EUR/USD fluctuates near 1.0900 after failing to clear this level on Wednesday. ECB is widely expected to leave key rates unchanged. Investors will also pay close attention to US GDP data. EUR/USD gathered bullish momentum and advanced to the 1.0930 area on Wednesday. With the US Dollar (USD) staging a rebound later in the day, the pair erased a large portion of its daily gains and returned below 1.0900. Investors await the European Central Bank's (ECB) policy announcements and high-tier data releases from the US. Although the Composite PMI from the Euro area showed that the business activity in the private sector continued to contract in early January, the Manufacturing PMI recovered unexpectedly and helped the Euro find demand. Moreover, the improving risk mood made it difficult for the USD to stay resilient against its rivals. Nevertheless, upbeat PMI readings from the US supported the USD and forced EUR/USD to turn south later in the American session.

Gold price ticks higher on Thursday amid subdued USD demand, albeit lacks follow-through. The upbeat market mood caps gains for the metal amid rising bets for a delayed Fed rate cut. Traders look to the US macro data dump for some impetus ahead of the US PCE on Friday. Gold price (XAU/USD) ekes out small gains on Thursday and reverses a part of the overnight heavy losses to the $2,011 area, or a multi-day low, though the uptick lacks bullish conviction. In the absence of any fresh fundamental trigger, subdued US Dollar (USD) price action is seen as a key factor lending some support to the commodity amid worries about escalating geopolitical tensions in the Middle East. Any meaningful appreciating move, however, still seems elusive in the wake of growing acceptance that the Federal Reserve (Fed) will not rush to cut interest rates. The expectations were reaffirmed by the better-than-expected US data on Wednesday, which showed that the economy kicked off 2024 on a stronger note. The S&P Global flash US Manufacturing PMI rebounded from 47.9 to a 15-month high of 50.3 in January and the gauge for the services sector climbed to 52.9, or the highest reading since last June. Furthermore, the flash US Composite PMI Output Index increased to 52.3 this month, or the highest since last June. This reaffirms the view that the world's largest economy is in good shape and forces investors to further scale back their bets for a more aggressive Fed policy easing in 2024. This, in turn, allows the yield on the benchmark 10-year US government bond to hold steady near a more than one-month high touched last week, which favours the USD bulls and should cap gains for the non-yielding Gold price. Meanwhile, the global risk sentiment gets an additional boost after the People's Bank of China (PBoC) unexpectedly lowered the Reserve Requirement Ratio (RRR) for local banks by 50 bps starting from February 5 to boost the economy. This remains supportive of the upbeat mood across the global equity markets, which, in turn, suggests that the path of least resistance for the safe-haven Gold price is to the downside. Traders, however, seem reluctant to place aggressive directional bets and prefer to wait for the release of the Advance US Q4 GDP print. Thursday's US economic docket also features the release of Durable Goods Orders, the usual Weekly Initial Jobless Claims and New Home Sales. Apart from this, the European Central Bank (ECB) might provide some impetus to the XAU/USD ahead of the US Personal Consumption Expenditures Price Index on Friday. Technical Outlook From a technical perspective, the recent repeated failures near the $2,040-2,042 supply zone and the overnight downfall favour bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and validate the negative outlook for the Gold price. That said, it will still be prudent to wait for acceptance below the $2,000 psychological mark before positioning for a slide towards the $1,988 intermediate support en route to the 100-day Simple Moving Average (SMA), currently around the $1,975-1,974 area, and the 200-day SMA, near the $1,964-1,963 region. On the flip side, the $2,025 zone, or the 50-day SMA, is likely to act as an immediate resistance, above which the Gold price could climb back to the $2,040-2.042 hurdle. A sustained strength beyond the latter might trigger a short-covering rally towards the $2,077 region. The momentum could extend further and allow bulls to aim back to reclaim the $2,100 round-figure mark.

