25/07/2026
WEEKLY FOREX MARKET ANALYSIS
JULY 27 - 31 2026
Executive Summary
The US dollar gained against the other major currencies this week amid escalating tensions in the Middle East as well as US President Trump's decision to proceed with a new round of tariffs after previously imposed levies expired. Although the latest inflation data showed that US prices slowed more than expected in June, the hostilities in the Middle East, the reclosure of the Strait of Hormuz, the resulting rally in oil prices, and Trump's fresh trade levies have all revived fears about inflation spiraling out of control again. According to Fed fund futures, investors are now fully pricing in a quarter-point hike by the Fed in September, while another one is factored in for March. There is even a decent 35% chance that policymakers could press the rate hike button this week. The US dollar index trades near 101.50 ahead of a particularly busy economic calendar. Looking ahead, markets will focus on Wednesday's Fed decision, Thursday's BoE decision, Friday's BoJ decision, US GDP and PCE inflation data, Australian CPI, and Eurozone flash inflation figures. The earnings parade continues with results from Microsoft, Meta, Amazon, and Apple.
US Dollar (USD)
1. What happened or what is the narrative?
The US dollar gained against the other major currencies this week amid the escalating tensions in the Middle East as well as US President Trump's decision to proceed with a new round of tariffs after previously imposed levies expired. Although the latest inflation data showed that US prices slowed more than expected in June, the hostilities in the Middle East, the reclosure of the Strait of Hormuz, the resulting rally in oil prices, and Trump's fresh trade levies have all revived fears about inflation spiraling out of control again. The new rally in oil prices has sparked fresh inflation fears, with headline CPI and PPI measures showing renewed upward pressure. According to Fed fund futures, investors are now fully pricing in a quarter-point hike by the Fed in September, while another one is factored in for March. There is even a decent 35% chance that policymakers could press the rate hike button this week. The US dollar index trades near 101.50, reflecting the greenback's safe-haven appeal and the market's hawkish repricing. The DXY has broken above key resistance levels, with the bullish momentum remaining intact.
2. What is the market focused on in the coming week?
Wednesday's Federal Reserve decision takes center stage, with the central bank widely expected to leave its target range unchanged at 3.50%–3.75%. This will be a lighter meeting without a Summary of Economic Projections, leaving the monetary policy statement and Chair Kevin Warsh's press conference as the main sources of guidance. Even if the Fed does not act at this gathering, any hints corroborating the notion that they could do so in September are likely to add further fuel to the dollar's engines as Treasury yields could drift higher. With Kevin Warsh avoiding providing clear signals and forward guidance being removed from the statement under his leadership, investors may find it difficult to arrive at safe conclusions. Monday's Durable Goods Orders are expected to rebound by 1.6% in June after falling 4.5% previously. Tuesday's Consumer Confidence and ADP Employment data will be watched. Thursday brings preliminary Q2 GDP (expected 2.3% annualized, up from 2.1%), monthly Core PCE inflation (expected to slow to 0.1% from 0.3%), and Initial Jobless Claims. Friday's Employment Cost Index is another release that can generate volatility as one of the Fed's preferred measures of labour costs.
3. What is the market pricing in?
According to Fed fund futures, investors are now fully pricing in a quarter-point hike by the Fed in September, while another one is factored in for March. There is even a decent 35% chance that policymakers could press the rate hike button this week. The market's hawkish repricing reflects the combination of escalating Middle East tensions, the reclosure of the Strait of Hormuz, the resulting rally in oil prices, and Trump's fresh trade levies. Although the PCE indices are the Fed's favorite inflation metrics, they may pass largely unnoticed this time as they concern a period before the latest escalation and the new rally in oil prices. The implied Fed funds target rate for year-end 2026 now stands near 3.760%, with markets anticipating approximately 30 basis points of rate hikes by the end of 2026.
