Created on December 19, 2024

• Following the reaction to yesterday’s US Federal Reserve announcement and today’s Bank of Japan announcement, bulls have found strong opportunities to push the USD/JPY currency pair towards the resistance level of 156.68 at the time of writing this analysis.
• Near its highest in five months, pressures increased on the Japanese yen after the Bank of Japan kept interest rates steady as expected.

US Federal Reserve Cautiously Cuts Interest Rates

 The US Federal Reserve announced another 25-basis point cut in the US interest rate in December 2024, marking the third consecutive cut this year and reducing borrowing costs to a range of 4.25%-4.5%, in line with expectations. The so-called dot plot indicates that policymakers now expect only two interest rate cuts in 2025, totalling 50 basis points, compared to the full percentage point of cuts expected in the previous quarter.

The Federal Reserve also revised its GDP growth forecasts upward for 2024 (2.5% vs. 2% in September forecasts) and 2025 (2.1% vs. 2%), while remaining unchanged at 2% for 2026. Similarly, forecasts for personal consumption expenditure inflation were revised upward for 2024 (2.4% vs. 2.3%), 2025 (2.5% vs. 2.1%), and 2026 (2.1% vs. 2%). The same trend applies to core personal consumption expenditures, with forecasts raised for 2024 (2.8% vs. 2.6%), 2025 (2.5% vs. 2.2%), and 2026 (2.2% vs. 2%). On the other hand, the unemployment rate is expected to decline this year (4.2% vs. 4.4%) and in 2025 (4.3% vs. 4.4%) while the forecast for 2026 remained at 4.3%.

Bank of Japan Keeps Rates as Expected

In contrast to the US Federal Reserve’s decision and expectations of a hike, the Bank of Japan today kept interest rates at around 0.25%, and it was clear to the markets that the Bank of Japan was hesitant to raise interest rates in December due to the possibility of negative outcomes. As Prime Minister Shigeru Ishiba’s minority government is currently negotiating with an opposition party that has warned against raising interest rates too early to ensure support for the next annual budget.

The Governor of the Bank of Japan is looking for the right time to raise interest rates for the third time, as recent economic indicators have shown that Japanese inflation is moving in line with the Bank of Japan’s forecasts – a prerequisite for raising interest rates.

Trading Tips:

After the completion of the last central bank decisions for this year, the dollar and the Japanese yen are expected to move to stronger upward levels, and the peak of 160.00 is not ruled out soon.

USD/JPY Technical Analysis and Expectations Today:

As is clear from the performance on the daily chart above, the USD/JPY will remain bullish, and the chance of a stronger weekly bullish close is currently high. The recent gains are pushing the Relative Strength Index towards the overbought zone, but the MACD indicator still has room to move higher before reaching its peak. The strongest expectations now are for the dollar/yen to move towards the psychological resistance of 160.00, around which Japanese intervention in the forex markets is often discussed to stop the yen’s collapse.

Moreover, this time there is Trump who is fighting countries that intervene to weaken their currency. In general, the dollar/yen will remain on its upward trajectory until the reaction to the announcement of the US GDP growth reading and the number of weekly jobless claims. Finally, the recent performance confirms the strength of our signals to buy the dollar against the yen from every downward level.

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Created on December 19, 2024

• The euro initially rallied during the trading session on Wednesday but has turned around to show signs of negativity.
• But ultimately this is a market that I think is just killing time ahead of the FOMC meeting that occurs about three hours after I record this video.
• And as things stand right now, it looks like we continue to hang around the crucial 1.05 level.

European Union is a Mess

I do believe that the problems in Europe are multiple, and I think they are much stronger than any desire to own the Euro. However, there is the possibility that we get some type of rally from here. And I think that rally probably offers a nice shorting opportunity with some type of exhaustion. The 50 day EMA would be an area that I’d be watching, which is near the 1.0650 level.

Then again, I’d be watching at the 1.06 level for signs of weakness in the euro that I can start shorting. As things stand right now, unless the Federal Reserve does something really crazy in the meeting, I suspect that any US dollar weakness that you see will be an opportunity to buy more. This is especially true against the euro that has now seen no confidence votes in France and Germany. Those are your two biggest players in the region, and there is no chance that it doesn’t influence the currency.

