The USD is currently under pressure across the broad with the market sentiment changing from discounting an easing action by the Fed, if the US economy to deteriorate further to such an action from the Fed, if it is not to improve soon as the minutes of the Fed's last meeting in the beginning of this month have shown yesterday to push EURUSD above 1.25 and to help the gold to have a clear breakout of its key resisting level 1640$.
Now, the markets will be waiting for clarifying from the Fed's Chief when he is to speak from Jackson Hole by the end of next week By God's will besides looking into the US economic figures specially what's new about the labor market which always enjoy the Fed's Care as the recent data about it have shown kind improving with the rising of US non-farm payrolls to 163k in July from 64k in June showing light pressure on the Fed to take such awaited easing step of QE3 soon giving support to the greenback and saving it from being under strong constant pressure in the same time.
But now with this stronger tone from the Fed, the market expectation of QE3 can increase again with having non-farm payrolls numbers below 100k as it was in the previous 3 months to July as warrant levels to a close new easing action by the Fed instead of waiting for having negative numbers again
From another side, the prices meltdown in US can encourage the Fed to adopt a higher tuned stance as the levels of prices are keeping easing down dragging down US yearly CPI of July to be up by just 1.4% which has been the slowest pace of this index since November 2010 with slowing down of the pace of growth of the US economy which has annualized grown by just 1.5% in Q2 as the preliminary figure of it has shown and this is also the slowest pace of growth since the Q2 of 2011 when it has grown by just 1.3% with declining of the Fed's preferred inflation gauge which is US PCE to 1.5% y/y and it is the slowest pace of it since Jan 2010 when it was 1.2% y/y showing disinflation pressure.
So, despite the inflation upside risks easing down, we have seen emerging of the gold power to rise again above 1640$ laying on consecutive higher lows at 1522$, 1548$, 1584$ before breaking it out and god willing in the case of easing back again the gold can have support at these levels while continuation of this rising can be faced by resisting levels at 1725$, 1790$ and 1802$ before 1827$ which can open the way for its recorded highest level at $1920 on the 6th of September 2010.
FX Market Strategist
Walid Salah El Din