XAU/USD Current price: 2,044.10 A stronger than anticipated US ADP survey hints at a firmer Nonfarm Payrolls report. FOMC Meeting Minutes put mild pressure on the US Dollar late on Wednesday. XAU/USD is comfortable at around $2,040, lacks directional strength. XAU/USD trades little changed in the $2,040 area on Thursday, trimming early gains in the American session. The US Dollar came under mild pressure late Wednesday, pressured by mixed United States (US) data and the FOMC Meeting Minutes. The Federal Reserve (Fed) met in mid-December, and Chair Jerome Powell said policymakers put rate cuts on the table. Still, the Minutes provide no clues on when the Fed plans to proceed but only mention it's possible in 2024. Meanwhile, the US published the ADP survey on private job creation. The report showed 164K new positions were added, much more than the 115K anticipated by market players. The document also showed that the labor market is very much "aligned with pre-pandemic hiring," somehow signaling a more stable situation. On Friday, the US will publish the monthly Nonfarm Payrolls (NFP) report, which is expected to show the economy added 170K new jobs in September. XAU/USD short-term technical outlook The daily chart for XAU/USD shows it met buyers for a second consecutive day around its 20 Simple Moving Average (SMA), which lacks directional strength. Meanwhile, the 100 and 200 SMAs converge around $1,950 without clear slopes. At the same time, technical indicators stand within neutral levels, the Relative Strength Index (RSI) indicator flat, but the Momentum is still heading lower. Overall, the bearish potential seems limited as long as the bright metal retains the $2,030 base. In the near term, and according to the 4-hour chart, the pair is neutral. XAU/USD trades below a bearish 20 SMA but above a flat 100 SMA. At the same time, technical indicators remain within negative levels, but turned marginally higher, suggesting buyers outpace sellers intraday. Support levels: 2,031.00 2,015.50 1,998.65 Resistance levels: 2,040.20 2,052.30 2,065.45

OK – now the minutes are out!  And they appear to be quite clear. Some traders stamp their feet – I say – 'stop the whining': 5 – 7 cuts were always an unreasonable narrative – 1 or 2 maybe, maybe. 2023 underperformers are leading the way higher in 2024!  And the 2023 outperformers are leading the way lower in 2024. (I know it's early…relax – I'm just having fun!) Oil UP – rising tensions in the region are starting to boil. The VIX is up 15% in 2 days…. Capisce? Try the Spaghetti Arrabiatta. Oh WOW!!!  Would you look at that!  The FOMC mins came out (as expected) at 2 pm yesterday and guess what happened?  Just guess what they said…Go on…. make a guess…. "Officials reaffirmed that it would be appropriate for policy to REMAIN AT A RESTRICTIVE STANCE FOR SOME TIME UNTIL INFLATION WAS CLEARLY MOVING DOWN SUSTAINABLY*.  The committee expressed a willingness to cut the benchmark lending rate in 2024 should that trend continue, though they gave NO INDICATION easing could begin as soon as March, as futures traders expect."  (*Capitals are for emphasis - I'm not yelling! LOL)  And if that is not enough - It went onto say that. "Almost all participants indicated that reflecting the improvements in their inflation outlooks, their baseline projections implied that a lower target range for the federal funds rate would be appropriate by THE END of 2024." Let me repeat – they gave NO INDICATION of a rate cut in March…zero…nada…. and a lower rate would be appropriate by the END of 2024…not late winter, not spring, not summer……they said the END of 2024 – so that means late fall/early winter…. So, I have to ask – is it any clearer now?  Is the whole 5 – 7 rate cut narrative DEAD now?  Can we stop with the ridiculousness?  I mean it's amazing that what people hear vs. what is being said….  Now – what the did confirm is that the FED 'thinks' that they are done raising rates – ok – great, we knew that…that should not really surprise anyone….IF inflation continues to trend lower…but remember – IF it starts to trend higher – then all bets are off – but – I'm fairly confident that if they hold them higher for longer then we will see inflation continue to trend lower…but not get anywhere near the 2% target until sometime in 2025…. Ok – so with that – we had more 'adjusting' taking place….stocks continued to 're-price'….and by that I mean trade lower…..as the closing bell rang – the Dow shed 285 pts or 0.8%, the S&P's lost 38 or 0.8%, the Nasdaq gave up 174 pts or 1.2%, the Russell lost 54 pts or 2.6%, the Transports gave back 270 pts or 1.7% while the Equal Weighted S&P ended the day FLAT….and this suggests that while money is moving out of some of the 'sexy' names – it is being put back into the broader market….the two gainers yesterday?  Utilities – XLU + 0.4% and Energy – XLE up 1.6%....and as the year gets started look who is in the lead…. Energy - XLE is up 2.7%, Utilities - XLU are up 1.8%, Healthcare – XLV is up 1.6%, and Consumer Staples – XLP are up 0.35%.... – all sectors that were the UNDERPERFORMERS in 2023…. Last year's darlings - Tech – XLK is down 3.6%, Consumer Discretionary – XLY is down 3%, Communications – XLC is off by 1%.  And further down the totem pole – you find Semi's – SOXX – 5.6% this year, Cybersecurity down 4%, Disruptive Tech – ARKK down 7.4% - are you seeing a pattern here???  Does 'technology' ring a bell at all?  And rightly so, the end of year narrative – (think 5-7 rate cuts) is being poo – pooed – so the 'amazing' rally that saw the indexes surge is now being questioned…and that means – that some investors are 'shooting first and asking questions later'…..while other investors take advantage of the angst… Remember – for every trade there is both a buyer and a seller….it's just that when the angst rises (see the VIX below) buyers are happy to let the sellers panic a little as they bid lower…..and the opposite is true when the sentiment changes and that was front and center during the final 8 weeks of the year….that saw buyers tripping over each other to 'get in'. And speaking of angst – have you seen the VIX?  Remember how complacent it was?  Well – it has surged by 15% in 2 days…and the VIXY is up 5%.  And just like the RSI – that we discussed on Tuesday – investors need to pay attention to 'extreme readings' and the VIX has been in...

