• EUR/USD has breached the support level at 1.05500, and selling momentum has strengthened the current downtrend in the chart.

   

• The Federal Reserve (Fed) has emphasized slowing down the pace of interest rate cuts, a move that could be crucial in maintaining the strength of the U.S. dollar over the long term.

EUR/USD has recorded a 2% decline over the last five sessions, favoring the dollar and placing the euro in a sustained bearish zone. This selling pressure has intensified following the Fed’s recent decision, accompanied by neutral remarks regarding decisions for the upcoming year. This bearish pressure has pushed the price to break the crucial two-year support level at 1.0550.

Fed’s Remarks

In its final meeting of the year, the Fed reduced interest rates to a range of 4.25%-4.5%, down from the previous 4.5%-4.75% (a 25-basis-point cut). This adjustment aligns with efforts to stimulate the U.S. economy in early 2025.

However, Fed Chair Jerome Powell highlighted that although inflation has decreased significantly, it remains at elevated levels, making it challenging to achieve the central bank’s 2% target. Powell also stressed the need to proceed cautiously in future decisions,given that current projections place inflation at 2.5% for 2025, still far from the central bank’s target for the upcoming year.

In this context, the CME Group’s probability tool currently reflects a 91% chance that the Fed will keep rates unchanged at its next meeting, scheduled for January 29. And, for the 19-march decision, the probability stands in 53% of rates unchanged versus 43% of rate reduction. That said, now the market is seeing a neutral decision bias for next decisions which could help maintain higher interest rates, leading to a stronger dollar perspective. Remember that these probabilities could shift based on economic developments leading up to that date.

Interest Rate Probability Chart January – CME Group

Source: CmeGroup

Interest Rate Probability Chart March – CME Group

Source: CmeGroup

Given the context outlined, the Fed’s interest rate of 4.5% remains significantly higher than the European Central Bank (ECB) rate of 3.15%. This differential could continue to attract investment into U.S. fixed-income assets, increasing demand for the dollar and exerting selling pressure on the EUR/USD. This scenario will likely persist as long as the U.S. central bank maintains rates above 4%.

EUR/USD Technical Forecast

EUR/USD has maintained a steady downtrend since late September, reaching a minimum price in the 1.03 range. Recent U.S. monetary policy events have strengthened the dollar, once again driving the price close to these lows not seen since November.

Source: StoneX, Tradingview

• Downtrend Channel: The current downtrend channel favoring the dollar remains intact, with no significant bullish breakout threatening the formation. However, it’s important to note that the recent low at 1.03 remains a relevant support level that could trigger bullish corrections as the channel evolves. This level also represents the last low within the downtrend channel, and further lower lows are required to avoid a lateral consolidation in the short term.

   

• RSI: The RSI indicator remains below 50, signaling that bearish momentum dominates the market in the short term. However, the RSI line is near an oversold zone, around the 20 level, which could indicate potential exhaustion of the bearish momentum and open the door for bullish corrections near the closest support level (1.03).

  Key Levels:

• 1.03: The current support level corresponds to areas of indecision that served as a barrier in 2023. A drop below this level could lead to new lows in the current downtrend and reinforce the bearish bias.

   

• 1.05500: This is the new resistance zone, coinciding with the lower boundary of the lateral range maintained during 2024. It also converges with the upper line of the downtrend channel and the Ichimoku cloud, further reinforcing its importance as a barrier. Movements above this level could weaken the current downtrend and threaten the channel formation.

• Three BoE policymakers were ready to lower borrowing costs.

• Data revealed that UK retail sales missed forecasts, increasing by 0.2%.

• The US economy expanded by 3.1% in the fourth quarter, above estimates of 2.8%.

The GBP/USD outlook shows growing enthusiasm among pound bears as Bank of England rate cut expectations increase. At the same time, expectations for fewer rate cuts in the US in 2025 have boosted the dollar, further weighing on sterling.

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The pound collapsed to new lows on Thursday after the Bank of England policy meeting. Although the central bank kept interest rates unchanged, there was a shift in sentiment among some policymakers. Three policymakers were ready to lower borrowing costs, which was unexpected. As a result, markets increase bets for rate cuts in 2025. 

Recent economic data have pointed to a recovering labor market and high inflation. Consequently, market participants were pricing a gradual easing pace in the coming year. However, if three policymakers were ready to cut rates in December, the number might increase at the next meeting. 

