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• The GBP/JPY has rebounded into the 181.00 handle after Wednesday’s decline into nine-week lows.
• BoE held rates steady on Thursday, but sees ongoing inflation fight looking forward.
• Friday to close out the trading week with UK PMIs.

The GBP/JPY is back into the 181.00 handle heading into Friday’s trading session, with the pair bouncing from nine-week lows hit early on Thursday as the Pound Sterling (GBP) struggles against the Japanese Yen (JPY).

The GBP is steeply off recent highs against the Yen, but the GBP/JPY caught a much-needed bounce on Thursday after a hawkish Bank of England (BoE) kept rates unchanged, but warned of the possible need for further rate hikes if inflation doesn’t come to heel quick enough.

Read More: BoE leaves interest rate unchanged at 5.25% as forecast

To round out the week’s economic data docket, UK S&P Global/CIPS Purchasing Managers’ Index (PMI) figures are due at 09:30 GMT during the London/Europe market session. The UK’s Preliminary Composite PMI for December is expected to tick upwards from 50.7 to 50.9, with the Manufacturing and Services Components both expected to show similar gains.

The Manufacturing PMI component is forecast to increase from 47.2 to 47.5, while the Services PMI component for December is expected to see a slight uptick to 51.0 from November’s 50.9.

GBP/JPY Technical Outlook

The GBP/JPY is pinned back into the 181.00 handle after a rebound from nine-week lows near 178.35, stuck into the 50-hour Simple Moving Average (SMA) while the 200-hour SMA descends aggressively into 183.00, capping off near-term bullish potential.

Looking further out, the daily candlesticks see long-term technical support from the 200-day rising through the 178.00 handle, with the upside capped off by the 50-day SMA just north of 184.00.

Swing highs continue to etch in new territory, and downside momentum remains limited as the major 180.00 handle remains a significant barrier for sellers to overcome.

GBP/JPY Hourly Chart

GBP/JPY Daily Chart

GBP/JPY Technical Levels

• AUD/USD gains ground near 0.6700 on the back of a dovish Fed meeting.
• The preliminary Australian Judo Bank Composite PMI rose to a two-month high of 47.4 in December from 46.2 in November.
• US Retail sales climbed by 0.3% in November vs. -0.2% prior, below the market consensus.
• Chinese economic data and the US S&P Global PMI report will be released on Friday.

The AUD/USD pair hovers around 0.6700 during the early Asian session on Friday. The pair trades in positive territory for the third consecutive day as the US Dollar loses momentum. That being said, the dovish remarks from the Federal Reserve (Fed) after the Fed monetary policy meeting exert some selling pressure on the USD and create a tailwind for the AUD/USD. At press time, the pair is trading at 0.6698, down 0.04% on the day.

The latest data on Friday showed that the preliminary Australian Judo Bank Composite Purchasing Managers' Index (PMI) for December rose to a two-month high of 47.4 from 46.2 in November. Meanwhile, the Manufacturing PMI came in at 47.8 in the same period versus 47.7 prior and Services PMI grew to 47.6 compared to 46.0 in the previous reading.

Furthermore, the Chinese Industrial Product and Retail Sales for November will be due on Friday. Any sign of further weakness in key economic data in China could weigh on sentiment and the China-proxy Australian Dollar (AUD).

On the other hand, US Retail sales rose 0.3% in November, compared to a 0.2% decline in the previous reading, below the market consensus of 0.1% drop. The weekly Initial Jobless Claims came in at 202K for the week ending December 8 versus 221K prior, better than the market expectation.

The Fed held its key interest rate steady at its December meeting on Wednesday and the market is pricing in a more aggressive rate cut, doubling the committee’s dot-plot projection by expecting 1.5 percentage points in rate cuts next year. This, in turn, weighs on the Greenback across the board.

Investors will keep an eye on the Chinese economic data, including Chinese Industrial Products and Retail Sales. Also, the US S&P Global PMI, the Empire Manufacturing Index, and Industrial Production data will be released later on Friday.

• AUD/JPY experiences modest losses even though risk appetite has improved.
• Nevertheless, the lack of strength in the Australian Dollar keeps the cross-pair subdued.
• If sellers remain in charge, further downside is seen past 94.00; otherwise, buyers can counterattack on their way to 96.00.

The AUD/JPY registered modest losses on Thursday after investors digested the US central bank's decision to pivot to a dovish stance, which would usually underpin the cross pair. Nevertheless, as the Japanese Yen (JPY) gathered tractions, the Aussie’s (AUD) lack of strength depressed the pair throughout the day. As the Asian session began, the AUD/JPY exchanges hands at 95..02, virtually unchanged.

From a technical standpoint, the pair is downward biased after sliding below the Ichimoku Cloud (Kumo). Nevertheless, the latest central bank bonanza kept the pair seesawing, before gathering a clear direction.

Despite printing three bearish days, the AUD/JPY could threaten to stage a comeback if buyers lift the pair inside the Kumo, with its lowest point at 95.31. Once cleared, the next resistance would be the Tenkan-Sen at 95.61, ahead of the Senkou Span A at 95.87, followed by the confluence of the Senkou Span B and the Kijun-Sen at 96.14. Further upside is seen once the pair clears the top of the Kumo, like the 97.00 figure.

On the other hand, if sellers drag prices below the 95.00 figure, that could open the door for further downside. The first critical support level would be 94.57, the December 14 swing low, followed by the December 7 low of 93.70.

AUD/JPY Price Analysis – Daily Chart

AUD/JPY Technical Levels

According to S&P Global's Preliminary Judo Bank Australia Purchasing Managers' Index (PMI), the December flash Composite PMI climbed to a two-month high of 47.4 compared to November's thirteen-month low of 46.2.

Key Highlights

Flash Australia Composite PMI Output Index: 47.4 (Nov: 46.2)

Flash Australia Services PMI Business Activity Index: 47.6 (Nov: 46.0), 2-month high

Flash Australia Manufacturing PMI: 47.8 (Nov: 47.7), 2-month high

All three sectors of the December preliminary PMI (Composite, Manufacturing, and Services) hit a two-month high, with all three datapoints remaining in contraction territory below 50.0.

According to Warren Hogan, Chief Economic Advisor at Judo Bank:

Market Reaction

The AUD/USD is caught in tepid trading conditions near the 0.6700 handle as markets head into the early Friday Asia market session.

About the Judo Bank Composite PMI

The Composite Purchasing Managers Index (PMI), released on a monthly basis by Judo Bank and S&P Global, is a leading indicator gauging private-business activity in Australia for both the manufacturing and services sectors. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the Australian private economy is generally expanding, a bullish sign for the Australian Dollar (AUD). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for AUD.

New Zealand's Business NZ Performance of Manufacturing Index (PMI) recovered some ground in November, printing at 46.7 compared to October's 42.5.

Key Highlights

Business NZ's November PMI recovered to 46.7, the indicator's highest reading since June. October's print of 42.5 was the lowest print for the NZ PMI since September's third quarter.

Despite NZ's PMI remaining in contraction territory below 50.0, Business NZ's Advocacy Director Catherine Beard noted that while “the key sub-index measure of Production (43.6) remains stubbornly low, New Orders (47.7) showed some improvement compared to previous months. Employment (47.9) also showed a relative improvement."

According to Business NZ Senior Economist Craig Ebert, "at the heart of the recent poor run in the PMI has been its production index. While this improved a bit in November, it was, at 43.6, almost 10 index points south of its long-term average. That’s a big undershoot, in historical context".

Market Reaction

The Kiwi is seeing strictly muted reactions to data in the early Friday Asia market session, trading just north of the 0.6200 handle.

About the Business NZ Performance of Manufacturing Index (PMI)

The Business NZ Performance of Manufacturing Index (PMI), released by Business NZ on a monthly basis, is a leading indicator gauging business activity in New Zealand’s manufacturing sector. The data is derived from surveys of senior executives at private-sector companies. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production or employment.The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the manufacturing economy is generally expanding, a bullish sign for the New Zealand Dollar (NZD). Meanwhile, a reading below 50 signals that activity among goods producers is generally declining, which is seen as bearish for NZD.

• The EUR/GBP stays steady around 0.8610, incurring minor after two days of gains.
• Key indicators on the daily chart depict a sluggish buying momentum.
• The pair struggles against the prevailing bearish strength it trades below its main SMA.

In Thursday's session, the EUR/GBP traded at a slight loss, remaining pinned at 0.8610. On the daily chart, the broader outlook appears neutral to bearish, with buyers pausing for breath. Despite three prior days of gains, the bulls seem to struggle to gain traction, while four-hour indicators show a flat yet positive trend.

The indicators on the daily chart reflect a steady bearish momentum on the daily chart. The pair continues to be suppressed under the 20, 100, and 200-day Simple Moving Averages (SMAs), emphasizing the dominant position of the sellers. The Relative Strength Index (RSI) is also in negative territory, signaling a continued downward momentum. A similar sentiment is mirrored by the Moving Average Convergence Divergence (MACD) as it exhibits red bars, indicating that the bears still have a grip on the market. Furthermore, traders should eye a potential bearish crossover around the 0.8630 area between the 20 and 100-day SMAs, which could ignite more downside movements.

In contrast, the situation on the four-hour chart is more balanced. The indicators are in a holding pattern, with the RSI and MACD flat in positive territory, suggesting an indecisive state. However, the flat, positive territory position of the RSI hints at some short-term bullish momentum, but it's not strong enough to overturn the broader bearish bias.

Support Levels: 0.8600, 0.8580, 0.8530.
Resistance Levels: 0.8635 (20 and 100-day SMA convergence), 0.8650, 0.8670.

EUR/GBP daily chart

After central banks' announcements, the market focus shifts back to economic data. Global Purchasing Managers' Index (PMI) releases are scheduled, with the preliminary December readings to come out earlier due to the holiday season. Chinese economic data includes the House Price Index, Industrial Production, and Retail Sales. In the US, in addition to the S&P PMI, the Empire Manufacturing and Industrial Production are also due.

Here is what you need to know on Friday, December 15:

The US Dollar Index dropped further on Thursday, extending the negative momentum that followed the FOMC statement. The dovish signals from the Fed have weighed on the US Dollar, which remains vulnerable as Treasury yields hover around multi-month lows.

US economic data released on Thursday surpassed expectations but provided only modest support for the US Dollar. Retail sales rose 0.3% in November, compared to a 0.1% decline of market consensus. Initial and continuing jobless claims also came in better than expected. On Friday, the S&P Global Composite PMI, the Empire Manufacturing Index, and Industrial Production data are scheduled for release.

Chinese data due on Friday includes the House Price Index, Industrial Production, and Retail Sales. Improvements in the annual rates are anticipated, and if they align with expectations, they could contribute to improved risk appetite.

The EUR/USD accelerated to the upside, reaching levels above 1.1000. The pair tested November and December highs around 1.1010. As expected, the European Central Bank (ECB) left interest rates unchanged. Euro bulls cheered the unchanged guidance from the ECB. However, market expectations continue to forecast a dovish stance from the ECB for next year. On Friday, the HICP Composite PMI preliminary reading is expected to show an improvement from 47.6 to 48.0.

The 10-year Treasury yield dropped below 4% and weighed on USD/JPY that closing below 142.00, the weakest in four months. Despite losing almost 400 pips in two days, the pair remains vulnerable. 

The Bank of England kept interest rates unchanged with a 6-3 vote. The Pound initially rose modestly following the decision and comments from Governor Andrew Bailey. The BoE maintained a firm hawkish bias, boosting the Pound in the market. GBP/USD broke above 1.2740 and rose to 1.2794 before closing the day around 1.2760, the strongest since early August.

The USD/CAD has declined for the second consecutive day, with the Canadian Dollar outperforming, supported by a rebound in crude oil prices. The pair broke early December lows at 1.3470 and traded below 1.3400, reaching the lowest intraday level since September. Bank of Canada Governor Tiff Macklem is scheduled to speak during the American session on Friday.

The AUD/USD peaked near the 0.6730 area (a four-month high) and then returned to 0.6700. The pair is currently moving within a bullish channel. On Friday, the Judo Bank Composite PMI is due.

Gold is holding onto most of its recent gains but struggling to stay above the relevant technical level of $2,040. The rebound in Gold prices is losing momentum. Silver, on the other hand, has surpassed its 20-day Simple Moving Average (SMA) and risen above $24.00, reaching one-week highs.

• NZD/USD is having a hard time pushing off the 0.6200 handle despite a mid-week run above 0.6280.
• Dovish Fed pivot has bolstered the broader FX market against the US Dollar, but Kiwi gains remain capped.
• NZ, US PMIs to round out the trading week.

The NZD/USD is struggling to find further gains rounding the corner into Friday’s early market session, trading close to the 0.6200 handle after a bull run over 0.6280 sputtered out and sent the pair slumping back into near-term consolidation.

Despite the US Dollar (USD) declining across the board following a dovish pivot from the Federal Reserve (Fed) on Wednesday, the Kiwi (NZD) has struggled to capitalize on the broad-market momentum, hobbled by New Zealand Gross Domestic Product (GDP) figures that broadly missed the mark early Thursday.

New Zealand’s third quarter GDP printed at -0.3%, an unexpected decline compared to the previous quarter’s 0.5% growth (revised down from 0.9%), completely missing the forecast 0.2%. Annualized GDP ended in the third quarter likewise declined, printing at -0.6% versus the expected 0.5% gain, and slipping back from the previous period’s 1.5% (also revised down from 1.8%).

A swamped GDP print has swamped the Kiwi, leaving the NZD as one of the worst performers of the major currency bloc, second only to the US Dollar.

The Business NZ Purchasing Managers’ Index (PMI) for November, due early in the Friday Asia market session, is unlikely to provide much hope for Kiwi bidders. NZ PMI last printed at 42.5 in October.

US S&P Global PMIs are expected to tick down slightly in Friday’s upcoming American session, which could provide additional support for risk pairs and extend downside pressure on the Greenback. December’s Preliminary Manufacturing PMI is forecast to tick down from 49.4 to 49.3.

NZD/USD Technical Outlook

The NZD/USD is waffling on the intraday charts, strung along the 0.6200 handle as the 50-hour Simple Moving Average (SMA) climbs into 0.6170 following a bullish cross of the 200-hour SMA at 0.6150.

Near-term momentum still leans in favor of NZD/USD bidders with the pair up over seven and a half percent from October’s bottom bids near 0.5770, but evaporating bullish momentum leaves the pair set to consolidate just above the 200-day SMA near 0.6100.

NZD/USD Hourly Chart

NZD/USD Daily Chart

NZD/USD Technical Levels

• USD/JPY dives following the Federal Reserve’s pivot to dovish stance.
• US economic data, including solid Retail Sales and a tight Initial Jobless Claims report, took a backseat amid the Goldilocks scenario.
• Upcoming events include Japan's Flash PMIs for December, with a focus on next week's Bank of Japan's (BoJ) monetary policy meeting.

The USD/JPY edges down following Wednesday's Federal Reserve’s (Fed) decision, which sent US Treasury yields plummeting alongside the Greenback. Fed’s adopting a dovish stance is the main reason for the pair to print losses of 0.68%, as it trades at around 141.89.

Traders continued to digest the Fed’s pivot after repeating the mantra that they would keep rates “higher for longer.” Even though inflation is slowing at a solid pace, it remains elevated, reaffirmed by the US central bank on its monetary policy statement. But officials downward revising the fed funds rates (FFR) for 2023 to 5.4%, along with expectations for three rate cuts in 2024, were the green light for investors seeking risk.

Despite that, they remained cautious ahead of Powell’s words, but failure to push back against 100 bps of rate cuts, was the last nail in the coffin for a strong US Dollar. The US Dollar Index (DXY), which tracks the Greenback’s performance against six currencies, has tumbled close to 1.80%, down at 101.94.

Another factor that’s influencing the USD/JPY pair is the plunge of the 10-year benchmark note rate, closely correlated with the major. The US 10-year Treasury yield has dived 26 basis points to 3.924%.

Meanwhile, US economic data took the backseat despite US Retail Sales being solid. That and a tight Initial Jobless Claims report for the week ending December 9 reaffirmed the Goldilocks scenario.

Ahead in the calendar, the Japanese economic docket will feature Flash PMIs for December, which could barely move the needle on the Japanese Yen (JPY) front. Traders are eyeing next week’s Bank of Japan’s (BoJ) monetary policy meeting. Although market participants don’t expect the end of negative rates, the BoJ could lay the ground ahead of pulling the trigger.

On the US front, Flash PMIs, Industrial Production and the beginning of the release of Manufacturing Indices revealed by Fed’s Regional Banks, are expected.

USD/JPY Technical Levels

• WTI edged back over $72.50 on Thursday as Crude Oil tries to recover more ground.
• Crude markets remain steeply off recent highs.
• Investors remain skeptical that production caps will undercut global demand declines.

West Texas Intermediate (WTI) has recovered additional ground on Thursday, extending a rebound sparked by a dovish pivot from the US Federal Reserve (Fed) on Wednesday that saw a broad-base market sentiment recovery, kicking off recovery rallies in the majority of asset classes and forcing the US Dollar (USD) into fresh lows.

A declining US Dollar, in tandem with rising market sentiment on the possibility of rate cuts from the Federal Reserve coming sooner rather than later, is helping to prop up Crude Oil prices heading into the tail end of the trading week.

With the Fed adjusting their dot plot of interest rate expectations to include several rate cuts in 2024 broader market sentiment is on the high side, dragging WTI back above the $70.00 handle, but bearish pressure has been building into Crude Oil markets since falling from late September’s highs just below the $94.00 handle.

