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• Crude Oil production continues to outpace demand, fourth quarter's steep drawdowns fail to materialize.
• WTI still pinned near $74.00 per barrel as energies keep aloft on buoyed risk appetite.
• Crude prices finding support in geopolitical tensions following Red Sea attacks.

West Texas Intermediate (WTI) is struggling to develop topside momentum even as Crude Oil supply lines see a slight constraint after several firms have temporarily suspended sending Crude oil shipments through the Red Sea shipping lane after several vessels were attacked by Houthi rebels in Yemen.

Houthi rebels have vowed to keep up the pace of their attacks on civilian shipping vessels that pass through the Bab al-Mandeb strait, a vital shipping lane that delivers Crude Oil and goods between Asia and Europe.

A joint security operation is scrambling to stabilize the Red Sea region, with combined forces from the US, Canada, France, Spain, Norway, and Bahrain set to descend upon the critical shipping region to quell rebel attacks.

Even with rebel attacks on tankers sending jitters through energies markets, the upside remains frustratingly elusive for Crude Oil prices, with WTI managing to hold onto the $74.00 handle but little more as crude barrel reserves continue to build up at a much faster pace than oil traders had predicated earlier in the year.

Ongoing production caps and restrictive barrel exporting quotas from the Organization of the Petroleum Exporting Countries (OPEC) are doing little to send Crude Oil prices higher as global demand for fossil fuels slumps below an achievable level for OPEC to structural combat, and crude barrel reserves continue to chalk in increases despite near-term contractions in week-on-week barrel counts.

According to the American Petroleum Institute (API), API-counted barrels in the US remain well-stocked, adding 939K barrels for the week ending December 15 to the current count despite last week's 2.349 million barrel decline. The API reports that overall crude inventories have climbed a little over 18 million barrels so far in 2023, snubbing market analyst expectations of an additional decline of 2.233 million barrels for the week.

The US Department of Energy (DoE) reported on Monday that barrel counts within the Strategic Petroleum Reserve had climbed by 600K barrels, and Crude Oil markets will be looking ahead to Wednesday's Energy Information Administration's (EIA) crude reserve count figures.

EIA Crude Oil stocks printed a 4.259 million barrel drawdown in Crude supplies last week, and fossil bidders will be looking for the EIA's crude barrel counts to show an additional 2.233 million count decline.

WTI Technical Outlook

WTI US Crude Oil has closed flat or in the green for the last five consecutive trading days, rising nearly 10% from December's plunge into $67.97 per barrel. Despite the recent rebound, Crude Oil bidding remains tepid, down on the year and trading on the south side of the 200-day Simple Moving Average (SMA) near the $77.50 price level.

Crude Oil remains firmly down from the last swing high that knocked on the door to the 95.00 major handle, and downside momentum sees the 50-day SMA primed for a bearish crossover with the long-run 200-day SMA.

WTI Daily Chart

WTI Technical Levels

The Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr said on Wednesday that they were surprised by GDP data last week indicating the economy shrank, but has no opinion yet on what it means for the interest rate outlook, per Bloomberg.

Key quotes

Market reaction

NZD/USD extends its rally following Orr’s comments. The pair is currently trading at 0.6271, up 0.08% on the day.

• The all-important UK CPI report will be published by the Office for National Statistics on Wednesday.
• Headline and core annual inflation are likely to extend their declining trend.
• The UK CPI data is set to ramp up end-of-the-year volatility around the Pound Sterling.

Following last week’s hawkish hold by the Bank of England (BoE), the high-impact Consumer Price Index (CPI) data from the United Kingdom on Wednesday will hold the key for the next directional move in the Pound Sterling. The data will be published by the Office for National Statistics (ONS) at 07:00 GMT.

What to expect from the next UK inflation report?

The headline annual UK Consumer Price Index is forecast to rise 4.4% in November, slowing slightly from October’s 4.6% increase. The data would continue to sit at its lowest since October 2021 while more than double the BoE’s 2.0% target.

The Core CPI inflation is seen declining to 5.6% YoY in November, as against a 5.7% reading in October. Meanwhile, Britain’s CPI is expected to rise 0.1% over the month, having reported no growth in October.

Analysts at TD Securities (TDS) cited key reasons behind the likely easing in the headline inflation data, noting that “a 2% m/m decline in petrol prices and heavy base effects in the food component should help pull headline inflation down 0.3ppts. Services inflation will remain key for the BoE, and we expect it to fall to 6.5% y/y—0.4ppts below the BoE's forecast.”

In its December policy statement, the BoE said that “CPI inflation has fallen back broadly as expected, while there has been some downside news in private sector regular Average Weekly Earnings (AWE) growth. However, key indicators of UK inflation persistence remain elevated.”

In light of this, “the Committee continues to judge that monetary policy is likely to need to be restrictive for an extended period of time,” the statement said.

The BoE held the policy rate at a 15-year high of 5.25% following its December meeting and offered no pivot. But the grim economic outlook and loosening labor market conditions led money markets to price in four 25 bps rate cuts starting from June, with the key rate seen slashing from 5.25% to as low as 4.25% by the end of 2024.

Therefore, the upcoming UK inflation data is critical to gauging the timing of the central bank’s policy pivot next year, which could have a significant impact on the value of the Pound Sterling.

When will the UK Consumer Price Index report be released and how could it affect GBP/USD?

The UK CPI data will feature at 07:00 GMT on Wednesday. The Pound Sterling is looking to build on its recovery above 1.2200 against the US Dollar in the lead-up to the high-impact United Kingdom’s inflation data. The reinforcement of the hawkish rhetoric from the US Federal Reserve (Fed) officials is helping keep the US Dollar afloat.

An unexpected uptick in the headline and core inflation data could douse hopes for a BoE pivot as early as June, reviving the upswing in the Pound Sterling. In such a case, GBP/USD could revert toward the four-month high of 1.2794. On the contrary, GBP/USD could likely resume its correction toward 1.2500 if the UK CPI data cools down more than expected and affirms the market’s pricing of BoE rate cuts next summer.

Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and explains: “The GBP/USD pair is likely to stay hopeful as long as it holds above the 21-day Simple Moving Average (SMA) at 1.2616. The 14-day Relative Strength Index (RSI) is holding comfortably above the midline, pointing to more upside.”

“A firm break above Monday’s high of 1.2704 could reinforce the buying interest around the Pound Sterling. The next upside barrier is seen at the 1.2750 psychological level, above which the door will reopen for a test of the multi-month high of 1.2794. Conversely, a daily closing below the 21-day SMA at 1.2616 could trigger a fresh downswing toward the 200-day SMA at 1.2508, which could act as a solid cushion,” Dhwani adds.

• AUD/USD gains traction near 0.6762 amid the USD weakness.
• The dovish stance from the Fed weighs on the Greenback broadly.
• The Reserve Bank of Australia (RBA) may hike the rate further, but the policy setting will depend on the incoming data.
• Traders await the US Existing Home Sales, due later on Wednesday.

The AUD/USD pair extends its rally during the early Asian session on Wednesday. The softer US Dollar (USD) and a rise in commodity price lends some support to the Australian Dollar (AUD), which underpins AUD/USD. The pair currently trades around 0.6762, up 0.01% on the day.

The US housing data on Tuesday showed mixed readings. Housing Starts climbed to 1.56 million, beating the market expectation of 1.36 million. Meanwhile, Building Permits dropped to 1.46 million, worse than the market consensus of 1.47 million.

Following the Federal Open Market Committee (FOMC) meeting last week, the markets believe the US central bank is done with its tightening cycle and opened the door to rate cuts next year. This, in turn, exerts some selling pressure on the Greenback and acts as a tailwind for the AUD/USD pair. According to CME's FedWatch tool, financial markets are pricing in a 67.5% odds that the Fed will cut a 25 basis point (bps) as soon as March.

On the other hand, the Reserve Bank of Australia (RBA) stated in its December minutes that the central bank may raise interest rates again amid the encouraging signs of falling inflationary pressures across the economy. Nonetheless, the policy setting will depend on the incoming data and the evolving assessment of risks.

Looking ahead, traders will keep an eye on the release of US Existing Home Sales on Wednesday. Later this week, the US Gross Domestic Product Annualized for the third quarter (Q3) will be released, which is estimated to remain steady at 5.2%. On Friday, attention will shift to the Core Personal Consumption Expenditures Price Index (PCE). These figures could give a clear direction to the AUD/USD pair.

• USD/JPY sees plenty of chart churn after BoJ fails to meet market tone expectations.
• Recent hawkish comments from BoJ Governor Ueda pivoted to usual dovishness, slapping down overeager Yen bets.
• 200-hour SMA proving a tricky barrier to overcome.

USD/JPY saw a hard rally early Tuesday after the Bank of Japan (BoJ) cut the knees out from underneath soaring market expectations of an unexpected hawkish pivot sparked by recent comments from BoJ Governor Kazuo Ueda, who noted that the BoJ's current monetary policy framework could see some tightening at some point in the future if the macro data favors it. 

Market participants promptly ran far ahead of current market conditions, with investors pivoting about-face last week looking for signs that the BoJ would begin easing towards a tightening cycle.

Governor Ueda's comments proved to be further flung than investors were prepared to admit after that BoJ's latest Monetary Policy Statement and follow-up Press Conference revealed that the specific economic conditions required for a tightening shift from the BoJ are currently not present, and remain a lofty future goal rather than an imminent dynamic adjustment.

The Yen (JPY) tumbled nearly 2% peak-to-trough against the US Dollar after markets rebalanced their Yenb expectations once again.

BoJ’s Ueda: Want to see if next spring's wage growth is strong enough to support consumption

According to Governor Ueda, the BoJ is waiting to see how wage growth develops through 2024's first quarter and heading into the second before making any assessments regarding policy changes.

This fell well short of market expectations which had ramped up into “imminently hawkish BoJ” hopes after Ueda briefly mentioned a possible end to the negative rate regime at some point in the future.

The rest of the trading week turns to face a final raft of US economic data heading into the final week of trading in 2023, with US Gross Domestic Product (GDP) and Personal Consumption Expenditure (PCE) Price Index figures due on Thursday and Friday, respectively.

US GDP is expected to hold steady at 5.2% for the annualized period ending in the third quarter, while US PCE Index numbers, the Federal Reserve’s favored method of tracking domestic inflation, are expected to slightly tick down from 3.5% to 3.3% for the year ended November.

USD/JPY Technical Outlook

Intraday action finds the USD/JPY pinned into the 200-day Simple Moving Average (SMA) near the 144.00 handle, after hitting a Tuesday high that fell just shy of the 145.00 major price level.

Near-term momentum has leaned bullish for the USD/JPY, but topside momentum remains capped below the last notable swing high into 146.50 last week.

Daily candlesticks show the USD/JPY churning at the 200-day SMA as medium-term momentum drains out of the pair, leaving bids to waffle into long-term median prices.

USD/JPY Hourly Chart

USD/JPY Daily Chart

USD/JPY Technical Levels

• EUR/GBP shows mild losses at 0.8630, after bottoming at a low of 0.8600.
• The daily chart delivers mixed signals with a bearish RSI and bullish MACD.
• Recently, the four-hour chart indicators gained ground, and bulls are in command.

On Tuesday, the EUR/GBP was sighted trading at 0.8630, enduring minor losses after bottoming at a daily low of 0.8600. The daily scene appears somewhat neutral to bearish, but there's compelling evidence of bulls gaining some footing. Notably, the four-hour indicators have amped up, implying momentum on the buyers' side.

The indicators on the daily chart suggest a subdued, bullish sentiment. Despite the Relative Strength Index (RSI) trending downwards in the negative zone, the Moving Average Convergence Divergence (MACD) shows rising green bars, suggesting an increasing buying momentum. Meanwhile, the pair's position in relation to its 20-day Simple Moving Average (SMA) adds to this bullishness as it maintains its position above this key level. However, the asset is still lagging behind the 100 and 200-day SMAs, indicating the bear's overall control is intact on the broader scale.

From a narrower perspective, the four-hour chart demonstrates that the bulls are steadily gaining ground. The Relative Strength Index (RSI) shows a positive slope within the bullish zone, while the Moving Average Convergence Divergence (MACD) also displays rising green bars, signaling a growing buying momentum. This mounting bullish force indicates an advancing trend in the short-term, despite the conflicting signals from the daily chart.

Support Levels: 0.8620 (20-day SMA), 0.8600, 0.8570.
Resistance Levels: 0.8640 (100-day SMA), 0.8660 (200-day SMA), 0.8700.

EUR/GBP daily chart

During Wednesday's Asian session, Japan will release trade data. No change in interest rates is expected from China. The key report of the day will be the UK inflation figures. Later in the day, more US housing data is due, the Swiss National Bank will release the quarterly bulletin, and the Bank of Canada meeting minutes will be published. Santa’s rally on Wall Street will be watched closely. 

Here is what you need to know on Wednesday, December 20:

The US Dollar Index (DXY) accelerated its downward movement but remained above December lows. The DXY lost more than 0.30% and fell towards 102.00. Stocks on Wall Street rose again, with the Dow Jones reaching a new all-time high close. The 10-year Treasury yield remain near 3.90%.

Data from the US housing sector came in mixed on Tuesday. Housing Starts unexpectedly rose to 1.56 million, surpassing the market consensus of 1.36 million. However, Building Permits declined to 1.46 million, slightly below the forecast of 1.47 million. More housing data is expected on Wednesday with the release of Existing Home Sales. Additionally, the CB Consumer Confidence survey is also due.

EUR/USD rose but was unable to reclaim 1.1000. The bias remains on the upside as the pair consolidates around 1.0970. On Wednesday, Germany will release the Producer Price Index (November), while Eurostat will report on October's Current Account, Construction Output, and December’s Consumer Confidence.

GBP/USD trimmed its gains late on Tuesday, falling towards 1.2700. It holds firm above the 20-day Simple Moving Average (SMA), with the upside limited by the strong resistance area around 1.2800. Critical UK data is due on Wednesday, with consumer and wholesale inflation figures.

The "dovish hold" from the Bank of Japan weighed on the Japanese Yen on Tuesday, causing it to weaken sharply. The BoJ did not provide a timeframe for liftoff, and Governor Kazuo Ueda mentioned the difficulty of presenting a plan to exit the negative interest rate policy. USD/JPY initially jumped from 142.80 to 144.95, but then retraced under 144.00 amidst a weaker US Dollar and declining global yields. The overall trend remains bearish. Trade data from Japan is due on Wednesday.

USD/CHF hit four-month lows under 0.8600 and is set to test the 2023 low around 0.8550. The Swiss National Bank (SNB) will release its quarterly bulleting on Wednesday. 

