Created on December 16, 2024

• For two consecutive weeks, the USD/JPY pair has been moving within a prominent upward channel on the daily chart, culminating in a move towards the resistance level of 153.80, the pair’s highest level in more than two weeks.
• Obviously, this is before closing the week’s trading stable around the 153.60 level.
• Moreover, this performance will be on an important date with the last global central bank announcements this year and before the Christmas holidays.
• Therefore, strong fluctuations in the performance of the currency pair are expected this week.

The US Federal Reserve May Cut Interest Rates

 This week, Federal Reserve officials will conclude a two-day meeting and issue an update on US interest rate policy. At their meeting last month, Fed officials cut the US interest rate by a quarter point. This came after a larger half-point cut in the September meeting. The biggest expectation is that the US Federal Reserve will announce another interest rate cut, although some Fed officials have recently indicated that they have not yet made a final decision on whether they will support a rate cut this month.

Trading Tips:

I still recommend buying the US dollar against the Japanese yen from every downward level, but without risk, while monitoring the strong factors influencing the trend this week

Reasons for Selling Pressure on the Japanese Yen

Since the beginning of this month, the Japanese yen has been under selling pressure against other major currencies. Clearly, the most prominent was against the US dollar. According to reliable trading company platforms, the Japanese yen has recorded its longest losing streak against the US dollar since last June, as traders bet that the Bank of Japan will refrain from raising interest rates.

On the policy front, Bloomberg recently reported that Bank of Japan policymakers see little cost in waiting until January 2025 or later to raise interest rates because there is a limited risk that inflation will exceed the cap. Also, the report added that they are open to raising interest rates depending on economic data and market developments. Overall, financial markets have reduced their bets on a rate hike by the Bank of Japan this month after the report, now setting a 16% probability for this outcome. A week ago, the chance of a Japanese rate hike was 64%. The Bank of Japan’s decision comes a day after the US Federal Reserve cut interest rates by a quarter of a percentage point, although the longer-term outlook is gloomier.

Affected by the bank’s decisions, the Bank of Japan’s quarterly Tankan survey released on Friday showed that confidence among major Japanese companies remains optimistic, but the data did not move interest rate expectations. Also, hedge funds have recently increased their bets against the yen, according to Commodity Futures Trading Commission data for the week ended December 10.

USD/JPY Technical Analysis and Expectations Today:

Based on recent performance, the USD/JPY has now risen to trade slightly above its 100-hour moving average. As a result, the currency pair is about to enter the overbought levels of the 14-hour RSI. Therefore, bulls will look to extend the current rally towards 154.71 or higher to the resistance of 155.61. On the other hand, bears will seek to benefit from a correction downwards around 152.68 or lower at the support of 151.80. In the long term, according to the performance on the daily chart, the USD/JPY currency pair has completed an upward breakout from a descending channel formation. Also, the 14-day RSI has bounced back to approach the overbought levels. Therefore, bulls will seek to continue moving within an upward channel towards the resistance levels of 157.65 or higher to the resistance of 161.75. As for the MACD indicator, it is trying to move away from the oversold levels. On the other hand, bears may benefit from selling to take profits from moving towards the support levels around 149.60 or lower at the support of 145.00.

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• The euro dropped on Monday due to dovish comments from a top ECB official.

• Eurozone business activity improved in December.

• The dollar extended its gains as markets anticipated a more cautious Fed.

The EUR/USD forecast shows a surge in European Central Bank rate cut bets after dovish policymaker remarks. Meanwhile, PMI data showed a slight rebound in the Eurozone economy. However, business activity remained in contraction, showing a frail economy. 

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The euro dropped on Monday due to dovish comments from a top ECB official. ECB Vice President Luis De Guindos said that inflation in the Eurozone bloc would likely hold at the 2% target in 2025. Moreover, he noted that the central bank will continue cutting rates if inflation meets forecasts. 

The European Central Bank lowered borrowing costs by 25-bps on Thursday. At the same time, policymakers remained dovish, forecasting more cuts due to the weak economy and uncertainty about likely tariffs in the US. Such an outlook will likely weigh on the euro, especially since it diverges with the US outlook. 

Furthermore, data on Monday revealed that business activity in the Eurozone improved in December due to growth in the services sector. Notably, the flash composite PMI increased from 48.3 in November to 49.5 in December. Meanwhile, economists had expected a drop to 48.2. However, business activity remains in contraction below 50.

Elsewhere, the dollar extended its gains as markets anticipated a more cautious Fed in the coming year. Nevertheless, traders have fully priced a rate cut this week. Meanwhile, the likelihood of a January cut remains low at 24%. 