EUR/USD rebounded modestly after testing 1.0900 on Wednesday. German inflation and employment-related data from the US will be watched closely. Near-term technical outlook doesn't yet point to a build-up of recovery momentum. EUR/USD staged a technical correction and stabilized below 1.0950 early Thursday after testing 1.0900 on Wednesday. The pair's technical outlook is yet to point to an extended recovery as investors remain cautious while waiting for key macroeconomic data releases. The US Dollar (USD) benefited from the cautious market stance mid-week and continued to outperform the Euro. Meanwhile, the relatively hawkish tone seen in the minutes of the Federal Reserve's (Fed) December meeting minutes helped the currency hold its ground later in the American session.

Summary The U.S. economy remains the largest economy in the world. But, will the U.S. be able to maintain that status forever? In our view, the answer is no. We believe China is on a path to eventually overtake the U.S. and become the world's largest economy. However, China's structural challenges and vulnerabilities combined with tense geopolitical relations are taking a greater toll on the economy than we previously expected and earlier than originally anticipated. So, while China's rise to the world's largest economy is inevitable, reaching the top of the economic throne will likely take longer than we previously estimated. China's Rise To The World's Largest Economy Is Delayed Over the years, we have expressed a pessimistic outlook toward China's economy in multiple forums. Most recently, we highlighted the challenges that China faces in our 2024 International Economic Outlook publication. Our 2024 outlook mentions the fact that China has severe demographic problems, specifically a shrinking overall population as well as a dwindling labor force. In addition, we commented on how China's ongoing real estate crisis, deflation, elevated corporate sector debt and softening consumer demand are likely to contribute to a sharp slowdown in growth prospects. Tack on an unclear outlook for the overall direction of economic policy as well as geopolitical tensions that has China being removed from global supply chains and the country being questioned as an investment destination, and China's growth outlook is not particularly robust. In our view, the days of double-digit real GDP growth—even annual growth of 6%—are likely in the past. We do, however, believe China's economy will continue to grow at a faster pace than the United States, both in nominal and real terms, going forward. Which is why we continue to believe China will ultimately overtake the U.S. and at some point become the largest economy in the world. With that said, these structural issues are taking a bigger toll on China's economy than we previously expected, and that impact is materializing perhaps earlier than we initially thought. At the beginning of 2022, we published a report suggesting China could become the world's largest economy in 2032. Under a set of economic and FX views as well as longer-term assumptions, we believed China would ascend to the largest economy in the world in ten years as nominal GDP growth would outpace the U.S. well into the next decade. However, the way China's economy and financial markets have evolved, as well as the evolution of geopolitical trends, in our view mean that China's rise to the economic throne will likely be delayed. In fact, under our forecasts and assumptions for both China and the United States, we still believe China will overtake the U.S.; however, rather than the ascension taking place in 2032, our new estimate is 2042,10 years later than our original timeline. Our revised estimate is rooted in a Chinese economy that has underperformed even relative to our already pessimistic outlook. Over the last few years, China has been plagued by a number of developments that has pushed out the timeline for challenging the U.S. in economic size. These developments include a short-lived post "Zero-COVID" rebound in activity, a weaker renminbi than we previously forecast, worsening geopolitical relations due to exogenous military conflicts in Europe and the Middle East, and structural imbalances that have intensified more than expected. In