The Consumer Price Index rose 0.1% in November on a monthly basis, against expectations of a 0.2% decline. The annual rate remained at 3.1%. The Canadian Dollar (CAD) rose across the board after the data. USD/CAD resumed the downside after a short-lived rebound and posted the lowest daily close since early August below 1.3350. The Bank of Canada (BoC) will release the Summary of Deliberations on Wednesday. 

AUD/USD broke above 0.6730 and jumped to 0.6774, reaching the highest level in almost five months. This was driven by broad-based weakness in the US Dollar and improved risk appetite. The rally in commodity prices also provided support to the Australian Dollar. 

Gold prices rose but struggled to sustain gains above $2,040, raising doubts about further short-term advances. Silver reclaimed $24.00 but failed to hold above the 20-day Simple Moving Average. For XAG/USD (Silver/US Dollar) to pave the way for sustainable gains, it would need to surpass $24.30.

• The USD/CHF saw a 0.70% decrease, hitting fresh multi-month lows around 0.8610.
• Thomas Barkin's dovish comments and lower US yields are weighing on the US Dollar.
• Raphael Bostic lowered the dovish hype and commented that the bank should be ‘patient’.

In Tuesday's session, the USD/CHF plunged to fresh multi-month lows of 0.8610, marking a 0.70% daily decline. This downward movement was mainly by dovish bets on the Federal Reserve (Fed) spurred remarks from Thomas Barkin, which weighs on the US Dollar.

In that sense, the Federal Reserve hinted in its last Wednesday’s meeting that there likely won’t be any additional tightening, and the revised dot plots saw the bank’s officials forecasting 75 bps of easing in 2024. Since then, the US Dollar is under selling pressure, and any dovish guidance adds additional pressure to the Greenback. In line with that, Thomas Barkin commented on Tuesday that in case inflation continues declining, the Fed will “respond,” which fueled further expectations of easing. On the other hand, Raphael Bostic from Atlanta’s Fed sounded more cautious and warned that the policy needs to be “ resolute and patient” and that he sees only two rate cuts in 2024.

Meanwhile, US bond yields are presently trading lower. The 2-year rate is at 4.40%, while the 5 and 10-year rates are posted at 3.94% and 3.92% respectively. This downward trend of the US yields contributes to the downside of the pair as the US Dollar loses interest.

However, the Swiss economy, like much of Europe, is contracting with falling business confidence and investment, particularly in energy-intensive industries. These factors would potentially strengthen the USD against the CHF as the American economy is holding strong. On Wednesday, investors will watch the Swiss National Bank (SNB) Quarterly Bulletin from Q4 to get further insights on the economy.

USD/CHF levels to watch

The indicators on the daily chart reflect a dominant bearish momentum in the short term. The Relative Strength Index (RSI) is sending signals of an oversold market, frequently suggesting a nearing reversal or a temporary shift in the trend.

Adding to the bearish presence, the Moving Average Convergence Divergence (MACD) is also pointing toward increased selling pressure. The MACD's oversold conditions are represented by the prolonged printing of the red bars in the histogram, denoting a momentum that currently favors the sellers.

Further reinforcing this sentiment, the pair is situated below the 20, 100, and 200-day Simple Moving Averages (SMAs). The position distinctly signals that the bears are still in control in a larger context. This scenario, aligned with the mentioned indicators, signifies the continuation of a challenging environment for buyers.

Support Levels: 0.8600, 0.8550, 0.8500.
Resistance Levels: 0.8650, 0.8700, 0.8746 (20-day SMA).

USD/CHF daily chart

• EUR/USD up nearly half a percent on Tuesday despite a below-expectation HICP inflation print.
• Plenty of US data still on the docket this week to drive the EUR/USD into the holiday weekend.
• EU & US Consumer Confidence up next for Wednesday.

The EUR/USD is drifting towards the 1.1000 major handle once more after failing to capture the key technical level last week. The pair struck an intraday high of 1.1009 last Thursday, but gave up the high ground heading into the weekend.

Eurozone Final Harmonized Index of Consumer Prices (HICP), the European equivalent to Consumer Price Index, missed the market on Tuesday, with November’s EU inflation index declining 0.6%, below the market’s forecast of -0.5%, in-line with the earlier preliminary print.

Read More: Eurozone Preliminary HICP inflation softens to 2.4% YoY in November vs. 2.7% expected

Market sentiment is decidedly risk-on for Tuesday, putting downside pressure on the US Dollar (USD) heading toward the midpoint of 2023’s last full trading week. US Building Permits in November came in slightly lower, printing at 1.46 million versus the forecast 1.47 million, declining slightly from October’s 1.498 million (revised up slightly from 1.487 million). US housing data balanced out with a better-than-expected print in US Housing Starts for November, coming in at 1.56 million versus the forecast 1.36 million and stepping over October’s 1.359 million (revised downward from 1.372 million).

Coming down the pipeline will be the last print of US Gross Domestic Product (GDP) numbers in 2023 on Thursday, followed by US Core Personal Consumption Expenditure (PCE) Price Index numbers on Friday.

US GDP for the third quarter is broadly expected to hold steady at 5.2%, while annualized Core PCE is forecast to tick down slightly from 3.5% to 3.3%. 

EUR/USD Technical Outlook 

The EUR/USD remains well-bid in the near-term after last week’s hard rally that saw the pair crack straight through the 200-hour Simple Moving Average (SMA) near the 1.0800 handle, a broad weakening in the US Dollar is giving the Euro a chance to scramble for higher ground.

Friday’s pullback after a failed run at the 1.1000 major price level saw the pair hesitate back into the 1.0900 region, but this week sees the EUR/USD grinding higher once more.

Last week’s rally also saw the pair retake the bullish side of the long-term 200-day SMA, extending the Euro’s rebound from October’s bottom bids of 1.0450.

EUR/USD Hourly Chart

EUR/USD Daily Chart

EUR/USD Technical Levels

• GBP/USD rallies to 1.2737, gaining 0.70% following comments from Fed and BoE officials, indicating diverging monetary policies.
• Analysts from Rabobank and Goldman Sachs predict a rise in GBP/USD, with targets of 1.30 and 1.35 respectively over the next year.
• Key economic releases ahead: UK inflation data and Q3 GDP report, alongside US housing data and core PCE, to further influence currency movements.

The GBP/USD snapped two days of losses and rallies during the mid-North American session on Tuesday, gaining more than 0.70% after bouncing off daily lows of 1.2632. The major is exchanging hands at 1.2737, boosted by speculations the US Federal Reserve (Fed) would lower borrowing costs before the Bank of England (BoE).

Sterling rises as markets eye diverging central bank policies and upcoming data

The main drivers in the day had been central bankers crossing the wires. The Atlanta Fed President Raphael Bostic said that he projects two rate cuts next year but in the second half of 2024, adding the US central bank is not urgency to back away from a restrictive policy stance. He expects inflation to continue to come down “slowly and unevenly.”

Earlier, Richmond Fed President Thomas Barkin commented that inflation remains the main focus for the Fed, acknowledging there’s progress on curbing elevated prices. He said the Fed’s forecasts are now guidance, just projections, and added that the Fed could re-focus on its dual mandate.

Across the pond, BoE Sarah Breeden was hawkish, saying that policy “must stay restrictive for extended period” and said that despite the economy moving in the right direction, “our (BoE) job is not done.”

Meanwhile, analysts quoted by Reuters had upward revised the GBP/USD’s scope for the next year. Jane Foley, Head of FX Strategy at Rabobank commented “We see scope for cable to track up to 1.30 on a nine-to-12 month view on rate differentials.”

Goldman Sachs analysts estimate the Pound Sterling to head toward 1.35 a year from now.

Data-wise, the US economic docket featured housing data, which barely moved the financial markets, despite portraying a recovery in the sector. Nevertheless, GBP/USD traders are eyeing the latest inflation figures in the United Kingdom (UK) on Wednesday, followed by Friday’s Q3 GDP report.

Across the pond, the US agenda will announce more housing data, Durable Goods Orders, the final reading of the Gross Domestic Product (GDP) in the third quarter, followed by the Fed’s preferred gauge for inflation, the core PCE.

GBP/USD Technical Levels

Atlanta Federal Reserve (Fed) President Raphael Bostic said on Tuesday that he expects inflation to continue to come down slowly and unevenly. He also sees the “tight labor market” to continue moving forward. 

Speaking about the US economy at the Harvard Business School Club of Atlanta Alumni Leadership Lunch, Bostic explained his outlook for inflation and the labor market to cool further.

The Fed is in a good place, with a pathway to fixing inflation without much labor market pain, added Bostic. He warned that the central bank is not going to “jump at the first data point”. 

Market reaction

The US Dollar index (DXY) is falling 0.35% on Tuesday, trading around 102.15, while US Treasury yields are moving sideways. 
 

• The DXY Index observed losses, and declined towards 102.00.
• Fed’s Barkin: “If inflation comes down, the Fed will respond”.
• Investors focus is set on Friday’s PCE data.

The US Dollar (USD) Index, trading at 102.00, and is currently in the grips of a downward trend, heavily influenced by falling yields and dovish comments from Federal Reserve's (Fed) Thomas Barkin, which fueled further easing bets on the next decisions from the bank. 

The Fed's dovish outlook, coupled with cooling inflation figures, recently weighted to the US dollar's strength, as the bank pointed out that its officials are seeing more rate cuts than expected in 2024. In line with that, November’s Personal Consumption Expenditures (PCE) figures, due on Friday, may affect the Greenback price dynamics as they could give more strength to the case of earlier rate cuts next year.

Daily Market Movers: US Dollar down on lower yields, dovish Barkin comments 

• The US Dollar is experiencing losses, resuming its downward path influenced by falling yields and dovish comments from Thomas Barkin. Housing data failed to trigger a reaction on the Greenback.
• Housing Starts statistics for the November report by the U.S. Census Bureau came in at 1.56M, against the consensus of 1.36M and the previous figure of 1.359M, indicating an increase in construction activity.
• Building Permits data for November surprisingly fell to 1.46M, below the expected consensus of 1.47M and the previous figure of 1.498M.
• Market attention is pivoting towards the upcoming report of the Core Personal Consumption Expenditures (PCE) Price Index on Friday, which will provide insights into spending trends and inflationary pressures.
• US bond rates for 2, 5, and 10-year bonds, currently trading at 4.43%, 3.90%, and 3.91%, respectively, are experiencing a downtrend, which lowers the demand for USD.
• Thomas Barking was seen as optimistic about the inflation outlook, commenting that demand and inflation are normalizing and that good progress is being made. He then pointed out that the bank will respond if inflation continues this path.
• According to the CME FedWatch tool, markets anticipate potential rate cuts by March 2024.

Technical Analysis: Bearish dominance continues, bulls fail to maintain momentum

The negative slope and territory of the Relative Strength Index (RSI) suggest continued bearish momentum aligning with the rising red bars of the Moving Average Convergence Divergence (MACD). This comes after bulls gained some ground in the last session but failed to maintain it to continue edging higher.

Meanwhile, on a more macro level, the index persistently stationed below the 20, 100, and 200-day Simple Moving Averages (SMAs) speaks for the pervasive selling domination. This ongoing bearish stance mirrors a firm control by the bears.

Support levels: 101.80,101.50, 101.30.
Resistance levels: 103.30 (20-day SMA), 103.50 (200-day SMA), 104.00.

• The CAD caught a Tuesday jolt after Canadian CPI inflation came in above expectations.
• Economic calendar data sees limited impact as markets gear up for holidays.
• Canadian Retail Sales & GDP to round out the trading week.

The Canadian Dollar (CAD) is catching a limited bid on Tuesday following a better-than-expected Canadian Consumer Price Index (CPI) inflation print, dragging the CAD into the green against the US Dollar (USD), but limited data impact sees the CAD still down against the majority of major currency peers for the day.

CPI inflation in Canada printed at 3.1% for the year through November, beating expectations and giving the Canadian Dollar a slight boost. The rest of the week sees a steady trickle of Canadian data heading into the holiday shutdown, with the Bank of Canada’s (BoC) latest Summary of Opinions on Wednesday, followed by Canadian Retail Sales for October on Thursday, and the week rounds out with the final Canadian Gross Domestic Product (GDP) print for 2023.

Daily Digest Market Movers: Canadian Dollar mixed on the day, but catching some lift against the Greenback

• The Canadian Dollar is up four-tenths of one percent against the US Dollar on Tuesday, and up over a full percent against the Japanese Yen (JPY).
• The Loonie is losing noticeable ground against the Antipodeans, down nearly half a percent against both the Australian Dollar (AUD) and the New Zealand Dollar (NZD).
• Canada’s Consumer Price Index (CPI) came in at 3.1% for the year through November, holding steady with the previous print and beating the forecast decline to 2.9%.
• MoM CPI for November also beat expectations, holding steady at 0.1% versus the forecast -0.2%.
• The Bank of Canada’s November CPI Core ticked upwards in the annualized figure from 2.7% to 2.8%, while the MoM number printed at 0.1% versus the previous 0.3%.
• Next up: the BoC’s Summary of Deliberations, the Canadian central bank’s last scheduled meeting’s minutes, which could provide further insight into how hawkish or dovish the BoC is leaning.
• Canadian Retail Sales on Thursday as well as Canadian GDP on Friday.
• US data could overshadow Canadian calendar releases.
• US Gross Domestic Product on Thursday, US Core Personal Consumption Expenditure (PCE) Price Index figures on Friday.

Technical Analysis: Canadian Dollar looks to extend against Greenback, USD/CAD looking for 1.3300

The Canadian Dollar climbed to a fresh 19-week high against the US Dollar on Tuesday, testing 1.3333 and setting the USD/CAD on pace to close down for six of the last eight trading weeks.

The USD/CAD is down over 4% from November’s early peak just shy of 1.3900, and the pair is extending further beyond the 200-day Simple Moving Average (SMA) near the 1.3500 handle after breaking through the key moving average last week.

The US Dollar has resumed its backslide against the CAD, and Tuesday will mark the fourth red candle out of the last five consecutive trading days.

The nearest major support sits at July’s low bids near the 1.3100 handle, and a technical resistance zone is pricing in at common turnaround points between 1.3400 and 1.3500, in conjunction with the 200-day SMA.

USD/CAD Hourly Chart

USD/CAD Daily Chart

• XAU/USD climbs 0.40% amidst a decline in the US Dollar Index and a drop in the 10-year Treasury yield.
• Fed Chair Jerome Powell hints at policy easing in 2023, triggering expectations of over 135 basis points in rate cuts by December 2024, as per CBOT futures.
• Upcoming US economic data, including Q3 GDP and core PCE, to provide further cues for gold's trajectory amid ongoing housing market stability.

