• EURUSD tests June's peak as ECB rate decision looms

• GBPUSD pauses impressive rally near 1.3000 ahead of CPI data

• Gold resumes weak momentum after closing above 2,400

 

US retail sales --> Gold

It was a shocking weekend of a failed assassination attempt against Donald Trump, which caused a heated moment in the US political landscape. Despite that, the US dollar gained only moderately on safety bits, leading the non-yielding gold slightly to the downside as Biden and Trump called for unity.

With the November election nearing, politics will not completely disappear from investors’ radar, but the focus will return to the Fed this week. There is a 90% chance of a 25-bps rate cut in September as indicated by futures markets, and investors will look for further confirmation when Fed policymakers including chairman Jay Powell (Monday) make public appearances during the week.

In terms of data releases, US retail sales will be closely watched on Tuesday. A mild contraction occurred unexpectedly in April and May, and another miss in the data could make a rate cut in September more certain.

The precious metal tends to benefit from an environment of lower interest rates. Hence, it would be interesting to see if bullion manages to surpass last week’s peak of 2,424 and close above the resistance of 2,436. If that scenario plays out, the price could exit its three-month-old range territory and reach a new milestone near 2,500.

ECB rate decision --> EURUSD

The European Central Bank will leave interest rates on hold after its two-day policy meeting concludes on Thursday. The central bank reduced borrowing costs by 25bps during June’s gathering, but the minutes disclosed that the decision went through some arguments as wages and inflation continued to face upside pressures.

Nonetheless, investors have faith in the likelihood of another rate cut, specifically in September, with a probability of over 70%. Take note that the ECB often communicates its future policy intentions in advance. However, it also wants to keep the flexibility to decide when and how much to reduce. Therefore, if the central bank doubts the necessity of a rate cut in September, EURUSD may continue its recent rapid rise towards the critical resistance area of 1.0960-1.0985. A successful penetration higher could push the pair up to 1.1040.

Alternatively, if the ECB shows willingness to slash borrowing costs in September amid the weak economic dynamics in the Eurozone, the pair could slide towards its long-term simple moving averages (SMAs) at 1.0800 if the 1.0853 constraining zone gives way.

UK CPI inflation --> GBPUSD

GBPUSD experienced an amazing week, rallying by 1.3% to almost reach the 1.3000 mark on thoughts the Fed could switch to a more accommodative policy.

As regards the Bank of England, investors are pricing in two rate reductions by the end of the year as inflation is now around the central bank’s 2.0% target. That said, policymakers would like to see some price sustainability around that level before reducing interest rates.

The next CPI release will be on Wednesday and could be pivotal, as a 25-bps rate cut in August is a flip coin. Forecasts suggest a softer print of 1.9% y/y, though excluding energy and food prices, core inflation could stay steady around 3.5%.

Weaker-than-expected price pressures could increase the likelihood for a summer rate reduction, bringing the 1.2900 number back into view, while lower the pair could retest the 1.2847 restrictive territory before meeting its 20-day exponential moving average near 1.2800.

Alternatively, if the data surprises to the upside, pushing the timeline of rate cuts to the end of the third quarter, GBPUSD might climb above 1.3000 with scope to reach the next barrier near at 1.3115.

The UK employment report will come next into view on Thursday, with forecasts pointing to a job loss of 30k and a weaker wage growth of 5.7%.