XAU/USD Current price: 2,050.48 The US Dollar came under strong selling pressure following signs of easing price pressures. The United States Federal Reserve will soon announce its decision on monetary policy. XAU/USD trades near a fresh two-week high, aims to extend gains in the near term. The US Dollar is under strong selling pressure as the Federal Reserve's (Fed) monetary policy decision approaches, with XAU/USD advancing beyond $2,050 a troy ounce. The Greenback slid after the release of United States (US) employment-related figures, signaling inflationary pressures eased further. On the one hand, the ADP National Employment Report showed that the private sector added 107K new positions in January, below the market expectations. ADP Chief Economist Nela Richardson noted: "Progress on inflation has brightened the economic picture despite a slowdown in hiring and pay," adding that "the economy looks like it's headed toward a soft landing in the US and globally." At the same time, the country released the Q4 Employment Cost Index, which showed wages and benefits increased 0.9% in the three months to December, down from 1.1% in the previous quarter and the smallest advance in over two years. Government bond yields plunged with the news, with the 10-year Treasury note offering  3.95% and the 2-year note yielding 4.12%,  shedding over 10 basic points (bps) each. The focus shifts now to the Fed. The central bank will shortly announce its decision on monetary policy, which is widely expected to remain unchanged. Ahead of the event, investors are pricing in a 60% chance of a rate cut in March and will be looking for confirmation despite Chair Jerome Powell likely refraining from providing a specific date. The US Dollar may come under additional selling pressure if Powell's words are seen as dovish.   XAU/USD short-term technical outlook The XAU/USD pair keeps gaining bullish traction, trading near a fresh two-week high. Technical readings in the daily chart favor another leg north, as the bright metal extends its recovery above a now flat 20 Simple Moving Average (SMA), while the longer ones slowly gain upward traction far below the current level. Finally, technical indicators advance within positive levels for the first time this year. The 4-hour chart also favors the upside. Technical indicators turned higher and maintain their upward momentum well into positive ground. Furthermore, XAU/USD run past all its moving averages, while the 20 SMA crossed above a flat 100 SMA, both below and also bullish 200 SMA. Support levels: 2,038.90 2,022.60 2,007.20 Resistance levels: 2,056.10 2,071.30 2,085.40

EUR/USD Current price: 1.0846 Germany reported the Harmonized Index of Consumer Prices eased by more than anticipated in January. The United States ADP survey showed the private sector added 107K new jobs in January, worse than expected. EUR/USD is technically bearish and could accelerate south on a break through 1.0800. Financial markets are on pause this Wednesday, with EUR/USD changing hands around the 1.0840 level and confined to a tight intraday range, ahead of the United States (US) Federal Reserve's (Fed) monetary policy announcement. The Federal Open Market Committee (FOMC) surprised investors in December by anticipating three rate cuts for 2024. At the same time, however, policymakers were reluctant to provide clearer clues on the extent and timing of such rate cuts. Financial markets are pretty convinced the Fed will pull the trigger next March, delivering a 25 basis points (bps) rate cut, despite officials arduously trying to cool down such hopes. The FOMC is widely anticipated to maintain its monetary policy unchanged, with the focus on Chair Jerome Powell's words. In the press conference, Powell will likely avoid giving markets what they want, that is, a certain date for the first rate cut. Meanwhile, data coming from the Eurozone failed to impress. Germany reported that Retail Sales were down 1.6% MoM in December, worse than anticipated, although the January Unemployment Rate improved in January to 5.8% from 5.9% previously. The country also released the preliminary estimate of the Harmonized Index of Consumer Prices (HICP), which rose 3.1% YoY in January, easing from the previous 3.8%. Across the pond, the US published the ADP survey on private job creation, showing the country added  107K new positions in January,  much worse than the 145K anticipated by market players. December figure was downwardly revised to 158K from 164K previously reported. With the Fed in the way, EUR/USD showed no reaction to the news.   EUR/USD short-term technical outlook From a technical point of view, the EUR/USD pair is biased lower. The pair is seesawing around a flat 200 Simple Moving Average (SMA) in the daily chart, while the 20 SMA maintains its bearish slope above the current level, providing dynamic resistance at around 1.0900. At the same time, technical indicators head south within negative levels, although with uneven strength. In the near term, and according to the 4-hour chart, EUR/USD is neutral. The pair is currently developing around a flat 20 SMA, while the longer moving averages head lower far above the current level. Technical indicators, in the meantime, turned higher, but are currently struggling to overcome their midlines, limiting the bullish potential. Support levels: 1.0800 1.0760 1.0720 Resistance levels: 1.0900 1.0945 1.0990

