Global Markets React to Economic Data and Central Bank Actions: EUR/USD, GBP, and AUD in Focus

The EUR/USD pair faced slight downward pressure during the European session but later recovered to the equilibrium rate of 1.0950, which has been sustained by the market since last week amid a lack of conclusive signals from the Fed or the ECB:The Dollar index (DXY) rose amidst a thin-volume trading session marked by elevated volatility due to the extended weekend in the United States for Martin Luther King Jr. Day. US equity futures trade slightly in the red, signaling a risk-averse market sentiment. Investors remain wary about the risk that recent improvements in US data (CPI, labor market indicators) will translate into inflation persistence in other economies, hence steering clear of aggressive dollar bids.The focus now shifts to the eagerly anticipated US monthly Retail Sales data for December, scheduled for Thursday. Analysts expect 0.4% growth, surpassing the 0.3% increase recorded in November. The trajectory of the USD Index remains closely tied to market perceptions of the March rate cut by the Federal Reserve. According to the CME Fedwatch tool, traders are currently assigning a 70% probability of a rate cut by the Fed in March.On the Eurozone front, Germany's preliminary GDP for the fourth quarter of 2023 contracted by 0.3%, in line with expectations. This comes after a notable 1.8% growth in the previous period. While market participants foresee the European Central Bank contemplating interest rate cuts, ECB Chief Economist Philip Lane downplayed the possibility, citing recent inflation data.Turning to the Pound Sterling, it faces a sell-off ahead of the United Kingdom labor market data for the three months ending November due on Tuesday. Soft wage growth data could potentially contribute to a decline in households' spending power, aiding in the gradual return of inflation towards the 2% target. The demand for labor remains vulnerable, with job postings in the UK declining by 32% in December compared to a year ago, according to the Recruitment and Employment Confederation (REC).Down under in Australia, higher TD Securities Inflation data indicates mounting price pressures in the coming months. Additionally, job advertisements increased in December after three consecutive declines. However, these positive figures failed to offer significant support to the Australian Dollar. The People's Bank of China's decision to leave its benchmark rate unchanged disappointed investors who were expecting a rate cut to bolster the country's economic recovery. Consequently, the China-proxy Australian Dollar is under increasing bearish pressure, with key supports at 0.6620 (50-day SMA) and 0.6580 (100-day SMA). The pair witnessed a reversal of the bullish trend at the start of the new year, which adds to the view that the pair might have entered a medium-term downward trend.