The Organization for the Petroleum Exporting Countries (OPEC) has affirmed its dedication to extreme production cuts, at least at the administrative level; in practice, the oil cartel has no structural policy tools to force member states to adhere to production caps, nor is there any punishment for OPEC members that violate exporting quotas.

Energy markets remain skeptical that OPEC’s headline production cuts will be able to undercut declining global crude demand, especially as demand slumps in key oil-using markets such as China. Despite this, Energy Information Administration (EIA) barrel counts unexpectedly declined this week, with a 4.259 million barrel drawdown in US Crude Oil reserves for the week ended December 8. Markets had initially expected a slight decline of only 650K barrels, and the overhead declines add to the previous week’s drawdown of 4.632 million crude barrels.

WTI Technical Outlook

WTI’s rebound comes at the tail end of a very bearish run down the charts, and US Crude Oil is down nearly 24% from late September’s peak of $93.98. WTI has closed in the red for seven straight weeks.

Despite the near-term technical recovery, WTI remains deep inside bear country with the 200-day Simple Moving Average (SMA) high above current price action near the $78.00 handle. The 50-day SMA is firmly bearish, and is accelerating into a downside cross of the 200-day SMA which would provide stiff technical resistance for any bullish extensions beyond the $74.00 level.

WTI Daily Chart

WTI Technical Levels

• The USD/NOK experienced a 2.35% downslide, trading close to the 10.520 level.
• Norges Bank increases benchmark interest rate by 25 bps to 4.50%
• US bond yields decline across the board after the Fed hinted a more easing than expected in 2024.

In Thursday's session, the USD/NOK pair took a downward tumble, plunging to its lowest level since August at about 10.520. This move was spurred by the decisions from higher-tier financial institutions, specifically Norges Bank and the Federal Reserve, which fueled a substantial 2.35% decline but mainly due to the Norwegian taking on an unexpected hike.

In line with that, Norges Bank announced a 25 bps in the policy rate, bringing it up to 4.50%, and suggested a potential halt of their rising rate cycle, as the terminal rate projections were slightly upped to 4.55% from 4.44%, in sync with previous forecasts and showing the little possibility of more hikes.

Despite the market and economists' low expectations, Norges Bank enforced the hike but it also changed its tone, exhibiting concern over the risks between over-tightening and under-tightening, hinting at a reduced inclination towards future hikes.

On the other hand, the Fed left rates steady at 5.25-5.50% as expected the official's median projections suggest that they expect 75 bps of easing in 2024. As a reaction, markets dumped the US Dollar, also driven by the bank’s hints of low odds of additional tightening, also fuelling the pair downwards.

USD/NOK levels to watch

The daily chart suggests that the pair finds itself in a bearish landscape, as the Relative Strength Index (RSI) portrays a negative slope in the negative territory while the Moving Average Convergence Divergence (MACD) histogram further confirms this bearish bias, presenting rising red bars.

On a broader context, the pair is nestled below the 20,100 and 200-day Simple Moving Averages (SMAs), cementing the control of the sellers also in the larger context.

Support Levels: 10.450, 10.400, 10.350.
Resistance Levels: 10.570, 10.680 (200-day SMA), 10.700.

USD/NOK daily chart

• Gold’s rally was halted shy of hitting $2050, as long book profits ahead of Friday’s session.
• The main driver was the Fed’s dovish pivot, which opened the door for US Dollar weakness.
• However, the Fed remains data dependent, and solid data could refrain them from easing policy.

Gold price sees green, though it has retreated somewhat after reaching a new weekly high of $2047.91, clings to gains of 0.15%, and trades at around $2030.20 a troy ounce after hitting a daily low of $2024.37.

Fed Chair Powell lack of pushback to underpin Gold prices

On Wednesday, the Federal Reserve surprised the markets by adopting a dovish stance despite holding rates at the 5.25%-5.50% range. In the monetary policy statement, officials said the labor market is cooling, growth moderating, and inflation is getting lower, but emphasized that it’s elevated. Even though, the statement presented a neutral stance, the Summary of Economic Projections (SEP), did not.

Firstly, the SEP announced the Fed finished its tightening cycle. Second, policymakers foresee three rate cuts in 2024, half of what the markets had priced in for the next year, while inflation revises downward. In addition, they revised GDP from 2.1% to 2.6% in 2023, and the Unemployment Rate stood at 3.8%, unchanged from its previous revision.

That said, US Treasury bond yields have plunged sharply. For example, the 10-year benchmark note is down 45 basis points, at 3.932%, while the 2-year, the most sensitive to interest rate adjustments, has fallen 35 basis points, to 4.382%.

Consequently, the US bond yields' direction is undermining the Greenback, which has fallen to four-month lows at 101.77 but has trimmed some losses, down 0.88% at 101.99.

Fed Chair Jerome Powell’s failure to push back against overly priced rate cuts gave investors the perfect excuse to increase bets that the US central bank would be forced to ease policy more than they projected, despite Powell and Co. keeping the door open for additional rate hikes.

On the data front, US Retail Sales exceeded forecasts and sponsored a slight recovery for the Greenback. At the same time, American filling for unemployment claims and the previous week’s report were lower than expected, suggesting the labor market remains tight.

Ahead on the week, the US calendar will feature S&P Global Flash PMIs for December, the Industrial Production for November, and the NY Fed Empire State Manufacturing Index.

XAU/USD Price Analysis: Technical outlook

Gold’s remain upward biased, but if Thursday’s price action prints an inverted hammer, that could open the door to form an ‘evening star three candle pattern,’ a bearish pattern. In that outcome, sellers could test support levels like the October 27 high at $2009.42, ahead of the $2000 figure. Further downside is seen at the 50-day moving average (DMA) at $1974.78.

• The EUR/JPY recovered ground to pare back some of Wednesday’s losses.
• ECB’s President Lagarde leaned into data dependency, sees inflation at 1.9% by end of 2016.
• Eurozone PMIs slated for Friday, markets forecasting tentative gains

The EUR/JPY climbed back into the 156.00 handle in Thursday’s chart recovery sparked by an on-balance European Central Bank (ECB) that managed to strike an on-balance message that didn’t lean too heavily into either hawkish or dovish territory. ECB President Christine Lagarde noted that the ECB’s current projections were made ahead of a run of softer-than-expected Consumer Price Index (CPI) figures, and ECB policymakers will be taking a fresh look at overall Eurozone inflation before making any final decisions on policy changes.

A middling ECB gave the Euro (EUR) just enough leeway to recover ground lost against the Japanese Yen in Wednesday’s plunge that took the EUR/JPY into fresh lows for the week near the 154.00 handle.

Read More: Lagarde explains decision to keep rates unchanged, comments on policy outlook

Money markets are currently pricing a 50% chance of a rate cut at the ECB’s March meeting, with expectations that the ECB’s main reference rate will be cut to around 2.4% by the end of 2024, compared to the current level of 4.5%.

The ECB may not be quite ready to meet markets in the middle on rate cuts; reporting by Bloomberg, citing anonymous sources, suggests that the ECB is further from discussing rate cuts than the market might be willing to accept. According to ECB President Lagarde, rate cuts weren’t even discussed at their latest policy meeting.

Eurozone Preliminary Purchasing Managers’ Index (PMI) figures for December are due on Friday, and markets are expecting a slight recovery in the figures. 

The Eurozone HCOB Composite PMI for December is forecast to come in at 47.6 versus November’s 48.0, an improvement but still in contractionary territory. The HCOB Manufacturing PMI is forecast to print at 44.6 versus the previous 44.2, while December’s Services PMI is expected to improve from 48.7 to a flat 49.0.

EUR/JPY Technical Outlook

Thursday’s EUR/JPY rally brings the pair back toward the 50-hour Simple Moving Average (SMA), with the 200-hour SMA capping off any near-term bullish extension beyond the 157.00 handle.

The pair is still off of recent highs after failing to capture the 157.50 price level on Wednesday, and the pair is still down nearly a full percent from Wednesday’s peak at 157.48.

Things are looking notably more bullish on the daily candlesticks, despite a fierce backslide from November’s peak bids near the 164.00 handle. The pair is down nearly seven percent peak-to-trough from November’s fifteen-year high, with the 160.00 major handle proving to be a tough technical barrier, but Thursday’s bounce sees the pair EUR/JPY setting up for a technical rebound after getting rejected from the 200-day SMA rising from 154.00.

EUR/JPY Hourly Chart

EUR/JPY Daily Chart

EUR/JPY Technical Levels

• The DXY Index hovers around 101.90, presenting its lowest level since August.
• Despite positive Retail Sales Figures from November, the US Dollar continues to weaken.
• The Greenback is suffering the aftermath of Wednesday’s Fed announcement.
• The yield on the 2-year US bond declined to its lowest since June.

The US Dollar (USD) declined to 101.80, its weakest position since August. The Federal Reserve's (Fed) unexpected hint at three rate cuts for 2024 weighs heavily on US Treasury yields and the Greenback.

In the last meeting of the Fed in 2023, the bank welcomed cooling inflation figures, and the revised Dot Plot suggests Fed governors aren't seeing any rate hike in 2024. Additionally, they forecasted 75 basis points of easing. This means that the market expectations are aligning with the bank's stance, which is cheered by markets as it fuels risk-on flows.

Daily Market Movers: US Dollar loses ground, despite positive Retail Sales figures, US yields in multi-month lows

• The Fed hinted at a triad of rate cuts expected for 2024, which applied pressure on the US dollar. 
• The November Retail Sales report by the US Census Bureau indicated a 4.1% (YoY) increase, a stronger performance than the 2.2% increase of the previous month. 
• The US Department of Labor reported Initial Jobless Claims for the week ending on December 9 at 202K, slipping beneath the 220K consensus and previous 221K figures, signaling an unexpectedly healthy job market.
• Currently, US bond yields are decreasing, with rates at 4.35% for the 2-year yield, 3.87% for the 5-year yield, and 3.91% for the 10-year yield. 
• The CME FedWatch Tool projections suggest that markets foresee rate cuts as early as March 2024. 

Technical Analysis: DXY Index bears take the lead, indicators dive to negative zone

The Moving Average Convergence Divergence (MACD) histogram shows rising red bars, a signal typically associated with bearish momentum, while the Relative Strength Index (RSI) is nearing oversold conditions, adding further confirmation that the bears command price movement.

Furthermore, examining the Simple Moving Averages (SMAs), the index is positioned below the 20, 100 and 200-day SMAs, indicating a dominant bearish bias in the larger context. This suggests that despite the oversold RSI hinting at temporary relief, the overall selling pressure remains strong, and the bears continue to dictate the price action. 

Support levels: 101.50, 101.30, 101.00.
Resistance levels: 103.45  (20 and 200-day SMA bearish crossover), 104.50 (100-day SMA), 104.70.

• Silver posts gains of more than 6% in the last couple of days, sponsored by a dovish Fed.
• US Treasury bond yields plunge continued for the second straight day.
• XAG/USD is upward biased in the near term but must reclaim $25.00 to challenge year-to-date (YTD) highs.

Silver price climbs and reclaims the $24.00 figure after extending its gains for the second consecutive day, following the Federal Reserve’s dovish pivot on Wednesday. The plunge in US Treasury bond yields plunge, favors the non-yielding metal, which is rising to a six day high at around $24.21, gaining more than 1.50%.

The grey’s metal is bullishly biased in the near term, as shown by the daily chart, though it’s reading within the mid-range of the latest upswing from $21.88-$$25.91, with a long road ahead to test the most recent cycle high. On its way north, key resistance levels exist to conquer, like the $24.50 psychological level, followed by the August 30 high at $25.00, before reaching $25.91.

On the other hand, if XAG/USD achieves a daily close below the $24.00 mark, that could pave the way for a pullback toward the 200-day moving average (DMA) previous resistance turned support at $23.55, immediately followed by the 50-DMA and the 100-DMA confluence at around $23.24/$23.19, before diving to $23.00.

XAG/USD Price Analysis – Daily Chart

XAG/USD Technical Levels

• AUD/USD hit a four-month high in early Thursday on Australian data beats.
• Broad-market risk rally fueled by Fed rate cut expectations extends into a second day.
• Australian PMI figures due early Friday, US PMIs to close out the trading week.

The AUD/USD tapped a four-month high of 0.6728 in early Thursday trading, with the Aussie (AUD) extending a Fed-fueled risk rally after Australian labor figures beat the street, and the US Dollar (USD) tumbles across the broader FX market.

The US Federal Reserve (Fed) pivoted on its monetary policy outlook on Wednesday, tabling interest rate cut discussions for the first time in years. Fed policymakers currently expect 75 basis points in interest rate cuts through the end of 2024. 

The US Dollar promptly deflated on Fed headlines, and the Aussie extended near-term gains after an unexpected bump in Australian Employment Change figures for November, adding 61.5K jobs versus the expected 11K. October previously added 42.7K new jobs (revised down steeply from 55K).

Purchasing Manager Index (PMI) figures will wrap up the trading week for both Australia and the US.

Australia’s Judo Bank Preliminary PMI figures for December will print early in the Friday trading session. The Australian economy has struggled of late, and Aussie bidders will be hoping for an improvement in the headline read. The Australian Judo Bank Manufacturing PMI last printed at 47.7 in November, with the Services PMI last printing a flat 46.0.

US PMI figures due later on Friday are expected to show a slight step back, with the S&P Global Manufacturing PMI seen declining from 49.4 to 94.3, and the Services PMI slipping backto 50.6 from 50.8.

AUD/USD Technical Outlook

Despite Wednesday’s hard rally above the 0.6700 handle, the Aussie is running the risk of getting hung up in a near-term congestion zone as the AUD struggles to develop an extension in bullish momentum following the broader market’s US Dollar rebalance.

0.6720 is hardening into a near-term ceiling for intraday candles, and the struggle for Aussie bulls will be to mount a fresh attack and muscle the AUD/USD over the 0.6730 level to take a fresh run at the 0.6800 handle.

Daily candlesticks have the AUD/USD extending further into chart territory above the 200-day Simple Moving Average (SMA), and December’s early swing highs into 0.6670 could flip into technical support in the near-term.

AUD/USD Hourly Chart

AUD/USD Daily Chart

AUD/USD Technical Levels

• The Swiss Franc trades mixed after a throng of meetings by the world’s leading central banks.
• The Federal Reserve, Swiss National Bank, European Central Bank and Bank of England have all had meetings in the last 24 hours.
• Swiss Franc is up versus the US Dollar but lower against the Euro and the Pound. 

The Swiss Franc (CHF) traded mixed on Thursday after policy meetings by all the major central banks provided traders with more intel on the future course of interest rates – a key driver of currency valuations. 

The first c-bank to kick off was the Swiss National Bank (SNB). The SNB left interest rates unchanged at 1.75% and lowered its inflation forecasts, an indication it might also lower interest rates in the future. 

However, Swiss National Bank Chairman Thomas Jordan tried to dampen speculation of interest rate cuts by stating the bank would not be cutting rates as global “uncertainty remains high.” The general consensus was dovish (that interest rates will fall). The expectation of lower interest rates weakens a currency since it leads to lower capital inflows. 

Nevertheless, the Swiss Franc is trading higher versus the US Dollar after the Federal Reserve (Fed) struck an even more dovish tone at its meeting on Wednesday, when the Chairman of the Federal Reserve, Jerome Powell, said talk of interest rate cuts had come “into view”. 

The Swissie is lower against both the Euro and the Pound after neither of their central banks discussed cutting interest rates at all, suggesting rather that they might remain higher for longer. 

Daily digest market movers: Swiss Franc gains against weakening USD on dovish Fed

• The Swiss Franc rose versus the US Dollar (USD) on Thursday after Fed Chair Powell signaled monetary policy tightening is likely over as inflation is falling faster than expected. He added that a discussion of interest rate cuts at the Fed meeting had come "into view." It is the first time he has mentioned cuts being discussed during this tightening cycle.  
• Whilst both the Fed and SNB lowered their inflation forecasts, Powell (unlike Jordan) mentioned the subject of interest rate cuts had been discussed, which likely led to the more dovish outlook for the Fed rather than the SNB. 
• This explains the USD’s weakness versus the Swiss Franc.

Swiss Franc technical analysis: USD/CHF resumes broader downtrend

USD/CHF – the number of Swiss Francs that one US Dollar can buy – corrects all the way back down to the December lows. 

The pair is arguably in a downtrend now on all major time frames, suggesting bears are fully in charge and further weakness is probable. 

US Dollar vs Swiss Franc: Weekly Chart

If a break below the December lows holds, the pair may well continue falling toward the next target at the July 2023 lows of 0.8552. Beyond that, further weakness could drag the pair down to 0.8500 and beyond.

The Relative Strength Index (RSI) is not yet oversold, indicating more downside is possible before bears have had enough.

Daily digest market movers: Swiss Franc takes battering vs Euro as Lagarde turns hawkish

• The Swiss Franc weakened against the Euro on Thursday after the President of the European Central Bank (ECB), Christine Lagarde, said the governing council did not “at all” discuss rate cuts. 
• At its meeting on Thursday, the ECB announced that it had decided to leave key rates unchanged. With this decision, the interest rate on the main refinancing operations, the marginal lending facility and the deposit facility stayed at 4.50%, 4.75% and 4.00%, respectively.
• The Euro rose on Lagarde’s not discussed “at all” comments, as these suggest the ECB is far from reducing interest rates. 

