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• The US Dollar is rebounding from Friday’s selloff as investors gear up for holiday.
• The Loonie briefly rallied to a fresh 19-week high as rate-hungry markets pummel the USD.
• USD/CAD set for a fifth weekly decline in six straight weeks.

The USD/CAD pared back above 1.3260 after plunging to a fresh 19-week low on Friday as markets continue to price in an accelerated pace of rate cuts from the Federal Reserve (Fed) in 2024 as US inflation continues to ease faster than initially expected.

Canadian GDP stalls out, US inflation continues to recede

The Canadian Dollar is struggling to find reasons to catch bids as economic data from Canada continues to point towards an economic slowdown. Canadian monthly Gross Domestic Product (GDP) failed to print growth for a fourth straight reporting period in October, coming in flat at 0.0% after September’s GDP print saw a downside revision from a meager 0.1% to flat. Canadian GDP has failed to move the needle month-over-month since June’s 0.2% decline.

Read More: Canada GDP stalls in October vs. 0.2% expansion expected

The US Personal Consumption Expenditures (PCE) Price Index eased back from market forecasts as inflation continues to drain away faster than economic models predicted, ramping up money market bets of faster and more frequent rate hikes from the Fed in 2024. The Core US PCE Price Index for the year through November printed at 3.2% versus the market forecast of 3.3%, slipping back from October’s print of 3.4% (revised down from 3.5%).

Read More: US PCE inflation softens to 2.6% from a year ago vs. 2.8% expected

With US inflation steadily declining, investors’ bets on Fed rate cuts next year have ramped up significantly with market expectations running well ahead of the Fed’s own rate outlook; money markets are pricing in upwards of 160 basis points in rate cuts through 2024, compared to the Fed’s own dot plot of rate forecasts, which sees only 75 basis points by the end of next December.

USD/CAD Technical Outlook

The USD/CAD’s late-Friday rally has the pair pulling back into neutral territory on the day, clawing back towards the 1.3300 handle as market volatility takes a step higher heading into the week’s close.

The pair is still down on the week, down eight-tenths of one percent from Monday’s opening bids and in the red by 2.5% from the last swing high into 1.3620.

Intraday action still has a lot of ground to cover before the pair can start challenging topside momentum beyond the 200-hour Simple Moving Average (SMA) near 1.3400, and near-term recoveries will be difficult to time with technical indicators pinned into oversold territory.

USD/CAD Hourly Chart

USD/CAD Daily Chart

USD/CAD Technical Levels

Holiday-thinned trading, a shortened week, and a light economic calendar point to abnormal price action in the last days of 2023. Will Santa's rally continue? Will the US Dollar remain under pressure?

Here is what you need to know for next week: 

The economic calendar is light next week. Adding to this, holiday-thinned trading could favor limited price action while at the same time encouraging false breakouts. Most trading platforms won't be functional on Monday.

It was another positive week for equity prices. The Dow Jones reached all-time highs, while US Treasury yields moved lower. The 10-year settled around 3.90%, the lowest since July. Will Santa stay on Wall Street next week? 

The US Dollar Index (DXY) lost ground for the second week in a row, falling to monthly lows, below 102.00. It continues to move with a bearish bias, on the back of risk appetite and lower yields. Market repricing expectations from the Federal Reserve (Fed) in 2024 keep the Greenback under pressure.

This week's key number was the Core Personal Consumption Expenditure (Core PCE), which rose 0.2% in November, below the expected 0.3%, and 3.2% from a year ago. The headline index actually declined 0.1% in November, marking the first negative reading since 2020. The data adds to evidence that inflation is moving toward the Fed's 2% target. Data from the US next week includes home prices (Tuesday), Jobless Claims (Thursday), and the Chicago PMI (Friday).

The EUR/USD rose above 1.1000, and next week's challenge will be to remain above that area. The pair posted the highest weekly close in five months. The crucial report will be Spain's preliminary Consumer Price Index (CPI) for December on Friday.

The GBP/USD posted modest weekly gains, facing difficulty holding above 1.2700. Despite posting gains versus the US Dollar, the Pound was affected by UK inflation data, which came in softer than expected. EUR/GBP rose from 0.8575 to 0.8660, retaking the 20-week Simple Moving Average. No relevant data from the UK is due next week.

The Japanese Yen was the worst performer among majors during the week, following the Bank of Japan (BoJ) monetary policy meeting. USD/JPY posted minor gains; however, it finished far from the weekly peak around 142.50, showing that prevailing risks are to the downside. On Wednesday, BoJ will release the Summary of Opinion of the latest monetary policy meeting. Data due from the country includes retail trade data and industrial production. Japanese economic figures could start having more relevance considering the expectations about a potential exit from BoJ's negative interest rate policy.

No relevant economic reports are due from Canada, Australia, and New Zealand. AUD/USD and NZD/USD posted important gains for the second week in a row and the highest close since July. Price action is expected to continue to be driven exclusively by USD dynamics.

The USD/CAD tumbled, falling below 1.3300, marking the lowest weekly close since August. The Canadian Dollar lagged behind the AUD and the NZD, amid risk appetite and subdued crude oil prices.

Gold posted the second-highest weekly close on record. XAU/USD hovers around $2,050 and the trend is up. The main risk for the yellow metal could come from a repricing of Fed easing expectations. A rebound in US yields could trigger a sharp correction in Gold. 

Economists at CIBC analysed growth data from Canada released on Friday. 

Looking at rate cuts in Q2 2024

• EUR/USD hits 18-week high on Friday.
• Pre-holiday markets are producing some rough chop heading towards the Friday close.
• Slowing US inflation is pushing down the Greenback as markets bet on rate cuts.

The EUR/USD climbed into an 18-week high at 1.1040 before slipping back towards 1.1000 as markets wind up operations before heading into the holiday break. US inflation missed the mark on Friday, printing below expectations and keeping investor expectations of Federal Reserve (Fed) rate cuts accelerating in 2024.

Read More: US PCE inflation softens to 2.6% from a year ago vs. 2.8% expected

US Personal Consumption Expenditure (PCE) Price Index softened more than expected on Friday with the Core Annualized PCE Price Index for the year through November printing at 3.2%, below the forecast 3.3% and even further back from October’s YoY print of 3.4% (revised down slightly from 3.5%).

Money markets are ramping up their expectations of a faster pace of rate cuts from the Federal Reserve (Fed) through 2024 on the back of inflation metrics that continue to decline faster than most models can predict. Investor expectations have now run far ahead of the Fed’s own rate expectations looking forward, with money markets pricing in upwards of 160 basis points in Fed rate cuts, with some betting the rate cut cycle begins as soon as next March, while the Fed’s dot plot of interest rate expectations only sees 75 basis points in reductions by the end of 2024.

The market’s USD-short momentum was limited by a beat in US Durable Goods Orders, which printed at 5.4% for November versus October’s -5.1% (revised up slightly from -5.4%), showing the US economy may still be firm enough that the Fed might get away with fewer rate cuts than many expect.

EUR/USD Technical Outlook

Despite the US Dollar’s moderate pullback late Friday, the Greenback remains firmly down on the week, in the red by nearly a third of a percent against the Euro from Monday’s opening bids. 

The US Dollar is still up on the day against the Euro, and a green close here will see the EUR/USD close in the green for seven of the last nine straight trading week.

Technicals are leaning into the bullish side, leaving a wake of technical support flags in the pair’s wake on its rise from October’s early lows near 1.0450. The last meaningful swing low saw a turnaround point at 1.9793, and the 200-day Simple Moving Average (SMA) rising towards 1.0850.

EUR/USD Hourly Chart

EUR/USD Daily Chart

EUR/USD Technical Levels

• USD/JPY sees late rally, jumps to 142.60.
• The US Dollar is paring back the day’s losses as the Yen declines.
• US inflation continues to erode faster than expected.

The USD/JPY is rallying into new highs on Friday as the US Dollar (USD) tries to pare back some of the day’s losses coupled with a broad-market weakening of the Japanese Yen (USD) as markets get set to wrap up the last day of trading before the holiday break and the last full trading week of 2023.

The Yen saw an early bump on Friday after Japanese National Consumer Price Index (CPI) Inflation printed more or less as-expected, with Core Japan CPI (headline CPI less fresh food prices) for the year through November meeting market forecasts of 2.5% versus the previous print of 2.9%.

Japanese inflation continues to fall back towards the Bank of Japan’s (BoJ) 2% target, but the BoJ continues to undercut market hopes for a hawkish pivot from the Japanese central bank. The BoJ remains unconvinced that Japanese inflation will continue to hold above 2% looking foward, and the BoJ remains firmly entrenched in hyper easy monetary policy with negative interest rates.

The BoJ currently expects inflation to decline below a 2% annual rate sometime in 2025.

The US Dollar declined once more on Friday after the US Personal Consumption Expenditures (PCE) Price Index declined faster than expected, seeing a resurgence in rate cut expectations from the markets. The Greenback is now paring back the day’s losses heading into the back half of the week’s final trading session.

The Core US PCE Price Index for the year through November softened to 3.2%, below the market forecast of 3.3% and easing back further from the previous print of 3.4% (revised down from 3.5%).

Read More: US PCE inflation softens to 2.6% from a year ago vs. 2.8% expected

Declining US inflation has weighed on the US Dollar this week, igniting a resurgence in investor expectations of an increased pace of rate cuts in 2024. Market rate cut expectations may have run far ahead of what the Fed considered feasible, however: the Fed’s dot plot of interest rate expectations show a median forecast of 75 basis points in rate cuts through the end of 2024, but markets are currently pricing in bets of 160 basis points in cumulative rate cuts, with some particularly over-eager market participants betting on a rate cut as soon as next March.

USD/JPY Technical Outlook

The USD/JPY set a new high for Friday at 142.66, stopping just short of the 50-hour Simple Moving Average (SMA) as the pair gets hung up on near-term resistance levels.

Despite USD/JPY’s Friday rebound, the pair remains firmly bearish, with an unavoidable lower-highs pattern baked into the charts.

The pair remains constrained at the 200-day SMA rising into the 143.00 handle, and the USD/JPY is down over six percent from November’s peak bids near 151.90.

USD/JPY Hourly Chart

USD/JPY Daily Chart

USD/JPY Technical Levels

• The GBP/USD is holding on the high side after US PCE inflation settled further on Friday.
• UK Retail Sales grew in November, Pound Sterling bidders shrug off UK GDP QoQ decline.
• US Dollar flows are decidedly bearish, propping up the broader market.

The GBP/USD is on the high side amidst some rough chop in the US market session, holding above the 1.2700 handle the pair reclaimed during the European trading window after the UK reported better-than-expected Retail Sales in November.

Read More: UK Retail Sales rise 1.3% in November, Q3 GDP growth revised lower to 0.3%

UK Retail Sales grew 1.3% MoM in November, beating the forecast 0.4% and rebounding from October’s flat print of 0.0%. Annualized Retail Sales through November also gained on market forecasts, printing at 0.1% versus the forecast -1.3%, rebounding from the previous period’s -2.5% (revised upwards slightly from -2.7%).

Upbeat UK Retail Sales helped Pound Sterling bidders shake off a miss in the UK Gross Domestic Product (GDP) print, which came in below expectations. Annualized quarterly UK GDP came in at just 0.3% versus the forecast hold at 0.6%, with quarterly GDP declining QoQ, coming in at -0.1% versus the forecast 0.0% flat reading.

US data took center stage again on Friday, with decelerating inflation being the key driver, pushing the US Dollar down across the broader market.

Read More: US PCE inflation softens to 2.6% from a year ago vs. 2.8% expected

US Personal Consumption Expenditure (PCE) Price Index figures for November showed inflation continues to slow at a faster pace than markets initially expected. Annualized Core PCE inflation for the year through November printed at 3.2%, below the 3.3% forecast and lower than the previous period’s 3.4% print (revised down slightly from 3.5%).

Read More: US Durable Goods Orders rise 5.4% in November vs 2.2% expected

US Durable Goods Orders added to the mix, implying the US economy might not be outright weakening as quickly as rate-cut-hungry investors might be hoping for; November’s Durable Goods Orders came in at a surprisingly robust 5.4%, easily clearing the forecast 2.2% and rebounding from the previous period’s -5.1%(revised from -5.4%).

GBP/USD Technical Outlook

The GBP/USD found some room above the 1.2700 handle on the final Friday before the holiday break, testing just below 1.2750 before falling back into intraday consolidation between 1.2740 and 1.2710.