4. What is the market buying or selling moving forward?
The US dollar index trades near 101.50, with the Greenback having broken above key resistance levels. The heat map shows the dollar was strongest against the Swiss Franc and weakest against the New Zealand Dollar on Friday. Options positioning shows continued demand for dollar call spreads, with strikes targeting DXY levels above 102.00. If the Fed does not act at this gathering, any hints corroborating the notion that they could do so in September are likely to add further fuel to the dollar's engines as Treasury yields could drift higher. If the Fed presses the hike button at this meeting, the market will react in a similar manner, with the only difference being that the aforementioned moves will be magnified as the implied rate path could become much steeper. Gold may come under renewed pressure as the opportunity cost for holding the metal increases.
5. What are the possible outcomes?
· Bullish dollar scenario: The Fed hints strongly at a September rate hike, with Warsh emphasizing that inflation remains too high and that the central bank will not tolerate above-target inflation. US GDP beats expectations with growth above 2.5%, and Core PCE remains sticky. The DXY would break above 102.00, targeting 102.50 and then 103.00. If the Fed presses the hike button at this meeting, the market will react in a similar manner, with the moves magnified as the implied rate path could become much steeper.
· Bearish dollar scenario: The Fed sounds balanced, with Warsh emphasising that the central bank can afford to wait given the uncertainty around the Middle East. US GDP disappoints with growth below 2.0%, and Core PCE slows more than expected. The DXY would retreat below 101.00, testing 100.50 and then 100.00. The PCE data may pass largely unnoticed as it concerns a period before the latest escalation, but any significant downside surprise could weigh on the dollar.
· Base case: The Fed leaves rates unchanged as expected, with Warsh striking a balanced tone—acknowledging that inflation risks remain but noting that the central bank can afford to be patient. The statement provides few clues on September. US GDP meets expectations near 2.3%, and Core PCE slows to 0.1% monthly. The DXY trades in a 101.00-102.00 range, with the dollar consolidating near recent highs. Any hints corroborating the notion that the Fed could hike in September are likely to add further fuel to the dollar's engines.
Euro (EUR/USD)
1. What happened or what is the narrative?
EUR/USD trades lower near 1.1370, with the euro ending the week under pressure. It was not an easy week for the euro, with EUR/USD accumulating a decline of more than 0.4% over the last two trading sessions, reflecting significant short-term weakness in the European currency. The European Central Bank held its interest rate decision during the week, leaving the deposit rate unchanged at 2.25% and the refinancing rate stable at 2.4%. The central bank maintained a cautious pause, noting that inflationary pressures could remain relevant but also highlighting that economic dynamics in Europe may not support consistent interest rate increases. The ECB showed a fairly neutral stance toward possible changes in monetary policy, emphasizing that future decisions will depend on economic data meeting by meeting. After the event, the central bank's neutrality did not generate a relevant increase in the euro's relative appeal, mainly because the ECB did not confirm an outlook for higher rates while the Federal Reserve continues to show signs that it could adopt a more aggressive stance. The rate differential between US and European bond markets continues to favour dollar-denominated investments, with US 10-year Treasury yields remaining above 4.6% while European bond yields barely reach 3.6%.
2. What is the market focused on in the coming week?
The Euro will face a busy domestic calendar. Monday's German IFO surveys will be watched, with the Business Climate Index expected to improve to 86.1 from 85.6. The EcoFin meeting and Bundesbank Monthly Report will also be monitored. German inflation figures will be released on Thursday, followed by broader Eurozone inflation data on Friday. Eurozone headline Harmonized Index of Consumer Prices inflation is expected to rise to 2.9% year-over-year from 2.8%, while the core rate is forecast to remain at 2.4%. Stronger growth and inflation figures could support the Euro by reducing expectations of additional ECB easing. The preliminary GDP for Q2 will also be released. However, EUR/USD will remain highly sensitive to the Fed decision and the direction of the US Dollar, with the rate differential continuing to favour dollar-denominated investments.
