What's Next for Gold, the Dollar, and Stocks?

Key Highlights

• U.S. inflation continued to ease.
• Markets scaled back expectations for further Fed rate hikes.
• The U.S. Dollar Index came under renewed downside pressure.

Market Recap

U.S. June CPI Came in Below Expectations as Inflation Continued to Cool

• U.S. Consumer Price Index (CPI) rose 3.5% YoY in June, below the market forecast of 3.8% and down from 4.2% in May.
• On a monthly basis, CPI fell 0.4%, marking the largest monthly decline since April 2020, mainly driven by a sharp drop in energy prices.
• Core CPI, which excludes food and energy, held steady at 2.6% YoY, indicating that underlying inflationary pressures continued to ease.
• Following the data release, U.S. Treasury yields declined, equity futures advanced, and the U.S. Dollar Index weakened.
• Expectations for further Federal Reserve rate hikes also cooled. According to the CME FedWatch Tool, the probability of a September rate hike dropped from above 75% to around 63%.

Affected Markets: U.S. Dollar, Gold, S&P 500

Federal Reserve Reaffirms Its Commitment to Fighting Inflation

• Federal Reserve Governor Kevin Warsh reiterated that the Fed remains committed to bringing inflation back to its 2% target and will not become complacent based on one month of encouraging data.
• He emphasized that policymakers should remain cautious, avoid overreacting to a single economic report, and continue improving the Fed's policy framework and communication strategy.

Affected Markets: U.S. Dollar, Gold, S&P 500

Summary

The latest U.S. inflation data came in below market expectations across the board, reinforcing signs of easing price pressures. As a result, investors reduced expectations for additional Fed rate hikes, putting downward pressure on the U.S. Dollar while providing support for gold and other risk assets. However, ongoing geopolitical uncertainties in the Middle East continue to pose risks, and the inflation outlook remains subject to further developments.

Today's Market Focus

Key Events:

• U.S. Producer Price Index (PPI)
• Bank of Canada Interest Rate Decision

If today's U.S. PPI data also comes in below expectations, it could further strengthen market expectations that the Federal Reserve will pause its tightening cycle, weighing on the U.S. Dollar while supporting gold and U.S. equities.

Affected Markets:

• U.S. Dollar
• Precious Metals (Gold, Silver)
• U.S. Equity Indices

Trading Bias for Today: Bullish on Precious Metals

Market Sentiment

Fear & Greed Index: 44 (Previous: 36)

Markets continue to digest geopolitical risks in the Middle East, with safe-haven demand gradually easing and risk appetite improving. As the U.S. Dollar weakens, capital has begun flowing back into risk assets such as equities and cryptocurrencies, while gold continues to receive support from the softer dollar.

Technical AnalysisXAU/USD

• Gold has broken below both the EMA89 and EMA144, suggesting that the overall technical outlook remains bearish.
• Price action has formed a bearish N-shaped pattern, indicating that downside risks persist in the short term.
• A break below the next key support level could trigger further declines. However, if today's U.S. PPI data is weaker than expected, gold may stage a short-term technical rebound.

Trading Strategy: Maintain a sell-on-rallies approach in the near term while closely monitoring the U.S. PPI release for directional confirmation.