So that doesn’t do much for confidence. If the market were to break down below the 1.04 level, then I think you’d got a shot at the 1.03 level and then eventually parity given enough time. I have no interest in buying the EUR/USD anytime soon. And therefore, rallies look suspicious to me, and I will trade as such as the greenback is rallying for a reason at this point in time.

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• GBP/USD recovers toward 1.2650 following Wednesday’s sharp decline.
• The hawkish twist in the Fed’s dot plot boosted the US Dollar in the American session.
• Bank of England is forecast to leave the bank rate unchanged at 4.75%.

After suffering heavy losses in the American session on Wednesday, GBP/USD stages a decisive rebound early Thursday as investors reposition themselves ahead of the Bank of England’s (BoE) monetary policy announcements.

The Federal Reserve (Fed) lowered the policy rate by 25 basis points after the December meeting, as expected. The revised Summary of Economic Projections (SEP), also known as the dot plot, showed that Fed officials’ median view of the policy rate at end-2025 stood at 3.9%, up from 3.4% in September’s SEP. According to the projections, one of 19 officials see no cuts in 2025, three see one cut, 10 see two cuts, three see three cuts, one sees four cuts and one sees five cuts.

Fed Chairman Jerome Powell explained in the post-meeting press conference that stronger economic growth and lower unemployment would put them on a slower rate-cut path, adding that they can be cautious going forward. US Treasury bond yields surged higher in the Fed aftermath and boosted the US Dollar (USD), forcing GBP/USD to decline sharply.

The improving risk mood limits the USD’s gains and helps GBP/USD rebound in the European session on Thursday.

The BoE is widely expected to leave the policy rate unchanged at 4.75%. Since there will not be a press conference, the vote split could influence Pound Sterling’s valuation. If the decision to maintain status quo turns out to be a close call, with several policymakers voting in favor of a 25 bps rate cut, GBP/USD could turn south once again.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart rises toward 50, reflecting sellers’ hesitancy. On the upside, 1.2700-1.2710 (100-period Simple Moving Average (SMA), Fibonacci 38.2% retracement of the latest downtrend, 200-period SMA) aligns as immediate resistance ahead of 1.2750 (Fibonacci 50% retracement) and 1.2800 (static level).

Looking south, first support could be spotted at 1.2620 (Fibonacci 23.6% retracement) before 1.2570 (static level) and 1.2500 (round level, static level).

• GBP/JPY rises over 0.20%, showing resilience ahead of key UK economic releases.
• Technical indicators suggest bullish momentum, with the pair navigating inside the Ichimoku Cloud.
• Key resistance at 200-day SMA of 194.74; support levels to watch include 193.95 and 100-day SMA at 192.53.

The Pound Sterling registered decent gains of over 0.20% against the Japanese Yen in early trading during Wednesday’s North American session despite the lack of a catalyst boosting the former. The GBP/JPY trades at 194.46 after bouncing off daily lows of 192.49.

Price action remains slightly muted. Traders are awaiting the release of Gross Domestic Product (GDP) figures in the UK on Friday, which are expected to show an improvement in October’s figures.

GBP/JPY Price Forecast: Technical outlook

The GBP/JPY recovered after falling over 4.58% in mid-November, hitting its lowest level since September at 188.06. However, buyers lifted the exchange rate well inside the Ichimoku Cloud (Kumo), clearing key technical resistance levels like the Tenkan-Sen and the Kijun-Sen.

Momentum picked up, showing that bulls are in charge, as depicted by the Relative Strength Index (RSI), which turned bullish, with the slope aiming higher.

If GBP/JPY clears the 200-day Simple Moving Average (SMA) at 194.74, further upside is seen. The 50-day SMA is next at 195.06. A breach of the latter exposes the top of the Kumo at 196.20-40.

Conversely, if GBP/JPY tumbles below the confluence of the Kijun-Sen and the Senkou Span B at around 193.95, the next support would be the 100-day SMA at 192.53 before testing the bottom of the Kumo at 191.75-95.

GBP/JPY Price Chart – Daily

• The Federal Reserve delivered as expected, foresees two rate cuts in 2025.
• The Bank of England will announce its decision on monetary policy early on Thursday.
• GBP/USD approaches the 1.2600 mark after gaining near-term bearish traction.

