Created on December 11, 2024

• As previously anticipated, the EUR/USD pair remains under downward pressure near and below the psychological support level of 1.0500.
• This is pending the reaction of financial markets and investors to the announcement of US inflation figures today, which will directly impact market expectations for the future of US Federal Reserve policies.
• Tomorrow, the important European Central Bank announcement will take place.

US Inflation Expectations

The most important data in today’s economic calendar. The announcement of the US consumer price index readings, and the index is expected to rise for the fourth consecutive month. The core CPI reading – without food and energy prices – is expected to record 0.3 percent. With the announcement of consumer prices and the announcement of US producer prices later this week, the complete picture of what the US Federal Reserve’s decision will be next week is formed, and the comparison between them and the numbers that will occur under Trump’s official leadership of the US economy during the year 2025. As is known, Trump’s hostile trade policy supports the rise in inflation rates, which may affect the path of the US Federal Reserve’s policy in the coming months, as a result of which I expect the bank to stop the path of reducing US interest rates.

German Inflation Hits a 4-Month High

According to an official announcement, the annual inflation rate in Germany rose to 2.2% in November 2024, up from 2% in October, in line with initial estimates, and the announcement represents the highest level in four months. According to the announcement, service inflation remained unchanged at 4%, while energy costs declined at a slower pace (-3.7% versus -5.5% in October). At the same time, food inflation slowed to 1.8%, compared to 2.3% in the previous period. On a monthly basis, German consumer prices fell by 0.2%, in line with initial estimates, following a 0.4% increase in October.

Core inflation, which excludes volatile food and energy prices, reached a six-month high of 3% in November. The harmonized inflation rate for the European Union remained at 2.4% annually, confirming the initial estimates. Harmonized consumer prices fell by 0.7% monthly, in line with preliminary data, reversing a 0.4% increase from the previous month.

European stocks halt rally

According to stock trading company platforms, European stock market indices halted a recent upward wave, and according to trades, the Stoxx 50 index declined by 0.7% and the Stoxx 600 index fell by 0.5%, led by a 1.1% decline in industrial stocks. Weaker-than-expected Chinese import and export data affected mining stocks, which fell by 0.8%, and at the same time, investors are cautiously awaiting the announcement of US inflation figures today.

Trading Tips:

The euro-dollar price will remain on a downward path, whatever the US inflation figures today. Cautiously, eyes are turning with the European Central Bank announcement, and selling the euro-dollar is still in place.

EUR/USD Analysis Today:

My technical view of the EUR/USD pair performance has not changed. The overall trend is still downward, and the movement around and below the psychological support level of 1.0500 still supports the bears’ strong control over the trend. Regarding the performance of technical indicators, the RSI is still heading downward, and at the same time, the MACD is strongly bearish, confirming the bears’ opportunity to move towards deeper support levels, the closest of which is currently 1.0435 and 1.0300, which in turn will move the technical indicators towards strong oversold levels and increase expectations towards the future of the Euro-Dollar’s equilibrium price.

On the other hand, and on the same time frame, the daily chart will not witness an initial break of the downtrend without moving towards the resistance levels of 1.0680 and 1.0800 respectively.

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USD/JPY tests the 200 SMA ahead of US CPI

• US CPI is expected to rise 2.7% YoY
• Japanese wholesale inflation rose to 3.7%
• USD/JPY tests 200 SMA resistance

USD/JPY is rising for a third day as Japanese wholesale inflation accelerates ahead of US CPI.

The USD is  rising against its major peers ahead of the highly anticipated US CPI reading, which could provide further insight into the Federal Reserve’s outlook for rate cuts.

Expectations are for CPI to rise to 2.7% YoY up from 2.6%. On a monthly basis CPI is expected to rise 0.2% Meanwhile core inflation is expected to hold steady at 3.3%.

A hotter-than-expected inflation could see the market rein in rate cut expectations for next year. The market is pricing in an 86% probability of a 25 basis point rate cut in December, and are looking at around one rate cut per quarter in 2025.

Japanese corporate goods price index (CGPI), which measures the price companies charge for goods and services, increased 3.7% in November ahead of forecasts of 3.4%, marking the quickest pace no price increase since July 2023

The acceleration in wholesale inflation lifted expectations of a 25 basis point rate hike from the Bank of Japan on December 19 to 27%.

