The EUR/USD is our featured currency pair this week, owing to the fact we have the European Central Bank’s key rate decision and important inflation data from the US coming in a week before the Federal Reserve’s own decision on interest rates. Ahead of these macro events, the EUR/USD forecast remains modestly bearish, although the currency pair has found some love today thanks to optimism about more stimulus measures being introduced in China, one of the Eurozone’s major exports destinations.

What is driving the markets today?

China’s government announced they will embrace a “moderately loose” strategy next year, in a sign of greater easing ahead that has been hailed by investors hungry for more stimulus today. The news caused Chinese equities and nearly all Chinese-linked assets rally, from copper to commodity stocks in the FTSE. The euro also found some mild support on the view that a stimulus-driven recovery in China will help support eurozone exports into that region. But most of the gains were evidenced in currencies that have even closer trade ties with China, such as the AUD. All eyes are now on the Central Economic Work Conference due to start on Wednesday, for signals of more fiscal support from China.

How big of a cut should we expect from the ECB?

Well, analysts are expecting a standard 25 basis point rate cut at Thursday’s meeting of the Governing Council of the European Central Bank. There were talks of perhaps 50 basis points, which may still be under consideration. However, the ECB is more likely, in our view, to deliver a 25bp cut to take the deposit rate down to 3.15% from the current 3.40% and use the press conference to open the door to several further rate cuts in 2025. Today’s release of the latest Sentix Investor Confidence reading will certainly make the ECB’s doves more vocal. It is not just data that calls for looser policy: Governments in Paris and Berlin both collapsed over budget talks recently and this uncertainty is likely to weigh on growth further. The EUR/USD forecast could turn more bearish if the ECB turns out to be even more dovish than the market is expecting them to be right now.

EUR/USD forecast: CPI is this week’s key US data

US inflation data will be released this week, with CPI coming on Wednesday and PPI a day later. CPI is expected to rise to 2.7% y/y from 2.6% y/y previously. This will be the last set of key data before the Federal Reserve meets next week. Following Trump’s victory in the presidential election race, investors have sharply reduced their expectations about further US interest rate cuts in 2025. The upcoming December rate decision is unlikely to be impacted by this CPI report, unless we see a super-hot print. But whether the Fed will go ahead with a cut at its initial 2025 meetings will be influenced, among other key data highlights, by this CPI report, although it is employment that the Fed is now more focused on.

But after Friday’s somewhat of a softish NFP report, a 25-bps rate cut is now more likely than not. Indeed, market pricing of a December rate cut has risen to around 87% from 70% last week, although this has not yet had any further influence on the EUR/USD’s direction.

Technical EUR/USD forecast: Key levels to watch

Source: TradingView.com

The EUR/USD has now had a few attempts to break above the 1.06 resistance area (i.e., the 1.0595-1.0610 range). So far, it has failed to post a daily close above this range to tip the balance in the bulls’ favour. But will that change as we head deeper into the week remains to be seen. For now, at least, the bulls will need to remain patient as we don’t have a concrete reversal signal to work with. A daily close above this resistance area could potentially pave the way for a short-squeeze rally towards the 1.0700 area, possibly 1.0775/80.

But while the 1.06 resistance area holds, the risks remain skewed to the downside. As such a break below the 1.0500 area is still a scenario that looks more likely than a sharp rally. The 1.0500 level is the most important support to watch in so far as the short-term outlook is concerned. A daily close below the 1.0450-1.0500 area could see the EUR/USD resume its bearish trend that started back in September. If that happens, then the next downside target would be the liquidity resting below the recent lows of around 1.0333 area. Thereafter, you have the round handles like 1.0300 and 1.0200 as the subsequent targets en route to potentially parity.