European markets saw a much more positive session yesterday, carrying over the momentum from a buoyant US market, but also getting a lift after China announced a 0.5% cut in the bank reserve requirement rate from 5th February. US markets finished the day mixed with the Dow finishing lower for the 2nd day in succession, while the S&P500 and Nasdaq 100 once again set new record highs, as well as record closes, although closing off the highs of the day as yields edged into positive territory. This divergence between the Dow and Russell 2000, both of which closed lower for the second day in succession, and the Nasdaq 100 and S&P500 might be a cause for concern, given how US market gains appear to be being driven by a small cohort of companies share prices. Today's focus for European markets which are set to open slightly lower, is on the ECB and the press conference soon after with Christine Lagarde, where apart from questions on timelines about possible rate policy, Lagarde could face some questions a little closer to home amidst dissatisfaction over her leadership style from ECB staffers. When looking at the economic performance of the euro area, we've seen little in the way of growth since Q3 of 2022, while inflation has also been slowing sharply. Yet for all this economic weakness, a fact which was borne out by yesterday's flash PMI numbers, especially in the services sector, the ECB has been insistent it is not close to considering a cut in rates, having hiked as recently as last September. Only as recently as last week we heard from a few governing council members of their concerns about cutting too early, yet when looking at the data, and the fact that the German economy is on its knees, the ECB almost comes across as masochistic in its desire to combat the risks of a return of inflation. In a way it's not hard to understand given that after November headline inflation slowed to 2.4%, it picked up again in December to 2.9%, while core prices slowed to 3.4%. This rebound in headline inflation while no doubt driven by base effects will be used as evidence from the hawks on the governing council that rates need to stay high, however there is already evidence that the consensus on rates is splintering, and while no more rate hikes are expected the economic data increasingly supports the idea of a cut sooner rather than later. Markets currently have the ECB cutting rates 4 times this year in increments of 25bps, starting in June, although given the data we could get one in April. This contrasts with the market pricing up to 6 rate cuts from the Federal Reserve despite the US economy being magnitudes stronger than in Europe. No changes are expected today with the main ECB refinancing rate currently at 4.5%, however Q4 GDP due next week, and January CPI due on 1st February calls for a March/April rate cut could start to get louder in the weeks ahead, especially since PPI has been in deflation for the last 6 months. US bond markets appear to be starting to have second thoughts about the prospect of 6 rate cuts from the Federal Reserve this year, although there is still some insistence that a March cut remains a realistic possibility. Today's US Q4 GDP numbers might bury the prospect of that idea once and for all if we get a reading anywhere close to 2%. This seems rather counterintuitive when you think about it, the idea that the Fed would cut before the ECB when Europe is probably in recession and the US economy is growing at a reasonable rate, albeit at a slower pace than in Q3. Expectations for Q4 are for the economy to have slowed to an annualised 1.9% to 2%, which would be either be the weakest quarter of 2023 or match it. Nonetheless the resilience of the US consumer has been at the forefront of the rebound in US growth seen over the past 12 months, with a strong end to the year for consumer spending. This rather jars against the idea that US GDP growth might get revised lower in the coming weeks as some have been insisting. If you look at the December control group retail sales numbers, they finished the year strongly and these numbers get included as a part of overall GDP. Weekly jobless claims are also at multi-month lows of 187k, and while we could see a rise to 200k even here there is no evidence that the US economy is slowing in such a manner to suggest anything other than a modest slowdown as opposed to a sudden stop or hard landing.  The core PCE Q/Q price index is expected...

