• US Dollar Index stays depressed around six-month low, retreats from one-week high.
• Hawkish ECB talk, firmer German data and a light calendar at home probe DXY bulls.
• US Treasury bond yields remain firmer for the third consecutive day.
• US housing data, risk catalysts can entertain traders ahead of Friday’s US Core PCE Price Index.

US Dollar Index (DXY) retreats to 104.60 during the early hours of Tuesday’s trading, after snapping two-day rebound the previous day. The greenback’s gauge versus the six major currencies remains pressured despite firmer US Treasury bond yields as a light calendar and hawkish statements from the European Central Bank (ECB) officials join firmed German data to weigh on the DXY.

That said, ECB President Christine Lagarde highlighted the need for aggressive rate hikes when others are trying to tame the hawks. The majority of the ECB policymakers followed President Lagarde and backed further rate increases, which in turn propelled EUR/USD prices on Monday and weighed on the US Dollar. Notable among them were Vice-President Luis de Guindos and the ECB board members, Gediminas Simkus and Peter Kazimir.

Elsewhere, the US Dollar Index (DXY) began the week on a back foot as downbeat US PMIs for December raised doubts about the US Federal Reserve’s (Fed) hawkish bias. However, fears surrounding the global economic slowdown, mainly due to the higher rates and inflation fears, underpinned the US Treasury bond yields and weighed on the equities, which in turn helped DXY of late.

Amid these plays, the US 10-year Treasury yields grind higher after a two-day run-up whereas Wall Street closed in the red.

Looking forward, US Building Permits and Housing Starts could join Germany’s Producers Price Index (PPI) data to direct immediate moves. However, major attention will be given to the Fed’s preferred inflation gauge, namely Friday’s US Core Personal Consumption Expenditure (PCE) – Price Index for December, expected 4.6% YoY versus 5.0% prior.

Technical analysis

US Dollar Index remains sidelined between the 10-DMA and a previous resistance line from November 21, respectively near 104.60 and 104.15.

• USD/CAD retreats after the second failure to stay beyond 1.3700.
• Bearish RSI divergence, failure to keep the bounce off 50-SMA favor sellers.
• Multiple supports to challenge the downside, 1.3510 acts as the last defense of buyers.

USD/CAD remains pressured around 1.3650, following another failure to break the 1.3700 threshold, as bears flex muscles during early Tuesday.

In doing so, the Loonie pair justifies the bearish divergence between the prices and the Relative Strength Index (RSI) indicator, placed at 14. The reason could be linked to the quote’s latest higher high formation on the prices and lack of commensurate moves by the RSI line.

However, the 50-SMA level surrounding 1.3620 seems to restrict the immediate USD/CAD downside.

Following that, a convergence of the 100-SMA and an upward-sloping trend line from December 05, around 1.3570-65 by the press time, could challenge the pair sellers.

It’s worth noting that a five-week-long ascending support line, close to 1.3510, acts as the last defense of the USD/CAD bulls, a break of which could give control to the sellers.

Alternatively, a successful break of the 1.3700 round figure becomes necessary for the USD/CAD buyers.

Even so, November’s high near 1.3810 and multiple hurdles near 1.3830 and 1.3850 could challenge the Loonie pair buyers before directing them to the yearly top marked in October around 1.3980.

USD/CAD: Four-hour chart

Trend: Further downside expected

Japan's budget proposal for the 2023-2024 fiscal year (FY) could be as high as 114 trillion yen, the Nikkei reported, adding that the government could issue more than 35 trillion yen in bonds, per Reuters.

The news also quotes Friday’s comments from Finance Minister Shunichi Suzuki who said Japan must stick to its target of a primary budget surplus by the 2025 fiscal year, even as a planned increase in defense spending raises the spectre of worsening already dire public finances.

USD/JPY retreats from 137.00

The news appears to impress the Yen buyers who recently cheered hawkish expectations from the Bank of Japan (BOJ). That said, the USD/JPY pair drops to 136.80 by the press time.

Also read: Bank of Japan Preview: Policymakers can boost the JPY

• EUR/USD bulls struggle to keep the reins amid sluggish markets.
• ECB hawks, upbeat German data favor buyers but recession woes challenge upside moves.
• US Dollar needs support from data as Fed policymakers fail to defend bulls, US Treasury yields grinds higher.
• Second-tier data from Germany, US can entertain intraday traders.

EUR/USD steadies around 1.0600, after paring the week-start gains, as buyers run out of steam during Tuesday’s Asian session.

The major currency pair began the week on a positive note amid hawkish bias surrounding the European Central Bank (ECB), especially after President Christine Lagarde highlighted the need for more rate hikes. Additionally favoring the EUR/USD bulls were firmer German sentiment numbers from the IFO institute for December.

That said, the majority of the ECB policymakers followed President Lagarde and backed further rate increases, which in turn propelled EUR/USD prices on Monday. Notable among them were Vice-President Luis de Guindos and the ECB board members, Gediminas Simkus and Peter Kazimir.

It’s worth noting that the German IFO Business Climate Index climbed to 88.6 in December versus the previous reading of 86.3 and the forecast of 87.2. Details suggest that the IFO Current Economic Assessment for the nation improved to 94.4 points in the reported month compared to November's 93.1 and 93.5 expected. Further, the IFO Expectations Index – indicating firms’ projections for the next six months, rose to 83.2 in December from the previous month’s 80.0 and against the estimates of 82.0.

Elsewhere, the US Dollar Index (DXY) began the week on a back foot as downbeat US PMIs for December raised doubts about the US Federal Reserve’s (Fed) hawkish bias. However, fears surrounding the global economic slowdown, mainly due to the higher rates and inflation fears, underpinned the US Treasury bond yields and weighed on the equities, which in turn helped DXY of late.

Moving on, EUR/USD buyers are likely to remain hopeful as the ECB hawks have an upper hand and the recent data from the bloc has been impressive. Even so, today’s German Producers Price Index (PPI) and the US housing numbers could offer fresh impulse.

Technical analysis

EUR/USD bears remain hopeful as the corrective bounce off the 10-DMA, around 1.0585 by the press time, failed to cross the previous support line from November 30, close to 1.0655 at the latest.

• GBP/USD stays depressed on breaking five-week-old support line even as 200-DMA defends buyers.
• Gravestone Doji bearish candlestick, most bearish MACD signals in two months suggest further downside.
• Buyers need validation from 1.2360 to retake control.

GBP/USD struggles around 1.2150 as it seesaws between the previous support line and the 200-DMA during early Tuesday. Even so, a bearish candlestick formation and the most bearish MACD signals since late September keep the sellers hopeful.

That said, the 200-DMA level surrounding 1.2090 holds the key to the GBP/USD pair’s further downside targeting the late November swing low of 1.1900.

It’s worth noting that multiple supports around 1.1770-60 and October’s peak near 1.1645 could challenge GBP/USD bears past 1.1900.

In a case where the Cable pair remains bearish below 1.1645, the odds of witnessing a gradual south-run towards October’s low near 1.1060 and then to the 1.1000 psychological magnet can’t be ruled out.

On the flip side, the support-turned-resistance line from November 11, around 1.2185, guards the quote’s immediate upside.

Following that, the previous day’s top of 1.2242 challenges the GBP/USD buyers as a break of which would defy the gravestone bearish candlestick.

Even so, a two-week-old horizontal resistance area near 1.2345-60 holds the gate for the Cable bull’s welcome.

Overall, GBP/USD is likely to decline further until crossing 1.2242.

GBP/USD: Daily chart

Trend: Further downside expected

• Gold price is sideways as markets consolidate in the holiday period. 
• The downside bias is in play so long as the bulls are kept at bay below the counter trendlines and $1,800. 

The Gold Price is down some 0.3% and fell from a high of $1,798 to a low of $1,784 on Monday. The yellow metal has struggled to break a technical resistance area on the daily charts despite a soft US Dollar at the start of the week. 

The greenback was lower while traders backed the Euro due to upbeat German business sentiment data supporting EUR/USD higher. A modest improvement in investors' appetite for riskier currencies weighed on the safe-haven US Dollar. The outlook for Europe's largest economy improved despite the energy crisis and high inflation, a survey showed on Monday. The greenback has come under pressure in recent weeks as investors expect a pivot from the Federal Reserve sooner than later. This has been supporting a rise in the Gold price.

However, last week, Chair Jerome Powell said the Fed will deliver more interest rate increases next year despite a possible US recession. In this regard, analysts at Brown Brothers Harriman said, ''we cannot understand why the market continues to fight the Fed.  With the exception of some communications missteps here and there, Federal Reserve chairman Jerome Powell and company have been resolute about the need to take rates higher for longer,'' the analysts noted.