All told, the EUR/USD forecast is modestly bearish, and we could see the selling resume unless US CPI is super soft, or the ECB is not as dovish as markets are expecting.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

Created on December 09, 2024

• During the trading session on Friday, my daily analysis of the USD/JPY pair continues to look very messy, just due to the fact that we cannot seem to overcome the 200 Day EMA.
• Having said that, we are not necessarily breaking down either, or I think this is a market that is trying to figure out what to do with itself over the longer term.
• I do believe that the interest rate differential will matter, but with the FOMC Meeting coming, it’s possible that traders are waiting to see what the press conference and statement has to say about future trajectory of interest rate cuts or whether or not the Federal Reserve is going to sit still.

The candlestick for the Friday session is rather unimpressive, and we find ourselves sitting right around the crucial ¥150 level as well. With this being the case, think we have got a situation where traders are trying to figure out where to go next, but if we could get above the 50 Day EMA, then the market could really start to take off to the upside. This will be more likely than not if Jerome Powell sounds rather hawkish after the FOMC meeting, or perhaps even more impressively, if the Federal Reserve decides not to cut rates. Remember, the market has a 25 basis point rate cut priced in at the moment in the Fed Futures Funds markets.

Fibonacci

While I’m not a huge Fibonacci ratio trader, it is worth noting that we had recently bounced from the 50% Fibonacci retracement level, and we are hanging around the 38.2% Fibonacci retracement level. While we haven’t necessarily set still, we really haven’t gone anywhere over the last week or so. The US dollar is stronger than most other currencies, but there are certain amount of traders out there pretending that the Bank of Japan can do something to tighten monetary policy. The endgame for Japan is a major collapse of the currency, just due to the massive amount of debt that the Japanese have been living on. However, that doesn’t mean it has to happen today, so I am waiting for a move above the 50 Day EMA to start buying again.

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Created on December 09, 2024

• The British Pound gained significantly against the US Dollar last week, reaching the resistance level of 1.2810.
• However, GBP/USD quickly faced selling pressure, closing the week around 1.2735.
• Meanwhile, we expect the GBP/USD pair to trade within a narrow range with a bearish bias until the release of US inflation data this week, which could shape the future of the Federal Reserve’s monetary policy.
• Conversely, the absence of significant UK economic data releases this week, except for the UK GDP growth rate at the end of the week, will make the performance of GBP/USD dependent on the dollar’s movements and investor sentiment.

US Inflation Data Crucial for the Currency Pair

According to Bloomberg Economics, US headline inflation is expected to be 0.2% month-on-month and 2.6% year-on-year last month, matching October’s figures. Forward-looking pricing and early submissions to the Bloomberg survey align with these expectations. For the Federal Reserve, steady inflation is likely to signal caution when assessing interest rate cuts at the December meeting. Experts at Bloomberg expect US core consumer prices—a better measure of underlying inflation pressures—to have risen by 0.3% in November, matching the previous month’s pace. Also, the data will be released during the Federal Reserve’s traditional blackout period on public comments ahead of the meeting. These figures, along with the non-farm payroll report released last week, will shape expectations for the Fed’s decision.

Trading Advice:

Despite the recent strong performance of the Pound, it may be susceptible to renewed selling in the coming trading sessions.

Technical Analysis for the GBP/USD pair today:

With the gains of the GBP/USD pair, the direction of the technical indicators, the RSI and the MACD, has shifted upwards, and to confirm the general trend has shifted to an upward trend, bulls should launch the currency pair towards the resistance levels of 1.2860. consequently, the psychological resistance of 1.3000. Otherwise, the technical gains of the pair will be subject to renewed selling operations to take profits, which we expect in the coming days. Especially, if the US inflation figures come out stronger than all expectations. The expected US trade wars have expanded, which increases the demand for buying the US dollar as a safe haven. As is known, the British pound is a risk currency. Decisively, it must be considered that returning to the 1.2600 level will end hopes for the recent rise for a period of time.

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• US employers added 224,000 new workers in November.

• Markets raised the likelihood of a 25-bps December Fed rate cut from 70% to 85%.

• Traders await the US CPI report for more clues on Fed rate cuts.

