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• Aussie edges up 0.33%, consolidating around 0.6200.
• Markets digest US PCE data for policy cues.
• Fed is seen holding rates steady in early 2025.

The Australian Dollar consolidates around 0.6200 on Friday as traders digest November’s US Personal Consumption Expenditures (PCE) inflation data. With the Federal Reserve (Fed) expected to keep interest rates steady at the first 2025 policy meeting, investors also await next week’s Reserve Bank of Australia (RBA) minutes for insight into potential rate moves.

Soft US PCE figures are tempering the Greenback’s strength, offering modest support to the Aussie’s nascent rebound.

Daily digest market movers: Aussie sees mild rebound as markets digest soft PCE data

• The US Dollar Index eased after hitting a two-year high at 108.50, as PCE data undercut inflation expectations.
• The US November PCE monthly headline reading came in at 0.1%, down from 0.2%.
• The yearly measure rose at 2.4% YoY, slightly below the 2.5% forecast.
• Core PCE slipped to 0.1% monthly from 0.3%, with the annual figure steady at 2.8% and under the 2.9% estimate.
• RBA minutes due Tuesday may shed light on future policy moves after Governor Michele Bullock expressed confidence in easing wage and demand pressures.
• China’s sluggish growth outlook and potential US tariffs still cap Aussie upside, though today’s softer US data offers a brief reprieve.

AUD/USD technical outlook: Aussie finds footing as oversold signals fade

The AUD/USD is extending its gains for a second consecutive day. The Relative Strength Index (RSI) stands near 33, rebounding from oversold territory, while the Moving Average Convergence Divergence (MACD) histogram prints flat red bars.

Although momentum remains fragile, the pair’s modest recovery and improving technical signals suggest it may stabilize further if incoming data continues to temper the US Dollar’s strength.

• DXY slips as profit-taking sets in, falling toward 107.80.
• Traders parse disinflationary PCE data after Fed’s hawkish cut on Wednesday.
• The soft inflation readings might not alter the ‘wait and see’ posture of the Fed.

The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, took a hit after soft Personal Consumption Expenditures (PCE) data was released during the European session. Markets are also assessing political woes in the US, which soured market sentiment.

Daily digest market movers: US Dollar reacts to disinflationary PCE, shutdown risks, and Fed stance

• Risks of a US government shutdown have risen as House Republicans failed to pass a funding deal. Although a brief shutdown may have limited market impact, negotiations remain in focus.
• Longer-term Treasury yields continue to climb, with the 10-year yield near 4.60% and the 30-year yield at 4.77%, steepening the yield curve.
• November PCE data came in softer than expected, with monthly headline inflation at 0.1% and annual at 2.4%, below the 2.5% forecast.
• Core PCE also missed expectations. This slight disinflationary print may not alter the Fed’s recent hawkish stance significantly though.
• The Federal Reserve’s hawkish signals and fewer projected cuts in 2025 continue supporting the US Dollar’s relative strength.
• Meanwhile, robust Q3 GDP at 3.1% SAAR and solid consumer spending highlight underlying US economic resilience.
• The Atlanta Fed GDPNow model forecasts Q4 growth at 3.2% SAAR, and the New York Fed’s Nowcast sees Q4 at 1.9% SAAR, maintaining an upbeat growth narrative.

DXY technical outlook: Indicators ease as index slips below 108.00

After Wednesday’s upward movements, indicators are easing as the index breaks below 108.00 on Friday, currently hovering near 107.60. The pullback suggests the recent rally may be taking a breather. Still, if the DXY can hold above its 20-day Simple Moving Average, the broader bullish structure remains intact, leaving room for further gains once profit-taking subsides and fundamental drivers reassert themselves.

• EUR/USD gains on Friday, settling near 1.0395 after Wednesday’s steep decline.
• RSI rises sharply to 37, remaining in negative territory and reflecting hesitant recovery attempts.
• MACD histogram prints flat red bars, indicating persistent bearish pressure albeit with signs of stabilization.

After suffering a sharp drop of more than 1% on Wednesday, the EUR/USD managed a minor rebound by the end of the week, adding 0.28% to trade near 1.0395 on Friday. Despite this modest improvement, the pair remains below the 20-day Simple Moving Average (SMA), which continues to limit upside potential and maintain a cautious outlook.

Technical indicators suggest that while selling pressure may be easing, the overall bias remains tilted to the downside. The Relative Strength Index (RSI) has climbed to 37, still in negative territory but indicating a gradual reduction in bearish momentum. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram shows flat red bars, reflecting ongoing weakness with tentative signs of stabilization.

EUR/USD daily chart

• US PCE data showed softer inflation, reducing Fed's urgency for aggressive rate hikes.
• BoE held rates at 4.75%, with divisions on potential rate cuts in 2025.
• UK Retail Sales missed expectations, with weak demand in clothing.

The GBP/USD pair rebounded towards 1.2540 after the release of US inflation data and the Bank of England's (BoE) monetary policy decision on Thursday. While the pair benefited from softer-than-expected US Personal Consumption Expenditure (PCE) data, the BoE’s cautious stance on rate cuts and weaker UK Retail Sales data kept gains in check.

The US Personal Consumption Expenditure (PCE) data for November revealed softer inflationary pressures. The monthly Headline PCE came in at 0.1%, down from the previous 0.2%, while the yearly measure ticked up slightly to 2.4%, just above the prior 2.3% but below the 2.5% forecast. Meanwhile, the Core PCE monthly measure fell to 0.1% from 0.3%, undershooting the 0.2% estimate, while the yearly reading remained steady at 2.8%, lower than the expected 2.9%. 

Following the data, the CME FedWatch Tool projects an 90% likelihood of the Federal Reserve maintaining its policy rate at the upcoming January 29, 2025 meeting, with a smaller 10% probability of a 25 basis point rate cut. Meanwhile, the US 10-year Treasury yield stands at 4.50%, down from its peak of 4.60% reached on Thursday.

In the UK, the BoE held its key borrowing rate unchanged at 4.75%, as widely anticipated. Despite accelerated inflation over the past three months, three policymakers voted for a rate cut, signaling divisions within the central bank. Governor Andrew Bailey emphasized the uncertainty surrounding future rate cuts, stating, “Due to heightened uncertainty in the economy, we can't commit to when or by how much we will cut rates in 2025.” Following the announcement, market participants priced in a 53 basis points (bps) reduction in the BoE’s interest rates for 2025.

On the economic data front, UK Retail Sales for November underwhelmed expectations. Monthly sales rose by 0.2%, below the 0.5% forecast, though recovering from a 0.7% decline in October. Year-over-year growth came in at 0.5%, falling short of the 0.8% projection and marking a significant drop from the previously reported 2%.

GBP/USD Technical overview

The GBP/USD pair recovered to 1.2540, but technical indicators remain in the negative area despite showing some improvement. The Relative Strength Index (RSI) has risen but continues to indicate bearish momentum, while the Moving Average Convergence Divergence (MACD) histogram remains below the zero line, reflecting sustained selling pressure. Immediate support lies at 1.2500, with a break below this level potentially exposing 1.2460. On the upside, resistance is seen at 1.2560, with a sustained move above this level needed to challenge the next key barrier at 1.2600.

In an interview with CNBC on Friday, Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee said that they are still on a path to get to 2% inflation, adding that it was 'nice' to get an inflation number that's better than expected.

Key takeaways

"There's more uncertainty, noise."

"My projections were for a little more shallow rate-path in 2025."

"Next 12- to 18- months, rates can go down a fair amount."

"Employment is stable, want to keep it stable, to do so rates need to come down to something like neutral."

"I agree policy rate is meaningful restrictive."

"I agree policy rate is still far from neutral rate."

"We are significantly less restrictive than we were."

"Our job is to think through scenarios, though we don't know what new administration will propose."

"Uncertainty on policy is part of why I feel rate-path next year is a bit more shallow."

"Rates will come down by a judicious amount next year."

"Rate path will be determined by employment, prices."

In a statement released on Friday, Federal Reserve Bank of Cleveland President Beth Hammack noted that she dissented because the data supported holding the policy rate steady, per Reuters.

"Based on my estimate that monetary policy is not far from a neutral stance, I prefer to hold policy steady until we see further evidence that inflation is resuming its path to our 2 percent objective,” Hammack explained.

“Maintaining the target range for the federal funds rate at 4-1/2 to 4-3/4 percent at the December 2024 meeting was the best choice given the strength of recent economic data, accommodative financial conditions, and my forecast that inflation will remain somewhat above 2 percent over the next year amid a healthy labor market,” she said.

Market reaction

The US Dollar Index recover modestly from session lows following these comments and was last seen losing 0.35% on the day at 108.05.

• GBP/JPY declines to near 196.00 as higher number of BoE officials voted for an interest rate reduction on Thursday than what market participants had anticipated.
• UK Retail Sales rose at a slower-than-expected pace in November.
• Hotter Japan National CPI data for November has boosted BoJ hawkish bets.

The GBP/JPY pair is down almost 0.4% to 196.00 in Friday’s North American session. The asset faces selling pressure after the release of the United Kingdom (UK) Retail Sales data for November, which came in slower than projected due to weak demand at clothing stores.

The Retail Sales data, a key measure of consumer spending, rose by 0.2%, slower than estimates of 0.5%. Weak Retail Sales data weighed on the Pound Sterling (GBP). However, the major reason behind the British currency’s underperformance across the board on Friday is the dovish buildup for the UK interest rates outlook by the Bank of England (BoE).

The BoE left its key borrowing rates at 4.75%, as expected, in which three of nine Monetary Policy Committee (MPC) members proposed cutting interest rates by 25 basis points (bps) to 4.5%. However, market participants anticipated that only one policymaker would vote for a dovish interest rate decision.

Meanwhile, the Japanese Yen (JPY) ticks higher on Friday on the hotter-than-expected inflation report for November. As measured by the National Consumer Price Index (CPI), the headline inflation accelerated to 2.9% from 2.3% in October. The National CPI, excluding Fresh Food, rose by 2.7%, faster than estimates of 2.6% and the former release of 2.3%.

Accelerating price pressures have boosted expectations of more interest rate hikes by the Bank of Japan (BoJ) in upcoming policy meetings.

GBP/JPY wobbles near the upper portion of the Symmetrical Triangle formation on a daily timeframe, which suggests a sharp volatility contraction. The outlook of the pair is bullish as it trades above the 50- and 200-day Exponential Moving Averages (EMAs), which are around 194.25 and 193.00, respectively.

The 14-day Relative Strength Index (RSI) hovers near 60.00. A bullish momentum would trigger if it breaks above this level.

A fresh upside towards the October high of 200.00 and the June 14 high of 201.60 would appear if the asset breaks above Thursday’s high of 199.00.

On the flip side, a downside below the December 9 low of 190.60 will expose it to a December 3 low of around 188.00, followed by a September 18 low of 185.80.

GBP/JPY daily chart

Inflation in the US, as measured by the change in the Personal Consumption Expenditures (PCE) Price Index, edged higher to 2.4% on a yearly basis in November from 2.3% in October, the US Bureau of Economic Analysis (BEA) reported on Friday.

The core PCE Price Index, which excludes volatile food and energy prices, rose 2.8% in the same period, matching October's reading but arriving below the market expectation of 2.9%. The core PCE Price Index rose 0.1% on a monthly basis.

Market reaction

The US Dollar came under bearish pressure with the immediate reaction. At the time of press, the USD Index was down 0.5% on the day at 107.90.

The Pound Sterling (GBP) is flat on the session. UK Retail Sales rose a softer than expected 0.2% in November (versus +0.5% forecast), extending a run of disappointing Retail Sales data, Scotiabank’s Chief FX Strategist Shaun Osborne reports.

Cable is soft, struggling to regain 1.2520

“UK Retail Sales rose a softer than expected 0.2% in November (versus +0.5% forecast), extending a run of disappointing Retail Sales data. Poor weather may have had some impact on consumer activity last month but the run of soft consumption reports does suggest weaker growth momentum into the end of the year.”

“Cable is struggling to regain 1.25+ levels after losses yesterday took the pound below major trend support at 1.2520 (now resistance). Intraday price action reflects a very weak bid for the pound off the lows so far but regaining 1.2520+ into the close of the week might mitigate developing bearish pressure for a drop back to the 1.23 area.”

