Recently an agreement has been reached between representatives of the European Council, the European Parliament, and the European Commission on a new economic governance framework. It focuses on risk-based surveillance, differentiation between member states based on their specific situation, the integration of fiscal, reform and investment objectives in a medium-term fiscal plan. The single operational indicator in the form of a net expenditure path should facilitate communication and emphasizes the key role of discretionary primary spending rather than tax increases in bringing public finances under control. The reference trajectory, in combination with the debt safeguard and the deficit resilience safeguard, implies that many EU countries will have to undertake a sustained adjustment effort lasting several years. With the Treaty of Maastricht of 1992, an EU economic governance framework was established to coordinate economic policies to achieve the EU's economic objectives1. The latter concern the soundness and sustainability of public finances, sustainable economic growth and convergence, addressing macroeconomic imbalances as well as reforms and investments to enhance growth and resilience. A key component of the framework is the Stability and Growth Pact (SGP) -adopted in 1997- and its rules for the monitoring and coordination of national fiscal and economic policies.2 Its preventive arm sets for each EU member state a budgetary target. In addition, Eurozone countries are also subject to the corrective arm, which "ensures that member states adopt appropriate policy responses to correct excessive deficits (and/or debts) by implementing the Excessive Deficit Procedure."3 Economic convergence and sustainable public finances are important because they bring economic stability and reduce the contagion risk between countries. It is crucial in the Eurozone in view of its influence on the transmission of monetary policy. Healthy public finances also provide fiscal policy leeway to address the consequences of adverse shocks and avoids that monetary policy would be the only instrument that can be deployed. In February 2020, a debate was launched on reviewing EU economic governance. On that occasion, the European Commission argued that "the surveillance framework has supported the correction of its existing macroeconomic imbalances and the reduction of public debt" and considers that it has also promoted sustained convergence of economic performances and closer fiscal policy coordination in the Eurozone.4However, looking at the Commission estimates for 2023 budget deficits and public debt, one is struck by the huge dispersion (chart). Moreover, the Commission also noted that the fiscal stance had often been pro-cyclical and that member states had consistently favoured current expenditures rather than investments. Recently, an agreement has been reached between representatives of the European Council, the European Parliament, and the European Commission on a reform of the fiscal rules.5 Reducing debt ratios and deficits should be done "in a gradual, realistic, sustained and growth-friendly manner while protecting reforms and investment in strategic areas such as digital, green, social or defence." Member states must submit national medium-term fiscal structural plans. When government debt exceeds 60% of gross domestic product (GDP) or where the government deficit exceeds 3% of GDP, the Commission will submit a 'reference trajectory', indicating "how member states can ensure that by the end of a fiscal adjustment period of four years6, government debt is on a plausibly downward trajectory or stays at prudent levels over the medium-term." The agreement contains two safeguards that the reference trajectory must comply with. Under the debt sustainability safeguard, the "projected general government debt- to-GDP ratio decreases by a minimum annual average amount of 1 percentage point of GDP as long as the general government debtto- GDP ratio exceeds 90% and 0.5 percentage point of GDP as long as the general government debt-to-GDP ratio remains between 60% and 90%."7 To this end, a net expenditure path is determined and incorporated in the national medium-term fiscal structural plans.8 The plans and expenditure paths need to be endorsed by the Council. The net expenditure path would be such that it brings the general government deficit below 3% by the deadline set by the Council. The minimum annual structural improvement is set at 0.5% of GDP. The deficit resilience safeguard requires that fiscal adjustment would continue until a structural resilience margin of 1.5% of GDP relative to the 3.0% of GDP reference value of the Maastricht Treaty has been built. Under this safeguard, the annual improvement in the structural primary balance to achieve this margin is set at 0.4% of GDP (0.25% if the adjustment period has been extended to 7 years).9. Finally, a control account set up by the Commission will keep track of the annual and cumulative deviations of net expenditures compared to the target path. Under specific circumstances, the Council, upon a recommendation from the Commission, could allow deviations from this path.10. To conclude, the new economic governance framework has several key characteristics: risk-based surveillance, differentiation between member states based on their specific situation,...