The British Pound found near-term support earlier in the day, leading to GBP/USD reaching an intraday high of 1.2725. The trigger was the United Kingdom (UK) Consumer Price Index (CPI), which rose 2.6% on a yearly basis in November after printing at 2.3% growth in October, according to the data released by the Office for National Statistics (ONS) on Wednesday.

Core CPI (excluding volatile food and energy items) rose by 3.5% YoY in November, compared to a 3.3% increase in October while below the market consensus of 3.6%. Services inflation stayed unchanged at 5.0% YoY in November.

The pair held above 1.2700 afterwards, then collapsed after the United States (US) Federal Reserve (Fed) announced that it lowered the policy rate, federal funds rate, by 25 basis points to the range of 4.25%-4.5%.

The Fed made minor changes to its policy statement from the November meeting. Still, the dot-plot shows policymakers foresee now just two rate cuts in 2025, resulting in a hawkish cut that boosted demand for the US Dollar in a risk-averse environment.

Created on December 18, 2024

• As previously anticipated, the EUR/USD pair has maintained a downward trend, stabilizing around and below the 1.05 support level, confirming the strong dominance of bears in the market.
• At the beginning of today’s crucial Wednesday trading session, the Euro-Dollar pair is stabilizing around the 1.0485 support level.
• Today, the primary focus will be on the release of Eurozone inflation figures and the US Federal Reserve’s policy announcement.

Uncertainty Surrounding France and Germany Weighs on the Euro

According to licensed trading platforms, the Euro continues to be negatively impacted against other major currencies due to the political and economic uncertainty of the Eurozone’s largest economies – Germany and France – at a time when the bloc’s economy is generally weak. The European Central Bank has been forced to ease its monetary policy. The latest setback for the Euro came from Germany, where German Chancellor Olaf Scholz lost a confidence vote, leading to elections likely to be held on February 23. In France, new French Prime Minister François Bayrou must quickly form a government and assemble a 2025 budget.

European Stocks Under Selling Pressure

During yesterday’s trading, according to stock trading platforms, European stock markets stumbled amid weak investor sentiment and anticipation of the release of Eurozone inflation figures and the US Federal Reserve’s policy decision. According to the trading, the Eurozone STOXX 50 index fell by 0.1% to 4943 and the STOXX 600 index for all European stocks fell by 0.4% to 514.

The most notable performance was the decline of financial company stocks, with shares of Santander, Intesa Sanpaolo, and BBVA losing between 4% and 1.5%. Meanwhile, low oil prices caused shares of TotalEnergies and Eni to decline by 1.2% and 2.4%, respectively. On the other hand, ASML shares closed with a sharp rise of 2%. Overall, European stock indices recorded lower performance in 2024 compared to US stock indices, which benefited from their high focus on technology stocks. The STOXX 600 index rose by only 7.2% in 2024 compared to gains of the S&P 500 index, which reached 27%.

Trading Tips:

The euro is under pressure and could continue for some time, so any bounce higher could be a chance to sell the euro again this week, which will be fateful for the euro’s closings in 2024.

The German economy is far from exiting the recession.

It is not surprising to see another gloomy economic reading from Germany, but better days are ahead, according to one economist. A leading sentiment survey in Germany shows that the Eurozone’s largest economy is no closer to exiting the recession, although 2025 brings hope as the new government has no choice but to invest. According to economic calendar data, the German Ifo business climate index fell to 84.7 points in December, down from 85.6 points in November. This was the lowest level since May 2020 and the decline was due to more pessimistic expectations, although German companies assessed the current situation as better.

Overall, the report confirms the chronic weakness of the German economy:

Manufacturing: The index declined significantly, with German companies expressing less satisfaction with their current business and significantly more pessimistic expectations. Also, Order books deteriorated, and production cuts were announced.

Services sector: The business climate index deteriorated due to more sceptical expectations, but the current situation was assessed as somewhat better. The restaurant sector reported positive Christmas business, while the transport and logistics sector are concerned about the coming months.

Understanding the IFO Survey: The German IFO business climate index is based on nearly 9,000 monthly responses from companies in manufacturing, services, trade and construction. Through it, companies provide assessments of their current business situation and their expectations for the next six months. Finally, the index is calculated using the balance of responses and normalized to the average of 2015.