3. What is the market pricing in?
The ECB's neutral stance has not generated a relevant increase in the euro's relative appeal. Markets are pricing a modest probability of further ECB hikes, with the central bank emphasising that future decisions will depend on economic data meeting by meeting. The rate differential between US and European bond markets continues to favour dollar-denominated investments, with US 10-year Treasury yields remaining above 4.6% while European bond yields barely reach 3.6%. Soft GDP and CPI data could prompt traders to push back the timing of when they expect the ECB to press the hike button again. The ECB said it is "well positioned to wait and see," marking a less-hawkish-than-expected stance.
4. What is the market buying or selling moving forward?
EUR/USD trades lower near 1.1370, with the pair under significant short-term weakness. The technical picture shows a sideways range beginning to emerge, with an upper barrier near 1.14742 and a lower area around 1.13538. The RSI remains below the neutral 50 level, suggesting selling impulses continue to dominate. The TRIX also remains below the neutral 0 line, indicating bearish strength in the exponential moving averages remains relevant. Key levels to watch: 1.14742 (resistance coinciding with the 50-period SMA), 1.14125 (near-term barrier), and 1.13538 (definitive support corresponding to the 2026 low zone). The heat map shows the euro was weaker against most major currencies on Friday. If selling pressure fails to stabilize consistently, the sideways structure could remain relevant.
5. What are the possible outcomes?
· Bullish euro scenario: German IFO and Eurozone PMIs beat expectations, showing the recovery is continuing. Eurozone flash CPI surprises to the upside, with headline above 3.0% and core remaining sticky. The Fed sounds balanced, providing no strong signal on September. EUR/USD could break above 1.14125, targeting 1.14742 and then 1.1530. Stronger growth and inflation figures could support the Euro by reducing expectations of additional ECB easing.
· Bearish euro scenario: German IFO and Eurozone PMIs disappoint, showing continued weakness. Eurozone flash CPI meets or undershoots expectations. The Fed hints strongly at a September hike, widening the rate differential further. EUR/USD would break below 1.13538, marking new relevant lows for the year and opening the door toward 1.1200 and then 1.1015 (200-week SMA). Soft GDP and CPI data could prompt traders to push back the timing of ECB hikes.
· Base case: German IFO meets expectations near 86.1. Eurozone flash CPI meets expectations near 2.9% headline and 2.4% core. The Fed leaves rates unchanged with a balanced tone. EUR/USD trades in a 1.1350-1.1470 range, with the pair consolidating near recent lows. The ECB's neutrality did not generate a relevant increase in the euro's relative appeal, and the rate differential continues to favour dollar-denominated investments. The sideways range between 1.13538 and 1.14742 could remain relevant over the next few trading sessions.
British Pound (GBP/USD)
1. What happened or what is the narrative?
GBP/USD trades slightly higher near 1.3325 as investors prepare for Thursday's Bank of England monetary policy announcement. The central bank is expected to keep the Bank Rate unchanged at 3.75%, following the previous 7-2 vote in favor of holding rates. The latest CPI data revealed that although the headline rate slowed by more than expected in June due to the steep fall in oil prices, the core CPI rate held steady at 2.6%. Combined with recent remarks by MPC member Alan Taylor, who stressed the importance of learning from past inflation episodes and warned about the resurgence of inflation risks, this allowed investors to assign a strong 75% chance of a September hike, with another one being nearly fully priced in by December. The pound has shown resilience despite the broader dollar strength.
2. What is the market focused on in the coming week?
Thursday's Bank of England decision is the key event, with the central bank expected to leave the Bank Rate unchanged at 3.75%. The decision will be accompanied by the Meeting Minutes, Monetary Policy Summary, and quarterly Monetary Policy Report. BoE Governor Andrew Bailey will speak following the announcement. For the pound to benefit from this decision, the Committee needs to convince traders that a rate hike is looming at the next gathering, either through the voting pattern (more dissenters than in June), or through the statement and Bailey's press conference. The BoE confirms that the July 30 meeting will include both the policy decision and updated economic projections. The UK calendar also includes labour market data, though the focus will be squarely on the BoE decision.
