Gold Price Rise as Fed’s Inflation Report Supports Lower Interest Rates
The gold price went up by 0.60% during the North American session on Friday. The latest inflation report remained stable, supporting the idea that the Federal Reserve might reduce its policies. The current price of gold (XAU/USD) is $3,774, recovering from daily lows of $3,734.
Precious Metals Surge as PCE Data Enhances Fed Easing Expectations
Traders are feeling positive as they review recent US data that keeps the possibility of Fed rate cuts open. The core Personal Consumption Expenditures (PCE) Price Index, which the Fed uses to measure inflation, met expectations. While the cost of living is rising, the core PCE is still below the 3% peak it reached in February.
However, the University of Michigan Consumer Sentiment Index dropped in September. Households are concerned about high prices and the state of the job market. People expect prices to decrease gradually.
Fed officials have also made comments. Governor Michelle Bowman noted that the labor market appears weaker, while inflation, not including tariffs, is close to the target. Richmond Fed President Thomas Barkin stated that spending is robust among both low- and high-income consumers.
Gold traders should pay attention to the new tariffs that President Trump has announced on pharmaceuticals and imported furniture.
Next week, several important US economic updates are scheduled, including speeches from Fed officials, the ADP National Employment Change report, the ISM Manufacturing PMI, Initial Jobless Claims, and the Nonfarm Payrolls for September.
Technical outlook:
Gold’s price rose again as of Friday, but it hasn’t yet reached the record high of $3,791, which is close to $3,800. The Relative Strength Index (RSI) is overbought, but remains between 70 and 80, indicating that buyers continue to lead the market.
If XAU/USD falls below $3,750, we could see further drops. The next support level is at $3,700, followed by the 20-day Simple Moving Average (SMA) at $3,648.
The US Dollar Index (DXY) steadies above 98.30 ahead of the release of US inflation figures.
The US dollar is steady against its main competitors on Friday, supported by positive US economic reports. The USD Index is currently just below three-week highs at 98.60, with support at 98.30, and is poised for a weekly gain of approximately 0.85%.
The US Commerce Department raised second-quarter GDP growth to 3.9%, up from 3.3% and a recovery from a 0.5% decline in the first quarter. Jobless claims have also dropped to their lowest levels since July, and Durable Goods Orders increased unexpectedly.
These strong reports have lowered expectations for quick interest rate cuts by the Federal Reserve. However, Fed committee members have differing views on future monetary policy. Chicago Fed President Austan Goolsbee is cautious about lowering rates too fast, while San Francisco President Mary Daly is open to slight cuts. Stephen Miran is calling for a larger cut next month.
Investors are now looking at the US PCE Prices Index for more insights on interest rates. Headline inflation is expected to rise to 2.7% yearly from 2.6% in July, while core inflation is likely to stay steady at 2.9%.
Technical analysis:
The recent closing above the 38.2% Fibonacci retracement level from the August-September decline may indicate a positive shift for the US dollar (USD). Indicators on the daily chart are moving into positive territory, suggesting buying opportunities around the 97.50 level, followed by 97.25, the 23.6% Fibonacci retracement level.
If the price drops convincingly below 97.25, it may lead to selling pressure and push the US Dollar Index (DXY) below 97.00, potentially targeting the next support level around 96.65. Further declines could reach the 96.25-96.20 range, the lowest since July 2022, following the recent rate cut by the US central bank.
Conversely, if the price moves above 98.00, buyers might target gains toward the 98.25 area, the 50% Fibonacci retracement level, and the 100-day Simple Moving Average (SMA) near 96.40. Clearing the 61.8% Fibonacci retracement level around 96.70 could indicate that the USD Index has bottomed out and is set for further gains.
BTC falls sharply as massive liquidations rock the market
The price of Bitcoin (BTC) is around $109,000, down nearly 5% this week. The cryptocurrency market experienced its largest single-day liquidation event of the year, primarily affecting long positions. Overall, the situation remains unstable as the Federal Reserve is cautious about cutting interest rates, and rising geopolitical tensions reduce investors’ willingness to take risks.
Wave of liquidations
Bitcoin’s price started the week down, falling over 2% on Monday. This drop resulted in the most significant single-day liquidation in the crypto market this year, with $1.65 billion in long positions lost, compared to just $145.83 million in short positions. This shows that many traders were overly optimistic.
