Summary Not only is the services sector still expanding, it picked up steam in November with the ISM coming in at 52.7. With prices still firmly in expansion and employment rising slightly, it suggests that recent expectations for rate cuts might have been pulled too far forward. Two years before the mast It's been quite a journey the past two years. In November 2021, the ISM services index reached its zenith, not just for this cycle, but in records dating back to the 1990s. The fed funds rate two years ago was still at the zero lower bound and inflation was still ascendant. In the ensuing 24 months, the Fed embarked on a rate-tightening campaign for the ages, yet despite a fed funds rate now higher than any point in more than 20 years, the Fed's job is not quite finished. Yes, inflation is coming down, but is still above the Fed's 2.0% target and the ISM services index is still in expansion territory, even if unconvincingly so at 52.7 (chart). The trouble is that while the service economy may be able to withstand higher capital costs, big-ticket durable goods spending is more vulnerable to higher rates. But as long as services outlays remain robust, there is little incentive for service providers to lower prices. This complicates the Fed's efforts to get inflation fully in check. To the extent that the service sector keeps humming along, it could dash the rising hope in financial markets that rate cuts are just beyond the horizon. It is tough to justify cutting rates when the prices paid component is still consistent with rising prices (chart). Download The Full Economic Indicator

US markets traded in a mixed-bag fashion, but the tone of the S&P 500 was rather moody, with losers outpacing winners by a wide margin -- all as markets digest a stronger-than-expected November ISM Non-manufacturing survey offset by an unexpected significant decline in October job openings -- and all resulting in yet another decline in 10-year Treasury yields. Throughout November, markets increasingly factored in the possibility of the Federal Reserve implementing rate cuts next year. Despite a brief upward movement in yields on 10-year US Treasuries overnight, they have decreased by approximately 11 basis points by today's Asia open, indicating a renewed expectation of less restrictive monetary policy in the coming year.  Interestingly, the latest US data conveyed a somewhat Goldilocks message: economic growth appears satisfactory (as evidenced by the Services ISM), and there are indications that inflation may be poised to moderate further, given the ongoing rebalancing in the job market. Nevertheless, given the breadth of decline in broader indexes amid lower bond yields, some stock market operators seem to interpret the recent run of US economic data as not growth-friendly enough. From our seat, the current US macroeconomic data indicates a scenario where, against expectations, inflation might return to the target without necessitating a deep recession and possibly without a recession at all. However, this week's labour market data balance could present a different narrative. Despite the favourable results for the soft landing camp via the Job Openings and Labor Turnover Survey (JOLTS) report, markets still lack high conviction. The potential risk to the Santa rally doesn't hinge on a catastrophic event (despite elevated geopolitical tensions) or an abrupt negative turn in the economic data. Instead, it revolves around the simple exhaustion of the investment flows that propelled last month's historic surge.  Additionally, there's a concern about the possibility that rate-cut pricing for 2024 might be overdone. It's worth noting that "overdone" implies the market may have gone too far in pricing in rate cuts, even if the pricing direction is not necessarily deemed misguided.  While rate cuts next year are widely anticipated, the precise extent of these cuts remains uncertain. The magnitude of the cuts—whether they will be deep or, more importantly, relatively shallow—remains the most pressing question mark and is creating a lot of discord among cross-asset traders. The key challenge lies in sustaining the positive momentum at a time of year when big institutional market moving desks are more concerned about holding on to their year-end bonuses rather than pressing the PnL envelope higher. Mind you, this feeds through on bull and bear purviews and buy and sell side desks alike. Considering the significant up moves in November, I would speculate that traders might be more inclined to be more significant sellers in a market downdraft than buyers in a robust uptake if I were pressed to make a trading decision.  Ultimately, generating a substantial sell-off in equities could prove challenging if bond yields persist in their decline. This trend may entrench until the data unmistakably indicates an economic recession rather than simply signalling disinflationary "cooling." Still, no matter how rational expectations for rate cuts in 2024 might be (or at least might sound), those expectations can feed overshoots in asset prices. And that is where we are now with rate cut pricing possibly overdone, much of the available dry powder that hasn't found its way into 5 % yielding money market funds spent, and sentiment stretched.

