CFD Markets News and Forecasts — 18-12-2024

• NZD/USD tumbles to near 0.5630 in Thursday’s early Asian session, down 0.43% on the day. 
• Weaker-than-expected New Zealand’s GDP data weighs on the Kiwi. 
• The Fed announced a quarter-point cut to its key interest rate at its December meeting on Wednesday.

The NZD/USD pair attracts some sellers to around 0.5630 during the early Asian session on Thursday. The weaker-than-expected New Zealand’s Gross Domestic Product (GDP) data and hawkish rate cut by the US Federal Reserve (Fed) exert some selling pressure on the pair. 

The downbeat GDP data puts New Zealand into the deepest recession since the initial Covid-related slump in 2020. Data released by Statistics New Zealand on Thursday showed that the country’s GDP shrank by 1.0% QoQ in the third quarter (Q3) compared with a 1.1% contraction (revised from -0.2%) in Q2. This reading was below the market consensus of -0.4%. On an annual basis, Q3 GDP contracted by 1.5% versus -0.5% prior, weaker than the -0.4% expected. In response to the data, the Kiwi falls to the lowest level since October 2022 against the US Dollar (USD). 

”It supports the Reserve Bank getting on with official cash rate cuts and getting the OCR back to a more neutral level more quickly than they were anticipating in the November monetary policy statement,” said Harbour Asset Management fixed income and currency strategist Hamish Pepper.

On the other hand, a more hawkish-than-expected message from the Fed provides some support to the Greenback and acts as a headwind for NZD/USD. The US central bank decided to lower its key interest rate by a quarter percentage point on Wednesday, the third consecutive rate reduction. The Fed officials indicated that it probably would only lower twice more in 2025. During the Press Conference, Fed Chair Jerome Powell said, “We can therefore be more cautious as we consider further adjustments to our policy rate.”

• The Bank of Japan will likely hold interest rates at 0.25% on Thursday.
• The language in the policy statement and Governor Kazuo Ueda’s press conference will hold the key.
• The BoJ policy announcements could ramp up volatility in the Japanese Yen.

After concluding its two-day monetary policy review on Thursday, the Bank of Japan (BoJ) is expected to hold the short-term interest rate at 0.25%.

The BoJ policy announcements will likely provide fresh cues on the central bank’s rate hike outlook, injecting intense volatility in the Japanese Yen (JPY)

What to expect from the BoJ interest rate decision?

As widely expected, the BoJ is set to pause its rate-hiking cycle for the third consecutive meeting in December. Therefore, the tone of the policy statement and Governor Kazuo Ueda’s post-policy meeting press conference, due at 06:30 GMT, will hold the key for gauging the timing of the next rate hike by the BoJ.

Markets have almost priced out a potential rate hike this week after Reuters and Bloomberg News cited people familiar with the BoJ thinking, noting that the Japanese central bank was considering keeping interest rates steady at its December meeting.

One of the sources quoted by Reuters said that “policymakers prefer to spend more time scrutinising overseas risks and clues on next year's wage outlook.”

Wages in Japan have been rising at an annual pace of around 2.5% to 3%, causing inflation to remain above the central bank's 2% target for well over two years.

The BoJ’s closely watched broader price trend indicator, the “core-core" Consumer Price Index (CPI) –excluding both fresh food and energy costs–, rose 2.3% in October from a year earlier, accelerating from a 2.1% gain in September. Further, revised third-quarter Gross Domestic Product (GDP) data showed Japan's economy expanded an annualised 1.2%, at a faster pace than initially reported.

However, falling household spending and a downward revision to the private consumption data hinted at a dwindling Japanese economic recovery. Additionally, BoJ policymakers would prefer to wait for the November CPI report and the start of United States (US) President-elect Donald Trump’s administration before the next rate lift-off.

Analysts at BBH said: “The two-day Bank of Japan meeting ends Thursday with a widely expected hold. The market sees only 15% odds of a hike after several reports emerged that a pause was being considered. The risk is the BoJ paves the way for a January rate hike. The odds of a hike rise to 70% at the January 23-24 meeting, when updated macro forecasts will be released.”

How could the Bank of Japan's interest rate decision affect USD/JPY?

BoJ Governor Kazuo Ueda said in his recent public appearance that the next interest rate hikes are "nearing in the sense that economic data are on track.” "I would like to see what kind of momentum the fiscal 2025 Shunto (spring wage negotiation) creates,” Ueda added.

In case the BoJ fails to provide a clear indication of the next interest rate hike by sticking to its rhetoric that monetary policy will be decided on a meeting-by-meeting basis depending on available data, the Japanese Yen is likely to extend its bearish momentum against the US Dollar (USD).

The JPY, however, could see a sharp corrective upside if the BoJ explicitly indicates that a rate hike is coming in January while acknowledging the encouraging economic prospects.

Any knee-jerk reaction to the BoJ policy announcements could be short-lived heading into Governor Ueda’s presser and as markets digest Wednesday’s policy decision by the US Federal Reserve (Fed).  

From a technical perspective, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes: “USD/JPY faces two-way risks heading into the BoJ rate call, with a 21-day Simple Moving Average (SMA) and 50-day Bear Cross in play. Meanwhile, the 14-day Relative Strength Index (RSI) holds well above the 50 level.”

“A hawkish BoJ hold could add extra legs to the ongoing USD/JPY correction, drowning the pair toward the 152.20 area, the confluence of the 21-day SMA, 50-day SMA and the 200-day SMA. The next relevant support aligns near 151.00, at the December 10 and 11 lows. Additional declines could challenge the 150.00 psychological support. Conversely, buyers must reclaim the three-week high of 154.48 to negate the near-term bearish bias. The July 24 high of 155.99 will be next on their radars en route to the 156.50 barrier,” Dhwani adds.

New Zealand's Gross Domestic Product (GDP) shrank by 1.0% QoQ in the third quarter (Q3) compared with a 1.1% contraction (revised from -0.2%) in the second quarter, the Australian Bureau of Statistics (ABS) showed on Thursday. This reading came in weaker than expectations of -0.4%.

The annual third-quarter GDP contracted by 1.5%, compared with a decline of 0.5% in Q2, while below the consensus of a 0.4% decrease.

Market reaction to New Zealand’s GDP data

The New Zealand Dollar attracts some sellers in an immediate reaction to the GDP report.  The NZD/USD pair is trading at 0.5622, losing 0.63% on the day.

What you need to take care of on Thursday, December 19:

Financial markets spent most of the day in wait-and-see mode ahead of the Federal Reserve’s (Fed) monetary policy announcement.

The Fed delivered, as expected, a hawkish cut, resulting in the US Dollar soaring amid a risk-averse environment. Early in Asia, the Greenback pressures fresh weekly highs across the board, maintaining the strong positive momentum.

Following the anticipated 25 basis points (bps) rate cut, investors were surprised by a dot plot showing just two potential rate cuts in 2025, quite a hawkish shift. Later, Chair Jerome Powell sounded even more hawkish, saying the economy remains strong and that they have likely avoided a recession.

Earlier in the day, the United Kingdom (UK) published its monthly inflation report, which showed the  Consumer Price Index (CPI) rose 2.6% on a yearly basis in November after advancing by 2.3% in October. Core annual inflation rose 3.5%, higher than the 3.3% previous and below the expected 3.6%.

As Asian trades reach their desks, the EUR/USD pair trades near 1.0332, the 2024 low, while GBP/USD hovers around 1.2580. Commodity-linked currencies were among the worst performers amid Wall Street collapsing. The AUD/USD  hovers around 0.6220 while the USD/CAD trades at 1.4429, and both the CAD and the AUD trading at fresh year lows vs the US Dollar.

Safe-haven assets also shed ground against the USD. The USD/JPY pair trades around 154.60, near a fresh December high, while Gold fell through the $2,600 mark for the first time in a month.

Coming up next is the Bank of Japan (BoJ). The central bank is expected to keep rates on hold this time, albeit a rate hike can not be ruled out. Governor Kazuo Ueda will offer a press conference afterwards.

Later in the day, the Bank of England (BoE) will announce its decision on monetary policy early on Thursday. The BoE is expected to keep the main interest rate on hold, as Governor Andrew Bailey remarked on the need for a gradual approach. At the same time, Bailey recently SAID that four rate cuts are possible in 2025 if inflation continues its downward trajectory.

Federal Reserve Chairman Jerome Powell explains the decision to cut the policy rate, federal funds rate, by 25 basis points to the range of 4.25%-4.5% after the December meeting and responds to questions in the post-meeting press conference.

Key quotes

"Geopolitical turmoil remains a risk."

"There's high uncertainty projecting the economy 3 years ahead."

"It's been frustrating, progress on inflation is slower than hoped."

"Still, feeling good about where we are headed."

"We won't settle for above 2% inflation."

"We have every intention of getting inflation to 2%, I am confident we will achieve."

"We have made a great deal of progress."

"We don't rule things in or out."

"Rate hike does not appear to be a likely outcome next year."

Federal Reserve Chairman Jerome Powell explains the decision to cut the policy rate, federal funds rate, by 25 basis points to the range of 4.25%-4.5% after the December meeting and responds to questions in the post-meeting press conference.

Key quotes

"Lower hiring rate is a signal of softening in labor market."

"Wages are at a healthy, evermore sustainable level."

"Labor market is cooling in an orderly way."

"People are feeling the effect of high prices, not high inflation."

"Best we can do is to get inflation back to target and keep it there, so wage growth is faster than inflation."

"I expect another very good year next year."

"From here it's a new phase, we are going to be cautious about further cuts."

"It's appropriate to proceed cautiously."

• EUR/USD experiences sharp decline in response to the Federal Reserve's 25 basis point rate cut paired with a cautious outlook on future policy adjustments.
• Fed Chair Jerome Powell emphasizes a careful approach to further rate changes, noting persistent inflation risks, stable labor market.
• Fed's updated economic projections indicate only modest rate reductions in the coming years, setting the federal funds rate target at 3.4% by 2026.

The EUR/USD sank sharply after the Fed cut interest rates but also adopted a slightly hawkish stance, as the central bank estimates 100 basis points of easing toward the next two years. At the time of writing, the pair trades below 1.0400, volatile.

EUR/USD pair tumbles below 1.0400 as Fed Chair Jerome Powell speaks

In his press conference, Powell said that the central bank could be more cautious about considering additional adjustments, acknowledging that the policy is less restrictive. He added that risks and uncertainty around inflation are skewed to the upside and added that higher inflation is one of the reasons for the adjustment to the dot plot.

Jerome Powell added that it could take a year or two for inflation to get to the 2% goal, adding that the labor market is not cooling in a way that raises concerns.

The Federal Reserve cut rates by 25 basis points to the 4.25%-4.50% range, yet the decision was not unanimous, as Cleveland Fed President Beth Hammack voted to keep rates unchanged.

The statement changed little from the last meeting, though traders were focused on the Summary of Economic Projections (SEP).

The central bank's monetary policy statement revealed that economic activity continued to expand solidly and acknowledged the labor market conditions had eased. Despite the improvement in employment, Fed policymakers decided to keep the language of “The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance.”

Meanwhile, the SEP showed that officials penciled just two rate cuts in 2025 and 2026, driving the fed funds rate to 3.4% in 24 months.

EUR/USD Reaction to Fed's Chair Powell press conference

The EUR/USD has plunged sharply, clearing the 1.0450 psychological level, extending its losses toward the day's lows at 1.0410. The pair would remain trading volatile, as Fed Chair Powell takes the stand. Immediate resistance is seen at the December 13 low of 1.0452, and support at 1.0400. If cleared, the next support would be the YTD low of 1.0331.

Federal Reserve Chairman Jerome Powell explains the decision to cut the policy rate, federal funds rate, by 25 basis points to the range of 4.25%-4.5% after the December meeting and responds to questions in the post-meeting press conference.

Key quotes

"We do think labor market is still cooling, watching it closely."

"Labor market is not cooling in a way that raises concerns."

"We are in a new phase in the process."

"We are still meaningfully restrictive, closer to neutral, appropriate to move cautiously."

"We've done a lot to support economic activity."

"From now we are in a place where we need to see progress on inflation."

"We moved quickly to get to here, going forward we will move slower."

Federal Reserve Chairman Jerome Powell explains the decision to cut the policy rate, federal funds rate, by 25 basis points to the range of 4.25%-4.5% after the December meeting and responds to questions in the post-meeting press conference.

Key quotes

"The US economy is performing very, very well."

"No reason to think a downturn is any more likely than usual."

"We have to continue to have restrictive policy to get inflation to 2%."

"I'm confident in the story of why inflation has come down, why that portends well."

"Housing inflation has come down steadily."

"Goods inflation has returned to pre-pandemic range overall."

"Story of why inflation should be coming down is still intact."

"Job market is cooler by so many measures now."

"Inflation is still unwinding from large shocks in 2021 and 2022."

"It might take another year or two from here to get to 2%."

• USD/CAD spikes after the Federal Reserve reduces interest rates by 25 basis points to a range of 4.25%-4.50%.
• Federal Reserve’s decision was nearly unanimous, with Cleveland Fed President Beth Hammack casting the sole dissenting vote.
• The Summary of Economic Projections (SEP) reveals only two anticipated rate cuts through 2025 and 2026, aiming for a federal funds rate of 3.4%.

The USD/CAD soared to fresh yearly highs after the Federal Reserve slashed interest rates at the December meeting while opting to adopt a gradual approach to monetary policy next year. At the time of writing, the pair trades volatile at around 1.4400.

USD/CAD rallies following a Federal Reserve rate cut and projections of four rate cuts in two years

The Federal Reserve lowered interest rates by 25 basis points, setting the target range to 4.25%-4.50%. The decision was not unanimous, with an 11 to 1 vote, as Cleveland Fed President Beth Hammack voted to hold rates. While the accompanying policy statement saw only minor adjustments from the previous meeting, traders' attention shifted to the newly released Summary of Economic Projections (SEP).

The Fed's statement highlighted solid economic growth and a gradual easing of labor market conditions. Despite this, the committee reiterated, "The risks to achieving its employment and inflation goals are roughly in balance."

According to the SEP, officials expect only two rate cuts across 2025 and 2026, which would bring the federal funds rate down to 3.4% over the next two years.

Other projections indicate that the Fed’s preferred inflation measure, the Core PCE, is expected to decline gradually, ending at 2.8% in 2024, 2.5% in 2025, and 2.2% in 2026. On the growth front, the economy is projected to expand by 2.5% in 2024, 2.1% in 2025, and 2.0% in 2026.

The Unemployment Rate is expected to end the current year at 4.4% and remain unchanged at 4.3% in 2025 and 2026.

USD/CAD Reaction to Fed’s decision

The USD/CAD refreshed four-year highs, climbing past the March 2020 peak of 1.4349, which opened the door to test the 1.4400 figure. The pair has climbed past the latter and is eyeing a 2020 peak of 1.4560, but first, buyers must clear the 1.4500 psychological figure. In the event of a pullback, the pair's first support would be 1.4400, followed by the 1.4350 figure.

Federal Reserve Chairman Jerome Powell explains the decision to cut the policy rate, federal funds rate, by 25 basis points to the range of 4.25%-4.5% after the December meeting and responds to questions in the post-meeting press conference.

Key quotes

"Committee is discussing ways in which tariffs can drive inflation, we've done a good bit of work on that."

"That puts us in place to make a careful assessment of appropriate policy response to tariffs."

"There are many factors for how much tariffs will even go into consumer inflation."

"Premature to make any conclusion on impact of tariffs, don't know what countries, what size, how long."

"Don't know that 2018 is much of a guide to what will happen this time."

"We are at the stage of thinking through questions, not getting to definitive answers for some time."

"Core inflation coming down to 2.5% next year, as in projections, would be significant progress."

"We also have to think about the labor market, mindful it is gradually cooling."

"We expect significant policy changes, we need to see what they are and the effects to get a clearer picture."

"We will be looking for further progress on inflation to make those cuts."

Federal Reserve Chairman Jerome Powell explains the decision to cut the policy rate, federal funds rate, by 25 basis points to the range of 4.25%-4.5% after the December meeting and responds to questions in the post-meeting press conference.