Meanwhile, data revealed that UK retail sales missed forecasts, increasing by 0.2%. Economists had expected a 0.5% increase. The miss was a sign that consumer spending dropped, which could put more pressure on the Bank of England to lower borrowing costs. 

On the other hand, the dollar remained strong after the Fed projected fewer rate cuts in 2025. At the same time, data on Thursday revealed that the US economy expanded by 3.1% in the fourth quarter, above estimates of 2.8%. Moreover, unemployment claims fell more than expected, showing a resilient economy.

GBP/USD key events today

GBP/USD technical outlook: Bears prompt 100% retracement

On the technical side, the GBP/USD price has made a sharp move from the 30-SMA to the 1.2500 key support level. The decline has put the price well below the 30-SMA and the RSI near the oversold region, supporting a bearish bias. 

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Previously, the price traded in a shallow bullish trend but reversed when it broke below its support trendline. Since then, bears have been in the lead, making lower highs and lows. The most recent move has made a 100% retracement of the previous bullish trend. 

Therefore, a break below the 1.2500 support will be a significant milestone for bears. It will signal a continuation of the bearish trend that was there before bulls prompted a corrective move.

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

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

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

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

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

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

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

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

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

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

GBP/JPY daily chart

GBP/USD tumbles near 1.2500 breakdown as US data boosts USD

The GBP/USD extended its losses during the North American session, with sellers targeting a break below 1.2500. Cable is losing over 0.48% or 60 pips on the day. At the time of writing, the pair hovers near 1.2500.

US data released ahead of the New York open hinted that the labor market remains solid and the economy is expanding. Initial Jobless Claims for the week ending December 14 fell from 242K to 220K, below forecasts of 230K. Read more…

GBP/USD Forecast: Pound Sterling could renew multi-month lows

Following Wednesday’s loss of more than 1%, GBP/USD extended its slide on Thursday. After touching its weakest level since early May near 1.2470 in the Asian trading hours on Friday, the pair recovered to the 1.2500 area in the European session.

The Bank of England (BoE) maintained its bank rate at 4.75% after the December meeting, as expected. On a dovish twist, however, three members of the Monetary Policy Committee (MPC) voted for a 25 basis points (bps) rate cut. In its policy statement, the BoE said that they can’t commit to when or by how much they will cut rates in 2025, due to heightened uncertainty in the economy. Pound Sterling came under bearish pressure following the BoE’s policy announcements. Read more…

• GBP/USD trades in a tight range near 1.2500 in the European session on Friday.
• Pound Sterling could have a difficult time staging a rebound after BoE policy announcements.
• The risk-averse market atmosphere could put additional weight on the pair’s shoulders.

Following Wednesday’s loss of more than 1%, GBP/USD extended its slide on Thursday. After touching its weakest level since early May near 1.2470 in the Asian trading hours on Friday, the pair recovered to the 1.2500 area in the European session.

The Bank of England (BoE) maintained its bank rate at 4.75% after the December meeting, as expected. On a dovish twist, however, three members of the Monetary Policy Committee (MPC) voted for a 25 basis points (bps) rate cut. In its policy statement, the BoE said that they can’t commit to when or by how much they will cut rates in 2025, due to heightened uncertainty in the economy. Pound Sterling came under bearish pressure following the BoE’s policy announcements.

Early Friday, the negative shift seen in risk mood doesn’t allow GBP/USD to gather recovery momentum. Growing concerns over a US government shutdown at the end of the day causes investors to adopt a cautious stance. Reflecting the sour mood, US stock index futures were last seen losing between 0.6% and 1% on the day. In case safe-haven flows continue to dominate the action in financial markets, the pair could stretch lower heading into the weekend.

Meanwhile, the data published by the UK’s Office for National Statistics (ONS) showed on Friday that Retail Sales rose by 0.2% on a monthly basis in November. This reading came in below the market expectation for an increase of 0.5%. 

In the second half of the day, the US Bureau of Economic Analysis will publish the Personal Consumption Expenditures (PCE) Price Index data for November. Investors are likely to ignore this data.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly above 30, suggesting that GBP/USD could stretch lower before looking to stage a technical correction. On the downside, static support seems to have formed at 1.2480 ahead of 1.2400 (round level, static level) and 1.2340 (static level).

Looking north, first resistance could be spotted at 1.2550 (static level) before 1.2600 (static level, round level).