Following the significant sell-off on Monday, poor market conditions persisted throughout the week. Bitcoin fell below $109,000 on Thursday, triggering another wave of sell-offs that wiped out more than $1.09 billion in long positions.
By Friday, the Fear and Greed Index had dropped to 28, the lowest level since mid-April, indicating that market participants are becoming increasingly cautious and fearful.
Bitcoin leverage nears yearly peak.
Even with the recent liquidations, CryptoQuant’s BTC Estimated Leverage Ratio (ELR) was 0.285 on Friday. This is close to its yearly high of 0.291, which was reached on September 11. However, it is still much lower than the record high of 0.358 in 2011. This suggests that traders are moderately leveraged but not excessively overexposed.
The Fed’s cautious approach led to a decline in the price of BTC.
This week, Bitcoin’s price fell due to the Federal Reserve’s cautious approach and rising geopolitical conflicts, which created a risk-averse mood in the market.
Following a 25-basis-point interest rate cut last week, Fed Chair Jerome Powell stated that there may not be more cuts soon. He emphasized the need to strike a balance between high inflation and a weak job market.
Powell warned that easing rates too much could keep inflation high, leading to future reversals. This boosted demand for the US Dollar (USD), while cryptocurrencies and other risk assets declined.
Ongoing geopolitical issues, like the Russia-Ukraine war and Israel’s military actions in Gaza, further contribute to the negative sentiment in the crypto market.
What’s next for BTC?
Bitcoin’s price dropped nearly 5% after facing resistance around $118,000 last week, now trading at about $109,500. If it continues to fall, it could reach the low of around $107,429 set in July. A close below this level may lead to further declines to the support at $104,463.
The Relative Strength Index (RSI) is at 52 and trending down toward the neutral level of 50, indicating weakening bullish momentum. If it falls below 50, Bitcoin could continue to lose value.
The Moving Average Convergence Divergence (MACD) has exhibited a bearish crossover since mid-August, and the rising red histogram bars below the neutral level indicate that the downward trend is likely to persist.
Ethereum investors net around $800 million in profits despite a decline in open interest.
Ethereum (ETH) is trading around $4,000 after investors realized over $800 million in profits following a drop to $3,800 on Thursday. This was ETH’s first fall below $4,000 in over a month.
This week, heavy selling led to significant liquidations of long positions, totaling $401.8 million on Thursday and $490 million on Tuesday. As leverage decreased, a report from CryptoQuant noted a drop in open interest, especially on Binance.
On Binance, over $3 billion in leverage was wiped out on Tuesday, with an additional $1 billion the next day. Bybit lost $1.2 billion in open interest, while OKX saw a decline of $580 million. This situation has made investors more cautious, often resulting in further price declines.
Despite the downturn, some large investors are buying. Lookonchain reports that 15 wallets have purchased 406,117 ETH, worth approximately $1.6 billion, from exchanges such as Kraken and BitGo over the past two days.
Additionally, two dormant wallets transferred 200,000 ETH, valued at roughly $785 million, to new addresses. The original holder still controls 736,316 ETH, worth about $2.89 billion across eight wallets.
Ethereum Price Forecast: ETH eyes recovery of $4,000 key level
Ethereum (ETH) is attempting to reclaim the significant $4,000 mark after bouncing off the 100-day Simple Moving Average (SMA). This popular altcoin faces resistance around $4,100, which has been a substantial barrier in the past year.
If ETH moves above $4,100, it could rise to test the $4,500 level, just above the 50-day SMA.
On the downside, buyers could continue to protect the 100-day SMA. If it falls further, the $3,500 level might also act as support.
Weekly Market Wrap-Up
This week, financial markets showed both hope and caution. Gold prices rose as softer inflation data raised expectations for Federal Reserve interest rate cuts. Meanwhile, the US dollar strengthened due to strong GDP growth and a decline in jobless claims.
In contrast, cryptocurrencies struggled. Bitcoin dropped nearly 5% after a significant wave of liquidations, while Ethereum fell below $4,000 before recovering. Investors remain cautious due to the Fed’s careful stance on interest rates and ongoing geopolitical tensions. Traditional assets were stable, but the crypto market faced volatility and uncertainty ahead of next week’s economic updates.
