Forex-novosti i prognoze od 17-12-2024

• EUR/USD shed a fresh fifth of a percent against the Greenback on Tuesday.
• Fed-centric US data docket dominates investor sentiment.
• EU data remains light this week, traders focus on upcoming Fed rate call.

Bullish momentum behind the Euro evaporated on Tuesday, dragging the pair back beneath the 1.0500 handle as traders buckle down for the wait to the Federal Reserve’s (Fed) last rate call of 2024. European data is relatively sparse this week, compelling Fiber traders to navigate a substantial array of US data.

Euro markets largely overlooked multiple European Central Bank (ECB) officials' appearances earlier in the week, and despite European December PMI figures surpassing expectations. Pan-EU Services PMI survey figures still remain in contraction due to concerns over a deepening economic slowdown in Europe, which continues to unsettle investors and businesses.

US Retail Sales figures lurched higher to 0.7% MoM, stoking some mild concern among investors that maybe the Fed doesn’t need to pursue an aggressive rate-cutting strategy after all, especially when counting a recent uptick in inflation metrics. Despite this, markets are still broadly pricing in a third straight rate cut from the Fed on Wednesday, with 95% odds favoring a 25 bps rate trim according to the CME’s FedWatch Tool.

EUR/USD price forecast

The EUR/USD daily chart reveals a period of consolidation just above the 1.0450 level after the pair’s steep decline from its late October highs near 1.1000. This recent stabilization coincides with investor expectations surrounding the Federal Reserve's anticipated quarter-point rate cut on Wednesday, which has injected a degree of uncertainty into the greenback’s trajectory. The price action remains capped by the 50-day Exponential Moving Average (EMA) at 1.0658, with the longer-term bearish bias underscored by the 200-day EMA at 1.0809, sloping downward. A break below the key support at 1.0450 could see bears retesting the psychological 1.0400 level, which served as a critical floor in late November.

The MACD indicator at the bottom of the chart shows bearish momentum has eased slightly, as the MACD line flattens and approaches a bullish crossover with the signal line. However, the histogram remains in negative territory, suggesting that upside attempts may still face significant headwinds. A Fed rate cut on Wednesday, if accompanied by a dovish tone, could weaken the dollar further, paving the way for a rebound toward 1.0600 and potentially the 50-day EMA resistance. Conversely, a hawkish surprise may reinforce the dollar’s strength, triggering renewed selling pressure on the EUR/USD pair and opening the door for a retest of yearly lows. Traders are likely to remain cautious ahead of the Fed decision, keeping price action in a tight range in the short term.

EUR/USD daily chart

• USD/CAD edges higher to around 1.4310 in Wednesday’s early Asian session. 
• The Fed will likely cut interest rates by 25 bps at the December meeting on Wednesday. 
• The Canadian Dollar weakens to nearly a five-year low on the political risks.

The USD/CAD pair trades with mild gains near 1.4310 during the early Asian session on Wednesday. The Canadian Dollar (CAD) fell to the lowest level since April 2020 amid political turbulence in Canada. The markets might turn cautious ahead of the US Federal Reserve (Fed) interest rate decision, which is expected to cut the interest rates by 25 basis points (bps) on Wednesday at the end of its two-day meeting. 

The Fed is widely expected to lower borrowing costs on Wednesday for the third meeting in a row. Markets are now almost fully pricing a quarter of a percentage point cut at the Fed's December meeting, compared with about 78% odds a week ago, according to the CME FedWatch tool. The Fed’s Press Conference and the Summary of Economic Projections (SEP), or the Dot Plot, will be pored over for clues about next year's outlook.

Data released by the US Census Bureau on Tuesday showed that Retail Sales in the US rose 0.7% MoM in November, compared to the 0.5% increase (revised from 0.4%) seen in October. The reading came in better than the market expectation for a rise of 0.5%. However, the US Retail Sales data had no impact on expectations that the Fed would cut interest rates at its December meeting on Wednesday. 

On the other hand, the Loonie remains on the defensive after Canada's Deputy Prime Minister Chrystia Freeland quit Monday in a surprise move, saying she disagreed with Prime Minister Justin Trudeau over US President-elect Donald Trump's tariff threats. Canadian Prime Minister Justin Trudeau faced growing calls to resign as the resignation of Freeland marked the first open dissent against Prime Minister Trudeau from within his cabinet.

"We think this level of political turbulence will raise uncertainty levels for Canadian consumers and businesses, adding to the headwinds already facing productivity-enhancing investment," Karl Schamotta, chief market strategist at Corpay, said in a note.

• GBP/USD gained 0.2% and extended into a two-day win run on Tuesday.
• Cable markets are coiling into the midrange as the Fed and BoE race to make rate calls.
• UK CPI update on Wednesday serves as a preview of BoE rate call on Thursday.

GBP/USD stretched into a two-day winning streak on Tuesday, gaining one-fifth of one percent and recapturing the 1.2700 handle, but only just. Cable is paring away last week’s losses to recover into a near-term middle ground as Pound Sterling traders brace for a hefty end-of-year docket that includes rate calls from the Federal Reserve (Fed) and the Bank of England (BoE), as well as one last update on UK Consumer Price Index (CPI) inflation.

US Retail Sales figures lurched higher to 0.7% MoM on Tuesday, stoking some mild concern among investors that maybe the Fed doesn’t need to pursue an aggressive rate-cutting strategy after all, especially when counting a recent uptick in inflation metrics. Despite this, markets are still broadly pricing in a third straight rate cut from the Fed on Wednesday, with 95% odds favoring a 25 bps rate trim according to the CME’s FedWatch Tool.

UK CPI inflation is expected to chill to a sedate 0.1% MoM in November after October’s upswing of 0.6%. However, core inflation is proving to be sticky, with core CPI inflation in November expected to clock in at 3.6% compared to the previous period’s 3.3%. The BoE will follow up Wednesday’s CPI print with its last rate call of 2024 on Thursday. The BoE is broadly forecast to vote eight-to-one to keep its main reference rate on hold to close out the year.

GBP/USD price forecast

GBP/USD has spun out a rough defensive circle on daily candlesticks, with the pair churning into a midrange baked into the 1.2700 handle as Cable traders grapple with a sluggish zone on the low side of the 200-day Exponential Moving Average (EMA) near 1.2820.

The pair has priced in a large technical floor at November’s lows at the 1.2500 price level, but 1.2600 is shaping up to be an attractive downside target for bears if markets fail to fully pivot into a risk-on stance and drive the pair back into bull country above the 50-day EMA at 1.2800.

GBP/USD daily chart

• NZD/USD declines  on Tuesday, settling near 0.5755 after Monday’s modest recovery attempt.
• Pair remains confined below the 20-day SMA, reinforcing the prevailing bearish bias.
• RSI falls sharply to 36 in negative territory, while MACD histogram prints decreasing red bars, indicating renewed selling pressure.

The NZD/USD pair gave back recent gains on Tuesday, retreating by 0.48% to 0.5755 as sellers regained control. Persistent resistance at the 20-day Simple Moving Average (SMA), located around 0.5890, continues to cap any meaningful upside attempts, keeping the broader outlook tilted to the downside.

Technical indicators confirm the return of selling pressure. The Relative Strength Index (RSI) has slipped to 36, moving deeper into negative territory and reflecting intensifying bearish momentum. Similarly, the Moving Average Convergence Divergence (MACD) histogram continues to print decreasing red bars, underscoring the lack of buying interest and fading bullish attempts.

As long as NZD/USD remains below the 20-day SMA, the path of least resistance points lower. Immediate support emerges near the 0.5750 region, with a break below this level likely paving the way toward the 0.5700 mark. Without a decisive push above the 20-day SMA, any rebound attempts are likely to remain short-lived.

NZD/USD daily chart

• EUR/AUD climbs above the 1.6500 level amid cautious market mood.
• Technical analysis shows potential for further gains with the Relative Strength Index indicating bullish momentum.
• Resistance levels ahead at 1.6575 and 1.6600, with potential targets extending to 1.6759 if upward trajectory continues.
• Support found at 1.6500, with further downside protections at the 100-day and 200-day SMAs at 1.6375 and 1.6359, respectively.

The Euro extended its gains versus the Australian Dollar on Tuesday, amid a session characterized by a risk-off mood, sending high-beta currencies lower. At the time of writing, the EUR/AUD trades at 1.6557 up by 0.40%.

EUR/AUD Price Forecast: Technical outlook

The EUR/AUD has halted its uptrend and has consolidated at around 1.6500 for the last three trading days. Although momentum seems bullish, buyers must clear the October 31 peak of 1.6599 if they want to remain hopeful of extending their gains.

Momentum as depicted by the Relative Strength Index (RSI) favors further upside, with the RSI standing above the neutral level.

If EUR/AUD rises above the December 11 high of 1.6575, it would pave the way for further upside. A breach of the latter will expose 1.6600, followed by the August 15 daily high of 1.6759.

On the flip side, the EUR/AUD first support would be the 1.6500 mark. Once cleared, 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 Chart – Daily

• Aussie drops near 0.6340 as sentiment sours before Fed decision.
• Fed expected to slow the pace of 2025 rate cuts.
• Weak Australian consumer sentiment fuels RBA dovish bets.
• Despite USD softness, AUD struggles amid cautious markets.

The Australian Dollar falls sharply to near 0.6340 amid a cautious market mood ahead of the Federal Reserve’s policy announcement. The Fed is anticipated to hint at fewer interest rate cuts for 2025, weighing on risk appetite. Soft Australian consumer sentiment has bolstered expectations of a dovish Reserve Bank of Australia move in February, keeping the Aussie under pressure despite some recent USD weakness.

Daily digest market movers: Aussie slips as markets eye Fed pivot and soft Australian sentiment

• According to the CME FedWatch tool, traders price in a 25 basis points rate cut on Wednesday, but lean toward a pause in January 2025.
• The US Dollar Index (DXY) rises above 107.00 as risk-off mood prevails; S&P500 futures trade lower, signaling cautious sentiment.
• November’s US Retail Sales growth of 0.7% beat forecasts, but mixed revisions and weaker ex-Cars data tempered USD optimism.
• Industrial Production contracted by 0.1% in November, missing the 0.3% expansion consensus, underscoring uneven US growth.
• US 10-year Treasury yields pull back from 4.43%, last seen near 4.38%, reflecting lingering uncertainty before the Fed’s decision.
• Australian Westpac Consumer Confidence fell 2% in December after a 5.3% rise in November, raising doubts over the domestic outlook.
• Concerns over China’s growth, due to incoming US tariffs, further weigh on the Aussie as Australia is a key Chinese trading partner.

AUD/USD technical outlook: Aussie nears oversold territory as bearish momentum builds

The AUD/USD pair declined by 0.42% to 0.6350 on Tuesday, extending its losing streak. The Relative Strength Index (RSI) hovers around oversold levels and is declining sharply. The Moving Average Convergence Divergence (MACD) histogram prints decreasing red bars, reinforcing the bearish narrative. While the pair struggles to hold ground, indicators flirting with oversold conditions may eventually trigger a corrective rebound. However, traders await the Fed’s guidance and fresh economic data before placing directional bets.

Investor sentiment is grinding out worry lines in the charts, pushing major currency pairs into near-term midranges as the Federal Reserve’s (Fed) last rate call of 2024 approaches for a landing on Wednesday, with a smattering of other key central banks slated to make appearances this week as well.

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

The US Dollar Index (DXY) chewed a circle into the chart paper on Tuesday with bids hanging out near the 107.00 handle. US Retail Sales figures lurched higher to 0.7% MoM, stoking some mild concern among investors that maybe the Fed doesn’t need to pursue an aggressive rate-cutting strategy after all, especially when counting a recent uptick in inflation metrics. Despite this, markets are still broadly pricing in a third straight rate cut from the Fed on Wednesday, with 95% odds favoring a 25 bps rate trim according to the CME’s FedWatch Tool.

EUR/USD shuddered and slipped back below the 1.0500 handle on Tuesday, stepping back from a four-day high of 1.0534 and shedding one-fifth of one percent against the Greenback. EU-centric economic data remains limited this week, leaving Fiber traders at the mercy of broad-market flows from the US Dollar. European PMI figures for December largely exceeded expectations earlier this week. However, Services PMI surveys remain stuck in contraction territory, leaving optimistic Euro bidders flummoxed by concerns over a deepening economic slowdown across Europe.

GBP/USD caught some lift to climb back above the 1.2700 handle, further paring away recent losses and extending Cable into a two-day bullish recovery. The pair has been battling a messy back-and-forth around the 1.2600 region since declining into the neighborhood in November, but now Pound Sterling traders are looking for a leg up ahead of a batch of key events from the UK side. UK Consumer Price Index (CPI) inflation figures are due early in the Wednesday London market session, and will be followed by the Bank of England’s (BoE) latest rate call, slated for Thursday and widely expected to announce a hold on rate cuts to wrap up the year.

USD/JPY pulled back on Tuesday, pulling away from the week’s early high of 154.50 and slipping back below 153.50, snapping a six-session winning streak for the Greenback in the process. The Bank of Japan (BoJ) has its own rate call scheduled for sometime early 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 hyper dovish Japanese central bank to raise interest rates again.

• Mexican Peso continues its decline, impacted by disappointing Retail Sales, ahead of the Banxico rate cut.
• US Retail Sales outperform expectations, contrasting Mexico’s economic challenges and supporting the US Dollar.
• Banxico’s rate decision looms with potential for a divided vote on policy direction amid inflation concerns.

The Mexican Peso extended its losses against the Greenback for the second straight day after Mexican economic data showed that consumer spending shrank in November, an indication that the economy is slowing. This and an upbeat Retail Sales report in the United States (US) keep the USD/MXN underpinned, trading at 20.20, gaining 0.43%.

Mexican Retail Sales for October fell annually and monthly, revealed the Instituto Nacional de Estadistica Geografia e Informatica (INEGI). The date came two days short of Banco de Mexico's (Banxico) monetary policy on December 19. The institution is expected to slash the main interbank lending rate by 25 basis points (bps) to 10.00%.

Pamela Diaz Loubet, BNP Paribas Economist in Mexico, said, “Although we continue to anticipate that there will be a 25 basis point cut in December, it does seem to me that this inflation reading could open the door to a split vote (among the Banxico Governing Board). I think that it will be a debate that will be very lively in the December decision and that may begin to take shape towards 2025.”

In the US, Retail Sales in November came in strong, though Industrial Production disappointed economists. The Federal Reserve (Fed) began its two-day meeting and is expected to cut rates and release the Summary of Economic Projections (SEP). The SEP updates Fed officials' forecasts of inflation, growth, employment and interest rates with the so-called “dot plot”. The dot plot is expected to provide guidance on the Fed funds rate path.

So far, the swaps market has priced in the US Central Bank, which is projected to lower rates by 100 basis points toward the end of 2025. However, the upcoming Trump administration's inflation-prone policies could prevent the Fed from being aggressive in its easing cycle.

This week, Mexico will feature Aggregate Demand data, Private Spending, and Banxico’s interest rate decision. In the US, 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 retreats but remains at familiar levels

• Mexico’s Retail Sales dropped from 0.1% to -0.3% MoM in October, below estimates for a 0.2% growth. In the twelve months to October, sales plunged -1.2% YoY, less than the -1.6% contraction expected and improved compared to September figures of -1.5%.
• 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 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 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.
• US Retail Sales rose by 0.7% MoM in November, accelerating from 0.5% in October and surpassing expectations. On a yearly basis, sales climbed to 3.8%, up from 2.9%.
• Industrial Production showed improvement in November but remained negative, coming in at -0.1% MoM, up from October's -0.4% but falling short of the 0.3% forecast.
• The CME FedWatch Tool suggests that traders had priced in a 99% chance of a quarter-point rate cut on Wednesday.

