Investors were cautious on Monday. The markets opened following the US killing of a top Iranian commander.
The risk-off sentiment saw equities trading weaker, while gold prices rallied to highs of 1588 before retreating intraday.
Economic data was dominated by the eurozone PMIs. Equity markets were, however, recovering towards the close of the session.
Euro Gains on Services PMI & Sentix Investor Confidence
The euro rose modestly on Monday, driven by better than expected services PMI and Sentix investor confidence data.
Services activity in the eurozone rose to 52.8 in December, beating estimates of 52.4. This was also higher from November’s print. The investor confidence from Sentix rose to 7.6 in January from 0.7 previously.
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EURUSD Struggles Near Resistance
The currency pair’s gains were capped as the resistance level is being tested. Price action is likely to consolidate within the resistance area of 1.1193 – 1.1177. A breakout above this level could see a rise to the previous highs near 1.1238. To the downside, the lower support at 1.1131 will be back under pressure.
UK Services Activity Fares Better than Forecast
The services sector in the United Kingdom saw a modest pick up in activity. Data from IHS Markit saw services activity rising to 50.0. A reading above 50 indicates expansion.
This was, however, a modest improvement from 49.0 the month before. Economists only forecast a rise to 49.1 in December.
GBPUSD Builds on Bullish Momentum
The currency pair is rising past the resistance level of 1.3100. However, price action could settle into a sideways range if the upper resistance at 1.3226 is not breached.
There are also some downside risks in the event that prices drop below the 1.3100 threshold. We expect GBPUSD to stabilize in the short term within the said levels.
Gold Prices Retreat After Strong Rally
The precious metal is showing signs of exhaustion in the rally since the holiday week of December. Fueled by the rising tensions between the United States and Iran, investors sought the safety of the precious metal. However, towards the close, prices were giving back the intraday gains made.
XAUUSD Could Retest Support
If the pace of the current declines continues, we expect XAUUSD to drop back to the 1562 region. Establishing support here could then indicate a potential move to the upside.
But, for the gains to continue, gold prices need to break past the current highs of 1578.00. To the downside, a decline below 1562 will see gold falling to the minor support of 1513.50.