3. What is the market pricing in?
A 25 basis point rate hike from the BoE is now assigned a strong 75% chance for September, with another one being nearly fully priced in by December. This represents a significant hawkish repricing from earlier in the month when November was the expected timing. The shift reflects the core CPI rate holding steady at 2.6% despite the headline slowdown, and hawkish remarks from MPC members. For the pound to benefit from this decision, the Committee needs to convince traders that a rate hike is looming at the next gathering. If the voting pattern shows more dissenters than in June (when it was 7-2), or the statement and Bailey's press conference signal a September move, the pound could rally.
4. What is the market buying or selling moving forward?
GBP/USD trades near 1.3325, with the pair defending the 1.3300 level. The heat map shows the pound was weaker against most major currencies on Friday. Options positioning shows demand for GBP/USD upside calls has increased ahead of the BoE decision, with strikes at 1.3400 and 1.3500 seeing volume. If the BoE signals a September hike through the voting pattern or statement, the pound could benefit. The BoE's quarterly Monetary Policy Report will also be scrutinised for updated inflation and growth projections.
5. What are the possible outcomes?
· Bullish sterling scenario: The BoE's voting pattern shows more dissenters than in June (3 or more voting for a hike), and the statement and Bailey's press conference signal that a September hike is under active consideration. The Monetary Policy Report shows upgraded inflation forecasts. GBP/USD could break above 1.3400, targeting 1.3500 and then 1.3550. The BoE needs to convince traders that a rate hike is looming at the next gathering for the pound to benefit.
· Bearish sterling scenario: The BoE's voting pattern remains 7-2, and Bailey sounds balanced, emphasising that the central bank can afford to wait given the uncertainty. The Monetary Policy Report shows downgraded growth forecasts. The Fed hints strongly at a September hike. GBP/USD would break below 1.3300, testing 1.3200 and then 1.3100.
· Base case: The BoE leaves rates unchanged as expected, with the voting pattern remaining 7-2. Bailey strikes a balanced tone—acknowledging that inflation risks remain but noting that the central bank can afford to be patient. The Monetary Policy Report shows modest upgrades to inflation forecasts. GBP/USD trades in a 1.3250-1.3450 range, with the pair consolidating near current levels. The market has already priced a strong 75% chance of a September hike, so the BoE needs to deliver a hawkish surprise for the pound to break higher.
Japanese Yen (USD/JPY)
1. What happened or what is the narrative?
USD/JPY holds near 163.80, with the pair reaching fresh multi-decade highs near 164. The bullish breakout from the symmetrical triangle played out exactly as anticipated, sending USD/JPY to fresh highs. The yen continues to suffer from the toxic cocktail of widening policy divergence, escalating Middle East tensions, and rising oil prices. The Bank of Japan's rate hike to 1.0% and hawkish rhetoric have failed to reverse the yen's fate. Recent remarks by Board member Tamura suggested the BoJ should raise rates roughly every few months, while Ayano Sato, considered a dove, stressed the need to monitor the impact of the weak yen on inflation. However, investors remain skeptical that the BoJ can become more hawkish than it is now, especially with Prime Minister Takaichi calling for interest rates to remain low. The dissenter at the latest meeting was one of Takaichi's appointees, and the term of two hawks will end next summer, allowing her to appoint more doves.
2. What is the market focused on in the coming week?
Friday's Bank of Japan decision is the key event, with the central bank expected to maintain its policy rate at 1.00%. The monetary policy statement will be accompanied by the quarterly Outlook Report and followed by the Bank's press conference. No change in the policy rate is expected, leaving the focus on the updated forecasts and Governor Ueda's press conference. In April, the BoJ lowered its FY2026 growth estimate while revising its inflation outlook higher, lifting its core CPI forecast from 1.9% to 2.8%. Before the policy decision, traders will receive the BoJ's preferred measure of underlying inflation when the Indicators for Core CPI report is released on Tuesday. Friday's Tokyo CPI report remains important as a timely lead indicator for national inflation. Even if a hawkish message boosts the yen on Friday, any decline in USD/JPY is likely to remain limited and short-lived given the fundamental headwinds facing the yen.
