Forex-novosti i prognoze od 16-12-2024

• USD/JPY holds steady near 154.10 in Tuesday’s early Asian session. 
• The US Composite PMI rose to 56.6 in December’s flash estimate vs. 54.9 prior. 
• The BoJ is anticipated to keep the rate unchanged at its December meeting on Thursday. 

The USD/JPY pair trades flat around 154.10 during the early Asia session on Tuesday. Traders prefer to wait on the sidelines ahead of the Federal Reserve (Fed) and the BoJ interest rate decision later this week. On Tuesday, the US November Retail Sales will be published. 

The strong US economic data fails to boost the Greenback as the markets turn cautious ahead of the key events. Data released by S&P Global on Monday showed that the US Composite Purchasing Managers Index (PMI) rose to 56.6 in December’s flash estimate versus 54.9 prior. Meanwhile, the Services PMI improved to 58.5 in December’s flash estimate from 56.1. The Manufacturing PMI declined to 48.3 from 49.7. 

The Fed will make its next decision on interest rates on Wednesday, which is widely expected to cut rates by 25 basis points (bps). According to the CME FedWatch tool, markets are now almost fully pricing a 25 basis points (bps) cut at the Fed's December meeting, compared with about a 78% chance a week ago. Investors will closely monitor Fed Chair Jerome Powell's press conference and Summary of Economic Projections (dot-plot) after the meeting. 

On the other hand, the growing expectation that the Bank of Japan (BoJ) will keep rates steady at the December meeting on Thursday might weigh on the Japanese Yen (JPY). The markets are currently pricing in less than a 30% possibility of a rate hike in December. Several BoJ policymakers appear to be in no rush to tighten their monetary policy further with little risk of inflation overshooting despite Japan's still near-zero borrowing costs.

• The Brazilian real weakened significantly, reaching an all-time low following President Lula's comments on recent interest rate increases by the Banco Central Do Brazil.
• The BCB raised the Selic Rate by 100 basis points to 12.25%, with further hikes anticipated.
• The Brazilian real continues to face downward pressure despite BCB's $1.63 billion intervention in the spot market,

The Brazilian real weakened to an all-time low against the Greenback of 6.1496 on Monday after President Luiz Inacio Lula da Silva, known as Lula, criticized higher interest rates set by the Banco Central Do Brazil (BCB). At the time of writing, the USD/BRL trades at 6.1478. up by 2.92%.

USD/BRL surges to 6.1478 amid heightened fiscal concerns

On Sunday, Lula Da Silva called interest rate hikes “irresponsible” after the BCB decided to raise rates after market participants were disappointed of the budget deficit, which is currently about 10% of Brazil’s Gross Domestic Product (GDP).

Last week, the central bank decided to lift the Selic Rate by 100 basis points to 12.25% and hinted that two moves of the same size are on the cards. Initially, the USD/BRL dipped as low as 5.8694 but ended last Thursday’s session at 5.9923.

In its monetary policy statement, the BCB blamed the market’s negative reaction to the fiscal package, which is inflation-prone, sending inflation expectations above the central bank’s 3% target.

The Brazilian Real (BRL) began the week at 6.0687 and extended its losses despite the BCB intervention in the financial markets. On Monday, the central bank sold over $1.63 billion US Dollars in the spot market.

Ian Lima, money manager at Inter Asset, said, “The intervention should not change the trend, which continues to be driven by the strong global dollar and fiscal uncertainties.”

The Brazilian Real has been under stress after investors grew concerned about the budget deficit.

According to Bloomberg, “Brazilian assets have been battered by growing pessimism on the outlook for the country’s growing budget deficit. Lula has increased spending since taking office in 2023 to fulfill pledges of improving living standards for poor Brazilians.“

The Brazilian currency has depreciated over 20% in the year and is set to extend its losses as the USD/MXN eyes a test of 6.200.

A weekly BCB survey of private economists showed that the median sees inflation forecasts higher, and they expect the Selic Rate to peak at 14.25% in March of 2025.

Brazil’s November inflation finished at 4.87% YoY, above the 4.5% upper end of the BCB’s 1.5% to 4.5% target range. Policymakers vowed to bring inflation back to its 3% goal.

USD/BRL Price Chart - Weekly

• NZD/USD gains on Monday, settling around 0.5780 after recent declines.
• Pair remains below the 20-day SMA, limiting upside potential and keeping the bearish bias intact.
• RSI rises sharply to 39, while MACD histogram shows decreasing red bars, suggesting easing selling pressure.

The NZD/USD pair managed a modest recovery on Monday, gaining 0.29% to trade near 0.5780. Although this uptick indicates a slight reduction in selling pressure, the pair continues to trade below the 20-day Simple Moving Average (SMA), currently near 0.5850, which remains a key hurdle to overcome.

Technical indicators reflect a tentative improvement but maintain a bearish slant. The Relative Strength Index (RSI) has climbed to 39, up from near-oversold territory, suggesting fading downside momentum. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram prints decreasing red bars, signaling that bearish traction may be waning. Still, the pair’s inability to rise above its 20-day SMA keeps the overall outlook negative.

Looking ahead, a decisive break above the 20-day SMA would be required to shift sentiment and encourage buyers to engage more confidently. On the downside, immediate support emerges around the 0.5750 region, followed by the 0.5700 mark if sellers regain control.

NZD/USD daily chart

• The Canadian Dollar fell a scant tenth of a percent, but tested multi-year lows.
• Canada expects a dip in economic growth in 2025 and 2026.
• Despite soothing talk from BoC Macklem, markets continue to pummel the Loonie.

The Canadian Dollar (CAD) hit another soft spot on Monday, testing into a 56-month low near 1.4250 against the US Dollar. With the Loonie falling to its lowest prices in almost five years against the Greenback, soft language from Bank of Canada (BoC) Governor Tiff Macklem and a tumultuous release of Canada’s latest Federal Economic Statement did little to assuage investor concerns.

Canada is now expected to see slightly-lower growth in 2025 and 2026, and a rosier-than-before outlook on Canadian Gross Domestic Product (GDP) growth in 2024 is being met with some scepticism from CAD traders. Canadian Finance Minister Chrystia Freeland resigned from her post early Monday, throwing the government’s FES release into a tailspin as investors scrambled to figure out who would deliver the report.

Daily digest market movers: CAD continues to suffer near five-year lows

• The Canadian Dollar fell back to kick off the new trading week, pushing the Greenback north of 1.4250 against the Loonie for the first time since April of 2020.
• The CAD is approaching a 2% decline against the USD in December alone.
• BoC Governor Macklem notes that lagging Canadian growth could save the BoC from an extended inflation fight.
• According to the Canadian government’s latest FES, Canadian GDP is expected to hit 1.3% in 2024, compared to the previous forecast of 0.7% set in April.
• 2025 GDP growth forecast has been revised down to 1.7% from the previous 1.9%, and 2026 growth is expected to tick down to 2.1% versus the previous 2.2%.
• Canada’s federal deficit is now expected to widen to $42.2 billion CAD, compared to April’s initial forecast of $38.9 billion CAD.

Canadian Dollar price forecast

Fresh downside for the Canadian Dollar has bolstered USD/CAD to fresh multi-year highs, with the pair testing 1.4275 on Monday. USD/CAD has closed higher on a weekly basis for all but two of the last ten consecutive weeks.

CAD technical chart bulls will be looking for a downside turnaround in the USD/CAD chart, as near-term price action runs well ahead of the 50-day Exponential Moving Average (EMA) rising into 1.4000. A long-term sideways grind reveals itself on monthly candles, but a bull run in Greenback flows renders USD/CAD short position accumulation a hazardous affair.

USD/CAD daily chart

• The Australian Dollar holds above 0.6350 in the Asian session.
• US Dollar slips as markets anticipate a Fed interest rate cut.
• Preliminary US PMIs failed to give the USD traction.

The Australian Dollar holds the bounce above 0.6350 in Monday’s session, supported by mixed Chinese economic releases and a softer US Dollar. Traders remain focused on Wednesday’s Federal Reserve (Fed) interest rate decision, which could shape near-term price action.
On the data front, S&P PMIs came in strong but failed to give the USD traction.

Daily digest market movers: Aussie holds gains as USD fails to move on strong S&P PMIs

• The US S&P Global Composite PMI rose to 56.6 in December’s flash estimate from 54.9, reflecting accelerating private sector growth, while Services PMI improved to 58.5 from 56.1. 
• Conversely, the Manufacturing PMI dipped to 48.3 from 49.7, highlighting uneven sector performance.
• Despite strong US data, USD weakness persists ahead of the Fed decision, offering a mild lift to the Aussie.
• China’s mixed data and the stronger Australian jobs market offer some support to the Aussie, but upside remains capped by Fed uncertainty.
• For Wednesday’s Fed decision, markets have practically priced in a cut, but the bank’s messaging will be key.

AUD/USD technical outlook: Aussie flirts with oversold conditions as momentum weakens

The Relative Strength Index (RSI) sits near 34, hovering close to oversold conditions with little directional bias. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram prints decreasing red bars, underscoring weakening momentum. With the pair deep in negative terrain, an upward correction might occur if the USD continues softening. That might be triggered on Wednesday after the Fed’s decision.

• EUR/AUD remains flat, with the formation of a 'doji' indicating indecision among traders in the face of Eurozone political challenges.
• RSI suggests a neutral stance, hinting at potential sideways movement in the near term.
• Key resistance and support levels to watch include 1.6574 and 1.6450 respectively, with further downside possibly testing SMA levels at 1.6375 and 1.6359.

The EUR/AUD consolidates below 1.6500 for the second consecutive day and trades at 1.6499, virtually unchanged. The Eurozone is experiencing turbulent moments amid political issues in France and Germany, two of the bloc's largest economies. Although the Euro holds firm, the end of the year keeps traders from opening fresh bets against the shared currency.

EUR/AUD Price Forecast: Technical outlook

The EUR/AUD consolidates, forming a ‘doji,’ meaning neither buyers nor sellers are in control. The Relative Strength Index (RSI) is bullish, though the slope turned flat, meaning the cross would likely remain sideways.

For a bullish resumption, the EUR/AUD first resistance would be the December 11 high at 1.6574. Once surpassed, the next stop would be the 1.6600 figure. Conversely, if EUR/AUD extends its losses below 1.6450, the next support would be the 100-day Simple Moving Average (SMA) at 1.6375, followed by the 200-day SMA at 1.6359.

EUR/AUD Price Charr – Daily

Bank of Canada (BoC) Governor Tiff Macklem spoke at the Vancouver Board of Trade on Monday, spinning an expected drag on Canadian economic growth as a positive on the hopes that lagging growth at the nation-wide level could, in theory, limit a reignition in inflationary pressures.

Key highlights

The US Dollar eased slightly as investors pivot toward the Federal Reserve’s (Fed) latest rate call due in the middle of the week. Sentiment is riding on the high side, albeit cautiously, as markets widely anticipate a third straight quarter-point rate cut from the Fed.

Here’s what you need to know heading into Tuesday, December 17:

The US Dollar Index (DXY) eased one-sixth of a percent lower on Monday, crimping recent gains and pausing at the top of a near-term bull run as markets await the Fed’s latest rate call slated for Wednesday. A 25 bps rate trim is fully priced in with 99.1% odds, according to the CME’s FedWatch Tool. Traders will also be keeping a close eye on the Fed’s latest update to its Summary of Economic Projections (SEP), or the “dot plot” of interest rate forecasts from Fed policymakers themselves.

US Purchasing Managers Index (PMI) figures for December came in mixed on Monday, with Services PMI survey results rising to multi-year highs and the Manufacturing component sinking further than expected in a sharp pullback, falling away from the 50.0 midline and plunging back into contractionary expectations territory. US Retail Sales figures will land on Tuesday, but could see a crimped market response as the Fed’s last rate call of the year hulking just around the corner.

EUR/USD cycled familiar levels near 1.0500 to kick off the new trading week as markets broadly ignored a flurry of appearances from European Central Bank officials early in the day. European PMI figures for December broadly beat expectations. Still, Services PMI surveys remain stumped in contraction territory as worries of a steepening economic slowdown across European continue to grip investors and business operators.

GBP/USD snapped a three-day losing streak, clawing back 0.55% through Monday’s trading and pushing bids back into the 1.2700 handle. UK Services PMI figures fell to an 11-month low, but a welcome uptick in the Manufacturing component helped to keep Cable sentiment bolstered into the high end. GBP traders will now be focusing on Tuesday’s upcoming UK wages and labor data, where quarterly Average Earnings are expected to accelerate to 5% on a yearly basis.

USD/JPY climbed back above the 154.00 handle on Monday, climbing a little under one-third of one percent. The Japanese segment of this week’s economic data docket is a thin affair, but the Bank of Japan’s (BoJ) latest rate call is looming ahead on Thursday. The BoJ is broadly expected to keep rates on hold yet again in December, and investors are looking to understand exactly what conditions would convince the Japanese central bank to continue raising interest rates.

• Mexican Peso hovers near the 50-day SMA at 20.11, with the USD/MXN showing minimal movement after US PMIs data.
• Banxico is widely anticipated to cut rates following encouraging November inflation figures, with most economists predicting a 25 bps reduction.
• Anticipation builds around upcoming rate decisions from the Fed and Banxico.

The Mexican Peso begins the week on the back foot, yet it remains near the 50-day Simple Moving Average (SMA) at 20.11 as US business activity expanded in the services sector while manufacturing remains depressed. At the time of writing, the USD/MXN trades with minimal gains of over 0.06%, virtually unchanged.

US S&P Global revealed December’s Flash PMIs, which came in mixed. The Services and Composite PMIs jumped above the prior month’s reading, indicating economic strength. However, manufacturing activity contracted after hitting its highest level in the last six months.

The USD/MXN ignored the data yet held to earlier gains. The exotic pair could witness some volatility in the next few days as the Federal Reserve (Fed) and the Banco de Mexico (Banxico) will announce their latest monetary policy decisions.

The CME FedWatch Tool data show that the Fed is expected to cut rates by 25 basis points on December 18 with odds at 98%. Meanwhile, a Reuters poll showed that 20 of 22 economists expect Banxico to cut rates by 25 bps to 10.00%, while two estimate the institution will lower rates by 50 bps.

Mexico’s data last week gave the green light to its central bank to ease policy. November inflation data confirmed that the disinflation process is accelerating.

This week, Mexico will feature Retail Sales data, Aggregate Demand, Private Spending, and Banxico’s interest rate decision. In the US, Retail Sales, Building Permits, the Federal Open Market Committee (FOMC) decision, and the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, could dictate the monetary policy path for the US central bank.