The EUR/USD outlook shows some strength in the euro as the dollar drops due to increasing bets for a December Fed rate cut. Meanwhile, traders remained cautious ahead of key US inflation data that will continue shaping the outlook for US monetary policy. 

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The greenback fluctuated on Friday when data showed a mixed picture of the US labor sector. Employers added 224,000 new workers in November, beating forecasts. This surge in job growth initially boosted the dollar. However, the unemployment rate rose from 4.1% to 4.2%, signaling cracks in the labor market. As a result, markets raised the likelihood of a 25-bps December Fed rate cut from 70% to 85%, weighing on the dollar. 

Meanwhile, the euro remained vulnerable ahead of the ECB meeting. At the same time, fears of likely US tariffs have kept downward pressure on the currency. 

A Reuters poll showed that most economists expect the European Central Bank to lower borrowing costs by 25-bps in December. At the same time, they expect 100-bps of cuts by the end of next year. 

Meanwhile, traders await the US CPI report for more clues on Fed rate cuts.  

EUR/USD key events today

Neither the US nor the Eurozone will release any key reports today. Therefore, the pair might remain in consolidation ahead of a busy week.

EUR/USD technical outlook: Bulls challenge the 1.0601 resistance

On the technical side, the EUR/USD price is trading in a range between the 1.0400 support level and the 1.0601 resistance level. This sideways move came after a downtrend that weakened at the 1.0400 support level. The range is a shallow corrective move that might end to allow the downtrend to continue. Therefore, bulls might find it difficult to breach the 1.0601 resistance level. Meanwhile, a break below the 1.0400 support level would signal a continuation of the downtrend. 

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On the other hand, if bears are not strong enough to continue pushing EUR/USD lower, it might reverse to start an uptrend. Currently, bulls are pushing the price higher after retesting the 30-SMA support. However, the price must break above the 1.0601 resistance level to make higher highs and lows.

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• GBP/USD trades slightly above 1.2750 in the European morning on Monday.
• 1.2780 aligns as next key resistance level for the pair.
• A positive shift in risk mood could help GBP/USD stretch higher.

After spiking to its highest level since November 12 above 1.2800 on Friday, GBP/USD reversed its direction in the American session and closed in the red, snapping a three-day winning streak. In the European morning on Monday, the pair holds its ground and looks to test 1.2780 resistance.

The data published by the US Bureau of Labor Statistics (BLS) showed on Friday that Nonfarm Payrolls (NFP) in the US rose by 227,000 in November, beating the market expectation for an increase of 200,000. The Unemployment Rate edged higher to 4.2% from 4.1% in the same period, while the annual wage inflation, as measured by the change in the Average Hourly Earnings, remained unchanged at 4%, coming in above analysts’ forecast of 3.9%. After suffering large losses against its major rivals on Thursday, the US Dollar (USD) benefited from the upbeat jobs report late Friday, causing GBP/USD to stretch lower.

The US economic calendar will not offer any high-tier data releases until the BLS publishes the Consumer Price Index (CPI) figures for November on Wednesday.

In the European morning on Monday, the UK’s FTSE 100 is up nearly 0.4% and US stock index futures trade marginally higher on the day. In case risk flows dominate the action in financial markets following a bullish opening in Wall Street, the USD could come under renewed selling pressure and help GBP/USD push higher.

GBP/USD Technical Analysis

GBP/USD holds above the ascending trend line and the Relative Strength Index (RSI) indicator on the 4-hour chart stays near 60, highlighting the bullish bias in the near term. On the upside, the 200-period Simple Moving Average (SMA) aligns as first resistance at 1.2780 ahead of 1.2810-1.2820 (Fibonacci 61.8% retracement of the latest downtrend, 200-day SMA) and 1.2870 (50-day SMA).

Looking south, immediate support could be spotted at 1.2750 (Fibonacci 50% retracement) before 1.2700 (Fibonacci 38.2% retracement) could be seen as next support before 1.2650 (100-period SMA).