Gold price advanced steadily in the mid-North American session on Tuesday as the US Dollar and Treasury yields slumped due to market participants continuing to price in the US Federal Reserve (Fed) would lower borrowing costs next year. At the time of writing, XAU/USD trades at $2045 after hitting a daily low of $2021.84, gains 0.90%.

XAU/USD soars amid speculation of Federal Reserve's policy shift

The US Dollar Index (DXY), which tracks the currency’s performance against six rivals, is down 0.40% at 102.09, while the US 10-year benchmark note rate is at 3.913% at around the last four days' lows.

Last week’s Fed Chair Jerome Powell commented that the tightening cycle ended and opened the door to ease policy next year, with him saying that discussions about rate cuts had begun. Nevertheless, last Friday, the New York Fed President John Williams pushed back and stated that the question is whether monetary policy is sufficiently restrictive or not.

Despite that, money market futures had priced in more than 135 basis points of rate cuts for December of 2024, according to fed funds futures contracts of the Chicago Board of Trade (CBOT). Odds for a rate cut in March lie at 70%.

In the meantime, sources cited by Reuters said, “Investors are buying gold, and there is less incentive for people to get rid of it since the belief is that the Federal Reserve may very well cut interest rates before they achieve their 2% inflation target.”

Data-wise, US housing data revealed earlier was solid but failed to move the needle in favor of the Greenback (USD). In the week ahead, the US economic calendar will get busy with the release of Q3’s GDP final data, followed by Durable Goods Orders, the Fed’s preferred gauge for inflation, the core PCE, and additional housing data.

XAU/USD Price Analysis: Technical outlook

From a technical standpoint, the daily chart suggests the XAU/USD uptrend would continue, though it would need to reclaim the $2050 to pave the way to res-test the previous year-to-date (YTD) high of $2081.82 before challenging $2100. On the flip side, if the non-yielding metal stays below $2050, that would pave the way for consolidation in the $2009-$2050 area. A breach of the bottom of that range could put the $2000 figure into play.

• The AUD/USD continues to edge higher, trading near the 0.6770 mark following a  0.90% rally.
• RBA's hawkish tone in December escalates AUD's strength.
• Monetary policy divergences between the Fed and the RBA may continue pushing the pair to the upside.

During Tuesday's session, the AUD/USD pair had a notable rally and jumped towards 0.6770. This surge in the Aussie dollar can be attributed to the hawkish minutes released by the Australian Reserve Bank (RBA), which gave the currency a significant push against its US counterpart.

In line with that, the Reserve Bank of Australia (RBA) maintained its interest rate at 4.35% during its December 5 meeting, initially perceived as dovish. On Tuesday, the minutes revealed a hawkish stance, showing the bank considered a rate hike but ultimately opted to await more data to consider another hike.

Regarding the market expectations on the RBA, as indicated by the World Interest Rate Probability Tool (WIRP), suggest a low probability of a rate cut on February 6, followed by higher chances of easing in the May and June's meetings while a rate cut is already priced in for the November meeting in 2024..

This aligns with markets betting on a less aggressive Federal Reserve (Fed) and with investors contemplating rate cuts in early 2024 after the bank's fresh interest rate projections forecast 75 basis points of easing. In that sense, monetary policy divergences seem to be favoring the Aussie over the US Dollar.

AUD/USD levels to watch

The daily chart indicates a dominating bullish momentum for the pair, shown by its position above the 20,100 and 200-day Simple Moving Averages (SMAs).

Regarding the daily Relative Strength Index (RSI), it flashes overbought conditions, suggesting that the pair may be primed for a pullback or at least a slowing down period, allowing the bulls a momentary breather before pushing further. In addition, the Moving Average Convergence Divergence (MACD) displays similar conditions, which typically indicates a potential waning in the uptrend.

Support Levels: 0.6620 (20-day SMA), 0.6600, 0.6570 (200-day SMA).
Resistance Levels: 0.6800, 0.6850, 0.6900.

AUD/USD daily chart

• Mexican Peso advances against the US Dollar, USD/MXN threatens 17.05 support area.
• Mexico’s economic docket ahead includes Retail Sales on Wednesday, followed by Thursday’s inflation data.
• US housing data was solid but failed to move the needle in favor of the US Dollar, which remains on the defensive.

The Mexican Peso continues to strengthen against the US Dollar during the North American session on Tuesday, as the Greenback (USD) remains pressured despite US Federal Reserve (Fed) officials pushing back against aggressive bets suggesting the central bank would lower rates by more than 100 basis points next year. Therefore, the USD/MXN trades at 17.10, down 0.32% on the day.

Mexico’s economic calendar remains scarce on Tuesday but will gather attention on Wednesday with the release of Mexican Retail Sales for October. On Thursday, the calendar will feature mid-month headline and underlying inflation data for December. Across the border, the solid housing data from the United States (US) did little to nothing to help the Greenback, which, according to the US Dollar Index (DXY), has dropped to a new two-day low of 102.10.

Daily digest market movers: Mexican Peso extends gains despite  Banxico’s dovish comments

• US Housing Starts rose by 14.8% in November, smashing October’s 0.2% expansion, while Building Permits as a whole contracted at a 2.5% rate, trailing October’s 1.8% growth. Although the data was solid, it was ignored by market participants.
• Recent comments from the Bank of Mexico (Banxico) Governor Victoria Rodriguez Ceja suggest the central bank would be cautious in setting monetary policy next year. She said they would remain data-dependent, and if the disinflation process continues, they could lower rates in the first quarter of 2024.
• Banxico’s Governor noted that despite reviewing their inflation projections for 2024, the central bank kept its forecast of inflation returning to its 3% target in 2025.
• Lastly, Victoria Rodriguez Ceja added the Governing Council considers several factors when determining its policy, including the exchange rate, though they’re not focused on a specific level.
• In Banxico’s last meeting, the central bank unanimously voted to hold rates at 11.25% and revised its inflation forecast for some quarters of 2024 and 2025.
• Even though US business activity gathered traction in December, as revealed by S&P Global PMIs, the markets would face a reality check on December 21, with the release of the Gross Domestic Product (GDP) for the third quarter expected to remain at 5.2% QoQ, above Q2’s 2.1%.
• Richmond Fed President Thomas Barkin said that inflation remains the main focus for the Fed, acknowledging there’s progress on curbing elevated prices. He said the Fed’s forecasts are now guidance, just projections, and added that the Fed could re-focus on its dual mandate
• According to the Summary of Economic Projections (SEP), Fed officials expect to lower the federal funds rates (FFR) to 4.60% in 2024, though they remain data-dependent.
• As of today, money market futures estimate the Fed will slash rates by 134 basis points toward the end of next year, three basis points lower than December’s 18 and twice the Fed’s forecasts of three 25 bps cuts for 2024, according to the SEP.

Technical analysis: Mexican Peso threatens critical technical area

The USD/MXN is trading sideways though tilted to the downside, as the 100, 200, and 50-day Simple Moving Averages (SMAs) begin to converge toward the 17.41/58 area, almost shifting flat. The downtrend is gathering pace, accelerating toward the bottom of the 17.00-17.60 range. A daily close below 17.00 would exacerbate a leg-down toward the year-to-date (YTD) low of 16.62, ahead of the end of the year.

Otherwise, if bulls regain the 100-day SMA at 17.41, the USD/MXN could edge toward the 200-day SMA at 17.51 in route to the 50-day SMA at 17.56. Once those levels are surpassed, further upside lies at the psychological 18.00 figure.

The United Kingdom will release the Consumer Price Index (CPI) data on Wednesday, December 20 at 07:00 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of four major banks regarding the upcoming UK inflation print.

Headline is expected at 4.4% year-on-year vs. 4.6% in October. Core is expected at 5.6% YoY vs. the prior release of 5.7%. If so, headline would be the lowest since October 2021 but still well above the 2% target.

TDS

SocGen

Wells Fargo

ING

USD/CAD has declined to close to fair value. Economists at MUFG Bank analyze the pair’s outlook.

Fed-BoC alignment set to continue in 2024 

USD suffers worst sell-off since July but will downward momentum be sustained this time around? Economists at MUFG Bank are sceptical that this US Dollar sell-off can be sustained.

JPY remains best placed to outperform amongst the major currencies

In an interview with Yahoo Finance on Tuesday, Richmond Federal Reserve Bank President Thomas Barkin said that the Federal Reserve would "act appropriately" if inflation comes down as expected, per Reuters.

Key takeaways

"Inflation data has been going the right direction."

"We are making good progress on inflation."

"Time to balance focus on Fed's mandate."

"Fed forecasts are not guidance, just a forecast."

"Demand and inflation are normalizing."

"Economy not as frothy as data had suggested."

"Seeing signs of weakening in some parts of consumer economy."

"Looking for conviction inflation is coming back to target."

"We are going to learn a lot over first half of next year."

"Fed is nicely positioned given the outlook for the economy."

Market reaction

The US Dollar struggles to find demand following these comments. At the time of press, the US Dollar Index was down 0.35% on the day at 102.15.

Gold price dipped below the $2,020 mark again for a time at the end of last week. Strategists at Commerzbank analyze the yellow metal’s outlook.

Temporary setback on the Gold market

The USD is trading mixed to a little softer overall on the session so far. Economists at Scotiabank analyze Greenback’s outlook.

The positive risk mood broadly will add to USD headwinds

EUR/USD nudges higher. Economists at Scotiabank analyze the pair’s outlook.

Limited downside potential

• USD/CAD dives as Canadian inflation turns out sticky.
• The BoC would endorse higher interest rates for longer period.
• Fed Daly said rate cuts are appropriate in 2024 amid improvement in inflation.

The USD/CAD pair falls sharply to near 1.3350 as the Statistics Canada has surprisingly reported a sticky Consumer Price Index (CPI) report for November. Monthly and annual headline inflation grew at a steady pace of 0.1% and 3.1% respectively. The market participants projected a decline in monthly figure by 0.2% and softening of annual inflation to 2.9%.

Monthly core CPI that strips off volatile food and oil prices grew by 0.1%. The annual underlying inflation rose marginally to 2.8% vs. 2.7% recorded previously. This would allow the Bank of Canada (BoC) to endorse for ‘higher interest rates for longer’ message.

The S&P500 opens on a flat note, portraying a quiet market mood. The US Dollar Index (DXY) falls slightly after consolidating near 102.50 as the context of ‘rate cuts’ by the Federal Reserve (Fed) outweighs.

San Francisco Fed Bank President Mary Daly said on Monday that rate cuts are appropriate in 2024 because of significant improvement in inflation declining towards 2% this year. Mary Daly endorsed decline in borrowing rates by 75 basis points (bps) as projected by other policymakers.

Later this week, investors will focus on the US Core Personal Consumption Expenditures price index (PCE) data for November, which will be published on Friday. As per the consensus, monthly core PCE data is seen growing at a steady pace of 0.2%. Fed’s preferred inflation tool is expected to decline to 3.3% against the former reading of 3.5%.

The Yen has weakened following the decision from the Bank of Japan (BoJ) to leave their policy stance unchanged. Economists at MUFG Bank analyze JPY outlook.

Cautious BoJ

• Housing Starts in the US increased at a much stronger pace than expected in November.
• US Dollar Index stays in negative territory below 102.50 after the data.

Housing Starts in the US surged 14.8% in November to 1.56 million units, the monthly data published by the US Census Bureau revealed on Tuesday. This reading followed the 0.2% increase (revised from 1.9%) recorded in October. 

In the same period, Building Permits declined 2.5% after rising 1.8% (revised from 1.1%) in October.

Market reaction

The US Dollar Index showed no immediate reaction to these figures and was last seen losing 0.18% on a daily basis at 102.32.

• The Aussie has resumed its upside path to test 0.6740 resistance.
• Hawkish RBA minutes are supporting the AUD.
• The Dollar remains depressed with Fed officials sending mixed signals.

The Aussie Dollar is trading in a moderately bid tone this week, with price action crawling towards the 1.6740 resistance area, with the pair favoured by positive market sentiment and a weaker US Dollar.

A hawkish RBA has given a fresh boost to the Aussie

Earlier on Tuesday, the monetary policy minutes of the RBA´s last meeting have shown a hawkish tone that has increased bullish pressure on the pair. The RBA observed “encouraging signs” on inflation trends yet it maintained the options open for further tightening if needed.

This contrasts with the dovish tone of Fed Chairman Jerome Powell after last week´s Fed meeting, which is still weighing on the US Dollar. The mixed message given by Fed speakers has done little to support a weak USD, with US bond yields nailed at multi-month lows.

Technical indicators remain positive with a bullish cross between the 4-H 50 and 100 SMAs giving fresh hopes for buyers. Above 0.6740, the next targets would be the late July highs at 0.6820 and 0.6850.

Support levels are 0.6665 and 0.6615.

Technical levels to watch

Bank of England Deputy Governor Sarah Breeden said on Tuesday that it's important for the monetary policy to be restrictive for an extended period.

"I have no pre-determined policy path in mind," Breeden added.

Market reaction

Pound Sterling continues to gather strength against its rivals following these comments. At the time of press, the GBP/USD pair, which spent the Asian session in a tight channel near 1.2650 after posting losses on Monday, was trading at 1.2735, rising 0.75% on a daily basis. 

GBP/USD rebounds to 1.27. Economists at Scotiabank analyze the pair’s outlook.

Gains through 1.28 would be a bullish cue for the GBP rally to resume towards 1.29/1.30

• The Dollar capitalizes on Yen's weakness after BoJ´s dovish statement.
• The BoJ crushes hopes of an exit from its ultra-loose policy and hints at further easing if needed.
• USD/JPY broader trend remains bearish while below 145.

The US Dollar rallied during most of Tuesday´s European market session after the Bank of Japan disappointed investors with an unexpectedly dovish monetary statement. The pair, however, has found resistance at the 145.00 area before pulling back to the mid-range of 144.00. 

The Bank of Japan reaffirmed its ultra-loose monetary policy and suggested the possibility of additional easing as, according to Governor Ueda, the outlook on inflation remains uncertain. These comments sent the Yen tumbling against its main peers.

USD/JPY Technical analysis

From a technical perspective, the pair has covered the expanding wedge formed during the last month it might need an additional impulse to breach the falling trendline support from mid-November highs.

In the calendar today, the US Construction activity is the main event today. Traders will be looking at Friday´s data with a special interest in the USPCE Prices Index for more info about the Fed´s rate path.

A clear break above 145.00 would increase bullish pressure towards 146.50 and 147.45. On the downside, support levels remain at 142.35 and 141.00.

USD/JPY 4-hour chart


 

Technical levels to watch

• EUR/GBP drops swiftly to near 0.8600 ahead of UK Inflation data.
• BoE Broadbent warned that higher wage growth could keep interest rates higher for a longer period.
• ECB Villeroy signalled that the rate-tightening regime has come to an end.