Daily digest market movers: Mexican Peso trades sideways following Banxico survey

• Banxico’s December private sector survey showed that most economies expect inflation to end at 4.37% in 2024 and underlying prices at 3.60%, down from November’s 3.69%. The economy is expected to grow 1.60%, up from 1.53%, and the USD/MXN exchange rate is foreseen at 20.25.
• For 2025, the Mexican Consumer Price Index (CPI) is projected to drop to 3.80%, and the core CPI to rise to 3.72%. Gross Domestic Product (GDP) is expected at 1.12%, down from 1.20% estimated in November, and the USD/MXN spot price would end at 20.53.
• The Banco de Mexico Interbank Lending Rate, known as TIIE, is expected to drop from 10.00% in 2024 to 8.38% by the end of next year.
• The Peso has been pressured by harsh rhetoric by US President-elect Donald Trump, who threatened to impose 25% tariffs on Mexican imports if the government doesn’t help fight illegal immigration and fentanyl trafficking.
• 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 drops as USD/MXN hovers near 20.10

The USD/MXN remains upwardly biased, though it seems likely to edge lower in the near term. Momentum shifted bearishly with the Relative Strength Index (RSI) falling below its neutral level. If sellers can hurdle some support levels, the exotic pair will see further downside.

The 50-day Simple Moving Average (SMA) at 20.08 continued to cap the USD/MXN fall. If surpassed, the next stop would be the 20.00 figure, with further drops seen to the 100-day SMA at 19.71. A breach of the latter will expose 19.50.

Conversely, if USD/MXN climbs past 20.25, immediate resistance would be 20.50. Once hurdled, it will expose the December 2 daily high of 20.59, followed by the year-to-date peak of 20.82, followed by the 21.00 mark.

• The DXY trades slightly lower on Monday.
• Markets digest recent inflation data and strong S&P PMIs figures.
• Attention shifts to Wednesday’s Fed rate decision.

The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, trades slightly lower on Monday after a string of data and headlines placed added attention on the upcoming Federal Reserve (Fed) rate decision. The Greenback eases off last week’s strong rally as Chinese economic data and stimulus measures bolster risk appetites.
Despite these developments, rising US Treasury yields help limit losses for the US Dollar, even as the market has priced in a cut on Wednesday. Overall, the currency remains sensitive to incoming data and central bank cues.

Daily digest market movers: US Dollar softens as markets parse hot inflation and solid growth

• The US Dollar shows weakness on Monday even as the S&P Global Composite PMI rose to 56.6 in December from 54.9, while the Services PMI improved to 58.5 from 56.1. The Manufacturing PMI dipped to 48.3, highlighting a mixed backdrop ahead of the Fed decision.
• Regarding last week’s data, the November Producer Price Index (PPI) rose 3.0% YoY, exceeding the 2.6% expectation with a revised 2.6% for October (previously 2.4%).
• Core PPI, excluding food and energy, climbed to 3.4% YoY, beating the 3.2% forecast, and October’s figure was revised to 3.4% (was 3.1%).
• Consumer Price Index data released last week showed signs of persistent price pressure, doing little to ease policymakers’ inflation concerns.
• Despite the higher inflation data, markets fully price in a 25-basis-point Fed cut this week, with officials likely delivering a “hawkish cut” that sets the stage for a pause in January.

DXY technical outlook: Indicators rebound but face tough resistance

Indicators recovered significant ground last week but may lack the momentum to break above the 107.00-108.00 zone. On Monday, the Index has retreated from recent highs, reflecting a pause after last week’s rally. 
Still, the outlook remains constructive if the DXY can hold above its 20-day Simple Moving Average (SMA). With mixed data and a pivotal Fed decision looming, traders may remain cautious, awaiting clearer directional cues before pushing the US Dollar materially higher.

• The Dow Jones is trading sluggish on Monday, stuck near 43,800.
• Markets await what is broadly anticipated to be the Fed’s last rate cut of 2024.
• Increases in telecoms and retail stocks have offset declines in key tech and health stocks.

The Dow Jones Industrial Average (DJIA) continues to churn on the low end of recent chart action, with the major equity index bogged down near 43,800. Investors are gearing up for the Federal Reserve’s (Fed) last policy meeting of the year, with the US central bank widely expected to deliver one last quarter-point rate cut before investors wrap it up for the holiday season.

US Purchasing Managers Index (PMI) activity figures came in mixed on Monday, with  the US Services component accelerating to its highest print in just over three years while the Manufacturing component eased back further into contraction territory. December’s US Services PMI confidence  survey results showed aggregated expectations for business activity have risen to 58.5, the highest level since November of 2021. Median market forecasts had expected a downside print of 55.7 versus November’s 56.1. On the Manufacturing PMI side, business expectations declined more than expected, falling to 48.3 compared to the anticipated 49.4 and last month’s 49.7.

It’s a full docket this week with high-weight US data dropping on markets every day through to the weekend, with US Retail Sales on Tuesday, US Gross Domestic Product (GDP) figures on Thursday, and US Personal Consumption Expenditure Price Index (PCE) inflation on Friday. However, the key event this week is the Fed’s last rate call of 2024. Fed officials head behind closed doors to deliberate during a two-day meeting on Tuesday, with the Fed’s final decision rendered on Wednesday. This week’s Fed meeting carries additional weight, as the US central bank will also be updating its ‘dot plot’ of interest rate expectations. Traders widely expect the Fed to reduce its policy rate by 25 bps to 4.5%.

Dow Jones news

The Dow Jones is teetering near the midpoint on Monday, with winners and losers cut roughly down the middle. Unitedhealth Group (UNH) is shedding weight, falling 3.7% and testing $501 per share, while Honeywell International (HON) is rising after news the company may be streamlining its operations and splitting off its aerospace division into a separate company. HON is up around 3.6%, trading near $236 per share.

Dow Jones price forecast

The Dow Jones is continuing its slow bleed down the charts on Monday, kicking off a new trading week holding on the low end. The Dow has posted declines for the last seven consecutive sessions, and further weakness is likely as price action falls back to the 50-day Exponential Moving Average (EMA) near 43,500.

Despite near-term softness, the Dow Jones still holds comfortably on the high end of long-term momentum. The Dow is still trading above the last swing low into the 43,000 handle, and has closed higher for all but two of the last 12 straight trading months.

Dow Jones daily chart

European Central Bank (ECB) Executive Board member Isabel Schnabel hit wires on Monday, cautioning that while lowering rates is the goal, the ECB still needs to be ready to respond to any shocks that could threaten inflation expectations.

Key highlights

• Gold prices increase despite a slight rise in the US Dollar following mixed PMI data.
• Investors await the Fed’s interest rate decision and economic projections, expecting a 25 bps cut on Wednesday.
• The market speculates on the Fed's future monetary policy amid potential inflationary pressure from Trump policies.

Gold prices edge slightly higher during the North American session at the beginning of the week, up by 0.28%, as investors await the Federal Open Market Committee (FOMC) decision. At the time of writing, the XAU/USD trades at $2,643, above its opening price but off the highs of the day.

The US economic docket remains light with the release of S&P Global Flash PMIs for December, which came mixed. Business activity in the manufacturing sector weakened after improving last month, while the services sector printed its highest reading in 2024.

The data lifted the Greenback, which according to the US Dollar Index (DXY) rose 0.07% to 107.01. Meanwhile, Bullion dipped from daily highs of $2,664.

The Federal Reserve (Fed) will meet for the last time this year on December 17 and 18. Estimates suggest the Fed will cut interest rates by 25 basis points, but traders are eyeing the release of the Summary of Economic Projections (SEP) to grasp the path of interest rates in 2025.

Lower interest rates are usually a tailwind for the non-yielding metal. However, there is growing speculation that the Fed might adopt a gradual stance as the upcoming Trump administration hints at inflation-prone fiscal policies.

Gold prices tend to rise in lower rate environments and with higher geopolitical risk, which have both subsided of late.

The US economic docket will feature the release of Retail Sales, Industrial Production, the FOMC policy decision, and the release of the core Personal Consumption Expenditures (PCE) Price Index.

Daily digest market movers: Gold price holds firm near $2,650

• Gold prices plunged as US real yields are pressured, falling two basis points to 2.049%, a tailwind for the precious metal.
• The US 10-year Treasury bond yield drops two and a half basis points to 4.375%.
• The US Dollar Index remains firm at 107.05, virtually unchanged.
• S&P Global Manufacturing PMI for December dipped from 49.7 to 48.3, missing estimates of 49.8.
• S&P Global Services PMI for the same period expanded by 58.5, up from 56.1, above forecasts of 55.7.
• The CME FedWatch Tool suggests that traders had priced in a 96% chance of a quarter-point rate cut on Wednesday.
• For 2025, investors are betting that the Fed will lower rates by 100 basis points.
• Analysts at Goldman Sachs noted that China’s central bank “may even increase Gold demand during periods of local currency weakness to boost confidence in their currency.”

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

The Gold price uptrend remains intact, yet trades off last week’s lows beneath the 50-day Simple Moving Average (SMA) of $2,670. The Relative Strength Index (RSI) breached below its neutral line, indicating that sellers are in charge.

If Gold prices drop below $2,650, the next support would be the 100-day SMA at $2,600. On further weakness, the next stop would be the August 20 peak at $2,531. Conversely, if XAU/USD rallies past $2,650, the next resistance would be the 50-day SMA at $2,670, ahead of $2,700.

• EUR/USD sees a slight uptick on Monday, hovering near 1.0500.
• RSI rises modestly to 43 but remains in negative territory, signaling a fragile recovery.
• MACD histogram shows rising green bars, yet the pair lacks the momentum to break above the 20-day SMA.

The EUR/USD pair managed another mild recovery on Monday, drifting slightly above the 1.0500 mark after bouncing from recent lows. Although the pair approached the 20-day Simple Moving Average (SMA) near 1.0520, it once again failed to breach this key resistance level, maintaining a cautious outlook.

Technical indicators reflect a tentative improvement but remain skewed to the downside. The Relative Strength Index (RSI) has ticked higher to 43, indicating a mild gain in buying interest, but it still resides in negative territory. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram is now printing rising green bars, suggesting early signs of stabilizing momentum. However, the pair’s inability to overcome the 20-day SMA undermines the sustainability of any bullish attempt.

For a meaningful shift in sentiment, EUR/USD would need a decisive break above the 20-day SMA at around 1.0520. Until that occurs, the bias remains tilted to the downside, with initial support seen at the psychological 1.0500 level, followed by the 1.0480 area. A failure to hold above these levels could open the door to further losses, reinforcing the overall bearish perspective.

EUR/USD daily chart

IP growth picked up partly due to base effect; FAI and retail sales growth normalised from October jump. Housing demand may have improved, with positive developments in new home sales and home prices. 2024 growth target is likely to be achieved; we maintain our 2025 growth forecast at 4.5%, Standard Chartered's economists Hunter Chan and Shuang Ding note.

IP and services production index growth remained resilient

"Real activity performance was mixed in November, with production activity still resilient while retail sales and investment growth moderated after a spike in October. Industrial production (IP) growth picked up 0.1ppt to 5.4% y/y in November, versus the Q3 average of 5%. Services production index growth eased 0.2ppt m/m to 6.1% in November, compared with the Q3 average of 4.8%. We estimate that monthly GDP growth stayed above 5% y/y for another month."

"Fixed asset investment (FAI) grew 3.3% y/y in 11M-2024, 0.1ppt slower than in 10M-2024, dragged down mainly by real estate investment (-10.4% y/y in 11M-2024). Commodity retail sales growth normalised to 2.8% y/y from 5% in October after a boost due to the early start of the online shopping festival and the National Day holidays. The surveyed unemployment rate stayed at 5% for a second straight month."

"October and November data suggests that economic growth momentum accelerated from Q3. The authorities have shown confidence recently in meeting this year’s annual growth target of around 5%. The Politburo meeting and Central Economic Work Conference (CEWC) set a pro-growth policy stance for 2025, with a wider fiscal deficit and looser monetary policy. We maintain our 2025 growth forecast at 4.5%, as we expect stimulus to partially offset higher tariffs."

• US private sector continued to grow at a healthy pace in December.
• US Dollar Index stays in positive territory above 107.00.

US S&P Global Composite PMI rose to 56.6 in December's flash estimate from 54.9 in November, showing that the business activity in the US' private sector continued to expand at an accelerating pace. 

S&P Global Services PMI improved to 58.5 from 56.1. On a negative note, the Manufacturing PMI declined to 48.3 from 49.7 in the same period.

Assessing the survey's findings, "business is booming in the US services economy, where output is growing at the sharpest rate since the reopening of the economy from COVID lockdowns in 2021," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.

"It’s a different picture in manufacturing, however, where output is falling sharply and at an increased rate, in part due to weak export demand," Williamson added.

Market reaction

The US Dollar Index edged higher with the immediate reaction to PMI figures and was last seen rising 0.2% on the day at 107.15.

• NZD/USD moves higher to near 0.5785, while the US Dollar exhibits a subdued performance.
• The Fed is almost certain to announce a 25-bps interest rate reduction in the policy meeting on Wednesday.
• The NZ economy is expected to have declined by 0.4% in the third quarter.

The NZD/USD pair rises to near 0.5785 in Monday’s North American session after refreshing a yearly low near 0.5750 on Friday. The Kiwi pair gains as the US Dollar (USD) exhibits a subdued performance, with investors focusing on the Federal Reserve’s (Fed) interest rate decision, which will be announced on Wednesday.

Investors expect the Fed to cut interest rates by 25 basis points (bps) to 4.25%- 4.50%. Market participants will focus primarily on Fed Chair Jerome Powell’s commentary in the press conference after the policy decision to gauge the impact of President-elect Donald Trump’s policies on the interest rate outlook.

According to analysts at Macquarie, the Fed’s stance on the interest rate outlook could turn “slightly hawkish” from “dovish.” “The recent slowdown in the pace of US disinflation, a lower Unemployment Rate than what the Fed projected in September, and exuberance in US financial markets are contributing to this more hawkish stance,” analysts at Macquarie said.

Meanwhile, the New Zealand Dollar (NZD) will be guided by the Q3 Gross Domestic Product (GDP) data, which will be published on Thursday. The New Zealand (NZ) economy is estimated to have contracted by 0.4% compared to the same quarter of the previous year, slower than the 0.5% decline in the previous quarter.

The NZD/USD daily chart shows a Bullish Divergence, which suggests a slowdown in selling momentum that results in a reversal move. While the asset has formed a lower low on a daily timeframe, the 14-day Relative Strength Index (RSI) has made higher lows. The formation needs confirmation to set off a bullish reversal.

A decisive break above the November 29 high of 0.5930 could confirm a reversal setup and push it higher to the November 15 high of 0.5970 and the psychological resistance of 0.6000.

However, the chances of a bullish divergence confirmation are weak due to unsupportive NZ fundamentals. If the Kiwi pair breaks below the two-year low of 0.5770, it could fall to the November 2022 low of 0.5740 and the round-level support of 0.5700.

NZD/USD daily chart

• USD/JPY advances beyond the 154.00 mark, dismissing stronger-than-expected Japanese Flash PMIs for December.
• Technical analysis highlights a bullish trend with the pair clearing key technical barriers, including the 200-day SMA and Kijun-Sen.
• Potential resistance lies at the November 20 high of 155.89; supports are positioned at the Kijun-sen at 152.69 and further at 152.10-11.