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Fundamental Analysis & Market Sentiment

I wrote on 1^st December that the best trade opportunities for the week were likely to be:

• Long of Bitcoin in USD terms following a daily (New York) close above $100,000. This set up at the end of the week, so there is no result.
• Short of the EUR/USD currency pair following a strong bearish reversal below $1.0620. This set up at the end of the week, so there is no result.
• Long of the S&P 500 Index. This resulted in a profit of 0.83%.

The weekly gain of 0.83% equals 0.28% per asset.

Last week’s key takeaways were:

1. US Average Hourly Earnings –higher than expected, showing a month-on-month increase of 0.4% compared to the forecasted 0.3%, showing the US economy is still going strong, giving a fundamental boost to the US Dollar.
2. US Non-Farm Employment Change – a little higher than expected (see above).
3. US Unemployment Rate – a fraction higher than expected at 4.2%.
4. US JOLTS Job Openings – considerably higher than expected, at 7.74 million compared to the forecasted 7.51 million, reinforcing the point made in 1.
5. US ISM Services PMI –worse than expected.
6. US ISM Manufacturing PMI –better than expected.
7. Swiss CPI (inflation) – a month-on-month deflation by 0.1%, as expected.
8. Australian GDP – this was very disappointing, with a quarterly increase of only 0.3% when 0.5% was widely expected, giving a tailwind to the Aussie’s decline over the week.
9. US Unemployment Claims – very slightly higher than expected.
10. Canadian Unemployment Rate – this rose much more strongly than expected, from 6.5% to 6.8%, when only 6.6% was expected, suggesting the Canadian economy is experiencing a chilly wind.

What has been the most interesting to the market over the past week was the strong US data, continuing the theme of American economic growth and other economic metrics making the USA the envy of the world right now. We saw also the Australian Dollar get hit and this is due to a faltering Australian economy that makes further rate cuts likelier over the near term. Markets are more interested right now in global growth and the likely appointments of the upcoming Trump administration, which will take power in January. We saw US and European stock markets gaining again last week as risk sentiment in parts of the world improved, with the broad US S&P 500 Index, the NASDAQ 100 Index, and the German DAX all reaching record highs.

The Week Ahead: 9^th – 13^th December

The coming week’s schedule is packed with key US economic data, and four central bank policy meetings, with three of them expected to produce rate cuts. This means it will likely be an important week, and we will probably see a strong increase in price movements in the Forex and stock markets.

1. US CPI (inflation) – the annualized rate is expected to rise from 2.6% to 2.7%. Any surprises could cause volatility in the US Dollar and US stock markets.
2. US PPI
3. European Central Bank Main Refinancing Rate & Monetary Policy Statement – a rate cut of 0.25% is expected.
4. Reserve Bank of Australia Cash Rate & Rate Statement – the Bank is expected to hold the Cash Rate steady at 4.35%, but there is an increased chance of a surprise rate cut.
5. Bank of Canada Overnight Rate & Rate Statement – a rate cut of 0.50% is expected.
6. Swiss National Bank Policy Rate & Monetary Policy Assessment – a rate cut of 0.25% is expected.
7. UK GDP
8. US Unemployment Claims
9. Australian Unemployment Rate

Monthly Forecast December 2024

For the month of December, I forecasted that the EUR/USD currency pair would fall in value. The performance of my forecast so far is:

Weekly Forecast 8^th December 2024

Last week, I forecasted that the AUD/JPY and CAD/JPY currency pairs would rise in value, as they fell by such unusually large amounts the previous week. Unfortunately, both currency crosses fell over the week, the AUD/JPY by 1.74% and the CAD/JPY by 0.94%.

The US Dollar was the strongest major currency, while the Australian Dollar was the weakest. Volatility fell last week, with less than half of the most important Forex currency pairs and crosses changing in value by over 1%.

You can trade these forecasts in a real or demo Forex brokerage account.

