Daily Analysis 02/12/2024

• GBP/USD Price: After Friday’s gains, GBP/USD reversed much of its upward move, consolidating losses around 1.2700 early Monday. Risk-averse sentiment, fuelled by geopolitical concerns and a potential resurgence of US-China trade tensions, has supported the US Dollar’s strength.
• Geopolitical Risks: Persistent geopolitical uncertainties, including concerns about a second wave of trade protectionism under US President-elect Donald Trump, have driven safe haven flows toward the US Dollar, exerting downward pressure on the pair.
• BoE’s Cautious Stance: The Pound finds some relief as markets reduce expectations of another Bank of England (BoE) rate cut this year. Accelerating price growth in the UK, with inflation reaching 2.3% YoY in October, has prompted the BoE to adopt a cautious policy approach, lending underlying support to GBP/USD.
• US Economic Data: Traders remain on the sidelines ahead of crucial US macroeconomic releases, including the ISM Manufacturing PMI due later on Monday. The data could influence Federal Reserve policy expectations and drive further volatility in the pair.
• Limited Downside: While geopolitical concerns bolster the US Dollar, the reduced likelihood of further BoE rate cuts limits downside risks for the GBP. Mixed policy dynamics keep the pair range-bound, with the 1.2700 level acting as a key pivot point.

Closing statement: GBP/USD struggles for clear direction amid geopolitical risks and mixed monetary policy expectations. Near-term movements hinge on upcoming US economic data, with traders monitoring 1.2700 as a critical support level.

• Gold Price: Gold (XAU/USD) breaks its four-day winning streak on Monday, retreating under selling pressure as rebounding US bond yields drive USD demand. This inverse relationship with the strengthening US Dollar weighs heavily on gold prices.
• Tariff Warnings: US President-elect Donald Trump’s threats of 100% tariffs on BRICS nations over potential currency challenges to the US Dollar have fueled fears of a global trade war. This uncertainty bolsters the US Dollar while dampening demand for non-yielding assets like gold.
• Chinese Data: Despite China’s robust Manufacturing PMI report, the optimism failed to translate into gold price support. As the world's largest gold consumer, weaker sentiment surrounding China undermines potential gold demand.
• Geopolitical Tensions: Ongoing geopolitical unrest, including Russian Ukrainian conflict and renewed insurgent activities in Syria, adds a layer of risk but fails to provide significant haven flows to gold, likely due to the overshadowing impact of a strong Dollar.
• Upcoming US Economic Data: Gold traders are eyeing Monday’s ISM Manufacturing PMI and a series of US employment data later this week. Any signs of US economic resilience could further support the Dollar and extend pressure on gold prices.

Closing statement: Gold remains vulnerable to downside risks amid rising US bond yields and a strong Dollar. Key data releases this week could influence market sentiment, while geopolitical tensions and trade war fears may create intermittent volatility.

• WTI Price: West Texas Intermediate (WTI) trades around $68.55 on Monday, edging lower as a stronger US Dollar weighs on USD-denominated commodities. Tariff threats from President-elect Donald Trump have fueled USD demand, further pressuring crude oil prices.
• Fed Policy Concerns: Trump’s tariff rhetoric raises fears of prolonged economic strain, potentially slowing the Federal Reserve’s easing cycle. This outlook strengthens the Dollar, which negatively impacts oil prices by making them more expensive for non-USD buyers.
• China's Manufacturing Data: China's Caixin Manufacturing PMI outperformed expectations, rising to 51.5 in November from 50.3 in October. Robust growth, fueled by increased foreign orders and exports, lends a degree of optimism for global energy demand, offering mild support to oil prices.
• Geopolitical Risks: Heightened tensions in West Asia, particularly Iran's involvement in Syria amid insurgent activities in Aleppo, raise fears of supply disruptions. This geopolitical backdrop could counterbalance some of the downward pressure on crude oil prices.
• OPEC+ Meeting: Markets anticipate Thursday’s OPEC+ meeting, where the group will discuss production strategies for 2025. Any signs of delayed supply hikes or further production cuts could significantly influence oil market dynamics.

Closing statement: WTI prices face a tug-of-war between bearish forces from a strong US Dollar and bullish signals from geopolitical risks and China’s economic recovery. The upcoming OPEC+ meeting will be a key driver of crude oil’s near-term outlook.

• DAX Price: The DAX surged 1.03% on Friday, building on Thursday’s 0.85% gain, as optimism surrounding lower interest rates buoyed sentiment. The benchmark index now eyes potential all-time highs, with 20,000 emerging as a plausible target amidst strong momentum in large-cap stocks.
• Market Movers: Infineon Technologies and SAP were standout performers, rising 2.97% and 1.70%, respectively. Lower interest rate expectations, which could reduce borrowing costs, provided additional support to capital-intensive sectors, enhancing earnings prospects.
• Weak Retail Sales: German retail sales dropped 1.5% in October, reinforcing recessionary concerns. With private consumption accounting for over 50% of the German economy, the decline casts a shadow on growth prospects despite recent equity market gains.
• Inflation and Rate Cut Expectations: Eurozone annual inflation edged higher to 2.3% in November, surpassing the ECB's target of 2%. However, slowing economic activity across the bloc fueled expectations for a 25-basis-point ECB rate cut in December, with markets pricing in further easing for 2025.
• Upcoming Data: Investors await finalized German and Eurozone Manufacturing PMI data on Monday, with preliminary reports signaling deepening contraction in the sector. Additionally, Eurozone unemployment figures will be closely monitored to assess labor market resilience.

Closing statement: The DAX’s recent rally underscores growing optimism over lower interest rates, despite economic headwinds like declining retail sales. Manufacturing and unemployment data will be pivotal in shaping near-term investor sentiment as the index approaches record highs.