The EUR/GBP pair corrects sharply to near the round-level support of 0.8600 in the late European session. The cross faces a sell-off as investors hope that the Bank of England (BoE) will stick to tight interest rates due to higher wage growth.

UK’s labour cost index is consistently falling due to declining demand for workforce amid higher interest rates by the BoE. In spite of easing wage growth each month, pay hikes are higher than what required to bring down the underlying inflation to 2%.

BoE Deputy Governor Ben Broadbent said on Monday that higher wage growth could allow the central bank to keep interest rates in the restrictive territory for a longer period. In the monetary policy announcement, BoE Governor Andrew Bailey emphasized on keeping interest rates higher for sufficiently longer to ensure the achievement of price stability.

Meanwhile, investors await the UK Consumer Price Index (CPI) data for November, which will be published on Wednesday at 07:00 GMT. As per the consensus, monthly headline inflation grew by 0.2% after remaining stagnant in October. The annual headline and core inflation are seen easing to 4.4% and 5.6% respectively.

More-than-anticipated decline in the UK price pressures would escalate discussions about rate cuts by the BoE sooner in 2024.

On the Eurozone front, interest rates by the European Central Bank (ECB) are seen reaching to an end amid a significant decline in inflation. ECB Villeroy signalled that the rate-tightening regime has concluded now and rate cuts are expected at some time in 2024.

USD/CAD little changed ahead of Canadian CPI data. Economists at Scotiabank analyze the pair’s outlook.

USD rallies still look a fade

• The US Dollar overpowers the Japanese Yen by 1% in European trading on Tuesday. 
• Traders see BoJ missing the window of opportunity for a hike. 
• The US Dollar Index recovered on Friday, though not enough to change sentiment. 

The US Dollar (USD) is appreciating substantially against the Japanese Yen this Tuesday after Bank of Japan (BoJ) governor Kazuo Ueda delayed the timing again on the normalisation of the Bank’s monetary policy. Markets were gearing up for either this meeting or the next meeting to be the one that could bury decades of negative rates in Japan. Instead, Ueda dampened hopes for even the January meeting by saying that current conditions do not justify restricting its monetary policy, possibly indicating that BoJ might not normalise at all if economic conditions retreat further from their 2023 peak levels. 

On the economic front, this Tuesday will be focused on the US housing market. Building Permits and Housing Starts are set to be released. Slowly but surely the economic calendar is building up towards the focal points later this week on Thursday and Friday with US Gross Domestic Product and the Fed’s preferred inflation gauge, the Personal Consumption Expenditures – Price Index (PCE). 

Daily digest Market Movers: BoJ makes another mistake

• The European Central Bank (ECB) is trying to backtrack on earlier statements that rate cuts for 2024 are not on the cards. ECB member François Villeroy de Galhau said this Tuesday morning that the ECB should cut in 2024 after a plateau of holding rates steady.
• The Bank of Japan (BoJ) has probably missed its window of opportunity to hike out of negative rates. BoJ Governor Kazuo Ueda said that Japan is heading to 2% inflation under current conditions, and even gave forward guidance that the January meeting is not the right moment to adjust monetary policy. It looks that both inflation and macroeconomic conditions for Japan are heading back to normal levels which might never demand for monetary policy to strengthen. 
• Housing data at 13:30 GMT will be the most important element to watch this Tuesday:
  1. Monthly Building Permits are expected to head from 1.498 million to 1.470 million. Previous change was up 1.8%.
  2. The November Housing Starts number is expected to come in at 1.360 million, a touch lower than 1.372 million. Previous change was up 1.9%.
• Around 13:55 GMT, the Redbook Index for this week is due. Previous number was 3.4%.
• Asian equities are welcoming the standstill at the BoJ, and are popping higher. The Japanese Nikkei index is up over 1.4%. European and US equities are going sideways. In the US tech giant Apple is weighing now that the Chinese government has completely barred Apple products on the work floor. Domestically Apple is facing headwinds as well, as its Iwatch Ultra and 9 series are halted for sale because of a patent dispute on one of its technologies.  
• The CME Group’s FedWatch Tool shows that markets are pricing in a 91.7% chance that the Federal Reserve will keep interest rates unchanged at its January 31 meeting. Around 8.3% expect the first cut already to take place.
• The benchmark 10-year US Treasury Note trades near 3.91%, and looks to be forming a floor. With the BoJ now not hiking, US notes are gaining a few basis points

US Dollar Index Technical Analysis: With a bit of help

Central Banks are having busy days in this very last normal trading week of 2023. From left and right central bankers are pulling everything out of their toolkit to tweak earlier mismanaged monetary policy communication. For the Federal Reserve, several members are pushing back against the markets that cuts are not going to come that quick. Several ECB members are now also backtracking and saying that cuts will come for sure in 2024 after European Central Bank President Christine Lagarde surprised them by saying cuts are not under consideration at all, at last week’s meeting. The narrative is changing again, and could switch back in full in favour of the US Dollar Index (DXY).

Still, US Dollar bulls have their work cut out to salvage what was lost last week. On the daily chart, look for 103.00 as the first level to keep an eye on. Once trading above there, the 200-day SMA at 103.50 is the next important level to get to in its recovery. 

To the downside, the pivotal level at 101.70, the low of August 4 and 10 is vital to hold. Once broken, look for 100.82, which aligns with the bottoms from February and April. Should that level snap, nothing will stand in the way of DXY heading to the sub-100 region. 

Losses for USD/CAD have snowballed following the break below the 200-DMA of 1.3510. Economists at Société Générale analyze the pair’s outlook.

BoC’s rate cuts could start in 2024

• The Dollar is on the defensive weighed by Fed cuts hopes.
• The escalating tensions in the Middle East are supporting the safe-haven CHF.
• Friday´s PCE Prices Index data will provide more cues about the Fed´s policy outlook.

The US Dollar is losing ground for the second consecutive day on Tuesday. The positive market sentiment with investors still celebrating the end of the Fed´s tightening cycle is weighing on the Greenback with all eyes on Friday´s UPCE Prices Index data.

The recent hawkish comments by Fed officials have failed to provide significant support for the USD. On Monday, Investors remain confident that the bank will start easing in March despite Chicago Fed President Austan Goolsbee´s comments denying any commitment to cut rates soon.

Beyond that, tensions in the Middle East are escalating, which has forced shipping firms to reroute their vessels to avoid the Suez Canal, underpinning support on the safe-haven CHF.

On Friday, an array of US indicators, namely the US PCE Prices index will provide some more info about the Federal Reserve´s rate outlook and might give a fresh impulse to the US Dollar.

The technical picture remains bearish, with price action approaching 0.8630 lows. Beyond here, the 2023 low at 0.8555 will be exposed. Resistances are at 0.8720 and 0.8810.
 

Technical levels to watch

The year is drawing to a close. Antje Praefcke, FX Analyst at Commerzbank, does not expect substantial moves in EUR/USD over the coming days.

Interesting and informative will have to wait until next year

• Natural Gas drops back below $2.50 in a reversal trade.
• Companies and governments defuse Red Sea tensions overnight with interventions. 
• The US Dollar steady after Greenback appreciates over 1% against the Japanese Yen. 

Natural Gas (XNG/USD) is completely reversing on Tuesday, giving up earlier gains from Monday. The full paring back of those gains comes as both shipping companies and several main governments have taken measures to detour or defuse tensions in the Red Sea after Houthi rebels again attacked a ship in the region, on Monday. Shipping companies such as Maerks, BP and MSCI have cancelled all travelling in the region and are deviating their fleet via other, longer, routes, while a UK-Canadian-France-US task force will patrol the area to secure safe passage. 

Meanwhile, the US Dollar (USD) is finding a floor which halts its decline in the US Dollar Index (DXY). In early morning trading this Tuesday, the Bank of Japan held a monetary policy meeting.  Bank of Japan (BoJ) governor Kazuo Ueda delayed the timing again on the normalisation of the Bank’s monetary policy, which made the Japanese Yen devalue by over 1% against the US Dollar.

Natural Gas is trading at $2.46 per MMBtu at the time of writing.  

Natural Gas Market Movers: defusing quick

• The US Secretary of Defense Lloyd Austin, has set up a task force with the UK, Canada and France to create a naval task force to secure safe passage in the region.
• All big shipping transporters meanwhile have taken measures to avoid the Suez Canal and Red Sea passage.
•  European industrial demand remains subdued for the coming months, with no chunky declines in overall Gas storages in the EU.
• Norwegian based company Equinor has signed a deal with Germany to supply SEFE with 10 billion cubic metres of Natural Gas from January 1st 2024 until 2034. The amount accounts for roughly one third of German industrial demand. 

Natural Gas Technical Analysis: Proof that governments want to keep Gas prices low

Natural Gas jumping above $2.50 saw red flags popping up all over European government desks, even stretching all the way up into Washington to the White House. It did not take long for the US Secretary of Defense Lloyd Austin to set up a task force that will monitor and patrol the Red Sea in order to fence off any other Houthi rebel attacks. Meanwhile shipping companies are rerouting their fleet, avoiding any supply issues and quickly defusing the sudden uptick in Gas prices. 

On the upside, Natural Gas could still try and return to the purple line near $2.60 as the first hurdle, should another front of bad geopolitical news occur. Next, the 200-day Simple Moving Average (SMA) at $2.74 will act as a resistance, which if breached will allow Gas prices to soar to $3.00 and the 100-day SMA nearby. 

With the dust quickly settling on this blip of macroeconomic tensions in the Red Sea, Gas prices are back retreating towards $2.20, and the low of June. Firmer support should come in near $2.10, April’s low, at the yellow supportive line. 

XNG/USD (Daily Chart)

The Canadian Dollar is lagging other pro-cyclical currencies at the start of this week. Economists at ING analyze Loonie’s outlook.

Macklem turns dovish

Economists at Société Général analyze EUR/SEK outlook as the pair is fast approaching projections of 11.07.

Recent pivot high at 11.28/11.29 likely to provide resistance

• The Pound rallies with the Yen weighed by a dovish BoJ.
• The BoJ flags more easing and crushes hopes of a hawkish pivot in the near term.
• GBP/JPY shrugs off previous weakness and approaches the 184.35 resistance area.

The Pound Sterling is rallying against an ailing Yen following a dovish monetary policy statement by the Bank of Japan. The pair has pared last week's losses in a nearly 2% daily rally and is getting closer to the 184.35 resistance area.

The BoJ opens the doors to further easing

The BoJ kept its ultra-loose monetary policy unchanged, as expected, but Governor Ueda´s pledge to additional easing if necessary disappointed investors who were looking for hints of a hawkish pivot in early 2024.

The Pound bounced up strongly from the 180.00 area on the back of Ueda´s comments to reach 184.00 at the moment of writing, with Monday´s high, at 184.35 at a short distance.

The strong bullish reaction from the mentioned 180.00 has eased the immediate bearish pressure and a break above 184.35 would increase bulls´ confidence to extend gains towards 186.25 and 187.50.

On the downside, support levels are at 183.20 and 181.65 previous highs.

Technical levels to watch  

Gold prices rose in India on Tuesday, according to data from India's Multi Commodity Exchange (MCX).

Gold price stood at 61,846 Indian Rupees (INR) per 10 grams, up INR 146 compared with the INR 61,700 it cost on Monday.

As for futures contracts, Gold prices decreased to INR 62,214 per 10 gms from INR 62,291 per 10 gms.

Prices for Silver futures contracts decreased to INR 74,582 per kg from INR 74,410 per kg.

Global Market Movers: Comex Gold price struggles to gain any meaningful traction

• Chicago Federal Reserve President Austan Goolsbee, along with Cleveland Fed President Loretta Mester, pushed back against market bets on interest rate cuts on Monday.
• Goolsbee said that he was confused over the market reaction to last week's FOMC meeting and that the central bank is not precommiting to cutting rates soon and swiftly.
• Separately, Cleveland Fed President Loretta Mester noted that financial markets had gotten a little bit ahead of the central bank on when to expect interest rate cuts next year.
• This comes on the back of New York Fed President John Williams's remarks on Friday that it was premature to speculate about rate cuts and caps the upside for the Comex Gold price.
• The markets, however, seem convinced that the Fed will pivot to easing by the first half of 2024, which continues to undermine the US Dollar and lends support to the metal.
• Concerns over geopolitical risks linked to the conflict in the Middle East should further contribute to limiting any meaningful downfall for the safe-haven precious metal.
• Yemen's Iran-aligned Houthi militants launched a series of drone and missile attacks on ships in the southern Red Sea, which it says are a response to Israel's assault on the Gaza Strip.
• US Defence Secretary Lloyd Austin announced the formation of a multinational coalition and the launch of Operation Prosperity Guardian to address the Houthi threat in the Red Sea.
• Investors now look forward to the US Core Personal Consumption Expenditure (PCE) Price Index on Friday for clues about the Fed's future policy decisions.

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

• EUR/JPY aims a stabilization above 158.00 on BoJ’s dovish policy stance.
• BoJ kept doors open for more easing measures if required.
• ECB Villeroy expects rate cuts some time in 2024.

The EUR/JPY pair run swiftly above the crucial resistance of 158.00 in the European session. The strength in the cross is backed by absence of cues regarding an exit from the ultra-loose monetary policy stance in the last interest rate meeting of 2023 by the Bank of Japan (BoJ).

The BoJ was widely anticipated to keep interest rates unchanged in the negative territory at 0.1% but the market was expecting that policymakers would unveil the roadmap stating how they would get exit from its decade-long ultra-loose policy stance.

BoJ said in a statement that it won’t hesitate in taking easing measures if necessary. Investors took the statement as absence of confidence among BoJ policymakers for shifting to normal policy stance. The BoJ is expected to not consider exiting expansionary policy until wages turn sufficient enough to keep inflation steady around 2%.

BoJ Governor Kazuo Ueda said in his monetary policy statement that the economy is gradually picking up and the likelihood for the price index gradually increasing toward target through FY2025 is improving.

Meanwhile, the strength in the Euro remains unabated despite escalating hopes of an endgame to interest rates by the European Central Bank (ECB). ECB Villeroy signalled that the rate-tightening regime has concluded now and rate cuts are expected at some time in 2024.

On the economic data front, final Eurozone headline and inflation remained at 3.6% and 2.4% respectively. In spite of significant progress in inflation towards 2%, ECB President Christine Lagarde maintained a hawkish tone last week.

The Dollar has started the week modestly offered. Economists at ING analyze Greenback’s outlook.

