Gold Retreats From a 3-Week High But Remains in an Uptrend
The gold (XAU) price lost 0.59% on Thursday as the US dollar and Treasury yields rose despite worse-than-expected US macroeconomic data.
'There's not a lot of trading volume right now in any of the markets, so that usually causes smaller moves, especially when we're approaching a big number like an all-time high,' commented Chris Gaffney, the president of world markets at EverBank. Indeed, XAU/USD approached a strong resistance, so bulls decided to close their long positions after a 2-week rally and take profits ahead of the New Year holidays. Furthermore, yesterday's Jobless Claims report may have slightly undermined dovish interest rate expectations. Although its numbers were slightly higher than expected, they demonstrated the job market's resilience. However, the real estate market continues to struggle. In November 2023, Pending Home Sales in the US. remained steady yet failed to meet market expectations of a 1% recovery. The data indicates that the flow of prospective buyers is low despite potential rate cuts soon.
XAU/USD was rising during the Asian and early European trading sessions, breaking above the important 2,073 level. Fundamentally, the market believes that the Federal Reserve (Fed) will ease its monetary policy Q1 2024: now traders price in an 87% chance of a 25-basis-point (bps) rate cut in March. Thus, the fundamental pressure on gold will likely remain bullish until better-than-expected US macroeconomic data forces investors to rethink their current projections. Today's main event is the Chicago Purchasing Managers' Index (PMI) report at 2:45 pm UTC. Strong figures may pull XAU/USD towards 2,065 again. However, the short-term bullish trend in XAU/USD might accelerate if the figures come out weaker than expected. 'Spot gold may retest support of 2,062 USD per ounce, a break below which could open the way towards 2,053 USD,' said Reuters analyst Wang Tao.
EUR/USD Bullish Trend Has Weakened, But The Pair Consolidates Above 1.10500
On Thursday, the euro (EUR) fell by 0.4% as the US Dollar Index (DXY) had a correction after its long decline.
EUR/USD remains close to a 5-month high and is on course to gain over 3% rise in a year. Although the European Central Bank (ECB) policymakers didn't announce rate reduction plans at their last meeting, traders speculate that a potential shift towards a more dovish policy by the Federal Reserve (Fed) might provide leeway for other major central banks to do the same. Now, investors are pricing in more rate cuts from the ECB than from the Fed. According to the latest interest rates swaps market data, traders expect the ECB to cut its base rate by 163 basis points by the end of December 2024, compared to 156 bps cuts by the Fed over the same period.
Surprisingly, EUR/USD continues to trade near a 5-month high as the divergence in monetary policies between the ECB and the Fed continues to favor the US dollar—at least in the long term. 'We believe central banks in the advanced economies are on pace to pull forward the timing of pivoting to interest rate cuts,' wrote economists at Wells Fargo in their 2024 outlook. 'As far as the outlook for G10 central banks, the "higher for longer" stance that many institutions adopted in 2023 is becoming less of a priority.' Overall, expectations that 2024 might be the year when major central banks start to cut interest rates have triggered a risk-on rally.
"EUR/USD rose slightly in the Asian session but fell during the early European trading hours. Today, EUR/USD may face extra volatility when the US Chicago Purchasing Managers' Index (PMI) report is released at 2:45 p.m. UTC. If the figures exceed expectations, the pair might decline, potentially below 1.10500. However, the upward trend in EUR/USD may persist if the PMI data indicates ongoing weakness in the US economy. Still, a break above 1.11000 may be challenging in the short term.