Key Support/Resistance Levels for Popular Pairs

Technical Analysis

US Dollar Index

Last week, the US Dollar Index printed a bearish doji candlestick that continued the reversal of the recent breakout to back underneath the resistance level at 105.81, as well as the upper trend line of the formerly dominant consolidating triangle chart pattern, which can be seen in the price chart below. These are bearish signs, but it should be noted that the price is above its levels from three and six months ago, suggesting a long-term bullish trend in the greenback that should be exploitable.

I have plenty of fundamental reasons to be bullish on the US Dollar. However, the upside over the coming week might be limited, so long-term trades long of the USD might be more successful than short-term trades.

We will be getting highly important US CPI (inflation) and PPI (purchasing power index) data on the US economy this week, so technical factors might not be very important, with price action over the second half of this week likely to be more data-driven.

Bitcoin

Bitcoin finally broke above the psychologically important $100,000 level last week, reaching a new record high above that, and even made a daily close above this level. However, there are signs that the momentum has stalled or slowed, and the price does not really seem to be respecting $100,000 anymore, as the price is chopping above and beyond it.

The strong long-term bullish trend is something worth paying attention to, and it has been given a tailwind by the Republican victory in the recent US elections. The price chart below shows a spectacular long-term bullish trend which has been ongoing for the past two years.

As we got a daily close above $100,000 on Friday, I am comfortable being long. I am not confident we are going to immediately see a further strong rise, but there is no reason to be bearish. The weekly price action still looks bullish.

EUR/USD

Last week, the EUR/USD currency pair printed a doji candlestick, with the candlestick having a higher high and higher low than the previous week’s candlestick. These are potentially bullish signs. However, the price is still below its levels from both 3 and 6 months ago, which is my preferred metric for calling a long-term bearish trend. The US Dollar Index is also in a long-term bearish trend. A final bearish filter is that the 50-day moving average is below the 100-day moving average, which validates the trend.

Although there are reasons to be short here, I am a bit concerned about the strength of the bullish inflection from the recent multi-year low. On the other hand, this currency pair tends to make deep retracements within even its strongest trends.

Friday saw the price strongly reject the resistance level at $1.0610 although it is also possible this was simply a reaction to the strong average hourly earnings and non-farm payrolls data which was released in the USA that day.

I am not very optimistic about this trade but based on historical precedents in technical analysis and trend, it makes sense to be short of this currency pair.

A rate cut by the ECB is expected this week, so if there is any surprise there, we might see a move in the Euro which could push the price around here. The same holds for US CPI (inflation) data which is also coming this week.

NASDAQ 100 Index

Last week saw the NASDAQ 100 Index print a powerful bullish candlestick reach and close at a new record high for the first time in three weeks, and the price closed very near the top of its range, which is a bullish sign. There is nothing more bullish than the fact that the price is trading bullishly in blue sky.

The price is nicely contained within a linear regression analysis channel, which can be seen in the price below, giving added reliability to the continuation of this trend.

US stock markets are leading global equities, which is nothing unusual, boosted by President Trump’s reputation as doing anything to generate economic growth and stock market growth, as well as his announcement of his intention to put strong tariffs on imports from Mexico and China.

Maybe more importantly, the US stock market has been in a strong bullish trend for over one year now, so there is plenty of momentum supporting last week’s bullish move.

I see the NASDAQ 100 Index as a buy.

S&P 500 Index

Last week saw the S&P 500 Index rise again to reach a new record high, and it closed the week quite near the high, which is a bullish sign. There is no sign more bullish than the fact that the price is trading bullishly in blue sky.

Everything I wrote above about the NASDAQ 100 applies to the S&P 500 Index too, the only difference is that while the NASDAQ 100 was dipping previously, the S&P 500 was still rising. Both indices have performed almost exactly the same over 2024 in terms of percentage gain.

I see the S&P 500 Index as a buy.

DAX Index

Last week saw the DAX Index rise unusually strongly to reach a new record high, and it closed the week right on its high, which is a bullish sign. There is no sign more bullish than the fact that the price is trading bullishly in blue sky.