Swiss Franc technical analysis: EUR/CHF trends higher in the short-term, but longer-term horizon still bearish

EUR/CHF – the number of Swiss Francs that one Euro can buy – is shooting higher on Thursday. 

The pair has reversed trend in the short term, suggesting bulls now have the upper hand on that time horizon. EUR/CHF has broken above the 0.9487 December 11 high, reconfirming the uptrend. It has now met its first immediate upside target at 0.9540, where a confluence of resistance levels sits.

This tough resistance ceiling would have to be battered down for the short-term bullish trend to continue.

Euro vs Swiss Franc: 4-hour Chart

The medium-term trend (daily chart below), however, is still either sideways or bearish, suggesting over-eager bulls should operate with caution. 

Nevertheless, the MACD momentum indicator is about to execute a potentially bullish crossover, indicating strength may come. 

Euro vs Swiss Franc: Daily Chart

A decisive break above 0.9600 would probably indicate a break above the resistance cap from the 50 and 100 Simple Moving Averages (SMA) and leave the way open to further upside to the top of the range at around 0.9685. 

The long-term view on the weekly chart below shows a more bearish picture and the pair bouncing around multi-year lows just above 0.9400. 

The MACD momentum indicator, however, is supporting a more positive outlook by forming a long-term bearish convergence with price. This happens when price falls to lower lows but MACD does not mirror it. It is a sign of waning bearish momentum and underlying strength.  

Euro vs Swiss Franc: Weekly Chart

A decisive weekly-bar break below the 0.9403 multi-year low would reconfirm the long-term bearish bias and see prices fall into uncharted territory, with major whole numbers then expected to provide support at 0.9300, 0.9200 and so on.

A break above the range highs at 0.9685 would be required to at least raise the possibility of a reversal in the downtrend. 

Daily digest market movers: Sterling rises against Swiss Franc after ‘hawkish’ BoE meeting 

• The Swiss Franc weakened against the Pound Sterling (GBP) on Thursday after the Bank of England (BoE) noted that inflation remains persistently high, suggesting rates will also need to stay high. 
• The Bank of England (BoE) Monetary Policy Committee (MPC) voted by a majority of 6–3 to maintain the Bank Rate at 5.25% on Thursday. Three members preferred to increase the Bank Rate by 25 basis points. 
• BoE policy makers believed the current monetary policy stance is restrictive, although they reaffirmed their intention to maintain rates higher for longer.
• Bank of England Governor Andrew Bailey did say he “hopes” they are at the top of the rate cycle.
• Average Earnings in the UK remain relatively high, suggesting inflation may remain sticky. 
• The problem of wage inflation is exacerbated by a lack of labor market spare capacity following Brexit. 
• Recent data showed Average Earnings Excluding Bonuses slowed slightly to 7.3%, and Average Earnings Including Bonuses slowed slightly to 7.4%.
• Whilst lower than forecast and previous figures these are high given the MPC’s Bank Rate of 5.25%.   

Swiss Franc technical analysis: GBP/CHF back in the middle of its range

GBP/CHF – the number of Swiss Francs that one Pound Sterling can buy – continues randomly bobbing around in a month-long range on the 4-hour chart used to analyze the short-term trend. It is also sideways on long-term time frames. 

On the 4-hour chart the pair has reversed yet again and is bouncing higher after briefly breaching the range lows just prior to the BoE meeting. It is now roughly back plum in the middle of the range.

Pound Sterling vs Swiss Franc: 4-hour Chart

The MACD has recently crossed above its signal line whilst below the zero line, which is a bullish short-term signal and could signify more gains to come.

The recovery and break above the 1.1040 level has provided some bullish confirmatory evidence a new leg higher is underway, toward a target at 1.1155 and the range high, although the pair remains volatile and difficult to judge.

• EUR/USD is gaining more than 0.90% on the day after the ECB’s monetary policy decision.
• ECB’s President Lagarde stated no rate cuts were discussed by the Governing Council.
• Divergence in monetary policy favors EUR/USD upside in the near term.

The EUR/USD rallies in the North American session as the European Central Bank (ECB) kept rates unchanged and pushed back against easing monetary policy next year. That and the Federal Reserve’s dovish hold on Wednesday sponsored a leg-up in the pair. At the time of writing, the major trades at 1.0984 after bouncing from the day’s low of 1.0869.

President’s Lagarde hawkish message was heard by traders, which cut bets on ECB’s rate cuts

On Thursday, the ECB kept rates unchanged, with the deposit rate at 4%, the current level for the second straight meeting, and began discussing an exit of the PEPP buying-bond program, which would start after the first half of 2024. Euro (EUR) holders cheered the central bank’s decision, as shown by the EUR/USD reaction, rallying sharply towards 1.0990, unable to reach the 1.1000 figure.

Consequently, traders cut bets on ECB rate cuts for 2024, as the ECB’s President Christine Lagarde said there were no discussions about easing monetary policy. She added that rates could stay at current levels at least for the first half of 2024, brushing aside cut speculations.

Across the pond, United States (US) data paints a Goldilocks scenario as Retail Sales exceeded forecasts. At the same time, claims for unemployment for the last week were lower than expected and trailed the prior report.

In the meantime, market participants continued to digest the Federal Reserve’s pivot toward easing policy. US Treasury bond yields continued to plunge, undermining the Greenback. The US Dollar Index (DXY), which tracks the currency’s performance against six rivals, has fallen close to 1%, at 101.88.

The Eurozone’s calendar will feature Flash PMIs and the Balance of Trade ahead of the week. In the US, Flash PMIs would be released along with Industrial Production, and the Fed Regional Bank would commence to reveal Manufacturing Indices.

EUR/USD Technical Levels

• Canadian Dollar gains further ground against the US Dollar in risk-on markets.
• Bank of Canada Governor Macklem slated to make an appearance on Friday.
• WTI Crude Oil ticks up to $72, lifts CAD higher.

The Canadian Dollar (CAD) is extending into a second straight day of gains against the US Dollar (USD) on Thursday as global markets see a broad improvement in risk appetite. The US Federal Reserve (Fed) pivoted on Wednesday, putting rate cuts on the table for the first time in years, sending market sentiment soaring and the USD plunging to fresh lows. The US Dollar was the single worst-performing currency of the majors on Thursday, bolstering the CAD to eleven-week highs.

Economic data from Canada remains strictly limited to low-tier datasets on Thursday, and CAD traders will be looking out for Bank of Canada (BoC) Governor Tiff Macklem’s speech late Friday. BoC Governor Macklem will be giving a speech at the Canadian Club of Toronto, and the pre-written speech notes will be released at 17:25 GMT. Audience questions are expected at the event.

Daily Digest Market Movers: Canadian Dollar propped up by a slow bleed in US Dollar flows

• The CAD is benefiting from structural flows on multiple fronts.
• A Fed-sponsored, broad-market USD sell-off is seeing a lift in nearly all risk assets.
• The Fed granted investors their wish on Wednesday, chalking in multiple rate cuts in 2024, and expects a 75 basis point decrease in the Fed rate by the end of next year.
• Markets are ignoring multiple data points to bid the week’s Fed action.
• US MoM Retail Sales for November printed well above expectations, showing a 0.3% increase versus the expected -0.1%, while October’s print saw a slight downside revision from -0.1% to -0.2%.
• Canadian Manufacturing Sales for October contracted steeper than expected, declining by 2.8% versus the forecasted 2.7% contraction, accelerating declines from September’s print of 0.7%, which also saw an upside revision from 0.4%, slightly steepening October’s decline.
• Crude Oil markets are on the mend with West Texas Intermediate (WTI) US Crude Oil climbing back to $72 per barrel.
• Crude Oil is catching a much-needed bid from Fed-inspired risk appetite, as well as declining barrel counts and a hopeful outlook from the Organization of the Petroleum Exporting Countries (OPEC).

Technical Analysis: Canadian Dollar topside snap sends USD/CAD toward 1.3400

The Canadian Dollar (CAD) is seeing a firm recovery against the US Dollar (USD) extend into a second straight day, sending the USD/CAD further across the 200-day Simple Moving Average (SMA) near 1.3500 as the pair comes within reach of the 1.3400 handle on Thursday. At the time of writing, the Canadian Dollar is up seven-tenths of a percent against the US Dollar.

USD/CAD’s clean break of the 200-day SMA on Wednesday is extending, and Loonie bidders will be looking to push as far as they can toward July’s swing lows near 1.3100, with the low for 2023 etched in at 1.3092.

Near-term bearish acceleration sees the USD/CAD peeling away from intraday moving averages, with the 200-hour SMA just above 1.3560 and the 50-hour SMA accelerating into the low end after a  bearish cross of the longer moving average. This proves to be a technical ceiling for any potential pullbacks into the chart region between 1.3540 and the 1.3500 handle.

USD/CAD Hourly Chart

USD/CAD Daily Chart

• The GBP/USD rides high on momentum, bouncing towards the 1.2730 level after hitting a high at around 1.2755.
• GBP gains bolstered by market forecasts of reduced easing from the Bank of England in 2024.
• On the other hand, dovish bets on the Fed weakened the US Dollar.

In Thursday's session, the GBP/USD pair surged after the Bank of England's (BoE) recent decision and jumped to its highest point since August at around 1.2755. The rapid ascend was largely motivated by the central bank's hawkish policy stance, which has boosted Sterling's value against the US Dollar.

In line with that, the BoE has once again retained the interest rates at 5.25%, continuing this trend for a third successive time. Despite this, a hint towards additional monetary tightening was signaled if enduring inflationary pressures occur. Governor Andrew Bailey highlighted the potential for future policy tightening while adhering to the higher interest rates for  longer stance. Regarding the vote split, three out of the nine Monetary Policy Committee (MPC) members favored an incremental rise of 0.25% to 5.50% in interest rates.

Following the decision, swaps markets have adjusted their expectations regarding rate cuts by the BoE. Previously, they anticipated a total of 115 basis points in cuts by next year’s end, but following today’s decision, investors now see 107 bps of easing. In line with that, the GBP gained strength against the USD as the Federal Reserve (Fed) hinted on Wednesday that in 2024, there will be more easing than expected.

GBP/USD levels to watch

The indicators on the daily chart reflect that buying momentum is significantly overpowering the selling pressure. Firstly, the steep positive slope of the Relative Strength Index (RSI) is a strong indication that buyers are dominating this market, pushing it well into positive territory..

Meanwhile, the Moving Average Convergence Divergence (MACD) is printing rising green bars, further suggesting that the pair is finding robust buying interest..

Lastly, looking at the Simple Moving Averages (SMAs), the pair comfortably trades above its 20, 100, and 200-day SMAs on the larger time frames. This positioning above these key SMAs adds further weight to a bullish outlook, implying that the buyers are firmly maintaining control over the longer term.

Support Levels: 1.2670, 1.2630, 1.2600 (20-day SMA).
Resistance Levels: 1.2760, 1.2800, 1.2830.

GBP/USD daily chart

• The Mexican Peso remains soft ahead of the Bank of Mexico’s decision.
• Mexico’s central bank is forecasted to keep rates at 11.25%, though uncertainty looms around the tone of the statement.
• USD/MXN edged higher due to solid US Retail Sales and fewer Americans asking for unemployment claims.

The Mexican Peso (MXN) depreciates against the US Dollar (USD), losing some ground gained on Wednesday after the US Federal Reserve (Fed) decided to end its tightening cycle, hinting it’s ready to cut rates in 2024. However, USD/MXN traders remain wary as the Bank of Mexico (Banxico) is next with its latest decision of 2023. The exotic pair is trading at 17.38, gaining 0.83% on the day.

The Banxico is expected to keep rates unchanged at 11.25%, a level set in March 2023. Since then, Mexico’s central bank has maintained this rate level, adding to the mantra of “higher for longer.” Nevertheless, the bank statement's tone has gradually softened, saying it will keep rates higher for “some time,” while some officials commented that rate cut discussions could begin in the first quarter of the next year.

Daily Digest Market Movers: Mexican Peso awaiting Banxico for direction

• A Reuters poll showed that 22 of 23 analysts expect the Bank of Mexico would keep rates at 11.25%, while one estimates a rate cut to 11%. Banxico’s decision is due at 19:00 GMT. Annual inflation ticked up to 4.32% in November, though it didn’t dent policymakers' intentions to ease policy next year if data confirms the disinflation process.
• Meanwhile, the USD/MXN gathered some traction after strong US economic data. US Retail Sales in November rose by 0.3% MoM above estimates for a 0.1% decline.
• At the same time, the US Bureau of Labor Statistics (BLS) revealed that Initial Jobless Claims for the week ending December 9 jumped by 202K, less than the 220K forecast and last week’s 221K reported.
• The latest Federal Reserve’s decision to hold rates and its pivot towards easing policy in 2024 might keep the USD/MXN undermined below the 18.00 figure toward the end of the year, barring a surprise by Banxico.
• Fed officials expect to lower the federal funds rates (FFR) to 4.60% in 2024, though they remain data-dependent.
• The Summary of Economic Projections (SEP) updated by policymakers suggests the US economy would grow 2.6% in 2023, up from September’s 2.1%, while headline inflation is expected to dip below 3% from 3.3% and core to slide towards 3.2% from 3.7%,.
• Fed Chair Jerome Powell's failure to push back against aggressive rate cut bets sent the Greenback plummeting to a 4-month low.
• Money market futures estimate the Fed will slash rates by 141 basis points toward the end of next year, twice the Fed’s forecasts of three 25 bps cuts.

Technical analysis: USD/MXN buyers target 100-day SMA

The USD/MXN bias remains neutral after touching yearly lows below the 17.00 figure, and since mid-September, the exchange rate has stabilized at around the 17.00-18.48 range. At the time of writing, the pair hit the 100-day Simple Moving Average (SMA) at 17.40 but retreated toward the 17.30 area, with traders awaiting Banxico’s decision.

For a bearish continuation, the pair must drop below the current week’s low of 17.18, which could expose the area of 17.00-17.05, a solid support level reached in November. If those two levels are surpassed, then the pair could challenge the year-to-date (YTD) low of 16.62.

On the flip side, buyers need to reclaim the 100-day SMA to challenge strong resistance at the 200-day and 50-day SMAs, at 17.53 and 17.62, respectively.

USD/CAD traded up to a high of 1.3899 on November 1. Despite the decline since those highs, Loonie was the second-worst performing currency in G10 FX, only underperforming USD. Economists at Rabobank analyze the pair’s outlook. 

US and Canadian monetary policy cycle to remain closely linked

Economists at MUFG Bank expect the Japanese Yen to enjoy considerable gains next year.

JPY to outperform notably as BoJ act

Economists at Rabobank have revised up our forecasts for GBP against the USD and the EUR.

EUR/GBP seen at 0.84 on a 9-to-12-month

Banxico meets today. Economists at ING analyze Mexican Peso’s outlook ahead of the Interest Rate Decision.

Will Banxico offer concrete signs of easing?

Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to leave the key interest rates unchanged in December and responds to questions from the press.

Key quotes

"We did not discuss rate cuts."

"Between hikes and cuts, there is a plateau of hold."

"Who wants to hang on for too long? Equally, we don't think it's time to lower our guard, there is still work to be done."

"This can take the form of holding rates."

About ECB's press conference

Following the ECB´s monetary policy decisions, the ECB President delivers a prepared statement and responds to questions from the press on the policy outlook. Her comments may influence the volatility of EUR and determine a short-term positive or negative trend. Her hawkish view is considered as positive, or bullish for the EUR, whereas her dovish view is considered as negative, or bearish.

• The Dollar remains sold weighed by Wednesday’s Fed pivot.
• The upbeat retail sales and jobless claims have failed to support the USD.
• USD/CAD approaches important support at 1.3415 with oscillators at strong oversold levels.

The US Dollar remains under strong bearish pressure on Thursday. The combination of an unexpectedly dovish Fed and a significant recovery on Oil prices is sending the pair close to the support area at 1.3410.

The upbeat US macroeconomic data seen on Thursday, with Retail sales increasing against expectations and Jobless claims declining, has failed to provide support to an ailing USD.

A dovish Fed and higher Oil prices have hammered the USD

On Wednesday the Federal Reserve hinted at the end of rate hikes, with 17 out of 19 policymakers anticipating rate cuts in 2024. The dop plot reflected a median of 75 bps cuts next year, up from the 50 bps cuts seen at September’s meeting.

Beyond that, Crude Oil, Canada’s main export has appreciated nearly $4, with the US Benchmark WTI returning above $70. This is providing additional support to the loonie.

The technical picture shows the USD under strong bearish pressure, although the strong oversold levels and the vicinity of the 1.3415 support area might allow for some correction.

Below here, the next targets would be late September lows at 1.3375 and the August 4 low at 1.3320.

On the upside, resistances are at 1.3480 and 1.3545 previous support levels. 

Technical levels to watch

This news piece was corrected on December 14 at 14:22 GMT: The term "resistance" was replaced by "support" in the title and 1.2420 was changed to 1.3415 in the fifth paragraph.

Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to leave the key interest rates unchanged in December and responds to questions from the press.

Key quotes

"Upside risks to inflation include geopolitical tensions."

"Weather events could drive up food prices."

"Inflation may surprise on the downside if the monetary policy depresses activity more than expected."

"Market rates have fallen markedly, lie below rate embedded in staff projections."

"Inflation path is flatter than before, lowers risk of expectations are de-anchoring."

"A lot of indicators showing underlying inflation below expectations."

"Inflation outlook conditional on interest rate path embedded at cutoff."

"Wage data we have now is not declining."

"Some governors would have liked different tapering, earlier or later."

"PEPP is unrelated to rates."