XAU/USD Current price: $2,018 XAU/USD continues to decline from record highs despite declining US yields. The US Dollar extends its gains and adds pressure to XAU/USD. Economic data from the US shows mixed results; ADP data is scheduled for release on Wednesday. The recovery in Gold spot during the Asian session proved short-lived as it resumed its decline, despite mixed US economic data and a decrease in US Treasury yields. This indicates that bearish pressure on the yellow metal remains intact. Data from the US revealed that the number of job openings on the last business day of October was 8.7 million, down from 9.35 million in September, falling below the market expectation of 9.3 million. The ISM Services PMI surpassed expectations, rising to 52.7 in November compared to the expected 52. These data points suggest a more balanced labor market. Initially, this triggered a retreat in the Greenback, but it resumed its upward movement even as Treasury yields turned downwards. The 10-year US bond yields dropped to 4.16%, reaching the lowest level since early September. Simultaneously, the US Dollar index reached multi-day highs above 104.00. The short-term bullish momentum remains in place for the Greenback, implying a negative outlook for Gold. On Wednesday, the focus will stay on US data, particularly the ADP Private Employment report, ahead of Thursday's Jobless Claims and Friday's Nonfarm Payrolls. XAU/USD short-term technical outlook Gold dropped to test the $2,010 support level, which has acted as a barrier to further downside. A break below this level would increase bearish pressure, exposing the $2,000 area and the 20-day Simple Moving Average at $1,995. The next target below is $1,985 and $,1975.  The retreat from all-time highs has been significant, with the Gold price dropping by over $100. However, there still appears to be further downside potential, despite some technical indicators showing oversold readings. The momentum remains consistently bearish. Price stabilization could be observed if it remains above $2,010, with the initial resistance standing at $2,030. Bulls would need to see the price rise above $2,050 in order to signal a potential improvement in the short-term technical outlook. Expect elevated volatility to persist. Support levels: $2,010 $1,985 $1,970 Resistance levels: $2,030 $2,045 $2,100 View Live Chart for XAU/USD  

EUR/USD staged a modest rebound after testing 1.0800 earlier in the day. 1.0820 aligns as a key pivot level for the pair. Eyes on US ISM Services PMI and JOLTS Job Openings data. After falling toward 1.0800 in the early European session on Tuesday, EUR/USD regained its traction and rose above 1.0820, erasing its daily losses in the process. The near-term technical outlook is yet to point to a build-up of bullish momentum as markets await key data releases from the US. Following Monday's sharp decline, EUR/USD started the day on the back foot. With the Euro Stoxx 50 Index turning positive on the day, however, the pair managed to find a foothold. Meanwhile, the benchmark 10-year US Treasury bond yield went into a consolidation phase above 4.2% after rising sharply on Monday, making it difficult for the US Dollar (USD) to preserve its strength. The US Bureau of Labor Statistics will release the JOLTS Job Openings data on Tuesday, which is expected to edge lower to 9.3 million in October from 9.55 million in September. If the number of job openings fall below 9 million and point to loosening conditions in the labor market, the USD could come under bearish pressure in the American session. The US economic docket will also offer the ISM Services PMI survey for November. The headline PMI is forecast to rise modestly to 52 from 51.8. In case this reading arrives below 50 and shows a contraction in the service sector's business activity, EUR/USD could extend its rebound. Market participants will also keep a close eye on the performance of Wall Street's main indexes. As of writing, US stock index futures were down between 0.2% and 0.55%. A bearish opening in US stocks could provide support to the USD. EUR/USD Technical Analysis The 200-day Simple Moving Average (SMA) and the Fibonacci 38.2% retracement level of the latest uptrend form a key pivot point for EUR/USD at 1.0820. In case the pair stabilizes above that level, 1.0860 (20-period SMA) could be seen as first resistance ahead of 1.0900 (Fibonacci 23.6% retracement, 100-period SMA). If EUR/USD drops below 1.0820 and confirms that level as resistance, 1.0800 (psychological level) could be seen as interim support before 1.0760-1.0770 area (Fibonacci 50% retracement, 200-period SMA on the 4-hour chart).