USD/JPY Forecast- technical analysis

USD/JPY has recovered from the 100 SMA support, rising back above 150 and is testing the 200 SMA resistance at 152.00.

Buyers will look to break above this level to test 153.85 the 61.8% Fib retracement of the 162 high and 139.50 low. Above here, 157.10, the 78.6% Fib level comes into play.

Failure to rise above the 200 SMA could see sellers test 150.00, the psychological level, ahead of 148.65, the December low, and the 100 SMA.

Oil rises for a third day on China optimism & ahead of the OPEC report

• A looser monetary policy stance in 2025 lifts the demand outlook
• OPEC’s monthly report to provide supply & demand clues
• Oil trades in a familiar holding pattern.

Oil prices are heading higher for a third straight day, supported by optimism surrounding monetary policy change in China.

On Monday, Chinese authorities signaled they would adopt a looser monetary policy stance in 2025 to support the ailing economy.

The prospect of improved growth in China is helping to brighten the outlook for oil demand. In November, China imports rose for the first time in seven months, up 14% year over year.

Still, any changes to the Chinese monetary policy stance would be unlikely to do much in the case of further trade tariffs brought in by Trump.

Attention is now towards the OPEC monthly report, which could provide further insight into the supply and demand outlook. In previous reports group has highlighted increasing supply from outside of OPEC, possible supply surplus next year.

Separately, API oil inventory data shows that oil inventories rose 499k in the week ending Dec 6. Gasoline inventories rise by 2.85 million barrels. Expectations had been for a 900k increase in oil inventories and 1.7 million in gasoline.

Oil Forecast – technical analysis

Oil continues to consolidate in a familiar range, capped on the downside by 67.50 – 67 zone and o the upside by 71.50-72.50.

The longer-term trend is downward, with oil trading below its falling trendline dating back to September 2023 and its 200, 100, and 50 SMAs.

Sellers will look to take out the 67.50 support zone to test 65.25, the 2024 low, and 63.50, the 2023 low.

Buyers will need to rise above the 50 SMA at 70.50 to extend gains towards 71.50-72.50 zone – above here 75.00 comes into play.

• GBP/USD stays in a consolidation phase near 1.2750 early Wednesday.
• Annual CPI inflation in the US is forecast to rise to 2.7% in November.
• The near-term technical outlook highlight the pair’s indecisiveness.

GBP/USD registered modest gains for the second consecutive day on Tuesday but lost its traction early Wednesday. The pair stays near 1.2750 in the European morning as market focus shifts to the key November inflation report from the US.

The cautious market mood and rising US Treasury bond yields helped the US Dollar (USD) find demand on Tuesday and made it difficult for GBP/USD to stretch higher. Early Wednesday, the USD stays resilient against its rivals as US stock index futures trade mixed.

The Consumer Price Index (CPI) is forecast to rise 2.7% on a yearly basis in November, up slightly from the 2.6% increase recorded in October. The monthly core CPI, which excludes volatile food and energy prices, is expected to increase 0.3%. 

The CME FedWatch Tool currently shows that markets are pricing in a nearly 90% probability of a 25 basis points (bps) Federal Reserve (Fed) rate cut in December. Although inflation figures are unlikely to alter the market pricing of the Fed rate decision in a significant way, a surprise in the monthly core CPI could trigger a reaction in the near term.

In case the monthly core CPI rises 0.5% or more, the USD could gather strength and weigh on GBP/USD. On the other hand, a soft print of 0.2% lower could open the door for a leg higher in the pair.

GBP/USD Technical Analysis

GBP/USD faces a pivot level at 1.2750, where the Fibonacci 50% retracement of the latest downtrend is located. Once that level is confirmed as support, the pair could meet next resistance at 1.2770 (200-period Simple Moving Average (SMA)) before 1.2800 (Fibonacci 61.8% retracement).

Looking south, supports could be spotted at 1.2700 (Fibonacci 38.2% retracement) and 1.2670 (100-period SMA).

