Gold clawed back losses overnight as the US dollar weakened precipitously against the Euro in the wake of the European Central Bank (ECB) meeting and as the stock market’s upward momentum ran out of steam ahead of the US Non-Farm Payroll report.

But in reality, gold has not done that much this week, but encouragingly gold investors were quick to buy the overnight dip, which continues to highlight the strength of underlying sentiment.

As with all risk assets in this nascent stage of post lockdown economic recovery, price action is bound to remain choppy in the near term. That said, lingering concerns about gold positioning and reluctance to chase the market suggests gold bulls are in desperate need of a fresh catalyst.

US dollar weakens

The US dollar is trading significantly lower after the ECB announced a more significant than expected boost to its emergency bond-buying program.

Despite the risk rally showing signs of trader fatigue into the weekend, there has been plenty of constructive price action on the Euro since the ECB meeting and correctly so. While the market seemed to have gotten a bit more cautious given the recent strong rally in the pair, waiting for better entry levels to re-establish or add to long positions.

That wishful thinking gave way to G-10 trader tripping over themselves to get topside EURUSD exposure when the ECB finally over-delivered even relative to the market high bar expectation.

Euro gets a boost from ECB

The ECB increased the Pandemic Emergency Purchase Programme (PEPP) by EUR600 billion, which was above reported consensus of EUR500 billion. Then the Euro’s ticket was punched higher when the ECB announced the PEPP would be reinvested until at least the end of 2022 and should put to rest concerns about an abrupt end to the program.

Indeed, a pretty bullish ECB outcome for the EURO.

The Yuan gained overnight as the greenback extended its slide, and as US Trade Representative Robert Lighthizer chimed in overnight, saying he feels particularly good about the accord. (trade deal).

The Ringgit could look to reverse yesterday’s losses as oil prices are showing some signs of stabilising.

While the Thai Baht rally could struggle to extend gains as the strengthening local unit is now on the Bank of Thailand’s radar. And rightly so as the last thing Thailand needs is a stronger THB with tourism in the dumps and exports will be called upon to do the heavy lifting for the economy over the short-term until tourism eventually picks up.

FX and Gold markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp