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Canada's merchandise trade deficit narrowed in November, shrinking to CAD -323 million from October’s revised CAD -544 million, outperforming market expectations of a CAD -800 million shortfall. This improvement was driven by a 2.2% mom rise in exports, complemented by a 1.8% mom increase in imports.

Exports saw gains across nine of the 11 product categories, with higher prices partially contributing to the increase. Adjusted for inflation, real export volumes still advanced by 0.5% mom.

Canadian Dollar’s depreciation against the US Dollar over October and November played a notable role in boosting the relative value of cross-border trade.

Over the two months, Canadian exports grew 3.9%, while imports increased 2.2%. In US Dollar terms, however, exports rose by just 0.8%, and imports declined by 1.0%.

Full Canada trade balance release here.

• Gold prices were volatile on Monday, swinging between 2650 and 2614, ultimately settling at 2635, driven by fluctuations in the US Dollar and tariff news.
• US Services PMI data will be a key focus, as a positive figure could boost the US dollar and weigh on gold prices.
• Technically, gold appears poised for another leg higher, but overarching fundamentals may keep gains in check.

Gold prices experienced significant volatility on Monday, kicking off the week with significant price swings. The metal reached a high of around 2650 during the day, dipped to a low of approximately 2614, and eventually settled for the day at 2635.

This turbulent movement appeared closely tied to fluctuations in the US Dollar index. Early in the day, the US Dollar lost strength following a Washington Post report suggesting the possibility of universal tariffs, which weighed down the currency. Later, incoming President Trump dismissed the report as false, causing the greenback to briefly regain momentum.

This series of events contributed to the seesaw action in gold prices, underscoring the ongoing sensitivity of the market to tariff developments and potential Trump policy on the US Dollar.

In early European trade the US Dollar has remained under selling pressure as you can see on the currency strength chart below.

Currency Strength Chart: Strongest – NZD, AUD, GBP, EUR, CAD, JPY, CHF, USD – Weakest

Source: FinancialJuice (click to enlarge)

Trade War Concerns to Keep Gold Supported?

Looking at the week ahead and Gold is facing an interesting period. At present there is a definite tug-of-war between bulls and bears with trade war fears likely to support the precious metal. On the other hand, the expectation of a more restrictive monetary policy and less rate cuts in the US will provide headwinds for the precious metal.

This means that moving forward any news relating to tariffs and developments around policy will have an impact on the price of Gold. While any changes to rate cut expectations moving forward will play a similar role.

The bullish case for Gold in 2025 has definitely been tempered significantly since Donald Trump’s election victory. This is further evidenced by Goldman Sachs downgrading their 2025 price target for Gold from a previous $3000/oz. The investment bank has now stated that they believe tighter US monetary policy will prevent such a move.

I would not be so quick to rule out such a move. The delicate geopolitical situation globally and rising risks pose a threat and should these risks increase with another war in the Middle East or further developments over Russia-Ukraine, $3000/oz may be possible.

Another avenue that could prove supportive remains central bank buying. 2024 proved to be a big year for central banks with many stepping up their gold buying. The monthly Gold report in August revealed as much with many central banks seeing gold buying continuing into 2025.

The Week Ahead

Today we await US Services PMI data which is a significant data point given the US is seen as a service driven economy.

Last week, ISM Manufacturing Data came in at 49.3, which is 1.1 points higher than the expected 48.2. This shows growth in the US manufacturing sector and highlights the economy’s strength.

A positive and better than expected US Services PMI figure could add some weight to the US dollar and weigh on Gold prices.

Technical Analysis Gold (XAU/USD)

Gold appears poised for another leg higher looking at basic price action on a daily timeframe.

The precious metal has printed higher highs and higher lows since the December 19 low of 2582. Yesterday the daily candle left a long wick to the downside while maintaining the overall bullish structure setting the precious metal up for another push higher.

However, the overarching fundamentals may keep gains in check and a lot of this may depend of US data later in the day.

Immediate resistance rests at yesterdays high of 2650 before the 2664 and 2674 handles come into focus.

A move to the downside today may find support at 2624 or yesterdays lows at 2614. While a break of these levels could lead to a renewed test of the 2600 handle.

Gold (XAU/USD) Daily Chart, January 7, 2025

Source: TradingView (click to enlarge)

Support

• 2624
• 2614
• 2600

Resistance

• 2650
• 2664
• 2674

The Swiss franc is higher for a third straight trading day. In the European session, USD/CHF is currently trading at 0.9038, down 0.09% on the day.

Soft CPI cements SNB rate cut

Switzerland’s inflation rate continues to fall and that is raising concerns at the Swiss National Bank. Other central banks are worried about the upside risk of inflation but the SNB is worried about inflation dropping below its target band of between 0% and 2%.

December CPI came in at -0.1% m/m for a third straight month, in line with the market estimate. Annually, CPI ticked lower to 0.6% from 0.7% in November, also matching the market estimate. Food and services prices decelerated, while housing and energy inflation rose to 3.4%, up from 3.3% in November.

The SNB only meets four times a year and the next meeting isn’t until Mar. 30. Still, the soft December CPI report has cemented a rate cut in March, with the markets currently pricing in a 25-basis point cut at 98%. Could we see a larger cut in March? The answer is yes, if inflation continues to decelerate.

The SNB slashed rates by 50 basis points in December and the 0.1% decline in inflation in November likely was an important factor in the oversized rate cut, which was the largest in 10 years. There are two more inflation reports ahead of the March rate meeting and the SNB could respond with another 50-bp cut if inflation is close to the bottom of the 0%-2% target range.

