EUR/USD, USD/JPY, AUD/USD, and Gold: Fundamental and Technical Overview

This article focuses on the fundamental and technical factors driving currency pairs and gold. The US dollar remains dominant, bolstered by diverging monetary policies and persistent inflationary pressures. Meanwhile, the Euro struggles amid political and economic challenges. The Japanese Yen faces headwinds from policy uncertainty. Moreover, domestic monetary decisions and external factors, such as China’s economy, influence the Australian dollar.

Fundamental Drivers of Major Currencies: USD, EUR, JPY, and AUD

USD – Greenback Strengthened by Monetary Policy

The US dollar continues to dominate global markets, supported by a strong divergence in monetary policy. The Federal Reserve’s consistent stance on maintaining higher-for-longer rates reinforces the dollar’s appeal. Persistent inflationary pressures in the US further support its strength.

The chart below shows the YoY US Consumer Price Index (CPI), which measures inflation in the US economy. It indicates a clear downward trend in inflation, signaling significant progress in controlling inflationary pressures. This decline suggests that the Federal Reserve’s tighter monetary policies have effectively reduced inflation. However, there was a slight uptick in inflation for October 2024, reaching 2.6%. This increase has reduced the likelihood of major interest rate cuts in December 2024.

Trade policies, geopolitical events, and robust labor market data further bolster the greenback. Sentiment and monetary expectations will drive the US dollar without major economic releases in the coming week.

EUR – Euro Struggles Amid Political and Economic Headwinds

The Euro faces ongoing challenges as economic data highlights a struggling Eurozone economy. Political instability in Germany, coupled with concerns about the war in Ukraine, weighs heavily on the EUR. Moreover, weak manufacturing PMI figures and persistent dovishness from the ECB add to the downward pressure. Any further deterioration in sentiment or macroeconomic outlook could amplify bearish trends for the Euro.

The chart below shows the HCOB Eurozone Manufacturing PMI, which increased slightly to 46. This change reflects a modest improvement over the initial estimate of 45.9 and the previous month’s figure of 45. Although the reading remains below the neutral 50 mark, signaling continued contraction. This figure marks the 28th consecutive month of contraction. It represents the most prolonged downturn in the Eurozone’s manufacturing history since records began in 1997.

JPY – Policy Uncertainty

The JPY remains under pressure as the Bank of Japan’s cautious approach to rate normalization limits its appeal. The weak inflation data and growing concerns about economic stagnation raise doubts about the timeline for tightening monetary policy. The chart below shows the inflation rate in Japan. Japan’s inflation rate is relatively moderate and slightly above the BoJ target of 2%. This indicates stable but controlled price growth. The current inflation rate represents a notable increase compared to Japan’s historically low inflation periods before 2022. However, it remains relatively low when compared to global inflation trends.

Japan’s trade balance and inflation data will be key in the coming week. Any negative surprises are likely to push the Yen lower. Market intervention rumors continue to loom, reflecting Yen’s fragility.

AUD – Focus on RBA Minutes and External Factors

The AUD is expected to be influenced by the RBA’s meeting minutes, which are set for release on Tuesday. Hawkish indications from policymakers could offer some support to the Aussie. However, external factors such as China’s economic outlook and commodity market trends remain crucial. As the AUD is highly sensitive to risk sentiment, any downturn in global market confidence could weigh heavily on the currency.

EUR/USD Technical Analysis – Approaches Support at $1.045

The weekly chart for EUR/USD shows that bearish momentum has developed following the US dollar’s strength after Trump’s victory. This downtrend has brought EUR/USD near the strong support level at $1.045, marked by the red trendline in the chart below. The chart also highlights two long-term black trendlines: the upper trendline extends from the April 2008 highs, while the lower trendline originates from the April 2004 lows. A break below $1.045 could trigger a significant drop in the pair, potentially reaching $1.00. Long-term resistance remains at $1.132.

USD/JPY Technical Analysis – Ascending Broadening Wedge

The weekly chart for USD/JPY shows a strong rebound from the support region of an ascending broadening wedge. This support is further reinforced by a horizontal support line around the $140 region. The rebound has propelled the pair above the 50 SMA and 100 SMA, indicating bullish momentum. If USD/JPY continues to trade higher, $167 remains a key resistance level, defined by the ascending broadening wedge pattern. However, the pair must first breach the strong long-term resistance at $162 before targeting the $167 level.

AUD/USD Technical Analysis – Price Drop from Resistance

The weekly chart for AUD/USD indicates a continuation of the downward trend from long-term resistance. This resistance is defined by the upper boundary of a descending broadening wedge pattern. The price has broken below the 50 SMA and 100 SMA, signaling further downside potential. Moreover, the RSI trades below its mid-level, reflecting sustained bearish pressure. Strong support is identified at $0.6280.

Gold Technical Analysis – Correction from Target Zone

Trump’s victory strengthened the US dollar, causing a significant drop in the gold (XAU) market. This decline further validates as gold reached its long-term price target of $2790 before the US election. The weekly and monthly charts also show that it was overbought. The weekly chart below illustrates how the price dropped from the target zone, calculated based on an ascending channel. Currently, the price moves toward the midline of this channel, around the $2420 area, while seeking confirmation within the $2560 to $2510 zones.