Markets US stocks relinquished earlier gains as traders tempered their earnings-related enthusiasm when caution set in after Tesla profits fell amid declining demand for electric vehicles, compressing margins. Tesla reported Q4 earnings that fell short of Street estimates and provided a pessimistic full-year production outlook, causing a further decline in the stock and continuing the downward spiral for the electric vehicle (EV) maker that began at the beginning of the year. With stocks sliding from the summit, there is even more anticipation ahead of a plethora of US economic data, including Gross Domestic Product, as traders continue drawing and discarding cards on the timing of a potential interest rate cut by the Federal Reserve. A policy trajectory that now heavily relies on incoming data where various permutations could swing the pendulum of a March rate cut in either direction. Currently, the Goldilocks nature of sustained growth and receding inflation, with the prospect of 75 basis points cut and potentially more by the Federal Reserve, presents a favourable scenario for the equity market. Preliminary data for January revealed that business activity in the US private sector expanded fastest since June, according to the flash print on S&P Global's composite gauge. The index rose to 52.3 from December's 50.9, marking the third consecutive month of expansion. The services print at 52.9 exceeded consensus expectations, while the manufacturing gauge surged to a 15-month high at 50.3, pushing both indicators above the 50 demarcation line for the first time since October. Despite manufacturers raising output prices at the quickest pace in nine months, the slow increase in services-side selling prices offset the inflationary impact, resulting in the overall rate of price increase across the US economy being the slowest since May 2020. Any way you want to slice and dice, this data screams a Goldilocks scenario for the US economy. But with the services print, where sticky inflation is hiding out, exceeding consensus expectations, it is not an ideal welcoming doormat for a March rate cut. US Bonds market  The recent 5-year auction in the United States experienced a significant tail, falling short by 2 basis points and concluding at a level slightly higher than subsequent market levels.  Following this auction disappointment, the 10-year yield rose above 4.15%, and there is a prevailing expectation that it might reach the 4.20-25% area as the anticipated March rate cut continues to diminish.  While advanced US GDP will carry some weight, the real challenge for higher yields lies in the spotlight on core Personal Consumption Expenditures (PCE) data. If the data aligns with or, more notably, falls below expectations, it can potentially prompt a significant decline in yields. Such an outcome would confirm the market's Goldilocks interpretation of inflation, offering positive prospects for stocks but potentially creating headwinds for the dollar. This is especially relevant in a market that remains vigilant about the potential for an upward drift in yields. China market Asian markets will be closely observed to determine whether the positive shift in investor sentiment towards China and Hong Kong persists. The recent action by the Chinese central bank, injecting liquidity and providing support for asset prices, has influenced the market dynamics and raised anticipation regarding its sustained impact. Pan Gongsheng pre-announced instead of surprising the markets with a forthcoming reserve requirement cut for banks a day before the official announcement.  The upcoming reserve requirement ratio (RRR) cut, the first since September, is set at 50 basis points, marking the first half-point reduction in over two years.  This move comes amid a persistent stock selloff, with H-shares reaching near two-decade lows and the Mainland benchmark hitting five-year lows. Rumours are flying that Beijing might assemble a two-trillion-yuan stock rescue package following unsuccessful measures in 2023.  But the RRR cut, aimed at increasing credit supply, drove a two-session surge in Hong Kong-listed Chinese shares, with A shares getting into the act yesterday. However, sentiment remains woefully poor, and credit demand is weak, reflecting lacklustre domestic consumption.  While the RRR cut addresses credit supply, it doesn't tackle the root issue; hence you can lead a horse to water, but you cannot make him drink. Fiscal stimulus in this context is crucial, emphasizing the need for government spending when the private sector is hesitant. The fundamental problem lies in the Party's confidence crisis with domestic and foreign investors. A good start would be to usher in a shift towards transparency. Although the RRR cut freed up a significant amount of liquidity, it remains uncertain whether these measures will have a substantial impact. A more comprehensive approach, combining fiscal stimulus with improved credibility, may be necessary to address the ongoing challenges in the Chinese market. The recent trend of pre-announcing critical data and policy decisions in China has raised questions about the unusual shift in communication strategy. The move...

