As we step into a new trading week, market participants are met with a unique situation: both the US and UK markets are closed on Monday due to Memorial Day and a bank holiday, respectively. This dual closure in major financial hubs often leads to lower trading volume, potentially resulting in sluggish price action. However, traders should remain cautious, as thin liquidity can sometimes amplify price movements if unexpected news hits the wires, creating volatile conditions in an otherwise calm market.
Key Economic Events to Watch This Week
The upcoming week is expected to be relatively tranquil with few high-impact events on the horizon. However, significant economic indicators set for release on Friday could shift this calm landscape.
Eurozone May CPI Figures
On Friday, the Eurozone will release its May Consumer Price Index (CPI) figures. This data is crucial as it will provide insights into recent price trends within the regional economy, influencing the European Central Bank's (ECB) monetary policy decisions. Analysts anticipate a slight increase in the headline inflation rate to 2.5% year-over-year from 2.4% in April, while the core gauge is expected to remain steady at 2.7%. The ECB, likely to reduce borrowing costs from a record high of 4% in June, will closely monitor these figures. An unexpected uptick in inflation might prompt the ECB to adopt a more cautious approach to future rate cuts, potentially leading to heightened volatility in euro FX pairs as the week progresses.
US Core PCE Deflator Data
Across the Atlantic, the US will also see a significant data release on Friday with the core Personal Consumption Expenditure (PCE) deflator, the Federal Reserve's preferred inflation measure. Consensus estimates predict a 0.3% increase in April, with the annual rate cooling slightly to 2.7% from 2.8%. Should the data show a downward surprise, it could reignite optimism that the disinflationary trend, which began in late 2023 but stalled earlier this year, is back on track. This scenario would likely support the case for the Federal Open Market Committee (FOMC) to pivot to a looser monetary stance in the fall, potentially boosting stocks and gold while weakening the US dollar.
Conversely, if the inflation numbers exceed forecasts, expectations for interest rate cuts could be pushed further into the future, possibly to November or December. This would likely lead to higher bond yields and a stronger greenback, creating a challenging environment for equities and precious metals.
Gold Prices Amid Economic Uncertainty
Gold prices have shown resilience, rising close to 1% after bouncing off a two-week low of $2,325. Despite strong US economic data and a cautious Federal Reserve outlook, which pressured gold prices last week, the yellow metal has managed to climb to $2,354 amid thin trading on Monday.
The decline in US Treasury yields and a softer US dollar have provided some support to gold prices. The US 10-year Treasury note is currently yielding 4.461%, with the US Dollar Index (DXY) trading down at 104.58. These factors, combined with investor uncertainty about the economic outlook, have bolstered gold's appeal as a safe-haven asset.
Future Outlook for Gold
Looking ahead, gold prices are expected to remain volatile. UBS analysts anticipate that price setbacks will be shallow and that gold may test new record highs later this year. The market will be closely watching the upcoming PCE Price Index report, which is expected to show a core increase of 2.8% year-over-year and headline growth of 0.3% month-over-month. If inflation data aligns with or exceeds expectations, it could influence the Fed's policy trajectory, impacting gold prices accordingly.
Technically, if gold clears the $2,350 level, it could target the $2,400 mark and possibly the year-to-date high of $2,450, followed by the $2,500 milestone. However, should prices fall below $2,350, the next support levels to watch are $2,303 and $2,277.
Conclusion
As the week unfolds, traders and investors should stay vigilant, keeping an eye on critical economic indicators that could influence market dynamics. The interplay between inflation data and central bank policies will be pivotal in shaping the economic outlook and the trajectory of gold prices. Whether you're trading currencies, equities, or commodities, understanding these key events will be essential in navigating the financial markets in the coming days.