The Euro (EUR) trades broadly steady in the mid-1.0300s against the US Dollar (USD) on Friday even after President-elect Donald Trump threatened Europe with tariffs "all the way" unless it purchased more US energy products, Scotiabank’s Chief FX Strategist Shaun Osborne says.

EUR/USD shrugs off Trump tariff threat

“The remark pushed the Euro (EUR) marginally lower in overnight trade but had little lasting impact on spot. Tariff risks are already priced into the EUR to some extent and Europe is expected to be able to meet Trump’s demands to buy more US product as it searches for alternatives to Russian supply.”

“Late week price action looks a bit more positive for the EUR in the short run, at least. Another rejection of sub-1.0350 levels today has put in a bullish outside range session on the 6-hour chart and sets up the EUR for a potential, short-term double bottom on a push above 1.0425 (for a rise to 1.05).”

• The Canadian Dollar trims some losses with the USD pulling back ahead of US inflation data.
• The US Dollar is correcting lower against its main rivals on Friday after having rallied sharply this week.
• The USD/CAD has been capped at 1.4435 earlier today turning negative on the day below 1.4400 to approach Thursday’s lows, at 1.4345.

From a wider perspective, the pair maintains its broader positive bias intact and is on track to complete a four-week rally from levels below 1.4000 in late November.

The focus today is on the US PCE Prices Index data, which is expected to confirm the Fed’s concerns about higher price pressures. Monthly inflation is expected to have remained steady at 0.2% with the year-on-year rate ticking up to 2.9% from the previous 2.8%.

In Canada, October’s Retail Sales are expected to show that consumption increased 0.7% following a 0.4% increment in September, Excluding autos, however, sales of all other products are expected to have slowed down to 0.5% from 0.9% in the previous month,

The diverging monetary policy paths of the Federal Reserve and the Bank of Canada and the declining Crude prices (Canadian main export) are crushing the loonie, which has lost nearly 7% over the last three months.

The US Federal Reserve cut rates by 25 basis points on Wednesday but scaled back its easing projections to just two rate cuts in 2025, from the median of four cuts estimated in September.

The Bank of Canada, on the other hand, slashed rates by 50 basis points for the second consecutive time last week and hinted to more rate cuts to support economic growth.

The Canadian Dollar (CAD) is little changed in overnight trade. Factors driving the CAD lower this week have moderated and the USD remains quite significantly overvalued relative to my short-term equilibrium estimate (1.4280 today), Scotiabank’s Chief FX Strategist Shaun Osborne reports.

Possible cabinet reshuffle today

“Canadian Retail Sales are expected to advance firmly in October (+0.7% M/M) which may extend the CAD a little support, if forecasts are correct. A cabinet reshuffle may be announced in Ottawa today, reports yesterday indicated. Some reorganization is needed to relieve ministers who are pulling double or triple portfolio duty while ministers who are not running again will also be out.”

“It will also represent the PM’s attempt to restore credibility with the party. The electorate might be another matter entirely. The CAD has firmed a little from Thursday’s overnight low but the gains are minor in the grander scheme of things and hardly amount to any sort of challenge to what remains a very strong USD bull trend on the charts.”

“The short (and longer term) trend higher in the USD persists—despite the USD being overbought on the daily stochastics. Late year seasonality does open the door to a moderate CAD rally in the next 10 days or so but the USD is likely to be well-supported on minor dips (i.e. anything on a 1.42 handle).”

Markets are ending the week of a bit of a sour note. The USD has been clipped back somewhat in overnight trade as investors ponder a looming US government shutdown. Talk amongst US lawmakers about suspending or removing the debt ceiling has not worried US Treasurys unduly but investors do appear to be paying a bit more attention to the risk of (more) fiscal slippage in the US ahead. Volatility is elevated and stocks are wondering where the Santa Clause rally has gone in all of this, Scotiabank’s Chief FX Strategist Shaun Osborne reports.

USD edges lower as markets ponder shutdown

“Beyond this week’s losses of around 3% for the major markets, there has been a worrying slide in market breadth in NYSE stocks, with less than 50% trading about their 200-day MA. The JPY and the CHF are the top performers on the day, suggesting some demand for havens into the weekend. Japan’s November CPI rose in November, as expected, reaching 2.9%, from 2.3%. Japanese monetary officials expressed “deep concern” about the recent weakening in the currency. The AUD is a relative underperformer on soft iron ore prices.”

“US Personal Income and Spending data are expected to reflect healthy levels of consumption in November. Data will likely show PCE inflation edging up last month in core and headline terms—to 2.9% (from 2.8%) and 2.5% (from 2.3%) respectively. Sticky PCE data will support the outlook for the Fed to remain on hold in the near-term at least. Markets are pricing in significantly less than 50bps of Fed easing over the coming 12 months.”

“Firm US yields will support the USD in the longer run but overnight price action does suggest the risk of some short-term weakness in the dollar broadly in the short run after the DXY nudged above 108.50 in overnight trade. The Fed’s blackout is over; Daly and Williams are speaking today; expect a repeat of the cautious messaging on the policy outlook.”

In an interview with Bloomberg on Friday, San Francisco Federal Reserve President Mary Daly said that she thinks the policy is in a good place.

Key takeaways

"We don't know what incoming administration will do so for me it's about the data."

"Risks to the outlook are equally balanced."

"The data on inflation are coming in showing slowed progress relative to what we wanted, it's bumpy."

"I saw this as a close call."

"Ultimately I determined the 100 bp to now was right place, recalibration phase now over."

"Now you wait watchfully before making further cuts."

"I was comfortable with median outlook."

"My projection is it will take many fewer rate cuts next year than we had thought."

"Incoming data shows consumer spending and growth are much stronger, disagreement about neutral rate."

"Level of uncertainty now is normal, not like period around pandemic."

"Firms are saying they can find workers, workers saying they can find jobs, we don't want that to break."

"We might end up with fewer cuts than 2 or more than 2 if labor market weakens notably."

• The US Dollar hits another two-year high in Asian trading on Friday but retreats afterwards.
• Besides the US PCE inflation release, Quadruple Witching – the simultaneous expiration of four types of derivative contracts – will take place. 
• The US Dollar Index (DXY) reached 108.55 before facing some profit-taking. 

The US Dollar (USD) retreats slightly on Friday, with the DXY Index trading at around 108.20 after eking out another fresh two-year high of 108.55 during the Asian-Pacific trading session. The move was supported by rising US Treasury yields, widening the rate-differential gap with other countries. This means more support for the US Dollar because it becomes more valuable to invest in and get a nice return on your deposit.

Friday will be the last chance for traders to move any positions they might have with volatility set to spark up. That comes because of the so-called Quadruple Witching, which takes place four times per year – each third Friday of March, June, September, and December. During Quadruple Witching, four types of financial contracts expire simultaneously: stock index futures, stock index options, stock options, and single-stock futures. All these need to be rolled over, unwinded and settled, leading to a significant increase in trading volumes and sometimes volatility surrounding the main assets.

The US economic calendar is gearing up for the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index for November. Expectations are for no significant upticks in the monthly figures. After the Fed’s warning on sticky inflation, any upside surprise could make markets doubt further over changes of interest-rate cuts in 2025. 

Daily digest market movers: Volatile boost

• A government shutdown is still looming in the US. A vote in the House of Representatives failed to pass the stopgap bill. Vice-President-elect JD Vance will meet with the Freedom Caucus this Friday to try and get the liquidation of the debt limit proposed, according to Bloomberg News..
• President-elect Donald Trump, meanwhile, has shifted his focus to Europe by threatening with tariffs as well if the block does not make up its deficit in NATO by buying Oil and Gas from the US, Bloomberg reports . 
• Near 12:30 GMT, Federal Reserve Bank of San Francisco President Mary Daly is interviewed on Bloomberg Surveillance.
  • The Personal Consumption Expenditure (PCE) data for November is due near 13:30 GMT:
  • Monthly Headline PCE is expected to stay stable at 0.2%. The yearly gauge is seen heading to 2.5% from 2.3%.
  • The monthly Core PCE measure should soften to 0.2% from 0.3%. The yearly component is expected to tick up to 2.9% from 2.8%.
• Around 15:00 GMT, the final reading for the University of Michigan data will be published. The Consumer Sentiment Index for December should remain stable at 74. The 5-year inflation expectation rate should also be unchanged at 3.1%.
• Equities are rather seeing the Grinch taking over than enjoying a Christmas rally. All major indices are down across the globe. Europe sees its German Dax and Stoxx 50 decline by more than 1%. US equity futures see the Nasdaq nearly decline by 1% ahead of the US opening bell. 
• The CME FedWatch Tool for the first Fed meeting of 2025 on January 29 sees an 89.3% chance for a stable policy rate against a small 10.7% chance for a 25 basis points rate cut.  
• The US 10-year benchmark rate trades at 4.56%, a fresh seven-month high. 

US Dollar Index Technical Analysis: Final straw

The US Dollar Index (DXY) is gearing up for the last rather normal trading day in terms of volumes. After another strong performance, it looks like the US Dollar will remain orbiting around elevated levels before heading into the New Year. The sole element that could trigger some softness would be if a Christmas rally emerges in equities and leads to a retreat in yields, softening the Greenback. 

On the upside, a trend line originating from December 28 2023 looks to have foiled any further uptick moves for now after two firm rejections on Thursday and Friday. The next firm resistance comes in at 109.29, which was the peak of July 14, 2022, and has a good track record as a pivotal level. Once that level is surpassed, the 110.00 round level comes into play. 

The first downside barrier comes in at 107.35, which has now turned from resistance into support. The second level that might be able to halt any selling pressure is 106.52. From there, even 105.53 could come under consideration while the 55-day Simple Moving Average (SMA) at 105.23 is making its way up to that level. 

US Dollar Index: Daily Chart

• The Yen trims some losses following higher than expected inflation levels in Japan.
• The hot inflation figures have increased hopes of a BoJ hike in January.
• Technically, the pair is correcting lower, after having reached strongly overbought levels.

The Yen is picking up from five-month lows on Friday, supported by a somewhat softer US Dollar and hot Japanese inflation figures. The Dollar has pulled back from levels right below 158.00 and is testing support at the previous  56.60 resistance area.

Japanese data released on Thursday showed that inflation accelerated to a 2.9% yearly rate in November from 2.3% in October. Likewise, the core inflation increased 2.7% year-on-year, beating expectations of a 2.6% increment. These figures keep hopes of a January hike alive and provide some support to an ailing Yen.

BoJ-Yen divergence has crushed the JPY

The Bank of Japan kept rates unchanged on Thursday and conditioned a further rate hike to the evolution of next spring’s wage negotiations. Investors, who were expecting clearer signs of a January hike, were disappointed and the Yen tumbled against its main rivals.

One day earlier, the Federal Reserve cut interest rates but signalled a slower easing path for next year. The hawkish stance sent the US Dollar and US Treasury yields surging.

USD/JPY Technical analysis
 

The USD/JPY is correcting lower, after rallying about 2.6% earlier this week, reaching overbought levels on most timeframes.

The broader trend, however, remains positive, with bears contained above the previous top, at 156.60 and the next support level at 155.85 ahead of 154.45. Resistances are 158.00 and 158.80.

USD/JPY 4-Hour Chart

• Oil prices saw recovery attempts fail and edges lower for the fifth consecutive day on Friday. 
• The hawkish tilt to only two rate cuts from the Fed in 2025 frightens investors of a very short-lived rally in commodities. 
• The US Dollar Index hits a two-year high for a third day this week and faces profit-taking. 

Crude Oil prices dips lower for the fifth consecutive day in a row on Friday. The mood soured overnight again as investors got concerned about the Federal Reserve’s (Fed) hawkish tilt, which could quickly kill off any economic boosts from the Trump administration. Meanwhile, President-elect Donald Trump warned Europe that if the region does not boost its Gas and Oil buying from the US to make good on its trade deficit with the country, it will face tariffs instead. 

The US Dollar Index (DXY) – which measures the performance of the US Dollar (USD) against a basket of currencies – hit a fresh two-year high during the Asian trading session on Friday. The hawkish tilt from the Fed is pushing US Treasury rates higher, driving the wedge between US rates and other countries even bigger in favor of a more expensive US Dollar. Should the US Personal Consumption Expenditures (PCE) data come in higher than anticipated on Friday, the last two interest rate cut projections for 2025 could get priced out, resulting in an even higher US Dollar. 

