EUR/USD faces a sharp sell-off as Middle East crisis deepen. ECB policymakers pushed back market expectations of early rate cuts due to high inflation. The major will be guided by the US Retail Sales data, which will be published on Wednesday. Persistent Middle East tensions have improved the appeal for safe-haven assets while risk-perceived currencies have been hit hard in the Asian session on Tuesday. The EUR/USD pair has declined to near weekly low around 1.0900 amid dull risk-appetite as Iran-backed-Houthi rebels threatened to retaliate for airstrikes launched by the United States and the United Kingdom in Yemen. The Euro fails to gain strength despite European Central Bank (ECB) policymaker Joachim Nagel pushed back against market expectations of early rate cuts. Nagel said it is too early to discuss rate cuts as inflation is too high. ECB policymaker Robert Holzmann opposed rate cuts for the entire year, citing upside risks to energy prices due to deepening conflicts over commercial shipments from the Red Sea. Meanwhile, faltered economic development in the German economy in 2023, weighed down by inflation and global headwinds are expected to keep the Euro under stress. The German economy shrank by 0.3% in 2023 as higher interest rates by the ECB were resulted in unfavourable financial conditions. The US Dollar Index (DXY) rallies to near 103.00 amid upbeat demand for safe-haven assets. Going forward, investors await the United States monthly Retail Sales data for December, which will provide more cues about early rate cuts from the Federal Reserve (Fed). Investors have projected that consumer spending grew at a momentum of 0.4% against 0.3% increase in November. A decline in the Retail Sales data will allow Fed policymakers to support higher interest rates atleast for the first-half of this year. EUR/USD technical analysis EUR/USD is trading near the lower-end of the consolidation formed in a range of 1.0900-1.1000 on an hourly scale. The near-term appeal has turned bearish as the asset has slipped below the 200-period Exponential Moving Average (EMA), which oscillates around 1.0956. The 14-period Relative Strength Index (RSI) has slipped into the bearish range of 20.00-40.00, which indicates an activation of a downside momentum. Fresh downside will appear if the major currency pair drops below January 9 low of 1.0910. This could result in a downside move towards 22 November 2023 low at 1.0825 and 5 November 2023 high near 1.0756. In the alternate case, an upside move above January 11 high at 1.1003 will allow it to recapture five-month high around 1.1120. A breach of the latter would clear pipeline for 19 July 2023 low at 1.1174.

Its hardly surprising risk is a bit unstable this morning. Following a slew of airstrikes on Houthi sites and installations in Yemen, the group has made it clear to both Number 10 Downing Street and The White House that they will continue to assault ships in and around the Red Sea. The fact that the attacks have continued makes it more likely that US airstrikes on Yemen will continue. The Houthis fired an anti-ship ballistic missile at the US-owned Gibraltar Eagle in the most recent incident. After seven years of unwinnable war with the Saudi-led coalition (supplied by the US), it appears that the Houthis have a high threshold for casualties, both civilian and combatant and that their basic tenet appears to be an ongoing state of armed confrontation. The current regime in Tehran claims that the Houthis operate independently from the Quds and are operating autonomously from Iraq oversight. However, everyone knows this rebuke is bordering on the theatre of the absurd. It appears that any hope to resolve this issue means the US pushes Israel into an unlikely ceasefire or, in the worst case, the ultimatum request will get delivered to Tehran.

