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Denis Sergienko • 2022-12-13

Gold recovers amid pre-CPI weakness of US Dollar

Gold recovers amid pre-CPI weakness of US Dollar

Market sentiment improved during early Tuesday, underpinning the US Dollar pullback, as traders expect softer US inflation data based on early signals. Also likely to have favored the cautious optimism could be the Covid-linked positive headlines from China and mixed employment report from the UK.

With the softer USD and optimism surrounding China, one of the world’s biggest commodity users, the prices of Gold and Crude oil remained firmer. It’s worth observing that Russia’s rejection of supplying oil to the Euro area price cap adds strength to the oil prices.

Elsewhere, AUDUSD cheered the lead of the G10 currency pair gainers while the USDCAD occupied the other end amid mixed comments from BOC Governor.

Talking about cryptos, the softer greenback failed to underpin the BTCUSD and ETHUSD recovery on FTX Leader SBF’s arrest.

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Following are the latest moves of the key assets:

  • Brent oil prints a four-day uptrend as it rises over 1.5% to regain $80.00.
  • Gold reverses the week-start losses with mild gains around $1,787.
  • USD Index prints the first daily loss in three, down 0.15% near 104.85 ahead of US CPI.
  • Wall Street closed positive but stocks in Europe and the UK begin the day on mixed lights.
  • BTCUSD drops back towards $1,7100 whereas ETHUSD also reverses the week-start gains.

Risk-on ahead of US inflation

Risk appetite improved as the markets expect softer US CPI, as well as more stimulus from China, amid a light calendar during early Tuesday. This joins downbeat US Treasury yields to weigh on the US Dollar.

As a result, commodities and Antipodeans are firmer even as the traders are waiting for the US inflation data.

The same highlights the risk of disappointment in case the US price data offers a positive surprise.

Against this backdrop, gold struggles to reject rising wedge breakdown but the crude oil prices are stronger. Further, equities in the Asia-Pacific region traced Wall Street’s gains.

However, cryptocurrencies failed to cheer the risk-on mood and the JP Morgan report showed higher use of the once-favored currencies as the arrest of the FTX leader Sam Bankman-Fried amplified regulatory fears.

  • Strong buy: GBPUSD
  • Strong sell: ETHUSD, USDJPY
  • Buy: USD Index, USDCAD, Nasdaq, EURUSD
  • Sell: DAX, FTSE 100, gold, BTCUSD, AUDUSD

US inflation is crucial

Although multiple second-tier data are likely to entertain market players, the US CPI and Core CPI will be the most important for market players as Fed policymakers appear divided ahead of Wednesday’s FOMC. Should the US inflation numbers offer a positive surprise, the odds of witnessing the US Dollar run-up, as well as a drop in the gold price, can’t be ruled out. It’s worth noting that the presence of a speech from BOE Governor Bailey may restrict the GBPUSD reaction to the US data.