EUR/USD holds above 1.0800 in the European morning on Wednesday. The Federal Reserve is expected to leave its policy settings unchanged. Market positioning suggests that there is room for further USD strength in case of a hawkish Fed surprise. After fluctuating in a tight channel above 1.0800 on Tuesday, EUR/USD closed the day marginally higher. With the US Dollar (USD) staying resilient against its rivals early Wednesday, however, the pair is finding it difficult to extend its recovery.  Slightly better-than-expected growth figures from the Eurozone area helped the Euro find a foothold on Tuesday. Additionally, European Central Bank (ECB) President Christine Lagarde reiterated that they would need to be further into the disinflationary process before cutting the rates, supporting the currency.

Markets Wednesday presents a busy, potentially massively volatile, and market-moving session with the FOMC meeting and the U.S. refunding on tap.  With the Treasury Department's consistent efforts to push down yields evident in its quarterly refunding announcements, investors will focus on whether the Treasury refunding estimates will be adjusted lower based on the recent forthcoming supply alterations published on Monday.  As for the FOMC meeting, while the Fed is not anticipated to endorse a rate cut in March, the primary question surrounds whether such early rate cut discussions are being entertained, which should be the primary market-moving focal point during the press conference. Indeed, it's poised to be a blockbuster day as Chair Powell has the potential to endorse or push back current market bullish dynamics and ebullient investor sentiment. Are you kidding me? With so many potentially market-moving events, it will be a hair-raising Wicked Wednesday, so buckle in.  Regarding market performance, stock indexes experienced a mixed day, with the Nasdaq Composite declining by 0.8%, partially offsetting the previous day's substantial gains. The S&P 500 concluded the day with a modest decline of 0.1%. However, the Dow Jones Industrial Average registered an uptick of 0.4%, equivalent to 134 points. These movements indicate a varied trading session characterized by fluctuations across different equity market segments.  As we transition into Aisa trading, investors remain attentive to the forthcoming guidance from the Federal Reserve as they navigate evolving market conditions and anticipate potential shifts in monetary policy. The house of saud Saudi Arabia's decision to abandon plans to increase its oil production capacity to 13 million barrels per day (mb/d) by 2027 carries significant implications for global oil markets. Still, the full extent of these implications remains uncertain. The recent directive, announced through a concise press release, represents a notable reversal compared to the rhetoric espoused by CEO Amin Nasser in March 2020. At that time, the plan to increase the Kingdom's maximum sustainable capacity was revealed amid a short-lived and highly ill-timed price war with Russia. Nasser's declaration nearly four years ago emphasized Aramco's commitment to exerting maximum effort to boost capacity as swiftly as possible. The proposed increase would have marked the first capacity expansion in at least a decade, albeit at a considerable expense. Saudi Arabia faces deficits projected through 2026 as Mohammed bin Salman pursues ambitious spending across various sectors in what many think are flights of fancy. But it is still hard to escape the notion that pertinent questions are being raised about their outlook on the long-term demand for oil within the House of Saud. And their decision may reflect broader trends in the global oil market dynamics. Factors such as evolving energy transition policies, growing renewable energy investments, and climate change concerns could influence Saudi Arabia's strategic decisions regarding oil production capacity. The decision to abandon capacity expansion plans underscores pressing questions about OPEC+'s ability to influence prices upward, especially amidst surging U.S. production and uncertainties surrounding Chinese demand. The Saudis, in particular, require oil prices around $100 per barrel to meet their fiscal requirements, underscoring the complexities and challenges facing global oil markets in the foreseeable future. Oil markets Following a day of choppy trading, traders are on edge awaiting a response from the United States to a deadly drone attack on a military outpost in Jordan. The Biden administration is carefully weighing its options on how to retaliate against Iran-backed militias without escalating tensions in the already volatile Middle East region. John Kirby, Coordinator for Strategic Communications for the National Security Council, indicated to reporters aboard Air Force One on Tuesday that the United States is contemplating a "tiered approach, not a single action, but essentially multiple actions" in response to Sunday's attack on a U.S. military base. The attack resulted in the death of three service members and left dozens injured. Notably, there have been over 159 attacks on U.S. troops in the Middle East since the outbreak of the Gaza War on Oct. 7, underscoring the escalating tensions and security challenges in the region.