The GBP/USD has started to ease back as the dollar continues to make gains against other major currencies. The AUD/USD for example hit a 13-month low overnight, with a dovish RBA and concerns about Chinese demand weighing on the Aussie. Elsewhere, the EUR/USD is again testing waters around the 1.05 level amid speculation that the dollar will retain its yield advantage over the euro and other currencies once Trump’s expected spending spree and tax cuts are delivered next year. In contrast, the GBP/USD has only just started to turn lower again after staging a decent 2.5-week recovery from around 1.25 handle. Showcasing the GBP strength is the struggling EUR/GBP. With the latter testing the 0.82 support area, sterling is therefore trading at its best levels since March 2022 against the euro. But against the dollar, it has been held back. In fact, I reckon there is a good chance we may see the GBP/USD start to head lower again and may even go on to break 1.2500 support, once UK’s services inflation eases more significantly – possibly in early next year. If seen, that would allow the BoE to turn more dovish. So, the GBP/USD outlook remains bearish heading into 2025.

GBP/USD forecast: All eyes on US CPI

It’s been a quiet week on the European data front, with investors firmly focused on two key events: today’s US CPI release, due shortly at 13:300 GMT, and tomorrow’s ECB decision.

US CPI is expected to edge up to 2.7% year-over-year from 2.6%, serving as the final major data release before the Federal Reserve meets next week. While the Fed seems to have shifted its focus away from inflation, any upside surprise to the already elevated consensus forecast of 0.3% month-on-month for core inflation could boost the dollar.

While the December rate decision likely won’t hinge on this CPI print, an unexpectedly hot number could shape the Fed’s stance for early 2025. Following Friday’s softer-than-expected NFP report, markets are now almost fully pricing in a 25bps December rate cut, up from 70% last week. So far, this hasn’t significantly impacted the GBP/USD direction, but it has kept the upside limited, suggesting investors continue to prefer the dollar because of Trump’s forthcoming policies in 2025 expected to boost spending and cut taxes, thus keeping inflation risks alive.

Pound gaining strength against the euro

Compared to the euro, the pound has had the benefit of a more functioning government and a touch of fiscal stimulus. In contrast, the political gridlock currently gripping parts of continental Europe is a major reason why the euro is struggling. As a result, UK growth prospects for next year look a little brighter than the eurozone’s, although this doesn’t necessarily mean the GBP/USD will rise. Indeed, a potential shift in the BoE’s tone in February, as services inflation cools further, could pose a risk to the pound against all major currencies.

Technical GBP/USD forecast: Key levels to watch

Source: TradingView.com

From a purely technical point of view, the GBP/USD forecast is turning a little bearish again but with the CPI release due, u would probably wait until the data is out of the way before acting my views when it comes to trading the cable.

Anyway, key short-term support is at around 1.2715 area; if we break below here today decisively then this could pave the way for a drop to retest the bullish trend line (that has been re-established after a brief break) around 1.2600-1.26200 area. Below that level, we have the psychologically important 1.25 handle, which is basically where the cable last found support from after a brief breakdown to hit 1.2487 at its lowest point in November.

In term of resistance, the next level to watch in the event price continues to push higher is between the 1.2800 to 1.12870 range. Here, the cable had found both support and resistance in the past and is where the 200-day average also comes into play.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

The GBP/USD has started to ease back as the dollar continues to make gains against other major currencies. The AUD/USD for example hit a 13-month low overnight, with a dovish RBA and concerns about Chinese demand weighing on the Aussie. Elsewhere, the EUR/USD is again testing waters around the 1.05 level amid speculation that the dollar will retain its yield advantage over the euro and other currencies once Trump’s expected spending spree and tax cuts are delivered next year. In contrast, the GBP/USD has only just started to turn lower again after staging a decent 2.5-week recovery from around 1.25 handle. Showcasing the GBP strength is the struggling EUR/GBP. With the latter testing the 0.82 support area, sterling is therefore trading at its best levels since March 2022 against the euro. But against the dollar, it has been held back. In fact, I reckon there is a good chance we may see the GBP/USD start to head lower again and may even go on to break 1.2500 support, once UK’s services inflation eases more significantly – possibly in early next year. If seen, that would allow the BoE to turn more dovish. So, the GBP/USD outlook remains bearish heading into 2025.