The Pound Sterling has been bolstered against the US Dollar, bouncing off of the 200-hour Simple Moving Average (SMA) rising through 1.2660, but failure to break near-term highs near 1.2760 leaves bullish momentum capped.

1.2800 is proving a vexing handle to reclaim for the Pound Sterling, having shed the price level in August and getting rejected from the region last week.

The GBP/USD continues to trade north of the 200-day SMA just above 1.2500, but an extended pullback could be due with the Moving Average Convergence-Divergence (MACD) showing signs of technical exhaustion in overbought territory.

GBP/USD Hourly Chart

GBP/USD Daily Chart

GBP/USD Technical Levels

Economists at HSBC retain a USD bullish view for 2024.

USD likely to be on the defensive in the near term

• US consumer inflation declined more than expected in November.
• US Dollar Index slides to its lowest level since July 27.
• The AUD/USD holds firm, maintaining important weekly gains.

During the American session, the AUD/USD pair rose to 0.6824, reaching its highest intraday level since July, driven by broad-based Dollar weakness. It is holding onto its weekly gains, remaining near 0.6800.

Mixed US data: inflation approaches Fed's target

The latest important US economic report for 2023 showed that the Core Personal Consumption Expenditure Price Index (Core PCE) rose 0.1% in November, below the market consensus of 0.2%. The headline PCE declined for the first time since 2020. Another report indicated a 5.5% increase in Durable Goods Orders in November, and the University of Michigan Consumer Sentiment Index rose in December to 69.7 from 69.4.

The market reaction to the US data was limited. The numbers continue to indicate a robust economy and inflation approaching the Federal Reserve's target. Following the data, easing expectations rose, while US Treasury yields remained relatively steady.

The US Dollar index (DXY) dropped to 101.42, the lowest level since July, boosting the AUD/USD to approach 0.6825. The Australian Dollar is holding above 0.6800, set for its second consecutive weekly gain, reaffirming the bullish outlook. However, risks remain as the US economic performance could lead to the Fed cutting interest rates after other central banks, including the Reserve Bank of Australia (RBA).

Technical outlook 

The AUD/USD remains within an ascending channel on the daily chart; however, it is nearing the upper limit, which could potentially limit the rally and prompt a period of consolidation. Conversely, a breakout above the upper limit at 0.6830 could trigger acceleration, targeting 0.6850.

In the event of a downward correction, initial support may be found around the 0.6770 area, followed by 0.6725. If it falls below 0.6600, the outlook would shift from bullish to neutral/bearish.

AUD/USD daily chart 

• The Mexican Peso hit a 15-week high against the US Dollar on Friday.
• Mexico’s unadjusted Trade Balance hit a nine-month high in November.
• Friday marks the last trading day before the holiday break.

The Mexican Peso (MXN) rallied to a fresh 15-week high on Friday as the broader market took one last opportunity to sell off the US Dollar (USD) heading into the extended holiday weekend. 

Mexico’s unadjusted Trade Balance in November beat market expectations and improved to a nine-month high of 630 million in US Dollar terms. However, market impact is likely limited after the seasonally adjusted Trade Balance grew by a scant 300K.

US data drove the market on Friday, with mixed figures pulling Greenback bids in both directions, but the US Dollar heads into the holiday break notably in the red across the board, falling back against the majority of the major currency bloc.

Daily digest market movers: Mexican Peso propped up by Greenback weakness

• MXN hit a 15-week high of 16.94 against the USD on Friday as markets sell the US Dollar off one last time before the holiday break.
• Mexico’s November Trade Balance grew by USD 630 million versus the market forecast of USD 404 million, rebounding from October’s USD 252 million deficit.
• November’s seasonally adjusted Mexico Trade Balance showed scant growth of USD 300K versus the previous month’s growth of USD 242 million, implying seasonal factors are boosting Mexico Trade Balance and are unlikely to last.
• US Dollar weakness is the general market theme on Friday.
• The US Annualized Core Personal Consumption Expenditures (PCE) Price Index in November grew by 3.2% from the same time last year, easing back from market forecasts of 3.3% and declining further from the previous period’s 3.4% (which was also revised down from 3.5%).
• Durable Goods Orders in November lurched higher to grow 5.4%, well over the market forecast of 2.2% and clawing back October’s -5.1% (also revised upwards from -5.4%).
• Easing US inflation figures are keeping market hopes pinned for faster and sooner rate cuts from the Federal Reserve (Fed).
• Mexico’s Jobless Rate figures are due next Thursday after the holiday break.

USD/MXN Hourly Chart

USD/MXN Daily Chart

As 2023 is coming to an end, it is time to take a look at 2024. Strategists at Rabobank sketch their baseline scenario for the next year.

An eventful year

The Gold price is set to benefit from easing monetary policy, elevated geopolitical risks and strong central bank purchases in 2024, strategists at ANZ Bank report.

Gold to keep shining in 2024

• Silver price recovers swiftly after softer-than-projected US core PCE inflation report.
• Sost underlying inflation data has boosted Fed’s rate cut bets.
• The US Durable Goods Orders rose strongly by 5.4% vs. consensus of 2.2%.

Silver price (XAG/USD) gathers strength for more upside as the United States Bureau of Economic Analysis (BEA) reported softer-than-anticipated core Personal Consumption Expenditure (PCE) price index report for November.

Monthly US core PCE data grew slightly by 0.1% while investors projected a growth rate of 0.2% as recorded for October. On an annualized basis, the underlying inflation has decelerated to 3.2% vs. the consensus of 3.3% and the former reading of 3.5%. Investors should note that the Federal Reserve (Fed), in its Summary of Projections (SOP) released least week, forecasted core PCE at 3.2% by the year-end.

A soft US core PCE report may deepen expectations for rate cuts from the Fed further, which will keep bullions underpinned against the US Dollar. The US Dollar Index (DXY) is looking to extend its downside below four-month low of 101.50

Contrary to market expectations, Fed policymakers are consistently pushing back rate cut expectations, citing restrictive interest rate policy for a longer period is highly required to ensure the achievement of price stability.

Meanwhile, US Durable Goods Orders for November remained upbeat than expectations. Fresh orders for core goods rose significantly by 5.4% vs. the consensus of 2.2%. In October, the economic data was contracted by 5.1%.

Silver technical analysis

Silver price climbs to near the 61.8% Fibonacci retracement (plotted from December 12 high at $25.90 to December 13 low around $22.60) at $22.60 on a two-hour scale. The 20-period Exponential Moving Average (EMA) around $24.35 continues to provide support to the white metal.

The Relative Strength Index (RSI) (14) oscillates in the bullish range of 60.00-80.00, which indicates that the upside momentum is intact.

Silver two-hour chart

The USD is broadly weaker versus the major currencies. Economists at Scotiabank analyze Greenback’s outlook.

Technical signals remain bearish for the DXY

• The US Dollar remains stuck at multi-month lows after weak US PCE Inflation.
• US Durable Goods orders beat expectations, easing bearish pressure on the USD.
• Canadian GDP contracts unexpectedly in October.
   

The US Dollar maintains its bearish tone against the loonie. The mixed US macroeconomic figures have offset the weak Canadian Gross Domestic Product data leaving the languishing at multi-month lows below 1.3300.

Canadian Gross Domestic Product remained flat in October, according to data released by Statistics Canada. The final data falls short of market expectations of 0.2% growth and put into question the Bank of Canada´s hawkish forward guidance.

The negative impact on the Canadian Dollar, however, has been offset by the mixed US data, but especially by November´s PCE Prices Index, which contracted unexpectedly in November increasing hopes of Fed cuts in early 2024.

PCE Inflation eased 0.1% in the month and grew at a 2.6% pace in the year, below market expectations of 0% and 2.8% readings respectively. The Code PCE nudged up 0.1% on the month and 3.2% year-on hear. Market experts had anticipated 0.2% and 3.3% increases respectively.

On the positive side, US Durable Goods Orders increased beyond expectations, which eases concerns about the outlook of the manufacturing industry and has cushioned US Dollar´s decline.
 

Technical levels to watch
 

• Canadian economy stalled in October for the third consecutive month.
• USD/CAD stays around 1.3270 after economic data from the US and Canada.

Statistics Canada reported on Friday that Real Gross Domestic Product (GDP) “was essentially unchanged for a third consecutive month in October. Services-producing industries edged up 0.1%, while goods-producing industries were essentially unchanged, with the 20 industrial sectors evenly split between increases and decreases.”

The reading came in below the market expectations of a 0.2% expansion. In September, the economy also stalled (revised from a 0.1% expansion). 

The advance estimate indicates that real GDP edged up 0.1% in November 2023. The following GDP report will be released on January 31. 

Market reaction

The USD/CAD remained around 1.3270 after the release of the Canadian GDP and US economic data that included the Core Personal Consumption Expenditure (Core PCE) and Durable Goods Orders.

The Canadian Dollar has had a solid week. Economists at Scotiabank analyze USD/CAD outlook.

Short-term resistance is 1.3315/1.3320

• Durable Goods Orders in the US rebounded sharply in November after a 5.1% decline in October. 
• The US Dollar rose modestly after the report and following Core PCE data. 

Durable Goods Orders in the United States rose by 5.4% in November to $295.4 billion, the US Census Bureau announced on Friday. This followed a 5.1% decline (revised from 5.4%) recorded in October and came in better than the market expectation for an increase of 2.2%. 

Excluding transportation, new orders increased 0.5% against the 0.1% expected. Excluding defense, rose by 6.5%.

Market reaction

The US Dollar rose after the release of US economic data, which included the Core Personal Consumption Expenditure (Core PCE). The US Dollar Index (DXY) trimmed daily losses and rose from 101.55 to levels above 101.70. 

GBP/USD extends its recovery on Friday. Economists at Scotiabank analyze the pair’s outlook.

Cable threatens bull breakout

See: GBP/USD to push lower to 1.23 on a one-to-three-month view – Rabobank

• USD/JPY continues to decline further towards 140.00 amid soft US Dollar.
• Investors await the US core PCE price index data for further guidance.
• USD/JPY may find an intermediate cushion near upward-sloping trendline.

The USD/JPY pair consolidates in a tight range near 142.00 after a sharp correction ahead of the United States core Personal Consumption Expenditure (PCE) price index data for November, which will be published at 13:30 GMT.

The core PCE inflation report is expected to remain soft as the Federal Reserve (Fed) has been keeping interest rates unchanged in the range of 5.25-5.50%. The downside in the major would continue if the underlying inflation turns out softer-than-anticipated. Meanwhile, deepening rate cut expectations from the Federal Reserve (Fed) have weighed heavily on the US Dollar Index (DXY). The USD Index has refreshed its four-month low around 101.55.

On the Tokyo front, Japan’s National Consumer Price Index (CPI) has remained above the 2% target for the 20^th time in a row.  The Bank of Japan (BoJ) is expected to continue its ultra-dovish policy stance till wage growth in the Japanese economy gets high enough to keep inflation comfortably above 2%.

USD/JPY is consistently declining from more than one month. The downside momentum accelerated after a bearish crossover from the 20 and 50-day Exponential Moving Averages (EMA), which happened around 148.80. The asset is expected to decline further towards the upward-sloping trendline plotted from January 16 low at 127.22.

The Relative Strength Index (RSI) (14) is oscillating in the bearish range of 20.00-40.000, pointing to continuation of a downside momentum.

Fresh downside would appear if the asset drops below December 14 low near 141.00. This would drag it towards the upward-sloping trendline near 139.40, followed by July 28 low near 138.00.

In an alternate scenario, a recovery move above December 19 high near 145.00 would drive the asset towards December 11 high around 146.60, followed by December 6 high near 148.00.

USD/JPY daily chart

• The Aussie rallies further on USD weakness and hits fresh highs above 0.6800.
• The US Dollar languishes at multi-month lows ahead of the US PCE Inflation data.
• The Aussie will be one of the best performers in 2024 – ING.
   

The Australian Dollar’s bullish momentum remains firm, as the pair has crossed beyond the 0.6800 level favoured by a broad-based Dollar weakness, with all eyes on the US PCE Prices Index, due later today.

The Aussie, buoyed by RBA - Fed divergence

The Aussie is on track to a nearly 2% weekly rally, following a similar performance last week. The hawkish RBA minutes released earlier this week, have highlighted the divergence with a dovish Federal Reserve, giving a fresh impulse to the pair.

In the US, data released on Thursday revealed that the economy grew slower than initially thought in the third quarter. US Q3 GDP was revised down to a 4.9% yearly growth from the previous estimation of 5.2% with manufacturing and inflation data adding to evidence of a slower momentum.