''After the decision, several Fed officials confirmed this message. ''With regards to the latest Dot Plots, the analysts noted that Federal Reserve's John Williams said “it could be higher than what we’ve written down.” Elsewhere, the analysts noted Mary Daly saying “we still have a long way to go. We are far away from our price stability goal.” 

In turn, major US indexes fell for the fourth consecutive session as worries the Federal Reserve's policy path will result in a recession persist, with little in the way of catalysts on the horizon. Although the media embargo has been lifted, there are no Fed speakers scheduled this week. All in all, it has been a battle between signs of economic softness which could translate to a dovish pivot from the Federal Reserve vs. warnings that restrictive interest rates will rise higher and last longer than many might have hoped. Nevertheless, a lack of market catalysts has kept investors largely on the sidelines at the beginning of a likely low-volume, pre-holiday week, 

''After weeks of short covering money managers have started to build long exposure in the gold market once again. With inflation data coming in below expectations, market participants anticipated the upcoming FOMC meeting would tilt firmly toward the dovish side, seeing the yellow metal move above $1,800/oz once again,'' analysts at TD Securities argued.

''But,'' they said, ''while the pace of rate hikes was slowed, the FOMCs' dot plot maintained the Fed's hawkish messaging. In this sense, a continued drawdown in net liquidity from quantitative tightening should begin to weigh on asset prices once more, and higher rates for longer should continue to weigh on precious metals prices in the near term,'' the analysts explained. 

Gold technical analysis

The downside bias is in play so long as the bulls are kept at bay below the counter trendlines and $1,800. 

• AUD/USD stays mildly bid above 100-DMA after a sluggish week start, picks up bids of late.
• Market sentiment dwindles as China-linked optimism battles with recession fears amid light calendar and holiday mood.
• Bears may seek confirmation of slower rate hikes from RBA Minutes, rest is history.
• PBOC is likely to keep benchmark interest unchanged at 3.65%.

AUD/USD grinds near the 0.6700 threshold as bulls keep the reins despite showing minor moves ahead of the key events on Tuesday.

The Aussie pair began the week on a firmer footing amid a softer US Dollar and upbeat headlines from China but pared some gains as equities dropped and yields rose. However, the buyers are in the driver’s seat as markets braces for the latest Monetary Policy Meeting Minutes from the Reserve Bank of Australia (RBA) and the Interest Rate Decision from the People’s Bank of China (PBOC).

US Dollar Index (DXY) began the week on a back foot as downbeat US PMIs for December raised doubts about the US Federal Reserve’s (Fed) hawkish bias. Adding strength to the DXY fall were the firmer data from Germany and comments suggesting stronger rate increases from the European Central Bank (ECB).

Elsewhere, Chinese policymakers showed readiness for more stimulus at the annual Central Economic Work Conference. "We must insist on stability first next year while we strive for progress,” stated the leaders. However, a fall in China’s business sentiment, according to a survey conducted by the World Economics Survey, to the lowest levels in a decade probed the AUD/USD bulls.

It should be noted that a light calendar allowed market bears to keep the reins after the latest week’s central bank moves, which in turn joined inflation fears to weigh on the equities and propel the Treasury bond yields, as well as limiting the US Dollar’s fall.

Looking forward, RBA Minutes could act as an immediate catalyst for the AUD/USD pair traders as the Aussie central bank appears less convinced in following the global counterparts and rather seems to tilt towards the doves, which if confirmed might recall the pair sellers. Following that, the PBOC Interest Rate decision may entertain traders if providing any surprise change in the benchmark rate of 3.65%.

Technical analysis

Although the 100-DMA restricts the immediate downside of the AUD/USD pair to around 0.6665, an upward-sloping support line from November 21, close to 0.6735 at the latest, challenges the upside momentum. That said, RSI and MACD suggest further grinding towards the south.

• NZD/USD is under pressure and bears expect a downside continuation from key resistance structure. 
• A 15-minute price imbalance has shown up between 0.6365 and 0.6373 which could be mitigated and serve as resistance thereafter. 
• Bears are not in the clear until a change of structure in the 4-hour time frame. This will require a break of 0.6340. 

As per the prior analysis, NZD/USD Price Analysis: Bulls move in from critical support, bears eye an opportunity, and NZD/USD bulls move in at the start of the week but bears are lurking, where it was stated that the bulls have moved in and this was giving the bears an opportunity for a discount, the bears have indeed capitalized on the sweep of liquidity to 0.6400.

NZD/USD prior analysis

The 4-hour time frame showed the price correcting towards the upside, in accordance with the daily chart analysis.

We saw the correction into resistance and bears were expected to be in anticipation of a bearish structure forming which could be leant against in the prospects of a downside continuation. 

NZD/USD update

Zoomed in...

The above daily charts show that the price is decelerating on the bid and this has resulted in a topping formation in the form of an M-pattern. The bulls are testing the neckline resistance near a 50% mean reversion of the prior bearish impulse that is so far capping the correction. 

NZD/USD H4 chart

The price has swept the liquidity near 0.64 in the form of stops and this has resulted in a move lower and a change of charter (CoCh MTF (multi time frame)) in structure, from bullish to bearish, on the lower time frames around 0.6370. 

However, the bears are not in the clear until a change of structure in the 4-hour time frame. This will require a break of 0.6340. 

NZD/USD M15 chart

If there are still bears on the sidelines, then they might be lured in at a discount should the price correct back into the resistance area and a price imbalance that has shown up on the 15-min chart between 0.6365 and 0.6373.

• EUR/USD bears are a test of 1.0580which opens the risk of a continuation towards 1.0500 at the extreme. 
• Bulls need to get above 1.0650 for a run into the 1.07s.

As per the prior analysis, EUR/USD Price Analysis: Bulls under pressure as bears test commitments at 1.0600, and, EUR/USD Price Analysis: Bulls move and seek a test of key H4 resistance structure, the bulls have been testing the M-formation's resistance area and struggle to get past, meeting a counter trendline. Failures to break higher at this juncture expose the broader bullish trendline and various horizontal support structures along the way as the following will illustrate.

EUR/USD prior analysis

It was stated that the bulls will need to show up on the front side of the more dominant trendline support or face a downside continuation. On the upside, we have 1.0700 as a key level. We have 1.0790 thereafter as the next level. 

On the 4-hour chart, the M-formation is explained to be a reversion pattern and while the price remained in a bullish trend on the front side of the bullish trendline, should the neckline resistance give, then there would be prospects of a fresh cycle high for the week ahead.

However, we are seeing the bears try to commit below the counter-trendline resistance and around the neckline of the formation as follows 

A move into the price imbalance below 1.0580 opens the risk of a continuation towards the trendline support and a test of 1.0500 at the extreme. 

• AUD/USD bulls are waiting patiently for a change of character in the market structure. 
• Bulls eye a test of 0.6800 for the days ahead while bears await confirmation of a downside opportunity. 

As per a prior analysis, AUD/USD drops heavily in risk-off markets following hawkish BoE, ECB and Federal Reserve, whereby bears were targeting a downward continuation move toward 0.6500, the thesis remains in play as the following will illustrate. However, for the immediate future, a correction towards 0.6800 could be on the cards first.

AUD/USD prior analysis

it was shown that AUD/USD had broken channel support and there were eyes on a break to the Volume Point of Control (VPC) of the late August to mid-October bear cycle:

The neckline of AUD/USD M-formation is still expected to serve as a resistance area of a restest in the coming days and that could lead to a downside continuation below the now counter-trendline to target the 0.65s.

AUD/USD update

Zoomed in...

The M-formation is still in the making. A bottom has not been confirmed yet as we are yet to see a daily first green day close that would signal the deceleration of the bearish impulse and prospects of a bullish correction of the same. 

However, the upper quarter of the 0.66s is giving some support AUD and it could be time to start monitoring for a first green day close and planning the playbook on the lower time frames for a short squeeze set-up. 

There is a price imbalance (PI) between 0.6736 and 0.6810 with the 61.8% ratio eyed as a confluence:

AUD/USD H1 chart

On the lower time frames, bulls will want to see a break of the trendline and prior lower high to confirm a bullish bias:

On the hourly time frame, we have seen a break in the trendline. The market is coiling sideways. We have equal lows at 0.6695 that are being pressured currently with liquidity in market orders expected below and under 0.6675 lows. A ''sweep' of the liquidity could result in a surge of demand from the bulls and ultimately provide enough fuel to take out the 0.6720 and then the 0.6736 resistance and create a change of character (CoCh) in the structure to bullish. 