3. What is the market pricing in?
Another 25 basis point rate hike from the BoJ is nearly fully priced in by the end of 2026. However, the yen did not capitalize on this hawkishness, as investors do not believe the BoJ can become more hawkish than it is now, especially with PM Takaichi calling for interest rates to remain low. The Fed is now fully pricing a September hike, with another factored in for March. The divergence between the hawkish Fed and the cautiously hawkish BoJ continues to favour USD/JPY upside. Speculation that the BoJ could start leaning to the dovish side in the coming months, combined with mounting Fed hike bets, could keep USD/JPY bulls in the game. Even intervention seems unable to change the yen's fate.
4. What is the market buying or selling moving forward?
USD/JPY holds near 163.80, with the pair reaching fresh multi-decade highs near 164. The technical picture shows the pair breaking above the symmetrical triangle, with immediate resistance at 164 and 165 beyond. On the downside, 163.65 is the first level to watch, followed by 163.24 and the July uptrend near 163. RSI (14) sits at 72, comfortably above neutral 50, while MACD remains above its signal line. However, both indicators began to roll over into Friday's close, suggesting upside momentum is beginning to fade. The heat map shows the yen was weaker against most major currencies on Friday. Even if a hawkish message boosts the yen on Friday, any decline in USD/JPY is likely to remain limited and short-lived.
5. What are the possible outcomes?
· Bullish yen scenario: The BoJ's Outlook Report shows upgraded inflation forecasts and a more hawkish tone. Ueda signals that further hikes are coming and that the Bank is prepared to act if inflationary pressures intensify. Tokyo CPI surprises to the upside. The Fed sounds balanced, providing no strong signal on September. USD/JPY could break below 163, targeting 162 and then 161.20. However, even if a hawkish message boosts the yen on Friday, any decline is likely to remain limited and short-lived.
· Bearish yen scenario: The BoJ's Outlook Report shows downgraded growth forecasts and a cautious tone. Ueda sounds balanced, emphasising that the Bank can afford to wait. Tokyo CPI meets or undershoots expectations. The Fed hints strongly at a September hike. USD/JPY would break above 164, targeting 165 and then 166. Speculation that the BoJ could start leaning to the dovish side in the coming months, combined with mounting Fed hike bets, could keep USD/JPY bulls in the game.
· Base case: The BoJ leaves rates unchanged as expected, with the Outlook Report showing modest upgrades to inflation forecasts. Ueda strikes a balanced tone—acknowledging that inflation risks remain but noting that the Bank can afford to be patient. Tokyo CPI meets expectations. USD/JPY trades in a 162.50-164.50 range, with the pair consolidating near multi-decade highs. Even if a hawkish message boosts the yen on Friday, any decline is likely to remain limited and short-lived. Intervention seems unable to change the yen's fate.
Australian Dollar (AUD/USD)
1. What happened or what is the narrative?
AUD/USD trades higher near 0.6980 ahead of several important Australian releases. The aussie has taken advantage of dollar vulnerability, though gains have been limited by ongoing concerns about China's growth outlook and the escalating Middle East situation. Following three rate hikes and a new wave of tensions in the Middle East, investors anticipate a nearly 40% chance of a rate hike at the upcoming RBA meeting. A slowdown in prices during Q2 is unlikely to change that chance, thereby leaving the aussie unphased. RBA Governor Michele Bullock will speak on Tuesday, and her comments will be watched for any signals on the future rate path.
2. What is the market focused on in the coming week?
RBA Governor Michele Bullock will speak on Tuesday, before June inflation figures are published on Wednesday. Monthly headline CPI is expected to increase 0.3% after falling 0.7% in May. Annual inflation previously stood at 4.0%, while the Trimmed Mean CPI was at 3.6% year-over-year. The underlying monthly measure is forecast to rise another 0.4%. China's official PMIs will also be important for the China-sensitive Australian Dollar. Manufacturing PMI is expected to fall to 49.9 from 50.3, signaling a return to contraction, while Non-Manufacturing PMI is forecast to ease to 50.0 from 50.2. Australian preliminary PMIs will also be released.