At the time of writing, Crude Oil (WTI) trades at $68.77 and Brent Crude at $71.98.

Oil news and market movers: Trump might have underestimated Europe

• President-elect Donald Trump has threatened the European Union with tariffs if its member countries don’t buy more American Oil and Gas, Bloomberg reports. 
• China’s biggest refiner, Sinopec, said on Thursday that the nation’s gasoline demand peaked last year, adding to an already-weak outlook in the world’s top crude importer, Bloomberg reported.
• A group of seven nations are looking into ways to toughen sanctions on Russian Oil. Although there is no consensus yet on the next steps, options under consideration range from an outright ban to lowering the price cap to about $40 a barrel from the current $60, Reuters reports. 
• At 18:00 GMT, the weekly Baker Hughes US Oil Rig Count is due. There are no expectations for this data, with the previous number at 482. The rig count is set to close off 2024 at rather low levels, seeing the peak in April around 511 rigs accounted for. Under Donald Trump’s previous presidency, at one point, the rig count amassed to 888 rigs.

Oil Technical Analysis: Look out for the fall

Crude Oil prices have attempted and failed to reach any upside above the $70.00 level. The risk now could turn into a squeeze, where sellers reduce their hedges for higher Oil prices and might set off a nasty correction in the Oil market. With a lot of Oil contracts set to expire under the so-called Quadruple Witching (each third Friday of March, June, September, and December, four types of financial contracts expire simultaneously: stock index futures, stock index options, stock options, and single stock futures), excess volatility could see Oil tank quickly to $67 in search of support. 

Looking up, $71.46 (February 5 low) and the 100-day Simple Moving Average (SMA) at $70.82 act as firm resistance levels. If Oil traders can plow through those levels, the next pivotal level will be $75.27 (January 12 high). However, watch out for quick profit-taking as the year-end quickly approaches. 

On the downside, the 55-day SMA at $69.90 has been chopped up too many times this week and has lost relevance for now. That means that $67.12 – a level that held the price in May and June 2023 and during the last quarter of 2024 – is still the first solid support nearby.  In case that breaks, the 2024 year-to-date low emerges at $64.75, followed by $64.38, the low from 2023.

US WTI Crude Oil: Daily Chart

• The Mexican Peso picks up from lows as the US Dollar pulls back ahead of US PCE inflation.
• The MXN bounced up on Thursday after Banxico confirmed expectations and cut interest rates by 25 bps.
• USD/MXN is losing upward momentum, with support at 20.30 under pressure.

The Mexican Peso (MXN) trades with minor gains against the US Dollar (USD) on Friday, regaining some of the ground lost following a ”hawkish cut” by the Federal Reserve (Fed) on Wednesday.

The Peso bounced up from two-week lows on Thursday after the Bank of Mexico (Banxico) confirmed investors’ expectations and cut rates by 25 basis points (bps) to close the year at 10%.

The central bank’s statement warns about the negative impact of higher tariffs in the US and observes that the labour market loosened. Inflation has cooled and is expected to continue that way, which will allow the bank to ease its monetary policy further next year.

Today, the focus is on the US Personal Consumption Expenditures (PCE) Prices Index, which is expected to confirm that inflation remains sticky at levels above the Fed’s 2% rate. An upside surprise today would cast further doubt on the Fed’s easing cycle and provide additional support for the US Dollar.

A mild US Dollar pullback is providing support to the MXN

• The Mexican Peso is picking up as the U Dollar Index (DXY) retreats moderately after having rallied about 1.5% this week.
   
• In the US on Thursday, the third quarter's Gross Domestic Product was revised higher to a 3.1% annualized growth from the previously estimated 2.8% increase.
   
• Beyond that, data from the Labor Department revealed that Jobless Claims grew by 220K in the week of November 13, well below the 230K expected and a 242K increase in the previous week.
   
• The Bank of Mexico’s inflation forecasts reveal that the country’s Consumer Prices Index (CPI) will end the year at 4.6%, down from previous estimations of 4.7%, but will not converge with the central bank’s target until the second half of 2026.
   
• Later today, the US PCE Prices Index is expected to show a steady 0.2% monthly increase in November, with the yearly rate up to 2.5% from 2.3% in October.
   
• The core PCE, considered more relevant for monetary policy purposes, is seen slowing down to 0.2% from 0.3% on month and accelerating to 2.9% on year from 2.8% in October.

  US Dollar PRICE Today

  The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.

  	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
  USD		-0.13%	0.04%	-0.38%	-0.03%	0.25%	0.12%	-0.33%
  EUR	0.13%		0.17%	-0.20%	0.13%	0.40%	0.25%	-0.20%
  GBP	-0.04%	-0.17%		-0.37%	-0.07%	0.20%	0.08%	-0.37%
  JPY	0.38%	0.20%	0.37%		0.33%	0.60%	0.46%	0.03%
  CAD	0.03%	-0.13%	0.07%	-0.33%		0.27%	0.15%	-0.30%
  AUD	-0.25%	-0.40%	-0.20%	-0.60%	-0.27%		-0.14%	-0.57%
  NZD	-0.12%	-0.25%	-0.08%	-0.46%	-0.15%	0.14%		-0.44%
  CHF	0.33%	0.20%	0.37%	-0.03%	0.30%	0.57%	0.44%

  The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

Mexican Peso technical outlook: USD/MXN is testing support at the 20.30 previously top

The USD/MXN recovery has been capped at 20.50, and the pair pulled back to test support at the top of the previous trading channel at the 20.25-20.30 area.

Technical indicators show that the bullish momentum is losing steam, although the Relative Strength Index (RSI) remains above 50. On the downside, below the mentioned 20.25, the next target is the key 20.00 level (November 19 and December 16 lows). Resistances are at Thursday’s high of 20.50, ahead of the November 6 and 26 highs at 20.80. 

USD/MXN 4-Hour Chart

• AUD/USD consolidates around 0.6200 as the US PCE inflation data for November is on the horizon.
• The Fed is expected to keep interest rates steady in the first policy meeting of 2025.
• Investors await the RBA minutes for fresh interest rate guidance.

The AUD/USD pair trades inside Thursday’s trading range slightly above the two-year low of 0.6200 near 0.6230. The Aussie pair exhibits volatility contraction, with investors focusing on the United States (US) Personal Consumption Expenditure Price Index (PCE) data for November, which will be published at 13:30 GMT.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks lower after posting a fresh two-year high at 108.50.

Economists estimate the annual US core PCE inflation, a Federal Reserve’s (Fed) preferred inflation measure, to have accelerated to 2.9% from 2.8% in October. Month-on-month, the underlying inflation is estimated to have grown by 0.2%, slower than the former release of 0.3%.

The inflation data will influence market expectations for the Federal Reserve’s (Fed) likely interest rate action in the January meeting. According to the CME FedWatch tool, traders are confident that the central bank will leave interest rates at their current levels of 4.25%-4.50%.

Meanwhile, the Australian Dollar (AUD) will be influenced by the Reserve Bank of Australia (RBA) minutes for the monetary policy meeting that took place on December 10, which will be released on Tuesday. The RBA left its Official Cash Rate (OCR) steady at 4.35%, a level the central bank has been maintaining since November 2023.

RBA Governor Michele Bullock didn’t guide a specific interest rate cut path and committed to be data-dependent but was confident that wages and demand are slowing.

Headline SMEI recovered 0.2pts to 50.6 in December; average reading rebounded to above-50 level in Q4. While services activity improved, performance and expectations sub-indices stayed below 50. Manufacturing SMEs continued to outperform on a solid m/m increase in sales and new orders. Credit conditions remained supportive to SMEs; CNY depreciation expectations increased further, Standard Chartered’s Economist Hunter Chan notes.

Services improved, but remained weak

“Our proprietary Small and Medium Enterprise Confidence Index (SMEI; Bloomberg: SCCNSMEI <Index>) picked up to 50.6 in December from 50.4 in November. Both the performance and expectations sub-indices rebounded to expansionary territory as SMEs’ manufacturing activity accelerated and services sentiment improved. On average, the headline SMEI edged up 0.7pts from Q3 to 50.6 as the credit environment eased further and the decline in SME business activity ceased.”    

“The performance sub-index for manufacturing SMEs rose to an eight-month high in December as sales, production and new orders remained resilient. The sales sub-index for cross-border trading SMEs edged up to its highest reading since April, indicating resilient external demand. We expect the official manufacturing PMI to stay in expansionary territory at 50.2 for a third straight month in December.”

“Non-manufacturing SMEs’ activity remained soft. While both the performance and expectations sub-indices picked up on improved real estate and construction activity, they stayed in contractionary territory. SMEs in accommodation and catering, retail sales and wholesale, and IT and finance reported a m/m decline in activity. We expect the official non-manufacturing PMI to ease 0.1pts to 49.9 in December.”

USD/SGD traded a touch softer this morning, easing slightly away from its near-2024 high. Pair was last at 1.36 levels, OCBC’s FX analysts Christopher Wong notes.

Signs of pullback move lower in the near term

“Daily momentum is mild bullish while RSI shows signs of turning lower from overbought conditions. Technically, there is still signs of pullback move lower in the near term, but dips may still find support.”

“Support at 1.3510, 1.3470 (21 DMA). Resistance at 1.3620, 1.3670 levels S$NEER was last at 0.93% above model-implied mid.”

• Gold trims some losses on Friday but upside attempts remain capped amid broad-based US Dollar strength.
• Investors are reluctant to sell US Dollars ahead of the US PCE inflation reading for November.
• XAU/USD remains under pressure, limited below $2,605

Gold (XAU/USD) is trading with a moderate positive tone on Friday following the sharp sell-off earlier this week. However, upside attempts remain limited as investors brace for the release of the US Personal Consumption Expenditures (PCE) Price Index.

On Thursday, an upward revision to the third quarter’s US Gross Domestic Product (GDP), and the lower-than-expected Jobless claims have endorsed the Federal Reserve’s (Fed) hawkish stance for 2025.

This keeps the US Dollar index pinned near two-year highs ahead of the release of the Fed’s favorite inflation gauge. Investors are waiting to see whether the US central bank’s concerns about higher inflation are justified. A strong reading would cast further doubts on the Fed’s easing cycle and increase negative pressure on Gold.

Higher US yields, strong USD keep Gold recovery subdued

• XAU/USD is trading higher for the second consecutive day but lacks upside momentum, with traders reluctant to sell the US Dollar ahead of a key inflation report to be published at 13:30 GMT.
   
• US Treasury yields are steady above the 4.50% mark after having rallied 40 basis points over the last two weeks. This acts as a headwind for Gold as it is a non-interest-paying asset.
   
• US PCE inflation is expected to have increased at a steady 0.2% pace in November on month, with the yearly rate accelerating to 2.5% from 2.3% in October.
   
• The core PCE, considered more relevant for monetary policy purposes, is seen easing to 0.2% from 0.3% on month and accelerating to 2.9% on year from 2.8% in October.
   
• Data released on Thursday showed that the US economy grew at a 3.1% annualized pace in the third quarter, significantly improving from the already healthy 2.8% advance previously estimated.
   
• Likewise, weekly Jobless Claims declined to 220K on the week ending December 13 from the previous week's 242K reading, beating expectations of a slower decline to 230K.

Technical analysis: XAU/USD maintains a negative trend below $2,625

Gold is going through a corrective recovery from heavily oversold levels.  The broader trend, however, remains bearish. The pair is struggling to find acceptance above $2,600 and the Relative Strength Index (RSI) in the 4-hour chart remains flat at levels below the 50 threshold, highlighting the bearish momentum.

Immediate resistance is at the $2,605 intra-day high, with the key resistance area to challenge the bearish trend at the $2,625-$2,630 area (November 28, December 2 lows). On the downside, supports are at Wednesday’s low at around $2,580, ahead of November’s trough at $2,540.

XAU/USD 4-Hour Chart

The Pound Sterling (GBP) fell on surprise BoE vote split even as BoE keeps policy rate on hold at 4.75%. MPC voted 6-3 to keep rates on hold. Deputy Governor Dave Ramsden, Swati Dhingra and Alan Taylor all voted to cut by 25bp. The GBP/USD was last seen at 1.2506. OCBC’s FX analysts Christopher Wong notes.