What you need to take care of on Tuesday, December 20:

Major pairs traded choppily at the beginning of the week, with the US Dollar seesawing between gains and losses to close the day mixed. The mood was optimistic throughout the first half of the day but deteriorated ahead of Wall Street’s opening.

The better market mood was spurred by news that some big-tech companies are resuming activity in China as coronavirus-related restrictions relaxed. Furthermore, local authorities pledged to revive consumption and support the private sector in order to strengthen the economy next year.

Firmer government bond yields provided near-term support to the USD, but plummeting US indexes limited the dollar’s potential gains.

EUR/USD advanced further following the release of an upbeat December German IFO Survey. The pair traded between 1.0570 and 1.0650, ending the day unchanged at around 1.0600. GBP/USD edged lower on Monday and settled at around 1.2140.

EU ministers announced they agreed on a gas price cap that will take place in mid-February of  €180/MWh.

The AUD/USD pair battles the 0.6700 threshold, with demand for the AUD, undermined by the poor performance of Wall Street. USD/CAD recovered ahead of the close but finished the day with losses in the 1.3660 area.

The USD/JPY pair holds just below 137.00 ahead of the Bank of Japan monetary policy decision, while USD/CHF is down to  0.9295.

Gold flirted with $1,800 but finished the day in the red at around $1,786 a troy ounce. Crude oil prices, however, posted modest gains, with WTI settling at $75.40 a barrel.

• The Pound Sterling is leaning against a critical level of support. 
• The US Dollar is surprisingly weak to come analysts.
• The Federal Reserve and Bank of England are being digested. 

GBP/USD is 0.2% higher at the time of writing on the first day of the week. However, the Pound Sterling is essentially consolidating a move from the potential peak of the current bullish cycle that met highs in the 1.2450s ahead of the Federal Reserve (Fed) and Bank of England (BoE) interest rate decisions last week. GBP/USD has since tumbled to a 1.2120 structure low and on Monday it has travelled between a low of 1.2168 and a high of 1.2241 so far.

Overall, the US Dollar has been softer over the last two full trading days due to an improved appetite for risk despite the prospects of recessions and higher interest rates to be set by hawkish central banks.  World stocks have steadied near six-week lows on Monday after the Federal Reserve maintained a hawkish outlook on interest rates at the December Federal Open Market Committee (FOMC) meeting, pushing the outlook that rates could remain firmer for longer.

US Treasury Yields creep higher following Federal Reserve hawkish hike

US Treasury bond yields have crept higher since the lows that were set in the volatility around the meeting with investors still mindful of interest rate hike risks in 2023. The 1ember-year Treasury yield rose from 3.248% post-Fed lows to a high of 3.601% on Monday.  The 10-year Treasury yields are above an almost three-month low of 3.402% on December 7, but are holding well below the 15-year high of 4.338% reached on October 21 as US Treasury bond investors price in less aggressive rate increases than Fed officials are signalling. After rising as high as 5.5% after the meeting, the terminal rate as seen by the swaps market has fallen back to just below 5.0%. Fed funds futures traders are pricing for a peak rate of around 4.85% in May and a gradual decline to 4.39% by year-end.

However, the yield curve between two-year and 10-year notes remains strongly;y inverted a minus 66 basis points. This indicates investor concerns about a recession in the next one-to-two years. Historically, recession fears and the contagion of such has been supportive of the safe haven US Dollar. In recent positioning data, it was seen that speculators’ net long USD index positions ticked a little higher as well.

US Dollar surprisingly weak

Nevertheless, the US Dollar in the spot market, as measured by the DXY index against a basket of currencies, is lower by 0.35 at the time of writing, but off the lows of 104.13 for the day so far. In this regard, analysts at Brown Brothers Harriman said, ''we cannot understand why the market continues to fight the Fed,.''

''With the exception of some communications missteps here and there, Federal Reserve chairman Jerome Powell and company have been resolute about the need to take rates higher for longer,'' the analysts noted. ''After the decision, several Fed officials confirmed this message. ''

With regards to the latest Dot Plots, the analysts noted that Federal Reserve's John Williams said “it could be higher than what we’ve written down.”  Elsewhere, the analysts noted Mary Daly saying “we still have a long way to go. We are far away from our price stability goal.” 

Although the media embargo has been lifted, there are no Fed speakers scheduled this week. Overall, it has been a tug-of-war between signs of economic softness which could translate to a dovish pivot from the Federal Reserve vs. warnings that restrictive interest rates will rise higher and last longer than many might have hoped. Nevertheless, a lack of market catalysts has kept investors largely on the sidelines at the beginning of a likely low-volume, pre-holiday week, leaving GBP/USD in a sideways range so far. 

Bank of England keeps net GBP shorts lower

Domestically,  Pound Sterling continues to be faded on rallies in the aftermath of the Bank of England’s underwhelming 50 bp hike last week. As with recent meetings, the Committee remained divided; 2 MPC members voted for no change, while 1 member voted for an even larger hike of 75bp.  In the accompanying minutes, the outlook for the economy appeared little changed from the November meeting.

The United Kingdom's political backdrop has retained a calmer air since the start of Prime Minister Rishi Sunak’s premiership. However, ''recessionary conditions are prevalent'' analysts at Rabobank warned. ''Strike action is on the rise and a slew of Tories has already indicated they will throw in the towel at the general election rather than face the possibility that the party could be in opposition for some years,'' the analysts argued. 

The BoE minutes suggested that a recession is indeed expected and an even steeper fall in inflation is now seen next year following the government’s announced extension to the energy price cap. 

''With rates now well into restrictive territory, and the UK economy suffering from a combination of weak aggregate demand but still high inflation, we expect the division on the MPC to intensify over the coming months,'' analysts at ABN Amro said, adding: 

''Still, a majority on the MPC is expected to favour further rate hikes at coming meetings, with two 25bp hikes expected at the February and March meetings, and Bank Rate, therefore, expected to peak at 4%. Thereafter, we expect cooling wage growth and further signs of declining inflation expectations to stay in the BoE’s hands. Once inflation really starts to decline significantly in the second half of 2023, and unemployment begins rising, we then expect some modest rate cuts to take place – most likely in Q4.''

As for positioning data, net short GBP speculators’ positions edged lower and are now around half the size of their position in mid-October. 

GBP/USD technical analysis

Zoomed in...

The 4-hour charts show that the Pound Sterling is now on the backside of the bullish trendline support having potentially peaked out within a bullish correction of the prior bear cycle. GBP/USD is now resting on a ledge near 1.2120 and moving in a sideways channel.

As the British Pound continues to coil vs. the US Dollar, (the cause)  a breakout (the effect) would be expected to see the price driven one way or the other by force to test the next level of support at 1.1900 or resistance, 1.2400. Given that the price is below the trendline resistance, as illustrated above, the bias is for a move to 1.1900 which is just under a full 200% measured move of the current coil's range to 1.1880:

However, given the holiday markets, squaring of GBP positions and thinner conditions, price action can be more erratic and that means the price imbalances to the upside, such as to 1.2280, could be mitigated first.

In-the-money short Pound Sterling positions from within the 1.24s could therefore come under heat and weaker hands squeezed, putting pressure into the peak formation:

The European Central Bank, (ECB), targets 2% inflation and Bundesbank President Joachim Nagel said ''it will take a while to return to 2% inflation.''

Earlier in the month, he was quoted saying that the ECB should start reducing its large holdings of government debt in the first quarter of next year as part of its fight against high inflation.

This reduction, often called quantitative tightening, should be done by not replacing all the bonds that mature, rather than through outright sales, Nagel said in a speech.

This approach would allow bond yields to rise, ease a collateral shortage in the market and underline the ECB's determination to reduce inflation, Nagel argued.

EUR/USD update

As per the prior analyses, EUR/USD Price Analysis: Bulls under pressure as bears test commitments at 1.0600, and EUR/USD Price Analysis: Bulls move and seek a test of key H4 resistance structure, the Euro is pulling in the bulls in and around 1.0600 into the neckline of the H4 resistance structure:

In what is a rather cluttered schematic, the price is testing the M-formation's resistance as a potential topping pattern. So long as the bears guard a break of the 1.0650s, then the focus will be on a test of the dominant bullish trendline that remains intact. On a break of 1.0650, however, the 1.0700s will be the focus. 

