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Commodities Gold

Gold’s Downside Risks Intensify: A Closer Look at the Market Dynamics

Gold’s Downside Risks Intensify: A Closer Look at the Market Dynamics The gold market has been buzzing with activity in recent months as various macroeconomic factors converge to create a seemingly bullish narrative. Factors such as high deficits, slowing economic growth, persistent inflation, currency devaluation, and the anticipation of an imminent interest rate-cutting cycle have driven investors toward gold, often considered a safe haven in times of economic uncertainty. However, while these factors might traditionally favor a bullish outlook, the current market environment presents significant downside risks, according to TDS Senior Commodity Strategist Daniel Ghali. The Bullish Case for Gold The global economic landscape has been fraught with challenges, leading to a period where capital flows naturally toward safer assets like gold. Historically, during times of high deficits and economic slowdown, coupled with sticky inflation and currency devaluation, gold has been the go-to asset for investors seeking to preserve wealth. The anticipation of an imminent rate-cutting cycle only adds to gold’s appeal, as lower interest rates typically diminish the opportunity cost of holding non-yielding assets like gold. This environment has led to a strong influx of capital into gold markets, creating what appears to be a solid bullish foundation. Many investors are drawn to gold as a hedge against economic uncertainties and as a protective measure against the potential devaluation of their portfolios. The allure of gold is especially pronounced in regions experiencing significant economic strain, such as China, where domestic currency weakness, coupled with a fragile stock and property market, has driven traders to increase their gold positions. The Risks Lurking Beneath the Surface Despite the seemingly favorable conditions, Daniel Ghali cautions that the risks to the gold market’s downside are now more potent than many might realize. A critical factor to consider is the current market positioning. Ghali’s analysis reveals that macro fund positioning in gold is at its highest level since the depths of the pandemic. This elevated positioning is statistically consistent with expectations of a significant monetary policy shift, equivalent to 370 basis points (bps) of Federal Reserve cuts over the next twelve months. However, this high level of positioning presents a risk in itself. When so many market participants are “max long” on gold, the potential for a sharp reversal increases, especially if the anticipated macroeconomic outcomes do not materialize as expected. For instance, if the Federal Reserve’s rate cuts are less aggressive than anticipated or if inflationary pressures begin to ease, the current bullish positioning in gold could quickly unwind, leading to a sharp decline in prices. The Role of Chinese Investors Chinese investors have played a significant role in the recent surge in gold prices. However, Ghali points out that outflows from Chinese Gold ETFs have resumed, signaling a potential shift in sentiment. While Shanghai trader positioning remains near record highs, reflecting the strong domestic demand for gold, this could also be a double-edged sword. Should the domestic economic situation improve or if alternative investment opportunities become more attractive, we could see a rapid reversal in this positioning, further exacerbating the downside risks. The Market’s Unanimous Consensus: A Warning Sign? Another concerning factor is the nearly unanimous bullish consensus in gold markets. When market sentiment is overwhelmingly tilted in one direction, it often sets the stage for a sharp correction. The current narrative surrounding gold is one of widespread agreement that prices are poised to rise, driven by the factors mentioned earlier. However, this consensus can be dangerous, as it leaves little room for error. Any unexpected developments, such as stronger-than-expected economic data or a hawkish shift in central bank policy, could catch the market off guard and trigger a rapid sell-off. Potential Catalysts for a Reversal Looking ahead, several potential catalysts could trigger a reassessment of gold’s near-term outlook. One such event is the upcoming Jackson Hole Economic Symposium, where central bankers and economists from around the world gather to discuss monetary policy and economic trends. Any hawkish signals from the Federal Reserve or other major central banks could dampen the current bullish sentiment in the gold market. Additionally, the next U.S. payrolls report could be a more significant catalyst for gold prices. A strong jobs report could signal that the economy is more resilient than previously thought, reducing the likelihood of aggressive rate cuts and diminishing gold’s appeal as a safe-haven asset. Conclusion: Proceed with Caution While the current macroeconomic environment might seem to favor a bullish outlook for gold, the market’s positioning and sentiment suggest that downside risks are more potent than they appear. With macro funds heavily invested, Chinese ETF outflows resuming, and a nearly unanimous bullish consensus, the stage is set for a potential correction. Investors should be mindful of the potential catalysts on the horizon, such as the Jackson Hole Symposium and upcoming payroll data, which could trigger a reassessment of the current market dynamics. In such a highly charged environment, it’s crucial to proceed with caution and be prepared for the possibility of a sharp reversal in gold prices.

