Forex News

• Gold rises above $4,400 despite jump in Treasury yields.
• Treasury buyback aims to contain pressure across long-dated bonds.
• Fed hike odds hold at 63% before inflation tests.

Gold (XAU/USD) rises over 1% on Wednesday, even as the US Dollar (USD) trims some of its earlier losses, after the US Treasury Department announced a bond buyback for the September 10 auction of 10- and 20-year instruments. This, along with investors waiting for the release of US inflation data, keeps the yellow metal underpinned near $4,400 at the time of writing.

XAU/USD consolidates near $4,400 before key US inflation data

Price action favors further consolidation for Gold, which has traded between $4,340 and $4,400 over the last two days. The rise in US Treasury yields, following the US Treasury's buyback announcement, pushed the 10-year benchmark note up five basis points to 4.845%, a headwind for the yellow metal.

The US Treasury said that it intends to buy up to $6 billion of outstanding securities set to mature in the 10- to 20-year tranche. This is the first operation under Secretary Scott Bessent's leadership to cap the rise in US bond yields, particularly at the long end of the curve, from the 10-year to the 30-year.

Earlier, the US ADP Employment Change 4-week average was 12K, up from the previous week's downward-revised 10K. This report, along with last Friday's Nonfarm Payrolls print and Fed Chair Warsh saying that jobs data is “consistent with full employment,” paves the way for a rate increase if needed, following Thursday’s and Friday's US inflation data.

Money markets indicate investors expect a quarter-point rate hike at the September 15-16 meeting. Odds stand at 63%, while hold odds are near 37%, according to Prime Terminal.

Besides US inflation data, traders will also eye the release of US Initial Jobless Claims and the preliminary release of the University of Michigan Consumer Sentiment Index for September.

XAU/USD technical outlook: Gold bounces at the 100-day SMA, target on $4,450

Gold price bounced off solid support at the 100-day Simple Moving Average (SMA) of $4,343, though it continued to trade laterally. The Relative Strength Index (RSI) shows that buyers are gaining momentum, but key resistance at $4,425, the high of September 8, caps XAU’s advance, preventing a retest of the $4,500 figure.

If buyers reclaim $4,500, the next area of interest becomes the 200-day SMA at $4,537. A breach of the latter will expose $4,600, followed by the psychological $4,650 and the August 25 high of the day at $4,697.

Downwards, if Gold retreats beneath $4,400, the 100-day SMA is the first line of defense. If cleared, the next support is the September 2 cycle low of $4,282 followed by the 50-day SMA at $4,261, and by the figure at $4,200.

ING economists Carsten Brzeski and Franziska Biehl argue that while German inflation is set to rise above 3% and stay elevated into year-end, a repeat of 2022’s double-digit surge is unlikely. Weak demand, a softer labour market and exhausted pandemic savings are curbing pricing power, forcing companies to absorb cost pressures through lower profits rather than passing them on to consumers.

German firms absorb rising cost pressures

"And while inflation looks set to rise further over the coming months, potentially moving above 3% and remaining elevated until year-end, a return to 2022-style inflation still looks unlikely. Some knock-on effects from energy costs to other goods – though not visible yet – can be expected. However, the conditions that allowed inflation to become a broad-based problem four years ago are not currently present."

"The labour market has softened, making strong wage increases less of a priority than job security. Pandemic savings are also gone. In short, the financial ability and willingness to pay higher prices are much lower than after the pandemic. As a result, companies appear to face limits to their pricing power that simply did not exist in 2022."

"While pricing power may still exist upstream in the production chain, it increasingly disappears before reaching the consumer. This yields two important conclusions: (i) the pass-through of higher energy prices to final consumption, and hence inflation, continues to look unlikely; and (ii) if the consumer is not paying the bill, someone else will have to."

"Even if the inflation backdrop becomes more challenging in the months ahead, the dynamics look fundamentally different from those seen during the last energy crisis. Back in 2022, profits were widely viewed as part of the inflation problem, giving rise to terms such as "greedflation" and "shrinkflation". This time, it seems as if profits or better profit-squeezing, will dampen, not enhance, inflationary pressures."