Gold price recovery falters once again near $2,060 ahead of Fed Waller's speech. Middle East geopolitical escalation, higher US Treasury bond yields bump up the US Dollar. Gold price confirmed a symmetrical triangle breakout on Monday, upside potential stays intact.   Gold price is challenging the $2,050 barrier early Tuesday, feeling the heat from resurgent US Dollar (USD) demand amid a further escalation in the Middle East geopolitical tensions. Gold price looks to geopolitics and Fed Waller's speech Gold price has turned red for the first time in four trading days, stalling its recovery momentum from three-week lows of $2,013. Gold price is undermined by renewed US Dollar demand across the board, as investors scurry for safety in the Greenback amid intensifying geopolitical tensions in the Middle East. Risk sentiment took a hit following reports that Iran's Islamic Revolutionary Guard Corps (IRGC) fired missiles at targets near the US Consulate in Erbil, Iraq. Iranians retaliated against the terrorist attacks this month that killed almost 100 people near the burial site of General Qassem Soleimani. Meanwhile, Gold price also bears the brunt of rising US Treasury bond yields, as they play catch up after the holiday weekend. The uptick in the US Treasury bond yields also acts as a tailwind to the US Dollar advance. The Greenback also takes advantage of the market's concerns surrounding China's economic outlook, with the Gross Domestic Product (GDP) and activity data coming up on Wednesday. Attention now turns toward the highly-anticipated speech by the US Federal Reserve (Fed) Governor Christopher Waller due later at 16:00 GMT. Waller is set to speak about the economic outlook and monetary policy at the Brookings Institution, in Washington DC. Audience questions are expected to follow. During his last appearance, Waller flagged a dovish policy pivot, smashing the US Dollar alongside the US Treasury bond yields. Waller noted that "if inflation consistently declines, there is no reason to insist that interest rates need to remain really high.  Therefore, his comments will hold the key to the market's pricing of the March Fed rate cut. Currently, markets are wagering roughly 70% odds that the Fed will lower rates in March.   Gold price technical analysis: Daily chart Despite the pullback from near multi-day highs, the short-term technical outlook for Gold price remains constructive, in the wake of a symmetrical triangle breakout confirmed on the daily chart on Monday. Gold price closed Monday above the falling trendline resistance at $2,052, charting a bullish technical breakout. The 14-day Relative Strength Index (RSI) indicator is turning south but holds above the midline, suggesting that any pullbacks in Gold price will be a good buying opportunity. Gold buyers could find fresh demand at the 21-day SMA resistance-turned-support of $2,047. A daily candlestick close below the latter is critical to reviving the bearish interests. The next downside target is seen at triangle support of $2,049. Further down, Friday's low of $2,027 could offer some temporary respite to Gold buyers. The last line of defense for Gold optimists is seen at the 50-day SMA at $2,020. On the upside, powerful resistance is seen at around $2,060, above which the static resistance at $2,080 will come into play. If the upbeat momentum regains traction, a retest of the $2,100 barrier cannot be ruled out.

At its December meeting, the Federal Reserve effectively declared victory over inflation. They didn't didn't use those words, but that was the signal given by the policy trajectory laid out by the FOMC. Is this victory dance premature? Financial analyst Jim Grant thinks so. In an interview on Bloomberg Markets: The Close with Romaine Bostick, Grant said it's way too early for the Fed to say "mission accomplished." According to the Fed's "dot plot" showing the expected trajectory of interest rates. The central bank has penciled in three rate cuts for 2024 with another four cuts in 2025. That would lower rates to between 2 and 2.5 percent. Federal Reserve Chairman Jerome Powell tried to temper this projection, emphasizing that inflation remains too high. Inflation has eased from its highs, and this has come without a significant increase in unemployment. That's very good news. But inflation is still too high. Ongoing progress in bringing it down is not assured and the path forward is uncertain. Powell was talking, but the markets weren't listening. As Bostick put it, they were all in on "mission accomplished." Grant disagreed with the notion that inflation is beat saying it is "endemic." In other words, regularly occurring. It recedes. It reappears. It never disappears. Grant pointed out that the federal government is running massive budget deficits even with unemployment at 3.7 percent. The Fed is all too eager, I think, to imply, if not declare, 'mission accomplished.  