• GBP/USD has dropped to near 1.2250 after failing to surpass the 1.2300 hurdle.
• Market mood has turned cautious ahead of monetary policy meeting season.
• The Fed is set to sound ‘less-hawkish’ amid a decline In October’s inflation report and in line PPI numbers.

The GBP/USD pair has corrected to near 1.2250 after facing hurdles near the round-level resistance of 1.2300 in the early Asian session. The Cable has sensed selling pressure as investors are getting anxious ahead of the release of the monetary policies by the Federal Reserve (Fed) and the Bank of England (BOE).

The US Dollar index (DXY) is failing to recapture the round-level resistance of 105.00 as investors have shifted to the sidelines amid a cautious market mood. S&P500 faced heat on Friday and is expected to remain precautionary ahead as a further rate hike by the Fed is going to escalate recession fears in the United States economy. Meanwhile, the 10-year US Treasury yields are eyeing to capture the 3.60% hurdle as expectations of a hawkish Fed policy will trim demand for US Treasury bonds.

Post a surprise fall in October’s inflation report, a decline in consumer spending, and Friday’s Producer Price Index (PPI) data, Fed chair Jerome Powell is expected to sound ‘less hawkish’ than the new normal on Wednesday. The price Index for factory-gate rates was trimmed to 7.4% in line with expectations. A decline in prices for final products indicates a decline in demand, which forced producers to go easy on decision-making for end-products prices.

On the United Kingdom front, the BOE is set to hike its interest rates further by 50 basis points (bps), according to a Reuters poll. The United Kingdom's economy is in a recession led by an extreme debt crisis, weak economic prospects, and an absence of exhaustion in inflation. The inflation rate is looking to extend further as food-price inflation is soaring dramatically after escalating food supply crisis.

• NZD/USD begins the key week without much noise, grinds higher after eight-week uptrend.
• Overbought RSI conditions, six-month-old horizontal resistance challenge further advances.
• Ascending trend line from early November, previous resistance from June limit downside.

NZD/USD stays defensive above 0.6400 as traders begin the bumper week, after the bull’s dominance in the last eight consecutive weeks.

It’s worth noting, however, that the overbought conditions of the Relative Strength Index (RSI) line, placed at 14, coupled with the Kiwi pair’s repeated failures to cross the six-month-old horizontal hurdle, keep the buyers and sellers hopeful.

However, a five-week-old ascending support line, near 0.6380 by the press time, holds the key to the NZD/USD bear’s entry.

Even so, the resistance-turned-support trend line from June 03, close to 0.6290 at the latest, could restrict the Kiwi pair’s further downside.

In a case where the NZD/USD bears conquer the 0.6290 support, they can aim for September’s high surrounding 0.6160.

Alternatively, the aforementioned horizontal area comprising multiple levels marked since early June, near 0.6465-75, appears a tough nut to crack for the NZD/USD bulls. Following that, a run-up towards the mid-2022 peak surrounding 0.6575 can’t be ruled out.

Overall, NZD/USD is likely to remain inactive between 0.6465 and 0.6380. However, the pair’s further upside appears less likely.

NZD/USD: Daily chart

Trend: Limited upside expected

• AUD/USD remains sidelined after closely missing the bearish weekly close.
• US Dollar gained on upbeat data, pre-Fed anxiety and geopolitical fears.
• Aussie Dollar cheers optimism surrounding China, RBA’s positive tone.
• No major data from Australia on cards for publishing today but rest of the week will be too volatile.

AUD/USD began the key week on a dicey floor after closely missing the negative weekly print. In doing so, the Aussie pair portrays the typical pre-data anxiety ahead of the key monetary policy meeting of the US Federal Reserve, a speech from the Reserve Bank of Australia (RBA) Governor Philip Lowe and the US inflation numbers, not to forget Aussie jobs report for November. Given the slew of important catalysts lined up for publication, the Aussie pair struggles for clear directions and remains volatile.

That said, the US Dollar Index (DXY) printed the first weekly close on the positive side in the last three as the latest US economy came in better than expected.

The US Producer Price Index (PPI) matched the market forecasts of 7.4% YoY for November versus 8.1% prior. Further, the Core PPI rose to 6.2% YoY versus 6.0% expected and 6.7% previous readings. Additionally, preliminary readings of the University of Michigan’s (UoM) Consumer Sentiment Index rose to 59.1 for December versus 53.3 market forecasts and 56.8 final readings for November. Moreover, the 1-year inflation expectations dropped to 4.6%, the lowest since September 2021 while compared to 4.9% expected whereas 5-10 year expectations were stable at 3.0%.

Elsewhere, China continues to praise a reduction in the daily Covid cases and shows readiness for more stimulus. During the weekend, Nikkei Asia reported that China banks throw a $460 billion credit lifeline to the real estate sector.