USD/MXN technical outlook: Mexican Peso falls as USD/MXN climbs toward 20.20

The USD/MXN uptrend remains in place as the pair carved a series of higher highs and higher lows, even though the pair retreated from yearly tops. However, for a bullish continuation, buyers must clear the 20.32, the December 10 high, before challenging the psychological 20.50. On further strength, the next resistance would be the December 2 daily high of 20.59, followed by the year-to-date peak of 20.82, followed by the 21.00 mark.

On the downside, if USD/MXN drops below the 50-day Simple Moving Average (SMA) at 20.10, the next support would be the 20.00 figure. Further downside is seen at the 100-day SMA at 19.73. A breach of the latter will expose 19.50.

• The Dow Jones accelerated into further losses, falling nearly 0.8%.
• Losses are concentrating in the Dow as investors second-guess Fed action.
• Continued declines in key health and tech stocks are further dragging the Dow lower.

The Dow Jones Industrial Average (DJIA) shed another 300 points on Tuesday as losses accumulate in the key index and begin to gather speed. Investors have been chasing interest rate cuts from the Federal Reserve (Fed) since last December, but now concerns of getting too much of a good thing are giving traders cause for a pause.

The Fed is broadly expected to deliver another quarter-point rate cut on Wednesday, bringing its target rate down to the 4.25%-4.5% range. The fed funds rate peaked at 5.0%-5.5% in July of 2023, and investors clamored for interest rate cuts to provide funding relief for 13 straight months before the Fed finally delivered a jumbo 50 bps rate slash in September and followed it up with another 25 bps rate trim in November. Now investors are second-guessing Fed moves on interest rates, and questioning whether the US central bank may be moving too fast, too far in the face of recent US economic data.

According to the CNBC Fed Survey for December, some investors are beginning to pivot into an uncertain stance in the face of steeply-inflationary policy threats from incoming President Donald Trump. Roughly one-third of respondents noted that it may be time for the Fed to reassess its rate-cutting strategy. 

Stocks initially rallied on the news of a decisive Trump election win, but now those same animal spirits are beginning to wonder if the threat of global tariffs, sweeping deportation policies, and entering into unilateral trade wars with all of the US’ major trading partners at the same time may not be as positive for stock performance as many investors initially believed. Adding to the uncertainty of policy impacts, some analysts are recalling Trump’s campaign promises to renegotiate the USMCA trade deal that he initially negotiated during his first presidency.

Dow Jones news

Despite the Dow Jones holding roughly on-balance on Tuesday with about half of the index’s listed securities trading in the green, concentrated losses in household names are dragging the price-weighted board lower. Unitedhealth Group (UNH) continues to decline as public opinion of health insurance providers sinks even lower in the wake of the assassination of C-level United Health executive Brian Thompson. The same day Brian Thompson was slain, UNH shareholders celebrated windfall profits for the health company, which have been primarily perceived as coming from an associated rise in insured claims rejections at the health giant. UNH fell an additional 3.5% on Tuesday, testing $480 per share after hitting an all-time high of $630.73 in November.

Adding to the Dow’s losses was a decline in Nvidia (NVDA), which declined another 1.7% on the day and broke below $130 per share for the first time since mid-October. Investors may have concerns that Nvidia’s broad-based pivot into providing computational crunching power for the AI space may be running into issues as widespread reports of overheating in Nvidia chip solutions accumulate.

Dow Jones price forecast

The Dow Jones’ 330 point decline on Tuesday sets up the major equity index for its longest day-over-day losing streak, and the DJIA is on pace to close in the red for a ninth straight session. The Dow has pierced the 50-day Exponential Moving Average (EMA) for the first time since late October, back when price action was testing a technical floor near the 42,000 handle.

The Dow Jones closed above 45,000 for the first time ever in early December, but a near-term backslide has seen the DJIA shed 3.8% top-to-bottom. While bearish momentum is in control of the key stock index, bidders are likely waiting in the wings for a fresh bounce off of the key 50-day EMA with an immediate price floor near the last swing low of 43,000.

Dow Jones daily chart

• DXY trades near 106.80 on Tuesday.
• Market focus shifts toward upcoming Fed decision on Wednesday.
• Retail Sales fail to boost US Dollar enthusiasm.

The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, trades with gains around 106.80 on Tuesday, as upward momentum stalls following November’s Retail Sales release. Market focus remains on Wednesday’s decision on interest rates by the Federal Reserve (Fed), and a 25 bps cut is already priced in.

Daily digest market movers: US Dollar stuck as markets assess Retail Sales figures

• The two-day Federal Open Market Committee meeting begins on Tuesday as economic fundamentals suggest the Federal Reserve should not cut rates.
• November Retail Sales data slightly exceeded forecasts but failed to spark renewed US Dollar buying, traders weigh the marginal revisions and mixed underlying details.
• Monthly Retail Sales grew by 0.7%, beating the 0.5% estimate, while the previous print got revised up to 0.5% from 0.4%.
• Growth remains solid: The New York Fed’s Nowcast model tracks Q4 growth at 1.9% SAAR, while the Atlanta Fed GDPNow stands at 3.3%.
• Markets still anticipate a 25-basis-point rate cut on Wednesday, priced at over 95% probability, even as economic data challenge the need for immediate easing.

DXY technical outlook: Indicators improve, but upside momentum fades

US Dollar indicators recovered significant ground last week, yet the index lacks the strength to retest the 107.00–108.00 zone. On Monday, the index pulled back. Although it trades near 106.30 on Tuesday, the overall picture remains constructive if it can stay above its 20-day Simple Moving Average (SMA).

Persistent growth and upbeat US data may keep the Greenback supported, but caution is warranted until a decisive break above near-term resistance levels is seen.

• The Canadian Dollar shed another 0.4% against the Greenback on Tuesday.
• Canada saw a steeper-than-expected contraction in headline CPI inflation figures.
• Underlying drivers in Canadian inflation throw warning signs for consumer spending.

The Canadian Dollar (CAD) plunged to a fresh multi-year low on Tuesday, falling four-tenths of a percent against the Greenback and pushing USD/CAD to its highest bids in nearly five years, sending the pair above 1.4300 for the first time since March of 2020. Annualized Canadian Consumer Price Index (CPI) inflation figures disappointed markets, delivering a muddle picture of Canadian price growth on both sides of the equation.

Despite headline Canadian CPI easing below the 2% mark on a yearly basis, monthly inflation figures appear to remain stuck. Core CPI inflation also remains sticky, trending north of 2.7% YoY, though the Bank of Canada’s (BoC) own measure of core CPI is continuing to drift lower.

Daily digest market movers: Canadian Dollar drops further after CPI print misses the mark

• Headline Canadian CPI inflation came in at 1.9% YoY, below the expected hold at 2.0%.
• The BoC’s in-house CPI Core metric grew by 1.6% YoY, below the previous 1.7%.
• The overall backslide in main Canadian CPI figures will help to bolster expectations of another rate cut from the BoC in January, despite BoC Governor Tiff Macklem’s recent warnings that the pace of BoC rate cuts will be “more gradual” from here on out.
• Underlying core inflation remains sticky despite the drops in headline figures; while the BoC expects core inflation to average 2.3% in the fourth quarter, it is currently drifting near 2.7%.
• Mortgage interest costs eased in November, helping to soften CPI metrics, though underlying rent prices accelerated another 7.7% over the same period.
• As much as Canadians welcomed discounts on electronics and guided tour travel costs around Black Friday, another 2.6% annualized increase in grocery costs still bites into wallets as Canadians struggle to replace food with television sets.

Canadian Dollar price forecast

The Canadian Dollar has shed over 2.2% against the US Dollar in December alone and is on pace to end lower against the Greenback for a fourth straight month. As the Loonie continues to deflate against the USD, USD/CAD prices have rallied back above the 1.4300 handle, a bottom-to-top rise of nearly 7% from September’s bottom bids near 1.3420.

USD/CAD has moved steadily north in a one-sided medium-term trend, and the 50-day Exponential Moving Average (EMA) has struggled to keep up with price action as the key moving average rises into 1.3400. As Greenback bidders continues to pummel the Loonie, USD/CAD bids are headed to highs not seen since the height of the COVID pandemic above 1.4600.

USD/CAD daily chart

• Gold price refreshes new weekly low following strong US Retail Sales figures that dim expectations for aggressive Fed easing next year.
• Despite a drop in Treasury yields, a resilient US Dollar limits Gold's upward momentum.
• Investors eye the Fed's policy announcement and the core PCE Price Index release.

Gold price dropped to a new weekly low of $2,633 on Tuesday following the release of strong Retail Sales data in the United States. This weighed on investors' expectations of the Federal Reserve (Fed), which is expected to adopt a gradual approach to easing in 2025. At the time of writing, the XAU/USD trades at $2,637, down 0.57%.

The Fed has begun its two-day meeting in Washington, DC, and is expected to lower interest rates by 25 basis points (bps) on Wednesday. The markets have already priced in the decision, but participants are looking for the Summary of Economic Projections (SEP) and the Dot Plot. This will provide investors with the Fed rate path for 2025.

The US economic docket witnessed a strong Retail Sales report in November. Later, the Fed announced that Industrial Production for the same period plunged in monthly and annual figures, an indication that business activity continued to suffer from higher interest rates.

Bullion prices remain pressured even though US Treasury bond yields and real yields retreated. Nevertheless, the steady US Dollar keeps the non-yielding metal from extending its gains.

Lower interest rates the Fed sets are usually a tailwind for Gold prices. Speculation that Trump’s upcoming administration would implement expansionary fiscal policies that put upward pressure on inflation could trigger a change among the Federal Open Market Committee (FOMC) members.

Ahead this week, the US economic docket will feature the FOMC policy decision and the release of the core Personal Consumption Expenditures (PCE) Price Index.

Daily digest market movers: Gold price slips below $2,650, extends losses

• Gold prices plunged as US real yields are pressured, falling two basis points to 2.059%, a tailwind for the precious metal.
• The US 10-year Treasury bond yield drops two and a half basis points to 4.379%.
• The US Dollar Index rose 0.07% to 107.01.
• US Retail Sales in November rose by 0.7% MoM, up from 0.5% in October, above estimates. Yearly, sales jumped from 2.9% to 3.8%.
• Industrial Production in November improved compared to October yet dipped to -0.1% MoM,  up from -0.4% and below estimates of 0.3%
• US business activity remains robust in the services segment, according to S&P Global.
• The CME FedWatch Tool suggests that traders had priced in a 99% chance of a quarter-point rate cut on Wednesday.
• For 2025, investors are betting that the Fed will lower rates by 100 basis points.

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

Gold uptrend remains intact, yet in the near term it is slightly skewed to the downside. The golden metal has been accepted within the $2,602-$2,670 area, capped by the 100 and 50-day Simple Moving Averages (SMAs), respectively.

If Gold drops below the 100-day SMA, the next support would be $2,600. If the price slips, the next support would be the November 14 swing low of $2,536, before challenging the August 20 peak at $2,531. Conversely, if XAU/USD rallies past $2,650, the next resistance would be the 50-day SMA at $2,670, ahead of $2,700.

• Silver price falls 0.28%, signaling potential further downside.
• Technical indicators suggest fading bullish momentum, with a near-term focus on the 200-day SMA at $29.55.
• Resistance levels include the 100-day SMA at $30.57 and the 50-day SMA at $31.54; support could extend to $27.69 if the downtrend continues.

Silver price drops below the 100-day Simple Moving Average (SMA) of $30.57, extending its losses to four consecutive days, as the Greenback remains firm. At the time of writing, the XAG/USD trades at $30.42 a troy ounce, down 0.28%.

XAG/USD Price Forecast: Technical outlook

Silver continues to consolidate within the $30.00-$31.00 range for the last three trading days, clearing on its way to the bottom of the range, the 50 and 100-day Simple Moving Averages (SMAs).

Although the grey metal continues to respect the trend of higher highs and higher lows, bullish momentum seems to be fading as the XAG/USD spot price approaches the 200-day Simple Moving Average (SMA) at $29.55.

If Silver clears the latter, the bias will shift bearish, paving the way for testing $27.69, the September 6 swing low, followed by the August 8 low of $26.44.

On the upside, the 100-day SMA at $30.57 must be cleared before facing key resistance at the 50-day SMA at $31.54. On further strength, the next resistance would be the December 12 peak at $32.32.

XAG/USD Price Chart – Daily

• EUR/USD edges slightly lower on Tuesday, hovering around 1.0505 and failing to gain traction.
• RSI declines mildly to 43, remaining in negative territory and signaling limited buying interest.

The EUR/USD pair continues to tread water on Tuesday, inching down to 1.0505 and showing no clear directional bias. Despite recent attempts to stabilize above the 1.0500 mark, the pair remains capped by the 20-day Simple Moving Average (SMA) near 1.0550, underscoring the persistent headwinds facing any meaningful recovery.

Technical indicators offer a mixed picture. The Relative Strength Index (RSI) has dipped slightly while holding at 43, indicating subdued buying interest and keeping the pair firmly in negative territory. On the other hand, the Moving Average Convergence Divergence (MACD) histogram is printing rising green bars, suggesting some underlying bullish potential. However, this has yet to translate into a sustained push above the 20-day SMA.

Until EUR/USD decisively clears the 20-day SMA, the overall outlook remains tilted to the downside. Immediate support is seen at the psychological 1.0500 level, followed by the 1.0480 area and then the 1.0450 zone. A break below these supports could accelerate selling pressure, while a successful climb above 1.0550 would be needed to shift sentiment and improve the technical stance.

EUR/USD daily chart

The Gold price fell to $2,650 per troy ounce on Friday, reversing most of the strong gains from the first half of the week within two trading days, Commerzbank’s commodity analyst Carsten Fritsch notes.

Gold reverses most of the strong gains from the first half of the week

“After a slight recovery at the start of the week, the price is slipping further today. The main headwind is the sharp rise in US bond yields, which is increasing the opportunity cost of holding Gold. Behind this is a reduction in the expectations of Fed interest rate cuts in the coming year.”

“Fed funds futures are now only pricing in interest rate cuts by a total of 50 basis points by mid-2025. This already takes into account the expected interest rate cut of 25 basis points at the Fed meeting tomorrow.”

“It will therefore be important to see what interest rate guidance the FOMC members' new projections will provide and how Fed Chairman Powell will comment on this at the subsequent press conference. If the expectations of interest rate cuts then increase again, the Gold price could rise.”

UK labour market data reflected a larger than expected jump in Average Weekly Earnings in October (to 5.2%, from 4.4%) while ex-bonus pay also rose (5.2%, from 4.9%), Scotiabank’s Chief FX Strategist Shaun Osborne notes, Scotiabank’s Chief FX Strategist Shaun Osborne notes.  

GBP adds to Monday’s gains

“Unemployment was unchanged at 4.6% while jobless claims were all but flat. Higher wage growth—the first pickup in a year—has tempered prospects for BoE rate cuts in 2025, with the first full 25bps ease priced out of the March swaps contract and pushed to May. Sterling has firmed modestly against the USD and picked up a bit more ground again versus the EUR.”

“The Pound Sterling (GBP) traded positively yesterday, forming a bullish engulfing line on the daily candle. Spot gains have extended marginally so far today but the pound is having some trouble holding gains above 1.27. A push through 1.2710/15 is needed to see a little more upside momentum towards 1.2750/75 develop. Support is 1.2665 and 1.2610.”

• Silver price declines to near $30.20 amid firm bond yields ahead of Fed’s policy meeting on Wednesday.
• US bond yields remain firm on expectations that the Fed will signal fewer interest rate cuts for 2025.
• The US Dollar surrenders gains despite better-than-anticipated growth in the US Retail Sales data for November.