Bostick asked Grant why he thinks the Fed even felt the need to communicate rate cuts at this stage in the inflation fight. Grant said that if he could "read the mind of the composite Federal Reserve," he thinks he would "impute this great insight." I think that they would say to themselves, 'The cost, the unseen but still considerable cost of a decade's worth of zero percent interest rates is a great malinvestment, as they say in the economic quarterlies.' You know, the white elephants that spring up when money is free. Artificially low interest rates incentivize borrowing and debt. This blows up economic bubbles. When the central bank tries to normalize rates, these bubbles inevitably pop. This cycle is no exception. We're already seeing signs of distress in the economy with more corporate bankruptcies in 2023 than the pandemic year.  Grant said officials at the Fed are likely cognizant of this fact even if they would never say it out loud. Misallocation of capital, let us call them misguided because of the false interest rates on offer, introduced an element of frailty in the structure of things. And what the Fed might be thinking is that notwithstanding a 3.7 percent unemployment, notwithstanding great looks you get from the Atlanta GDP Now data, notwithstanding all that, we don't want to overdo it because of this underlying frailty induced by this decade-long experiment with zero percent borrowing cost. Grant called inflation an "arbitrarily imposed tax," and he said the new stance taken by the Fed, whether explicit or implicit, is basically "imposing a tax on the possibility of a sustained policy of much higher inflation than they had promised us." Grant went on to call the Fed's 2 percent target a "dubious proposition." Money is what you get for work, which means money is heartbeats. … They're not infinite, these heartbeats. And if you tax them through the depreciation of the currency – through a contemplated and intended depreciation of the currency – you are legislating, without a vote, a tax on the working lives of Americans. So, I think as a moral proposition, it's dubious. Milton Friedman said inflation is always and everywhere a monetary phenomenon. Grant said he would call it "always and everywhere a moral phenomenon."  When you boil it all down, the Federal Reserve is stuck between a rock and a hard place. The question becomes what is the bigger burden – higher borrowing costs or higher price inflation? Grant said he thinks Jerome Powell and other members of the Federal Reserve look in the mirror and see themselves as Captain Chesley Burnett "Sully" Sullenberger who landed a crippled U.S. Airways jet on the Hudson River.  The Fed has arrogated to itself the role of central planning agency. … It's going to try to balance economic growth with the stability and integrity of the currency. How do they do that? I don't think it's given to mortal man and woman to do these things. Grant said he has proved to the readers of Grant's Interest Rate Observer he can't successfully predict the future no matter how hard he tries. But the Fed has unintentionally done the same without acknowledging the same. However, it is proceeding as if it did have tomorrow's newspaper in its hands, which it doesn't

The dollar drifts up and down. Gold moves higher on Friday. Good Day… And a Marvelous Monday to you… In my past life, I would be taking today off, as it is a national holiday… But, given my status as non-working, I thought what the heck! Well, the NFL didn't make any friends, and received a lot of criticism, even from a senator, about putting a playoff game on a streaming channel… As well they should! The game in Buffalo had to be moved to today, as is the norm for Buffalo, they were getting a winter storm on Saturday… Went to dinner last night with my good friend, Gus, who's down here for the winter like me! Seals and Crofts greet me this morning with their great song: We May Never Pass This Way Again…  Well, last Tub Thumpin' Thursday saw the STUPID CPI print… And even with all the hedonic adjustments that the BLS adds to the inflation calculation, the report showed that it was too soon to sound the "All Clear" siren on inflation… This from the headlines: "Last month, overall prices rose 3.4% from a year earlier, up from 3.1% in November, according to the Labor Department's consumer price index. On a monthly basis, costs increased 0.3% after virtually flatlining the previous two months." And that proved to be something that the markets couldn't shake all day, and the dollar rose, and stocks sunk… IF, and that's a BIG IF, the Fed Heads really care to look at the STUPID CPI, that meant that they would not be ready to cut rates as soon as March, as the markets once thought. And Fed Head, Loretta Mester confirmed my thought last week when she said that "March was too soon to cut rates"… And Fed Head Neel Kashkari had this to say (Reuters) "Minneapolis Federal Reserve Bank President Neel Kashkari said he would err on the side of overtightening monetary policy rather than not doing enough to bring inflation down to the central bank's 2% target, the