Created on December 15, 2024

Bearish View

• Sell the EUR/USD pair and set a take-profit at 1.0330.
• Add a stop-loss at 1.0620.
• Timeline: 1-5 days.

Bullish View

• Buy the EUR/USD pair and set a take-profit at 1.0650.
• Add a stop-loss at 1.0330.

The EUR/USD notched a second weekly decline in a row after the European Central Bank (ECB) slashed interest rates and the US published the November inflation data on Wednesday. The pair ended the week at 1.0502, 6.2% below the year-to-date high of 1.1215.

Federal Reserve Decision Ahead

The EUR/USD exchange rate was in the spotlight after the US reported strong inflation data that met analysts estimates. The headline Consumer Price Index (CPI) rose from 2.4% to 2.6%, while the core CPI remained at 3.3%.

Meanwhile, in Europe, the ECB decided to slash interest rates for the fourth time, bringing the cumulative cuts this year to 1%. The Christine Lagarde-led bank also hinted that it will continue cutting them next year.

The ECB is contending with a major deterioration of the economy as key countries like Germany and France struggle. France’s 10-year bond yields rose to 3.05%, the highest level since November 27, while the German 10-year bond yields jumped to 2.25%.

These yields have risen as economic risks in the countries rise amid persistent budget deficits.

The main catalyst for the EUR/USD this week will be the upcoming Federal Reserve interest rate decision on Wednesday. Economists expect the central bank to deliver the third rate cut of the year. If this happens, it will bring the band to between 4.25% and 4.50%.

The Fed is cutting rates primarily because of the labor market, which has shown signs of softening this year. For example, the unemployment rate has risen to 4.2%, while the labor participation rate has dropped.

EUR/USD Weekly Forecast

The weekly chart shows that the EUR/USD pair has been under pressure in the past few weeks. It has dropped and is sitting near the key support level at 1.0446, its lowest point in October last year.

The 50-week and 25-week moving averages have formed a bearish crossover pattern, pointing to more downside. Also, it has formed a bearish flag chart pattern, which is made up of a vertical line and a rectangle pattern.

Therefore, the pair will likely have a strong bearish breakdown, with the next reference level to watch being at 1.0333, its lowest point in November. A break below that level will point to more downside, potentially to 1.0300. A move above the psychological point at 1.0600 will invalidate the bearish view.

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December 15, 2024 – Written by Frank Davies

STORY LINK Pound to Euro Rate Forecast for Week Ahead: Make or Break for Sterling Rates

Goldman Sachs forecasts that the Pound to Euro exchange rate (GBP/EUR) will strengthen to 1.2660 at the end of 2025.

SocGen expects near-term GBP/EUR gains before a steady retreat to 1.1765 by the end of 2025.

GBP/EUR hit a 33-month high at 1.2150 during the week before a sharp retreat to 1.2025.

The ECB cut interest rates by 25 basis points, but this had been priced in and ECB rhetoric was not as dovish as expected.

SocGen notes tough resistance at 1.2200 and, technically, a break above this level could see gains to 1.2285 and 1.2500.

The sharp retreat from 1.2150 will provide some reassurance to Pound bears.

ING noted EUR/GBP support at 0.8200; “Below there, we will all be discussing this pair returning to levels last seen on the day of the Brexit vote in 2016. We think this trend is primarily being driven by the BoE versus ECB story. But warmer relations between the UK and the EU can’t hurt. Equally, the eurozone’s fiscal straitjacket should mean the UK economy does outperform in 2025.”

Nevertheless, ING does not expect sustained GBP/EUR gains through 1.2200.

SocGen notes European vulnerability. According to the bank; “We are in a period of exceptional pessimism about the economic and political outlook in Europe. We are tempted to conclude that it cannot easily get much worse, but it isn’t obvious what will make the outlook improve in the near term either.”

Despite economic vulnerability, SocGen does expect the ECB will be relatively cautious over interest rate cuts. It sees the deposit rate at 2.5% at the end of 2025 from 3.00% now, limiting potential Euro selling.

MUFG also sees ECB expectations as overdone; “The futures market currently implies the ECB cutting the key policy rate by around 160bps – we see this as excessive given the inflationary risks that could emerge in an escalation of a trade war.”