Key quotes

"We are significantly closer to neutral, still restrictive."

"As long as the labor market, economy is solid, can be cautious as we consider further cuts."

"We think the economy in a real good place and policy too."

"What's driving the slower rate-cut path is stronger economic growth and lower unemployment."

"Also driving the slower rate-cutting path is higher inflation this year and next year."

"Also closer to neutral rate, another reason to be cautious."

Federal Reserve Chairman Jerome Powell explains the decision to cut the policy rate, federal funds rate, by 25 basis points to the range of 4.25%-4.5% after the December meeting and responds to questions in the post-meeting press conference.

Key quotes

"Can dial back policy restraint more slowly if inflation not moving sustainably toward 2%."

"Policy is well-positioned to deal with risks."

"Can ease more quickly if labor market weakens unexpectedly or inflation falls more quickly."

"Today was a closer call but the right call."

"Decided it was the right call as best decision to foster achievement of goals."

"Risks are two-sided."

"Trying to steer between those 2 risks."

"Downside risks to labor market have diminished, but still cooling."

"Don't think we need further cooling to get inflation down to 2%

"Job creation is below the level that would hold jobless rate constant."

"Labor market quite gradually cooling."

"Inflation story broadly on track, housing services steadily coming down."

"Extent and timing language shows we are at or near point of slowing rate cuts."

"Slower pace of rate cuts reflects expectation of higher inflation."

"Risks and uncertainty around inflation we see as higher."

"Cuts we make next year will react to data."

Federal Reserve Chairman Jerome Powell explains the decision to cut the policy rate, federal funds rate, by 25 basis points to the range of 4.25%-4.5% after the December meeting and responds to questions in the post-meeting press conference.

Key quotes

"Squarely focused on two goals."

"The economy is strong, labor market remains solid."

"Inflation much closer to the 2% goal."

"Consumer spending resilient, investment in equipment has strengthened."

"Housing activity has been weak."

"Improving supply has supported strong us economic performance."

"Wage growth has eased."

"Labor market not a source of inflation pressures."

"Total PCE probably rose 2.5% in 12 months ending in November."

"Core PCE prices probably rose 2.8% in November."

"Inflation expectations remain well-anchored."

"Risks to achieving goals roughly in balance."

"Attentive to risks on both sides."

"We can be more cautious going forward, can be more cautious in reducing rates."

"Reducing policy restraint too slowly could unduly weaken economy, employment."

"Policymaker projections for policy rate are higher for next year, consistent with higher inflation."

• EUR/USD sees a sharp decline after the Federal Reserve cuts rates by 25 basis points but indicates a slower pace for future reductions.
• Cleveland Fed President Beth Hammack cast a dissenting vote, preferring to keep rates steady.
• The Fed's Summary of Economic Projections (SEP) suggests only two rate cuts in 2025 and 2026.

The EUR/USD fell sharply, from around 1.0500, after the Federal Reserve lowered borrowing costs but adopted a cautious stance on the interest rates path in 2025. At the time of writing, the pair trades volatile at around the 1.0400 – 1.0500 range, below its opening price.

EUR/USD pair tumbles into the 1.0400 – 1.0500 range following a Federal Reserve rate cut accompanied by a guarded outlook for 2025

The Federal Reserve cut rates by 25 basis points to the 4.25%-4.50% range, yet the decision was not unanimous, as Cleveland Fed President Beth Hammack voted to keep rates unchanged. T

There was little change in the statement compared to the last meeting, though traders were focused on the Summary of Economic Projections (SEP).

The central bank's monetary policy statement revealed that economic activity continued to expand solidly and acknowledged the labor market conditions had eased. Despite the improvement in employment, Fed policymakers decided to keep the language of “The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance.”

Meanwhile, the SEP showed that officials penciled just two rate cuts in 2025 and 2026, driving the fed funds rate to 3.4% in 24 months.

SEP

Source: Federal Reserve

Next is the Fed Chair Jerome Powell's press conference, which would be scrutinized for traders to look for cues regarding the monetary policy for the upcoming year.

EUR/USD Reaction to Fed’s decision

The EUR/USD has plunged sharply, clearing the 1.0450 psychological level, extending its losses toward the day's lows at 1.0410. The pair would remain trading volatile, as Fed Chair Powell takes the stand. Immediate resistance is seen at the December 13 low of 1.0452, and support at 1.0400. If cleared, the next support would be the YTD low of 1.0331.

• The Federal Reserve delivered as expected, foresees two rate cuts in 2025.
• The Bank of England will announce its decision on monetary policy early on Thursday.
• GBP/USD approaches the 1.2600 mark after gaining near-term bearish traction.

The British Pound found near-term support earlier in the day, leading to GBP/USD reaching an intraday high of 1.2725. The trigger was the United Kingdom (UK) Consumer Price Index (CPI), which rose 2.6% on a yearly basis in November after printing at 2.3% growth in October, according to the data released by the Office for National Statistics (ONS) on Wednesday.

Core CPI (excluding volatile food and energy items) rose by 3.5% YoY in November, compared to a 3.3% increase in October while below the market consensus of 3.6%. Services inflation stayed unchanged at 5.0% YoY in November.

The pair held above 1.2700 afterwards, then collapsed after the United States (US) Federal Reserve (Fed) announced that it lowered the policy rate, federal funds rate, by 25 basis points to the range of 4.25%-4.5%.

The Fed made minor changes to its policy statement from the November meeting. Still, the dot-plot shows policymakers foresee now just two rate cuts in 2025, resulting in a hawkish cut that boosted demand for the US Dollar in a risk-averse environment.

• USD/JPY rises as the Federal Reserve cut its benchmark interest rate by 25 basis points (bps) to a target range of 4.25% - 4.50%.
• The Federal Reserve lowered the policy rate by 25 basis points (bps) to a range of 4.25% - 4.50%.
• Fed officials forecast that the economy will continue to expand at a solid pace, even though labor market conditions have softened.
• The FOMC will consider incoming data, the evolving outlook, and the balance of risks when making future interest rate decisions.

On Wednesday, the USD/JPY currency pair rose after the Federal Reserve cut interest rates by 25 basis points. The Federal Reserve lowered its benchmark interest rate by 25 basis points to a range of 4.25% to 4.50% and Fed officials indicated that the economy would continue to expand despite softer labor market conditions.

However, they noted that inflation remained elevated and the economic outlook was uncertain. The Fed will consider incoming data, the evolving outlook, and the balance of risks when making future interest rate decisions. Policymakers emphasized that they were committed to achieving their dual mandate of price stability and maximum employment.

For 2025, the Fed is forecasting a rate of 3.9%, up from the earlier projection of 3.4%, and a further increase is expected for 2026, with a target rate of 3.4%. These projections suggest a slightly more hawkish stance, maintaining a focus on balancing inflation control with economic growth. However, the Fed will continue to monitor incoming data and adjust its policies accordingly, keeping a close eye on economic trends and risks.

USD/JPY technical analysis

The technical analysis for USD/JPY shows that the pair is currently experiencing increasing buying pressure, with the Relative Strength Index (RSI) rising sharply. The Moving Average Convergence Divergence (MACD)is also in a bullish phase, as indicated by a rising histogram. Resistance levels are found at 154.50, 155.00, and 156.00, suggesting that the pair may continue to test this levels if demands for the USD continues rising

• Aussie nears 0.6300 as risk-off mood dominates.
• Fed decision looms, fueling US Dollar strength.
• China’s woes and Trump tariffs curb Aussie’s appeal.

The Australian Dollar approaches 0.6300, weighed by broad risk aversion ahead of the Federal Reserve’s (Fed) policy announcement and lingering China-related concerns. The US Dollar remains robust as investors brace for a “hawkish cut,” with the Fed expected to reduce rates but signal fewer 2025 cuts. Weak Chinese data and potential US tariffs further limit the Aussie’s upside.

Daily digest market movers: Aussie stands around 0.6300 ahead of Fed

• Investors nearly fully price a 25-basis-point Fed cut to 4.25%-4.50%, but fear a “hawkish cut” limiting future easing.
• The Federal Reserve’s revised Summary of Economic Projections may alter interest rate, inflation and growth forecasts, influencing the pair’s direction.
• The US Dollar Index benefits from risk aversion, as global equities struggle with geopolitical tensions and tighter policy prospects.

AUD/USD technical outlook: Aussie tests oversold limits as downtrend persists

The AUD/USD pair declined by 0.6% to 0.6300 on Wednesday, reaching its lowest level since October 2023. The Relative Strength Index (RSI) sits at 30, nearing oversold territory and falling sharply. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram displays rising red bars, underscoring sustained bearish momentum. Although oversold signals hint at a possible corrective bounce, ongoing Fed uncertainty and China’s frail recovery cast a shadow over any lasting rebound.

• Mexican Peso improves slightly against the US Dollar, supported by expectations of a Fed rate cut and strong Mexican data.
• Traders await the Fed's decision and dot plot for indications of future rate adjustments, with expectations of three cuts in 2025.
• The upcoming Banxico decision is likely to influence the USD/MXN pair.

The Mexican Peso recovered some ground against the US Dollar on Wednesday as market participants await the Federal Reserve’s (Fed) monetary policy decision. Mexican economic data also lent a lifeline to the emerging market currency, which remained pressured during the last two days. The USD/MXN exchanged hands at 20.14, down 0.18%.

The market remains sideways ahead of the Fed’s decision. According to fed funds rates futures contracts, traders had priced in a 25-basis-point rate cut (bps), bringing rates to a target range of 4.25%—4.50%. However, traders are focused on the release of the Fed’s dot plot, which policymakers use to reveal where they see rates throughout the year.

According to a Bloomberg survey of economists, Fed officials are projected to confirm three rate cuts for 2025 in the December dot plot. In September, policymakers estimated that the fed funds rate would end near 3.4% in 2025.

After that, Fed Chair Jerome Powell will host its latest post-monetary policy press conference of the year.

In addition, Mexico’s economic docket revealed that private spending increased in the third quarter, as revealed by the Instituto Nacional de Estadistica Geografia e Informatica (INEGI).

On December 19, the Banco de Mexico (Banxico) is expected to cut interest rates by a quarter of a percentage point to 10.00%

Ahead this week, Mexico’s docket will feature Banxico's monetary policy. in the US, investors will also focus on Thursday's US GDP data and the Fed’s favorite inflation gauge, the core Personal Consumption Expenditures (PCE) Price Index, which could impact Bullion demand.

Daily digest market movers: Mexican Peso hovers around 20.20

• Mexico Private Spending in Q3 rose by 1.1% QoQ, above Q2 0.6% expansion. Yearly, dipped from 3.3% to 2.9% for the same period.
• Mexican Retail Sales for October disappointed investors, missing estimates on monthly and annual figures, which indicates that the economy continues to slow down.
• Banxico's December private sector survey forecasts Mexico's inflation to close 2024 at 4.37%, with core inflation easing to 3.60%, down from November’s 3.69%. Economic growth is expected at 1.60%, up from the previous 1.53%, while the USD/MXN exchange rate is projected at 20.25.
• For 2025, inflation is expected to decline to 3.80%, while core inflation is projected to rise slightly to 3.72%. GDP growth is forecast at 1.12%, lower than November’s 1.20% estimate, and the USD/MXN exchange rate is anticipated to reach 20.53.T
• Analysts at JPMorgan hinted that Banxico could lower rates by 50 basis points as inflation data shows that prices are edging lower faster than expected.

USD/MXN technical outlook: Mexican Peso remains steady at round 50-day SMA

The USD/MXN remains upward biased, with the pair bottoming near the 50-day Simple Moving Average (SMA) at 20.11. Momentum is sideways, as depicted by the Relative Strength Index (RSI) almost flat at its neutral line. Hence, the exotic pair has found acceptance at around the 20.00-20.20 range, ahead of the end of 2025.

For a bullish continuation, buyers must clear 20.20 before challenging the psychological 20.50. On further strength, the next resistance would be the December 2 daily high of 20.59, followed by the year-to-date peak of 20.82 and the 21.00 mark.

Conversely, if USD/MXN falls beneath the 50-day Simple Moving Average (SMA) at 20.11, the next support would be 20.00. Further downside is seen at the 100-day SMA at 19.74, ahead of exposing 19.50.

• DXY trades in neutral fashion near 107.00 on Wednesday.
• Market focused on incoming Fed dot plot and 2025 rate forecasts.
• A 25 bps cut is already priced in.

The US Dollar Index, which measures the value of the USD against a basket of currencies, trades neutrally near the 107.00 mark on Wednesday as it consolidates ahead of the Federal Reserve (Fed) interest rate decision. Traders are keenly awaiting the dot plot to gauge the number of rate cuts envisioned in 2025. Despite a recent easing in the USD following profit-taking on Friday and new Chinese economic data, the Greenback holds steady, looking for direction as the Fed policy announcement nears.

Daily digest market movers: US Dollar stands flat as Fed decision takes center stage

• The US Dollar stands flat as markets await the Federal Reserve’s rate decision, focusing on potential changes in the "dots" that project future interest rates.
• Evolving economic conditions have inflation measured by the Consumer Price Index (CPI) rising from 2.4% in September to 2.8% in November, while growth remains solid and labor markets firm.
• Markets expect a 25-basis-point rate cut, along with forecasts for three cuts in 2025, viewed as a neutral outcome. A hawkish surprise, with fewer cuts, could dampen risk sentiment, though a complete pause on cuts is unlikely.
• Updated macro forecasts and dot plots are likely to tilt hawkish with stronger growth and stubborn inflation prompting fewer projected cuts.

DXY technical outlook: Indicators firm, but gains capped below resistance

Indicators recovered significant ground last week, yet they appear insufficient to push the index beyond the 107.00–108.00 area. At the start of the week, the Index retreated slightly, signaling momentum fatigue.

Still, the broader picture remains constructive if the DXY can hold above its 20-day Simple Moving Average. As traders await the Fed’s guidance, technical signals suggest a cautious but potentially supportive environment for the Greenback, barring any hawkish surprises that might fuel a breakout.

• Gold falls 0.33%  as markets anticipate Fed rate cut.
• Markets have nearly fully priced in a 25-basis-point rate cut; focus shifts to the Fed's dot plot for 2025 rate path insights.
• Investors remain attentive to US data, including GDP data and core PCE.

Gold price extended its downtrend for the second consecutive day as traders brace for the Federal Reserve (Fed) monetary policy decision. Even though market participants widely expect a rate cut, they are eyeing cues about the interest rate path in 2025. At the time of writing, XAU/USD trades at $2,636, down 0.33%.

Traders have priced in a 95.4% chance of a 25-basis-point (bps) Fed rate cut, yet they are mainly focused on the Summary of Economic Projections (SEP), known as the dot plot, which Fed officials use to express their views about monetary policy.

At the September meeting, the dot plot hinted that policymakers project the fed funds rate to end 2025 near 3.4%, down from June’s 4.1%.

Nevertheless, robust US economic data, a stalled disinflationary process, and expansionary fiscal policies by the upcoming administration might forestall Fed Chair Jerome Powell and company from easing policy aggressively.

Some analysts said that if the dot plot is adjusted to two rate cuts instead of four, it would be seen as hawkish and support the US Dollar.

The US economic docket features solid US housing data with upbeat Building Permits for November, while Housing Starts dipped for the fourth consecutive month.

This week, investors will also focus on Thursday's US GDP data and the Fed’s favorite inflation gauge, the core Personal Consumption Expenditures (PCE) Price Index, which could impact Bullion demand.

Daily digest market movers: Gold price retraces as US yields climbed

• Gold prices dropped as US real yields recovered, up by one basis point to 2.085%, a headwind for the precious metal.
• The US 10-year Treasury bond yield stays firm at 4.395%, unchanged.
• The US Dollar Index, which tracks the performance of the American currency against six others, surges 0.20%% to 107.15.
• Building Permits in November rose by 6.1% MoM from 1.419 million to 1.505 million.
• Housing Starts for the same period fell -1.8% MoM from 1.312 million to 1.289 million.
• Recently released US Retail Sales data and Flash PMIs hint that the economy remains solid amid interest rates set above 4%. Although inflation edged lower, core prices stalling at 3% and headline inflation printing higher readings for three straight months suggest that inflation risks are skewed to the upside.
• The CME FedWatch Tool suggests that traders had priced in a 95% chance of a quarter-point rate cut on Wednesday.
• For 2025, investors are betting that the Fed will lower rates by 100 basis points.