FX markets may stay quiet

• The Dollar capitalizes on Yen weakness after BoJ´s dovish statement.
• The BoJ crushes hopes of an exit from its ultra-loose policy and hints at further easing if needed.
• USD/JPY broader trend remains bearish while below 145.00.

The Japanese Yen is diving across the board in Tuesday´s European session, hammered by a dovish BoJ monetary policy statement. This has boosted the USD/JPY about 1.25% higher on the day so far, to reach intra-day highs near 145.00.

The BoJ disappoints investors with vows for more easing

The Bank of Japan maintained its ultra-loose monetary policy unchanged at its last meeting of the year. Although this was widely expected, the market was hoping for some signal of an exit in the next months, which did not happen.

Quite the opposite, BoJ Governor Ueda highlighted the uncertain inflation outlook and vowed to take additional easing measures if necessary. These comments have boosted negative pressure on the JPY.

The pair is now in a corrective move, yet with the broader bearish trend unchanged, as the increasing speculation of Fed cuts in early 2024 is weighing on the US Dollar.

Technical indicators show overbought levels on intra-day charts as the pair approaches resistance at 145.00/10 where the trendline from mid-November highs meets the prices. Above here, the next targets are 146.50 and 147.45.

Supports lie at 142.35 and 141.00.

Technical levels to watch

• Gold price remains sideways amid disparities between investors and Fed policymakers on monetary policy outlook.
• After several members dismissed the need for rate cuts Fed Daly sees cuts as appropriate in 2024.
• This week, US Durable Goods Orders and core PCE price index data will be keenly watched.

Gold price (XAU/USD) struggles for a direction with further upside seemingly imminent as the Federal Reserve (Fed) sticks its head above the parapet,  showing the guts to discuss interest rate cuts. The precious metal is expected to continue capitalizing as the US Dollar falls on deepening expectations of three rate cuts in 2024, amid significant progress on inflation towards 2%. 

Fed policymakers have characterized the recent rally in the Gold price as “exaggerated” citing that the central bank is focusing on how much longer the monetary policy should remain tight to achieve price stability and not on lowering borrowing rates currently. This week, action in the Gold price will be guided by the United States Durable Goods Orders and core Personal Consumption Expenditure price index (PCE).

Daily Digest Market Movers: Gold strives for a direction

• Gold price struggles over a direction after recovering from $1,980.00 as Federal Reserve policymakers are less-emphasizing rate cut discussions, stating them conditional if an improvement in inflation continues.
• The precious metal trades sideways on Tuesday after falling slightly on Monday as Fed policymakers downplay rate cut discussions and shift spotlight to how long interest rates will remain restrictive to bring down inflation to 2%.
• Cleveland President Loretta Mester said, in an interview on Monday, that the next phase in the agenda of achieving price stability is to focus on longevity of higher interest rates to achieve price stability in a timely manner.
• Loretta Mester said that markets capitalized on the last part of Fed Chair Jerome Powell’s commentary at the interest rate policy announcement exceptionally, when he discussed expectations of three rate cuts in 2024.
• Contrary, San Francisco Fed Bank President Mary Daly said that rate cuts are appropriate in 2024 amid a significant improvement in inflation this year.
• Mary Daly said that her expectations are aligned with the Fed’s median projections of lowering borrowing costs by 75 basis points (bps) in 2024. She added that the Fed must make sure that price stability should not be achieved at the cost of a higher Unemployment Rate.
• Last week, Atlanta Fed Bank President Raphael Bostic said he sees two rate cuts in 2024 starting from the third quarter.
• Raphael Bostic warned that policymakers need ‘several months’ to accumulate sufficient data to build confidence for exiting from the restrictive monetary policy stance.
• Meanwhile, the US Dollar Index (DXY) continues to trade sideways around 102.50 ahead of Durable Goods Orders and core PCE price index for November, which will be released later this week.
• The USD Index continues to hold its slight recovery witnessed on Friday after commentary from New York Federal Reserve (Fed) Bank President John Williams.
• John Williams said it is premature to speculate about rate cuts as the central bank is not talking about them right now.
• Meanwhile, 10-year US Treasury yields fell further to 3.91% amid elevated hopes of an exit from a tight interest rate stance for the Fed in 2024.
• Gold price is expected to continue gaining traction for a longer period, knowing that interest rates will get lower in 2024.

Technical Analysis: Gold price consolidates around $2,040

Gold price trades back and forth near $2,040 amid an absence of potential economic triggers ahead. The precious metal corrects gradually this week but remains above the 20-day Exponential Moving Average (EMA), which indicates that the short-term trend is bullish. A decisive break above $2,050.00 could expose it to further upside towards $2,100.00

Canadian inflation data for November is due for publication today. Economists at Commerzbank analyze Loonie’s outlook ahead of the Consumer Price Index (CPI) report.

How much scope is there for a downside surprise in inflation?

• The Euro is crawling higher on Tuesday amid favorable risk sentiment. 
• The US Dollar remains near recent lows despite the hawkish rhetoric by Fed officials.
• In a few moments, the Eurozone CPI will provide some more insight into the ECB´s rate plans.

The Euro (EUR) is showing a moderately positive tone on Monday, with the Dollar languishing near multi-month lows. The recent dovish pivot by the US Federal Reserve (Fed) and investor confidence that the US central bank will start cutting rates in the first quarter of 2024, is fuelling the positive market mood.

This favorable scenario has buoyed the Euro to session highs at 1.0940, from Monday´s lows below 1.0900, as the market awaits the release of November´s Consumer Prices Index (CPI) data.  

The recent hawkish comments by Fed officials, like Chicago Fed President, Austan Goldsbee, who denied any commitment to cut rates soon, have failed to provide a significant impulse to the US Dollar. US bond yields remain near multi-month highs with traders pricing in rate cuts in March, which keep US Dollar bulls in check.

In the calendar today, the final Eurozone CPI reading is expected to confirm that Eurozone inflation continued cooling in November, which endorses the view that the European Central Bank (ECB) has reached its terminal rate.

Daily digest market movers: The Euro is on a moderately positive tone ahead of Eurozone Inflation

• The Euro trades higher on Tuesday, favored by a positive market mood and a weak US Dollar.
   
• ECB´s Villeroy signaled the end of rate hikes and suggested that rate cuts will happen at some point in 2024.
   
• Last week, the ECB kept rates on hold with President Lagarde keeping a hawkish tone in contrast with the Fed´s dovish pivot, that sent the Euro higher against the US Dollar.
   
•  Weak Eurozone Q3 GDP and PMI figures have endorsed the case for an economic slowdown, which has cast doubt on the ECB´s hawkish message, boosting hopes of rate cuts in early 2024.
   
• The escalating tensions in the Middle East and growing concerns about Oil supply disruptions are pushing Crude prices higher. This might weigh on the Euro as it would increase inflation pressures in a moment of weak economic growth.
   
• The US Dollar remains weak, with US bonds depressed as futures markets price a 65% chance of a 25 bps rate cut in March 2024.

Technical Analysis: Euro has found support at 1.0880

Euro reversal from the 1.1010 resistance area, has been contained above the 1.0880 support area and the pair is picking up on Tuesday´s European session, fuelled by a favorable risk environment.

The broader trend remains positive, although the 1.1010 resistance area might be a tough nut to crack. Above here, the next targets would be the August high at 1.1060, and the July 24 and 27 high at 1.1150.

To the downside, a bearish reaction below the December 14 low at 1.0880 and the 4-hour 100 Simple Moving Average (SMA) at 1.0870 would increase bearish pressure towards 1.0825 on the way to 1.0730 lows.

Over the past month, EUR/GBP has moved lower.  The cross is currently trading just above the 0.86 mark. Economists at Danske Bank analyze the pair’s outlook.

GBP headwinds to persist

• USD/CAD halts its recent gains on dovish sentiment around the Fed interest rate cuts in early 2024.
• Governor Tiff Macklem stated that the BoC could begin rate cuts in 2024.
• The lowered US Treasury yields put pressure on the US Dollar.

USD/CAD retraces its recent gains registered in the previous session, edging lower near 1.3390 during the European hours on Tuesday. The USD/CAD pair experiences downward pressure despite a stable US Dollar (USD).

However, the Canadian Dollar (CAD) faced downward pressure following dovish remarks from Bank of Canada (BoC) Governor Tiff Macklem. He mentioned that the BoC could initiate rate cuts sometime in 2024. Market participants, anticipating the central bank to begin easing as early as April, expected a cumulative rate cut of at least 100 basis points by the end of the following year.

The anticipation of early interest rate cuts by the US Federal Reserve (Fed) in 2024 is driving up the prices of US bonds. This, in turn, is causing yields to depreciate, subsequently weakening the US Dollar. The US Dollar Index (DXY) hovers around 102.50, with the 2-year and 10-year yields on US Treasury bonds standing at 4.43% and 3.90%, respectively, by the press time.

The dovish comments from several Fed members solidified the speculation about interest rate cuts in the first quarter of 2024. However, New York Fed President John Williams dismissed the notion of a potential rate cut in March. Furthermore, San Francisco Fed President Mary Daly emphasized that speculating about interest rate cuts in the upcoming year is premature. As a result, Chicago Federal Reserve (Fed) President Austan Goolsbee, along with Cleveland Fed President Loretta Mester, pushed back on Monday against their bets for early interest rate cuts.

Market participants are likely to focus on key economic indicators, with Building Permits and Housing Starts from the United States (US) taking center stage on Tuesday. On the Canadian side, Consumer Price Index (CPI) data will be eyed.

EUR/USD trades water in the low 1.09 area. Economists at ING analyze the pair’s outlook.

Rate differentials are still too depressed to argue for a sustainable rally above 1.10 just yet

The Forint enjoyed one good spurt last week. Economists at Commerzbank analyze HUF outlook ahead of Hungary’s National Bank (MNB) meeting.

MNB to continue rate cuts 

The Bank of Japan did not give in to market pressure and kept its dovish guidance intact. In the view of economists at ING, the Yen should revert to being driven mostly by US rates after taking a hit today.

April hike on the table

• NZD/USD gains ground despite downbeat trade data from New Zealand.
• Technical indicators suggest bullish sentiment to revisit a five-month high at 0.6251.
• The psychological level at 0.6200 could act as key support followed by the nine-day EMA at 0.6186.

NZD/USD continues its winning streak that began on December 11 despite disappointing trade figures from New Zealand. The NZD/USD rises around 0.6230 during the European hours on Tuesday.

The Trade Balance NZD (MoM) data for November, as reported by Statistics New Zealand, revealed a trade deficit of $1,234 million, slightly higher than the expected deficit of $1,200 million. On a year-on-year basis, the deficit stood at $13.87 billion, less than the anticipated deficit of $14.82 billion.

The 14-day Relative Strength Index (RSI) is above the 50 level, signaling a bullish sentiment. This suggests that the NZD/USD pair could potentially retest the 0.6250 major level, in line with the five-month high at 0.6251. If the pair manages to break through this resistance area, it may find support to explore the psychological region near 0.6300.

Additionally, the positive positioning of the Moving Average Convergence Divergence (MACD) line above both the centerline and the signal line could serve as confirmation of bullish momentum in the market.

On the downside, a break below the psychological support level of 0.6200 could push the NZD/USD pair to fall to the area near the nine-day Exponential Moving Average (EMA) at 0.6186 level followed by the 23.6% Fibonacci retracement at 0.6165 before the major support at 0.6150.

NZD/USD: Daily Chart:

• Pound Sterling remains offered as investors turn cautious ahead of UK inflation data.
• The UK inflation is seen falling further due to BoE’s tight interest rate policy.
• BoE Broadbent turns spotlight on wage growth related inflation.

The Pound Sterling (GBP) faces a sell-off amid uncertainty over the United Kingdom Consumer Price Index (CPI) for November, scheduled for release on December 20. 

The GBP/USD pair struggles for a recovery as softer inflation data could prompt Bank of England (BoE) policymakers to exit from “sufficiently restrictive” monetary policy stance and escalate hopes for more rate cuts in 2024. Whilst good for consumers and homeowners this would be negative for the Pound, as lower interest rates tend to reduce foreign capital inflows.

Investors see the UK’s headline and core inflation declining further in November as higher interest rates have dampened household spending on core goods. Prices of goods at factory gates are seen contracting due to poor demand from the slowing domestic and international economy. 

Daily Digest Market Movers: Pound Sterling remains offered while US Dollar consolidates

• Pound Sterling corrects to near 1.2650 as investors await the UK’s inflation data for November, which will be published on Wednesday at 07:00 GMT.
• The UK inflation data is expected to continue easing further amid higher interest rates by the Bank of England, which has dampened the overall consumer spending and sluggish economic activities.
• According to the preliminary consensus, monthly headline inflation is expected to have grown by 0.2% against a stagnant performance in October. The annual headline CPI is seen declining to 4.4% against the former reading of 4.6%.
• UK’s core inflation that strips off volatile food and Oil prices is estimated to have dropped to 5.5% versus. 5.7% in October.
• In the event if the data shows a continuation of easing inflation it would be a sign of relief for BoE policymakers, which have been favouring a tightening regime for interest rates to achieve price stability.
• Meanwhile, monthly Producer Price Index (PPI) for input and final products are seen contracting by 0.6% and 0.1% respectively. This indicates that producers were forced to reduce prices of goods at their factory gates due to a sharp decline in consumers’ demand.
• Investors have already started raising bets for four or five rate cuts in 2024 amid easing inflationary pressures. However, BoE Deputy Governor Ben Broadbent said that more evidence is needed to conclude that the price index is in a clear downtrend.
• Ben Broadbent, on Monday, highlighted disparities in labour market measures, as the Office for National Statistics (ONS) shifted to an experimental series method to calculate employment data due to lower responses.
• Broadbent warned that sticky wage growth could force the BoE to keep interest rates elevated for a longer period.
• Last week, the BoE emphasized keeping interest rates in a restrictive territory to ensure the achievement of price stability after keeping interest rates unchanged at 5.25%.
• Meanwhile, the US Dollar Index (DXY) continues to trade in a lackluster way, trapped in a narrow range around 102.50 after recovering from the crucial support of 101.80.
• The USD Index rebounded after New York Federal Reserve (Fed) Bank President John Williams said it is premature to speculate rate cuts as the central bank is not talking about them right now.
• The broader appeal for the USD Index remains weak as the Fed is numero uno among western central bankers, when it comes to discussing cutting rates in 2024.
• Last week, median projections from Fed policymakers showed that interest rates would be reduced by 75 basis points (bps) in 2024, with core Personal Consumption Expenditure price index (PCE) falling to 2.4%.
• On Monday, San Francisco Fed Bank President Mary Daly said that it would be appropriate to lower borrowing costs in 2024 amid progress in inflation declining towards 2% this year.