GBP/USD forecast: All eyes on US CPI

It’s been a quiet week on the European data front, with investors firmly focused on two key events: today’s US CPI release, due shortly at 13:300 GMT, and tomorrow’s ECB decision.

US CPI is expected to edge up to 2.7% year-over-year from 2.6%, serving as the final major data release before the Federal Reserve meets next week. While the Fed seems to have shifted its focus away from inflation, any upside surprise to the already elevated consensus forecast of 0.3% month-on-month for core inflation could boost the dollar.

While the December rate decision likely won’t hinge on this CPI print, an unexpectedly hot number could shape the Fed’s stance for early 2025. Following Friday’s softer-than-expected NFP report, markets are now almost fully pricing in a 25bps December rate cut, up from 70% last week. So far, this hasn’t significantly impacted the GBP/USD direction, but it has kept the upside limited, suggesting investors continue to prefer the dollar because of Trump’s forthcoming policies in 2025 expected to boost spending and cut taxes, thus keeping inflation risks alive.

Pound gaining strength against the euro

Compared to the euro, the pound has had the benefit of a more functioning government and a touch of fiscal stimulus. In contrast, the political gridlock currently gripping parts of continental Europe is a major reason why the euro is struggling. As a result, UK growth prospects for next year look a little brighter than the eurozone’s, although this doesn’t necessarily mean the GBP/USD will rise. Indeed, a potential shift in the BoE’s tone in February, as services inflation cools further, could pose a risk to the pound against all major currencies.

Technical GBP/USD forecast: Key levels to watch

Source: TradingView.com

From a purely technical point of view, the GBP/USD forecast is turning a little bearish again but with the CPI release due, u would probably wait until the data is out of the way before acting my views when it comes to trading the cable.

Anyway, key short-term support is at around 1.2715 area; if we break below here today decisively then this could pave the way for a drop to retest the bullish trend line (that has been re-established after a brief break) around 1.2600-1.26200 area. Below that level, we have the psychologically important 1.25 handle, which is basically where the cable last found support from after a brief breakdown to hit 1.2487 at its lowest point in November.

In term of resistance, the next level to watch in the event price continues to push higher is between the 1.2800 to 1.12870 range. Here, the cable had found both support and resistance in the past and is where the 200-day average also comes into play.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

USD/JPY tests the 200 SMA ahead of US CPI

• US CPI is expected to rise 2.7% YoY
• Japanese wholesale inflation rose to 3.7%
• USD/JPY tests 200 SMA resistance

USD/JPY is rising for a third day as Japanese wholesale inflation accelerates ahead of US CPI.

The USD is  rising against its major peers ahead of the highly anticipated US CPI reading, which could provide further insight into the Federal Reserve’s outlook for rate cuts.

Expectations are for CPI to rise to 2.7% YoY up from 2.6%. On a monthly basis CPI is expected to rise 0.2% Meanwhile core inflation is expected to hold steady at 3.3%.

A hotter-than-expected inflation could see the market rein in rate cut expectations for next year. The market is pricing in an 86% probability of a 25 basis point rate cut in December, and are looking at around one rate cut per quarter in 2025.

Japanese corporate goods price index (CGPI), which measures the price companies charge for goods and services, increased 3.7% in November ahead of forecasts of 3.4%, marking the quickest pace no price increase since July 2023

The acceleration in wholesale inflation lifted expectations of a 25 basis point rate hike from the Bank of Japan on December 19 to 27%.

USD/JPY Forecast- technical analysis

USD/JPY has recovered from the 100 SMA support, rising back above 150 and is testing the 200 SMA resistance at 152.00.

Buyers will look to break above this level to test 153.85 the 61.8% Fib retracement of the 162 high and 139.50 low. Above here, 157.10, the 78.6% Fib level comes into play.

Failure to rise above the 200 SMA could see sellers test 150.00, the psychological level, ahead of 148.65, the December low, and the 100 SMA.

Oil rises for a third day on China optimism & ahead of the OPEC report

• A looser monetary policy stance in 2025 lifts the demand outlook
• OPEC’s monthly report to provide supply & demand clues
• Oil trades in a familiar holding pattern.

Oil prices are heading higher for a third straight day, supported by optimism surrounding monetary policy change in China.