EUR/USD key events today

• US flash manufacturing PMI
• US flash services PMI

EUR/USD technical forecast: Bears make another attempt at 1.0475 support

On the technical side, the EUR/USD price is bouncing lower after finding a strong barrier at the 30-SMA. Meanwhile, the RSI trades below 50, suggesting solid bearish momentum. However, bears have found it difficult to break below the 1.0475 support, which coincides with the 0.5 Fib retracement level. 

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A break below this zone would allow the price to make lower lows and reach the 1.0400 key support level. Such an outcome would signal a new downtrend. On the other hand, if the support zone holds firm, the price might break above the SMA to retest the 1.0601 resistance level. However, bulls would have to break above this resistance to confirm a new bullish trend.

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Created on December 16, 2024

• The Euro has rallied rather significantly during the trading session on Friday as we continue to see the Japanese Yen itself get eviscerated.
• Keep in mind, the Bank of Japan just simply cannot tighten interest rates, and this shows just how weak the Yen is because the Euro is very weak as well.
• All things being equal, this is a market that I think will continue to go back and forth, perhaps trying to reach the top of the range above at the 165 yen level.

This is an area that will be somewhat difficult to break above, but I think we would have to pay very close attention to the market if we get anywhere near it.

Just Below Current Levels

Underneath, we have the 155 yen level as a floor. As we are basically in the middle of this, it makes quite a bit of sense that we see a lot of volatility here. The size of the candlestick is something worth paying close attention to as it does say that there’s alert into the euro against the yen or maybe a better way to put it is money’s just leaving Japan.

Either way EUR/JPY is a market that looks positive, and we have just formed a massive triple bottom so I do think we will probably turn things around. Again, while I don’t like the euro, I really don’t like the yen and therefore this is a battle of two very weak currencies although obviously, Europe is in better shape than Japan is, as the Japanese economy is crushed under the weight of debt and higher interest rates in that country would just wipe out economic progress. So, with all that being said, I think this remains a buy on the dip market, albeit probably not my favorite yen related pair.

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The GBP/USD is trading at $1.26396, up 0.24%, as it gains strength near the pivotal $1.26663 level, supported by an upward trendline on the 4-hour chart. This level is crucial for maintaining the bullish momentum, with immediate resistance at $1.27194 and a stronger hurdle at $1.27966.

On the downside, support is observed at $1.26046, followed by $1.25255, offering a safety net for the pair.

The 50 EMA at $1.26884 and the 200 EMA at $1.27083 highlight a mixed sentiment, with sellers likely to challenge gains near resistance levels. For now, the bullish trend remains intact, but a break below $1.26663 could invite sharp selling pressure, pushing prices toward lower supports.

Euro Outlook: German Trade Data Disappoints, PMIs Ahead

The euro faced pressure following disappointing German trade balance data, which fell to €13.4B against a forecast of €15.7B. Weakness in wholesale prices (0.0%) and stagnant French CPI (-0.1%) underscored economic challenges.

Looking ahead, Monday’s key flash PMIs will shape sentiment. French Manufacturing PMI is expected at 43.2, signaling contraction, while Services PMI holds steady at 46.9. German PMIs are marginally better but still sluggish, with Services forecasted at 49.5.

ECB President Lagarde’s speeches will be closely monitored for policy signals, especially as inflation and growth concerns persist in the eurozone. The euro remains vulnerable to further downside.

EUR/USD Technical Forecast

On Wednesday, the Fed will deliver its interest rate decision. Economists expect a 25-basis point interest rate cut, placing market focus on the economic projections and press conference.

Projections for a more hawkish Fed rate path may drive the USD/JPY toward 160 on interest rate differentials. Conversely, signals for multiple Fed rate cuts may pull the USD/JPY below 150.

On Friday, the US Personal Income and Outlays Report will wrap up an important week for the USD/JPY pair. Core PCE Price Index and personal income/spending trends could influence sentiment toward a Q1 2025 Fed rate cut.

In summary, a December and a potential Q1 2025 rate cut could drag the USD/JPY toward 140. Conversely, a hawkish Fed rate cut may drive the pair toward 160.

Short-term Forecast:

Near-term USD/JPY trends will hinge on the looming Fed and Bank of Japan interest rate decisions. A narrowing in the US-Japan interest rate differential in favor of the Yen could pull the USD/JPY pair toward 140. Conversely, a BoJ hold and hawkish Fed rate cut may drive the pair toward 160.

Investors should monitor real-time data, central bank decisions, and expert commentary to adapt trading strategies effectively. Don’t miss crucial market movements. Follow our real-time FX updates and stay ahead in the markets here!