Technical Analysis: Pound Sterling corrects to near 1.2630

Pound Sterling finds an interim support near 1.2630 after a steep correction from almost four-month high of 1.2800. The broader trend of the GBP/USD pair is bullish as it is forming a Cup and Handle chart pattern. A decisive break above the handle and round-level resistance of 1.2800 could open room for upside towards the psychological resistance of 1.3000. The 20-day Exponential Moving Average (EMA) around 1.2600 will likely continue to provide support to the Pound Sterling bulls.

The Bank of Japan (BoJ) left monetary policy setting unchanged. Subsequently, USD/JPY took a leg higher. Economists at Commerzbank analyze Yen’s outlook.

USD/JPY will only be driven by the Dollar side

• Silver attracts dip-buying on Tuesday and snaps a two-day losing streak.
• The mixed technical setup warrants caution for aggressive bullish traders.
• A break below an ascending trend line will shift the bias in favour of bears.

Silver (XAG/USD) regains some positive traction on Tuesday and sticks to its modest intraday gains through the early part of the European session. The white metal currently trades around the $23.85-$23.90 region, up 0.30% for the day, and for now, seems to have snapped a two-day losing streak.

From a technical perspective, the recent recovery from mid-$22.00s, or a one-month low touched last week, struggled to find acceptance above the 50% Fibonacci retracement level of the downfall from the December swing high. Moreover, oscillators on the daily chart, though have recovered from bearish territory, are yet to gain positive traction and warrant some caution for aggressive bullish traders.

The subsequent pullback, however, remains limited, allowing the XAG/USD to hold above the very important 200-day Simple Moving Average (SMA). The said support is currently pegged near the $23.60 region and should act as a key pivotal point. A convincing break below will make the XAG/USD vulnerable to test sub-$23.00 levels, representing an ascending trend-line support extending from October.

On the flip side, momentum beyond the $24.00 mark might continue to face stiff resistance near the $24.25-$24.30 region, or the 50% Fibo. level. A sustained strength beyond will be seen as a fresh trigger for bullish traders and allow the XAG/USD to reclaim the $25.00 psychological mark. The momentum could get extended beyond the $25.25 intermediate hurdle, towards the $25.45-$25.50 region.

The next relevant barrier is seen near the $26.00 neighbourhood, or the highest level since May 5 touched earlier this month, which if cleared decisively will set the stage for a further near-term appreciating move.

Silver daily chart

Technical levels to watch

• USD/MXN moves on a downward trajectory on anticipations of Fed interest rate cuts in the upcoming year.
• Mexican Peso gains ground despite the dovish remarks from the Banxico Governor Victoria Rodriguez Ceja.
• US Federal Reserve Bank of New York President John Williams rejected the notion of a potential rate cut in March 2023.

USD/MXN extends its losses on another day, edging lower near 17.14 during the early European hours on Tuesday. The Mexican Peso (MXN) demonstrates resilience against the US Dollar (USD) despite the dovish remarks from the Bank of Mexico (Banxico) Governor Victoria Rodriguez Ceja.

Governor Ceja commented on the decline in inflation, highlighting that if the disinflationary trend continues to persist, they might consider cutting interest rates in the first quarter of 2024. The Banxico maintained its forecast of inflation returning to its 3% target in 2025.

The US Dollar Index (DXY) attempts to retrace its recent losses on the back of improved US Treasury yields. The DXY hovers around 102.50, with 2-year and 10-year yields on US Treasury bonds standing at 4.45% and 3.92%, respectively, at the time of writing.

The Federal Reserve's (Fed) relatively moderate statement, coupled with dovish comments from various Fed members, fueled speculation about interest rate cuts in the first quarter of 2024. However, US Federal Reserve (Fed) Bank of New York President John Williams dismissed the idea of a potential rate cut in March. Additionally, San Francisco Fed President Mary Daly emphasized that speculating about interest rate cuts in the upcoming year is premature.

Investors await key economic indicators, with Building Permits and Housing Starts from the United States (US) taking center stage on Tuesday. On the Mexican front, Retail Sales data will be eyed.

NOK and SEK have been two of the hardest hit currencies by the inflation shock in recent years. Economists at MUFG Bank analyze Scandies outlook.

Negative real policy rates undermined confidence in NOK and SEK

Here is what you need to know on Tuesday, December 19:

Following the last meeting of the year, the Bank of Japan (BoJ) announced early Tuesday that it left the policy settings unchanged. Later in the session, Eurostat will release revisions to the Harmonized Index of Consumer Prices (HICP) for the Euro area. In the second half of the day, the US economic docket will feature Building Permits and Housing Starts readings for November. Finally, Statistics Canada will publish inflation figures.

The Japanese central bank held the interest rate and the 10-year Japanese Government Bond yield target steady at -0.1% bps and 0%, respectively. In the policy statement, the BoJ said that the economy is likely to continue to recover at a modest pace and added that the underlying Consumer Price Index (CPI) inflation is expected to increase gradually toward the price stability target. 

In the post-meeting press conference, BoJ Governor Kazuo Ueda reiterated that they won't hesitate to take additional easing measures if necessary. "We are still not in a situation to foresee sustainable, stable inflation with sufficient confidence," Ueade added. The Japanese Yen came under bearish pressure following the BoJ event. At the time of press, USD/JPY was up more than 0.5% on the day above 143.50 and EUR/JPY was gaining 0.6% near 157.00.

The US Dollar (USD) Index failed to stage a convincing rebound on Monday as Wall Street's main indexes stretched higher after the opening bell. At the time of press, the USD Index was flat on the day near 102.50 and US stock index futures  were trading mixed. Meanwhile, the benchmark 10-year US Treasury bond yield remains below 4% after Monday's short-lasting recovery attempt.

The Reserve Bank of Australia (RBA) released the Minutes of the December policy meeting in the Asian session on Tuesday. The publication revealed that policymakers saw encouraging signs of progress on inflation. "Whether further tightening is required would be decided by data and the assessment of risks," the RBA said. AUD/USD showed no immediate reaction and was last seen trading virtually unchanged on the day slightly above 0.6700.

The data from New Zealand showed that the ANZ Business Confidence Index improved to 33.2 in December from 30.8 in November. After closing higher on Monday, NZD/USD stabilized in positive territory above 0.6200 early Tuesday.

EUR/USD registered small gains on Monday but failed to gather directional momentum. In the European morning on Tuesday, the pair continues to fluctuate in a tight channel above 1.0900. Eurostat is expected to confirm annual HICP inflation at 2.4% in November.

GBP/USD continued to edge lower on Monday following Friday's sharp decline and closed the day in the red. The pair seems to have gone into a consolidation phase at around 1.2650 early Tuesday. The UK's Office for National Statistics (ONS) will release Consumer Price Index (CPI) data for November on Wednesday.

Gold struggled to make a decisive move in either direction to start the week and moved up and down in a narrow band above $2,020 on Monday. Early Tuesday, XAU/USD holds steady within Monday's trading range.

Bank of Japan (BOJ) Governor Kazuo Ueda is speaking at the press conference, held after its December policy meeting on Tuesday.

Key quotes

USD/JPY reaction to Ueda's comments

At the time of writing, USD/JPY is rebounding toward 144.00, in a sharp U-turn from near 143.40. The pair is up 0.81% on the day.

• The Canadian Consumer Price Index is foreseen rising 2.9% YoY in November.
• The BoC Core CPI to show the lowest inflation reading since June 2021. 
• Canadian Dollar is set to remain firm versus the US Dollar. 

Canada will release inflation-related data on Tuesday, December 19. Statistics Canada will publish the November Consumer Price Index (CPI), which is foreseen to increase 2.9% YoY, below the 3.1% recorded in October. On a monthly basis, the index is expected to decline by 0.2% after a 0.1% increase in the previous month. The Canadian Dollar (CAD) remains firm versus the US Dollar (USD), trading at four-month highs. 

The Bank of Canada (BoC) will publish the Core Consumer Price Index, which excludes the most volatile components such as food and energy prices. In October, the annual BoC Core CPI increased by 0.3% MoM and 2.7% YoY. The figures will be closely watched for the Canadian Dollar (CAD) potential direction and for BoC monetary policy expectations. 

What to expect from Canada’s inflation rate?

Price pressures in Canada are expected to have eased further in November. Inflation, as measured by the change in the annual CPI, is anticipated to slow in November closer to  2.8%, the 2023 year-low set in June. After that month, the CPI rebounded, reaching 4% in August before turning downward. All measures of inflation, including the Core CPI, are expected to have slowed, indicating softer price pressures but still remaining above the Bank of Canada’s 2% target.

If the numbers confirm that inflation continues to soften, it may not necessarily be bad news for the Canadian Dollar. Investors could welcome this news as softer inflation eases the pressure on the Bank of Canada to tighten monetary policy further. As the global debate centres around when central banks might start cutting interest rates next year, an unexpected rise in inflation is not expected to bring back rate hikes to the discussion. However, it could anticipate markets looking at higher rates for an extended period, a scenario that could benefit the Loonie, albeit briefly.

"Inflation has decreased, but it still remains relatively high," said BoC Governor Tiff Macklem in his final speech of the year on Friday. He cautioned that "the effects of past interest rate increases will continue to work through the economy, restraining spending, and limiting growth and employment. Unfortunately, this is necessary to address remaining inflationary pressures. Yet, this period of economic weakness will pave the way for a more balanced economy. We anticipate growth and job opportunities to increase later next year, bringing inflation closer to the 2% target."

When is the Canada CPI data due and how could it affect USD/CAD?

Canada is set to release the Consumer Price Index for November 2023 on Tuesday, December 19, at 13:30 GMT. These figures might impact the Canadian Dollar through changes in monetary policy expectations from the Bank of Canada. However, the impact could be limited considering that the BoC, like the Fed and other central banks, is expected to be already done with rate hikes as inflation drops and economic growth slows.

The USD/CAD resumed its downward movement last week due to a weaker US Dollar. The bearish pressure emerged after the Federal Reserve's (Fed) December meeting, particularly on the back of Fed officials forecasting rate cuts for next year. The pair is hovering around its lowest level since August, with a bearish bias.

Last week, USD/CAD broke below the 200-day Simple Moving Average (SMA), standing at 1.3510, reinforcing the negative bias. If the pair stays below 1.3440, the bearish pressure is likely to persist, possibly resulting in fresh lows. The next significant short-term support level is around 1.3300, followed by 1.3250.

Significant action would require shocking inflation numbers. After October's CPI report, USD/CAD showed a minimal reaction. Numbers below expectations could weigh on the Loonie, though overall, it might be perceived as positive news. Conversely, evidence of a significant rebound in inflation could bolster the Canadian Dollar, but perhaps only moderately. A higher-than-expected inflation figure would add pressure on the BoC to maintain higher rates for longer. Such a scenario would mean a more extended period of many Canadians being “squeezed by higher interest rates”, as highlighted by BoC Governor Macklem in his remarks on Friday.

European Central Bank (ECB) Governing Council member and Bank of France President, Francois Villeroy de Galhau, said on Tuesday that “we will not raise interest anymore.”

Further comments

Market reaction

EUR/USD is unperturbed by the above comments, holding higher ground near 1.0930, up 0.05% on the day.

• EUR/GBP drifts lower to 0.8630 ahead of the Eurozone HICP report.
• ECB’s Vasle said the ECB would need at least until spring to evaluate its policy stance.
• Investors anticipate the BoE to cut rates five times next year due to the recent drop in annual inflation and annual earnings growth.

The EUR/GBP cross trades on a softer note during the early European session on Tuesday. The cross remains capped under the key 100-day Exponential Moving Average (EMA) around 0.8645 on the daily chart. Investors await the Eurozone Harmonized Index of Consumer Prices (HICP) report for fresh impetus. The headline HICP is expected to drop 0.5% MoM in November, while the Core HICP is projected to decline 0.6% MoM in the same period. At press time, EUR/GBP is trading near 0.8631, down 0.03% on the day.

The European Central Bank (ECB) policymaker Bostjan Vasle said on Monday that the ECB would need at least until spring to evaluate its policy stance and that market expectations for an interest rate cut in March or April are premature. Meanwhile, ECB Governing Council member Peter Kazimir noted that the risks of premature easing are more significant than the risk of remaining tight for too long. Nevertheless, markets now anticipate rate cuts in March, with one fully priced in by April and more than two movements anticipated by June.

On the other hand, investors expect the Bank of England (BoE) to cut interest rates five times next year, owing to the recent drop in annual inflation to 4.6% and the decline in the estimate of annual earnings growth from 8% to 7.2%. However, BoE policymaker Ben Broadbent said that in the current uncertain situation, it was premature to conclude that the labor market was cooling and the central bank needed to see a steeper and more ongoing slowing of pay growth before declaring that the battle against wage inflation had been won.

Later on Tuesday, traders will monitor the Eurozone HICP inflation data. If the report shows weaker-than-expected figures, this could exert some selling pressure on the Euro (EUR) and cap the upside of the EUR/GBP cross. On Wednesday, the UK Consumer Price Index (CPI), UK Producer Price Index (PPI), and the Eurozone PPI data will be released.

• GBP/JPY gains strong positive traction and spikes to a four-day high after the BoJ decision.
• The mixed technical setup warrants some caution for bulls and positioning for further gains.
• A convincing break below the 181.15 support will shift the bias in favour of bearish traders.

The GBP/JPY cross rallies nearly 200 pips from the vicinity of the 180.00 psychological mark and touches a multi-day peak in reaction to the Bank of Japan's (BoJ) decision to maintain the status quo. Spot prices, however, lose traction and retreat from the 182.00 neighbourhood as BoJ Governor Kazuo Ueda's post-meeting press conference gets underway.

From a technical perspective, the strong intraday move up and acceptance above the 181.00 mark confirms a breakout through a multi-day-old consolidative trading range. That said, oscillators on the daily chart are still holding deep in the negative territory. This makes it prudent to wait for strong follow-through buying before confirming that the GBP/JPY cross has formed a bottom and positioning for an extension of the recent bounce from the 178.35 region, or the lowest level since October touched last week.

In the meantime, momentum beyond the 182.00 mark is likely to confront some resistance near the 182.60 horizontal zone ahead of the 183.00 mark. A sustained strength beyond the latter could lift the GBP/JPY cross to the 183.60-183.65 region en route to the 184.00 round figure and last week's swing high, around the 184.30-184.35 zone.

On the flip side, any meaningful pullback now seems to find decent support near the 181.15-181.10 region. A convincing break below will make the GBP/JPY cross vulnerable to accelerate the fall further towards the 180.00 mark. Some follow-through selling below the 179.75 area might expose the 179.00 level and the multi-month low, around the 178.35 region set last Thursday.