About ECB's press conference

Following the ECB´s monetary policy decisions, the ECB President delivers a prepared statement and responds to questions from the press on the policy outlook. Her comments may influence the volatility of EUR and determine a short-term positive or negative trend. Her hawkish view is considered as positive, or bullish for the EUR, whereas her dovish view is considered as negative, or bearish.

Gold has been on a roller-coaster ride in H2 2023, slumping in September before surging to a record earlier this month. Economists at MUFG Bank analyze the yellow metal’s outlook for 2024.

Priced for perfection

Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to leave the key interest rates unchanged in December and responds to questions from the press.

Key quotes

"Prospects are especially weak for construction and manufacturing."

The labor market continues to support the economy."

"It's important to swiftly agree on a reform of the EU economic framework."

"The inflation decline was broad-based."

"Inflation is expected to decline more slowly in 2024."

"Most measures of longer-term inflation expectations currently stand at around 2%."

"Some inflation expectation indicators are declining from elevated levels."

"Risks to growth are skewed to the downside."

About ECB's press conference

Following the ECB´s monetary policy decisions, the ECB President delivers a prepared statement and responds to questions from the press on the policy outlook. Her comments may influence the volatility of EUR and determine a short-term positive or negative trend. Her hawkish view is considered as positive, or bullish for the EUR, whereas her dovish view is considered as negative, or bearish.

• Initial Jobless Claims in the US decreased by 19,000 in the week ending December 9, the lowest level in eight weeks. 
• Continuing Claims rose to 1.876 million in the week ended December 2, below the 1.887 million of market consensus. 
•  US Dollar Index trims losses, recovering from four-month lows after the report and following Retail Sales figures. 

There were 202,000 initial jobless claims in the week ending December 9, the weekly data published by the US Department of Labor (DOL) showed on Thursday. This print followed the previous week's print of 221,000 (revised from 220,000) and came in better than the market expectation of 220,000. It is the lowest reading since mid-October. 

Continuing Claims increased by 20,000 to 1.876 million in the week ended December 2.

Market reaction

The US Dollar rose following the Retail Sales report and the weekly Jobless Claims figures. The US Dollar Index (DXY) recovered ground from the lowest level since August. The DXY bottomed earlier at 102.27 and after the data reached levels above 102.50.  European Central Bank (ECB) President Christine Lagarde will deliver a press conference at 13:45 GMT.

ECB Interest Rate Decision Live Coverage

(This story was corrected on December 14 at 13:49 GMT to say that there were 202,000 initial jobless claims in the week ending December 9. A previous version of the story said that there were 220,000 initial jobless claims.)

The Bank of England (BoE) kept policy rates unchanged with a 6:3 vote. GBP is extending gains after the “Old Lady” retained hawkish undertones in the statement. Economists at TD Securities analyze Sterling’s outlook.

• US Retail Sales rose by 0.3% in November, compared to the -0.1% of market consensus.
• Core Retail Sales increased by 0.2%, and Control Group Sales by 0.4%. 
• The US Dollar rose following Retail Sales data and the weekly Jobless Claims report. 

Retail Sales in the US rose 0.3% on a monthly basis in November to $705.7 billion, the data published by the US Census Bureau showed on Thursday. This reading followed the 0.2% decline (revised from -0.1%) recorded in October and came in better than the market expectation of a 0.1% decline.

Retail Sales Ex-Autos rose 0.2% in the same period, compared to analysts' estimate of a 0.1% slide. Retail Sales Control Group increased 0.4%.

Market reaction

The US Dollar recovered some ground following the Retail Sales report and the weekly Jobless Claims figures. The US Dollar Index (DXY) rose from monthly lows to the 102.50 area. European Central Bank President Christine Lagarde will deliver a press conference at 13:45 GMT.

ECB Interest Rate Decision Live Coverage 
 

• NZD/USD finds support near 0.6200 as the broader sentiment is bullish.
• Monthly US Retail Sales are seen contracting by 0.1%.
• The NZ economy surprisingly contracted by 0.3% in Q3.

The NZD/USD pair finds buyers’ interest after a nominal correction to near the round-level support of 0.6200 in the early New York session. The broader outlook for the Kiwi asset is upbeat as the market mood is quite cheerful due to surprisingly dovish commentary by the Federal Reserve (Fed).

The S&P500 is expected to open on a positive note, considering strength in overnight futures. The 10-year US Treasury yields have dropped further to near 3.94% as the Fed is done with hiking interest rates.

Fed Chair Jerome Powell, in his monetary policy statement on Wednesday, announced three rate cuts in 2024 against expectations of ‘higher for longer’ interest rates message, which battered the US Dollar. Powell didn’t declare victory over inflation but his confidence in the resilience of the labor market and cooling inflation projections raised expectations for a ‘soft landing’.

Meanwhile, investors await the monthly US Retail Sales data for November, which will be published at 13:30 GMT. The economic data is seen contracting at a steady pace of 0.1%. A more-than-anticipated decline in consumer spending would elevate pressure on the US Dollar. The US Dollar Index (DXY) extends downside to near 104.30, at the time of writing.

On the Kiwi front, weak Q3 Gross Domestic Product (GDP) numbers kept the New Zealand Dollar on the backfoot. The NZ economy contracted by 0.3% while investors forecasted a growth rate of 0.2%. In the prior period, the economy expanded by 0.5%.

• The USD finds some support at 141.00 after Wednesday’s decline.
• Upside attempts remain limited with the Dollar Index at multi-month lows.
• The pair might consolidate ahead of Friday’s BoJ decision.

The Dollar seems to have found some support at the 141.00 area after having lost nearly 3% following Wednesday’s Fed decision. The pair, however, remains unable to post a significant recovery, with the Dollar index depressed at four-month lows.

The US Federal Reserve left its benchmark rate unchanged at the 5.25% - 5.5% channel but hinted at the end of the tightening cycle with chair Powell highlighting the fast decline in inflation.

Beyond that, the economic forecasts pointed out slow growth, and the interest rate projections anticipated 75 bp cuts next year, above the 50 bp cuts seen in September. This revives hopes of rate cuts in March and has sent the US dollar lower across the board.

The focus is now on the Bank of Japan which will release its Monetary policy decision on Friday. Investors have been speculating about the possibility of a major policy shift announced at December’s meeting, although BoJ officials have played down that option.

USD/JPY Technical analysis

From a technical perspective, the pair is trading at the bottom of an expanding wedge, at 141.00 with the oversold levels on the 4h RSI suggesting the possibility of some correction.

An upside attempt would be challenged at 142.50 and at the 144.45 previous support.

Below 141.00 the pair might find support at the 140.00 area, the 261% Fibonacci extension of the mid-November reversal ahead of the July 27 low, at 138.15. 
 

USD/JPY 4-hour chart

Technical levels to watch

The CAD is riding the soft USD wave back to its best levels since the end of September and might have a bit more to go yet, economists at Scotiabank report.

Scope for rebounds is looking increasingly constrained

USD broadly lower in the wake of the Fed decision. Economists at Scotiabank analyze Greenback’s outlook.

More losses look likely

Following the Bank of England's (BoE) no-rate change decision at its December meeting, Governor Andrew Bailey is on the wires, noting that “we cannot say that interest rates have peaked.”

Additional quotes

Market reaction

GBP/USD is flirting with two-week highs near 1.2730 on the above comments, up 0.82% on the day.  

GBP/USD extends gains after the Bank of England (BoE) leaves interest rate unchanged. Economists at Scotiabank analyze the pair’s outlook.

Support aligns at 1.2650

EUR/USD firmer ahead of ECB. Economists at Scotiabank analyze the pair’s outlook ahead of the Monetary Policy Decision.

Caution on rate outlook will be supportive

See – ECB Preview: Forecasts from 10 major banks, more dovish direction as inflation trends to the downside

• Bank of England keeps rates unchanged at 5.25% as expected. 
• Pound rises across the board after BoE decision. 
• GBP/JPY trims losses and rises above 180.00. 

The GBP/JPY extended its recovery from two-month lows, reaching levels above 180.00 following the Bank of England's (BoE) decision to leave interest rates unchanged. The currency pair found a bottom earlier at 178.33, driven by a stronger Japanese Yen across the board due to lower Treasury bond yields. After the BoE announcement, the British Pound gained momentum and accelerated its recovery.

As expected, the BoE maintained the interest rate at 5.25%. Three members of the Monetary Policy Committee voted in favor of a rate hike. The central bank emphasized that interest rates needed to remain high for an extended period. The BoE stated, "further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures."

Market participants await now the decision of the European Central Bank (ECB) and important economic data from the United States, which includes the weekly Jobless Claims report and Retail Sales.

Technical outlook

The GBP/JPY is rebounding from two-month lows, and from near the 200-day Simple Moving Average (SMA). A daily close below the 178.00 level would indicate further weakness. In the daily chart, the overall bias leans towards the downside, but there is potential for the rebound to continue, supported by shorter-term technical indicators.

On the 4-hour chart, both the Relative Strength Index (RSI) and Momentum have turned upwards. The cross is currently trading around the 180.00 area, and if it manages to hold above, the next significant barriers can be found at 180.55 and 181.20. A rally beyond 182.20 would improve the outlook for the Pound. However, bearish pressure is likely to reappear if GBP/JPY slides below 178.60.

GBP/JPY 4-hour chart 

Technical levels

• The Euro pares gains as the BoE boosts the GBP
• The Bank of England stands pat and keeps the door open for further tightening.
• The ECB will release its decision later today.

The Euro reversed on the back of Pound’s strength as the Bank of England released a hawkishly-tilted monetary policy statement after leaving interest rates unchanged, as widely expected.

Three BoE policymakers vore for a rate hike

The BoE voted to keep the Bank Rate at the current 5.25%, with three policymakers in favour of a 25 bps rate hike, an unchanged vote split from the previous meeting.

The three hawkish voters have endorsed the bank's vow for further tightening if inflationary pressures remain persistent. This has curbed hopes of rate cuts in early 2024 and has provided further support for the Pound.

EUR/GBP Technical analysis

The technical picture shows the pair losing upside momentum, with price action returning below the 0.8600 level. If the ECB increases downside pressure on the Euro later today, we could see the pair extending losses to 0.8580 on its way to 0.8550.

On the upside, above 0.8600, the next resistance levels lie at the November 6 swing low, at 0.8650 and 0.8690.
 

Technical levels to watch

• The US Dollar continues in the red after Wednesday’s sell-off. 
• Traders brace for three major central bank decisions in one day.
• The US Dollar Index trades near November’s low around 102.50.

The US Dollar (USD) underwent a very harsh correction on Wednesday during the speech from US Federal Reserve (Fed) Chairman Jerome Powell. Markets disregarded all the remarks on the possibility of more hikes when needed and the freedom the Fed gives itself to react any way it sees fit to get inflation down to 2%. All that mattered was that the dot plot projections showed a consensus of interest-rate cuts in 2024.

On the economic front, a chunky batch of data for the US is ahead, with Import and Export Prices, Jobless Claims and Retail Sales. Adding to that, no less than three major G7 central banks decide on interest rates. Expect very whipsaw moves and a spike in volatility ahead, with the possibility that US Dollar losses get easily retraced. 

Daily digest: BoE, ECB could follow Fed path 

• A very big batch of US economic data is set to be released at 13:30 GMT:
  • The monthly Import Price Index is expected to remain unchanged at -0.8% in November. The yearly Import Price Index fell 2% in October.
  • The monthly Export Price Index is expected to decline 1.1%. On year, the Export Price Index declined 4.9%.
  • Initial Jobless Claims are expected to stay stable at 220,000. Continuing Jobless Claims are expected to pick up a notch, from 1.861 million to 1.887 million. 
  • Retail Sales for November are expected to fall 0.1% on month.  Retail Sales excluding autos are expected to shrink by 0.1%. The revision of the previous number can also be the  market-moving factor.
• A big slew of Central Banks are taking the stage as well:
  • The Swiss Central Bank (SNB) kept its rate unchanged at 1.75%.
  • The Norwegian Central Bank (Norges Bank) hiked 25 basis points, from 4.25% to 4.50%. This triggered a substantial appreciation for the Norwegian Krone against the Greenback of 2.5% (USD/NOK) at time of writing.
  • The Bank of England kept its benchmark rate unchanged at 5.25%. The vote split was 6 in favor of a hold and 3 members voting for a 25 basis point hike. Pound Sterling rallies 1% against the Greenback at time of writing.
  • At 13:15 GMT, the European Central Bank (ECB) is set to issue its rate decision. Expectations are for an unchanged deposit rate at 4%. ECB’s President Christine Lagarde will speak at 13:45 GMT. Expectations for the ECB will turn dovish and prepare markets for rate cuts in 2024. 
• Risk-on sentiment across the equities board. The Chinese Hang Seng Index is up 1% at its closing bell. European equities are jumping higher, with the German Dax up over 1%. US equity futures follow suit ahead of the US trading session with near 0.50% gains. 
• The CME Group’s FedWatch Tool shows that markets are pricing in a 79.3% chance that the Federal Reserve will keep interest rates unchanged at its January 31 meeting. Around 20.7% expect the first cut already to take place.
• The benchmark 10-year US Treasury Note trades near 3.95%, a substantial leg lower as markets fully price in several cuts for 2024.

US Dollar Index technical analysis: Fed goes first, the rest will catch up

The US Dollar has had a firm bill to pay on Wednesday evening in the aftermath of the last Fed rate decision for 2023. The dot plot showed cuts for 2024, though that should not be anything new for traders as the Fed futures already pointed to cuts for 2024 back in the summer. With several other central banks ready to issue their dovish announcements and rate cut predictions for 2024, it is just a matter of time before markets adjust their bets favouring the US Dollar. In the rate differential, the US Dollar is still a strong yielder, and the Greenback could see ample investor inflow again, making the US Dollar Index (DXY) jump higher again. 

The DXY US Dollar Index could still resurge to more average levels seen recently. First level to recover is 103.00 as a big figure. Next up, 103.52  – near the 200-day Simple Moving Average (SMA) – is the ideal candidate to head next. From there, 104.00 and 104.60 (100-day SMA) are the levels to watch.

To the downside, the field is open for more downturn. The only level standing in the way for the DXY to head to 101.00 is the low of November near 102.46. Once broken, a big area opens up towards 101.00, with 102.00 briefly holding for support.

The Federal Reserve leads the way in pivoting towards rate cuts. Today, the Bank of England and the European Central Bank will announce their Monetary Policy Decisions. Economists at MUFG analyze how FX market could react to the latest central bank meetings.

Will BoE and ECB follow the Fed by providing dovish policy update?

• The Australian Dollar is steady at four-month highs above 0.6700.
• The US Dollar remains on the defensive after the Fed’s pivot.
• Australian employment data has been mixed.

The Aussie Dollar is consolidating gains at multi-month highs, with downside attempts capped above previous lows at 0.6690.

The Greenback remains sold with the US Dollar Index pushing against key support at 102.45, weighed by the unexpectedly dovish tone of Wednesday’s Fed monetary policy statement.

The Fed signals a pivot and sends the USD diving

Fed Chair Powell showed optimism about the colling inflation and hinted at the end of the tightening cycle. Beyond that, the economic projections pointed out three 25 bp cuts in 2024, up from two at September’s meeting with 17 out of the 19 policymakers seeing lower rates next year.

US Treasury yields dropped sharply, pushing the US Dollar lower across the board in a risk rally that boosted the Aussie to its highest levels since July.

Earlier today, the Australian employment report showed mixed figures, with higher employment figures but with the unemployment rate increasing to its highest levels in more than one year, at 3.9%.

Technical levels to watch

Economists at TD Securities discuss the European Central Bank (ECB) Interest Rate Decision and their implications for the EUR/USD pair.

Hawkish (20%)

Base Case (65%)

Dovish (15%)

• Natural Gas  recovered slightly on Wednesday on the back of the Federal Reserve’s interest-rate decision. 
• Still, Natural Gas prices look set to head lower toward $2.10.
• The US Dollar has depreciated substantially and traders brace for three major central bank decisions on Thursday. 

Natural Gas (XNG/USD) is continuing its decline despite its brief bounce on the back of the dovish US Federal Reserve (Fed) rate decision. Markets cheered the Fed’s signal of upcoming rate cuts for 2024, and OPEC also helped lift Gas prices with a report that pointed to possible supply shortages in the first quarters of 2024. With interest-rate cuts coming, consumers will likely start spending more, triggering higher demand for both Natural Gas and Crude and supporting prices.

Meanwhile, the US Dollar (USD) is set for further volatility on this Super Thursday as the European Central Bank (ECB), the Bank of England (BoE) and the Swiss National Bank (SNB) will release their last rate decisions for 2023. If other central banks turn even more dovish than the Fed, this could make the US Dollar recover recent losses.  

Natural Gas is trading at $2.29 per MMBtu at the time of writing.  

Natural Gas Market Movers: Who wants to buy?

• Fuel Cargoes carrying Liquified Natural Gas (LNG) are piling up at sea as demand from Europe stalls.
• Updated weather forecast models show milder conditions coming in for Europe. 
• Commodity company Trafigura is ramping up buying LNG, with recently buying from Shell with delivery in late January in Northeast Asia. 
• Maersk and Mitsubishi Gas Chemicals have agreed to build a supply base for green methanol in Japan. It would be the first supply base built in the country. 
• Natural Gas Storage numbers from the Energy Information Administration due to be released near 15:30 GMT. Previous number was a drawdown of 117 billion cubic metres. For this week a drawdown of 54 billion is expected.

