Key Events

• Markets are bracing for final central bank decisions and insights for 2024 ahead of the holiday season
• UK GDP contracted by -0.1%, raising questions ahead of Thursday’s BOE decision
• FOMC and BOJ meetings next Wednesday and Thursday are expected to heighten market volatility
• Key GBP events to watch: Flash PMI (Monday), employment data (Tuesday), and the BOE decision (Thursday)

US Data

Following the uptick in US CPI and PPI data, and the market’s priced in a Fed rate cut for next week, the US Dollar index stabilized above the 107-mark again. If the 108-resistance zone is breached, currencies may face critical lows, prompting central banks to adopt aggressive measures to stabilize their economies. Banks like the SNB, BOC, and PBOC have already announced drastic actions, with the ECB potentially following suit ahead of risks tied to Trump’s policies in 2025.

UK Data

Expectations of a BOE rate hold have been driven by inflationary pressures from the UK’s new labor law. However, the contraction in GDP to -0.1% heightens concerns about economic growth and complicates the BOE’s decision-making process. Increased volatility in the British pound is expected next week, influenced by flash PMI data on Monday and employment figures on Tuesday, which will play a final pivotal role in shaping BOE insights.

Technical Analysis: Quantifying Uncertainties

GBPUSD Forecast: Weekly Time Frame – Log Scale

Source: Tradingview

Using the Fibonacci extension tool between the 2021 high, 2022 low, and 2024 high, the recent drop in GBPUSD has found support at the 0.272 extension level. The next significant support level lies at the 0.382 extension. Should GBPUSD fail to sustain its rebound above the critical 1.2480 level, further declines could test support zones between the October 2023 and February 2023 lows, with support zones 1.21 and 1.19.

On the upside, the current candlestick pattern forming above the 1.25 support indicates a weekly bullish engulfing pattern, signaling strong reversal potential. Key resistance levels to watch to resume a bullish scenario include 1.30 and 1.3170.

— Written by Razan Hilal, CMT on X: @Rh_waves and Forex.com You Tube

• Fed and BoJ rate decisions land hours apart, driving USD/JPY volatility
• A 25bps Fed cut is widely expected, focus shifts to updated rate projections
• BoJ’s rate move remains uncertain, with a hike over 15bps likely yen-positive
• Rising US Treasury yields continue to support USD/JPY upside momentum

Overview

The final working week of 2024 shapes up as pivotal for USD/JPY traders, with the Federal Reserve and Bank of Japan interest rate decisions landing just hours apart. These twin events overshadow all other data, including the Fed’s preferred inflation measure, the core PCE deflator, released on Friday. How the market reacts to these decisions will likely define USD/JPY’s trajectory as we enter 2025.

Central bank decisions collide

Before digging into the detail, here’s the major events calendar for the United States and Japan next week. Note times shown are US Eastern.

Source: TradingView

While Tuesday’s retail sales and Friday’s PCE reports will offer key updates on the health of the US consumer – the largest driver of the US economy – the week will be dominated by the Fed’s interest rate decision rather than its preferred inflation gauge, the core PCE deflator. The latter rarely surprises these days, leaving the Fed decision as the far more significant event for USD/JPY traders.

Hawkish Fed cut incoming?

With a 25bps cut now seen as a near-certainty, the Fed’s updated economic and interest rate projections are expected to drive market movements. These projections will not only influence the front end of the US interest rate curve but also the belly and back end, which have been pivotal in driving USD/JPY moves.

Source: TradingView

Jerome Powell’s remarks last month – highlighting that downside risks to the labour market had diminished while inflation remained more persistent than anticipated – have traders on edge for a potential hawkish cut. The Fed’s forward guidance will therefore be key.

Unemployment is likely undershooting, and inflation overshooting, the Fed’s September forecasts. With 100bps of rate cuts set to be delivered in 2024, as outlined three months ago, the question now is how much easing the Fed signals for next year, and where members see the neutral funds rate, where inflation pressures and unemployment stabilise.