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Crypto

Tether to Launch Dirham-Pegged Stablecoin in the UAE

Tether to Launch Dirham-Pegged Stablecoin in the UAE Stablecoin issuer Tether has announced plans to introduce a new stablecoin pegged to the United Arab Emirates (UAE) dirham. The initiative, disclosed on August 21, marks Tether’s latest effort to expand its range of fiat-pegged digital assets and reflects the growing importance of the UAE in the global cryptocurrency landscape. Collaboration with UAE-Based Companies In a statement, Tether, the world’s largest stablecoin issuer, revealed that the new dirham-pegged stablecoin would be developed in collaboration with Phoenix Group PLC, a prominent UAE-based technology conglomerate, and Green Acorn Investments Ltd. Although the exact launch date has not been specified, the stablecoin will be backed 1:1 by liquid reserves based in the UAE, ensuring its value remains stable and secure. The stablecoin will be issued under the Payment Token Services Regulation introduced by the Central Bank of the UAE in June 2024. This regulation provides a framework for the issuance and management of digital assets, ensuring that Tether’s new offering complies with local laws and regulatory requirements. As part of its commitment to regulatory compliance, Tether will seek licensing under this framework to ensure the stablecoin adheres to the Central Bank’s standards. Rising Cryptocurrency Adoption in Dubai Dubai has seen a significant increase in cryptocurrency adoption since the establishment of the Virtual Asset Regulatory Authority (VARA) in 2022. VARA, an independent regulatory body, is responsible for overseeing the licensing, regulation, and governance of the cryptocurrency sector in Dubai. The surge in digital asset activity has created a favorable environment for the introduction of new financial products like Tether’s dirham-pegged stablecoin. Tether’s announcement highlights the potential of the new stablecoin to serve as a cost-effective alternative for international trade and remittances. The stablecoin is expected to enable businesses and individuals to leverage the benefits of the UAE dirham (AED) while mitigating the risks associated with currency fluctuations. Tether envisions the stablecoin becoming a valuable tool for those seeking a secure and efficient means of transacting in the UAE and beyond. Strategic Importance of the UAE Market Paolo Ardoino, CEO of Tether, expressed optimism about the impact of the new stablecoin, emphasizing the UAE’s growing role as a global economic hub. “The United Arab Emirates is becoming a significant global economic hub, and we believe our users will find our Dirham-pegged token to be a valuable and versatile addition,” Ardoino said. He also noted that the stablecoin could become an “essential tool” for businesses and individuals looking to conduct transactions securely and efficiently using the dirham. The upcoming dirham-pegged stablecoin will join Tether’s existing lineup of fiat-backed digital assets, which includes EURT, a euro-backed stablecoin introduced in 2020, and CNHT, a Chinese yuan-backed stablecoin launched in 2022. These assets have been developed to provide users with reliable, stable alternatives to volatile cryptocurrencies, allowing them to transact and store value with greater confidence. Tether’s Market Dominance and Challenges Tether’s flagship product, USDT, remains the largest stablecoin globally, with a market capitalization exceeding $117 billion. USDT holds a commanding market share of nearly 70%, making it a dominant force in the cryptocurrency ecosystem. Despite its market leadership, Tether has faced criticism over the years, particularly regarding the potential misuse of USDT by entities subject to sanctions and other illicit activities. In response to these concerns, Tether has taken steps to enhance transparency and oversight. The company partnered with blockchain analytics firm Chainalysis to monitor USDT transactions in the secondary market, aiming to detect and prevent unlawful activities. This partnership reflects Tether’s commitment to maintaining the integrity of its stablecoins and addressing the challenges associated with their widespread use. The Future of Tether’s Dirham-Pegged Stablecoin The launch of Tether’s dirham-pegged stablecoin represents a significant development in the evolution of digital assets in the Middle East. As the UAE continues to position itself as a leader in the global cryptocurrency market, the introduction of a stablecoin backed by the local currency could play a crucial role in driving further adoption of digital finance solutions in the region. Tether’s strategic move to enter the UAE market aligns with its broader mission to provide users with reliable and stable digital assets that can facilitate seamless transactions across borders. The new stablecoin is expected to appeal to a wide range of users, including businesses engaged in international trade, expatriates sending remittances, and individuals seeking to protect their wealth from currency volatility. As Tether prepares to launch its dirham-pegged stablecoin, the company will continue to work closely with UAE regulators to ensure that the new asset complies with all relevant laws and standards. This approach not only reinforces Tether’s commitment to regulatory compliance but also positions the company as a trusted partner in the rapidly evolving digital asset landscape. Tether’s plan to develop a dirham-pegged stablecoin in the UAE is a testament to the growing importance of the Middle East in the global cryptocurrency market. By leveraging the UAE’s favorable regulatory environment and collaborating with local partners, Tether aims to provide users with a secure and efficient means of transacting in the region, further solidifying its position as a leader in the stablecoin industry.

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Currencies EUR/USD

EUR/USD Surges to New 2024 Highs as Fed Minutes and ECB Policies Dominate Market Focus

