Created on December 23, 2024

• The past trading week witnessed a strong dominance of bears on the EUR/USD pair, with the most traded currency pair in the forex market plummeting to the support level of 1.0343, near its two-year low.
• The trading closed around the 1.0428 level, with a strong dominance of bears on the trend and anticipation of a move towards the expected parity price for the euro-dollar.
• The markets will be monitoring the future of the US government shutdown this week. However, holidays this week will dampen investor risk appetite.

Stock Market Turmoil with Weakening Sentiment

According to recent stock market trading and stock trading company platforms, European stocks have recently suffered a severe setback. Also, the sharp decline in shares of Novo Nordisk A/S by $93 billion weakened investor sentiment. In addition to Novo, shares of Nestle SA and LVMH Moët Hennessy Louis Vuitton SE were also affected. Furthermore, losses in the shares of these European companies pushed the Stoxx Europe 600 index towards its worst performance compared to the S&P 500 index in nearly a quarter of a century.

European interest rate cut for 2025

In this regard, a member of the European Central Bank’s policy confirmed that it will continue to reduce borrowing costs in 2025. Croatian central bank chief Boris Vujcic added that “the trend is clear, it is a continuation of the trend from 2024, which is to reduce interest rates further.” For its part, the European Central Bank last week cut its deposit rate by a quarter of a percentage point to 3%, the fourth such move since last June. Officials indicated that more steps would follow, although they differed on how many steps would be necessary. the official added, “I don’t even know at what point” the ECB will cut interest rates”. Also, “That will be determined by the data, especially the inflation rate, whether it slows down, according to our expectations, and we will see the impact of the transmission of monetary policy, our expectations.”

However, HSBC expects the ECB to be more aggressive; “We believe there is an increasing risk that the ECB will cut rates below the perceived neutral rate to stimulate the economy, and possibly even to 1.00%. Among the uncertainties weighing on the outlook is the threat of US tariffs after Trump takes office. In this regard, the official said: “If a trade war erupts, it will be bad for growth in Europe and the rest of the world,” adding that trade wars usually lead to higher prices. “We hope we don’t see a trade war, and it won’t be good for anyone.”

Trading Tips:

Keep in mind that the Euro Dollar’s path will remain bearish and stability below the 1.05 support confirms the strength of bear control. The current trading week includes Christmas holidays, which affects liquidity and investors’ desire to trade.

EUR/USD Analysis Today:

According to the performance on the daily chart above, the general trend of the Euro against the US Dollar EUR/USD is still bearish and Forex investors will not care about the technical indicators reaching strong oversold levels as much as they care about monitoring the negative impact factors on the Euro’s performance, led by the economic and political turmoil of the bloc’s largest economies and the future of the European Central Bank’s policies and the future of trade wars on the region’s economy, which is already suffering. The Euro Dollar’s gains will remain vulnerable to a rapid collapse, so caution is required. The relative strength indicators and the MACD indicator are still in oversold areas. The future of the Euro Dollar parity price is close and the closest support levels are currently 1.0380, 1.0300 and 1.0225, respectively.

On the other hand, and in the same time frame, there will be no first break of the Euro-Dollar downtrend without the bulls moving towards the resistance levels of 1.0665 and 1.0800 respectively. I still prefer to sell the Euro-Dollar.

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Created on December 23, 2024

• Last week’s selling of the pound sterling was the strongest.
• The GBP/USD pair’s losses were the most prominent, as it plummeted to the support level of 1.2475, the lowest for the currency pair in 7 months before closing the trading stable around 1.2562.
• According to licensed trading companies’ platforms, the Bank of England’s vote to keep interest rates at 4.75%, which was narrower than expected, led to a wave of selling of the pound sterling.

Pressure factors on the British pound dollar

According to recent forex market trading, several pressure factors have formed on the sterling, as the hawkish statement by the US Federal Reserve helped reduce market expectations of the Bank of England cutting interest rates in February 2025 to less than 50%, but this was reflected after the Bank of England’s statement. For its part, the Monetary Policy Committee of the Bank of England kept interest rates at 4.75%, which is in line with analysts’ expectations.