In this scenario, investors are awaiting the US CPI data to confirm their views on the Fed rate outlook. Futures markets are pricing nearly 75% chances that the easing cycle will start in March and that the US central bank will slash rates by 150 bps over the next year.

AUD seen as one of the best performers in 2024 – ING

Looking ahead, the ING Technical analysis team expects the Aussie to outperform most of its rivals next year: “Currencies prepared to challenge the Dollar are going to need some help. And both the AUD and NOK are packing undervaluation in their armoury (...) These are the currencies most undervalued according to our medium-term fair value model, where divergence from better export prices is the core story.”

Technical levels to watch

EUR/USD pushes through low 1.10 zone to trigger renewed bull impulse, economists at Scotiabank report.

Intraday support is 1.0965/1.0970

• The US Dollar sees gains from last quarter fully eroded. 
• Equity markets jump higher as investors go all in on early Fed rate cuts. 
• The DXY US Dollar Index sinks below 102.00, and could go to 100.00 if PCE inflation misses estimates. 

The US Dollar (USD) is facing increasing selling pressure as investors are increasingly pricing in interest-rate cuts for early 2024. Markets are opting to ignore remarks and warnings from several US Federal Reserve officials, who are trying to play down expectations of upcoming cuts. While US equities are having a Christmas rally, US bond yields have plunged, leading the spread gap between the US Dollar and foreign currencies to shrink substantially. 

On the economic front, the very last big data dump for 2023 is set to take place. With the Personal Consumption Expenditure (PCE) Price Index numbers, markets will see the Fed’s preferred inflation gauge being released. Unless inflation comes in higher than expected, the US Dollar is likely to sink further ahead of Christmas. 

Daily digest Market Movers: Last data of 2023

• A very chunky batch of data will be released at 13:30 GMT:
  • Personal Consumption Expenditures (PCE) is due to be released:
    • Yearly Core PCE expected to fall from 3.5% to 3.3%.
    • Monthly Core PCE is to stay stable at 0.2%.
    • Yearly Headline PCE is to head lower from 3% to 2.8%.
    • Monthly Headline PCE is to remain unchanged, at 0%.
  • Durable Goods Orders for November are also to be released:
    • Durable Goods Orders are expected to rise 2.2% from a 5.4% decline a month earlier.
    • Durable Goods without transportation will head higher from 0% to 0.1%.
    • Personal Income will rise from 0.2% to 0.4%.
    • Personal Spending will tick up as well, from 0.2% to 0.3%.
• The Last numbers to be released will be the University of Michigan consumer sentiment and New Homes Sales, both at 15:00 GMT:
• The University of Michigan Consumer Sentiment Index is set to remain unchanged at 69.4 in December. Five-year inflation expectations are also seen unchanged at 2.8%.
• New Home Sales for November are expected to jump from 0.679 million to 0.685 million. 
• Equities are looking for direction, with minor gains as most takeaways. Asian markets closed near flat, except for the Hang Seng index, which closed down over 1.6% after the Chinese government released new measures to crack down on the gaming industry. 
• The CME Group’s FedWatch Tool shows that markets are pricing in an 83.5% chance that the Federal Reserve will keep interest rates unchanged at its January 31 meeting. Around 14.5% expect the first cut already to take place.
• The benchmark 10-year US Treasury Note trades near 3.87%, the lowest level since summer.
•  

US Dollar Index Technical Analysis: Thrown out the window

The US Dollar Index is having one of its worst weeks in the last quarter. With trading desks cleaning up their balance sheets, it becomes clear that several US Dollar bulls have further unwounded their positions in the Greenback. With the relentless drop in US yields, the rate differential story has come to an end for 2023, with markets going all in on a further decline for early 2024.

Any upbeat surprise in data that could contradict rate cut bets or geopolitical events that trigger US Dollar inflow could still make the DXY head higher. On the daily chart, look for 103.00 as the first level to watch. Once trading above there, the 200-day Simple Moving Average (SMA) at 103.50 is the next important level to get to. 

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

• The New Zealand Dollar bounces up and heads to levels beyond 0.6300.
• The US Dollar remains on the defensive following downbeat US GDP data on Thursday.
• Investors await the release of the US PCE inflation to assess the timing of the Fed's pivot.

The Kiwi has resumed its uptrend on Froday´s European morning session, to explore levels beyond 0.6300. The US Dollar is trading lower across the board ahead of the release of November´s PCE Prices Index data.

Data released on Thursday showed that the US economy grew slower than previously thought in the third quarter. The Q3 GDP was revised down to a 4.9% yearly growth from the previous 5,2% estimation, with manufacturing and inflation data showing lower-than-expected readings.

These figures cement investors’s view of an economic slowdown ahead and boost hopes for Fed cuts in 2024. In this scenario, the focus is on the release of US PCE Prices Index, the Fed's favourite inflation reading for more info about the timing of the US central bank´s easing plans.

PCE Inflation is expected to have remained flat in November, with the yearly rate declining below the 3% level for the first time in three years. The Core PCE, which strips out the impact of seasonal prices from food and energy is seen 0.2% up in the month and a decline, to 3.3% from 3.5% in October.

Technical levels to watch
 

Kit Juckes, Chief Global FX Strategist at Société Générale, analyzes, the AUD outlook.

Inverted curve Down Under

• WTI Oil pops back above $74 in a volatile week ahead of Christmas.
• Angola announced on Thursday it will leave OPEC in January. 
• The DXY US Dollar Index flirts with a substantial breakdown that could erase a half year worth of gains.

Oil prices are back on track towards $84 on Friday, propelled by geopolitical tensions in the Red Sea. Still making headlines going into these last hours of trading before Christmas, Houthi rebels have made the Red Sea a no-go zone for all big freight operators. With a vast number of fleets being redirected around Africa, the demand and price pressure are expected to jump in the coming weeks for Crude. Meanwhile, Angola announced Thursday that the country is leaving OPECi9c-fza1 due to disagreements over lower Oil quotas for the country.

The US Dollar (USD) is sinking as markets go all-in on interest-rate cuts for early 2024. The move comes in contradiction with several warnings from Federal Reserve (Fed) members, who came out saying markets are too eager and too enthusiastic about any rate cuts coming in 2024. The elevated rate differential from US yields against other countries – the main driver for the US Dollar strength in 2023 – appears to be fading, likely leading to mayhem and dislocation between the Fed and global markets at the start of 2024.

Crude Oil (WTI) trades at $74.81 per barrel, and Brent Oil trades at $79.94 per barrel at the time of writing. 

Oil News and Market Movers: Angola is gone

• Angola said on Thursday that it will leave OPEC in January. The news does not come as a surprise because Angola was one of the leading African nations that was opposing Saudi Arabia in its demand to share production cut burdens with the whole OPEC group.
• A steep decline in the number of tankers in the Red Sea is being reported on Friday morning.
• The Baltic Dry Index rallies higher, with shipping costs soaring because of the longer route around Africa.
• Should Friday’s US data confirm a further decline in inflation, expect to see Crude shoot higher as demand is expected to pick up in early 2024 with rate cuts from the Fed firing up the economy. 

Oil Technical Analysis: Angola gone, who is next?

Oil prices are jumping higher as the OPEC+ club faces increasing woes.  With Angola leaving the bloc, several other African nations could join. The statement could not have come at a worse time as Brasil is set to enter the organization as an observer, not taking part in production decisions. The more OPEC loses its grip on Oil prices, the wilder and more volatile the price action will get. 

On the upside, $74 got broken and tested for support, offering more upside. Once through there, $80 comes into the picture. Although still far off, $84 is next on the topside once Oil sees a few daily closes above the $80 level. 

Below $74, the $67.00 level could still come into play as the next support level to trade at as it aligns with a triple bottom from June. Should that triple bottom break, a new low for 2023 could be close at $64.35 – the low of May and March – as the last line of defence. Although still quite far off, $57.45 is worth mentioning as the next level to keep an eye on if prices fall sharply. 

US WTI Crude Oil: Daily Chart

• The Euro fails at 0.8690, the 61,8% Fib. retracement of the late November decline.
• UK economy contracted in the third quarter, against expectations.
• UK retail sales bounce up unexpectedly and ease negative pressure on the Pound.

The Euro rally from early - December lows has been capped at the 0,8690 resistance area, and the pair is losing ground on Friday´s European session, returning to the mid-range of 0.8600.

The Pound remains steady despite mixed UK data

Data from the UK released earlier today revealed that the GDP contracted in the third quarter, against the previous estimate of a flat reading, and following a 0.2% advance in the second quarter.

On the positive side, retail sales increased by 0.1%, to put an end of more than one year of declines, against the market consensus of a 1.3% drop. These figures have offset the negative impact of the downward GDP revision, cushioning bearish pressure on the Pound.

In Europe, Italian and French have posted better than expected readings, while the Spanish GDP confirmed a 0.3% growth in the third quarter and 1.8% year-on-year advance. The impact of these figures on the Euro, however, has been marginal.

The technical picture shows the pair pulling back from the 61.8% Fibonacci retracement of the late November sell-off, at 0.8690. Although the pair maintains its broader positive trend intact, this is a common target for corrective reactions.

Support levels are at the 0.8645 previous high, which closes the path towards 0.8600 and the December 11 low at 0.8550. Resistances are the mentioned 0.8690 and 0.8725.

Technical levels to watch

Japan’s nationwide inflation data was released today. There has been limited impact in FX markets on the Consumer Price Index (CPI) report. Economists at MUFG Bank analyze Yen’s outlook.

JPY likely to take its direction from the PCE inflation data today

• The Dollar reaches fresh multi-year lows below 0.8550.
• Weak US data is fuelling hopes of Fed cuts and weighing on the Greenback.
• Later today, the US PCE Prices Index will provide further insight into the Fed’s policy outlook.

The US Dollar remains under strong bearish pressure against the Swiss Franc, hammered by the downward revision of the third quarter US Gross Domestic Product released on Thursday.

Weak US data fuels hopes of Fed cuts

The US economy grew at a 4.9% pace in Q3, below the previous estimation of a 5.2% growth. At the same time, the Philadelphia Fed manufacturing Survey revealed a deterioration of the sector´s firms and US Price Consumption Expenditures declined against expectations in November.

These figures confirm the soft landing view that cements market hopes of Fed cuts in early 2014, and sent US Treasury yields and the US Dollar back to recent lows.

Against this backdrop, the market is awaiting the release of a batch of key US indicators later today, with a special interest in the US PCE Prices Index. A weaker-than-expected reading would strengthen the case for imminent Fed cuts and increase negative pressure on the USD.

USD/CHF Technical analysis

The USD´s bias is negative, confirmed by Thursday´s bullish engulfing candle and there is no clear sign of a trend shift in sight. The pair has pierced a long-term low at 0.8555 and might extend to 0.8500.

At those levels, RSI indexes would be at extremely oversold levels which allows for some correction. Resistances are at 0.8590 and 0.8635.

Technical levels to watch

Looking for ways to prepare for future uncertainties? A solution for some may be investing in precious metals, such as Gold and Silver, strategists at Morgan Stanley report.

Silver may be more tied to the global economy

Silver is more volatile than Gold

Gold has been a more powerful diversifier than Silver

Silver is currently cheaper than Gold

• GBP/JPY retreats from 181.00 as recession fears in the UK economy deepen.
• BoE policymakers may get puzzled between recession and persistent inflation fears.
• Japan’s inflation remains above 2% for the 20^th month in a row.

The GBP/JPY pair fell back while attempting to climb above 181.00 after the United Kingdom Office for National Statistics (ONS), in its latest estimates, reported a contraction in the Q3 Gross Domestic Product (GDP). The ONS projected a stagnant performance in the preliminary estimates and now a surprise contraction has deepened fears of a technical recession in the UK economy.

In the latest Summary of Projections (SOP), the Bank of England (BoE) forecasted a stagnant growth for the last quarter of 2024. Any unfavourable number would be considered as a technical recession. The Bank of England (BoE) policymakers are in dilemma whether to endorse rate cuts to avoid a technical recession or stay focused with restrictive policy stance to ensure return of inflation to 2%.

Meanwhile, stronger-than-projected Retail Sales data for November has delivered a reason to BoE policymakers to lean towards maintaining interest rates elevated.

The ONS reported that the consumer spending momentum grew at a stronger pace of 1.3% against estimates of 0.4%. In October, Retail Sales were stagnant. Annual Retail Sales surprisingly rose by 0.1% while investors forecasted a contraction by 1.3% due to heavy demand at non-food retail stores amid heavy discount due to Black Friday event. This has restored persistent inflation fears.