Source: Federal Reserve

In September, the Fed anticipated 100bps of cuts and a neutral rate of 2.9%. Both now seem overly dovish given recent data flow. This opens the door to a more restrained signal, perhaps as few as two, or even one, rate cut for 2025 in the updated dot plot. If the Fed maintains a projection for four 25bps cuts, it could stoke concerns about its willingness to finish the inflation fight.

The long-run dot, reflecting the median FOMC estimate for the neutral policy rate, may also shift higher. While members have been cautious about revising these projections, a minor adjustment to 3% or slightly above seems likely. A larger revision to 3.2% or more could trigger a sharp rise in US Treasury yields, with the Japanese yen likely to feel the heat.

Bond traders think so

Source: TradingView

Positioning for a hawkish adjustment is evident in US interest rate futures. Two- and 10-year contracts have broken down over the past week, signalling expectations for higher yields.

The 10-year Treasury note future has rolled over decisively, with momentum shifting sharply to the downside. With uptrend support wiped out, further price weakness looks likely in the near term, pointing to rising US Treasury yields and potential US dollar strength against the yen.

One roadblock standing in the way of continued USD/JPY upside is the BoJ interest rate decision on Thursday.

BoJ impact set to fade fast

It’s likely to spark volatility in USD/JPY as soon as the outcome is released, with traders divided on whether the BoJ will lift overnight rates and, if so, by how much. Will it opt for a 10, 15, or 25bps hike, or hold off until February or March?

While the outcome is uncertain, one thing is clear: a hike exceeding 15bps would likely trigger a downside move in USD/JPY as the yen strengthens. On the other hand, if the BoJ keeps rates unchanged, there’s a solid chance of a kneejerk upside reaction.

That said, the US rate outlook remains the dominant driver of USD/JPY movements for now. Once the initial volatility from the BoJ decision fades, expect US Treasury yields to reassert their influence.

Higher US yields powering USD/JPY upside

Source: TradingView

The impact of higher US Treasury yields on USD/JPY is obvious on the daily chart, with the pair resuming its push higher just as yields bottomed. Having cleared the important 200-day moving average, and with momentum indicators like RSI (14) and MACD generating bullish signals, for the first time in weeks, a bullish bias is preferred.

Resistance is located at 153.80, 155.89 and 156.75, the latter the high struck immediately before the US presidential election. On the downside, support is found at the 200DMA, uptrend support around 151 and 148.65.

Good luck with your trading and thanks to everyone who has read these weekly outlook guides in 2024. Coverage in 2025 will resume midway through January.

— Written by David Scutt

Follow David on Twitter @scutty

Created on December 13, 2024

• During my analysis of the EUR/USD pair on Thursday, the first thing that I would have to bring to the forefront is the fact that the statement coming out of the European Central Bank was dovish.
• While the ECB did of course cut rates by 25 basis points as expected, the reality is it’s the statement that everybody was paying attention to.

It is worth noting that according to the European Central Bank, they expect the European economy to recover over the next several years, but they also recognize that there could be a bit of sluggish short-term growth due to geopolitical risks and consumer confidence issues. While I agree with that assessment, I think Europe has major structural issues that they will have to come to terms with, and there could be a bit of a crisis when it comes to sovereign debt before this is all said and done, but I digress.

Technical Analysis

The market initially tried to rally during the day but was squashed as it entered a fairly significant area of consolidation. That being said, it is probably worth noting that we are still in that consolidation, albeit just barely. The market is seemingly using the 1.05 level for a bit of an anchor at the moment, and as long as that’s the case, I think range bound traders will be attracted to this market. However, there’s really nothing to suggest that the euro is suddenly going to take off to the upside against the US dollar. While we do have the Federal Reserve meeting next week, it’s expected that the Americans will probably sit still with their monetary policy until at least March.

This sets up the possibility of more “fade the rally” type of set ups in this market. If we were to break that 1.03 level underneath though, we will hit parity before it is all said and done. While I don’t know if that happens right away, that’s exactly what I expect to happen before the trend reverses.

