The USD/JPY pair trades flat around 154.10 during the early Asia session on Tuesday. Traders prefer to wait on the sidelines ahead of the Federal Reserve (Fed) and the BoJ interest rate decision later this week. On Tuesday, the US November Retail Sales will be published.
The strong US economic data fails to boost the Greenback as the markets turn cautious ahead of the key events. Data released by S&P Global on Monday showed that the US Composite Purchasing Managers Index (PMI) rose to 56.6 in December’s flash estimate versus 54.9 prior. Meanwhile, the Services PMI improved to 58.5 in December’s flash estimate from 56.1. The Manufacturing PMI declined to 48.3 from 49.7.
The Fed will make its next decision on interest rates on Wednesday, which is widely expected to cut rates by 25 basis points (bps). According to the CME FedWatch tool, markets are now almost fully pricing a 25 basis points (bps) cut at the Fed's December meeting, compared with about a 78% chance a week ago. Investors will closely monitor Fed Chair Jerome Powell's press conference and Summary of Economic Projections (dot-plot) after the meeting.
On the other hand, the growing expectation that the Bank of Japan (BoJ) will keep rates steady at the December meeting on Thursday might weigh on the Japanese Yen (JPY). The markets are currently pricing in less than a 30% possibility of a rate hike in December. Several BoJ policymakers appear to be in no rush to tighten their monetary policy further with little risk of inflation overshooting despite Japan's still near-zero borrowing costs.
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
The Brazilian real weakened to an all-time low against the Greenback of 6.1496 on Monday after President Luiz Inacio Lula da Silva, known as Lula, criticized higher interest rates set by the Banco Central Do Brazil (BCB). At the time of writing, the USD/BRL trades at 6.1478. up by 2.92%.
On Sunday, Lula Da Silva called interest rate hikes “irresponsible” after the BCB decided to raise rates after market participants were disappointed of the budget deficit, which is currently about 10% of Brazil’s Gross Domestic Product (GDP).
Last week, the central bank decided to lift the Selic Rate by 100 basis points to 12.25% and hinted that two moves of the same size are on the cards. Initially, the USD/BRL dipped as low as 5.8694 but ended last Thursday’s session at 5.9923.
In its monetary policy statement, the BCB blamed the market’s negative reaction to the fiscal package, which is inflation-prone, sending inflation expectations above the central bank’s 3% target.
The Brazilian Real (BRL) began the week at 6.0687 and extended its losses despite the BCB intervention in the financial markets. On Monday, the central bank sold over $1.63 billion US Dollars in the spot market.
Ian Lima, money manager at Inter Asset, said, “The intervention should not change the trend, which continues to be driven by the strong global dollar and fiscal uncertainties.”
The Brazilian Real has been under stress after investors grew concerned about the budget deficit.
According to Bloomberg, “Brazilian assets have been battered by growing pessimism on the outlook for the country’s growing budget deficit. Lula has increased spending since taking office in 2023 to fulfill pledges of improving living standards for poor Brazilians.“
The Brazilian currency has depreciated over 20% in the year and is set to extend its losses as the USD/MXN eyes a test of 6.200.
A weekly BCB survey of private economists showed that the median sees inflation forecasts higher, and they expect the Selic Rate to peak at 14.25% in March of 2025.
Brazil’s November inflation finished at 4.87% YoY, above the 4.5% upper end of the BCB’s 1.5% to 4.5% target range. Policymakers vowed to bring inflation back to its 3% goal.
The NZD/USD pair managed a modest recovery on Monday, gaining 0.29% to trade near 0.5780. Although this uptick indicates a slight reduction in selling pressure, the pair continues to trade below the 20-day Simple Moving Average (SMA), currently near 0.5850, which remains a key hurdle to overcome.
Technical indicators reflect a tentative improvement but maintain a bearish slant. The Relative Strength Index (RSI) has climbed to 39, up from near-oversold territory, suggesting fading downside momentum. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram prints decreasing red bars, signaling that bearish traction may be waning. Still, the pair’s inability to rise above its 20-day SMA keeps the overall outlook negative.
Looking ahead, a decisive break above the 20-day SMA would be required to shift sentiment and encourage buyers to engage more confidently. On the downside, immediate support emerges around the 0.5750 region, followed by the 0.5700 mark if sellers regain control.
The Canadian Dollar (CAD) hit another soft spot on Monday, testing into a 56-month low near 1.4250 against the US Dollar. With the Loonie falling to its lowest prices in almost five years against the Greenback, soft language from Bank of Canada (BoC) Governor Tiff Macklem and a tumultuous release of Canada’s latest Federal Economic Statement did little to assuage investor concerns.
Canada is now expected to see slightly-lower growth in 2025 and 2026, and a rosier-than-before outlook on Canadian Gross Domestic Product (GDP) growth in 2024 is being met with some scepticism from CAD traders. Canadian Finance Minister Chrystia Freeland resigned from her post early Monday, throwing the government’s FES release into a tailspin as investors scrambled to figure out who would deliver the report.
Fresh downside for the Canadian Dollar has bolstered USD/CAD to fresh multi-year highs, with the pair testing 1.4275 on Monday. USD/CAD has closed higher on a weekly basis for all but two of the last ten consecutive weeks.
CAD technical chart bulls will be looking for a downside turnaround in the USD/CAD chart, as near-term price action runs well ahead of the 50-day Exponential Moving Average (EMA) rising into 1.4000. A long-term sideways grind reveals itself on monthly candles, but a bull run in Greenback flows renders USD/CAD short position accumulation a hazardous affair.
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
The Australian Dollar holds the bounce above 0.6350 in Monday’s session, supported by mixed Chinese economic releases and a softer US Dollar. Traders remain focused on Wednesday’s Federal Reserve (Fed) interest rate decision, which could shape near-term price action.
On the data front, S&P PMIs came in strong but failed to give the USD traction.
The Relative Strength Index (RSI) sits near 34, hovering close to oversold conditions with little directional bias. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram prints decreasing red bars, underscoring weakening momentum. With the pair deep in negative terrain, an upward correction might occur if the USD continues softening. That might be triggered on Wednesday after the Fed’s decision.
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
The EUR/AUD consolidates below 1.6500 for the second consecutive day and trades at 1.6499, virtually unchanged. The Eurozone is experiencing turbulent moments amid political issues in France and Germany, two of the bloc's largest economies. Although the Euro holds firm, the end of the year keeps traders from opening fresh bets against the shared currency.
The EUR/AUD consolidates, forming a ‘doji,’ meaning neither buyers nor sellers are in control. The Relative Strength Index (RSI) is bullish, though the slope turned flat, meaning the cross would likely remain sideways.
For a bullish resumption, the EUR/AUD first resistance would be the December 11 high at 1.6574. Once surpassed, the next stop would be the 1.6600 figure. Conversely, if EUR/AUD extends its losses below 1.6450, the next support would be the 100-day Simple Moving Average (SMA) at 1.6375, followed by the 200-day SMA at 1.6359.
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day, according to data from the Bank of International Settlements. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
Bank of Canada (BoC) Governor Tiff Macklem spoke at the Vancouver Board of Trade on Monday, spinning an expected drag on Canadian economic growth as a positive on the hopes that lagging growth at the nation-wide level could, in theory, limit a reignition in inflationary pressures.
Big structural changes are already underway, such as deglobalization, demographic shifts, digitalization, and decarbonization.
In the future, the world is set to be more prone to shocks than we would all like.
There are risks around our inflation outlook; we are equally concerned with inflation coming in higher or lower than expected.
The combination of higher sovereign debt, higher long-term interest rates, and lower economic growth is making the world more vulnerable.
We also need to improve our analysis and ensure our monetary policy framework is fit for purpose.
The economy could continue to grow below its potential which would pull inflation down.
Elevated wage increases combined with weak productivity could boost inflation as businesses look to pass on higher costs.
The US Dollar eased slightly as investors pivot toward the Federal Reserve’s (Fed) latest rate call due in the middle of the week. Sentiment is riding on the high side, albeit cautiously, as markets widely anticipate a third straight quarter-point rate cut from the Fed.
Here’s what you need to know heading into Tuesday, December 17:
The US Dollar Index (DXY) eased one-sixth of a percent lower on Monday, crimping recent gains and pausing at the top of a near-term bull run as markets await the Fed’s latest rate call slated for Wednesday. A 25 bps rate trim is fully priced in with 99.1% odds, according to the CME’s FedWatch Tool. Traders will also be keeping a close eye on the Fed’s latest update to its Summary of Economic Projections (SEP), or the “dot plot” of interest rate forecasts from Fed policymakers themselves.
US Purchasing Managers Index (PMI) figures for December came in mixed on Monday, with Services PMI survey results rising to multi-year highs and the Manufacturing component sinking further than expected in a sharp pullback, falling away from the 50.0 midline and plunging back into contractionary expectations territory. US Retail Sales figures will land on Tuesday, but could see a crimped market response as the Fed’s last rate call of the year hulking just around the corner.
EUR/USD cycled familiar levels near 1.0500 to kick off the new trading week as markets broadly ignored a flurry of appearances from European Central Bank officials early in the day. European PMI figures for December broadly beat expectations. Still, Services PMI surveys remain stumped in contraction territory as worries of a steepening economic slowdown across European continue to grip investors and business operators.
GBP/USD snapped a three-day losing streak, clawing back 0.55% through Monday’s trading and pushing bids back into the 1.2700 handle. UK Services PMI figures fell to an 11-month low, but a welcome uptick in the Manufacturing component helped to keep Cable sentiment bolstered into the high end. GBP traders will now be focusing on Tuesday’s upcoming UK wages and labor data, where quarterly Average Earnings are expected to accelerate to 5% on a yearly basis.
USD/JPY climbed back above the 154.00 handle on Monday, climbing a little under one-third of one percent. The Japanese segment of this week’s economic data docket is a thin affair, but the Bank of Japan’s (BoJ) latest rate call is looming ahead on Thursday. The BoJ is broadly expected to keep rates on hold yet again in December, and investors are looking to understand exactly what conditions would convince the Japanese central bank to continue raising interest rates.
The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).
Read more.Next release: Wed Dec 18, 2024 19:00
Frequency: Irregular
Consensus: 4.5%
Previous: 4.75%
Source: Federal Reserve
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
The Mexican Peso begins the week on the back foot, yet it remains near the 50-day Simple Moving Average (SMA) at 20.11 as US business activity expanded in the services sector while manufacturing remains depressed. At the time of writing, the USD/MXN trades with minimal gains of over 0.06%, virtually unchanged.
US S&P Global revealed December’s Flash PMIs, which came in mixed. The Services and Composite PMIs jumped above the prior month’s reading, indicating economic strength. However, manufacturing activity contracted after hitting its highest level in the last six months.
The USD/MXN ignored the data yet held to earlier gains. The exotic pair could witness some volatility in the next few days as the Federal Reserve (Fed) and the Banco de Mexico (Banxico) will announce their latest monetary policy decisions.
The CME FedWatch Tool data show that the Fed is expected to cut rates by 25 basis points on December 18 with odds at 98%. Meanwhile, a Reuters poll showed that 20 of 22 economists expect Banxico to cut rates by 25 bps to 10.00%, while two estimate the institution will lower rates by 50 bps.
Mexico’s data last week gave the green light to its central bank to ease policy. November inflation data confirmed that the disinflation process is accelerating.
This week, Mexico will feature Retail Sales data, Aggregate Demand, Private Spending, and Banxico’s interest rate decision. In the US, Retail Sales, Building Permits, the Federal Open Market Committee (FOMC) decision, and the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, could dictate the monetary policy path for the US central bank.
The USD/MXN remains upwardly biased, though it seems likely to edge lower in the near term. Momentum shifted bearishly with the Relative Strength Index (RSI) falling below its neutral level. If sellers can hurdle some support levels, the exotic pair will see further downside.
The 50-day Simple Moving Average (SMA) at 20.08 continued to cap the USD/MXN fall. If surpassed, the next stop would be the 20.00 figure, with further drops seen to the 100-day SMA at 19.71. A breach of the latter will expose 19.50.
Conversely, if USD/MXN climbs past 20.25, immediate resistance would be 20.50. Once hurdled, it will expose the December 2 daily high of 20.59, followed by the year-to-date peak of 20.82, followed by the 21.00 mark.
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, trades slightly lower on Monday after a string of data and headlines placed added attention on the upcoming Federal Reserve (Fed) rate decision. The Greenback eases off last week’s strong rally as Chinese economic data and stimulus measures bolster risk appetites.
Despite these developments, rising US Treasury yields help limit losses for the US Dollar, even as the market has priced in a cut on Wednesday. Overall, the currency remains sensitive to incoming data and central bank cues.
Indicators recovered significant ground last week but may lack the momentum to break above the 107.00-108.00 zone. On Monday, the Index has retreated from recent highs, reflecting a pause after last week’s rally.
Still, the outlook remains constructive if the DXY can hold above its 20-day Simple Moving Average (SMA). With mixed data and a pivotal Fed decision looming, traders may remain cautious, awaiting clearer directional cues before pushing the US Dollar materially higher.
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from the Bank for International Settlements. Following the Second World War, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold until the Bretton Woods Agreement in 1971, when the Gold Standard went away.