Risks are skewed to the downside

“Markets were only expecting Dhingra to vote for a cut. BoE staff also downgraded their economic forecast for 4Q 2024, now predicting no growth, compared with the 0.3% expansion projected in its Nov report. Taken together, dovish split and downgrade in growth assessment was a negative for GBP. Accompanying policy saw little changes from previous, while still noting that policy would need to be ‘restrictive for sufficiently long.’”

“On inflation, MPC mentioned continued progress in disinflation but warned that ‘remaining domestic inflationary pressures are resolving more slowly.’ In written comments to reporters, Governor Bailey said that ‘we think a gradual approach to rate cuts remains right, but with the heightened uncertainty in the economy we can't commit to when or by how much we will cut rates in the coming year’.

“GBP fell amid dovish hold outcome and stronger USD. Daily momentum turned bearish while RSI fell. Risks are skewed to the downside. Support at 1.2450, 1.2410 levels. Break puts 1.23 (2024 low) in focus. Resistance at 1.2570 (76.4% fibo retracement of 2024 low to high), 1.2660 levels (21 DMA). Today brings retail sales data.”

• Silves price trades in a limited range, with investors focusing on the US PCE inflation data for November.
• The Fed signaled fewer interest rate cuts for the next year in its policy meeting on Wednesday.
• The US Dollar and bond yields have rallied on Fed’s hawkish guidance.

Silver price (XAG/USD) trades in a tight range around $29.00 in Friday’s European trading session. The white metal consolidates as investors await the United States (US) core Personal Consumption Expenditure Price Index (PCE) data for November, which will be published at 13:30 GMT.

Economists expect the US annual core PCE inflation data to have accelerated to 2.9% from 2.8% in October. On month, the underlying inflation data is estimated to have grown steadily by 0.2%. Signs of mild slowdown in price pressures are unlikely to impact market expectations that the Federal Reserve (Fed) will pause the policy-easing spell in the policy meeting in January 2025. However, a sharp deceleration could weigh on them. On the contrary, a mild or sharp acceleration in price pressures would strengthen them.

In the policy meeting on Wednesday, the Fed reduced its key borrowing rates by 25 basis points (bps) to 4.25%-4.50% but signaled fewer interest rate cuts for 2025. The Fed dot plot showed that officials collectively see Federal Fund rates heading to 3.9% by 2025 against 3.4% projected in September.

Ahead of the US PCE inflation data, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges lower after posting a fresh two-year high at 108.50. 10-year US Treasury yields tick lower to 4.56% from a fresh six-month high of 4.60%. Higher yields on interest-bearing assets increase the opportunity cost of holding an investment in non-yielding assets, such as Silver.

Silver technical analysis

Silver price slides below the 200-day Exponential Moving Average (EMA), which trades around $29.35. The white metal weakens after a breakdown of the upward-sloping trendline around $30.20, which is plotted from the February 29 low of $22.30.

The 14-day Relative Strength Index (RSI) drops inside the bearish range of 20.00-40.00 range, guiding a downside momentum ahead.

Looking down, the September low of $27.75 would as key support for the Silver price. On the upside, the 50-day EMA around $30.90 would be the barrier.

Silver daily chart

USD/JPY rose sharply after BoJ kept policy rate on hold yesterday. USD/JPY’s rise can also be attributed to the rise in UST yields as Fed guided for slower pace of rate cuts. The pair was last seen at 156.71. Back to BoJ, Governor Ueda’s remarks seem more cautious and appear to be ‘buying time’. He said that the ‘lack of wage info’ was one reason why policymakers held rates. He did say that ‘certain degree of info expected on wages by next meeting’, OCBC’s FX analysts Christopher Wong notes.

BoJ seems to be buying time

“He also touched on wanting to see more wage hike sustainability. He also mentioned that it will take a long time before the full picture is clear for both the spring wage negotiations and the Trump administration’s policies. That being said, he did warn that the BoJ must consider the risk of falling behind the curve carefully as real interest rates remain at very low levels. Chance of hike at the next MPC (24 Jan) is probably still live. But for now, the reluctance of BOJ and the guidance for Fed pause suggests that USD/JPY may continue to face intermittent upward pressure.”

“This morning, in response to the sharp 300pips fall in JPY against USD, Finance Minister Kato said authorities will take appropriate action if there are excessive moves in currency markets. Currency Chief Mimura also spoke about taking appropriate response if excessive FX moves. Verbal intervention in the face of strong USD trend and policy inaction can only be at best in slowing JPY’s bout of depreciation pressure. What can stop JPY from further weakening in the near term would be a less dovish BoJ, some guidance in expectations for BoJ hike in due course and/or a softer USD.”

“Bullish momentum on daily chart intact while RSI show signs of turning from near overbought conditions. Resistance at 158, 158.90 levels. Support at 156.67 (76.4% fibo retracement of Jul high to Sep low), 154.50/155 levels.”

In its latest cereals market situation report, the European Commission estimated that the bloc’s grain production could fall to 255.8mt for the 2024/25 season, compared to its previous projections of 256.9mt. This is largely driven by a decrease in soft wheat production estimates, which fell from 112.3mt from November projections to 111.9mt for the period mentioned above. This is due to a reduction in the harvest area to 20.2m hectares from 20.3m hectares. Similarly, corn production estimates were revised down slightly to 59.5mt from its previous projections of 59.6mt, ING’s commodity analysts Ewa Manthey and Warren Patterson note.

US weekly net export sales show strong demand for US grains

“Meanwhile, in its weekly report, the Buenos Aires Grain Exchange raised Argentina’s corn planting estimates to 65.8% complete for the 2024/25 season, up from 55.6% estimated earlier. Sufficient rain has been helpful for the planting season so far. Meanwhile, the exchange reported that the corn planting area remained unchanged at 6.3m ha for the above-mentioned period. Similarly, soybean planting estimates were raised to 76.6% for the 2024/25 season from its previous estimates of 64.7%. The exchange further added that the forecast for more showers could continue to improve the country’s wheat crop condition as well.”

“US weekly net export sales for the week ending 12 December show strong demand for US grains over the week. US corn shipments surged to 1,177kt, higher than the 946.9kt a week ago and 1,014kt for the same period last year. This was also higher than the average market expectations of 1,013kt. Similarly, wheat shipments rose to 458kt, higher than the 290.2kt reported in the previous week and 326kt a year ago. The market was expecting a number closer to 329kt. Meanwhile, soybean shipments stood at 1,424.2kt, higher than the 1,173.8kt reported a week ago but lower than the 2,133.4kt reported a year ago. The average market expectations stood at 1,256kt.”

US Dollar (USD) continues to trade near its 2-year highs. Dollar Index (DXY) was last seen at 108.23, OCBC’s FX analysts Christopher Wong notes.

USD continues to trade near its 2-year high

“Daily momentum is mild bullish while RSI rose into overbought conditions. Resistance at 108.50, 109 levels. Support at 107.20, 106.70 (21 DMA). Day ahead watch US data – core PCE, personal income/spending and Uni of Michigan sentiment. Market liquidity is increasingly thinner and fluid pricing can exacerbate FX moves. A softer than expected print may provide a breather for risk proxies and tame USD bulls.”

“But we caution that hotter print could lead to shallower dipsin the USD pullback and USD bulls may extend its run higher. To recap, FOMC guided for a slower pace of rate cut for 2025 and even 2026 (2 cuts each year). The quantum of rate cuts has also been reduced for the cycle. Although markets have earlier anticipated for 2 cuts, the hawkish outcome saw further hawkish re-pricing.”

“Markets are now not fully pricing another cut until July or Sep with only 38bp now priced for whole of 2025. As of writing, markets are only fully pricing in a 25bp cut at June 2025 FOMC. Market pricing can be fluid. If core PCE data (today) comes in softer than expected or NFP (10 Jan) comes in with slower job, then rate cut expectations can adjust again and the USD can weaken from current highs.”

Indonesia is considering implementing deep cuts to the nickel mining quota primarily to support the falling prices of the battery metal, ING’s commodity analysts Ewa Manthey and Warren Patterson note.

Nickel prices are under pressure

“The Energy and Mineral Resources Ministry is said to be planning to restrict the amount of nickel ore allowed to be mined to 150mt in 2025, sharply down from 272mt this year. However, the discussions about the size of the potential reduction are still ongoing with the government. Rising supply from Indonesia and slower-than-expected demand growth have been weighing on nickel prices.”

“However, the announcement failed to offer any immediate support to LME nickel with prices falling to their lowest since November 2020 yesterday, as market participants continue to focus on the broader weakness in risk assets.”

“In zinc, market reports suggest that Toho Zinc Co. located in Japan will shut down its unprofitable zinc smelting business by the year-end, as ore-processing fees continue to hover near multi-year lows. The Japanese company is also withdrawing from mining investments following a “significant loss” in the mineral resources division.”

Most Asian FX are trading near their respective lows against the US Dollar (USD). USD/KRW is near 1450, USD/CNH back above 7.30, USD/JPY is back above 157, USD/INR at record highs of above-85 levels, while most Asean FX, including PHP, IDR, TWD are trading 4-5% weaker (on YTD terms), OCBC’s FX analysts Christopher Wong notes.

Central banks in the region have stepped up their rhetoric

“BI said it will guard the IDR boldly to build market confidence, BSP said that policymakers are watching the PHP drop closely and has stepped up intervention in the FX market. Japan’s Finance Minister Kato and Currency chief Mimura said authorities will take appropriate action if there are excessive moves in currency markets.”

“In China, policymakers continue to set the fix steady at under 7.20 (last set at 7.1901 vs. 7.1911 yesterday despite USD’s rise). Fixing pattern suggests that PBoC is doing whatever it takes to not only restrain the RMB from overweakening but also to hold it steady in the interim. South Korea said it will ease the cap on banks’ foreign exchange forward positions by 50% to boost inflows and address demand and supply imbalances in the local currency market.”

“It can be challenging for policymakers to go against a strong USD trend. Intervention in such an environment can only slow the pace of currency depreciation. Despite that, central banks may still have to use a mix of verbal, policy and actual intervention tools to slow the pace of currency depreciation.”

• EUR/USD holds the immediate support of 1.0340, but the Fed’s hawkish cut weights on the pair in the broader term.
• Investors await the US PCE inflation data for fresh guidance on the US interest rate outlook.
• ECB’s Patsalides pushes back bigger rate cut prospects and supports gradual policy easing.

EUR/USD slightly recovers but trades cautiously near the yearly lows around 1.0350 in Friday’s European session. The major currency pair has been exposed to more downside ahead as the US Dollar (USD) has strengthened. However, the USD has given up intraday gains but remains broadly firm on multiple tailwinds, such as the Federal Reserve’s (Fed) hawkish policy outlook and robust United States (US) economic growth.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls back to near 108.10 after posting a fresh two-year high above 108.50 earlier in the day.

The outlook for the Greenback has firmed as the Fed signaled fewer interest rate cuts for 2025 amid robust growth rate after reducing its key borrowing rates by 25 basis points (bps) to the 4.25%-4.50% range in its policy meeting on Wednesday. In the press conference, Fed Chair Jerome Powell said that economic strength gives the central bank the ability to approach rate cuts cautiously.

Meanwhile, the US Bureau of Economic Analysis (BEA) revised the Q3 Gross Domestic Product (GDP) growth rate higher to 3.1%. The agency reported previously that the economy expanded by 2.8%.

In Friday’s session, investors will focus on the November US Personal Consumption Expenditures Price Index (PCE) data, which will be published at 13:30 GMT. Economists estimate that the annual US core PCE inflation, the Fed’s preferred inflation measure, to have accelerated to 2.9% from 2.8% in October, with monthly figures growing by 0.2% compared to 0.3% in the previous month.

Daily digest market movers: EUR/USD holds as Euro rebounds

• EUR/USD gains a temporary ground near the yearly low as the Euro (EUR) gets firm footing against the approval of taxation reforms by German lawmakers, which will result in a reduction in annual tax revenue by 14 billion euros. The scenario will leave more funds with households for disposal, which will boost demand and stimulate economic growth. Higher spending will also diminish risks of Eurozone inflation undershooting the European Central Bank’s (ECB) target of 2%, given that Germany is the largest nation in the old continent.
• Additionally, ECB policymaker and Governor of Central Bank of Cyprus Christodoulos Patsalides has pushed back expectations of bigger rate cuts for stimulating growth, a move that has also boosted the Euro’s appeal in the near term. "I personally prefer small adjustments in a gradual process as opposed to bigger interest rate cuts," Patsalides said on the assumption that the uncertainty over inflation has elevated in both directions, Reuters reported.
• Patsalides said that he would go for bigger interest rate cuts only if inflation expectations show that price pressures “will remain well below the target for a very long time.”
• Currently, traders have priced in four more interest rate cuts from the ECB next year, which will come by June 2025. The ECB has also reduced its Deposit Facility rate four times by 100 basis points (bps) to 3% this year.