The USD/JPY extended its gains as the Japanese Yen (JPY) remains the laggard in the G10 FX complex. Although Japan’s Jibubank Flash PMIs for December improved, traders ignored the data. The pair trades above the 154.00 figure, a level last seen in November 26.

USD/JPY Price Forecast: Technical outlook

the USD/JPY continued to extend its gains, past the 200-day Simple Moving Average (SMA) and the Kijun-Sen, opening the door to clear 153.00 and the previously mentioned 154.00.  

Momentum favors further USD/JPY upside as depicted by the Relative Strength Index (RSI), which aims higher.

The first resistance would be the November 20 daily high at 155.89. A breach of the latter will expose 156.00, followed by the November 15 swing high of 156.75. Conversely, if USD/JPY tumbles below 154.00, the first support is the Kijun-sen at 152.69, followed by the Senkou Span A at 152.21. if surpassed, the next support would be the confluence of the 50 and 200-day SMAs at 152.10-11

USD/JPY Price Chart – Technical outlook

• AUD/USD faces resistance near 0.6380 ahead of preliminary US S&P Global PMI data for December.
• The Fed is almost certain to cut interest rates by 25 bps on Wednesday.
• Upbeat Australian employment data weighs on RBA dovish bets.

The AUD/USD pair surrenders its intraday gains and turns flat after failing to extend its upside move above 0.6380 in Monday’s North American session. The Aussie pair gives up gains as the US Dollar (USD) recovers its intraday losses ahead of the United States (US) flash S&P Global Purchasing Managers’ Index (PMI) data for December, which will be published at 14:45 GMT.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, wobbles near 107.00.

Economists expect the US Composite PMI to have expanded but at a slower pace due to cooler growth in the services sector and a sharp contraction in the manufacturing sector. Investors will also pay close attention to new orders data and respondents’ views on likely protectionist policies by upcoming President-elect Donald Trump.

The Federal Reserve’s (Fed) monetary policy decision, which will be announced on Wednesday, will be the major trigger for the US dollar this week. According to the CME FedWatch tool, traders fully priced in a 25-basis-point (bps) interest rate reduction to 4.25%- 4.50%.

Investors will also focus on the Fed’s dot plot and the inflation outlook to know whether officials see Federal Fund rates heading in the medium and long term. According to a Bloomberg survey, the Fed is expected to deliver three interest rate cuts in 2025.

Meanwhile, the Australian Dollar (AUD) will be influenced by market expectations about when the Reserve Bank of Australia (RBA) will start reducing interest rates. RBA dovish bets faded after the Australian employment data came in better than expected.

The Australian economy added 35.6K workers, higher than estimates of 25K and the former release of 12.1K. The Unemployment Rate surprisingly fell to 3.9% from 4.1% in October, which was expected to accelerate to 4.2%.

Despite some sloppy GDP data for October reported Friday and today’s less than stellar December PMIs, there is little anticipation of any BoE rate action this week. Markets have priced in just 2bps of easing risk for the decision Thursday, Scotiabank’s Chief FX Strategist Shaun Osborne notes.  

GBP trades off early high

“The Pound Sterling (GBP) picked up a little ground on the US Dollar (USD) from the start of trade in Asia and gains accelerated a little around this morning’s data, which saw a small beat on the Services PMI. EURGBP edged back under 0.83.”

“GBP/USD has recovered a little of last week’s drop in trade so far today but the intraday look of price action suggests a short-term block at least on gains through the upper 1.26s that may undermine a further rebound. Some sideways trading between support at 1.2600/10 and 1.2670/75 may result.”

The Euro (EUR) got a minor boost earlier from slightly better than expected preliminary December Eurozone PMI data, Scotiabank’s Chief FX Strategist Shaun Osborne notes.  

EUR falls below 1.05 after Eurozone PMI data

“French and German Services activity were stronger than forecast, helping lift the Eurozone Services component to 51.4, more than two points above November’s result. But the EUR is struggling to maintain any positive momentum amid lingering trade concerns.”

“Moody’s cut France’s sovereign credit rating from Aa3 to Aa2 in an unscheduled announcement late Friday, meanwhile. The Bund/ OAT spread widened slightly in early trade but has corrected back to near levels prevailing at the close of trade in Europe on Friday.”

“The EUR is just about holding on to its December trading range. Despite a decent rebound on Friday, the EUR is struggling to hold a bid above 1.05 still and intraday price action looks somewhat negative at this point, suggesting another rejection of 1.05+ levels. Support is 1.0450/60. Resistance is 1.0535/40.”

There is no relenting in the still developing pressure on the Canadian Dollar (CAD). Spot is holding close to recent peaks amid mounting concerns facing Canada from the trade policy perspective, Scotiabank’s Chief FX Strategist Shaun Osborne notes.  

Macklem comments at 15.20ET

“Those worries are keeping the USD well-supported at levels that are starting to stretch the CAD’s deviation from our fair value estimate (1.4144 today) but that deviation is all but certain to grow further unless US/Canada trade tensions ease.”

“Finance Minister Freeland will deliver the fall economic update this afternoon which may show the government slipping from its fiscal commitments. BoC Governor Macklem speaks in Vancouver this afternoon (comments drop at 15.20ET).”

“USD/CAD continues to pressure resistance in the low/mid 1.42s and there is scant sign of the strong bull trend relenting. Technically, gains to minor resistance at 1.4350 and a retest of 1.4668 are likely in the short and medium term respectively. Solid bull trend momentum means USD dips will remain well supported—to the low mid-1.41s initially and certainly closer to 1.3950/1.40 for now.”

• Silver trims some losses as US Dollar's rally halts
• The pair remains vulnerable following a more than 4% depreciation over the last three trading days,
• Upside attempted remain feeble, with the $30,30 support area still at a short distance. 

Silver Prices (XAG/USD) are trading in a mild positive bias on Monday, trimming some losses after the rejection from levels above $32.00 last week. A mild retreat in US Treasury yields is supporting precious metals on Monday but the overall picture shows the pair vulnerable.

The daily chart reveals a sharp reversal pattern last week, which triggered a more than 4% sell-off in the last half of the week. Upside attempts are looking feeble so far, with previous support at $30.85 likely to challenge bulls.

So far the current recovery seems corrective, unable to put a significant distance from Friday’s low, at $30.30. Below here, December’s low at the  $30.00 round level might provide some support ahead of the key $29.65 level.

To the upside, immediate resistance is at $31.00. Above here, $31.45 (November 18, 24 and December 4 high and December 11 low) will be targeted ahead of last week’s highs at $32.30.  

XAG/USD 4-Hour chart
 

In China, the significant decline in the current interest rate for 10-year government bonds continues, and today's economic data are not likely to do much to stop this trend. Since the beginning of the month alone, the current interest rate has fallen by around 30 basis points and, at 1.72%, is now well below the 2.25% that the PBoC still considered the lower limit at the middle of the year. Meanwhile, the interest rate on 30-year Chinese government bonds fell below the 2% mark for the first time this morning, Commerzbank’s FX analyst Volkmar Baur notes.

Continuing economic problems in China are to blame

“As data published today shows, domestic demand in particular continues to cause problems. Retail sales weakened again in November after a stronger October and rose by only 3% year-on-year, while analysts had expected 5%. And investments also failed to meet expectations once again. In the housing market, home sales rose year-on-year for the first time in a long while, but housing starts and building activity remain well below last year's levels.”

"However, it is still unclear what triggered this massive slide in current interest rates this month. After all, the economy has been weaker for quite some time and has not deteriorated dramatically in recent weeks. What is clear, however, is that the bond market is sending a warning signal that could also have an impact on the currency market.”

“Now, the links between interest rate and foreign exchange markets in China are not as obvious and direct as in other countries. After all, the currency is controlled and managed by the central bank. However, this increasing discrepancy between interest rate differentials and exchange rates will have to be closed in some way. Either through rising interest rates in China, falling interest rates in the US, or a higher USD/CNY.”

The US Dollar (USD) squeezed out a sixth, if marginal, consecutive gain overall on Friday and the Dollar Index (DXY) is tracking marginally higher for a potential seventh to start the week off, Scotiabank’s Chief FX Strategist Shaun Osborne notes.  

USD mixed into Fed meeting

“The Pound Sterling (GBP) and Swiss Franc (CHF) are moderate outperformers on the session, however, while the USD has firmed a little against the Euro (EUR), Japanese Yen (JPY) and the commodity currencies. Despite typically negative seasonal trends for the USD through December, the USD looks unlikely to concede much, if any, ground in the short run.”

“The holidays are looming but there is still a fair bit of event risk to negotiate this week, namely the FOMC decision Wednesday. Market expectations are veering towards a hawkish cut—that is a 1/4-point ease to match market expectations accompanied by a guidance that suggests a more cautious policy path in 2025. Forecast updates may reflect an improved growth outlook, lower unemployment but higher inflation.”

“Markets will be particularly sensitive to any changes in the dot plot. A more cautious-sounding Fed will underpin the recent rebound in yields and repricing in Fed expectations and provide further support for the USD. Central bank policy decisions in the UK, Japan, Sweden, Norway and Mexico are also due later this week. US data reports today are confined to the December Empire survey and S&P Global PMIs.”

• The US Dollar edges slightly lower at the start of the week. 
• Traders face a lot of noise, with PMIs, European political news, and Chinese data triggering market moves. 
• The US Dollar Index (DXY) trades back below 107.00 and looks to settle for a range-trading move into 2025.

The US Dollar (USD) trades slightly lower on Monday after a string of data and headlines that took away the attention from the US Federal Reserve’s rate decision, which will be released later this week on Wednesday. 

The first move on Monday was initiated after Chinese Retail Sales came in at 3.0% for November, below analysts’ lowest estimate of 4.2% and far below the median estimate of 5.0%. Clearly, the stimulus measures the Chinese government has implemented are not having the impact markets expected them to.

Meanwhile, preliminary S&P Global and Hamburg Commercial Bank (HCOB) Purchase Managers Index (PMI) data for December have been released for European countries and the Eurozone. Overall, manufacturing is sinking further into contraction in both France and Germany. The sole outlier is German Services, which is popping back into expansion at 51.0 against the 49.3 expected. 

German Chancellor Olaf Scholz will be able to use that last data point in his favor during his scheduled meeting at the Bundestag later this Monday, where the chancellor is facing a vote of no confidence. If he loses, the German government will fall, following France’s, with snap elections set to take place possibly on February 23.      

The US economic calendar includes the release of the preliminary S&P Global PMI for December, which could be used to compare the US with European data and might drive a firm move in favor of the US Dollar if the US services sector expands further, outpacing the European one. 

Daily digest market movers: A lot of moving parts at the start of the week

• China’s Retail Sales data for November missed market estimates by coming in at 3.0% year-over-year, whereas 4.6% was expected, pushing the Greenback higher against the Chinese Yuan (USD/CNH).
• The surprise upbeat German Services PMI, combined with the possibility of an announcement about German snap elections, is pushing the Euro higher against the US Dollar (EUR/USD).
• At 14:45 GMT, the US preliminary S&P Global PMI data for December will be released:
  • Services PMI is expected to soften to 55.7 from 56.1 in November.
  • The Manufacturing component should fall further into contraction to 49.4 from 49.7.
  • The services component will be the leading element, with a weaker US Dollar should services shrink substantially, whereas an upbeat number would trigger more US Dollar strength across the board. 
• Equities are not enjoying a good start to the week, with Asian equities dragging European equities down. US futures are trying to break away and are marginally in the green. 
• The CME FedWatch Tool is pricing in another 25 basis points (bps) rate cut by the Fed at the December 18 meeting by 97.1%. 
• The US 10-year benchmark rate trades at 4.39%, just below the 4.40% from last week. 

US Dollar Index Technical Analysis: Difficult positioning ahead of uncertainty

The US Dollar Index (DXY) shows signs of fatigue, with price action slowing down and starting to trade sideways. Traders feel comfortable with what has been priced in and are probably awaiting anything else until President-elect Donald Trump takes office or should US data fuel any move. The uncertainty on which measures Trump will put in place and which are just threats used as bargaining chips could keep the DXY in a chokehold until late January. 

On the upside, 107.00 remains a key level that needs to be reclaimed before considering 108.00. When and if that finally happens, the fresh 2-year high at 108.07, recorded on 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

The US current account is in deficit because the US economy constantly imports more than it exports. And because no one gives the Americans these goods for free, the US liabilities to foreigners grow faster than the US claims on foreigners, i.e. The US capital account shows a surplus of capital imports over capital exports. In other words, the net debt of the US economy to the rest of the world is growing because the current account is in deficit, Commerzbank’s Head of FX & EM Research Ulrich Leuchtmann notes.

US debt is growing much faster than US claims

“If that were the whole story, we could sit back and hope that the restrictive trade policy of the incoming US administration would solve the problem. But it isn't like that. Not at all. The world is not as simple as we were told in the lecture ‘External Economic Theory I’. In the figure above, you can see the net foreign asset position of the USA. Since 1988, the last year it was not yet in deficit. And you can see the cumulative net capital imports of the USA. Since 2003 at the latest, the two lines have had nothing to do with each other.”

“Why not? Because since 2010, but especially since 2017, it is not the surplus of capital imports over capital exports in the US that is causing US liabilities to grow faster than US claims. More and more, it is the high capital gains on claims on the US economy. In other words, because US investment by foreigners is highly profitable, US debt is growing so much faster than US claims. And that in turn means that because the business-friendly policies of the incoming US administration are likely to further boost the returns on foreign investment in the US, the net debt of the US economy is likely to continue to grow rapidly.”

“The next data from the Bureau of Economic Analysis will be released ‘between the years’: on December 27. Another figure that is regularly ignored by the currency market. Although it may ultimately decide the US dollar valuation. Why? If the rest of the world no longer wanted to hold claims on the US economy, their price in the rest of the world would fall. The easiest and quickest way to do that would be for the dollar to depreciate.”

• The US Dollar remains firm against a softer CAD and tests long-term highs at 1.4240
• A dovish BoC and concerns about higher tariffs on Canadian products are weighing on the CAD,
• Technically, the is likely to meet significant resistance at the 1.4250-60 area.

The US Dollar keeps trading firm against its weaker Canadian Counterpart. The mild CAD recovery attempt seen on Friday was contained above the 1.4200 level, and the pair is crawling higher again on Monday, to test four-year highs at 1.4240.

The monetary policy divergence between the Federal Reserve and the Bank of Canada is the main support for the pair. Beyond that, US President-elect Trump's threats of higher tariffs on Canadian products, are an additional weight to the Loonie.

Cautious easing by the Fed vs large rate cuts by the BoC

The US Federal Reserve is widely expected to cut its benchmark interest rate by 25 basis points on Wednesday and to proceed cautiously next year. The CME Fed watch tool shows between one or two more rate cuts next year as the most likely scenario.