The Dow Jones Industrial Average (DJIA) continues to churn on the low end of recent chart action, with the major equity index bogged down near 43,800. Investors are gearing up for the Federal Reserve’s (Fed) last policy meeting of the year, with the US central bank widely expected to deliver one last quarter-point rate cut before investors wrap it up for the holiday season.
US Purchasing Managers Index (PMI) activity figures came in mixed on Monday, with the US Services component accelerating to its highest print in just over three years while the Manufacturing component eased back further into contraction territory. December’s US Services PMI confidence survey results showed aggregated expectations for business activity have risen to 58.5, the highest level since November of 2021. Median market forecasts had expected a downside print of 55.7 versus November’s 56.1. On the Manufacturing PMI side, business expectations declined more than expected, falling to 48.3 compared to the anticipated 49.4 and last month’s 49.7.
It’s a full docket this week with high-weight US data dropping on markets every day through to the weekend, with US Retail Sales on Tuesday, US Gross Domestic Product (GDP) figures on Thursday, and US Personal Consumption Expenditure Price Index (PCE) inflation on Friday. However, the key event this week is the Fed’s last rate call of 2024. Fed officials head behind closed doors to deliberate during a two-day meeting on Tuesday, with the Fed’s final decision rendered on Wednesday. This week’s Fed meeting carries additional weight, as the US central bank will also be updating its ‘dot plot’ of interest rate expectations. Traders widely expect the Fed to reduce its policy rate by 25 bps to 4.5%.
The Dow Jones is teetering near the midpoint on Monday, with winners and losers cut roughly down the middle. Unitedhealth Group (UNH) is shedding weight, falling 3.7% and testing $501 per share, while Honeywell International (HON) is rising after news the company may be streamlining its operations and splitting off its aerospace division into a separate company. HON is up around 3.6%, trading near $236 per share.
The Dow Jones is continuing its slow bleed down the charts on Monday, kicking off a new trading week holding on the low end. The Dow has posted declines for the last seven consecutive sessions, and further weakness is likely as price action falls back to the 50-day Exponential Moving Average (EMA) near 43,500.
Despite near-term softness, the Dow Jones still holds comfortably on the high end of long-term momentum. The Dow is still trading above the last swing low into the 43,000 handle, and has closed higher for all but two of the last 12 straight trading months.
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
European Central Bank (ECB) Executive Board member Isabel Schnabel hit wires on Monday, cautioning that while lowering rates is the goal, the ECB still needs to be ready to respond to any shocks that could threaten inflation expectations.
We should proceed with caution and remain data-dependent.
Price stability is within reach.
Lowering policy rates gradually towards a neutral level is the most appropriate course of action.
Monetary policy should focus on responding forcefully to shocks that have the capacity to destabilise inflation expectations.
Gradual removal of policy restriction remains appropriate.
Over the next twelve months an economic expansion is still much more probable than a recession.
Monetary policy can't resolve structural issues.
Risks to inflation outlook broadly balanced.
Interest rates are approaching neutral levels.
Confidence is growing that we are on track to hit 2% goal.
The Euro's fall is putting upward pressure on import prices.
Gold prices edge slightly higher during the North American session at the beginning of the week, up by 0.28%, as investors await the Federal Open Market Committee (FOMC) decision. At the time of writing, the XAU/USD trades at $2,643, above its opening price but off the highs of the day.
The US economic docket remains light with the release of S&P Global Flash PMIs for December, which came mixed. Business activity in the manufacturing sector weakened after improving last month, while the services sector printed its highest reading in 2024.
The data lifted the Greenback, which according to the US Dollar Index (DXY) rose 0.07% to 107.01. Meanwhile, Bullion dipped from daily highs of $2,664.
The Federal Reserve (Fed) will meet for the last time this year on December 17 and 18. Estimates suggest the Fed will cut interest rates by 25 basis points, but traders are eyeing the release of the Summary of Economic Projections (SEP) to grasp the path of interest rates in 2025.
Lower interest rates are usually a tailwind for the non-yielding metal. However, there is growing speculation that the Fed might adopt a gradual stance as the upcoming Trump administration hints at inflation-prone fiscal policies.
Gold prices tend to rise in lower rate environments and with higher geopolitical risk, which have both subsided of late.
The US economic docket will feature the release of Retail Sales, Industrial Production, the FOMC policy decision, and the release of the core Personal Consumption Expenditures (PCE) Price Index.
The Gold price uptrend remains intact, yet trades off last week’s lows beneath the 50-day Simple Moving Average (SMA) of $2,670. The Relative Strength Index (RSI) breached below its neutral line, indicating that sellers are in charge.
If Gold prices drop below $2,650, the next support would be the 100-day SMA at $2,600. On further weakness, the next stop would be the August 20 peak at $2,531. Conversely, if XAU/USD rallies past $2,650, the next resistance would be the 50-day SMA at $2,670, ahead of $2,700.
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
The EUR/USD pair managed another mild recovery on Monday, drifting slightly above the 1.0500 mark after bouncing from recent lows. Although the pair approached the 20-day Simple Moving Average (SMA) near 1.0520, it once again failed to breach this key resistance level, maintaining a cautious outlook.
Technical indicators reflect a tentative improvement but remain skewed to the downside. The Relative Strength Index (RSI) has ticked higher to 43, indicating a mild gain in buying interest, but it still resides in negative territory. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram is now printing rising green bars, suggesting early signs of stabilizing momentum. However, the pair’s inability to overcome the 20-day SMA undermines the sustainability of any bullish attempt.
For a meaningful shift in sentiment, EUR/USD would need a decisive break above the 20-day SMA at around 1.0520. Until that occurs, the bias remains tilted to the downside, with initial support seen at the psychological 1.0500 level, followed by the 1.0480 area. A failure to hold above these levels could open the door to further losses, reinforcing the overall bearish perspective.
IP growth picked up partly due to base effect; FAI and retail sales growth normalised from October jump. Housing demand may have improved, with positive developments in new home sales and home prices. 2024 growth target is likely to be achieved; we maintain our 2025 growth forecast at 4.5%, Standard Chartered's economists Hunter Chan and Shuang Ding note.
"Real activity performance was mixed in November, with production activity still resilient while retail sales and investment growth moderated after a spike in October. Industrial production (IP) growth picked up 0.1ppt to 5.4% y/y in November, versus the Q3 average of 5%. Services production index growth eased 0.2ppt m/m to 6.1% in November, compared with the Q3 average of 4.8%. We estimate that monthly GDP growth stayed above 5% y/y for another month."
"Fixed asset investment (FAI) grew 3.3% y/y in 11M-2024, 0.1ppt slower than in 10M-2024, dragged down mainly by real estate investment (-10.4% y/y in 11M-2024). Commodity retail sales growth normalised to 2.8% y/y from 5% in October after a boost due to the early start of the online shopping festival and the National Day holidays. The surveyed unemployment rate stayed at 5% for a second straight month."
"October and November data suggests that economic growth momentum accelerated from Q3. The authorities have shown confidence recently in meeting this year’s annual growth target of around 5%. The Politburo meeting and Central Economic Work Conference (CEWC) set a pro-growth policy stance for 2025, with a wider fiscal deficit and looser monetary policy. We maintain our 2025 growth forecast at 4.5%, as we expect stimulus to partially offset higher tariffs."
US S&P Global Composite PMI rose to 56.6 in December's flash estimate from 54.9 in November, showing that the business activity in the US' private sector continued to expand at an accelerating pace.
S&P Global Services PMI improved to 58.5 from 56.1. On a negative note, the Manufacturing PMI declined to 48.3 from 49.7 in the same period.
Assessing the survey's findings, "business is booming in the US services economy, where output is growing at the sharpest rate since the reopening of the economy from COVID lockdowns in 2021," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
"It’s a different picture in manufacturing, however, where output is falling sharply and at an increased rate, in part due to weak export demand," Williamson added.
The US Dollar Index edged higher with the immediate reaction to PMI figures and was last seen rising 0.2% on the day at 107.15.
The NZD/USD pair rises to near 0.5785 in Monday’s North American session after refreshing a yearly low near 0.5750 on Friday. The Kiwi pair gains as the US Dollar (USD) exhibits a subdued performance, with investors focusing on the Federal Reserve’s (Fed) interest rate decision, which will be announced on Wednesday.
Investors expect the Fed to cut interest rates by 25 basis points (bps) to 4.25%- 4.50%. Market participants will focus primarily on Fed Chair Jerome Powell’s commentary in the press conference after the policy decision to gauge the impact of President-elect Donald Trump’s policies on the interest rate outlook.
According to analysts at Macquarie, the Fed’s stance on the interest rate outlook could turn “slightly hawkish” from “dovish.” “The recent slowdown in the pace of US disinflation, a lower Unemployment Rate than what the Fed projected in September, and exuberance in US financial markets are contributing to this more hawkish stance,” analysts at Macquarie said.
Meanwhile, the New Zealand Dollar (NZD) will be guided by the Q3 Gross Domestic Product (GDP) data, which will be published on Thursday. The New Zealand (NZ) economy is estimated to have contracted by 0.4% compared to the same quarter of the previous year, slower than the 0.5% decline in the previous quarter.
The NZD/USD daily chart shows a Bullish Divergence, which suggests a slowdown in selling momentum that results in a reversal move. While the asset has formed a lower low on a daily timeframe, the 14-day Relative Strength Index (RSI) has made higher lows. The formation needs confirmation to set off a bullish reversal.
A decisive break above the November 29 high of 0.5930 could confirm a reversal setup and push it higher to the November 15 high of 0.5970 and the psychological resistance of 0.6000.
However, the chances of a bullish divergence confirmation are weak due to unsupportive NZ fundamentals. If the Kiwi pair breaks below the two-year low of 0.5770, it could fall to the November 2022 low of 0.5740 and the round-level support of 0.5700.
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
The USD/JPY extended its gains as the Japanese Yen (JPY) remains the laggard in the G10 FX complex. Although Japan’s Jibubank Flash PMIs for December improved, traders ignored the data. The pair trades above the 154.00 figure, a level last seen in November 26.
the USD/JPY continued to extend its gains, past the 200-day Simple Moving Average (SMA) and the Kijun-Sen, opening the door to clear 153.00 and the previously mentioned 154.00.
Momentum favors further USD/JPY upside as depicted by the Relative Strength Index (RSI), which aims higher.
The first resistance would be the November 20 daily high at 155.89. A breach of the latter will expose 156.00, followed by the November 15 swing high of 156.75. Conversely, if USD/JPY tumbles below 154.00, the first support is the Kijun-sen at 152.69, followed by the Senkou Span A at 152.21. if surpassed, the next support would be the confluence of the 50 and 200-day SMAs at 152.10-11
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the Canadian Dollar.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | -0.05% | -0.37% | 0.23% | 0.09% | -0.03% | -0.18% | -0.05% | |
EUR | 0.05% | -0.27% | 0.39% | 0.21% | 0.20% | -0.05% | 0.06% | |
GBP | 0.37% | 0.27% | 0.55% | 0.48% | 0.47% | 0.20% | 0.33% | |
JPY | -0.23% | -0.39% | -0.55% | -0.16% | -0.27% | -0.40% | -0.21% | |
CAD | -0.09% | -0.21% | -0.48% | 0.16% | -0.07% | -0.27% | -0.15% | |
AUD | 0.03% | -0.20% | -0.47% | 0.27% | 0.07% | -0.24% | -0.13% | |
NZD | 0.18% | 0.05% | -0.20% | 0.40% | 0.27% | 0.24% | 0.11% | |
CHF | 0.05% | -0.06% | -0.33% | 0.21% | 0.15% | 0.13% | -0.11% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
The AUD/USD pair surrenders its intraday gains and turns flat after failing to extend its upside move above 0.6380 in Monday’s North American session. The Aussie pair gives up gains as the US Dollar (USD) recovers its intraday losses ahead of the United States (US) flash S&P Global Purchasing Managers’ Index (PMI) data for December, which will be published at 14:45 GMT.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, wobbles near 107.00.
Economists expect the US Composite PMI to have expanded but at a slower pace due to cooler growth in the services sector and a sharp contraction in the manufacturing sector. Investors will also pay close attention to new orders data and respondents’ views on likely protectionist policies by upcoming President-elect Donald Trump.
The Federal Reserve’s (Fed) monetary policy decision, which will be announced on Wednesday, will be the major trigger for the US dollar this week. According to the CME FedWatch tool, traders fully priced in a 25-basis-point (bps) interest rate reduction to 4.25%- 4.50%.
Investors will also focus on the Fed’s dot plot and the inflation outlook to know whether officials see Federal Fund rates heading in the medium and long term. According to a Bloomberg survey, the Fed is expected to deliver three interest rate cuts in 2025.
Meanwhile, the Australian Dollar (AUD) will be influenced by market expectations about when the Reserve Bank of Australia (RBA) will start reducing interest rates. RBA dovish bets faded after the Australian employment data came in better than expected.
The Australian economy added 35.6K workers, higher than estimates of 25K and the former release of 12.1K. The Unemployment Rate surprisingly fell to 3.9% from 4.1% in October, which was expected to accelerate to 4.2%.
