China’s DeepSeek shakes the markets

The USD continued to edge lower yesterday, ahead of the Fed’s interest rate decision tomorrow. The market widely expects the bank to remain on hold and we tend to maintain the view that the Fed may sound more hawkish than expected, which in turn may provide some support for the USD. Also, we highlight the launch of Chinese Artificial Intelligence chatbot DeepSeek, as the chatbot seems to be able to compete the US Chat GPT, providing similar if not better results at a fraction of the cost. The fundamental issue is that practically the US AI dominance is being set into doubt and China seems able to make wide technological leaps and to be catching up with the US in technology. It’s characteristic that US President Trump stated that the launch was a “wake-up call” for the US technology sector. The $500bn investment announced by Trump of AI infrastructure which is to be made by companies like NVIDIA and ASML in now being set into doubt. We expect the issue to enhance the rivalry between the US and China, possibly hardening the stance of the US even further, which in turn may be translated into a deeper trade war between the two. The USD may be supported from the issue, as may gold’s price given the uncertainty created, while US stock markets have reportedly wiped out $1tn at some point yesterday and the issue is expected to weigh, especially on tech sector shares. Please note that tomorrow we get also the earnings reports of ASML, IBM, Microsoft, Meta and Tesla which tends to add even more interest in the sector.

Gold’s price edged lower yesterday, after practically hitting a ceiling at the 2790 (R1) resistance line, which is a record high level. We maintain a bullish outlook for the precious metal’s price as the upward trendline guiding the pair since the end of last year, remains intact. We also note that despite the RSI indicator correcting lower, its reading still remains between the readings of 50 and 70, which may imply that there’s despite an easing of the bullish sentiment among market participants for gold’s price there is still a bullish predisposition in its favour. Should the bulls maintain control over the precious metal price, we may see gold’s price finally breaking the 2790 (R1) line, entering unchartered waters and we set as the next possible target for the bulls the 2900 (R2) level. For a bearish outlook we would require gold’s price reverse direction by initially breaking the prementioned upward trendline clearly in a first signal that he upward motion has been interrupted and continue to break the 2685 (S1) line and start aiming for the 2582 (S2) level.

Other highlights for the day:

Today after a quiet European session, we note the release from the US of December’s durable goods orders, January’s Richmond Fed Composite index and the consumer confidence for the same month, while BoE’s policymaker Jackson is scheduled to speak. In tomorrow’s Asian session, we note from Japan the release of BoJ’s December meeting minutes and Australia’s CPI rates for Q4. The headline rate is expected to slow down to 2.5% yoy, if compared to Q3’s 2.8% and if actually so could weigh on the Aussie as it may enhance the markets’ expectations for RBA to start cutting rates in its next meeting mid-February. Given the close Sino-Australian ties, please note that the Aussie may also be adversely affected should Trump announce that the US will impose tariffs on US imports from China. The issue is still US-Sino negotiations.

AUD/USD edged lower yesterday and during today’s Asian session, yet remains well within the boundaries set by 0.6270 (R1) resistance line and the 0.6170 (S1) support level. We tend to maintain a bias for the sideways motion between the prementioned boundaries to be continued. The RSI indicator has dropped reaching the reading of 50 implying a relative indecisiveness on behalf of the market for the pair. Should the bulls take over we may see the pair breaking the 0.6270 (R1) resistance line and start aiming for the 0.6350 (R2) resistance level. Should the bears take over, we may see the pair breaking the 0.6170 (S1) support line and start aiming for the 0.5980 (S2) support base.

XAU/USD Daily Chart

• Support: 2685 (S1), 2582 (S2), 2475 (S3)
• Resistance: 2790 (R1), 2900 (R2), 3000 (R3)

AUD/USD Daily Chart

• Support: 0.6170 (S1), 0.5980 (S2), 0.5700 (S3)
• Resistance: 0.6270 (R1), 0.6350 (R2), 0.6440 (R3)

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