On the Tokyo front, Bank of Japan’s (BoJ) monetary policy minutes indicated that members agreed to sustain interest rates negative till the achievement of 2% inflation through wage growth gets clear. Apart from that, National Consumer Price Index (CPI) data for November, released in early Friday, decelerated to 2.8% against the former reading of 3.3%. Price pressures in the Japanese economy have remained above 2% for 20 straight months.

• The Euro appreciated further on US Dollar weakness to test resistance at 1.1010. 
• The US Dollar dropped again on Thursday, hammered by downbeat US data.
• The focus shifts towards the US PCE Price Index for more cues on the Fed’s policy outlook.

The Euro (EUR) resumed its broader uptrend on Thursday and returned to the 1.1010 resistance area on Friday, buoyed by the weakness of the US Dollar. A set of downbeat US data reaffirmed investors’ expectations that the US Federal Reserve (Fed) will start easing its monetary policy in early 2024.

Data released on Thursday showed that the United States economy grew at a slower pace than previously estimated in the third quarter. These figures came accompanied by weaker manufacturing data and signs of easing inflation, which are consistent with the theory of a soft landing ahead.

The market has been celebrating the end of the tightening cycle this week and awaiting November’s Personal Consumption Expenditure (PCE) Price Index data to confirm the timing of the kick-off for the easing cycle. The Fed’s favourite inflation gauge is expected to show further deceleration on price pressures which, if confirmed, might increase US Dollar’s weakness.

Daily digest market movers: Euro is pushing higher ahead of US PCE Inflation

• The Euro is tight below four-month highs, awaiting the release of US PCE Price Index data.
   
• Later today, the US PCE Prices Index is expected to have remained flat in November on month, with the yearly rate declining below the 3% level for the first time in almost three years.
   
• The Core PCE Prices Index, which removes the impact of seasonal products like food and energy, is seen growing steadily at 0.2% and down to 3.3% from 3.5% in the year.
   
• On Thursday, US Q3 GDP was revised to a 4.9% annualized growth from the previous 5.2% estimate.
   
• The Philadelphia Fed Manufacturing index dropped to -10.5 in December from -5.9 in November; the market expected a moderate improvement to -3.
   
• US Personal Consumption Expenditures eased to 2.6% in Q3, the consensus anticipated a 2.8% reading, unchanged from Q2.
   
• US Jobless claims increased by 205K from 203K in the previous week, well below the 215K expected. However, this data was offset by the downbeat GDP and manufacturing figures.
   
• Investors are pricing a nearly 75% chance of a quarter-point rate cut in March and 250 bps cuts in 2024, according to the CME Group Fed Watch Tool.

Technical Analysis: Euro pushes against 1.1010 resistance

The Euro stretched higher on Thursday, favoured by further USD weakness after weak US data. The pair is under increasing bullish pressure on Friday’s European session, with bulls pushing against the November and December swing high at 1.1010, awaiting the release of the US PCE Price Index.

The broader trend remains bullish, with the mentioned 1.1010 closing the path towards the early August high at 1.1060, and the July 24 and 27 peak,  at 1.1150.

To the downside, support levels are 1.0930 ahead of a key support area above the 4-hour 100 Simple Moving Average (SMA) at 1.0870. Below here, bearish pressure might increase, with the early December lows at 1.0730 coming into play.

The US Dollar Index (DXY) hit a new low not seen since July on Thursday. Economists at MUFG Bank analyze Greenback’s outlook ahead of US PCE inflation data.

Further Dollar selling from here could prove more difficult from a fundamental perspective

• Gold price rises sharply above $2,050 as Fed’s rate cut expectations remain in the spotlight.
• The US Dollar Index was battered by rate cut bets and downwardly revised US Q3 GDP data.
• Investors await core PCE price index and Durable Goods Orders data for further action.

Gold price (XAU/USD) climbs swiftly above the crucial resistance of $2,050 as market participants are betting in favour of early interest rates unwinding by the Federal Reserve (Fed). The significant improvement in the Consumer Price Index (CPI) towards the 2% target has boosted hopes of early rate cuts by the Fed. 

Meanwhile, investors await the United States core Personal Consumption Expenditure (PCE) price index data for November. A soft underlying inflation report would strengthen confidence among investors about early rate cuts, while a report which showed that price pressures remain sticky would offer a temporary cushion to the US Dollar.  

Daily Digest Market Movers: Gold price advances as US Dollar retreats

• Gold price delivers a decisive break above the crucial resistance of $2,047 as the US Dollar came under pressure after a slight downgrade in the third quarter Gross Domestic Product (GDP) estimate on Thursday.
• The US Bureau of Economic Analysis (BEA) downgraded Q3 growth rate in its revised estimate to 4.9% against expectations of 5.2%, weighing heavily on the US Dollar.
• A downwardly revised GDP indicates a cooling labour market and price pressures. Still, economic growth in the US is still higher in comparison with other Group of Seven economies.
• In addition to that, deepening expectations for a soft US core PCE price index report for November has underpinned the Gold price against the US Dollar. The data will be published at 13:30 GMT.
• The core PCE price index is expected to increase at a steady pace of 0.2% in November. The annual underlying inflation measure is seen softening to 3.3% against the prior release of 3.5%.
• In the monetary policy statement of December, Fed policymakers projected that PCE inflation, their preferred inflation tool, would decelerate to 3.2% by the end of 2023.
• A steeper-than-projected decline in the underlying inflation report would push back expectations of a longer restrictive policy stance and put the rate-cut factor into the spotlight. 
• Investors are pricing in that the Fed would announce its first rate cut in March after a year-long rate tightening spell. A second cut would come in May.
• Expectations for lowering interest rates were boosted by commentary from Fed Chairman Jerome Powell , who talked about avoiding the mistake of keeping interest rates too high.
• The majority of Fed policymakers are trying hard to push back expectations of rate cuts, emphasizing the idea of keeping interest rates in a restrictive trajectory until the achievement of price stability.
• Fed policymakers are reiterating that strong resilience in the US economy could keep inflation fears persistent.
• Apart from the US core PCE price index, investors will also focus on the US Durable Goods Orders for November. New orders for durable goods are seen increasing by 2.2% against a 5.4% decline in October. A more-than-projected increase in new orders would provide some cushion to the US Dollar.

Technical Analysis: Gold price prints a fresh two-week high above $2,050

Gold price refreshes two-week high above $2,050 after recovering swiftly from $1,974. The precious metal is expected to continue its upside towards $2,070, supported by deepening rate cut expectations. A bullish momentum has been triggered as the Relative Strength Index (RSI) (14) has climbed above 60.00. 

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

Gold price stood at 62,439 Indian Rupees (INR) per 10 grams, up INR 258 compared with the INR 62,181 it costed on Thursday.

As for futures contracts, Gold prices increased to INR 62,516 per 10 gms from INR 62,223 per 10 gms.

Prices for Silver futures contracts decreased to INR 75,768 per kg from INR 75,457 per kg.

Daily Digest Market Movers: Comex Gold price flirts with multi-week high amid Fed rate cut bets, ahead of US PCE data

• Expectations for an imminent shift in the Federal Reserve's policy stance lift the Comex Gold price to its highest since December 4 on the last day of the week.
• A slew of Fed officials recently tried to push back against the idea of rapid interest rate cuts next year, though failed to change investor sentiment.
• The CME Group's FedWatch Tool indicates a greater chance of a Fed rate cut move by March 2024 and 150 bps of cumulative cuts by the year-end.
• The bets were reaffirmed by data showing that the US economy grew by a 4.9% annualized pace in the third quarter vs. the 5.2% rise previously reported.
• The Labor Department reported that Initial Jobless Claims increased to 205,000 during the week ended December 16 and remained at historically low levels.
• The benchmark 10-year US Treasury bond yield hovers near its lowest level since July, while the US Dollar recovers a bid from a five-month through.
• This, along with the prospect of a global rate-cutting cycle, might continue to benefit the non-yielding yellow metal and favour bullish traders.
• A plunge in UK inflation during November, to its lowest rate in over two years, raised hopes that the Bank of England will start cutting rates in the first half of 2024.
• Adding to this, the recent run of softer inflation data from the Eurozone suggests that the risk is towards earlier rate cuts by the European Central Bank.
• The US Core Personal Consumption Expenditure (PCE) Price Index could offer cues about the Fed's policy outlook and provide a fresh impetus to the XAU/USD.

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

FX option expiries for December 22 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts

• 1.0915 449m
• 1.0945 472m
• 1.0950 1.2b
• 1.0960 688m
• 1.1020 699m

- GBP/USD: GBP amounts     

• 1.2650 433m

- USD/JPY: USD amounts                     

• 141.50 780m
• 142.00 1.7b
• 143.00 1.4b
• 144.00 1.5b
• 144.50 1.1b
• 145.00 3.3b

- USD/CHF: USD amounts        

• 0.8620 1.1b
• 0.8720 320m

- AUD/USD: AUD amounts

• 0.6600 562m
• 0.6605 476m
• 0.6625 953m
• 0.6650 1.7b
• 0.6725 670m
• 0.6775 1.4b
• 0.6805 649m
• 0.6850 708m

- USD/CAD: USD amounts       

• 1.3300 700m
• 1.3425 328m
• 1.3500 1.3b

In the view of economists at ING, the best-performing currencies next year will be those which are most undervalued – step forward the Australian Dollar and the Norwegian Krone.

The currencies of Australia and Norway to outperform

After some ups and downs, the price of Silver is trading at around $24, the same level as at the start of the year. Economists at Commerzbank analyze the precious metal’s outlook.

Silver should benefit from "green" industrial demand

• USD/MXN extends losses as the Greenback weakens on speculation of Fed to ease policy tightening.
• The softer US bond yields contributed to downward pressure on the US Dollar.
• US GDP Annualized eased at 4.9% in Q3, while the Philadelphia Fed Manufacturing Survey declined by 10.5 in December.
• Mexico's 1st half-month Inflation rose by 0.52%, while Core Inflation eased to 0.46% in December.

USD/MXN continues to move on a downward trajectory on enhanced risk sentiment, which could be attributed to the speculation of the Federal Reserve (US) to ease monetary policy tightening in early 2024. The USD/MXN trades lower around 17.01 during the European session on Friday.

The downbeat US Treasury yields contribute to the weakening of the US Dollar (USD), with 2-year and 10-year yields on US bond coupons standing at 4.34% and 3.87%, respectively, by the press time. The US Dollar Index (DXY) extends its losses for a second consecutive day, bidding around 101.70.

Additionally, the recent release of mixed economic data from the United States (US) on Thursday has strengthened expectations for the Federal Reserve (Fed) to adopt a more accommodative monetary policy in the first quarter of 2024. US Gross Domestic Product Annualized (GDP) eased at a rate of 4.9% in Q3. Philadelphia Fed Manufacturing Survey declined by 10.5 in December, against the expected decline of 3.0. However, Initial Jobless Claims for the week ending on December 15 were 205K, below the expected 215K.

On Mexico’s side, on Thursday, 1st half-month Inflation for December rose by 0.52%, exceeding the expected 0.40%. While Core Inflation for the same period grew by 0.46%, slightly below the market consensus of 0.48%.

Recent Retail Sales data from Mexico, released on Wednesday, indicates positive momentum. Despite the dovish comments from Bank of Mexico (Banxico) Governor Victoria Rodriguez Ceja, the resilience of the Mexican Peso (MXN) remains unaffected.

Market participants are poised to closely monitor a series of economic data releases scheduled from the United States, particularly the Core Personal Consumption Expenditures - Price Index data. Expectations are leaning towards softer numbers. On Mexico’s docket, Trade Balance data will be eyed on Friday.

Economists at ANZ Bank forecast the USD/CNY pair at the 7 mark by the end of next year.

The authorities will not allow the CNY to strengthen too much

• Silver edges higher for the fourth straight day and climbs a near three-week top on Friday.
• The technical setup favours bulls and supports prospects for a further appreciating move.
• Corrective pullback could now be seen as a buying opportunity near the 24.00 round figure.

Silver (XAG/USD) gains positive traction for the fourth straight day on Friday and trades around the $24.45-$24.50 region, or a near three-week high during the first half of the European session.

Looking at the broader picture, the recent rally from a multi-month-old ascending trend-line support, a subsequent move beyond the 200-day Simple Moving Average (SMA) and the $24.00 round figure was seen as a fresh trigger for bullish traders. Adding to this, oscillators on the daily chart have been gaining positive traction and support prospects for an extension of a two-week-old upward trajectory.