EUR/USD Analysis Today:

We still emphasize the strength of the downward trend in the Euro against the US Dollar EUR/USD and that approaching around and below the support level of 1.05 continues to stimulate more bear control over the trend. Therefore, If the US economic releases and the Federal Reserve Bank announcement are in favour of the strength of the dollar. More selling pressures may collide with the support levels of 1.0420 and 1.0300 respectively. From there, technical indicators may start giving strong oversold signals, led by the Relative Strength Index (RSI) and the momentum indicator.

Conversely, if the data supports the Euro, the downward trend of the Euro-Dollar will not be broken without returning to the resistance levels of 1.0665 and 1.0800, respectively. Overall, we still adhere to the strategy of selling the Euro-Dollar but without taking risks and activating take-profit and stop-loss orders to ensure the safety of the trading account from any sudden price reversals.

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• GBP/USD trades below 1.2700 in the European morning on Wednesday.
• Annual CPI inflation in the UK rose to 2.6% in November as expected. 
• The Fed will announce the interest rate decision and publish the revised dot plot.

After closing the second consecutive day in positive territory on Tuesday, GBP/USD edges lower early Wednesday and trades below 1.2700. Investors eagerly await the Federal Reserve’s (Fed) monetary policy announcements.

The UK’s Office for National Statistics reported in the European morning that annual inflation in the UK, as measured by the change in the Consumer Price Index (CPI), rose to 2.6% in November from 2.3% in October, as anticipated. The core CPI rose 3.5% on a yearly basis, up from the 3.3% increase recorded in October but below analysts’ estimate of 3.6%. These figures failed to trigger a noticeable market reaction.

The Fed is set to cut the policy rate by 25 basis points (bps) to the range of 4.25%-4.5% following the last meeting of the year. As such a decision is already fully priced in, it is unlikely to influence the US Dollar’s (USD) valuation in a significant way. Instead, investors will pay close attention to the revised Summary of Economic Projections (SEP), the so-called dot plot.

In case the dot plot suggests that policymakers project at least a rate reduction of 100 bps in 2025, the USD is likely to struggle to find demand. On the flip side, GBP/USD could turn south if the SEP shows that policymakers foresee less than 100 bps of rate cuts next year.

Starting at 19:30 GMT, Fed Chairman Jerome Powell will deliver the policy statement and respond to questions in a press conference. If Powell notes there is growing uncertainty surrounding the inflation outlook on potential tariffs, investors could see this as a sign that the Fed will adopt a more gradual approach to policy easing, boosting the USD.

GBP/USD Technical Analysis

GBP/USD faces immediate resistance at 1.2700 (100-period Simple Moving Average (SMA), Fibonacci 38.2% retracement of the latest downtrend) ahead of 1.2730 (200-period SMA) and 1.2750 (Fibonacci 50% retracement).

Looking south, first support could be spotted at 1.2670 (20-period SMA) before 1.2620 (Fibonacci 23.6% retracement).

• The USD/JPY pair rebounded as markets awaited a hawkish FOMC policy meeting.

• The US retail sales report showed an unexpected jump of 0.7% in November.

• Japanese exports increased faster than expected in November.

The USD/JPY forecast shows a rebound hours before the FOMC policy meeting. The dollar recovered after upbeat sales data pointed to continued resilience in the US economy, while the yen eased ahead of the Bank of Japan policy meeting. 

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After dipping in the previous session, the USD/JPY pair rebounded as markets awaited a hawkish FOMC policy meeting. Traders expect the central bank to lower borrowing costs by 25-bps. However, policymakers might take a hawkish stance on the future due to economic resilience and looming Trump policy changes. 

The US economy has remained strong, with most economic reports beating expectations. On Tuesday, the US released its retail sales report, which showed an unexpected jump of 0.7% in November. Meanwhile, economists had predicted a 0.6% increase. This resilience has led to more cautious remarks by policymakers that have supported the dollar in recent weeks. 

At the same time, the Trump administration will take office in January. Markets expect policy changes that will likely support the economy and boost inflation. Therefore, the Fed might have to assume a gradual pace for rate cuts. 

