Gold prices have fallen, the euro has weakened, so where should money go?
2026-01-07 19:53:59
On Wednesday (January 7), the euro traded around 1.1690 against the US dollar during the European session, clearly pressured by the dollar. While this appears to be a simple exchange rate fluctuation, a clear logical chain is at play. This round of dollar appreciation is not due to a single factor, but rather the result of three combined driving forces.
First, there's the market's optimistic expectations for US labor market data. Funds often position themselves in advance before key economic data releases, forming a "buy the rumor, sell the news" trading habit. Currently, the market generally expects the job market to remain resilient, which has supported the dollar even before the data release. Second, changes in the interest rate path are reshaping asset attractiveness. The market now expects the probability of another Fed rate cut in March to drop to 45%, meaning that policy will remain tight for a longer period. A high-interest-rate environment enhances the relative returns of dollar assets, attracting international capital inflows. The third factor is rising risk aversion. Against the backdrop of global geopolitical instability and fluctuating risk appetite, traders are once again favoring the dollar as a core safe-haven asset.
These three forces combined have led to a period of strength for the US dollar. However, it's worth noting that this rise reflects more of a "pricing in" than a realization of actual gains. If subsequent data falls short of expectations or signals of a policy shift emerge, the market could quickly reverse.
Markets often operate counterintuitively—good news can cause prices to fall, while bad news can lead to gains. This phenomenon is known as "buying the rumor, selling the fact." The current strength of the US dollar is a prime example of this logic.
Before important data releases, traders often establish positions based on predictions. For example, many believe the US employment data won't be too bad, so they buy dollars. However, when the data is actually released, even if the results are positive, the market may choose to take profits, causing prices to fall. This is why sometimes "good news turns into bad news."
The market's focus is no longer limited to a single meeting or a particular figure, but rather on whether monetary policy will undergo a structural shift in the coming year. Some argue that increased political pressure could prompt the Federal Reserve to take unconventional measures, such as significantly cutting interest rates even during periods of strong economic growth. While this contradicts traditional macroeconomic logic, it's not entirely impossible if inflation declines significantly or the financial system comes under pressure. More importantly, if precedents of administrative intervention in central bank decisions emerge—such as the recent discussions surrounding the Lisa Cook case—market concerns about policy independence will rise, thereby increasing the uncertainty premium.
In this environment, funds tend to "first seek refuge, then wait and see." In other words, before the truth is revealed, investors prefer to hold stable assets like the US dollar and wait and see. However, analysts warn that this support is often temporary, and once the situation becomes clear, funds may quickly shift to other assets.
In contrast, the euro has performed weakly. Besides the passive depreciation caused by the strengthening dollar, the euro's own fundamentals and policy outlook are also dragging down its exchange rate.
European inflation continues to decline, particularly in Germany where the December consumer price increase slowed to 2% from 2.6%, prompting markets to reassess the European Central Bank's policy space. If the deflator continues to widen, the market will naturally speculate whether the ECB will restart its easing cycle sooner than expected. Once expectations of interest rate cuts intensify, the attractiveness of euro-denominated assets will decrease, leading to increased pressure for capital outflows.
Meanwhile, internal growth and fiscal problems in Europe are exacerbating risk concerns. German Chancellor Friedrich Merz publicly stated that some sectors are in a critical state and that the government's response over the past eight months has been inadequate; the French Ministry of Finance warned that if parliament fails to reach a budget compromise, the deficit could rise to 5.4%, and the country could even face a credit rating downgrade. These voices have deepened international market doubts about the fiscal sustainability of the Eurozone, leading traders to demand higher risk compensation and further suppressing the euro's performance.
From a technical perspective, the euro/dollar pair encountered resistance at 1.1807 and retreated, indicating significant selling pressure above. The 1.1750 level has become a key support/resistance level; failure to break and hold above this level suggests the rebound is likely just a correction rather than a trend reversal. The 1.1658 level was recently tested and has shown some support. While the current price is still above this level, the distance is not far, and increased volatility could trigger technical selling. The MACD indicator shows weakening short-term momentum, with the DIFF at 0.0019, DEA at 0.0031, and the MACD histogram at -0.0025. The RSI is approximately 47.0851, in a neutral-to-weak range, indicating the market is not yet oversold and still has room to fall.
A stronger dollar not only affects the euro but also causes gold to retreat. This is a typical "currency-based pricing effect"—when the dollar appreciates and real interest rates are expected to rise, gold, priced in dollars, naturally comes under pressure.
However, gold's medium-term resilience has not disappeared. Against the backdrop of a increasingly fragmented global landscape, many central banks are quietly adjusting their reserve structures, increasing their holdings of precious metals. This long-term rebalancing behavior will provide some support during gold price pullbacks. Therefore, the decline in gold prices is more a matter of timing than a trend reversal.
Returning to the euro/dollar exchange rate itself, it is more likely to exhibit range-bound trading rather than a one-sided trend. Short-term movements will depend on the gap between upcoming data and market expectations. If labor market data is strong and the probability of a March rate cut remains below 50%, the dollar is expected to maintain its strength, and the euro may further test 1.1658 or even lower levels. Conversely, if the data is significantly weak or policy expectations ease, the exchange rate has a chance to return to the 1.1750 area for a correction.
In the medium term, the fate of the euro hinges on two key factors: first, whether the European Central Bank will be forced to ease monetary policy prematurely due to rapid deflation; and second, whether the EU can stabilize its fiscal and growth narrative to restore confidence. As for the dollar, the key lies in whether the question of "how long high interest rates can be maintained" or "whether the policy framework will change" prevails. Under this interplay, the exchange rate will likely fluctuate between 1.1658 and 1.1750, awaiting the next catalyst to break the equilibrium.