Technical Analysis: EUR/USD stays above 1.0340

EUR/USD holds the key support of 1.0340 in Friday’s European session. However, the outlook of the major currency pair remains strongly bearish as all short-to-long-term Exponential Moving Averages (EMAs) are declining. 

The 14-day Relative Strength Index (RSI) slides into the bearish range of 20.00-40.00, indicating that a fresh downside momentum has been triggered.

Looking down, the pair could decline to near the round-level support of 1.0200 after breaking below the two-year low of 1.0330. Conversely, the 20-day EMA near 1.0500 will be the key barrier for the Euro bulls.

Silver prices (XAG/USD) fell on Friday, according to FXStreet data. Silver trades at $28.96 per troy ounce, down 0.52% from the $29.11 it cost on Thursday.

Silver prices have increased by 21.70% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 89.97 on Friday, up from 89.21 on Thursday.

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

Crude oil prices edged lower with NYMEX WTI closing below $70/bbl while ICE Brent settled below $73/bbl yesterday. The oil market witnessed a second straight session of decline as the strengthening dollar weighs on the complex, ING’s commodity analysts Ewa Manthey and Warren Patterson note.

Strengthening USD weighs on the energy complex

“The latest data from Insights Global shows that refined product inventories in the ARA region increased by just 16kt over the week to 6.3mt. The additions in gasoil and gasoline stocks were balanced by the declines reported in other oil products stocks. Gasoil stocks in the ARA region increased by 57kt week-on-week to 2.2mt for the week ending 19 December.”

“In Singapore, Enterprise Singapore data shows that total oil product stocks increased by 9.7m barrels for a seventh straight week to 54.4m barrels as of 18 December, the highest since August 2020. Residue stocks increased by 11.05m barrels whilst light and middle distillate stocks decreased by 556k barrels and 813k barrels, respectively.”

“Meanwhile, US natural gas prices moved higher for a fourth consecutive session as weekly inventory numbers reported outflows, whilst expectations of a cold start to January raised hopes for increased consumption of the heating fuel. The weekly data shows that US gas storage decreased by 125Bcf last week, slightly lower than the 127Bcf increase the market was expecting.”

• AUD/USD draws support from a softer USD downtick, though it lacks bullish conviction.
• The Fed’s hawkish stance and a weaker risk tone lend support to the safe-haven buck.
• The RBA’s dovish shift and China’s economic woes also contribute to capping the pair.
• Traders look to the US PCE Price Index for short-term opportunities later this Friday.

The AUD/USD pair attracts some dip-buyers near the 0.6215 area on Friday and turns positive for the second successive day on Friday, though it lacks bullish conviction. Spot prices currently trade around the mid-0.6200s and remain close to the lowest level since October 2022 touched on Thursday. 

A modest pullback in the US Treasury bond yields keeps a lid on the recent US Dollar (USD) rally to a two-year peak, which, in turn, is seen as a key factor offering some support to the AUD/USD pair. That said, the Federal Reserve's (Fed) hawkish signal that it would slow the pace of interest rate cuts in 2025 should act as a tailwind for the US bond yields and the USD. Apart from this, the prevalent risk-off mood could underpin the safe-haven buck and cap further gains for the risk-sensitive Aussie.

Investors remain concerned about persistent geopolitical risks stemming from the protracted Russia-Ukraine war and tensions in the Middle East. Apart from this, worries about US President-elect Donald Trump's proposed tariffs, along with the threat of a partial US government shutdown at the end of the day on Friday, take its toll on the global risk sentiment. Furthermore, China's economic woes and the Reserve Bank of Australia's (RBA) dovish shift should contribute to keeping a lid on the AUD/USD pair. 

Hence, it will be prudent to wait for strong follow-through buying before confirming that spot prices have formed a near-term bottom and positioning for any meaningful recovery. Next on tap is the release of the US Personal Consumption Expenditure (PCE) Price Index later during the early North American session. The Fed's preferred inflation gauge will influence the USD price dynamics and produce short-term opportunities around the AUD/USD pair heading into the weekend.

• USD/JPY attracts some intraday sellers after stronger inflation figures from Japan.
• The risk-off mood and retreating US bond yields also benefit the lower-yielding JPY.
• The divergent Fed-BoJ outlook should limit losses ahead of the US PCE Price Index.

The USD/JPY pair retreats following an intraday uptick to the 158.00 neighborhood, or a five-month peak and continues losing ground through the early European session on Friday. As investors look past the Bank of Japan (BoJ) monetary policy update on Thursday, strong inflation data from Japan, along with the risk-off mood, benefits the safe-haven Japanese Yen (JPY) and exerts some pressure on the currency pair. The BoJ decided to keep the short-term rate target unchanged at the end of the December policy meeting and offered few clues on how soon it could push up borrowing costs. That said, a government report showed that Japan's National Consumer Price Index (CPI) rose more than expected in November and keeps the door open for a potential rate hike in January or March. 

In fact, the Japan Statistics Bureau reported that the National CPI climbed 2.9% YoY in November compared to the 2.3% previous reading. Additional details revealed that the National CPI ex Fresh food arrived at 2.7% YoY versus 2.3% in October and was above the 2.6% market expectations. Moreover, CPI ex Fresh Food, Energy rose 2.7% YoY in November versus the 2.3% increase recorded in the previous month. This points to a sustained uptick in inflation and might force the BoJ to hike interest rates again early in 2025, which, in turn, provides some respite to the JPY bulls. Apart from this, the global flight to safety, amid the looming US government shutdown, drives some haven flows towards the JPY and drags the USD/JPY pair further below the 157.00 mark on the last day of the week. 

The US House of Representatives failed to pass A spending bill to fund the government on Thursday, raising the risk of a partial shutdown at the end of the day on Friday. This comes on top of persistent geopolitical risks and concerns about US President-elect Donald Trump's tariff plans, which, in turn, tempers investors' appetite for riskier assets and boosts demand for traditional safe-haven assets. The flight to safety triggers a modest pullback in the US Treasury bond yields, from a multi-month peak set on Thursday, and keeps a lid on the post-FOMC US Dollar (USD) rally to a two-year peak. This turns out to be another factor that contributes to the offered tone surrounding the USD/JPY pair. That said, the Federal Reserve's (Fed) hawkish outlook should limit losses for the USD and the major. 

Traders might also refrain from placing aggressive bets ahead of Friday's release of the US Personal Consumption Expenditure (PCE) Price Index, due later during the early North American session. The Fed's preferred inflation gauge should provide a fresh impetus to the USD and drive the USD/JPY pair. Nevertheless, spot prices remain on track to register gains for the third successive week. Moreover, the aforementioned fundamental backdrop seems tilted firmly in favor of bullish traders and supports prospects for an extension of the recent well-established uptrend from the 148.65 region, or the monthly low touched on December 3.

USD/JPY daily chart

Technical Outlook

From a technical perspective, the intraday pullback could be attributed to some profit-taking amid a slightly overbought Relative Strength Index (RSI) on the daily chart. That said, the overnight strong move up beyond the previous multi-month top, around the 156.75 area, favors bullish traders. Hence, a strong follow-through selling is needed before confirming that the USD/JPY pair has topped out in the near term and positioning for deeper losses. 

In the meantime, any subsequent slide is likely to attract some buying and remain limited near the 156.00 mark. Some follow-through selling, however, might expose the next relevant support near the 155.50 horizontal zone, below which the USD/JPY pair could drop to the 155.00 psychological mark. The latter should act as a key pivotal point, which if broken decisively might shift the near-term bias in favor of bearish traders. 

On the flip side, the 157.45-157.50 area now seems to act as an immediate hurdle ahead of the 158.00 mark. A sustained strength beyond has the potential to lift the USD/JPY pair to the 158.45 hurdle en route to the 159.00 round figure. The momentum could extend further towards the 159.60-159.65 region, above which spot prices might aim to conquer the 160.00 psychological mark and climb further to the 160.20 hurdle, which coincides with the top end of a multi-month-old ascending channel.

• The Pound Sterling finds cushion after the release of the UK Retail Sales data for November, even though growth was lower than anticipated.
• A higher number of BoE officials voted for an interest rate cut on Thursday, boosting dovish bets for 2025.
• Investors await the US PCE inflation data for November for fresh Fed interest rate cues.

The Pound Sterling (GBP) attempts to recover against its major peers on Friday after the release of the United Kingdom (UK) Retail Sales data for November, which rose less than anticipated. The Retail Sales data, a key measure of consumer spending, rose by 0.2% in the month, slower than estimates of 0.5% but recovering from a 0.7% decline in October.

Retail Sales grew at a moderate pace of 0.5% year over year, against expectations of 0.8% and the former release of 2%, which was downwardly revised from 2.4%. The report showed that clothing demand remained weak, while sales were higher at other non-food stores.

The UK Office for National Statistics (ONS) reported that the impact of the Black Friday sale was not taken into account in the November data as it commenced on November 29. The agency covered data for four weeks, from October 27 to November 23.

On a broader note, the outlook of the British currency is uncertain as the Bank of England (BoE) monetary policy meeting on Thursday showed a dovish buildup on the policy outlook. The BoE left its key borrowing rates unchanged at 4.75%, as expected, as UK inflation has accelerated in the last three months. Still, three policymakers proposed cutting interest rates against one as anticipated by market participants.

BoE Governor Andrew Bailey refrained from committing a pre-defined rate cut path. “Due to heightened uncertainty in the economy, we can't commit to when or by how much we will cut rates in 2025,” he said.

Meanwhile, traders price in a 53 basis points (bps) interest rate reduction by the BoE in 2025 after the policy announcement.

Daily digest market movers: Pound Sterling posts fresh seven-month low against USD

• The Pound Sterling rebounds after posting a fresh seven-month low near 1.2470 against the US Dollar (USD) on Friday. The GBP/USD pair recovers slightly as the US Dollar Index (DXY) gives up intraday gains after refreshing a two-year high around 108.50 ahead of the United States (US) Personal Consumption Expenditure Price Index (PCE) data for November, which will be published at 13:30 GMT.
• Investors will pay close attention to PCE inflation as Federal Reserve (Fed) officials have become more worried about stalling progress in disinflation than downside risks to employment. The US core PCE inflation, the Fed’s preferred inflation gauge, is estimated to have grown at a faster pace of 2.9% from 2.8% in October. Month over month, the underlying inflation data is expected to have risen by 0.2% compared to 0.3% in October.
• The outlook for the US Dollar has strengthened. In the policy meeting on Wednesday, the Fed cut key borrowing rates by 25 basis points (bps) to the 4.25%-4.50% range as expected but guided a slower rate-cut trajectory for 2025. The Fed’s dot plot showed that officials collectively see federal fund rates heading to 3.9% by 2025, up from the 3.4% projected in September.
• The Fed signaled fewer rate cuts for the next year as officials are confident in strong economic growth. This forced them to be cautious about further policy easing. Meanwhile, the third estimate for Q3 Gross Domestic Product (GDP) came in higher at 3.1% compared to the second estimate of 2.8%.

Technical Analysis: Pound Sterling weakens on death cross formation

The Pound Sterling weakens against the US Dollar on a decisive break below the upward-sloping trendline around 1.2600, which is plotted from the October 2023 low of 1.2035.

A death cross, represented by the 50-day and 200-day Exponential Moving Averages (EMAs) near 1.2790, suggests a strong bearish trend in the long run.

The 14-day Relative Strength Index (RSI) slides below 40.00, suggesting that a fresh downside momentum has been triggered.

Looking down, the pair is expected to find a cushion near the April 22 low around 1.2300. On the upside, the December 17 high at 1.2730 will act as key resistance.

• AUD/JPY depreciates after the release of stronger-than-expected inflation data from Japan on Friday.
• Japan's National Consumer Price Index climbed to a three-month high of 2.9% YoY in November, rising from 2.3% in October.
• The AUD receives downward pressure from rising odds of the RBA to begin rate cuts in February.