EUR/USD Surges to New 2024 Highs as Fed Minutes and ECB Policies Dominate Market Focus EUR/USD Maintains Momentum Near 1.1130 Ahead of Key Fed Minutes The EUR/USD pair has continued to exhibit strength, trading near 1.1130 as markets brace for the release of the Federal Open Market Committee (FOMC) minutes from its July monetary policy meeting. The Euro has held firm against the US Dollar, stabilizing above the 1.1100 mark, reflecting investors’ confidence in the European Central Bank’s (ECB) measured approach to its monetary policy, in contrast to the Federal Reserve’s (Fed) more cautious outlook. In July, the Fed chose to keep interest rates steady for the eighth consecutive time. However, Fed Chair Jerome Powell’s remarks indicated that discussions about potential rate cuts are on the table, depending on future economic data, especially concerning inflation and employment. EUR/USD Daily Price Chart Source: TradingView, prepared by Richard Miles ECB’s Policy Path and Economic Outlook ECB’s Rate Cut Expectations and Economic Conditions The Euro’s recent performance has been buoyed by expectations that the ECB will not rush into aggressive rate cuts, despite challenges facing the Eurozone’s largest economy, Germany. ECB policymakers have been careful not to commit to a fixed course for interest rate reductions, particularly given that inflation in the Eurozone is expected to remain above the ECB’s target for the remainder of the year. This cautious stance has helped underpin the Euro, as market participants anticipate that the ECB will likely resume its policy-easing cycle in September. The economic outlook in the Eurozone remains uncertain, with Germany experiencing slower growth. However, there are signs of relief, such as the recent data from Germany’s Bundesbank, which reported that Negotiated Wage growth in the second quarter slowed to 3.1%, down from the 6.2% increase observed in the first quarter. This moderation in wage growth has provided some breathing room for ECB officials and has bolstered optimism that the central bank might proceed with a rate cut in September. Key Economic Data to Watch Investors are now looking ahead to the release of preliminary Eurozone HCOB Purchasing Managers’ Index (PMI) data for August, as well as the Q2 Negotiated Wage Rates, both scheduled for Thursday. The Composite PMI is expected to show only slight improvement, reflecting ongoing weaknesses in the manufacturing sector. Meanwhile, the Negotiated Wage Rate, which rose by 4.69% in the first quarter, will be closely watched for any signs of further moderation, which would likely be welcomed by the ECB as it considers its next move on interest rates. Daily Market Movers: EUR/USD Holds Firm Above 1.1100 Amid Dollar Weakness USD Pressure and Market Sentiment The EUR/USD pair has been holding steady near 1.1130 during Wednesday’s European session, marking the highest level seen in 2024. The pair is poised to challenge the annual highs of 1.1140, driven by the US Dollar’s ongoing weakness. The Dollar Index (DXY), which measures the greenback’s value against a basket of six major currencies, is hovering near a fresh seven-month low at around 101.30. The continued easing of inflationary pressures in the United States, coupled with cooling labor market conditions, has strengthened the market’s belief that the Fed will opt for an interest rate cut in September. However, traders remain divided over the magnitude of this potential cut. According to the CME FedWatch Tool, there is a 30.5% probability of a 50-basis-point (bps) rate reduction, while the majority of the market anticipates a more moderate 25-bps cut. Key Events: FOMC Minutes and Powell’s Speech Market participants are eagerly awaiting the release of the FOMC minutes from the July policy meeting, scheduled for 18:00 GMT on Wednesday. During the July meeting, the Fed decided to keep its key borrowing rates unchanged within the range of 5.25%-5.50%. This marked the eighth consecutive meeting where rates were held steady, reflecting the Fed’s cautious approach as it balances the risks associated with its dual mandate of controlling inflation and maintaining employment. In addition to the FOMC minutes, traders are also focusing on Fed Chair Jerome Powell’s upcoming speech at the Jackson Hole Symposium, which will take place from Thursday to Saturday. Powell’s remarks will be scrutinized for any hints regarding the Fed’s policy direction, particularly concerning the potential for rate cuts in September. In his press conference following the July meeting, Powell noted that if inflation continues to decline as expected, and economic growth remains stable, a rate cut could be a viable option at the September meeting. Technical Analysis: EUR/USD Eyes 2024 Highs Bullish Technical Indicators and Key Levels From a technical perspective, the EUR/USD pair is gathering strength as it approaches its year-to-date high of 1.1140. The currency pair’s recent breakout from a channel formation on the daily chart has provided a boost to the bullish momentum. The upward-sloping 20-day and 50-day Exponential Moving Averages (EMAs), positioned near 1.0970 and 1.0900 respectively, further support the bullish trend. The 14-day Relative Strength Index (RSI) is currently oscillating within the bullish range of 60.00-80.00, indicating strong upside momentum. This suggests that the EUR/USD pair could continue its upward trajectory, with the next major resistance level at 1.1200. A decisive break above the December 28, 2023 high of 1.1140 would likely open the door for further gains. On the downside, the August 15 low at 1.0950 is seen as a critical support level. A break below this level could signal a reversal in the current bullish trend, potentially bringing the pair back towards the EMAs. However, as long as the EUR/USD remains above 1.1100, the outlook is expected to remain positive. EUR/USD Poised for Further Gains Amid Central Bank Uncertainty The EUR/USD pair’s recent performance reflects the broader market dynamics as traders navigate the uncertainty surrounding central bank policies in both the Eurozone and the United States. With the ECB expected to proceed cautiously with rate cuts and the Fed facing a complex economic landscape, the EUR/USD is likely to remain volatile in the near term. As the market awaits key events, including the FOMC minutes and Jerome Powell’s

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Commodities Gold

Gold Holds Strong Above $2500 as Markets Await FOMC Minutes

Gold Holds Strong Above $2500 as Markets Await FOMC Minutes Gold price (XAU/USD) continues to hold above the critical $2,500 level, maintaining its recent upward momentum as traders await further guidance from the Federal Open Market Committee (FOMC) minutes and Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium. On Tuesday, gold reached a new all-time high, driven primarily by a dovish stance from the Federal Reserve (Fed) that weakened the US Dollar (USD) and boosted demand for the precious metal. Geopolitical tensions, particularly in the Middle East, combined with economic concerns in China, have further strengthened gold’s position as a safe-haven asset. These factors, along with the anticipation that the Fed will begin easing its monetary policy with a 25 basis points (bps) rate cut in September, have kept the pressure on US Treasury bond yields, thereby supporting gold prices. Despite these bullish factors, a modest recovery in the USD and the possibility of a ceasefire in Gaza have prevented any significant further gains for gold. Investors are taking a cautious approach, preferring to wait for the release of the July FOMC meeting minutes, which are expected to provide more insight into the Fed’s future policy path. Additionally, Jerome Powell’s upcoming speech is likely to be closely analyzed for indications on how the US central bank plans to navigate the current economic landscape. The overall market sentiment remains tilted in favor of gold bulls. The fundamental backdrop, including expectations of a dovish Fed and ongoing geopolitical uncertainties, continues to support the precious metal’s strong performance. However, the market remains vigilant, with traders keeping a close eye on the forthcoming economic data and central bank communications. XAU/USD Daily Price Chart Source: TradingView, prepared by Richard Miles Market Movers and Sentiment The anticipation of the Fed’s imminent rate-cutting cycle has been a major driver for the gold market. With a 70% probability that the Fed will lower interest rates by 25 bps in September, according to the CME Group’s FedWatch Tool, there is a prevailing expectation that the Fed will initiate a series of rate cuts at each of the remaining three meetings in 2024. This dovish outlook has led to a decline in US Treasury bond yields and a weakening of the USD, both of which have contributed to gold’s rise. However, Fed Governor Michelle Bowman has attempted to manage these expectations by emphasizing that, despite progress, inflation remains significantly above the central bank’s 2% target. This has created a degree of uncertainty, as the Fed’s future actions may be more dependent on inflation data and economic conditions than previously anticipated. In China, the People’s Bank of China (PBOC) recently granted new gold import quotas to several banks, signaling a potential surge in gold demand. This move is seen as a response to the country’s ongoing economic challenges and could lead to another significant buying wave in the gold market. Additionally, the holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, have increased to their highest level in seven months, reflecting improved investment demand for gold. This is further evidence of the strong interest in gold as a safe-haven asset amidst global uncertainties. Geopolitical concerns, particularly in the Middle East, continue to play a significant role in the market’s risk sentiment. The potential for a ceasefire between Israel and Hamas has introduced some caution, but overall, the geopolitical landscape remains a supportive factor for gold prices. Technical Analysis From a technical standpoint, gold’s recent breakout above the triple top resistance around the $2,479-$2,480 region, followed by a move beyond the $2,500 psychological mark, has provided a fresh impetus for bullish traders. The daily chart’s oscillators remain in positive territory and are not yet signaling overbought conditions, indicating that the path of least resistance for gold is likely to continue upward. In the event of a pullback, the $2,500 level is expected to act as a strong support, potentially limiting any downside movement. Should selling pressure increase, gold prices could find further support around the $2,455-$2,453 region, with a more significant support level near $2,430. A break below this level could bring the 50-day Simple Moving Average (SMA), currently just below $2,400, into focus as a key support level. Overall, gold’s technical and fundamental outlook remains positive, with the market poised to react to upcoming economic data and central bank announcements. Investors and traders will closely monitor the FOMC minutes and Jerome Powell’s speech for any signs that could influence the near-term trajectory of gold prices. As the market navigates these events, gold will likely continue attracting interest as a safe-haven asset, supported by ongoing economic and geopolitical uncertainties.

