Daily Analysis 18/12/2024

• GBP/USD Price: The GBP/USD pair shows limited intraday momentum, fluctuating in a tight range near the 1.2700 mark on Wednesday. Market participants are adopting a wait-and-see approach ahead of key central bank decisions.
• UK Wage Growth: Tuesday’s UK jobs report revealed that regular pay grew at an annual pace of 5.2% between August and October, surpassing expectations.
• UK Inflation Data: The UK Consumer Price Index (CPI) rose by 2.6% in November, up from 2.3% in October, reflecting resilient inflationary pressures. These indicators lend support to the Pound Sterling amid reduced expectations for a Bank of England (BoE) rate cut.
• Geopolitical Risks: Persistent geopolitical risks and global trade war concerns continue to bolster safe-haven demand for the US Dollar. This strength in the USD restricts significant upside movement for the GBP/USD pair, despite supportive domestic data from the UK.
• Fed Policy Decision: Investors are closely monitoring the Federal Reserve’s monetary policy meeting later today, where a 25-basis-point rate cut is widely expected. The Fed's updated economic projections and commentary on future rate paths will play a crucial role in shaping market sentiment for both USD and GBP.

Closing statement: GBP/USD remains range-bound ahead of pivotal central bank announcements. While UK wage growth and inflation data bolster the Pound, the pair’s direction will likely hinge on the Fed’s tone and projections, as well as the evolving geopolitical landscape.

• Gold Price: Gold prices faced fresh selling during the European session, briefly touching $2,652 before recovering slightly above Tuesday’s one-week low. The market's cautious stance on the US Dollar has kept gold trading within a narrow range.
• Fed Decision: Investor sentiment remains risk-averse early Wednesday as traders adopt a non-committal approach, awaiting the Federal Reserve’s policy decision. The absence of directional bias reflects market hesitation, with gold prices showing limited movement amid USD uncertainty.
• Fed’s Policy Signals: Gold traders are closely eyeing the Federal Reserve’s economic projections, policy language, and Chairman Jerome Powell’s press conference. These factors are expected to determine the next major move in XAU/USD, given gold’s sensitivity to interest rate changes and USD dynamics.
• Geopolitical Risks: Renewed geopolitical tensions provide underlying support for gold as a safe-haven asset. The UN’s warning about ongoing conflict in Syria and clashes between Turkish-backed and Kurdish groups highlight persistent instability, increasing gold’s appeal in uncertain times.
• US Data: While the release of Building Permits and Housing Starts data on Wednesday is part of the US economic docket, its influence on gold prices is expected to be secondary to the FOMC decision and commentary, which will dominate market focus.

Closing statement: Gold prices remain range-bound amid cautious sentiment and await clearer signals from the Federal Reserve’s policy outlook. Geopolitical risks and USD hesitancy lend temporary support, but the Fed's tone on future interest rate adjustments will be the primary driver of XAU/USD’s trajectory.

• WTI Prices: West Texas Intermediate (WTI) crude oil is trading around $69.90 on Wednesday. Concerns over weak Chinese Retail Sales, highlighting sluggish consumer spending in the world’s largest oil importer, continue to weigh on oil prices.
• US Crude Inventories: A reported drop in US crude oil stockpiles helps limit WTI’s losses. The American Petroleum Institute (API) data for the week ending December 13 revealed a significant inventory drawdown of 4.7 million barrels, reflecting robust demand or reduced supply.
• Geopolitical Risks: Ukraine’s claim regarding the death of a senior Russian military official, Igor Kirillov, in a Moscow blast intensifies fears of escalating geopolitical tensions. This development could influence market sentiment in energy markets, albeit indirectly.
• Potential Gaza Ceasefire: Reports suggest progress in indirect negotiations between Israel and Hamas, raising hopes for a potential Gaza ceasefire and hostage release deal. Such developments may reduce geopolitical risk premiums in crude oil prices.
• China’s Consumer Weakness: The weak Chinese Retail Sales data for November underscores sluggish demand in the key oil-importing nation. This fuels concerns about overall global demand, particularly as China’s economic activity shows signs of slowing.

Closing statement: WTI prices are caught between bearish pressures from weak Chinese demand and bullish signals from US inventory drawdowns. Geopolitical risks and potential Middle East ceasefire developments add further complexity. Traders await clarity on broader economic trends to define oil's next direction.

• DAX Price: The DAX dropped 0.33% on Tuesday, following Monday’s 0.45% loss, closing at 20,246. The index has now extended its losing streak to three sessions, as concerns over the Euro area economy and political instability in France and Germany weighed on market sentiment.
• Bank Stocks: Deutsche Bank and Commerzbank contributed to Tuesday’s losses, falling 2.10% and 0.26%, respectively. Worries surrounding the Eurozone economy and German political uncertainties added to the bearish sentiment in the banking sector.
• Germany’s Ifo Business Climate: The Ifo Business Climate Index dropped to 84.7 in December from 85.6 in November, reflecting a worsening economic outlook. While businesses had a slightly more favorable view of current conditions, their expectations for the future turned more pessimistic, signaling growing macroeconomic concerns.
• Eurozone Inflation: On Wednesday, inflation data for the Eurozone will attract attention. Preliminary figures indicate that the annual inflation rate rose from 2.0% in October to 2.3% in November, exceeding the ECB's target. This comes in the wake of the ECB’s recent rate cut, aiming to support economic activity.
• Chinese Stimulus: News of Beijing’s plans to widen its budget deficit to 4% of GDP by 2025, aiming to achieve 5% economic growth, lent support to the broader auto sector. The stimulus measures are expected to bolster global demand, benefiting German automakers indirectly despite current challenges in the domestic market.

Closing statement: The DAX remains under pressure, driven by a weak economic outlook and political uncertainty. While Chinese stimulus measures offer a silver lining for export-driven sectors like autos, the index’s near-term direction will hinge on inflation data, ECB policies, and global risk sentiment.