"The war in the Middle East and surging energy prices have pushed up headline inflation across the eurozone. In Germany, the impact was only temporary, as the government's two-month fuel tax rebate helped curb the rise in prices. At 2.9% in August, inflation was roughly one percentage point higher than in February, but still nowhere near the double-digit rates reached during the 2022 energy crisis."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• DJIA slid off its opening high all session, hitting roughly 440 points lower under 52,400.
• Treasury tripled its long-end buyback to $6 billion and yields rose anyway.
• Bank of America clients bought the sixth-largest weekly total since 2008 last week.

The Dow Jones Industrial Average trades roughly 440 points lower and under 52,400, and its session high sits within two points of the opening print. The Treasury said this morning it will buy back up to $6 billion of longer-dated government debt on Thursday, triple the size of a standard operation. The announcement was built to put a floor under the long end. The long end sold off on it.

The same policy, three times the size, the other direction

Thursday's operation covers 10-year and 20-year notes and runs to $6 billion against a $2 billion standard, with later operations held at $4 billion or more. It follows the August 19 decision to at least double the size, which took effect today. Dealers had been offering more paper than the old cap could absorb, and the Treasury has been describing liquidity in the long end as badly impaired.

That August announcement did what it was built to do. The 10-year yield fell 6 basis points to 4.647% on the day and the 30-year fell 9 to 5.196%. The larger version produced the opposite tape, with the 10-year up to 4.841% today, its highest since November 2023, the 20-year at 5.314% and the 30-year through the 5.30% line.

The upgrade was announced on August 19 and priced across the three weeks since, and parts of the market had looked for as much as $8 billion. Tripling the operation counted as a shortfall.

A $6 billion bid does not fill a $2.1 trillion hole

The federal deficit is projected near $2.1 trillion for the fiscal year ending September 30, more than 6% of Gross Domestic Product (GDP), and the national debt passed $40 trillion last month. Brent Crude Oil trades above $101.00 for the first time since July after American forces destroyed five Iranian tankers on Tuesday. A buyback is funded by issuing other paper, so it changes the maturity of the debt rather than the amount, and the amount is what the long end is pricing.

The marginal seller is foreign. China held $633.4 billion of American government debt in June against $731.4 billion a year earlier, and Norway's sovereign fund has proposed cutting government bonds from 70% of its fixed income allocation to 50%, roughly $75 billion of Treasuries. Foreign investors put a record $600 billion into American equities in the year to March, outweighing their government and agency bond buying by the widest margin on record. Thursday's operation covers $6 billion of that, once.

The sixth-largest buying week since 2008 was last week

Bank of America (BAC) clients were net buyers of American equities for a second straight week, the sixth-largest weekly total in the firm's records going back to 2008. Institutions and hedge funds led it, and private clients sold for a sixth consecutive week. Buying ran across eight of the eleven sectors, led by technology, and growth exchange-traded funds (ETFs) took their first inflows in five weeks.

Positioning is evidence about who owns the next move, not a verdict on anyone. Length opened near a high has the least room and the shortest patience, which is what turns a drift into a slide. That flow covers the week to September 4. The lowest trade since the end of July came two sessions later.

Two inflation prints, then a vote

The four-week average of private payrolls printed 12K this morning after 10K. The Producer Price Index (PPI) lands Thursday, September 10 at 12:30 GMT, with consensus at 0.4% on the month and 5.3% YoY after 4.7%, and the core measure at 0.3% and 4.6% after 4.2%. Initial Jobless Claims print alongside it at 205K after 206K.

The Consumer Price Index (CPI) follows Friday, September 11 at 12:30 GMT, with the headline seen holding at 3.4% YoY and the core easing to 2.4% from 2.5%. The Michigan preliminary survey lands at 14:00 GMT with sentiment seen at 51 after 51.7. The August budget statement follows at 18:00 GMT, seen at a $202.5 billion deficit after $432 billion.

Futures price roughly 60% odds of a quarter-point increase on September 16, from a target range of 3.50% to 3.75% that the committee held in July over three dissents in favour of a hike. Friday's consumer print is the last inflation reading the Federal Open Market Committee (FOMC) sees before it votes. The deficit number that has been driving the long end arrives five and a half hours after it.

