XAU/USD Current price: 2,023.62 Wall Street trades with a softer tone after reaching record highs on Monday. Market participants await US first-tier data and central banks' announcements. XAU/USD holds ground but bears gain confidence amid broad US Dollar strength. Gold keeps trading in a well-limited range on Tuesday, with XAU/USD changing hands just above $2,020 a troy ounce. The bright metal surged throughout the first half of the day as market players dropped the US Dollar following fresh record highs on Monday in the S&P 500 and the Dow Jones Industrial Average. Wall Street rallied on hopes the Federal Reserve (Fed) will soon start trimming interest rates after pushing them to multi-decade highs in the pandemic aftermath. Furthermore, signs that the United States (US) economy could dodge a recession provide impetus to high-yielding equities. The USD gathered momentum ahead of the American opening, as equities could not maintain their positive tone. US indexes trade with modest losses as speculative interest paused ahead of earnings reports. The season has kick-started with optimism, as so far, companies have reported above-expected profits. Still, upcoming releases alongside macroeconomic events scheduled for the second half of the week triggered the ongoing pause. Data-wise, US figures fell short of market expectations. The Richmond Fed Manufacturing Index printed at -15 in January, much worse than the -7 expected or the previous -11. Attention on Wednesday will be on the Bank of Canada (BoC), which will announce its decision on monetary policy ahead of the US opening. XAU/USD short-term technical outlook XAU/USD trades range bound, lacking clear directional strength, although the latest test of the $2,000 area showed buyers are willing to defend the level. The daily chart shows the pair retreated sharply after nearing a bearish 20 Simple Moving Average (SMA) at around $2,040.30. The longer moving averages remain below the current level, lacking directional strength. Finally, technical indicators ticked higher but remain within negative levels without enough strength to suggest a firmer recovery. In the near term, and according to the 4-hour chart, the risk skews to the downside. XAU/USD struggles around a mildly bullish 20 SMA while the longer ones gain downward traction above it. Finally, technical indicators are crossing their midlines into negative territory, but still not enough to confirm another leg south. Support levels: 2,016.40 2,001.60 1,988.60   Resistance levels: 2,033.10 2,040.30 2,052.70  

EUR/USD Current price: 1.0868 The European Central Bank decision and critical US data keep investors cautious. Wall Street closed at record highs amid mounting hopes of soon-to-come rate cuts. EUR/USD turned bearish in the near term, still needs to pierce 1.0845. The EUR/USD pair trades at the lower end of its weekly range as the US Dollar gathers strength mid-European morning. The USD shed some ground throughout the first half of the day as a better market mood backed demand for high-yielding currencies. The main driver was Wall Street, as United States (US) indexes closed at record highs. Investors are optimistic about cooling inflation to soon allowing the Federal Reserve (Fed) to cut interest rates, while solid earnings reports confirm the economic resilience. The US Dollar's strength in a risk-on scenario is no coincidence. The country proved to be leading the economic comeback, and the Fed is likely to lead the monetary policy shift by being the first to cut rates.   A certain caution, however, persists as market participants await first-tier events scheduled for later in the week. On the one hand, the European Central Bank (ECB) will announce its decision on monetary policy next Thursday. On the other hand, the US will release the preliminary estimate of the Q4 Gross Domestic Product (GDP) and the December Personal Consumption Expenditures (PCE), among other relevant figures. Meanwhile, the ECB released the January Bank Lending Survey (BLS), which showed a tightening of credit standards amid risk perceptions. "Banks again reported net decreases in demand from firms for loans or drawing of credit lines, demand for housing loans and demand for consumer credit and other lending to households," according to the official report. Later in the day, the Eurozone will publish January Consumer Confidence, foreseen at -14.3 from -15 in the previous month. As for the US, the country will unveil the January Richmond Fed Manufacturing Index, expected at -7, improving from -11 in December. EUR/USD short-term technical outlook The EUR/USD pair is down for a second consecutive day, with the risk skewed to the downside. The pair develops below a bearish 20 Simple Moving Average (SMA) in the daily chart, while a flat 200 SMA keeps providing dynamic support at around 1.0845. Meanwhile, the Momentum indicator stabilized below its 100 line, while the Relative Strength Index (RSI) indicator gains bearish traction at around 43, a fresh weekly low. Overall, technical readings suggest bears are becoming stronger. The bearish case is firmer in the near term. The 4-hour chart shows EUR/USD extended its decline below its 20 SMA, the latter at around 1.0890, while the longer moving averages gain downward traction above the shorter one. Technical indicators aim south, but the Momentum indicator remains stuck within neutral levels, falling short of supporting an imminent slide. The RSI, on the contrary, stands at fresh weekly lows within negative levels, anticipating a continued slide, particularly if the pair finally breaks through the 1.0845 support level. Support levels: 1.0845 1.0800 1.0760 Resistance levels: 1.0890 1.0935 1.0980  

EUR/USD gained traction and recovered above 1.0900 early Tuesday. Strong resistance seems to have formed in the 1.0930-1.0935 region. Risk perception could impact the pair's action in the second half of the day. After posting marginal losses on Monday, EUR/USD benefited from the renewed US Dollar (USD) weakness and climbed above 1.0900 in the early trading hours of the European session on Tuesday. The pair, however, could have a difficult time clearing the 1.0930-1.0935 resistance area unless there is a noticeable improvement in risk mood later in the day.