Created on December 20, 2024

• During my daily analysis of the major currency pairs, the USD/JPY pair is one of the first things that I pay close attention to, as the Japanese yen is on the hot seat, while the US dollar is by far the strongest currency around the world as of late.
• This is the “Ground Zero” of what’s happened over the last couple of days, as the Bank of Japan and the Federal Reserve both have had central bank interest rate decision.
• Keep in mind that the market continues to pay close attention to the idea of the “carry trade.”

Bank of Japan

It looks like the Bank of Japan really couldn’t do anything, and therefore I think you got a situation where the Federal Reserve completely dropped the ball during the press conference, as Jerome Powell gave one of his worst press conferences of his tenure. Because of this, we’ve seen a lot of uncertainty around the US dollar, and it launched against most currencies.

However, since then we have seen the Bank of Japan coming go, so it’s very interesting that we have seen this market break out above the crucial ¥156.50 level. The 156.50 again level is an area that previously had been a swing high, so the fact that we broke above it suggests that we probably have further to go. The size of the candlestick is very impressive, so with this I’ve got interest in trying to get long yet again.

Short-term pullbacks should continue to attract a lot of attention, and I think you’ve got a scenario where traders will be doing everything, sleep they can take advantage of a little bit of value on the pullback. In fact, I just don’t see a situation where I would get short of this pair, because we have only seen more enthusiasm to the upside, despite the fact that we are heading into the holiday season. This is the time of year where you would anticipate that markets would stop moving, but we have found quite the opposite here.

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Created on December 20, 2024

• As you can see, the Euro initially did rally against the US dollar during the trading session on Thursday, but it has been slapped right back down.
• I think it’s probably only a matter of time before the Euro drops down to the parity level, possibly lower than that, because there is really nothing good about the European Union at the moment.
• In fact, I think there are some serious structural issues that will come to the forefront of attention soon.

EU is a Mess

We have countries, parliaments, governments collapsing, we have the US dollar strengthening anyways. And then we have a situation where interest rates in America continue to go to the upside. In America, while in Europe, the ECB is likely to continue to see a lot of reasons to put interest rates going forward. So that makes the US dollar much more attractive. Furthermore, the US economy is infinitely stronger than most of the European economies.

While We Are at Low Levels…

So, all things being equal, we are at an extraordinarily low level. But I think we will go lower. This is a market that I short every time we get a little bit of a bounce for short term trades, mainly due to the time of year, the market will face some liquidity issues over the next couple of weeks. And there could be a nice rally due to short covering as we had into New Year’s Day. But that should be thought of as a potential opportunity. It’s really not until we break above the 1.0650 level that I would consider going long. That’s three full handles from here. And even then, I would be a bit cautious. I think rallies are to be squashed just like we’ve seen during the trading session on Thursday.

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Japanese Yen Technical Forecast: USD/JPY Weekly / Daily Trade Levels

• USD/JPY post-FOMC breakout extends more than 6.1% off December low
• USD/JPY bulls testing major pivot zone at uptrend resistance- US Core PCE on tap tomorrow
• Resistance 157.16/89 (key), ~159.50s, 160.40/73- Support 151.90-152, ~151.16, 148.73-149.60 (key)

The Japanese Yen is poised to mark a third consecutive weekly decline against the US Dollar with USD/JPY surging to fresh multi-month highs on the back of the Fed rate decision. The rally takes price into a critical pivot zone and while the broader outlook remains constructive, we’re looking for possible inflection here in the days ahead. Battle lines drawn on the USD/JPY weekly technical chart into the close of the year.

Review my latest Weekly Strategy Webinar for an in-depth breakdown of this Yen setup and more. Join live on Monday’s at 8:30am EST.

Japanese Yen Price Chart – USD/JPY Weekly

Chart Prepared by Michael Boutros, Sr. Technical Strategist; USD/JPY on TradingView

Technical Outlook: In last month’s Japanese Yen Technical Forecast we highlighted potential for a larger correction within the September uptrend in USD/JPY while noting that, “From a trading standpoint, look to reduce short-exposure / lower protective stops on a stretch towards 150 IF reached. Ultimately, we are looking for an exhaustion low ahead of 148 for the September rally to remain viable with a breach / close above 154.34 needed to mark uptrend resumption.” Price plunged nearly 5.2% off the November highs with USD/JPY registering an intraday low at 148.64 into the monthly open before rebounding.

