior Market Strategist at RJO Futures, Daniel Pavilonis, stated, "Weaker-than-expected retail sales data led to a decline in the dollar, while yields fell, providing some upward momentum for gold prices."
John Williams, President of the New York Federal Reserve and the Fed's "number three" official, said on Tuesday that rates will gradually decline over time but he refrained from specifying when the Fed might begin to ease monetary policy.
According to CME's FedWatch tool, traders currently estimate about a 67% chance of a Fed rate cut in September, up from around 61% the previous day.
An annual survey conducted by the World Gold Council (WGC) among central banks revealed that the proportion of respondents expecting to increase their gold reserves within the next 12 months was the highest on record.
Investors should continue to monitor statements from Fed officials and changes in market expectations for Fed rate cuts, with close attention to geopolitical developments.
Increased geopolitical risks in Europe and the Middle East are providing short-term safe-haven support for gold, with prices likely to test resistance near the 55-day moving average of $2342.40.
US Treasury yields have declined in five of the past six trading days, with data across various sectors starting to show an economic slowdown.
Loomis Sayles portfolio manager Matt Eagan stated, "There seems to be increasing evidence that the economy is slowing down. The resilience of the economy in the first quarter of this year was surprising to me, but now we seem to be entering a phase of marginal softening. This sets the stage for the Federal Reserve to take action towards the end of this year."
US Dollar Index Technical Analysis:
The Dollar Index faced resistance below 105.60 on Tuesday and found support above 105.10, indicating that short-term gains may be followed by declines. If the index encounters resistance below 105.50 today, the subsequent decline could target the 105.05-104.85 range. Short-term resistance for the Dollar Index today lies between 105.45-105.50, with important short-term resistance between 105.70-105.75. Short-term support is found between 105.05-105.10, with important support between 104.85-104.90.
EUR/USD Technical Analysis:
The EUR/USD pair found support above 1.0710 on Tuesday and encountered resistance below 1.0765, suggesting that short-term declines could be followed by gains. If the pair stabilizes above 1.0710 today, the next target for gains could be between 1.0765-1.0790. Short-term resistance for EUR/USD today is between 1.0760-1.0765, with important short-term resistance between 1.0785-1.0790. Short-term support lies between 1.0710-1.0715, with important support between 1.0685-1.0690.
Gold Technical Analysis:
Gold found support above $2306.00 on Tuesday and faced resistance below $2334.00, suggesting that short-term gains may be followed by declines. If gold encounters resistance below $2341.00 today, the subsequent decline could target the $2314.00-$2297.00 range. Short-term resistance for gold today lies between $2340.00-$2341.00, with important short-term resistance between $2350.00-$2351.00. Short-term support is found between $2314.00-$2315.00, with important support between $2297.00-$2298.00.