USD/JPY Price Action

Daily Chart

After last week’s rebound, the USD/JPY sits above the 50-day and 200-day EMAs, signaling bullish momentum tied to BoJ and Fed policy expectations.

A USD/JPY return to 155 would support a move toward the 156.884 resistance level. Furthermore, a break above the 156.884 resistance level could enable the bulls to target the crucial 160 level.

Investors should consider the economic indicators and central bank policy decisions, potentially affecting USD/JPY price trends.

Conversely, a drop below the 50-day EMA could bring the 200-day EMA and 149.358 support level into play. A fall through the 149.358 support level may signal a drop to the 140.309 support level.

The 14-day RSI at 58.33 indicates a USD/JPY climb to the 156.884 resistance level before entering overbought territory (RSI above 70).

Fundamental Analysis & Market Sentiment

I wrote on 8^th December that the best trade opportunities for the week were likely to be:

The weekly gain of 1.91% equals 0.38% per asset.

Last week’s key takeaways were:

1. US CPI (inflation) – the annualized rate rose from 2.6% to 2.7% as expected.
2. US PPI – this was higher than expected, rising on a 0.2% increase the previous month to 0.4% this month, suggesting inflationary pressures remain. Both these top two items helped to strengthen the US Dollar.
3. European Central Bank Main Refinancing Rate & Monetary Policy Statement – a rate cut of 0.25% was given as expected. The Bank also took a minor dovish tilt on the inflation outlook which helped to weaken the Euro.
4. Reserve Bank of Australia Cash Rate & Rate Statement – the Bank held its Cash Rate steady at 4.35% as expected, but the Bank took a minor dovish tilt by suggesting cuts were on their way in 2025, which helped to weaken the Aussie, although it remains stronger than the New Zealand Dollar with which it is usually strongly correlated.
5. Bank of Canada Overnight Rate & Rate Statement – a rate cut of 0.50% was implemented as expected, which helped send the Canadian Dollar lower to a 4-year low against the US Dollar.
6. Swiss National Bank Policy Rate & Monetary Policy Assessment – a rate cut of 0.25% was implemented as expected.
7. UK GDP – showed a contraction of 0.1% for the second consecutive month, raising fears of a recession in the UK which would surely require serious rate cuts.
8. US Unemployment Claims – this came in slightly higher than expected.
9. Australian Unemployment Rate – this was notably better than expected, falling to 3.9% when 4.2% was expected.

Another noteworthy item are remarks coming from a Bank of Japan official in suggesting that the Bank may pass on a rate hike at its next policy meeting. This could cause considerable weakness in the Japanese Yen.

Last week basically saw a continuation of the ongoing trend theme of a strong US Dollar and stock market, with the tech-based NASDAQ 100 Index rising to reach a new all-time high. It is not a simple “risk on” scenario, the boom is especially centered on US assets.

Last week also saw rate cuts from three major central banks, despite the stickiness of US inflation. Also, the US inflation data came in as expected, and the data triggered a firm rise in US stock markets.

The Week Ahead: 16^th – 20^th December

The coming week has a big schedule with some of the biggest items in the Forex market: a US Fed policy meeting expected to bring a rate cut, and two other central bank policy meetings, although neither is expected to produce a rate cut. This means it will likely be another important week, as it is effectively the last trading week before Christmas when many people will be away from the markets for two weeks or so.

The coming week’s important data points are:

1. US Federal Funds Rate, FOMC Statement & Economic Projections – a rate cut of 0.25% is expected by almost everyone.
2. US Core PCE Price Index – this is the Fed’s preferred inflation indicator, so it can be impactful.
3. US Final GDP – annualized economic growth is expected to remain steady at 2.8%^.
4. Bank of Japan Policy Rate and Monetary Policy Statement – no rate hike is expected.
5. Bank of England Official Bank Rate, Votes, and Monetary Policy Summary
6. US, German, British, French Flash Services & Manufacturing PMI.
7. US Retail Sales
8. UK CPI (inflation)
9. Canadian CPI (inflation)
10. UK Retail Sales
11. Canadian Retail Sales
12. New Zealand GDP
13. US Unemployment Claims
14. UK Unemployment Claims (Claimant Count Change)

Monthly Forecast December 2024

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

Weekly Forecast 15^th December 2024

Last week, I made no weekly forecast as there were no unusually strong price movements in currency crosses, which is the basis of my trading strategy.

The US Dollar was again the strongest major currency, while the Japanese Yen was the weakest. Volatility fell slightly last week, with only 41% of the most important Forex currency pairs and crosses changing in value by more than 1%.