The US Dollar is now poised to mark a third consecutive weekly advance with the recovery extending more than 6.1% off the December low on the heels of the FOMC rate decision. The rally takes USD/JPY towards a major resistance hurdle just higher at 157.17/89– a region defined by the 78.6% retracement of the yearly range and the July breakdown close. Note that the 2020 parallel converges on this zone over the next few weeks and further highlight the technical significance of this threshold.

Initial weekly support now rests back at the 1986 low / 1998 & 2022 high at 151.90-152 and is backed closely by the 52-week moving average (currently ~151.16). Broader bullish invalidation now raised to the 2022 high-close / 2023 high-week close (HWC) at 148.73-149.60– a break / close below this threshold would suggest a more significant high is in place / a larger reversal is underway. Ultimately, a break below the 61.8% retracement at 146.29 would be needed to put the bears in control.

A topside breach / close above this key pivot zone exposes subsequent resistance objectives at the upper parallel (blue slope near 159.50s) and the 1990 high / 2024 HWC at 160.40/73. Ultimately, a close above the swing highs at 161.95 would be needed to fuel the next major leg of the multi-year uptrend in USD/JPY (look for a larger reaction there IF reached).

Bottom line: The USD/JPY rally is now approaching major technical resistance, and the focus is on possible inflection into this threshold. From a trading standpoint, look to reduce portions of long-exposure / raise protective stops on a test of 157.16/89- losses should be limited to 152 IF price is heading higher on this stretch with a close above this pivot zone needed to mark resumption of the September uptrend.

Keep in mind we get the release of key US inflation data tomorrow with the Consumer Price Expenditure (PCE) expected to show a slight uptick to 2.9% y/y in November. Stay nimble into the release watch the weekly close here for guidance. Review my latest Japanese Yen Short-term Outlook for a closer look at the near-term USD/JPY technical trade levels.

USD/JPY Key Economic Data Releases

Economic Calendar – latest economic developments and upcoming event risk.

Active Weekly Technical Charts

— Written by Michael Boutros, Sr Technical Strategist

Follow Michael on X @MBForex

Created on December 19, 2024

• The EUR/USD pair has plummeted to a support level of 1.0343, the lowest for the currency pair since November 2022, before stabilizing around 1.0385 at the time of writing this analysis.
• The performance confirms the strength of the trading strategy that we recommended to our clients which was to sell EUR/USD from every upward level.
• Selling of EUR/USD increased after the US Federal Reserve hinted that it would be more hawkish in 2025.
• As we previously predicted, the bank would be wary of Trump’s policies, which typically raise inflation rates in the country.

The US Federal Reserve Cuts Rates but Doesn’t Promise More

According to economic calendar data, the US Federal Reserve cut the federal funds rate by 25 basis points as expected but indicated only 50 basis points of rate cuts for 2025, which is half the cut expected in September. At the same time, the European Central Bank has already cut its main deposit rate four times this year and maintained a cautious stance on further easing. However, many analysts believe that the ECB may need to accelerate policy easing to support the weak Eurozone economy. This disparity was enough to increase EUR/USD selling, and after its recent losses, expectations for the currency pair to move towards parity have strengthened.

The Eurozone Economy Continues to Suffer Economically and Politically

Confirming this, preliminary Purchasing Managers’ Indexes for both manufacturing and services pointed to another, albeit slower, contraction in private sector activity, with Germany and France continuing to perform poorly. Also, Annual inflation rose less than expected to 2.2% from the initial estimate of 2.3%. Adding to the euro’s problems is political uncertainty. In this regard, in Germany, the chancellor lost a vote of confidence in parliament as expected. In France, the new government faces significant challenges, including passing the 2025 budget.

Trading Tips:

The pressure on the euro is strong and may continue for some time, so any rebound upwards may be opportunities to sell the euro again this week, which will be fateful for the euro’s closures in 2024

The Future of Germany’s Exit from the European Union

The leader of the second strongest party in opinion polls in Germany told Bloomberg television in Berlin: “What we need is free trade between European countries, but we don’t need all the bureaucracy.” She has “destroyed the socialist policymaking” in the European Union and “destroyed the market mechanism in Europe.” Alice Weidel, the candidate for chancellor from the far-right Alternative for Germany party, has criticized the European Union for destroying the country’s auto industry and proposed returning the bloc to a free trade area.

In its program for the early elections on February 23, the Alternative for Germany party calls for Germany’s exit from the European Union and the Eurozone. Obviously, this would represent a major shift in German politics and break decades of political and economic integration.