• US Dollar gains momentum during the American session on risk aversion. 
• US yields hit fresh highs while equity prices turn negative. 
• EUR/USD flat for day, slightly below 1.0600.

The EUR/USD is trading flat for the day, hovering under 1.0600. During the American session, the pair fell to 1.0575, reaching the lowest level since December 13. 

The pair holds a bearish intraday tone that could change with a rebound above 1.0610. The key resistance then comes at 1.0660. On the flip, the 1.0575/80 is the critical zone: a break lower would waeken the euro further. 

While German yields moved off highs during the Aercianesssion, Treasury yields printed fresh highs. As of writing, the US 10-year bond yield stands at 3.58% the highest in six days. 

In Wall Street, the Dow Jones is falling by 0.13%, adding to last week's losses. The Nasdaq tumbles by more than 1%. Concerns about the global economic outlook as central banks continue to raise interest rates, weighs on market sentiment. 

The negative tone favors the US Dollar which erased most of its daily losses. The DXY is down by just 0.05%, far from the low, moving toward 104.80. 

Technical levels 

EUR/USD’s strength has stalled near-term. Nevertheless, economists at Credit Suisse stay bullish for the 1.0788 May high, then the 50% retracement of the 2021/2022 downtrend at 1.0944

EUR/USD weakness stays seen as corrective

“Resistance is seen initially at 1.0696, above which should see strength back to 1.0736/47, then the 1.0784/88 May highs. Whilst we would look for this latter level to cap at first, we are biased to a break in due course for a move to what is now our main objective of the 50% retracement of the 2021/2022 fall and broken trend resistance from January 2017 at 1.089 2/1.0944.” 

“Below 1.0510/06 would suggest a deeper corrective setback can emerge with support seen next at 1.0443 but with fresh buyers expected to show here.”

The Bank of Japan (BoJ) will announce its monetary policy decision on Tuesday, December 20 at 03:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of eight major banks. 

The central bank is expected to maintain its benchmark rate at -0.1%, while policymakers will probably leave unchanged the yield-curve control (YCC) that aims to keep the yield of the 10-year government bond at around 0%.

Standard Chartered

“We expect the BoJ to keep policy settings unchanged, despite rising concerns over CPI inflation. The central bank is likely to pay more attention to weak Q3 growth and improving financial market conditions. The BoJ has been concerned about a weakening JPY, given the impact on the CPI and capital outflows. However, the JPY has appreciated c.7.2% since the last BoJ meeting, easing the central bank’s concerns. We think the BoJ will maintain its dovish stance to support the government’s growth initiatives.”

BofA

“While we expect the BoJ to stay on hold without a major shift in its policy stance, we do not believe the Yen will weaken substantially. While our base case remains the BoJ will not pivot in 2023 under the new governor, we think the market would continue to speculate until after the first MPM under the new governor in April. We eventually think the Yen's fundamental weakness will manifest itself in 2023 from a perspective of carry trade, it would likely take some time.”

Danske Bank

“We expect the BoJ to stick to its outlier position as a central bank not tightening monetary policy, as inflation in Japan largely remains an imported phenomenon.” 

ING

“Despite the recent accelerating inflation, the Bank of Japan is unlikely to change its easing stance and will not give any hint of any policy tweaks in the near future.  As a result, another uneventful BoJ meeting is expected.”

SocGen

“We expect the BoJ to maintain its main monetary policy, i.e. YCC and ETF purchases. In addition, it should continue to conduct daily fixed-rate 10y JGB purchases at 0.25%. Looking further ahead, we expect Governor Kuroda to make no change to the current monetary policy. We also think his successor, to be appointed in the spring, will continue with YCC although tweak the policy slightly.”

MUFG

“We expect the BoJ to once again push back on speculation of a change in policy. We argue that conditions in Japan are falling into place for a possible change in stance next year but Governor Kuroda will conclude that it is premature for any change.”

BBH

“The two-day BoJ meeting should end with another dovish hold. Despite the recent chatter about a potential policy review next year, we believe it is way too early for the BoJ to commit to one now. Indeed, we believe such an announcement is unlikely during the remainder of Governor Kuroda’s term, which ends in April. Instead, we think it will be up to his successor to initiate a review that sets up a potential BoJ pivot, most likely in H2 of next year at the earliest.”

Wells Fargo

“We expect the BoJ to keep monetary policy unchanged, as growth trends remain rather subdued and the central bank remains unconvinced the recent jump in inflation will be sustained. Although inflation is elevated relative to recent historical standards, the BoJ seems to remain comfortable with its easy monetary policy, which includes keeping its policy balance rate at -0.10% and its target for the 10-year Japanese government bond (JGB) yield at 0.00%. In stark contrast to economies around the world which have seen monetary conditions tighten drastically, we think the BoJ's accommodative monetary policy should prevent a recession.”

Lower than expected inflation in the US is putting downward pressure on the USD. This, along with lower real yields, is allowing gold to retest $1,800, economists at ANZ Bank report.

Strategic buying of Gold ETFs has not emerged

“Retreating US inflation triggered a US Dollar sell-off, which in turn supported the Gold price. US benchmark real yields are also levelling-off from a recent high, narrowing opportunity costs. That said, inflation is hovering well above the Federal Reserve’s target of 2%, leaving little hope of the Fed turning dovish anytime soon.” 

“Short covering of investor positions has been driving the Gold price, but strategic positioning of ETF holdings has not been strong.”

“Physical demand is weakening as seen in the spot premium’s retreat from October, but official purchases are holding up.”

• Japanese Yen weakens on a quiet Monday across financial markets.  
• DXY off lows, down 0.18% for the day.  
• USD/JPY moving sideways limited by 138.00. 

The USD/JPY erased daily losses on Monday during the American session and climbed to 136.80, hitting a daily high on the back of a weaker Japanese Yen hit by higher yields.   

Government bond yields are rising sharply.  The US 10-year is at 3.58%, at the highest in almost a week. The German 10-year reference stands at 2.21%, the highest since early November.  

In Wall Street, equity indices failed to hold in positive ground. The Dow Jones is falling by 0.05% and the Nasdaq by almost 1%.  

After a busy week, in terms of economic data and events, that included the FOMC meeting, the US calendar is light for the days ahead. Market participant will likely continue to digest what the Federal Reserve will do next and the latest round of economic data, with concerns about the global economic outlook.  

On Tuesday, the Bank of Japan will announce its monetary policy decision. No change is expected. "Despite the recent chatter about a potential policy review next year, we believe it is way too early for the BOJ to commit to one now.  Indeed, we believe such an announcement is unlikely during the remainder of Governor Kuroda’s term, which ends in April," mentioned analysts at Brown Brother Harriman.  

USD/JPY limited by 138.00 

The pair is moving sideways in the short term, between two key areas. On the upside, the 138.00 is the critical resistance. A daily close above would open the doors to more gains.  

On the flip side around 135.50 there are many horizontal resistance and also the 200-day Simple Moving Average. A break lower should point to a test of the December lows and a resumption of the rally of the JPY from above 150.00. 

Technical levels 

USD/JPY is expected to see an eventual break below the 38.2% retracement of the 2021/2022 uptrend at 133.09 for support next at 130.40, then 127.47/27, economists at Credit Suisse report.

Break above 138.18 is needed to trigger a deeper recovery

“We look for a sustained break below the 200-Day Moving Average at 135.66 for a retest of the recent low at 133.62, then the 38.2% retracement of the 2021/2022 uptrend at 133.09. Whilst a fresh hold here should be allowed for, we continue to look for an eventual close below here for the 130.40 August low, then the ‘neckline’ to the multi -year base at 127.47/27.” 

“Whilst resistance at 137.43 ideally caps, above 138.18 is needed to suggest a deeper recovery can emerge to test 139.90.”

EUR/USD holds above the 1.06 level. However, economists at Société Générale believe that the outlook for the pair looks tricky in the coming months. 

Outlook for higher rates is positive for the Euro vs lower yielders

“For FX, the outlook for higher rates, in theory, is positive for the Euro vs lower yielders like the Yen (less so for CHF) as we observed last week and for EUR/commodities as equities struggle.”

“The correlation with risk assets means the outlook will be driven not exclusively by rate differentials. If stocks/credit panic because Euro (and US) rates are going much higher and stoke fears of a recession, then EUR/JPY and EUR/CHF should drop back. It is the opposite for EUR/commodities.”

“EUR/USD is a tougher call. The pair has weakened every year in January, February and March since 2019. Volatility in periphery bonds coupled with the resilience in the US labour market could interrupt the upward trajectory.”