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Despite some sloppy GDP data for October reported Friday and today’s less than stellar December PMIs, there is little anticipation of any BoE rate action this week. Markets have priced in just 2bps of easing risk for the decision Thursday, Scotiabank’s Chief FX Strategist Shaun Osborne notes.
“The Pound Sterling (GBP) picked up a little ground on the US Dollar (USD) from the start of trade in Asia and gains accelerated a little around this morning’s data, which saw a small beat on the Services PMI. EURGBP edged back under 0.83.”
“GBP/USD has recovered a little of last week’s drop in trade so far today but the intraday look of price action suggests a short-term block at least on gains through the upper 1.26s that may undermine a further rebound. Some sideways trading between support at 1.2600/10 and 1.2670/75 may result.”
The Euro (EUR) got a minor boost earlier from slightly better than expected preliminary December Eurozone PMI data, Scotiabank’s Chief FX Strategist Shaun Osborne notes.
“French and German Services activity were stronger than forecast, helping lift the Eurozone Services component to 51.4, more than two points above November’s result. But the EUR is struggling to maintain any positive momentum amid lingering trade concerns.”
“Moody’s cut France’s sovereign credit rating from Aa3 to Aa2 in an unscheduled announcement late Friday, meanwhile. The Bund/ OAT spread widened slightly in early trade but has corrected back to near levels prevailing at the close of trade in Europe on Friday.”
“The EUR is just about holding on to its December trading range. Despite a decent rebound on Friday, the EUR is struggling to hold a bid above 1.05 still and intraday price action looks somewhat negative at this point, suggesting another rejection of 1.05+ levels. Support is 1.0450/60. Resistance is 1.0535/40.”
There is no relenting in the still developing pressure on the Canadian Dollar (CAD). Spot is holding close to recent peaks amid mounting concerns facing Canada from the trade policy perspective, Scotiabank’s Chief FX Strategist Shaun Osborne notes.
“Those worries are keeping the USD well-supported at levels that are starting to stretch the CAD’s deviation from our fair value estimate (1.4144 today) but that deviation is all but certain to grow further unless US/Canada trade tensions ease.”
“Finance Minister Freeland will deliver the fall economic update this afternoon which may show the government slipping from its fiscal commitments. BoC Governor Macklem speaks in Vancouver this afternoon (comments drop at 15.20ET).”
“USD/CAD continues to pressure resistance in the low/mid 1.42s and there is scant sign of the strong bull trend relenting. Technically, gains to minor resistance at 1.4350 and a retest of 1.4668 are likely in the short and medium term respectively. Solid bull trend momentum means USD dips will remain well supported—to the low mid-1.41s initially and certainly closer to 1.3950/1.40 for now.”
Silver Prices (XAG/USD) are trading in a mild positive bias on Monday, trimming some losses after the rejection from levels above $32.00 last week. A mild retreat in US Treasury yields is supporting precious metals on Monday but the overall picture shows the pair vulnerable.
The daily chart reveals a sharp reversal pattern last week, which triggered a more than 4% sell-off in the last half of the week. Upside attempts are looking feeble so far, with previous support at $30.85 likely to challenge bulls.
So far the current recovery seems corrective, unable to put a significant distance from Friday’s low, at $30.30. Below here, December’s low at the $30.00 round level might provide some support ahead of the key $29.65 level.
To the upside, immediate resistance is at $31.00. Above here, $31.45 (November 18, 24 and December 4 high and December 11 low) will be targeted ahead of last week’s highs at $32.30.
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
In China, the significant decline in the current interest rate for 10-year government bonds continues, and today's economic data are not likely to do much to stop this trend. Since the beginning of the month alone, the current interest rate has fallen by around 30 basis points and, at 1.72%, is now well below the 2.25% that the PBoC still considered the lower limit at the middle of the year. Meanwhile, the interest rate on 30-year Chinese government bonds fell below the 2% mark for the first time this morning, Commerzbank’s FX analyst Volkmar Baur notes.
“As data published today shows, domestic demand in particular continues to cause problems. Retail sales weakened again in November after a stronger October and rose by only 3% year-on-year, while analysts had expected 5%. And investments also failed to meet expectations once again. In the housing market, home sales rose year-on-year for the first time in a long while, but housing starts and building activity remain well below last year's levels.”
"However, it is still unclear what triggered this massive slide in current interest rates this month. After all, the economy has been weaker for quite some time and has not deteriorated dramatically in recent weeks. What is clear, however, is that the bond market is sending a warning signal that could also have an impact on the currency market.”
“Now, the links between interest rate and foreign exchange markets in China are not as obvious and direct as in other countries. After all, the currency is controlled and managed by the central bank. However, this increasing discrepancy between interest rate differentials and exchange rates will have to be closed in some way. Either through rising interest rates in China, falling interest rates in the US, or a higher USD/CNY.”
The US Dollar (USD) squeezed out a sixth, if marginal, consecutive gain overall on Friday and the Dollar Index (DXY) is tracking marginally higher for a potential seventh to start the week off, Scotiabank’s Chief FX Strategist Shaun Osborne notes.
“The Pound Sterling (GBP) and Swiss Franc (CHF) are moderate outperformers on the session, however, while the USD has firmed a little against the Euro (EUR), Japanese Yen (JPY) and the commodity currencies. Despite typically negative seasonal trends for the USD through December, the USD looks unlikely to concede much, if any, ground in the short run.”
“The holidays are looming but there is still a fair bit of event risk to negotiate this week, namely the FOMC decision Wednesday. Market expectations are veering towards a hawkish cut—that is a 1/4-point ease to match market expectations accompanied by a guidance that suggests a more cautious policy path in 2025. Forecast updates may reflect an improved growth outlook, lower unemployment but higher inflation.”
“Markets will be particularly sensitive to any changes in the dot plot. A more cautious-sounding Fed will underpin the recent rebound in yields and repricing in Fed expectations and provide further support for the USD. Central bank policy decisions in the UK, Japan, Sweden, Norway and Mexico are also due later this week. US data reports today are confined to the December Empire survey and S&P Global PMIs.”
The US Dollar (USD) trades slightly lower on Monday after a string of data and headlines that took away the attention from the US Federal Reserve’s rate decision, which will be released later this week on Wednesday.
The first move on Monday was initiated after Chinese Retail Sales came in at 3.0% for November, below analysts’ lowest estimate of 4.2% and far below the median estimate of 5.0%. Clearly, the stimulus measures the Chinese government has implemented are not having the impact markets expected them to.
Meanwhile, preliminary S&P Global and Hamburg Commercial Bank (HCOB) Purchase Managers Index (PMI) data for December have been released for European countries and the Eurozone. Overall, manufacturing is sinking further into contraction in both France and Germany. The sole outlier is German Services, which is popping back into expansion at 51.0 against the 49.3 expected.
German Chancellor Olaf Scholz will be able to use that last data point in his favor during his scheduled meeting at the Bundestag later this Monday, where the chancellor is facing a vote of no confidence. If he loses, the German government will fall, following France’s, with snap elections set to take place possibly on February 23.
The US economic calendar includes the release of the preliminary S&P Global PMI for December, which could be used to compare the US with European data and might drive a firm move in favor of the US Dollar if the US services sector expands further, outpacing the European one.
The US Dollar Index (DXY) shows signs of fatigue, with price action slowing down and starting to trade sideways. Traders feel comfortable with what has been priced in and are probably awaiting anything else until President-elect Donald Trump takes office or should US data fuel any move. The uncertainty on which measures Trump will put in place and which are just threats used as bargaining chips could keep the DXY in a chokehold until late January.
On the upside, 107.00 remains a key level that needs to be reclaimed before considering 108.00. When and if that finally happens, the fresh 2-year high at 108.07, recorded on November 22, is the next level to watch for.
Looking down, 106.52 is the new first supportive level in case of profit-taking. Next in line is the pivotal level at 105.53 (the April 11 high), which comes into play before heading into the 104-region. Should the DXY fall towards 104.00, the 200-day Simple Moving Average at 104.19 should catch any falling knife formation.
US Dollar Index: Daily Chart
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from the Bank for International Settlements. Following the Second World War, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold until the Bretton Woods Agreement in 1971, when the Gold Standard went away.
The US current account is in deficit because the US economy constantly imports more than it exports. And because no one gives the Americans these goods for free, the US liabilities to foreigners grow faster than the US claims on foreigners, i.e. The US capital account shows a surplus of capital imports over capital exports. In other words, the net debt of the US economy to the rest of the world is growing because the current account is in deficit, Commerzbank’s Head of FX & EM Research Ulrich Leuchtmann notes.
“If that were the whole story, we could sit back and hope that the restrictive trade policy of the incoming US administration would solve the problem. But it isn't like that. Not at all. The world is not as simple as we were told in the lecture ‘External Economic Theory I’. In the figure above, you can see the net foreign asset position of the USA. Since 1988, the last year it was not yet in deficit. And you can see the cumulative net capital imports of the USA. Since 2003 at the latest, the two lines have had nothing to do with each other.”
“Why not? Because since 2010, but especially since 2017, it is not the surplus of capital imports over capital exports in the US that is causing US liabilities to grow faster than US claims. More and more, it is the high capital gains on claims on the US economy. In other words, because US investment by foreigners is highly profitable, US debt is growing so much faster than US claims. And that in turn means that because the business-friendly policies of the incoming US administration are likely to further boost the returns on foreign investment in the US, the net debt of the US economy is likely to continue to grow rapidly.”
“The next data from the Bureau of Economic Analysis will be released ‘between the years’: on December 27. Another figure that is regularly ignored by the currency market. Although it may ultimately decide the US dollar valuation. Why? If the rest of the world no longer wanted to hold claims on the US economy, their price in the rest of the world would fall. The easiest and quickest way to do that would be for the dollar to depreciate.”
The US Dollar keeps trading firm against its weaker Canadian Counterpart. The mild CAD recovery attempt seen on Friday was contained above the 1.4200 level, and the pair is crawling higher again on Monday, to test four-year highs at 1.4240.
The monetary policy divergence between the Federal Reserve and the Bank of Canada is the main support for the pair. Beyond that, US President-elect Trump's threats of higher tariffs on Canadian products, are an additional weight to the Loonie.
The US Federal Reserve is widely expected to cut its benchmark interest rate by 25 basis points on Wednesday and to proceed cautiously next year. The CME Fed watch tool shows between one or two more rate cuts next year as the most likely scenario.
The Bank of Canada, on the contrary, slashed interest rates by 50 bps last week in the second such consecutive move. The Bank has slashed rates by 1.75% to the current 3.25% since June and is likely to trim them lower. Governour Macklem will speak later today and he might support that view.
On the Other hand, the US Dollar is looking for direction as the impact of the stronger-than-expected US employment figures waned. Markets are pricing a nearly 90% chance that the Fed will cut rates by 25 basis points next week, which is keeping US Dollar rallies limited.
In Canada, the BoC meets this week and is expected to deliver a large rate cut on Wednesday. Downbeat Canadian Employment and business activity figures sustain that view. This is likely to weigh on a deeper CAD recovery.
The Canadian Dollar is trading within a bullish channel. Technical indicators are positive, but the 1.4250/60, where the 127.20% Fibonacci extension meets the channel top might take some time to give up.
Above here, the next target would be the 161.8% Fibonacci level, at 1.4315. Supports are at 1.4200 (December 11 high) and December 12 low at 1.4235.
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the Australian Dollar.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | 0.07% | -0.24% | 0.09% | 0.07% | 0.07% | -0.07% | -0.09% | |
EUR | -0.07% | -0.25% | 0.13% | 0.06% | 0.17% | -0.06% | -0.10% | |
GBP | 0.24% | 0.25% | 0.27% | 0.32% | 0.43% | 0.18% | 0.15% | |
JPY | -0.09% | -0.13% | -0.27% | -0.05% | -0.03% | -0.14% | -0.11% | |
CAD | -0.07% | -0.06% | -0.32% | 0.05% | 0.06% | -0.13% | -0.16% | |
AUD | -0.07% | -0.17% | -0.43% | 0.03% | -0.06% | -0.23% | -0.30% | |
NZD | 0.07% | 0.06% | -0.18% | 0.14% | 0.13% | 0.23% | -0.05% | |
CHF | 0.09% | 0.10% | -0.15% | 0.11% | 0.16% | 0.30% | 0.05% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).
USD/CNH firmed but levels remain within recent range. Pair was last at 7.2916 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.
“Bearish momentum on daily chart shows signs of fading while RSI rose. Consolidation likely in recent range as steady PBoC daily fixing (under 7.20) suggests policymakers are looking for relative stability. Resistance at 7.2940, 7.3150 levels. Support at 7.2640 (21 DMA), 7.2340 (23.6% fibo retracement of Sep low to Dec high) and 7.2040 (200 DMA).”
“2-day CEWC had concluded last week, with little signs of stimulus support measures. FOMC event risk this week may have influence on USD’s directional bias. But in the interim, we expect policymakers will continue to keep the RMB contained.”
Given the combination of further rate cuts, a still-weak real economy, risks from US tariffs and a strong US Dollar (USD), expect the Canadian Dollar (CAD) to continue to struggle for several months, Commerzbank’s
“In the meantime, we are even trading slightly above our expected peak of 1.41 in the first quarter of 2025 with USD/CAD at 1.42. The market has probably overplayed the strength of the US dollar, which could lead to a small correction in the coming weeks.”