Technical outlook: Gold price retreats, sellers eye 100-day SMA

Gold price remains upwardly biased, though it has remained trading sideways during the last three days, with no definitive direction. The golden metal trades within the $2,602-$2,670 area, capped by the 100 and 50-day Simple Moving Averages (SMAs), respectively.

For a bullish resumption, the XAU/USD must clear $2,650, followed by the 50-day SMA at $2,670. If surpassed, the next stop would be $2,700. Conversely, if XAU/USD drops below the 100-day SMA, the next support would be $2,600. If the price slips, the next support would be the November 14 swing low of $2,536, before challenging the August 20 peak at $2,531.

The latest U.S. data suggest that the economy will end the year on a high note. As has been the case for some time, the current strength reflects solid growth in consumer spending, due not only to the resilience of the labour market, but also to the steady increase in household net worth, NBC’s economist Jocelyn Paquet reports.

GDP set to grow by 1.7% in 2026

“As the drivers of recent performance are likely to remain the same in 2025, the U.S. economy should continue to outperform that of other rich countries, provided the new Trump administration sticks to the most pro-growth part of its agenda and keeps its protectionist instincts to a minimum.”

“While recognizing the high level of uncertainty surrounding these projections, our best guess at this stage is that the spending cuts announced by the Trump administration will be insufficient to prevent tax cuts from widening the deficit further. We therefore expect fiscal policy to have a positive impact on growth over the next two years. On the international trade front, we believe that Washington will refrain from imposing blanket tariffs, opting instead for a more targeted, less disruptive approach.”

“Against this backdrop, we have decided to significantly revise upwards our growth forecast for 2025, to 2.1%. GDP should then grow by 1.7% in 2026.”

• EUR/USD edges slightly higher on Wednesday, settling around 1.0500 but still capped by the 20-day SMA.
• RSI holds at 42 in negative territory, signaling persistent caution and subdued buying interest.

The EUR/USD pair remains in a holding pattern on Wednesday, hovering near the 1.0500 mark. Despite recent attempts to gain traction, the 20-day Simple Moving Average (SMA) near 1.0550 continues to act as a formidable barrier, preventing the pair from establishing a more constructive bias. Market participants are now looking to the upcoming Federal Reserve (Fed) decision for fresh directional cues.

Technical indicators reflect a calm environment. The Relative Strength Index (RSI) is flat at 42, firmly in negative territory and suggesting limited buying interest. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram shows flat green bars, underscoring the pair’s lack of decisive momentum.

In the near term, a clear break above the 20-day SMA would be required to shift the short-term outlook in favor of the bulls. Until then, the bias remains tilted to the downside, with the 1.0500 handle and the 1.0480 support area in focus. The upcoming Fed decision could provide the necessary catalyst for a breakout or further consolidation, shaping the pair’s short-term trajectory.

EUR/USD daily chart

• GBP/USD slides to 1.2695, under pressure from a strengthening US Dollar and a 'death cross' technical formation.
• Key support levels for GBP/USD set at 1.2665 and 1.2605, with further downside risk to the November low of 1.2486.
• Upside resistance seen near 1.2814/16, where the 50-day and 200-day SMAs converge, extending to the 100-day SMA at 1.2893.

The Pound Sterling lost some ground against the US Dollar on Wednesday even though UK inflation data for November was higher than in the previous month. This and expansionary fiscal policy might prevent the Bank of England from cutting rates, although the economy has shown some signs of weakness. The GBP/USD trades at 1.2695, failing to clear the 1.2700 mark decisively.

GBP/USD Price Forecast: Technical outlook

Price action suggests that further US Dollar strength may weigh on the GBP/USD. The 50-day Simple Moving Average (SMA) dropped below the 200-day SMA, confirming the formation of a ‘death cross,’ indicating further downside.

The Relative Strength Index (RSI) shows that sellers are in charge as the RSI aims lower in bearish territory,

That said, GBP/USD's first support would be the December 17 low of 1.2665. If cleared, it will clear the path to test 1.2605, the December 13 law, followed by the November 22 cycle low of 1.2486.

On the other hand, if GBP/USD climbs above 1.2700, buyers must climb above the 1.2814/16 area, the confluence of the 50 and 200-day SMAs. Once surpassed, they could challenge the 100-day SMA at around 1.2893.

GBP/USD Price Chart – Daily

• Silver price slumps to near $30.30 as investors turn cautious ahead of the Fed’s policy meeting.
• Traders have fully priced in a 25-bps interest rate cut by the Fed.
• Economists see the Fed cutting interest rates three times in 2025.

Silver price (XAG/USD) falls to near $30.30 in the North American session on Wednesday. The white metal drops as investors turn cautious ahead of the Federal Reserve’s (Fed) monetary policy announcement at 20:00 GMT.

According to the CME FedWatch tool, traders have priced in a 25-basis points (bps) interest rate reduction, which will push borrowing rates lower to 4.25%-4.50%. Therefore, investors will pay close attention to the Fed’s dot plot, which shows where policymakers see Federal Fund Rates heading in the medium and long term.

A Bloomberg survey from December 6 to 11 showed that economists see the Fed reducing interest rates three times next year, assuming that progress in the disinflation process has slowed more than anticipated. The survey also indicated that economists have become more worried about upside risks to inflation than downside risks to employment, given incoming President-elect Donald Trump's policies, including mass deportations, higher import tariffs, and tax cuts.

Ahead of the Fed meeting, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, consolidates around 107.00. Meanwhile, 10-year US Treasury yields rise to nearly 4.40%. Higher yields on interest-bearing assets weigh on non-yielding assets, such as Silver, because they increase their opportunity costs.

Silver technical analysis

Silver price slides to a fresh two-week low near $30.20 on Wednesday. The white metal weakens after breaking below the 20-day Exponential Moving Average (EMA), which trades around $30.95.

The 14-day Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, suggesting a sideways trend.

Looking down, the upward-sloping trendline around $29.50, which is plotted from the February 29 low of $22.30 on a daily timeframe, would act as key support for the Silver price. On the upside, the horizontal resistance plotted from the May 21 high of $32.50 would be the barrier.

Silver daily chart

The final Eurozone CPI for November was revised down to 2.2%, from the preliminary 2.3%. Core inflation was left unchanged at 2.7%. The Euro (EUR) is virtually flat on the day and ignored the data as tight range trading extended for another day, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

EUR is flat, technicals point lower

“The EUR is holding a tight trading range below 1.0550 but the technical undertone for spot remains soft following the early December rejection of 1.06+ levels. Trend strength oscillators are aligned bearishly for the EUR across the intraday, daily and weekly DMIs.”

“EUR weakness below 1.0480 is likely to drive more losses in the short run towards 1.04. Resistance is 1.0525 and 1.0550.”

There is an uncomfortable mix of internal and external uncertainties facing the Canadian Dollar (CAD) right now. The charts suggest no relief for the CAD, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

Uncertainties persist near term

“Perhaps the parliamentary recess will allay some of the market’s concerns, if only temporarily, as PM Trudeau tries to figure out his next move. The CAD is consolidating very close to its recent lows, however, which is hardly ever a positive sign; there is simply no-one looking to fade the slide in the CAD at this point.”

“There is a chance that the CAD picks up a little ground into the end of the year (based on seasonal trends) but investors will want to see clarity in local politics and progress on addressing president-elect Trump’s border concerns early in the new year or the CAD is liable to come under renewed pressure.”

“Spot traded to a minor new cycle high overnight and while the USD has backed off the peak, losses are marginal. The short-, medium– and long-term trend momentum oscillators are aligned bullishly for the USD which suggests only limited potential for the CAD to recover at present. Resistance remains 1.4350 but there is no discernible resistance above that point until the 1.47 area from my point of view. Support is 1.4250/75 and 1.4190/00.”

UK inflation data reflected the expected pick up in prices in November. The Pound Sterling (GBP) picked up a little support over the course of European trade but Cable is finding it difficult to hold gains through the low 1.27s, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

CPI supports cautious BoE outlook

“Headline CPI rose 2.6% in the year (from 2.3% in October) while core CPI rose 3.5%, a little shy of the 3.6% forecast but still up from the prior month’s 3.3%. Services CPI was unchanged at 5.0% in the year—a minor positive, given forecasts for a rise to 5.1%. The data supports the outlook for cautious easing from the BoE in the coming months.”

“Sterling picked up a little support over the course of European trade but Cable is finding it difficult to hold gains through the low 1.27s. Unless spot can make sustained progress through 1.2720/30 which should prompt a retest of the low 1.28s, the pound is at risk of drifting back.”

Consensus leans towards no move while we stuck to our view for a hike. Typically, BoJ MPC decision can matter for USD/JPY but this time, the USD/JPY may also matter for BoJ given the >3% decline in JPY lately. USD/JPY was last seen at 153.94 levels, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

Moving averages compression is observed

“For BoJ MPC (Thu), we are looking for BoJ to carry on with policy normalization with a hike. Recent uptick in base pay supports the view about positive development in labor market, alongside still elevated services inflation, better 3Q GDP and expectations for 5-6% wage increases for 2025. For USD/JPY, it is not just JPY or BoJ in the equation, the Fed and US data also matters.”

“While we are of the view that broader direction of travel for USD/JPY is skewed towards the downside as Fed cuts and BoJ hikes. The risk is a slowdown in pace of respective policy normalisation, especially if Fed guides for a much slower pace of cuts or BoJ shows hesitation. Then the USD/JPY may face intermittent upside risks.”

“Mild bullish momentum intact but RSI eased. Moving averages compression (MAC) observed and this typically precedes a breakout trade. Support at 152.70, 152.10 (21, 100, 200 DMAs) and 150.20 (38.2% fibo). Resistance at 154.80, 155.90 levels.”

• Building Permits in the US rose sharply in November.
• The US Dollar Index stays near 107.00 after the data.

Housing Starts in the US declined 1.8% in November to 1.289 million units, the monthly data published by the US Census Bureau revealed on Wednesday. This reading followed the 3.2% decrease (revised from -3.1%) recorded in October. 

In the same period, Building Permits increased 6.1% after falling 0.4% (revised from -0.6%) in October.

Market reaction

The US Dollar Index showed no reaction to these data and was last seen moving sideways at around 107.00.

• USD/CHF ticks higher to near 0.8945 ahead of the Fed policy meeting at 20:00 GMT.
• The Fed is expected to cut interest rates by 25 bps to 4.25%-4.50%.
• The Swiss agency has lowered GDP growth to 0.9% and 1.5% for the current year and 2025, respectively.

The USD/CHF pair moves slightly higher to near 0.8945 in the North American session ahead of the Federal Reserve’s (Fed) monetary policy meeting at 20:00 GMT. The Fed is expected to deliver a 25-basis points (bps) interest rate reduction with slightly hawkish remarks on the policy outlook.

Market participants expect that Fed officials have become more worried about stalling progress in the disinflation process than downside risks to employment. The US core Consumer Proce Index (CPI) – which excludes volatile food and energy prices – remains steady at 3.3% in the September-November period.

Apart from the Fed’s policy decision, investors will pay close attention to Chair Jerome Powell’s speech to know the impact of incoming US President-elect Donald Trump’s policies, such as deportations, higher import tariffs, and lower taxes, on the inflation outlook.

Meanwhile, the Swiss Franc (CHF) remains broadly bearish as investors expect the Swiss National Bank (SNB) to cut interest rates further. For the Swiss economic outlook, the State Secretariat for Economic Affairs (SECO) has downwardly revised growth targets for the current year and 2025 to 0.9% and 1.5%, respectively.

USD/CHF gathers strength to break above the supply zone plotted in a range of 0.8925-0.8950 on a daily timeframe. The upward-sloping 20-day Exponential Moving Average (EMA) near 0.8860 suggests that the trend is bullish.

The 14-day Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, indicating a strong upside momentum.

After breaking above Tuesday's high of 0.8975, the asset could rise to near the psychological resistance of 0.9000 and the July 2 high of 0.9050.

In an alternate scenario, a downside move below the round-level support of 0.8700 could drag the asset toward the October 23 low of 0.8650, followed by the November low of 0.8616.

USD/CHF daily chart

The US Dollar (USD) is narrowly mixed ahead of the outcome of the Fed policy decision later today. DXY gains through 107.15 should trigger another leg up in the index, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

USD holds consolidation range ahead of Fed

“US Housing Starts and Building Permits are the only data releases scheduled ahead of the FOMC’s conclusion. A 25bps cut is widely expected but the messaging from the Fed is likely to sound more cautious than the last meeting. Updated forecasts may anticipate stronger growth, higher inflation and lower unemployment.”

“Policymakers are also likely to pencil in fewer rate cuts next year— perhaps only two, down from four in the prior dot plot. A less dovish Fed is already largely factored into the rates outlook—swaps anticipate 71bps of easing through next December, including today’s meeting. Still, a more cautious Fed will likely add to underpinning for US yields and the USD.”

“The DXY is sitting in the middle of its mid-month consolidation range which has adopted the profile of a potential bull flag pattern on the charts. The set up suggests the DXY is coiling ahead of another push higher. Technically, DXY gains through 107.15 should trigger another (1% to 1.5%) leg up in the index. Support is 106.60.”

• The Euro turns negative on the day weighed by dovish comments by ECB officials.
• ECB's Lane and Wunsch have hinted to more rate cuts in 2025.
• The BoE is expected to keep a less dovish outlook amid a resilient UK economy and higher inflationary trends.

The Euro has given away previous gains and is practically unchanged on the daily chart as ECB speakers, Lane and Wunsch have hinted at further rate cuts by the European Central Bank.

ECB’s Chief Economist Philip Lane refused to pre-commit to any particular rate path but remained confident that inflation is coming to track, while financing conditions remain restrictive.

In a more straightforward language, ECB committee member, Pierre Wunsch has signaled four more interest rate cuts to a terminal rate of about 2%.

The BoE will target a higher terminal rate

These comments confirm the market view that the European Central Bank will cut interest rates more aggressively than the Bank of England. The weak economic outlook in the region and the uncertain political scenario in Germany and France are pressuring the ECB to ease borrowing costs to stimulate economic growth.

In the UK, on the other hand, the economy is showing a more encouraging outlook. Employment grew beyond expectations with wages surging in the three months to October, Inflation picked up in November, also if the acceleration of the core CPI failed to meet expectations.

In this context, the BoE is expected to keep its Bank Rate on hold at the current 4.75% level on Thursday. The market is expecting between two and three rate cuts next year, a slower pace of monetary easing which is likely to favour the Pound against the Common Currency.

 

• The US Dollar consolidates ahead of the Federal Reserve interest-rate decision. 
• Traders will be looking at the dot plot for the number of rate cuts in 2025.
• The US Dollar Index (DXY) hovers around 107.00 and looks for direction.

The US Dollar (USD) consolidates on Wednesday, with the DXY Index hovering around 107.00,  in the runup to the Federal Open Market Committee (FOMC) interest-rate decision. As markets widely expect a 25 basis points rate cut, the focus will be on Federal Reserve Chairman Jerome Powell’s comments and the publication of the dot plot, the projection of each individual FOMC member on where he or she sees rates in the medium and long term. 

The US economic calendar in the run-up to the Fed meeting is rather light. Building Permits and Housing Starts data for November will be released. No big moves are expected from these numbers, although they could add to a specific conviction traders might have. 

Daily digest market movers: Final event of 2024

• Near 13:30 GMT, the November Building Permits and Housing Starts will be published. 
  • Building Permits are expected to increase to 1.43 million from 1.419 million in October. 
  • Housing Starts should tick up to 1.34 million units from 1.311 million units in October. 
• At 19:00 GMT, the Federal Reserve rate decision will be published. Expectations are for a 25 basis point rate cut to the 4.25%-4.50% range. At the same time, the Fed’s dot plot will be released as well.
• Near 19:30 GMT, Fed Chairman Jerome Powell will take the stage to deliver comments and have a Q&A on the recent rate decision from the Fed. 
• Equities in Europe and Futures in the US are in the green, supported by the rate cut expectation. 
• The CME FedWatch Tool is pricing in another 25 basis points (bps) rate cut by the Fed at Wednesday’s meeting by 95.4%. 
• The US 10-year benchmark rate trades at 4.40%, in the middle of this week’s range. 