HSBC expects a firm Pound tone; “the Brexit grip on GBP has faded, and it means EUR-GBP depends much less now on domestic British politics and more on factors that shape relative growth and inflation outlooks. On this basis, although the US leaves the UK economy in the shade, we think the Eurozone faces greater challenges.”

It added; “Political uncertainty in core Europe is part of our rationale for EUR-GBP weakness, as it may limit the scope for political leaders to alleviate the Eurozone’s growth inertia.”

Political and economic developments will be important with major tensions in Germany and France.

Germany will hold elections in the new year.

MUFG sees scope for positive developments; “Political developments in Germany could potentially turn to a EUR positive development in 2025. Friedrich Merz as Chancellor could bring about much needed impetus for economic policies to boost growth. The CDU-CSU look set to lead a new coalition government and a suspension of the fiscal break would be a welcome development.”

ING expects faster BoE rate cuts will eventually sap Pound support; “The reason we are not more bearish EUR/GBP in our forecasts is that we think the BoE will crumble around February and open up to a more aggressive easing cycle. However, the risks to our [EUR/GBP] forecasts are clearly on the downside.”

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TAGS: Currency Predictions Pound Euro Forecasts

• GBP/USD forecast leans bearish as traders eye central bank meetings and UK macro data
• Key focus on BoE and FOMC rate decisions this week, particular about their forward guidance
• Key levels to watch: 1.25 support and 1.28 resistance

Friday’s weak UK data saw GBP/USD slide towards the 1.26 handle, as EUR/GBP rebounded sharply from 0.82 to above 0.83, ending the week in positive territory. This recovery in EUR/GBP also supported EUR/USD, which climbed back to $1.05 ahead of a pivotal week for global central bank decisions. Investors anticipate what could be the final burst of volatility in 2024, with the Federal Reserve, Bank of England, and other major central banks unveiling their monetary policy plans for the upcoming year. The GBP/USD forecast remains bearish in this high-stakes environment.

US Dollar Strength Ahead of Potential Hawkish FOMC Cut

Last week’s US CPI data met expectations, but a hotter-than-anticipated PPI raised concerns. Nonetheless, markets are confident in a 25-basis-point rate cut at the Federal Reserve’s final meeting of the year on Wednesday. With this move almost fully priced in, the focus will be on the Fed’ forward guidance.

The critical question is whether the Fed will pause its rate-cutting cycle in early 2025 or continue trimming at 25-basis-point intervals. Jerome Powell’s recent comments, highlighting reduced labour market risks but persistent inflation, have led to speculation of a “hawkish cut”. Traders will scrutinise Powell’s remarks at the post-meeting press conference and the updated economic projections, which could significantly influence sentiment.

President-elect Trump’s fiscal agenda next year could steer the Fed towards a more measured easing trajectory through 2025. Such policies would likely keep the US dollar supported, reinforcing a bearish GBP/USD forecast.

BoE Rate Decision Looms Large for GBP/USD Forecast

While the Federal Reserve takes centre stage midweek, the BoE’s Thursday decision could be equally critical for GBP/USD. Following last week’s weak UK GDP and other soft macro data, markets widely expect the BoE to cut rates by 25 basis points to 4.50%. Monday’s Global and UK PMIs, Tuesday’s wage data, and Wednesday’s CPI figures will further inform the central bank’s outlook.

The BoE’s tone will be pivotal. A dovish cut, emphasising ongoing risks to growth, could weigh heavily on the pound, while any hints of caution in easing policy could provide some support. With both the Fed and BoE decisions landing within 24 hours, GBP/USD volatility is virtually guaranteed.

GBP/USD Technical Analysis

Source: TradingView.com

Technically, the GBP/USD forecast tilts bearish after last week’s failure to hold above the 1.28 resistance zone. The pair’s retreat below 1.2715/20 has opened the door to further downside, with immediate support seen around the 1.26 level. A decisive break below this point could trigger a retest of the bullish trend line near 1.25, a psychologically significant area where the cable found support in November after briefly dipping to 1.2487.

On the upside, resistance lies in the 1.2800–1.2870 range, which aligns with the 200-day moving average and previous support levels. Any recovery in GBP/USD would need to clear this zone to signal a shift in momentum.