Many EU sectors are set to face weak development in 2024. Manufacturing, staffing and construction are likely to witness a decline, but not all sectors will lose their footing. Transport and retail volumes will see a slight recovery, and Technology, Media and Telecom (TMT) will show lower – but still high – growth figures. Many sectors struggle with slow development Development production (volume value added) EU sectors (Index 2018=100). Source: Eurostat, ING Research (*2023 estimate and 2024 forecast) Freight transport picks up after post-pandemic correction The European transport and logistics sector is about to see a bit more of a return to normality in 2024 from the demand side – although the start of the year is set to remain pretty tumultuous for overseas trade due to the Red Sea crisis. After digesting the pandemic aftershocks of spending normalisation, inventory reductions and geopolitical headwinds sending freight and port volumes down, 2024 is bound to be a better year. The German economy and manufacturing slump (see below) will still drag on demand for (industrial) goods. However, compared to the low base of 2023 and some recovery in consumer spending on goods, volumes are not expected to sink further. On the smaller passenger side, the post-pandemic pent-up demand of traffic has run out of steam. Working from home still weighs on public transport traffic in several European countries, but consumers seem eager to prioritise travelling and a strong labour market helps to bolster demand. Against this backdrop, European airline traffic will return close to pre-pandemic levels and the challenge now is to provide enough capacity to accommodate seasonal demand amid maintenance issues and lagging new aircraft deliveries. This also comes alongside supply chain issues. All in all, the total transport and logistics sector could see some – though not much – traction in 2024. No signs of relief for manufacturing yet Weak demand and high energy prices continue to weigh on European industrial activity. While the height of volatility is behind us, energy prices are still higher than before and much higher than, for example, in North America. Energy-intensive base materials industries have been in decline for a long time and stagnation is also gaining ground at the other end of production chains. That said, 2023 saw solid production growth in transportation equipment, especially in the automotive industry. Less volatile segments such as pharmaceuticals and electrical equipment also recorded positive figures. These two groups are growing steadily thanks to post-pandemic activities and energy transition investments respectively. While the differences in activity between industrial segments are significant, the general picture of stagnation and moderate production declines is more or less the same across Europe. Orders are still steadily declining due to weak demand. A turnaround in the inventory cycle could provide some comfort later in the year. With a soft or hard landing for the US economy and still very little growth in China, external demand for European products is likely to remain weak. The current trade impact of attacks on merchant ships in the Red Sea is a clear example of the continued vulnerability in supply chains. Things could turn for the better, but substantial production growth in European industry this year seems to be wishful thinking. European industrial order books on a low and deteriorating level Assessment of order-book levels by manufacturers, EU-27. Source: Eurostat, ING Research Room for growth in food manufacturing The latest figures indicate that food manufacturing production volumes declined by approximately 1% in 2023, which was in line with our forecast at the start of last year. For 2024, we project production growth to pick up (+1%) as the European economy is expected to show modest growth. Wages in many EU countries are catching up with inflation, and this could lead to a slight improvement for consumer spending power. For branded food makers in particular, this could mark a turning point in helping them win back some of the volume that they lost due to consumers trading down. However, since new food shopping and consumption habits have formed, it may take a while to recover lost ground. For most subsectors within food manufacturing, cost inflation of raw materials has eased significantly during 2023. But European companies sourcing sugar, cocoa and robusta coffee continue to face historically high prices at the start of 2024. No miracles for the retail sector, but signs of recovery emerge The retail recession has continued straight through 2023, marking two years of declining retail volumes in a row. Consumers hit the brakes amid high inflation and more economic concern, and were still rebalancing consumption away from goods towards more services. Signs of recovery in 2024 are emerging, though. Unemployment just hit another record low and real wage growth is increasing, two signs that disposable income growth is looking better for the year ahead. After a long shying of goods, the...

