Market Drivers – US Session, Dec. 5

On Wednesday morning during the early Asian session, the price of gold (XAU/USD) declines. The yellow metal declines due to the renewed demand for US dollars (USD). The US Dollar Index (DXY), which measures the value of the US dollar relative to a weighted basket of currencies that is used by US trading partners, rises to 104.00 in the meantime. Treasury yields are gradually rising; the yield on the 10-year note has decreased to 4.16%. At $2020, the price of gold is now up 0.01% on the day.

Despite mixed US data and lower US Treasury yields, the US dollar gained strength. The short-term trend for the US dollar is still positive, but most currency pairs exhibit technical overbought conditions. The US Dollar Index continued to rise from monthly lows, recording its highest daily close in the last two weeks at approximately 104.00.

While WTI ended 72 cents, or 1.0%, lower at $72.32, Brent crude oil futures dropped 83 cents, or 1.1%, to settle at $77.20 a barrel. Due to concerns about demand and a stronger US dollar, oil prices fell to a nearly five-month low on Tuesday. This marked the fourth consecutive day that the market has declined due to uncertainty surrounding the voluntary supply cuts announced by OPEC+ last week. Given the (four) days of price declines that followed the OPEC+ agreement, traders are obviously not so impressed.

Economic Data

Despite mixed US data and lower US Treasury yields, the US dollar gained strength. The short-term trend for the US dollar is still positive, but most currency pairs exhibit technical overbought conditions. The US Dollar Index continued to rise from monthly lows, recording its highest daily close in the last two weeks at approximately 104.00.

Key Developments

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 (…) We anticipate the fed funds rate probably has reached its terminal level of this cycle. But we still expect the Fed to keep the door open to the possibility for additional tightening at its policy meeting next week, particularly in the context of the recent loosening in financial conditions. Ultimately the Fed will need to see more progress on inflation before it begins to outright ease policy.

EUR/USD has declined to the 100-day Simple Moving Average (SMA), falling below 1.0800, which marks the lowest level in two weeks. This drop extends the downward movement for the fifth consecutive day, indicating a need for consolidation. However, the Euro is not showing many positive signs, despite the positive revision of Eurozone PMI data for November. On Wednesday, Eurozone Retail Sales data will be released.

The Australian Dollar weakened on Tuesday following the pause from the Reserve Bank of Australia (RBA). AUD/USD tumbled toward the 0.6550 area, falling below the 200-day Simple Moving Average (SMA) while AUD/NZD fell below 1.0700 and posted the lowest daily close since mid-October. On Wednesday, Australia’s Q3 GDP data is due.

USD/CAD continued its upward trend for the second day in a row, extending its recovery from two-month lows and climbing towards 1.3600. The Bank of Canada will announce its decision on Wednesday, and market expectations point towards the key interest rate remaining unchanged at 5%. As there will be no accompanying Monetary Policy Report or press conference, the impact on the market may be limited.

Analysts at TD Securities:

We look for the BoC to stay the course and hold rates at 5.00%, as a softer economic backdrop drives some dovish tweaks in the statement. However, its desire to maintain tight financial conditions sets a high bar for more significant changes to its guidance.

Bitcoin continued to drift higher and surpassed $43,000, reaching its highest level since April 2022. Similarly, Ethereum has climbed above $2,250, marking its highest point since May 2022.

Meanwhile, metals remain under pressure. Gold failed to benefit from lower Treasury yields, resulting in XAU/USD dropping to $2,010, the lowest level in a week. Silver tumbled to $24.00.

The main focus remains on US labor market data. ADP will report on private employment on Wednesday, and the Unit Labor Cost data will also be important. Before US figures, during the Asian session, Australia will report Q3 GDP, while Eurozone Retail Sales will be released during European hours. The Bank of Canada is expected to keep rates unchanged.

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