EUR/USD came under renewed bearish pressure following a quiet Asian session. The pair needs to reclaim 1.0820 to shake off the bearish pressure. US economic docket will feature JOLTS Job Openings and ISM Services PMI data. After closing in negative territory on Monday, EUR/USD extended its slide and touched its lowest level in three weeks near 1.0800 early Tuesday. Unless the pair manages to stabilize above 1.0820, technical sellers could remain interested. The steady recovery seen in the US Treasury bond yields and the risk-averse market atmosphere helped the US Dollar (USD) outperform its rivals on the first trading day of the week. As investors remain concerned over the Israel-Hamas conflict turning into a widespread conflict in the Middle East, safe haven flows continue to dominate the action in financial markets early Tuesday. At the time of press, US stock index futures were down between 0.3% and 0.4%. In the second half of the day, JOLTS Job Openings data for October and the ISM Services PMI for November will be featured in the US economic docket. In case there is a significant decrease in the number of job openings, the USD could have a difficult time preserving its strength. Investors will also pay close attention to the inflation component of the ISM survey – the Prices Paid Index. An unexpected increase in this figure could help the USD find demand. Nevertheless, unless the risk mood improves later in the day, EUR/USD could struggle to regain its traction even if the data don't support the USD. EUR/USD Technical Analysis EUR/USD declined below 1.0820 early Tuesday, where the 200-day Simple Moving Average (SMA) and the Fibonacci 38.2% retracement of the latest uptrend are located. Below this level, 1.0800 (psychological level) aligns as interim support before 1.0760-1.0770 area (Fibonacci 50% retracement, 200-period SMA on the 4-hour chart). If EUR/USD rebounds above 1.0820 and confirms that level as support, sellers could be discouraged. In this scenario, 1.0860 (20-period SMA) could be seen as first resistance ahead of 1.0900 (Fibonacci 23.6% retracement, 100-period SMA).

Dollar Index needs to hold below 104 to fall towards 102 while Euro needs sustain above 1.08, else would be vulnerable to see 1.07-1.06. EURJPY has risen from 158.72 and could rise towards 160 before again declining back towards 158. Dollar Yen has sustained well above 146 can rise towards 148-150 in the near term. USDCNY continues to trade between 7.12-7.15/16. Aussie could fall towards 0.65 or lower while the resistance at 0.67 holds. Pound can be ranged below 1.27 for a while. USDRUB is rising as expected and is likely to test 92-94 on the upside. EURINR is falling sharply but could face some support at 90. USDINR could be ranged within 83.25-83.40. The US Treasury yields have bounced slightly. A break below their crucial supports if seen can extend bearish bias. The German yields continue to move down in line with our expectation. They have room to fall more in the coming sessions. The 10Yr and 5Yr GoI have dipped yesterday and could trade within a narrow range for sometime before breaking higher eventually. Dow Jones lacks strength but outlook remains bullish while above the support at 36000-35800. DAX is heading up towards the key resistance as expected. Need to see if it breaks higher or falls back from there. Nifty has surged above 20500 and may look to rise further from here. Nikkei has broken below its sideways range and looks vulnerable to fall further while below 33000. Shanghai remains bearish for the near term. Crude prices have declined towards their key support from where a possible bounce back can be seen. Gold, Silver and Natural gas remains vulnerable for the near term. Copper looks bearish to break below its immediate support at 3.80 and fall further. Visit KSHITIJ official site to download the full analysis