Silver price (XAG/USD) refreshes a two-week low near $30.20 in the North American session on Tuesday. The white metal faces selling pressure as bond yields extend its winning streak for the seventh trading day and climbs above 4.40%.

Higher yields on interest-bearing weigh on non-yielding assets, such as Silver, given that they result in elevated opportunity costs for them.

US Treasury yields have performed strongly ahead of the Federal Reserve’s (Fed) policy decision on Wednesday. The Fed is expected to cut interest rates by 25 basis points (bps) to 4.25%-4.50% but will choose “hawkish” guidance for the interest rate path for 2025.

Analysts at Macquarie said in a note that 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.”

Meanwhile, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, gives up intraday gains and turns flat slightly below 107.00. The US Dollar (USD) surrenders gains even though the United States (US) monthly Retail Sales data for November beats estimates. The Retail Sales data, a key measure of consumer spending, rose by 0.7%, faster than estimates and the former release of 0.5%.

Silver technical analysis

Silver price posts a fresh two-week low near $30.20 on Tuesday. The white metal weakens after breaking below the 20-day Exponential Moving Average (EMA), which trades around $31.00.

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

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

Silver daily chart

• GBP/USD advances slightly by 0.15% following positive US Retail Sales.
• Technical indicators suggest potential challenges; a 'death cross' looms as the 50-day SMA approaches the 200-day SMA.
• Resistance noted at the December 12 high of 1.2787; support levels are at 1.2608 and potentially lower towards 1.2299 YTD low.

The GBP/USD advances modestly by some 0.15% following the release of solid US Retail Sales data, which put a lid on the pair’s advance. UK labor market data delivered during the European session was mixed, with the economy adding 173K jobs to the workforce in October, ahead of the release of the UK Autumn budget. At the time of writing, the pair trades at 1.2702.

GBP/USD Price Forecast: Technical outlook

The GBP/USD daily chart suggests the pair is neutral to downward biased, yet in the near term, it is skewed to the upside. Buyers need to clear decisively the 1.2700 mark.

Momentum remains bearish, with the Relative Strength Index (RSI) trending up below its neutral line. This and the imminent ‘death cross’ in the GBP/USD with the 50-day Simple Moving Average (SMA) about to cross below the 200-day SMA could pave the way for further losses.

That said, if GBP/USD fails to finish Tuesday’s session above 1.2700, it could expose the current week’s low of 1.2608. If surpassed, sellers could drive prices to 1.2486 on November 22, followed by the May 9 low of 1.2445. On further weakness, the year-to-date (YTD) low would be up for grabs at 1.2299.

Conversely, if GBP/USD edges up and clears the December 12 peak of 1.2787, it will expose the confluence of the 200-day SMA and 50-day SMA at around 1.2817/1.2822.

GBP/USD Price Chart – Daily

USD/SGD continued to trade near recent highs. The pair was last at 1.3504, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Consolidation likely near term

“Mild bearish momentum on daily chart faded but rise in RSI shows signs of fading. Consolidation likely. Immediate resistance here at 1.3520 levels (triple top). 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. S$NEER was last at 0.83% above model implied mid.”

The Euro (EUR) continues to hold steady at around 1.0500 against the US Dollar (USD) despite increasing political uncertainty in Germany, France and a Moody’s rating downgrade on French credit on Friday, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Risks modestly skewed to the upside

“German Chancellor Scholz loses confidence vote and this paves the way for snap elections on 23 Feb 2025.”

“Mild bullish momentum on daily chart is intact while RSI rose. Risks are modestly skewed to the upside. Resistance here at 1.0540 (23.6% fibo retracement of Oct high to Nov low), 1.0610 and 1.0670/80 levels (38.2% fibo, 50DMA). Support at 1.0460, 1.0410 levels.”

• USD/CAD holds gains near 1.4280 as soft Canadian inflation data has boosted the need for more BoC interest rate cuts.
• Annual headline CPI rose at a slower pace of 1.9% in November. In the month, it remained flat.
• US Retail Sales grew sharply by 0.7%. Investors await the key Fed policy meeting.

The USD/CAD pair remains firm near 1.4280 in Tuesday’s North American session after the release of the Canadian inflation and the United States (US) monthly Retail Sales data for November.

The cooler-than-expected November Canadian inflation report has cemented expectations of further policy easing by the Bank of Canada (BoC) in 2025.

The inflation report showed that the headline Consumer Price Index (CPI) rose by 1.9%, slower than estimates and the prior release of 2%. Month-on-month headline inflation remained flat, as expected. In October, the monthly headline CPI rose by 0.4%.

BoC’s preferred core CPI measure -which excludes eight volatile items – decelerated to 1.6% from 1.7% in October. On month, the BoC preferred inflation measure deflated by 0.1%.

Meanwhile, the US Dollar (USD) ticks higher after the release of the better-than-projected US Retail Sales data. Retail Sales, a key measure of consumer spending rose by 0.7%, faster than estimates and the prior release of 0.5%.

Going forward, the major event for the US Dollar will be the Federal Reserve’s (Fed) interest rate meeting on Wednesday. The Fed is widely anticipated to cut interest rates by 25 basis points (bps) to 4.25%- 4.50%, its third cut in a row.

Investors will pay close attention to comments by Fed Chair Jerome Powell to determine whether the central bank will temporarily pause the policy-easing process at the start of 2025. According to the CME FedWatch tool, there is an almost 80% chance that the Fed will leave interest rates unchanged at 4.25%- 4.50% in the policy meeting in January.

• Annual CPI inflation in Canada edged lower to 1.9% in November.
• USD/CAD trades in positive territory above 1.4250 after the data.

Inflation in Canada, as measured by the change in the Consumer Price Index (CPI), declined to 1.9% on a yearly basis in November, Statistics Canada reported on Tuesday. This reading came in below the market expectation of 2%.

On a monthly basis, the CPI was unchanged as expected, following the 0.4% increase recorded in October.

Additionally, the Bank of Canada's monthly core CPI decreased 0.1%, bringing the annual core CPI inflation rate down to 1.6% from 1.7% in October.

Market reaction

USD/CAD edged slightly lower from the multi-year high it set near 1.4300 earlier in the day. At the time of press, the pair was trading at 1.4278, rising 0.25% on the day.

• Retail Sales in the US rose at a stronger pace than expected in November.
• US Dollar Index stays in daily range near 107.00.

Retail Sales in the US rose 0.7% to $724.6 billion in November, the US Census Bureau reported on Tuesday. This reading followed the 0.4% increase recorded in October and came in better than the market expectation for an increase of 0.5%.

Retail Sales ex Autos increased 0.2% in the same period, falling short of the market expectation of 0.4%.

"Total sales for the September 2024 through November 2024 period were up 2.9%, from the same period a year ago,"  the press release read. "The September 2024 to October 2024 percent change was revised from up 0.4 percent to up 0.5 percent."

Market reaction

This report failed to trigger a noticeable market reaction. At the time of press, the US Dollar Index was up 0.05% on the day at 106.90.

• USD/CHF refreshes a five-month high of around 0.8970 as the US Dollar performs strongly, with the Fed policy in focus.
• The Fed is expected to cut interest rates by 25 bps to 4.25%-4.50%.
• Investors expect the SNB to cut interest rates further as risks of inflation undershooting SNB’s target have escalated.

The USD/CHF pair stretches its winning spell for the eighth trading day on Tuesday. The Swiss Franc pair posts a fresh five-month high around 0.8970 as the Swiss Franc (CHF) remains weak across the board on expectations that the Swiss National Bank (SNB) could continue loosening its monetary policy to avoid risks of inflation undershooting the central bank’s target.

Last week, the SNB surprisingly reduced interest rates by 50 basis points (bps) to 0.5%, while investors expected a 25-bps interest rate reduction.

This week, investors will focus on the Q4 SNB Bulletin report, which includes the ‘Monetary policy report’ and the report on ‘Business cycle trends’.

Meanwhile, the outperformance of the US Dollar (USD) has also strengthened the Swiss Franc pair. The US Dollar Index (DXY) climbs to near 107.00 ahead of the Federal Reserve’s (Fed) interest rate decision, which will be announced on Wednesday. According to the Bloomberg survey, the Fed will cut its key borrowing rates by 25 basis points (bps) to 4.25%-4.50% but will deliver slightly hawkish remarks on the monetary policy outlook.

USD/CHF appears confident to deliver a decisive break above the supply zone, which is plotted in a range of 0.8925-0.8950 on a daily timeframe. The upward-sloping 20-day Exponential Moving Average (EMA) near 0.8856 suggests that the trend is bullish.

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

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

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

USD/CHF daily chart

• 
  The Dollar rallies to fresh four-year highs against a weak Canadian Dollar.
• 
  Strong US economic data and the political crisis in Canada have hammered the CAD.
• Monetary divergence between the Fed and the BoC provides additional support to the US Dollar.

 

The US Dollar keeps appreciating against the Canadian Dollar and trades right below 1.4300 for the first time in four years. Concerns about the negative impact of US tariffs on Canadian products and a political crisis in Canada are crushing the Canadian Dollar.

Canada’s finance minister, Chrystia Freeland, resigned on Monday due to disagreements with the prime minister over Trump’s tariffs threats. This has brought Trudeau’s unpopular government to the brink and increased bearish pressure on the loonie.

In the US the preliminary PMI figures released on Monday revealed that the services sector’s activity expanded at its fastest pace in three years, confirming that the economy keeps growing at a healthy pace.

Later today, the US Retail sales are expected to confirm this view, with a 0.5% monthly rise after a 0.4% increase in October. Excluding vehicles, sales of all other products are expected to have accelerated at a 0.4% pace in November from 0.1% in October.

Monetary policy divergence between the Fed and the BoC weighs in the CAD

These strong figures have not challenged the view that the Fed will cut rates by 25 basis points on Wednesday but they have raised concerns about a hawkishly tilted statement, pointing to a shallow easing cycle in 2025.

The Bank of Canada, on the other hand, slashed interest rates by 50 bps last week. This is the second consecutive such move and the Bank has hinted towards further easing.

BoC’s Governor Macklem confirmed that theory on Monday and added weigh on an already weak loonie, warning that the below forecast economic growth will keep inflation subdued.

 

The Euro (EUR) is a little softer but is holding recent trading ranges against the USD, Scotiabank’s Chief FX Strategist Shaun Osborne notes.  

EUR soft but holds range

“Germany’s IFO and ZEW surveys were released earlier. The Ifo survey reflected weaker business confidence this month at 84.7, down from 85.6, with activity in the manufacturing and service sectors deteriorating.”

“The ZEW survey of investor confidence reflected a jump in expectations, perhaps reflecting hopes that the recent unsettled political backdrop will be resolved by new elections in February. Wider 2Y EZ/US spreads (-222bps for 2Y cash bonds) are keeping the EUR tone defensive.

“The EUR has yielded minor gains through the low 1.05 area made late yesterday very easily. Spot remains within the recent trading range, but the EUR’s undertone remains soft and trend oscillators are aligned bearishly across the short-, medium– and long-term oscillators. This will tend to limit the EUR’s ability to rally (to the low/mid 1.05s) and maintain focus on testing support (1.0450).”

The Canadian Dollar (CAD) is softer again—which is no great surprise given the flow of news from Ottawa in the past 24 hours. Freeland’s shock departure from Finance and the tone of her resignation letter leaves a dense cloud of political uncertainty hanging over government. The fall economic update made for poor reading, Scotiabank’s Chief FX Strategist Shaun Osborne notes.  

CAD extends losses

“The government blew through its fiscal barriers in the last FY (CAD62bn versus the pledge to keep it below CAD40.1bn) and will run a bigger than expected deficit this year. The government announced more spending on border security, extended tax breaks on business investment and announced plans which would allow it to restrict imports and exports as it prepares for Trump 2.0.”

“This morning’s Canadian CPI data is largely moot—the Bank of Canada’s rate cut last week and signal that it will slow the pace of easing takes the onus off the data to shape the outlook for policy. In comments yesterday, BoC Governor Macklem reiterated that the threat of tariffs clouded the outlook and said the Bank would likely look at whether it was measuring inflation properly and whether the 2% inflation target was still appropriate in the forthcoming review of its inflation-targeting framework.”

“The USD has edged off the overnight high in European trade which may pave the way for some short-term consolidation in the funds in our session. The CAD retains a weak undertone, however, and the scope for gains is limited - perhaps only to the low/mid-1.42s for now. Resistance is 1.4350.”

The US Dollar (USD) slipped in quiet trade overnight. US data was mixed as prelim manufacturing PMI and services PMI continued to diverge. DXY was last at 106.97 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Head and shoulders pattern remains intact

“Data focus this week on retail sales, IP (Tue); housing starts, building permits (Wed); GDP, existing home sales (Thu); core PCE, personal spending, income, Kansas City Fed manufacturing index (Fri). The bigger focus is on FOMC meeting this Thu (3am SGT).”

“A 25bp cut is more or less a done deal but the focus is on the refreshed dot plot, which will provide guidance on Fed members’ expectation on rate cut trajectory into 2025 - 26. The previous dot plot back in Sep guided for 4 cuts and markets are now pricing in about 2 cuts for 2025. This risk is the dot plot showing fewer than 2 would be interpreted as hawkish and USD can strengthen on that.”

“Daily momentum is flat while RSI fell. Head and shoulders (H&S) pattern remains intact with DXY rejecting the second shoulder. We continue to watch price action. A play-out of the H&S pattern 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).”

• The US Dollar edges higher after US preliminary Services PMI data suggested the economy remained strong, boosting the Greenback.
• Traders gear up for US Retail Sales data as traders increasingly expect the Fed to reduce or pause its interest-rate-cutting cycle in 2025.
• The US Dollar Index (DXY) orbits around 107.00 and tries to move higher. 

The US Dollar (USD) trades in positive territory against most major peers in the G20 space on Tuesday, with the DXY Index holding above the 107.00 level. The Greenback is back in the graces of investors after the preliminary US Purchasing Managers Index (PMI) release for December showed that the economy expanded at the steepest pace in 33 months driven by the services sector.  Meanwhile, the Federal Reserve is set to cut its policy rate on Wednesday by 25 basis points – offering a small goldilocks scenario for this week – but increasing expectations that the Fed will slow down its rate-cutting cycle in 2025 keep the USD supported. 

In Europe, German Chancellor Olaf Scholz lost its vote of confidence on Monday and snap elections are set for February 23. Political instability in Germany, together with the recent woes in France,  is resulting in a weaker Euro (EUR), which accounts for 57.6% of weight in the US Dollar Index (DXY). 

The highlight of Tuesday’s US economic calendar is the US Retail Sales data. November and December are seasonally very retail-sensitive months due to festive holidays such as Thanksgiving and Christmas. Should Retail Sales flourish, that points to healthy consumer spending and growing activity. 

Daily digest market movers: Focus on Retail Sales

• Near 13:30 GMT, the November Retail Sales are due:
  • The monthly Retail Sales growth is expected to jump to 0.5% from 0.4%.
  • Retail Sales excluding Cars and Transportation is expected to tick up to 0.4%  from 0.1% the previous month. 
  • Any revisions to the previous month’s data could be more market moving than the actual reading. 
• Around 14:15 GMT,  Industrial Production for November is due. The expectation is for output to expand by 0.3%, swinging from the previous 0.3% contraction. 
• The National Association of Home Builders (NAHB) will release its Housing Market Index for December at 15:00 GMT. The expectation is for a tick up to 47 from 46 a month earlier.
• Equities are off to a poor start on Tuesday with Asian and European indices on the back foot. US futures are showing signs of fatigue as well and are down by less than 0.50%.
• The CME FedWatch Tool is pricing in another 25 basis points (bps) rate cut by the Fed at Wednesday’s meeting by 95.4%. 
• The US 10-year benchmark rate trades at 4.42%, a fresh three-week high. 