Summary

The GBP/USD forecast remains bearish as traders brace for a critical week dominated by central bank decisions. While a hawkish Fed cut is expected to keep the dollar strong, the BoE’s dovish tilt could further pressure the pound. Key data releases earlier in the week will shape expectations, adding to the volatility.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

Created on December 13, 2024

• During my daily analysis of the major currency pairs around the world, the USD/JPY pair continues to be one that I am watching very closely.
• After all, the market is one that has a lot of external pressures, due to the central banks and their divergence of monetary policy.
• On one hand, he of the Bank of Japan which is seemingly powerless to do anything too tight monetary policy, and on the other hand you have the Federal Reserve which will more likely than not cut interest rates by 25 basis points next week but will remain still after that.

Technical Analysis

The technical analysis for this USD/JPY pair is somewhat bullish, after what has been a base building exercise near the ¥150 level. This is an area that of course will attract a lot of attention, and the fact that the 200 Day EMA is sitting right there has a lot to bring to the table as well. This is a market that has recently been very noisy, as the dreams of a tightening central bank in Tokyo came and went. Because of this, I pay close attention to the 50 Day EMA as a potential support level. Just above current trading, we have the ¥153 level offering resistance. A break above that opens up the possibility of a move to the ¥156 level.

The alternate scenario would be that we break down but it’s really not until we get to the ¥148.50 level that you can make that argument, and even then, I would be a bit hesitant whether or not I should be shorting. The market remains very noisy, and of course the interest rate differential continues to favor the United States, and in that environment all things being equal, we continue to go higher over the longer term.

I look at the recent pullback as more likely than not just the market catching its breath after the spectacular run from ¥140 to the ¥156 region. A pullback to the ¥150 region was an out of bounds per se, and we are starting to see traders come in and take advantage of “cheap US dollars.” As things stand right now, I expect to see more of this in the future.

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• US consumer price pressures accelerated in November.

• Data this week solidified bets for a December Fed rate cut.

• The likelihood of a December BoJ rate hike fell.

The USD/JPY weekly forecast suggests continued dollar strength as markets price a more gradual Fed next year.

Ups and downs of USD/JPY

The USD/JPY pair had a bullish week as the dollar soared on expectations of a very gradual Fed rate-cutting cycle in 2025. Data from the US on inflation this week revealed that price pressures accelerated in November. However, since the CPI came in line with expectations, it solidified bets for a December Fed rate cut. Nevertheless, markets lowered expectations for rate cuts in 2025, boosting the US dollar. 

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At the same time, the likelihood of a December BoJ rate hike fell as Japan’s economy remained fragile.

Next week’s key events for USD/JPY

Next week, traders will watch the US retail sales report, the FOMC policy meeting, and the US GDP report. Meanwhile, in Japan, the BoJ will hold its policy meeting on Thursday. 

The US sale report will come before the FOMC meeting. Therefore, the outcome will likely shape bets for the Wednesday policy meeting. Markets expect the Fed to cut interest rates by 25-bps. However, the focus will be on the messaging for future moves. 

Meanwhile, the Bank of Japan might keep rates unchanged. However, traders will also watch the messaging to gauge the likely timing for the next rate hike. 

USD/JPY weekly technical forecast: Bulls return with sights on the 156.53 resistance

On the technical side, the USD/JPY price has broken above the 22-SMA, a sign that bulls are back in control. At the same time, the RSI has broken above 50 and now trades in bullish territory. Therefore, there has been a shift in sentiment to bullish. 

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The price was trading in a strong uptrend before pausing near the 156.53 resistance level. Here, bears resurfaced to reverse the trend by breaking below the 22-SMA. However, the decline met a solid support zone comprising the 149.02 key level and the 0.382 Fib retracement level. Here, bulls returned with renewed strength, pushing the price back above the 22-SMA. 

Next week, USD/JPY will likely target the 156.53 resistance level. A break above this level would confirm a continuation of the bullish trend. Moreover, it will allow bulls to reach the 160.02 key level.

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• US inflation data showed an increase in price pressures in November.

• Market participants scaled back expectations for Fed rate cuts in 2025.