Natural Gas Technical Analysis: Time to loosen the elastic band

Natural Gas still has a few cents to go to hit a bottom near $2.10. With the Relative Strength Index (RSI) deeply in oversold territory, the times look ripe for Natural Gas to turn the tide a bit. With the Fed confirming rate cuts,  a turnaround for Natural Gas could be seen in early 2024.

On the upside, Natural Gas could return to the purple line near $2.60 as the first hurdle. Next, the 200-day Simple Moving Average (SMA) at $2.74 will act as a resistance before allowing Gas prices to soar to $3 with the 100-day SMA nearby. 

Traders are facing further discounts in near-term expirations in Futures contracts, which means more downside to come as buyers will wait for further declines before starting to buy. Small support could be seen near $2.20, with the low of June. Firmer support should come  in near $2.10, April’s low, at the yellow supportive line. 

XNG/USD (Daily Chart)

• Euro recovery has stalled above 0.8600.
• The BoE monetary statement and the vote split will define GBP's direction.
• Investors will be looking for dovish signals at ECB Lagarde's press conference.

Euro recovery from Monday’s lows has stalled above 0.8600 on Thursday’s European market session, with investors awaiting monetary policy decisions by the BoE and the ECB later today.

BoE first and then the ECB might boost EUR/GBP volatility

The Bank of England is widely expected to leave its Bank Rate at the current 5.25%. It will not be a super-Thursday event, thus the vote split and the tone of the monetary statement will determine the Pound’s neat-time direction.

Similarly, the ECB will leave rates on hold at 4.5% and President Lagarde might try to convey a hawkish message, leaving options open for further hikes or, at least, deny any rate cuts in the foreseeable future.

The market, however, will be attentive to dovish signals by both banks. The economic outlook in the UK and in the Euro Area is deteriorating which poses a challenge for both central banks, as keeping credit conditions at restrictive levels might accelerate the economic downturn.

EUR/GBP Technical analysis

The pair is in an upward correction after having bottomed at 0.8540, with bulls finding resistance at the 38.2% Fibonacci retracement of the late November - Early December decline, at 0.8630.

Above here, the next resistance levels lie at the November 6 swing low, at 0.8650 and 0.8690. On the downside, the 0.8600 level is capping bears for now, closing the path to 0.8550 and a key support area at 0.8500. 

Technical levels to watch

A keen focus for today's Bank of England meeting will be the vote split. Economists at ING analyze Sterling’s outlook ahead of the Monetary Policy Report.

Upside risks to EUR/GBP

• The Euro consolidates at 1.0900 area ahead of the ECB decision.
• The Dollar remains on the defensive after the Fed’s dovish pivot.
• Investors will be looking for dovish hints by the ECB, which would hurt the pair.

The Euro (EUR) maintains a positive tone on Thursday, consolidating gains around the 1.0900 area, boosted by US Dollar’s (USD) weakness after the Federal Reserve (Fed) signaled the end of rate hikes on Wednesday.

The Fed surprised investors with an unexpectedly dovish tone. The bank kept interest rates unchanged, as expected, but Fed Chair Jerome Powell suggested that interest rates have peaked with 17 of the 19 policymakers projecting rate cuts in 2024.

Risk appetite surged after the decision and the US Dollar was sold across the board. The Euro rallied more than 100 pips higher to fresh two-week highs right above 1.0900, where the pair has steadied ahead of the European Central Bank’s (ECB) decision due later on Thursday.

The ECB is expected to leave its main refinancing operations rate on hold at 4.5% and keep a hawkish stance, leaving the door open for further rate hikes if inflation pressures remain high. Investors, however, will be looking for dovish hints as the weaker economic outlook and declining inflation are posing a challenge for ECB hawks.

Daily digest market movers: The ECB might limit Euro rally 

• The Euro maintains its bullish tone, with the US Dollar weighed by a dovish Fed.
   
• US Treasury yields plunged. The benchmark 10-year yield has dropped below 4.0% for the first time since July, adding negative pressure on the US Dollar.
   
• The Federal Reserve flagged the end of rate hikes, and interest rate projections foresee 75 basis points in cuts next year.
   
• Futures markets are now pricing a 75% chance of a rate cut in March from about 40% before the Fed decision.
   
• The ECB is expected to leave its key rate unchanged at 4.5%, leaving options open for further hikes.
   
• The market will be looking for signals of a pivot that might send the Euro lower. 

Technical Analysis: Euro consolidates around 1.0900 ahead of ECB

EUR/USD maintains a near-term bullish tone after Wednesday’s sharp rally as the US Dollar licks its wounds. The US Dollar Index (DXY) seems unable to put a significant distance from the 102.50 support area.

A look at the 4-hour charts shows the pair standing comfortably above the main SMAs, with oscillators at overbought levels, and a resistance area at 1.0915 holding bulls ahead of the outcome of the ECB’s meeting.

If the bank manages to convince investors that rate cuts are off the table, we might see a further rally towards 1.0960, which closes the path to November’s peak at 1.1010.

• USD/CAD remains on backfoot as investors dump the US Dollar after the Fed’s dovish guidance.
• Investors await the US Retail Sales data for November.
• A sharp recovery in oil prices has strengthened the Canadian Dollar.

The USD/CAD pair dropped further to near 1.3450 amid a sell-off in the US Dollar due to dovish guidance on interest rates by the Federal Reserve (Fed) and a decent recovery in the oil prices. The Loonie asset weakened as the US Dollar Index (DXY) dropped to near its five-month around 102.55 amid a risk-off mood.

S&P500 futures have added gains in the European session after a bullish Wednesday, portraying an improvement in the risk appetite of the market participants. The 10-year US Treasury yields have extended the downside to near 3.95%.

The USD Index has shifted into a bearish trajectory as the Fed is preparing to cut interest rates at a higher pace amid progress in inflation declining towards 2%. According to new economic projections, the core Personal Consumption Expenditure (PCE) is seen falling to 2.4% and 2.2% in 2024 and 2025 respectively.

Investors are expecting a ‘soft landing’ by the Fed as fresh economic projections indicate that the jobless rate won’t run above 4.1%.

Further action in the US Dollar will be guided by the US Retail Sales data for November, which will be published at 13:30 GMT. As per the expectations, the economic data is seen contracting at a steady pace of 0.1%.

On the oil front, oil prices have recovered after discovering support near $67.00 amid expectations that the rate-tightening campaign by the Fed has come to an end. It is worth noting that Canada is the leading exporter of oil to the United States and higher oil prices support the Canadian Dollar.

In the view of Michael Pfister, FX Analyst at Commerzbank, there are more or less three possibilities for how the ECB meeting will end today. He explains the effects of each scenario for the Euro.

Volatile session today due to the uncertainties

• Gold price is aiming to deliver more gains as the Fed surprisingly turns dovish.
• The Fed is expected to achieve a ‘soft landing’ amid stable labor market projections.
• US core PCE is seen declining to 2.4% and 2.2% in 2024 and 2025 respectively.

Gold price (XAU/USD) extended its recovery on Thursday as dovish guidance from the Federal Reserve (Fed) turns its fundamentals supportive, potentially for the long term. 

The precious metal is expected to add more gains as new projections from the Fed endorse more rate cuts than previously estimated, due to significant progress in inflation declining towards 2%, a stable job market, and reduced inflation projections.

Despite rate cut projections and lower inflation guidance, Fed Chair Jerome Powell didn’t announce victory over inflation. However, a ‘soft landing’ by the Fed is widely anticipated as it is expected to achieve price stability without impacting the labor market and triggering a recession. 

Daily Digest Market Movers: Gold price eyes more upside as US yields fall sharply

• Gold price faces nominal pressure while extending a weekly high near $2,040 on Thursday.
• The broader appeal of Gold price is bullish as Fed Chair Jerome Powell surprisingly delivered a dovish guidance on Wednesday.
• Jerome Powell discussed cutting interest rates in 2024 after keeping interest rates unchanged in the range of 5.25-5.50% consecutively for the third monetary policy.
• The decision to hold interest rates steady was widely anticipated. It was the mention of lowering borrowing costs in 2024, while announcing new economic projections that fueled demand for risk-sensitive assets and bullions.
• Powell’s commentary indicated that the rate-tightening campaign by the Fed has come to an end amid progress in inflation declining towards 2%.
• As per the Fed’s new Summary of Economic Projections (SEP), the core Personal Consumption Expenditure (PCE), which strips out Oil and food prices, and is considered a better gauge for underlying inflation, is seen easing to 3.2% by the end of 2023 from the prior estimate of 3.7%.
• For 2024 and 2025, the core PCE is seen easing to 2.4% and 2.2% from former projections of 2.6% and 2.3%.
• For interest rate projections, the Fed sees borrowing rates lowering to 4.6% in 2024 through three rate cuts against prior forecasts of 5.1% and two rate cuts. For the year 2025, interest rates are seen declining to 3.6% against the 3.9% projected earlier.
• Fed’s outlook for the Unemployment Rate remained unchanged at 4.1% for 2024 and 2025.
• Despite announcing more rate cuts in coming years, Powell refrained from declaring complete victory over inflation. He said, “It would be premature, and we can't be guaranteed in this progress."
• Meanwhile, a sustained decline in inflation in the US economy along with an unchanged outlook for the labor market indicates that the Fed will manage to achieve a ‘soft landing’.
• The US Dollar Index (DXY) dropped to near a five-month low of around 102.45 after the sudden dovish stance shift by the Fed.
• Meanwhile, 10-year US Treasury yields fell sharply below 4% due to improved risk-taking capacity of the market participants.
• For further action, investors await the monthly US Retail Sales for November, which will be published at 13:30 GMT. The overall consumer spending is seen declining by 0.1% - a similar pace to that recorded in October.
• On Friday, preliminary S&P Global PMI data will keep investors busy. As per the consensus, the Manufacturing PMI is seen slightly down to 49.3 against the prior release of 49.4. The Services PMI is expected to fall by 20 basis points (bps) to 50.6 but will remain above the 50.0 threshold.

Technical Analysis: Gold price aims at $2,040

Gold price trades near a weekly high around $2,040 after recovering from the 50-day Exponential Moving Average (EMA). The precious metal is expected to extend recovery to near the crucial resistance of $2,050. Major resistances for the Gold price are $2,100 and $2,150 respectively.

The Relative Strength Index (RSI) (14) has rebounded to near 60.00. If the RSI (14) manages to climb above 60.00, Gold bulls will strengthen further.

EUR/CHF retraces from 0.9519 high after SNB remains willing to sell FX. Economists at Société Générale analyze the pair’s outlook.

Risk of an extended downtrend on failure to defend 0.9410

The Bank of England (BoE) is convening for its regular rate meeting today. Economists at Commerzbank analyze Sterling's outlook ahead of the Interest Rate Decision.

BoE continues to face tough decisions

Economists at ING analyze EUR/USD outlook ahead of the European Central Bank's December meeting.

EUR/USD to advance towards 1.0945/1.0965

• USD/MXN halts its losing streak amid subdued Greenback.
• Banxico is expected to hold the interest rate at the current level of 11.25%.
• US Dollar weakens on the Fed's accommodative monetary policy stance in 2024.

USD/MXN rebounds after two days of losses ahead of Mexico's (Banxico) Interest Rate decision on Thursday. The USD/MXN trades higher around 17.25 during the European session on Thursday. The Banxico's is expected to keep cash rates unchanged at the current level of 11.25%.

The Mexican economy continues to display resilience, as indicated by the latest economic indicators. Inflation remains above the Bank of Mexico's (Banxico) target, underscoring the ongoing economic strength. The recent Industrial Output data for October further highlights a robust performance in factories and manufacturing.

US Dollar Index (DXY) is on a downward trend, influenced by the subdued US bond yields following the dovish outlook from the Federal Reserve (Fed) regarding the Interest Rate trajectory in 2024. The DXY remains lower around 102.60 by the press time, reflecting the market's response to the Fed's decision to keep interest rates unchanged.

The Fed's "dot-plot" further underscores a potentially more accommodative monetary policy stance in the coming year, with projections indicating a 50 basis points decline from 5.1% to 4.6%.

The challenges for the Greenback persist as discouraging Producer Price Index (PPI) data for November is released, putting additional pressure on the US Dollar. According to the US Bureau of Labor Statistics, the year-on-year growth in PPI slowed to 0.9%, falling short of the expected figures of 1.0%. Similarly, the Core PPI recorded 2.0%, below the anticipated 2.2%.

Market participants will eagerly observe the release of US Retail Sales data later in the North American session, as it is likely to provide further insights into the health of the US economy.

Following the decision to leave the policy rate unchanged at 1.75%, Swiss National Bank (SNB) Chairman Thomas Jordan noted that inflationary pressures have decreased slightly but added that uncertainty was still high, per Reuters.

Key quotes

"Inflation is likely to rise in the coming months."

"Swiss inflation forecasts remain within 0-2% target range into 2025."

"We are no longer focusing on forex sales."

"Assessment of upside and downside risks for inflation are currently balanced."

"We will adjust monetary policy if necessary to keep within price stability goal."

"Inflation forecasts within target range over the entire forecast horizon for first time in some time."

Market reaction

USD/CHF retreated slightly following these remarks and the pair was last seen posting small daily losses at around 0.8700.

Economists at TD Securities discuss the Bank of England Interest Rate Decision and its implications for the GBP/USD pair.

Hawkish Hold (20%)

Neutral Hold (70%)

Dovish Hold (10%)

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

Gold price stood at 62,293 Indian Rupees (INR) per 10 grams, up INR 1,534 compared with the INR 60,759 it cost on Wednesday.

As for futures contracts, Gold prices increased to INR 62,678 per 10 gms from INR 61,199 per 10 gms.

Prices for Silver futures contracts decreased to INR 75,139 per kg from INR 72,532 per kg.

Global Market Movers: Comex Gold price seems poised to build on the post-FOMC rally

• The Federal Reserve on Wednesday decided to keep interest rates at a 22-year high for the third meeting in a row and struck a more dovish tone in the accompanying policy statement.
• Policymakers see inflation getting closer to the 2% annual target without a recession and the fed funds rate peaking at 4.6% in 2024, down from September's projection of 5.1%.
• Data released on Wednesday showed that the rise in average prices that businesses pay to suppliers decelerated to 0.9% in November, down from a 1.2% annual increase in October.
• The markets are now pricing in a nearly 60% chance that the Fed will begin to cut rates at its March meeting and the odds of a May rate cut stand at 90% versus 80% before the announcement.
• The benchmark 10-year US government bond yield tumbles below 4%, to its lowest level since August and the yield on the rate-sensitive two-year Treasury note touches its weakest level since July.
• The post-FOMC US Dollar selling lends additional support to the Comex Gold price, albeit the risk-on environment keeps a lid on any further gains ahead of the central bank bonanza on Thursday.
• The Swiss National Bank (SNB), the Bank of England (BoE) and the European Central Bank (ECB) will announce their policy decisions later today, which might infuse some volatility.
• Traders on Thursday will further take cues from the US monthly Retail Sales data, which consensus estimates pointing to a fall for the second successive month, by 0.1% in November.

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

• USD/CHF rebounds after touching a one-and-half-week trough earlier this Thursday.
• The SNB decides to maintain the status quo and does little to provide any impetus.
• Traders look to the US Retail Sales for a fresh impetus amid a modest USD recovery.

The USD/CHF pair stages a modest intraday recovery from the vicinity of the monthly low, around the 0.8665 area and extends its steady ascent through the first half of the European session on Thursday. Spot prices hold steady near the 0.8720 region and move little after the Swiss National Bank (SNB) announced its policy decision.

As was widely anticipated, the SNB decided to leave the key policy rate unchanged at 1.75% on the back of a clear downward trend in domestic inflation. In the absence of any major surprises, the announcement does little to influence the Swiss Franc (CHF). That said, a modest US Dollar (USD) bounce acts as a tailwind for the USD/CHF pair The upside potential, however, seems limited in the wake of the Federal Reserve's (Fed) dovish shift on Wednesday.

Furthermore, SNB Chairman Thomas Jordan recently said the central bank would not hesitate to tighten monetary policy further if necessary despite the fact that domestic inflation was within the 0-2% target for a sixth consecutive month in November. This, in turn, favours the CHF bulls and suggests that the path of least resistance for the USD/CHF pair is to the downside. Hence, any further move up might still be seen as an opportunity for bearish traders.

Market participants now look to the US economic docket, featuring the release of monthly Retail Sales figures later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus. Apart from this, the broader risk sentiment, which tends to drive demand for the safe-haven CHF, should contribute to producing short-term trading opportunities around the USD/CHF pair.

Technical levels to watch

What is Norges Bank going to do? Antje Praefcke, FX Analyst at Commerbaank, analyzes Krone’s outlook ahead of the Interest Rate Decision.

NOK likely to remain under downside pressure due to the weak oil price

• NZD/USD extends its gains as the US Dollar loses ground on subdued Treasury yields.
• Technical indicators suggest revisiting a five-month high at 0.6249 and the major resistance at 0.6250.
• A firm break below the 0.6200 level could lead the pair to navigate the 23.6% Fibonacci retracement at 0.6165.

NZD/USD continues its winning streak for the fourth successive day on the dovish Federal Reserve’s outlook on interest rates trajectory in 2024. The NZD/USD pair received upward support from the Fed’s decision not to adjust its current interest rate stance. Additionally, Kiwi’s Q3 Gross Domestic Product (YoY) declined by 0.6% against the expected growth of 0.5%. The GDP (QoQ) fell by 0.3% as compared to the 0.2% market expectations.