Recent weeks have been dominated by the USA having a successful economy and soaring stock market compared to the rest of the world, with the German DAX one of the very few other major equity indices that is also breaking to new all-time highs. This is seen as a bit of a mystery as the German economy is not doing especially well, with most analysts seeing it as due to the strength of the German industries which the index represents (technology, financials, industrials) rather than Germany as a whole.

It is worth noting that the DAX performed almost as well as the major US equity indices over 2024. The DAX is up by 19% while the major US indices are up by 26%.

After a bullish candlestick with such strength, I see the DAX Index as a buy.

Bottom Line

I see the best trading opportunities this week as

• Long Bitcoin in USD terms.
• Short of the EUR/USD currency pair.
• Long of the NASDAQ 100 Index.
• Long of the S&P 500 Index.
• Long of the DAX Index.

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EUR/USD rises despite French government collapse

• PM Barnier loses a vote of no-confidence, as expected
• Eurozone retail sales fall -0.5% MoM
• EUR/USD trades caught between 1.0450 and 1.06

EUR/USD is rising despite the collapse of the French government. French lawmakers passed a no-confidence vote against PM Michel Barnier on Wednesday evening, throwing the country into more political uncertainty and a deeper crisis.

However, both the euro and the French CAC managed to move higher because the collapse of the French government was already priced in. Furthermore, contagion outside of French markets is fairly limited. The risk premium on holding French debt over German debt has risen to its highest level since 2012.

On the data front, eurozone retail sales were weaker than expected, falling -0.5% MoM in October after falling -0.3% in September. The data comes after weak PMI data yesterday showed the eurozone composite PMI fell to a 10-month low.

The ECB is expected to cut interest rates by 25 basis points next week, and the markets are also pricing in around 157 basis points worth of easing by the end of next year, significantly more than the level of easing expected from the Federal Reserve.

The US dollar is trading slightly lower versus its major peers after Federal Reserve chair Jerome Powell’s speech yesterday, where he continued support for a slower pace of rate reductions ahead but did nothing to deter from expectations of a December cut.

Attention now turns to US initial jobless claims and comments from fed Barkin.

EUR/USD forecast- technical analysis

After recovering from a low of 1.0330 EUR/USD is consolidating between 1.06 and 1.0450. To extend the bearish trend that has been in place since the end of September, sellers will look to break below 1.0450 to test 1.04 and 1.0330.

Meanwhile, a rise above 1.06 creates a higher high and support the pair towards 1.07

USD/JPY falls with BoJ rate hike bets in focus & ahead of jobless claims data

• BoJ chatter & safe haven flows support the yen
• US eases after post-Powell gains; jobless claims are up next
• USD/JPY falls towards 150.00

USD/JPY resumed its downtrend after rising in the previous session. It is strengthening as traders assess whether the BoJ will hike interest rates again later this month. Known dove policy maker Nakamura said he wasn’t opposed to rate hikes, which has helped to strengthen the currency.

BoJ will announce its rate decision on December 19th, and expectations of a hike have been growing following recent comments from Ueda. However, media reports have raised questions over whether the hike will actually happen.

The yen is also benefiting from concerns surrounding South Korea, where the won continues to trade around a 2 year low following a short-lived martial law decree.

The U.S. dollar gained yesterday, but it’s inching lower against its major peers today after Federal Reserve Jerome Powell highlighted the strength of the U.S. economy and signaled support for slower rate reductions. However, a December rate cut is still expected, with the market pricing in a 74% chance of a 25 basis point reduction.

Attention is now on US jobless claims, which come ahead of Friday’s non-farm payroll report. Expectations are for 215k jobs added, up from 213k. Non-farm payrolls are expected to show 200,000 jobs were added in November up from just 12,000 in October.

USD/JPY forecast – technical analysis

After falling from a peak of 156.75, USD/JPY fell below the 200 SMA before finding support at the 100 SMA at 148.65. The recovery failed to rise above 150.8, the 0.5% Fib retracement of the 162 high and 139 low.