AUD/JPY retraces its recent gains, trading around 97.90 during the European session on Friday. This downside of the AUD/JPY cross is attributed to the improved Japanese Yen (JPY) following the stronger-than-expected inflation data.

Japan's National Consumer Price Index (CPI) reached a three-month high of 2.9% year-over-year in November, up from 2.3% in October. Additionally, the annual core inflation rate rose to 2.7%, exceeding market expectations of 2.6%. These stronger-than-expected inflation figures reinforce a hawkish outlook for the Bank of Japan's (BoJ) monetary policy.

However, the BoJ maintained its policy rate for the third consecutive meeting, keeping the short-term rate target within the range of 0.15%-0.25% after its two-day monetary policy review, in line with market expectations.

The AUD/JPY cross depreciates amid a softer Australian Dollar (AUD) amid the rising likelihood that the Reserve Bank of Australia (RBA) may begin cutting its 4.35% cash rate as early as February, amid mounting signs of an economic slowdown. Attention now shifts to the release of the RBA's latest meeting minutes due next week.

Australia's Private Sector Credit grew by 0.5% month-over-month in November, aligning with expectations, which marked the fastest monthly growth in four months. On an annual basis, Private Sector Credit rose by 6.2% in November, the highest growth rate since May 2023, up slightly from 6.1% in October.

In China, Australia’s largest export market, the People’s Bank of China (PBoC) decided during its fourth quarterly meeting to maintain the one-year and five-year Loan Prime Rates (LPRs) at 3.10% and 3.60%, respectively. Prolonged elevated borrowing costs continue to hinder economic activity in China, the world’s leading manufacturing hub, which in turn exerts downward pressure on the AUD.

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

After rising sharply on Wednesday, the US Dollar (USD) Index preserved its bullish momentum on Thursday and touched its highest level in over two years early Friday before entering a consolidation phase. The US economic calendar will feature Personal Consumption Expenditures (PCE) Price Index data for November and the European Commission will publish preliminary Consumer Confidence Index for December later in the day.

The Federal Reserve's (Fed) hawkish twist in the Summary of Economic Projections fuelled a rally in the US Treasury bond yields and boosted the USD in the second half of the week. Additionally, upbeat macroeconomic data releases from the US further supported the currency during the American trading hours on Thursday. Early Friday, investors adopt a cautious stance on growing concerns over a US government shutdown ahead of the holidays. At the time of press, US stock index futures were last seen losing between 0.1% and 0.4%.

The Bank of England (BoE) announced on Thursday that it maintained the bank rate at 4.75% after the December meeting. Three members of the Monetary Policy Committee (MPC), however, unexpectedly voted in favor of a rate cut, causing Pound Sterling to come under selling pressure. After losing more than 0.5%, GBP/USD extended its slide in the Asian session on Friday and touched its lowest level since May below 1.2480. The pair stages a technical correction and trades at around 1.2500 early Friday. Meanwhile, the data from the UK showed that Retail Sales rose by 0.2% on a monthly basis in November, falling short of analysts' estimate for an increase of 0.5%.

The People’s Bank of China (PBoC) announced on Friday that it left one-year and five-year Loan Prime Rates (LPRs) unchanged at 3.10% and 3.60%, respectively.  AUD/USD showed no reaction to this headline and was last seen trading in a tight range below 0.6250. 

USD/JPY gathered bullish momentum and gained more than 1.5% on Thursday after the Bank of Japan (BoJ) refrained from committing to additional policy tightening. The pair touched a multi-month high near 158.00 in the Asian session but retreated to the 157.00 area by the European morning. Japan's Finance Minister Katsunobu Kato said on Friday that he is concerned about the recent foreign exchange move, including those driven by speculation. Kato added that he will ake appropriate action against excessive moves.  

After suffering large losses on Wednesday, EUR/USD found a foothold on Thursday and ended the day virtually unchanged. The pair clings to small daily gains early Friday but continues to trade below 1.0400.

Gold holds steady at around $2,600 following Wednesday's drop. The risk-averse market atmosphere helps XAU/USD hold its ground despite the broad-based USD strength.

• NZD/USD may further depreciate due to increased risk aversion.
• Traders adopt caution after the release of better-than-expected economic data from the United States.
• New Zealand's trade deficit narrowed in November, due to an increase in exports and a decrease in imports.

NZD/USD recovers daily losses to halt its losing streak, trading around 0.5640 during the early European hours on Friday. The downside risks for the pair seem possible due to the improved US Dollar (USD). This could be attributed to the increased risk aversion following the hawkish 25 basis point rate cut by the Federal Reserve (Fed) at its December policy meeting. Traders will likely observe the US Personal Consumption Expenditures (PCE) data, scheduled to be released by the US Bureau of Economic Analysis on Friday.

Moreover, the US Dollar strengthened after the release of better-than-expected key economic data from the United States (US). US Gross Domestic Product (GDP) Annualized reported a 3.1% growth rate in the third quarter, surpassing both market expectations and the previous reading of 2.8%. Additionally, Initial Jobless Claims dropped to 220,000 for the week ending December 13, down from 242,000 in the prior week and below the market forecast of 230,000.

In New Zealand, the trade deficit narrowed in November, driven by a rise in exports and a drop in imports. The country recorded a trade deficit of NZD 437 million in November, a significant improvement from the NZD 1,658 million deficit in October. Meanwhile, exports grew by 9.1% year-on-year to NZD 6.48 billion, while imports decreased by 3.9% to NZD 6.92 billion.

The New Zealand Dollar (NZD) encountered difficulties after weaker-than-expected GDP data for Q3, which heightened expectations for more aggressive monetary policy easing by the Reserve Bank of New Zealand (RBNZ). Markets have fully priced in a significant 50 bps rate cut at the central bank’s February meeting.

• EUR/GBP holds positive ground to around 0.8300 in Friday’s early European session. 
• UK Retail Sales increased 0.2% on a monthly basis in November vs. 0.5% expected. 
• Expectations of a more aggressive rate-cut path by ECB might undermine the Euro and cap the upside for the cross. 

The EUR/GBP cross drifts higher to near 0.8300 during the early European session on Friday. The Pound Sterling (GBP) weakens after the downbeat UK Retail Sales data. 

Data released by the Office for National Statistics on Friday showed that UK Retail Sales rose 0.2% MoM in November versus a 0.7% decline in October. This figure came in below the market consensus of a 0.5% increase. On an annual basis, Retail Sales climbed 0.5% in November, compared to a rise of 2.0% (revised from 2.4%) prior, missing the estimation of 0.8%. The GBP attracts some sellers in an immediate reaction to the downbeat UK Retail Sales and acts as a tailwind for the EUR/GBP cross. 

On the Euro front, the European Central Bank (ECB) is likely to continue to lower its key interest rate next year. The ECB Governing Council member Gediminas Simkus said on Thursday that the central bank should keep lowering borrowing costs at the current pace as inflation is increasingly under control. ECB President Christine Lagarde said ECB policymakers would keep cutting interest rates if forthcoming inflation data aligns with anticipations.

The ECB will hold its first rate-setting meeting of 2025 on January 30. Investors envisage a slightly more aggressive path of the ECB easing cycle next year, which might weigh on the Euro against the GBP.

• USD/CAD appreciates toward 1.4467, the highest level not seen since March 2020.
• The US Dollar strengthened as the Fed may adopt caution regarding additional rate cuts.
• The commodity-linked CAD struggles due to declining crude Oil prices.

USD/CAD retraces its recent losses and edges higher toward 1.4467, the highest level not seen since March 2020, which was recorded in the previous session. The pair trades near 1.4410 during the Asian hours on Friday.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six other major currencies, maintains its position near 25-month high at 108.49, marked on Thursday, following key economic data from the United States (US).

US Gross Domestic Product (GDP) Annualized reported a 3.1% growth rate in the third quarter, surpassing both market expectations and the previous reading of 2.8%. Additionally, Initial Jobless Claims dropped to 220,000 for the week ending December 13, down from 242,000 in the prior week and below the market forecast of 230,000.

The US Dollar strengthened the Fed's emphasis on exercising caution regarding additional rate cuts. Fed Chair Jerome Powell explained that the central bank would be wary of further cuts, as inflation is expected to remain persistently above the 2% target. The Fed's monetary policy statement indicated that economic activity remained robust, while noting that labor market conditions had softened.

The Canadian Dollar (CAD) faces headwinds as expectations grow for further rate cuts by the Bank of Canada (BoC) in 2025, although the era of large, aggressive reductions may have passed. Additionally, declining crude Oil prices are pressuring the commodity-linked CAD, given that Canada is the largest Oil exporter to the United States. 

Traders will closely watch Canadian October Retail Sales data on Friday. Meanwhile, in the United States, attention will focus on the Personal Consumption Expenditures (PCE) Inflation and the Michigan Consumer Sentiment Index.

• The US Dollar Index marked 108.49, the highest level not seen since November 2022, in the previous session.
• The US Dollar strengthened as the Fed emphasized adopting caution regarding policy outlook.
• US Gross Domestic Product Annualized reported a 3.1% growth rate in Q3, exceeding the expected 2.8% increase.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six other major currencies, maintains its position near 108.50, the highest level not seen since November 2022. This follows the Federal Reserve's (Fed) hawkish 25 basis point (bps) rate cut on Wednesday, which lowered its benchmark lending rate to a two-year low of 4.25%-4.50%.

The US Dollar strengthened as US Treasury bond yields surged by more than 2.50% on Wednesday, following the Fed's emphasis on exercising caution regarding additional rate cuts. Fed Chair Jerome Powell explained that the central bank would be wary of further cuts, as inflation is expected to remain persistently above the 2% target. As of writing, the 2-year and 10-year yields stand at 4.30% and 4.56%, respectively.

The Fed's monetary policy statement indicated that economic activity remained robust while noting that labor market conditions had softened. The Fed's Summary of Economic Projections (SEP), or "dot-plot," forecasted only two rate cuts in 2025, a reduction from the four cuts projected in September.

In the United States (US), data showed on Thursday that the US Gross Domestic Product (GDP) Annualized reported a 3.1% growth rate in the third quarter, surpassing both market expectations and the previous reading of 2.8%. Additionally, Initial Jobless Claims dropped to 220,000 for the week ending December 13, down from 242,000 in the prior week and below the market forecast of 230,000.

Traders will likely observe key economic figures from the United States including Personal Consumption Expenditures (PCE) and Michigan Consumer Sentiment Index data, scheduled to be released by the US Bureau of Economic Analysis on Friday.

• USD/CHF trades with mild gains near 0.8980 in Friday’s early European session.
• The Fed’s hawkish approach and encouraging US economic data support the USD. 
• The safe-haven flows might boost the CHF and cap the upside for the pair. 

The USD/CHF pair holds positive ground around 0.8980 during the early European session on Friday. A hawkish rate cut from the US Federal Reserve (Fed) and stronger US economic data boost the Greenback against the Swiss Franc (CHF). The attention will shift to the release of the US Personal Consumption Expenditures (PCE) Price Index for November, which is due later on Friday. 

The US central bank cut the interest rate by 25 basis points (bps) as widely expected. Nonetheless, the Fed signaled a more hawkish stance on its easing cycle next year. The Fed's dot plot, a chart that projects the future path of interest rates, indicated a half-percentage point rate cut in 2025, compared with a full percentage cut projected in September. According to the Summary of Economic Projections (SEP), or “dot plot”," the Fed intends to reduce the number of interest rate cuts next year from four to just two quarter-percent cuts.

The upbeat US economic data released on Thursday has contributed to the USD’s upside. The third estimate reading released by the Bureau of Economic Analysis showed that the US Gross Domestic Product (GDP) grew at a 3.1% annualized rate in the third quarter (GDP), compared to a previous projection of 2.8%. Additionally, the US weekly Initial Jobless Claims declined to 220K in the week ending December 14, compared to the previous week's print of 242K, and came in below the market consensus of 230,000.

On the Swiss front, the Swiss National Bank (SNB) is expected to deliver a further interest rate cut in March 2025 to 0.25% following last week’s 50 bps reduction in the key interest rate. "The SNB softened its forward guidance for possible further cuts. But with the latest move, the SNB likely cemented the market expectations for lower rates," noted Alexander Koch, head of macro and fixed income research at Raiffeisen.