Levels and bias

Resistance: The 52,500 area is the first hurdle and the index gave it up on the way down this morning. Above it sits the 52,800 area, which holds both today's opening high and yesterday's close, then 53,000 and the 53,250 shelf. The 53,500 band that broke on September 4 comes next, with the early-August peak just short of 54,750, roughly 4.4% overhead.

Support: The session low in the 52,300 area is the lowest trade since the end of July and the first floor. Beneath it the 52,000 handle is the next round figure, with the late-July base near 51,600 behind it. The June low just above 49,900 is not in play.

Bias: Bearish while the index holds beneath 52,800, with the 52,000 handle the objective. The index has given back roughly three-quarters of the rally that ran from the end of July to the early-August peak, and that rally took four sessions where the give-back has taken five weeks, so the selling is orderly rather than forced and has produced no capitulation bar to mark a low. Today's 520-point range with the high inside the first minutes is expansion, not exhaustion. A daily close back above 52,800 voids the case and restores 53,000.

Dow Jones daily chart

• AUD/USD loses momentum after hitting a fresh four-month high at 0.7237 earlier on Wednesday.
• Rebounding US Treasury yields allow the US Dollar to recover its earlier losses.
• Middle East tensions and rising Oil prices continue to limit the Australian Dollar’s upside potential.

AUD/USD stabilizes around 0.7220 at the time of writing on Wednesday, after hitting a fresh four-month high at 0.7237 earlier in the day. The Australian Dollar (AUD) loses some momentum as the US Dollar (USD) rebounds, supported by rising US Treasury yields.

The benchmark 10-year US Treasury yield climbs to 4.85%, while the 30-year yield reaches 5.30%. The rise in yields comes after the United States (US) Treasury Department announced plans to buy back $6 billion of longer-term government debt, three times the usual size of its operations.

The operation is aimed at improving liquidity and supporting the smooth functioning of the US government bond market. However, longer-term yields move higher following the announcement, suggesting that the larger buyback is not enough to immediately ease selling pressure on US government debt.

Higher yields provide support to the US Dollar by increasing the relative attractiveness of US fixed-income assets. The US Dollar Index (DXY), which measures the value of the Greenback against a basket of six major currencies, consequently erases its earlier losses and returns to around flat territory on Wednesday.

The Greenback's rebound curbs the advance in AUD/USD, which had previously benefited from encouraging Chinese inflation data. China's Consumer Price Index (CPI) rose by 0.4% in August after contracting by 0.1% in July, beating expectations for a 0.3% increase. On an annual basis, inflation accelerated to 0.8% from 0.5% previously, in line with market expectations.

The Australian monetary policy outlook also remains supportive of the Australian Dollar. Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser called on Tuesday for further action to bring inflation under control.

The upside potential for AUD/USD remains limited, however, by risk aversion linked to escalating tensions in the Middle East and rising Oil prices. Hostilities involving the US, Iran and the Houthis increase the risk of a broader regional conflict, weighing on investor sentiment.

Market attention now turns to the release of the US Producer Price Index (PPI) due on Thursday, ahead of the Consumer Price Index (CPI) on Friday.

• USD/JPY holds near recent lows amid broad-based Japanese Yen strength.
• The US Dollar finds some support following the Treasury’s buyback announcement.
• US PPI and CPI data take centre stage ahead of next week’s Fed meeting.

USD/JPY remains on the back foot on Wednesday but lacks follow-through selling as the US Dollar (USD) recovers following the Treasury’s announcement of a larger bond buyback. The pair trades around 153.50 after briefly falling below 153.00, its lowest level since February.

The US Treasury said it could buy back up to $6 billion of longer-dated debt on Thursday, above the previously indicated minimum of $4 billion per operation. US Treasury yields moved higher following the announcement, with the benchmark 10-year yield rising to around 4.85%,  its highest level since November 2023.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 98.80 after recovering from 98.60, its lowest level since August 21.

Even so, the near-term technical and fundamental picture still favours the Japanese Yen (JPY). Expectations of faster Bank of Japan (BoJ) tightening, with a rate hike fully priced in for the September 17-18 meeting, are fuelling the unwinding of Yen-funded carry trades and the repatriation of overseas funds. These flows are helping the Yen strengthen without fresh intervention.