• Traders expect policy meetings in the UK and the US.

The GBP/USD weekly forecast indicates a decline in 2025 Fed rate cut expectations, which is supporting the greenback.

Ups and downs of GBP/USD

The GBP/USD pair had a bearish week as the dollar soared on rate-cut expectations and the pound fell due to downbeat economic data. Notably, markets absorbed US inflation data showing an increase in price pressures that was in line with estimates. The report also showed that inflation had stalled its progress to the 2% target. As a result, market participants scaled back expectations for rate cuts in 2025, boosting the dollar.

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Meanwhile, the UK released data showing an unexpected 0.1% contraction in the economy, further weighing on the pair. 

Next week’s key events for GBP/USD 

Next week will be a busy week for the pound with policy meetings in the UK and the US. At the same time, traders will watch data from the UK, including manufacturing business activity, employment, inflation, and sales. Meanwhile, the US will release figures on GDP and retail sales. 

Markets are almost fully pricing a Fed rate cut on Wednesday. Therefore, data next week might have little impact on rate cut expectations. However, the report might shape the outlook for 2025. Moreover, market participants will watch policymakers’ tone on future rate cuts.

On the other hand, UK data, especially inflation, might play a big role in shaping the outlook for the Bank of England meeting. Nevertheless, markets expect a pause.

GBP/USD weekly technical forecast: Bears resurface after false breakout

On the technical side, the GBP/USD price trades below the 22-SMA with the RSI under 50, suggesting a bearish bias. The price has been on a downtrend, making lower highs and lows. However, bulls have made several attempts to break above the SMA without success.

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In the most recent attempt, the price broke above the 22-SMA and its resistance trendline. However, price action showed weakness when the price reached the 1.2800 resistance level. 

Furthermore, bears returned with strong enthusiasm to push the price back below the trendline and the SMA. As a result, the price made a false breakout. However, bears seem ready to continue the downtrend. To do this, the price must break below the 1.2500 support to make a lower low. 

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US Dollar Outlook: USD/JPY

USD/JPY climbs to a fresh monthly high (153.75) as it stages a five-day rally for the first time since June, but the Federal Reserve interest rate decision may sway the exchange rate as the central bank is expected to further unwind its restrictive policy.

USD/JPY Stages Five-Day Rally for First Time Since June

USD/JPY appears to be mirroring the rise in long-term US Treasury yields as it extends the advance from the start of the week, and the exchange rate may continue to retrace the decline from the November high (156.75) on the back of US Dollar strength.

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US Economic Calendar

Looking ahead, the Federal Open Market Committee (FOMC) is expected to deliver another 25bp rate-cut at its last meeting for 2024, and more of the same from the Fed may produce headwinds for the US Dollar as the central bank continues to move toward a neutral stance.

At the same time, the FOMC may adjust the forward guidance for monetary policy as Chairman Jerome Powell and Co. are slated to update the Summary of Economic Projections (SEP), and the central bank may project a more gradual path in unwinding its restrictive policy should the SEP reveal an upward revision in the Fed’s interest rate dot-plot.

With that said, a hawkish Fed rate-cut may keep USD/JPY afloat as the central bank insists that ‘monetary policy decisions were not on a preset course,’ but a further shift in the carry trade may curb the recent in the exchange rate as major central banks continue to switch gears.

USD/JPY Price Chart – Daily

Chart Prepared by David Song, Strategist; USD/JPY on TradingView

• USD/JPY extends the advance from the start of the week to register a fresh monthly high (153.75), and a close above 153.80 (23.6% Fibonacci retracement) may push the exchange rate towards 156.50 (78.6% Fibonacci extension).
• A breach above the November high (156.75) opens up 160.40 (1990 high), but USD/JPY may struggle to retain the advance from the monthly low (148.65) should if fail to trade back above 156.50 (78.6% Fibonacci extension).
• A breach below 151.95 (2022 high) may push USD/JPY back towards the 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension) zone, with the next area of interest coming in around 144.60 (50% Fibonacci retracement) to 145.90 (50% Fibonacci extension).