US Dollar Index Technical Analysis: Last call for 2024

The US Dollar Index (DXY) is set for the last biggest market-moving event for 2024, unless a geopolitical outside risk takes place. The dot plot projections will be the most market moving event. In case Fed members are factoring in a Trump-effect for 2025, upward rate projections for 2025 and further would mean a stronger US Dollar, with the yield gap between the US and other countries widening even more right at the end of the year amid thinner liquidity conditions. 

On the upside, 107.00 remains a key level that needs to be reclaimed with a firm daily close above it before considering 108.00. When and if that finally happens, the fresh two-year high at 108.07 from November 22 is the next level to watch for. 

Looking down, 106.52 is the new first supportive level in case of profit-taking. Next in line is the pivotal level at 105.53 (the April 11 high), which comes into play before heading into the 104-region. Should the DXY fall towards 104.00, the 200-day Simple Moving Average at 104.19 should catch any falling knife formation. 

US Dollar Index: Daily Chart

• Oil prices are trading back around $70.00 after a surprise drawdown in US API data. 
• Kazakhstan is set to raise Oil output next year, according to Bloomberg. 
• The US Dollar Index trades around 107.00 ahead of the last Fed meeting of 2024.

Crude Oil trades slightly up on Wednesday at around the $70 round level amid recent headlines that provide both headwinds and tailwinds. Some support for Crude Oil prices came after a chunky drawdown in the crude stockpile change numbers from the American Petroleum Institute (API) on Tuesday. With a draw of 4.7 million barrels, larger than the 1.85 million barrels decline expected, Crude Oil prices received a small leg up.

However, Some bearish news for Oil comes from Kazakhstan. Prime Minister Olzhas Bektenov said on Tuesday that he had ordered the Energy Ministry to intensify efforts to increase Natural Gas and Oil output. The Energy Ministry must ensure that 2025 Oil production is at the planned level, Bektenov said, Bloomberg reports.

The US Dollar Index (DXY) – which measures the performance of the US Dollar (USD) against a basket of currencies – is rather flat ahead of the last Federal Reserve (Fed) meeting of 2024. A 25 basis point rate cut, lowering the benchmark rate from 4.75% to 4.50%, is baked in. The focus will rather be on the dot plot projections, which will show whether Fed officials are pricing in a Trump effect with rates steady or higher in the coming years. 

At the time of writing, Crude Oil (WTI) trades at $70.14  and Brent Crude at $73.42.

Oil news and market movers: Kazakhstan defies OPEC

• The Oil production plans in Kazakhstan’s budget indicate an increase of 9.4 million metric tons next year, or about 190,000 barrels a day.  That is more than double the current 41,000 barrels Kazakhstan is producing under the current OPEC+ production limitation agreement, Bloomberg reports.
• The Energy Information Administration (EIA) is set to release around 15:30 GMT the weekly Crude stockpile change numbers. Expectations are for a drawdown of 1.7 million barrels against last week’s decline of 1.425 million barrels.
• Pricing of key Middle Eastern grades is rising, according to traders dealing with the typically higher-sulfur, or sour, Oil from the region. Cargoes of Qatar’s Al-Shaheen for February loading were about $1 a barrel more expensive than the regional benchmark, compared with a premium of as much as 70 cents for January, Bloomberg reports.  

Oil Technical Analysis: Not breaking any pots

Crude Oil prices look to be unable to move away from the $70.00 in either direction as, for nearly six trading days in a row, Crude Oil prices have been propelled back to that level. With liquidity starting to thin, it looks increasingly likely that this will be the steady level for the last few trading days of 2024.  

Looking up, $71.46 and the 100-day Simple Moving Average (SMA) at $71.03 are acting as firm resistance levels. On Friday, already some selling pressure emerged ahead of that same 100-day SMA. In case Oil traders can plough through that level, $75.27 is up next as a pivotal level, though watch out for quick profit taking with the year-end quickly nearing. 

On the downside, it is too early to see if the 55-day SMA will be reclaimed again at $70.12. That means that $67.12 – a level that held the price in May and June 2023 – is still the first solid support nearby.  In case that breaks, the 2024 year-to-date low emerges at $64.75 followed by $64.38, the low from 2023.

US WTI Crude Oil: Daily Chart

• The Japanese Yen's recovery attempts remain limited ahead of the Fed's decision.
• Investors are bracing for a 25 bps cut combined with a hawkishly tilted forward guidance.
• In Japan, the BoJ is expected to keep rates on hold on Thursday.

The US Dollar maintains its upside trend from early December lows intact. The pair’s reversal from the mid-range of the 154.00s has been contained at 153.20, and the pair is trading sideways on Wednesday, awaiting the Fed’s decision

The US central bank is widely expected to cut rates by 25 basis points but the ensuing monetary policy statement, and, above all, the economic and interest rate projections are likely to show a hawkish tilt.

Macroeconomic figures released this week reveal strong economic activity and buoyant consumption levels, These figures are consistent with higher inflationary pressures and will likely prompt policymakers to scale down the monetary easing projections for next year.

In Japan, on the other hand, the Bank of Japan seems less concerned about the impact of a strong Yen on the country’s inflation. Some board members suggested last week that there is no harm in waiting for next January to hike rates further. This has been weighing on the Yen, which depreciated nearly 3% in a sis-day sell-off before Tuesday.
 

• The Aussie approaches 0.6300 weighed by risk aversion ahead of the Fed and China woes.
• The Dollar remains strong supported by investors' fears of a "hawkish cut" by the Fed.
• Grim data from China and fears of higher tariffs in the US are acting as a headwind for the Aussie.
   

The Australian Dollar is trading at fresh one-year lows near 0.6300, drawing closer to last year’s low at 0.6270 in a risk-averse market with traders cautious ahead of the Fed’s decision.

Investors are nearly fully pricing a 25 bps cut by the Fed later today, although the strong US data seen recently and the rising inflationary pressures are likely to force the bank to adopt a more cautious approach to rate cuts next year.

On the macroeconomic front, data released on Tuesday revealed that US Retail Sales beat expectations in November. These figures come after the upbeat business activity figures seen on Monday confirming that the US economy is growing at a solid pace in the last quarter of the year.

On the other hand, the Aussie Dollar is bleeding amid rising concerns about the sluggish recovery in China, a key partner.  Recent data from the Asian country showed that consumption remains depressed with housing prices declining further.

The outlook for next year is far from cheerful, as prospects of higher tariffs on Chinese products by the next US administration will likely weigh on growth and hurt the Australian economy. This is keeping Ausie’s upside attempts limited.

• The Mexican Peso treads water near the 20.00 area as the US Dollar steadies ahead of the Fed decision on interest rates.
• Strong US economic data has boosted speculation that the Fed could scale back rate cut projections for 2025.
• Technically, the USD/MXN pair remains bearish but needs an extra boost to breach the 20.00 level.

The Mexican Peso (MXN) is practically flat on Wednesday, with US Dollar Index (DXY) steady near recent highs as investors bid their time ahead of the US Federal Reserve’s (Fed) monetary policy decision.

Investors are nearly fully pricing a 25 basis points (bps) interest-rate cut later on Wednesday. Nevertheless, the strong US economy and the higher inflationary pressures might prompt policymakers to raise their interest rate projections for 2025.

This sentiment has been boosting US yields and the US Dollar (USD) higher since last week, capping the near-term rally of the Mexican Peso below the 20.00 round level.

Beyond that, Mexican macroeconomic data have failed to cheer MXN buyers. Inflation eased beyond expectations in November, industrial output deteriorated and retail consumption dropped against expectations in October. These figures pave the path for a further rate cut by the Bank of Mexico (Banxico) on Thursday. 

Fears of a hawkish Fed underpin the US Dollar 

• The US Dollar Index (DXY) trades with moderate gains for the second consecutive day on Wednesday as investors brace for a “hawkish cut” by the Fed later today.
   
• US Treasury yields remain steady at one-month highs above 4.40%, buoyed by market expectations of fewer rate cuts in 2025.
   
• On Tuesday, US retail consumption increased by 0.7%, beyond expectations of a 0.5% increment, boosted by increasing vehicle and online sales
   
• These figures come after an unexpected improvement in US services sectors’ activity. The US preliminary Services Purchasing Managers Index (PMI) recorded its best performance in more than three years, with the PMI increasing to 58.5 from 56.1 in November and against expectations of a moderate slowdown to 55.7.
   
• Despite the recent upbeat US data, investors remain fully confident that the Fed will cut rates on Wednesday. The CME FedWatch tool shows a 95% chance of a 25 bps interest cut later today, with more than a 70% chance of less than three cuts during 2025.
   
• In Mexico, Retail Sales dropped unexpectedly by 0.3% in October, against expectations of a 0.2% increase. Retail Consumption moderated its yearly decline to 1.2% from 1.5% in the previous month against expectations of a 1.6% fall.
   
• A survey from Banxico published this week reveals that economic experts see prices growing at a 4.37% pace in 2024, down from the 4.42% inflation rate seen in November, while the expectations for 2025 remain steady at 3.80%.
   
• The country’s GDP is expected to grow by 1.60% in 2024, up from the previous 1.53%. However, expectations for 2025 have been downwardly revised to 1.12% from previous estimations of 1.20%, due to mainly the impact of tariffs from the US. 

Mexican Peso technical outlook: USD/MXN hovers above the 20.00 support area

USD/MXN is trading lower from its late November highs near 20.80, but the pair is struggling to find acceptance below the 20.00 psychological level.

Price action remains contained between the mentioned 20.00 level and 20.30 on the upside, awaiting the Fed later on Wednesday and Banxico’s decision on Thursday.

On the upside, above 20.30, the next target would be the December 2 high at 20.60 and November’s peak at around 20.80. Below 20.00, bears would be focusing on the October 24 and 25 lows and the November 8 low at 19.75.

USD/MXN 4-Hour Chart

In our last post on the Turkish lira, we explained that we remain cautiously optimistic. But at the same time, our old USD/TRY forecast of 35.0 (for end-2024) now looks more accurate than our recently revised forecast of 34.5 (revised 21 September). The lira continues to follow a slow but steady depreciation path. The article in the above link discussed the fundamental topics surrounding the improving balance of payments, yet several remaining risks to the exchange rate, Commerzbank’s FX analyst Tatha Ghose notes.

USD/TRY to trade at 35.0 in the end of 2024

“Our emphasis today is that FX intervention seems to have made its way through the backdoor. As USD/TRY began to approach the psychological 35.0 threshold, its intraday trading pattern reverted back to the well-known one from the past where the exchange rate would go totally flat at certain levels, with almost no movement or volatility, then breach that level – one level at a time – seemingly defended by unseen forces at every step. This is what we seem to be witnessing again.”

“Turkey has a more complicated history of interventions and soft capital controls. Interventions destroy valuable FX reserves – either the central bank’s (CBT’s) or the state banks’ – and there would be no reason to incur such costs unless policymakers had a definite reason to fear accelerating depreciation going forward, which they want to pre-emptively defend against already.”

“This situation gives rise to the suspicion that CBT may, indeed, be ‘locked in’ to cutting its base rate on 26 December. As we concluded in the linked article, we do not think that it is time for that yet. And if the lira is having to be calmed down by interventions, that strongly suggests that we would see much greater volatility and FX depreciation if a rate cut is pushed through regardless.”

• The Federal Reserve is widely expected to lower the policy rate by 25 bps at the last meeting of 2024.
• Fed Chairman Powell’s remarks and the revised dot plot could provide important clues about the interest-rate outlook.
• The US Dollar’s valuation could be impacted significantly heading into the Christmas holiday.  

The US Federal Reserve (Fed) will announce monetary policy decisions following the December policy meeting on Wednesday. Alongside the policy statement, the US central bank will publish the revised Summary of Economic Projections (SEP), also known as the dot plot. 

The CME FedWatch Tool shows that investors are fully pricing in a 25 bps Fed cut, which would bring the policy rate down to the range of 4.25%-4.5%. The market positioning suggests that the US Dollar’s (USD) reaction to the interest-rate decision alone could remain short-lived. Instead, investors will assess the details of the dot plot and scrutinize comments from Fed Chairman Jerome Powell in the post-meeting press conference.

The SEP in September showed that Fed officials' median view of the fed funds rate at the end of 2025 stood at 3.4%. Revisions to interest rate expectations, inflation and growth projections for next year could provide important clues about the policy outlook and influence the USD’s valuation.

Previewing the Fed’s last policy meeting of the year, “the FOMC is expected to announce an additional rate cut, with the Committee easing rates by 25bp to 4.25%-4.50%,” said TD Securities analysts in a recently published report and added: 

“While we think the Fed will remain keen on projecting additional policy easing for 2025, our view is that guidance regarding the pace of rate cuts will be more cautious going forward. This might be interpreted as a hawkish rate cut by market participants.”

When will the Fed announce its interest rate decision and how could it affect EUR/USD?

The US Federal Reserve is scheduled to announce its interest rate decision and publish the monetary policy with the revised dot plot on Wednesday at 19:00 GMT. This will be followed by Fed Chairman Jerome Powell's press conference starting at 19:30 GMT. 

An upward revision to the end-2025 interest-rate projection could be assessed as a hawkish tilt in the policy outlook and trigger a USD rally with the immediate reaction, causing EUR/USD to push lower. On the other hand, a downward revision could have the opposite effect on the pair’s action.

Powell is likely to be asked whether policymakers took US President-elect Donald Trump’s proposed policies, especially regarding tariffs, into account when penciling down their projections for next year.

In case Powell notes that they will take a gradual approach to further policy easing because of the uncertainty created by the potential tariffs on the inflation outlook, the USD could preserve its strength. On the other hand, if Powell downplays inflation jitters and reemphasizes their willingness to keep the labor market strong next year, this could be seen as a dovish tone and make it difficult for the USD to stay resilient against its rivals. In this scenario, EUR/USD could stage a rebound in the near term.

Eren Sengezer, European Session Lead Analyst at FXStreet, provides a short-term technical outlook for EUR/USD:

“EUR/USD remains technically bearish in the near term as it remains within the descending regression channel coming from late September. Additionally, the Relative Strength Index Indicator (RSI) on the daily chart stays near 40, highlighting the lack of buyer interest.”

“On the downside, 1.0400 (static level) aligns as immediate support before 1.0260 (lower limit of the descending channel) and 1.0200 (static level, round level). In case EUR/USD rises above 1.0600, where the Fibonacci 23.6% retracement level of the October-December downtrend is located, and starts using this level as support, sellers could be discouraged. In this scenario, 1.0690-1.0700 (50-day Simple Moving Average, Fibonacci 38.2% retracement) and 1.0800 (Fibonacci 50% retracement) could be seen as next resistance levels.”

The Pound Sterling (GBP) rose on betterthan-expected labor market report. GBP was last at 1.2693 against the US Dollar (USD), OCBC’s FX analyst Frances Cheung and Christopher Wong note.

Focus this week on BoE MPC

“Employment change jumped +173k (vs. 5k expected) while weekly earnings saw a significant jump of 5.2% YoY (vs. 4.6% expected).”

“Focus this week on BoE MPC (Thu) and retail sales (Fri). BoE MPC likely a nonevent as a hold is likely. The last MPC meeting (Nov) saw BoE putting an emphasis on making sure inflation stays close to target. This reinforces the view for a gradual approach to removing restraint.”

“Mild bullish momentum on daily chart intact while rise in RSI slowed. Consolidation likely. Resistance at 1.2730 (61.8% fibo retracement of 2024 low to high), 1.2830 levels (50, 200 DMAs). Support at 1.2680 (21 DMA), 1.2610 and 1.2570 (76.4% fibo).

• USD/CAD rises further to near 1.4330 as the Canadian Dollar weakens amid growing risks of inflation undershooting BoC’s target of 2%.
• The US Dollar consolidates ahead of the Fed’s policy meeting outcome.
• Investors expect the Fed to deliver slightly hawkish remarks on the policy outlook.