3. What is the market pricing in?
Following three rate hikes and a new wave of tensions in the Middle East, investors anticipate a nearly 40% chance of a rate hike at the upcoming RBA meeting. A slowdown in prices during Q2 is unlikely to change that chance, thereby leaving the aussie unphased. The market's pricing reflects the RBA's data-dependent stance. The Fed is fully pricing a September hike, widening the rate differential in favour of the dollar. If Chinese PMIs show contraction, the probability of RBA rate hikes could fall further.
4. What is the market buying or selling moving forward?
AUD/USD trades near 0.6980, with the pair finding support from dollar vulnerability. The heat map shows the aussie was stronger against most major currencies on Friday, gaining 0.19% against the dollar. Options positioning shows demand for AUD/USD upside calls has increased, with strikes at 0.7000 and 0.7050 seeing volume. China's official PMIs will be important for the China-sensitive Australian Dollar. Strong Australian jobs data could extend the aussie's advance, while weaker data may leave AUD/USD vulnerable to renewed dollar strength.
5. What are the possible outcomes?
· Bullish aussie scenario: Australian CPI beats expectations, showing inflation remains elevated. RBA Governor Bullock sounds hawkish, keeping the door open to further hikes. Chinese PMIs show manufacturing above 50 and services expanding. AUD/USD could break above 0.7000, targeting 0.7050 and then 0.7150.
· Bearish aussie scenario: Australian CPI meets or undershoots expectations, showing disinflation progress. RBA Governor Bullock sounds balanced. Chinese PMIs disappoint, with manufacturing slipping below 49.9 and services contracting. AUD/USD would break below 0.6900, testing 0.6850 and then 0.6800.
· Base case: Australian CPI meets expectations, showing modest inflation. RBA Governor Bullock strikes a balanced tone. Chinese PMIs are mixed but near expectations. AUD/USD trades in a 0.6940-0.7050 range, with the pair consolidating near current levels. A slowdown in prices during Q2 is unlikely to change the nearly 40% chance of a rate hike, thereby leaving the aussie unphased.
Canadian Dollar (USD/CAD)
1. What happened or what is the narrative?
The Canadian dollar has been under pressure amid escalating Middle East tensions and rising oil prices. West Texas Intermediate crude oil trades near $89.20 per barrel after falling sharply on reports that Pakistan and Iran are exploring a path towards renewed US-Iran negotiations under a diplomatic push initiated by China. However, sources cautioned that substantial obstacles remain before negotiations can resume, leaving crude prices vulnerable to further geopolitical volatility. The BoC failed to appear hawkish this week, with the central bank maintaining its neutral policy stance.
2. What is the market focused on in the coming week?
The Canadian calendar is relatively light, with no major domestic releases scheduled. The loonie will take its primary cues from the Fed decision, US data, and oil prices. Any further escalation in the Middle East could push oil prices higher, providing some support for the loonie given Canada's status as a major oil exporter. However, the BoC's neutral policy stance and the Fed's hawkish tilt continue to weigh on the currency.
3. What is the market pricing in?
Investors do not anticipate the Bank of Canada to begin raising interest rates before October, with approximately 30 basis points of tightening priced by the end of 2026. This stands in contrast to the Fed (fully pricing a September hike). The BoC's neutral policy stance has weighed on the loonie, though the currency has benefited from dollar vulnerability recently. The outlook remains highly contingent on whether the US-Iran interim deal holds and on the trajectory of USMCA negotiations.
4. What is the market buying or selling moving forward?
USD/CAD has been trading near recent highs, with the pair holding above key moving averages. The heat map shows the loonie was weaker against most major currencies on Friday. Oil prices trade near $89.20 per barrel, with crude vulnerable to further geopolitical volatility. The loonie will remain sensitive to the Fed decision and oil price movements.
5. What are the possible outcomes?
· Bullish loonie scenario: Middle East tensions escalate further, pushing oil prices higher. The Fed sounds balanced, providing no strong signal on September. The loonie benefits from higher oil prices and dollar weakness. USD/CAD could retreat below 1.4100, targeting 1.4000 and then 1.3900.