The US releases ISM Services PMI for December, the key services indicator, later today. Over the past two years, the PMI has pointed to expansion in every month but two, pointing to prolonged growth in business activity. The PMI is expected to improve to 53.0, following 52.1 in November.

USD/CHF Technical

• USD/CHF tested resistance at 0.9053 earlier. Above, there is resistance at 0.9097
• 0.9001 and 0.8957 are the next support levels

Eurozone inflation accelerated again in December, with headline CPI rising to 2.4% yoy, up from November’s 2.2% yoy, as per the flash estimate. That's also the third month rise in inflation since hitting 1.8% yoy back in September.

Meanwhile, core CPI, which excludes volatile components such as energy, food, alcohol, and tobacco, remained steady at 2.7% yoy for the fourth straight months. Both readings , aligned with forecasts.

Breaking down the components of inflation, services led the way with an annual rate of 4.0%, up slightly from November’s 3.9%. This was followed by food, alcohol, and tobacco, which held steady at 2.7%. Non-energy industrial goods inflation softened marginally to 0.5% from 0.6%, while energy prices rebounded modestly to 0.1% from a sharp -2.0% contraction in the prior month.

Full Eurozone CPI flash release here.

ECB's Consumer Expectations Survey for November 2024 revealed that inflation expectations continued their upward drift, with the median forecast for inflation over the next 12 months ticking up to 2.6%, from 2.5% in October. This marks the second consecutive monthly increase. Longer-term inflation expectations for three years ahead also rose to 2.4%, up from October's 2.1%, reaching a level last seen in July 2024.

Despite the uptick in inflation forecasts, uncertainty around short-term inflation expectations held steady at its lowest point since February 2022. This suggests consumers are becoming more confident in their projections, albeit with inflation still running above ECB's 2% target over the medium term.

On the downside, economic growth expectations took a sharper negative turn, with households predicting a contraction of -1.3% over the next 12 months, compared to the -1.1% forecast in October. This worsening outlook reflects persistent concerns about the Eurozone's economic health amid weak demand and geopolitical risks.

Labor market sentiment also deteriorated, as expectations for unemployment rate 12 months ahead climbed to 10.6%, reversing October's slight improvement to 10.4%.

Full ECB Consumer Expectations Survey results here.

Daily Pivots: (S1) 195.87; (P) 196.65; (R1) 198.14; More...

Intraday bias in GBP/JPY remains neutral and further rally is expected with 194.04 support intact. Break of 198.94 will resume the rise from 188.07, as a leg of the corrective pattern from 180.00, and target channel resistance (now at 203.90). However, firm break of 194.04 will turn bias to the downside for 188.07 support instead.

In the bigger picture, price actions from 208.09 are seen as a correction to whole rally from 123.94 (2020 low). The range of consolidation should be set between 38.2% retracement of 123.94 to 208.09 at 175.94 and 208.09. However, decisive break of 175.94 will argue that deeper correction is underway.

Daily Pivots: (S1) 162.31; (P) 163.17; (R1) 164.64; More...

EUR/JPY's break of 163.30 minor resistance suggests that pull back from 164.98 has completed at 160.89 already. Intraday bias is back on the upside. Firm break of 164.89 will resume the rally from 156.16, as a leg of the corrective pattern from 154.40, and target 166.67. This will now remain the favored case as long as 160.89 support holds.

In the bigger picture, price actions from 175.41 are seen as correction to rally from 114.42 (2020 low). The range of consolidation should have been set between 38.2% retracement of 114.42 to 175.41 at 152.11 and 175.41 high. However, decisive break of 152.11 would argue that deeper correction is underway.

Daily Pivots: (S1) 0.8284; (P) 0.8301; (R1) 0.8316; More...

No change in EUR/GBP's outlook as range trading continues. On the upside, firm break of 0.8326 resistance will confirm short term bottoming at 0.8221, ahead of 0.8201 key support. Intraday bias will be turned back to the upside for 0.8446 structural resistance next.

In the bigger picture, focus remains on whether 0.8201 key support (2022 low) is strong enough to complete the whole down trend from 0.9267 (2022 high). In any case, medium term outlook will be neutral at best until decisive break of 0.8624 key resistance. Risk will stay on the downside even in case of strong rebound.

Daily Pivots: (S1) 1.6555; (P) 1.6604; (R1) 1.6685; More...

Intraday bias in EUR/AUD is turned neutral with current recovery. Corrective pattern from 1.6800 could extend further. But strong support could be seen from 38.2% retracement of 1.5963 to 1.6800 at 1.6480 to bring rebound. But near term risk will stay mildly on the downside as long as 1.6800 resistance holds, in case of extended recovery. Firm break of 1.6480 will bring deeper correction 61.8% retracement at 1.6283.

In the bigger picture, EUR/AUD is holding on to 1.5996 key support despite brief breach. Larger up trend from 1.4281 (2022 low) is still in favor to resume through 1.7180 at a later stage. Nevertheless, sustained break of 1.5995 will indicate that such up trend has completed and deeper decline would be seen.

Daily Pivots: (S1) 0.9366; (P) 0.9388; (R1) 0.9420; More....

EUR/CHF's corrective rebound from 0.9204 could still extend higher through 0.9440. But upside should be limited by 0.9481 fibonacci resistance. On the downside, firm break of 0.9329 support will argue that the correction has completed, and bring retest of 0.9204 low.

In the bigger picture, while rebound from 0.9204 might extend higher, strong resistance could be seen from 38.2% retracement of 0.9928 to 0.9204 at 0.9481 to limit upside. Down trend from 0.9928 (2024 high) is still in favor to resume through 0.9204/9 support zone at a later stage.