“From the second quarter onwards, however, we expect a sustained appreciation of the CAD. This is supported by the fact that the real economy is expected to pick up again (possibly even catching up with US growth), the BoC is expected to end the cycle of interest rate cuts for the time being and inflation is expected to remain within reasonable limits. In relative terms, the CAD should then be able to recoup its losses this year as other central banks struggle with much weaker growth and more stubborn inflation.”
“We also expect oil prices to rise again. Our experts believe that the market is a little too optimistic about the supply outlook. This would be positive for Canada as one of the larger oil exporters. If a deal is reached in early summer to resolve the US tariff issue for the time being, and we see the correction in the US dollar that we expect, the CAD should recover against the USD. We therefore expect the CAD to strengthen significantly from the second quarter onwards and forecast a USD-CAD level of 1.35 by the end of 2025, seven cents below the current level. In 2026, we see only limited further upside potential.”
USD/SGD resumed its rise, tracking the move higher in UST yield while weaker JPY and RMB saw negative spillover effects. Pair was last at 1.3501, OCBC’s FX analysts Frances Cheung and Christopher Wong note.
“Mild bearish momentum on daily chart faded while RSI rose. Consolidation likely. Resistance at 1.3490, 1.3520 levels. Support at 1.3340 (200 DMA, 23.6% fibo retracement of Sep low to Nov high), 1.3310 (50 DMA).”
“Pair should continue to take directional cues from USD and CNY moves ahead of FOMC event risk later this week. Next set of SG data is NODX (Tue) and CPI (next Mon). S$NEER was last at 0.91% above model-implied mid.”
The Mexican Peso (MXN) opens the week with moderate gains and consolidates near the 20.00 threshold. Amid the US Dollar’s (USD) reversal, declining US Treasury yields are providing some support to the Mexican currency ahead of interest rate decisions of both central banks.
In today’s economic calendar, US preliminary Purchasing Managers Index (PMI) data is expected to show that manufacturing activity contracted further in December, with the services sector expanding at a slower pace than in the previous month. The NY Empire State Manufacturing Index is expected to confirm the soft momentum of the sector.
These figures would be consistent with the view of a Federal Reserve (Fed) rate cut on Wednesday, although the market is likely to wait for some more insight into the central bank’s forward guidance before making investment decisions.
In Mexico, data was disappointing last week, with consumer inflation dropping beyond expectations and consumer confidence and industrial output disappointing. The macroeconomic backdrop remains resilient, with unemployment at low levels, but concerns that higher tariffs by Trump’s administration next year will hurt growth and will likely pressure the Bank of Mexico (Banxico) to cut rates by 25 bps on Thursday.
The USD/MXN is trading lower from its late November highs near 21.00, but the 20.00 psychological level remains a strong support for the pair. The pair has been treading water between the mentioned 20.00 support and 20.30 on the upside during last week.
The Mexican Peso would need an additional impulse to breach the 20.00 level against the US Dollar and shift its focus toward the October 24 and 25 and November 7 lows, at 19.75
On the upside, the USD needs to confirm above 20.30 before aiming for the December 2 high at 20.60 and November’s peak at around 20.80.
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | 0.11% | -0.23% | 0.11% | 0.05% | 0.14% | 0.02% | -0.10% | |
EUR | -0.11% | -0.30% | 0.10% | 0.01% | 0.20% | -0.01% | -0.15% | |
GBP | 0.23% | 0.30% | 0.25% | 0.29% | 0.46% | 0.23% | 0.11% | |
JPY | -0.11% | -0.10% | -0.25% | -0.07% | 0.04% | -0.07% | -0.15% | |
CAD | -0.05% | -0.01% | -0.29% | 0.07% | 0.14% | -0.03% | -0.18% | |
AUD | -0.14% | -0.20% | -0.46% | -0.04% | -0.14% | -0.21% | -0.37% | |
NZD | -0.02% | 0.01% | -0.23% | 0.07% | 0.03% | 0.21% | -0.16% | |
CHF | 0.10% | 0.15% | -0.11% | 0.15% | 0.18% | 0.37% | 0.16% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
Crude Oil declines on Monday, flirting with the $70 round level, after Chinese Retail Sales data for November dampened hopes for a speedy recovery in the region. The 3% growth was far below consensus and the situation is set to deteriorate further as tanker rates on key routes to China are falling to the lowest level this year, pointing to even more sluggish demand ahead.
The US Dollar Index (DXY) – which measures the performance of the US Dollar (USD) against a basket of currencies – is softer on Monday amid a recovery in the Euro (one of the main contributors in the Index). Germany’s preliminary reading of its Services Purchasing Managers Index (PMI) for December popped back to 51, out from contraction territory. Meanwhile, Germany is set to see its government toppled on Monday, with snap elections set for February 23 2025.
At the time of writing, Crude Oil (WTI) trades at $70.31 and Brent Crude at $73.78.
Crude Oil prices are seeing their over 5% profitable rally stall and are giving back gains on Monday after Chinese Retail data revealed a slower-than-expected growth. This adds to doubts for the overall 2025 outlook, where a Chinese revival is one of the factors that is key to get the overall Oil consumption going up again. Should President-elect Donald Trump add further all the promised tariffs, Chinese Oil demand could deteriorate further in 2025.
Looking up, $71.46 and the 100-day Simple Moving Average (SMA) at $71.08 are acting as firm resistance levels on the upside. On Friday, already some selling pressure unfolded ahead of the 100-day SMA. In case Oil traders can plough through that level, $75.27 is up next as a pivotal level.
On the downside, it is too early to see if the 55-day SMA will be reclaimed again at $70.11. That means that $67.12 – a level that held the price in May and June 2023 – is still the first solid support nearby. In case that breaks, the 2024 year-to-date low emerges at $64.75 followed by $64.38, the low from 2023.
US WTI Crude Oil: Daily Chart
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
The USD/CHF pair rebounds from the round-level support of 0.8900 in the European session on Monday. The Swiss Franc pair bounces back as the US Dollar (USD) recovers its intraday losses and turns positive, with the US Dollar Index (DXY) ticking higher around 107.00.
Investors brace for a high volatility in the USD counter as the Federal Reserve (Fed) is scheduled to announce its last interest rate decision of the year on Wednesday. Market participants will keenly focus on the Fed’s dot plot and the inflation outlook for 2025, with investors remaining confident that the central bank will reduce interest rates by 25 basis points (bps) to 4.25%-4.50%.
The Fed’s dot plot will show where the Federal Funds Rate will head in the medium and long term. According to a Bloomberg survey, the Fed is expected to cut interest rates three times in 2025. The Fed’s policy-easing cycle would be more gradual next year as economists worry more about rising upside risks to inflation than downside risks to employment.
In today’s session, investors will focus on the flash United States (US) S&P Global Purchasing Managers’ Index (PMI) data for December, which will be published at 14:45 GMT. The PMI report is expected to show moderate growth in the overall business activity.
Meanwhile, the Swiss Franc (CHF) remains broadly under pressure as investors expect the Swiss National Bank (SNB) to return to an ultra-loose policy trajectory to avoid growing risks to inflation, undershooting the bank’s target of 2%.
The SNB surprisingly reduced its key borrowing rates by 50 bps to 0.5% on Thursday, while investors anticipated a usual 25 bps interest rate reduction.
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from the Bank for International Settlements. Following the Second World War, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold until the Bretton Woods Agreement in 1971, when the Gold Standard went away.
The National Bureau of Statistics (NBS) numbers released this morning show that Chinese monthly primary aluminum production rose 3.6% YoY to reach a record of 3.7mt in November as rising overseas export demand helped the metal output stay elevated. Cumulatively, output rose 4.6% YoY to 40.2mt over the first 11 months of the year, ING’s commodity analyst Ewa Manthey and Warren Patterson note.
“According to media reports, Japanese aluminum buyers were offered a premium of US$228/t (the highest premium since 2015) for the first quarter of 2025, up from US$175/t (+30% quarter-on-quarter) this quarter. However, it is slightly lower than the initial offers of US$230-260/t. The increase in premiums reflects expectations of tighter supply in Asia after China cancelled a 13% tax rebate on aluminum products from 1 December 2024.”
“In mine supply, Peru’s latest official numbers showed that copper output in the country fell 1.3% YoY to 237kt in October. It is reported that cumulative output loses from mines like Cerro Verde, and Quellaveco’s primarily contributed to Peru’s overall production decline in October. Cumulatively, production declined 0.7% YoY to 2.23mt for the first 10 months of the year.”
“Meanwhile, weekly data from Shanghai Futures Exchange (ShFE) shows that inventories for base metals remained mixed over the last week. Aluminum weekly stocks fell by 9,875 tons for a seventh consecutive week to 214,501 tons as of last Friday, the lowest since 10 May 2024. Copper inventories decreased by 13,199 tons (-13.5% week-on-week) for the eighth week straight to 84,557 tons (the lowest since 2 February 2024), while zinc inventories declined by 2,317 tons (-4.4% WoW) for a fourth consecutive week to 50,666 tons (the lowest since 9 February 2024) at the end of last week.”
USD/JPY rose as bets on BOJ hike this week was scaled back significantly while USTs saw a sell-off last Fri (i.e. UST yields rose sharply). Pair was last at 153.70, OCBC’s FX analysts Frances Cheung and Christopher Wong note.
“USD/JPY’s breakout was well anticipated in our technical scan when we first highlighted about moving averages compression (MAC) last week. We noted that this pattern typically precedes a break-out trade. Daily momentum turned mild bullish while RSI rose to near overbought conditions. Resistance at 154.80, 155.90 levels. Support at 152.70, 152.10 (21, 100, 200 DMAs). A decline back below the MA ‘convergence level’ would nullify the bullish break-out.”
“This week, BoJ MPC (19 Dec) matters for USDJPY. We are looking for BoJ to carry on with policy normalization with a hike this week and into 2025. Recent uptick in base pay supports the view about positive development in labour market, alongside still elevated services inflation, better 3Q GDP and expectations for 5-6% wage increases for 2025 should pace the room for BoJ policy normalisation.”
“That said, the risk is a slowdown in Fed and/or BoJ’s pace of policy normalisation would affect USDJPY’s moves.”
Gold (XAU/USD) opens the week on a moderately positive tone, favored by a mild US Dollar (USD) reversal amid lower US Treasury yields. The precious metal, however, is still close to recent lows following a 2.5% sell-off late last week.
US Treasury yields pull back on Monday following a sharp rally last week, erasing some of the recent bullish pressure on the US Dollar. Investors seem wary of placing directional US Dollar bets as they brace for the all-important Federal Reserve (Fed) monetary policy decision on Wednesday.
The market is almost fully pricing an interest rate cut, but only gradual easing next year. This, coupled with expectations that Donald Trump’s policies will stir inflationary pressures, is acting as a tailwind for the US Dollar.
Gold’s rally was capped again at the $2,720 resistance area last week before trading lower. A potential double top at the aforementioned level and Thursday’s bearish engulfing candle are giving hopes for bears.
The support area at $2,635 is holding the downside attempts, but the commodity is lacking upside momentum. Previous support levels at $2,675 might act as resistance ahead of the $2,692 (December 12 high) level.
On the downside, below the December 9 low at around $2,630, the next bearish target would be the November 25, 26, and December 6 low at around $2,610.
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
The latest industrial output data from China shows that refiners reduced activity in November. Crude processed in the month fell to the lowest in five months at around 14.3m b/d as some processors shut plants for seasonal maintenance. Cumulative apparent demand fell by 3.3% YoY to 14m b/d over the first 11 months of the year, ING’s commodity analyst Ewa Manthey and Warren Patterson note.
“The latest data from Baker Hughes shows that the number of active US oil rigs remained unchanged over the week at 482, after rising by five in the preceding week. The total rig count (oil and gas combined) also remains steady at 589 over the reporting week. Primary Vision’s frac spread count, which gives an idea of completion activity, decreased by three over the week to 217.”
“Weekly positioning data from the Commodity Futures Trading Commission (CFTC) shows that managed money net long position in NYMEX WTI dropped after rising for two consecutive weeks. Money managers trimmed net longs in NYMEX WTI by 12,448 lots over the week to 103,986 lots as of 10 December 2024. On the other hand, exchange data shows that speculators have built fresh longs of 5,349 lots in ICE Brent over the last week, leaving them with 162,273 lots of net long position.”
“In products, net bullish bets for gasoline jumped to their highest level since mid-April 2024. Speculators boosted the net longs for gasoline by 6,546 lots (after reporting declines for two straight weeks) to 73,037 lots for the week ending 10 December 2024. There are suggestions that the gasoline supply could tighten next year due to the planned refinery outages and closures. LyondellBasell’s Houston refinery is set to close by the end of the first quarter and will start idling as early as January. The refinery processes about 264k b/d.”
The GBP/JPY pair climbs to near 194.70 after the release of the S&P Global/CIPS United Kingdom (UK) PMI data for December. The report showed that the Composite PMI advanced at a steady pace to 50.5. Faster-than-expected expansion in service sector output neutralizes the impact of a sharp decline in manufacturing.