Gold price extends retreat from 10-day highs of $2,049 on the Fed day. Risk aversion props up the US Dollar even as Treasury bond yields tumble.   Fed Chair Powell's words hold the key for Gold price mixed technical indicators.   Gold price is extending its pullback from a ten-day high of $2,049 reached in the early American trading on Tuesday, as the US Dollar (USD) is attracting fresh demand amid broad risk-aversion on the all-important US Federal Reserve (Fed) interest rate decision day. All eyes remain on Fed Chair Jerome Powell's presser Markets are sensing caution, as China's economic concerns and escalating Middle East geopolitical tensions persist amid typical risk-averse trading heading into the Fed policy announcements. The tepid risk sentiment has revived the demand for the US Dollar as a safe-haven asset, fuelling a further retreat in Gold price. The official manufacturing data from China showed contraction for the straight month in January, as the market angst continues over the lack of large stimulus moves by authorities to shore up the economy. The downside in the Gold price, however, appears cushioned, thanks to the ongoing sell-off in the US Treasury bond yields, as investors remain wary ahead of Wednesday's Treasury Department's announcement of its bond-buying plan. Industry experts are expecting the US Treasury Department to increase the portion of longer-rated bonds as it did in recent debt-sale plans. Also, repositioning in the bond market before the Fed interest rate decision and Chair Jerome Powell's press conference could be attributed to the persistent weakness in the US Treasury bond yields. The Fed is expected to leave the interest rates unchanged following the conclusion of its two-day policy meeting on Wednesday. The focus, however, will be on Powell's post-meeting press conference for any hints on the timing and pace of the interest rate cuts. Data on Tuesday showed US JOLTS Job Openings unexpectedly increased in December, suggesting that the labor market still remains resilient, dissuading the Fed from delivering aggressive rate cuts. Gold price technical analysis: Daily chart As observed on the daily chart, Gold price seems at a critical juncture, looking to confirm an upside break from a month-long symmetrical triangle formation. The triangle breakout could be validated should the Gold price yield a daily closing above the falling trendline resistance at $2,036. The 14-day Relative Strength Index (RSI) indicator recaptured the midline, justifying the latest upswing in the bright metal. However, traders remain cautious as a Bear Cross was confirmed on Tuesday after the 21-day Simple Moving Average (SMA) crossed the 50-day SMA from above on a sustained basis. Amid mixed technical indicators, it now remains to be seen if the Gold price could sustain its recent upbeat momentum. The immediate strong resistance is seen around the $2,040 level, above which the psychological $2,050 level will be back in play. Further up, Gold optimists will target the December 12 high of 2,062. On the downside, an immediate cushion is seen around the $2,030 region, where the 21- and 50-day SMAs hang around. If the latter gives way, Gold sellers will test the rising trendline support of $2,017 on their way to the key $2,000 threshold. A balanced or hawkish tone perceived in Powell's speech could revive the hawks and trigger a fresh downfall in the non-interest-bearing Gold price.