Time will tell whether the Polish central bank (NBP) is correct with its strategy or not. The data on core inflation gives reason to question this, in the opinion of economists at Commerzbank.

Core rate illustrates that price pressure remains high on a broad basis

“It is quite possible that the overall rate might have peaked. However, the core rate, in particular, illustrates that price pressure remains high on a broad basis, regardless of energy and food prices, and that this is unlikely to change anytime soon.”

“We will only find out in a couple of months’ time whether the NBP’s reliance on falling inflation rates in 2023 is founded and whether real interest rates will rise into less negative territory. If that is the case, the Zloty should be able to appreciate. If not, things look rather worse for the NBP’s credibility and the Zloty.”

• AUD/USD attracts some buying on Monday, albeit the intraday uptick lacks follow-through.
• The Fed’s hawkish outlook, recession fears underpin the USD and cap the upside for the pair.
• The fundamental backdrop warrants some caution before positioning for any further gains.

The AUD/USD pair defends the 100-day SMA support and gains some positive traction on the first day of a new week. The pair, however, trims a part of its modest intraday gains and retreats to the 0.6700 mark during the early North American session.

A combination of supporting factors assists the US Dollar to attract some dip-buying on Monday, which, in turn, acts as a headwind for the AUD/USD pair. Despite the easing of strict COVID-19 curbs in China, a sharp rise in new infections could delay the full reopening of the economy. This, along with the protracted Russia-Ukraine war, keeps a lid on any optimistic move in the markets and offers some support to the safe-haven buck. Furthermore, a more hawkish commentary by the Fed last week helps limit a modest intraday USD downtick.

It is worth recalling that the US central bank indicated that it will continue to raise rates to crush inflation. Furthermore, policymakers projected at least an additional 75 bps increases in borrowing costs by the end of 2023. This, in turn, pushes the US Treasury bond yields higher and continues to act as a tailwind for the greenback. In the absence of any relevant macroeconomic data, the fundamental backdrop favours the USD bulls and warrants some caution before positioning for a further appreciating move for the AUD/USD pair.

Moving ahead, the focus now shifts to this week's release of the final US Q3 GDP print and the core PCE Price Index - the Fed's preferred inflation gauge. In the meantime, the US bond yields will play a key role in influencing the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will also take cues from the broader risk sentiment and COVID-19 situation in China to grab short-term opportunities around the risk-sensitive Aussie.

Technical levels to watch

Gold price moved up and down in a wide range throughout last week. XAU/USD could gain traction on a 'Santa rally', FXStreet’s Eren Sengezer reports.

Risk perception could influence XAU/USD's action

“The Conference Board will release the Consumer Confidence Index data for December on Wednesday. In November, the one-year inflation rate expectation component of the survey rose to 7.2% from 6.9% in October. Another increase in that component should help the US T-bond yields edge higher and weigh on XAU/USD and vice versa.”

“Ahead of the weekend, the US Bureau of Economic Analysis will publish the PCE Price Index figures for November. On a monthly basis, Core PCE inflation is forecast to rise by 0.4%. If the monthly figure falls below the market consensus, Gold could gain traction given the market feedback to soft CPI figures. On the other hand, a stronger-than-forecast monthly Core PCE inflation should have the opposite effect and weigh on XAU/USD.”

“Market participants will pay close attention to risk mood. Following the dismal performance of Wall Street’s main indexes, investors could look to take advantage of low prices, opening the door for the infamous ‘Santa rally.’ In case major equity indices in the US start pushing higher, XAU/USD will gather bullish momentum.”

• Silver faces an intraday rejection near the $23.40-$23.50 confluence barrier.
• The mixed technical setup warrants caution before placing aggressive bets.
• Any further pullback, however, might still be seen as a buying opportunity.

Silver struggles to capitalize on its modest intraday uptick and retreats to the $23.00 mark heading into the North American session.

From a technical perspective, the recovery momentum from the vicinity of mid-$22.00s, or over a one-week low touched on Friday, falters near the $23.45-$23.50 confluence hurdle. The said area comprises the 100-hour SMA and the 50% Fibonacci retracement level of the recent pullback from a multi-month top, which should now act as a pivotal point.

A sustained strength beyond will be seen as a fresh trigger for bullish traders and set the stage for some meaningful upside. The XAG/USD might then surpass an intermediate resistance near the $23.70 area and aim to reclaim the $24.00 round figure. That said, oscillators on the daily chart have been losing traction and warrant caution for bulls.

On the flip side, weakness below the $23.00 mark might turn the XAG/USD vulnerable to accelerate the fall back towards last week's swing low, around the $22.70-$22.65 region. Any subsequent fall, however, is likely to find support near a horizontal resistance breakpoint, around the $22.00 mark, which if broken might shift the bias in favour of bearish traders.

Silver 1-hour chart

Key levels to watch

EUR/USD pops higher but undertone remains soft. Economists at Socitbank expect the pair to consolidate in the next few weeks before pushing higher again.

Support at 1.0650/55 now figures as short-term resistance

“We still think that positioning (long) and sentiment (bullish) mean that the EUR’s late year rally has run its course for now and needs to consolidate in the next few weeks before pushing higher again.”

“Spot has edged under minor trend support at 1.0650/55 off the early Nov low which now figures as short-term resistance.” 

“Support is 1.0500/10.”

GBP/USD struggles as charts warn of a potential downside move, economists at Scotiabank report. 

Cable prone to a bit more weakness in the short run

The GBP’s inability to recover from the sharp fall in spot seen late last week leaves Cable prone to a bit more weakness in the short run at least.” 

“Key support on the hourly chart is 1.2105.”

“The GBP may be trying to set up a Head & Shoulders top/reversal, with the low 1.21 zone shaping up as key support (neckline trigger) if that is the case. Downside potential extends to the 1.18 zone if this pattern develops and breaks down.”

“Resistance is 1.2320/40.”

• USD/CAD comes under some selling pressure and is weighed by a combination of factors.
• An uptick in crude oil prices underpins the Loonie and exerts pressure amid a weaker USD.
• The Fed’s hawkish outlook, rising US bond yields, recession fears favours the USD bulls.

The USD/CAD pair opens with a bearish gap on the first day of a new week and remains on the defensive through the mid-European session. The pair, however, manages to rebound a few pips from the daily low and is currently placed just above mid-1.3600s.

A modest recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - prompts some selling around the safe-haven US Dollar. Apart from this, an intraday uptick in crude oil prices underpins the commodity-linked Loonie and exerts downward pressure on the USD/CAD pair. That said, a combination of factors holds back traders from placing aggressive bets and limits the downside for spot prices, at least for the time being.

A sharp rise in new COVID-19 infections in China could delay the full reopening of the economy and overshadows the optimism over the easing of strict restrictions, which is expected to boost oil demand. This keeps a lid on any optimistic move in the markets and any meaningful upside for crude oil prices. Apart from this, a goodish pickup in the US Treasury bond yields, bolstered by a hawkish commentary by the Fed, should act as a tailwind for the buck and the USD/CAD pair.

It is worth recalling that the US central bank last week indicated that it will continue to raise rates to crush inflation. Furthermore, policymakers projected at least an additional 75 bps increases in borrowing costs by the end of 2023. This, in turn, favours the USD bulls and warrants some caution before positioning for any further depreciating move for the USD/CAD pair.

There isn't any major market-moving economic data due for release from the US on Monday, leaving the USD at the mercy of the US bond yields and the broader risk sentiment. Apart from this, traders will take cues from oil price dynamics to grab short-term opportunities around the USD/CAD pair.

Technical levels to watch

The European Central Bank (ECB) could now be the most aggressive central bank in tightening policy in Q1. ECB and Fed policy updates favour further upside for EUR/USD, economists at MUFG Bank report.

EUR to outperform against non-Dollar currencies 

“The ECB has now positioned itself as the most aggressive major central bank in terms of raising rates at the start of next year. On its own the narrowing of expectations for monetary policy divergence between the ECB and Fed should encourage the EUR to rebound further against the USD. It opens the door for EUR/USD to climb back up to the highs from back in May at 1.0787 and then up towards the 1.1000-level.” 

“Upside potential would though be dampened if global equity markets continue to correct lower in response to the hawkish policy updates and heightened fears over a hard landing for the global economy which would be supportive for the USD more broadly. In these circumstances, the EUR and USD should outperform alongside each other against the high beta G10 currencies of the AUD, CAD, GBP, NZD, NOK ad SEK.”

USD/INR has rebounded sharply after defending the trend line drawn since February now at 81.20. Economists at Société Générale expect the pair to extend its race higher on a break past 83.30.