Additional Market Outlooks

Gold Price Forecast: Bullion Remains Below Pre-US Election Prices

Canadian Dollar Forecast: USD/CAD Climbs to Fresh Yearly High

GBP/USD Outlook Hinges on Break of December Opening Range

Australian Dollar Forecast: AUD/USD Falls to Fresh Yearly Low

— Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong

• EUR/USD remains tethered to the 1.0500 mark, rebounding slightly to 1.0498 after testing weekly lows.
• Technical analysis shows the pair is in a delicate balance, with potential to challenge resistance if it sustains above 1.0500.
• Key resistances are set at 1.0530 and 1.0600, while supports loom near 1.0452 and the YTD low of 1.0331.

The EUR/USD remains reluctant to remain far from the 1.0500 figure for the fifth consecutive day, even though the ECB decided to cut rates on Thursday, which pushed the pair toward its weekly low of 1.0452. Nevertheless, buyers stepped in and lifted the exchange rate toward the current level of 1.0498.

EUR/USD Price Forecast: Technical outlook

The EUR/USD daily chart suggests the pair hovers near 1.0500, unable to edge lower decisively and retest year-to-date (YTD) low figures at 1.0331. Even though the pair is carving successive series of lower and lower highs, it might be difficult to extend its downtrend.

Momentum, as measured by the Relative Strength Index (RSI), suggests that buyers gain steam. If they achieve a daily close above 1.0500, this can give them a leg-up.

In that outcome, EUR/USD’s key resistance levels lie at the December 12 high of 1.0530, followed by 1.0600 and last week’s peak of 1.0629.

On the other hand, if EUR/USD remains below 1.0500, the major could extend its losses, past 1.0452. A breach of the latter will expose the November 26 low of 1.0424, followed by the November 22 swing low of 1.0331.

EUR/USD Price Chart – Daily

• The Pound Sterling hit three-week highs against the US Dollar but then corrected.
• GBP/USD gears up for the Fed and BoE policy announcements, the grand finale for 2024.
• Pound Sterling buyers will likely stay reluctant below the key 200-day SMA at 1.2820.

The Pound Sterling (GBP) failed to sustain at three-week highs against the US Dollar (USD), sending GBP/USD back under the 1.2700 threshold.

Pound Sterling gave into persistent US Dollar demand

It was a mixed week for GBP/USD traders. In the early part of the week, the Pound Sterling defended the previous week’s upswing only to surrender into persistent USD demand in the second half. A hawkish shift in the expectations of the US Federal Reserve’s (Fed) future interest rate path and the sustained advance in US Treasury bond yields kept the Greenback’s bullish undertone alive throughout the week. 

At the start of the week, the US Dollar picked up fresh haven demand as renewed geopolitical tensions emerged in the Middle East and amid China’s economic worries. This stalled the GBP/USD recovery at 1.2800. The sudden collapse of Syria’s government occurred over the weekend after Syrian rebels seized the capital, Damascus, ousting President Bashar al-Assad, who fled to Russia with his family seeking asylum. The toppling of Assad’s government ended a 13-year civil war and raised concerns over the political stability in the region.

Moving on, US Consumer Price Index (CPI) data on Wednesday aligned with market expectations, while Thursday’s Producer Price Index (PPI) inflation data came in hotter-than-expected and fuelled expectations that the Fed could turn to a wait-and-see policy approach after the expected 25 basis points (bps) interest-rate reduction next week.

Data showed that the US annual headline and core CPI rose by 2.7% and 3.3%, respectively, while on a monthly basis, both figures increased by 0.3%. On the other hand, The annual PPI rose 3.0% in November, above the market expectation of a 2.6% growth. Meanwhile, the annual core PPI rose 3.4% in the same period, surpassing the estimate of 3.2%. The headline PPI and the core figure rose 0.4% and 0.2% over the month, respectively. 

Exacerbating the pain in the GBP/USD pair, ample supply in the US bond market kept the US Treasury bond yields northbound and the Greenback at the monthly top against its major rivals. The US Treasury Department saw good demand for a $39 billion sale of 10-year notes, the final sale of $119 billion in coupon-bearing sales after a solid $58 auction of three-year notes on Tuesday. Furthermore, the latest data showed that the US government posted a $367 billion budget deficit for November, up 17% from a year earlier.