The USD/CAD pair posts a fresh more than four-year high around 1.4330 on Wednesday. The Loonie pair extends Tuesday’s rally on Wednesday, which was prompted by softer-than-expected Canadian Consumer Price Index (CPI) data for November.

The inflation report showed that the headline Consumer Price Index (CPI) rose by 1.9%, slower than estimates and the prior release of 2%. Month-on-month headline inflation remained flat, as expected. In October, the monthly headline CPI rose by 0.4%. Soft inflation data boosted expectations of more outsize interest rate cuts by the Bank of Canada (BoC). However, BoC Governor Tiff Macklem said last week that the central bank will shift to a more gradual policy-easing stance.

Additionally, political uncertainty in Canada has weighed on the Canadian Dollar (CAD). At the beginning of the week, Canadian Finance Minister Chrystia Freeland resigned after a policy clash with Prime Minister Justin Trudeau.

Meanwhile, the US Dollar (USD) stays in a tight range, with investors awaiting the Federal Reserve’s (Fed) policy outcome at 20:00 GMT. The Fed is widely expected to cut interest rates by 25 basis points (bps) to 4.25%- 4.50%, with slightly hawkish guidance.

USD/CAD has shown a stalwart rally after a breakout of the Ascending Triangle chart pattern on a weekly timeframe. The upward-sloping 20-day Exponential Moving Average (EMA) near 1.3900 suggests that the overall trend is bullish.

The 14-day Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, suggesting that a strong upside momentum is intact.

The rally in the Loonie pair could advance to the round-level figure of 1.4400 and the psychological resistance of 1.4500 if the asset breaks above 1.4350.

On the contrary, a downside move below the December 11 low of 1.4120 could drag the asset towards the December 4 high of around 1.4080, followed by the psychological support of 1.4000.

USD/CAD weekly chart

As expected, the National Bank of Hungary left rates unchanged yesterday and forward guidance did not see much change either, ING’s FX analyst Frantisek Taborsky notes.

EUR/HUF seems to have stabilised around 408-410 for now

“As in November, one member voted for a rate cut. But at the same time, the press conference tried to introduce a long pause in the cutting cycle. The new forecast showed a slightly higher inflation profile for next year, while the economy will be weaker this year compared to the September forecast.”

“The NBH found a rather muted market reaction to today's meeting. In line with CEE peers, the EUR/HUF moved up very little after the press conference. The HUF market, like its CEE peers, seems to have already switched into Christmas mode, and with little news coming out of today's NBH meeting, it is hard to expect a big market view. EUR/HUF seems to have stabilised around 408-410 for now.”

“Today's calendar in the region is empty with several bond auctions on the calendar only, the last of the year. The rates market seems to be dominated by low liquidity and CTA flow, which is driving rates up, especially in the PLN market, which could again deliver some boost to FX. On the other hand, CZK rates seem too aggressively hawkish after a few days of upward movement and closed lower yesterday despite the spike in rates, indicating in turn a weaker CZK into the Czech National Bank's meeting tomorrow.”

After the yield on Chinese government bonds fell by around 30 basis points in the first two weeks of December, it stabilised over the course of Monday's and yesterday's trading session and is currently hovering around 1.72%. Among the major bond markets, 10-year government bond yields are lower only in Switzerland and Japan, Commerzbank’s FX analyst Volkmar Baur notes.

PBoC and the banking system buys around 90% of all bonds issued

“The question naturally arises as to where the high demand for government bonds has come from recently. It is unlikely to come from abroad. In the last three months, foreign investors have been steadily selling Chinese bonds on a net basis. This makes sense. If we leave aside capital gains due to falling yields, the yield level in other bond markets is simply more attractive. Moreover, the share of foreign investors in Chinese government bonds is low. At present, around 80 trillion CNY of central and local government bonds are outstanding, of which only around 2 trillion CNY are held by foreign investors.”

“By contrast, around 80% of government bonds are held by the domestic banking sector. And here, things have started to move in recent months. While banks bought only around CNY500bn of bonds per month in net terms in the first six months, this run-rate has almost doubled to CNY835bn in the last five months. In addition, since August there has been a buyer that may be particularly insensitive to price: the central bank.”

“The central bank's purchases have contributed to the decline in the current interest rate. At least the data up to November show that the central bank is not buying government bonds instead of the banking system, but that both have recently increased their purchases. There are no government bond issuance data available for November yet, but between August and October, the central bank and the banking system bought around 90% of all bonds issued.”

• Gold finds support at $2,630 but remains capped ahead of the Fed’s decision.
• The market is bracing for a Fed “hawkish cut” that might boost the US Dollar and weigh on Gold.
• XAU/USD remains under pressure, with upside attempts capped below $2,665.

Gold (XAU/USD) is practically flat on Wednesday after bouncing up from a one-week low the previous day. The precious metal remains on the defensive as the market braces for the outcome of the last Federal Reserve’s (Fed) meeting of the year.

The Fed is widely expected to cut interest rates by 25 basis points (bps), but the economic and rate hike projections will likely reveal a hawkish turn on the central bank’s forward guidance.

Recent US data shows that economic activity remains robust, consumption is buoyant, and inflationary pressures are high. Beyond that, US President-elect Donald Trump’s policies are expected to fuel price pressure higher.

This has forced investors to scale back monetary easing expectations, which is fuelling a sharp rebound in US Treasury yields and weighing on the yellow metal.

Gold remains vulnerable amid fears of a hawkish Fed 

• US Retail Sales released on Tuesday revealed a 0.7% increment in November, up from an upwardly revised 0.5% rise in October and beating expectations of a 0.5% increase.
   
• Consumption amounts to more than 60% of the US GDP, and these figures endorse the view of US economic exceptionalism in the context of a global economic slowdown.
   
• US data released earlier this week showed an unexpected improvement in services activity, pointing to healthy economic growth in the fourth quarter.
   
• Futures markets are almost fully pricing a 25 bps interest rate cut on Wednesday, according to the CME Group’s FedWatch Tool, but less than a 30% chance of more than two quarter-percentage cuts in 2025.
   

Technical analysis: XAU/USD consolidates losses with upside attempts limited below $2,665 

Gold has found some support at $2,630 and is consolidating recent losses, with investors looking from the sidelines ahead of the Fed decision. The short-term bearish trend, however, remains intact, with resistance at $2,665 capping upside attempts.

From a wider perspective, a potential double top at $2,720 suggests that a deeper correction is on the cards.

Immediate support is at $2,630 (December 17 low), while the $2,615-$2,605 area (November 25 and 26 lows) is the neckline of the previously mentioned double top. Below there, the next target would be November’s trough, at $2,540. On the upside, resistances are at the mentioned $2,665 (December 16 high) and 2,690 (December 13 high).
 

XAU/USD 4-Hour Chart

• GBP/JPY edges lower despite an expected increase in the UK inflation boosts expectations for the BoE to leave interest rates unchanged on Thursday.
• UK annual headline and core CPI rose by 2.6% and 3.5%, respectively.
• The BoJ is unlikely to raise interest rates on Thursday.

The GBP/JPY pair edges lower below 195.00 in Wednesday’s European session. The cross drops after the release of the United Kingdom (UK) inflation data for November, which showed that price pressures grew in line with estimates.

As measured by the Consumer Price Index (CPI), UK annual headline inflation rose by 2.6%, as expected, faster than 2.3% in October. Month-on-month headline CPI grew 0.1%, in line with estimates but slower than the former release of 0.4%. The core CPI – which excludes a few volatile items – grew at a faster pace of 3.5% than the former reading of 3.3% but slower than estimates of 3.6%.

An expected growth in the UK inflation adds to evidence that the Bank of England (BoE) will leave interest rates unchanged at 4.75% in the policy meeting on Thursday. According to market expectations, eight members of the Monetary Policy Committee (MPC) are expected to vote for keeping interest rates at their current levels. While one policymaker Swati Dhingra will vote for cutting borrowing rates by 25 basis points (bps) to 4.50%.

Meanwhile, the Japanese Yen (JPY) exhibits a muted price action as investors await the outcome of the Bank of Japan (BoJ) policy meeting on Thursday. The BoJ is expected to leave interest rates at 0.25%. Investors will pay close attention to BoJ Governor Kazuo Ueda’s press conference to know about whether and how much the central bank will raise key borrowing rates in 2025.

Investors will also look for cues about the likely impact of incoming tariff hikes by United States (US) President-elect Donald Trump on the economy.

Silver prices (XAG/USD) fell on Wednesday, according to FXStreet data. Silver trades at $30.37 per troy ounce, down 0.45% from the $30.51 it cost on Tuesday.

Silver prices have increased by 27.64% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 87.20 on Wednesday, up from 86.65 on Tuesday.

(An automation tool was used in creating this post.)

• EUR/CHF may further gain ground as the daily chart analysis indicates a prevailing bullish bias.
• The initial resistance appears at its six-week high of 0.9418 level.
• Nine- and 14-day EMAs at 0.9347 and 0.9338, respectively, appear as the primary support levels.

EUR/CHF retraces its recent losses from the previous session, trading around 0.9380 during the European hours on Wednesday. The daily chart analysis indicates a prevailing bullish bias as the EUR/CHF cross moves upwards within the ascending channel pattern.

The EUR/CHF cross remains above the nine- and 14-day Exponential Moving Averages (EMA), indicating an ongoing bullish outlook and signaling to strengthen short-term price momentum. This points to increasing buying interest and raises the likelihood of further price appreciation.

Additionally, the 14-day Relative Strength Index (RSI) remains above the 50 mark, further strengthening the bearish sentiment.

On the upside, the EUR/CHF cross may retest its six-week high of 0.9418 level, marked on December 17, aligned with the upper boundary of the ascending channel at 0.9430 level. A break above this critical region would strengthen the bullish bias and support the pair to approach its three-month high of 0.9459 level, which was recorded on November 4.

Regarding support, the EUR/CHF cross could test nine- and 14-day Exponential Moving Averages (EMAs) at 0.9347 and 0.9338 levels, respectively. A break below these levels would weaken the short-term price momentum and put downward pressure on the currency cross to navigate the area around the ascending channel’s lower boundary at 0.9280 level.

Further support appears at its four-week low at 0.9256 level, followed by the “throwback support” at 0.9200 level.

EUR/CHF: Daily Chart

A 25bp cut is more or less a done deal but the focus is on the refreshed dot plot, which will provide guidance on Fed members’ expectation on rate cut trajectory into 2025 - 26. Dollar Index (DXY) was last seen at 107.00, OCBC’s FX analyst Frances Cheung and Christopher Wong note.

Bearish reversal requires a decisive break below neckline support

“The previous dot plot back in Sep guided for 4 cuts (or 100bps) in 2025 and markets are now pricing in about 2 cuts (or 50bps). If the dot plot points to 2 cuts or less for 2025, markets would read it as hawkish, and the USD could see another round of strength. But if dot plot points to 3 cuts, then this would be interpreted as less hawkish than expected.”

“On this note, we may see a sigh of relief for risk proxies and USD strength can be pared back. However, if dot plot still points to 4 cuts (no change from previous), then we can expect to see USD trade much softer.”

“Daily momentum and RSI indicators are flat. Head and shoulders (H&S) pattern remains intact with DXY rejecting the second shoulder. We continue to watch price action. A play-out of the H&S pattern (bearish reversal) requires a decisive break below neckline support. Next support at 106.20/50 levels (23.6% fibo, 21 DMA), 105 levels (38.2% fibo retracement of Sep low to Nov high, 50 DMA). Resistance at 107.20 (both shoulders), 108 (2024 high).”

• EUR/USD consolidates in a tight range near 1.0500, with investors focusing on the Fed’s policy meeting.
• The Fed is widely expected to cut interest rates by 25 bps but to deliver slightly hawkish remarks on policy guidance.
• ECB’s Rehn said that inflation stabilizing near the central bank’s target of 2% paves the way for more interest rate cuts.

EUR/USD trades in a tight range near the psychological figure of 1.0500 in Wednesday’s European session. The major currency pair consolidates as investors await the outcome of the last Federal Reserve’s (Fed) policy meeting of the year, which will conclude at 19:00 GMT. The Fed will also release the revision of the Summary of Economic Projections (SEP), also known as the dot plot, which shows fresh economic projections and where policymakers see Federal Fund Rates heading in the medium and long term.

Analysts at Bank of America (BofA) expect the Fed to reduce interest rates by 25 basis points (bps) to the 4.25%-4.5% range. The CME FedWatch tool also shows that market participants have fully priced in a 25 bps interest rate reduction.

With traders fully pricing in a standard rate cut announcement, investors will focus primarily on Fed Chair Jerome Powell’s press conference on interest rate guidance. BofA analysts expect Powell to signal a gradual rate-cut approach ahead, potentially indicating a pause in January if economic data meets expectations.

Meanwhile, traders are also confident that the Fed will leave interest rates unchanged at 4.25%-4.50% in January, according to the CME FedWatch tool.

Ahead of the Fed policy decision, the US Dollar (USD) shows a muted price action, with the US Dollar Index (DXY) wobbling near 107.00.

Daily digest market movers: EUR/USD remains muted with Fed policy in focus

• EUR/USD trades on the sidelines due to consolidation in the US Dollar ahead of the Fed’s policy decision. Meanwhile, the Euro’s (EUR) outlook remains bearish as investors expect the European Central Bank (ECB) to head to the neutral rate, which officials have forecasted around 2%, by the first half of 2025.
• Traders expect the ECB to reduce interest rates at every meeting till June 2025. Officials are highly concerned about growing economic risks in the Eurozone and are confident that price pressures will sustainably return to the central bank’s target next year.
• On Tuesday, ECB policymaker and Finnish central bank Governor Olli Rehn said that inflationary pressures stabilizing near the bank’s target of 2% set the stage for further interest rate reduction. Rehn refrained from providing a specific rate cut path and said, “The speed and scale of the rate cuts will be determined in each meeting on the basis of incoming data and comprehensive analysis.”
• When asked about how the continent will face incoming tariff hikes from the US President-elect Donald Trump administration, Rehn said, "Negotiation is preferable, and the European Union's (EU) negotiating position can be strengthened by demonstrating in advance that it is ready to take countermeasures if the United States threatens Europe with higher tariffs.”

Technical Analysis: EUR/USD consolidates around 1.0500

EUR/USD has traded back and forth around the psychological figure of 1.0500 over the last five trading days. The major currency pair faces pressure near the 20-day Exponential Moving Average (EMA), which trades around 1.0535, suggesting that the near-term trend is bearish.

The 14-day Relative Strength Index (RSI) revolves around 40.00. The bearish momentum should trigger if the RSI (14) falls below that level.

Looking down, the two-year low of 1.0330, reached on November 22, will provide key support. Conversely, the December 6 high of 1.0630 will be the key barrier for the Euro bulls.

European Central Bank (ECB) Chief Economist Philp Lane said in an MNI interview on Wednesday that “it is prudent to maintain meeting-by-meeting approach.”

Additional takeaways

The latest input to the eurozone’s growth story – another decline in the German Ifo index – should keep market’s dovish tendency in European Central Bank pricing well intact, even if consensus is building that the upcoming German election will generate some degree of fiscal support. Ultimately, a retightening in the very wide Atlantic spread seems unlikely in the near term, ING’s FX analyst Francesco Pesole notes.

Upcoming German election may generate some degree of fiscal support

“EUR/USD has continued to hover around the 1.050 gravity line, and we see a good chance this will remain the case into the end of the month. Still, we are comfortable with retaining a negative bias on the pair into the new year, where the start of Trump’s second term in office should offer multiple reasons to stay bearish.”

“In the UK, CPI data released this morning showed increase from 2.3% to 2.6% year-on-year, with the month-on-month slowdown moving from 0.6% to 0.1%, in line with market consensus. Our core services metric, which strips out all the volatile stuff and also rents/hotels (i.e., elements that the Bank of England is less bothered about) did tick higher from 4.5 to 4.7%.

“Our view on EUR/GBP remains generally flat for the near term, even if an eventual acceleration in BoE easing next year can offer some pockets of support.”

