Daily Analysis 20/01/2025

• GBP/USD Price: The GBP/USD pair begins the week with a slight recovery, reversing some of Friday's losses. However, the move lacks momentum and fails to inspire bullish conviction among traders.
• UK Economic Data: Investor sentiment around the British Pound (GBP) remains cautious following disappointing UK Retail Sales and GDP figures last week. Expectations of further Bank of England (BoE) rate cuts in 2025 amplify these concerns, limiting GBP upside potential.
• UK Stagflation: The persistent risk of stagflation, coupled with worries about the UK's fiscal health, continues to deter investors from making aggressive bullish bets on the GBP, further capping gains for the GBP/USD pair.
• USD Pressure: The US Dollar (USD) struggles to maintain Friday’s positive momentum, as market participants anticipate the possibility of Federal Reserve (Fed) rate cuts later this year. This uncertainty prevents the USD from strengthening significantly.
• Trump’s Policies: Expectations surrounding US President-elect Donald Trump’s protectionist policies have raised concerns about inflationary pressures. This could compel the Fed to adopt a more hawkish stance, creating mixed sentiment for the USD.

Closing statement: The GBP/USD pair shows limited recovery potential amid weaker UK economic data and ongoing concerns about stagflation and fiscal health. USD dynamics, influenced by Fed expectations and Trump’s anticipated policies, will remain a key driver in the short term. Investors should monitor upcoming economic releases for further directional cues.

• Gold Price: Gold prices recover from the Asian session dip as mild selling pressure on the US Dollar (USD) supports a rebound. The interplay between USD fluctuations and market sentiment continues to drive short-term XAU/USD movements.
• Easing Tensions: The recent ceasefire between Israel and Hamas, ending a 15-month-long conflict, bolstered market optimism. Humanitarian aid shipments entering Gaza on the first day of the truce reduced safe-haven demand, limiting Gold’s upside.
• China’s RRR Cut: Rising expectations that China will cut the Reserve Requirement Ratio (RRR) ahead of the Lunar New Year improved market sentiment. Despite no change to the Loan Prime Rate (LPR), this policy anticipation contributes to a more risk-on mood, influencing Gold demand.
• Fed Rate Cut: Expectations for the US Federal Reserve to implement two interest rate cuts in 2025, fueled by tame December inflation data, provide strong support for Gold prices, mitigating potential downside risks.
• Trump’s Inaugural Address: Traders await US President-elect Donald Trump’s inaugural speech, expected to outline executive orders on key policies, including immigration and energy. These developments could influence market sentiment and Gold price movements in the near term.

Closing statement: Gold prices are influenced by easing geopolitical tensions and market expectations for Fed rate cuts, while optimism about China’s monetary policy adds to the risk-on sentiment. Upcoming events, particularly Trump’s policy announcements, will provide fresh directional impetus. XAU/USD remains supported but could face headwinds from improving market optimism.

• WTI Price: West Texas Intermediate (WTI) crude continues its downward trend, trading near $77.20 per barrel during Monday's European session. This marks the third consecutive session of losses as traders remain cautious ahead of key political developments.
• US Sanctions: Oil prices initially rose following two rounds of US sanctions on Russia’s energy sector due to the ongoing Ukraine conflict. However, the long-term impact remains uncertain as traders assess the implications for global oil supply and demand.
• US Administration’s Policies: Market participants are closely monitoring how the Trump administration will address the Biden-era sanctions on Russia and its stance on trade tariffs and potential sanctions on oil-exporting nations like Iran and Venezuela. Clarity on these policies could influence crude oil prices in the coming weeks.
• Middle East Ceasefire: The ceasefire agreement between Hamas and Israel, marked by an exchange of hostages and prisoners, has reduced geopolitical risks in the Middle East. This development limits crude oil’s upside potential by alleviating supply disruption concerns in the region.
• Trump’s Inauguration: Traders adopt a wait-and-see approach ahead of President-elect Donald Trump’s inauguration, which could bring significant policy announcements. Meanwhile, US markets remain closed on Monday for Martin Luther King Jr. Day, contributing to subdued trading activity.

Closing statement: Crude oil prices face pressure from easing Middle East tensions and cautious market sentiment ahead of the new US administration’s policies. While recent sanctions on Russia provide a bullish undertone, uncertainty surrounding upcoming policy shifts may keep WTI prices in check in the near term.

• DAX Price: The DAX surged 1.20% on Friday, extending its winning streak to four sessions and closing at 20,903. During the session, the index hit an all-time high of 20,925 before retreating slightly, supported by broad optimism in global markets.
• Chinese Economic Growth: Positive economic data from China fueled demand for riskier assets, providing a lift to the DAX. China's Q4 2024 GDP growth reached 5.4% year-on-year, up from 4.6% in Q3, signaling a robust recovery and bolstering confidence in export-driven sectors.
• Eurozone Inflation: Finalized Eurozone inflation data showed an annual increase from 2.2% in November to 2.4% in December. While slightly higher, the numbers supported market speculation of further European Central Bank (ECB) rate cuts to stimulate growth, contributing to positive sentiment.
• German Producer Prices: German producer prices for December 2024 were 0.8% higher year-on-year, but monthly prices dipped by 0.1% from November. This stability helped alleviate concerns over inflationary pressures in Germany’s industrial sector, providing additional support for the DAX.
• Trump Inauguration: Investor focus shifts to Monday’s inauguration of President-elect Donald Trump. Aggressive tariff policies could raise import costs and trigger inflation, influencing risk sentiment and impacting sectors sensitive to trade policies.

Closing statement: The DAX continues to benefit from strong economic data and easing inflation concerns, reaching record highs. However, near-term volatility could arise as markets react to US policy changes under the new administration, particularly regarding trade and tariffs.