The Bank of Canada, on the contrary, slashed interest rates by 50 bps last week in the second such consecutive move. The Bank has slashed rates by 1.75% to the current 3.25% since June and is likely to trim them lower. Governour Macklem will speak later today and he might support that view.

On the Other hand, the US Dollar is looking for direction as the impact of the stronger-than-expected US employment figures waned. Markets are pricing a nearly 90% chance that the Fed will cut rates by 25 basis points next week, which is keeping US Dollar rallies limited.

In Canada, the BoC meets this week and is expected to deliver a large rate cut on Wednesday. Downbeat Canadian Employment and business activity figures sustain that view. This is likely to weigh on a deeper CAD recovery.

USD/CAD Technical Analysis: Above 1.4250, the target is 1.4315

The Canadian Dollar is trading within a bullish channel. Technical indicators are positive, but the 1.4250/60, where the 127.20% Fibonacci extension meets the channel top might take some time to give up.

Above here, the next target would be the 161.8% Fibonacci level, at 1.4315. Supports are at 1.4200 (December 11 high) and December 12 low at 1.4235.

USD/CAD 4 Hour Chart

USD/CNH firmed but levels remain within recent range. Pair was last at 7.2916 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Consolidation likely in recent range

“Bearish momentum on daily chart shows signs of fading while RSI rose. Consolidation likely in recent range as steady PBoC daily fixing (under 7.20) suggests policymakers are looking for relative stability. Resistance at 7.2940, 7.3150 levels. Support at 7.2640 (21 DMA), 7.2340 (23.6% fibo retracement of Sep low to Dec high) and 7.2040 (200 DMA).”

“2-day CEWC had concluded last week, with little signs of stimulus support measures. FOMC event risk this week may have influence on USD’s directional bias. But in the interim, we expect policymakers will continue to keep the RMB contained.”

Given the combination of further rate cuts, a still-weak real economy, risks from US tariffs and a strong US Dollar (USD), expect the Canadian Dollar (CAD) to continue to struggle for several months, Commerzbank’s

BoC is expected to end the cut cycle for the time being

“In the meantime, we are even trading slightly above our expected peak of 1.41 in the first quarter of 2025 with USD/CAD at 1.42. The market has probably overplayed the strength of the US dollar, which could lead to a small correction in the coming weeks.”

“From the second quarter onwards, however, we expect a sustained appreciation of the CAD. This is supported by the fact that the real economy is expected to pick up again (possibly even catching up with US growth), the BoC is expected to end the cycle of interest rate cuts for the time being and inflation is expected to remain within reasonable limits. In relative terms, the CAD should then be able to recoup its losses this year as other central banks struggle with much weaker growth and more stubborn inflation.”

“We also expect oil prices to rise again. Our experts believe that the market is a little too optimistic about the supply outlook. This would be positive for Canada as one of the larger oil exporters. If a deal is reached in early summer to resolve the US tariff issue for the time being, and we see the correction in the US dollar that we expect, the CAD should recover against the USD. We therefore expect the CAD to strengthen significantly from the second quarter onwards and forecast a USD-CAD level of 1.35 by the end of 2025, seven cents below the current level. In 2026, we see only limited further upside potential.”

USD/SGD resumed its rise, tracking the move higher in UST yield while weaker JPY and RMB saw negative spillover effects. Pair was last at 1.3501, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Set to continue to take directional cues from USD and CNY

“Mild bearish momentum on daily chart faded while RSI rose. Consolidation likely. Resistance at 1.3490, 1.3520 levels. Support at 1.3340 (200 DMA, 23.6% fibo retracement of Sep low to Nov high), 1.3310 (50 DMA).”

“Pair should continue to take directional cues from USD and CNY moves ahead of FOMC event risk later this week. Next set of SG data is NODX (Tue) and CPI (next Mon). S$NEER was last at 0.91% above model-implied mid.”

• The Mexican peso draws some support from the softer US Dollar to return to the key 20.00 level.
• Investors are trimming US Dollar bets ahead of Wednesday’s Federal Reserve meeting.
• The USD/MXN is trading lower but might need an extra boost to breach the 20.00 level.

The Mexican Peso (MXN) opens the week with moderate gains and consolidates near the 20.00 threshold. Amid the US Dollar’s (USD) reversal, declining US Treasury yields are providing some support to the Mexican currency ahead of interest rate decisions of both central banks.

In today’s economic calendar, US preliminary Purchasing Managers Index (PMI) data is expected to show that manufacturing activity contracted further in December, with the services sector expanding at a slower pace than in the previous month. The NY Empire State Manufacturing Index is expected to confirm the soft momentum of the sector.

These figures would be consistent with the view of a Federal Reserve (Fed) rate cut on Wednesday, although the market is likely to wait for some more insight into the central bank’s forward guidance before making investment decisions.

In Mexico, data was disappointing last week, with consumer inflation dropping beyond expectations and consumer confidence and industrial output disappointing. The macroeconomic backdrop remains resilient, with unemployment at low levels, but concerns that higher tariffs by Trump’s administration next year will hurt growth and will likely pressure the Bank of Mexico (Banxico) to cut rates by 25 bps on Thursday.

Daily digest market movers: US Dollar rally falters as the Fed decision approaches

• The US Dollar Index (DXY) has stalled near three-week highs and is trimming some gains on Monday as investors take profits awaiting the Fed’s monetary policy decision, due on Wednesday.
   
• US Treasury yields have pulled back from last week’s highs, undermining support for the USD. The yield of the benchmark 10-year note has retreated from 4.40% after having rallied continuously for the previous five trading days.
   
• US economic data released last week were mixed. Consumer inflation remained steady above the Fed’s 2% target rate, producer prices accelerated, but jobless claims increased against market expectations.
   
• The CME Fed Watch tool shows that the market is nearly fully pricing a 25 basis point (bps) rate cut by the Fed after Wednesday’s meeting. For next year, however, the market is pricing a 60% chance that the central bank will cut rates once or twice.
   
• Later today, the NY Empire State Manufacturing Index is expected to show a moderate deterioration in the manufacturing conditions, to a 12 leading from 31.2 in November.
   
• A few hours later, the preliminary US S&P Global Manufacturing PMI is expected to show a moderate decline to 49.4 in December from 49.7 last month. Services activity is seen slowing down to 55.7 from 56.1.

Mexican Peso technical outlook: USD/MXN has  strong support at the 20.00 area

The USD/MXN is trading lower from its late November highs near 21.00, but the 20.00 psychological level remains a strong support for the pair. The pair has been treading water between the mentioned 20.00 support and 20.30 on the upside during last week.

The Mexican Peso would need an additional impulse to breach the 20.00 level against the US Dollar  and shift its focus toward the October 24 and 25 and November 7 lows, at 19.75

On the upside, the USD needs to confirm above 20.30 before aiming for the December 2 high at 20.60 and November’s peak at around 20.80.

 

USD/MXN 4-Hour Chart

• Oil prices sink nearly 1% on Monday, flirting with a break below $70.00.
• Traders send the black fuel lower after Chinese Retail Sales growth came in well below expectations. 
• The US Dollar Index trades below 107.00  after European PMI data triggers a softer Greenback. 

Crude Oil declines on Monday, flirting with the $70 round level, after Chinese Retail Sales data for November dampened hopes for a speedy recovery in the region. The 3% growth was far below consensus and the situation is set to deteriorate further as tanker rates on key routes to China are falling to the lowest level this year, pointing to even more sluggish demand ahead. 

The US Dollar Index (DXY) – which measures the performance of the US Dollar (USD) against a basket of currencies – is softer on Monday amid a recovery in the Euro (one of the main contributors in the Index). Germany’s preliminary reading of its Services Purchasing Managers Index (PMI) for December popped back to 51, out from contraction territory. Meanwhile, Germany is set to see its government toppled on Monday, with snap elections set for February 23 2025. 

At the time of writing, Crude Oil (WTI) trades at $70.31 and Brent Crude at $73.78.

Oil news and market movers: China shows no signs of recovery

• Rates for transporting crude on the largest vessels from the Middle East to China, a benchmark route, have sunk by a third this year as demand in the top importer slows and OPEC+ delays the restart of idled supply, Bloomberg reports.
• The global Oil market is expected to remain well-supplied in 2025, according to the International Energy Agency (IEA), even as the Organisation of the Petroleum Exporting Countries (OPEC) maintains production cuts and demand projections show slight growth, Reuters reports. 
• Recent China Crude Oil import data suggests a pickup, although storage data reveals a pickup in volumes as well, Reuters reports. 
• Iranian crude exports to China have been disrupted by broader US sanctions on tankers, according to Vortexa Ltd., squeezing flows to the OPEC producer’s most important customer, Bloomberg reports. 

Oil Technical Analysis: Reality catches up

Crude Oil prices are seeing their over 5% profitable rally stall and are giving back gains on Monday after Chinese Retail data revealed a slower-than-expected growth. This adds to doubts for the overall 2025 outlook, where a Chinese revival is one of the factors that is key to get the overall Oil consumption going up again. Should President-elect Donald Trump add further all the promised tariffs, Chinese Oil demand could deteriorate further in 2025.

Looking up, $71.46 and the 100-day Simple Moving Average (SMA) at $71.08 are acting as firm resistance levels on the upside. On Friday, already some selling pressure unfolded ahead of the 100-day SMA. In case Oil traders can plough through that level, $75.27 is up next as a pivotal level. 

On the downside, it is too early to see if the 55-day SMA will be reclaimed again at $70.11. 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

• USD/CHF recovers from 0.8900, tracing the US Dollar’s bounce back.
• The Fed policy remains in the spotlight, in which it is expected to cut interest rates by 25 bps to 4.25%-4.50%.
• On Thursday, the SNB unexpectedly cut its key borrowing rate by 50 bps to 0.5%.

The USD/CHF pair rebounds from the round-level support of 0.8900 in the European session on Monday. The Swiss Franc pair bounces back as the US Dollar (USD) recovers its intraday losses and turns positive, with the US Dollar Index (DXY) ticking higher around 107.00.

Investors brace for a high volatility in the USD counter as the Federal Reserve (Fed) is scheduled to announce its last interest rate decision of the year on Wednesday. Market participants will keenly focus on the Fed’s dot plot and the inflation outlook for 2025, with investors remaining confident that the central bank will reduce interest rates by 25 basis points (bps) to 4.25%-4.50%.

The Fed’s dot plot will show where the Federal Funds Rate will head in the medium and long term. According to a Bloomberg survey, the Fed is expected to cut interest rates three times in 2025. The Fed’s policy-easing cycle would be more gradual next year as economists worry more about rising upside risks to inflation than downside risks to employment.

In today’s session, investors will focus on the flash United States (US) S&P Global Purchasing Managers’ Index (PMI) data for December, which will be published at 14:45 GMT. The PMI report is expected to show moderate growth in the overall business activity.

Meanwhile, the Swiss Franc (CHF) remains broadly under pressure as investors expect the Swiss National Bank (SNB) to return to an ultra-loose policy trajectory to avoid growing risks to inflation, undershooting the bank’s target of 2%.

The SNB surprisingly reduced its key borrowing rates by 50 bps to 0.5% on Thursday, while investors anticipated a usual 25 bps interest rate reduction.

The National Bureau of Statistics (NBS) numbers released this morning show that Chinese monthly primary aluminum production rose 3.6% YoY to reach a record of 3.7mt in November as rising overseas export demand helped the metal output stay elevated. Cumulatively, output rose 4.6% YoY to 40.2mt over the first 11 months of the year, ING’s commodity analyst Ewa Manthey and Warren Patterson note.

Aluminum production in China is record high

“According to media reports, Japanese aluminum buyers were offered a premium of US$228/t (the highest premium since 2015) for the first quarter of 2025, up from US$175/t (+30% quarter-on-quarter) this quarter. However, it is slightly lower than the initial offers of US$230-260/t. The increase in premiums reflects expectations of tighter supply in Asia after China cancelled a 13% tax rebate on aluminum products from 1 December 2024.”

“In mine supply, Peru’s latest official numbers showed that copper output in the country fell 1.3% YoY to 237kt in October. It is reported that cumulative output loses from mines like Cerro Verde, and Quellaveco’s primarily contributed to Peru’s overall production decline in October. Cumulatively, production declined 0.7% YoY to 2.23mt for the first 10 months of the year.”

“Meanwhile, weekly data from Shanghai Futures Exchange (ShFE) shows that inventories for base metals remained mixed over the last week. Aluminum weekly stocks fell by 9,875 tons for a seventh consecutive week to 214,501 tons as of last Friday, the lowest since 10 May 2024. Copper inventories decreased by 13,199 tons (-13.5% week-on-week) for the eighth week straight to 84,557 tons (the lowest since 2 February 2024), while zinc inventories declined by 2,317 tons (-4.4% WoW) for a fourth consecutive week to 50,666 tons (the lowest since 9 February 2024) at the end of last week.”

USD/JPY rose as bets on BOJ hike this week was scaled back significantly while USTs saw a sell-off last Fri (i.e. UST yields rose sharply). Pair was last at 153.70, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Daily momentum turns mild bullish

“USD/JPY’s breakout was well anticipated in our technical scan when we first highlighted about moving averages compression (MAC) last week. We noted that this pattern typically precedes a break-out trade. Daily momentum turned mild bullish while RSI rose to near overbought conditions. Resistance at 154.80, 155.90 levels. Support at 152.70, 152.10 (21, 100, 200 DMAs). A decline back below the MA ‘convergence level’ would nullify the bullish break-out.”

“This week, BoJ MPC (19 Dec) matters for USDJPY. We are looking for BoJ to carry on with policy normalization with a hike this week and into 2025. Recent uptick in base pay supports the view about positive development in labour market, alongside still elevated services inflation, better 3Q GDP and expectations for 5-6% wage increases for 2025 should pace the room for BoJ policy normalisation.”

“That said, the risk is a slowdown in Fed and/or BoJ’s pace of policy normalisation would affect USDJPY’s moves.”

• Gold reversal from last week’s highs finds some support as the US Dollar retreats.
• Lower US yields and a softer Dollar might provide some support for Gold as the market readies for the Fed interest-rate decision.
• XAU/USD remains under pressure, dangerously close to the $2,635 support area.

Gold (XAU/USD) opens the week on a moderately positive tone, favored by a mild US Dollar (USD) reversal amid lower US Treasury yields. The precious metal, however, is still close to recent lows following a 2.5% sell-off late last week.

US Treasury yields pull back on Monday following a sharp rally last week, erasing some of the recent bullish pressure on the US Dollar. Investors seem wary of placing directional US Dollar bets as they brace for the all-important Federal Reserve (Fed) monetary policy decision on Wednesday.

The market is almost fully pricing an interest rate cut, but only gradual easing next year. This, coupled with expectations that Donald Trump’s policies will stir inflationary pressures, is acting as a tailwind for the US Dollar.

Daily digest market movers: Gold finds support amid ongoing geopolitical tensions

• Gold is suffering on expectations of a shallow Fed easing cycle but keeps drawing support from the highly volatile situation in the Middle East.
   