• Silver meets with a fresh supply near the 100-day SMA pivotal support breakpoint.
• The technical setup suggests that the path of least resistance is to the downside.
• Bears might still wait for a sustained break and acceptance below the $30.00 mark.

Silver (XAG/USD) struggles to capitalize on the previous day's modest rebound from the vicinity of the monthly low, around the $30.00 psychological mark and attracts some sellers on Wednesday. The white metal remains depressed through the first half of the European session and currently trades just below mid-$30.00s, down nearly 0.30% for the day. 

From a technical perspective, the recent failure near the $32.35 horizontal resistance and a subsequent slide back below the 100-day Simple Moving Average (SMA) favors bearish traders. Moreover, oscillators on the daily chart are holding in negative territory and are far from being in the oversold zone, suggesting that the path of least resistance for the XAG/USD is to the downside. 

That said, it will still be prudent to wait for a sustained breakdown below the $30.00 mark before positioning for deeper losses. The XAG/USD might then weaken further below the November monthly swing low, around the $29.70-$29.65 area, towards testing the next relevant support near the $29.10-$29.00 region, which if broken should pave the way for an extension of a near two-month-old downtrend. 

On the flip side, the 100-day SMA, currently around the $30.60 region, closely followed by the weekly top near the $30.75 area, now seems to act as an immediate hurdles. Some follow-through buying could assist the XAG/USD to reclaim the $31.00 mark and climb to the $31.45-$31.50 supply zone. The move up could extend towards the $32.00 round figure, which if cleared will negate the bearish outlook.

Silver daily chart

Our view for today’s Fed rate announcement is that the risks are broadly balanced for the dollar, and we see limited scope for a surprise driving major FX moves, ING’s FX analyst Francesco Pesole notes.

Fed to hold in January and to move in March

“The prospect of fiscal stimulus among other promised policies by US President-elect Donald Trump will, in our view, force some scaling back in expected rate cuts included in dot plot projections as rates are cut by 25bp, matching pricing and consensus.”

“Even if the communication nuances end up delivering some sort of dovish surprise, we doubt the Fed will derail from a generally cautious stance on guidance, which inevitably leads the markets’ own expectations for Trump’s policy mix as the main driver for rate expectations. This means that any potential USD correction should not have long legs. Also remember that January is a seasonally strong month for the greenback, and markets may be lured into building strategic bullish USD positions as Trump’s mandate kicks off.”

“Our baseline view for today is that the modest hawkish readjustment in Fed communication will leave markets content with current pricing for further Fed meetings: a hold in January and around 50% implied probability of a March move. Ultimately, that can leave the 2-year USD OIS at the 4.0% mark and DXY close to 107.0 into Christmas.”

Tonight, the Federal Open Market Committee (FOMC) of the US Federal Reserve meets for the last time this year to decide on monetary policy. It would take a miracle for the FOMC to do anything other than cut interest rates by 25 basis points. Based on futures contracts, the market is 95% certain it will take such a step, and the vast majority of economists surveyed by Bloomberg also see it that way, Commerzbank’s FX analyst Volkmar Baur notes.

Market expects two further interest rate cuts next year

“Nevertheless, it may be worth to pay attention this evening. With this last cut, the ‘autopilot’ part of the US interest rate cycle should be over. And even if it has always been emphasised that no decision has been made in advance, from the upcoming meeting at the end of January, this should really apply. So, it will depend very much on what Jerome Powell says about a possible pause in January and what the forecasts for the whole of 2025 show.”

“The market is now only expecting two further interest rate cuts next year, while the Fed had still been expecting four in its last forecasts. Lowering these expectations to three would make sense. There is room for manoeuvre, both to do more than the market is currently expecting and to further reduce the number of expected steps at the next round of forecasts.”

“Therefore, here too, it will depend on Powell's tone. A focus on the fact that many things are in flux and that one has to wait and see would be expected. A higher level of conviction in one's own forecasts and expectations, on the other hand, could cause the market to reprice again and put some pressure on the US dollar.

• AUD/JPY extends its losses as the AUD remains under pressure due to renewed concerns about China's economy.
• National Australia Bank maintains its forecast for the first RBA rate cut at the May 2025 meeting.
• The Japanese Yen struggles as the BoJ is widely expected to keep interest rates steady on Thursday.

AUD/JPY loses ground for the second consecutive session, trading around 97.00 during the European hours on Wednesday. The AUD/JPY cross extends its losses as the Australian Dollar (AUD) faces challenges due to the increased likelihood that the Reserve Bank of Australia (RBA) will cut interest rates sooner and more significantly than initially expected.

On Wednesday, the National Australia Bank (NAB) maintained its forecast for the first RBA rate cut at the May 2025 meeting, though they acknowledge February as a possibility.

The Aussie Dollar remains under pressure due to renewed concerns about China's economy, Australia’s key trading partner, following weak economic data. Chinese Retail Sales missed expectations in November, adding strain on policymakers after President Xi Jinping indicated a desire to boost household consumption last week.

However, the downside of the AUD/JPY cross could be restrained as the Japanese Yen (JPY) struggles as traders seem to be convinced that the Bank of Japan (BoJ) will keep interest rates steady on Thursday.

Japan's Ministry of Finance announced on Wednesday an unexpected improvement in the trade deficit for November, which narrowed to ¥117.6 billion from October's ¥462.1 billion. This improvement was primarily attributed to robust export growth, which rose by 3.8% year-on-year in November, while imports fell by 3.8%.

Japan's trade data pointed to weak domestic demand amid an uncertain economic outlook and concerns about US President-elect Donald Trump's tariff plans are contributors to refraining the Bank of Japan from hiking interest rates.

European Central Bank (ECB) policymaker Pierre Wunsch said on Wednesday that “four more rate cuts is a meaningful scenario that I feel relatively comfortable with.”

Additional quotes

Market reaction

As of writing, EUR/USD is defending bets at around 1.0500, awaiting the Fed decision for a fresh direction.

• NZD/USD continues to lose ground amid market caution ahead of the Fed interest rate decision.
• CME FedWatch tool suggests almost fully pricing in a quarter basis point cut on Wednesday.
• The New Zealand Dollar faces challenges amid renewed concerns about China's economy.

NZD/USD extends losses for the second successive day, trading around 0.5740 during early European hours on Wednesday. This downside of the pair could be attributed to the increased risk aversion ahead of the US Federal Reserve (Fed) due later in the North American session.

However, the US Dollar (USD) remains subdued as traders are bracing for a potential 25 basis point rate cut by the Fed at its December meeting. According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting. Traders will also closely monitor Fed Chair Jerome Powell's press conference and Summary of Economic Projections (dot-plot) after the meeting.

The New Zealand Dollar (NZD) remains under pressure due to renewed concerns about China's economy, its key trading partner, following weak economic data. Chinese Retail Sales missed expectations in November, adding strain on policymakers after President Xi Jinping indicated a desire to boost household consumption last week.

Traders are likely to monitor the Gross Domestic Product (GDP) data due on Thursday, expected to show that New Zealand's economy contracted by 0.4% quarter-over-quarter in Q3. Meanwhile, a survey from Westpac indicated that consumer confidence rose to the reading of 97.5 in the fourth quarter, from the previous quarter’s 90.8 reading, marking the highest level in three years, although it remains below long-term averages.

• The Pound Sterling broadly steadies against major peers after UK inflation data for November came in as expected.
• The inflation data cements prospects that the BoE will keep interest rates steady at 4.75% on Thursday.
• The Fed is expected to cut interest rates by 25 basis points to 4.25%-4.50%.

The Pound Sterling (GBP) whipsaws against its major peers on Wednesday after the release of the United Kingdom (UK) Consumer Price Index (CPI) data for November, which showed that price pressures rose in line with estimates. The CPI report highlighted that annual headline inflation accelerated to 2.6% YoY, as expected, from 2.3% in October.

Compared with the previous month, headline inflation rose by 0.1%, also meeting expectations and easing from the 0.6% growth in October.

The core CPI – which excludes volatile items such as food, energy, oil, and tobacco – grew by 3.5%, slower than estimates of 3.6% but faster than the former reading of 3.3%. Services inflation, a closely watched indicator by Bank of England (BoE) officials, rose steadily by 5%.

The rise in inflation cements expectations that the Bank of England (BoE) will leave interest rates unchanged at 4.75% in the policy meeting on Thursday, with an 8-1 vote split. BoE Monetary Policy Committee (MPC) member Swati Dhingra is expected to vote for cutting interest rates by 25 basis points (bps) to 4.5%.

Investors will closely watch BoE Governor Andrew Bailey’s press conference to gauge whether the central bank will accelerate its policy easing in 2025.

Going forward, investors will also focus on the UK November retail Sales data, which will be released on Friday.

Daily digest market movers: Pound Sterling stays sideways ahead of Fed policy

• The Pound Sterling remains broadly sideways against the US Dollar (USD) around 1.2700 in Wednesday’s London session. The US Dollar consolidates ahead of the Federal Reserve’s (Fed) monetary policy announcement at 19:00 GMT. According to the CME FedWatch tool, traders have priced in a 25-bps interest-rate reduction, which would be the third consecutive interest rate cut.
• With market participants expecting a cut, investors will pay close attention to the Federal Open Market Committee (FOMC) Economic Projections and the dot plot, which shows where policymakers see the federa funds rate heading in the medium and longer term.
• A majority of economists expect a less dovish Fed for 2025, according to a recent Bloomberg survey. Economists see the Fed reducing interest rates three times next year as inflation remains above the Fed's target. The survey also indicated that economists have become more worried about upside risks to inflation with incoming President-elect Donald Trump's policies, which include mass deportations, higher import tariffs, and tax cuts.

Technical Analysis: Pound Sterling trades close to 20-day EMA

The Pound Sterling wobbles near the 20-day Exponential Moving Average (EMA) near 1.2815 against the US Dollar (USD). The GBP/USD pair rebounded near the upward-sloping trendline around 1.2600, which is plotted from the October 2023 low at around 1.2035.

The 14-day Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, suggesting a sideways trend.

Looking down, the pair is expected to find a cushion near the psychological support of 1.2500. On the upside, the 200-day EMA near 1.2710 will act as key resistance.

• EUR/GBP gathers strength to around 0.8275 in Wednesday’s early European session, adding 0.27% on the day. 
• The UK annual CPI jumped 2.6% in November vs. 2.6% expected. 
• ECB President Christine Lagarde hinted at potential rate cuts as inflation risks ease. 

The EUR/GBP cross holds positive ground near 0.8275, snapping the two-day losing streak during the early European session on Wednesday. The Pound Sterling (GBP) weakens after the UK November Consumer Price Index (CPI) inflation data. Later on Wednesday, traders will keep an eye on the Eurozone Harmonized Index of Consumer Prices (HICP) report. 

Data released by the Office for National Statistics (ONS) on Wednesday showed that the UK CPI rose by 2.6% YoY in November, compared to a 2.3% growth seen in October. The reading was in line with the market consensus of 2.6% and stayed well above the Bank of England’s (BoE) 2.0% target. 

Meanwhile, the Core CPI, excluding volatile food and energy items, climbed by 3.5% YoY in November versus a 3.3% increase in October, missing the estimation of 3.6%. On a monthly basis, the UK CPI inflation eased to 0.1% in November from 0.6% in October. The markets expect a 0.1% print in the reported month. The UK inflation report failed to boost the GBP and acts as a tailwind for EUR/GBP. 

The European Central Bank (ECB) lowered its key rates last week for the fourth time this year and signaled for further rate cuts as inflation risks ease. During the press conference, the ECB President Christine Lagarde said, “The direction of travel is clear, and we expect to lower interest rates further.” The dovish remarks from the ECB policymakers might weigh on the Euro (EUR) against the GBP. Furthermore, the concerns about the weak economy and uncertainty about potential tariffs in the US could contribute to the shared currency’s downside. 

Here is what you need to know on Wednesday, December 18:

Financial markets remain quiet midweek as investors stay on the sidelines while getting ready for the Federal Reserve (Fed) to announce its monetary policy decisions following the last meeting of the year. During the European trading hours, Eurostat will release revisions to Harmonized Index of Consumer Prices (HICP) readings for November. Ahead of the Fed decision, November Housing Starts and Building Permits data will be featured in the US economic docket.

In the absence of high-impact data releases and fundamental drivers, major currency pairs fluctuated in relatively tight ranges on Tuesday. The US Dollar (USD) Index posted small gains but failed to stabilize above 107.00. Early Wednesday, the index moves sideways near 106.80, while the benchmark 10-year US Treasury bond yield holds steady slightly below 4.4%. The Fed is widely expected to lower the policy rate by 25 basis points (bps) to the range of 4.25%-4.5%. The revised Summary of Projections (SEP), also known as the dot plot, published alongside the policy statement will provide important clues about how many more rate cuts Fed officials project in 2025. Finally, Fed Chairman Jerome Powell will speak on the policy outlook and respond to questions in a press conference starting at 19:30 GMT.

The data published by the UK's Office for National Statistics showed that annual inflation, as measured by the change in the Consumer Price Index (CPI), rose to 2.6% in November from 2.3% in October. This reading came in line with the market expectation. In the same period, the core CPI rose 3.5%, up from the 3.3% increase recorded in October but below analysts' estimate of 3.6%. On a monthly basis, the Retail Price Index rose 0.1%, while the Producer Price Index - Input remained unchanged. GBP/USD largely ignored these figures and was last seen trading at around 1.2700.

EUR/USD extends its sideways grind slightly above 1.0500 after posting marginal losses on Tuesday.

USD/JPY corrected lower and snapped a six-day winning streak on Tuesday. The pair holds its ground early Wednesday and trades at around 153.50.

Gold failed to make a decisive move in either direction on Tuesday and closed the day little changed. XAU/USD remains confined in a narrow channel below $2,650 in the early European session on Wednesday.

• United Kingdom's annual CPI jumped 2.6% in November vs. 2.6% forecast.
• British inflation eased to 0.1% MoM in November vs. 0.1% aniticpated.
• GBP/USD keeps range near 1.2700 after UK CPI inflation data.

The United Kingdom (UK) Consumer Price Index (CPI) edged higher by 2.6% on a yearly basis in November after recording a 2.3% growth in October, according to the data released by the Office for National Statistics (ONS) on Wednesday. 

Data aligned with the market forecast of 2.6% and stayed well above the Bank of England’s (BoE) 2.0% target.

Core CPI (excluding volatile food and energy items) rose by 3.5% YoY in November, compared to a 3.3% increase in October while missing the market consensus of 3.6%.

The UK November Services CPI inflation stayed unchanged at 5.0% YoY in November.The UK November Services CPI inflation stayed unchanged at 5.0% YoY in November.

Meanwhile, the UK Consumer Price Index came in at 0.1% MoM in November, following a 0.6% acceleration in October. Markets expected a 0.1% print in the reported month.

GBP/USD reaction to the UK CPI inflation data

The UK CPI data failed to impress the Pound Sterling, keeping GBP/USD ranging at around 1.2700. The pair is trading 0.06% lower on the day, as of writing.

FX option expiries for Dec 18 NY cut at 10:00 Eastern Time via DTCC can be found below.

EUR/USD: EUR amounts

• 1.0450 779m
• 1.0500 1.7b
• 1.0550 1.2b
• 1.0565 614m

GBP/USD: GBP amounts     

• 1.2495 454m
• 1.2805 615m
• 1.2815 505m

USD/JPY: USD amounts                     

• 152.00 607m
• 154.60 532m

USD/CHF: USD amounts     

• 0.8900 702m

AUD/USD: AUD amounts

• 0.6350 1b
• 0.6500 476m

USD/CAD: USD amounts       

• 1.4175 638m
• 1.4225 604m
• 1.4280 608m
• 1.4300 797m
• 1.4350 646m

NZD/USD: NZD amounts

• 0.5650 675m
• 0.5750 465m
• 0.5960 747m

• The US Dollar trades in negative territory around 106.85 in Wednesday’s early European session.
• US Retail sales jumped 0.7% MoM in November after an upwardly revised 0.5% gain prior, according to the US Census Bureau.
• The Fed is anticipated to lower interest rates by 25 bps to a range of 4.25% to 4.50%.