US Dollar Index Technical Analysis: Yields going for the kill

The US Dollar Index (DXY) is ticking back up to 107.00 while under the hood of the engine, the bond complex is being torn apart. While investors are selling US bonds – which is triggering a spike in yields – the Federal Reserve is set to cut rates by 25 basis points on Wednesday. Markets are doing their own homework and are already factoring in the effect from Donald Trump’s policies, which could lead the Fed to hold rates or even hike them again in order to keep the economic boost and boom under control. 

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

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

US Dollar Index: Daily Chart

The US Dollar retains a firm undertone. All eyes are on the Fed decision tomorrow because there is not much in terms of fresh news driving the USD forward on the session, Scotiabank’s Chief FX Strategist Shaun Osborne notes.  

Focus on the Fed on Wednesday

“Markets have eyes on the Fed decision tomorrow and there is not much in terms of fresh news driving the USD forward on the session. US equity futures are a little softer while US Treasury yields continue to grind higher, with the 10Y yield reaching 4.42%, the highest in a little over three weeks. Higher yields and widening spreads are supportive of the broadly firmer tone in the USD.”

“So far today, the JPY and GBP are minor outperformers, however, while commodity FX is underperforming again. Bloomberg’s Asia dollar index, measuring the performance of the main regional currencies against the USD, dropped to a two-year low today and is heading for its worst quarterly performance in more than two years. Tariff concerns are weighing on the CNY’s performance while domestic political developments have undercut the KRW.”

“Asian regional currency softness is spilling over onto the AUD and NZD to some extent. The US reports Retail Sales (expected to rise 0.6%) and Industrial Production (0.3%) in November. A solid rise in retail activity is liable to bolster US yields and extend the USD a little more support.”

• The Mexican peso eases from the key 20.00 area amid US Dollar strength ahead of the Fed decision.
• Strong US data has boosted speculation that the Fed will adopt a hawkish stance after cutting rates on Wednesday.
• From a wider perspective, USD/MXN is on a bearish trend but needs an extra boost to breach the 20.00 level.

The Mexican Peso (MXN) is trading rangebound on Tuesday, at a short distance of the key 20.00 level against the US Dollar (USD). Investors are bidding their time ahead of key monetary policy decisions by the Federal Reserve (Fed) and the Bank of Mexico (Banxico) this week.

US preliminary S&P Global Purchasing Managers Index (PMI) data released on Monday revealed an unexpected improvement in services activity in December, and the market is bracing for a strong consumption reading for November later today. 

These figures support the rhetoric of the US economic exceptionalism and bolster the case for very gradual Fed interest rate cuts next year. This sentiment keeps investors’ appetite for risk in check, boosting the US Treasury yields and buoying the US Dollar across the board.

In Mexico, retail consumption is expected to have picked up in October, still at levels well below last year in the same month. Consumer inflation and industrial output data disappointed last week, bolstering the case for a 25 basis points (bps) rate cut by Banxico on Thursday.  

Daily digest market movers: US Dollar resumes gains with all eyes on the Fed

• The US Dollar Index (DXY) trades higher on Tuesday, approaching multi-week highs amid higher US Treasury yields and market expectations of a “hawkish cut” by the Fed on Wednesday.
   
• US Treasury yields keep marching higher. The Benchmark 10-year yield has breached the 4.40% level in a 7-day rally after bouncing at 4.13% early last week.
   
• The US preliminary Services PMI jumped to 58.5 in December, its best performance in more than three years, from 56.1 in November, against expectations of a moderate slowdown to 55.7.
   
• US preliminary Manufacturing PMI contracted to 48.3 from 49.7 in November, but the composite data points to healthy economic growth in the last quarter of the year.
   
• Later today, US Retail Sales are expected to have increased by 0.5% in November, up from 0.4% in the previous month. Excluding autos, consumption is seen accelerating at a 0.4% pace from 0.1% in the previous month.
   
• The CME FedWatch tool shows a 25 bps interest rate cut by the Fed on Wednesday is almost fully priced in, and the market expects one or two more such cuts next year.
   
• In Mexico, Retail Sales are expected to have increased by 0.2% in October, up from 0.1% in September.  However, compared to October last year, they are expected to decrease by 1.6%.
   
• The Bank of Mexico is expected to lower interest rates by 25 basis points on Thursday, to a 10.00% rate, amid growing concerns that the increasing tariffs in the US will hit the Mexican economy. 

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 20.80, but the 20.00 psychological level keeps holding downside attempts. The pair has been consolidating between the mentioned 20.00 support and 20.30 for the last seven trading days.

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/MXN 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 are heading lower for a second day in a row ahead of the API release. 
• Pemex reports that all of its Oil platforms and export terminals in the Gulf are back to operational after closing due to bad weather. 
• The US Dollar Index trades around 107.00, up against most major peers. 

Crude Oil declines further on Tuesday, slipping below $70.00, after news that Pemex – the Mexican state-owned Oil producer – has fully resumed operations in all its platforms in the Gulf region. The news comes with the end of the annual hurricane season and improving weather conditions, which means more supply is set to come online.  

The US Dollar Index (DXY) – which measures the performance of the US Dollar (USD) against a basket of currencies – is up against nearly every major currency this Tuesday. The move is still being fueled by the preliminary US Purchasing Managers Index (PMI) release for December, which showed that the economy expanded at the steepest pace in 33 months driven by the services sector. Meanwhile, traders brace for the Retail Sales release on Tuesday and the Federal Reserve rate decision on Wednesday. 

At the time of writing, Crude Oil (WTI) trades at $69.65 and Brent Crude at $73.05.

Oil news and market movers: More supply reported to come online

• Pemex’s Oil platforms and all crude-exporting terminals are operating normally after weather conditions improved in the Gulf of Mexico, according to a statement from the group, Bloomberg reports.
• The EU has imposed sanctions on Dutch national Niels Troost. Troost allegedly was involved in trading Russian Oil above the price cap set by Western countries in response to Moscow’s full-scale invasion of Ukraine, the FT reports.
• Around 21:30 GMT, the American Petroleum Institute (API) will release its weekly Crude Stock Pile numbers for the week of December 13. Last week, there was a build of 0.499 million barrels. 

Oil Technical Analysis: Caught between two lines

Crude Oil prices are softening on Tuesday, with possibly the peak of last week at $70.96 as the high for now. There isa rather steady bandwidth visible on the charts, with $67.00 as lower band and $71.50 as upper band, and this range looks set to extend into January 2025.

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

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

US WTI Crude Oil: Daily Chart

• The Dollar corrects lower after a six-day rally.
• The widening gap between US and Japanese Treasury yields is likely to keep US downside attempts limited.
• US Retail Sales data, due later today might provide an additional boost to the Dollar.

The US Dollar retreated slightly on Tuesday, after a nearly 3% appreciation in a six-day rally. The current reversal looks like a corrective reaction, which will probably be a mild one considering the US Treasury yield’s rally.

The benchmark US 10-year yield is appreciating for the seventh consecutive day to reach levels past 4.40%. The widening gap between the US and the Japanese bond yields is likely to act as a headwind for Yen’s recovery.

Strong US data is supporting the USD

US macroeconomic data points out a strong growth in the fourth quarter. Investors remain confident that the Fed will cut rates in December although the bank might highlight the storing economic momentum and the higher inflation to adopt a more hawkish forward guidance.

The Bank of Japan, on the contrary, is expected to keep rates on hold on Thursday, after having hinted at a 25 bps cut until last week. Some dovish comments by BoJ officials suggest that the bank might wait till January to assess the implications of Trump´s policies in the US.

In the calendar today, US Retail Sales are expected to show a buoyant consumption. This, coupled with the strong services activity figures released this week, are likely to keep US Dollar downside attempts limited, at least until the outcome of the Fed meeting.

 

• AUD/USD falls sharply to near 0.6340 amid a cautious market mood ahead of the Fed’s policy announcement.
• The Fed is expected to signal fewer interest rate cuts for 2025.
• Souring consumer sentiment in Australia has boosted RBA dovish bets for the February meeting.

The AUD/USD pair tumbles to near the annual low around 0.6340 in the European session on Tuesday. The Aussie pair weakens as the US Dollar (USD) moves higher amid firm expectations that the Federal Reserve (Fed) could signal a more gradual policy-easing approach in its policy meeting on Wednesday after reducing interest rates by 25 basis points (bps) to 4.25%-4.50%.

According to the CME FedWatch tool, traders have priced in a 25-bps interest rate reduction on Wednesday but are leaning toward a pause in the policy-easing spell in January 2025. The tool shows that the Fed is 80% likely to leave interest rates unchanged in next month’s policy meeting.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, climbs above 107.00. Market sentiment remains risk-averse as S&P500 futures are significantly down in European trading hours. 10-year US Treasury yields climb to near 4.42%.

In Thursday’s session, investors will focus on the monthly Retail Sales data for November, which will be published at 13:30 GMT. The Retail Sales data is estimated to have grown at a faster pace of 0.5% from the former reading of 0.4%.

Meanwhile, the Australian Dollar (AUD) performs weakly across the board amid a dismal market mood and growing speculation that the Reserve Bank of Australia (RBA) could start reducing its key Official Cash Rate (OCR) from the February meeting.

A 2% decline in Australia’s Westpac Consumer Confidence in December compared to a 5.3% increase in November has raised concerns over the economic outlook. Rising concerns over China’s growth due to incoming tariffs from US President-elect Donald Trump have also weighed on the AUD, given that Australia is China's leading trading partner.

USD/CAD broke out from a large consolidation (above 1.3970) resulting in extension of uptrend, Societe Generale’s FX analysts note.

Upward move is a bit stretched

“Daily MACD is registering multi-month highs; this highlights the move is a bit stretched. However, signals of pullback are not yet visible.”

“Next potential objectives are located at 1.4385, the upper limit of a steep channel and projection near 1.4480. Defense of channel lower limit at 1.4110 is crucial for averting short-term decline.”

The Riksbank did frontloading in November by cutting the key interest rate by 50 basis points from 3.25% to 2.75%, while signaling that more could come. The policy rate may also be cut in December and during the first half of 2025, in line with what was communicated in September, Commerzbank’s FX analyst Antje Praefcke notes.  

SEK's upside potential is limited given the Riksbank's dovish stance

“The Riksbank will publish the new Monetary Policy Report with the new forecasts and the interest rate path on Thursday at its interest rate meeting. The question is how it assesses the further outlook for inflation and growth, and how far it is still willing to lower the policy rate. Currently, the market expects a terminal rate of 2%.”

“The Riksbank now sees the risk that inflation could fall to too low levels due to weak growth. It wants to counteract this by lowering interest rates. Although the latest indicators show that there are initial signs of a recovery, the coming year is likely to be rather difficult given the weak growth in the euro zone. This suggests that the Riksbank will stick to its cutting cycle for the time being and continue to sound dovish in order to avoid a prolonged undershooting of inflation. If in doubt, the Riksbank will cut even further below the currently expected terminal rate of 2%.”

“If the Riksbank signals a lower terminal rate than before on Thursday, underpinned by weaker growth and lower inflation forecasts, the SEK could come under renewed short-term downward pressure. However, since the market already perceives the Riksbank as dovish, the impact is likely to be limited and ultimately neutral for the SEK. Nevertheless, the SEK's upside potential is equally limited given the Riksbank's dovish stance. Especially with the new US president-elect Trump taking office and the risk of high tariffs being introduced, market uncertainty will remain elevated, which could remain an underlying burden for the SEK.”

• Gold fails at $2,665 and resumes its near-term bearish trend as the US Dollar picks up.
• Investors’ concerns about a “hawkish cut” by the Fed on Wednesday are buoying US Treasury yields.
• XAU/USD remains under pressure, approaching support at the $2,630 area.

Gold’s (XAU/USD) upside attempts have been short-lived. The precious metal retreats further on Tuesday’s European session, weighed by rallying US Treasury yields and a strong US Dollar (USD).

The stronger-than-expected US preliminary S&P Global Purchasing Managers Index (PMI) figures seen on Monday confirm the view of steady US growth in the fourth quarter and point to a gradual Federal Reserve (Fed) easing in 2025.

Later today, US Retail Sales are expected to show that consumption remained buoyant in November. In this context, investors are still confident that the Fed will cut rates on Wednesday but anticipate a hawkish forward guidance. This is boosting US Treasury yields and weighing on Gold.

Daily digest market movers: Gold suffers on hopes of a hawkish Fed 

• Gold continues to lose ground as interest in the Middle East conflict recedes, at least for the moment. The focus now shifts to the US Federal Reserve, which starts its two-day monetary policy meeting today.
   
• Futures markets are almost fully pricing a 25 bps interest rate cut on Wednesday, according to the CME Group’s FedWatch Tool, but less than a 30% chance of more than two quarter-percentage cuts in 2025.
   
• US data from Monday revealed that business activity in the services sector expanded faster than expected in December, suggesting that the economy has remained growing at a healthy rate in the fourth quarter.
   
• Later today, US Retail Sales are expected to show a 0.5% growth in November, up from 0.4% the previous month. This suggests that consumption, which accounts for 65% of the Gross Domestic Product (GDP), will post a positive contribution in Q4.

Technical analysis: XAU/USD is under pressure with $2,630 support on focus

Gold keeps heading south after rejection at the $2,720 resistance area last week. A potential double top at the abovementioned level and the bearish engulfing candle last Thursday are keeping sellers hopeful.

The negative candle on the 4-hour chart suggests an increasing bearish momentum. The pair might find some support in the $2,630 area (December 9 low), although the key downside target is the November 25, 26, and December 6 lows at around $2,610.

On the other side, resistances are Monday’s high at $2,665 and Friday’s intra-day level at $2,690.
 

XAU/USD 4-Hour Chart

UK labour statistics published this morning are generally quite hawkish for Bank of England expectations, and are leading to a stronger Pound Sterling (GBP), ING’s FX analyst Francesco Pesole notes.

Hot wage data to keep EUR/GBP pressured

“Headline 3M/3M employment slowed only modestly to 173k in October, against expectations for only 5k. That is, however, an unrealiable measure and may be ignored. The same is true for the unemployment rate, which remained at 4.3%.”

What is really important for the Bank of England is the surprise acceleration in wages. Both headline weekly earnings and the ex-bonus measure accelerated again above 5.0%. Crucially, this acceleration is all concentrated in the private sector (where wages grew 12% on a month-on-month annualised basis), where pay trends are more intrinsically linked to wider economic trends.”

“There are still indications that the jobs market market is cooling – e.g., lower vacancies than pre-Covid – but clearly today’s data is offering a reason for hawks to get louder in the MPC. Ultimately, there is a compelling case for EUR/GBP to stay below 0.830 in the near term, with risks still skewed to the downside as the BoE will highly likely stay on hold this week, highlighting the striking policy divergence with a dovish ECB.”

• Germany’s ZEW Economic Sentiment Index jumped to 15.7 in December.
• EUR/USD holds losses below 1.0500 after German and Eurozone ZEW surveys.

The headline German ZEW Economic Sentiment Index rebounded to 15.7 in December from 7.4 in November, beating the market forecast of 6.2.

The Current Situation Index dropped to -93.1  in the final month of the year, as against November’s -91.4 readout. Data missed the expected -92.6 reading.

The Eurozone ZEW Economic Sentiment Index came in at 17.0 in December versus 11.6 in November. The market consensus was 12.2.

Key points

Market reaction

The EUR/USD pair remains unperturbed by the mixed German and Eurozone ZEW surveys. The pair is losing 0.22% on the day to trade near 1.0487, at the press time.