• Israel keeps attacking military targets in Syria and considering an expansion of the Golan Heights settlements, which has met with the opposition of Saudi Arabia, Qatar, and the United Arab Emirates.
   
• In Monday’s calendar, the US S&P Preliminary PMIs are expected to show a moderate contraction in manufacturing activity and slower growth in the services sector.
   
• The NY Empire State Manufacturing Index is also expected to have deteriorated to a reading of 12 in December, from 31.2 in the previous month.
   
• The impact of these figures on the Dollar, however, is likely to be limited ahead of Wednesday’s Fed decision.
   
• The CME Group’s Fed Watch Tool shows a 97% chance that the US central bank will cut interest rates by 25 basis points on Wednesday. Still, for 2025, markets are pricing in just two more cuts, fewer than the three seen earlier this month.

Technical analysis: XAU/USD remains under bearish pressure

Gold’s rally was capped again at the $2,720 resistance area last week before trading lower. A potential double top at the aforementioned level and Thursday’s bearish engulfing candle are giving hopes for bears.

The support area at $2,635 is holding the downside attempts, but the commodity is lacking upside momentum.  Previous support levels at $2,675 might act as resistance ahead of the $2,692 (December 12 high) level.

On the downside, below the December 9 low at around $2,630, the next bearish target would be the November 25, 26, and December 6 low at around $2,610.

XAU/USD 4-Hour Chart

The latest industrial output data from China shows that refiners reduced activity in November. Crude processed in the month fell to the lowest in five months at around 14.3m b/d as some processors shut plants for seasonal maintenance. Cumulative apparent demand fell by 3.3% YoY to 14m b/d over the first 11 months of the year, ING’s commodity analyst Ewa Manthey and Warren Patterson note.

Cumulative apparent demand falls

“The latest data from Baker Hughes shows that the number of active US oil rigs remained unchanged over the week at 482, after rising by five in the preceding week. The total rig count (oil and gas combined) also remains steady at 589 over the reporting week. Primary Vision’s frac spread count, which gives an idea of completion activity, decreased by three over the week to 217.”

“Weekly positioning data from the Commodity Futures Trading Commission (CFTC) shows that managed money net long position in NYMEX WTI dropped after rising for two consecutive weeks. Money managers trimmed net longs in NYMEX WTI by 12,448 lots over the week to 103,986 lots as of 10 December 2024. On the other hand, exchange data shows that speculators have built fresh longs of 5,349 lots in ICE Brent over the last week, leaving them with 162,273 lots of net long position.”

“In products, net bullish bets for gasoline jumped to their highest level since mid-April 2024. Speculators boosted the net longs for gasoline by 6,546 lots (after reporting declines for two straight weeks) to 73,037 lots for the week ending 10 December 2024. There are suggestions that the gasoline supply could tighten next year due to the planned refinery outages and closures. LyondellBasell’s Houston refinery is set to close by the end of the first quarter and will start idling as early as January. The refinery processes about 264k b/d.”

• GBP/JPY jumps to near 194.70 on steady growth in the preliminary UK Composite PMI data for December.
• The BoJ and the BoE are expected to leave interest rates unchanged on Thursday at 0.25% and 4.75%, respectively.
• This week, investors will also focus on the UK employment and inflation data for both the UK and Japan.

The GBP/JPY pair climbs to near 194.70 after the release of the S&P Global/CIPS United Kingdom (UK) PMI data for December. The report showed that the Composite PMI advanced at a steady pace to 50.5. Faster-than-expected expansion in service sector output neutralizes the impact of a sharp decline in manufacturing.

A steady growth in the PMI data has strengthened the Pound Sterling (GBP) against its major peers.

This week, investors brace for high volatility in the Pound Sterling’s price action due to the packed UK economic calendar. They will pay close attention to Tuesday’s employment data for the three months ending October and Wednesday’s Consumer Price Index (CPI) data for November, which will influence market speculation about the Bank of England’s (BoE) interest rate decision on Thursday.

According to market expectations, traders expect the BoE to leave interest rates unchanged at 4.75%, with a 7-2 vote split in which seven Monetary Policy Committee (MPC) members are expected to support a steady decision on key borrowing rates. BoE members Swati Dhingra and Deputy Governor Dave Ramsden are expected to support an interest rate reduction of 25 bps.

Investors will also pay close attention to BoE Governor Andrew Bailey’s press conference for fresh interest rate guidance for 2025. Traders see the BoE reducing interest rates three times next year.

Meanwhile, the Japanese Yen (JPY) is also expected to remain highly volatile this week as the Bank of Japan (BoJ) is scheduled to announce the last monetary policy decision of this year along with the BoE on Thursday. Investors expect the BoJ to keep borrowing rates steady at 0.25% as uncertainty over the likely global trade war due to higher import tariffs from incoming United States (US) President-elect Donald Trump has limited its potential of hiking them further.

This week, Japan’s National Consumer Price Index (CPI) data for November will also be released, a day after the policy decision.

US Dollar (USD) traded mixed this morning ahead of the much anticipated FOMC meeting this Thu (3am SGT). A 25bp cut is more or less a done deal (markets pricing ~93% probability of a cut) but the focus is on the refreshed dot plot, which will provide guidance on Fed members’ expectation on rate cut trajectory into 2025 - 26. The previous dot plot back in Sep guided for 4 cuts and markets are now pricing in about 3 cuts. DXY was last at 106.81 levels.

DXY above the ‘head’ can nullify the H&S pattern

“Bearish momentum on daily chart faded while RSI fell. Head and shoulders (H&S) pattern remains intact with DXY trading near second shoulder. A rise in DXY back above the ‘head’ would nullify the H&S pattern.”

“But at point of writing, DXY is respecting the second shoulder. We watch price action. A play-out of the H&S pattern 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).”

“This week brings empire manufacturing, prelim PMIs (Mon); retail sales, IP (Tue); housing starts, building permits (Wed); FOMC, GDP, existing home sales (Thu); core PCE, personal spending, income, Kansas City Fed manufacturing index (Fri).”

After a raft of source-based stories over the last two weeks, the market now attaches a less than 20% probability to a 25bp Bank of Japan hike this Thursday. USD/JPY looks biased to the 155 area ahead of the rate meeting, ING’s FX analyst Chirs Turner notes.

USD/JPY looks biased to the 155 area

“Our team thinks the chances are higher. However, helping to swing the BoJ's decision may be the level of USD/JPY. This has crept up to 154 recently, helped by both these source stories plus the sell-off in the US Treasury market.”

“While our medium-term valuation models show the yen as the most undervalued currency in the G10 space, our baseline forecasts do, however, show USD/JPY moving steadily higher through 2025 as US Treasury yields rise. The yen will remain the hedge against the inevitable periods of risk asset corrections in 2025, but barring surprise US macro weakness, 2025 should be bullish for USD/JPY.”

“For this week, we think USD/JPY looks biased to the 155 area ahead of Thursday's BoJ rate meeting.”

Chancellor Scholz had called for a vote of confidence on Wed and the Bundestag will vote later today. To survive the vote, Scholz would need to receive the support of an absolute majority of 367 votes. EUR was last at 1.0513 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note

Risks are modestly skewed to the upside

“In the event, Scholz fails, then Germany is likely to make way for elections on 23 Feb 2025. Far-right AfD is calling for Germany to leave the European Union, the EUR and Paris climate deal as the party prepares for early elections in Feb-2025. The concern here is the explicit language to quit EU unlike its manifesto ahead of the European parliament elections previously in Jun-2024.”

“EUR was a touch firmer, despite Moody’s downgrade of French rating. President Macron has appointed François Bayrou as the new PM of France. The far-left party La France Insoumise has announced it will launch a no-confidence vote to bring down PM Bayrou while other parties appear less aggressive and have laid down conditions for their support. Ongoing political uncertainties in France, Germany may weigh on EUR but like we had flagged, these are already known unknowns and for EUR to push lower, a new catalyst is required (i.e. a hawkish Fed, etc.).”

Mild bullish momentum on daily chart is intact while RSI rose. Risks are modestly skewed to the upside. Resistance here at 1.0540 (21 DMA, 23.6% fibo retracement of Oct high to Nov low), 1.0610 and 1.0670 (38.2% fibo). Support at 1.0460, 1.0410 levels.

• UK Services PMI edged higher to 51.4 in December, beat estimates.
• Manufacturing PMI in the UK fell further to 47.3 in December.
• GBP/USD extends gains above 1.2650 after UK business PMIs.

The seasonally adjusted S&P Global/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) contracted further to 47.3 in December from 48.0 in November. The data missed the market consensus of 48.1

Meanwhile, the Preliminary UK Services Business Activity Index rose to 51.4 in December after registering 50.8 in November while bettering expectations of 51.0.

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: “Businesses are reporting a triple whammy of gloomy news as 2024 comes to a close, with economic growth stalled, employment slumping and inflation back on the rise.“

FX implications

GBP/USD builds on gains to regain 1.2650 after the mixed UK PMI data. The pair is adding 0.38% on the day, as of writing.

It's Fed week, and the central bank is expected to cut its target policy band by 25bp to 4.25-4.50% on Wednesday. That is fully priced, and as our US economist James Knightley here, more interest will be had in how the Federal Reserve prepares to explain skipping its meeting in January, ING’s FX analyst Chirs Turner notes.

DXY can find support near 106.50/70

“New Fed forecasts should also reduce the number of expected rate cuts in 2025 to three from four. This is all currently priced by the market, but there seems little reason for the Fed to dovishly surprise this week and we see the dollar staying supported.”

“Additionally, tomorrow's release of November retail sales is expected to show healthy 0.4% month-on-month growth in the retail sales control group – suggesting US consumer habits are alive and well. But as seen in previous weeks, the dollar could also get dragged around by events overseas, where pressure looks likely to stay on the Chinese renminbi, and we should expect more rate cuts in Europe and elsewhere.”

“As a side note, we see the occasional references to the risk of another 1985 Plaza Accord to weaken the dollar. We take the view that 2025 will be more akin to 1983-1984, when more air was pumped into the dollar bubble. DXY should again find support near 106.50/70 and should push back above 107.00.”

Silver prices (XAG/USD) rose on Monday, according to FXStreet data. Silver trades at $30.67 per troy ounce, up 0.61% from the $30.48 it cost on Friday.

Silver prices have increased by 28.87% 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 86.68 on Monday, down from 86.88 on Friday.

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• AUD/USD attracts some buyers on Monday amid a modest USD downtick.
• The RBA’s dovish tilt and China’s economic woes cap gains for the Aussie.
• Traders seem reluctant to place directional bets ahead of the Fed decision. 

The AUD/USD pair sticks to its mildly positive bias through the first half of the European session on Monday, albeit it lacks any follow-through buying. Spot prices remain close to over a one-year low touched last Friday and currently trade around the 0.6365-0.6370 region, up just over 0.15% for the day. 

The US Dollar (USD) kicks off the new week on a weaker note amid a modest pullback in the US Treasury bond yields and turns out to be a key factor lending some support to the AUD/USD pair. That said, the Reserve Bank of Australia's (RBA) dovish tilt, along with China's economic woes, act as a headwind for the Australian Dollar (AUD). Apart from this, expectations for a less dovish Federal Reserve (Fed) favor the USD bulls and suggest that the path of least resistance for spot prices remains to the downside. 

Investors now seem convinced that the US central bank will slow the pace of its rate-cutting cycle amid signs that the progress in lowering inflation toward the 2% target has stalled. This, in turn, has been a key factor behind the recent rise in the benchmark 10-year US Treasury yield to a three-week high and validates the positive outlook for the buck. Apart from this, geopolitical risk and US-China trade war fears should benefit the safe-haven buck, warranting some caution before placing bullish bets around the AUD/USD pair. 

Traders might also refrain from placing aggressive bets and opt to wait for the outcome of the highly-anticipated FOMC policy meeting on Wednesday. The Fed is widely expected to lower borrowing costs by 25 basis points (bps), though it could adopt a more cautious stance on cutting rates. Hence, the focus will be on the accompanying policy statement, which, along with Fed Chair Jerome Powell's comments at the post-meeting press conference, will drive the USD demand and provide a fresh impetus to the AUD/USD pair.

European Central Bank (ECB) Vice President Luis de Guindos said on Monday, “in the near term, we will continue in the same direction as in the past few months.”

Further comments

• The Pound Sterling climbs to near 1.2650 against the US Dollar ahead of the release of the flash PMI data for both the UK and the US.
• This week, investors will focus on monetary policy decisions from the Fed and the BoE as well as UK employment and inflation data.
• Traders price in an interest-rate reduction from the Fed while the BoE is expected to leave them unchanged.

The Pound Sterling (GBP) gains to near 1.2645 against the US Dollar (USD) in Monday’s London session. The GBP/USD pair rises as the US Dollar trades subdued, with the US Dollar Index (DXY) hovering around 107.00. Investors brace for a high level of volatility from the pair this week as both the Federal Reserve (Fed) and the Bank of England (BoE) are set for their last monetary policy meeting of the year on Wednesday and Thursday, respectively.

Divergent moves are expected from both the central banks as the Fed is widely anticipated to cut its key borrowing rates by 25 basis points (bps) to 4.25%-4.50%, while the BoE is expected to leave them unchanged at 4.75%. Still, as the main interest-rate decisions from both the central banks have already been priced in by market participants, investors will be majorly focusing on the policy outlook for 2025.

According to current market expectations, traders expect three interest rate cuts from both central banks in 2025.

This week, the Pound Sterling will also be influenced by the United Kingdom (UK) employment data for three months ending October and the Consumer Price Index (CPI) data for November, which will be released on Tuesday and Wednesday, respectively. Any sharp deviation in the labor market and inflation numbers from estimates could influence market speculation for the BoE interest rate action on Thursday and policy outlook expectations for 2025.

Daily digest market movers: Pound Sterling rises at start of Fed-BoE policy decisions week

• In Monday’s session, the Pound Sterling and the US Dollar will be guided by the flash S&P Global Purchasing Managers’ Index (PMI) data for the UK and the United States (US) for December. The UK PMI report is expected to show the overall business activity expanded at a slightly faster rate from the prior release of 50.5.
• UK Service PMI is estimated to have increased to 51.0 from 50.8. The Manufacturing PMI, which gauges activities in the factory sector, is expected to have risen to 48.1 from 48.0 in November. A mild improvement in the manufacturing sector output is unlikely to cheer market participants as a figure below 50.0 indicates that overall activity contracted.
• Market participants are already worried about the health of the UK manufacturing sector as data released on Friday showed that industrial and manufacturing production unexpectedly contracted in October. 
• Investors will pay close attention to Tuesday’s labor market data to gauge hiring levels in the private sector after a recent survey by the UK Recruitment and Employment Confederation (REC) showed that an increase in employers’ contribution to National Insurance (NI) from 13.8% from 15% has led to dissatisfaction among employers.
• Meanwhile, the US flash PMI data is expected to show cooler growth in the overall business activity due to a slowdown in both the manufacturing and the services sector. Investors will look for cues about the impact of the election of Donald Trump as President on demand and inflation expectations.