Hence, some follow-through strength, towards reclaiming the $25.00 psychological mark, looks like a distinct possibility. The momentum could get extended further towards the $25.25 intermediate resistance en route to the $25.45-$25.50 supply zone, above which the XAG/USD could jump back closer to the $26.00 round figure or its highest level since May touched earlier this month.

On the flip side, any meaningful corrective slide now seems to find decent support and attract fresh buyers near the $24.00 mark. This should help limit the downfall near the 200-day SMA, around the $23.60 region. That said, a convincing break below the latter might prompt some technical selling and make the XAG/USD vulnerable to retesting the aforementioned trend-line support, currently near the $23.00 mark.

The latter should act as a key pivotal point, which if broken decisively will shift the near-term bias in favour of bearish traders. The XAG/USD might then accelerate the downfall further towards the monthly swing low, around mid-$22.00s, before dropping to the $22.25 support and the $22.00 round-figure mark.

Silver daily chart

Technical levels to watch

• USD/CAD continues to lose ground on the subdued US Dollar.
• Technical indicators suggest the confirmation of further decline towards the major level at 1.3250.
• A break above 1.3300 could provide support for the pair to aim the seven-day EMA at 1.3354.

USD/CAD extends its losing streak for the second consecutive session, hovering around its four-month low at 1.3270 during the European hours on Friday.

The Moving Average Convergence Divergence (MACD) technical indicator for the USD/CAD pair is suggesting a potential bearish trend. The MACD line's placement below the centerline, coupled with divergence below the signal line, indicates a likelihood of further decline.

The analysis further confirms the existing dovish sentiment surrounding the USD/CAD pair, underscoring the significance of the lagging indicator 14-day Relative Strength Index (RSI) falling below 50. This confirmation implies that the pair might extend its decline, potentially reaching the major level at 1.3250 following the psychological level at 1.3200.

The analysis suggests that if there's a break below the psychological level, it could pave the way for the USD/CAD pair to move towards the August low at 1.3179.

The analysis suggests that on the upside, surpassing the psychological level at 1.3300 could provide support for the USD/CAD pair, propelling it upward. The next potential targets include the seven-day Exponential Moving Average (EMA) at 1.3354, followed by the psychological resistance level at 1.3400.

If the pair manages to pass through this psychological resistance, it might explore further upward movement toward the 23.6% Fibonacci retracement level at 1.3424, and eventually, the major level at 1.3450.

USD/CAD: Daily Chart

Economists at MUFG Bank are cautious on INR in the near-term, but see scope for USD/INR to fall over the longer-term

Cautious near-term before bond index inclusion flows kick in

GBP/USD reached a high of just shy of 1.28 earlier this month. The softer-than-expected UK inflation data, however, has challenged the better tone of the Pound. Economists at Rabobank analyze Cable’s outlook.

Room for GBP appreciation on hawkish BoE rhetoric may start to wear thin

• Pound Sterling strengthens as strong UK retail sales data has deepened persistent inflation fears.
• Fears of a technical recession have escalated as UK Q3 GDP was downwardly revised to a 0.1% contraction.
• BoE policymakers may continue to endorse higher interest rates.

The Pound Sterling (GBP) extends its recovery on Friday, supported by upbeat UK Retail Sales data for November. The Office for National Statistics (ONS) reported that households’ retail spending surprisingly remained positive compared with the previous year, while market participants projected a sharp decline. Strong Retail Sales were boosted by a 2.8% increase in non-food retail stores as major discounts were offered amid the Black Friday Sale.

The upbeat Retail Sales data for November is likely going to allow Bank of England (BoE) policymakers to stick to their restrictive monetary policy stance. The growth rate in wages is still significantly higher than required to bring down inflation to 2%, and this appears to be empowering households to spend heavily. This could dampen confidence in a clear downtrend in price pressures.

The sharp recovery in the Pound Sterling suggests investors have ignored the downbeat Q3 Gross Domestic Product (GDP) revision, which points to a 0.1% contraction. This has deepened fears of a technical recession in the UK economy as the BoE has projected a stagnant performance in the last quarter of 2023.

Daily digest market movers: Pound Sterling rebounds despite 0.1% contraction in Q3 GDP

• The Pound Sterling picks strength after the release of the upbeat UK Retail Sales data for November.
• Monthly Retail Sales grew at a stronger pace of 1.3% against the consensus of 0.4% and a stagnant performance in October. The annual consumer spending surprisingly rose by 0.1%, while investors forecasted a contraction of 1.3%.
• Retail Sales excluding fuel rose by 1.3% against expectations of 0.4%. The increase in Retail Sales was due to strong demand at non-food retail stores.
• Meanwhile, fresh official figures have indicated that the UK economy contracted by 0.1% in the July-September quarter. In preliminary estimates, a stagnant performance was projected. The mild contraction in Q3 could escalate fears of a recession in the UK economy.
• In December’s monetary policy statement, BoE policymakers expected the UK economy to stagnate in the fourth quarter. If the UK contracts again in the last quarter of the year, it will be officially considered as a technical recession.
• Meanwhile, higher interest rates and cost pressures have dampened confidence of British businesses towards the economic outlook.
• The Lloyds Bank Business Barometer dropped to 35%, falling by seven percentage points. A deteriorating demand environment and higher wage growth have been consistently impacting the confidence of businesses in the economy.
• Going forward, higher consumer spending momentum would allow Bank of England policymakers to maintain their restrictive stance on monetary policy.
• The broader appeal for the Pound Sterling is already upbeat as BoE policymakers have not delivered any dialogue regarding the unwinding of restrictive policy stance.
• BoE policymakers have been refraining from endorsing rate cuts in 2024 as inflation in the UK economy is highest in comparison with other Group of Seven countries.
• The UK inflation data, released on Wednesday, dropped sharply. Investors hope that the central bank will discuss lowering borrowing rates sooner.
• Market participants see the BoE policymakers starting to cut interest rates from March after a big blow to price pressures in November.
• The overall market mood is upbeat as the US Dollar Index (DXY) has fallen back to its four-month low near 101.80 ahead of the United States core Personal Consumption Expenditure Price Index (PCE) data for November, which will be published at 13:30 GMT.
• As per the consensus, the annual core PCE price index is expected to decelerate to 3.3% from 3.5% in October. On a monthly basis, the Federal Reserve’s (Fed) preferred inflation measure is seen growing at a steady pace of 0.2%.

Technical Analysis: Pound Sterling recovers meaningfully from 1.2640

The Pound Sterling has recovered well from the crucial support of 1.2640 amid improved market sentiment. The GBP/USD pair could deliver a fresh rally after breaking above the round-level resistance of 1.2800.

On a daily timeframe, the 20-period Exponential Moving Average (EMA) has acted as a major support for Pound Sterling bulls. Fresh momentum on the upside would appear if the Relative Strength Index (RSI) (14) manages to climb above 60.00.

• US Dollar Index faces negative sentiment due to the expected dovish stance from the Fed.
• Subdued US GDP data increased the chances of the Fed’s rate cuts in early 2024.
• Fed members rejected the speculation of rate cuts in early 2024.
• Traders await Core PCE - Price Index data to gain more cues on the US economic scenario.

US Dollar Index (DXY) attempts to retrace the recent losses, trading higher near 101.90 during the early European session on Friday. The recent release of mixed economic data from the United States (US) on Thursday has strengthened expectations for the Federal Reserve (Fed) to adopt a more accommodative monetary policy in the first quarter of 2024. This anticipation is putting downward pressure on the US Dollar (USD).

The latest data from the US Bureau of Economic Analysis (BEA) indicates that Gross Domestic Product Annualized (GDP) eased at a rate of 4.9%, contrasting with the expected consistency at 5.2%. Additionally, the Philadelphia Fed Manufacturing Survey recorded a decline of 10.5 readings in December, exceeding the expected decline of 3.0 and the 5.9 figure decline in November. On a positive note, Initial Jobless Claims for the week ending on December 15 were 205K, below the expected 215K.

The elevated expectations of interest rate cuts seem to stem from the Federal Reserve's (Fed) dovish stance in its latest meeting. While the central bank officials have communicated a cautious approach and discouraged premature conclusions, there is a recognition of the need for time before potential rate cuts. Philadelphia Fed Bank President Patrick Harker has contributed to this dialogue by expressing openness to the possibility of lowering interest rates.

Market participants will likely observe Friday’s slew of economic data releases including the Core Personal Consumption Expenditures - Price Index data, which are anticipated to print softer numbers.

Economists at Danske Bank view narrowing rate differentials between Japan and G10 to favour the JPY over the coming year.

Yield differentials to be a tailwind for the JPY over the coming year

Here is what you need to know on Friday, December 22:

The US Dollar (USD) continued to weaken against its rivals on Thursday, with the USD Index touching its lowest level since early August below 102.00 in the American session. Early Friday, the USD holds its ground as investors move to the sidelines while waiting for the Personal Consumption Expenditures (PCE) Price Index data, the Federal Reserve's (Fed) preferred gauge of inflation, for November. 

US Core PCE Inflation Preview: Federal Reserve preferred price gauge looks set for another decline in November.

The downward revision to the third-quarter Gross Domestic Product (GDP) growth announced on Thursday caused the USD to come under renewed selling pressure. Meanwhile, Wall Street's main indexes gathered bullish momentum following Wednesday's choppy action, putting additional weight on the USD's shoulders. In the European morning on Friday, US stock index futures trade in negative territory and the USD Index consolidates its weekly losses slightly below 102.00. In addition to PCE inflation figures, the US economic docket will feature New Home Sales for November and the University of Michigan's Consumer Confidence Index for December (final).

Retail Sales in the UK increased by 1.3% on a monthly basis in November, the UK's Office for National Statistics (ONS) reported on Friday. This reading followed the no-change (revised from -0.3%) recorded in October and came in better than the market expectation for an increase of 0.4%. Other data from the UK revealed that the annualized Gross Domestic Product (GDP) growth for the third quarter got revised lower to 0.3% from 0.6% in the first estimate. GBP/USD edged slightly higher with the immediate reaction to the mixed data and was last seen trading marginally higher on the day at around 1.2700.

EUR/USD gained traction in the second half of the day on Thursday and closed in positive territory before stabilizing near 1.1000 early Friday.  

USD/JPY turned south on renewed USD weakness on Thursday and lost more than 100 pips. In the European morning on Friday, the pair seems to have gone into a consolidation phase below 142.50. The data from Japan showed that the National Consumer Price Index (CPI) rose 2.8% on a yearly basis in November, down from 3.3% increase recorded in October. In the meantime, the minutes of the Bank of Japan's monetary policy meeting showed that members agreed that they need to patiently maintain the current easy policy.

Gold benefited from retreating US Treasury bond yields and the selling pressure surrounding the USD to register modest gains on Thursday. XAU/USD stays relatively at around $2,050 early Friday.

• EUR/GBP attracts some sellers around 0.8660 after the UK growth numbers data. 
• UK Q3 final GDP came in worse than expected, shrinking 0.1% QoQ versus 0% prior.
• ECB’s Guindos said it’s premature to start easing monetary policy; November’s German PPI came in worse than expected.

The EUR/GBP cross snaps the two-day winning streak during the early European session on Friday. The cross retraces from the multi-week highs of 0.8685 and currently trades near 0.8660, losing 0.13% on the day.

The latest data from the UK Office for National Statistics revealed on Friday that the nation’s Gross Domestic Product (GDP) for the third quarter (Q3) came in at -0.1% QoQ versus 0% prior. On an annual basis, the GDP growth number arrived at 0.3% from the previous reading of 0.6%. Both figures were weaker than market expectations.

Furthermore, November’s UK Retail Sales rose 1.3% MoM from 0% in October, while Retail Sales ex-Fuel climbed 1.3% MoM versus 0.2% previously.

The European Central Bank (ECB) Vice President Luis de Guindos stated on Thursday that it’s premature to start easing monetary policy. He added that the ECB does not foresee a technical recession in the Eurozone and that the central bank would welcome a deal on EU fiscal reform as it would alleviate market uncertainty.

About the data, the German Producer Price Index (PPI) for November dropped 7.9% YoY from 11% fall in the previous reading, worse than the market expectation of a 7.5% decline. Additionally, the German Gfk Consumer Confidence Survey for January came in at -25.1 versus -27.6, above the consensus of -27.0.  

Later on Friday, the Consumer Confidence from France, Spain, and Italy will be due. However, these figures might have a minimal impact on the markets ahead of the holiday season.