The US Dollar Index (DXY) trades with a mild negative bias near 106.85 during the early European trading hours on Wednesday. The speculation that the Federal Reserve (Fed) will adopt a more cautious stance on cutting interest rates might provide some support to the US Treasury bond yields and the US Dollar (USD). 

The US Census Bureau revealed on Tuesday that Retail Sales in the US climbed by 0.7% MoM in November versus a 0.5% increase (revised from 0.4%) in October. This figure came in stronger than the expectation of a 0.5% increase. Meanwhile, US Industrial Production came in below the market consensus, declining by 0.1% MoM in November, compared to a fall of 0.4% (revised from -0.3%) in October. However, the US Retail Sales data had no impact on expectations that the Fed would reduce interest rates at its December meeting on Wednesday. 

The US central bank is scheduled to announce its interest rate decision at its December meeting on Wednesday. The markets expect that the Fed will cut rates for the third time in a row, bringing the Federal Funds Rate lower to a target range of 4.25% to 4.50%. According to the CME FedWatch Tool, there is now a 97.1% odds of a 25 basis points (bps) rate cut, while the probability of maintaining current rates stands at 4.6%. 

Jacob Channel, senior economist at LendingTree, said that the Fed will likely proceed with a 25 bps reduction at its upcoming meeting, but there may not be further cuts in the immediate future. Traders will take more cues from the Fed Chair Jerome Powell’s Press Conference and Summary of Economic Projections (dot-plot) after the meeting. If the Fed officials deliver the less dovish comments, this could lift the Greenback against its rivals. However, any signs of further Fed rate reduction could weigh on the USD. 

• USD/CHF retreats after hitting 0.8974, a level not seen since July 2024, on Tuesday.
• CME FedWatch tool suggests almost fully pricing in a quarter basis point cut at its December meeting.
• SNB reiterated commitment to ensuring price stability over the medium term and expressed readiness to adjust monetary policy if necessary.

USD/CHF extends its losses after pulling back from a six-month high of 0.8974, reached on Tuesday. The pair trades around 0.8920 during the Asian hours on Wednesday. Traders are bracing for a potential 25 basis point rate cut by the US Federal Reserve (Fed) later in the North American session.

According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting. Additionally, traders will closely monitor Fed Chair Jerome Powell's press conference and Summary of Economic Projections (dot-plot) after the meeting.

On Tuesday, the US Census Bureau reported that US Retail Sales rose 0.7% MoM in November, compared to the 0.5% prior increase. Meanwhile, the Retail Sales Control Group increased 0.4% from the previous decline of 0.1%.

The Swiss Franc (CHF) came under pressure after the Swiss National Bank (SNB) unexpectedly cut its key interest rate by 50 basis points last week, surpassing expectations for a smaller reduction, as it seeks to address subdued inflation.

The SNB reaffirmed its commitment to maintaining price stability over the medium term, signaling readiness to adjust monetary policy if needed. The central bank noted that "underlying inflationary pressure has decreased again this quarter," with annual inflation declining from 1.1% in August to 0.7% in November, nearing the lower end of its target range of 0-2%.

Switzerland's State Secretariat for Economic Affairs (SECO) has revised its economic growth forecasts, projecting the Swiss economy to grow by 0.9% in 2023, down from the previous estimate of 1.2%. For 2024, the growth forecast has been adjusted to 1.5%, slightly lower than the earlier projection of 1.6%. The KOF Swiss Economic Institute forecasts growth of 1.4% in 2025 and 1.7% in 2026, anticipating weak foreign demand until mid-2025, followed by a gradual recovery.

• GBP/JPY turns lower for the second straight day, though it lacks follow-through selling.
• Reduced bets for aggressive BoE rate cuts in 2025 underpin the GBP and lend support.
• Expectations that the BoJ will keep rates steady keep the JPY bulls on the defensive.
• The technical setup supports prospects for the emergence of dip-buying at lower levels.

The GBP/JPY cross attracts some intraday sellers following an Asian session uptick to the 195.50 region and turns lower for the second successive day on Wednesday. Spot prices, however, remain close to a nearly four-week high touched on Tuesday and currently trade just below the 195.00 psychological mark as traders now look to the UK Consumer Price Index (CP) report for a fresh impetus. 

A stronger UK wage growth data released on Tuesday justified the need for the Bank of England (BoE) to keep rates on hold at its meeting on Thursday and forced investors to trim their bets for three 25 basis points rate reductions next year. This might continue to act as a tailwind for the British Pound (GBP). Furthermore, expectations that the Bank of Japan (BoJ) will not hike interest rates at the conclusion of the December policy meeting keep the Japanese Yen (JPY) bulls on the defensive and should act as a tailwind for the GBP/JPY cross. 

From a technical perspective, this week's breakout through the very important 20-day Simple Moving Average (SMA) was seen as a fresh trigger for bulls. Moreover, oscillators on the daily chart have just started gaining positive traction and are still away from being in the overbought territory. This, in turn, validates the near-term positive outlook for the GBP/JPY cross and supports prospects for the emergence of dip-buyers at lower levels. That said, failure near the 61.8% Fibonacci retracement level of the October-December fall warrants caution. 

Nevertheless, any further decline is more likely to find support near the 194.45 horizontal zone ahead of the 194.00 mark, or the 50% Fibo. level. Some follow-through selling could make the GBP/JPY cross vulnerable to accelerate the fall towards the 193.40 intermediate support en route to the 193.192.95 region and the 38.2% Fibo. level, around the 192.60-192.55 zone.

On the flip side, sustained strength and acceptance above the 195.50 area, or the 61.8% Fibo. level, will reaffirm the positive outlook and lift the GBP/JPY cross to the 196.00 round figure. The momentum could extend further towards the 196.65 hurdle en route to the 197.00 mark and the 78.6% Fibo. level, around the 197.30-197.35 region.

GBP/JPY daily chart

• USD/CAD has marked 1.4329, a level not seen since March 2020, on Wednesday.
• The Canadian Dollar faces challenges due to the dovish BoC and domestic political uncertainty.
• CME FedWatch tool suggests almost fully pricing in a 25 basis point cut on Wednesday.

USD/CAD extends its winning streak for the fifth consecutive day, trading around 1.4320 during the Asian hours on Wednesday. This upside could be attributed to the tepid Canadian Dollar (CAD) following dovish remarks from the Bank of Canada (BoC) Governor Tiff Macklem.

Bank of Canada (BoC) Governor Tiff Macklem stated on Monday that the central bank is preparing for a future characterized by heightened uncertainty and increased vulnerability to economic shocks. He emphasized that the BoC will evaluate the need for further policy rate cuts on a case-by-case basis and anticipates a more gradual approach to monetary policy if the economy unfolds as projected.

Meanwhile, Canadian Prime Minister Justin Trudeau is facing growing pressure to resign after Finance Minister Chrystia Freeland announced on Monday that she is stepping down from the Cabinet, according to CNN.

The Consumer Price Index (CPI) released by Statistics Canada fell to 1.9% year-over-year in November, slightly below the market expectation of 2.0%. On a monthly basis, the CPI remained flat, aligning with forecasts, after rising 0.4% in October. Meanwhile, monthly core inflation declined by 0.1%, bringing the annual core CPI inflation rate down to 1.6% from October's 1.7%.

Traders are bracing for a potential 25 basis point rate cut by the US Federal Reserve (Fed) later in the North American session. According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting. Additionally, traders will closely monitor Fed Chair Jerome Powell's press conference and Summary of Economic Projections (dot-plot) after the meeting.

• EUR/USD gains momentum to around 1.0505 in Wednesday’s Asian session. 
• The US Fed is expected to make a third consecutive rate cut at its December meeting on Wednesday. 
• The rising bet for the ECB's further interest rate cuts could undermine the Euro. 

The EUR/USD pair holds positive ground to near 1.0505 during the early European session on Wednesday. However, the cautious sentiment ahead of the Federal Reserve (Fed) interest rate decision meeting could weigh on riskier assets like the Euro (EUR). 

The Fed is widely expected to lower borrowing costs by 25 basis points (bps) at its December meeting on Wednesday, bringing its overnight borrowing rate by a quarter percentage point to a range of between 4.25% and 4.50% from its current range of between 4.50% and 4.75%. The attention will shift to the Fed’s updated economic projections and the dot plot, which might offer some hints about expectations for the rate trajectory through 2025 and 2026. Any signs of a more cautious stance on rate reduction going forward could boost the Greenback against the Euro (EUR). 

Across the pond, the European Central Bank (ECB) President Christine Lagarde noted on Monday that further interest rate cuts were likely. “The direction of travel is clear, and we expect to lower interest rates further,” Lagarde said. Additionally, the ECB Governing Council member Olli Rehn stated that interest rates will continue to head lower as inflation starts to stabilize around the 2% target. Isabel Schnabel, the ECB's most influential policy hawk, emphasized market bets on further gradual reductions in borrowing costs in the Eurozone as the economy stutters and fears about high inflation fade. 

However, the pace and size of the rate cuts will be determined in each meeting on the basis of incoming data and comprehensive analysis. This, in turn, might cap the upside for the major pair in the near term.

Gold prices remained broadly unchanged in India on Wednesday, according to data compiled by FXStreet.

The price for Gold stood at 7,218.12 Indian Rupees (INR) per gram, broadly stable compared with the INR 7,217.90 it cost on Tuesday.

The price for Gold was broadly steady at INR 84,190.05 per tola from INR 84,188.14 per tola a day earlier.

FXStreet calculates Gold prices in India by adapting international prices (USD/INR) to the local currency and measurement units. Prices are updated daily based on the market rates taken at the time of publication. Prices are just for reference and local rates could diverge slightly.

(An automation tool was used in creating this post.)

• EUR/JPY appreciates as traders expect the Bank of Japan to keep interest rates steady on Thursday.
• Japan’s trade deficit narrowed to ¥117.6 billion in November, down from the previous ¥462.1 billion.
• ECB Lagarde noted that the previous bias toward maintaining "sufficiently restrictive" rates is no longer warranted.

EUR/JPY gains ground after registering losses in the previous session, trading around 161.40 during the Asian hours on Wednesday. The Japanese Yen (JPY) experiences losses as traders now seem convinced that the Bank of Japan (BoJ) will keep interest rates steady on Thursday.

Additionally, Japan's trade data pointed to weak domestic demand amid an uncertain economic outlook and concerns about US President-elect Donald Trump's tariff plans are contributors to refraining the Bank of Japan from hiking interest rates.

On Wednesday, Japan's Ministry of Finance announced an unexpected improvement in the trade deficit for November, which narrowed to ¥117.6 billion from October's ¥462.1 billion. This improvement was primarily attributed to robust export growth, which rose by 3.8% year-on-year in November, while imports fell by 3.8%.

The upside of the EUR/JPY cross could be restrained as the Euro faces challenges as the European Central Bank (ECB) President Christine Lagarde spoke at the Annual Economics Conference, indicating that the central bank is prepared to cut rates further if incoming data confirm that disinflation remains on track. Lagarde also signaled a shift in policy stance, noting that the previous bias toward maintaining "sufficiently restrictive" rates is no longer warranted.

Data released on Monday showed that Eurozone PMI figures surpassed expectations in December. However, Services PMI surveys remain in contraction territory, reflecting mounting concerns about a deepening economic slowdown in Europe, which continues to dampen investor and business sentiment. Traders are now shifting their attention to the Eurozone Harmonized Index of Consumer Prices (HICP) data, set to be released on Wednesday.

• GBP/USD lacks any firm intraday direction and oscillates in a range on Wednesday.
• The fundamental backdrop warrants some caution for aggressive bearish traders.
• Traders opt to wait for the UK November CPI report and the crucial FOMC decision. 

The GBP/USD pair struggles to capitalize on a two-day-old recovery move from the vicinity of the 1.2600 mark, or a three-week low touched on Monday and oscillates in a narrow band during the Asian session. Spot prices currently trade around the 1.2700 round figure, nearly unchanged for the day as traders keenly await the outcome of the highly-anticipated FOMC policy meeting before placing fresh directional bets. 

The Federal Reserve (Fed) is widely expected to lower borrowing costs by 25 basis points and adopt a more cautious stance on cutting interest rates going forward. Hence, investors will closely scrutinize the so-called dot plot and Fed Chair Jerome Powell's comments at the post-meeting press conference for cues about the future rate-cut path. This, in turn, will influence the near-term US Dollar (USD) price dynamics and provide some meaningful impetus to the GBP/USD pair. 

Meanwhile, the prospects for a less dovish Fed, along with speculations that US President-elect Donald Trump's policies may lead to an increase in government borrowing and boost inflation, remain supportive of elevated US Treasury bond yields. Apart from this, persistent geopolitical risks and trade war fears continue to act as a tailwind for the USD, which, in turn, seems to cap the GBP/USD pair, though reduced bets for a rate cut by the Bank of England (BoE) lend support. 

The monthly UK jobs report released on Tuesday showed that regular pay grew at a faster-than-expected annual pace of 5.2% between August and October. The data justifies the need for the BoE to keep rates on hold at its meeting this week and also forced investors to trim their bets for three 25 basis points rate reductions next year. This could underpin the British Pound (GBP) and limit losses for the GBP/USD pair ahead of the UK consumer inflation figures later today.

• Gold price moves further away from over a one-week low touched the previous day.
• Bets for a less dovish Fed, elevated US bond yields and a bullish USD should cap gains.
• Traders keenly await the crucial FOMC decision before placing fresh directional bets.

Gold price (XAU/USD) builds on the overnight bounce from the $2,633 area, or over a one-week low and attracts some buyers during the Asian session on Wednesday. The uptick could be attributed to some repositioning trade ahead of the key central bank event risk, though it is more likely to remain capped as traders might opt to wait for the outcome of the crucial two-day FOMC policy meeting later today. The Federal Reserve (Fed) is widely expected to lower borrowing costs by 25 basis points and adopt a more cautious stance on cutting interest rates going forward. 

Hence, the focus will remain glued to the accompanying policy statement, the updated economic projections, which include the so-called dot plot, and Fed Chair Jerome Powell's comments at the post-meeting press conference. Investors will look for cues about the Fed's rate-cut path, which will influence the near-term US Dollar (USD) price dynamics and provide a fresh directional impetus to the Gold price. In the meantime, the prospects for a less dovish Fed remain supportive of elevated US Treasury bond yields and should keep a lid on the non-yielding yellow metal. 

Gold price lacks bullish conviction amid expectations that the Fed could pause its rate-cutting cycle

• The US Census Bureau reported on Tuesday that Retail Sales jumped 0.7% in November, better than the market expectation for an increase of 0.5% and the 0.4% increase recorded in the previous month.
• The data was consistent with strong underlying momentum in the economy, though it had little impact on bets that the Federal Reserve will cut interest rates at the end of a two-day meeting on Wednesday. 
• The robust consumer spending, along with the US economic resilience and warmer inflation prints in recent months, suggests that the Fed could pause its rate-cutting cycle at the January meeting. 
• The prospects for a less dovish Fed pushed the yield on the benchmark 10-year US government bond to its highest level since November 22 and should act as a headwind for the non-yielding Gold price. 
• Ukraine claims a blast in Moscow that killed the head of the Russian military’s nuclear and chemical weapons protection forces, Igor Kirillov, on Tuesday, raising the risk of a further escalation of tensions. 
• The UN’s special envoy for Syria warned that the conflict has not ended even after the ousting of President Bashar al-Assad amid clashes between Turkish-backed and Kurdish groups in the north.
• A Palestinian official involved in the indirect negotiations said that there are signs that Israel and Hamas could be moving closer to a Gaza ceasefire and hostage release deal after months of deadlock.
• Wednesday's US economic docket features the release of housing market data – Building Permits and Housing Starts. The focus, however, will remain glued to the crucial FOMC monetary policy decision. 
• Meanwhile, investors will closely scrutinize the updated economic projections and Fed Chair Jerome Powell's remarks for cues about the future rate-cut path, which will drive the US Dollar demand. 