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Created on December 12, 2024

• Stronger US inflation figures have contributed to selling pressure on the EUR/USD pair, with losses extending below the 1.0500 support level to around 1.0480, where it is currently trading.
• This comes amid cautious anticipation of another major event that will impact the performance of the Euro-Dollar, namely the announcement of the European Central Bank.

Euro-Dollar Awaits ECB Announcement

According to reliable trading platforms, the EUR/USD pair may remain in a cautious downward waiting position until the announcement of the European Central Bank today. In general, financial markets expect another 25-basis point cut from the European Central Bank, which would reduce the rate from 3.25% to 3.00% following a similar 25 basis point cut in October. Overall, if the European Central Bank implements another interest rate cut this month, the Euro is likely to weaken against other major currencies due to further monetary policy easing within the bloc. Ahead of today’s event, the Euro’s performance has struggled to attract investor interest due to a mix of mixed economic data and generally positive market sentiment, which tends to diminish the attractiveness of the single European currency.

As a safe-haven asset, the Euro often loses strength when market conditions are optimistic, making it less attractive compared to higher-risk currencies.

Gains in European Stock Markets Did Not Support the Euro for Long

According to stock trading company platforms, the Euro Stoxx 50 (SX5E) index has seen an eight-day consecutive upward trend. This has been helping to support the Euro against the US Dollar. According to trades, the SX5E index has risen for eight consecutive days, outperforming the SPX index throughout those days, a feat we have seen only once before in more than 25 years. Overall, the rise in European equities has led to an exceptionally high information ratio for the SX5E index, indicating strong risk-adjusted returns. The rise was broad-based, encompassing most European sectors and positively impacting the exchange rate of the Euro against the Dollar (EUR/USD).

Why Have European Stocks Risen Recently?

The rise in European stock prices has been observed despite the economic and political uncertainty of the largest economies in the Eurozone. Barclays attributed this rise in Eurozone equities to several key factors:

• Significantly bearish position: The European market had a pessimistic outlook on European equities in the period leading up to this period. It is likely that these negative sentiments, resulting from concerns about tariffs, growth prospects, and political instability, created an environment where many of the potential downside risks had already been priced into the market.
• Technical pressure: The SX5E’s eight-day winning streak, coupled with its outperformance of the S&P 500 over the same period, is a statistically rare phenomenon, having only been observed once before in over 25 years. This suggests a technical pressure, amplified by short selling, particularly by commodity trading advisors (CTAs).
• Possibility of interest rate cuts by the European Central Bank: Barclays highlights the increasingly dovish stance of the European Central Bank as a supportive factor for European equities. Accordingly, the possibility of interest rate cuts, amid political uncertainty and weak growth, provides a hedge against downside risks in the near term. For the EUR/USD exchange rate, interest rate cuts are typically seen as a headwind because they mean lower Eurozone bond yields. However, a decline in European stock prices may limit any decline.
• Positive response to news: While the positive news was gradual, the market responded positively, likely due to previous bearish sentiments. The avoidance of worst-case scenarios and any positive developments, even if minor, contributed to the upward momentum.

Trading Tips:

The EUR/USD price is increasing in the bearishness ahead of today’s ECB announcement. Furthermore, be cautious and do not rely on what is expected from the bank and wait for the reaction to the announcement to move towards strong trading opportunities.

EUR/USD Analysis Today:

By examining the performance of the Euro-US Dollar EUR/USD price, it is confirmed that the general downward trend is stronger and may remain as long as the price is stable around and below the psychological support level of 1.0500. As we mentioned before and I confirm now, expectations for the future parity price of the Euro Dollar may strengthen if the bears move first towards the support levels of 1.0435 and 1.0320 respectively. At the same time, the technical indicators will move towards strong oversold levels. Led by the Relative Strength Index and the MACD indicator. In contrast, to achieve an initial break of the downward trend, the bulls must move the currency pair towards the resistance levels of 1.0670 and 1.0830 respectively. Also, the Euro Dollar will focus on US data led by the weekly jobless claims and the inflation reading of the Producer Price Index.