• Retail Sales in the UK increased at a stronger pace than forecast in November.
• Annual UK GDP growth for Q3 got revised lower.
• GBP/USD clings to small daily gains near 1.2700 after the data.

Retail Sales in the UK rose by 1.3% on a monthly basis in November, the UK's Office for National Statistics (ONS) reported on Friday. This reading followed the no-change (revised from -0.3%) recorded in October and came in better than the market expectation for an increase of 0.4%. On a yearly basis, Retail Sales were up 0.1%.

The ONS also announced that the annualized Gross Domestic Product (GDP) growth for the third quarter was revised lower to 0.3% from 0.6% in the first estimate. 

Finally, Total Business Investment declined 3.2% on a quarterly basis in the third quarter, up from a 4.2% contraction reported in the first estimate.

Market reaction

GBP/USD edged slightly higher with the immediate reaction to the mixed data and was last seen gaining 0.1% on the day at 1.2700.

• The Core Personal Consumption Expenditures Price Index is set to rise 0.2% MoM and 3.3% YoY in November.
• Markets see a strong chance of the Federal Reserve cutting the policy rate as early as March.
• The continued cooling of PCE inflation could cause the US Dollar to remain fragile.

The Core Personal Consumption Expenditures (PCE) Price Index, the US Federal Reserve’s (Fed) preferred inflation measure, will be published on Friday by the US Bureau of Economic Analysis (BEA) at 13:30 GMT.

What to expect in the Federal Reserve’s preferred PCE inflation report?

The Core PCE Price Index, which excludes volatile food and energy prices, is seen as the more influential measure of inflation in terms of Fed positioning. The index is seen rising 0.2% on a monthly basis in November to match the October increase, and at an annual pace of 3.3%, down from the 3.5% growth recorded in October.

The headline PCE Price Index is forecast to hold steady on a monthly basis in November, while rising 2.8% on a yearly basis.

In the press conference following the December policy meeting, Fed Chairman Jerome Powell shared the Fed's expectations of the upcoming PCE data:

“Based on the Consumer Price Index and other data, we estimate that total PCE prices rose 2.6% over the 12 months ending in November; and that, excluding the volatile food and energy categories, core PCE prices rose 3.1%.”

Powell surprised the market by acknowledging 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," he added at the post-meeting press conference. In turn, US Treasury bond yields declined sharply and the US Dollar suffered large losses against its major rivals. Although Fed policymakers have been trying to push back against the market expectations for a policy pivot in the first quarter of next year, markets are still pricing in nearly 80% probability that the Fed will reduce the policy rate by 25 basis points in March, according to the CME Group’s FedWatch Tool. 

TD Securities analysts offer a brief preview of the PCE inflation report:

“Core PCE inflation likely notably slowed in November to its softest m/m pace since end 2020 (headline: 0.0% m/m), coming in much below the core CPI's 0.28% gain. We also look the PCE's supercore measure to decelerate to 0.1% m/m. Separately, consumer outlays likely picked up in Q4 following a soft October, with spending advancing at a very firm m/m pace in November (+0.5% in real terms).”

When will the PCE inflation report be released, and how could it affect EUR/USD?

The PCE inflation data is slated for release at 13:30 GMT. The monthly Core PCE Price Index gauge is the most-preferred inflation reading by the Fed, as it’s not distorted by base effects and provides a clear view of underlying inflation by excluding volatile items. Investors, therefore, pay close attention to the monthly Core PCE figure.

A bigger-than-expected increase in monthly Core PCE inflation is likely to prompt investors to dial down Fed rate cut expectations for March. However, the Fed forecast, as revealed by Chairman Powell, for the annual Core PCE Price Index increase is below the market consensus, suggesting that there is a small chance of an upside surprise.

On the other hand, a no-change in the monthly Core PCE Price Index, or a negative print, could put additional weight on the USD’s shoulders and ramp up expectations for a March rate cut.

Ahead of the Christmas break, however, the action in financial markets could turn volatile due to shrinking trading volumes, and it might be risky to take a large position based on this data.

FXStreet Analyst Eren Sengezer offers a brief technical outlook for EUR/USD and explains:

“EUR/USD remains within an ascending regression trend channel, and the Relative Strength Index (RSI) indicator on the daily chart stays above 50, suggesting that the pair remains bullish.”

“On the upside, 1.1000 (psychological level, static level) aligns as a first resistance. A daily close above that level could open the door for a leg higher toward 1.1100, where the Fibonacci 78.6% retracement of the August-October downtrend and the upper limit of the ascending channel is located. Once this level is confirmed, 1.1275 (July 18 high) could be seen as the next bullish target.”

“The 20-day Simple Moving Average (SMA) forms interim support at 1.0800 (lower limit of the ascending channel) before 1.0760-1.0750 (50-day SMA, 100-day SMA).”
 

• NZD/USD finds sell-off near 0.6300 as focus shifts to US core PCE price index data.
• A sticky US core PCE report could offer some support to the US Dollar.
• The Kiwi pair trades in an upward-sloping chart pattern.

The NZD/USD pair faces selling pressure near the round-level resistance of 0.6300 in the early London session. The Kiwi asset is expected to remain lackluster ahead of the United States core Personal Consumption Expenditure price index (PCE) data for November, which will be published at 13:30 GMT.

Investors see mild softness in the underlying inflation data as interest rates by the Federal Reserve (Fed) have been in the restrictive trajectory. According to the estimates, monthly core PCE data grew at a steady pace of 0.2%. The annual core PCE data is expected to decelerate to 3.3% vs. the former reading of 3.5%.

The US Dollar Index (DXY) falls back to its crucial support of 101.80, weighed down by deepening rate cut expectations by the Federal Reserve (Fed).

Meanwhile, the New Zealand Dollar would continue to perform better against the US Dollar as the Reserve Bank of New Zealand (RBNZ) is expected to keep interest rates high for a longer period.

NZD/USD trades in a Rising Channel chart pattern on a two-hour scale in which each pullback is considered as a buying opportunity by the market participants. Upward-sloping 20-period Exponential Moving Average (EMA) at 0.6256 will continue to provide support to the New Zealand Dollar bulls.

A bullish momentum would emerge if the Relative Strength Index (RSI) (14) manages to shift into the bullish range of 60.00-80.00 confidently.

The NZD/USD pair may witness a fresh rally after a decisive break above Wednesday’s high around 0.6300. An occurrence of the same would allow it to refresh its five-month high near 0.6350. Further upside would expose it towards July 14 high around 0.6400.

On the contrary, a breakdown below December 14 low near 0.6168 would drag the asset towards November 30 low near 0.6121, followed by December 13 low near 0.6084.

NZD/USD two-hour chart

• GBP/USD drifts lower to 1.2682 ahead of UK GDP and US PCE data.
• The pair keeps the bullish vibe intact above the 100-hour EMA; RSI momentum indicator stands above 50.
• The first resistance level will emerge at 1.2740; 1.2625 acts as a key support level for the pair.

The GBP/USD pair struggles to gain ground during the early European session on Friday. The major pair remains capped below the 1.2700 psychological mark ahead of the top-tier economic data from both the United Kingdom (UK) and the United States (US). At press time, GBP/USD is trading at 1.2682, down 0.04% on the day.

Technically, GBP/USD maintains a positive outlook as the pair holds above the 100-hour Exponential Moving Averages (EMA) on the four-hour chart. Furthermore, the Relative Strength Index (RSI) stands in bullish territory above 50, indicating the further upside looks favorable.

The immediate resistance level for the major pair will emerge near the upper boundary of the Bollinger Band at 1.2740, followed by a high of December 19 at 1.2761. The key barrier is seen in the 1.2790–1.2800 region, representing a high of December 15 and the psychological round mark. Further north, the next hurdle to watch is a high of July 28 at 1.2888.

On the downside, the confluence of the 100-hour EMA and a low of December 20 at 1.2625 acts as a critical support level for the pair. Any follow-through selling below the latter will see a drop to to the lower limit of the Bollinger Band at 1.2615. The additional downside filter is located at 1.2544 (low of December 7), en route to 1.2500 (low of December 13, round figure).

GBP/USD four-hour chart

• EUR/USD retreats from a three-week high at 1.1012.
• A breakthrough above the 1.1000 level could lead the pair to test a two-month high at 1.1017.
• 1.0950 major level could act as a key support followed by the seven-day EMA at 1.0938.

EUR/USD hovers below the psychological resistance at 1.1000 level during the Asian session on Friday after pulling back from the three-week high at 1.1012. The EUR/USD pair received upward support from a less dovish tone surrounding the European Central Bank (ECB), as compared to the elevated speculation of the Federal Reserve (Fed) to ease monetary policy in the first quarter of 2024.

The Moving Average Convergence Divergence (MACD) indicates an overall positive momentum, as the MACD line is positioned above the centerline and the signal line.

This bullish sentiment of the EUR/USD pair’s bulls could surpass the psychological resistance to approach the two-month high at 1.1017. The next barrier would be the significant level at 1.1050.

Moreover, the lagging indicator 14-day Relative Strength Index (RSI) moves above the 50 mark, suggesting a confirmation regarding the potential upward trend in the EUR/USD pair.

On the flip side, the EUR/USD pair could find support at the major level at 1.0950 followed by the seven-day Exponential Moving Average (EMA) at 1.0938.

A break below the latter could push the pair to test the psychological support region around 1.0900, further navigating the region around the 23.6% Fibonacci retracement level at 1.0884.

EUR/USD: Daily Chart

• USD/CHF dropped to a five-month low at 0.8557 on heightened speculation of the dovish Fed outlook.
• Subdued US GDP data increased the chances of the Fed’s rate cuts in early 2024.
• Middle East conflict could give rise to the demand for the safe-haven Swiss Franc.

USD/CHF attempts to rebound from a five-month low at 0.8557, trading around 0.8570 during the Asian hours on Friday. The US Dollar (USD) faces downward pressure on softer economic data from the United States (US) released on Thursday, coupled with the heightened expectations of the Federal Reserve's (Fed) dovish stance on rate cuts in the first quarter of 2024.

The subdued US data is adding weight to speculations of potential easing by the Fed. The US Bureau of Economic Analysis (BEA) showed that Gross Domestic Product Annualized (GDP) eased to 4.9% against the expected consistency of 5.2%. Meanwhile, Core Personal Consumption Expenditures (QoQ) reduced to a growth of 2.0% versus the previous 2.3% growth.

However, Initial Jobless Claims for the week ending on December 15 were 205K, slightly below the expected 215K. Investors await Core Personal Consumption Expenditures - Price Index data, and Michigan Consumer Sentiment Index to gain more cues on the US economic scenario.

However, there's a nuanced perspective from Philadelphia Fed Bank President Patrick Harker. While Harker acknowledged that rate cuts will take time, he also expressed openness to the possibility of lowering interest rates. Harker highlights the challenges faced by businesses in managing higher interest obligations as a key factor that might prompt interest rate cuts next year.

The persistent disruptions in the Suez Canal waterway, triggered by Houthi attacks on ships in the Red Sea, are fueling a risk-averse sentiment. This, in turn, appears to be driving an increased demand for the safe-haven Swiss Franc (CHF). The decision of major shipping companies, including Germany's Hapag-Lloyd and Hong Kong's OOCL, to steer clear of the Red Sea waterway, following the lead of British Petroleum, underscores the growing concerns about maritime security in the region.

The Quarterly Bulletin from the Swiss National Bank (SNB) released on Wednesday signals a proactive approach by the bank in managing currency dynamics. The SNB expressed its readiness to be active in the foreign exchange market as necessary, indicating a stance geared towards supporting the Swiss Franc (CHF).

• WTI price experiences upward support on disruptions in the Red Sea by Houthi attacks.
• Germany's Hapag-Lloyd and Hong Kong's OOCL will avoid the Suez Canal waterway.
• Angola decided to exit the OPEC+ as the country's interests were not being served.

West Texas Intermediate (WTI) price trades higher around $74.70 per barrel at the time of writing, extending gains for the second successive day. The geopolitical developments in the Middle East highlight the complexities surrounding maritime security and global trade following the Houthi attacks on ships in the Red Sea. These events serve as a significant factor contributing to the surge in crude oil prices.

The decision of more shipping companies, including Germany's Hapag-Lloyd and Hong Kong's OOCL, to steer clear of the Suez Canal underscores the escalating concerns in the Red Sea. Following an attack on a Norwegian commercial vessel by the Iran-led Houthi militant group on Monday, major player British Petroleum temporarily halted all transit through the waterway.