Meanwhile, the ongoing geopolitical tensions in the Middle East and the conflict between Russia and Ukraine could boost the safe haven flows, benefiting the CHF. Israel's military carried out devastating attacks on Houthi targets in Yemen early Thursday, just hours after the Iran-backed terrorist group's latest attack on Israel. Israel's military claimed that the strikes were in retaliation for Houthi missile and drone attacks on Israel over the past year, most of which were intercepted, per CNN. 

• EUR/USD consolidates in a range just above a two-year low touched earlier this month. 
• The ECB’s dovish outlook is seen undermining the shared currency amid a bullish USD.
• Traders await the US PCE data – the Fed’s preferred inflation gauge – for some impetus.

The EUR/USD pair continues with its struggle to attract any meaningful buyers and oscillates in a range around the 1.0360 area during the Asian session on Friday. Spot prices remain close to a near-one-month low touched on Thursday and seem poised to register its lowest weekly close since November 2022.

Moreover, the shared currency might continue with its relative underperformance on the back of the divergent European Central Bank (ECB) and the Federal Reserve (Fed) monetary policy outlook. In fact, the ECB cut interest rates for the fourth time this year last Thursday and left the door open to further easing in 2025. In contrast, the Fed signaled earlier this week that it would slow the pace of rate cuts in 2025. This, in turn, suggests that the path of least resistance or the EUR/USD pair is to the downside. 

Meanwhile, the Fed's hawkish shift comes on top of persistent geopolitical risks and concerns about US President-elect Donald Trump's tariff plans. This, along with the threat of a US government shutdown ahead of the Friday night deadline, continues to weigh on investors' sentiment and assists the US Dollar (USD) to preserve the post-FOMC strong gains to a two-year high. This further validates the negative outlook for the EUR/USD pair and supports prospects for further losses. 

The USD bulls, however, take a brief pause for a breather and now look to the US Personal Consumption Expenditure (PCE) Price Index, due for release later during the North American session. The Fed's preferred inflation gauge should provide a fresh impetus to the USD and the EUR/USD pair. Nevertheless, the aforementioned fundamental backdrop seems tilted firmly in favor of the USD bulls, suggesting that any immediate negative reaction to softer US data is more likely to be short-lived.

• GBP/USD tests its seven-month low at 1.2487.
• An upward correction would be indicated once the 14-day RSI breaks below the 30 mark.
• The primary resistance zone appears around its nine-day EMA at 1.2606, followed by the descending channel's upper boundary.

GBP/USD continues to lose ground for the third consecutive day, trading around 1.2490 during the Asian hours on Friday. The daily chart analysis suggests an ongoing bearish bias as the pair is confined within the descending channel pattern.

However, the 14-day Relative Strength Index (RSI) falls to near the 30 level, suggesting a strengthening of a bearish bias. A decisive break below the 30 mark would indicate an oversold situation and a potential for an upward correction soon.

On the downside, the GBP/USD pair hovers around its seven-month low at 1.2487, recorded on November 22. A successful break below this level could amplify bearish momentum, potentially driving the pair toward its yearly low at 1.2299, last seen on April 22, followed by the lower boundary of the descending channel 1.2260 level.

Regarding resistance, the GBP/USD pair may revisit its nine-day Exponential Moving Average (EMA) at 1.2606, followed by the 14-day EMA at 1.2635, aligned with the descending channel's upper boundary. A successful break above this critical region could weaken the bearish bias, paving the way for a move toward the five-week high of 1.2811, marked on December 6.

GBP/USD: Daily Chart

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

The price for Gold stood at 7,111.35 Indian Rupees (INR) per gram, broadly stable compared with the INR 7,106.06 it cost on Thursday.

The price for Gold was broadly steady at INR 82,943.09 per tola from INR 82,883.73 per tola a day earlier.

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

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

Atsushi Mimura, Japan’s Vice Finance Minister For International Affairs and top foreign exchange official, on Friday, warned against speculative moves on the foreign exchange (FX) market, adding that he will take appropriate action against excessive forex moves.

Key quotes

Market reaction 

At the time of press, the USD/JPY pair was down 0.13% on the day at 157.12

• Gold price attracts some haven flows amid the looming risk of a US government shutdown.
• The global flight to safety-led pullback in the US bond yields further benefits the XAU/USD.
• The Fed’s hawkish stance acts as a tailwind for the USD and should cap any further upside.

Gold price (XAU/USD) attracts some dip-buyers following the previous day's good two-way price moves and climbs back to the $2,600 mark during the Asian session on Friday. Against the backdrop of persistent geopolitical risks, trade war fears and the Federal Reserve's (Fed) hawkish shift, the threat of a partial US government shutdown ahead of the Friday night deadline drives some haven flows towards the precious metal. 

The flight to safety leads to a modest pullback in the US Treasury bond yields, which keeps a lid on the recent US Dollar (USD) rally to a two-year top and turns out to be another factor lending support to the commodity. That said, the Federal Reserve's (Fed) hawkish signal that it would slow the pace of rate cuts in 2025 should act as a tailwind for the US bond yields and the USD, which, in turn, caps the non-yielding yellow metal. 

Gold price draws support from haven flows; bulls seem non-committed amid the Fed’s hawkish shift

• The US House of Representatives on Thursday failed to pass A spending bill to fund the government, raising the risk of a government shutdown at the end of the day on Friday.
• This comes on top of persistent geopolitical risks and concerns about US President-elect Donald Trump's tariff plans, which, in turn, drive some haven flows towards the Gold price. 
• The US Treasury bond yields retreat from a multi-month top, capping the post-FOMC blowout US Dollar rally to a two-year top and lending additional support to the commodity. 
• The US Bureau of Economic Analysis reported on Thursday that the economy expanded at a 3.1% annualized pace in the third quarter compared to 2.8% estimated previously.
• Other data on Thursday showed that the number of Americans filing new applications for jobless benefits fell more than expected, to 220K for the week ended December 14.
• This reaffirms the Federal Reserve's hawkish outlook for a slower rate cut path in 2025, which should act as a tailwind for the US bond yields and cap the non-yielding yellow metal. 
• Bulls might also refrain from placing aggressive bets ahead of Friday's release of the US Personal Consumption Expenditure (PCE) Price Index – the Fed's preferred inflation gauge. 

Gold price technical setup supports prospects for the emergence of fresh sellers at higher levels

From a technical perspective, the post-FOMC slump below the 100-day Simple Moving Average (SMA) was seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart have been gaining negative traction and suggest that the path of least resistance for the Gold price is to the upside. Hence, any subsequent move up might continue to face immediate resistance near the overnight swing high, around the $2,626 region. Some follow-through buying, however, might trigger a short-covering rally and lift the XAU/USD to the next relevant hurdle near the $2,652-2,655 supply zone. A sustained strength beyond the latter could negate the negative bias and pave the way for additional gains.

On the flip side, the monthly low, around the $2,583 region touched on Thursday, could protect the immediate downside, below which the Gold price could drop to the $2,560 area en route to the $2,537-2,536 zone or the November swing low. The downward trajectory could extend further towards the $2,500 psychological mark before the XAU/USD eventually drops to the very important 200-day SMA support, currently pegged near the $2,472 region.

• Silver hovers near a three-month low at $28.74, which was recorded in the previous session.
• A non-yielding Silver struggles as central banks emphasize the need for caution regarding additional rate cuts.
• The demand concerns for Silver metal increase due to potential tariffs from the upcoming Trump administration.

Silver price (XAG/USD) continues its losing streak that began on December 12, trading around $28.90 per troy ounce during the Asian session on Friday. The price of the grey metal reached a fresh three-month low at $28.74 in the previous session.

The non-yielding assets like Silver receive downward pressure as central banks emphasize the need for caution regarding additional rate cuts. Fed Chair Jerome Powell emphasized the need for caution regarding additional rate cuts, noting that inflation is likely to remain persistently above the central bank's 2% target.

Moreover, the Bank of Japan (BoJ) maintained its ultra-low interest rates on Thursday as President-elect Donald Trump’s tariff threats loomed over Japan's export-driven economy. Meanwhile, the Bank of England (BoE) kept interest rates unchanged, with policymakers divided on the appropriate response to the country’s slowing economic growth. On Friday, the People’s Bank of China (PBoC) decided to keep its Loan Prime Rates (LPRs) unchanged.

Concerns about potential tariffs from the upcoming Trump administration have heightened worries about weak demand for Silver as an industrial input, causing the metal to underperform in the fourth quarter. Additionally, Silver prices face challenges due to the constrained industrial outlook, driven by overcapacity in China’s solar panel industry, which has led photovoltaic companies to join a government self-discipline program to regulate supply.

• WTI price, denominated in dollars, moves for a weekly decline due to a stronger US Dollar.
• Crude Oil prices struggle as central banks emphasize the need for caution regarding additional rate cuts.
• J.P. Morgan analysts projected that Oil supply will exceed demand by 1.2 million barrels per day next year.

West Texas Intermediate (WTI) Oil price extends its losing streak for the fifth successive session, trading around $68.90 per barrel during the Asian hours on Friday. Crude Oil prices, denominated in dollars, are on track for a weekly decline due to a stronger US Dollar (USD). A higher US dollar makes crude Oil more expensive for buyers using other currencies, which in turn dampens Oil demand.

The US Dollar Index (DXY), which measures the value of the US Dollar against its six major peers, trades hovers around 108.50, the highest level not seen since November 2022, following the Federal Reserve (Fed) implemented a hawkish 25 basis point (bps) rate cut on Wednesday. The Fed’s Summary of Economic Projections, or ‘dot-plot,’ showed only two rate cuts in 2025, down from four cuts projected in September.

Fed Chair Jerome Powell emphasized the need for caution regarding additional rate cuts, noting that inflation is likely to remain persistently above the central bank's 2% target. On Thursday, the Bank of Japan (BoJ) maintained its ultra-low interest rates as President-elect Donald Trump’s tariff threats loomed over Japan's export-driven economy. Meanwhile, the Bank of England (BoE) kept interest rates unchanged, with policymakers divided on the appropriate response to the country’s slowing economic growth.

According to Reuters, J.P. Morgan analysts projected that Oil supply will exceed demand by 1.2 million barrels per day. The Oil market is anticipated to face a surplus next year, as weakening economic activity and a sluggish Chinese economy further dampen growth in crude Oil demand.

Additionally, energy transition measures have significantly affected demand in China. On Thursday, state-owned energy giant Sinopec announced that the country’s gasoline demand is expected to peak by 2027, as diesel and gasoline consumption weakens in the world’s largest oil importer.

• The Indian Rupee rebounds in Friday’s Asian session.
• Lower crude oil prices and RBI’s intervention could support the INR, but more cautious stance from the Fed might cap its downside. 
• The US Core PCE Price Index report will be the highlight on Friday. 

The Indian Rupee (INR) recovers on Friday after depreciating to an all-time low of 85.12 in the previous session. The decline in crude oil prices might help limit the local currency’s losses as India is the world's third-largest oil consumer. Additionally, the Reserve Bank of India (RBI) could intervene in the market to prevent excess volatility.

However, a hawkish rate cut from the US Federal Reserve (Fed) could spark the US Dollar (USD) broadly and exert some selling pressure on emerging market currencies, including the INR. Looking ahead, traders will focus on the US Core Personal Consumption Expenditures (PCE) Price Index data, which is due later on Friday. Also, the US Michigan Consumer Sentiment Index for December will be released.  

Indian Rupee rebounds amid multiple challenges

• "We expect the rupee to trade with a negative bias on global equities following a hawkish Fed and a strong dollar. Concerns over a slowdown in the economy may further weigh on the rupee," said Anuj Choudhary  Research Analyst at Mirae Asset Sharekhan.
• India's foreign exchange reserves fell in nine out of the past 10 weeks, hitting a multi-month low. The reserves had been falling ever since reserves touched an all-time high of USD 704.89 billion in September, and now last week the forex stood at USD 654.857 billion, according to the RBI data. 
• The US Gross Domestic Product (GDP) grew at a 3.1% annualized rate in the third quarter (GDP), compared to a previous projection of 2.8%, the third estimate of the figures from the Bureau of Economic Analysis showed Thursday. 
• The US weekly Initial Jobless Claims in the US declined to 220,000 in the week ending December 14, compared to the previous week's print of 242,000, and came in above the market consensus of 230,000. 