EUR/USD gathered bullish momentum and advanced to the 1.0850 area. Improving risk mood weighs on the US Dollar on Thursday. Markets await Manufacturing and Services PMIs for the Euro area, Germany and the US. EUR/USD extended its recent uptrend after closing in positive territory on Wednesday and touched its highest level since early February above 1.0850 on Thursday. The pair's technical outlook points to a buildup of bullish momentum ahead of PMI data releases. The broad-based selling pressure surrounding the US Dollar (USD) fueled the pair's rally in the second half of the week. Although the USD managed to hold resilient against its rivals after FOMC Minutes, improving risk mood made it difficult for the currency to find demand during the Asian trading hours. The Federal Reserve (Fed) said in the minutes of the January policy meeting that most policymakers noted the risks associated with moving too quickly to ease the policy. Furthermore, the publication showed that officials highlighted uncertainty around how long the restrictive policy stance would be needed. Upbeat earnings figures from Nvidia triggered a rally in technology stocks after the closing bell. At the time of press, S&P futures and Nasdaq futures were up 0.85% and 1.6%, respectively, highlighting the risk-positive market atmosphere.

Gold price regains upside traction on Thursday after a muted close on Wednesday. US Dollar and US Treasury bond yields stay defensive amid hawkish Fed Minutes and upbeat mood. Gold price awaits a firm break above $2,035, as a falling wedge breakout remains in play. Gold price has resumed its bullish momentum near $2,030 early Thursday, having paused its recovery rally on Wednesday. A risk-on market environment is acting as a headwind for the US Dollar, despite the hawkish US Federal Reserve (Fed) January meeting Minutes. Gold price eyes PMI data  Asian markets are trending higher, with Chinese stocks supported by the latest policy support measures and the latest ban on major institutional investors from selling equities at the open and close. The sentiment also remains underpinned by the American tech-giant Nvidia's encouraging earnings result, posted after the Wall Street closing bell on Wednesday. Nvidia posted $5.16 earnings per share (EPS) vs. $4.64 expected while revenue stood at $22.10 billion vs. $20.62 billion expected. The AI pioneer said that it expected $24.0 billion in sales in the current quarter.  Against a better market mood, as reflected by a 0.74% gain in the US S&P 500 futures, the US Dollar is keeping its downbeat tone intact, allowing Gold price to regain the recovery momentum. Gold price reversed early gains on Wednesday and tested the $2,020 support area before staging a modest to close the day flat. Gold sellers returned after the Minutes of the Fed's January meeting stated, "most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2 percent."  The Fed Minutes were read as hawkish but failed to have any lasting positive impact on the US Dollar. Therefore, Gold price managed to settle Wednesday at $2,025. Markets are currently pricing in just about a 30% chance that the Fed could begin easing rates in May, much lower than an over 80% chance a month ago, according to the CME FedWatch Tool. For the June meeting, the probability for a rate cut now stands at 70%, down from 77% seen a day ago. With the Fed Minutes out of the way, attention turns toward the preliminary readings of the Eurozone, UK and US business PMIs due later on Thursday. The PMI data is likely to have a significant impact on the broad market sentiment if the Eurozone PMIs indicate a potential recession while the US PMI data could squash hopes of an economic 'soft-landing'. That said, the further upside in the Gold price remains at the mercy of the risk sentiment, US data and Fedspeak. Gold price technical analysis: Daily chart As observed on the daily chart, Gold price is consolidating the upside near multi-day highs before breaking higher through the crucial 50-day Simple Moving Average (SMA) hurdle at $2,035. The technical setup remains in favor of further upside, especially after the Gold price confirmed a falling wedge breakout above the descending trendline resistance of $2,018 earlier in the week. Gold buyers will need to find a strong foothold above the 50-day SMA at $2,035 to aim for the February 7 high of $2,044, followed by the $2,050 psychological barrier. The 14-day Relative Strength Index (RSI) sits just above the midline, backing the bullish potential in Gold price. On the contrary, if Gold buyers face rejection at the 50-day SMA, the 21-day SMA at $2,023 will be back on the sellers' radars. A failure to defend the latter could fuel a fresh downswing toward $2,005, the confluence of the wedge resistance-turned-support and the upward-pointing 100-day SMA. Ahead of that, Tuesday's low of $2,015 could come to the rescue of Gold optimists.