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

Key Support/Resistance Levels for Popular Pairs

Technical Analysis

US Dollar Index

Last week, the US Dollar Index printed a bullish candlestick that continued in the direction of the long-term bullish trend. The recent price action also seems to have retested the upper trend line of the formerly dominant consolidating triangle chart pattern, which can be seen in the price chart below. The price is above its price from three and six months ago, suggesting a healthy long-term bullish trend in the greenback that should be exploitable.

I have plenty of fundamental reasons to be bullish on the US Dollar. However, the upside over the coming week might be limited, so long-term trades long of the USD might be more successful than short-term trades. However, the price action is definitely more bullish than it was last week, and I think we will see another week of gains by the greenback this week.

We will be getting highly important US Core PCE Price Index data and FOMC data on the US economy this week, so technical factors might not be very important, with price action over the second half of this week likely to be more data driven.

Bitcoin

Bitcoin has continued to chop around the $100,000 level over the past week, printing a bullish inside candlestick which failed to make a new record high. Although it can be argued that there are signs that the momentum has stalled or slowed, the price action remains bullish and a breakout over the coming week looks more likely than a significant bearish breakdown to happen.

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

To exploit the bullish breakout which I expect to happen in the safest way possible, I would wait for a new record daily high closing price before entering a new long trade, above $103,647.

EUR/USD

The EUR/USD currency pair is in a valid long-term bearish trend. This currency pair typically takes its time to move, with its trends usually including plenty of deep retracements, but for almost three weeks after plunging to a new long-term low price well below $1.0400, the price consolidated without turning definitively bearish.

The Dollar is relatively strong, while the Euro has been weakened a bit lately by the more dovish approach the European Central Bank took at its policy meeting last week.

This currency pair often has very reliable trends, which is why I am interested in being short, but the price action off the lows over recent weeks has been too bullish for my liking, and we are still some way off the lowest daily close at $1.0414. So, I would wait for a New York close above that price before entering a new short trade here.

NZD/USD

Last week, the NZD/USD currency pair printed a large, strongly bearish candlestick, closing right on its low. It closed at a 2-year low, which is a significant bearish breakdown in any asset.

The Australian Dollar has got a lot of attention lately as it weakened to new long-term lows as the RBA passed on a rate cut, but it is worth noting that the New Zealand Dollar is also very weak, but even more so, making the Kiwi attractive on the short side.

The Kiwi was weakened by last week’s 0.50% strong rate cut by the Reserve Bank of New Zealand, although it was widely expected.

This currency pair does not trend very reliably, so I don’t take long-term trades in it, but it certainly looks very weak right now.

USD/CAD

Last week, the USD/CAD currency pair printed a bullish candlestick, closing not far from its high although it had some upper wick. It closed at a 4-year high, which is a significant bullish breakdown in any asset. The price action is bullish, no question about that.

The Loonie was weakened by last week’s 0.50% strong rate cut by the Reserve Bank of New Zealand, although this was widely expected.

This currency pair does not trend very reliably, so I don’t take long-term trades in it, but it certainly looks very strong right now.

The main commodity currencies (CAD, NZD, AUD) are all weak, so it might be that they are best traded as a short basket over the coming week against a stronger currency.

NASDAQ 100 Index

Last week saw the NASDAQ 100 Index print another bullish candlestick to reach and close at a new record high for the second week running. The price closed not far from its high, although the candlestick was small and slightly doji-like, which suggests the trend may be running out of steam. More evidence in that direction is shown by narrowing of the linear regression analysis within the price chart below. However, when the price of a major stock market index is trading in blue sky, that is a bullish sign that must be paid attention to.

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

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

I see the NASDAQ 100 Index as a buy.

Cocoa Futures

Cocoa futures have been rising powerfully over the past five weeks, especially over the past week which printed a very large, strong, bullish candlestick.

Trading commodities long when they break to new 6-month high prices, especially when there is powerful momentum as there is here, has historically been a very profitable trading strategy, so there are plenty of good reasons to be long here.

During the second half of 2023 and the early months of 2024, the price increased by almost 600%, which is a meteoric rise. This happening so recently suggests that it could happen again, giving even more reason to be long here.

Cocoa is a superfood and is becoming better known for its health-giving properties when used in moderation. This is another factor which is giving the price a tailwind.

I see Cocoa as a buy, but I point out that Cocoa futures are very big, worth approximately $100,000 which is a dangerously large position size for most retail traders. Trading Cocoa CFDs can be dangerous over the long term as overnight swaps will usually be very high. Therefore, I urge retail traders to look into Cocoa ETFs or ETCs such as COCO which own cocoa futures but can be purchased for only a few US Dollars per share.