The Norwegian Central Bank won’t bring forward its first interest rate cut from March to January at its meeting on Thursday. In November, it did not even hint at an early rate cut, but postponed the decision on this until December when more information and data was available, Commerzbank’s FX analyst Antje Praefcke notes.

Norges Bank unlikely to start the rate-cutting cycle before March

"The Committee is concerned with the possibility that if the policy rate is lowered prematurely, inflation could remain above target for too long. On the other hand, an overly tight monetary policy could contract the economy more than needed. When we set the policy rate, we have to balance these trade-offs. The economic outlook is uncertain. The Committee will have received more information about economic developments ahead of its next monetary policy meeting in December, when new policy rate forecasts will be presented."

“The disinflation process seems to be slowing. The firms expect a slight upturn in activity in the winter and first quarter of 2025, except in the construction and retail sectors. The proportion of companies complaining of full capacity utilization and problems recruiting staff is unchanged. They have also revised their expectations for wage growth upwards from 4.3% to 4.5% for 2025. The krone had appreciated in the meantime since the last interest rate meeting, but is now trading again at similar levels we saw back then.”

“What does Norges Bank make out of this mix for its forecasts and the interest rate path on Thursday? I think it will announce in the statement that the next rate step will be down. But I don't think the data is sufficient for Norges Bank to move immediately from “neutral” to a rate cut in January. Given the rather positive outlook for economic activity, employment and wage growth, as well as the recent inflation trend, Norges Bank is unlikely to start the rate-cutting cycle before March."

• Silver price refreshes a two-week low near $32.30 as bond yields continue their upside momentum ahead of the Fed’s policy.
• The Fed is expected to cut interest rates by 25 bps to 4.25%-4.50% on Wednesday.
• Investors expect the Fed to deliver slightly hawkish remarks on the interest rate outlook.

Silver price (XAG/USD) slumps to near $30.30 in Tuesday’s European session. The white metal weakens as bond yields stay firm on expectations that the Federal Reserve (Fed) will signal fewer interest rate reductions in 2025 after reducing key borrowing rates by 25 basis points (bps) to 4.25%-4.50% in the monetary policy meeting on Wednesday.

10-year US Treasury yields extend their winning streak for the seventh trading day on Tuesday, rises to near 4.42%. Higher yields on interest-bearing assets bode poorly for non-yielding assets such as Silver as they increase their opportunity cost. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, moves higher around 107.00.

According to a Bloomberg survey, the Fed is expected to cut interest rates three times in 2025. Fed’s policy-easing cycle would be more gradual as economists worry about rising upside risks to inflation than downside risks to employment.

Investors will pay close attention to Fed Chair Jerome Powell’s press conference to get cues about to what extent policies by incoming US President Donald Trump, such as immigration, trade and taxes, will influence inflationary pressures and interest rates.

Silver technical analysis

Silver price refreshes a two-week low near $30.30 on Tuesday. The white metal weakens after breaking below the 20-day Exponential Moving Average (EMA), which trades around $31.00.

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

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

Silver daily chart

On December 27, the US statistical office will publish a figure that is unlikely to attract much public interest: the net foreign debt of the United States. Yet the development of the US external debt is ultimately crucial to how long the current US dollar strength can last, Commerzbank’s Head of FX and Commodity Research Ulrich Leuchtmann notes.

High risk that earnings outlook is not set to improve

“Meanwhile, foreigners are achieving much higher returns on their investments in the US than Americans on their investments in the rest of the world. This is the main reason why US liabilities are now growing significantly faster than US claims.”

“I show that it follows that because US companies are to a significant extent owned by foreigners, a business-friendly US policy increases the US debt to the rest of the world, regardless of whether the US continues to import more goods than it exports or not.”

“The only way to justify the current USD valuation in the medium term is if the earnings outlook for capital invested in the US continues to improve – not just if the current earnings outlook is confirmed. I believe there is a high risk that the earnings outlook will not continue to improve. If that is the case, the dollar will have to weaken.”

Silver prices (XAG/USD) fell on Tuesday, according to FXStreet data. Silver trades at $30.28 per troy ounce, down 0.81% from the $30.52 it cost on Monday.

Silver prices have increased by 27.24% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 87.35 on Tuesday, up from 86.91 on Monday.

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

• EUR/JPY retreats after hitting a four-week-high of 162.47 on Tuesday.
• The German IFO Business Climate came in at 84.7 in December, down from November’s 85.6 reading.
• The JPY may struggle due to increased chances of the BoJ holding off on a rate hike on Thursday.

EUR/JPY halts its two days of gains, pulling back from a four-week high of 162.47, which was marked on Tuesday. The downside of the EUR/JPY cross is bolstered by the release of mixed German data from the CESifo Group, trading around 161.30 during the European hours.

The headline German IFO Business Climate Index declined to 84.7 in December, from the previous reading of 85.6. Meanwhile, the Current Economic Assessment Index improved to 85.1 from 84.3 in November, surpassing the estimated 84.0. However, the Expectations Index, reflecting firms' outlook for the next six months, dropped sharply to 84.4 in December compared to 87.0 in November.

The Euro faces challenges following the dovish remarks from ECB President Christine Lagarde on Monday. 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.

Moreover, data showed on Monday that Eurozone PMI figures exceeded expectations in December; however, Services PMI surveys remain in contraction territory amid growing concerns about a deepening economic slowdown in Europe, which continues to weigh on investor and business sentiment. Traders are expected to focus on

However, the downside of the EUR/JPY cross would be limited as the Japanese Yen (JPY) may depreciate due to the rising likelihood that the Bank of Japan (BoJ) may avoid an interest rate hike on Thursday.

The markets are currently pricing in less than a 30% chance of a BoJ’s rate hike in December. Several Bank of Japan (BoJ) policymakers seem in no hurry to tighten monetary policy further, given the minimal risk of inflation overshooting despite Japan's persistently near-zero borrowing costs.

Reports suggested the central bank sees "little cost" in delaying further tightening, preferring to wait for more evidence of wage growth before implementing additional policy adjustments. Japan's economy minister, Ryosei Akazawa, reaffirmed that the Bank of Japan and the government will collaborate on appropriate monetary policies.

European Central Bank (ECB) policymaker Olli Rehn said on Tuesday that “the direction of our monetary policy is clear.”

Additional quotes

Oil demand concerns from China continue following the recent release of poor economic data. Reports that the European Union sanctioned 52 additional tankers largely shipping Russian crude offered some support for prices, ING’s commodity analysts Ewa Manthey and Warren Patterson note.

EU sanctions 52 additional tankers shipping Russian crude

“Oil prices are trading little changed this morning as demand concerns from China continue following the recent release of poor economic data.”

“ICE Brent was seen trading near US$74/bbl while NYMEX WTI was hovering just below US$71/bbl today. Meanwhile, reports that the European Union sanctioned 52 additional tankers largely shipping Russian crude offered some support for prices.”

Canada has been shaken by the resignation of finance minister Chrystia Freeland due to divergences with PM Justin Trudeau on how to deal with the threat of Trump tariffs. Trudeau has nominated Dominic LeBlanc as a replacement. He was part of the Canadian delegation that visited Mar-a-Lago last month given his latest responsibility for border security, ING’s FX analyst Francesco Pesole notes.

Outlook for next year remains gloomy for CAD

|Turmoil in Canadian politics is adding a reason the bearish side of the loonie, which remains heavily affected by the prospects of North America trade tensions. Should this lead to a collapse of Trudeau’s government and snap elections, expect the anti-tariffs policy to be the key theme of the campaign.”

“Still, now that the news of Freeland's resignation has been absorbed, we are not convinced USD/CAD needs to accelerate much further on the upside unless the Fed surprises markedly on the hawkish side. Both technical and seasonal factors point to the rally being stretched at this point – and we think it could stall after passing 1.430.”

“That said, the outlook for next year remains gloomy for CAD, and chances of a shift to 1.45+ are tangible if Trump goes ahead with 25% tariffs on Canada.”

• EUR/USD falls below 1.0500 as the US Dollar stays broadly firm on expectations that the Fed will cut interest rates but deliver hawkish guidance for 2025.
• ECB officials see the continuation of the gradual policy-easing cycle as appropriate.
• The collapse of German Scholz’s government has paved the way for general elections on February 23.

EUR/USD slides below the psychological resistance of 1.0500 on Tuesday. The major currency pair remains fragile as the US Dollar (USD) ticks higher on expectations that the Federal Reserve (Fed) will adopt a slightly hawkish stance after reducing its key borrowing rates by 25 basis points (bps) to 4.25%-4.50% on Wednesday.

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

According to the CME FedWatch tool, traders have priced in a 25 bps interest rate reduction for Wednesday's policy meeting. The data also shows that the Fed is expected to leave interest rates unchanged in the January meeting.

Analysts at Macquarie said that the Fed’s stance could turn “slightly hawkish” from “dovish” on the assumption that 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.”

In Tuesday’s session, investors will focus on the United States (US) monthly Retail Sales data for November, which will be published at 13:30 GMT. Economists estimate that Retail Sales, a key measure of consumer spending, rose by 0.5%, faster than the 0.4% growth in October.

Daily digest market movers: EUR/USD falls while US Dollar remains broadly firm

• EUR/USD drops after facing pressure near the key resistance of 1.0530 in Tuesday’s European session. The major currency pair struggles to break above the aforementioned hurdle as its broader outlook of the Euro (EUR) is bearish amid firm expectations that the European Central Bank (ECB) will reduce interest rates at every meeting until June 2025.
• The ECB has delivered a 100-bps interest rate reduction this year and is expected to loosen its monetary policy further by a similar margin next year, given that officials are confident about Eurozone inflation returning to the central bank’s target of 2%. Also, ECB policymakers have become worried about growing economic risks due to weak demand and potential tariffs from incoming US President-elect Donald Trump.
• After the decision to cut rates on Thursday, a number of ECB officials, including President Christine Lagarde, have agreed to the need for more interest rate cuts. On Monday, Lagarde said that the ECB "will cut rates further if incoming data confirm that disinflation is on track". Lagarde's dovish remarks on the policy outlook were backed by the assumption that "inflation momentum for services has dropped steeply recently."
• ECB executive board member Isabel Schnabel, who remains an outspoken hawk, also agreed to a gradual removal of policy restrictions. “Lowering policy rates gradually towards a neutral level is the most appropriate course of action,” Schnabel said at an event in Paris on Monday. However, she warned that the ECB should remain vigilant to any “shocks that have the capacity to destabilize inflation expectations.”
• On the political front, the German parliament has passed the no-confidence motion against Chancellor Olaf Scholz’s government, which paved the way for general elections on February 23. According to market expectations, conservative challenger Friedrich Merz would defeat Scholz.
• In the European session, the German IFO sentiment surveys for December have shown that Business Climate and Expectations at 84.7 and 84.4, respectively, have come in weaker-than-expected. IFO Current Assessment, an indicator of current conditions and business expectations, surprisingly rose to 85.1 from 84.3 in November.

Technical Analysis: EUR/USD wobbles around 1.0500

EUR/USD trades around the psychological figure of 1.0500, where the pair has been hovering for the last four trading days. The major currency pair faces pressure near the 20-day Exponential Moving Average (EMA), which trades around 1.0540, suggesting that the near-term trend is bearish.

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

• German IFO Business Climate Index misses estimates with 84.7 in December.
• The IFO Current Economic Assessment Index rose to 85.1 in the reported month.

The headline German IFO Business Climate Index dropped to 84.7 in December from 85.6 in November. The data came in below the consensus 85.6 print.

Meanwhile, the Current Economic Assessment Index rose to 85.1 in the same period from 84.3 in November, beating the estimated 84.0 figure.

The IFO Expectations Index, which indicates firms’ projections for the next six months, fell sharply to 84.4 in December vs. 87.0 in November and 87.5 expected.

Market reaction to the German IFO Survey

EUR/USD has come under fresh selling pressure following the mixed German IFO survey. At the time of writing, the pair is trading 0.27% lower on the day at 1.0480.

This week, the markets still face five central bank decisions in the G10 currencies ahead: the Fed on Wednesday, on Thursday the Nordic central banks as well as the Bank of England and the Bank of Japan, Commerzbank’s FX analyst Antje Praefcke notes.

The focus is on Wednesday's Fed decision

“The market was temporarily in doubt whether a cut would come in December, but has since re-priced it. Our experts also expect the Fed to cut by 25 basis points, but that it could well take a pause at one or the other meeting next year. Our specialists expect the terminal rate to be 4%, the market sees it slightly lower.”

“It will be interesting to see how Fed Chairman Jerome Powell comments on the outlook and how the new projections and dot plots turn out. It is possible that the market will have to adjust its interest rate expectations again somewhat. Accordingly, the dollar could move again shortly before the end of the year. If the market feels it needs to reduce its rate cut expectations even further, the dollar could strengthen again. However, its gains are likely to be limited as the market has already scaled back its rate cut expectations in recent weeks.”

“We think that no major reassessment of the Fed's future monetary policy is necessary at this time. This may change with further US data and/or with the new US president and his opinion on monetary policy. However, it is difficult to predict the possible changes in the Fed's approach that may result from this, and the new US president's erratic statements and plans are almost impossible to predict. The only thing we can do is to advise you to hedge the side that could hurt you the most as long as we are still in reasonably calm waters in the foreign exchange market.”

• NZD/USD meets with a fresh supply on Tuesday and is pressured by a combination of factors.
• The RBNZ’s dovish outlook, China’s economic woes and trade war fears undermine the Kiwi.
• Bets that the Fed will pause its easing cycle and elevated US bond yields boost benefit the USD.
• Traders look to the US Retail Sales for some impetus ahead of the Fed decision on Wednesday.

The NZD/USD pair attracts fresh sellers in the vicinity of the 0.5800 mark and extends its steady intraday descent through the first half of the European session on Tuesday. Spot prices drop to the 0.5755 area in the last hour and remain close to the lowest level since October 2022 touched on Monday.

The New Zealand Dollar (NZD) continues with its relative underperformance on the back of the Reserve Bank of New Zealand's  (RBNZ) dovish stance and bets for a more aggressive policy easing by the central bank. Apart from this, concerns about China's economic recovery and the US-China trade war turn out to be another factor undermining antipodean currencies, including the Kiwi. This, along with the emergence of some US Dollar (USD) did-buying, is seen exerting some downward pressure on the NZD/USD pair.

Investors now seem convinced that the Federal Reserve (Fed) will slow the pace of its rate-cutting cycle next year amid signs that the progress on bringing inflation to 2% has stalled. Moreover, speculations that US President-elect Donald Trump's policies may lead to an increase in government borrowing, and boost inflation, remain supportive of elevated US Treasury bond yields. This, along with geopolitical risks stemming from the worsening Russia-Ukraine war and tensions in the Middle East, benefits the safe-haven buck. 

Traders now look forward to the release of the US monthly Retail Sales figures for short-term opportunities later during the early North American session. The focus, however, will remain on the outcome of the crucial two-day FOMC meeting on Wednesday. Investors will closely scrutinize the accompanying policy statement and Fed Chair Jerome Powell's speech for cues about the future rate-cut path. This, in turn, should influence the near-term USD price dynamics and provide a fresh directional impetus to the NZD/USD pair.

European natural gas prices came under further pressure yesterday. TTF futures declined for a fourth consecutive session and settled almost 2.3% lower on the day, with front-month TTF losing nearly 18% since making a recent peak in early December, ING’s commodity analysts Ewa Manthey and Warren Patterson note.

Gas prices might remain volatile over the coming weeks

“Ongoing discussions to keep Russian gas flowing via Ukraine beyond 31 December are weighing on gas prices currently. Recent reports suggest that gas buyers in Slovakia and Hungary are continuing discussions to keep gas flowing. Meanwhile, demand for gas pipeline capacity through Bulgaria and Turkey has also increased for January 2024, hinting that market participants are preparing for alternatives if Russian gas flow via Ukraine stops as scheduled.”