· Bearish loonie scenario: Middle East tensions ease, and oil prices pull back. The Fed hints strongly at a September hike. The BoC maintains its neutral stance. USD/CAD would break above 1.4200, targeting 1.4300 and then 1.4500.
· Base case: Middle East tensions remain elevated but do not escalate dramatically. Oil prices remain supported near $89 per barrel. The Fed leaves rates unchanged with a balanced tone. USD/CAD trades in a 1.4100-1.4300 range, with the pair consolidating near recent highs. The loonie will remain sensitive to the Fed decision and oil price movements.
Gold (XAU/USD)
1. What happened or what is the narrative?
Gold advances near $4,065 as investors prepare for a central-bank-heavy week. The precious metal will be particularly sensitive to the Fed's policy language, US inflation figures, and Treasury yields. Gold started the week with some recovery momentum but has struggled to gain traction as escalating Middle East tensions and rising oil prices have revived inflation fears. The reclosure of the Strait of Hormuz, the resulting rally in oil prices, and Trump's fresh trade levies have all supported the dollar, weighing on gold. A hawkish message from Warsh could weigh on Gold, while softer PCE inflation or renewed geopolitical uncertainty may support demand for the non-yielding asset. The $4,000 level has proven to be a key support area.
2. What is the market focused on in the coming week?
Wednesday's Fed decision is the key event for gold, with the central bank's policy language and Warsh's press conference likely to determine the near-term direction. If the Fed hints strongly at a September hike, gold could come under renewed pressure as the opportunity cost for holding the metal increases. Thursday's US GDP and Core PCE data will also be watched. Softer PCE inflation could support gold by reducing expectations of additional tightening, while stronger growth and persistent inflation could weigh on the metal. Middle East developments and oil prices will continue to be key drivers. Gold may come under renewed pressure as the opportunity cost for holding the metal increases if the Fed signals a September hike.
3. What is the market pricing in?
According to Fed fund futures, a quarter-point hike is fully priced in for September, with another factored in for March. There is even a 35% chance of a hike this week. This represents a headwind for gold, as higher interest rates increase the opportunity cost of holding the non-yielding asset. However, the $4,000 level has provided strong support, with the precious metal advancing near $4,065. A hawkish message from Warsh could weigh on Gold, while softer PCE inflation or renewed geopolitical uncertainty may support demand.
4. What is the market buying or selling moving forward?
Gold trades near $4,065, with the precious metal advancing but struggling to gain significant momentum. The technical picture shows gold holding above the $4,000 level, with near-term resistance near $4,100 and support near $3,950-$3,920. The heat map shows gold was under pressure but holding above key support. If the Fed hints strongly at a September hike, gold may come under renewed pressure as the opportunity cost for holding the metal increases. At the same time, gold may find support from geopolitical uncertainty and demand for defensive assets.
5. What are the possible outcomes?
· Bullish gold scenario: The Fed sounds balanced, providing no strong signal on September. US GDP disappoints, and Core PCE slows more than expected. Middle East tensions escalate further, supporting safe-haven demand. Gold could break above $4,100, targeting $4,240 and then $4,290. Softer PCE inflation or renewed geopolitical uncertainty may support demand for the non-yielding asset.
· Bearish gold scenario: The Fed hints strongly at a September hike, with Warsh emphasising that inflation remains too high. US GDP beats expectations, and Core PCE remains sticky. Middle East tensions ease, reducing safe-haven demand. Gold would break below $4,000, targeting $3,950-$3,920 and then $3,800. A hawkish message from Warsh could weigh on Gold.
· Base case: The Fed leaves rates unchanged with a balanced tone. US GDP meets expectations near 2.3%, and Core PCE slows to 0.1% monthly. Middle East tensions remain elevated but do not escalate dramatically. Gold trades in a $4,000-$4,100 range, with the precious metal consolidating near current levels. Gold may come under renewed pressure if the Fed signals a September hike, as the opportunity cost for holding the metal increases. However, geopolitical uncertainty and demand for defensive assets could provide support.
