Daily Analysis 17/12/2024

• GBP/USD Price: GBP/USD rebounds toward the 1.2700 level during Tuesday’s European session, recovering from its recent pullback. The Pound Sterling remains resilient after hitting three-week highs against the US Dollar last week, followed by a period of correction.
• UK Labor Market: The latest UK labor market data showed the ILO Unemployment Rate holding steady at 4.3% for the three months ending in October. Additionally, annual wage inflation climbed to 5.2%, reinforcing the Pound Sterling’s relative strength.
• Jobless Claims Data: In November, the number of jobless benefit claimants rose marginally by 0.3K, significantly beating expectations of a 28.2K increase. However, Employment Change data showed a decline to 173K in October from 253K in September, signaling some softening in labor market conditions.
• Key Data and Policy Decisions: Market participants are eyeing Wednesday’s UK inflation report, which could provide insight into the Bank of England’s (BoE) monetary policy trajectory. Additionally, the Federal Reserve’s interest rate decision, Dot Plot projections, and Jerome Powell’s press conference will heavily influence market dynamics.
• Boe Policy and US Data: On Thursday, the BoE’s policy verdict will take center stage, with investors looking for signs of any shift in the central bank’s stance. Concurrently, US weekly Jobless Claims and Existing Home Sales data will add to the week’s market-moving catalysts.

Closing statement: The GBP/USD pair’s recovery is supported by robust UK labor market data and investor optimism ahead of key economic reports and central bank policy announcements. The Pound’s direction will hinge on the UK inflation data and BoE policy guidance, alongside the Federal Reserve’s upcoming decisions.

• Gold Price: Gold struggles to gain significant momentum and trades within a narrow range near $2,650. The lack of a clear directional move reflects market caution ahead of critical events this week.
• Fed Projections: Traders eagerly await the Federal Reserve’s quarterly economic projections and Chairman Jerome Powell’s remarks for insights into the central bank’s 2024 monetary policy. The Fed’s stance on future interest rates will likely have a strong impact on the USD and, by extension, gold prices.
• Fed Rate Cut: According to the CME Group’s FedWatch Tool, markets are fully pricing in a 25-basis-point interest rate cut by the Federal Reserve on Wednesday. This dovish outlook has provided some underlying support for gold, though traders remain cautious ahead of official confirmation.
• Geopolitical Risks: Gold benefits from ongoing geopolitical tensions, including new US sanctions targeting North Korea and Russia. Additionally, political instability in South Korea and escalating Israel-Gaza tensions contribute to gold’s safe-haven allure, offering some downside protection.
• US Retail Sales Data: Investors await the US November Retail Sales report for additional trading cues. While the data is unlikely to significantly shift expectations for the Fed’s rate decision, it may influence short-term sentiment in the gold market.

Closing statement: XAU/USD remains constrained ahead of key Fed announcements. Gold prices are underpinned by geopolitical risks and expectations of a dovish Fed, but the US central bank’s forward guidance and retail sales data will be critical in determining the metal’s near-term trajectory.

• WTI Trading: West Texas Intermediate (WTI) crude oil trades around $70.40 during Tuesday’s European session. Market sentiment remains cautious as traders await key events, including the Federal Reserve’s interest rate decision.
• Chinese Economic Data: November Retail Sales in China fell short of expectations, stoking fears of slowing consumer spending in the world's largest oil importer. This adds downward pressure on crude oil prices, reflecting concerns about weaker demand from Asia.
• Fed Rate Decision: With the Federal Reserve widely expected to cut interest rates by 25 basis points on Wednesday, traders appear to be locking in profits. The market awaits clarity on future monetary policy, which could influence oil prices indirectly through its impact on the broader economy and the US Dollar.
• Geopolitical Risks: Geopolitical developments, including additional US sanctions on Russian and Iranian crude producers, help limit losses in WTI prices. US Treasury Secretary Janet Yellen also hinted at sanctions targeting Chinese banks and "dark fleet" tankers to curtail oil revenue funding Russia’s war, bolstering supply-side uncertainty.
• Oil Market Outlook: Despite OPEC's ongoing production cuts, the International Energy Agency (IEA) expects the global oil market to remain well-supplied through 2025. Modest demand growth projections indicate a balanced market, potentially capping significant upside in crude oil prices.

Closing statement: WTI crude remains stable near $70.40, caught between demand concerns from China and geopolitical risks supporting prices. The Federal Reserve’s policy decision and its implications for global economic activity will be pivotal for crude oil’s near-term direction.

• DAX Price: On Monday, the DAX fell by 0.45%, extending Friday’s 0.10% decline to close at 20,314. Market sentiment soured as concerns over the economic outlook were exacerbated by disappointing data from China, raising global growth fears.
• Auto Sector: German auto stocks, which had gained on Friday, reversed sharply due to weak Chinese consumption data. Mercedes Benz and BMW dropped 3.86% and 3.17%, respectively, while Porsche slid 2.19% after signaling a potential write-down in its Volkswagen stake.
• China’s Retail Sales: China’s retail sales growth slowed to 3.0% year-on-year in November, sharply down from 4.8% in October. The disappointing data reflects waning consumer confidence and underscores the urgency for Beijing to implement targeted stimulus measures to revive domestic demand.
• German PMI: Germany’s Manufacturing PMI fell from 43.0 in November to 42.5 in December, raising concerns about the country’s industrial sector as US tariffs loom. However, the services sector offered a silver lining, rebounding to 51.0 from 49.3 in November, though its inflationary impact remains a key consideration.
• Ifo Business Climate: Investors will monitor Germany’s Ifo Business Climate Index, scheduled for release on Tuesday, December 17. Forecasts suggest a slight decline from 85.7 in November to 85.6 in December, which could influence sentiment on the economic outlook.

Closing statement: The DAX remains under pressure amid global growth concerns driven by weak Chinese data and slowing German manufacturing. Near-term trends will hinge on upcoming economic releases, including Germany’s Ifo Index, and developments in China’s stimulus response.