Sellers supported by the RSI below 50 will look to extend the bearish trend below 148.65 towards 148.15 the 38.2% level and towards 145.00.

Should buyers retake 150.80 a move towards 153.85 and 157.10 could be on the cards.

All week, traders were waiting for the release of the November jobs report to see whether it will confirm market pricing of a 25 basis point rate cut in December. In short, it may well have. Although wages remained strong and the headline nonfarm payrolls data beat expectations, it was the reports other metrics that caused the dollar to wobble. Traders saw rising unemployment rate, falling participation rate and the weak household survey – with the latter showing a big drop – as reasons to sell the USD/JPY. But with the EUR/USD dropping as well, it wasn’t just a clean dollar reaction you would have expected. The USD/JPY forecast is subject to change greatly in the coming weeks with US CPI due next week followed by FOMC and BoJ decisions the following week.

NFP fails to impress

The non-farm payrolls data was stronger and there were positive revisions to prior two months data, increasing employment by 56K. However, the household survey revealed a big 355K drop, and participation rate fell to a 6-month low of 62.5%. The unemployment rate also ticked higher to 4.2%.

Average earnings came in stronger, rising 0.4% on a month-over-month basis compared to 0.3% expected, keeping the year-over-year rate to 4.0%.  This was overshowed however by the mostly negative news from the jobs front.

US CPI among next week’s data highlights

US inflation data (CPI and PPI) will be released next week, the last set of key data before the Fed meets the following week. CPI will be published on Wednesday, December 11 at 13:30 GMT. Following Trump’s victory in the presidential election race, investors have sharply reduced their expectations about further US interest rate cuts in 2025. The upcoming December rate decision is unlikely to be impacted by this CPI report, unless we see a super-hot print. But whether the Fed will go ahead with a cut at its initial 2025 meetings will be influenced, among other key data highlights, by this CPI report, although it is employment that the Fed is now more focused on.

But after today’s NFP report, a 25-bps rate cut is now more likely than not. Indeed, market pricing of a December rate cut rose to around 87% from 70%, and USD/JPY dipped back to 150.00 handle – will it break lower now?

Yen strengthens again ahead of BoJ decision 

The EUR/JPY fell along with the USD/JPY, suggesting a broad-based yen rally following the US nonfarm payrolls report. In recent weeks, the yen has strengthened against most major currencies, particularly commodity dollars, the euro, and to a lesser extent, the US dollar. This surge has been driven by investor speculation that the Bank of Japan might raise interest rates at its final meeting of 2024, scheduled for later this month. 

However, a couple of days ago comments from BoJ board member Toyoaki Nakamura tempered this momentum. Nakamura struck a dovish tone, urging a cautious approach to policy tightening and raising concerns about the sustainability of wage growth. 

Technical USD/JPY forecast: Key levels to watch

Source: TradingView.com

The USD/JPY has again dropped to test the key 149.40-150.00 support zone where it was residing at the time of writing. A close below this zone could potentially pave the way for this week’s earlier of 148.65 and then 146.50 – the next potential support level. A daily close above or within this zone 149.40-150.00 support zone will keep the bulls interested and we may then see a potential recovery towards the 151.20-152.00 resistance range. All told, the odds of a breakdown look the more likely scenario, owing to the drop in bond yields and expectations about a potential BoJ rate hike in two weeks’ time.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

• The Pound Sterling hit three-week highs against the US Dollar above 1.2750.
• GBP/USD awaits US inflation data amid a relatively data-light week ahead.
• Bearish bias intact while the Pound Sterling holds below the key 200-day SMA.

The Pound Sterling (GBP) held on to the corrective upside against the US Dollar (USD), fuelling a brief GBP/USD recovery above the 1.2750 barrier.

Pound Sterling stood resilient to persistent USD demand

Political turbulence in South Korea and France, US President-elect Donald Trump’s tariff threats, and the diverging monetary policy outlooks between the US Federal Reserve (Fed) and the Bank of England (BoE) emerged as the main drivers for the GBP/USD price action.