The NZD/USD pair trades higher near 0.6210 during the European session on Thursday post pulling back from the five-month high at 0.6249 aligned with the major resistance level at 0.6250. The 14-day Relative Strength Index (RSI) is above the 50 level, indicating a bullish sentiment to retest the latter.

A breakthrough above the resistance area could support the NZD/USD pair to explore the psychological region around the 0.6300 level. Moreover, the Moving Average Convergence Divergence (MACD) line, situated above the centerline and the signal line, could be a confirmation of bullish momentum in the market.

On the downside, a break below the psychological support level of 0.6200 could push the pair to fall to the 23.6% Fibonacci retracement at 0.6165 before the major support at 0.6150. A decisive break below the level could lead the NZD/USD pair to navigate the region around the 14-day Exponential Moving Average (EMA) at 0.6138 followed by the 38.2% Fibonacci retracement at 0.6090 level.

NZD/USD: Daily Chart:

The Swiss National Bank (SNB) board members decided to maintain the benchmark Sight Deposit Rate at 1.75%, following its quarterly monetary policy assessment meeting on Thursday.

The rate decision was in line with the market expectations, as the SNB extended the pause into the second consecutive meeting.

Summary of the SNB policy statement

Market reaction to the SNB interest rate decision

In a knee-jerk reaction to the expected SNB pause decision, the USD/CHF pair tumbled nearly 30 pips to 0.8678 before reversing sharply to 0.8730, where it now wavers. The spot is up 0.18% on the day.

Economists at ING analyze Franc’s outlook ahead of the Swiss National Bank (SNB) meeting.

Has the SNB been both buying and selling FX?

FX option expiries for Dec 14 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts

• 1.0725 2b
• 1.0790 2.8b
• 1.0865 1.2b
• 1.0870 1.1b
• 1.0885 1.1b
• 1.0900 2.6b
• 1.0925 969m
• 1.1005 2.4b

GBP/USD: GBP amounts     

• 1.2465 436m
• 1.2640 578m
• 1.2660 829m

- USD/JPY: USD amounts                     

• 145.00 747m
• 146.25 395m

- USD/CHF: USD amounts        

• 0.8800 450m

- AUD/USD: AUD amounts

• 0.6515 1.3b
• 0.6600 1.8b
• 0.6615 590m
• 0.6640 1b
• 0.6700 2.3b
• 0.6790 1b

- NZD/USD: NZD amounts

• 0.5980 775m
• 0.6090 772m
• 0.6190 1.2b
• 0.6255 659m

Will the rate setting meeting of the Swiss National Bank (SNB) today be a non-event? Or will it come up with a surprise rate cut? Economists at Commerzbank analyze Franc’s outlook ahead of the policy decision.

Questions and more questions

• The European Central Bank is set to keep key interest rates steady on Thursday for the second time in a row.
• Eurozone economic outlook has worsened since the last meeting; however, ECB’s Lagarde could try to push back against rate cut expectations.
• Euro is likely to react to updated macro forecasts and Lagarde’s presser.

At the October meeting, the European Central Bank (ECB) kept interest rates unchanged after an unprecedented 450 basis points increase in rates within less than two years. On Thursday, December 14 at 13:15 GMT, the central bank will announce its decision, followed by President Christine Lagarde's press conference at 13:45 GMT. The ECB will also publish updated staff macroeconomic projections. The ECB is widely expected to keep interest rates unchanged. Markets consider that the tightening cycle is over, and rate cuts are expected for the first half of the upcoming year.

European Central Bank interest rate decision: What to know in markets on Thursday

• Federal Reserve officials forecast three interest-rate cuts next year.
• EUR/USD jumped to 1.0900 following the FOMC meeting, as the US Dollar and Treasury yields tumbled. 
• The benchmark 10-year US Treasury bond yield tumbled to 4% on Fed’s policy pivot. 
• US S&P 500 rose sharply, breaking above 4,700 to the highest in almost two year; Dow Jones posts record close.
• Industrial Production in the Eurozone contracted 0.7% in October, worse than the 0.3% decline expected. Compared to a year ago, production was 6.6% lower.
• On Friday, the December HCOB's flash Eurozone Composite Purchasing Managers' Index (PMI) will be released with a modest improvement from 47.6 to 48 expected. 
• The ECB event could provide a fresh directional impetus to the EUR/USD pair, with attention set on expectations for what the central bank might do in the first quarter of 2024.

What is expected from the next ECB meeting and how will it impact EUR/USD?

Economists are widely expecting the European Central Bank to announce another hold on Thursday, keeping the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 4.50%, 4.75% and 4.00% respectively. After the policy pivot by the Federal Reserve at the December FOMC meeting, will the ECB definitively turn dovish?

Since the October meeting, inflation in the Eurozone has further softened. The Harmonized Index of Consumer Prices (HICP) experienced a 0.5% drop in November, and the annual rate stood at 2.4%, the lowest level since July 2021. The core inflation rate, which excludes volatile energy and food prices, slowed to 3.6%, the lowest since April 2022. Regarding economic activity, Gross Domestic Product practically stagnated during the third quarter, and reports from the current quarter indicate no significant improvement. The latest report before the meeting showed a decline in Industrial Production by 0.7% in October.

The combination of softer inflation and a weak economic outlook suggests that the ECB is unlikely to tighten monetary policy further at the last meeting of the year. Market expectations for rate cuts in the next year have increased, with a rate cut by the April 2024 meeting already priced in. “President Lagarde will most likely use her press conference to try to push back against the dovish narrative.  However, we note that her October conference was quite downbeat, and the growth outlook has gotten worse since then,” explained analysts at BBH. 

Discussions at the Governing Council are expected to focus on adjusting the Pandemic Emergency Purchase Programme (PEPP) and the Minimum Reserve Requirement, but analysts do not anticipate any decisions at this meeting. Another topic of debate is the reinvestment of proceeds of maturing securities.

The ECB is expected to maintain a cautious tone, refraining from declaring victory on inflation. Lagarde may reiterate the narrative of keeping interest rates “high for long” and emphasize that the market's pricing scenario is not the ECB's base case. Comments in a different direction could have significant market implications, with a dovish tone potentially triggering a sharp decline in the Euro.

The ECB will release staff macroeconomic projections for the Eurozone. Inflation and growth forecasts are expected to be revised downward. However, the revisions are likely to be moderate, as more significant revisions would require a change in Lagarde's narrative and could heighten market easing expectations.
“We look for a straightforward hold, with no other policy tweaks. Messaging should reflect recent ECB speeches, acknowledging constructive inflation dynamics and noting weak growth. Projections will be marked to market and are likely to show lower GDP and inflation forecasts,” summarized analysts at TD Securities, consistent with the views of most experts. If the ECB follows through as anticipated, the impact on the market could be relatively limited.

The EUR/USD pair peaked above 1.1000 in late November but experienced a subsequent bearish correction. It bottomed last week at 1.0724. After that, it moved sideways, until the FOMC meeting. The sharp decline of the US Dollar led to an upward movement in the pair, pushing it to 1.0900 and shifting the short-term bias to a bullish outlook. The next strong resistance stands at 1.0970, before the 1.1000 mark. The weak US Dollar serves as crucial support for the upside in EUR/USD ahead of the ECB decision.

On the flip side, the area around 1.0825 is a relevant technical support. The key level to watch is at 1.0730, represented by an upward trendline. If this level is breached and the price moves below it, it could potentially signal further losses and open the way for a downward trend to develop.

If the ECB keeps rates unchanged and Lagarde delivers no surprises, the impact on the market could be limited, and the focus will shift to the next meeting on January 15, 2024. In the unexpected scenario where the ECB strikes with a firm hawkish tone, potentially accompanied by an announcement of a reduction in the PEPP reinvestments, the Euro could rally, approaching 1.1000. However, it may not necessarily be sustainable, as it could swiftly fade as market attention turns back to the economic outlook. 

• Pound Sterling recovers further ahead of the BoE’s monetary policy decision.
• The BoE is expected to keep interest rates steady at 5.25% due to a weakening economy and falling inflation.
• Discussion about interest-rate cuts could spoil the Pound Sterling’s recovery.

The Pound Sterling (GBP) extended recovery on Thursday, trading at 1.2650 against the US Dollar in the European morning session, capitalizing on the surprisingly dovish guidance from the US Federal Reserve (Fed). Power-pack action will continue for the Pound Sterling as the Bank of England (BoE) is set to announce its last monetary policy of 2023 at 12:00 GMT. 

Markets widely anticipate the BoE to hold interest rates steady at 5.25% for the third straight meeting due to deepening recession fears and easing inflation. However, policymakers could emphasize the need to maintain the “higher for longer” narrative in interest rates to ensure price stability.

The shrinking UK economy has put UK Prime Minister Rishi Sunak’s promise of ramping growth in jeopardy as the economy is struggling to absorb the consequences of higher interest rates. This could dampen the outlook of GBP/USD ahead.

Daily Digest Market Movers: Pound Sterling capitalizes on risk-on mood

• Pound Sterling holds onto gains, inspired by an unchanged interest rate decision from the Fed for the third time in a row along with a dovish guidance by Fed Chair Jerome Powell.
• Further action in the Pound Sterling would be guided by the interest rate decision from the BoE, which will be announced at 12:00 GMT.
• Investors see the BoE keeping interest rates unchanged at 5.25%for the third consecutive time, but markets also expect BoE members to support keeping interest rates “higher for longer” to ensure the achievement of price stability.
• Easing price pressures, falling pay growth, and a shrinking economy would be the supportive factors for maintaining a status quo by the BoE.
• In the three months to October, earnings excluding bonuses grew at a slower pace of 7.3% against expectations of 7.4% and the former reading of 7.8%. Wage growth is slowing but it is still high. 
• UK’s headline inflation has sharply declined to 4.6% in October. 
• Monthly Gross Domestic Product (GDP) contracted 0.3% in October, more than the 0.1% forecasted by markets.  This is the first contraction since July. The Office for National Statistics (ONS) attributed exceptionally wet weather to the decline in GDP. 
• A significant fall in Manufacturing and Industrial Production has raised concerns of a potential recession in the UK economy.
• With a sharp decline in the UK’s economic activity, BoE policymakers are expected to follow the footprints of the Fed and will discuss cutting interest rates in 2024.
• UK Chancellor Jeremy Hunt said that a sharp impact of higher interest rates on the economy was inevitable. 
• The market mood favors risk-perceived assets as Jerome Powell remained surprisingly dovish while guiding further monetary policy action on Wednesday.
• The Fed lowered their core Personal Consumption Expenditure (PCE) projections for 2024 and 2025 and hinted at three rate cuts in 2024. 
• A “soft landing” scenario from the Fed is highly anticipated, which indicates that the economy has managed to tame inflation without any economic collapse and higher jobless rates.

Technical Analysis: Pound Sterling recovers to near 1.2650

Pound Sterling clings to gains ahead of the interest rate decision by the BoE. The GBP/USD pair trades near a nine-day high of around 1.2650 after a sharp recovery from the psychological support of 1.2500.

On a broader note, more strength in the Pound Sterling would allow the GBP/USD pair to re-test November’s high around 1.2733, which coincides with the 61.8% Fibonacci retracement. The 20-day Exponential Moving Average (EMA) at 1.2557 is expected to continue to provide support to the Pound Sterling bulls.

The NOK has limped to the bottom of the G10 rankings again in December after a decent effort to claw back lost ground in November. Economists at Société Générale analyze Krone’s outlook ahead of the Norges Bank meeting.

Norges Bank tightening cycle over?

The strength of the CHF makes it the best performing G10 currency in the year to date. Economists at Rabobank analyze Franc’s outlook.

CHF tends to perform well when the Eurozone is under pressure

• The UK central bank is set to hold interest rate steady at 5.25% at the final meeting of 2023.
• The Bank of England could push back against expectations of aggressive rate cuts next year.
• The Pound Sterling is poised for a big reaction to the BoE policy announcements.  

In the finale of 2023, the Bank of England (BoE) is expected to keep its key interest rate unchanged for a third consecutive meeting on Thursday. The Pound Sterling (GBP) is expected to see intense volatility on the BoE policy announcements, with all eyes focusing on the United Kingdom’s (UK) central bank’s communication about the path forward on the interest rate as markets price in rate cuts in 2024.

Bank of England to extend pause into third meeting

The Bank of England is widely expected to hold the benchmark interest rate steady at 5.25% when it announces its decision at 12:00 GMT on Thursday. It’s not a “Super Thursday” as there will be no Monetary Policy Report (MPR) published nor Governor Andrew Bailey’s press conference.

With a no rate hike fully baked in this week, markets are now pricing 10% odds of a cut for the March 21 meeting, rising to nearly 45% for May 9 and nearly 90% for June 20, according to Bloomberg’s World Interest Rate Probability (WIRP).

Therefore, the language in the BoE’s policy statement is critical to gauging the interest rate outlook for next year as to when and how fast the UK central bank will cut rates. Economists and industry analysts expect the BoE to push back against expectations around rate cuts next year, especially after BoE policymakers continued to maintain a hawkish tone in their recent speeches.

BoE Deputy Governor for Markets and Banking, Dave Ramsden, said that “monetary policy is likely to be needed to be restrictive for an extended period of time to get inflation back to 2% target.” Joining the chorus, BoE policymaker Catherine Mann noted that “the prospects for more persistent inflation imply a need for tighter monetary policy.” Meanwhile, BoE Governor Andrew Bailey reiterated earlier this month that interest rates are likely to need to remain around current levels.

Rabobank’s macro strategists project the first reduction in the UK’s bank rate to take place in November 2024. “We believe the MPC will want to see compelling evidence that labor market conditions have eased in a meaningful way and that domestically generated inflation pressures have clearly cooled before starting to loosen their policy stance,” they said.

Data published by the Office for National Statistics (ONS) on Tuesday showed that the UK’s wage growth slowed in the quarter to October. However, pay growth continued to increase at a quick pace, something that could dissuade the BoE from cutting rates anytime soon.

Average Earnings excluding Bonus in the UK rose 7.3% 3M YoY in October versus September’s 7.8% increase and below 7.4% expected. Additionally, services inflation also remains very high, at 6.6%.

Meanwhile, UK economy shrank by more than expected 0.3% in October, as higher interest rates continue to squeeze household spending, the ONS data showed on Wednesday. The data, however, is unlikely to lead the BoE to signal that it is close to cutting rates, yet.

How will the BoE interest rate decision affect GBP/USD?

If the Bank of England shifts gear toward a dovish tone, acknowledging the gloomy economic outlook, GBP/USD could come under intense selling pressure. Further, a dovish vote split could also weigh on the Pound Sterling, as it would add credence to the current market pricing of rate cuts next year. Conversely, the pair’s recovery could gain momentum should the BoE stick to its hawkish rhetoric, supporting the narrative of a “higher for longer” view on interest rates.  

At its November meeting, policymakers voted 6-3 in favor of the extended pause decision. Megan Greene, Jonathan Haskel and Catherine Mann voted to raise rates by 25 basis points (bps).

Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and explains: “Having found support once again at the critical 200-day Simple Moving Average (SMA) at 1.2495, GBP/USD is extending the recovery momentum. The-day Relative Strength Index (RSI) remains positioned in the bullish territory, implying more gains in the offing.”

Dhwani also outlines important technical levels to trade the GBP/USD pair: “On the upside, Pound Sterling buyers could target the static resistance near 1.2730 on a hawkish BoE pause, above which the next barrier is seen at the 1.2800 round level. Conversely, the immediate support aligns at the 21-day SMA at 1.2581, below which a test of the 200-day SMA at 1.2495 will be inevitable.”

Here is what you need to know on Thursday, December 14:

The US Dollar continues to weaken against its rivals early Thursday after having suffered large losses following the Federal Reserve (Fed) event late Wednesday. The Swiss National Bank (SNB), the Bank of England (BoE) and the European Central Bank (ECB) will be announcing monetary policy decisions on Thursday. Later in the day, the US economic docket will feature the weekly Initial Jobless Claims and Retail Sales data for November. ECB President Christine Lagarde will also hold a press conference to speak on the policy outlook and to respond to questions.

The Fed decided to leave the policy rate unchanged at 5.25%-5.5% as expected following the last policy meeting of the year. The revised Summary of Economic Projections revealed that officials' median view of the policy rate at the end of 2024 stood at 4.6% implying a total rate reduction of 75 basis points next year. In the post-meeting press conference, Chairman Jerome Powell acknowledged that policymakers were thinking and talking about when it will be appropriate to start cutting the interest rate. "We are very focused on not making the mistake of keeping rates too high too long," Powell added.

These dovish comments combined with the dovish dot plot triggered a sharp decline in US yields. The benchmark 10-year US Treasury bond lost more than 4% on Wednesday and continued to stretch lower early Thursday, putting additional weight on the USD's shoulders. At the time of press, the 10-year US yield was at its lowest level since early August below 4% and the USD Index, which fell nearly 1% on Wednesday, was down 0.3% at 102.60.

During the Asian trading hours, the data from Australia showed that Employment Change was +61.5K in November, much higher than the market expectation of 11K. Additionally, the Reserve Bank of Australia (RBA) reported that the Consumer Inflation Expectations declined to 4.5% in December from 4.9%. Following Wednesday's upsurge, AUD/USD preserved its bullish momentum and was last seen trading at its highest level since late July above 0.6700.

EUR/USD broke out of its tight weekly trading range late Wednesday and climbed above 1.0900 early Thursday. The ECB is forecast to leave key rates unchanged and updated economic projections will be watched closely by market participants.

