Market Analysis: Crucial US CPI Data Incoming

Gold and the US Dollar rose again, while the stock market declined moderately. Traders can see the market’s lower risk sentiment as the US gets ready to release its latest inflation data and continue negotiating on raising the US debt ceiling. According to the treasury, the government must agree on raising the US debt ceiling by the end of the month. The longer negotiations go without an agreement, the more support we may see for Gold prices. However, the US government will unlikely allow a default and negotiate accordingly. Both parties have confirmed they will reach an agreement and will not allow a default. Therefore, this may have a limited effect unless the story changes. 

In addition to this debt ceiling, investors have withdrawn from the US stock market as the country is ready to release its inflation data. Investors looking for certainty would have held off from purchasing equities and can create fewer orders, which has caused a moderate decline. Investors will monitor whether inflation continues to decline or becomes “sticky”. 

The US Dollar Index, which is the value of the Dollar against six currencies, also rose yesterday and during this morning’s Asian session. The Pound, which we have been analyzing recently, has continued to increase against all currencies except the Dollar. The EUR/GBP is now at its highest price since December 2022.

XAU/USD

The price of Gold this morning is moderately declining but remains higher than yesterday’s open price. Yesterday's price formed its second consecutive day of bullish price movement, increasing by 0.75%. When looking at the medium-term price movement, the asset is still trading within an upward price movement due to the decline last week, not moving onto a “lower low”. The US Consumer Price Index will largely influence the price throughout the day. The movement may be considered a bearish signal if the price declines below $2,027.20 and the CPI figure is higher than expected. 

XAU/USD 1-Hour Chart on May 10th 

The inflation data this afternoon will affect the monetary policy. If the Federal Reserve is likely to consider one more small hike, keep the fund rate higher for longer, or consider pivoting earlier than 2024. A hawkish central bank may pressure the price of the safe-haven asset, and a dovish tone may support the price movement. Markets expect the Consumer Price Index for April to read 0.4%, which is relatively high. If the figure reaches 0.4%, the yearly inflation rate will remain 5%. This would be the first time this year that inflation has not declined. 

The US employment sector also continues to show strength and resilience. However, the Federal Reserve will not likely consider a hike unless inflation rises above 0.6%. Investors will also monitor tomorrow’s Producer Price Index, which is expected to show a price rise for the first time in 3 months. 

NASDAQ 

The NASDAQ declined yesterday during all three trading sessions and continues to decline in this morning’s Asian session. However, the price is only forming a retracement and not a downward trend. Today's price is likely to experience higher levels of volatility and will be influenced, similar to Gold, by this afternoon’s inflation data. 

A higher-than-expected CPI can potentially further pressure stocks as it pushes back the scenario of a “pivot” from the Fed. On the other hand, a lower-than-expected CPI will increase the possibility of the Fed considering lower interest rates sooner. As a result, investor confidence is likely to grow and support the stock market. 

Airbnb's latest earnings report from last night also influenced the price movement. The company recorded its most profitable quarter and higher-than-expected revenue and earnings per share. However, in the company’s shareholder letter, the board of directors confirmed that the second quarter’s earnings are less likely to be as favourable. The stock price declined by 10% after the market closed. However, investors should note that the stock has a lower “weight” and therefore is less influential. 

NASDAQ 1-Hour Chart on May 10th 

Technical analysis still indicates an upward trend in the medium-longer term while retracing in the short term. This morning's price has also crossed onto a lower low, breaking through the previous support level. This can indicate a downward trend, but traders should be cautious that the US trading session is yet to open, and the CPI data still needs to be made public.

Summary:

• Gold continues to increase for a second day, but investors turn their attention to today’s Consumer Price Index. 
• Both parties have confirmed they will reach an agreement and will not allow a default. 
• Airbnb reports its first profitable quarter, but the shareholder’s letter advises a difficult quarter will follow. The price of the stock declines by 10%. 
• US inflation is expected to rise slightly compared to the previous months, and for the yearly inflation rate to remain at 5%.