On Monday, Chinese authorities signaled they would adopt a looser monetary policy stance in 2025 to support the ailing economy.

The prospect of improved growth in China is helping to brighten the outlook for oil demand. In November, China imports rose for the first time in seven months, up 14% year over year.

Still, any changes to the Chinese monetary policy stance would be unlikely to do much in the case of further trade tariffs brought in by Trump.

Attention is now towards the OPEC monthly report, which could provide further insight into the supply and demand outlook. In previous reports group has highlighted increasing supply from outside of OPEC, possible supply surplus next year.

Separately, API oil inventory data shows that oil inventories rose 499k in the week ending Dec 6. Gasoline inventories rise by 2.85 million barrels. Expectations had been for a 900k increase in oil inventories and 1.7 million in gasoline.

Oil Forecast – technical analysis

Oil continues to consolidate in a familiar range, capped on the downside by 67.50 – 67 zone and o the upside by 71.50-72.50.

The longer-term trend is downward, with oil trading below its falling trendline dating back to September 2023 and its 200, 100, and 50 SMAs.

Sellers will look to take out the 67.50 support zone to test 65.25, the 2024 low, and 63.50, the 2023 low.

Buyers will need to rise above the 50 SMA at 70.50 to extend gains towards 71.50-72.50 zone – above here 75.00 comes into play.

• EUR/USD trades in the red near 1.0500 in the European morning on Wednesday.
• The near-term technical outlook points to a bearish tilt.
• November Consumer Price Index data from the US will be watched closely.

EUR/USD closed in negative territory on Tuesday and continued push lower toward the 1.0500 area early Wednesday, pressured by the renewed US Dollar (USD) strength. As market focus shifts to November Consumer Price Index (CPI) data from the US, the pair’s technical outlook points to a bearish tilt in the near term.

Rising US Treasury bond yields helped the USD outperform its rivals in the American session on Wednesday. Moreover, the risk-averse market environment allowed the currency hold its ground, causing EUR/USD to stretch lower.

The annual CPI inflation in the US is forecast to rise to 2.7% in November from 2.6% in October. On a monthly basis, the core CPI is expected to rise 0.3%, matching October’s increase. In case the monthly core CPI reading comes in above analysts’ estimate, the immediate reaction could boost the USD and drag EUR/USD lower. On the flip side, a reading of 0.2% lower in this data could have the opposite effect on the pair’s action.

On Thursday, the European Central Bank (ECB) will announce monetary policy decisions. Hence, EUR/USD’s reaction to US inflation data could remain short-lived.

EUR/USD Technical Analysis

EUR/USD dropped below 1.0520, where the 100-period Simple Moving Average (SMA) on the 4-hour chart meets the Fibonacci 23.6% retracement of the latest downtrend. Meanwhile, the Relative Strength Index (RSI) indicator turned south and fell below 40, reflecting a buildup of bearish momentum.

In case EUR/USD confirms 1.0520 as resistance, technical sellers could remain interested. In this scenario, 1.0440 (static level) could be seen as the next support before 1.0400 (end-point of the downtrend).

On the other hand, sellers could be discouraged if EUR/USD manages to reclaim 1.0520 and allow the pair to extend its recovery toward 1.0600 (Fibonacci 38.2% retracement) and 1.0630 (200-period SMA).

Created on December 11, 2024

• In my daily analysis of the GBP/JPY pair, we have seen a lot of strength coming out of the British pound, or perhaps more to the point, we have seen a lot of weakness coming out of the Japanese yen.
• The reason I say this is that the JPY has lost strength against multiple currencies not just the British pound itself.
• That being said, this is a market that I want to lie, because when you get the direction of the GBP/JPY pair correct, you quite often get paid quite nicely.

Technical Analysis

The technical analysis for the GBP/JPY pair is worth noting, as we are hanging around the 50 Day EMA indicator. If we can break above here, that’s yet another reason to think that the British pound will continue to ascend against the Japanese yen, but quite frankly it’s probably more important to keep in the back of your mind that the Japanese yen itself is getting pummeled by just about everything out there. This even includes the lonely Swiss franc!