AUD/USD reversed its march north on Wednesday. The next target emerges at the 200-day SMA near 0.6560. The Australian Wage Price Index surprised to the upside. The Australian dollar halted its upward trajectory, coming under selling pressure after retesting the 0.6570 zone against the US Dollar (USD) on Wednesday. Wednesday's bearish price action came after five consecutive daily upticks in AUD/USD following yearly lows observed in the 0.6440 range earlier in the month. The pair's decline was underpinned by a tepid bounce in the Greenback, leading the USD Index (DXY) to remain close to the 104.00 neighbourhood. The daily knee-jerk in spot coincided with a directionless performance for the US Dollar, as investors continued to assess the likelihood of the Federal Reserve (Fed) initiating a cycle of monetary easing later than anticipated. This sentiment gained momentum following resilient US inflation data tracked by the CPI and PPI for the month of January. On the domestic docket, Australia's Wage Price Index rose more than estimated by 4.2% YoY in Q4, further propping up the decision by the Reserve Bank of Australia (RBA) to not rule out further tightening in the next few months. Still around the RBA, the central bank published its Minutes of the February meeting ("hawkish hold") on Tuesday. The minutes revealed that the bank deliberated on whether to increase the cash rate by 25 bps or maintain it at the current level. Ultimately, the decision was made to keep the cash rate steady at 4.35% due to a perceived decrease in the risk of inflation not meeting the Board's target within an acceptable timeframe. Additionally, members reached a consensus on the importance of neither definitively endorsing nor dismissing the possibility of future interest rate hikes. Despite the ongoing recovery of AUD/USD, investors are expected to closely follow developments in China, commodity prices (mainly copper and iron ore), and movements in the US Dollar. While extra stimulus measures in China could potentially reinforce a near-term rebound, news of a more sustainable recovery in the country is needed to lend stronger legs to the Australian currency and, therefore, spark a more convincing move higher in AUD/USD. Along with a bounce in the Chinese economy, it is also expected to tag along an improvement in commodity prices, which should also morph into further support for the AUD. Furthermore, the current restrictive stance of the RBA should also keep the Aussie dollar well supported in bearish attempts. AUD/USD daily chart AUD/USD short-term technical outlook Further upside should prompt AUD/USD to revisit the temporary 55-day SMA at 0.6629, an area coincident with the late January highs (January 30). A break above this range may take the pair towards the December 2023 top of 0.6871 (December 28), seconded by the July 2023 peak of 0.6894 (July 14) and the June 2023 high of 0.6899 (June 16), all before the key 0.7000 milestone. On the other hand, bearish attempts may drive AUD/USD to initially test its 2024 low around 0.6452 (February 13). Breaking below this level may lead to a retest of the 2023 low of 0.6270 (October 26), followed by the round level of 0.6200 and the 2022 low of 0.6169. (October 13). It is worth mentioning that for the AUD/USD to see more short-term gains, it must clearly surpass the crucial 200-day SMA, today at 0.6562. The 4-hour chart indicates hints that the recovery will continue in the short future. Against that, first resistance is at 0.6579 prior to 0.6610. Surpassing this zone indicates a probable advance towards 0.6728. Meanwhile, a break of 0.6442 may cause a decrease to 0.6347, then 0.6338. The MACD advanced to the positive zone, and the RSI appears stable near 57.