AUD/USD advances further north of 0.6600. The resumption of the risk-on trade underpins the Aussie dollar. Auspicious PMI prints also bolster the upside in the pair. Bulls seem to have returned and pushed AUD/USD back above the key 0.6600 barrier on Wednesday, adding to the decent gains observed in the previous session. All in all, spot seems to have put some distance from last week's yearly lows around 0.6520 for the time being. This time, the renewed selling pressure around the greenback underpinned the upward bias in the Aussie dollar, while there was no news around China and its lagged economic bounce in post-pandemic life. The Chinese factor, in combination with the projected decision by the Reserve Bank of Australia (RBA) to maintain its current policy stance at its meeting in February, is still seen as limiting the upside potential of the pair in the next few weeks, allowing for extra retracements in the short-term horizon. The decline in inflation metrics observed in December, along with the continued moderation of the labour market (albeit still relatively tight), seems to have solidified the consensus among market participants that the RBA would keep its rates on hold, at least in February. Also weighing on the pair's price action and even tilting the scales to the bearish side aligns the likelihood that the Federal Reserve could continue to delay expectations of an interest rate reduction in the coming months, a scenario that should be dollar-supportive. Back to the positive zone, further strength in AUD came on the back of better-than-estimated flash Manufacturing and Services PMIs in Australia in January, at 50.3 and 47.9, respectively. AUD/USD daily chart AUD/USD short-term technical outlook If the recovery in AUD/USD gets more serious, the pair could confront the provisional 55-day SMA at 0.6627 prior to the December 2023 peak of 0.6871 (December 28), which is preceded by the July 2023 high of 0.6894 (July 14) and the June 2023 top of 0.6899 (June 16), all of which occur before the critical 0.7000 yardstick. The 4-hour chart shows the pair putting the upper end of the range to the test for the time being. Next on the upside now comes the 100-SMA at 0.6658 ahead of the 200-SMA at 0.6681. The surpass of this region exposes a probable move to tops near 0.6730. Looking south, remains a reasonable contention zone around 0.6525. If this zone is breached, no significant disagreement persists until 0.6452. The MACD flirts with the positive border, and the RSI hovers around 55. View Live Chart for the AUD/USD

Outlook: The Bank of Canada meets today but no change is forecast. We also get the US flash purchasing managers indices, but tomorrow is the big day, with the ECB meeting and the US releasing Q1 GDP, which will contain data on consumption and thus on inflation. You'd think it would be a tidbit, but we think this nugget from Bloomberg shows the disparity between euro bulls and euro bears. So far the bulls Are winning despite data that would fell a lesser currency. If the US had data as bad as the eurozone and especially Germany, the dollar would be in the tank. This time the evidence comes from the equity side: "Not everyone is on board with the rally in stocks though. The Qube hedge fund is making a billion dollar bet against German stocks as a downturn in global demand slows Europe's biggest economy. "The fund  has amassed a short bet of more than $1 billion against German companies after added to wagers against the likes of automaker Volkswagen over the last two weeks, and also disclosing a $131.8 million short against Deutsche Bank, according to data compiled by Bloomberg from regulatory filings. "The bets come even as the benchmark DAX stock index remains near its record high." This degree of strong opposing views has to come to a crash at some point. We may find out the outcome when the US reports GDP. If it's on the high side and traders fail to buy dollars, we will know a new type of market factors is driving. We saw this before during Grexit when the euro "should" have tanked but mostly did not and kept bouncing back. The implication is that the dollar is already overbought, especially because the early-rate-cut crowd has now been put in its place. But the cut is coming. We just don't know when. The FT reminds us  that "A hefty 71 analysts polled last month by Reuters predicted on average the dollar would ease about 3 per cent to $1.12 against the euro and about 8 per cent against the yen to ¥137. The two make up about 70 per cent of DXY, according to Bloomberg." Forecast: Given an ECB on hold and robust US data tomorrow and Friday, it's peculiar that the euro firmed, indicating vast uncertainty about what is driving and should be driving the rate. It looks like the dollar is not going to get a boost from hawkish data on Friday or hawkish noises from the Fed. Tidbit: As known beforehand, Trump won the New Hampshire primary but opponent Haley did so well (over 40% of the vote) that she is hanging around for the next one instead of bowing out. Reuters says Trump is "furious." We have no historical comparisons of a NH primary performance of a former president, but Trump's performance is definitely subpar. This doesn't help much because he is going to be the nominee no matter what, but it does show that not all Republicans are stuck to the party come hell or high water. It's a little interesting that US cable news is taking note of the views of European leaders, including at Davos.  This is an excerpt from "The Rockefeller Morning Briefing," which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes. To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!