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Currencies USD/JPY

Japanese Yen Declines as US Dollar Strengthens Amid Rising Treasury Yields

Japanese Yen Declines as US Dollar Strengthens Amid Rising Treasury Yields The Japanese Yen (JPY) experienced a decline against the US Dollar (USD) on Tuesday, as the Greenback gained momentum. This movement was largely driven by a recovery in US Treasury yields, which had recently seen losses. Despite this decline, the downside of the Yen may be limited due to expectations that the Bank of Japan (BoJ) will implement further interest rate hikes. Japan’s economy has shown significant growth, raising the possibility of another near-term rate increase by the BoJ. Japan’s Economic Growth Fuels Rate Hike Expectations Japan’s economy grew at an annualized rate of 3.1% in the second quarter of 2024, far exceeding expectations and marking a strong rebound from the earlier slowdown this year. This robust economic performance has bolstered the likelihood that the Bank of Japan will continue to increase interest rates. The BoJ had previously projected that a strong economic recovery would help inflation sustainably reach its 2% target. Achieving this target is essential for justifying further interest rate increases, following the hike last month as part of the BoJ’s efforts to unwind years of extensive monetary stimulus. The positive economic data from Japan has reinforced the market’s expectations for a more hawkish stance from the BoJ. On Friday, BoJ Governor Kazuo Ueda is expected to address the central bank’s decision to raise interest rates last month, which could provide further insight into the BoJ’s future monetary policy actions. Economists like Kazutaka Maeda from the Meiji Yasuda Research Institute have expressed optimism about the reports, noting that they support the BoJ’s view and bode well for additional rate hikes, even though the central bank may proceed cautiously after the sharp spike in the Yen following the last rate increase. USD/JPY Daily Price Chart Source: TradingView, prepared by Richard Miles The US Dollar Recovers Amid Risk Aversion On the other side of the Pacific, the US Dollar has been retracing its recent losses as risk aversion sentiment rises. This recovery comes despite challenges posed by remarks from Federal Reserve (Fed) officials that have heightened the prospect of upcoming rate cuts. On Monday, Minneapolis Fed President Neel Kashkari suggested that it would be appropriate to consider potential interest rate cuts in September, citing concerns about a weakening labor market. This sentiment was echoed by other Fed officials who have emphasized a cautious approach to reducing borrowing costs. Divergent Monetary Policies: BoJ vs. Fed The contrasting monetary policies of the BoJ and the Fed have created an interesting dynamic in the USD/JPY exchange rate. While the BoJ is seen as moving towards tightening monetary policy through rate hikes, the Fed appears to be on the verge of easing, with discussions of potential rate cuts on the horizon. This divergence has significant implications for the USD/JPY pair, as the relative strength of each currency is heavily influenced by their respective central banks’ actions. The Fed’s cautious approach is reflected in recent comments from key officials. San Francisco Fed President Mary Daly emphasized the importance of a gradual approach to reducing borrowing costs, warning against the risks of maintaining a restrictive policy for too long. Similarly, Chicago Fed President Austan Goolsbee cautioned that the Fed should be careful not to keep policies too tight, especially as the economy shows signs of slowing down. Japanese Government’s Support for Economic Growth In Japan, the government is also playing a role in supporting economic growth. Japanese Economy Minister Yoshitaka Shindo recently stated that the economy is expected to recover gradually as wages and income improve. Shindo added that the government will work closely with the Bank of Japan to implement flexible macroeconomic policies that support this recovery. This collaboration between the government and the BoJ is seen as a positive factor for the Japanese economy, which could further support the Yen in the longer term. Japan’s Strong GDP Growth in Q2 Japan’s Gross Domestic Product (GDP) grew by 0.8% quarter-on-quarter in the second quarter, surpassing market forecasts of 0.5% growth and rebounding from a 0.6% decline in the first quarter. This marked the strongest quarterly growth since the first quarter of 2023. On an annualized basis, GDP growth reached 3.1%, exceeding the market consensus of 2.1% and reversing a 2.3% contraction in the previous quarter. This impressive performance is the strongest yearly expansion since the second quarter of 2023 and has fueled expectations for further rate hikes by the BoJ. US Economic Data and Market Expectations Meanwhile, in the United States, economic data releases continue to influence market expectations regarding the Fed’s monetary policy. The headline Consumer Price Index (CPI) rose 2.9% year-over-year in July, slightly down from the 3% increase in June and below market expectations. The Core CPI, which excludes food and energy, climbed 3.2% year-over-year, a slight decrease from the 3.3% rise in June but aligned with market forecasts. These inflation figures are being closely watched by market participants as they assess the likelihood of future Fed rate cuts. According to Jane Foley, a senior FX strategist at Rabobank, the series of US data releases this week, along with the upcoming Jackson Hole Symposium, will provide clearer insights into how US policymakers might respond. Foley noted that the main expectation is for the Fed to reduce rates by 25 basis points in September, with another cut likely before the end of the year. This dovish outlook contrasts with the BoJ’s more hawkish stance, further influencing the USD/JPY exchange rate. Technical Analysis: USD/JPY Hovers Around 146.50 The USD/JPY pair traded around 146.60 on Tuesday, showing signs of a short-term bearish trend. An analysis of the daily chart reveals that the pair is just below the nine-day Exponential Moving Average (EMA), which suggests a potential downside correction. Additionally, the 14-day Relative Strength Index (RSI) is slightly above 30, indicating that the pair may be due for a pullback. Support and Resistance Levels On the downside, the USD/JPY pair might test the seven-month low of 141.69, which was reached on August 5. A

