EUR/USD awaits new catalyst
The euro finds support from an assertive ECB. For the most traded currency pair, the new year’s theme would be how fast the ECB will close the monetary policy gap. Traders have shrugged off concerns about soaring energy prices and borrowing costs. European policymakers’ shift to a tough line on inflation and raising rates quickly has led to a broad recovery of the single currency, compounding tempered expectations of the Fed’s hike intensity. The market is in need of a catalyst after the holiday lethargy, and the FOMC minutes and nonfarm payroll could cause a breakout. 1.0800 is a key resistance and 1.0450 a support.
USD/CAD steadies as market stays risk-off
The Canadian dollar softens over a fragile market mood. The beleaguered loonie is not out of the woods yet as it continues to face several headwinds. Cautious sentiment keeps risk assets under pressure and sluggish oil prices fail to provide an effective floor. As investors brace for macroeconomic uncertainties in 2023, they may choose to stick with the greenback’s safer appeal at the expense of the risk-sensitive Canadian dollar, while the Fed’s relative hawkish stance could help the former prevail. The dual job data this week may stir up volatility and a break above 1.3800 could resume the uptrend. 1.3330 is the closest support.
XAU/USD recovers with little conviction
Gold rallies as the US dollar snaps back due to a lack of catalyst. The dollar’s softness amid expectations about slower interest rate hikes from the Fed has fuelled demand for the yellow metal. Meanwhile, China’s decision to reopen its borders in January raises hopes that the top gold consumer would regain appetite in the physical market. Volatility may shoot up as liquidity flows back into the market in a data-intensive first week of the year. The downside risk would be an ever resilient US labour market lifting the greenback and trapping complacent gold bulls. 1875 is the next resistance and 1725 a fresh support.
S&P 500 struggles as Fed may not blink
The S&P 500 slides as investors worry about tightening for an extended period of time. The holiday offered market participants a little solace but the new year could come with challenges. As the Fed is determined to cool the labour market and ease the wage pressure, the nonfarm payrolls would be the main catalyst of the next direction. A solid reading may fan fears that it would take the central bank more to break a tight job market, which would prolong the bear market. Meanwhile, China’s struggle with reopening sows doubt about the recovery of the global supply chain. The index hit resistance at 4130 and may test 3700.