A steady growth in the PMI data has strengthened the Pound Sterling (GBP) against its major peers.
This week, investors brace for high volatility in the Pound Sterling’s price action due to the packed UK economic calendar. They will pay close attention to Tuesday’s employment data for the three months ending October and Wednesday’s Consumer Price Index (CPI) data for November, which will influence market speculation about the Bank of England’s (BoE) interest rate decision on Thursday.
According to market expectations, traders expect the BoE to leave interest rates unchanged at 4.75%, with a 7-2 vote split in which seven Monetary Policy Committee (MPC) members are expected to support a steady decision on key borrowing rates. BoE members Swati Dhingra and Deputy Governor Dave Ramsden are expected to support an interest rate reduction of 25 bps.
Investors will also pay close attention to BoE Governor Andrew Bailey’s press conference for fresh interest rate guidance for 2025. Traders see the BoE reducing interest rates three times next year.
Meanwhile, the Japanese Yen (JPY) is also expected to remain highly volatile this week as the Bank of Japan (BoJ) is scheduled to announce the last monetary policy decision of this year along with the BoE on Thursday. Investors expect the BoJ to keep borrowing rates steady at 0.25% as uncertainty over the likely global trade war due to higher import tariffs from incoming United States (US) President-elect Donald Trump has limited its potential of hiking them further.
This week, Japan’s National Consumer Price Index (CPI) data for November will also be released, a day after the policy decision.
The Bank of Japan (BoJ) announces its interest rate decision after each of the Bank’s eight scheduled annual meetings. Generally, if the BoJ is hawkish about the inflationary outlook of the economy and raises interest rates it is bullish for the Japanese Yen (JPY). Likewise, if the BoJ has a dovish view on the Japanese economy and keeps interest rates unchanged, or cuts them, it is usually bearish for JPY.
Read more.Next release: Thu Dec 19, 2024 03:00
Frequency: Irregular
Consensus: 0.25%
Previous: 0.25%
Source: Bank of Japan
US Dollar (USD) traded mixed this morning ahead of the much anticipated FOMC meeting this Thu (3am SGT). A 25bp cut is more or less a done deal (markets pricing ~93% probability of a cut) but the focus is on the refreshed dot plot, which will provide guidance on Fed members’ expectation on rate cut trajectory into 2025 - 26. The previous dot plot back in Sep guided for 4 cuts and markets are now pricing in about 3 cuts. DXY was last at 106.81 levels.
“Bearish momentum on daily chart faded while RSI fell. Head and shoulders (H&S) pattern remains intact with DXY trading near second shoulder. A rise in DXY back above the ‘head’ would nullify the H&S pattern.”
“But at point of writing, DXY is respecting the second shoulder. We watch price action. A play-out of the H&S pattern requires a decisive break below neckline support. Next support at 106.20/50 levels (23.6% fibo, 21 DMA), 105 levels (38.2% fibo retracement of Sep low to Nov high, 50 DMA). Resistance at 107.20 (both shoulders), 108 (2024 high).”
“This week brings empire manufacturing, prelim PMIs (Mon); retail sales, IP (Tue); housing starts, building permits (Wed); FOMC, GDP, existing home sales (Thu); core PCE, personal spending, income, Kansas City Fed manufacturing index (Fri).”
After a raft of source-based stories over the last two weeks, the market now attaches a less than 20% probability to a 25bp Bank of Japan hike this Thursday. USD/JPY looks biased to the 155 area ahead of the rate meeting, ING’s FX analyst Chirs Turner notes.
“Our team thinks the chances are higher. However, helping to swing the BoJ's decision may be the level of USD/JPY. This has crept up to 154 recently, helped by both these source stories plus the sell-off in the US Treasury market.”
“While our medium-term valuation models show the yen as the most undervalued currency in the G10 space, our baseline forecasts do, however, show USD/JPY moving steadily higher through 2025 as US Treasury yields rise. The yen will remain the hedge against the inevitable periods of risk asset corrections in 2025, but barring surprise US macro weakness, 2025 should be bullish for USD/JPY.”
“For this week, we think USD/JPY looks biased to the 155 area ahead of Thursday's BoJ rate meeting.”
Chancellor Scholz had called for a vote of confidence on Wed and the Bundestag will vote later today. To survive the vote, Scholz would need to receive the support of an absolute majority of 367 votes. EUR was last at 1.0513 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note
“In the event, Scholz fails, then Germany is likely to make way for elections on 23 Feb 2025. Far-right AfD is calling for Germany to leave the European Union, the EUR and Paris climate deal as the party prepares for early elections in Feb-2025. The concern here is the explicit language to quit EU unlike its manifesto ahead of the European parliament elections previously in Jun-2024.”
“EUR was a touch firmer, despite Moody’s downgrade of French rating. President Macron has appointed François Bayrou as the new PM of France. The far-left party La France Insoumise has announced it will launch a no-confidence vote to bring down PM Bayrou while other parties appear less aggressive and have laid down conditions for their support. Ongoing political uncertainties in France, Germany may weigh on EUR but like we had flagged, these are already known unknowns and for EUR to push lower, a new catalyst is required (i.e. a hawkish Fed, etc.).”
Mild bullish momentum on daily chart is intact while RSI rose. Risks are modestly skewed to the upside. Resistance here at 1.0540 (21 DMA, 23.6% fibo retracement of Oct high to Nov low), 1.0610 and 1.0670 (38.2% fibo). Support at 1.0460, 1.0410 levels.
The seasonally adjusted S&P Global/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) contracted further to 47.3 in December from 48.0 in November. The data missed the market consensus of 48.1
Meanwhile, the Preliminary UK Services Business Activity Index rose to 51.4 in December after registering 50.8 in November while bettering expectations of 51.0.
Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: “Businesses are reporting a triple whammy of gloomy news as 2024 comes to a close, with economic growth stalled, employment slumping and inflation back on the rise.“
GBP/USD builds on gains to regain 1.2650 after the mixed UK PMI data. The pair is adding 0.38% on the day, as of writing.
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the US Dollar.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | -0.13% | -0.37% | 0.02% | -0.06% | -0.21% | -0.33% | -0.38% | |
EUR | 0.13% | -0.18% | 0.26% | 0.14% | 0.09% | -0.12% | -0.18% | |
GBP | 0.37% | 0.18% | 0.31% | 0.32% | 0.27% | 0.04% | -0.01% | |
JPY | -0.02% | -0.26% | -0.31% | -0.08% | -0.22% | -0.32% | -0.31% | |
CAD | 0.06% | -0.14% | -0.32% | 0.08% | -0.10% | -0.28% | -0.33% | |
AUD | 0.21% | -0.09% | -0.27% | 0.22% | 0.10% | -0.21% | -0.28% | |
NZD | 0.33% | 0.12% | -0.04% | 0.32% | 0.28% | 0.21% | -0.07% | |
CHF | 0.38% | 0.18% | 0.00% | 0.31% | 0.33% | 0.28% | 0.07% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
It's Fed week, and the central bank is expected to cut its target policy band by 25bp to 4.25-4.50% on Wednesday. That is fully priced, and as our US economist James Knightley here, more interest will be had in how the Federal Reserve prepares to explain skipping its meeting in January, ING’s FX analyst Chirs Turner notes.
“New Fed forecasts should also reduce the number of expected rate cuts in 2025 to three from four. This is all currently priced by the market, but there seems little reason for the Fed to dovishly surprise this week and we see the dollar staying supported.”
“Additionally, tomorrow's release of November retail sales is expected to show healthy 0.4% month-on-month growth in the retail sales control group – suggesting US consumer habits are alive and well. But as seen in previous weeks, the dollar could also get dragged around by events overseas, where pressure looks likely to stay on the Chinese renminbi, and we should expect more rate cuts in Europe and elsewhere.”
“As a side note, we see the occasional references to the risk of another 1985 Plaza Accord to weaken the dollar. We take the view that 2025 will be more akin to 1983-1984, when more air was pumped into the dollar bubble. DXY should again find support near 106.50/70 and should push back above 107.00.”
Silver prices (XAG/USD) rose on Monday, according to FXStreet data. Silver trades at $30.67 per troy ounce, up 0.61% from the $30.48 it cost on Friday.
Silver prices have increased by 28.87% since the beginning of the year.
Unit measure | Silver Price Today in USD |
---|---|
Troy Ounce | 30.67 |
1 Gram | 0.99 |
The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 86.68 on Monday, down from 86.88 on Friday.
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
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The AUD/USD pair sticks to its mildly positive bias through the first half of the European session on Monday, albeit it lacks any follow-through buying. Spot prices remain close to over a one-year low touched last Friday and currently trade around the 0.6365-0.6370 region, up just over 0.15% for the day.
The US Dollar (USD) kicks off the new week on a weaker note amid a modest pullback in the US Treasury bond yields and turns out to be a key factor lending some support to the AUD/USD pair. That said, the Reserve Bank of Australia's (RBA) dovish tilt, along with China's economic woes, act as a headwind for the Australian Dollar (AUD). Apart from this, expectations for a less dovish Federal Reserve (Fed) favor the USD bulls and suggest that the path of least resistance for spot prices remains to the downside.
Investors now seem convinced that the US central bank will slow the pace of its rate-cutting cycle amid signs that the progress in lowering inflation toward the 2% target has stalled. This, in turn, has been a key factor behind the recent rise in the benchmark 10-year US Treasury yield to a three-week high and validates the positive outlook for the buck. Apart from this, geopolitical risk and US-China trade war fears should benefit the safe-haven buck, warranting some caution before placing bullish bets around the AUD/USD pair.
Traders might also refrain from placing aggressive bets and opt to wait for the outcome of the highly-anticipated FOMC policy meeting on Wednesday. The Fed is widely expected to lower borrowing costs by 25 basis points (bps), though it could adopt a more cautious stance on cutting rates. Hence, the focus will be on the accompanying policy statement, which, along with Fed Chair Jerome Powell's comments at the post-meeting press conference, will drive the USD demand and provide a fresh impetus to the AUD/USD pair.
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
European Central Bank (ECB) Vice President Luis de Guindos said on Monday, “in the near term, we will continue in the same direction as in the past few months.”
Our confidence that inflation will converge to the target in 2025 is reflected in our monetary policy.
When there is a trade war, exchange rates become more volatile, so traditional protectionism would be very negative.
US tariff increases could lead to inflationary pressure.
Europe's potential growth slower than that of the US because less investment in innovation, new tech.
The Pound Sterling (GBP) gains to near 1.2645 against the US Dollar (USD) in Monday’s London session. The GBP/USD pair rises as the US Dollar trades subdued, with the US Dollar Index (DXY) hovering around 107.00. Investors brace for a high level of volatility from the pair this week as both the Federal Reserve (Fed) and the Bank of England (BoE) are set for their last monetary policy meeting of the year on Wednesday and Thursday, respectively.
Divergent moves are expected from both the central banks as the Fed is widely anticipated to cut its key borrowing rates by 25 basis points (bps) to 4.25%-4.50%, while the BoE is expected to leave them unchanged at 4.75%. Still, as the main interest-rate decisions from both the central banks have already been priced in by market participants, investors will be majorly focusing on the policy outlook for 2025.
According to current market expectations, traders expect three interest rate cuts from both central banks in 2025.
This week, the Pound Sterling will also be influenced by the United Kingdom (UK) employment data for three months ending October and the Consumer Price Index (CPI) data for November, which will be released on Tuesday and Wednesday, respectively. Any sharp deviation in the labor market and inflation numbers from estimates could influence market speculation for the BoE interest rate action on Thursday and policy outlook expectations for 2025.
The Pound Sterling rises to near 1.2645 against the US Dollar on Monday after a three-day losing streak. The outlook of the GBP/USD pair remains bearish as all short-to-long Exponential Moving Averages (EMAs) are sloping lower.
Still, the upward-sloping trendline drawn from the October 2023 low around 1.2035 continues to provide support to Pound Sterling bulls near 1.2600.
The 14-day Relative Strength Index (RSI) hovers near 40.00. Should the RSI drop below 40.00, a bearish momentum will set off.
Looking down, the pair is expected to find a cushion near the psychological support of 1.2500. On the upside, the December 6 high of 1.2810 will act as key resistance.
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
European Central Bank (ECB) policymaker Peter Kazimir said on Monday, “gradual, step-by-step approach through 25 basis points (bps) rate cuts is the most prudent strategy.”
More aggressive monetary easing would require a dramatic shift in conditions.
Europe’s economic malaise is largely structural, demands solutions beyond the remit of monetary policy.
EUR/USD was last seen trading at 1.0515, up 0.10% on the day.
The Eurozone manufacturing sector remained in contraction while the services sector activity improved in December, according to the data from the HCOB's latest Purchasing Managers Index (PMI) Survey published on Monday.
The Eurozone Manufacturing Purchasing Managers Index (PMI) stayed unchanged at 45.2 in December, bettering the estimated 45.0.
The bloc’s Services PMI expanded to 51.4 in December from 49.5 in November. The data came in above the market consensus of 49.4 and reached a two-month high.
The HCOB Eurozone PMI Composite improved to 49.5 in December vs. November’s 48.3. The data hit a two-month top.