The narrative of the last mile of disinflation being the hardest, which in 2023 became popular in the world of central banking, reflects concern that after having dropped significantly, further declines in inflation would be more difficult.However, it seems that relevance of this narrative is increasingly being questioned. The account of the December 2023 meeting of the ECB governing council mentions that it has been debated. It seemed that the disinflation of 2023 had been faster than in previous episodes, raising doubts about the relevance of the narrative. A paper of the Federal Reserve Bank of Atlanta analyses this topic for the US. Based on recent research on the Phillips curve, it concludes that the 'last mile' is likely not significantly more arduous than the rest. Before the terminal rate was reached, referring to the 'last mile' was a form of implicit policy guidance: it might be necessary to have more elevated rates or to keep rates high for longer. At the current juncture, the policy debate is all about when to start cutting rates and the 'last mile' narrative is quickly losing its relevance. In 2023, the narrative of the last mile of disinflation being the hardest became popular amongst central bankers and their watchers. It reflected concern that after having dropped significantly, further declines in inflation would be more difficult. When discussing this with a colleague who is also an experienced long-distance runner, he replied that the last mile was not the most arduous because getting close to the finish provides extra energy. Rather, the ten miles before the last one are the toughest. After all, the metaphor was perhaps not well chosen. Interestingly, it has also come under attack from economists and central bankers. The account of the December 2023 meeting of the ECB governing council mentions that members debated the notion of the 'last mile'.It was noted that in terms of economic activity, the cost of the disinflation had been relatively mild and that a soft landing remained possible, whilst acknowledging that with services inflation still at 4%, the 'last mile' might be challenging. However, it was also argued that "it was not clear why the nature of the disinflationary process would change as the target drew closer." Moreover, it seemed that the disinflation of 2023 had been faster than in previous episodes, raising doubts about the relevance of the 'last mile' narrative. A recent paper of the Federal Reserve Bank of Atlanta analyses this topic for the US and concludes that the 'last mile' "is likely not significantly more arduous than the rest." The author quotes recent research showing that the Phillips curve is nonlinear with a steep, negative slope for relatively high inflation rates before coming rather flat when inflation falls below 2%. This would imply that inflation can move back to target without a large negative impact on the labour market and that the 'last mile' of disinflation before reaching the target is not more arduous.Another potential argument in favour of the 'last mile' narrative would be elevated inflation expectations, through their impact on wage demands and price setting by companies. However, one-year-ahead inflation expectations of US companies have declined from 3.8% in March 2022 to 2.4% in December 2023, so it seems unlikely that they would make the 'last mile' more difficult. The Federal Reserve paper also mentions sticky services prices as a potential reason for slow disinflation arguing that price stickiness does not mean that disinflation becomes more difficult, it simply takes more time and requires more patience from policymakers. This interpretation is debatable: to the extent that services inflation persistence requires official rates to remain high for longer, the detrimental impact on activity, demand and the labour market could be significant. Unsurprisingly, these issues are also debated in the Eurozone. The ECB meeting account mentions that "it was argued that the main condition that would make inflation more persistent in the proximity of the inflation target was if inflation expectations became unanchored, which ultimately depended on the credibility of monetary policy." Interestingly, safeguarding credibility was also used as an argument to stop referring to the 'last mile' because it "might undermine confidence in the ECB's inflation target being achieved in a timely manner." This brings us to the key question of why using the narrative. Before the terminal rate was reached, one can argue that it helped in giving guidance by insisting that the 'last mile' might require more elevated rates or keeping rates high for longer. At the current juncture, the policy debate is all about when to start cutting rates. In this debate, the 'last mile' narrative is quickly losing its relevance. Download the Full Report!