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Commodities Gold

Gold Holds Steady Near Record Highs as Markets Await Fed’s Next Move

Gold Holds Steady Near Record Highs as Markets Await Fed’s Next Move Gold prices continue to trade within a narrow range, hovering around the significant psychological mark of $2,500. This sideways movement reflects the cautious sentiment among traders as they await further cues from the Federal Reserve (Fed) regarding its future monetary policy, particularly concerning potential rate cuts. Despite the consolidation, several factors influence the gold market, creating a delicate balance between bullish and bearish forces. One of the key factors limiting the upside for gold is the recent recovery of the US Dollar (USD). After hitting its lowest level since January, the USD has shown signs of modest recovery, which generally puts downward pressure on gold since gold is priced in dollars. Additionally, a broadly positive tone in global equity markets is a headwind for the safe-haven metal. When risk appetite increases, as indicated by rising equity markets, investors often shift away from gold in favor of riskier assets, thereby capping the gains in gold prices. XAU/USD Daily Price Chart Source: TradingView, prepared by Richard Miles However, the market’s focus remains on the Federal Reserve’s next moves. The July FOMC meeting minutes, scheduled for release on Wednesday, along with Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium on Friday, are anticipated events that could provide clearer direction for gold prices. Traders are particularly interested in any signals regarding the Fed’s rate-cutting path, especially in light of recent economic data and comments from Fed officials. Despite the recent upbeat Retail Sales report for July, which eased some recession fears in the US, market participants are still expecting the Fed to begin easing its policy stance. The CME Group’s FedWatch Tool suggests that there is a strong possibility the Fed will start reducing interest rates at its September meeting, with expectations of over 200 basis points in cuts by the end of 2025. This dovish outlook is largely based on the belief that the risks to the US economy are shifting towards concerns about the labor market rather than inflation. Comments from various Fed officials have further fueled speculation about the future direction of monetary policy. Minneapolis Fed President Neel Kashkari recently stated that discussing a rate cut in September is appropriate, given the changing economic risks. Chicago Fed President Austan Goolsbee echoed these sentiments, noting that the US economy is not showing signs of overheating, and therefore, the central bank should be cautious about maintaining restrictive policies for too long. Additionally, San Francisco Fed President Mary Daly emphasized the need for a gradual approach to lowering borrowing costs, downplaying the likelihood of a sharp economic slowdown. Geopolitical factors also continue to play a role in supporting gold prices. Tensions in the Middle East, particularly the ongoing conflict between Israel and Hamas, remain a concern. Recently, US Secretary of State Antony Blinken indicated that Israeli Prime Minister Benjamin Netanyahu had accepted a proposal aimed at resolving issues that have been hindering the release of hostages held by Hamas. The resumption of negotiations this week has sparked optimism that a ceasefire could be achieved, potentially reducing the risk of a broader regional conflict. This development could lead to a decrease in demand for safe-haven assets like gold, as investors’ risk appetite increases with the easing of geopolitical tensions. In summary, the gold market is currently in a state of consolidation, with prices holding steady near record highs as traders await more definitive signals from the Federal Reserve. The interplay between a recovering US Dollar, positive equity market sentiment, dovish Fed expectations, and geopolitical risks is creating a complex environment for gold. While the immediate upside may be capped by the stronger dollar and risk-on sentiment, the underlying support from expectations of Fed rate cuts and geopolitical uncertainties should help limit any significant downside in gold prices. The release of the FOMC meeting minutes and Fed Chair Powell’s upcoming speech will likely be pivotal in determining the next leg of the directional move for gold. Until then, traders are likely to remain on the sidelines, cautiously awaiting further developments.