Traders now turn their attention to Thursday’s US Producer Price Index (PPI) and Friday’s Consumer Price Index (CPI) ahead of the Federal Reserve’s (Fed) September 15-16 meeting. According to the CME FedWatch Tool, markets price in around a 60% chance of a 25-basis-point rate hike. An upside surprise in inflation could bolster the case for higher borrowing costs and help USD/JPY recover, while softer readings could push the pair lower.

Yen upside risk builds as USDJPY gravitates toward key BoJ decision

Strategists at Scotiabank highlight that “risk for the JPY remains firmly tilted to the upside” as market participants reassess sentiment and positioning, which “look increasingly offside in a market that has shifted from official intervention support and evolved to fundamentally-driven BoJ-led gains.” They note that “data releases have been limited and the calendar remains relatively empty into the end of the week, offering little in terms of event risk ahead of the BoJ decision on September 18th—where a 25bpt rate hike is fully priced.”

Against this backdrop, Scotiabank observes that “for USDJPY, recent price action leans toward support around 153 as we note the absence of any additional support ahead of the 2026 low near 152.” On the topside, they add that “in terms of resistance we now expect it at 155, given its role in providing prior support.”

Scotiabank strategists Shaun Osborne and Eric Theoret highlight ongoing Japanese Yen (JPY) outperformance, with USD/JPY drifting toward key support near 153 and the 2026 low around 152. Markets fully price a 25 bp Bank of Japan (BoJ) hike on September 18. They see risks tilted to further Yen gains as positioning looks increasingly offside and resistance now comes in around 155.

Upside risk for JPY as BoJ looms

"The JPY is outperforming with a modest 0.2% gain and clearly ignoring the terms of trade implications of the latest rally in oil prices."

"Risk for the JPY remains firmly tilted to the upside as market participants assess the state of sentiment and positioning that look increasingly offside in a market that has shifted from official intervention support and evolved to fundamentally-driven BoJ-led gains."

"Data releases have been limited and the calendar remains relatively empty into the end of the week, offering little in terms of event risk ahead of the BoJ decision on September 18th—where a 25bpt rate hike is fully priced."

"For USD/JPY, recent price action leans toward support around 153 as we note the absence of any additional support ahead of the 2026 low near 152."

"In terms of resistance we now expect it at 155, given its role in providing prior support."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• US Treasury yields move higher across the long end of the curve following a buyback announcement.
• The 10-year Treasury yield rises to 4.85%.
• The 20-year and 30-year yields advance to around 5.30%.

US Treasury yields rise on Wednesday after the United States (US) Treasury Department announces plans to buy back $6 billion of longer-term government debt, three times the size of its usual operation.

The yield on the benchmark 10-year US Treasury note rises to 4.85%, while the 30-year US Treasury bond yield gains to 5.30%. Further along the curve, the 20-year US Treasury yield increases to 5.31%.

The enlarged buyback operation is aimed at supporting liquidity and the smooth functioning of the US government bond market. It follows Treasury Secretary Scott Bessent's announcement on August 19 that the Treasury would at least double the normal amount of its purchases of previously issued securities.

The latest operation focuses on 10-year and 20-year securities and comes as longer-term borrowing costs remain elevated. The unusually large buyback has also attracted attention as Treasury yields have recently traded around levels not seen since before the 2008 Global Financial Crisis.

Buybacks can support liquidity in older, less actively traded securities and potentially ease some pressure on the bond market. However, yields move higher following Wednesday's announcement, suggesting that the larger-than-usual operation is not enough to immediately reverse selling pressure on longer-dated US government debt.

Rising Treasury yields provide support to the US Dollar (USD), as higher returns on US fixed-income assets tend to increase their relative attractiveness to investors. The US Dollar Index (DXY) rebounds and erases its earlier losses on Wednesday, returning to flat territory around 98.85 at the time of writing. Meanwhile, rising yields weigh on non-yielding Gold (XAU/USD), which gives back part of its earlier daily gains and trades around $4,391 at the time of press.

• Gold’s rebound fades as higher Treasury yields draw buyers toward interest-bearing assets.
• Higher Oil prices and Fed rate hike expectations also limit the metal’s recovery.
• XAU/USD holds above the 200-period SMA, but weak momentum keeps the near-term outlook neutral.