On Monday, the pair started the week negatively, tumbling over a big figure to hit weekly lows at 1.2617. Since then, Pound Sterling buyers fought back control and resumed the previous week’s recovery to reach the highest level in three weeks above 1.2750.

Trump threatened on Saturday that he would impose 100% tariffs on BRICS nations if they tried to replace the USD with their own. Mounting tariff war fears fuelled risk-aversion across the financial markets, reviving the demand for the Greenback as a safe-haven asset while weighing on risk currencies such as the British Pound.

However, sustained bets for a 25 basis points (bps) Fed interest rate cut in December remained a drag on the US Dollar despite Chairman Jerome Powell’s prudent remarks. Markets price in a 70% chance of such a move later this month, the CME Group’s FedWatch Tool shows, at the press time.

Powell said in his speech at the New York Times’ DealBook Summit, “growth is definitely stronger than we thought, and inflation is coming a little higher. The good news is that we can afford to be a little more cautious as we try to find neutral,” he added, referring to the neutral interest rate.

A series of US economic data releases, including the ISM surveys, JOLTS Job Openings and the ADP Employment Change, came in mixed and failed to alter the market’s expectations of a rate cut this month, limiting the Greenback’s upside attempts.

That said, the USD stayed underpinned by the market’s nervousness amid looming geopolitical and trade war risks and ahead of the all-important US Nonfarm Payrolls data release.

On the other side, the Pound Sterling regained traction, paying little heed to the dovish comments from BoE Governor Andrew Bailey on Wednesday. In a pre-recorded interview with the Financial Times (FT), Bailey said that “he expects four UK rate cuts next year as inflation eases.”

Heading into the weekend, GBP/USD consolidated at multi-week highs, anticipating the key US labor data for a fresh directional impetus.

Following the 36,000 increase recorded in October, the US Bureau of Labor Statistics announced on Friday that Nonfarm Payrolls (NFP) rose by 227,000 in November. This print came in above the market expectation of 200,000 but failed to boost the USD, helping GBP/USD cling to its weekly gains. Other details of the jobs report showed that the Unemployment Rate edged higher to 4.2%, while the annual wage inflation held steady at 4%. 

The week ahead: All eyes on US CPI inflation

It’s a mediocre week from the point of view of macroeconomic news, with the US Consumer Price Index (CPI) data likely to stand out. 

The first two trading days of the week have little to no top-tier economic publications from both sides of the Atlantic until the US inflation report drops on Wednesday.

However, China’s inflation data could stir markets amid mounting concerns about an economic slowdown, impacting risk sentiment and high-beta currencies such as the British Pound.

Thursday will feature the US Producer Price Index (PPI) data, while the UK monthly Gross Domestic Product (GDP) and industrial figures will feature on Friday.

It will be dry in terms of Fedspeak as the Fed enters its  ‘blackout period’ on Saturday ahead of the December 17-18 policy meeting.

That said, geopolitical developments and US-Sino trade updates will be closely followed.

GBP/USD: Technical Outlook

From a short-term technical outlook, sellers will likely retain control if GBP/USD holds below the 200-day Simple Moving Average (SMA) at 1.2821.

Adding credence to the negative outlook, the pair charted dual Bear Crosses a week ago.

However, the 14-day Relative Strength Index (RSI) has recovered to the 50 level from the negative territory, suggesting that the rebound could extend before the next leg down.  

The Pound Sterling needs a sustained break above the 200-day SMA at 1.2821 to sustain the recovery.

The next substantial contention area aligns near 1.2900, the confluence of the round figure and the 50-day SMA.

Further up, the 100-day SMA at 1.2967 could challenge the bearish commitments.

On the downside, the immediate support aligns at the 21-day SMA at 1.2685, below which the week low of 1.2617 will be tested.

Additional declines will threaten the six-month low of 1.2488.