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  • XAU/USD prices have not seen many reactions to the news of a Brexit deal.
  • Spot gold trades a little higher on Thursday’s holiday-shortened day amid a weaker USD.

News that the UK and EU have finally been able to reach a deal on their future trading relationship has not substantially shifted the dial for the market’s broader appetite for risk, or indeed for spot gold (XAU/USD) prices. Indeed, after days of speculation that a deal was within touching distance, Thursday’s confirmation has not come as much of a surprise, and actually even resulted in a “sell the fact” reaction in GBP.

Market’s don’t have a clear risk appetite bias on Thursday; while US equities are trading a little higher (S&P 500 +0.3%) on Thursday’s holiday-shortened day and while FX markets maintain a risk-friendly bias (GBP, AUD and NZD lead, while safe-havens JPY and CHF lag), bond yields are higher (US 10-year -1.9bps to 0.936%) and crude oil markets are lower.

But the US dollar is weaker, and this has given gold prices a mild lift; XAU/USD currently trades in the upper $1870s with gains of around 0.3% or $5 on the day.

US fiscal stimulus hiccup

Brexit stole the limelight on Thursday. Markets are relieved that a deal was able to be reached prior to Christmas. The same cannot be said for the latest US fiscal stimulus package, which US President Donald Trump has thus far refused to sign into law (after it passed Congress earlier in the week), given his demand for the stimulus payments to be upped to $2000 from $600 and for unnecessary components to be removed.

The Democrats today attempted to fulfill one of Trump’s demand by requesting an increase to the size of the Covid-19 stimulus cheques in line with Trump’s request in the House. Unanimous consent was needed for this, however, and the House Republicans did not play ball. Indeed, House Republican leader McCarthy has rejected Trump’s demand to increase the size of the stimulus cheques.

The House will now vote on a stand-alone Bill to increase the stimulus size to $2000 on Monday, but it is highly unlikely the Republican-controlled Senate will approve such a bill before the Congressional Term runs out in January. However, White House officials still seem to believe that Trump might sign the existing stimulus package bill into law anyway. With Brexit out of the way, what happens regarding stimulus over the weekend will be the main focus of markets going forward.

XAU/USD consolidating within long-term pennant

An XAU/USD breakout in the near future is looking increasingly likely; spot gold has been consolidating within a pennant with the upper bound a downtrend linking the August, November and December highs and the lower bound an uptrend linking the 30 November, 14 December and Wednesday lows.

XAU/USD daily chart