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EUR/USD looks to the ECB rate decision

• ECB is likely to cut rates by 25 bps
• The focus will be on rhetoric and staff projections
• US PPI & jobless claims are due
• EUR/USD trades between 1.05 – 1.06

EUR/USD steadies above 1.05 after 4-days of losses, amid USD weakness and ahead of the ECB rate decision.

We expect the ECB to cut rates by 25 basis points, bringing them to 3%; however, a 50-basis-point cut cannot entirely be excluded. In fact, the market would likely focus more on communication. The updated staff forecast could see the inflation target being reached sooner next year, which could enable the ECB to cut rates by 25 basis points but with a more dovish tone.

Recent data, including the composite PMI at a 10-month low and political uncertainty in Germany and France affecting economic sentiment, also give the ECB reason to adopt a more dovish stance.

The market is pricing in 150 basis points worth of cuts between now and the end of next year. A dovish-sounding Christine Lagarde could fuel rate-cut bets, pulling EUR lower.

The USD is easing but continues to trade in a narrow range, following US CPI data yesterday, which supports the view the Fed will cut rates next week and ahead of PPI data today.

PPI is expected to rise to 2.6%, YoY up from 2.4%. This comes after CPI rose to 2.7% from 2.6%.

Signs that disinflation is stalling underpin the USD. While a December rate cut looks certain, a more gradual pace of cuts is likely next year. 

EUR/USD forecast – technical analyst

EUR/USD fell from 1.12 in late September to a low of 1.0330 on November 2025. The price is currently consolidating between 1.05 to 1.06 and is once again testing the lower band of this holding pattern.

Sellers must take out 1.05 to extend the longer-term bearish trend towards 1.04 and 1.0330.

However, should 1.05 hold, buyers will look to extend the gain to 1.06. Beyond here, 1.07 comes into play.

GBP/USD stays in range ahead of US PPI data & jobless claims

• US CPI rose to 2.7% YoY from 2.6%
• US PPI is expected to rise to 3.2% from 3.1%
• GBP/USD hovers around 1.2750, just below the 200 SMA

GBP/USD continues to trade in a tight range around the 1.2750 level following US CPI data and ahead of more US stats. The UK economic calendar is quiet, leaving the USD in the driving seat.

US CPI rose to 2.2%, up from 2.6%, in line with expectations, while core CPI held steady at 3.3%. Despite the increase in inflation, the data was in line with forecasts, giving the green light to a December rate cut.

According to the CME Fed watch tool, the market is pricing in a 95% chance of a 25 basis point cut at the FOMC meeting next week, up from 85% ahead of the meeting.

Today, attention is on US PPI inflation, which is expected to rise. PPI is forecast to rise to 3.2%, up from the 3.1% previously.

US jobless claims data will also be under the spotlight. It is expected to show the ongoing resilience in the US labour market, with 220K initial claims forecast down from 224 K.

The pound has been supported by expectations that the Bank of England will cut interest rates at a slower pace than its major central bank peers. The BoE is expected to leave rates unchanged in the meeting next week, and the market is only pricing in 60 basis points worth of cuts between now and the end of next year.

The central bank has adopted a more hawkish tone following the New Labour government’s budget, which is seen as inflationary.

There is no high impact UK economic data today. Attention will be on GDP figures tomorrow.

GBP/USD forecast – technical analyst

GBP/USD extended its recovery from 1.25 rising out of the multi-month descending channel, but the recovery has stopped short below the 200 SMA.

Buyers will look to extend the recovery above the 200 SMA1.2825 towards 1.2875 static resistance and 50 SMA. A rise above her brings 1.29 and then the key 1.30 level into play.

Failure to retake the 200 SMA could see sellers retest the 1.27, the weekly low ahead of 1.2630 the December low and 1.26. A breakdown here brings 1.25 into focus.