Trying to convince markets that pricing rate cuts is wrong requires offering guidance, something that the European Central Bank may have little interest in doing at this stage. We are, indeed, in a phase of data dependency. Expect President Lagarde to reiterate it. We don't expect this meeting to be a turning point for eurozone rates or for the euro. We discuss here what is our baseline expectation for the January ECB policy meeting. In short, we think President Lagarde and her colleagues are not as obsessed with the market's dovish pricing as many believe, and that they would rather stick to pure data-dependency and avoid offering guidance rather than focusing their efforts on a rate cut pushback. In other words, do not expect a significant change in the ECB's language this month. The market implications – by extension – should not be material if our baseline scenario materialises. There is probably some modest room for a pick-up in rates and for the euro, as market expectations lean towards some targeted rate-cut pushback, but that should not last long. A data-dependent ECB makes markets data-dependent, meaning upcoming releases on inflation and activity in the eurozone may well have a greater market impact than ECB members' comments. In the chart above, we discussed what other scenarios could materialise, along with potential spillovers in FX and rates. Rates: Near-term expectations may be dampened, but cuts are coming Going into the January policy decision, the ECB faces a market that is discounting just shy of 140bp in policy easing over the course of the year. That situation is not much different from the one the ECB was facing in December when it felt compelled to push back against the notion of rate cuts any time soon. We do not believe the ECB's thinking will have changed much in that regard. In fact, many of the points that were highlighted in the accounts of the December meeting were reiterated in recent remarks by ECB officials. The ECB has, to some extent, already been able to push back against some of the very early rate cut pricing, but it was also lent a helping hand by data releases. If the ECB ever intended to really push back against early rate cut pricing, it has limited its own impact. While in December, the ECB was still shying away from spelling out rate cuts, officials are now more openly talking about the possibility of rate cuts in the summer, or under certain conditions even earlier, as Market News reported yesterday citing ECB sources. Whilst the ECB pushes back, that other shift has not gone unnoticed allowing the overall distribution of market expectations to remain lower even if tail pricings are pared. To be sure, current pricing is excessive compared to our own ECB forecast and the ECB chief economist's outlook for a sequence of rate cuts starting in the summer. If anything, our tactical view remains for higher market rates in the near term. But in the end, data is what it will all boil down to. What the ECB can lay out, is criteria that it wants to see before considering rate cuts. This is what officials have been doing of late with regards to the timeline of wage developments and corresponding data. It might further dampen expectations for near-term cuts, but by itself will help lift rates overall to only a moderate extent. FX: Rangebound euro to await rate convergence We doubt the FX market will have a big reaction to the ECB announcement unless Lagarde offers clarity on the timing of rate cuts. EUR/USD has been stubbornly rangebound recently, and above all quite detached from short-term rate dynamics. The EUR-USD 2-year swap rate differential currently sits around -115bp, the same as in October when EUR/USD dipped below 1.05, and in August, when the pair was trading around 1.09. In other words, the traditional short-term rate differential simply can't be used on its own to determine EUR/USD short-term mis-valuation. The chart below shows the t-values of our EUR/USD short-term fair value model: the farther the t-values are from zero the more explanatory power a variable has. T-stats on EUR/USD short-term fair value model Source: ING, Refinitiv Market risk sentiment and equities in general currently drive most of the EUR/USD moves. Our readers will easily find out that a price chart for EUR/USD overlaps better with a global equity index than with rate differentials. There are two main reasons for the drop in the correlation with short-term rates. First, the big equity rally in late 2023, which triggered a rotation from the dollar to procyclical European currencies. And second, the fact that the EUR/USD rate differential has remained in a very tight range for several months now, since Federal Reserve and ECB rate cut bets moved in tandem. EUR/USD...