A pause is not ruled out

“USD/INR is not far from the peak of October at 83.30 which is expected to be a short-term resistance.”

“A pause is not ruled out; break above 83.30 would be essential to affirm next leg of uptrend.”

“If the pair violates the graphical level near 81.90, a deeper pullback is likely towards the trend line at 81.20 and 80.50/80.00.”

Economists at ANZ Bank have downgraded their Australian GDP forecast to 1.5% year-on-year by end-2023. Notwithstanding the slower forecast growth trajectory, the the extent of RBA tightening is unchanged.

Growth downgrade doesn’t change the policy outlook

“We have downgraded our Australian GDP forecast to 1.5% YoY by end-2023 (prev: 1.8%) but expect Australia willavoid recession this cycle.

“The labour market, wages growth and the path of inflation will determine the extent of RBA tightening in 2023. We have pared our forecast peak for headline CPI inflation to 7.8% YoY in Q4 2022 (prev: 8.0%) but underlying inflation will be particularly sticky.” 

“An extended period of restrictive rates will be required to bring inflation back to target, notwithstanding the slower growth trajectory. We see the cash rate peaking at 3.85% by May 2023 with no cuts until late-2024.”

Economists at Rabobank do not envisage that 2023 will be an easy ride for the single currency and cannot rule out another dip below EUR/USD parity next year.

2023 unlikely to be an easy ride for the Euro

“Even though the EUR has taken back a fair amount of ground in recent weeks, we do not envisage that 2023 will be an easy ride for the single currency.”

“While we have revised up our EUR/USD forecasts to take account of the weaker tone of the USD if gas prices push higher again, we cannot rule out another move back below parity in the months ahead.”

European Central Bank (ECB) policymaker Peter Kazimir said on Monday, the central bank will need to act strongly in the first half of the next year.

Key quotes

Market reaction

The Euro fails to capitalize on the hawkish commentary from the ECB policymakers, defending gains at around 1.0615, at the time of writing. The pair is up 0.31% on the day.

• GBP/USD regains some positive traction on Monday and snaps a two-day losing streak.
• A positive risk tone undermines the safe-haven USD and offers some support to the pair.
• Hawkish Fed, rising US bond yields, recession fears should limit any further USD losses.
• A dovish outcome from the BoE meeting could further contribute to capping the major.

The GBP/USD pair attracts some buying near a technically significant 200-day SMA support on Monday and stick to its gains through the first half of the European session. The pair is currently placed near the daily high, around the 1.2230 region and remains well supported by a modest US Dollar weakness.

A slight recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - prompts fresh selling around the safe-haven buck. That said, a combination of factors might hold back traders from placing aggressive bearish bets around the USD and keep a lid on any meaningful upside for the GBP/USD pair, at least for the time being.

Despite the easing of strict COVID-19 curbs in China, a sharp rise in new infections could delay the full reopening of the economy. This, along with the protracted Russia-Ukraine war, might keep a lid on any optimistic move in the markets. Furthermore, a more hawkish commentary by the Federal Reserve last week supports prospects for the emergence of some USD dip-buying.

In fact, the US central bank indicated that it will continue to raise rates to crush inflation and projected at least an additional 75 bps increase in borrowing costs by the end of 2023. This, in turn, pushes the US Treasury bond yields higher and favours the USD bulls, warranting caution before positioning for any further appreciating move for the GBP/USD pair.

Adding to this, a dovish outcome from the Bank of England meeting, with two MPC members voting to keep interest rates unchanged, could undermine the GBP amid looming recession risks. In the absence of any relevant macroeconomic releases, this might also contribute to capping the GBP/USD pair and suggests that the path of least resistance for spot prices is to the downside.

Technical levels to watch

The Central and Eastern Europe (CEE) region will remain interesting until the last moment of the year. Economists at ING analyze the outlook for the likes of Koruna, Forint and Zloty.

EUR/PLN remains trapped in the 4.68-70 band

“We see the Czech Koruna as the most vulnerable as it hit new lows against the Euro on Friday. A correction back to 24.250 EUR/CZK should thus not be a problem. On the other hand, we think the Hungarian Forint can still benefit from the progress in the EU story for a while and get below 405 EUR/HUF.”

“The Polish Zloty remains trapped in the 4.680-700 EUR/PLN band, and we see it rather on the upper side for this week.”

The Japanese Yen jumped on expectations that the Bank of Japan (BoJ) could potentially unwind its ultra-loose monetary policy. In the view of economists at Commerzbank, it might be a tragic mistake if the BoJ were to change its approach now.

Considerable logic in a continuation of the expansionary monetary policy

“At a time when the inflation trend seems to reverse in other economies, it might be a tragic mistake if the BoJ were to change its approach now. If global inflation pressure eases now and if inflation in Japan eases back below the 2% target, the opportunity of sustainable inflation pressure would be lost again for another generation.”

“I see considerable logic in a continuation of the expansionary monetary policy which I am missing in the comments that only refer to current inflation levels. However, I have to admit: these considerations say very little about whether the government and the BoJ after Kuroda might not very well commit this policy error.”

The European Central Bank (ECB) would like a stronger Euro. If the shared currency strengthens, the British Pound will be the main victim, according to economists at ING.

EUR/GBP to find good demand under 0.87

“The ECB would clearly like a stronger Euro to help out with its battle against inflation. If the ECB is to be successful in getting the Euro higher, then the EUR will need to rally against those currencies with major weights in the trade-weighted Euro index. The biggest weights in this index are the USD (16%), the CN (14%) and then the GBP (12%).”

“Of the three, we would say that Sterling is the most vulnerable given that the Bank of England (BoE) is closer to ending its tightening cycle than the Fed and that the UK's large current account deficit leaves Sterling vulnerable in a global slowdown.”

“We suspect EUR/GBP finds good demand under 0.87 now and we remain happy with a 0.89 target for 1Q23.”

• EUR/USD regains traction on Monday and snaps a two-day losing streak.
• A positive risk tone undermines the safe-haven USD and lends support.
• The upbeat German IFO Business Climate Index further provides a boost.
• The mixed fundamental backdrop warrants some caution for bullish traders.

The EUR/USD pair catches fresh bids on the first day of a new week and stalls its recent pullback from a six-month low touched last Thursday. Spot prices build on the steady intraday ascent through the first half of the European session and climb to a fresh daily high, around mid-1.0600s in the last hour.

The US Dollar struggles to capitalize on last week's recovery from its lowest level since mid-June and meets with a fresh supply on Monday, which, in turn, acts as a tailwind for the EUR/USD pair. A slight recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets is seen as a key factor undermining the safe-haven Greenback.

The shared currency draws additional support from the better-than-expected German IFO Business Climate Index, which improved to 88.6 in December from 86.4 previous. This comes on the back of hawkish signals from the European Central Bank, indicating that it will need to raise rates further to tame inflation, and remains supportive of the bid tone around the EUR/USD pair.

That said, a combination of factors should limit any deeper USD losses and cap gains for the EUR/USD pair, at least for the time being. Despite the easing of strict COVID-19 curbs in China, a sharp rise in new infections could delay the full reopening of the economy. This, along with the protracted Russia-Ukraine war, might keep a lid on any optimistic move in the markets.

Furthermore, a more hawkish commentary by the Fed last week supports prospects for the emergence of some USD dip-buying. In fact, the US central bank stated that it will continue to raise rates to crush inflation and projected at least an additional 75 bps increase in borrowing costs by the end of 2023. This, in turn, pushes the US Treasury bond yields higher and favours the USD bulls.

In the absence of any relevant market data from the US, the mixed fundamental backdrop warrants some caution before positioning for any further appreciating move for the EUR/USD pair. This, in turn, suggests that an intraday positive move could attract some sellers at higher levels and runs the risk of fizzling out rather quickly.

Technical levels to watch

Following the release of the German IFO Business Survey, the institute’s Economist Klaus Wohlrabe said that “the German economy sees a silver lining on the horizon.”

Additional quotes

China’s covid concerns accentuate the souring market mood. Economists at Commerzbank expect the Chinese Yuan to remain under pressure over the coming months.

Covid infections are sweeping across China

“More fiscal and monetary policy easing will come and still be much needed in the first half of 2023 to support growth.”

“Covid infections are sweeping across China following the Covid policy relaxation. Consumption will remain weak and supply chains will continue to be heavily disrupted in the near term.”

“CNY will likely remain under pressure in the coming months before shifting to an appreciation trend again.”