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Commodities Gold

Gold Price Steadies Above $2450 Poised for Modest Weekly Gains

Gold Price Steadies Above $2450 Poised for Modest Weekly Gains Gold prices have been relatively steady above the $2450 mark, maintaining a sideways trajectory as various factors influence the market. The lack of a clear intraday direction in gold prices suggests that a combination of opposing forces is influencing the metal, each pulling the market in different directions. On one hand, the easing of recession fears in the United States has bolstered investor confidence, dampening the demand for gold as a safe-haven asset. On the other hand, ongoing geopolitical tensions and expectations of an imminent shift in the Federal Reserve’s monetary policy are providing some support for gold prices. Despite the positive move in gold prices on Thursday, where the metal managed to gain some ground, Friday saw gold prices oscillating between minor gains and losses as the European session approached. The recent release of upbeat U.S. macroeconomic data played a significant role in this mixed performance. The data indicated that the U.S. economy is not heading towards a sharp downturn, as many had feared, leading to a boost in investor confidence. This development has reduced the appeal of gold as a safe-haven asset, as investors now feel more confident about the stability of the economy. However, the situation is far from straightforward. Geopolitical tensions, particularly in the Middle East, continue to simmer, adding a layer of uncertainty to the market. The ongoing conflict in the region, coupled with concerns over how Iran might respond to the assassination of Hamas leader Ismail Haniyeh in Tehran last month, has kept the demand for safe-haven assets like gold alive. Additionally, the long-running Russia-Ukraine war remains a significant source of geopolitical risk, contributing to the support for gold prices. XAU/USD Daily Price Chart Source: TradingView, prepared by Richard Miles In the backdrop of these geopolitical concerns, there is also growing speculation that the Federal Reserve might soon begin a policy-easing cycle. Markets have already priced in a 25 basis points (bps) rate cut at the upcoming Federal Open Market Committee (FOMC) meeting in September. This expectation has triggered a decline in U.S. Treasury bond yields and attracted sellers to the U.S. Dollar, both of which are providing additional support to gold prices. A weaker dollar generally makes gold more attractive to holders of other currencies, and lower yields reduce the opportunity cost of holding non-yielding assets like gold. As the week progresses, traders are likely to keep a close eye on upcoming U.S. macroeconomic data, including Building Starts, Housing Permits, and the Preliminary Michigan Consumer Sentiment Index. These reports could offer fresh insights into the health of the U.S. economy and provide short-term trading opportunities in the gold market. Despite the mixed signals, gold appears poised to register modest gains for the week. The market movers on Thursday provided a clearer picture of the forces at play. Persistent geopolitical tensions, stemming from the ongoing conflicts in the Middle East and the protracted Russia-Ukraine war, helped gold prices regain some positive traction. The concerns over Iran’s potential response to the assassination of a key Hamas leader, coupled with Russia’s plans to beef up border defenses in response to Ukraine’s attacks, have kept the geopolitical risk premium in gold prices intact. On the economic front, the U.S. data released on Thursday further complicated the outlook for gold. Retail sales in the U.S. rose more than expected in July, reflecting a still-resilient labor market and easing fears of a sharp economic slowdown. The U.S. Census Bureau reported a 1% increase in retail sales for July, while sales excluding autos grew by 0.4%, both figures exceeding market expectations. Additionally, the U.S. Department of Labor revealed that initial jobless claims for the week ending August 10 were lower than anticipated, further easing concerns about the health of the labor market. These positive economic indicators have led markets to price in a greater chance that the Federal Reserve will lower borrowing costs by just 25 basis points at its September meeting. This has, in turn, triggered a rise in U.S. Treasury bond yields and strengthened the U.S. Dollar, both of which have capped the upside for gold prices. Notably, comments from Fed officials, including Atlanta Fed President Raphael Bostic and St. Louis Fed President Alberto Musalem, suggest that a rate cut might be on the horizon as inflation cools and the balance of risks shifts. From a technical analysis perspective, gold’s inability to break through the $2,470 resistance level suggests that traders should wait for some follow-through buying before positioning for further gains. The daily chart indicates that the oscillators are still in positive territory, which could pave the way for gold to challenge its all-time peak of around $2,483-$2,484, and potentially conquer the psychological $2,500 mark. However, on the downside, immediate support is seen around the $2,447-2,445 zone, followed by the $2,430-2,429 area and the weekly low near $2,424. A break below these levels could expose gold prices to further weakness, potentially testing the 50-day Simple Moving Average (SMA) near $2,383, and possibly the 100-day SMA around $2,363-2,362. As the focus shifts to the upcoming FOMC minutes and Fed Chair Jerome Powell’s appearance at the Jackson Hole Symposium, traders will closely monitor any signals that could influence the future trajectory of gold prices.

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Crypto

Iran Offers $20 Rewards for Reporting Illegal Crypto Miners Amid Severe Power Shortages

Iran Offers $20 Rewards for Reporting Illegal Crypto Miners Amid Severe Power Shortages As Iran grapples with severe power shortages exacerbated by an intense heatwave and a deepening energy crisis, the country has introduced a novel strategy to combat one of the key contributors to its electricity woes: illegal cryptocurrency mining. The Iranian government is now offering a reward of approximately $20 to citizens who report unauthorized crypto-mining operations. This move is part of a broader effort to alleviate the strain on the nation’s already overstretched power grid. The Heatwave and Energy Crisis Iran is currently facing its most severe heatwave in half a century, which has led to widespread power outages across the country. The extreme weather conditions have placed unprecedented demands on the national electricity grid, causing significant disruptions to industrial production and daily life. Amid these challenges, illegal cryptocurrency mining has emerged as a critical issue, further straining the nation’s energy resources. According to Mostafa Rajabi Mashhadi, the head of Iran’s state electricity company, Tavanir, unauthorized crypto-mining activities have significantly contributed to the abnormal surge in electricity consumption. This surge has not only disrupted the power supply to households and businesses but also created additional challenges for the country’s energy infrastructure. Mashhadi emphasized that “opportunistic individuals” have been exploiting subsidized electricity and public networks to mine cryptocurrencies without proper authorization, thereby exacerbating the energy crisis. The Scale of Illegal Crypto Mining Illegal crypto mining in Iran has reached alarming proportions. Mashhadi revealed that more than 230,000 unauthorized mining devices have been identified so far, with these devices consuming between 800 to 900 megawatts (MW) of electricity. To put this into perspective, the electricity consumed by these illegal operations is equivalent to the power usage of the entire Markazi Province. Addressing this level of energy consumption would require the construction of a new power plant with a capacity of 1,300 MW—a costly and time-consuming solution that Iran is keen to avoid. In response to this growing problem, Iranian authorities have not only introduced the $20 reward for reporting illegal mining activities but have also intensified their crackdown on illicit operations. The government’s efforts are part of a broader initiative to curb unregulated activities that are destabilizing the country’s power grid and worsening the energy crisis. Government Crackdown on Illicit Activities The introduction of financial incentives for reporting illegal miners is just one facet of Iran’s comprehensive approach to tackling the problem. Since 2022, Iranian intelligence services have targeted over 9,000 accounts belonging to 454 individuals involved in illicit cryptocurrency trading. These efforts underscore the government’s determination to eliminate unregulated mining and trading activities that threaten both the stability of the national grid and the country’s economic interests. The crackdown on illegal crypto mining is particularly critical given the country’s broader energy and economic challenges. Iran’s subsidized electricity rates make it an attractive location for crypto miners, but this has come at a significant cost to the country’s power infrastructure. Unauthorized mining operations have not only led to electricity shortages but have also forced the government to take drastic measures, such as imposing rolling blackouts and prioritizing power supply to critical sectors. International Implications and Concerns The issue of illegal crypto mining in Iran also has significant international implications. In early May 2024, U.S. Senators Elizabeth Warren and Angus King called for a detailed investigation into potential connections between Iranian crypto mining and the evasion of U.S. sanctions. The senators raised concerns that cryptocurrencies mined in Iran could be used to bypass sanctions, fund terrorist organizations like Hezbollah, and support Iran’s military activities. These allegations highlight the potential for cryptocurrencies to be used as tools for circumventing international financial regulations and facilitating illicit activities. The U.S. has long been concerned about Iran’s use of alternative financial systems to bypass sanctions, and the growing prevalence of crypto mining in the country adds another layer of complexity to this issue. The Future of Crypto Mining in Iran Iran’s efforts to crack down on illegal crypto mining reflect a broader trend of increasing regulation and enforcement in the cryptocurrency sector. As countries around the world grapple with the challenges posed by digital currencies, Iran’s experience underscores the need for robust regulatory frameworks to manage the risks associated with cryptocurrency mining and trading. However, the situation in Iran also highlights the difficulties that governments face in balancing the benefits of technological innovation with the need to maintain economic stability and protect national interests. While cryptocurrencies offer new opportunities for economic growth and financial inclusion, they also pose significant challenges, particularly in countries with fragile energy infrastructures. In Short Iran’s decision to offer financial rewards for reporting illegal crypto miners is a clear indication of the seriousness of the energy crisis facing the country. As the government intensifies its crackdown on unauthorized mining activities, it remains to be seen whether these measures will be sufficient to alleviate the strain on the nation’s power grid. The situation in Iran also serves as a cautionary tale for other countries dealing with the rapid growth of cryptocurrency mining. As digital currencies continue to gain prominence, the need for effective regulation and enforcement will become increasingly important. For Iran, the challenge lies not only in curbing illegal activities but also in finding sustainable solutions to its broader energy and economic challenges. In the meantime, the $20 reward for reporting illegal miners represents a small but significant step in Iran’s ongoing battle to protect its electricity grid and ensure the stability of its power supply amid an unprecedented heatwave and energy crisis.