USD/INR maintains a strong uptrend in the longer term 

The Indian Rupee trades firmer on the day. The constructive outlook of the USD/INR pair remains intact on the daily chart as the pair holds above the key 100-day Exponential Moving Average (EMA). Nonetheless, the 14-day Relative Strength Index (RSI) is over the midline near 70.95, suggesting an overbought condition. This means that additional consolidation should not be ruled out before positioning for any short-term USD/INR appreciation.

The ascending trend channel at 85.20 acts as an immediate resistance level for USD/INR. A decisive break above this level could see a rally to 85.50.

On the flip side, the first downside target is seen at 84.86, the lower boundary of the trend channel. A breach of this level could pave the way to 84.16, the 100-day EMA.

• The Japanese Yen adds to the post-BoJ losses and drops to a five-month low against the USD.
• The Fed’s hawkish shift remains supportive of elevated US bond yields and undermines the JPY.
• A stronger-than-expected Japan’s National CPI keeps the door open for a BoJ rate hike in 2025.

The Japanese Yen (JPY) prolongs a two-week-old downtrend and hits a five-month low against its American counterpart during the Asian session on Friday. The Bank of Japan (BoJ) kept rates steady in a nearly unanimous vote on Thursday and flagged a cautious outlook for 2025 amid sluggish economic growth, which, in turn, is seen weighing on the JPY. Moreover, the widening US-Japan bond yield differential contributes to driving flows away from the lower-yielding JPY. 

Meanwhile, the Federal Reserve's (Fed) hawkish signal that it would slow the pace of rate cuts in 2025 helps the US Dollar (USD) to preserve its strong weekly gains to a two-year top. This further fuels the USD/JPY pair's strong move-up to the 158.00 neighborhood. However, data showing that the Japanese Consumer Price Index (CPI) grew slightly more than expected in November, which could push the BoJ to raise interest rates early in 2025, provides some respite to the JPY bulls. 

Japanese Yen draws some support from higher-than-expected Japan’s National CPI print

• The Bank of Japan decided on Thursday to keep the short-term rate target unchanged in the range of 0.15%-0.25% and offered few clues on how soon it could push up borrowing costs.
• Data released by the Japan Statistics Bureau this Friday showed that the National Consumer Price Index (CPI) climbed 2.9% YoY in November, compared to the previous reading of 2.3%.
• Additional details of the report revealed that the National CPI ex Fresh food arrived at 2.7% YoY during the reported month versus 2.3% in October and was above expectations of 2.6%. 
• Moreover, CPI ex Fresh Food, Energy rose 2.7% YoY in November, compared to the 2.3% rise recorded in the previous month, keeping hopes alive for a potential rate hike in January or March. 
• In fact, BoJ Governor Kazuo Ueda reiterated the central bank's resolve to keep raising interest rates from their current very low levels if the economy and prices move in line with its forecasts.
• The Federal Reserve indicated on Wednesday that policymakers see the fed funds rate falling to 3.9% in 2025, suggesting two quarter-point rate cuts compared to four projected in September. 
• The yield on the benchmark 10-year US government bond shot to its highest level in more than six months on Thursday, lifting the US Dollar to a two-year peak and undermining the Japanese Yen. 
• The focus now shifts to the US Personal Consumption Expenditure (PCE) Price Index, or the Fed's preferred inflation gauge, which should provide a fresh impetus to the USD/JPY pair. 

USD/JPY dips below the 157.00 mark might still be seen as a buying opportunity

From a technical perspective, the overnight strong move up beyond the previous multi-month top, around the 156.75 area, was seen as a fresh trigger for bullish traders. That said, the Relative Strength Index (RSI) has moved on the verge of breaking into the overbought territory on the daily chart. This makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for any further gains. 

Any meaningful slide below the 157.00 mark, however, now seems to find some support near the 156.75 region. Some follow-through selling could pave the way for a deeper corrective fall and drag the USD/JPY pair to the 156.00 round figure. The next relevant support is pegged near the 155.50 horizontal zone, below which spot prices could drop to the 155.00 psychological mark. The latter should act as a key pivotal point, which if broken decisively might shift the near-term bias in favor of bearish traders. 

On the flip side, bullish traders might now wait for a move beyond the 158.00 mark before placing fresh bets. The USD/JPY pair might then accelerate the positive move toward the 158.45 intermediate hurdle before aiming to reclaim the 159.00 round figure. The momentum could extend further towards the 159.60-159.65 region en route to the 160.00 psychological mark and the 160.20 hurdle. The latter coincides with the top boundary of the multi-month-old ascending channel and should act as a strong barrier.

• The Australian Dollar holds losses as the PBoC decided to keep its one-year Loan Prime Rate unchanged at 3.1%.
• Australia's Private Sector Credit rose by 0.5% MoM in November, marking the fastest monthly growth in four months.
• The US Dollar appreciated as the Gross Domestic Product Annualized reported a 3.1% growth rate in the third quarter.

The Australian Dollar (AUD) retraces its recent gains from the previous session against the US Dollar (USD) following the People’s Bank of China’s (PBoC) monetary policy decision on Friday. China’s central bank decided to keep its one- and five-year Loan Prime Rates (LPRs) unchanged at 3.10% and 3.60%, respectively, in the fourth quarterly meeting.

Australia's Private Sector Credit grew by 0.5% month-over-month in November, aligning with expectations. This followed a 0.6% increase in October, which marked the fastest monthly growth in four months. On an annual basis, Private Sector Credit rose by 6.2% in November, the highest growth rate since May 2023, up slightly from 6.1% in October.

The Aussie Dollar faces pressure as traders increasingly anticipate that the Reserve Bank of Australia (RBA) may begin cutting its 4.35% cash rate as early as February, amid mounting signs of an economic slowdown. Attention now shifts to the release of the RBA's latest meeting minutes due next week.

The US Dollar strengthened after the US Gross Domestic Product (GDP) Annualized reported a 3.1% growth rate in the third quarter, surpassing both market expectations and the previous reading of 2.8%. Additionally, Initial Jobless Claims dropped to 220,000 for the week ending December 13, down from 242,000 in the prior week and below the market forecast of 230,000.

Australian Dollar declines due to increased risk aversion following Fed’s hawkish rate cut

• Australia's 10-year government bond yield trades around 4.52%, mirroring an increase in US bond yields following the Federal Reserve's hawkish stance.
• Australia’s Consumer Inflation Expectations rose to 4.2% in December from 3.8% in the previous month, marking the highest level since September.
• At its December meeting on Wednesday, the Federal Reserve (Fed) implemented a hawkish 25 basis point (bps) rate cut, lowering its benchmark lending rate to a two-year low of 4.25%-4.50%. However, it indicated a slower pace of additional cuts in the coming year.
• The Fed’s Summary of Economic Projections, or ‘dot-plot,’ showed only two rate cuts in 2025, down from four cuts projected in September. Additionally, during the press conference, Fed Chair Jerome Powell clarified that the Fed would be cautious about further cuts as inflation would remain stubbornly above the central bank’s 2% target.
• National Australia Bank (NAB) maintains its forecast for the first Reserve Bank of Australia rate cut at the May 2025 meeting, though they acknowledge February as a possibility. NAB's report indicates that the Unemployment Rate is expected to peak at 4.3% before easing to 4.2% by 2026 as the economy stabilizes. The Q4 trimmed mean inflation is projected at 0.6% quarter-on-quarter, with a gradual easing expected, reaching 2.7% by late 2025.
• Australia's Westpac Consumer Confidence fell 2% to 92.8 points in December, reversing two months of positive momentum.
• On Tuesday, the US Census Bureau reported that US Retail Sales rose 0.7% MoM in November, compared to the 0.5% prior increase. Meanwhile, the Retail Sales Control Group increased 0.4% from the previous decline of 0.1%.
• Reuters cited two sources on Tuesday that China is set to target economic growth of around 5% in 2025. This decision follows a meeting among top Chinese officials at the Central Economic Work Conference last week. The growth target remains the same as this year, which China is expected to achieve.
• China's foreign exchange regulator, the State Administration of Foreign Exchange (SAFE), reported a net outflow of $45.7 billion from China's capital markets in November. Cross-border portfolio investment receipts totaled $188.9 billion, while payments reached $234.6 billion, resulting in the largest monthly deficit on record for this category.

Australian Dollar remains above 0.6200, with a potential upward correction

AUD/USD trades near 0.6230 on Friday, with daily chart analysis pointing to a persistent bearish bias as the pair continues to decline within a descending channel pattern. However, the 14-day Relative Strength Index (RSI) remains below the 30 mark, signaling oversold conditions and suggesting the potential for an upward correction in the near term.

On the downside, the AUD/USD pair may test the descending channel's lower boundary near the 0.6130 level, highlighting a key support area in the current bearish trend.

The AUD/USD pair will likely encounter primary resistance near the nine-day Exponential Moving Average (EMA) at 0.6310, followed by the 14-day EMA at 0.6346. A further hurdle lies at the descending channel’s upper boundary around 0.6390. A decisive breakout above this channel could propel the pair toward the eight-week high of 0.6687.

AUD/USD: Daily Chart

• NZD/USD softens to near 0.5625 in Friday’s early Asian session.
• The weaker Q3 GDP data sparked bets on aggressive RBNZ rate cuts. 
• The hawkish Fed expectations boost the USD and create a headwind for NZD/USD.

The NZD/USD pair remains under selling pressure around 0.5625 during the Asian trading hours on Friday. The deep recession in New Zealand fueled the Reserve Bank of New Zealand (RBNZ) rate cut bets, which undermine the Kiwi.

The weaker-than-expected New Zealand’s Gross Domestic Product (GDP) data for the third quarter raised the risk of further large-scale interest rate cuts from the RBNZ. The markets have priced in a 91% chance of another 50 bps RBNZ rate reduction in February. 

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

On the other hand, the hawkish rate cut by the Federal Reserve (Fed) on Wednesday lifts the USD and contributes to the pair’s downside. During the Press Conference, Fed Chair Jerome Powell made clear that the Fed is going to be cautious about further cuts. Later on Friday, investors will monitor the release of the US Core Personal Consumption Expenditures (PCE) Price Index data, which is expected to show an increase of 2.9% YoY in November. 

On Friday, the People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at , as compared to the previous day's fix of 7.1901 and 7.3086 Reuters estimates.

Japan's Finance Minister Katsunobu Kato said on Friday that he is concerned about the recent foreign exchange move, including those driven by speculation. Kato added that he will ake appropriate action against excessive moves.  

Key quotes

Market reaction  

At the time of writing, USD/JPY was up 0.06% on the day at 157.41. 

The People’s Bank of China (PBOC), China's central bank, announced to leave its Loan Prime Rates (LPRs) unchanged on Friday. The one-year and five-year LPRs were at 3.10% and 3.60%, respectively.   

Market reaction

At the time of writing, AUD/USD is holding lower ground near 0.6222, down 0.32% on the day.

• USD/CAD gains ground to around 1.4405 in Friday’s early Asian session. 
• The hawkish rate cut by the Fed supports the USD. 
• An unexpected downtick in the November Canadian CPI inflation reinforces expectations for more BoC modest rate cuts.

The USD/CAD pair gathers strength to near 1.4405 during the early Asian session on Friday, bolstered by the firmer Greenback broadly. Traders will keep an eye on Canadian October Retail Sales and US Core Personal Consumption Expenditures (PCE) Price Index data, which are due later on Friday. 

The US Federal Reserve lowered the federal funds rate by 25 basis points (bps), bringing its target range to 4.25% and 4.50%. The latest Summary of Economic Projections (SEP), or “dot plot”, indicated the US central bank's intention to reduce the number of interest rate cuts next year from four to just two quarter-percent reductions. This stance proved significantly more hawkish than market expectations, which boosts the US Dollar (USD) broadly.

On the other hand, a slowdown in Canadian Consumer Price Index (CPI) inflation in November fuelled the expectations that the Bank of Canada (BoC) will cut rates further in 2025, though the era of jumbo reductions may be over. This might weigh on the Canadian Dollar (CAD) and act as a tailwind for USD/CAD. 

“Overall, the November inflation report was mixed—while headline CPI eased to 1.9% year over year, core measures showed some stickiness. We continue to expect the Bank of Canada to trim policy rates by 25 basis points in January and shift toward a more gradual approach to cutting rates in 2025,” said Rachel Siu, head of Canadian fixed income strategy at BlackRock.