EUR/USD defends bids above 1.0500 on the mixed Eurozone PMI data, adding 0.09% on a daily basis.
NZD/USD breaks its four-day losing streak, trading around 0.5780 during the European hours on Monday. The New Zealand (NZD) remains stronger following the recent data from its largest trading partner, China. However, the upside of the Kiwi Dollar could be restrained due to the increased likelihood of a further aggressive easing approach from the Reserve Bank of New Zealand (RBNZ) early in 2025.
Recent reports indicate that China, a key trade partner for New Zealand, saw industrial output perform better than expected. However, this optimism was tempered by significantly lower-than-forecast Retail Sales and a continued decline in house prices.
China's annual Industrial Production rose by 5.4% in November, surpassing the market expectation of a 5.3% increase. In contrast, Retail Sales grew by 3.0% year-on-year in November, falling short of the anticipated 4.6% and the previous reading of 4.8%.
Domestically, the Business NZ Performance of Services Index climbed to 49.5 in November, up from 46.2 in October, marking its highest level since February. Additionally, the Food Price Index increased by 1.3% year-on-year in November, slightly above the 1.2% rise recorded in October.
The US Dollar (USD) remains subdued amid tepid US Treasury yields ahead of the Federal Reserve’s (Fed) interest rate decision set for Wednesday. The Federal Reserve is widely expected to announce a 25 basis point rate cut in its final monetary policy meeting of 2024. According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting.
The US Dollar Index (DXY), which measures the value of the US Dollar against its six major peers, trades near 106.80 with 2-year and 10-year yields on US Treasury bonds standing at 4.23% and 4.38%, respectively, at the time of writing.
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
The German manufacturing sector activity worsened in December while the services sector returned to expansion, the preliminary business activity report published by the HCOB survey showed Monday.
The HCOB Manufacturing PMI in the Eurozone’s top economy dropped to 42.5 this month, compared to November’s 43.0 while missing the estimates of 43.8.
Meanwhile, Services PMI rebounded to 51.0 in December from 49.3 in November. The market forecast was 49.2 in the reported period. The gauge set a two-month high.
The HCOB Preliminary German Composite Output Index came in at 47.8 in December vs. 47.2 in November. The index was at its highest in two months.
EUR/USD picks up fresh bids despite the mixed German data, currently trading 0.16% higher on the day at 1.0515.
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Japanese Yen.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | -0.17% | -0.20% | -0.03% | -0.10% | -0.23% | -0.36% | -0.30% | |
EUR | 0.17% | 0.01% | 0.24% | 0.13% | 0.10% | -0.12% | -0.08% | |
GBP | 0.20% | -0.01% | 0.10% | 0.12% | 0.09% | -0.15% | -0.10% | |
JPY | 0.03% | -0.24% | -0.10% | -0.08% | -0.20% | -0.31% | -0.19% | |
CAD | 0.10% | -0.13% | -0.12% | 0.08% | -0.08% | -0.26% | -0.21% | |
AUD | 0.23% | -0.10% | -0.09% | 0.20% | 0.08% | -0.22% | -0.19% | |
NZD | 0.36% | 0.12% | 0.15% | 0.31% | 0.26% | 0.22% | 0.03% | |
CHF | 0.30% | 0.08% | 0.10% | 0.19% | 0.21% | 0.19% | -0.03% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
On Monday, European Central Bank (ECB) President Christine Lagarde is speaking at an Annual Economics Conference on ‘Pillars of Resilience Amid Global Geopolitical Shifts’.
Will cut rates further if incoming data confirm that disinflation is on track.
Past bias to keeping rates 'sufficiently restrictive' no longer warranted.
We are close to achieving our target.
Inflation momentum for services has dropped steeply recently.
Euro zone growth likely to take hit from fresh us protectionist measures.
The following comments fail to move the needle around the Euro, with EUR/USD trading flat on the day near 1.0500.
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
EUR/GBP moves sideways following two days of gains, trading around 0.8320 during the European hours on Monday. Traders are awaiting Purchasing Managers Index (PMI) data from both economies to gauge private business activities for both the manufacturing and services sectors.
On Monday, ECB President Christine Lagarde spoke at the Annual Economics Conference, indicating that the ECB is prepared to cut rates further if incoming data confirm that disinflation remains on track. Lagarde also signaled a shift in policy stance, noting that the previous bias toward maintaining "sufficiently restrictive" rates is no longer warranted.
The EUR/GBP cross gained ground as the Euro received support following President Emmanuel Macron's appointment of centrist ally François Bayrou as France's Prime Minister, raising hopes for political stability. Macron had pledged to swiftly select a new candidate after Michel Barnier was forced to resign following a confidence vote in Parliament.
Moreover, European Central Bank (ECB) Governing Council member Robert Holzmann said on Friday that cutting interest rates solely to stimulate the economy would be a mistake. According to Holzmann, the ECB’s primary responsibility is to ensure price stability, not to fuel economic growth. "Lowering rates now to boost the economy would contradict our current stance," he said, as reported by Bloomberg.
The upside of the EUR/GBP cross could be limited as the Pound Sterling (GBP) may appreciate due to the increased likelihood of the Bank of England (BoE) adopting a gradual pace of policy easing compared to other central banks in Europe and North America. The BoE and other forecasting bodies expect that inflation will rise next year in the wake of UK finance minister Rachel Reeves' big-spending budget. However, BoE Governor Andrew Bailey indicated four interest rate cuts in 2025, which could limit the upside of the British Pound (GBP) and support the EUR/GBP cross.
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
EUR/USD ticks higher to near 1.0515 in Monday’s European session ahead of the HCOB Eurozone preliminary Purchasing Managers’ Index (PMI) data for December on both sides of the Atlantic. The PMI report is expected to highlight the divergent fortunes of the Eurozone and US economies, with analysts expecting that overall business activity contracted faster in the Eurozone due to a decline in both manufacturing and service sector output while continuing to expand in the US. This scenario supports more interest rate cuts from the European Central Bank (ECB) and weighs on the Euro (EUR).
The ECB cut its Deposit Facility rate by 25 basis points (bps) to 3% on Thursday, accumulating a total of 100 bps interest rate reductions this year. Given that Eurozone inflation has come under control and officials are worried about growing economic risks, market participants expect the ECB to deliver another 100 bps reduction in its key borrowing rates by June 2025.
On Friday, a significant number of ECB policymakers backed further policy easing and a gradual move towards the neutral rate, which they expect to be around 2%. French central bank Governor Francois Villeroy de Galhau told France's BFM business radio: “There will be further rate cuts next year." When asked about interest rate projections, he said, "I note that we are collectively rather comfortable with the financial markets' interest rate forecasts for next year."
For more guidance on interest rates, ECB President Christine Lagarde will deliver a keynote speech and participate in a panel at the Bank of Lithuania's event on European economic and political resilience.
On the political front, French President Emmanuel Macron appointed Francois Bayrou as the new prime minister on Friday. He replaced Michel Barnier, who lost a no-confidence vote because he failed to pass the budget, which included tax hikes worth 60 billion Euros to cut the fiscal deficit. Bayrou, who is expected to face similar challenges in his administration, is scheduled to meet leaders of the Far Right and left wing on Monday and Tuesday, respectively, according to Reuters.
EUR/USD trades above the psychological figure of 1.0500 but continues to struggle around the three-day resistance near 1.0535. The major currency pair remains below the 20-day Exponential Moving Average (EMA) around 1.0545, suggesting a bearish near-term trend.
The 14-day Relative Strength Index (RSI) revolves around 40.00. The bearish momentum should trigger if the RSI (14) falls below 40.00.
Looking down, the two-year low of 1.0330 will provide key support. Conversely, the 20-day EMA will be the key barrier for the Euro bulls.
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day, according to data from the Bank of International Settlements. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
GBP/USD breaks its three-day losing streak, trading around 1.2640 during the early European hours on Monday. The daily chart analysis shows an ongoing bearish bias as the pair is confined within the descending channel pattern.
The 14-day Relative Strength Index (RSI) is positioned below the 50 level, strengthening the bearish sentiment. Additionally, the GBP/USD pair falls below the nine- and 14-day Exponential Moving Average (EMA), which indicates that the short-term price momentum is weaker, signaling the potential for continued price weakness.
On the downside, the GBP/USD pair may navigate the region around its four-week low of 1.2487, which was recorded on November 22. A break below this level could strengthen the bearish bias and put downward pressure on the pair to approach the lower boundary of the descending channel, aligned with its yearly low at 1.2299, reached on April 22.
The GBP/USD pair may find initial resistance around the descending channel’s upper boundary, aligned with the nine-day EMA at the 1.2684 level. A break above this level could weaken the bearish sentiment and support the pair to explore the area around its five-week high of 1.2811 level, marked on December 6.
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the US Dollar.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | -0.12% | -0.14% | -0.09% | -0.06% | -0.18% | -0.26% | -0.28% | |
EUR | 0.12% | 0.04% | 0.13% | 0.13% | 0.12% | -0.05% | -0.10% | |
GBP | 0.14% | -0.04% | -0.04% | 0.09% | 0.08% | -0.12% | -0.14% | |
JPY | 0.09% | -0.13% | 0.04% | 0.02% | -0.07% | -0.14% | -0.10% | |
CAD | 0.06% | -0.13% | -0.09% | -0.02% | -0.07% | -0.21% | -0.23% | |
AUD | 0.18% | -0.12% | -0.08% | 0.07% | 0.07% | -0.17% | -0.22% | |
NZD | 0.26% | 0.05% | 0.12% | 0.14% | 0.21% | 0.17% | -0.04% | |
CHF | 0.28% | 0.10% | 0.14% | 0.10% | 0.23% | 0.22% | 0.04% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Here is what you need to know on Monday, December 16:
Market participants gear up for a critical week that will feature several major central banks' last policy meeting of the year. Ahead of these key events, flash Manufacturing and Services Purchasing Managers Index (PMI) data for December from Germany, the Eurozone, the UK and the US will be watched closely by investors on Monday.
The US Dollar (USD) Index benefited from rising Treasury bond yields and the cautious market mood, gaining nearly 1% in the previous week. Early Monday, the USD Index fluctuates in a tight range below 107.00. The US economic calendar will also offer NY Empire State Manufacturing Index data for December. On Wednesday, the Federal Reserve (Fed) will announce monetary policy decisions and publish the revised Summary of Economic Projections (SEP) following its two-day meeting.
The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the strongest against the Japanese Yen.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | 0.51% | 0.85% | 2.52% | 0.49% | 0.30% | 1.09% | 1.40% | |
EUR | -0.51% | 0.36% | 2.15% | 0.07% | -0.12% | 0.66% | 0.97% | |
GBP | -0.85% | -0.36% | 1.59% | -0.28% | -0.47% | 0.31% | 0.60% | |
JPY | -2.52% | -2.15% | -1.59% | -2.01% | -2.09% | -1.52% | -1.03% | |
CAD | -0.49% | -0.07% | 0.28% | 2.01% | -0.15% | 0.59% | 0.89% | |
AUD | -0.30% | 0.12% | 0.47% | 2.09% | 0.15% | 0.79% | 1.08% | |
NZD | -1.09% | -0.66% | -0.31% | 1.52% | -0.59% | -0.79% | 0.28% | |
CHF | -1.40% | -0.97% | -0.60% | 1.03% | -0.89% | -1.08% | -0.28% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
During the Asian trading hours, the data from Australia showed that the Judo Bank Composite PMI edged lower to 49.9 in December from 50.2 in November. Meanwhile, Retail Sales in China increased by 3% on a yearly basis in November, falling short of the market expectation for a 4.6% growth. After posting small weekly losses last week, AUD/USD holds steady above 0.6350 to begin the week.
EUR/USD gained traction on Friday and snapped a five-day losing streak. In the European morning on Monday, the pair clings to small daily gains above 1.0500. European Central Bank (ECB) President Christine Lagarde will be delivering a speech during the European trading hours.
After posting large losses on Thursday, GBP/USD continued to push lower and touched its weakest level since late November near 1.2600 on Friday. The pair stages a technical correction toward 1.2650 on Monday.
USD/JPY preserved its bullish momentum and rose more than 2% in the previous week. The pair stays in a consolidation phase at around 153.50 in the early European session. Jibun Bank Manufacturing PMI rose to 49.5 from 49 in November and Services PMI improved to 51.4 from 50.5.
Gold turned south in the second half of the previous week and registered large losses on Thursday and Friday. XAU/USD holds its ground on Monday and trades slightly above $2,650.
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
The EUR/USD pair trades in positive territory around 1.0510 during the early European session on Monday. However, the upside for the cross might be limited due to the dovish stance of the European Central Bank (ECB).
The ECB decided to cut interest rates for the fourth time this year last week and kept the door open to further easing as the Eurozone economy is weighed by political instability at home and the potential Donald Trump’s tariff threats. Later on Monday, traders await the preliminary Eurozone HCOB Purchasing Managers’ Index (PMI) for December for fresh impetus, along with the ECB’s President Christine Lagarde speech.
Technically, the bearish outlook of EUR/USD remains intact as the major pair is below the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) holds below the midline around 43.35, suggesting that further downside looks favorable.