Gold price needs to surpass the $2,664-2,664 strong barrier for bulls to seize short-term control

From a technical perspective, any subsequent move up might face a hurdle near the weekly top, around the $2,664-2,666 region touched on Monday, ahead of the $2,677 area. A sustained strength beyond the latter should allow the Gold price to reclaim the $2,700 round figure. The subsequent move up could extend further towards the monthly swing high, around the $2,726 zone, above which the XAU/USD is likely to resume its upward trajectory.

On the flip side, the overnight swing low, around the $2,633 region, now seems to protect the immediate downside ahead of the monthly trough, around the $2,614 zone. This is closely followed by the $2,600 mark, which if broken decisively will be seen as a fresh trigger for bearish traders and make the Gold price vulnerable to resume its recent sharp pullback from over a one-month peak touched last week.

South Korean Foreign Minister Cho Tae-yul said on Wednesday, “they will actively respond to excessive volatility in the forex market.”

Additional comments

Separately, South Korean Finance Minister Choi Sang-mok comforted markets on Wednesday, saying they “will utilize all available resources to manage the economy as stably as possible.”

Market reaction

The South Korean (KRW) seems to be finding fresh demand on the above comments, as USD/KRW lost 0.24% on the day to trade 1,436, as of writing.

• The Indian Rupee holds steady in Wednesday’s Asian session. 
• Outflows from local equities and the widening of India’s November merchandise trade deficit could weigh on the INR. 
• The Fed interest rate decision will take center stage on Wednesday. 

The Indian Rupee (INR) trades on a flat note on Wednesday after reaching a new record low of 84.92 in the previous session. The local currency remains on the defensive amid foreign fund outflows and a muted trend in domestic equities. Additionally, the widening of India’s merchandise trade deficit in November could further undermine the INR. However, the routine foreign exchange intervention by the Reserve Bank of India (RBI) to sell the USD via state-owned banks could prevent the INR from significantly depreciating. 

Looking ahead, the US Federal Reserve (Fed) interest rate decision will be in the spotlight on Wednesday. The US Fed is expected to deliver a quarter of a percentage point cut at the December meeting. Traders will closely monitor the Fed Chair Jerome Powell’s Press Conference and the Summary of Economic Projections, or ‘dot plot.’ Any hawkish remarks from the Fed officials might lift the Greenback and contribute to the INR’s downside. 

Indian Rupee flat lines ahead of Fed rate decision

• "While weak Asian cues weighed on market sentiment, the record high trade deficit in November pushed the rupee to a new low, which caused investors to run for cover, triggering panic selling in domestic equities," noted Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd.
• India's merchandise trade deficit widened to a record high of $37.8 billion in November, compared to $27.1 billion in October. Meanwhile, Exports fell by 4.9% YoY to $32.1 billion, while Imports rose 27% YoY to $69.95 billion during the month under review.
• The US Retail Sales climbed by 0.7% MoM in November versus a 0.5% increase (revised from 0.4%) prior, according to the US Census Bureau on Tuesday. This figure came in stronger than the 0.5% increase expected. 
• The US Industrial Production declined by 0.1% MoM in November, compared to a fall of 0.4% (revised from -0.3%) in October, below the market consensus of the 0.3% expansion.
• The markets are now pricing in a nearly 97.1% chance of a 25 basis points (bps) cut at the Fed's December meeting, compared with about a 78% chance a week ago, according to the CME FedWatch tool. 

USD/INR keeps the bullish vibe in the longer term

The Indian Rupee trades flat on the day. The strong bullish outlook of the USD/INR pair remains in play, characterised by the price holding above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The upward momentum is supported by the 14-day Relative Strength Index (RSI), which is located above the midline near 68.15, suggesting that the further upside looks favourable. 

The first upside barrier for USD/INR emerges near the ascending trend channel and the psychological level of 85.00. Sustained trading above this level could draw in buyers and push the pair to 85.50.

On the flip side, the lower boundary of the trend channel of 84.80 acts as an initial support level for the pair. Bearish candlesticks that could lead to a potential retest of the low of November 25 at 84.22. A breach of the mentioned level could expose 84.15, the 100-day EMA.

• Silver price consolidates within the horizontal channel pattern.
• The alignment of the nine- and 14-day EMAs indicates an absence of clear directional momentum.
• The 14-day RSI consolidates below the 50 mark, suggesting an emergence of the bearish bias.

Silver price (XAG/USD) remains subdued for the fifth successive day, trading around $30.50 per troy ounce during the Asian hours on Wednesday. Analysis of the daily chart indicates a period of market consolidation as the pair is confined within the horizontal channel pattern.

Additionally, the alignment of the nine- and 14-day Exponential Moving Averages (EMAs) suggests that the short-term price movement is experiencing a period of consolidation, lacking a strong directional momentum. However, the 14-day Relative Strength Index (RSI) consolidates below the 50 mark, suggesting an emergence of the bearish bias.

On the downside, the XAG/USD pair may find its primary support around the lower boundary of the horizontal channel at $29.90, followed by a “throwback support” level at its three-month low of $29.65, which was recorded on November 28.

Regarding its resistance, the XAG/USD may test the nine- and 14-day EMAs at $30.82 and $30.90, respectively. A break above these levels could cause the bullish bias to re-emerge and help the Silver price to retest its six-week high of $32.28, reached on December 9, followed by the horizontal channel’s upper boundary at $32.50.

XAG/USD: Daily Chart

• The Australian Dollar declines amid market caution ahead of Fed policy decision.
• The Aussie Dollar receives downward pressure from the increased likelihood of the RBA delivering rate cuts sooner.
• US Federal Reserve is widely expected to deliver a 25 basis point rate cut on Wednesday.

The Australian Dollar (AUD) extends its losses for the second successive session against the US Dollar (USD) on Wednesday. Traders are bracing for a potential 25 basis point rate cut by the US Federal Reserve (Fed) later in the North American session.

The AUD also faces challenges as traders are increasing their bets that the Reserve Bank of Australia (RBA) will cut interest rates sooner and more significantly than initially expected. However, future decisions will be data-driven, with evolving risk assessments guiding the RBA's approach.

The US Dollar (USD) remains solid due to market caution ahead of the Fed decision. According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting. Additionally, traders will closely monitor Fed Chair Jerome Powell's press conference and Summary of Economic Projections (dot-plot) after the meeting.

US Census Bureau reported on Tuesday that US Retail Sales rose 0.7% MoM in November, compared to the 0.5% prior increase. Meanwhile, the Retail Sales Control Group increased 0.4% from the previous decline of 0.1%.

Australian Dollar remains subdued amid market caution ahead of the Fed's decision

• Australia's Westpac Consumer Confidence fell 2% to 92.8 points in December, reversing two months of positive momentum. The index increased 5.3% in November. Traders will likely observe US retail sales data for November, which is scheduled to be released later in the North American session.
• Reuters cited two sources on Tuesday that China is set to target economic growth of around 5% in 2025. This decision follows a meeting among top Chinese officials at the Central Economic Work Conference last week. The growth target remains the same as this year, which China is expected to achieve.
• China's foreign exchange regulator, the State Administration of Foreign Exchange (SAFE), reported a net outflow of $45.7 billion from China's capital markets in November. Cross-border portfolio investment receipts totaled $188.9 billion, while payments reached $234.6 billion, resulting in the largest monthly deficit on record for this category.
• In the United States, the preliminary S&P Global Composite Purchasing Managers Index (PMI) rose to 56.6 in December, from 54.9 prior. Meanwhile, the Services PMI improved to 58.5 from 56.1. The Manufacturing PMI declined to 48.3 in December, from the previous 49.7 reading.
• Chinese authorities, led by President Xi Jinping, have pledged to raise the fiscal deficit target next year, shifting policy focus to consumption to boost the economy amid looming 10% US tariffs threatening exports. The lack of concrete details on fiscal support has put downward pressure on the AUD, given China's status as Australia's largest trading partner.
• China’s Retail Sales (YoY) rose 3.0% in November, against its expected 4.6% and previous 4.8% readings. Meanwhile, annual Industrial Production increased by 5.4%, exceeding the market consensus of a 5.3% rise.

Australian Dollar falls toward 0.6300 after breaking yearly lows

AUD/USD trades near 0.6330 on Wednesday. Analysis of a daily chart suggests a prevailing bearish bias as the pair is confined within a descending channel pattern. Additionally, the 14-day Relative Strength Index (RSI) hovers slightly above the 30 level, indicating sustained bearish momentum is active. However, a fall below the 30 mark would suggest an oversold situation and a potential for an upward correction.

On the downside, the AUD/USD pair has successfully broken below the yearly low of 0.6348, which may put downward pressure on it to navigate the descending channel’s lower boundary around the 0.6150 level.

The AUD/USD pair may find its initial resistance around the nine-day Exponential Moving Average (EMA) at 0.6373, followed by the 14-day EMA at 0.6397, aligned with the descending channel’s upper boundary. A decisive breakout above this channel could drive the pair toward the eight-week high of 0.6687.

AUD/USD: Daily Chart

• The Japanese Yen attracts some sellers following the release of Japanese Trade Balance data.
• Bets that the BoJ will keep rates unchanged and elevated US bond yields also weigh on the JPY.
• Traders keenly await the crucial FOMC decision, ahead of the BoJ policy update on Thursday. 

The Japanese Yen (JPY) struggles to capitalize on the previous day's modest recovery gains against its American counterpart and attracts fresh sellers during the Asian session on Wednesday. Data released earlier today showed that Japan’s Trade Balance unexpectedly improved in November on the back of strong growth in exports, though a fall in imports pointed to a weak local demand. This, along with the uncertain economic outlook amid concerns about US President-elect Donald Trump's tariff plans, reaffirms expectations that the Bank of Japan (BoJ) will keep interest rates steady later this week and undermines the JPY.

Meanwhile, the prospects for a less dovish Federal Reserve (Fed), along with expectations that Trump's policies may lead to an increase in government borrowing and boost inflation, remain supportive of elevated US Treasury bond yields. This turns out to be another factor weighing on the lower-yielding JPY, though a softer risk tone helps limit deeper losses. The JPY bears might also refrain from placing aggressive bets and opt to wait on the sidelines ahead of the key central bank event risks. The Fed will announce its decision at the end of a two-day meeting later today, followed by the BoJ monetary policy update on Thursday. 

Japanese Yen continues to be undermined by BoJ rate hike uncertainty

• A report published by Japan's Ministry of Finance showed on Wednesday that the country's trade deficit unexpectedly improved in November and came in at ¥117.6 billion compared to October’s deficit of ¥462.1 billion. 
• The improvement was driven by strong growth in exports, which increased by 3.8% year-on-year in November amid a weaker Japanese Yen and a pickup in demand from Japan’s biggest trading partners – the US and China. 
• The upbeat reading, however, was offset by a 3.8% decline in Japanese imports, which, along with expectations that the Bank of Japan will not hike interest rates later this week, attracts fresh sellers around the JPY. 
• The yield on the benchmark 10-year US government bond shot to its highest level since November 22 following the release of US Retail Sales data, which underscored robust consumer spending and economic resilience. 
• The Commerce Department reported that sales at the retail level increased by 0.7% in November compared to the 0.5% growth recorded in the previous month, while sales ex Autos fell short of expectations and rose 0.2%.
• The report, meanwhile, had little impact on market expectations that the Federal Reserve will lower borrowing costs for the third time, by 25 basis points at the end of a two-day policy meeting later this Wednesday. 
• However, signs that the progress towards bringing inflation back to the central bank's 2% target suggest that the Fed could adopt a more cautious stance and pause its rate-cutting cycle at the January policy meeting.
• Hence, investors will scrutinize the updated economic projections, which include the so-called dot plot, and Fed Chair Jerome Powell's comments at the post-meeting press conference for cues about the rate-cut path. 
• The market attention will then shift to the crucial BoJ policy decision, scheduled during the Asian session on Thursday, which should further contribute to providing a fresh directional impetus to the USD/JPY pair. 

USD/JPY could confront some resistance near 154.00; bullish potential seems intact

From a technical perspective, the emergence of some dip-buying on Wednesday comes on top of the recent breakout through the very important 200-day Simple Moving Average (SMA) and favors bullish traders. Moreover, oscillators on the daily chart have been gaining positive traction and are still far from being in the overbought territory, suggesting that the path of least resistance for the USD/JPY pair is to the upside. Any further move up, however, might face some resistance near the 154.00 mark ahead of the 154.45-154.50 region, or a three-week top touched on Monday. A sustained move beyond the latter should pave the way for a move towards reclaiming the 155.00 psychological mark. The momentum could extend further towards the next relevant hurdle near mid-155.00s en route to the 156.00 mark and the 156.25 supply zone. 

On the flip side, the 153.15 area, or the overnight swing low, now seems to protect the immediate downside. Some follow-through selling below the 153.00 mark could drag the USD/JPY pair back towards the 200-day SMA pivotal support, near the 152.15 region. Failure to defend the said support levels might shift the bias in favor of bearish traders and make spot prices vulnerable to accelerate the slide towards the 151.00 round figure en route to the 150.00 psychological mark.

On Wednesday, the People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.1880, as compared to the previous day's fix of 7.1891 and 7.2838 Reuters estimates.

• NZD/USD softens to near 0.5750 in Wednesday’s Asian session.
• The Fed is expected to announce a 25 bps rate cut on Wednesday, bringing the rates to 4.25%-4.50%.
• New Zealand’s Current Account deficit narrowed as the country imported less.

The NZD/USD pair remains on the defensive around 0.5750 during the early Asian session on Wednesday. The New Zealand Dollar (NZD) struggles to gain ground as traders await the US Federal Reserve (Fed) interest rate decision on Wednesday. 

The mixed US economic data released on Tuesday had no impact on expectations that the Fed would cut interest rates at its December meeting on Wednesday. Traders have priced in a 25 basis points (bps) interest rate cut at the December meeting but lean toward a pause in January 2025. The Press Conference and the Summary of Economic Projections, or ‘dot-plot’ will be closely watched. The cautious tone about further cuts could lift the US Dollar (USD) and act as a headwind for NZD/USD. 

The Retail Sales in the US came in better than the market expectation, rising 0.7% MoM in November versus a 0.5% increase (revised from 0.4%) prior, the US Census Bureau showed Tuesday. Meanwhile, Industrial Production contracted by 0.1% MoM in November, compared to a fall of 0.4% (revised from -0.3%) in October, missing the estimation of the 0.3% expansion. 

New Zealand’s current account deficit narrowed to $10.581B in the third quarter from $4.826B in the previous reading, according to Statistics New Zealand on Wednesday. Meanwhile, the potential Donald Trump’s tariff policies could drag the Kiwi lower, as Trump said that he will impose a 10% tariff on imports from China.

Additionally, Chinese Retail Sales missed expectations in November, adding to pressure on policymakers after President Xi Jinping signaled last week that he wanted to boost household consumption. The renewed concerns surrounding China's economy weigh on the Kiwi as China is a major trading partner for New Zealand. 

• WTI price declines to near $69.70 in Wednesday’s early Asian session.
• Chinese economic data stoked concerns about demand, weighing on the WTI price. 
• US crude inventories fell by about 4.7M barrels last week, the API showed. 

West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $69.70 on Wednesday. The WTI price edges lower amid the renewed concerns about Chinese demand. Investors remains cautious ahead of the US Federal Reserve (Fed) interest rate decision on Wednesday. 

The disappointing Chinese Retail Sales raised concerns about the weakness in consumer spending in China, the world's largest oil importer. “Bearish momentum spawned by the China data destroyed any hopes speculators had of breaking out of the two-month range to the upside,” noted Robert Yawger, director of the energy futures division at Mizuho Securities USA. 

Oil traders await the Fed's final policy meeting of the year on Wednesday. The market has already priced in a 25 basis points (bps) interest rate cut, but the attention will focus on the Fed’s forward guidance regarding rate policy for 2025 and 2026. Any signs of a less aggressive easing cycle by the Fed could boost the Greenback and drag the USD-denominated commodity price lower. 

A decline in US crude inventories last week might help limit the WTI’s losses. The US American Petroleum Institute (API) weekly report showed crude oil stockpiles in the United States for the week ending December 13 fell by 4.7 million barrels, compared to a rise of 499,000 barrels in the previous week. The market consensus estimated that stocks would decrease by 1.85 million barrels.