“Weather forecasts show that temperatures could turn milder across northwest Europe next week, which could provide some relief to the sharp inventory withdrawals. Liquefied natural gas imports have also increased recently, helping the region to secure fuel for heating demand. This should further help ease supply concerns in the market.” 

“European gas storage is 78% full, down from 89% at the same stage last year and also below the five-year average of 81%. Gas prices might remain volatile over the coming weeks as higher competition from Asia for LNG creates an upside risk, while an extension of Russian flows would be bearish for prices.”

Monday’s composite PMIs were generally stronger than expected across main developed markets, although there were clear signs of softening in manufacturing on both sides of the Atlantic. Market pricing is firm on a 25bp cut on the upcoming FOMC meeting, which is also the overall consensus, ING’s FX analyst Francesco Pesole notes.

2-year USD OIS rate around 4.0% keeps USD from correcting

“The currency market isn’t drawing many conclusions in monetary policy terms and dollar crosses seem to be settling in the latest ranges ahead of the last big week of macro events before the year-end recess.”

“In the US, we’ll see retail sales for November today, and expectations are for a robust read – which should, however, have little bearing on tomorrow’s FOMC communication, given some volatility and distortion still in the data due to the impact of extreme weather events. Market pricing is firm on a 25bp cut, which is also our call and consensus.”

“We think something of a wait-and-see approach could dominate today and favour a further consolidation in the dollar’s latest gains. Ultimately, unless the Federal Reserve signals a more dovish path than the market implies (and we don’t think it will), a 2-year USD OIS rate around 4.0% remains the key counter-seasonal factor keeping the dollar from correcting meaningfully in the generally soft month of December.”

• USD/CAD marked 1.4290 on Tuesday, a level last seen in April 2020.
• The US Dollar retraces its two days of losses amid higher Treasury yields.
• The CAD faces headwinds amid political uncertainty, as Prime Minister Justin Trudeau encounters growing calls to resign.

USD/CAD continues its winning streak for the fourth consecutive day, trading around its fresh multi-year high at 1.4290 during the European hours on Tuesday. The pair gains support as the US Dollar (USD) retraces its losses from the previous two sessions, which could be attributed to the higher Treasury yields.

The US Dollar Index (DXY), which measures the value of the US Dollar against its six major peers, trades near 107.00 with 2- and 10-year yields on US Treasury bonds standing at 4.26% ad 4.41%, respectively, at the time of writing.

Traders are bracing a potential interest rate cut by the US Federal Reserve (Fed) on Wednesday, with attention largely focused on the Fed's projections for 2025. 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) faces challenges due to dovish remarks from the Bank of Canada (BoC) Governor Tiff Macklem. On Monday, Macklem stated that the BoC is preparing for a future marked by greater uncertainty and increased vulnerability to shocks. He added that the central bank will assess the need for further reductions in the policy rate one decision at a time and expects a more gradual approach to monetary policy if the economy evolves as expected.

Additionally, political challenges in Canada could weigh on the CAD. Prime Minister Justin Trudeau is facing mounting calls to resign following Finance Minister Chrystia Freeland’s announcement on Monday that she is stepping down from the Cabinet, according to CNN.

Traders will likely observe the Canadian November Consumer Price Index (CPI) inflation data is due later on Tuesday. Meanwhile, November’s US retail sales data is expected to be released in the North American session.

• EUR/GBP depreciates after the release of the UK employment report.
• The UK ILO Unemployment Rate remained unchanged at 4.3% in the three months to October, as expected.
• ECB President Lagarde indicated that the central bank is prepared to cut rates further if disinflation remains on track.

EUR/GBP extends its losses for the second successive session, trading around 0.8260 during the early European hours on Tuesday. The EUR/GBP cross faces challenges as the Pound Sterling (GBP) recovers its losses after the release of UK jobs data.

The UK ILO Unemployment Rate stayed unchanged at 4.3% in the three months to October, the data published by the Office for National Statistics (ONS) showed on Tuesday. The reading matched the market estimate of 4.3% in the reported period. Meanwhile, Employment Change reported the number of employed individuals rose by 173,000, against the previous 253,000 increase. Moreover, Claimant Count Change reported 0.3K jobless benefits claims for November, drastically lower than the expected 28.2K.

Traders will shift their focus toward the Consumer Price Index (CPI) inflation figures on Wednesday, ahead of the Bank of England's (BoE) rate decision on Thursday. The BoE is widely expected to maintain interest rates, with an anticipated eight-to-one vote split, as one notably dovish policymaker is likely to support a rate cut.

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.

Data showed on Monday that Eurozone PMI figures exceeded expectations in December; however, Services PMI surveys remain in contraction territory amid growing concerns about a deepening economic slowdown in Europe, which continues to weigh on investor and business sentiment. Traders are expected to focus on mid-tier German data, including December's Business Climate and Current Assessment reports from the CESifo Group.

• The Pound Sterling moves higher after the UK labor market data for the three months ending October showed a strong wage growth.
• UK’s jobless rate steadied at 4.3% as expected, and 173K fresh workers were added to the labor force.
• Investors expect the BoE to leave interest rates unchanged, while the Fed is expected to cut them this week.

The Pound Sterling (GBP) rises sharply against its major peers on Tuesday after the release of the United Kingdom (UK) labor market data for three months ending October. The British currency strengthens as Average Earnings Excluding bonuses, a key measure of wage growth, rose at a robust pace of 5.2%, faster than estimates of 5% and accelerating from the former 4.9% advance.

Bank of England (BoE) officials closely track wage growth data when deciding on interest rates as it is a major driving force to inflationary pressures in the UK service sector.

Meanwhile, Average Earnings Including bonuses also rose by 5.2%, faster than expectations of 4.6% and the former reading of 4.4%.

Robust wage growth data has strengthened the British currency, offsetting other components of the labor data release that weren't that GBP-positive. For example, in the three months ending October, the economy added 173K new workers, lower than the former release of 253K, upwardly revised from 219K. The ILO Unemployment Rate came in line with estimates and the prior release of 4.3%.

Higher wage growth suggests that UK service inflation could remain high, with fresh inflation data to be released on Wednesday. The core Consumer Price Index (CPI) – which excludes volatile items – is estimated to have grown by 3.6%, faster than the 3.3% advance in October.

Such an outcome would cement market expectations that the BoE will leave interest rates unchanged at 4.75% in the monetary policy announcement on Thursday.

Daily digest market movers: Pound Sterling to be influenced by Fed-BoE policy meetings

• The Pound Sterling rises to near the psychological resistance of 1.2700 against the US Dollar (USD) in Tuesday’s London session. The GBP/USD pair moves higher as the USD wobbles, with the US Dollar Index (DXY) hovering near an almost three-week high around 107.00 ahead of the Federal Reserve’s (Fed) policy announcement on Wednesday.
• According to the CME FedWatch tool, traders are almost certain that the Fed will reduce interest rates by 25 basis points (bps) to 4.25%-4.50%. As the Fed is widely anticipated to cut its key borrowing rates, investors will pay close attention to Chair Jerome Powell’s comments at a press conference and the dot plot for fresh interest rate guidance.
• Market participants expect the Fed to shift its policy stance from “dovish” to “slightly hawkish” on the assumption that upside risks to inflation have accelerated while downside risks to employment have diminished, according to the latest Bloomberg survey.
• The Flash US S&P Global PMI report for December also showed that employment edged higher in December, up for the first time in five months, reflecting a second successive monthly rise in manufacturing jobs and the first increase in service sector employment since July.
• In Tuesday’s session, investors will focus on the monthly US Retail Sales data for November, which will be published at 13:30 GMT. The Retail Sales data, a key measure of consumer spending, is estimated to have grown by 0.5%, faster than the former release of 0.4%.

Technical Analysis: Pound Sterling rises to near 20-day EMA

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

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

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

Here is what you need to know on Tuesday, December 17:

Following a quiet start to the week, financial markets hold steady early Tuesday. IFO and ZEW sentiment surveys from Germany will be featured in the European docket. In the second half of the day, November Consumer Price Index (CPI) data from Canada and Retail Sales figures from the US will be watched closely by market participants. The US economic calendar will also offer Industrial Production and Business Inventories data.

The US Dollar (USD) Index failed to make a decisive move in either direction and closed virtually unchanged on Monday. The index continues to move up and down in a narrow band slightly below 107.00 in the early European session. The Federal Reserve's (Fed) two-day policy meeting will get underway on Tuesday. 

While speaking at the Vancouver Board of Trade on Monday, Bank of Canada (BoC) Governor Tiff Macklem said they are facing risks around the inflation outlook. "We are equally concerned with inflation coming in higher or lower than expected," Macklem noted. In Canada, the annual CPI is forecast to rise 2%, matching October's increase. USD/CAD registered small gains on Monday and was last seen trading at its highest level since April 2020 above 1.4250.

The UK's Office for National Statistics (ONS) reported early Tuesday that the ILO Unemployment Rate was unchanged at 4.3% in the three months to October, as expected. In this period, Employment Change was up by 173,000. Finally, annual wage inflation, as measured by the Average Earnings Excluding Bonus, rose to 5.2% from 4.9%. Following a choppy Asian session, GBP/USD recovered toward 1.2700 after the labor market report. The ONS will publish CPI data on Wednesday and the Bank of England (BoE) will announce monetary policy decisions on Thursday.

EUR/USD holds steady in the European morning and trades slightly above 1.0500 after posting small gains on Monday.

USD/JPY closed the sixth consecutive trading day in positive territory on Monday. The pair struggles to preserve its bullish momentum and fluctuates at around 154.00 early Tuesday. Japan economy minister, Ryosei Akazawa, on Tuesday reiterated that the Bank of Japan (BoJ) and the government will work together to conduct appropriate monetary policy. The BoJ will release its interest rate decision in the Asian session on Thursday.

Gold ended the first day of the week virtually unchanged. XAU/USD extends its sideways grind at around $2,650 to begin the European session.

• USD/CHF gains momentum to near 0.8955 in Tuesday’s early European session, adding 0.16% on the day. 
• The Fed is expected to cut interest rates by a quarter of a percentage point at the December meeting on Wednesday. 
• Geopolitical risks could boost the safe-haven currency like the Swiss Franc and cap the upside for the pair. 

The USD/CHF pair extends its upside to around 0.8955 during the early European session on Tuesday, bolstered by the renewed US Dollar (USD) demand. The Swiss National Bank (SNB) Quarterly Bulletin for the fourth quarter will be released on Wednesday. Also, the Federal Reserve (Fed) monetary policy meeting will take center stage on the same day. 

Investors expect the Fed will cut the interest rates by 25 basis points (bps) in December, with markets pricing in a 95.4% possibility of that outcome as of Tuesday, according to the CME FedWatch Tool. That would bring the target federal funds rate down to a range of 4.25%-4.50% from its current range of between 4.50% and 4.75%. 

The Fed Press Conference and a Summary of Economic Projections, or ‘dot-plot,’ will be closely monitored as the markets brace for the US central bank to scale back its easing in 2025 in anticipation of higher inflation under the Trump administration. The hawkish cut by the Fed could provide some support to the Greenback against the Swiss Franc (CHF) in the near term. 

“Expectations of stubborn inflation amid an otherwise robust economy will boost the likelihood that interest rates stay higher for longer, either through an extended pause in rate cuts or a much slower, more deliberate pace in 2025,” Bankrate Chief Financial Analyst Greg McBride said.

On the Swiss front, data released by the Federal Statistical Office (FSO) showed on Monday that Switzerland’s Producer and Import Price Index fell by 0.6% MoM in November, compared to the previous month's 0.3% decline. The reading came in softer than a rise of 0.2% expected. 

Meanwhile, the ongoing geopolitical tensions in the Middle East could boost the safe-haven flows, benefiting the CHF. Turkey denounced Israel’s plan to double Israeli settlement in the occupied Golan Heights, raising concerns over Israel’s actions in Syria since the fall of the Assad regime.

• The UK Unemployment Rate stayed unchanged at 4.3% in three months to October.
• The Claimant Count Change for Britain arrived at 0.3K in November.
• GBP/USD remains pressured toward 1.2650 after mixed UK employment data.

The United Kingdom’s (UK) ILO Unemployment Rate stayed unchanged at 4.3% in the three months to October, the data published by the Office for National Statistics (ONS) showed on Tuesday. The reading matched the market estimate of 4.3% in the reported period.

Additional details of the report showed that the number of people claiming jobless benefits climbed by only 0.3K in November, compared with a decrease of 10.9K in October, beating the expected 28.2K figure.

The Employment Change data for October came in at 173K versus September’s 253K.

Meanwhile, Average Earnings, excluding Bonus, in the UK grew by 5.2% 3M YoY in October versus a 4.9% raise in September. The market forecast was for a 5.0% increase.

Another measure of wage inflation, Average Earnings, including Bonus, advanced 5.2% in the same period after rising by 4.4% in the quarter through September. The data beat the estimated 4.6% growth.

GBP/USD reaction to the UK employment report

GBP/USD picks up fresh bids on the release of the UK employment data. The pair is trading 0.09% higher on the day at 1.2690, as of writing.\

• GBP/JPY may regain its ground as the BoJ is widely expected to avoid a rate hike on Thursday.
• BoJ policymakers appear reluctant to tighten monetary policy further.
• The Pound Sterling remains subdued ahead of UK employment figures.

GBP/JPY halts its two days of gains, trading around 195.40 during the Asian hours on Tuesday. However, the downside of the GBP/JPY cross would be limited as the Japanese Yen (JPY) may depreciate amid the rising likelihood that the Bank of Japan (BoJ) may avoid an interest rate hike on Thursday.

The markets are currently pricing in less than a 30% chance of a BoJ’s rate hike in December. Several Bank of Japan (BoJ) policymakers seem in no hurry to tighten monetary policy further, given the minimal risk of inflation overshooting despite Japan's persistently near-zero borrowing costs.

Reports suggested the central bank sees "little cost" in delaying further tightening, preferring to wait for more evidence of wage growth before implementing additional policy adjustments. Japan's economy minister, Ryosei Akazawa, reaffirmed that the Bank of Japan and the government will collaborate on appropriate monetary policies.

Japan’s 10-year government bond yield rose to near 1.08% on Tuesday, mirroring the upward movement in US Treasury yields as speculation grew that the US Federal Reserve could signal fewer interest rate cuts for next year. However, the Fed is still widely expected to reduce borrowing costs by 25 basis points on Wednesday.

UK S&P Global/ CIPS Purchasing Managers’ Index (PMI) report showed that the overall business activity expanded at a steady pace to 50.5 in December. Meanwhile, the Manufacturing PMI declined at a faster pace to 47.3 from 48.0 in November. The Service sector activity expanded at a faster pace to 51.4, from the estimates of 51.0 and the former release of 50.8.

While the data indicated steady overall growth, survey respondents expressed concerns about the business outlook, citing fragile consumer confidence, tighter corporate budgets, and reductions in non-essential spending.

Traders are set to monitor the UK employment data on Tuesday, followed by the Consumer Price Index (CPI) inflation figures on Wednesday, ahead of the Bank of England's (BoE) rate decision on Thursday. The BoE is widely expected to maintain interest rates, with an anticipated eight-to-one vote split, as one notably dovish policymaker is likely to support a rate cut.

• The US Dollar trades with mild gains to near 106.90 in Tuesday’s early European session.
• The Fed is expected to lower interest rates by 25 bps on Wednesday at the end of its two-day meeting. 
• The US Retail Sales data for November will be released later on Tuesday. 