Gold (XAU/USD) struggles to hold onto Wednesday’s gains after rebounding from a one-week low of $4,341 earlier in the day. A recovery in the US Dollar (USD) and a fresh rise in US Treasury yields weigh on the precious metal. At the time of writing, XAU/USD trades around $4,385 after reaching an intraday high near $4,434.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 98.86 after recovering from 98.60, its lowest level since August 21.

US Treasury yields rise across the curve, with the benchmark 10-year yield climbing to around 4.85%, its highest level since November 2023. The move comes as the Treasury announced that it could buy back up to $6 billion of longer-dated debt on September 10, above the previously indicated minimum of $4 billion per operation.

Gold also faces pressure from rising Oil prices following tit-for-tat attacks between the United States (US) and Iran. The US military said it destroyed five Iranian crude Oil carriers after the Islamic Revolutionary Guard Corps (IRGC) attempted to strike a US Navy warship.

Tehran responded by targeting two American vessels, eight Oil tankers and another 10 ships accused of trying to pass through the Strait of Hormuz. The IRGC also said it attacked a US military base in Jordan.

West Texas Intermediate (WTI) Oil trades around $94 per barrel, near its highest level since June 3, and has gained over 5% so far this week. Markets are concerned that higher energy costs will keep inflation elevated and force major central banks, particularly the Fed, to raise interest rates. Higher borrowing costs tend to weigh on Gold by increasing the appeal of interest-bearing assets.

According to the CME FedWatch Tool, traders currently price in around a 60% chance of a 25-basis-point (bps) rate hike at next week’s meeting. Attention now turns to the US Producer Price Index (PPI) on Thursday and the Consumer Price Index (CPI) on Friday. The figures could bolster the case for a Fed rate hike at its September 15-16 meeting.

Gold outlook hinges on US inflation as structural supports limit Fed downside

According to TD Securities, upcoming US inflation data is "the next big catalyst" for gold, with an upside surprise likely to "embolden Fed pricing and weigh on the yellow metal." In contrast, the bank argues that "less worrisome inflation could ultimately be the first catalyst to see the next wave of discretionary positioning start to enter the market." At the same time, TD Securities highlights that the precious metals backdrop remains underpinned by "the renewed dollar-debasement theme, elevated central bank buying and renewed ETF accumulation," suggesting that "a hawkish Fed may only postpone the timing of the next leg higher rather than catalyze material downside."

Technical analysis: XAU/USD holds above key 200-period SMA

On the 4-hour chart, XAU/USD holds above the 200-period Simple Moving Average (SMA) at $4,356, suggesting buyers remain active on dips. However, the 50-period SMA at $4,415 caps the immediate upside. The Relative Strength Index (RSI) stands at 45, while the Moving Average Convergence Divergence (MACD) remains slightly negative, pointing to weak momentum and a broadly neutral near-term bias.

On the upside, the 50-period SMA at $4,415 acts as the first resistance, followed by the 100-period SMA around $4,489. A break above these levels could bring the $4,550 horizontal barrier into focus, followed by $4,700.

On the downside, initial support is seen at the 200-period SMA near $4,356. A clear break below this level could intensify selling pressure and open the door toward the $4,200 support zone.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

TD Securities’ commodity strategists Ryan McKay and Bart Melek note that WTI Crude continues to grind higher as conflict with Iran shows no sign of resolution. They highlight ongoing market tightness despite some easing in deficits, and warn that renewed attacks and increased Chinese activity could deepen supply constraints, keeping the path of least resistance for Oil prices skewed to the upside.

Conflict-driven tightness supports prices

"Crude rallies with seemingly no end to conflict in sight. Another round of escalation and an apparent preference for limited attacks and economic squeeze as opposed to deal-making leaves the energy market on a continued tightening trajectory."

"While the level of market deficit in crude has eased amid a stabilization of higher dark flow volumes, the market remains tight overall."

"Further tightness could still materialize amid these renewed attacks and as signs grow that China is becoming more active in the market."

"We have argued that Chinese refining capacity would need to be tapped in order to alleviate pressure in the product market, but this would effectively shift a portion of the extreme product tightness to the crude market."

"The path of least resistance remains to the upside for crude oil even as prices reach triple digits again."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)