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Blog

US Dollar Attempts Recovery as CPI Data Aligns with Expectations

US Dollar Attempts Recovery as CPI Data Aligns with Expectations The US Dollar (USD) is attempting to recover after a modest decline, following the release of the July Consumer Price Index (CPI) data. The CPI numbers came in exactly as anticipated, offering no surprises, which led to a muted market reaction. This outcome has been somewhat disappointing for traders who had positioned themselves for a more dramatic shift in the USD, particularly after the softer-than-expected Producer Price Index (PPI) data released earlier this week. Market Reaction to CPI Data: A Mixed Bag The USD’s initial response to the CPI data was to erase some of the earlier losses, though the overall market reaction has been subdued. The CPI data showed a slight increase in core inflation, with the monthly core CPI rising by 0.2%, up from 0.1% in June. However, the yearly core CPI softened slightly to 3.2%, down from 3.3%. Meanwhile, the headline CPI remained unchanged at 0.2% month-over-month, and the annual headline inflation rate decreased to 2.9% from 3.0%. These figures indicate that inflationary pressures in the US economy are stabilizing but not accelerating, which may be why the market’s reaction has been relatively contained. The data provided little new information to alter the Federal Reserve’s (Fed) current monetary policy stance, leaving traders to focus on upcoming economic data to gauge the next possible moves by the Fed. US Dollar Index (DXY) Technical Outlook From a technical perspective, the US Dollar Index (DXY), which measures the value of the USD against a basket of six major currencies, continues to trade in the mid-102.00 range. The DXY recently pulled back from the crucial 103.18 level, a pivotal point that has been a significant resistance level in recent days. This retreat was largely influenced by the unexpected PPI data on Tuesday, which spurred concerns about the strength of the US economy and the likelihood of future rate cuts by the Fed. If the DXY fails to hold above 103.00, further downside pressure is likely. The index may need to decline further to pull the Relative Strength Index (RSI) into oversold territory, which could provide the necessary support for a potential rebound. Immediate support is seen near the August 5 low at 102.17. A breach of this level could open the door for a test of the psychological 102.00 mark, followed by 101.90, which was a key support level in December 2023 and January 2024. On the upside, the DXY needs to break above the 103.18 resistance level to reignite bullish momentum. If this level is successfully cleared, the next target would be 104.00, with the 200-day Simple Moving Average (SMA) at 104.12 posing a significant hurdle in the near term. DXY Daily Price Chart Source: TradingView, prepared by Richard Miles Economic Data Calendar: What’s Next? With Wednesday’s CPI data now in the rearview mirror, traders are shifting their focus to the upcoming economic releases that could have a more significant impact on the market. On Thursday, the US Retail Sales data for July will be released, alongside the weekly jobless claims. These figures are likely to draw increased attention, especially given the lack of a strong market response to the CPI data. Retail sales are a key indicator of consumer spending, which accounts for a significant portion of US economic activity. A strong retail sales report could bolster expectations for the US economy’s resilience, potentially supporting the USD. Conversely, weak retail sales could exacerbate concerns about economic slowdown, increasing the likelihood of more aggressive rate cuts by the Fed. The weekly jobless claims report will also be closely watched. While the US labor market has remained relatively robust, any signs of weakening could add to the bearish sentiment surrounding the USD, particularly if coupled with soft retail sales data. Global Developments Impacting the USD In addition to domestic economic data, global developments are also playing a role in shaping the USD’s trajectory. In Japan, Prime Minister Fumio Kishida has announced that he will not seek a second term, creating political uncertainty in the country. This news has added to the volatility in the Japanese Yen (JPY), although its impact on the USD has been limited so far. Meanwhile, the Reserve Bank of New Zealand (RBNZ) surprised the market on Wednesday by cutting interest rates by 25 basis points, signaling the start of a new easing cycle. RBNZ Chairman Adrian Orr even hinted that a 50 basis point cut was considered, which sent the New Zealand Dollar (NZD) tumbling by 1% against the USD. This move by the RBNZ could have broader implications for global central banks, as it suggests that concerns about economic slowdown are prompting more aggressive monetary policy actions. Equity Markets and Treasury Yields Equity markets have struggled to interpret the CPI data, with indices trading sideways as investors weigh the implications for future Fed policy. The lack of a clear directional move in equities reflects the broader uncertainty in the market, as participants await more definitive signals from upcoming economic data. In the bond market, the yield on the 10-year US Treasury note has recovered slightly, trading around 3.86%. This modest recovery in yields has helped to stabilize the USD to some extent, although the overall direction of Treasury yields will likely depend on the next round of economic data and any potential shifts in Fed policy expectations. Fed Policy Outlook: What’s Next? The CPI data has done little to clarify the Fed’s path forward, leaving traders to speculate on the size of the next rate cut. The CME FedWatch Tool currently shows a 47.5% chance of a 25 basis point cut in September, with a slightly higher 52.5% probability of a 50 basis point cut. Beyond September, the market is pricing in another 25 basis point cut in November, with a 31.5% probability of rates being 75 basis points lower by the end of the year, and a 17.7% chance of a 100 basis point reduction. This uncertainty underscores the challenges facing the Fed as