Bottom Line

I see the best trading opportunities this week as

• Long Bitcoin in USD terms following a daily (New York) close above $103,647.
• Short of the EUR/USD currency pair following a daily (New York) close below $1.0414.
• Long of the NASDAQ 100 Index.
• Long of Cocoa futures or a Cocoa ETF/ETC.

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US Dollar Outlook: EUR/USD

EUR/USD attempts to halt a five-day selloff as it recovers from a fresh monthly low (1.0453), but the exchange rate may struggle to retain the rebound from the yearly low (1.0333) as it continues to carve a series of lower highs and lows.

US Dollar Forecast: EUR/USD Attempts to Halt Five-Day Selloff

EUR/USD may track the negative slope in the 50-Day SMA (1.0697) as it no longer trades within the opening range for December, and the weakness following the US election may persist as the exchange rate holds below the moving average.

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US Economic Calendar

Nevertheless, the Federal Reserve rate decision may sway EUR/USD as the central bank is expected to cut US interest rates by another 25bp at its last meeting for 2024, and more of the same from the Federal Open Market Committee (FOMC) may drag on the US Dollar as Chairman Jerome Powell and Co. pursue a netural stance.

With that said, EUR/USD may trade within the November range should the FOMC stay on track to further unwind its restricitve policy in 2025, but the Fed’s Summary of Economic Projections (SEP) may generate a bullish reaction in the Greenback if the update reveals an upward revision in the interest rate dot-plot.

EUR/USD Chart – Daily

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

• EUR/USD fails to hold within the opening range for December as it carves a series of lower highs and lows, with a break/close below the 1.0448 (2023 low) to 1.0480 (100% Fibonacci extension) zone raising the scope for a move towards 1.0370 (38.2% Fibonacci extension).
• A breach below the yearly low (1.0333) opens up 1.0200 (23.6% Fibonacci retracement), but lack of momentum to break/close below the 1.0448 (2023 low) to 1.0480 (100% Fibonacci extension) zone may keep EUR/USD within the November range.
• Need a close above the 1.0580 (78.6% Fibonacci extension) to 1.0610 (38.2% Fibonacci retracement) region to bring 1.0660 (61.8% Fibonacci extension) back on the radar, with the next area of interest coming in around 1.0710 (50% Fibonacci extension).

Additional Market Outlooks

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

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

— Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong

US Dollar Outlook: EUR/USD

EUR/USD attempts to halt a five-day selloff as it recovers from a fresh monthly low (1.0453), but the exchange rate may struggle to retain the rebound from the yearly low (1.0333) as it continues to carve a series of lower highs and lows.

US Dollar Forecast: EUR/USD Attempts to Halt Five-Day Selloff

EUR/USD may track the negative slope in the 50-Day SMA (1.0697) as it no longer trades within the opening range for December, and the weakness following the US election may persist as the exchange rate holds below the moving average.

Join David Song for the Weekly Fundamental Market Outlook webinar.

David provides a market overview and takes questions in real-time. Register Here

US Economic Calendar

Nevertheless, the Federal Reserve rate decision may sway EUR/USD as the central bank is expected to cut US interest rates by another 25bp at its last meeting for 2024, and more of the same from the Federal Open Market Committee (FOMC) may drag on the US Dollar as Chairman Jerome Powell and Co. pursue a netural stance.

With that said, EUR/USD may trade within the November range should the FOMC stay on track to further unwind its restricitve policy in 2025, but the Fed’s Summary of Economic Projections (SEP) may generate a bullish reaction in the Greenback if the update reveals an upward revision in the interest rate dot-plot.

EUR/USD Chart – Daily

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

• EUR/USD fails to hold within the opening range for December as it carves a series of lower highs and lows, with a break/close below the 1.0448 (2023 low) to 1.0480 (100% Fibonacci extension) zone raising the scope for a move towards 1.0370 (38.2% Fibonacci extension).
• A breach below the yearly low (1.0333) opens up 1.0200 (23.6% Fibonacci retracement), but lack of momentum to break/close below the 1.0448 (2023 low) to 1.0480 (100% Fibonacci extension) zone may keep EUR/USD within the November range.
• Need a close above the 1.0580 (78.6% Fibonacci extension) to 1.0610 (38.2% Fibonacci retracement) region to bring 1.0660 (61.8% Fibonacci extension) back on the radar, with the next area of interest coming in around 1.0710 (50% Fibonacci extension).

Additional Market Outlooks

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

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

— Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong

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