Daily Analysis 21/01/2025

• GBP/USD Price: The GBP/USD pair extends its losses, trading deep in the red near 1.2250 on Tuesday as the US Dollar strengthens following a decline in the previous session. Persistent bearish momentum weighs on the pair as market sentiment favors the Greenback.
• UK Retail Sales: The British Pound showed initial resilience after increased demand for UK gilts but remains vulnerable amid weaker-than-expected Retail Sales data. December Retail Sales contracted by 0.3%, missing market expectations of 0.4% growth, after a modest 0.1% increase in November.
• UK Labor Market: The UK’s labor market showed signs of softening, with the ILO Unemployment Rate edging up to 4.4% in the three months to November. While jobless claims rose modestly by 0.7K in December (better than the 10.3K forecast), the Employment Change for November fell sharply to 35K from 173K in October.
• Wage Growth: Average Earnings, including Bonuses, rose by 5.6% during the three months to November, meeting market expectations and marking a slight improvement from October’s 5.2%. The steady wage inflation suggests some resilience in consumer spending power despite economic uncertainties.
• US Dollar: The USD regained strength after Monday’s decline, supported by improving sentiment in the US economic outlook. The Greenback's recovery amplifies bearish sentiment around GBP/USD, keeping the pair under pressure.

Closing statement: GBP/USD remains on the defensive as weak UK data and labor market concerns weigh on the Sterling, while the Dollar gains traction. Traders will look to upcoming UK inflation data and US economic releases for additional cues on the pair’s direction.

• Gold Price: Gold prices strengthened due to safe-haven demand after U.S. President Trump’s tariff threats. Market fears of escalating trade tensions and expectations for additional Federal Reserve rate cuts further supported the yellow metal, keeping it well-bid.
• Trump's Tariff Remarks: President Trump proposed a 25% tariff on Mexico and Canada starting February 1, while also threatening tariffs on the European Union if it does not reduce trade deficits or buy U.S. oil and gas. This rhetoric heightened market caution, benefiting gold as a risk-averse asset.
• Middle East Ceasefire: The 15-month conflict between Israel and Hamas reached a ceasefire, easing geopolitical tensions slightly. While this reduced immediate risks, broader trade-related uncertainties continued to dominate market sentiment.
• Gold Sentiment: With no significant U.S. economic data releases, gold prices are likely to be influenced by overall market sentiment and updates on Trump’s tariff plans. This creates a cautious but supportive backdrop for the commodity.w
• Focus Shift: Looking ahead, the Bank of Japan’s policy meeting on January 23–24 and the release of global flash PMI data later this week will provide fresh insights into economic conditions, potentially influencing gold price movements.

Closing statement: Gold remains well-supported by geopolitical uncertainties and expectations of monetary policy easing. Short-term price action will depend on developments in Trump’s tariff policies and upcoming global economic data.

• WTI Price: West Texas Intermediate (WTI) trades around $76.50 on Tuesday, attracting selling interest following the US Dollar's decline on Monday. Market sentiment remains cautious as traders balance competing global factors.
• National Energy Emergency: U.S. President Trump announced plans to declare a national energy emergency, pledging to rapidly expand energy production and manufacturing. His promise to fill strategic reserves and accelerate project approvals could support U.S. energy markets in the long run.
• Quote from Trump: “The inflation crisis (in the US) was caused by massive overspending and escalating energy prices, and that is why today I will also declare a national energy emergency. We will drill, baby, drill. America will be a manufacturing nation once again,”
• Middle East Ceasefire: A truce between Israel and Hamas, marked by a swap of hostages and prisoners, has reduced immediate geopolitical tensions. This development might cap crude oil's upside potential, as traders shift focus from geopolitical risks to supply-demand dynamics.
• China's GDP: China's stronger-than-expected GDP growth of 5.4% in Q4 2024 boosts the outlook for global energy demand. This significant growth, compared to the 5% estimate, highlights resilience in the world's second-largest oil consumer.

Closing statement: WTI prices are influenced by easing Middle East tensions, promising U.S. energy initiatives, and strong economic data from China. Traders should monitor developments in U.S. energy policy and global demand indicators to gauge crude oil's trajectory.

• DAX Trading: European trading on Monday has been subdued due to the U.S. market holiday, with the German DAX holding near its recent record highs achieved last week. While trading volumes are lower, the DAX continues to showcase resilience after impressive gains in recent sessions.
• Technical Analysis: From a technical perspective, the DAX is testing significant resistance levels at the upper boundaries of both its long-term bullish channel and a medium-term channel established in 2022. A breakout above these levels could signal further bullish momentum, but failure to do so may result in a pullback.
• Trump's Policies: U.S. President Trump's inaugural address included promises to reduce inflation, increase energy production, and impose steep tariffs on imports from Canada and Mexico. These policies could impact global trade dynamics, particularly for export-dependent economies like Germany.
• IMF Growth Projections: The IMF’s updated global economic outlook for 2025 projects Eurozone growth at 1.0%, with Germany lagging significantly at just 0.3%. This highlights persistent concerns about Germany's economic health and its ability to recover robustly in the near term.
• PMI Data: Market participants are eyeing the global PMI releases scheduled for Friday, January 24, as these will provide early signals about economic activity. For Europe, particularly Germany, the data will be critical in assessing the health of the manufacturing and services sectors amid broader growth concerns.

Closing statement: The DAX is navigating a pivotal moment as it tests critical resistance levels while facing economic uncertainty stemming from subdued German growth and potential global trade disruptions. Investors should closely monitor upcoming PMI releases and U.S. tariff policies for their potential impact on the index.