Gold, EURUSD Analysis: Reversal or Pre-Breakout Patterns?

Key Events

• FOMC member speech highlights
• US CPI Expectations
• Technical Outlook

FOMC Member Insights

The latest statement from FOMC member Raphael Bostic emphasized the need for more data before confidently initiating the easing of monetary policy. With this sentiment echoed repeatedly in recent headlines, today’s US CPI result will be pivotal in confirming the path towards a rate cut or signaling caution against it.

US CPI Expectations

The elevated ISM Services PMI, noted by the RBNZ after their recent rate cut—the first since 2020—poses a challenge to the downward trend of global inflation towards central bank targets.

A slight uptick in today’s CPI reading, coupled with the positive rebound of the ISM Services PMI from its 2020 lows, could prompt a more modest rate cut of 25bps in September. Conversely, if inflation levels decline significantly beyond expectations, it could alter the magnitude of the rate cut.

Technical Outlook

Gold Analysis: XAUUSD – Daily Time Frame – Log Scale

Source: Tradingview

Gold is retesting the 2480 zone for the third consecutive time, leaving the market in a state of indecision between a possible triple top reversal pattern or a consolidation before a breakout, especially with the CPI news release on the horizon

Quantifying the Indecision:

• Bearish Scenario: A higher-than-expected CPI reading could drag gold back down to retest the 2430 and 2400 levels. However, given the rising demand for safe-haven assets amid geopolitical tensions between Russia, Ukraine, and the Middle East, the downside for gold may be limited.

• Bullish Scenario: On the upside, if gold closes above the 2500 mark, the uptrend is expected to continue towards 2530 and 2580, aligning with the mid-channel area of Gold’s primary up-trending parallel channel.

EURUSD Analysis: EURUSD – Daily Time Frame - Log Scale

Source: Tradingview

The EURUSD is trading near the highs of its previous wick, while the US Dollar Index (DXY) remains above its crucial 102 barrier. The 102 level on the DXY chart is a key pivot point that will determine whether a reversal or a trend continuation follows the CPI release today.

• Bearish Scenario: If a potential double top forms at the 1.10 mark, particularly below the 1.1020 resistance, the EURUSD is likely to retest the 1.09 border, followed by the 1.0830 and 1.08 levels.

• Bullish Scenario: A break above the 1.1020 – 1.1060 zone is expected to support the EURUSD trend back towards the December 2023 high at 1.114.

--- Written by Razan Hilal, CMT on X: @Rh_waves