Morning Note: Gold Dips on Dollar Strength, ECB Eyes Rate Cut, Japan Denies FX Pressure

Gold Slips as Dollar Gains, Trade Tensions Ease

Gold prices declined as the dollar strengthened and signs of easing U.S.-China trade tensions pressured bullion. The pullback followed reports that Beijing had exempted certain U.S. goods from its tariffs. China is reportedly considering removing its 125% tariffs on some U.S. imports and has asked businesses to identify products that could qualify for exemption, according to companies that have been notified. Moreover, U.S. President Donald Trump indicated a possible de-escalation in the ongoing tariff dispute last week, noting that direct negotiations were already underway.

(Gold Daily Chart, Source: Trading View)

From a technical analysis perspective, gold has been in a bullish trend, as indicated by a series of higher highs and higher lows. Recently, it was rejected from the resistance zone between 3,330 and 3,360, driving the price lower and potentially retesting the support zone between 3,210 and 3,230. If the price finds support within this zone, it may continue its bullish movement and surge higher.

ECB Edges Closer to June Rate Cut

European Central Bank (ECB) policymakers are becoming increasingly confident about cutting interest rates at their June meeting, as inflation continues to trend lower. While a move is looking more likely, there is little appetite for an aggressive cut, with most officials favouring a modest quarter-point reduction. The ECB had already lowered its benchmark rate to 2.25% earlier this month, and many governors now expect another cut when they update their economic forecasts on June 4.
However, they remain cautious, mindful that the final decision is still weeks away and policy developments have grown more unpredictable following U.S. President Donald Trump's April 2 announcement. Trump's provisional 20% tariff on European goods turned out to be less damaging than the ECB had initially modelled, and so far, the European Union has refrained from retaliatory measures. This relatively contained impact has eased immediate inflation concerns, providing the ECB additional room to consider further rate adjustments while maintaining flexibility.

(EUR/USD Daily Chart, Source: Trading View)

From a technical analysis perspective, the EUR/USD currency pair has been in a bullish trend since mid-January 2025, as indicated by a series of higher lows and higher highs. Recently, the pair was rejected from the resistance zone between 1.1540 and 1.1570, leading to a pullback. If it remains above the swap zone of 1.1180 – 1.1210 in the near term, this suggests that the bullish structure remains intact, potentially driving the pair higher to retest the resistance area.

Tokyo Rejects Report of U.S. Currency Pressure

On Monday, Japan’s top currency official dismissed a media report claiming that U.S. Treasury Secretary Scott Bessent had told his Japanese counterpart that a weak dollar and strong yen were desirable. Japanese Finance Minister Katsunobu Kato and Bessent held their first face-to-face meeting last Thursday on the sidelines of the International Monetary Fund and World Bank gatherings in Washington. At a press conference following the talks, Kato remained tight-lipped about the details of the 50-minute meeting and declined to say whether the U.S. had made any specific requests regarding currency matters.
Market expectations that Tokyo may come under pressure to allow the yen to appreciate have been fuelled by President Donald Trump's focus on narrowing the U.S. trade deficit and his past accusations that Japan deliberately maintained a weak yen to gain a trade advantage. Although no direct demands have been confirmed, the backdrop of Trump's trade agenda has heightened scrutiny over future U.S.-Japan currency discussions.

(USD/JPY Daily Chart, Source: Trading View)

From a technical analysis perspective, the USD/JPY currency pair has been in a bearish trend since the beginning of January 2025, as evidenced by a series of lower highs and lower lows. Recently, the pair rebounded from the previous swing low at 140.00 and is now retesting the swap zone between 143.50 and 144.00. If it manages to close above this zone in the near term, it may potentially rise further to retest the resistance area between 147.70 and 148.20. Conversely, if bearish pressure prevents a break above the swap zone, the pair might resume its downward movement.

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