GBP/JPY daily chart

Technical levels to watch

Bank of Japan (BOJ) Governor Kazuo Ueda is speaking at the press conference, held after its December policy meeting on Tuesday.

Key quotes

Market reaction

USD/JPY is paring back gains to near 143.30, despite dovish comments from BoJ Governor Ueda. The pair is still up 0.35% on the day. 

• AUD/JPY attracts some buyers to 96.50 after the Bank of Japan's (BoJ) monetary policy meeting.
• BoJ decided to maintain the status quo and keep the Yield Curve Control (YCC) policy unchanged.
• The Reserve Bank of Australia stated that whether further tightening is required would be decided by data and assessment of risks.
• Market players await November’s Japanese Trade Data and the Australian Westpac Leading Index, due on Wednesday.

The AUD/JPY cross gains traction during the early European session on Tuesday. The upward momentum of the cross is supported by the Japanese Yen (JPY) weakness following the Bank of Japan's (BoJ) monetary policy meeting. At press time, AUD/JPY is trading at 96.50, up 0.73% on the day.

On Tuesday, the BoJ decided to maintain the status quo and keep the short-term interest rate target and the 10-year JGB yield target unchanged at -0.1% and 0%, respectively. In response to the BoJ policy announcements, the cross has attracted some buyers and reached an intraday high of 96.61. Furthermore, the Japanese Finance Ministry is considering bringing forward its plan to reduce 20-year bonds by $1.39 billion from January, per Reuters.

On the Aussie front, the Reserve Bank of Australia (RBA) meeting minutes of December suggested that the central bank saw encouraging signs of progress on inflation, but this needed to continue. The RBA stated that whether further tightening is required would be decided by incoming data and the evolving assessment of risks, while adding that inflation expectations remained consistent with the inflation target. The more hawkish remarks from the RBA lift the Australian Dollar (AUD) against the JPY.

Traders will keep an eye on November’s Japanese Trade Data and the Australian Westpac Leading Index, due on Wednesday. On Friday, Japan’s National Consumer Price Index will be released. Traders will take cues from these figures and find trading opportunities around the AUD/JPY cross.

• EUR/USD extends its gains ahead of inflation data from the Eurozone.
• Technical indicators suggest positive sentiment to aim for the significant level at 1.1050.
• 1.0900 acts as key support followed by the seven-day EMA and the 23.6% Fibonacci retracement level.

EUR/USD attempts to extend its gains for the second consecutive session, hovering around 1.0920 during the Asian hours on Tuesday. The anticipated Harmonized Index of Consumer Prices (HICP) data from the Eurozone on Tuesday is expected to remain unchanged across all levels. This moderate inflation outlook might contribute to the stability of the EUR/USD pair.

However, the technical indicators for the EUR/USD pair suggest a favorable upward trend. The 14-day Relative Strength Index (RSI) maintaining a position above the 50 mark signals positive sentiment, indicating a potential re-test of the psychological resistance at the 1.1000 level, followed by the two-month high at 1.1017.

Moreover, the Moving Average Convergence Divergence (MACD) reinforces the overall positive momentum, with the MACD line positioned above the centerline and the signal line. As a lagging indicator, it signals a confirmation of the potential upward trend.

The prevailing bullish sentiment, supported by the MACD, could empower the EUR/USD pair to surpass the current barrier and aim for a significant level at 1.1050.

Looking at the downside, the psychological support at 1.0900 emerges as a crucial level, followed by the seven-day Exponential Moving Average (EMA) at 1.0893 and the 23.6% Fibonacci retracement level at 1.0884.

Should there be a decisive break below the latter, it might intensify bearish pressure on the EUR/USD pair, leading to a potential move towards the psychological area surrounding the 38.2% Fibonacci retracement at 1.0801.

EUR/USD: Daily Chart

• USD/CHF loses ground as investors are concerned about the situation between Hamas and Israel.
• Swiss Franc gains as risk sentiment emerges due to Houthi’s attacks on commercial ships.
• San Francisco Fed President Mary Daly mentioned that speculating about rate cuts in 2024 is premature.

USD/CHF continues to lose ground on the back of the Middle East situation and dovish sentiment surrounding the US Federal Reserve’s (Fed) interest rates trajectory in 2024. The USD/CHF pair trades lower near 0.8670 during the Asian session on Tuesday.

The situation between Israel and Hamas seems to have escalated as the Iran-led Houthi militant group conducted attacks on commercial ships near Libya. Major shipping companies are considering avoiding the Suez Canal waterway. This has prompted the sentiment of risk aversion over trade and supply, which could lead investors toward the safe-haven Swiss Franc (CHF).

However, the Swiss Franc (CHF) faced a hurdle when the Swiss National Bank (SNB) opted to keep interest rates unchanged for the second consecutive rate announcement. SNB Chairman Thomas Jordan acknowledged a slight decrease in inflationary pressures, emphasizing the persistent high level of uncertainty.

The US Dollar (USD) encounters challenges stemming from a weakened sentiment, primarily influenced by the Federal Open Market Committee's (FOMC) dovish statement. Additionally, dovish remarks from various Fed members exerted pressure on the Greenback. However, US Federal Reserve (Fed) Bank of New York President John Williams dispelled speculation about a potential rate cut in March by the FOMC.

Additionally, San Francisco Fed President Mary Daly mentioned that even if there are three rate cuts next year, the Fed would uphold a relatively restrictive stance. Speculating on which meetings might witness a shift in the policy stance for the upcoming year is premature. Daly emphasized that ongoing work is in progress, with the focus extending beyond simply reducing inflation to 2%.

The US Dollar Index (DXY) attempts to retrace its recent losses on the back of improved US Treasury yields. The 2-year and 10-year yields on US bond coupons stands higher at 4.46% and 3.94%, respectively, by the press time.

Citing two government sources, Reuters reported on Tuesday that the Japanese Finance Ministry is considering bringing forward its plan to reduce 20-year bonds by JPY200 billion ($1.39 billion) from January.

The sources attributed such a move to rising interest rates dampening investor appetite for the interest-bearing long-dated debt.

Market reaction

At the time of writing, USD/JPY is adding 0.56% on the day to trade at 143.54.

• USD/CAD remains on the defensive, though a combination of factors helps limit losses.
• BoC Governor sees rate cuts in 2024 and overshadows the recent bounce in Oil prices.
• Fed officials push back against bets for early rate cuts and lend some support to the USD.

The USD/CAD pair struggles to capitalize on the previous day's goodish bounce from mid-1.3300s or a three-month low and trades with a mild negative bias, just below the 1.3400 mark during the Asian session Tuesday.

The downside, however, remains cushioned in the wake of the overnight dovish remarks by the Bank of Canada (BoC) Governor Tiff Macklem, saying that the central bank could start cutting rates sometime in 2024. The markets were quick to react and expect the BoC to begin easing as soon as April, with a cumulative rate cut of at least 100 bps by the end of next year. This, in turn, should act as a tailwind for the USD/CAD pair, despite the recent goodish recovery in Crude Oil prices, which tends to benefit the commodity-linked Loonie.

Apart from th is, a modest US Dollar (USD) uptick should lend support to spot prices and limit any depreciating move. Chicago Federal Reserve (Fed) President Austan Goolsbee, along with Cleveland Fed President Loretta Mester, on Monday pushed back against market bets for early interest rate cuts. This comes on the back of New York Fed President John Williams's remarks on Friday that it was premature to speculate about rate cuts. Apart from this, geopolitical risks benefit the USD's relative safe-haven status against its Canadian counterpart.

Traders, meanwhile, seem reluctant to place aggressive directional bets around the USD/CAD pair and prefer to wait for the release of the latest consumer inflation figures from Canada for a fresh impetus later during the North American session. The US economic docket, meanwhile, features housing market data – Building Permits and Housing Starts. Apart from this, a scheduled speech by Richmond Fed President Thomas Barkin will influence the USD, which, along with Oil price dynamics, should produce short-term trading opportunities.

Technical levels to watch

• Gold price lacks any firm intraday direction and is influenced by a combination of diverging forces.
• A slew of Fed officials push back against bets for early rate cuts and cap the upside for the metal.
• Geopolitical risks continue to act as a tailwind as traders look to the US PCE Price Index on Friday.

Gold price (XAU/USD) fails to capitalize on the previous day's modest uptick and oscillates in a narrow range during the Asian session on Tuesday. A slew of influential Federal Reserve (Fed) officials recently tried to push back against market expectations for early interest rate cuts in 2024, which, in turn, is seen as a key factor acting as a headwind for the non-yielding yellow metal. Apart from this, the underlying bullish tone across the global equity markets further contributes to capping the upside for the precious metal.

The US central bank, however, took a dovish turn last week and projected an average of three 25 basis points (bps) of rate cuts in 2024, which keeps the US Dollar (USD) bulls on the defensive and lends some support to the Gold price. Apart from this, the risk of a further escalation of geopolitical tension in the Middle East should help limit any meaningful downside for the safe-haven XAU/USD. Traders might also prefer to wait for a key US inflation reading – the Core PCE Price Index on Friday – before placing directional bets.

Daily Digest Market Movers: Gold price struggles to gain traction amid mixed macroeconomic  cues

• Chicago Federal Reserve President Austan Goolsbee, along with Cleveland Fed President Loretta Mester, pushed back against market bets on interest rate cuts on Monday.
• Goolsbee said that he was confused over the market reaction to last week's FOMC meeting and that the central bank is not precommiting to cutting rates soon and swiftly.
• Separately, Cleveland Fed President Loretta Mester noted that financial markets had gotten a little bit ahead of the central bank on when to expect interest rate cuts next year.
• This comes on the back of New York Fed President John Williams's remarks on Friday that it was premature to speculate about rate cuts and caps the upside for the Gold price.
• The markets, however, seem convinced that the Fed will pivot to easing by the first half of 2024, which continues to undermine the US Dollar and lends support to the metal.
• Concerns over geopolitical risks linked to the conflict in the Middle East should further contribute to limiting any meaningful downfall for the safe-haven precious metal.
• Yemen's Iran-aligned Houthi militants launched a series of drone and missile attacks on ships in the southern Red Sea, which it says are a response to Israel's assault on the Gaza Strip.
• US Defence Secretary Lloyd Austin announced the formation of a multinational coalition and the launch of Operation Prosperity Guardian to address the Houthi threat in the Red Sea.
• Investors now look forward to the US Core Personal Consumption Expenditure (PCE) Price Index on Friday for clues about the Fed's future policy decisions.

Technical Analysis: Gold price could appreciate further once $2,040 supply zone is cleared

From a technical perspective, the Gold price needs to find acceptance above the $2,040 supply zone for bulls to seize near-term control. This is followed by last week's swing high, around the $2,049-2,050 region, which if cleared will set the stage for a move towards the next relevant barrier near the $2,072-2,073 area. The upward trajectory could get extended further and allow the XAU/USD to reclaim the $2,100 round-figure mark.

On the flip side, the $2,015 area might continue to protect the immediate downside ahead of the 2,010 horizontal resistance breakpoint and the $2,000 psychological mark. A convincing break below the latter will make the Gold price vulnerable to challenge the 50-day Simple Moving Average (SMA) support, currently pegged near the $1,985 level before dropping to last week's swing low, around the $1,973 area. Bears might then aim to test the 200-day SMA, near the $1,956 zone.

• EUR/JPY gained ground ahead of the economic data from the Eurozone.
• BoJ maintained its interest rate at -0.1% as widely expected. 
• Geopolitical tension, as Houthi attacks on ships, could support the safe-haven JPY.
• Traders await Eurozone Harmonized Index of Consumer Prices data to gain fresh impetus on economic conditions.

EUR/JPY extends its gains for the second consecutive day, trading higher around 156.70 during the Asian session on Tuesday. The Bank of Japan (BoJ) announced its Interest Rate Decision on Tuesday, keeping the cash rate at -0.1% as anticipated. Investors await BoJ Governor Kazuo Ueda's press conference for insights into economic conditions, which might influence the potential exit from the ultra-dovish monetary policy in January.

BoJ Monetary Policy Statement shows that BoJ has decided to maintain the 1.0% reference rate for the 10-year Japanese Government Bond (JGB) yield. The central bank notes a moderate recovery in the economy, with private consumption steadily increasing. Inflation expectations have also risen moderately. The projection for Japan's economy is optimistic, foreseeing continued growth above the potential growth rate. Additionally, the rate of increase in the Consumer Price Index (CPI) is expected to remain above 2% through fiscal 2024.

The situation in the Middle East has led to increased geopolitical tensions, prompting some investors to seek safety in the Japanese Yen (JPY). Houthi militants conducted attacks on commercial vessels in the Red Sea. On the other side, Israeli strikes in Gaza have resulted in additional Palestinian casualties, and Hamas has stated that talks will not take place until Israeli bombardment ceases.

The IFO Institute's recent report disclosed that the German Business Climate for December dipped to 86.4 compared to the previous 87.2, falling below the expected 87.8. The Current Assessment also saw a decline from 89.4 to 88.5, while the Expectations Index eased from 85.1 to 84.3 in the same period.

The deteriorating economic conditions in Germany may hinder the Euro's (EUR) gains against the Japanese Yen. Investors look forward to Tuesday's release of November's Eurozone Harmonized Index of Consumer Prices (HICP) for further market insights.

The Bank of Japan (BoJ) board members decided to make no changes to their current policy settings, following its December monetary policy review meeting on Tuesday.

The Japanese central bank held the interest rate and 10-year JGB yield target steady at -10bps and 0% respectively.

The BoJ left the forward guidance on monetary policy unchanged.

Summary of the BoJ policy statement

more to come ...

USD/JPY reaction to the BoJ policy announcements

USD/JPY rallied over one big figure following the BoJ’s policy announcements. The pair is currently trading at 143.60, up 0.60% on the day, having tested 143.75 in a knee-jerk reaction to the BoJ decision.

USD/JPY: 15-minutes chart

• WTI price gained ground on a threat of trade and supply disruption.
• Houthi militant group attacked a Norwegian commercial vessel in the Red Sea.
• US Defense Secretary Lloyd Austin to have virtual talks with other defense ministers to address the Houthi threat.

West Texas Intermediate (WTI) price grapples to extend its gains on the second successive day, hovering around $72.80 per barrel in the Asian hours on Tuesday. Crude oil prices receive support due to geopolitical disruptions affecting trade and supply costs, following an attack by the Houthi militant group on commercial vessels near Yemen.

On Monday, a Norwegian commercial vessel was targeted in the Red Sea, prompting oil major British Petroleum to halt all transit through the waterway temporarily. The leading shipping firms to contemplate avoiding the Suez Canal.