The first downside target emerges at 1.0432, the lower limit of the Bollinger Band. A breach of this level could see a drop to 1.0332, the low of November 22. Further south, the next contention level is seen at 1.0290, the low of November 30, 2022.
On the bright side, the immediate resistance level is located in the 1.0600-1.0610 zone, representing the upper boundary of the Bollinger Band and the psychological level. Sustained bullish momentum above the mentioned level could see a rally to 1.0764, the 100-day EMA. The additional upside filter to watch is the 1.0800 barrier.
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day, according to data from the Bank of International Settlements. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
FX option expiries for Dec 16 NY cut at 10:00 Eastern Time via DTCC can be found below.
EUR/USD: EUR amounts
GBP/USD: GBP amounts
USD/JPY: USD amounts
USD/CHF: USD amounts
AUD/USD: AUD amounts
USD/CAD: USD amounts
NZD/USD: NZD amounts
EUR/GBP: EUR amounts
The EUR/JPY cross gains traction to near 161.65 during the early European session on Monday. The Japanese Yen (JPY) weakens amid the growing speculation that the Bank of Japan (BoJ) will keep interest rates steady in the December meeting on Thursday. Later on Monday, the preliminary Eurozone December Purchasing Managers’ Index (PMI) data will be released. Also, the European Central Bank (ECB) President Christine Lagarde is set to speak later in the day.
The BoJ is scheduled to hold its last policy meeting of the year on December 18-19. The markets are currently pricing in less than a 30% chance of a rate hike in December. Several BoJ policymakers appear to be in no rush to tighten their monetary policy further with little risk of inflation overshooting despite Japan's still near-zero borrowing costs. This, in turn, exerts some selling pressure on the JPY and creates a tailwind for EUR/JPY.
On the Euro front, French President Emmanuel Macron named François Bayrou, a centrist ally, as prime minister on Friday. The hope for political stability provides some support to the shared currency. However, the upside for the EUR might be capped as the ECB opens the door for further rate cuts.
The ECB cut interest rates by a quarter point to 3.0% last week and warned that growth would be weaker than it had previously forecast. Traders in swaps markets anticipate the ECB to carry out a further five quarter-point cuts by next September, which would take the deposit rate to 1.75%.
The AUD/JPY cross extends its gains for the second successive day, trading around 98.20 during the Asian hours on Monday. The 14-day Relative Strength Index (RSI) is positioned slightly below the 50 level, indicating a bearish momentum is still in play. If the RSI rises above 50, it would signal an emergence of a bullish bias.
Additionally, a review of the daily chart indicates that the nine-day Exponential Moving Average (EMA) remains below the 50-day EMA. This alignment suggests that short-term price momentum is weaker compared to the longer-term trend, signaling the potential for continued price weakness.
The initial support for the AUD/JPY cross is located at the psychological level of 98.00, followed by the nine-day EMA at 97.50. A decisive break below this level could open the gates for the currency cross to navigate the region around its four-month low of 93.59, which was recorded on September 11.
On the upside, the AUD/JPY cross could test its primary resistance near the 50-day EMA at the 98.92 level. A decisive break above this level would signal strengthening bullish momentum, potentially driving the pair toward the five-month high of 102.41, last reached on November 7.
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the Japanese Yen.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | -0.16% | -0.15% | 0.08% | -0.07% | -0.25% | -0.27% | -0.26% | |
EUR | 0.16% | 0.06% | 0.34% | 0.15% | 0.07% | -0.07% | -0.06% | |
GBP | 0.15% | -0.06% | 0.16% | 0.09% | 0.01% | -0.13% | -0.12% | |
JPY | -0.08% | -0.34% | -0.16% | -0.15% | -0.32% | -0.33% | -0.27% | |
CAD | 0.07% | -0.15% | -0.09% | 0.15% | -0.13% | -0.21% | -0.21% | |
AUD | 0.25% | -0.07% | -0.01% | 0.32% | 0.13% | -0.12% | -0.14% | |
NZD | 0.27% | 0.07% | 0.13% | 0.33% | 0.21% | 0.12% | -0.02% | |
CHF | 0.26% | 0.06% | 0.12% | 0.27% | 0.21% | 0.14% | 0.02% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
Silver (XAG/UD) kicks off the new week on a subdued note and consolidates last week's retracement slide from or over a one-month high. The white metal remains close to a two-week low touched Friday and trades around the $30.55 region, or the 100-day Simple Moving Average (SMA), during the Asian session.
From a technical perspective, acceptance below the 100-day SMA will be seen as a fresh trigger for bearish traders against the backdrop of last week's failure near the $32.35 horizontal resistance. Given that oscillators on the daily chart have just started gaining negative traction, the XAG/USD might then turn vulnerable to weaken further below the $30.00 psychological mark and test November lows, around the $29.70-$29.65 region.
Some follow-through selling should pave the way for an extension of the downward trajectory towards the $29.10-$29.00 support zone en route to the $28.40-$28.35 region before the XAG/USD eventually drops to the $28.00 round figure.
On the flip side, any meaningful recovery attempt now seems to confront stiff resistance and remain capped near the $31.00 mark. A sustained strength beyond, however, could trigger a short-covering rally and lift the XAG/USD towards the $31.75 horizontal barrier. The momentum could extend further towards the $32.00 round figure en route to the monthly swing high, around the $32.35 horizontal zone touched last week.
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
Gold prices rose in India on Monday, according to data compiled by FXStreet.
The price for Gold stood at 7,238.43 Indian Rupees (INR) per gram, up compared with the INR 7,222.61 it cost on Friday.
The price for Gold increased to INR 84,427.66 per tola from INR 84,243.13 per tola on friday.
Unit measure | Gold Price in INR |
---|---|
1 Gram | 7,238.43 |
10 Grams | 72,384.33 |
Tola | 84,427.66 |
Troy Ounce | 225,140.60 |
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.
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
(An automation tool was used in creating this post.)
USD/CAD inches lower after marking a multi-year high of 1.4245 on Friday, trading around 1.4230 during the Asian hours on Monday. This upside could be attributed to the subdued US Dollar (USD) amid tepid US Treasury yields ahead of the Federal Reserve’s (Fed) interest rate decision, with an increased likelihood of a 25 basis point rate cut in its final monetary policy meeting of 2024.
Market analysts predict that the US central bank will cut rates while preparing the market for a pause, given the robust US economy and inflation stalling above 2%. According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting.
The Canadian Dollar (CAD) faced challenges as the Bank of Canada (BoC) eased its monetary policy aggressively. The BoC slashed its borrowing rates by 50 bps to 3.25% last week, as expected, but guided a more gradual easing approach as policy rates have come down significantly. BoC Governor Tiff Macklem warned that US President-elect Donald Trump’s tariffs on their exports will have a significant impact on the economy.
The commodity-linked CAD may receive upward support from crude Oil prices due to the rising likelihood of tighter supplies driven by the implementation of additional US sanctions on major producers Russia and Iran. West Texas Intermediate (WTI) Oil price trades around $70.50 per barrel at the time of writing.
On Friday, US Treasury Secretary Janet Yellen said that the United States is considering further sanctions on "dark fleet" tankers and may also impose sanctions on Chinese banks to curb Russia's Oil revenue and access to foreign supplies, which are fueling its war in Ukraine, per Reuters.
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
Gold price (XAU/USD) ticks higher following an Asian session downtick to the $2,644-2,643 region, or a one-week low, and for now, seems to have stalled its sharp retracement slide from over a one-month high touched last Thursday. The US Dollar (USD) kicks off the new week on a softer note amid a modest pullback in the US Treasury bond yields. Adding to this, geopolitical risks and uncertainties over US President-elect Donald Trump's policies turn out to be key factors offering support to the safe-haven precious metal.
Meanwhile, investors now seem convinced that the Federal Reserve (Fed) will adopt a more cautious stance on cutting interest rates next year amid signs that the progress in lowering inflation toward the 2% target has stalled. This should act as a tailwind for the US bond yields and the USD, which, in turn, cap the upside for the non-yielding Gold price. Traders might also refrain from placing aggressive directional bets and opt to wait for the outcome of the highly anticipated two-day FOMC policy meeting on Wednesday.
From a technical perspective, the Asian session low, around the $2,644-2,643 area, coincides with a congestion zone. Some follow-through selling has the potential to drag the Gold price to the $2,625 region en route to the monthly low, around the $2,614 zone and the $2,605-2,600 pivotal support. A convincing break below the latter will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.
On the flip side, the $2,665-2,666 region now seems to act as an immediate hurdle ahead of the $2,677 area, above which the Gold price could aim to reclaim the $2,700 round figure. The subsequent move up could extend further towards the monthly swing high, around the $2,726 zone, which if cleared decisively will set the stage for a further near-term appreciating move.
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
The Indian Rupee (INR) weakens on Monday. Heightened US Dollar (USD) demand in the non-deliverable forwards market and a weaker Chinese Yuan weigh on the local currency. Furthermore, the growing expectations of a dovish tilt in monetary policy following the appointment of a new Reserve Bank of India (RBI) governor could contribute to the INR’s downside.
However, the RBI’s routine intervention in the market by selling USD might help limit the INR’s losses. Traders will keep an eye on the preliminary HSBC India Purchasing Managers Index (PMI) for December, along with the WPI Inflation data, which are due later on Monday. The US Federal Reserve (Fed) will deliver its policy decision on Wednesday. Investors will monitor its dot plot to assess if the median interest rate projections show a hawkish shift in the Fed's outlook
The Indian Rupee trades on a softer note on the day. The USD/INR pair keeps the bullish vibe on the daily chart as the pair is well supported above the key 100-day Exponential Moving Average (EMA). The upward momentum is supported by the 14-day Relative Strength Index (RSI), which is located above the midline near 66.35, suggesting that the path of least resistance is to the upside.
The ascending trend channel and the psychological level of 85.00 act as crucial resistance levels for USD/INR. A break above these levels could spur a rally to 85.50.
On the flip side, the initial support level for the pair is located at 84.75, the lower boundary of the trend channel. Extended losses below the mentioned level could drag USD/INR to the next bearish targets at 84.22, the low of November 25, followed by 84.12, the 100-day EMA.
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
West Texas Intermediate (WTI) Oil price corrects downwards after registering gains in the previous session, trading around $70.50 per barrel during the Asian session on Monday. Crude Oil prices rose amid growing expectations of tighter supplies driven by the implementation of additional US sanctions on major producers Russia and Iran.
US Treasury Secretary Janet Yellen told Reuters on Friday that the United States is considering further sanctions on "dark fleet" tankers and may also impose sanctions on Chinese banks to curb Russia's Oil revenue and access to foreign supplies, which are fueling its war in Ukraine.
Additionally, optimism about China’s plans to ramp up economic stimulus could drive Oil demand. Chinese authorities, led by President Xi Jinping, have pledged to raise the fiscal deficit target next year, shifting policy focus to consumption to boost the economy amid looming 10% US tariffs threatening exports.
The price of crude Oil, often referred to as "liquid gold," also received a boost from improved market sentiment following recent interest rate cuts by central banks in Canada, Europe, and Switzerland. Traders are now focusing on the Federal Reserve's (Fed) upcoming policy decision on Wednesday, where a 25-basis-point rate cut is widely anticipated. Such a move could stimulate economic growth and potentially increase oil demand, as lower borrowing costs are likely to have a positive impact on economic activity.
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
Raw materials | Closed | Change, % |
---|---|---|
Silver | 30.542 | -1.24 |
Gold | 2648.39 | -1.2 |
Palladium | 950.86 | -1.27 |
The Japanese Yen (JPY) struggles to capitalize on a modest Asian session uptick on Monday and touches a three-week low against its American counterpart in the last hour. The initial reaction to the better-than-expected release of Core Machinery Orders and flash Manufacturing PMI from Japan turned out to be short-lived amid firming expectations that the Bank of Japan (BoJ) will not raise interest rates later this week. Furthermore, bets for a less dovish Federal Reserve (Fed) remain supportive of elevated US Treasury bond yields and turn out to be another factor undermining the lower-yielding JPY.
That said, persistent geopolitical risks stemming from the protracted Russia-Ukraine war and the ongoing conflicts in the Middle East, along with concerns about US President-elect Donald Trump's tariff plans, could limit losses for the safe-haven JPY. Traders might also refrain from placing aggressive directional bets and keenly await this week's key central bank event risks. The Fed is scheduled to announce its decision at the end of a two-day meeting on Wednesday, which will be followed by the crucial BoJ meeting on Thursday and help in determining the next leg of a directional move for the JPY.
From a technical perspective, a sustained move and acceptance above the 61.8% Fibonacci retracement level of the November-December fall from a multi-month peak could be seen as a fresh trigger for bulls. Moreover, oscillators on the daily chart have just started gaining positive traction and suggest that the path of least resistance for the USD/JPY pair remains to the upside. Hence, some follow-through strength towards the next relevant hurdle, around the 154.55 region, en route to the 155.00 psychological mark, looks like a distinct possibility.
On the flip side, the Asian session low, around the 153.35-153.30 area, now seems to act as an immediate strong support ahead of the 153.00 mark. A convincing break below the latter might expose the very important 200-day Simple Moving Average (SMA) pivotal support near the 152.10-152.00 region. A convincing break below the latter might shift the bias in favor of bearish traders and drag the USD/JPY pair towards the 151.00 round figure en route to the 150.00 psychological mark.