However, there was a surprise in the vote, with the vote split 6-3 compared to the 8-1 expected. Dhingra, Ramsden and Taylor voted for a further 25bps cut. The majority cited significant uncertainty over the outlook for inflation and supply-side issues, particularly following the National Insurance increases. In this context, they wanted more time to assess developments and continued to support a gradual easing of policy. At the same time, there was no change in official guidance, with comments that “a gradual approach to unwinding monetary policy remains appropriate”.

According to BoE Governor Bailey, “With the increasing uncertainty in the economy, we cannot commit to a date or amount of rate cuts in 2025”.

Overall, the minority considered that policy was too restrictive and that a cut was warranted, especially with domestic and international growth risks tilted to the downside. They also considered that current policy would push inflation well below the 2% target. The BoE also noted that growth had been slightly weaker than expected and that there were risks from potential US tariffs.

The future of Bank of England policy

The division in the voting in the last meeting of the Bank of England strengthened expectations of interest rate cuts in February, especially since one of the six members who voted in favour of fixed interest rates (possibly Bailey) seemed close to supporting the cut this time. Also, Traders moved to price in three interest rate cuts in 2025 from two previously, while bond yields fell. At the same time, the US Federal Reserve cut US interest rates by 25 basis points to 4.50%, which is in line with expectations.

However, there was a shift in interest rate expectations by committee members, with the median expectation being that there would be only two interest rate cuts for 2025 compared to four cuts in the previous update from September. Also, US Federal Reserve Chairman Powell indicated that a slower pace of interest rate cuts is justified given slightly stronger growth and some disappointing inflation data.

Overall, the stronger dollar is likely to continue to hinder the GBP/USD currency pair from making gains.

Trading Tips:

Any attempts to rebound the GBP/USD price break is an important support level. We have often noted that the pressures will intensify after it, which is the 1.25 level. Selling pressures will remain as long as the currency pair is stable below it.

Technical Analysis for the GBP/USD pair today:

As we previously predicted, the movement of the GBP/USD pair below the support level of 1.2500 will increase the dominance of the bears and confirm the strength of the downward trend. The Relative Strength Index has the opportunity to move down before reaching oversold levels. as well as the MACD, which confirms that the bears are ready for further downward movement, and the next important support levels may be 1.2475, 1.2330, and 1.2300, respectively. Conversely, and on the same time frame, the daily chart will not have a primary break of the downward trend without moving above the resistance of 1.2800 again.

Furthermore, it should be taken into account that this week includes Christmas holidays and liquidity often decreases during these holidays and investor interest in trading decreases, so movements may be calm and unstable.

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• EUR/USD holds slightly above 1.0400 after posting gains on Friday.
• The upbeat risk mood could help the pair hold its ground.
• Trading conditions could remain thin heading into the Christmas break.

Following the sharp decline seen after the Federal Reserve’s policy announcements midweek, EUR/USD staged a rebound and closed in positive territory on Friday. The pair struggles to preserve its recovery momentum early Monday but manages to hold slightly above 1.0400.

The improving risk sentiment and the softer-than-forecast inflation data from the US made it difficult for the US Dollar (USD) to find demand on Friday. Congress’ approval of a stopgap spending bill late Friday triggered a rally in Wall Street’s main indexes and dragged US Treasury bond yields lower. 

The core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s (Fed) preferred gauge of inflation, rose 0.1% on a monthly basis in November, the US Bureau of Economic Analysis reported on Friday. This reading followed the 0.3% increase recorded in October and came in below the market expectation of 0.2%.

In an interview with the Financial Times (FT) on Monday, European Central Bank (ECB) President Christine Lagarde repeated that they are getting very close to the stage when they can declare that they have sustainably brought inflation to the medium-term target of 2%.

The Conference Board’s Consumer Confidence Index for December will be featured in the US economic calendar on Monday. Meanwhile, US stock index futures were last seen rising between 0.3% and 0.7% on the day. In case risk flows continue to dominate the action in the second half of the day, the USD could have a hard time gathering strength and allow EUR/USD to hold its ground. Nevertheless, thin trading conditions ahead of the Christmas holiday could limit the pair’s volatility.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly below 50, highlighting a lack of bullish momentum.

On the upside, immediate resistance is located at 1.0440 (static level) before 1.0490-1.0500, (100-period Simple Moving Average (SMA), static level). Looking south, supports could be spotted at 1.0400 (static level, round level), 1.0350 (static level) and 1.0300 (static level, round level).