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AUD/USD Currencies

AUD/USD Refreshes Three-Week High at 0.6640 Amid US Inflation and Australian Employment Data Anticipation

AUD/USD Refreshes Three-Week High at 0.6640 Amid US Inflation and Australian Employment Data Anticipation The AUD/USD currency pair has surged to a fresh three-week high, reaching 0.6640 during Wednesday’s European session, reflecting a strong performance by the Australian Dollar (AUD) against a weakening US Dollar (USD). As the market gears up for significant economic data releases from the United States and Australia, traders and investors closely monitor the developments that could shape the near-term outlook for both currencies. US Dollar Weakens Ahead of Crucial Inflation Data The US Dollar has been downward, allowing the AUD to gain traction. This decline comes ahead of the release of the US Consumer Price Index (CPI) data for July, scheduled for 12:30 GMT. The CPI report is highly anticipated as it will provide fresh insights into the inflationary pressures in the US economy, which in turn will influence the Federal Reserve’s (Fed) monetary policy decisions in the upcoming months. Current market expectations suggest that the July CPI report will show a modest increase in both headline and core inflation, with monthly gains expected at 0.2%. On an annual basis, headline CPI is projected to have eased slightly to 2.9%, down from the previous reading, while core CPI is estimated to have dipped to 3.2%. These figures, if confirmed, would indicate a gradual deceleration in inflation, aligning with the Fed’s recent statements about the trajectory of price pressures. The outcome of the CPI data is particularly crucial as it will either reinforce or diminish market speculation about the size of the Fed’s anticipated interest-rate cuts in September. According to the CME FedWatch tool, there is currently a 54.5% probability that the Fed will opt for a 50 basis point (bp) reduction in interest rates at its September meeting. This uncertainty has left traders divided, with some expecting a smaller rate cut if inflation remains relatively high. AUD/USD Daily Price Chart Source: TradingView, prepared by Richard Miles Market Sentiment Remains Cautious Despite the overall cautious sentiment in the market, there have been some signs of optimism. S&P 500 futures have recorded modest gains during European trading hours, suggesting that investors are not overly pessimistic ahead of the inflation data. However, the US Dollar Index (DXY), which measures the USD against a basket of six major currencies, has continued to slide, falling further below the 102.50 mark. This weakness in the USD has provided a supportive backdrop for the AUD/USD pair. Additionally, the US Treasury market has seen some movement, with the yield on the 10-year Treasury note dipping to around 3.84%. Lower yields typically reduce the appeal of holding USD-denominated assets, contributing to the greenback’s weakness against other currencies, including the AUD. Focus Shifts to Australian Employment Data While the US inflation data is the immediate focus, the Australian Dollar is also being influenced by domestic factors, particularly the upcoming employment data for July, which is set to be released on Thursday. The labor market figures are expected to provide key insights into the health of the Australian economy and will play a significant role in shaping expectations for the Reserve Bank of Australia’s (RBA) future monetary policy decisions. Economists are forecasting that the Australian labor market will have added 26.5K jobs in July, a slower pace compared to the 50.2K jobs added in June. The Unemployment Rate is expected to remain steady at 4.1%. If the data comes in as expected or shows a stronger-than-anticipated job market, it could bolster the AUD, as it would suggest that the Australian economy remains resilient despite global economic uncertainties. The employment data will also be critical for the RBA, which has maintained a cautious stance in recent months. The central bank is widely expected to keep its Official Cash Rate (OCR) unchanged at 4.35% for the rest of the year. A strong labor market would likely support this view, reducing the need for further rate cuts. On the other hand, if the employment data disappoints, it could lead to renewed speculation about potential rate cuts later in the year. Outlook for AUD/USD The AUD/USD pair’s recent gains are a reflection of the broader market dynamics, with the US Dollar’s weakness and anticipation of critical economic data playing a pivotal role. As the US CPI data looms, the pair could see increased volatility, depending on whether the inflation figures meet, exceed, or fall short of expectations. A stronger-than-expected CPI could revive the USD and put pressure on the AUD/USD pair, while weaker inflation could see the pair extend its gains. Following the CPI release, attention will quickly shift to the Australian employment data. The outcome of this report will be crucial in determining whether the AUD can sustain its recent strength or if it will face headwinds in the coming days. For now, the market remains in a state of cautious anticipation, with traders ready to react to any surprises from either the US or Australian data. In conclusion, the AUD/USD pair’s movement towards a three-week high underscores the complex interplay of economic factors on both sides of the Pacific. With significant data releases on the horizon, the pair is poised for potential volatility, making it a key focus for traders and investors in the near term.

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