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
The NZD/USD pair attracts some buyers to near 0.5775, snapping the four-day losing streak during the Asian trading hours on Monday. The attention will shift to the preliminary US December Purchasing Managers Index (PMI) for fresh impetus, which is due later on Monday.
Data released by the National Bureau of Statistics of China showed on Monday that the nation’s Industrial Production rose 5.4% YoY in November, compared to 5.3% in October. This reading came in stronger than the expectation of 5.3%. Meanwhile, Retail Sales rose 3.0% YoY in November versus 4.8% prior, below the market consensus of 4.6%. The New Zealand Dollar (NZD) remains firm in an immediate reaction to the mixed Chinese economic data.
Chinese authorities announced on Thursday that they will unveil a bigger fiscal deficit to boost consumption next year following the Central Economic Work Conference. This follows a commitment made at the huddle of the decision-making Politburo last week to pump more stimulus into the world's second-largest economy. This, in turn, could underpin the China-proxy Kiwi, as China is a major trading partner to New Zealand.
On the USD’s front, a possible hawkish rate cut by the Federal Reserve (Fed) at its December meeting on Wednesday might support the US Dollar (USD) and act as a headwind for the pair. The cautious approach reflects a strengthening US economy, noted by Chair Jerome Powell. Investors see the Fed lowering the interest rates by a quarter of a percentage point at the December meeting, with more attention focused on policymakers' new economic projections released alongside the decision.
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
The Australian Dollar (AUD) halts its four-day losing streak on Monday as the US Dollar (USD) edges lower amid tepid US Treasury yields ahead of the Federal Reserve’s (Fed) interest rate decision set for Wednesday.
The Fed is widely expected to announce a 25 basis point rate cut in its final monetary policy meeting of 2024. According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting.
China’s Retail Sales (YoY) rose 3.0% in November, against its expected 4.6% and previous 4.8% readings. Meanwhile, annual Industrial Production increased by 5.4%, exceeding the market consensus of a 5.3% rise.
Chinese authorities, led by President Xi Jinping, have pledged to raise the fiscal deficit target next year, shifting policy focus to consumption to boost the economy amid looming 10% US tariffs threatening exports. The lack of concrete details on fiscal support has put downward pressure on the AUD, given China's status as Australia's largest trading partner.
AUD/USD hovers near 0.6370 on Monday. The daily chart analysis indicates a prevailing bearish bias as the pair moves downwards within a descending channel pattern. Additionally, the 14-day Relative Strength Index (RSI) also remains above the 30 level, indicating sustained bearish momentum.
On the downside, the yearly low of 0.6348, last seen on August 5, serves as immediate support. A break below this level could put downward pressure on the AUD/USD pair to approach the descending channel’s lower boundary around the 0.6180 level.
The AUD/USD pair faces initial resistance around the nine-day Exponential Moving Average (EMA) at 0.6396, followed by the 14-day EMA at 0.6419, which is aligned with the descending channel’s upper boundary. A decisive breakout above this channel could drive the pair toward the eight-week high of 0.6687.
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the Japanese Yen.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | -0.20% | -0.15% | 0.17% | -0.11% | -0.19% | -0.19% | -0.26% | |
EUR | 0.20% | 0.10% | 0.49% | 0.16% | 0.18% | 0.09% | 0.00% | |
GBP | 0.15% | -0.10% | 0.25% | 0.06% | 0.08% | -0.04% | -0.10% | |
JPY | -0.17% | -0.49% | -0.25% | -0.30% | -0.37% | -0.34% | -0.36% | |
CAD | 0.11% | -0.16% | -0.06% | 0.30% | -0.03% | -0.09% | -0.16% | |
AUD | 0.19% | -0.18% | -0.08% | 0.37% | 0.03% | -0.09% | -0.18% | |
NZD | 0.19% | -0.09% | 0.04% | 0.34% | 0.09% | 0.09% | -0.08% | |
CHF | 0.26% | -0.00% | 0.10% | 0.36% | 0.16% | 0.18% | 0.08% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
The Retail Sales data, released by the National Bureau of Statistics of China on a monthly basis, measures the value of goods sold by retailers in China. Changes in Retail Sales are widely followed as an indicator of consumer spending. Percent changes reflect the rate of changes in such sales, with the YoY reading comparing sales values in the reference month with the same month a year earlier. Generally, a high reading is seen as bullish for the Renminbi (CNY), while a low reading is seen as bearish.
Read more.Last release: Mon Dec 16, 2024 02:00
Frequency: Monthly
Actual: 3%
Consensus: 4.6%
Previous: 4.8%
Following the publication of the high-impact China’s activity data for November, the National Bureau of Statistics (NBS) expressed its outlook on the economy during its press conference on Monday.
Economy generally stable in Nov, sees increasing positive changes.
Trend of recovery in consumption has not changed.
Will implement more policies to expand domestic demand.
New policies will gain more traction, but external situation has become more complex and severe.
developing story ....
AUD/USD is holding gains above 0.6350, up 0.16% on the day, at the press time.
China’s November Retail Sales increased 3.0% year-on-year (YoY) vs. 4.6% expected and 4.8% in October, according to the latest data released by the National Bureau of Statistics (NBS) on Monday.
Chinese Industrial Production rose 5.4% YoY in the same period, compared to the 5.3% estimated and the 5.3% registered previously.
Meanwhile, the Fixed Asset Investment came in at 3.3% year-to-date (YTD) YoY in November, missing the expected 3.4% figure. The October reading was 3.4%.
Additional details of the report showed that the dragon nation’s Unemployment Rate remained unchanged at 5.0% in the reported period.
The mixed Chinese data dump cautions the Australian Dollar, with AUD/USD capping its bounce near 0.6375. The pair is up 0.16% on the day, as of writing.
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
On Monday, the People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.1882, as compared to Friday's fix of 7.1876 and 7.2769 Reuters estimates.
EUR/USD starts the week by extending its gains, trading around 1.0520 during the Asian session on Monday. This upside could be attributed to the decline in the US Dollar (USD) amid tepid US Treasury yields ahead of the Federal Reserve’s (Fed) interest rate decision set for Wednesday.
The Fed is widely expected to announce a 25 basis point rate cut in its final monetary policy meeting of 2024. Market analysts predict that the US central bank will cut rates while preparing the market for a pause, given the robust US economy and inflation stalling above 2%. According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting.
Furthermore, Fed Chair Jerome Powell’s press conference and Dot Plots will be closely monitored. Earlier this month, Powell maintained a cautious tone, stating, “We can afford to be a little more cautious as we try to find neutral.” He indicated that he is not in a hurry to reduce rates.
The Euro gained support after President Emmanuel Macron appointed centrist ally François Bayrou as France's Prime Minister, raising hopes for political stability. Macron had pledged to quickly select a new candidate for the role after Michel Barnier was forced to resign following a confidence vote in Parliament.
On Friday, European Central Bank (ECB) Governing Council member Robert Holzmann said that cutting interest rates solely to stimulate the economy would be a mistake. According to Holzmann, the ECB’s primary responsibility is to ensure price stability, not to fuel economic growth. "Lowering rates now to boost the economy would contradict our current stance," he said, as reported by Bloomberg.
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day, according to data from the Bank of International Settlements. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The GBP/USD pair ticks higher at the start of a busy week and for now, seems to have snapped a three-day losing streak to the 1.2600 neighborhood, or over a two-week low touched on Friday. Spot prices currency trade around the 1.2630-1.2635 region, up 0.10% for the day, though any meaningful appreciation seems elusive ahead of this week's key central bank event risks.
The Federal Reserve (Fed) is scheduled to announce its policy decision on Wednesday, which will be followed by the Bank of England (BoE) meeting on Thursday. The US central bank is widely expected to lower borrowing costs for the third straight meeting, though traders are pricing in the possibility of a slower pace of rate reductions next year. Hence, the accompanying policy statement, the updated economic projections – including the so-called dot-plot – and Fed chair Jerome Powell's comments at the post-meeting press conference will be scrutinized for cues about the future rate-cut path. This, in turn, will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide some impetus to the GBP/USD pair.
Meanwhile, the UK central bank is anticipated to maintain the status quo and leave interest rates unchanged. Moreover, the BoE has stressed it is taking a gradual approach to cutting interest rates amid rising inflation expectations. In fact, the BoE and other forecasting bodies expect that inflation will rise next year in the wake of UK finance minister Rachel Reeves' big-spending budget. That said, BoE Governor Andrew Bailey's dovish outlook, signaling four interest rate cuts in 2025, might hold back traders from placing aggressive bullish bets around the British Pound (GBP) and act as a headwind for the GBP/USD pair. This, in turn, warrants some caution before confirming that spot prices have bottomed out around the 1.2600 mark.
Investors this week will also confront the release of important macro data from the UK and US, starting with the flash PMI prints later this Monday. Apart from this, the UK monthly employment details, along with the US Retail Sales on Tuesday, followed by the UK consumer inflation figures on Wednesday, the final US GDP print on Thursday and the UK Retail Sales on Friday should infuse volatility around the GBP/USD pair.
The Composite Purchasing Managers Index (PMI), released on a monthly basis by the Chartered Institute of Procurement & Supply and S&P Global, is a leading indicator gauging private-business activity in UK for both the manufacturing and services sectors. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation.The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the UK private economy is generally expanding, a bullish sign for the Pound Sterling (GBP). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for GBP.
Read more.Next release: Mon Dec 16, 2024 09:30 (Prel)
Frequency: Monthly
Consensus: -
Previous: 50.5
Source: S&P Global
The Gold price (XAU/USD) trades flat around $2,650 during the early Asian session on Monday. However, strong central bank buying and ongoing geopolitical tensions in the Middle East could underpin the precious metal in the near term. Investors await the preliminary US December Purchasing Managers Index (PMI) for fresh impetus, which is due later on Monday.
Significant demand from central banks lifts the yellow metal price. Central banks have been net buyers of gold for nearly 15 years, emphasizing its value as a crisis hedge and a reliable reserve asset. According to the World Gold Council, the precious metal is expected to rise modestly in 2025 due to central bank actions, geopolitical tensions, and economic conditions in key markets like the US, China, and India.
On Sunday, Israel's government approved a plan to double its population in the occupied Golan Heights, citing threats from Syria, per Reuters. Any signs of escalating geopolitical tensions in this region could boost a flight to safe assets, benefiting the Gold price.
On the flip side, US President-elect Donald Trump's tariff plan would stoke further inflation and delay the Federal Reserve (Fed) easing policy. Additionally, the robust US economy could lift the US Dollar (USD) and undermine the USD-denominated commodity price as it increases the opportunity cost of holding non-yielding bullion. "Generally speaking, we see a stronger U.S. economy next year, which should leave less room for rate cuts and should thus bring less tailwinds for gold," said Carsten Menke, an analyst at Julius Baer.
Gold traders will closely watch the Fed meeting on Wednesday, which is anticipated to cut the interest rates by 25 basis points (bps). The attention will be on Chair Jerome Powell's speech, as it might offer some hints about US monetary policy for 2025.
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
The deputy director of China's central financial and economic affairs commission said on Saturday that the country's economy is estimated to grow by about 5% this year, per Reuters.
Han Wenxiu, a senior official in the ruling Communist Party, stated that China is expected to contribute close to 30% of global growth, adding that there was a need to boost consumption and view domestic demand expansion as a long-term strategic move that would become the main driving force for economic growth.
At the press time, the AUD/USD pair was up 0.17% on the day to trade at 0.6368.
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Index | Change, points | Closed | Change, % |
---|---|---|---|
NIKKEI 225 | -378.7 | 39470.44 | -0.95 |
Hang Seng | -425.81 | 19971.24 | -2.09 |
KOSPI | 12.34 | 2494.46 | 0.5 |
ASX 200 | -34.3 | 8296 | -0.41 |
DAX | -20.35 | 20405.92 | -0.1 |
CAC 40 | -11.37 | 7409.57 | -0.15 |
Dow Jones | -86.06 | 43828.06 | -0.2 |
S&P 500 | -0.16 | 6051.09 | -0 |
NASDAQ Composite | 23.88 | 19926.72 | 0.12 |
Pare | Closed | Change, % |
---|---|---|
AUDUSD | 0.63562 | -0.15 |
EURJPY | 161.298 | 1.02 |
EURUSD | 1.04959 | 0.3 |
GBPJPY | 193.901 | 0.31 |
GBPUSD | 1.26174 | -0.4 |
NZDUSD | 0.57569 | -0.12 |
USDCAD | 1.4235 | 0.16 |
USDCHF | 0.89272 | 0.15 |
USDJPY | 153.675 | 0.7 |
Israel's government approved a plan to double its population on the occupied Golan Heights on Sunday, citing threats from Syria, per Reuters.
Prime Minister Benjamin Netanyahu said in a statement, "Strengthening the Golan is strengthening the State of Israel, and it is especially important at this time. We will continue to hold onto it, cause it to blossom, and settle in it.”
At the time of press, the XAU/USD pair was up 0.10% on the day at $2,650.
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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