GBP/USD gained more than 50 pips on Wednesday and stabilized at around 1.2650 early Thursday. The BoE is set to stand pat on policy and vote split will be key since there won't be a press conference.

Gold capitalized on falling US yields and surged above $2,000 late Wednesday. In the European morning XAU/USD trades modestly higher on the day at around $2,030.

USD/JPY declined sharply and broke below 142.00. At the time of press, the pair was down nearly another 1% on the day at around 141.50.

• EUR/USD attracts some buyers near 1.0900, the two-week high.
• The pair holds above the key 100-hour EMA with the overbought RSI condition.
• The first resistance level will emerge at 1.0960; 1.0852 acts as an initial support level for the pair.

The EUR/USD pair gains momentum around the 1.0900 mark during the early European trading hours on Thursday. The uptick of the major pair is supported by the softer US Dollar (USD) after the Federal Reserve (Fed) monetary policy decision. Investors will keep an eye on the upcoming European Central Bank (ECB) interest rate decision on Thursday, with no change in rate expected. Nonetheless, the ECB Press Conference might offer some hints about the further monetary policy path and give a clear direction to the pair.

According to the four-hour chart, the bullish look of EUR/USD remains intact as the major pair holds above the key 100-hour Exponential Moving Averages (EMA). However, with the Relative Strength Index (RSI) above 70, suggesting an overbought condition, further consolidation cannot be ruled out before positioning for any near-term EUR/USD appreciation.

The first upside barrier will emerge near a high of November 27 at 1.0960. The key resistance level is seen at the 1.1000 psychological round mark. Any decisive break above the latter will see a rally to a high of November 29 at 1.1017, followed by a high of August 4 at 1.1042.

On the downside, a low of November 22 at 1.0852 acts as an initial support level for EUR/USD. The critical contention level to watch is 1.0825, portraying the confluence of the 100-hour EMA and a low of November 17. A breach of this level will see a drop to a low of December 11 at 1.0741. Further south, the next stop is located at the lower limit of the Bollinger Band, and a round figure of 1.0700.

EUR/USD four-hour chart

• Asian markets improve on dovish Fed outlook on interest rates trajectory.
• A Japanese survey showed that business confidence among Japanese manufacturers increased to a near two-year high.
• South Korea abolished the registration of foreign investors to increase foreign capital.

Asian shares present a mixed picture on Thursday, with a generally positive sentiment influenced by the dovish US Federal Reserve's outlook. The Fed's indication of the end of its tightening cycle and the potential reduction in borrowing costs in the year 2024 contribute to the positive market mood.

As of now, China's SSE Composite Index rises 0.03% at 2,969, but the Shenzhen Component Index declines 0.26% to 9,452. Japan's Nikkei 225 fell to 32,711, down by 0.65%. Hong Kong's Hang Seng is up at 16,380, while the Korean KOSPI has risen to 2,535, up by 0.97%.

The Asian Development Bank anticipates a positive end to the year for Asia, with stronger-than-expected growth attributed largely to the recovery in China's economy.

South Korea implemented a change to enhance foreign capital in its equity market, eliminating the requirement for foreign traders to register with government authorities to trade local stocks.

A central bank survey in Japan reveals that business confidence among Japanese manufacturers reached a near two-year high in the three months to December. This suggests that the necessary economic conditions for unwinding massive stimulus measures may be falling into place.

• EUR/JPY drops to the lowest level since October, near 154.35.
• The European Central Bank (ECB) is expected to hold the rate steady at 4.0% on Thursday.
• The Bank of Japan's (BoJ) quarterly Tankan survey revealed that business confidence in Japan’s large manufacturers improved for the third straight quarter.
• Market players will closely watch the ECB interest rate decision on Thursday.

The EUR/JPY cross loses traction for the second consecutive day during the early European session on Thursday. Investors await the European Central Bank (ECB) monetary policy decision on Thursday, which is likely to hold the rate steady. The cross currently trades around 154.35, losing 0.77% on the day.

The ECB is anticipated to maintain its Deposit Facility rate unchanged at 4.0% at its December meeting on Thursday. Traders will monitor the key policy adjustments at the end of the meeting and the development of ending reinvestments in its PEPP program. Additionally, money markets are pricing in nearly 150 basis points (bps) of rate cuts next year.

On Wednesday, the Bank of Japan's (BoJ) quarterly Tankan survey revealed that business confidence at large manufacturers in Japan improved for the third straight quarter. The report might convince the Bank of Japan (BoJ) to exit its negative rate policy sooner than expected, which lifts the Japanese Yen (JPY) against the Euro (EUR).

The headline Japanese Large Manufacturers' Sentiment Index came in better than market expectations, climbing to 12.0 from the previous reading of 9.0.

On Friday, the preliminary Japanese Jibun Bank PMI report will be released. The German and Eurozone HCOB PMI reports will be in the spotlight and could trigger volatility in the market. Traders will take cues from these figures and find a trading opportunity around the EUR/JPY cross.

• USD/CAD extends its losses on the subdued US Dollar after the dovish Fed decision.
• A drop below the 1.3400 psychological level could push the pair toward August's low of 1.3378.
• A firm break above 1.3500 could lead to exploring the resistance region around the 23.6% Fibonacci retracement at 1.3565.

USD/CAD moves on a downward trajectory, pressured by the dovish stance of the US Federal Reserve's Interest Rate Decision on Wednesday, aligning with widespread expectations. The USD/CAD pair trades lower near 1.3470 during the Asian session on Thursday.

The Federal Open Market Committee's (FOMC) "Summary of Economic Projections" further intensifies the downward pressure, revealing a 50 basis points decline in the rate projection for 2024. The combination of these factors contributes to the bearish movement in the USD/CAD pair.

The upbeat Crude oil prices contribute support to underpinning the Canadian Dollar (CAD). The USD/CAD pair could further test the major support at the 1.3450 level.

The technical indicator Moving Average Convergence Divergence (MACD) for the USD/CAD pair is signaling a potential bearish trend. With the MACD line positioned below the centerline and exhibiting divergence below the signal line, the indication is that a further drop could lead the pair towards navigating the psychological region around the 1.3400 level, with the next support potentially found at August's low of 1.3378.

The analysis adds another layer to the dovish sentiment for the USD/CAD pair, highlighting the 14-day Relative Strength Index (RSI) being below 50. This position of the RSI below 50 indicates a weakness in the pair, aligning with the broader bearish outlook.

On the upside, the USD/CAD pair encounters a significant psychological barrier at the 1.3500 level. A decisive breakthrough above this level could potentially ignite bullish momentum, prompting the USD/CAD pair to explore the region around the major resistance at 1.3550, followed by the 23.6% Fibonacci retracement at 1.3565.

If the pair manages to surpass these levels, the next target region would be the 21-day Exponential Moving Average (EMA) at 1.3599 and 1.3600 psychological levels.

USD/CAD: Daily Chart

• GBP/JPY drifts lower for the third straight day and dives to over a two-month low.
• The JPY rallies amid hopes for a hawkish BoJ pivot and exerts heavy pressure.
• The downfall stalls ahead of the 200-day SMA as traders look to the BoE meeting.

The GBP/JPY cross remains under heavy selling pressure for the third successive day on Thursday and dives to its lowest level since early October during the Asian session. Spot prices, however, manage to recover over 60 pips in the last hour and currently trade around the 179.00 mark, still down 0.80% for the day.

A report suggested that the Bank of Japan (BoJ) may exit its negative rate policy sooner than anticipated, between January and March, and provide a strong boost to the Japanese Yen (JPY). Meanwhile, this week's mostly disappointing UK macro data reaffirmed market expectations that the Bank of England's (BoE) rate-hiking cycle could be reversed in 2024. This contributes to the British Pound's (GBP) relative underperformance and exerts additional downward pressure on the GBP/JPY cross.

Spot prices, however, find some support near the 178.35 area, ahead of a technically significant 200-day Simple Moving Average (SMA), as traders refrain from placing fresh bearish bets ahead of the crucial BoE meeting later today. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the GBP/JPY cross is to the downside. That said, the Relative Strength Index (RSI) on the daily chart has slipped below the 30 mark, flashing slightly oversold conditions.

Heading into the key central bank event risk, the technical setup makes it prudent to wait for some near-term consolidation or a modest bounce before the next leg down for the GBP/JPY cross. Any meaningful recovery move, however, might still be seen as a selling opportunity near the 180.00 psychological mark. This, in turn, should cap the upside for the GBP/JPY cross near the 180.80 strong horizontal support breakpoint, now turned resistance, which should now act as a key pivotal point.

On the flip side, the 200-day SMA, currently pegged near the 178.00 round-figure mark, is likely to protect the immediate downside. The said handle coincides with the October monthly trough, which if broken decisively will be seen as a fresh trigger for bearish traders. The GBP/JPY cross might then turn vulnerable to accelerate the downfall further toward the 177.40 intermediate support en route to the 177.00 mark and the late July swing low, around the 176.30 region.

GBP/JPY daily chart

Technical levels to watch

• USD/CHF extends losses as the Fed’s “dot-plot” showed a decline of 50 bps rate projection for 2024.
• SNB is expected to maintain its policy rate until the third quarter of the next year.
• US Dollar loses ground on weaker PPI data for November.

USD/CHF continues the losing streak for the fourth successive day ahead of the Swiss National Bank’s (SNB) Interest Rate Decision, trading around 0.8670 during the Asian session on Thursday. SNB is anticipated to maintain its key interest rate until at least the third quarter of the following year, according to a majority of economists surveyed by Reuters.

Despite a slight easing in price pressures, Swiss inflation is expected to average 1.5% and 1.3% in 2024 and 2025, respectively—down from the 2.2% recorded this year. If these survey projections materialize, the SNB would consider rate cuts after the US Federal Reserve, which is expected to stay on hold until at least July, according to a separate Reuters poll.

However, SNB Chairman Thomas Jordan has expressed a willingness to tighten monetary policy further if deemed necessary, despite the downward trend in inflation.

The Swiss central bank's commitment to higher-for-longer rates could favor a stronger Swiss Franc (CHF) against the US Dollar (USD). Meanwhile, the Federal Reserve's decision to keep interest rates unchanged at 5.5% on Tuesday aligns with expectations, exerting downward pressure on the USD/CHF pair.

Furthermore, the Fed's "dot-plot" reveals a significant shift in Interest Rate Projections for 2024, indicating a 50 basis points decline from 5.1% to 4.6%. This shift suggests a potential move towards a more accommodative monetary policy in the future.

Adding to the Greenback's challenges is the discouraging Producer Price Index (PPI) data for November, contributing to the overall pressure on the USD/CHF pair. Market attention will turn to the forthcoming release of US Retail Sales data later in the North American session.

• Indian Rupee holds positive ground on the decline of US Dollar.  
• Analysts anticipate the Reserve Bank of India (RBI) to hold rates into next year.
• Investors await the Indian WPI inflation report, which is expected to rise by 0.08% versus -0.52% prior.

Indian Rupee (INR) gains traction on Thursday amid the US Dollar (USD) weakness. The Greenback faces some selling pressure from the Federal Reserve (Fed) Chairman Jerome Powell’s dovish remarks. Additionally, the dot plot now projects three rate cuts of 25 basis points (bps) each in 2024 instead of two.

On the other hand, the Reserve Bank of India (RBI) held its benchmark interest rate steady for a fifth straight policy meeting last week. Analysts anticipate the RBI to hold rates into next year and will ease the policy after the Fed begins cutting interest rates.

RBI Governor Shaktikanta Das stated that the Indian economy remains vulnerable to recurring and overlapping food price shocks. The surge in inflation was primarily driven by rising food prices, which has been an important issue for Prime Minister Narendra Modi's administration as elections approach.  

Market players will closely monitor India’s WPI inflation report on Thursday for fresh impetus. On the US docket, the US weekly Jobless Claims and Retail Sales will be due. 

Daily Digest Market Movers: Indian Rupee remains sensitive to rising food prices

• India's Consumer Price Index (CPI) grew 5.55% YoY in November from 4.87% in October, worse than the expectation of 5.70%. 
• Indian Industrial Production rose by 11.7% in October, compared to a 4.1% gain in the previous reading while Manufacturing Output in the same period came in at 10.4% MoM versus 4.9% prior.
• The International Monetary Fund (IMF) projected India's Real Gross Domestic Product (real GDP) to expand by more than 6.0% in 2023 and 2024, marking one of the fastest-growing in the world over the next few years. 
• The Federal Reserve (Fed) kept the interest rates steady at the target range of 5.25%-5.5% in its December meeting, as widely expected.
• Fed Chair Jerome Powell said discussion about cutting rates is still ahead and the central will decide very carefully. Powell added that the Fed is very focused on not making the mistake of maintaining interest rates too high for too long.
• The Fed now estimated three rate cuts next year rather than two, according to interest rate projections.
• The US Core Producer Price Index (PPI) for November came in worse than the market expectation, easing from 2.3% to 2.0% YoY. The headline PPI figure fell 0.9% in November from a 1.2% rise in October. 

Technical Analysis: Indian Rupee sticks to the positive stance

Indian Rupee trades on a stronger note on the day. The USD/INR pair has remained stuck in a trading range of 82.80-83.40 since September. From the technical perspective, the bullish outlook of USD/INR remains intact as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI) hovers around the 50.0 midline, warrants caution for bulls.

The upper boundary of the trading range at 83.40 acts as an immediate resistance level for the pair. Any follow-through buying above 83.40 will pave the way to the year-to-date (YTD) high of 83.47, followed by a round figure of 84.00. On the flip side, the key support level is seen at the 83.00 psychological round mark. A breach below this level will see a drop to the lower limit of the trading range and a low of September 12 at 82.80. A convincing breakout below the trading range will see the next downside stop near a low of August 11 at 82.60.

• Gold price attracts some follow-through buying for the second straight day on Thursday.
• The US bond yields and the USD extend the post-FOMC slide, lending support to the metal.
• The risk-on environment caps gains for the XAU/USD ahead of the central bank bonanza.

Gold price (XAU/USD) builds on the previous day's solid recovery from the vicinity of the 50-day Simple Moving Average (SMA), around the $1,973 area, or over a three-week low and gains positive traction for the second successive day on Thursday. The Federal Reserve (Fed) signalled on Wednesday that it is done raising interest rates and the so-called "dot plot" indicated three 25 basis points (bps) rate cuts in 2024. Moreover, policymakers see inflation heading towards the Fed's 2% target without a recession. The dovish shift led to a steep decline in the US Treasury bond yields and weighed heavily on the US Dollar (USD), providing a goodish lift to the non-yielding yellow metal.

The USD selling bias remains unabated through the Asian session on Thursday, though the prevalent risk-on environment caps the safe-haven Gold price near the $2,040 supply zone. Traders opt to move to the sidelines ahead of the latest monetary policy updates by the Swiss National Bank (SNB), the Bank of England (BoE) and the European Central Bank (ECB) later today. Apart from this, the release of the US monthly Retail Sales data might provide some impetus to the metal. Nevertheless, the fundamental backdrop supports prospects for a further appreciating move.

Daily Digest Market Movers: Gold price continues to draw support from the Fed's dovish shift

• The Federal Reserve on Wednesday decided to keep interest rates at a 22-year high for the third meeting in a row and struck a more dovish tone in the accompanying policy statement.
• Policymakers see inflation getting closer to the 2% annual target without a recession and the fed funds rate peaking at 4.6% in 2024, down from September's projection of 5.1%.
• Data released on Wednesday showed that the rise in average prices that businesses pay to suppliers decelerated to 0.9% in November, down from a 1.2% annual increase in October.
• The markets were now pricing in a nearly 60% chance that the Fed will begin to cut rates at its March meeting and the odds of a May rate cut stand at 90% versus 80% before the announcement.
• The benchmark 10-year US government bond yield tumbles to its lowest level since August and the yield on the rate-sensitive two-year Treasury note touches its weakest level since July.
• The post-FOMC US Dollar selling lends additional support to the Gold price, albeit the risk-on environment keeps a lid on any further gains ahead of the central bank bonanza on Thursday.
• The Swiss National Bank (SNB), the Bank of England (BoE) and the European Central Bank (ECB) will announce their policy decisions later today, which might infuse some volatility.
• Traders on Thursday will further take cues from the US monthly Retail Sales data, which consensus estimates pointing to a fall for the second successive month, by 0.1% in November.

Technical Analysis: Gold price seems poised to appreciate further, awaits a move beyond $2,040 supply zone

From a technical perspective, some follow-through buying beyond the $2,040 area will be seen as a fresh trigger for bullish traders. With oscillators on the daily chart holding in the positive territory, the Gold price might then climb to the next relevant hurdle near the $2,072-2,073 region. The momentum could get extended further and allow the XAU/USD to reclaim the $2,100 round-figure mark.

On the flip side, the $2,012-2,010 horizontal zone might now protect the immediate downside ahead of the $2,000 psychological mark. A convincing break below the latter will make the Gold price vulnerable and expose the 50-day SMA support, currently pegged near the $1,973-1,972 region. This is followed by the 200-day SMA, near the $1,950 area, which if broken will shift the bias in favour of bearish traders.

Having reviewed a document, Reuters reported on Thursday that the Japanese ruling Liberal Democratic Party’s (LDP) tax reform panel is likely to implement income tax breaks to lessen the pain of price hikes on households.

Key takeaways

Market reaction

The Japanese Yen is gaining further strength on the above report, knocking the USD/JPY down to a new five-month low of 140.94. At the time of writing, the pair is losing 1.13% on the day to trade at 141.26.