Now that we are above the 200 Day EMA and we are starting to see the Stochastic Oscillator reach toward the high, I think we are going to see more momentum come into the picture. I think that the consolidation is over with after the massive drop, and it would not surprise me at all to see the British pound goes looking to the ¥200 level. I don’t think this is an easy move, nor do I think it happens overnight. However, in the meantime I think that we have got a situation where most traders are going to be looking for buying opportunities on short-term pullbacks. With this, think you need to be somewhat diligent with your position sizing, building up as you go along. If we were to somehow break above the ¥200 level, again something I’m not expecting to see this week, that opens up the next leg higher.

On the other hand, if we were to turn around a breakdown below the ¥191.50 level, then I think we might be in a little bit of trouble. I would also expect to see that JPY is strengthening almost everything else, something that you did a few weeks ago.

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Key Events

• US CPI: Week’s catalyst for broader market volatility on Wednesday
• Federal Reserve and BOJ Rate Decisions: Anticipated rate adjustments could shake markets.
• Holiday Rallies: Potential delays in traditional Christmas rallies until 2025

USDJPY

As detailed in my previous article, USDJPY, Silver Forecast: Bullish Rebounds in Question, several bullish indicators emerged on Friday as USDJPY tested the 148.60 support level. This coincided with positive technical setups and market sentiment leaning towards a BOJ rate hike after the Fed’s expected rate cut in mid-December. Volatility risks remain on the horizon with US inflation data.

US Indices: Are There Any New Highs for 2024?

US indices started the year strong, recording successive highs before capping 2024 with December’s anticipated Santa Claus rally and New Year effect. This aligns with bullish momentum for Trump’s presidency.
Despite these highs, the Dow Jones faces bearish correction pressures from the 45,000 zone, driven by inflationary concerns, geopolitical instability, and profit-taking ahead of the holidays. As markets brace for 2025, the combination of these risks and uncertainties under Trump’s leadership sets the stage for volatility.

Technical Analysis: Quantifying Uncertainty

USDJPY Forecast: Weekly Time Frame – Log Scale

Source: Tradingview

USDJPY is still holding a bullish rebound from the key support at 148.60. The bullish indicators supporting the setup are:

• The 3-day RSI rebounding from the neutral zone and moving average
• Price action holding above the 20-period SMA following the November drop
• The 150-mark continuing to serve as psychological support

If the 148.60 low holds firm, the next resistance is at 153.30, aligning with the lower boundary of the long-term trendline connecting consecutive lows from January 2023 to 2024. Longer-term resistance levels include 155, 157 and 160, reflecting significant Yen weakness and potential BOJ intervention risks. From the downside, the next level to watch at 146.80 in the event of further downside. Deeper declines could retest levels 144 and 140.

Dow Analysis: Daily Time Frame – Log Scale

Source: Tradingview

For a longer-term technical analysis of the Dow chart, the details are published in the following article EURUSD, Dow Forecast: On Edge Ahead of Key US Data

On the daily time frame, the Dow is consolidating near the 45,000 level, forming another top amid overbought RSI conditions and negative divergence. The psychological implications of the 45,000 mark and its Fibonacci extension reinforce the significance of this zone.
The 4H RSI reflects a rebound potential, aligning with recorded highs at 44,300 in November.

Upside momentum could resume with a firm close above 45,200, eyeing resistance at 47,000. Conversely, a break below 44,280 could extend retracement towards 43,300, 42,200, and 41,500.

Nasdaq Analysis: 3Day Time Frame – Log Scale

Source: Tradingview

As previously mentioned in EURUSD, Nasdaq Forecast: Inflation Data and Holiday Volatility, Nasdaq fell short of the 2,700-mark on Monday following momentum slowdowns in the Dow and S&P ahead of the US CPI and FOMC meeting.
The 4H RSI, displayed on the daily chart, reflects a retest of the neutral zone as the price tests 21,400 support.

Further upside can be confirmed with a close above 21,800, eyeing resistance at 22,800. A break below 21,280 could deepen corrections to 21,140, 20,800, and 20,300, aligning with the bottom border of the primary uptrend since October 2022 lows.