XAU/USD Current price: $2,023.03 Market players await FOMC Meeting Minutes for fresh directional clues. US indexes trade in the red ahead of Federal Reserve's news. XAU/USD pressures recent lows amid resurgent US Dollar demand. The US Dollar gathered intraday momentum with Wall Street's opening and ahead of the release of the Federal Open Market Committee (FOMC) Minutes. The Greenback trades mixed against its major rivals, marginally benefiting from a dismal mood. Asian and European equities struggled to post gains earlier in the day, while US indexes maintain the negative tone seen on Tuesday and trade in the red for a second consecutive day, reflecting the absence of risk appetite. The FOMC Minutes should provide additional clues on the Federal Reserve (Fed) decision to keep rates unchanged in the first meeting of 2024, while Chairman Jerome Powell stated that a March rate cut was quite unlikely. Ever since the meeting, the country released employment and inflation-related data that support the Fed's wait-and-see case. As a result, speculative interest moved its rate-cut expectations to June, dropping bets for a May movement. The document, then, seems to have become old news and has few chances of affecting currencies. XAU/USD short-term technical outlook The daily chart for the XAU/USD pair shows bulls are losing conviction. The pair is stuck around a flat 20 Simple Moving Average (SMA) while the longer moving averages maintain their bullish slopes far below the current level. Technical indicators, however, remain below their midlines, with the Momentum indicator turning marginally lower within negative levels and the Relative Strength Index (RSI) indicator holding directionless at around 50. The risk skews to the downside, although additional confirmation is needed. Exterminating the XAU/USD 4-hour chart, technical readings suggest easing optimism. Technical indicators remain within positive levels but offer bearish slopes, reflecting the ongoing selling. At the same time, the pair is breaking below converging and directionless 100 and 200 SMAs, while the 20 SMA keeps heading north below the current level, providing dynamic support at around $2,020.94. Support levels: 2,020.95 2,011.40 1,995.35   Resistance levels: 2,032.50 2,045.20 2,064.90

EUR/USD Current price: 1.0797 Financial markets battle to retain the optimism amid Chinese woes. The Federal Open Market Committee (FOMC) will publish the Minutes of its latest meeting. EUR/USD continues to consolidate with modest signs of easing buying interest. The EUR/USD pair seesaws around the 1.0800 level, lacking directional strength on Wednesday as investors keep waiting for fresh clues. Financial markets are slowly digesting that global economic progress remains tepid and that central banks are nowhere near trimming interest rates after pushing them to record highs to control skyrocketing inflation. Indeed, price pressures have receded, and there are modest signs of growth. Still, the general picture is much weaker than speculative interest expected a year ago. The disappointment was partially offset by mostly encouraging earnings reports in the United States (US), which pushed the S&P500 to all-time highs. But as the season approaches its end, the focus shifts. Bad news from China keeps weighing on the market's mood. The People's Bank of China (PBoC) has trimmed mortgage-related rates this week to boost the troubled housing sector, to no avail. However, local stocks rallied early on Wednesday as authorities limited quant funds trading, yet another measure to support the market. Still, other Asian indexes could not follow the lead, while European ones post modest gains. Equities reflect a continuously tepid sentiment. The macroeconomic calendar features Federal Reserve (Fed) speakers and the Federal Open Market Committee (FOMC) meeting Minutes in the upcoming American session. Market players hope the document could clarify policymakers' intentions on monetary policy. The central bank anticipated three potential rate cuts throughout 2024 in the dot plot published in December. The Minutes won't come with a forecast update but could hint at changes in policymakers' views. Anyway, the document is expected to reaffirm its higher-for-longer stance on interest rates and could have a limited impact on the market, moreover considering employment and inflation data released after the meeting. EUR/USD short-term technical outlook The EUR/USD pair trades around the 23.6% Fibonacci retracement of the 1139-1.0694 decline at 1.0799. From a technical point of view, the daily chart suggests buyers are giving up. Technical indicators retreat from their midlines, gaining downward strength within negative levels. At the same time, EUR/USD is stuck around a flat 100 Simple Moving Average (SMA), which converges with the aforementioned Fibonacci level. The 4-hour chart offers a neutral stance. The Momentum indicator barely stands above its 100 line, suggesting a marginal bullish bias. The Relative Strength Index (RSI) indicator is heading south at 56, limiting the bearish potential while holding within positive levels. Finally, the 200 SMA continues to provide dynamic resistance at around 1.0840, while the 20 SMA stands a handful of pips below the current level, reflecting the tight range and the absence of clear directional interest. Support levels: 1.0770 1.0720 1.0690 Resistance levels: 1.0840 1.0885 1.0620