The EUR/USD currency pair recovered to trade near the 1.0500 mark during European trading hours on Wednesday, after initially paring back losses. A shift in risk sentiment positively impacted the pair, limiting the US Dollar's upward momentum. Meanwhile, the Gold market witnessed stabilization as prices hovered around $2,910, following a significant dip the previous day. Investors are keeping a close watch on upcoming economic indicators and geopolitical developments that could influence market dynamics.
The US Dollar experienced a cap on its upside as a positive shift in risk sentiment permeated the markets, allowing the EUR/USD pair to regain some lost ground. This recovery occurs in anticipation of the Federal Reserve's preferred inflation measure, the Personal Consumption Expenditures Price Index (PCE), slated for release on Friday. The PCE will provide crucial insights into inflationary pressures and guide monetary policy decisions.
Despite the recovery, further gains for the EUR/USD could remain elusive due to uncertainties surrounding tariffs and upcoming speeches from key economic figures. Notably, former President Trump's tariff policies add an element of unpredictability to the currency markets. Additionally, an address from Bank of England policymaker Silvana Dhingra could influence market sentiment.
The CME FedWatch Tool indicates a 66.2% probability that interest rates might be lower than current levels, compared to a 33.8% chance of no rate cut. This sentiment underscores market expectations of potential easing in monetary policy, which could have significant implications for currency valuation and investment flows.
In the realm of precious metals, central banks globally added a substantial 1,136 tonnes of Gold to their reserves in 2022, equating to approximately $70 billion in value, according to the World Gold Council. Gold has historically been a crucial store of value and medium of exchange. Its inverse correlation with the US Dollar and US Treasuries, both major reserve and safe-haven assets, makes it a focal point for investors during periods of economic uncertainty.
A strong US Dollar typically suppresses Gold prices, while a weaker Dollar tends to drive them upward. Given current market conditions, the Relative Strength Index indicator on the 4-hour chart suggests room for more downside movement, indicating a potential drop to $2,880 if market volatility intensifies. The S1 support level is identified at $2,882, which could provide formidable resistance against further declines.
Conversely, on the upside, the R1 resistance level at $2,948 and the all-time high of $2,956 are key benchmarks for bullish investors to monitor. If Gold manages to secure sufficient support, these levels could be tested in future trading sessions.
The EUR/USD pair remains defensive as the US Dollar maintains its bounce back. Investors are also looking ahead to March 4, when tariffs on Mexico and Canada are set to be enforced, which could have far-reaching implications for international trade and economic relations.