First, there's the market's optimistic expectations for US labor market data. Funds often position themselves in advance before key economic data releases, forming a "buy the rumor, sell the news" trading habit. Currently, the market generally expects the job market to remain resilient, which has supported the dollar even before the data release. Second, changes in the interest rate path are reshaping asset attractiveness. The market now expects the probability of another Fed rate cut in March to drop to 45%, meaning that policy will remain tight for a longer period. A high-interest-rate environment enhances the relative returns of dollar assets, attracting international capital inflows. The third factor is rising risk aversion. Against the backdrop of global geopolitical instability and fluctuating risk appetite, traders are once again favoring the dollar as a core safe-haven asset.
These three forces combined have led to a period of strength for the US dollar. However, it's worth noting that this rise reflects more of a "pricing in" than a realization of actual gains. If subsequent data falls short of expectations or signals of a policy shift emerge, the market could quickly reverse.
"Buy the rumor, sell the fact": What's going on in the market?
Markets often operate counterintuitively—good news can cause prices to fall, while bad news can lead to gains. This phenomenon is known as "buying the rumor, selling the fact." The current strength of the US dollar is a prime example of this logic.
Before important data releases, traders often establish positions based on predictions. For example, many believe the US employment data won't be too bad, so they buy dollars. However, when the data is actually released, even if the results are positive, the market may choose to take profits, causing prices to fall. This is why sometimes "good news turns into bad news."
The market's focus is no longer limited to a single meeting or a particular figure, but rather on whether monetary policy will undergo a structural shift in the coming year. Some argue that increased political pressure could prompt the Federal Reserve to take unconventional measures, such as significantly cutting interest rates even during periods of strong economic growth. While this contradicts traditional macroeconomic logic, it's not entirely impossible if inflation declines significantly or the financial system comes under pressure. More importantly, if precedents of administrative intervention in central bank decisions emerge—such as the recent discussions surrounding the Lisa Cook case—market concerns about policy independence will rise, thereby increasing the uncertainty premium.
In this environment, funds tend to "first seek refuge, then wait and see." In other words, before the truth is revealed, investors prefer to hold stable assets like the US dollar and wait and see. However, analysts warn that this support is often temporary, and once the situation becomes clear, funds may quickly shift to other assets.
Why is the Euro under pressure? A predicament caught in a pincer movement from both inside and outside.
In contrast, the euro has performed weakly. Besides the passive depreciation caused by the strengthening dollar, the euro's own fundamentals and policy outlook are also dragging down its exchange rate.
European inflation continues to decline, particularly in Germany where the December consumer price increase slowed to 2% from 2.6%, prompting markets to reassess the European Central Bank's policy space. If the deflator continues to widen, the market will naturally speculate whether the ECB will restart its easing cycle sooner than expected. Once expectations of interest rate cuts intensify, the attractiveness of euro-denominated assets will decrease, leading to increased pressure for capital outflows.
Meanwhile, internal growth and fiscal problems in Europe are exacerbating risk concerns. German Chancellor Friedrich Merz publicly stated that some sectors are in a critical state and that the government's response over the past eight months has been inadequate; the French Ministry of Finance warned that if parliament fails to reach a budget compromise, the deficit could rise to 5.4%, and the country could even face a credit rating downgrade. These voices have deepened international market doubts about the fiscal sustainability of the Eurozone, leading traders to demand higher risk compensation and further suppressing the euro's performance.
From a technical perspective, the euro/dollar pair encountered resistance at 1.1807 and retreated, indicating significant selling pressure above. The 1.1750 level has become a key support/resistance level; failure to break and hold above this level suggests the rebound is likely just a correction rather than a trend reversal. The 1.1658 level was recently tested and has shown some support. While the current price is still above this level, the distance is not far, and increased volatility could trigger technical selling. The MACD indicator shows weakening short-term momentum, with the DIFF at 0.0019, DEA at 0.0031, and the MACD histogram at -0.0025. The RSI is approximately 47.0851, in a neutral-to-weak range, indicating the market is not yet oversold and still has room to fall.
Gold price correction, currency exchange rate tug-of-war: What's next?
A stronger dollar not only affects the euro but also causes gold to retreat. This is a typical "currency-based pricing effect"—when the dollar appreciates and real interest rates are expected to rise, gold, priced in dollars, naturally comes under pressure.
However, gold's medium-term resilience has not disappeared. Against the backdrop of a increasingly fragmented global landscape, many central banks are quietly adjusting their reserve structures, increasing their holdings of precious metals. This long-term rebalancing behavior will provide some support during gold price pullbacks. Therefore, the decline in gold prices is more a matter of timing than a trend reversal.
Returning to the euro/dollar exchange rate itself, it is more likely to exhibit range-bound trading rather than a one-sided trend. Short-term movements will depend on the gap between upcoming data and market expectations. If labor market data is strong and the probability of a March rate cut remains below 50%, the dollar is expected to maintain its strength, and the euro may further test 1.1658 or even lower levels. Conversely, if the data is significantly weak or policy expectations ease, the exchange rate has a chance to return to the 1.1750 area for a correction.
In the medium term, the fate of the euro hinges on two key factors: first, whether the European Central Bank will be forced to ease monetary policy prematurely due to rapid deflation; and second, whether the EU can stabilize its fiscal and growth narrative to restore confidence. As for the dollar, the key lies in whether the question of "how long high interest rates can be maintained" or "whether the policy framework will change" prevails. Under this interplay, the exchange rate will likely fluctuate between 1.1658 and 1.1750, awaiting the next catalyst to break the equilibrium.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