At home, the RBA’s push for slower rate hikes failed to gain major acceptance as the policymakers showed readiness for stronger moves if needed. The same joins mixed data to restrict the AUD/USD moves.

Amid these plays, Wall Street closed in the red and yields improved, which in turn restricted the AUD/USD pair’s safe-haven demand and weighed on the prices ahead of the key week.

Moving on, a light calendar on Monday and a cautious mood ahead of the key data/events could restrict intraday moves of the AUD/USD pair. However, hopes of a hawkish hike by the Fed versus the RBA’s latest defense to the easy rate hike teases the pair sellers.

Technical analysis

A one-month-old bullish channel restricts short-term AUD/USD moves between 0.6870 and 0.6685 as the Aussie traders struggle to cross the 200-day EMA hurdle surrounding 0.6835.

• Gold price is aiming to recapture a five-month high at around $1,800.00 as the risk-on profile is regaining traction.
• S&P500 to display wild gyrations ahead of Fed’s monetary policy meeting.
• November’s CPI could display a surprise rise as payroll additions soared.

Gold price (XAU/USD) has picked recovery after dropping marginally below $1,796.00 in the early Tokyo session. The precious metal is aiming to extend its recovery above the round-level resistance of $1,800.00 as the risk-appetite theme has regained strength. On a broader note, the risk profile could display some volatile moves as investors have shifted their focus toward the release of the US Consumer Price Index (CPI), which is scheduled for Tuesday.

Meanwhile, the US Dollar Index (DXY) is struggling to conquer the immediate resistance of 105.00 as the broader theme doesn’t support a risk-aversion mood. S&P500 showed a precautionary mood on Friday ahead of the last Federal Reserve (Fed)’s monetary policy meeting of CY2022. The US Treasury yields displayed some choppy moved but settled near 3.60% on Friday, showing cautiousness in the global market.

As per the projections, the headline CPI is expected to remain stable at 7.7%. While the core inflation could display a slight improvement to 6.4% from the former release of 6.3%. The inflationary pressures could display a surprise jump as labor demand remained extremely tight in November and the service sector is booming led by solid demand.

Gold technical analysis

On an hourly scale, Gold price is aiming to test a fresh five-month high around $1,810.00 on an hourly scale. The 20-period Exponential Moving Average (EMA) at $1,796.24 is acting as a major support to the gold price. Also, advancing 200-EMA at $1,780.00 indicates that the long-term trend is intact toward the north.

Meanwhile, the Relative Strength Index (RSI) (14) is looking to shift into the bullish range of 60.00-80.00 for activating an upside momentum.

Gold hourly chart

Reuters reported Bank of Japan board member Hajime Takata said in an interview with the Nikkei newspaper published on Saturday that Japan's economy is not yet in a phase where the central bank can end yield curve control,

He also said there were some positive signs in corporate capital expenditure and wages, according to the Nikkei.

USD/JPY update

USD/JPY is a resistance area on the daily chart as the bulls move in on the 137.00s. While on the front side of the trend, there is a focus on a downside extension. 

• EUR/USD remains in a bullish structure with a focus on a break above 1.0600.
• The bull's first challenge will be the micro trendline resistance and the 1.0550s.

As per the prior analysis, EUR/USD bulls have committed to the course and remain on the front side of the bullish dynamic trendline support as the following will illustrate:

EUR/USD prior analysis

While on the front side of the daily trendline, it was noted that EUR/USD bulls were firming from near 1.0480 support and were taking on resistance around 1.0570.

A break there has opened the risk of a move in EUR/USD beyond 1.0600.

A move in EUR/USD below the trendline and 1.0490 would open prospects of a deeper correction towards 1.0400. 

EUR/USD update

The price remains in a bullish structure while holding in the 1.05s and the focus for the opening sessions is on a bullish continuation:

EUR/USD H1 chart

The bull's first challenge will be the micro trendline resistance and the 1.0550s.

• AUD/USD bulls eye the price imbalance in the 0.6820s for the open.
• A break of 0.6750, however, will open the risk of a deeper move to test bullish commitments at 0.6700. 

AUD/USD ended the week on the front foot with the price marching toward its strongest levels in three months. Risk appetite was elevated on Friday which could feed through for the open, tilting the bias to the upside as per the following analysis: 

AUD/USD daily chart

The price has carved out a bullish scenario and a break of 0.6800 could be on the cards for the opening sessions. 

AUD/USD H1 chart

The hourly chart sees the bulls on the front side of the bullish dynamic support. Eyes are on a price imbalance in the 0.6820s for the open. A break of 0.6750, however, will open the risk of a deeper move to test bullish commitments at 0.6700.