— Written by Razan Hilal, CMT on X:@Rh_waves and Forex.com Youtube

The EUR/USD failed to hold ono its earlier gains on Monday, turning lower into the close. It has fallen further so far in today’s session with the European Central Bank’s rate decision and key US inflation data on the horizon. These events come just ahead of the Federal Reserve’s own rate decision, setting the stage for a pivotal couple of weeks. We think that the EUR/USD outlook leans modestly bearish, especially after Monday’s market optimism—fuelled by potential stimulus in China—provided a short-lived relief for risk assets.   

China’s export growth slows sharply, imports see steep decline

After announcing plans to adopt a “moderately loose” policy next year, fulling a rally in the likes of the AUD and China-linked stocks, it was China again which caused these moves to unwind. This time, it was data reminding everyone how weak the world’s second largest economy has become, and the need for the government to unleash monetary and fiscal support, just as concerns rise over potential trade tariffs from incoming US President Trump.

China’s latest trade figures reveal a sharp slowdown in export growth, rising 6.7% year-on-year to $312.3 billion. This marks a significant drop from October’s 12.7% expansion and falls short of the 8.5% growth forecast.  On the import front, the picture is even more concerning. Imports contracted by 3.9%, the steepest decline since September 2023, defying expectations of a modest 0.3% increase.

These figures suggest weakening global demand for Chinese goods, as businesses reduce reliance on China amid concerns over potential trade tariffs from Trump. Domestically, sluggish import activity points to softer demand despite recent economic stimulus efforts.  The data is bad news for Eurozone exports to China, and therefore another negative influence for the euro, even if the country has signalled more stimulus measures are on the way. On that front, investors will now focus on the Central Economic Work Conference, starting Wednesday, for more details on China’s fiscal strategies. 

US inflation data to take centre stage from mid-week

Ahead of the ECB’s rate decision, US inflation data will dominate midweek, with CPI due Wednesday and PPI on Thursday. CPI is expected to edge up to 2.7% year-over-year from 2.6%, serving as the final major data release before the Federal Reserve meets.

While the December rate decision likely won’t hinge on this CPI print, an unexpectedly hot number could shape the Fed’s stance for early 2025. Following Friday’s softer-than-expected NFP report, markets are now pricing in an 87% chance of a December rate cut, up from 70% last week. So far, this hasn’t significantly swayed the EUR/USD direction, but it has kept the upside limited, suggesting investors continue to prefer the dollar because of Trump’s forthcoming policies in 2025 expected to boost spending and cut taxes, thus keeping inflation risks alive. Against this backdrop, we maintain a bearish EUR/USD outlook.

ECB set to cut rates by 25 basis points

The next focal area of the EUR/USD traders will be the European Central Bank’s rate decision on Thursday. Analysts anticipate the ECB will implement a standard 25-basis-point rate cut at this meeting, bringing the deposit rate down to 3.15% from 3.40%. While there were whispers of a larger 50-bps cut, a more gradual approach seems likely, leaving the door open for additional rate reductions in 2025.

Monday’s release of Sentix Investor Confidence data could strengthen the case for more dovish policies. Beyond economic indicators, political uncertainty is also weighing on growth prospects, as budget talks in Berlin and Paris recently collapsed. If the ECB is more dovish than markets anticipate, the EUR/USD outlook could become even more bearish. 

Technical EUR/USD outlook: Key levels to watch

Source: TradingView.com

As per the 4-hour chart, price action continues to look heavy for the EUR/USD. The pair has repeatedly tested the 1.06 resistance zone (1.0595–1.0610) without securing a decisive break above it. A break above this range could trigger a short-squeeze rally toward 1.0700, with further targets around 1.0775/80. For now, however, the bulls remain on standby without a clear reversal signal. 

In fact, the downside risks are still greater and if the bullish trend line breaks, then that could put the bulls in a spot of bother. One particular area to watch is the 1.0500 support zone, which remains critical. A break below there could resume the bearish trend that began in September. For me the trigger is at 1.0472, which was the last low made prior to the most recent up move. A potential break below it could target the liquidity around 1.0333, the November low, followed by psychological levels like 1.0300 and 1.0200, potentially revisiting parity. 

In short…

The EUR/USD outlook stays modestly bearish, with selling pressure likely to return unless the ECB delivers a surprisingly hawkish message or US CPI figures are significantly softer than expected – unlikely on both fronts.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R