Outlook: This week we get the ECB policy meeting and the US GDP and PCE readings It's not hard to say which will be more important to the FX world. US GDP is forecast at 1.8% (from the wild 4.9% in Q3), although the Atlanta Fed has it a bit higher at 2.4% as of Friday, the last one for Q4 and the new one next Friday for Q1. We also get the S&P Global flash estimates of the Jan PMIs. December PCE data (Friday) will run the table. Headline is expected to remain steady at 2.6% y/y while core is expected to fall two ticks to 3.0%. As noted, the 6-month and 3-month change in core PCE inflation is near or below the Fed 2% target and that inspires many to keep calling for the early cut.  The ECB is expected to keep rates on hold and perhaps to sound hawkish, considering chief Lagarde's recent comments. Meanwhile, the Fed will be silent, having entered the blackout period before the Jan 30 policy meeting. That won't stop traders from drawing conclusions from the core PCE data. The second thoughts about the timing of the first rate cut, and the later ones, is going on everywhere, not just the US. The ECB and BoE are doing the same thing—trying to rein in over-optimism. It's working, mostly. The ECB board members are especially firm that early rate cuts are not in the cards. The FT reports "Gilts have endured a bruising new year as investors have a big rethink about the timing of Bank of England interest rate cuts this year. An Ice Bank of America index of UK government debt has sunk by 3.6 per cent this month — more than double its US counterpart — with much of the damage done by an unexpected acceleration of inflation. …"While the UK's annual inflation rate unexpectedly accelerated to 4 per cent in December, economic data has been mixed with retail sales data and wage growth this week both softer than the market had predicted. "Still, traders in swaps markets are betting that the UK will deliver 1.1 percentage points of interest rate cuts this year, from the current level of 5.25 per cent, a 15-year high. At the start of the year traders had priced in 1.73 percentage points of cuts." In the US, the same "Ice Bank of America index of US Treasuries has fallen by 1.36 per cent this month, while the index of German government bonds — the benchmark for the eurozone — has fallen by 1.91 per cent." An exports says "gilts have been more volatile than other bond markets "mainly due to the extreme valuation anomalies we saw last year and the extremely elevated levels of inflation we saw compared to the EU and US." Some economists predict that the UK's underperformance compared with other major bond markets this year will be short lived. Capital Economics thinks the UK may be the first economy to get inflation under the target as early as April, due to energy costs. "Capital Economics forecasts the 10 year gilt yield will fall from its current level of 3.93 per cent to 3.25 per cent by the end of the year." The CME FedWatch tool shows the percentage of those expecting a 25 bp cut at the March 20 meeting has fallen to 46.0% from 76/9% a week ago. The US rhetoric has worked. Contributing to second thoughts is on-going musings about the labor market. See the chart from the WSJ. With the participation rate falling, if not by much, some worry about the labor shortage resulting in ongoing wage increases. Forecast: We have to wait until Thursday's GDP and Friday's PCE to be sure, but it looks like the US economy remains robust and the y/y inflation is not good enough for an early rate cut, even if the 6 mo/6 mo and q/q are nicely under 2%. The Fed wants a sustainable drop, and two lower entries do not cut the mustard. You'd think this would be dollar-supportive but don't break out the bubbly just yet—the chart shows a narrow range for the euro and nobody knows what would trigger a breakout either war. We'd stay out if we could. Tidbit: DeSantis leaving the presidential primary race means it's going to be all-Trump, all the time from now on until the election. Rats. The leaders at Davos spoke rather a lot about it, universally condemning the lout and worried about what they would have to do to offset the damage he promises. The financial news outlets say finance leaders, especially hedge funds, are considering whether there is a replay of 2016—initial stock market rout, yields up.  This is an excerpt from "The Rockefeller Morning Briefing," which is far larger (about...