Gold bears tighten grips near $2,000 amid easing dovish Fed bias, strong yields

The market remained risk-averse early Thursday as fresh challenges to the Fed rate cut bias joined geopolitical tensions in the Middle East. Also weighing on the sentiment is China's stock rout and the European Central Bank (ECB) policymakers’ rejections of early rate reductions.

With this, the US Dollar Index (DXY) joined the US 10-year and 30-year Treasury bond yields to rise to a five-week high. The same exerts downside pressure on the equities and commodities while keeping major currencies pressured.

It’s worth noting, however, that the market’s consolidation ahead of today’s US data allowed the US Dollar bulls to take a breather, which in turn helped EURUSD and GBPUSD to extend the previous day’s recovery while also probing the USDJPY pair’s three-day uptrend.

Gold Price remains dicey at a five-week low after breaking the key support line surrounding $2,020 whereas the crude oil defends the previous day’s recovery from a weekly low.

On a different page, BTCUSD and ETHUSD struggle for clear directions as crypto traders seek more clues to justify optimism about the spot ETF approvals and the US SEC’s push for rules to register crypto transactions more than $10,000.

Following are the latest moves of the key assets:

• Brent oil prints a two-day winning streak to extend bounce off weekly low to $78.40, up 0.40% intraday at the latest.
• Gold price licks its wounds near a five-week low, mildly bid near $2,010 by the press time.
• USD Index extends pullback from a five-week high to around 103.30, down 0.10% intraday as we write.
• Wall Street again closed in the red and the Asia-Pacific stocks edged lower. That said, equities in the UK and Europe remain directionless during the initial hour.
• BTCUSD and ETHUSD lack clear directions around $42,800 and $2,530 respectively.

King Dollar takes a breather…

The firmer US data bolstered hopes of a delayed Fed rate cut, which in turn allowed the US Dollar and the yields to rise while also exerting downside pressure on commodities, especially amid the risk-off mood.

US Retail Sales and Industrial Production for December came in better than expected and prior releases. The same could be joined with the previously released US employment and inflation numbers to justify the recent market calls for no rate cuts in January, as well as back a sharp reduction in the rate actions in March. With this, the CME’s FedWatch Tool suggests a steep rise in the market’s rejections of January 2024 rate cuts from the US central bank, from 95.9% to 97.4% within a week. Additionally, reductions in the probabilities suggesting the previously confirmed Fed rate cuts in March, from 64.7% to 59.5%, also underpin the US Dollar.

Also, the US military conducts another airstrike on the Yemen-backed Houthis while Pakistan attacks Iran and escalates the geopolitical woes. Furthermore, Chinese equities see the red amid looming concerns about the nation’s housing market and bankruptcies by major firms.

While the firmer US data and yields allowed the US Dollar to refresh a multi-day high the previous day, hawkish comments from a slew of European Central Bank (ECB) Officials including President Christine Lagarde triggered the EURUSD pairs’ rebound from a five-week low. In doing so, the regional currency ignored the unimpressive final prints of the Eurozone inflation data.

Moving on, the UK inflation data came in too strong and lifted the GBPUSD from 50-SMA support despite the broad US Dollar strength, helping bulls around 1.2700 at the latest. Furthermore, Japan's Industrial Production and Machinery Orders disappointed the Japanese Yen (JPY) buyers, especially amid the firmer yields. Even so, the US Dollar’s consolidation ahead of today’s US data prods the USDJPY bulls after a three-day winning streak.

On the same line, AUDUSD also licks its wounds at an eight-week low, printing the first daily gain in six, even as the Aussie Employment Change and Participation Rate disappoint the Australian Dollar (AUD) buyers. Further, Canada's Industrial Production slumps and the US oil inventories showed a surprise build per the private report. However, the rising geopolitical tensions and OPEC’s upbeat Oil demand forecasts challenged the USDCAD bulls, due to Canada’s heavy reliance on energy imports.

• Strong buy: USDCAD, USDJPY
• Strong sell: Crude Oil, US Dollar, GBPUSD
• Buy: BTCUSD, ETHUSD, Nasdaq, Gold
• Sell: DAX, FTSE 100, BTCUSD, AUDUSD, EURUSD

Mid-tier US data, central bankers eyed…

Given the recently firmer US data and increasing optimism about the Fed’s status quo during the early 2024, despite the market’s calls for a March rate cut, all the incoming data from the US will be closely observed to confirm the latest bullish bias about the US Dollar. Apart from today’s US Initial Jobless Claims, Building Permits and Housing Starts, as well as the Philly Fed Manufacturing Index, US President Joe Biden is scheduled to speak on the economy at 17:00 GMT and can lend support to the US Dollar bulls by praising the latest data about employment, inflation and retail sales.

May the trading luck be with you!