• German IFO Business Climate Index came in at 88.6 in December.
• IFO Current Economic Assessment for Germany rose to 94.4 this month.
• December German IFO Expectations Index improved to 83.2.

The headline German IFO Business Climate Index climbed to 88.6 in December versus the previous reading of 86.3 and the forecast of 87.2.

Meanwhile, the Current Economic Assessment improved to 94.4 points in the reported month as against November's 93.1 and 93.5 expected.

The IFO Expectations Index – indicating firms’ projections for the next six months, rose to 83.2 in December from the previous month’s 80.0 and against the estimates of 82.0.

Market reaction

EUR/USD is little changed on the upbeat German IFO survey. At the time of writing, the pair is trading at 1.0639, up 0.52% on the day.

About German IFO

The headline IFO business climate index was rebased and recalibrated in April after the IFO Research Institute changed the series from the base year of 2000 to the base year of 2005 as of May 2011 and then changed the series to include services as of April 2018. The survey now includes 9,000 monthly survey responses from firms in the manufacturing, service sector, trade and construction.

• NZD/USD draws support from a combination of factors and edges higher for the second straight day.
• A positive risk tone is seen undermining the safe-haven buck and benefitting the risk-sensitive Kiwi.
• The Fed’s hawkish outlook should limit the USD losses and cap any meaningful upside for the major.

The NZD/USD pair gains traction for the second successive day and maintains its bid tone through the first half of the European session. The pair is currently placed just below the 0.6400 mark and looks to build on Friday's modest rebound from over a one-week low amid some renewed US Dollar selling.

A modest recovery in the risk sentiment - as depicted by a positive tone around the equity markets - is seen undermining the safe-haven USD and acting as a tailwind for the risk-sensitive Kiwi. That said, a combination of factors should help limit the downside for the greenback and keep a lid on any further gains for the NZD/USD pair, at least for the time being.

Despite the easing of strict COVID-19 restrictions in China, a sharp rise in new infections could delay the full reopening of the economy. This, along with the protracted Russia-Ukrain war, might keep a lid on any optimism in the markets. Furthermore, a more hawkish commentary by the Fed last week supports prospects for the emergence of some USD dip-buying.

It is worth recalling that the US central bank stated that it will continue to raise rates to crush inflation and projected at least an additional 75 bps increase in borrowing costs by the end of 2023. This remains supportive of an uptick in the US Treasury bond yields and favours the USD bulls, warranting caution before placing bullish bets around the NZD/USD pair.

In the absence of any major market-moving economic releases from the US, the US bond yields will play a key role in influencing the USD price dynamics. Apart from this, the broader risk sentiment could drive demand for the safe-haven greenback and contribute to producing short-term trading opportunities around the NZD/USD pair.

Technical levels to watch

European Central Bank (ECB) policymaker Gediminas Simkus backs the case for a 50 basis points rate hike in February.

He said that “there will undoubtedly be a 50 bps increase in February.”

Market reaction

EUR/USD was last seen trading at around 1.0640, up 0.52% on the day.

US Dollar stays on the defensive amid a cautious start to the week. Economists at ING believe that DXY could dip back to the 104.00/10 zone.

US data unlikely to provide much support to US bond yields

“On the one hand, the ECB wants tighter monetary conditions – including a stronger Euro. On the other, the Federal Reserve is not done with its tightening cycle and a global slowdown typically is not a good story for a pro-cyclical currency like the Euro. Events this week look unlikely to break new ground on this story.”

“In the US, we will see a variety of housing data (all expected to be soft), some consumer confidence data and on Friday the PCE personal income, spending and price data. None of this looks likely to provide much support to US bond yields, where the 10-year Treasury is hanging onto the 3.50% area by its fingernails. This all tends to suggest that DXY risks sinking back to the 104.00/104.10 area this week.”

Kadri Simson, the European Commissioner for Energy, said in a statement on Monday, “I believe a deal on the gas price cap is within reach.”

Meanwhile, European Council President noted that “I believe the gas price cap amount to be under €200.”

Market reaction

WTI is testing daily lows near $74 on theese above comments. The US oil is down 0.48% on the day.

European Central Bank (ECB) Vice-President Luis de Guindos said on Monday that the central bank will hike interest rates further.

Although he was quick to add. “we do not know when will stop.”

“ECB action so far isn't sufficient,” Vice-President de Guindos said.

Market reaction

EUR/USD is keeping the higher ground intact near 1.0650, adding 0.60% on the day.

EUR/USD is clinging to recovery gains around the 1.0600 region. The focus now shifts to the German IFO business survey. Any upside surprise could give the pair a modest boost, economists at ING report.

EUR/USD unlikely to break new ground this week

“On the agenda today is the Germany Ifo business confidence index for December. Today's Ifo data is expected to see the expectations component bounce up to 82 from 80 – still very low. Any upside surprise could give EUR/USD a modest boost in thin markets.”

“We doubt EUR/USD will break new ground this week, although it is hard to rule out a move back up the 1.0700 area.”

• USD/JPY fails to gain any meaningful traction on Monday amid a combination of diverging factors.
• Bets for an eventual BoJ pivot benefit the JPY and cap the upside amid a modest USD downtick.
• An uptick in the US bond yields could limit the USD losses and lend some support to the major.
• Traders might also prefer to wait on the sidelines ahead of the BoJ policy meeting on Tuesday.

The USD/JPY pair struggles to capitalize on its modest intraday uptick and attracts some sellers near the 136.60 region on Monday. The pair retreats to the lower end of its daily range, below the 136.00 mark during the early European session and is pressured by a combination of factors.

The Japanese Yen draws some support from a weekend report that the government could revise the Bank of Japan's 2% inflation target and make it more flexible. The revision could allow the BoJ to tweak its ultra-loose policy stance, which has been the key factor behind the recent slump in domestic currency. Apart from this, a modest US Dollar downtick acts as a headwind for the USD/JPY pair.

The USD downside, however, remains cushioned amid a pickup in the US Treasury bond yields, bolstered by a more hawkish commentary by the Fed last week. In fact, the US central bank said that it will continue to raise rates to crush inflation and projected at least an additional 75 bps increase in borrowing costs by the end of 2023. This, in turn, is seen lending some support to the USD/JPY pair.

Traders might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the BoJ monetary policy meeting on Tuesday. This, in turn, warrants some caution before positioning for a firm intraday direction in the absence of any relevant macro data. Meanwhile, the USD/JPY pair's inability to gain any traction suggests that the recent downtrend is still far from being over.

Moreover, the range-bound price moves witnessed over the past two weeks or so constitute the formation of a rectangle on the daily chart. Given the recent sharp corrective pullback from a 32-year peak, this might still be categorized as a bearish consolidation phase. That said, a sustained weakness and acceptance below the very important 200-day SMA is needed to confirm a fresh breakdown.

Technical levels to watch

The Federal Open Market Committee (FOMC) voted unanimously to hike by another 50 bps. Economists at HSBC still expect a final 50 bps rate hike by the Fed in early 2023 but do not expect rate cuts until 2024. They look for USD weakness during 2023.

No rate cuts until 2024

“A slower hiking pace and a recognition that the Fed is in the late stages of the tightening cycle are part of why we expect further USD downside in 2023.”

“If slowing US inflation allows the Fed to pare back its hawkishness further and global growth avoids an onerous slowdown, the ‘safe haven’ USD will likely weaken further from here.”

“We still think that the FOMC will raise its policy rate by a final 50 bps in February 2023, while admitting upside risks. The FOMC is expected to deliver 50 bps of rate cuts in 2024 (25 bps in Q2 2024 and 25bp in Q3 2024), bringing the federal funds target range back down to 4.25-4.50% by the end of 2024.”

• Gold price lacks any firm directional bias on Monday and remains confined in a narrow range.
• A modest USD downtick lends some support, though a combination of factors caps the upside.
• The prospects for further tightening by major central banks act as a headwind for the metal.

Gold price struggles to capitalize on Friday's goodish rebound from over a one-week low and oscillates in a narrow band on the first day of a new week. The XAU/USD, meanwhile, manages to hold above the very important 200-day Simple Moving Average (SMA), albeit remains below the $1,800 mark through the early European session.

The US Dollar comes under some renewed selling pressure and turns out to be a key factor lending some support to the Dollar-denominated Gold price. The downside for the USD, however, is likely to remain limited amid a modest uptick in the US Treasury bond yields, bolstered by a more hawkish commentary by the Federal Reserve (Fed) last week.