Defense Secretary of the United States (US), Lloyd Austin declared that Washington is forming a coalition with defense ministers from the region. They are set to participate in virtual talks on Tuesday to address the Houthi threat.

Additionally, the extended cuts of 50,000 barrels per day (bpd) from Russia contributed support to underpinning the Crude oil prices. The United States officials acknowledged on Monday to push shippers to disclose more information about their Russian oil dealings in a bid to enforce sanctions.

Canadian refiner Imperial Oil has projected upstream production for 2024 to be between 420,000 and 442,000 barrels per day (bpd), surpassing its 2023 guidance. Meanwhile, the Canadian Association of Energy Contractors anticipates an 8% increase in well-drilling activities in 2024. This development may exert downward pressure on WTI prices.

On Friday, the data revealed a decrease in Baker Hughes Rig Counts to 501 from the previous figure of 503. This suggests a minor decline in the oil service industry's consumption of products and services. Additionally, the API Weekly Crude Oil Stock and EIA Crude Oil Stocks Change for the week ending on December 15 are scheduled for publication on Tuesday and Wednesday, respectively.

• GBP/USD holds positive ground around the mid-1.2600s amid the USD softness.
• BoE’s Broadbent said the central bank needs to see signs of clearer decline in inflation before it can conclude a downward trend.
• The markets anticipate potential rate cuts worth 75 basis points by the Fed in the second half of 2024.

The GBP/USD pair snaps its two-day losing streak during the early Asian session on Tuesday. The rebound of the pair is bolstered by the weaker US Dollar (USD) and the lower US Treasury bond yields. Investors await the UK inflation data, due on Wednesday. The annual CPI and Core CPI figures are estimated to show an increase of 4.4% YoY and 5.5% YoY in November, respectively. The major pair currently trades near 1.2653, up 0.05% on the day.

The Bank of England (BoE) left the interest unchanged at 5.25% for the third successive meeting while maintaining the view that the cost of borrowing needs to be restrictive for an extended period of time as inflation remains way above its target rate. The BoE Governor Andrew Bailey said that it’s premature to start speculating about cutting interest rates. He further stated that further interest rate hikes were also not ruled out, but we are at the top of the cycle.

Nonetheless, BoE policymaker Ben Broadbent has argued the monetary policy committee will need to see signs of a more protracted and clearer decline in inflation before it can safely conclude a downward trend is taking place.

On the other hand, the Federal Reserve (Fed) delivered a more dovish stance with the anticipation of potential rate cuts worth 75 basis points (bps) in the second half of 2024, whereas the BoE reiterated the tone that the rates should remain higher for longer. This, in turn, weighs on the US Dollar (USD) and creates a tailwind for the GBP/USD pair.

The US Building Permits and Housing Starts will be released on Tuesday. In the absence of economic data released from the UK docket on Tuesday, the GBP/USD pair remains at the mercy of the USD price. Market players will focus on November’s UK Consumer Price Index (CPI) and Producer Price Index (PPI) on Wednesday as well as the US Consumer Confidence (Dec) and Existing Home Sales.

• The Japanese strengthen a bit against the USD amid reviving safe-haven demand.
• The USD is pressured by bets for early interest rate cuts by the Federal Reserve.
• Traders now look to the crucial BoJ policy decision for a fresh directional impetus.

The Japanese Yen (JPY) ticks higher during the Asian session on Tuesday and for now, seems to have snapped a two-day losing streak against its American counterpart. The uptick could be attributed to some repositioning trade ahead of the crucial Bank of Japan (BoJ) policy decision, which will be followed by Governor Kazuo Ueda's press conference. The Japanese central bank is expected to keep its monetary policy settings unchanged. Investors, meanwhile, will closely scrutinize comments from Ueda for cues on whether economic conditions are falling into place to exit negative interest rates in January. This, in turn, will play a key role in influencing the JPY and provide a fresh directional impetus to the USD/JPY pair.

In the run-up to the key central bank event, concerns over geopolitical risks linked to the conflict in the Middle East seem to benefit the JPY's relative safe-haven status. The US Dollar (USD), on the other hand, continues to be weighed down by the Federal Reserve's (Fed) dovish pivot, despite attempts from several influential FOMC members to push back against market expectations for early interest rate cuts. This further contributes to the USD/JPY pair's ongoing slide, summing up to a fall of around 90 pips from the 143.15 area or a multi-day peak touched on Monday. Meanwhile, the aforementioned fundamental backdrop favours bearish traders and supports prospects for a further near-term depreciating move.

Daily Digest Market Movers: Japanese Yen benefits geopolitical tensions, ahead of BoJ decision

• Yemen's Iran-aligned Houthi militants launched a series of drone and ballistic missile attacks on ships in the southern Red Sea, which it says are a response to Israel's assault on the Gaza Strip.
• US Defence Secretary Lloyd Austin announced the formation of a multinational coalition and the launch of Operation Prosperity Guardian to patrol the Red Sea and address the Houthi threat.
• Ceasefire came to a very abrupt halt after Israel accused Hamas of not abiding by the deal made between them, in terms of who should be released.
• Israeli strikes have been reported across the Gaza Strip overnight, leading to more Palestinian deaths. Hamas says no talks will be held until Israeli bombardment of Gaza stops.
• The risk of a further escalation of geopolitical tensions in the Middle East drives some haven flows towards the Japanese Yen ahead of the crucial Bank of Japan policy decision.
• The Japanese central bank is expected to maintain the status quo, though comments by BoJ Governor Kazuo Ueda could lift expectations for an end to negative rates in January.
• A slew of influential Federal Reserve officials recently tried to push back against market speculations about early interest rate cuts, albeit failed to impress the US Dollar bulls.
• Chicago Fed President Austan Goolsbee said on Monday that he was confused over the market reaction to last week's FOMC meeting and that the central bank is not precommiting to cutting interest rates soon and swiftly.
• Adding to this, Cleveland Fed President Loretta Mester said that financial markets had gotten a little bit ahead of the central bank on when to expect interest rate cuts.
• Mester's comments align with those from two other 2024 voting FOMC members who on Friday stressed that interest rate cuts were not imminent.

Technical Analysis: USD/JPY setup favours bearish traders and supports prospects for further losses

From a technical perspective, the overnight failure to find acceptance above the 143.00 mark and the subsequent fall favours bearish traders. Moreover, oscillators on the daily chart are holding deep in the negative territory and suggest that the path of least resistance for the USD/JPY pair is to the downside. That said, it will still be prudent to wait for some follow-through selling below the 142.00 round figure before positioning for any further depreciating move. Spot prices might then accelerate the slides towards the 141.45-141.40 intermediate support before dropping to sub-141.00 levels, or a multi-month low touched last Thursday.

On the flip side, a sustained move beyond the overnight swing high, around the 143.15 region, could prompt a short-covering rally and allow the USD/JPY pair to reclaim the 144.00 mark. The latter should act as a key pivotal point, which if cleared decisively will suggest that the recent downtrend witnessed over the past month or so has run its course and shift the near-term bias in favour of bullish traders. Spot prices might then accelerate the positive move towards the 144.75 region en route to the 145.00 psychological mark.

• Australian Dollar remains bullish after the RBA meeting minutes release.
• Australian policymakers suggest further tightening will depend on data and assessment of risks.
• New York Fed President John Williams provided a counterpoint, diverging from the speculation regarding a potential rate cut in March.

The Australian Dollar (AUD) moves on an upward trajectory for the sixth successive session on Tuesday as the US Dollar remains in negative territory. The AUD/USD pair got a boost as traders anticipated rate cuts from the Federal Reserve (Fed), putting pressure on the US Dollar (USD). Additionally, Australia's robust employment results and rising incomes are signs of economic resilience, providing strong support for the Australian Dollar.

Australia’s Meeting Minutes are released by the Reserve Bank of Australia (RBA). The board observed "encouraging signs" of progress regarding inflation, emphasizing the need for this positive trend to persist. The decision on whether further tightening is necessary will be based on data and a thorough assessment of risks.

RBA board expressed the importance of waiting for additional data to evaluate the balance of risks, considering the potential for inflation to remain elevated for an extended period balanced against the risk of a more pronounced slowdown in demand. Additionally, the board took note that the RBA staff forecast anticipated inflation returning to the upper end of the band by the end of 2025 rather than the midpoint.

The US Dollar Index (DXY) holds steady as it awaits fresh developments from the United States (US) economy. The DXY could find support in improved yields on US Treasury bonds. Investors will focus on Building Permits and Housing Starts from the United States (US) on Tuesday. Furthermore, on Wednesday, the People's Bank of China (PBoC) is scheduled to announce its Interest Rate Decision.

Federal Reserve (Fed) Bank of New York President John Williams offered a counterpoint in contrast to speculation about a March rate cut from the Federal Open Market Committee (FOMC). Moreover, San Francisco Fed President Mary Daly stated that even with three rate cuts next year, the Fed would maintain a relatively restrictive stance. Speculating on which meetings might see a change in the policy stance for the upcoming year is premature. According to Daly, there is ongoing work, and the focus extends beyond just bringing inflation down to 2%.

Daily Digest Market Movers: Australian Dollar remains hawkish amid subdued US Dollar

• The preliminary Judo Bank Composite PMI improved to 47.4 from the previous reading 46.2. The Manufacturing PMI for the same period registered 47.8, a slight increase from the prior figure of 47.7. Additionally, the Services PMI grew to 47.6 compared to the previous reading of 46.0.
• Australia’s Consumer Inflation Expectations for December eased at 4.5% against the previous figures of 4.9%.
• Australian Trade Minister Don Farrell stated that he believes China will eliminate punitive tariffs on Australian wine. China has already lifted trade restrictions on most Australian exports, signaling a gradual improvement in the relations between the two countries.
• Chicago Fed President Austan Goolsbee didn't dismiss the possibility of a rate cut in the Fed's March meeting. Furthermore, Atlanta Fed President Raphael Bostic hinted at a potential interest rate cut in the third quarter of 2024, contingent on inflation following the anticipated trajectory.
• Federal Reserve (Fed) maintained interest rates at 5.5% in its December policy meeting as expected. Markets are now projecting three rate cuts for 2024.
• US S&P Global Services PMI rose to 51.3 from 50.8 prior. While Manufacturing PMI declined to 48.2 from 49.4.

Technical Analysis: Australian Dollar maintains its position above 0.6700

The Australian Dollar trades higher around 0.6710 on Tuesday, maintaining its upward momentum after reaching a new five-month high at 0.6735 on Monday. The prevailing bullish sentiment suggests a potential for the AUD/USD pair to surpass the recent peak and approach the key resistance level at 0.6750. On the downside, significant support is situated at 0.6700. A breach below this level might lead the AUD/USD pair towards the critical zone at 0.6650, followed by the 23.6% Fibonacci retracement at 0.6622. Subsequently, the 21-day Exponential Moving Average (EMA) at 0.6609 could act as a support before reaching the psychological level at 0.6600.

AUD/USD: Daily Chart

The People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead on Tuesday at 7.0982 as compared to the previous day's fix of 7.0933 and  7.1347 Reuters estimates.

• AUD/USD holds positive ground near 0.6715 after the release of RBA meeting minutes. 
• RBA members will examine further data to evaluate risk balance and how to balance it in policymaking.
• The US Building Permits and Housing Starts for November will be due later on Tuesday. 

The AUD/USD pair attracts some buyers during the early Asian session on Tuesday. The pair currently trades near 0.6715, up 0.16% for the day. The Reserve Bank of Australia (RBA) released the Minutes of its December monetary policy meeting on Tuesday, suggesting that the central bank saw encouraging signs of progress on inflation and this needed to continue.

The RBA members agreed that the case to leave the cash rate target unchanged at this meeting was the stronger one. Furthermore, the central bank will monitor the incoming data to alter the economic outlook and the evolving assessment of risks when setting policy. The RBA members agreed that inflation expectations remained consistent with the inflation target.

Moving on, traders will focus on the US housing data, including Building Permits and Housing Starts on Tuesday. On Wednesday, the Australian Westpac Leading Index for November will be released.

The Reserve Bank of Australia (RBA) published the Minutes of its December monetary policy meeting on Tuesday, highlighting that the Board members decided the case for steady rates was the stronger one at this meeting. Additional details of the RBA Minutes suggest that the central bank saw encouraging signs of progress on inflation, this needed to continue.

Key takeaways

Market reaction

At the time of writing, the AUD/USD pair is trading near 0.6707, holding higher while adding 0.06% on the day.

About RBA Minutes

The minutes of the Reserve Bank of Australia meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. Generally speaking, if the RBA is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the AUD.

• EUR/USD currently trades near 1.0920, adding 0.01% on the day.
• German business expectations and current conditions unexpectedly worsened in December.
• The markets believe the Fed is done with the hiking cycle, and three rate cuts are expected next year.
• Traders await the final reading of the Eurozone HICP and US housing data.

The EUR/USD pair hovers around 1.0920 during the early Asian trading hours on Tuesday. The critical resistance level remains at the 1.1000 psychological mark. Investors will take more cues from November’s Eurozone Harmonized Index of Consumer Prices (HICP) data, which is estimated to remain unchanged at -0.5% MoM while the Core HICP is forecast to stay at 0.6% MoM.

The IFO Institute revealed on Monday that German business expectations and current conditions unexpectedly worsened in December. The German Business Climate Index came in at 86.4 in December versus 87.2 prior, below the expectation of 87.8. The Expectations Index eased from 85.1 to 84.3 in the same period. Finally, the Current Assessment Index arrived at 88.5 from the previous reading of 89.4, worse than the market consensus of 89.5.

The weaker-than-expected IFO survey contributed to concerns about Germany's economic downturn, and the figures hint at a modest contraction in GDP growth in the fourth quarter, which is considered a technical recession after two consecutive quarters of negative growth. The worsening economic condition in Germany might cap the upside of the Euro (EUR) and act as a headwind for the EUR/USD pair.

On the other hand, Federal Reserve (Fed) Chair Jerome Powell said during the press conference that inflation has eased from its highs, and this has come without a significant increase in unemployment, and it’s good news. The markets believe the Fed is done with the hiking cycle, and three rate cuts are expected next year.

Nonetheless, the real rate, the gap between the fed funds rate and inflation, remains high, and the Fed is more likely to move if inflation data continues to cooperate. Investors will take more cues from the inflation data on Friday for fresh impetus. The Fed's preferred gauge of inflation, the Core Personal Consumption Expenditures Price Index (PCE), is estimated to remain steady at 0.2% MoM in November. On an annual basis, the Core PCE is projected to grow 3.3% YoY in November.

Looking ahead, market participants will monitor the final reading of the Eurozone Harmonized Index of Consumer Prices (HICP) for November. On the US docket, the Building Permits and Housing Starts for November will be due.