EUR/USD Analysis Today:

According to the performance on the daily chart above, the EUR/USD pair is still in its broader downward trend, and the current move towards the support level of 1.0350 will strengthen expectations for the future of parity between the euro and the dollar in the near future. Especially, as the economic and political problems of the Eurozone countries have worsened. The recent losses of the euro and dollar have pushed some technical indicators to oversold levels, led by the Relative Strength Index (RSI) and the MACD. Meanwhile, currency investors may not care as much about this as they focus on the continued weakness of the currency pair. Currently, the closest support levels for EUR/USD are 1.0330, 1.0250, and 1.0180, respectively. Finally, we still expect any gains for the EUR/USD to be subject to a rapid collapse.

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Japanese Yen Technical Forecast: USD/JPY Weekly / Daily Trade Levels

• USD/JPY post-FOMC breakout extends more than 6.1% off December low
• USD/JPY bulls testing major pivot zone at uptrend resistance- US Core PCE on tap tomorrow
• Resistance 157.16/89 (key), ~159.50s, 160.40/73- Support 151.90-152, ~151.16, 148.73-149.60 (key)

The Japanese Yen is poised to mark a third consecutive weekly decline against the US Dollar with USD/JPY surging to fresh multi-month highs on the back of the Fed rate decision. The rally takes price into a critical pivot zone and while the broader outlook remains constructive, we’re looking for possible inflection here in the days ahead. Battle lines drawn on the USD/JPY weekly technical chart into the close of the year.

Review my latest Weekly Strategy Webinar for an in-depth breakdown of this Yen setup and more. Join live on Monday’s at 8:30am EST.

Japanese Yen Price Chart – USD/JPY Weekly

Chart Prepared by Michael Boutros, Sr. Technical Strategist; USD/JPY on TradingView

Technical Outlook: In last month’s Japanese Yen Technical Forecast we highlighted potential for a larger correction within the September uptrend in USD/JPY while noting that, “From a trading standpoint, look to reduce short-exposure / lower protective stops on a stretch towards 150 IF reached. Ultimately, we are looking for an exhaustion low ahead of 148 for the September rally to remain viable with a breach / close above 154.34 needed to mark uptrend resumption.” Price plunged nearly 5.2% off the November highs with USD/JPY registering an intraday low at 148.64 into the monthly open before rebounding.

The US Dollar is now poised to mark a third consecutive weekly advance with the recovery extending more than 6.1% off the December low on the heels of the FOMC rate decision. The rally takes USD/JPY towards a major resistance hurdle just higher at 157.17/89– a region defined by the 78.6% retracement of the yearly range and the July breakdown close. Note that the 2020 parallel converges on this zone over the next few weeks and further highlight the technical significance of this threshold.

Initial weekly support now rests back at the 1986 low / 1998 & 2022 high at 151.90-152 and is backed closely by the 52-week moving average (currently ~151.16). Broader bullish invalidation now raised to the 2022 high-close / 2023 high-week close (HWC) at 148.73-149.60– a break / close below this threshold would suggest a more significant high is in place / a larger reversal is underway. Ultimately, a break below the 61.8% retracement at 146.29 would be needed to put the bears in control.

A topside breach / close above this key pivot zone exposes subsequent resistance objectives at the upper parallel (blue slope near 159.50s) and the 1990 high / 2024 HWC at 160.40/73. Ultimately, a close above the swing highs at 161.95 would be needed to fuel the next major leg of the multi-year uptrend in USD/JPY (look for a larger reaction there IF reached).

Bottom line: The USD/JPY rally is now approaching major technical resistance, and the focus is on possible inflection into this threshold. From a trading standpoint, look to reduce portions of long-exposure / raise protective stops on a test of 157.16/89- losses should be limited to 152 IF price is heading higher on this stretch with a close above this pivot zone needed to mark resumption of the September uptrend.

Keep in mind we get the release of key US inflation data tomorrow with the Consumer Price Expenditure (PCE) expected to show a slight uptick to 2.9% y/y in November. Stay nimble into the release watch the weekly close here for guidance. Review my latest Japanese Yen Short-term Outlook for a closer look at the near-term USD/JPY technical trade levels.

USD/JPY Key Economic Data Releases

Economic Calendar – latest economic developments and upcoming event risk.

Active Weekly Technical Charts

— Written by Michael Boutros, Sr Technical Strategist

Follow Michael on X @MBForex