Technical Analysis: Pound Sterling finds cushion near 1.2640

The Pound Sterling rises to near 1.2645 against the US Dollar on Monday after a three-day losing streak. The outlook of the GBP/USD pair remains bearish as all short-to-long Exponential Moving Averages (EMAs) are sloping lower.

Still, the upward-sloping trendline drawn from the October 2023 low around 1.2035 continues to provide support to Pound Sterling bulls near 1.2600.

The 14-day Relative Strength Index (RSI) hovers near 40.00. Should the RSI drop below 40.00, a bearish momentum will set off.

Looking down, the pair is expected to find a cushion near the psychological support of 1.2500. On the upside, the December 6 high of 1.2810 will act as key resistance.

European Central Bank (ECB) policymaker Peter Kazimir said on Monday, “gradual, step-by-step approach through 25 basis points (bps) rate cuts is the most prudent strategy.”

Additional quotes

Market reaction

EUR/USD was last seen trading at 1.0515, up 0.10% on the day.

• Eurozone Manufacturing PMI stayed unchanged at 45.2 in December, beating 45.0 estimate.
• Bloc’s Services PMI rose to 51.4 in December vs. 49.4 expected.
• EUR/USD keeps gains near 1.0500 after German, Eurozone PMI data.            

The Eurozone manufacturing sector remained in contraction while the services sector activity improved in December, according to the data from the HCOB's latest Purchasing Managers Index (PMI) Survey published on Monday.

The Eurozone Manufacturing Purchasing Managers Index (PMI) stayed unchanged at 45.2 in December, bettering the estimated 45.0.

The bloc’s Services PMI expanded to 51.4 in December from 49.5 in November. The data came in above the market consensus of 49.4 and reached a two-month high.

The HCOB Eurozone PMI Composite improved to 49.5 in December vs. November’s 48.3. The data hit a two-month top.

EUR/USD reaction to the Eurozone PMIs data

EUR/USD defends bids above 1.0500 on the mixed Eurozone PMI data, adding 0.09% on a daily basis.

• NZD/USD remains stronger following the release of domestic and Chinese data.
• China's Industrial Production rose by 5.4% YoY in November, exceeding market expectations of a 5.3% increase.
• The US Dollar remains subdued as Treasury yields hold thin losses.

NZD/USD breaks its four-day losing streak, trading around 0.5780 during the European hours on Monday. The New Zealand (NZD) remains stronger following the recent data from its largest trading partner, China. However, the upside of the Kiwi Dollar could be restrained due to the increased likelihood of a further aggressive easing approach from the Reserve Bank of New Zealand (RBNZ) early in 2025.

Recent reports indicate that China, a key trade partner for New Zealand, saw industrial output perform better than expected. However, this optimism was tempered by significantly lower-than-forecast Retail Sales and a continued decline in house prices.

China's annual Industrial Production rose by 5.4% in November, surpassing the market expectation of a 5.3% increase. In contrast, Retail Sales grew by 3.0% year-on-year in November, falling short of the anticipated 4.6% and the previous reading of 4.8%. 

Domestically, the Business NZ Performance of Services Index climbed to 49.5 in November, up from 46.2 in October, marking its highest level since February. Additionally, the Food Price Index increased by 1.3% year-on-year in November, slightly above the 1.2% rise recorded in October.

The US Dollar (USD) remains subdued amid tepid US Treasury yields ahead of the Federal Reserve’s (Fed) interest rate decision set for Wednesday. The Federal Reserve is widely expected to announce a 25 basis point rate cut in its final monetary policy meeting of 2024. According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting.

The US Dollar Index (DXY), which measures the value of the US Dollar against its six major peers, trades near 106.80 with 2-year and 10-year yields on US Treasury bonds standing at 4.23% and 4.38%, respectively, at the time of writing.

• Germany’s Manufacturing PMI fell to 42.5 in December vs. 43.8 forecast.
• Services PMI for the German economy bounces to 51.0 in December vs. 49.2 estimate.
• EUR/USD picks up fresh bids above 1.0500 after mixed German PMIs.

The German manufacturing sector activity worsened in December while the services sector returned to expansion, the preliminary business activity report published by the HCOB survey showed Monday.

The HCOB Manufacturing PMI in the Eurozone’s top economy dropped to 42.5 this month, compared to November’s 43.0 while missing the estimates of 43.8.

Meanwhile, Services PMI rebounded to 51.0 in December from 49.3 in November. The market forecast was 49.2 in the reported period. The gauge set a two-month high.

The HCOB Preliminary German Composite Output Index came in at 47.8 in December vs. 47.2 in November. The index was at its highest in two months.

FX implications

EUR/USD picks up fresh bids despite the mixed German data, currently trading 0.16% higher on the day at 1.0515.

On Monday, European Central Bank (ECB) President Christine Lagarde is speaking at an Annual Economics Conference on ‘Pillars of Resilience Amid Global Geopolitical Shifts’.

Key quotes

Market reaction

The following comments fail to move the needle around the Euro, with EUR/USD trading flat on the day near 1.0500.

• EUR/GBP holds its position ahead of PMI data from both economies.
• ECB President Lagarde indicated that the central bank is prepared to cut rates further if disinflation remains on track.
• The BoE is anticipated to take a cautious and gradual approach to easing monetary policy.

EUR/GBP moves sideways following two days of gains, trading around 0.8320 during the European hours on Monday. Traders are awaiting Purchasing Managers Index (PMI) data from both economies to gauge private business activities for both the manufacturing and services sectors.

On Monday, ECB President Christine Lagarde spoke at the Annual Economics Conference, indicating that the ECB 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.

The EUR/GBP cross gained ground as the Euro received support following President Emmanuel Macron's appointment of centrist ally François Bayrou as France's Prime Minister, raising hopes for political stability. Macron had pledged to swiftly select a new candidate after Michel Barnier was forced to resign following a confidence vote in Parliament.

Moreover, European Central Bank (ECB) Governing Council member Robert Holzmann said on Friday that cutting interest rates solely to stimulate the economy would be a mistake. According to Holzmann, the ECB’s primary responsibility is to ensure price stability, not to fuel economic growth. "Lowering rates now to boost the economy would contradict our current stance," he said, as reported by Bloomberg.

The upside of the EUR/GBP cross could be limited as the Pound Sterling (GBP) may appreciate due to the increased likelihood of the Bank of England (BoE) adopting a gradual pace of policy easing compared to other central banks in Europe and North America. The BoE and other forecasting bodies expect that inflation will rise next year in the wake of UK finance minister Rachel Reeves' big-spending budget. However, BoE Governor Andrew Bailey indicated four interest rate cuts in 2025, which could limit the upside of the British Pound (GBP) and support the EUR/GBP cross.

• EUR/USD gains slightly to near 1.0515 ahead of the preliminary PMI data of both the Eurozone and the US for December.
• The ECB is expected to cut interest rates further by 100 bps next year.
• Investors will keenly focus on the Fed’s dot plot for fresh interest rate projections in the US.

EUR/USD ticks higher to near 1.0515 in Monday’s European session ahead of the HCOB Eurozone preliminary Purchasing Managers’ Index (PMI) data for December on both sides of the Atlantic. The PMI report is expected to highlight the divergent fortunes of the Eurozone and US economies, with analysts expecting that overall business activity contracted faster in the Eurozone due to a decline in both manufacturing and service sector output while continuing to expand in the US. This scenario supports more interest rate cuts from the European Central Bank (ECB) and weighs on the Euro (EUR).

The ECB cut its Deposit Facility rate by 25 basis points (bps) to 3% on Thursday, accumulating a total of 100 bps interest rate reductions this year. Given that Eurozone inflation has come under control and officials are worried about growing economic risks, market participants expect the ECB to deliver another 100 bps reduction in its key borrowing rates by June 2025.

On Friday, a significant number of ECB policymakers backed further policy easing and a gradual move towards the neutral rate, which they expect to be around 2%. French central bank Governor Francois Villeroy de Galhau told France's BFM business radio: “There will be further rate cuts next year." When asked about interest rate projections, he said, "I note that we are collectively rather comfortable with the financial markets' interest rate forecasts for next year."

For more guidance on interest rates, ECB President Christine Lagarde will deliver a keynote speech and participate in a panel at the Bank of Lithuania's event on European economic and political resilience.

On the political front, French President Emmanuel Macron appointed Francois Bayrou as the new prime minister on Friday. He replaced Michel Barnier, who lost a no-confidence vote because he failed to pass the budget, which included tax hikes worth 60 billion Euros to cut the fiscal deficit. Bayrou, who is expected to face similar challenges in his administration, is scheduled to meet leaders of the Far Right and left wing on Monday and Tuesday, respectively, according to Reuters.

Daily digest market movers: EUR/USD will be influenced by Fed’s policy this week

• The mild upside in the EUR/USD pair is driven by a slight decline in the US Dollar (USD) amid uncertainty ahead of the Federal Reserve’s (Fed) interest rate decision, which will be announced on Wednesday. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges lower but trades close to the key resistance of 107.00.
• The Fed is widely anticipated to cut its key borrowing rates by 25 bps to 4.25%-4.50%. Therefore, investors will pay close attention to the Fed’s Summary of Economic Projections or the so-called “dot plot”, which shows where policymakers see the Federal Funds Rate heading in the medium and longer term. 
• According to a Bloomberg survey conducted from December 6 to 11, a majority of economists expect a less dovish Fed outlook for 2025. Economists see the Fed reducing interest rates three times next year on the assumption that progress in the disinflation process has slowed. The survey also indicated that economists have become more worried about upside risks to inflation than downside risks to employment due to incoming President-elect Donald Trump's policies, including mass deportations, new tariffs, and tax cuts.
• In Monday’s session, investors will focus on the United States (US) S&P Global PMI report for December, which will be published at 14:45 GMT.

Technical Analysis: EUR/USD holds above 1.0500

EUR/USD trades above the psychological figure of 1.0500 but continues to struggle around the three-day resistance near 1.0535. The major currency pair remains below the 20-day Exponential Moving Average (EMA) around 1.0545, suggesting a bearish near-term trend.

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

Looking down, the two-year low of 1.0330 will provide key support. Conversely, the 20-day EMA will be the key barrier for the Euro bulls.

• GBP/USD remains below the descending channel’s upper boundary, aligned with the nine-day EMA at 1.2684 level.
• The bearish sentiment prevails as the 14-day RSI remains below the 50 mark.
• The primary support appears at the four-week low of 1.2487.

GBP/USD breaks its three-day losing streak, trading around 1.2640 during the early European hours on Monday. The daily chart analysis shows an ongoing bearish bias as the pair is confined within the descending channel pattern.

The 14-day Relative Strength Index (RSI) is positioned below the 50 level, strengthening the bearish sentiment. Additionally, the GBP/USD pair falls below the nine- and 14-day Exponential Moving Average (EMA), which indicates that the short-term price momentum is weaker, signaling the potential for continued price weakness.

On the downside, the GBP/USD pair may navigate the region around its four-week low of 1.2487, which was recorded on November 22. A break below this level could strengthen the bearish bias and put downward pressure on the pair to approach the lower boundary of the descending channel, aligned with its yearly low at 1.2299, reached on April 22.

The GBP/USD pair may find initial resistance around the descending channel’s upper boundary, aligned with the nine-day EMA at the 1.2684 level. A break above this level could weaken the bearish sentiment and support the pair to explore the area around its five-week high of 1.2811 level, marked on December 6.

GBP/USD: Daily Chart

Here is what you need to know on Monday, December 16:

Market participants gear up for a critical week that will feature several major central banks' last policy meeting of the year. Ahead of these key events, flash Manufacturing and Services Purchasing Managers Index (PMI) data for December from Germany, the Eurozone, the UK and the US will be watched closely by investors on Monday.

The US Dollar (USD) Index benefited from rising Treasury bond yields and the cautious market mood, gaining nearly 1% in the previous week. Early Monday, the USD Index fluctuates in a tight range below 107.00. The US economic calendar will also offer NY Empire State Manufacturing Index data for December. On Wednesday, the Federal Reserve (Fed) will announce monetary policy decisions and publish the revised Summary of Economic Projections (SEP) following its two-day meeting.

During the Asian trading hours, the data from Australia showed that the Judo Bank Composite PMI edged lower to 49.9 in December from 50.2 in November. Meanwhile, Retail Sales in China increased by 3% on a yearly basis in November, falling short of the market expectation for a 4.6% growth. After posting small weekly losses last week, AUD/USD holds steady above 0.6350 to begin the week.

EUR/USD gained traction on Friday and snapped a five-day losing streak. In the European morning on Monday, the pair clings to small daily gains above 1.0500. European Central Bank (ECB) President Christine Lagarde will be delivering a speech during the European trading hours.

After posting large losses on Thursday, GBP/USD continued to push lower and touched its weakest level since late November near 1.2600 on Friday. The pair stages a technical correction toward 1.2650 on Monday.

USD/JPY preserved its bullish momentum and rose more than 2% in the previous week. The pair stays in a consolidation phase at around 153.50 in the early European session. Jibun Bank Manufacturing PMI rose to 49.5 from 49 in November and Services PMI improved to 51.4 from 50.5.

Gold turned south in the second half of the previous week and registered large losses on Thursday and Friday. XAU/USD holds its ground on Monday and trades slightly above $2,650.

• EUR/USD recovers to near 1.0510 in Monday’s early European session. 
• The negative view of the pair prevails below the 100-day EMA with the bearish RSI indicator. 
• The initial support level emerges at 1.0432; the first upside barrier is seen at the 1.0600-1.0610 regions. 

The EUR/USD pair trades in positive territory around 1.0510 during the early European session on Monday. However, the upside for the cross might be limited due to the dovish stance of the European Central Bank (ECB). 

The ECB decided to cut interest rates for the fourth time this year last week and kept the door open to further easing as the Eurozone economy is weighed by political instability at home and the potential Donald Trump’s tariff threats. Later on Monday, traders await the preliminary Eurozone HCOB Purchasing Managers’ Index (PMI) for December for fresh impetus, along with the ECB’s President Christine Lagarde speech. 

Technically, the bearish outlook of EUR/USD remains intact as the major pair is below the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) holds below the midline around 43.35, suggesting that further downside looks favorable. 

The first downside target emerges at 1.0432, the lower limit of the Bollinger Band. A breach of this level could see a drop to 1.0332, the low of November 22. Further south, the next contention level is seen at 1.0290, the low of November 30, 2022.

On the bright side, the immediate resistance level is located in the 1.0600-1.0610 zone, representing the upper boundary of the Bollinger Band and the psychological level. Sustained bullish momentum above the mentioned level could see a rally to 1.0764, the 100-day EMA. The additional upside filter to watch is the 1.0800 barrier. 