Wall Street Journal reported on Monday. "Undertightening will not get us back to 2% in a reasonable time," Kashkari said in an interview with the Journal. Kashkari said he needed more information to come to a firm decision on interest-rate steps moving forward. "I am not ready to say we are in a good place," he told Journal." It's at this point that I say, "I told you so"… I told you inflation was sticky, and that March was too soon…   Not so fast there Chuck… What about the very weak PPI (wholesale inflation) that printed on Friday? Well, the bond boys seemed to recharge their thoughts of rate cuts early this year because of that, you do have that as a result of the weak PPI… And on Friday, the dollar drifted… Gold gained $20.10, and Silver gained 43-cents…  So, it's only the bond boys that took the PPI print to heart…  Now knowing that inflation had ticked higher in December, you would have thought that the dollar would lose ground, and Gold would gain ground… Stocks would get sold, and bonds would get sold… And you, and I would have been wrong!   So what gives? The dollar on Thursday morning was down 2 index points to start the day, and then only ended down 1 index point at the end of the day, which meant that the dollar gained during the day… Gold, which was up $7 in the early trading, only gained $4 by the end of the day, thus losing $3 intraday… Stocks were down 271 points and then miraculously turned around to a flat trading day…   I would say that there had to be some great interference during the trading day Thursday, And then on Friday… Gold took off to the races, and brought Silver along.. .At one point in the day Gold traded as high as $2.061, but ended the day up $20.10 to close at $2,049.50… Silver saw an even greater gain with it trading at $23.52, which was 76-cents higher, but had to settle for a gain of 43.5-cents and a price of $23.19…  So, maybe it took the traders a day to realize that inflation isn't going away that easily, and the geopolitical problems are escalating, and that there needs to be some protection from inflation nd wars, after all… Maybe, just maybe, because you never know, what's on their minds these days…  Friend, Ed Steer, had this to say about that news: "This whole EV thingy is turning into a big bust, as I knew it would. I'll never own one of those things. It's -31C/-24F here right now — and they are totally useless when it's this cold." It was negative 5 degrees in St. Louis yesterday…   In the overnight markets last night… The dollar drifted a bit higher gaining 1 index...

XAU/USD Current price: 2,051.10 A holiday in the US maintains markets ranging, although the sentiment is sour. The US calendar has little to offer this week, investors keep an eye on inflation and Davos. XAU/USD is marginally bullish in the near term, needs to clear the $2,062.35 resistance area. Gold Price holds on to gains, trading near an intraday high of $2,058.55. XAU/USD hovers above $2,050 a troy ounce in a quiet American afternoon, as United States (US) markets are closed amid the Martin Luther Day Holiday. The week started with optimism, as reflected by the positive tone of Asian shares, but the positive sentiment faded during European trading hours, as tepid local data weighed EU indexes lower. Across the FX board, the US Dollar trades mixed, particularly stronger against commodity-linked currencies, usually more sensitive to risk-off. Beyond the holiday, the US macroeconomic calendar has little to offer this week. The country will release  December Retail Sales next Thursday and the preliminary estimate of the January Michigan Consumer Sentiment Index on Friday. The focus will remain on inflation, as Canada, the United Kingdom, Germany, and the Eurozone will post updates. Investors will also keep an eye on the World Economic Forum in Davos, which will feature speeches from major central bankers and authorities. XAU/USD short-term technical outlook From a technical perspective, XAU/USD seems poised to extend its recovery. The pair holds above a mildly bullish 20 Simple Moving Average (SMA) in the daily chart while it consolidates at the upper end of Friday's range. At the same time, the 100 SMA is crossing above a flat 200 SMA, both in the $1,960 region. Finally, technical indicators are directionless, with the Momentum indicator stuck to its 100 level and the Relative Strength Index (RSI) holding at around 57. In the near term, and according to the 4-hour chart, the risk skews to the upside, although additional confirmation is required. XAU/USD meets intraday buyers around a flat 100 SMA, while the 20 SMA crosses above a directionless 200 SMA  below it. Technical indicators, in the meantime, remain within positive levels, ticking marginally higher but lacking enough momentum to confirm another leg north. Friday's high at $2,062.33 is the level to watch, as a break above it should lead to additional gains towards the $2,100 mark. Support levels: 2,049.15 2,037.90 2,024.50 Resistance levels: 2,062.35 2,074.40 2,087.00