• EUR/USD continues the winning streak on the subdued US Dollar.
• The Greenback faces challenges as the Fed holds interest rates at 5.5%.
• Fed’s “dot-plot” showed a decline of 50 basis points in Interest Rate Projection for 2024.
• ECB is expected to not adjust its current interest rate stance.

EUR/USD moves on an upward trajectory that began on Monday on the back of dovish sentiment around the Federal Reserve’s (Fed) Interest Rate Decision. The Federal Reserve, in line with widespread expectations, decided to keep interest rates unchanged at 5.5% on Tuesday. The EUR/USD pair trades around 1.0910 during the Asian session on Thursday.

Additionally, the Fed's "dot-plot" revealed a notable shift in Interest Rate Projections for 2024, indicating a decline of 50 basis points from 5.1% to 4.6%. This adjustment in the projections suggests a potentially more accommodative monetary policy stance in the future.

US Dollar Index (DXY) continues to drop on the downbeat US bond yields, trading around 102.60. The 2-year and 10-year US Treasury yields dropped to 4.34% and 3.97%, respectively, at the time of writing.

The economic sentiment in the United States (US) encounters headwinds with the release of discouraging Producer Price Index (PPI) data for November, adding pressure to the US Dollar. As reported by the US Bureau of Labor Statistics, the year-on-year growth in PPI slowed to 0.9%, missing the expected 1.0%. Similarly, the Core PPI recorded 2.0%, below the anticipated 2.2%. Market participants will focus on the upcoming release of US Retail Sales data on Thursday.

On the other side, the seasonally adjusted Industrial Production index, released by Eurostat on a monthly basis revealed that the output of the industry declined by 0.7% against the expected decline of 0.3%.

The upcoming monetary policy meeting of the European Central Bank (ECB) on Thursday is expected to maintain unchanged rates. Market attention is keenly focused on the ECB's guidance for 2024, particularly any indications regarding the potential timing of interest rate cuts.

• WTI price moves upward on the sentiment of reduced borrowing costs in the future.
• Crude oil prices receive support as US EIA Crude Oil stockpiles are withdrawn by 4.259M barrels.
• Houthis attack on Norwegian commercial tanker might have impacted the Oil prices.

West Texas Intermediate (WTI) price seems to extend its gains for the second consecutive day, trading higher around $70.00 per barrel during the Asian session on Thursday. The Crude oil prices gained ground after the release of the US EIA Crude Oil Stocks Change for the week ending on December 8, along with the Federal Reserve’s (Fed) Interest Rate Decision to hold interest rates at 5.5% as widely expected.

EIA Crude Oil stockpiles are withdrawn by 4.259 million barrels more than the expected withdrawal of 0.65 million barrels.

The WTI price experienced an uptick in the aftermath of the Federal Reserve (Fed) meeting, where market expectations are now leaning towards three rate cuts for 2024. Fed Chair Jerome Powell's dovish stance has fueled sentiments that lower interest rates can reduce borrowing costs, potentially boosting economic growth and, consequently, Oil demand.

Adding to the dynamics, the attack on a Norwegian commercial tanker by Yemen's Houthis has heightened concerns about supply disruptions in the Middle East. The warning from Yemeni Houthi forces, advising ships to avoid traveling to Israel, adds a geopolitical element that might have impacted the Crude oil prices.

The positive sentiment surrounding economic activities in the United States (US) faces a potential setback due to the November release of downbeat Producer Price Index (PPI) data. This could contribute to a reduction in the consumption of Crude oil products. According to the US Bureau of Labor Statistics, the PPI (YoY) growth slowed to 0.9%, falling short of the expected 1.0%, while the Core PPI registered 2.0%, below the anticipated 2.2%.

Market participants are now turning their attention to the upcoming release of US Retail Sales data on Thursday, seeking further insights into the state of the US economy.

• The Japanese Yen appreciates for the third successive day against the USD on Thursday.
• Expectations for an imminent shift in the BoJ’s policy stance act as a tailwind for the JPY.
• The post-FOMC USD selling bias drags the USD/JPY pair to the 142.00 neighbourhood.

The Japanese Yen (JPY) hit a fresh weekly high against the US Dollar (USD) during the Asian session on Thursday in reaction to a report that the Bank of Japan (BoJ) may exit its negative rate policy sooner than anticipated, between January and March. In contrast, the Federal Reserve (Fed) flagged the end of its policy-tightening campaign and struck a dovish tone for the year ahead at the end of a two-day policy meeting on Wednesday. This led to the overnight slump in the US Treasury bond yields, which continues to undermine the buck and drags the USD/JPY pair to the 142.00 neighbourhood.

That said, an extension of the risk-on rally across the global equity markets, with the Dow Jones Industrial Average (DJIA) recording a fresh record high after January 2022, keeps a lid on any further gains for the safe-haven JPY. This, in turn, assists the USD/JPY pair to recover a few pips from the daily trough. Any meaningful recovery, however, remains elusive on the back of the divergent BoJ-Fed policy expectations. Moving ahead, the central bank bonanza could infuse some volatility in the markets and influence the JPY ahead of the release of the US Retail Sales data later today.

Daily Digest Market Movers: Japanese Yen benefits from hopes for a hawkish BoJ pivot and dovish Fed-inspired USD fall

• Expectations for an imminent shift in the BoJ's policy stance boost the Japanese Yen, which, along with the post-FOMC US Dollar selling bias, drags the USD/JPY pair closer to the 142.00 mark during the Asian session on Thursday.
• A piece in Japanese media suggests that the Bank of Japan might be unwilling to go in the opposite direction if central banks in the US and Europe place rate cuts on the table and decide to exit negative rates between January and March.
• The Federal Reserve left the policy rate unchanged at 5.25%-5.50% range at the end of a two-day meeting on Wednesday and also acknowledged that inflation has eased, implying that interest rate increases have come to an end.
• Earlier in the day, data from the US showed that the Producer Price Index (PPI) remained unchanged in November, providing further evidence that inflation continues to meander down toward the Fed's average annual 2% target.
• The Fed's updated economic projections, which included the so-called "dot plot", signalled that lower borrowing costs are on the cards and now expect interest rates to fall to 4.6%, suggesting a cumulative 0.75% rate cut next year.
• In the post-meeting press conference, Fed Chair Jerome Powell said that the central bank is not likely to hike further and that it is very focused on not making the mistake of keeping rates too high for too long.
• The yield on the benchmark 10-year US government bond touched its lowest level since August after the Fed decision, while the two-year US Treasury yield, which reflects rate expectations, tumbled to its weakest level since early July.
• Data released this Thursday showed that Japan Machinery Orders, which is seen as a leading indicator of capital spending in the coming six to nine months, rose 0.7% in October, beating consensus estimates for a modest decline.
• Traders now look to the latest monetary policy updates by major central banks in Europe for short-term opportunities ahead of the US monthly Retail Sales, expected to fall for the second successive month, by 0.1% in November.

Technical Analysis: USD/JPY needs to consolidate around 200-day SMA before the next leg down amid slightly oversold RSI

From a technical perspective, spot prices continue to show some resilience below the very important 200-day Simple Moving Average (SMA). Moreover, the Relative Strength Index (RSI) on the daily chart has just started flashing slightly oversold conditions and warrants caution for bearish traders. Hence, it will be prudent to wait for some near-term consolidation or a modest bounce before positioning for an extension of the recent sharp pullback from the 152.00 neighbourhood, or the YTD peak touched in November.

In the meantime, the 142.00 round figure might continue to act as immediate support ahead of the 141.60 area, or the multi-month low touched last week. Some follow-through selling below the latter will be seen as a fresh trigger for bearish traders and make the USD/JPY pair vulnerable to challenge the 141.00 mark. The downward trajectory could get extended further towards the 140.40 intermediate support before spot prices eventually drop to the 140.00 psychological mark.

On the flip side, any attempted recovery is likely to confront stiff resistance near the 143.00 round figure. That said, a sustained strength beyond could trigger a short-covering rally and allow the USD/JPY pair to reclaim the 144.00 mark. The latter should act as a key pivotal point, which if cleared decisively should pave the way for a further appreciating move, towards the 145.00 psychological mark en route to the 145.50-145.60 resistance and the 146.00 round figure.

• USD/CAD loses ground around 1.3488 after the Federal Reserve's (Fed) meeting.
• As widely expected, the Fed maintained the Fed funds target range steady at its December meeting.
• A rebound in oil prices lends some to the commodity-linked Lonnie.
• Investors await US weekly Jobless Claims and Retail Sales.

The USD/CAD pair extends its downside below the 1.3500 mark during the early Asian session on Thursday. The decline of the US Dollar (USD) following the Federal Reserve (Fed) weighs on the pair. At press time, USD/CAD is trading at 1.3488, down 0.07% for the day.

The Fed held the fed funds target range steady at 5.25%–5.5% for a third consecutive meeting on Wednesday due to easing labour demand and slowing inflation readings over recent months. The interest rate projection showed the possibility of the Fed cutting before the middle of next year has increased. The Fed now anticipates three rate cuts next year rather than two. This, in turn, exerts some selling pressure on the USD and acts as a tailwind for the GBP/USD pair.

Apart from this, the annual US Producer Price Index (PPI) for November came in worse than market expectations, easing from 2.3% to 2.0% YoY. The headline PPI figure dropped 0.9% from a 1.2% rise in the previous reading.

On the other hand, a recovery in oil prices lends some to the commodity-linked Lonnie. That being said, the Organisation of the Petroleum Exporting Countries (OPEC) report raised its global growth economic forecasts, which eased concerns about the oil demand outlook in 2024.

Last week, the Bank of Canada (BoC) left its benchmark interest rate on hold at a 22-year high of 5.0%. Money markets anticipate the Canadian central bank to begin easing as soon as April and cut the rate to a total of 90 basis points (bos) in 2024. However, the BoC said it was premature to consider rate cuts.

On Thursday, the US weekly Jobless Claims and Retail Sales will be released. On Friday, the US S&P Global PMI data will be due, and BoC Governor Tiff Macklem is set to speak in the American session. These events could give a clear direction to the USD/CAD pair.

• Australian Dollar surges to four-month highs as US Dollar loses ground after Fed decision.
• Australia’s Consumer Expectations reduced to 4.5% and Employment Change rose substantially to 61.5K.
• Fed kept interest rates unchanged at 5.5% and investors expect three rate cuts for 2024.

The Australian Dollar (AUD) extends its gains on the second consecutive day on Thursday and delivers its strongest performance in four months after moderate employment data release from Australia. The AUD/USD pair gained ground, benefiting from a substantial decline in the US Dollar (USD) following the Federal Reserve (Fed) meeting. In line with expectations, the Fed opted to maintain interest rates at 5.5%. Markets are now projecting three rate cuts for 2024. Fed Chair Jerome Powell adopted a dovish stance, contributing to the decline in Treasury bond yields. He refrained from declaring victory on inflation.

Australia’s Consumer Inflation Expectations for December eased at 4.5% against the previous figures of 4.9%. The seasonally adjusted Employment Change (Nov) improved substantially to 61.5K compared to the expected 11.0K. However, Unemployment Rate rose to 3.9% from 3.7% previously.

The US Dollar Index (DXY) receives downward pressure after downbeat Producer Price Index (PPI) data for November was released on Wednesday. US Bureau of Labor Statistics revealed that the PPI (YoY) reduced to the growth of 0.9% against the expected growth of 1.0%, while the Core PPI came in at 2.0% against the 2.2% expected. Market participants will likely observe the release of US Retail Sales data on Thursday.

Daily Digest Market Movers: Australian Dollar receives upward support after Fed policy decision

• ANZ-Roy Morgan Australian Consumer Confidence weekly survey rose to 80.8 from the previous week's 76.4.
• Westpac Consumer Confidence for December showed improvement at 2.7% from the previous decline of 2.6%.
• Australian government anticipates a significantly improved budget bottom line this year as revenues outpace forecasts. In the mid-year economic and fiscal outlook (MYEFO) presented by Labor Treasurer Jim Chalmers, a budget deficit of just AUD 1.1 billion (USD 721.4 million) in the year to end June 2024 is projected, down from the AUD 13.9 billion forecasted back in May.
• US Bureau of Labor Statistics revealed that the US Consumer Price Index (CPI) for November rose by 0.1% month-on-month and 3.1% year-on-year. Both figures aligned with market consensus, indicating that inflation levels met expectations.
• US Core CPI, which excludes volatile food and energy prices, climbed by 0.3% MoM and 4.0% YoY, in line with expectations.

Technical Analysis: Australian Dollar surges to psychological level at 0.6700

The Australian Dollar trades higher around the psychological level at 0.6700 on Thursday. A potential upward move from this point could propel the AUD/USD pair towards August's high at 0.6723, followed by the significant level at 0.6750. On the downside, the key support at 0.6650 holds significance, along with the 23.6% Fibonacci retracement at 0.6503, aligning with the psychological support at 0.6500. A decisive breach below this support level might exert downward pressure on the AUD/USD pair, with the potential to navigate towards the region around the 21-day Exponential Moving Average (EMA) at 0.6577.

AUD/USD: Daily Chart

On Thursday, the People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.1090 as compared to the previous day's fix of 7.1126 and  7.1566 Reuters estimates.

• GBP/USD trades in positive territory for the fourth consecutive day above the 1.2600 mark.
• The Federal Reserve (Fed) kept the interest rates steady at the target range of 5.25%-5.5% in its December meeting.
• The UK’s economy contracted 0.3% MoM in October vs. 0.2% expansion prior, below the market expectation.
• Investors will closely watch the BoE interest rate decision ahead of US Retail Sales.

The GBP/USD pair surges to one-week highs above the 1.2600 mark during the early Asian trading hours on Thursday. The uptick of the pair is bolstered by the weaker US Dollar (USD) and the dovish comments after the Federal Reserve (Fed) meeting. Investors await the Bank of England monetary policy meeting, with no change in interest rate expected. The major pair currently trades near 1.2634, losing 0.06% on the day.

On Wednesday, the Fed kept the interest rates steady at the target range of 5.25%-5.5% in its December meeting. Fed Chair Jerome Powell said discussion about cutting rates is still ahead and the central will decide very carefully. Powell further stated that the Fed is very focused on not making the mistake of keeping rates too high for too long. That being said, these dovish remarks exert some selling pressure on the Greenback and lift the GBP/USD pair.

The UK’s economy contracted 0.3% MoM in October from 0.2% expansion in the previous reading, below the market consensus of 0.1% drop, the Office for National Statistics showed on Wednesday.

Analysts anticipate that the negative growth data will cement Thursday's BOE expected hold on rates, but might raise the odds of rate cutting sooner in 2024 as the Bank seeks to avoid sending the economy into recession. The BoE is widely expected to maintain the bank rate at 5.25% on Thursday.

The BoE interest rate decision will the the highlight on Thursday. Later in the day, the US Jobless Claims and the Retail Sales will be due. On Friday, the S&P Global PMI reports from the UK and US will be released. Traders will take cues from these events and find trading opportunities around the GBP/USD pair.

The Australia’s Unemployment Rate came in at 3.9% in November, compared with the expectations of 3.8% and the previous figure of 3.7%, according to the official data released by the Australian Bureau of Statistics (ABS) on Thursday.

Furthermore, the Australian Employment Change arrived at 61.5K in November, compared with the consensus forecast of 11K and 55K jobs addition seen in October.

Market reaction

At the time of press, the AUD/USD pair was up 0.15% on the day to trade at 0.6680.

• Gold price holds positive ground around $2,020 after the key US event.
• The Federal Reserve (Fed) policy decision matched market expectations at its December meeting by maintaining the rate unchanged at 5.25%–5.50%.
• The annual Producer Price Index (PPI) ex Food & Energy arrived at 2.2% YoY vs. 2.3% prior.
• Gold traders await the weekly Jobless Claims and Retail Sales reports, due later on Thursday.

Gold price (XAU/USD) surges above $2,000 during the early Asian session on Thursday. The weaker US Dollar (USD) and Treasury yield after the Federal Reserve (Fed) meeting boost the yellow metal. At press time, the gold price is trading at $2,020, up 0.16% on the day.

Meanwhile, the US Dollar Index (DXY), a measure of the value of the USD against a weighted basket of currencies used by US trade partners, drops sharply from 103.95 to 102.90. The Treasury yields edge lower, with the 10-year yield falling to 4.02%, the lowest level since August.

The Fed policy decision matched market expectations at its last meeting of the year by maintaining the interest rate unchanged at 5.25%–5.50%. The statement was dovish on monetary policy guidance, and the Fed Chair Jerome Powell did not make much of an effort to push back against market expectations of early rate cuts. During the press conference, Powell said that the Fed is willing to cut rates even if the U.S. economy doesn’t dip into a recession in 2024.

The Fed indicated the possibility of three rate cuts by three-quarters of a percentage point in 2024. However, the fed funds futures were pricing in 1.5 percentage points of the rate cut in the next years, according to the CME FedWatch Tool.

About the data, the US Producer Price Index (PPI) for November came in at 0% MoM from a 0.4% drop in the previous reading, while the annual PPI fell 0.9% versus a 1.2% rise prior. The annual PPI ex Food & Energy eased from 2.3% to 2.0% YoY. The headline and core PPI figures came in worse than market expectations, the US Bureau of Labor Statistics showed on Wednesday.

Gold traders will take more cues from the US economic data, including the weekly Jobless Claims and Retail Sales reports. The Retail Sales figure is estimated to drop by 0.1% MoM in November. Chinese Retail Sales and Industrial Production data will be released on Friday.