Weekly Outlook: USD likely to strengthen as Euro, Pound struggle

January 04, 2024 (MLN): Due to better economic conditions in USA, the USD strengthened at the start of the new year, reaching a 2 years high. However, the circumstances in Europe are different because of further challenges that have made its currency weaker.

The Euro is having a terrible time, having fallen to its lowest levels since 2022 and Pound Sterling is nearing its nine month lows.

Following the spike in energy costs, the already troubled European economy is now facing yet another crisis.

It is the result of the transit agreement expiring and not being extended, which stopped the flow of Russian gas through Ukraine.

The ism is that Europe will have to arrange costly LNG from other sources to meet its needs if the situation is not resolved.

There is already concern about a potential increase in trade conflict with the United States, given that Donald Trump has made it obvious that his new administration wants to increase European Union tariffs.

Though the tariff talks may take some time, Europe's reliance on security makes it a very tough decision to enter into a trade dispute with the United States. Regarding trade matters with China, Europe is already tough.

How can Europe afford to wage a two-front trade war? That is the key question.

Meanwhile, this week's US non-farm payrolls (NFP) jobs data will provide additional guidance for the USD after it had a strong start to the new year, rising more than 1% against the major currencies.

On the other hand, gold that recovered well in the first week of the new year might find guidance from the NFP data. Strong US Dollar and weak US bond yields are the two factors that work against gold. Friday's release of strong NFP figures might provide the market with justification to drive down gold prices.

While a weaker data will support gold prices. Still, I don't think gold will rise much higher without a compelling reason because, aside from trader's emotions, the odds are against it. #GOLD @ $ 2639- This week is predicted to see a wider range of trade and more volatility.

A break of $ 2678 will encourage $ 2695 on the upside. If $ 2612 surrenders after $ 2602 is broken, gates will be opened for testing and breaking $ 2588.

#EURO @ 1.0308- As long as 1.0430 holds, Euro will remain under pressure. Break of support 1.0210 could push it towards 1.0170-80.

#GBP @ 1.2420- It appears that the pressure on the Pound Sterling will continue if it does not rise beyond 1.2560. On the downside, break of 1.2310 could push Cable towards 1.2250-70 zones.

#JPY @ 157.27- Support for the USD is found between 156.30 and 155.20. It is probably going to hold for a potential upside test and break of 158.90 for 160.20.

The writer is the former Country Treasurer of Chase Manhattan Bank

Disclaimer: The views and analysis in this article are the opinions of the author and are for informational purposes only. It is not intended to be financial or investment advice and should not be the basis for making financial decisions.