Created on December 23, 2024

• The British pound initially did fall a bit during the trading session against the US dollar on Friday, dipping below the 1.25 level.
• However, we have since seen the market turn around quite drastically, reaching all the way back to the 1.26 level.
• This is a potential double bottom that a lot of people will be paying attention to. This is also an area that has mattered for a while, so there is that as well.

If we can continue to rally, I think the British pound probably goes looking to the 1.2750 level in general. This is a market that I think you have to be somewhat cautious with your optimism, but you also have to realize that market participants will continue to see a lot of concerns with the bond markets, especially with the US yields spiking the way they had recently. This market continues to pay close attention to the bond markets.

The 50 Day EMA

If we were to take out the 50 day EMA, then the market goes looking to the 1.30 level. However, there is a lot of work to be done between now and then before that actually happens. And I do think that the interest rates in America will remain a little bit elevated as the 2025 year is likely to see less interest rate cuts than people had anticipated out of the Federal Reserve.

If we do drop from here and break down below the lows of the trading session on Friday, then it’s possible that the British pound drops down to the 1.23 level. I do favor shorting this pair on signs of exhaustion after short-term rallies. We’ve had the rally, but we haven’t had the exhaustion. So with that, you have to keep an open mind, at least until the market tells you that we are in fact going in one direction or the other.

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Created on December 23, 2024

• The USD/JPY pair experienced another week of upward momentum, with gains extending to the resistance level of 157.92, the highest for the currency pair in five months.
• The week’s trading closed around 156.42 amidst strong bull control over the trend.
• The increasing strength of the US dollar may push the trend towards the psychological resistance of 160.00 before the end of 2024.
• Furthermore, diverging policies of central banks worldwide and the extent of investor risk appetite are the main factors affecting the performance of the currency pair.

US Dollar Near Two-Year High

Despite a decline in the US dollar price after the announcement of the US Federal Reserve’s preferred US inflation reading, it is still near its two-year high amid declining expectations of US interest rate cuts by the Federal Reserve in 2025. According to forex market trading, the US dollar has risen to new highs following news that Republican lawmakers have dropped a previously agreed-upon spending bill, raising the spectre of a government shutdown over the weekend.

The US dollar’s gains also came in the wake of the Federal Reserve’s decision in the middle of last week, when interest rates were cut, but policymakers said they expect only two interest rate cuts in 2025.

Trading Tips:

The dollar price against the US dollar will remain on its upward path until Japan intervenes in the exchange markets to stop the yen’s collapse

US Stocks Continue to Gain

According to stock trading platforms, US stock indices rose on the last day of 2024. According to trading, the S&P 500 index rose by 1%, the Nasdaq index rose by 0.8%. Meanwhile, the Dow Jones index gained 497 points. The gains of the US stock indices came on the heels of the preferred US inflation reading for the US Federal Reserve. Obviously, after that the Personal Consumption Expenditures index in November showed an increase of 2.4% on an annual basis, which is slightly below expectations. This helped ease market concerns raised by the Federal Reserve’s expectations of cutting US interest rates in 2025.

Investor sentiment was also affected by the threat of a US government shutdown and the pressures facing global financial markets due to threats of tariffs. According to last week’s trading, all three major US stock indices fell by 2.3%, with the Dow Jones recording its worst week since 2023.

Stock investors’ sentiment was also affected by the threat of a US government shutdown and the pressure on global financial markets due to tariff threats. According to last week’s trading, all three major US stock indices fell by 2.3%, with the Dow Jones recording its worst week since 2023.

USD/JPY Technical Analysis and Expectations Today:

According to the performance on the daily chart, the general trend of the US dollar against the Japanese yen USD/JPY is still bullish, exceeding the resistance of 158.00, moving the relative strength index towards strong overbought levels. Moreover, the MACD indicator has the opportunity to achieve stronger gains before reaching the overbought peak. Furthermore, the strength factors of the currency pair are present and will remain until a technical downward correction occurs. We do not rule out a move towards the psychological peak of 160.00. In contrast, and in the same period of time, the bearish shift of the USD/JPY pair will begin by returning to the support level of 151.50 again. Ultimately, we still prefer to buy USD/JPY from every downward level without risk and activate profit limit and stop loss orders to ensure the safety of the trading account from any sudden price reversals.

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• 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.

• 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…