It was an unusually volatile week for the currency and commodities markets. The reemergence of fresh selling pressure weighed heavily on gold prices, while a rallying US Dollar added to yellow metal woes. As a result, on Tuesday, gold prices jumped to a six-week high. They quickly began to lose most of the small gains they’d made just the day before. As traders reposition themselves ahead of Friday’s critical US Non-Farm Payroll (NFP) data, the dynamics in currency pairs, particularly USD/JPY and GBP/USD, reflect broader market sentiments.
Following this shift in trader sentiment, gold prices were able to entice new sellers near the $3,385 level. Having come close to a multi-week high earlier, the yellow metal wasn’t able to keep up its bullish run. Analysts have pointed to a combination of modest US dollar strength and changing market expectations as the main drivers behind this decline.
“Gold price remains depressed amid modest USD strength; bullish potential seems intact.” – FXStreet
USD/JPY currency pair witnessed stronger buying interest, reclaiming the key 143.00 level during Asian on Thursday. That reversal came after an archetypal snap-back from the 142.50 strike, triggered earlier in the week by yet more disappointing economic surprises including Japan’s inflation-adjusted wage growth. In April, unrealized wage growth in Japan sank for the fourth-straight month. This rapid decline raises expectations of earlier rate cuts at the Bank of Japan (BoJ) and applies downward pressure on the Japanese Yen.
“USD/JPY picks up bids to retake 143.00 after Japanese Wages data.” – FXStreet
Naturally, GBP/USD suffered from the strengthening US Dollar, which reversed to around the 1.3550 support-turned-resistance. This renewed demand for the US Dollar in turn broke down the British Pound, continuing a theme we’ve seen in the forex market. As traders adjust their positions, optimism surrounding trade deals between the US and Canada, as well as between the EU and the US, has provided some comfort for the US Dollar.
“GBP/USD reverses to near 1.3550 as US Dollar finds fresh demand.” – FXStreet
Traders are understandably on edge ahead of the US NFP data due on Friday. As an additional layer, this data should help illuminate the country’s labor market, which will likely shape future employment-based monetary policy decisions made by the Federal Reserve. Indeed, the excitement over this data drop has brought exceptional volatility to currency and commodity markets.
In general, gold prices will continue to be pressured overall against this macro backdrop of measured US dollar strength. Recent price action suggests that a new bullish rally could be underway in gold. Until traders get clearer signals from the next batch of economic indicators, traders are taking it easy and waiting to make big bets.