The US Dollar Index (DXY) posts modest gains to around 106.90 against major currencies during the early European session on Tuesday. Traders will keep an eye on the US November Retail Sales, which are due later on Tuesday. The attention will shift to the Federal Reserve (Fed), Bank of Japan (BoJ), and the Bank of England (BoE) interest rate decision this week. 

The US Fed is likely to cut interest rates for the third time at its December meeting on Wednesday, bringing its overnight borrowing rate down by a quarter percentage point to a range of between 4.25% and 4.50% from its current range of between 4.50% and 4.75%. The markets are now pricing in a nearly 95.4% chance of a 25 basis points (bps) cut at the Fed's December meeting, compared with about a 78% chance a week ago, according to the CME FedWatch tool. 

Traders will closely monitor Fed Chair Jerome Powell's press conference and Summary of Economic Projections (dot-plot) after the meeting. Any signs of hawkish cuts by the US central bank could provide some support to the US dollar against its rivals. "The U.S. dollar has been at the mercy of headlines not only just surrounding what the Fed is going to do but whether it's going to be deemed a hawkish cut," noted Juan Perez, director of trading at Monex USA in Washington, D.C.

S&P Global revealed in its preliminary report on Monday that the US Composite PMI, which takes both the services and the manufacturing business activity into account, came in at 56.6 in December's flash estimate from 54.9. This figure registered the highest level in 33 months. 

Additionally, the Services PMI improved to 58.5 in December from 56.1 in November, above the market consensus of 55.7. On a negative note, the Manufacturing PMI declined to 48.3 in December versus 49.7 prior, weaker than the 49.4 expected. Traders will take more cues from the US Retail Sales data later in the day. If the stronger sales figures showed weaker outcomes, this could weigh on the US Dollar. 

• EUR/USD posts modest gains to around 1.0510 in Tuesday’s Asian session. 
• The negative outlook of the pair remains intact below the 100-day EMA with the bearish RSI indicator.
• The first support level is seen at 1.0433; the immediate resistance level emerges in the 1.0600-1.0610 zone. 

The EUR/USD pair trades with mild gains to near 1.0510 during the Asian session on Tuesday. Nonetheless, the upside for the pair might be limited as the European Central Bank (ECB) expects to cut interest rates further if inflation settles at its 2% target as it expects. 

The ECB President Christine Lagarde on Monday said, "If the incoming data continue to confirm our baseline, the direction of travel is clear, and we expect to lower interest rates further.” Meanwhile, Isabel Schnabel, the ECB's most influential policy hawk, emphasized market bets on further gradual reductions in borrowing costs in the Eurozone as the economy stutters and fears about high inflation fade.

According to the daily chart, EUR/USD keeps the bearish vibe as the price remains capped below the key 100-day Exponential Moving Average (EMA). The downward momentum is reinforced by the 14-day Relative Strength Index (RSI), which is located below the midline around 42.90, suggesting that the path of least resistance is to the downside. 

The lower limit of the Bollinger Band at 1.0433 acts as an initial support level for the major pair. A decisive break below the mentioned level could expose 1.0332, the low of November 22. Extended losses could see a drop to 1.0300-1.0290, the psychological level and the low of November 30, 2022.

On the upside, the first upside barrier for the major pair emerges at the 1.0600-1.0610 regions, representing the upper boundary of the Bollinger Band and the round mark. Sustained bullish momentum above this level could pave the way to 1.0758, the 100-day EMA, en route to the 1.0800 barrier. 

EUR/USD daily chart

• GBP/USD may gain ground due to the potential for an upward momentum shift.
• The pair tests the upper boundary of the descending channel aligned with the nine-day EMA at 1.2691 level.
• The initial support appears at its four-week low of 1.2487.

GBP/USD remains flat following gains in the previous session, trading around 1.2680 during the Asian hours on Tuesday. The daily chart analysis suggests a upward momentum shift as the pair attempts to break above the descending channel pattern, aligned with nine- and 14-day Exponential Moving Averages (EMAs).

However, the 14-day Relative Strength Index (RSI) remains below the 50 level, suggesting a bearish bias is still in play. A decisive surpass of the 50 mark would give confirmation of an emergence of bullish sentiment.

The GBP/USD pair is testing its initial resistance near the descending channel's upper boundary, which aligns with the nine-day EMA at 1.2691. A decisive break above this key level could reinforce the bullish bias, paving the way for a move toward the five-week high of 1.2811, marked on December 6.

On the downside, the pair faces support around the four-week low of 1.2487, recorded on November 22. A break below this level could amplify bearish momentum, potentially driving the pair toward the lower boundary of the descending channel and its yearly low at 1.2299, last seen on April 22.

GBP/USD: Daily Chart

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

The price for Gold stood at 7,247.54 Indian Rupees (INR) per gram, broadly stable compared with the INR 7,242.02 it cost on Monday.

The price for Gold was broadly steady at INR 84,530.69 per tola from INR 84,469.55 per tola a day earlier.

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

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

• USD/CAD ticks higher for the fourth straight day amid a combination of supporting factors.
• Political development in Canada, subdued Oil prices and dovish BoC undermine the Loonie.
• Bets that the Fed will pause its rate-cutting cycle act as a tailwind for the USD and the major.

The USD/CAD pair trades with a positive bias for the fourth straight day on Tuesday and remains close to its highest level since April 2020 touched the previous day. Spot prices currently trade just above mid-1.4200s and the fundamental backdrop supports prospects for a further near-term appreciating move. 

The Canadian Dollar (CAD) continues to be weighed down by the Bank of Canada's (BoC) aggressive policy easing and dovish outlook, projecting lower growth in the final quarter of this year. Meanwhile, an unexpected resignation from Canadian Finance Minister Chrystia Freeland adds a layer of political uncertainty. Adding to this, subdued Crude Oil prices undermine the commodity-linked Loonie and act as a tailwind for the USD/CAD pair. 

The US Dollar (USD), on the other hand, remains on the defensive as traders seem reluctant and opt to wait for more cues about the Federal Reserve's (Fed) rate-cut path before placing fresh directional bets. Hence, the focus will remain glued to the outcome of a two-day FOMC meeting on Wednesday, which, along with the accompanying policy statement and Fed Chair Jerome Powell's comments at the post-meeting conference, will drive the USD demand. 

Heading into the key central bank event risk, the growing market conviction that the Fed will adopt a more cautious stance on cutting interest rates remains supportive of elevated US Treasury bond yields. Furthermore, persistent geopolitical risks offer support to the safe-haven Greenback. This, in turn, validates the near-term positive outlook for the USD/CAD pair as trades now look to the US Retail Sales figures for some later during the North American session.

FX option expiries for Dec 17 NY cut at 10:00 Eastern Time via DTCC can be found below.

EUR/USD: EUR amounts

• 1.0400 975m
• 1.0475 858m
• 1.0525 1.9b
• 1.0650 2.2b

GBP/USD: GBP amounts     

• 1.2640 700m
• 1.2850 934m

USD/JPY: USD amounts                     

• 154.45 732m

USD/CAD: USD amounts       

• 1.4080 738m
• 1.4150 1.5b
• 1.4350 1.2b

• Gold price struggles to gain any meaningful traction and remains confined in a narrow range.
• Expectations for a less dovish Fed and elevated US bond yields cap the non-yielding XAU/USD.
• Geopolitical risks lend support to the safe-haven precious metal ahead of the FOMC meeting.

Gold price (XAU/USD) edges higher during the Asian session on Tuesday, though it lacks follow-through and remains close to a one-week low touched the previous day. Traders seem reluctant and opt to wait for the outcome of a two-day FOMC meeting on Wednesday before placing fresh directional bets around the non-yielding yellow metal. The focus will be on the accompanying policy statement, especially the so-called dot plot, and Fed Chair Jerome Powell's speech at the post-meeting press conference. Investors will look for cues about the future rate-cut path, which will drive the US Dollar (USD) and provide some meaningful impetus to the non-yielding yellow metal. 

Heading into the key event risk, persistent geopolitical tensions and concerns about US President-elect Donald Trump's tariff plans lend some support to the safe-haven Gold price. Meanwhile, the prospects for a less dovish Fed, along with expectations that Trump's policies may lead to an increase in government borrowing, remain supportive of elevated US Treasury bond yields. Apart from this, a positive risk tone might cap the XAU/USD, warranting caution before confirming that the recent pullback from over a one-month high touched last week has run its course. 

Gold price traders opt to wait for more cues about the Fed’s rate cut before placing directional bets

• Data released on Monday showed that a big part of the US economy expanded at the fastest pace in more than three years. In fact, the S&P Global flash US Services Purchase Managers Index (PMI) rose from 56.1 to 58.5 in December – the highest level in 38 months.
• Furthermore, the Composite PMI surged from 54.9 in November to 56.6, or a 33-month high. This overshadowed a fall in the flash US Manufacturing PMI to a three-month low of 48.3 in December and reaffirmed market expectations for a less dovish Federal Reserve. 
• Investors seem convinced that US President-elect Donald Trump's policies may exert upward pressure on inflation and force the Fed to pause its rate-cutting cycle. This lifted the yield on the benchmark 10-year US government bond to its highest level since November 22.
• According to the CME Group's FedWatch Tool, markets have fully priced in that the Fed will deliver a 25-basis-points rate cut on Wednesday. This keeps the US Dollar bulls on the defensive and offers support to the XAU/USD through the Asian session on Tuesday. 
• The US hit North Korea and Russia on Monday with new sanctions that the Treasury Department said targeted Pyongyang's financial activities and military support to Moscow. Israel is likely to respond to yet another ballistic missile attack by Yemen’s Houthis.
• Traders now look forward to the release of the US monthly Retail Sales figures for short-term opportunities later during the North American session. The focus, however, will remain glued to the outcome of the highly-anticipated FOMC policy meeting on Wednesday. 

Gold price needs to weaken below the one-week low touched on Monday for bears to seize control

From a technical perspective, the $2,644-2,643 area, or a one-week low touched on Monday, now seems to protect the immediate downside ahead of the $2,625 region. This is closely followed by the monthly trough, around the $2,614 zone, and the $2,600 mark, which if broken decisively will be seen as a fresh trigger for bearish traders and pave the way for some meaningful depreciating move for the Gold price. 

On the flip side, the $2,664-2,666 region, or the overnight swing high, might continue to act as an immediate strong barrier ahead of the $2,677 area. A sustained strength beyond the latter should allow the Gold price to reclaim the $2,700 round figure. The subsequent move up could extend further towards the monthly swing high, around the $2,726 zone, above which the XAU/USD is likely to resume its upward trajectory.

• Silver price extends its losing streak as short-term price momentum weakens.
• The alignment of the nine- and 14-day EMAs suggests a lack of strong directional momentum.
• The initial support appears at a psychological $30.00 level, followed by a “throwback support” at its three-month low of $29.65.

Silver price (XAG/USD) continues its losing streak for the fourth successive day, trading around $30.50 per troy ounce during the Asian hours on Tuesday. Analysis of the daily chart indicates a momentum shift to bearish from bullish bias as the pair has broken below the ascending channel pattern.

The XAG/USD pair moves below both of these EMAs, indicating a bearish outlook and signaling to weakening short-term price momentum. This points to increasing selling interest and raises the likelihood of further price depreciation. Additionally, the 14-day Relative Strength Index (RSI) is positioned below the 50 mark, further confirming the emergence of the bearish bias.

However, the alignment of the nine- and 14-day Exponential Moving Averages (EMAs) suggests that the market is experiencing a period of consolidation, lacking a strong directional momentum. Traders may interpret this as a signal that the market is waiting for a catalyst to determine its next move, whether upward or downward.

The XAG/USD pair may test its primary support at the psychological level of $30.00, followed by a “throwback support” level at its three-month low of $29.65, which was recorded on November 28.

On the upside, the immediate barriers appear at the nine- and 14-day EMAs at $30.91 and $30.96, respectively. A break above these levels could cause the bullish bias to re-emerge and help the Silver price to retest its six-week high of $32.28, reached on December 9.

XAG/USD: Daily Chart

Chinese Foreign Minister said on Tuesday that “China must give a firm and forceful response to the US 'blatant interference' in China's internal affairs on issues such as Taiwan”

The Minister further noted that “we hope the new US administration will make the 'right' choices and work with China, eliminating disruptions and overcoming obstacles.”

Market reaction

AUD/USD was last seen trading at 0.6360, down 0.13% on the day.

• NZD/USD steadies as traders expect a 25 basis point rate cut by the US Fed on Wednesday.
• CME FedWatch tool suggests almost fully pricing in a quarter basis point cut at the Fed's December meeting.
• Traders await New Zealand’s Gross Domestic Product GDP data for Q3 due on Thursday.

NZD/USD holds ground as traders are bracing a potential interest rate cut by the US Federal Reserve (Fed) on Wednesday, with attention largely focused on the Fed's projections for 2025. The NZD/USD pair hovers around 0.5780 during Asian trading hours on Tuesday.

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

Additionally, the NZD/USD pair receives minor support as the US Dollar (USD) remains subdued for the third successive session amid market caution ahead of the Fed decision. The US Dollar Index (DXY), which measures the value of the US Dollar against its six major peers, trades around 106.70 at the time of writing.

On Monday, the preliminary S&P Global Composite Purchasing Managers Index (PMI) rose to 56.6 in December, from 54.9 prior. Meanwhile, the Services PMI improved to 58.5 from 56.1. The Manufacturing PMI declined to 48.3 in December, from the previous 49.7 reading.

In New Zealand, traders adopt caution as Gross Domestic Product (GDP) data for Q3 are scheduled to be released on Thursday. The economy is projected to shrink by 0.4% quarter-on-quarter, potentially falling back into recession.

China's Retail Sales, a crucial indicator for New Zealand's key trade partner, unexpectedly slowed in November, dampening sentiment in antipodean markets. Sales grew by 3.0% year-on-year, below the expected 4.6% and significantly down from October's 4.8% expansion. 

On Monday, the domestic data showed that 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 Indian Rupee flat lines in Tuesday’s Asian session. 
• Rising US bond yields and a weaker Chinese Yuan could undermine the INR, but the RBI’s intervention might help limit its losses. 
• Traders brace for the US November Retail Sales on Tuesday ahead of the Fed rate decision.

The Indian Rupee (INR) consolidates in a narrow trading range on Tuesday after weakening to a new closing low in the previous session. A rise in US Treasury bond yields and weakness in the Chinese Yuan exert some selling pressure on the local currency. Furthermore, the widening of India’s merchandise trade deficit in November further weighs on the INR. 

Any significant depreciation of the Indian Rupee might be limited as the Reserve Bank of India (RBI) will likely sell the USD via state-owned banks to avoid excess volatility. The US November Retail Sales is due later on Tuesday. All eyes will be on the US Federal Reserve (Fed) interest rate decision on Wednesday for fresh catalysts. Also, the Fed Chair Jerome Powell’s press conference and the updated economic projections will be closely monitored. 

Indian Rupee holds steady on the back of global cues

• The Indian WPI inflation eased to a three-month low of 1.89% in November from 2.36% in October, the Ministry of Commerce and Industry showed on Monday. This figure came in softer than the expectation of 2.2%.
• The preliminary estimate released by HSBC showed on Monday that the India Manufacturing Purchasing Managers Index (PMI) rose to 57.4 in December versus 56.5 prior. 
• The Indian Services PMI climbed to 60.8 in December from 58.4 prior. The Composite PMI jumped to 60.7 during the same report period from 58.6 in November.
• "The small rise in the headline manufacturing PMI in December was mainly driven by gains in current production, new orders, and employment," said Ines Lam, economist at HSBC. 
• The US S&P Global Composite PMI improved to 56.6 in December’s flash estimate versus 54.9 prior. Meanwhile, the Services PMI increased to 58.5 in December’s flash estimate from 56.1. The Manufacturing PMI eased to 48.3 from 49.7. 