In response, Washington has taken proactive steps by establishing a dedicated task force to safeguard Red Sea commerce, emphasizing the importance of addressing and mitigating risks stemming from attacks on commercial vessels in the region. On the other hand, the Houthis remain defiant, pledging to continue their attacks despite the US-led naval mission.

Additionally, Angola's recent decision to exit the Organization of the Petroleum Exporting Countries and its allies (OPEC+) adds another layer to the evolving geopolitical landscape. Angola's Oil Minister, Diamantino Azevedo, has emphasized that the country's interests were not being adequately served within the group. This move aligns Angola with other mid-sized producers like Ecuador and Qatar, who have also departed from the group over the past decade.

Market participants will likely observe Baker Hughes US Oil Rig Count data release on Friday to gain fresh impetus on business conditions in the drilling industry.

• Gold price hits a near three-week high amid bets for an early rate cut by the Federal Reserve.
• The US bond yields and the USD languish near a multi-month low, lending additional support.
• Traders now look to the US PCE Price Index for fresh cues about the Fed’s interest rate outlook.

Gold price (XAU/USD) gains positive traction for the second straight day – also marking the fourth day of a positive move in the previous five – and climbs to a near three-week high, around the $2,055 region during the Asian session on Friday. The uptick, however, lacks bullish conviction as traders opt to wait for the release of the US Core Personal Consumption Expenditure (PCE) Price Index, due later today. The crucial US inflation data will influence the Federal Reserve's (Fed) future policy decisions and provide a fresh directional impetus to the non-yielding yellow metal.

In the run-up to the key macro data, the uncertainty over the timing of when the Fed will begin cutting rates in 2024 allows the US Dollar (USD) to recover a part of Thursday's slide to a multi-month low, touched in reaction to a downward revision of the US GDP. This, in turn, is seen acting as a headwind for the Gold price. The downside, however, remains cushioned on the back of growing acceptance that the Fed will eventually pivot away from its hawkish stance early next year. This keeps the US Treasury bond yields depressed near a multi-month low and should cap the USD.

Daily Digest Market Movers: Gold price continues to draw support from dovish Fed expectations

• Expectations for an imminent shift in the Federal Reserve's policy stance lift the Gold price to its highest since December 4 on the last day of the week.
• A slew of Fed officials recently tried to push back against the idea of rapid interest rate cuts next year, though failed to change investor sentiment.
• The CME Group's FedWatch Tool indicates a greater chance of a Fed rate cut move by March 2024 and 150 bps of cumulative cuts by the year-end.
• The bets were reaffirmed by data showing that the US economy grew by a 4.9% annualized pace in the third quarter vs. the 5.2% rise previously reported.
• The Labor Department reported that Initial Jobless Claims increased to 205,000 during the week ended December 16 and remained at historically low levels.
• The benchmark 10-year US Treasury bond yield hovers near its lowest level since July, while the US Dollar recovers a bid from a five-month through.
• This, along with the prospect of a global rate-cutting cycle, might continue to benefit the non-yielding yellow metal and favour bullish traders.
• A plunge in UK inflation during November, to its lowest rate in over two years, raised hopes that the Bank of England will start cutting rates in the first half of 2024.
• Adding to this, the recent run of softer inflation data from the Eurozone suggests that the risk is towards earlier rate cuts by the European Central Bank.
• The US Core Personal Consumption Expenditure (PCE) Price Index could offer cues about the Fed's policy outlook and provide a fresh impetus to the XAU/USD.

Technical Analysis: Gold price poised to appreciate further towards $2,072-2,073

From a technical perspective, a move beyond the $2,047-2,048 region could be seen as a breakout through over a one-week-old consolidative trading range and favours bullish traders. This comes on the back of the occurrence of a golden cross, with the 50-day Simple Moving Average (SMA) crossing the 200-day SMA from below, and supports prospects for additional gains. Moreover, oscillators on the daily chart are holding in the positive territory and further validate the near-term constructive outlook. Hence, a subsequent strength towards the next relevant hurdle, around the $2,072-2,073 region, looks like a distinct possibility. The momentum could get extended further and allow the Gold price to reclaim the $2,100 round figure.

On the flip side, weakness below the aforementioned trading range resistance breakpoint could drag the XAU/USD back to the $2,028-2,027 region en route to the $2,017 horizontal support. A convincing break below the latter might prompt some technical selling and make the Gold price vulnerable to accelerate the slide towards the $2,000 psychological mark. This is closely followed by the 50-day SMA, currently around the $1,994 area, below which the downward trajectory could get extended further towards last week's swing low, around the $1,973 region, en route to a technically significant 200-day SMA, near the $1,958 zone.

• Indian Rupee trades around a flatline amid the USD weakness.
• Upbeat Indian growth prospects and substantial foreign investor equity inflows might cap the INR’s downside.
• The release of the US Core Personal Consumption Expenditure Price Index (Core PCE) will be the highlight on Friday.

Indian Rupee (INR) trades flat amid the US Dollar (USD) softness. The weaker-than-expected US GDP growth numbers exert some selling pressure on the Greenback and create a headwind for USD/INR. Furthermore, India's upbeat growth prospects and strong equity inflows from foreign investors might boost the INR in the near term.

According to the International Monetary Fund (IMF), India is estimated to contribute more than 16% of global growth due to economic reforms in key sectors such as infrastructure and digitalization, which have propelled India to be a "star performer" among countries. Additionally, the IMF stated in its annual Article IV consultation report released on Monday that the Indian economy is supported by prudent macroeconomic policies and is on course to become one of the world's major economies.

Market players will closely watch the US Core Personal Consumption Expenditure Price Index (Core PCE) for November. The Fed’s preferred inflation gauge is estimated to rise 0.2% MoM and 3.3% YoY. This figure could trigger volatility in the market ahead of the holiday season.

Daily Digest Market Movers: Indian Rupee is undermined by elevated inflation and global factors

• The RBI monthly bulletin highlighted that if headline retail inflation is not brought down to the medium-term target of 4% and maintained there, it could underscore the potential impact on growth.
• India’s foreign exchange reserves were $606.9 billion on December 8, 2023, the fourth largest among major foreign exchange reserve-holding countries, increased by $28.4 billion during 2023–24.
• The RBI sold $310 million in the spot foreign currency market in October, according to the monthly Bulletin.
• US Gross Domestic Product (GDP) for the third quarter grew 4.9%, weaker than the market expectation of 5.2% expansion.
• The US Initial Jobless Claims rose 205,000 for the week ending December 16 from the previous week of 202K, below the consensus of 215,000.
• The Philadelphia Fed Manufacturing Index came in at -10.5 in December versus -5.9 prior.
• The Fed Funds futures are pricing in 82% odds of a rate cut at the March meeting, according to the CME FedWatch Tool.

Technical Analysis: Indian Rupee sticks to the longer-term range theme

Indian Rupee trades on a flat note on the day. The USD/INR pair has traded within the trading range of 82.80–83.40 since September. According to the daily chart, further upside in the shorter term looks favorable as the pair holds above the key 100-day Exponential Moving Average (EMA). Nonetheless, an  attempt to break below the key EMA cannot be ruled out as the 14-day Relative Strength Index (RSI) remains below the 50.0 midpoint.

The first upside barrier of USD/INR will emerge at the upper boundary of the trading range at 83.40. A breakout above 83.40 will see a rally to the year-to-date (YTD) high of 83.47, followed by the 84.00 psychological mark. On the flip side, the critical support level is located at 83.00 round figure. The additional downside filter to watch is 82.80, portraying the confluence of the lower limit of the trading range and a low of September 12. Further south, the next contention level is seen near a low of August 11 at 82.60.

• USD/CAD receives downward pressure on the subdued US Dollar.
• US real GDP reinforces speculation on the Fed’s dovish stance on monetary policy.
• Higher WTI price could contribute support for the Canadian Dollar.

USD/CAD hovers around 1.3280 during the Asian session on Friday near its four-month low at 1.3275 registered in the previous session. The USD/CAD pair experienced a plunge on a weaker US Dollar (USD), which could be attributed to the softer US economic data released on Thursday. Moreover, mixed Canada’s Retail Sales data might have provided minor support to underpinning the Canadian Dollar (CAD).

The recent data from the US Bureau of Economic Analysis (BEA) shows that Gross Domestic Product Annualized (GDP) grew at a slightly lower rate of 4.9%, deviating from the expected consistency at 5.2%. Meanwhile, Core Personal Consumption Expenditures (QoQ) decreased to 2.0% from the previous 2.3%. However, Initial Jobless Claims for the week ending on December 15 were 205K, slightly below the expected 215K.

The subdued real GDP is adding weight to speculations of potential easing by the US Federal Reserve (Fed). These heightened expectations are a response to the Fed's recent dovish stance in its latest meeting. Despite the growing speculations, Federal Reserve (Fed) officials performed a balancing act by urging caution and discouraging premature conclusions.

On Canada’s side, Canadian Retail Sales (MoM) for October slipped to 0.7% versus September’s 0.5% (revised down from 0.6%). However, Retail Sales excluding motor vehicles and vehicle parts ticked up to 0.6% versus the previous 0.1% (also revised down from 0.2%).

West Texas Intermediate (WTI) price trades higher around $74.40 per barrel at the time of writing, extending gains for the second successive day. The recent uptick in Crude oil prices can be attributed to ongoing tensions in the Middle East, particularly after Houthi attacks on ships in the Red Sea. More shipping companies like Germany's Hapag-Lloyd and Hong Kong's OOCL are choosing to avoid the Suez Canal waterways.

Additionally, the geopolitical landscape sees Angola deciding to exit the Organization of the Petroleum Exporting Countries and its allies (OPEC+). Angola's oil minister expressed that the country's interests were not being served within the group.

Market participants will observe Canada’s Gross Domestic Product (MoM) for October, which is expected to notice an improvement. On the US docket, Core Personal Consumption Expenditures - Price Index data, and Michigan Consumer Sentiment Index will be eyed on Friday.

• GBP/USD ticks lower on Friday amid a modest USD bounce from a multi-month low.
• The mixed fundamental backdrop warrants caution before placing directional bets.
• Traders now look to important UK/US macro releases for some meaningful impetus.

The GBP/USD pair struggles to build on the previous day's solid bounce of around 85 pips from the 1.2610 region, or a one-week low and oscillates in a range during the Asian session on Friday. Spot prices remain below the 1.2700 mark as traders now look to the important macro releases from the UK and the US before positioning for a firm intraday direction.

The UK Office for National Statistics will publish the monthly Retail Sales report during the early European session, along with the final Q3 GDP print. Meanwhile, the US economic docket features the Core Personal Consumption Expenditure (PCE) Price Index, which should influence the Federal Reserve's (Fed) future policy decisions. This, in turn, will drive the US Dollar (USD) demand and provide some meaningful impetus to the GBP/USD pair.

In the meantime, the uncertainty over the timing of when the Fed will begin cutting interest rates in 2024 assist the US in recovering a part of Thursday's downfall to a near five-month low, touched in reaction to a downward revision of the US GDP print. In fact, the third and final reading from the US Bureau of Economic Analysis showed that the world's largest economy expanded by a 4.9% annualized pace as against the second estimate for a 5.2% rise.

Separately, the Labor Department reported that Initial Weekly Jobless Claims rose slightly, by 2K to 205K during the week that ended December 16 and remained at historically low levels. This, however, did little to impress the USD bulls amid dovish Fed expectations and offered support to the GBP/USD pair. Meanwhile, the momentum lacked follow-through amid bets that the Bank of England (BoE) will cut interest rates in the first half of next year.

The speculations were fueled by a plunge in the November UK consumer inflation to its lowest level in over two years. Official data published on Wednesday showed that annual rate of increase in consumer prices decelerated from 4.6% in October to 3.9% last month, marking the lowest reading since September 2021. The markets were quick to price in a 50% chance of a BoE rate cut in March, which undermines the British Pound and caps the GBP/USD pair.

Technical levels to watch

• Australian Dollar surges as US Dollar loses ground near months’ lows.
• Australian central bank will evaluate additional data to decide future monetary policy.
• Softer US data reinforces the speculation of the Fed’s easing monetary policy in early 2024.
• US GDP Annualized Q3 and Core PCE QoQ eased 4.9% and 2.0%, respectively.

The Australian Dollar (AUD) trades slightly below its recent peak of 0.6802 on Friday, a level not reached in almost five months. The initial surge in the Aussie Dollar was attributed to an enhanced risk appetite in the market coupled with a depreciation of the US Dollar (USD). Additionally, the hawkish sentiment surrounding the Reserve Bank of Australia (RBA) keeps the Australian Dollar stronger.