EUR/USD daily chart

FX option expiries for Dec 16 NY cut at 10:00 Eastern Time via DTCC can be found below.

EUR/USD: EUR amounts

• 1.0400 1.1b
• 1.0450 1.3b
• 1.0500 3.4b
• 1.0530 1.1b
• 1.05550 2.2b
• 1.0575 1.5b
• 1.0600 7.9b

GBP/USD: GBP amounts     

• 1.2625 485m
• 1.2800 627m

USD/JPY: USD amounts                     

• 152.45 950m
• 153.00 971m
• 155.00 545m

USD/CHF: USD amounts     

• 0.8800 991m

AUD/USD: AUD amounts

• 0.6350 887m
• 0.6460 635m

USD/CAD: USD amounts       

• 1.4300 900m

NZD/USD: NZD amounts

• 0.5620 759m
• 0.5855 706m

EUR/GBP: EUR amounts        

• 0.8300 487m
• 0.8325 557m

• EUR/JPY drifts higher to 161.65 in Monday’s Asian session, up 0.22% on the day. 
• The BoJ is expected to keep rates on hold on Thursday. 
• Hope for political stability after Macron appointed a new Prime Minister lifts the EUR, but ECB’s dovish shift might cap its upside. 

The EUR/JPY cross gains traction to near 161.65 during the early European session on Monday. The Japanese Yen (JPY) weakens amid the growing speculation that the Bank of Japan (BoJ) will keep interest rates steady in the December meeting on Thursday. Later on Monday, the preliminary Eurozone December Purchasing Managers’ Index (PMI) data will be released. Also, the European Central Bank (ECB) President Christine Lagarde is set to speak later in the day. 

The BoJ is scheduled to hold its last policy meeting of the year on December 18-19. The markets are currently pricing in less than a 30% chance of a rate hike in December. Several BoJ policymakers appear to be in no rush to tighten their monetary policy further with little risk of inflation overshooting despite Japan's still near-zero borrowing costs. This, in turn, exerts some selling pressure on the JPY and creates a tailwind for EUR/JPY. 

On the Euro front, French President Emmanuel Macron named François Bayrou, a centrist ally, as prime minister on Friday. The hope for political stability provides some support to the shared currency. However, the upside for the EUR might be capped as the ECB opens the door for further rate cuts. 

The ECB cut interest rates by a quarter point to 3.0% last week and warned that growth would be weaker than it had previously forecast. Traders in swaps markets anticipate the ECB to carry out a further five quarter-point cuts by next September, which would take the deposit rate to 1.75%.

• AUD/JPY gains ground due to a potential for momentum shift to bullish from bearish bias.
• An emergence of a bullish sentiment is possible if the RSI rises above the 50 mark.
• The initial support appears at the psychological level of 98.00, followed by the nine-day EMA at 97.50.

The AUD/JPY cross extends its gains for the second successive day, trading around 98.20 during the Asian hours on Monday. The 14-day Relative Strength Index (RSI) is positioned slightly below the 50 level, indicating a bearish momentum is still in play. If the RSI rises above 50, it would signal an emergence of a bullish bias.

Additionally, a review of the daily chart indicates that the nine-day Exponential Moving Average (EMA) remains below the 50-day EMA. This alignment suggests that short-term price momentum is weaker compared to the longer-term trend, signaling the potential for continued price weakness.

The initial support for the AUD/JPY cross is located at the psychological level of 98.00, followed by the nine-day EMA at 97.50. A decisive break below this level could open the gates for the currency cross to navigate the region around its four-month low of 93.59, which was recorded on September 11.

On the upside, the AUD/JPY cross could test its primary resistance near the 50-day EMA at the 98.92 level. A decisive break above this level would signal strengthening bullish momentum, potentially driving the pair toward the five-month high of 102.41, last reached on November 7.

AUD/JPY: Daily Chart

• Silver struggles to gain any meaningful traction on Monday and languishes near a two-week low.
• Bears await a sustained break and acceptance below the 100-day SMA before placing fresh bets.
• Any attempted recovery might be seen as a selling opportunity and is likely to remain capped.

Silver (XAG/UD) kicks off the new week on a subdued note and consolidates last week's retracement slide from or over a one-month high. The white metal remains close to a two-week low touched Friday and trades around the $30.55 region, or the 100-day Simple Moving Average (SMA), during the Asian session.

From a technical perspective, acceptance below the 100-day SMA will be seen as a fresh trigger for bearish traders against the backdrop of last week's failure near the $32.35 horizontal resistance. Given that oscillators on the daily chart have just started gaining negative traction, the XAG/USD might then turn vulnerable to weaken further below the $30.00 psychological mark and test November lows, around the $29.70-$29.65 region. 

Some follow-through selling should pave the way for an extension of the downward trajectory towards the $29.10-$29.00 support zone en route to the $28.40-$28.35 region before the XAG/USD eventually drops to the $28.00 round figure. 

On the flip side, any meaningful recovery attempt now seems to confront stiff resistance and remain capped near the $31.00 mark. A sustained strength beyond, however, could trigger a short-covering rally and lift the XAG/USD towards the $31.75 horizontal barrier. The momentum could extend further towards the $32.00 round figure en route to the monthly swing high, around the $32.35 horizontal zone touched last week.

Silver daily chart

Gold prices rose in India on Monday, according to data compiled by FXStreet.

The price for Gold stood at 7,238.43 Indian Rupees (INR) per gram, up compared with the INR 7,222.61 it cost on Friday.

The price for Gold increased to INR 84,427.66 per tola from INR 84,243.13 per tola on friday.

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.)

• USD/CAD maintains its position below the multi-year high of 1.4245 marked on Friday.
• CME FedWatch tool suggests full pricing in a quarter basis point cut by the Fed on Wednesday.
• The Canadian Dollar faced challenges as the BoC eased its monetary policy aggressively.

USD/CAD inches lower after marking a multi-year high of 1.4245 on Friday, trading around 1.4230 during the Asian hours on Monday. This upside could be attributed to the subdued US Dollar (USD) amid tepid US Treasury yields ahead of the Federal Reserve’s (Fed) interest rate decision, with an increased likelihood of a 25 basis point rate cut in its final monetary policy meeting of 2024.

Market analysts predict that the US central bank will cut rates while preparing the market for a pause, given the robust US economy and inflation stalling above 2%. According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting.

The Canadian Dollar (CAD) faced challenges as the Bank of Canada (BoC) eased its monetary policy aggressively. The BoC slashed its borrowing rates by 50 bps to 3.25% last week, as expected, but guided a more gradual easing approach as policy rates have come down significantly. BoC Governor Tiff Macklem warned that US President-elect Donald Trump’s tariffs on their exports will have a significant impact on the economy.

The commodity-linked CAD may receive upward support from crude Oil prices due to the rising likelihood of tighter supplies driven by the implementation of additional US sanctions on major producers Russia and Iran. West Texas Intermediate (WTI) Oil price trades around $70.50 per barrel at the time of writing.

On Friday, US Treasury Secretary Janet Yellen said that the United States is considering further sanctions on "dark fleet" tankers and may also impose sanctions on Chinese banks to curb Russia's Oil revenue and access to foreign supplies, which are fueling its war in Ukraine, per Reuters.

• Gold price stages a modest recovery from a one-week low touched earlier this Monday.
• Geopolitical tensions, softer US bond yields and USD benefit the safe-haven XAU/USD.
• Bets for a less dovish Fed warrant caution for bull ahead of the FOMC meeting this week.

Gold price (XAU/USD) ticks higher following an Asian session downtick to the $2,644-2,643 region, or a one-week low, and for now, seems to have stalled its sharp retracement slide from over a one-month high touched last Thursday. The US Dollar (USD) kicks off the new week on a softer note amid a modest pullback in the US Treasury bond yields. Adding to this, geopolitical risks and uncertainties over US President-elect Donald Trump's policies turn out to be key factors offering support to the safe-haven precious metal.

Meanwhile, investors now seem convinced that the Federal Reserve (Fed) will adopt a more cautious stance on cutting interest rates next year amid signs that the progress in lowering inflation toward the 2% target has stalled. This should act as a tailwind for the US bond yields and the USD, which, in turn, cap the upside for the non-yielding Gold price. Traders might also refrain from placing aggressive directional bets and opt to wait for the outcome of the highly anticipated two-day FOMC policy meeting on Wednesday.

Gold price attract some haven flows amid geopolitical risks; upside potential seems limited

• Israel agreed on plans to allocate state money to expand its presence and double its population in the occupied Golan Heights, raising the risk of a further escalation of tensions in the region. 
• Israeli strikes in Gaza killed at least 53 Palestinians, while the Israeli military said that its air and ground forces in the north of the enclave killed dozens of militants and captured others.
• NATO Secretary General Mark Rutte has warned that Russian President Vladimir Putin wants to wipe Ukraine off the map and could come after other parts of Europe next.
• The Syrian Observatory for Human Rights said that Israeli fighter jets targeted the missile launchers in southern Syria and carried out an air strike on radars in eastern Syria.
• The CME Group's FedWatch Tool indicates that traders are pricing in over a 93% chance that the Federal Reserve will lower borrowing costs by 25 basis points on Wednesday. 
• The US Consumer Price Index (CPI) and the Producer Price Index (PPI) released last week reinforced expectations that the Fed will slow the pace of its rate-cutting cycle next year. 
• The yield on the benchmark 10-year US government bond rose to a three-week high on Friday amid bets for a less dovish Fed, which should cap gains for the non-yielding Gold price. 
• Monday's economic docket features the release of global flash PMIs, which, might influence the broader risk sentiment and provide some impetus to the safe-haven precious metal.
• The focus, however, will be on the crucial FOMC decision on Wednesday. Traders will also take cues from the accompanying policy statement and Fed Chair Jerome Powell's remarks.

Gold price needs to break below the $2,643 area for bears to seize near-term control

From a technical perspective, the Asian session low, around the $2,644-2,643 area, coincides with a congestion zone. Some follow-through selling has the potential to drag the Gold price to the $2,625 region en route to the monthly low, around the $2,614 zone and the $2,605-2,600 pivotal support. A convincing break below the latter will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.

On the flip side, the $2,665-2,666 region now seems to act as an immediate hurdle ahead of the $2,677 area, above which the Gold price could aim to reclaim the $2,700 round figure. The subsequent move up could extend further towards the monthly swing high, around the $2,726 zone, which if cleared decisively will set the stage for a further near-term appreciating move.

• The Indian Rupee edges lower in Monday’s Asian session.
• Elevated USD bids, weaker in Asian peers, and a dovish tilt in RBI’s monetary policy could undermine the INR. 
• Traders will take cues from the Indian PMI and WPI inflation data, which are due later on Monday. 

The Indian Rupee (INR) weakens on Monday. Heightened US Dollar (USD) demand in the non-deliverable forwards market and a weaker Chinese Yuan weigh on the local currency. Furthermore, the growing expectations of a dovish tilt in monetary policy following the appointment of a new Reserve Bank of India (RBI) governor could contribute to the INR’s downside. 

However, the RBI’s routine intervention in the market by selling USD might help limit the INR’s losses. Traders will keep an eye on the preliminary HSBC India Purchasing Managers Index (PMI) for December, along with the WPI Inflation data, which are due later on Monday. The US Federal Reserve (Fed) will deliver its policy decision on Wednesday. Investors will monitor its dot plot to assess if the median interest rate projections show a hawkish shift in the Fed's outlook

Indian Rupee remains vulnerable, pressured by a rally in US Dollar

• The Indian Rupee depreciated by 1.5% against the US Dollar during the calendar year but outperformed most Asian currencies due to interventions by the Reserve Bank of India (RBI). 
• India’s foreign exchange reserves declined by $3.2 billion to a more than five-month low of $654.86 billion as of December 6, the RBI showed on Friday.
• "The change in leadership at the RBI may lead to an initial market assumption that a rate cut in the February policy meeting is more likely," said VRC Reddy, treasury head at Karur Vysya Bank.
• According to the CME FedWatch tool, markets are now almost fully pricing a 25 basis points (bps) cut at the Fed's December meeting, compared with about a 78% chance a week ago.  

USD/INR’s positive picture prevails in the longer term

The Indian Rupee trades on a softer note on the day. The USD/INR pair keeps the bullish vibe on the daily chart as the pair is well supported above the key 100-day Exponential Moving Average (EMA). The upward momentum is supported by the 14-day Relative Strength Index (RSI), which is located above the midline near 66.35, suggesting that the path of least resistance is to the upside. 

The ascending trend channel and the psychological level of 85.00 act as crucial resistance levels for USD/INR. A break above these levels could spur a rally to 85.50. 

On the flip side, the initial support level for the pair is located at 84.75, the lower boundary of the trend channel. Extended losses below the mentioned level could drag USD/INR to the next bearish targets at 84.22, the low of November 25, followed by 84.12, the 100-day EMA.

• WTI may appreciate further due to rising expectations of supply threats amid US sanctions on major producers Russia and Iran.
• The US is considering further sanctions on "dark fleet" tankers and Chinese banks to curb Russia's Oil revenue.
• Crude Oil prices gained ground as the Fed is widely expected to deliver a 25-basis-point rate cut on Wednesday.

West Texas Intermediate (WTI) Oil price corrects downwards after registering gains in the previous session, trading around $70.50 per barrel during the Asian session on Monday. Crude Oil prices rose amid growing expectations of tighter supplies driven by the implementation of additional US sanctions on major producers Russia and Iran.

US Treasury Secretary Janet Yellen told Reuters on Friday that the United States is considering further sanctions on "dark fleet" tankers and may also impose sanctions on Chinese banks to curb Russia's Oil revenue and access to foreign supplies, which are fueling its war in Ukraine.

Additionally, optimism about China’s plans to ramp up economic stimulus could drive Oil demand. 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 price of crude Oil, often referred to as "liquid gold," also received a boost from improved market sentiment following recent interest rate cuts by central banks in Canada, Europe, and Switzerland. Traders are now focusing on the Federal Reserve's (Fed) upcoming policy decision on Wednesday, where a 25-basis-point rate cut is widely anticipated. Such a move could stimulate economic growth and potentially increase oil demand, as lower borrowing costs are likely to have a positive impact on economic activity.

• The Japanese Yen drifts lower against its American counterpart for the sixth straight day. 
• Expectations that the BoJ will keep rates steady this week continue to weigh on the JPY.
• Elevated US bond yields contribute to driving flows away from the lower-yielding JPY.

The Japanese Yen (JPY) struggles to capitalize on a modest Asian session uptick on Monday and touches a three-week low against its American counterpart in the last hour. The initial reaction to the better-than-expected release of Core Machinery Orders and flash Manufacturing PMI from Japan turned out to be short-lived amid firming expectations that the Bank of Japan (BoJ) will not raise interest rates later this week. Furthermore, bets for a less dovish Federal Reserve (Fed) remain supportive of elevated US Treasury bond yields and turn out to be another factor undermining the lower-yielding JPY.

