Gold and USD Brace for the US Inflation Report

Economic data released
 
The German inflation number released earlier has come in line with expectations of 7.9% yet higher than the prior read of 7.5% while the European ZEW economic sentiment of September - 60.7 missed expectations of - 58.3 and has come in lower than the previous - 54.9. Both releases had barely a noticeable effect on the Euro price against major currencies such as the US Dollar.

Looking Ahead, the market awaits the US inflation levels for August at 4:30 pm UAE time.
 
 Indices and Bonds Yield
 
The European stocks and the US equity future extended their rally as markets expect the US inflation headline to fall from 8.5% (Jul) to 8.1%(Aug) thanks to the fall in oil prices. The WTI declined by nearly 9% in August from $98.38 to $89.50. Investors believe that cooling inflation pressures could lead the Fed to reconsider its tight policy by the end of the year and possibly cut interest rates in 2023.  
 
The US 10-year bond yields stabilized above 3.20% levels while the 10 -2 yield curve remains inverted hinting that investors think that the Fed may continue hiking interest rates this year and consider cutting them next year to save the economy from a severe recession.
 
Major FX Currencies
 
The US dollar has fallen further as the market risk appetite has improved on hopes that the Fed could end its tightening policy sooner and due to the progress achieved by the Ukrainian forces on the ground in the war against Russia.
It should be noted that the Fed is unlikely to change its policy any time soon even if we see a significant decline in today’s CPI headline print because it is still high and far from the 2% target. Therefore, it is highly likely to see a 75 bp hike in September nonetheless we may see the central bank hiking by lower percentages in the coming meeting in November and December.
Technically, the US dollar index could be on the way for a test of 105.48 levels however, a daily close above 108.11 opens the door for traders to rally the price towards 110.09.
 
The euro has rallied as markets priced in more rate hikes from the ECB. The central banks’ board members assured their commitment to bringing down inflation levels to the 2% target.
Technically, the EUR/USD could rally towards 1.0334 and 1.0415 respectively however, any daily close below 1.0000 could encourage traders to press towards 0.9701 nonetheless, the support levels at 0.9858 and 0.9780 should be kept in focus.
 
 
Commodities
 
The Gold price settled around 1720 levels on a growing sentiment in the market that US inflation levels reached their peak last June, and the Fed could end its tightening cycle sooner.
Technically, a daily close above 1720 could embolden traders to rally the price towards 1747 and 1765 respectively. A daily close below 1705 could send the price 1685 and 1661 respectively.
 
The oil price rose on a weaker US dollar and on the US Secretary of State statement that reviving the Iran nuclear deal is unlikely any time soon.
 
Oil WTI Daily Price Chart


Chart Source: ThinkTrader

On September 8 the WTI declined to an eight-month low at 81.36. The price rallied after as some traders took profit.
 
Currently, the price moves in the trading zone 90.50 - 79.82 therefore, a daily close above the high end of the zone signals a possible rally towards 98.65 however, resistance levels at 92.94 and 95.98 should be monitored. On the other hand, a daily close below the low end of the zone could send the price even lower towards 74.97.