USD/INR keeps the bullish vibe in the longer term

The Indian Rupee trades flat on the day. The constructive view of the USD/INR pair prevails, with the price holding above the key 100-day Exponential Moving Average (EMA) on the daily chart. Additionally, the 14-day Relative Strength Index (RSI) is located above the midline near 68.35, supporting the buyers in the near term. 

The ascending trend channel and the psychological level of 85.00 appear to be a tough nut to crack for bulls. Sustained bullish momentum could even take USD/INR to 85.50. 

On the other hand, the first downside target to watch is the lower boundary of the trend channel of 84.80. A breach of this level could expose 84.22, the low of November 25. The potential support level for the pair is seen at 84.13, the 100-day EMA.

• The Japanese Yen continues to be weighed down by reduced bets for a December BoJ rate hike.
• The recent surge in the US bond yields and a positive risk tone also seem to undermine the JPY.
• Investors, however, seem reluctant ahead of the crucial FOMC/BoJ policy meetings this week. 

The Japanese Yen (JPY) remains on the back foot against its American counterpart during the Asian session on Tuesday amid the growing conviction that the Bank of Japan (BoJ) is likely to keep interest rates unchanged this week. Furthermore, the recent surge in the US Treasury bond yields, bolstered by expectations for a hawkish interest rate cut by the Federal Reserve (Fed), is seen as another factor weighing on the lower-yielding JPY. 

Apart from this, a generally positive risk tone undermines demand for the safe-haven JPY, though a modest US Dollar (USD) downtick caps the upside for the USD/JPY pair. Traders also seem reluctant to place aggressive directional bets and might opt to move to the sidelines ahead of this week's key central bank event risks. The US central bank is scheduled to announce its policy decision on Wednesday, followed by the BoJ on Thursday. 

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

• Expectations that the Bank of Japan will keep interest rates unchanged at the end of a two-day meeting on Thursday continue to undermine the Japanese Yen and lift the USD/JPY pair to a three-week high on Monday.
• Japan's economy minister, Ryosei Akazawa said this Tuesday that the BoJ and the government will work together to conduct appropriate monetary policy and that the central bank should handle the specifics of monetary policy.
• The yield on the benchmark 10-year US government bond rose to its highest level since November 22 in reaction to data showing that a big part of the US economy expanded at the fastest pace in more than three years.
• The S&P Global flash US Services Purchase Managers Index (PMI) rose from 56.1 to 58.5 in December – the highest level in 38 months – and the Composite PMI surged from 54.9 in November to 56.6, or a 33-month high.
• This overshadowed a fall in the flash US Manufacturing PMI to a three-month low of 48.3 in December and reaffirmed market bets that the Federal Reserve will likely signal a slower pace of policy easing going forward. 
• According to the CME Group's FedWatch Tool, markets have fully priced in that the Fed will deliver a 25-basis-points rate cut on Wednesday, which keeps the US Dollar bulls on the defensive and caps the USD/JPY pair.
• Traders now look forward to the release of the US monthly Retail Sales data, which, along with the US bond yields, will drive the USD demand and produce short-term opportunities around the currency pair. 
• The focus, however, will remain glued to the outcome of the highly-anticipated FOMC meeting on Wednesday and the crucial BoJ decision on Thursday, which should provide a fresh directional impetus to the JPY. 

USD/JPY seems poised to reclaim the 155.00 psychological mark while above the 61.8% Fibo. level

From a technical perspective, Monday's breakout through the 61.8% Fibonacci retracement level of the November-December fall from a multi-month peak and acceptance above the 154.00 round figure could be seen as a key trigger for bulls. Moreover, oscillators on the daily chart have just started gaining positive traction and support prospects for a further appreciation for the USD/JPY pair. Hence, some follow-through buying beyond the overnight swing high, around the 154.45-154.50 area, should pave the way for a move towards reclaiming the 155.00 psychological mark. The momentum could extend further towards the next relevant hurdle near mid-155.00s en route to the 156.00 mark and the 156.25 resistance zone. 

On the flip side, the 61.8% Fibo. resistance breakpoint, around the 153.65 area, now seems to protect the immediate downside ahead of the overnight low, around the 153.35 region. This is closely followed by the 153.00 mark, below which the USD/JPY pair could accelerate the fall towards 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 spot prices to the 151.00 round figure en route to the 150.00 psychological mark

• The Australian Dollar remained steady after domestic consumer confidence showed signs of strain.
• Australia’s Westpac Consumer Confidence fell 2% in December, against November’s 5.3% increase.
• The US Dollar struggles as traders are bracing for an expected 25 basis point rate cut from the US Fed.

The Australian Dollar (AUD) trades flat following domestic consumer confidence indicating signs of strain, with December data showing a decline as consumers grow increasingly pessimistic about the economic outlook. Moreover, traders are anticipating a potential interest rate cut by the US Federal Reserve (Fed) on Wednesday, with attention largely focused on the Fed's projections for 2025.

Westpac Consumer Confidence in Australia fell 2% to 92.8 points in December, reversing two months of positive momentum. The index increased 5.3% in November. Traders will likely observe US Retail Sales data scheduled to be released later in the North American session.

The US Dollar (USD) remains subdued for the third successive session amid market caution ahead of the Fed decision. On Monday, the preliminary S&P Global Composite Purchasing Managers Index (PMI) rose to 56.6 in December, from 54.9 prior. Meanwhile, the Services PMI improved to 58.5 from 56.1. The Manufacturing PMI declined to 48.3 in December, from the previous 49.7 reading.

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

Australian Dollar remains flat due to market caution ahead of the Fed's decision

• Chinese authorities, led by President Xi Jinping, have pledged to raise the fiscal deficit target next year, shifting policy focus to consumption to boost the economy amid looming 10% US tariffs threatening exports. The lack of concrete details on fiscal support has put downward pressure on the AUD, given China's status as Australia's largest trading partner.
• China’s Retail Sales (YoY) rose 3.0% in November, against its expected 4.6% and previous 4.8% readings. Meanwhile, annual Industrial Production increased by 5.4%, exceeding the market consensus of a 5.3% rise.
• The National Bureau of Statistics (NBS) in China shared its economic outlook during a press conference on Monday. It stated that the economy remained generally stable in November, with increasing signs of positive changes. The recovery trend in consumption remains intact, and the bureau emphasized plans to implement additional policies aimed at expanding domestic demand.
• Traders are increasing their bets that the Reserve Bank of Australia (RBA) will cut interest rates sooner and more significantly than initially expected. However, future decisions will be data-driven, with evolving risk assessments guiding the RBA's approach.
• The 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 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 maintains position above 0.6350, yearly lows

The AUD/USD pair continues to maintain its position near 0.6370 on Tuesday. Analysis of a daily chart suggests a bearish bias prevails as the pair is confined within a descending channel pattern. Additionally, the 14-day Relative Strength Index (RSI) hovers above the 30 level, indicating sustained bearish momentum is active.

The AUD/USD pair continues to face initial support at a yearly low of 0.6348, last seen on August 5. A break below this level could put downward pressure on the AUD/USD pair to approach the descending channel’s lower boundary around the 0.6170 level.

Regarding its resistance, the AUD/USD pair tests the nine-day Exponential Moving Average (EMA) at 0.6390, followed by the 14-day EMA at 0.6412, 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

• USD/CAD drifts lower to around 1.4235 in Tuesday’s Asian session. 
• Fed is likely to cut interest rates by 25 bps at the December meeting on Wednesday.
• BoC Governor Tiff Macklem said the central bank is preparing for a shock-prone’ future.

The USD/CAD pair weakens to near 1.4235, snapping the three-day winning streak during the Asian trading hours on Tuesday. The Canadian November Consumer Price Index (CPI) inflation data is due later on Tuesday. Meanwhile, the US Dollar Index (DXY), a measure of the USD's value relative to its most significant trading partners' currencies, edges lower to around 106.75 as traders await the US Federal Reserve (Fed) interest rate decision on Wednesday for fresh catalysts. 

Markets widely expect the Fed to lower its benchmark interest rate by a smaller 25 basis points (bps) at its December meeting on Wednesday as the US economy faces sticky inflation and a cooler labor market. After the meeting, Fed Chair Jerome Powell’s press conference and the updated economic projections will be closely watched. If the Fed officials deliver hawkish comments or signal a slowdown in rate cuts, this could boost the Greenback against the Canadian Dollar (CAD). 

"We think that the economic forecasts will show better growth and firmer inflation this year and that the median interest rate forecast dots will be revised to show three cuts next year instead of four, as in the September dots," said JPMorgan chief US economist Michael Feroli.

On the other hand, soft language from Bank of Canada (BoC) Governor Tiff Macklem could weigh on the Loonie. BoC’s Macklem said on Monday that the Canadian central bank is preparing for a future that looks more uncertain and more prone to shocks. Macklem added that the BoC will assess the need for further reductions in the policy rate one decision at a time and expects a more gradual approach to monetary policy if the economy evolves as expected. 

The People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead on Tuesday at 7.1891, as compared to the previous day's fix of 7.1882 and 7.2842 Reuters estimates.

Japan economy minister, Ryosei Akazawa, on Tuesday reiterated that the Bank of Japan (BoJ) and the government will work together to conduct appropriate monetary policy.  

Key quotes

Market reaction 

At the time of writing, the USD/JPY pair is trading near 154.20, holding higher while adding 0.03% on the day.

• EUR/USD is trading thin and flat near the 1.0500 handle as bulls struggle.
• Another Fed rate call and other key US data will keep Fiber focused on the US side this week.
• Fed expected to cut rates for a third consecutive meeting on Wednesday.

EUR/USD struck a sluggishly bullish note on Monday, drifting into the high end of near-term consolidation just north of the 1.0500 handle, albeit with a notable lack of conviction. European data is comparatively limited this week, leaving Fiber traders to face a hefty data docket on the US side of things.

Markets largely overlooked multiple European Central Bank (ECB) officials' appearances to kick off the new week. European December PMI figures surpassed expectations, yet Services PMI surveys remain in contraction due to concerns over a deepening economic slowdown in Europe, which continues to unsettle investors and businesses.

Markets are anticipating the Fed’s rate decision on Wednesday, with a 25 bps rate cut fully factored in at 99.1%, according to the CME’s FedWatch Tool. Traders will pay close attention to the Fed’s revised Summary of Economic Projections (SEP) and the interest rate predictions from policymakers.

US PMI data for December presented a mixed picture: the Services PMI hit multi-year highs, whereas the Manufacturing PMI dropped further below 50.0, indicating a contraction. Retail Sales figures will be released on Tuesday but may attract limited market focus ahead of the Fed’s final rate decision of the year.

EUR/USD price forecast

The EUR/USD daily chart reflects an overall bearish trend, as the pair continues to trade below both the 50-day EMA at 1.0659 and the 200-day EMA at 1.0810. The downward-sloping moving averages confirm sustained selling pressure, with the euro unable to regain meaningful ground against the dollar. The MACD indicator remains subdued, with its signal line hovering below zero, signaling weak momentum and caution from buyers.

The most recent candle reveals modest bullish action as EUR/USD closed slightly higher at 1.0517, marking a small rebound after several sessions of sideways movement. However, the pair remains unable to convincingly break above the 1.0550 resistance zone, suggesting limited upside potential in the near term. If buyers gain traction, a retest of the 50-day EMA near 1.0660 could be on the cards. Conversely, failure to sustain this rebound may expose the pair to renewed selling pressure, with support at 1.0450 likely to come into focus. The overall sentiment remains bearish until a clear break above key resistance levels materializes.

EUR/USD daily chart

• WTI price trades on a flat note around $70.20 in Tuesday’s early Asian session. 
• Weak Chinese spending data might weigh on the WTI price. 
• Geopolitical risks could cap its downside despite bearish market pressure.

West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $70.20 on Tuesday. The WTI price trades flat as traders await the Federal Reserve's (Fed) interest rate decision on Wednesday. However, the concerns over sluggish global demand growth in China might cap the upside for the black gold for the time being. 

Chinese November Retail Sales came in slower than expected, raising the fear of weakness in consumer spending in China. This, in turn, undermines the WTI price as China is the world's largest oil importer.

Data released by the National Bureau of Statistics of China showed on Monday that the nation’s Retail Sales rose 3.0% YoY in November versus 4.8% prior, below the market consensus of 4.6%. "It's just a very bearish scenario where there's not a lot hope of demand growth for crude oil," said Bob Yawger, director of energy futures at Mizuho in New York.

Analysts believe the markets might turn cautious, and traders could take profits while awaiting the Federal Reserve's (Fed) interest rate decision on Wednesday. The US Fed is anticipated to cut interest rates by 25 basis points (bps) at the December meeting. Traders will take more cues from the press conference and dot-plot after the monetary policy meeting. Any hawkish remarks from the Fed officials might lift the Greenback and drag the USD-denominated commodity price lower. 

On the other hand, the geopolitical risks amid additional sanctions on crude producers Russia and Iran might help limit the WTI’s losses. US Treasury Secretary Janet Yellen emphasized the possibility of targeting Chinese banks and “dark fleet” tankers to curb oil revenue funding Russia’s war in Ukraine. Furthermore, heightened sanctions on Iranian crude exports might boost the WTI price. 

• GBP/USD recovered ground on Monday, edging back toward the 1.2700 handle.
• Cable traders are bracing for a tense week with a central bank double-header on the cards.
• The Fed is widely expected to trim rates once more, while the BoE is seen standing pat.

GBP/USD snapped a three-day losing streak that dragged the pair down toward the 1.2600 handle last week, recovering a little over one-half of one percent on Monday and pushing back into touch range of 1.2700.

UK Services PMI survey results hit an 11-month low in December, but a rise in the Manufacturing component supported Cable sentiment. GBP traders will focus on Tuesday’s UK wages and labor data, with quarterly Average Earnings expected to rise to 5% YoY.

Markets await the Fed’s rate decision on Wednesday, with a 25 bps cut fully priced in at 99.1%, per the CME’s FedWatch Tool. Traders will closely monitor the Fed’s updated Summary of Economic Projections (SEP) or the interest rate forecasts from policymakers.

US PMI figures for December were mixed: Services PMI reached multi-year highs, while Manufacturing fell below 50.0, signaling contraction. Retail Sales data will be released Tuesday but may receive limited market attention ahead of the Fed’s final rate decision of the year.

GBP traders will catch a fresh update to UK Consumer Price Index (CPI) inflation figures on Wednesday, with the rest of the Cable market awaiting the Bank of England’s (BoE) latest rate call slated for Thursday. The BoE is expected to hold steady on interest rates in an eight-to-one vote split, with one particularly dovish BoE policymaker expected to vote for another cut.

GBP/USD price forecast

The GBP/USD daily chart reflects a broader bearish trend, with price action remaining capped below both the 50-day EMA at 1.2802 and the 200-day EMA at 1.2820. The downward sloping moving averages reinforce the bearish sentiment, as sellers continue to dominate the market following the pair’s failure to reclaim key resistance levels. The MACD indicator remains subdued, with its histogram showing limited bullish momentum, suggesting that upside attempts could face strong headwinds.

The latest candlestick, a small-bodied green candle, signals a modest recovery after the prior session’s sharp decline. However, the rebound remains limited, with the pair struggling to gain traction above the 1.2700 handle. This price action suggests indecision among traders and highlights the risk of another bearish leg. If sellers regain control, a move toward the 1.2600 support zone appears likely. On the flip side, a sustained break above the 50-day EMA could bring the 1.2820 region into focus, where stronger resistance awaits. Until then, GBP/USD remains vulnerable to downside pressures.

GBP/USD daily chart