addition, and perhaps a consequence of those developments, inflation has fallen rapidly to the point that China is currently experiencing deflation (Figure 1). As of November, CPI is -0.5% year-over-year, well below China's long-run average inflation rate of around 2%. Deflation is arguably one of the primary drivers, in addition to a U.S. economy that has outperformed recently, why China will now take an additional decade to become the world's largest economy. Not only can deflation place additional pressure on already sluggish consumer spending and contribute to softer activity, but deflation will contribute to lower nominal GDP growth. Going forward, we believe China's economy will continue to decelerate and inflation will remain rather subdued. We expect many of China's structural issues and tail-risks to remain in place (i.e. a real estate induced financial crisis, invasion of Taiwan etc.); however, our base case scenario for China does not include a large-scale crisis unfolding. Rather, we believe Chinese authorities will pursue policies consistent with supporting the economy over the next few years, although more accommodative policy will, in our view, do little to change the direction of China's economy or alter underlying trends. As a result of shifting to more accommodative policy, we assume authorities will further pause its deleveraging campaign. Leverage has historically been a growth mechanism for China's economy; however, with the local real estate sector under pressure, we have our doubts deploying fiscal resources toward property development will yield more than only...

Summary December marked the 14th month of contraction for ISM manufacturing, at least it was a slightly milder pace of contraction. Production is back above 50 and November's jump in prices proved to be the anomaly we suspected it would be. Labor prospects remain dim.   Download the Full Report!

XAU/USD Current price: 2,031.70 Encouraging US data fueled demand for an already strong US Dollar. The FOMC Meeting Minutes could shed light on potential rate cuts. XAU/USD pressures daily lows with a strong bearish momentum, aims for $2,000. XAU/USD extended its slide on Wednesday, trading near an intraday low of $2,031.20 mid US-afternoon. The US Dollar maintained its positive momentum for most of the day, reaching fresh weekly highs against most major rivals. XAU/USD trades at levels that were last seen on December 21, ahead of the release of the Federal Open Market Committee (FOMC) Meeting Minutes. Good news in the United States (US) fueled the USD rally after Wall Street's opening, as the ISM Manufacturing PMI improved by more than anticipated in December, hitting 47.4 after posting 46.7 in November. Additionally, the US Bureau of Labor Statistics (BLS) reported that the number of job openings on the last business day of November stood at 8.8 million little changed from the previous monthly reading. A cooling labour market will help the Federal Reserve (Fed) to stay on the pivot path. Fresh clues on what the central bank may be into will come mid-US afternoon with the FOMC Minutes. The document could clarify how deep the discussion on rate cuts has been when policymakers met in mid-December. It could also shed light on the potential date of the first rate cut, which the market currently prices in for May. XAU/USD short-term technical outlook The daily chart for XAU/USD shows the bright metal is sharply down for a fourth consecutive day, and currently battles with a flat 20 Simple Moving Average (SMA), with a clear break below it opening the door for additional slides. The longer moving averages maintain their modest bullish slopes far below the current level, providing little directional clues. Finally, technical indicators gain downward traction within positive levels, reflecting increased selling interest. The bearish momentum remains strong in the near term, and according to the 4-hour chart. XAU/USD is breaking below a directionless 100 SMA, while the 20 SMA accelerated south far above the current level. At the same time, technical indicators maintain firm downward slopes after piercing their midlines, in line with a continued slide. Support levels: 2,031.00 2,015.50 1,998.65 Resistance levels: 2,040.20 2,052.30 2,065.45