Better-Than-Expected U.S. Data Bringing Down Gold
On Thursday, the gold (XAU) price decreased following lower-than-expected Jobless Claims report figures, but the metal recovered by the end of the trading session.
Recent data revealed that weekly U.S. jobless claims decreased more than expected last week, and private businesses hired more employees in December, underscoring the labour market's resilience. Currently, the market estimates a 65% chance of a rate cut by the Federal Reserve (Fed) in March. 'The Fed has already signalled rate cuts this year, so now the question is of degree. Once the excesses of November-December are corrected, the overall trend this year still favours gold gains (for now),' said Ilya Spivak, the head of the global macro at Tastylive. Reduced interest rates lower the opportunity cost for holding non-yielding bullion. Investors should also keep a close watch on geopolitical events in the Middle East, where recent explosions in Iran have raised concerns about the possibility of an escalating conflict in the region.
XAU/USD rose in the Asian trading session but then started to decline in the early hours of the European trading session. Today, traders should focus on the U.S. Nonfarm Payroll (NFP) report coming out at 1:30 p.m. UTC. The report usually causes increased volatility in the forex market. If the report is strong—average hourly earnings rise, unemployment drops, or the number of jobs created is higher than expected—XAU/USD will continue to decline, possibly towards 2,032. However, any indications that the U.S. labour market is weakening may invigorate XAU/USD bulls, driving the pair towards 2,059. 'Spot gold may test resistance at $2,052 per ounce, a break above which could lead to a gain to $2,059,' said Reuters analyst Wang Tao.
The Underlying EUR/USD Trend Remains Bearish
EUR/USD increased by 0.22% on Thursday, influenced by the narrowing spread between 2-year and 10-year Treasury bond yields.
Rising eurozone inflation supported bond yields, but the yield spreads are still below their December's and November's highs. Meanwhile, the euro reached its peak of 1.11395 on 28 December, as those gains were partially driven by risk-on flows moving from the safe-haven US dollar. This year, the dominant theme is a shift in market expectations about the Federal Reserve's monetary policy: anticipations have shifted towards less dovish ones. This change has led to a decline in global equities and a resurgence of the US dollar, which had its best week since mid-July.
Today, EUR/USD declined during the early hours of the European trading session ahead of important U.S. and eurozone macroeconomic statistics. Traders now focus on the Nonfarm Payroll (NFP) and ISM non-manufacturing reports coming out at 1:30 p.m. and 3:00 p.m. UTC. NFP numbers are expected to be around 170,000, down from November's 199,000, aligning with the trend of a gradual slowdown of the labour market. Also, watching the European Consumer Price Index (CPI) at 10:00 a.m. UTC is important. If the figures are higher than expected, EUR/USD may rise towards 1.10000. However, if the numbers are lower than the forecast, the underlying bearish trend in the pair might continue.