The fresh leg higher in the USD triggered a corrective decline in the Pound Sterling heading into the weekend, with the UK Gross Domestic Product (GDP) report for October adding to the GBP downside. The UK economy unexpectedly contracted 0.1% month-over-month (MoM) in October, compared to the expected 0.1% growth. The UK Industrial and Manufacturing Production also declined 0.6% MoM in the same period.

The Fed and BoE grand finale awaited

The final full week of this year appears nothing short of a blockbuster one, filled with top-tier UK and US economic data and central banks’ policy announcements.

Monday starts with the preliminary S&P Global Manufacturing and Services PMI data from both sides of the Atlantic, while Chinese activity data will also be closely eyed.

The UK labor market report will be published on Tuesday, followed by the US Retail Sales and Industrial Production data.

Wednesday will feature the UK inflation report, followed by the all-important Fed interest rate decision, Dot Plot chart and Chairman Jerome Powell’s press conference.

The BoE policy verdict will stand out on Thursday amid the weekly Jobless Claims and Existing Home Sales data releases.

The UK Retail Sales and the US core Personal Consumption Expenditure (PCE) Price Index will wrap up an eventful week.

Also of note will remain the Middle East geopolitical developments and global trade updates.

GBP/USD: Technical Outlook

GBP/USD sellers refused to give up as the previous week’s recovery attempt fizzled out shy of the 200-day Simple Moving Average (SMA) at 1.2820.

An impending death and the previous dual Bear crosses will likely continue to cause headwinds in the Pound Sterling in the coming days. 

The 50-day SMA is on the verge of crossing the 200-day SMA from above, which, if it occurs, will validate the Death Cross. 

Further, the 14-day Relative Strength Index (RSI) has returned to negative territory at around 40, backing the case for additional downside.

The Pound Sterling must crack the 200-day SMA at 1.2820 to reverse the renewed downward momentum.

The next relevant upside target aligns near 1.2850, the confluence of the psychological level and the 50-day SMA.

Fresh buying interest could emerge on a sustained move above the latter, opening the door for a test of the 1.2900 round figure, followed by the 100-day SMA at 1.2958.

Contrarily, if the selling intensifies, the previous week’s low of 1.2617 will be tested, below which the six-month low of 1.2488 will be put to the test.

The line in the sand for buyers is seen at the 1.2400 round figure.

• EUR/USD stays under bearish pressure in the European morning on Friday.
• The technical outlook suggests there is more room on the downside before the pair turns oversold.
• The dovish ECB tone and persistent USD strength weigh on the pair.

EUR/USD stays on the back foot and trades near 1.0450 on Friday after closing the fifth consecutive day in negative territory on Thursday. The pair’s near-term technical outlook shows that there is more room on the downside before the pair turns oversold.

The European Central Bank (ECB) lowered key rates by 25 basis points (bps) following the December meeting, as expected. In its policy statement, the ECB said that most measures of underlying inflation suggest that inflation will settle at around the Governing Council’s 2% medium-target on a sustained basis. In the post-meeting press conference, ECB President Christine Lagarde noted that they have discussed a 50 bps cut at the meeting and acknowledged that the recovery in the Euro area was slower than expected. The Euro came under selling pressure following the ECB event.

In the meantime, the US Dollar (USD) benefited from rising US Treasury bond yields in the American session on Thursday and didn’t allow EUR/USD to stage a rebound. The data published by the US Bureau of Labor Statistics showed that the annual Producer Price Index rose by 3% in November, at a stronger pace than the market expectation and October’s increase of 2.6%.

The economic calendar will not feature any high-tier data releases on Friday. Ahead of next week’s highly-anticipated Federal Reserve meeting, profit-taking and position adjustments heading into the weekend could ramp up EUR/USD’s volatility and trigger irregular movements.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart dropped below 40, reflecting a buildup of bearish momentum. On the downside, immediate support is located at 1.0440 (static level) ahead of 1.0400 (end-point of the latest downtrend) and 1.0330 (November 22 low).

Looking north, first resistance could be spotted at 1.0520 (100-period Simple Moving Average (SMA), 50-period SMA, Fibonacci 23.6% retracement of the latest downtrend) before 1.0600 (Fibonacci 38.2% retracement).