In Japan, data on Wednesday revealed that exports increased faster than expected in November. Nevertheless, it was not enough to change the policy outlook. Markets expect the Bank of Japan to maintain rates this week, which might weaken the yen. However, a hawkish outlook from policymakers could boost the currency.

USD/JPY key events today

• Federal Funds Rate
• FOMC Economic Projections
• FOMC Statement
• FOMC Press Conference

USD/JPY technical forecast: Bears retest the 30-SMA support

On the technical side, the USD/JPY price is bouncing higher after retesting the 30-SMA as support. The bullish bias is strong since the price has traded above the SMA since the trend reversed. At the same time, the RSI has stayed above 50 in bullish territory. 

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Bulls paused near the 154.00 key resistance level, and bears triggered a pullback to retest the 30-SMA support. If bulls remain in charge, the price will soon breach the 154.00 resistance to target the next hurdle at 156.00. Meanwhile, if the 154.00 holds firm, bears might breach the SMA to retest the 152.00 support level.

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• EUR/USD trades in a tight range at around 1.0500 on Wednesday.
• The Fed is set to lower the policy rate by 25 basis points.
• The revised Summary of Economic Projections (SEP) could trigger a big market reaction.

EUR/USD registered small losses on Tuesday but managed to stabilize near 1.0500 in the European morning on Wednesday. The Federal Reserve’s (Fed) interest rate decision and revised Summary of Economic Projections (SEP) could cause the pair to break out of its trading range.

The risk-averse market environment helped the US Dollar (USD) hold its ground on Tuesday and made it difficult for EUR/USD to gain traction.

Later in the day, the Fed is widely expected to lower the policy rate by 25 basis points (bps) to the range of 4.25%-4.5%. Since such a decision is already priced in, it is unlikely to trigger a noticeable market reaction. Instead, market participants will scrutinize the details of the revised Summary of Economic Projections (SEP), the so-called dot plot.

In case the dot plot points to a rate reduction of 100 bps or more in 2025, the USD is likely to come under pressure in the near term. On the other hand, the USD could gather strength and force EUR/USD to stay on the back foot if the revised SEP highlights less than 100 bps of rate cuts next year.

Fed Chairman Jerome Powell’s comments on the policy outlook will also be watched closely in the post-meeting press conference starting at 19:30 GMT. If Powell adopts a cautious tone regarding further policy easing, citing the uncertainty surrounding the inflation outlook on President-elect Donald Trump’s proposed tariff policies, the USD is likely to stay resilient against its rivals heading into the holidays.

EUR/USD Technical Analysis

EUR/USD faces stiff resistance at 1.0520, where the 100-period Simple Moving Average (SMA) on the 4-hour chart, the 50-period SMA and the Fibonacci 23.6% retracement of the latest downtrend meet. Once the pair rises above this level and starts using it as support, it could target 1.0575 (200-period SMA) and 1.0600 (Fibonacci 38.2% retracement).

Looking south, first support could be spotted at 1.0440 (static level), 1.0400 (end-point of the latest downtrend) and 1.0330 (November 22 low).

Created on December 18, 2024

• The US dollar initially rallied a bit during the early part of Tuesday but has given back those gains to show signs of weakness.
• Weakness is probably a strong word here. I really would suggest that it’s probably more or less a little bit of profit taking heading into the FOMC meeting.

After all, we have bounced about four handles along the way, but now traders will be focusing on whatever it is that Jerome Powell has to say when it comes time to the press conference, the decision itself, coming out of the United States should be a 25 basis point cut, but where we’re going from there is the big question.

January and Beyond

Fed Fund futures markets now have an 80% chance of the Federal Reserve sitting still in January, meaning that this will still continue to be a significant carry trade pair. However, we also have the Bank of Japan early on Thursday, and they’ll have something to say about this as well. I think because of this, it’s probably best to leave this pair alone in the short term, but I do like the idea of buying the dip. I’ll be watching closer to the 50-day EMA near the 152 yen level.

Ultimately this is a market that has been somewhat lively as of late and I think we are either going to try to find some type of range, maybe between 150 yen on the bottom and 155 yen on the top, or perhaps this is a pullback before a move higher. I suspect it’s probably the latter of the two as the US dollar, although a little overbought against quite a few currencies out there, is probably in the middle of swallowing just about everything. Next day or two though could be a bit difficult.

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