Australia's robust inflation and steady housing prices could be factors influencing the Reserve Bank of Australia (RBA) to uphold its hawkish stance. If the global economy gains momentum, especially with potential economic stimulus from China, there is a likelihood that the RBA might continue to raise interest rates. The latest RBA forecasts reaching the upper limit of the 2-3% inflation projection by the end of 2025, it seems the RBA may still have room for further consideration.

The Reserve Bank of Australia (RBA), as highlighted in its recent Meeting Minutes, emphasized the importance of thoroughly examining additional data to assess the balance of risks before deciding on future interest rates. The World Interest Rate Probability Tool (WIRP) reflects a widespread expectation that the RBA is likely to abstain from a rate cut in the upcoming February policy meeting.

The US Dollar Index (DXY) faces downward pressure as speculations about potential easing by the US Federal Reserve (Fed) gain traction. These heightened expectations stem from the aftermath of the Fed's recent dovish stance in its latest meeting. Despite the mounting speculations, Fed officials have discouraged premature conclusions, advocating for a cautious approach.

The Treasury bond yields in the United States (US) initially saw a decline in the previous session but managed to recover. As of now, the 2-year and 10-year rates stand at 4.34% and 3.88%, respectively, impacting the appeal of the USD. Additionally, the fluctuation in US economic data on Thursday might have added pressure to the Greenback.

US Bureau of Economic Analysis (BEA) released the Gross Domestic Product Annualized (Q3), which grew at a depreciated rate of 4.9% against the expectation of remaining consistent at 5.2%. While Core Personal Consumption Expenditures (QoQ) reduced to 2.0% from 2.3% prior. However, Initial Jobless Claims for the week ending on December 15, came in at 205K against the 215K expected and 203K prior.

Daily Digest Market Movers: Australian Dollar rises on improved risk appetite, hawkish RBA

• RBA Private Sector Credit (MoM) demonstrated a 0.4% increase in November, surpassing the previous rise of 0.3%. However, the Year-over-Year data indicated a decrease to 4.7%, compared to the previous 4.8% rise.
• Westpac Leading Index (MoM) for November improved by 0.01% against the previous reading of flat 0.0%.
• Australia’s preliminary Judo Bank Composite PMI improved to 47.4 from the previous reading of 46.2.
• Australia’s Consumer Inflation Expectations for December eased at 4.5% against the previous figures of 4.9%.
• The People’s Bank of China (PBoC) released its Interest Rate Decision on Wednesday. The Monetary Policy Committee (MPC) kept the benchmark rate unchanged at 3.45%.
• New York Fed President John Williams opposed the speculation surrounding a potential rate cut in March.
• San Francisco Fed President Mary Daly called the predictions on policy stance premature.
• Austan Goolsbee, Chicago Fed President echoed a similar sentiment, cautioning that the market's optimism for interest rate cuts may have gone beyond realistic expectations.
• US Existing Home Sales Change showed a monthly rate increase of 0.8% in November, a notable turnaround from the previous decline of 4.1%.
• CB Consumer Confidence experienced substantial growth in December, marking the most significant increase since early 2021, rising from 101.0 to 110.07.
• US Housing Starts rose to 1.56M, surpassing the market consensus of 1.36M. However, Building Permits declined to 1.46M, slightly below the forecast of 1.47M.

Technical Analysis: Australian Dollar hovers below 0.6800 lined up with a five-month high

The Australian Dollar trades below the psychological resistance at 0.6800 and a five-month high at 0.6802 on Friday. The prevailing bullish sentiment suggests a potential for the AUD/USD pair to surpass the recent peak and aim for the key resistance at the major level of 0.6850. On the downside, support levels would be identified at the major level at 0.6750 before the seven-day Exponential Moving Average (EMA) at 0.6740. A breach below this crucial support region could lead the AUD/USD pair towards the psychological support at 0.6700 followed by the 23.6% Fibonacci retracement at 0.6679.

AUD/USD: Daily Chart

• The Japanese Yen loses traction in reaction to softer inflation figures from Japan.
• Dovish Fed expectations undermine the USD and should cap the USD/JPY pair.
• Traders now look to the US Core PCE Price Index for some meaningful impetus.

The Japanese Yen (JPY) struggles to build on its strong gains registered over the past two days against the US Dollar (USD) and ticks lower during the Asian session on Friday. Japan’s core Consumer Price Index (CPI) eased a bit in November, as was widely expected, raising uncertainty over the timing of when the Bank of Japan (BoJ) will pivot away from its ultra-dovish stance. Moreover, minutes of the BoJ October monetary policy meeting showed that members agreed to the need to patiently maintain the current easy policy, which, in turn, is seen undermining the JPY.

Inflation in Japan, meanwhile, remains well above the BoJ's 2% target. Apart from this, hopes that wage growth next year may outpace that of 2023 suggest that the central bank is more likely to begin tightening its policy as soon as April, if not in January. In contrast, the current market pricing indicates that the Federal Reserve (Fed) could start cutting interest rates as early as March 2024. This, along with a downward revision of the US Q3 GDP print, keeps the USD bulls on the defensive and should cap the USD/JPY pair's modest bounce from the weekly low touched earlier today.

The aforementioned fundamental backdrop seems tilted in favour of the JPY bulls and suggests that the path of least resistance for the USD/JPY pair is to the downside. Traders, however, seem reluctant to place aggressive directional bets and prefer to wait for the release of the US Core Personal Consumption Expenditure (PCE) Price Index later during the North American session. The key US inflation data will play a key role in influencing the Fed's future policy decisions, which, in turn, will drive the USD demand in the near term and provide a fresh directional impetus to the major.

Daily Digest Market Movers: Japanese Yen is undermined by doubts over a potential BoJ pivot

• Japan’s core Consumer Price Index (CPI) slowed from the prior month’s print of 2.9% and rose 2.5% in November from a year earlier, marking its slowest pace since August 2022.
• Furthermore, a core reading that excludes both fresh food and fuel prices eased to 3.8% year-on-year from 4% in October, suggesting that the underlying inflation was also easing.
• Meanwhile, headline CPI decelerated from the 3.3% seen in the prior month to 2.8% year-on-year in November, raising doubt over the possibility of a Bank of Japan policy pivot.
• All three inflation measures, however, remain well above the BoJ's 2% target and support prospects for an imminent shift in the central bank's ultra-dovish policy stance.
• Minutes of the BoJ October monetary policy meeting showed that several members backed the case to sustain the Yield Curve Control (YCC) policy to continue supporting wage growth.
• The US Dollar languishes near a multi-month low on the back of bets that the Federal Reserve will start easing its policy early next year and a downward revision of the US Q3 GDP.
• The third and final reading from the US Bureau of Economic Analysis showed that the world's largest economy expanded by a 4.9% annualized pace vs. a 5.2% rise in the second estimate.
• Separately, the Labor Department reported that Initial Weekly Jobless Claims rose slightly, by 2K to 205K during the week that ended December 16, though remained at historically low levels.
• Investors now await the crucial US core Personal Consumption Expenditure (PCE) Price Index, which is expected to rise by 0.2% in November and come in at 3.3% on a yearly basis.
• Friday's US economic docket also features the release of Durable Goods Orders, which will influence the USD and produce short-term opportunities around the USD/JPY pair.

Technical Analysis: USD/JPY might confront resistance and remain capped near 200-day SMA

From a technical perspective, spot prices showed some resilience below the 142.00 mark and for now, seem to have snapped a two-day losing streak. That said, the overnight breakdown back below the very important 200-day Simple Moving Average (SMA) favours bearish traders. Moreover, oscillators on the daily chart are holding deep in the negative territory, suggesting that the path of least resistance for the USD/JPY pair is to the downside. Hence, any subsequent move up might still be seen as a selling opportunity and remain capped near the 142.75 region (200-day SMA). That said, some follow-through buying, leading to a subsequent move beyond the 143.00 mark, might prompt some short-covering move and allow bulls to reclaim the 144.00 round figure.

On the flip side, weakness below the Asian session low, around the 141.90-141.85 region, will reaffirm the near-term bias and make the USD/JPY pair vulnerable to retesting sub-141.00 levels, or a multi-month low touched last week. The subsequent downfall has the potential to drag spot prices towards the 140.45 intermediate support en route to the 140.00 psychological mark.

• NZD/USD currently trades near 0.6294 ahead of US key data.
• US GDP Q3 shows the US economy expanded by 4.9%, lower than the expected 5.2%.
• RBNZ’s Orr said that the surprisingly weak third-quarter GDP data was a complex situation.
• November's US Core PCE will be closely watched by traders on Friday.

The NZD/USD pair remains capped under the 0.6300 psychological mark during the early Asian session on Friday. However, the further upside of the pair looks favorable due to the dovish stance of the Federal Reserve (Fed) and the weaker US dollar (USD). At press time, NZD/USD is trading at 0.6294, up 0.03% for the day.

The US Labor Department revealed on Thursday that the weekly Initial Jobless Claims last week increased by 2K to 205K, below the market consensus of 215K. Additionally, the US Bureau of Economic Analysis (BEA) reported that the US GDP Q3 shows the US economy expanded by 4.9%, lower than the expected 5.2%. The weaker-than-expected GDP growth number dragged to Greenback lower across the board and created a tailwind for the NZD/USD pair.

The Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr said on Wednesday that surprisingly weak third-quarter Gross Domestic Product (GDP) data was a "complex situation," but there will be other data to be released before the next cash rate decision in February.

Statistics New Zealand revealed last week that the Q3 New Zealand GDP growth number contracted by 0.3% from 0.5% growth in the previous reading, worse than the market expectation of a 0.2% expansion. Additionally, the annual Q3 GDP arrived at -0.6%, compared with the 1.5% growth in Q2 while missing estimates of a 0.5% increase.

The November’s US Core Personal Consumption Expenditure Price Index (Core PCE), the Fed’s preferred inflation gauge, will be due on Friday. Also, the University of Michigan Consumer Confidence Survey, Durable Goods Orders report and New Home Sales data will also be released later in the day. These figures could give a clear direction to the NZD/USD pair.

On Friday, the People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.0953 as compared to the previous day's fix of 7.1012 and  7.1306 Reuters estimates.

• EUR/USD holds positive ground above the 1.1000 psychological mark ahead of US key data.
• ECB’s Guindos said that it was premature to ease monetary policy.
• US GDP growth number for Q3 expanded by 4.9%, weaker than the market estimation of 5.2%.
• The US Core PCE report will be the highlight on Friday.

The EUR/USD pair posts modest gains to its highest level in four months during the early Asian trading hours on Friday. The weaker US Dollar (USD) and the hawkish stance of the European Central Bank lift the EUR/USD pair. Investors await November’s US Core Personal Consumption Expenditure Price Index (Core PCE) on Friday, which is projected to rise 0.2% MoM and 3.3% YoY. The major pair currently trades around 1.1008, gaining 0.05% on the day.

On Thursday, the European Central Bank (ECB) Vice President Luis de Guindos said that it was premature for monetary policy to start to ease. He further stated that the central bank does not foresee a technical recession in the Eurozone and that they would welcome a deal on EU fiscal reform as it would alleviate market uncertainty. Meanwhile, ECB Governing Council member Martins Kazaks said late Wednesday that the central bank needs to keep interest rates at the current level for some time, but the first rate cut could come later than investors are pricing around mid-2024

Across the pond, the Federal Reserve (Fed) delivered a more dovish stance with the anticipation of potential rate cuts worth 75 basis points (bps) in the second half of 2024. About the data, the US Bureau of Economic Analysis (BEA) revealed on Thursday that the US Gross Domestic Product (GDP) for the third quarter expanded by 4.9%, weaker than the market estimation of 5.2%. That being said, the downbeat US data and the anticipation of three rate cuts by the Fed weigh on the Greenback and act as a tailwind for the EUR/USD pair.

Moving on, The German Import Price Index and Consumer Confidence from France and Italy will be released. Market participants will closely watch the US Core PCE on Friday. This event could trigger volatility in the market ahead of the holiday season. Traders will take cues from the data and find trading opportunities around the EUR/USD pair.

The Bank of Japan (BoJ) Board members shared their views on monetary policy outlook and Yield Curve Control (YCC), per the BoJ Minutes of the October meeting.

Key quotes

Market reaction

Following the BoJ Minutes, USD/JPY was down 0.11% on the day at 142.07.