That said, persistent geopolitical risks stemming from the protracted Russia-Ukraine war and the ongoing conflicts in the Middle East, along with concerns about US President-elect Donald Trump's tariff plans, could limit losses for the safe-haven JPY. Traders might also refrain from placing aggressive directional bets and keenly await this week's key central bank event risks. The Fed is scheduled to announce its decision at the end of a two-day meeting on Wednesday, which will be followed by the crucial BoJ meeting on Thursday and help in determining the next leg of a directional move for the JPY. 

Japanese Yen bears retain control amid bets that the BoJ will maintain the status quo

• Government data released earlier this Monday showed that Japan's core machinery orders rose 2.1% in October and registered a strong growth of 5.6% on a year-on-year basis.
• The au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) improved to 49.5 in December, though remained in contraction territory for the seventh straight month. 
• Meanwhile, the gauge for the services sector rose to 51.4 in December from 50.5, while the composite PMI stood at 50.8 during the reported month, up from 50.1 in November.
• This comes after the Bank of Japan's Tankan survey showed on Friday that business confidence at Japan's large manufacturers improved during the three months to December. 
• Moreover, expectations that consumer prices in Japan will remain above the BoJ's 2% target, a moderately expanding economy and a rise in wages give the BoJ reason to hike rates.
• Investors, however, remain sceptical regarding the BoJ's intention to tighten its monetary policy further, which continues to exert downward pressure on the Japanese Yen on Monday. 
• The yield on the benchmark 10-year US government bond rose to a three-week high on Friday amid rising bets that the Federal Reserve will adopt a cautious stance on cutting rates. 
• According to the CME Group's FedWatch Tool, traders are pricing in over a 93% chance that the US central bank will lower borrowing costs again, by 25 basis points on Wednesday. 
• However, signs that the progress in lowering inflation toward the US central bank's 2% target has stalled raised the possibility of a slower pace of interest rate reductions next year. 
• Monday's US economic docket features the release of the flash Manufacturing and Services PMIs, along with the Empire State Manufacturing Index, later during the US session.
• That said, the market focus remains glued to the crucial FOMC and the BoJ meetings this week, which will help in determining the near-term trajectory for the USD/JPY pair. 

USD/JPY seems poised to appreciate further and aim to reclaim the 155.00 psychological mark

From a technical perspective, a sustained move and acceptance above the 61.8% Fibonacci retracement level of the November-December fall from a multi-month peak could be seen as a fresh trigger for bulls. Moreover, oscillators on the daily chart have just started gaining positive traction and suggest that the path of least resistance for the USD/JPY pair remains to the upside. Hence, some follow-through strength towards the next relevant hurdle, around the 154.55 region, en route to the 155.00 psychological mark, looks like a distinct possibility. 

On the flip side, the Asian session low, around the 153.35-153.30 area, now seems to act as an immediate strong support ahead of the 153.00 mark. A convincing break below the latter might expose the very important 200-day Simple Moving Average (SMA) pivotal support near the 152.10-152.00 region. A convincing break below the latter might shift the bias in favor of bearish traders and drag the USD/JPY pair towards the 151.00 round figure en route to the 150.00 psychological mark.

• NZD/USD gains ground to around 0.5775 in Monday’s Asian session, adding 0.30% on the day. 
• China’s November Industrial Production climbed 5.4%, Retail Sales rose 3.0%. 
• A possible hawkish rate cut by the Fed could underpin the Greenback.  

The NZD/USD pair attracts some buyers to near 0.5775, snapping the four-day losing streak during the Asian trading hours on Monday. The attention will shift to the preliminary US December Purchasing Managers Index (PMI) for fresh impetus, which is due later on Monday. 

Data released by the National Bureau of Statistics of China showed on Monday that the nation’s Industrial Production rose 5.4% YoY in November, compared to 5.3% in October. This reading came in stronger than the expectation of 5.3%. Meanwhile, Retail Sales rose 3.0% YoY in November versus 4.8% prior, below the market consensus of 4.6%. The New Zealand Dollar (NZD) remains firm in an immediate reaction to the mixed Chinese economic data.

Chinese authorities announced on Thursday that they will unveil a bigger fiscal deficit to boost consumption next year following the Central Economic Work Conference. This follows a commitment made at the huddle of the decision-making Politburo last week to pump more stimulus into the world's second-largest economy. This, in turn, could underpin the China-proxy Kiwi, as China is a major trading partner to New Zealand. 

On the USD’s front, a possible hawkish rate cut by the Federal Reserve (Fed) at its December meeting on Wednesday might support the US Dollar (USD) and act as a headwind for the pair. The cautious approach reflects a strengthening US economy, noted by Chair Jerome Powell. Investors see the Fed lowering the interest rates by a quarter of a percentage point at the December meeting, with more attention focused on policymakers' new economic projections released alongside the decision.

• The Australian Dollar holds ground after mixed figures from China.
• China’s Retail Sales (YoY) rose 3.0% in November, falling short of the expected 4.6% and previous 4.8% readings.
• The US Dollar remains subdued as the Fed is expected to deliver a 25 basis point rate cut on Wednesday.

The Australian Dollar (AUD) halts its four-day losing streak on Monday as the US Dollar (USD) edges lower amid tepid US Treasury yields ahead of the Federal Reserve’s (Fed) interest rate decision set for Wednesday.

The Fed is widely expected to announce a 25 basis point rate cut in its final monetary policy meeting of 2024. According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting.

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.

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.

Australian Dollar receives downward pressure from the RBA’s dovish stance

• The Aussie Dollar faced additional challenges due to the Reserve Bank of Australia's (RBA) dovish stance. Traders are increasing their bets that the 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 preliminary Australia's Judo Bank Manufacturing Purchasing Managers Index (PMI) declined to 48.2 in December from 49.4 in November. Meanwhile, the Services PMI eased to 50.4 in December from the previous reading of 50.5. The Composite PMI dropped to 49.9 in December versus 50.2 prior.
• Beijing has already begun retaliation against Trump trade sanctions, launching a probe into Nvidia, threatening to blacklist a US apparel company, blocking the export of critical minerals to the United States, and tightening the supply chain for drones.
• The seasonally adjusted Employment Change rose by 35,600, bringing the total number of employed people to 14,535,500 in November. Meanwhile, the Unemployment Rate dropped to 3.9%, the lowest since March, lower than market estimates of 4.2%.
• The US PPI jumped 0.4% MoM in November, the largest gain since June, after an upwardly revised 0.3% increase in October. This reading was better than the 0.2% expected.
• The RBA kept the Official Cash Rate (OCR) unchanged at 4.35% in its final policy meeting in December. RBA Governor Michele Bullock highlighted that while upside inflation risks have eased, they persist and require ongoing vigilance. The RBA will closely monitor all economic data, including employment figures, to guide future policy decisions.

Technical Analysis: Australian Dollar rebounds from 0.6350 near yearly lows

AUD/USD hovers near 0.6370 on Monday. The daily chart analysis indicates a prevailing bearish bias as the pair moves downwards within a descending channel pattern. Additionally, the 14-day Relative Strength Index (RSI) also remains above the 30 level, indicating sustained bearish momentum.

On the downside, the yearly low of 0.6348, last seen on August 5, serves as immediate support. A break below this level could put downward pressure on the AUD/USD pair to approach the descending channel’s lower boundary around the 0.6180 level.

The AUD/USD pair faces initial resistance around the nine-day Exponential Moving Average (EMA) at 0.6396, followed by the 14-day EMA at 0.6419, which is 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

Following the publication of the high-impact China’s activity data for November, the National Bureau of Statistics (NBS) expressed its outlook on the economy during its press conference on Monday.

Key quotes (via Reuters)

developing story ....

Market reaction

AUD/USD is holding gains above 0.6350, up 0.16% on the day, at the press time.

China’s November Retail Sales increased 3.0% year-on-year (YoY) vs. 4.6% expected and 4.8% in October, according to the latest data released by the National Bureau of Statistics (NBS) on Monday.

Chinese Industrial Production rose 5.4% YoY in the same period, compared to the 5.3% estimated and the 5.3% registered previously.

Meanwhile, the Fixed Asset Investment came in at 3.3% year-to-date (YTD) YoY in November, missing the expected 3.4% figure. The October reading was 3.4%.

Additional details of the report showed that the dragon nation’s Unemployment Rate remained unchanged at 5.0% in the reported period.

AUD/USD reaction to Chinese data

The mixed Chinese data dump cautions the Australian Dollar, with AUD/USD capping its bounce near 0.6375. The pair is up 0.16% on the day, as of writing.

On Monday, the People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.1882, as compared to Friday's fix of 7.1876 and 7.2769 Reuters estimates.

• EUR/USD remains stronger as the Fed is widely expected to deliver a 25 basis point rate cut on Wednesday.
• The CME FedWatch tool suggests full pricing in a quarter basis point cut at the Fed's December meeting.
• The Euro appreciated after President Emmanuel Macron appointed centrist ally François Bayrou as France's Prime Minister.

EUR/USD starts the week by extending its gains, trading around 1.0520 during the Asian session on Monday. This upside could be attributed to the decline in the US Dollar (USD) amid tepid US Treasury yields ahead of the Federal Reserve’s (Fed) interest rate decision set for Wednesday.

The Fed is widely expected to announce a 25 basis point rate cut in its final monetary policy meeting of 2024. Market analysts predict that the US central bank will cut rates while preparing the market for a pause, given the robust US economy and inflation stalling above 2%. According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting.

Furthermore, Fed Chair Jerome Powell’s press conference and Dot Plots will be closely monitored. Earlier this month, Powell maintained a cautious tone, stating, “We can afford to be a little more cautious as we try to find neutral.” He indicated that he is not in a hurry to reduce rates.

The Euro gained support after President Emmanuel Macron appointed centrist ally François Bayrou as France's Prime Minister, raising hopes for political stability. Macron had pledged to quickly select a new candidate for the role after Michel Barnier was forced to resign following a confidence vote in Parliament.

On Friday, European Central Bank (ECB) Governing Council member Robert Holzmann said that cutting interest rates solely to stimulate the economy would be a mistake. According to Holzmann, the ECB’s primary responsibility is to ensure price stability, not to fuel economic growth. "Lowering rates now to boost the economy would contradict our current stance," he said, as reported by Bloomberg.

• GBP/USD attracts some dip-buyers on Monday, though the uptick lacks bullish conviction.
• Traders now seem reluctant to place directional bets ahead of the Fed/BoE policy meetings.
• This week’s key macro data from the UK and the US should contribute to infusing volatility. 

The GBP/USD pair ticks higher at the start of a busy week and for now, seems to have snapped a three-day losing streak to the 1.2600 neighborhood, or over a two-week low touched on Friday. Spot prices currency trade around the 1.2630-1.2635 region, up 0.10% for the day, though any meaningful appreciation seems elusive ahead of this week's key central bank event risks. 

The Federal Reserve (Fed) is scheduled to announce its policy decision on Wednesday, which will be followed by the Bank of England (BoE) meeting on Thursday. The US central bank is widely expected to lower borrowing costs for the third straight meeting, though traders are pricing in the possibility of a slower pace of rate reductions next year. Hence, the accompanying policy statement, the updated economic projections – including the so-called dot-plot – and Fed chair Jerome Powell's comments at the post-meeting press conference will be scrutinized for cues about the future rate-cut path. This, in turn, will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide some impetus to the GBP/USD pair. 

Meanwhile, the UK central bank is anticipated to maintain the status quo and leave interest rates unchanged. Moreover, the BoE has stressed it is taking a gradual approach to cutting interest rates amid rising inflation expectations. In fact, the BoE and other forecasting bodies expect that inflation will rise next year in the wake of UK finance minister Rachel Reeves' big-spending budget. That said, BoE Governor Andrew Bailey's dovish outlook, signaling four interest rate cuts in 2025, might hold back traders from placing aggressive bullish bets around the British Pound (GBP) and act as a headwind for the GBP/USD pair. This, in turn, warrants some caution before confirming that spot prices have bottomed out around the 1.2600 mark. 

Investors this week will also confront the release of important macro data from the UK and US, starting with the flash PMI prints later this Monday. Apart from this, the UK monthly employment details, along with the US Retail Sales on Tuesday, followed by the UK consumer inflation figures on Wednesday, the final US GDP print on Thursday and the UK Retail Sales on Friday should infuse volatility around the GBP/USD pair.

• Gold price trades on a flat note near $2,650 in Monday's early Asian session. 
• Huge demand from central banks and safe-haven flows could support Gold price, but Trump's tariff plan might cap its upside. 
• Investors brace for the preliminary US December PMI data, which is due on Monday. 

The Gold price (XAU/USD) trades flat around $2,650 during the early Asian session on Monday. However, strong central bank buying and ongoing geopolitical tensions in the Middle East could underpin the precious metal in the near term. Investors await the preliminary US December Purchasing Managers Index (PMI) for fresh impetus, which is due later on Monday. 

Significant demand from central banks lifts the yellow metal price. Central banks have been net buyers of gold for nearly 15 years, emphasizing its value as a crisis hedge and a reliable reserve asset. According to the World Gold Council, the precious metal is expected to rise modestly in 2025 due to central bank actions, geopolitical tensions, and economic conditions in key markets like the US, China, and India.

On Sunday, Israel's government approved a plan to double its population in the occupied Golan Heights, citing threats from Syria, per Reuters. Any signs of escalating geopolitical tensions in this region could boost a flight to safe assets, benefiting the Gold price. 

On the flip side, US President-elect Donald Trump's tariff plan would stoke further inflation and delay the Federal Reserve (Fed) easing policy. Additionally, the robust US economy could lift the US Dollar (USD) and undermine the USD-denominated commodity price as it increases the opportunity cost of holding non-yielding bullion. "Generally speaking, we see a stronger U.S. economy next year, which should leave less room for rate cuts and should thus bring less tailwinds for gold," said Carsten Menke, an analyst at Julius Baer. 

Gold traders will closely watch the Fed meeting on Wednesday, which is anticipated to cut the interest rates by 25 basis points (bps). The attention will be on Chair Jerome Powell's speech, as it might offer some hints about US monetary policy for 2025. 

The deputy director of China's central financial and economic affairs commission said on Saturday that the country's economy is estimated to grow by about 5% this year, per Reuters. 

Han Wenxiu, a senior official in the ruling Communist Party, stated that China is expected to contribute close to 30% of global growth, adding that there was a need to boost consumption and view domestic demand expansion as a long-term strategic move that would become the main driving force for economic growth. 

Market reaction

At the press time, the AUD/USD pair was up 0.17% on the day to trade at 0.6368.

Israel's government approved a plan to double its population on the occupied Golan Heights on Sunday, citing threats from Syria, per Reuters. 

Prime Minister Benjamin Netanyahu said in a statement, "Strengthening the Golan is strengthening the State of Israel, and it is especially important at this time. We will continue to hold onto it, cause it to blossom, and settle in it.”

Market reaction 

At the time of press, the XAU/USD pair was up 0.10% on the day at $2,650.