In fact, the US central bank said that it will continue to raise rates to tame inflation and projected at least an additional 75 bps increase in borrowing costs by the end of 2023. This acts as a tailwind for the US bond yields, which, along with the prospects for further tightening by other major central banks, cap the non-yielding Gold price.

It is worth recalling that the European Central Bank (ECB) struck a hawkish tone last Thursday and indicated that more interest rate hikes are needed to combat stubbornly high inflation. The Bank of England (BoE) also offered a similar message and said that more rate hikes were likely in its fight against the persistent rise in consumer prices.

Apart from this, a stable performance around the equity markets is seen as another factor holding back traders from placing bullish bets around the safe-haven XAU/USD. That said, growing worries about a deeper global economic downturn should keep a lid on any optimism in the markets and continue to offer some support to Gold price, at least for now.

In the absence of any major market-moving economic releases, the mixed fundamental backdrop supports prospects for an extension of the subdued/range-bound price action. Traders might also prefer to wait on the sidelines ahead of the release of the Core PCE Price Index from the US - the Fed's preferred inflation gauge later this week.

Technical levels to watch

Gold price is looking to extend Friday’s rebound above the $1,800 mark as bulls retain control at the start of a new week, FXStreet’s Dhwani Mehta reports.

200DMA could restrict any pullbacks

“The immediate upside hurdle is placed at the $1,800 level, above which the December 15 high at $1,809 will be tested again. Acceptance above the latter could trigger a fresh upswing toward the multi-month high of $1,824.”

“On the flip side, a daily closing below the 200-Daily Moving Average (DMA) at $1,786 could challenge bullish commitments at the ascending 21DMA at $1,775. A decisive close below the 21DMA support will negate the ongoing upside momentum.”

• AUD/USD struggles to defend bulls during the first positive day in three.
• Risk appetite remains mixed as hopes of more stimulus from China, Covid woes test sentient amid light calendar.
• Hopes of Australia-China diplomatic ties also underpin AUD/USD rebound.
• Reserve Bank of Australia Meeting Minutes, Federal Reserve’s preferred inflation data will be crucial for Australian Dollar traders.

AUD/USD seesaws around the 0.6700 round figure as a short-term moving average defends the Australia Dollar buyers during early Monday morning in Europe. In doing so, the Aussie pair portrays the cautious optimism in the market amid sluggish moves and a light calendar. However, broad US Dollar weakness allows the pair buyers to cheer the first daily gains in three.

China-linked news favor AUD/USD buyers.

Be it a likely restoration of the Aussie-Sino ties or China’s readiness for more stimulus, AUD/USD has reasons to defend the latest recovery moves. In this regard Reuters said, “Australian Foreign Minister Penny Wong will visit China this week, Prime Minister Anthony Albanese said on Monday, signaling an improvement in diplomatic relations between Beijing and Canberra.” The news also stated that China President Xi Jinping and his senior officials on Friday pledged to shore up China's battered economy next year by stepping up policy adjustments to ensure key targets are hit.

Alternatively, doubts over China’s economic growth and the reliability of the latest easing in Covid policy seem to challenge the AUD/USD pair buyers. It’s worth noting that the People’s Bank of China's (PBOC) defense of easy money policy also keeps the Australia Dollar firmer, due to the strong trade links between Australia and China.

US Dollar fails to cheer hawkish Federal Reserve talks

US Dollar Index (DXY) picks up bids from intraday low but prints 0.15% daily loss around 104.60 as traders struggle for clear directions. The reason could be linked to the hawkish comments from the US Federal Reserve (Fed) officials and softer US PMIs for December.

Federal Reserve Bank of Cleveland President Loretta Mester and New York Federal Reserve President John Williams recently favored higher rates. On the other hand, the US S&P Global Manufacturing PMI dropped to 46.2 from 47.7 in November, as well as the market expectation of 47.7. Further, S&P Global Services PMI declined to 44.4 in December's flash estimate from 46.2 in November and market expectation of 46.8.

AUD/USD traders await Reserve Bank of Australia Meeting Minutes, United States Inflation data

In its latest monetary policy meeting, the Reserve Bank of Australia (RBA) announced 25 basis points (bps) rate hike and showed readiness for more. However, the RBA Governor Philip Lowe appeared less convinced of the hawkish move and hence the AUD/USD pair traders will pay more attention to confirm the dovish bias over the RBA, which in turn could weigh on the Australian Dollar.

On the other hand, the Federal Reserve’s (Fed) preferred version of inflation, namely Friday’s US Core Personal Consumption Expenditures (PCE) - Price Index, expected 4.6% YoY and 5.0% prior, will be important for the AUD/USD pair traders. Should the inflation number appear softer, the US Dollar may have more downside to trace, which in turn could weigh on the Aussie pair.

Additionally, Australia’s Mid-Year Economic and Fiscal Outlook will be important as economic fears gain momentum, which if confirmed could weigh on the AUD/USD prices.

AUD/USD: Technical analysis

AUD/USD bears mark another retreat from the 200-SMA, after an early November rebound from the stated key Simple Moving Average (SMA).

Not only the U-turn from the 200-SMA, around 0.6680 by the press time, but an impending bull cross on the Moving Average Convergence and Divergence (MACD) indicator also keeps the AUD/USD pair buyers hopeful.

However, a successful run-up beyond the previous weekly start of around 0.6730 appears necessary for the Australia Dollar buyers.

Following that, a one-week-old horizontal hurdle surrounding 0.6815 appears as the last defense of the AUD/USD pair bears, a break of which could propel the quote towards a convergence of the five-week-old ascending trend line and the monthly top, close to the 0.6900 round figure.

On the flip side, a break of the 200-SMA level surrounding 0.6680 could fetch the Australia Dollar towards the late November swing low near 0.6585.

In a case where the AUD/USD bears break the 0.6585 support, the November 08 peak of 0.6551 appears the key challenge before activating a south run towards the previous monthly low near 0.6272.

AUD/USD: Four-hour chart

Trend: Recovery expected

FX option expiries for Dec 19 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0700 546m

- USD/JPY: USD amounts                     

• 135.00 372m

• USD/CAD struggles to defend bears during the first daily loss in three.
• Oil price initially cheered hopes of China stimulus, softer US Dollar before latest consolidation.
• Inflation is the key but holiday mood could restrict short-term moves.

USD/CAD consolidates intraday losses as it grinds higher around 1.3680, following a downbeat start to the week.

That said, softer US Dollar and optimism surrounding Crude Oil seemed to have contributed to the Loonie pair’s first daily loss in three before the latest paring of moves amid a light calendar and mixed concerns.

US Dollar Index (DXY) picks up bids from intraday low but prints 0.15% daily loss around 104.60 as traders struggle for clear directions. The reason could be linked to the hawkish Fedspeak and softer US PMIs for December.

That said, Federal Reserve Bank of Cleveland President Loretta Mester and New York Federal Reserve President John Williams recently favored higher rates. On the other hand, the US S&P Global Manufacturing PMI dropped to 46.2 from 47.7 in November, as well as the market expectation of 47.7. Further, S&P Global Services PMI declined to 44.4 in December's flash estimate from 46.2 in November and market expectation of 46.8.

It should be noted that the WTI crude oil prices, Canada’s main export retreats to $75.00 after an initial run-up to $75.93. Even so, the black gold snaps a two-day downtrend amid hopes of firmer demand from China and the US decision to buy back oil for its state reserves.

On the contrary, global recession woes underpin the US Treasury yields and challenge equity traders. In addition to the mixed signals and holiday mood could also be held responsible for the USD/CAD pair’s latest moves.

Moving on, the Bank of Canada's (BOC) Consumer Price Index (CPI) Core for November, expected 6.4% YoY versus 5.8% prior, will be important for the USD/CAD traders ahead of the Fed’s preferred version of inflation, namely Friday’s US Core Personal Consumption Expenditures (PCE) - Price Index, expected 4.6% YoY and 5.0% prior.

Technical analysis

A seven-day-old horizontal resistance area near 1.3700 inside a rising wedge bearish formation, established since early November, restricts short-term USD/CAD moves.

Here is what you need to know on Monday, December 19:

As the dust settled over the last week’s central banks’ policy announcements, risk sentiment remains in a weak spot at the start of a new week that will lead up to the Christmas holiday. Investors continue to assess the Fed’s hawkish outlook, which dents the appetite for riskier assets. In addition, China officially reported its first Covid death after the government relaxed restrictions nationwide, as virus outbreaks flares up. China’s covid concerns accentuate the souring market mood. Meanwhile, Chinese state media reported some goals for economic progress, laid out in China's annual Central Economic Work Conference.

However, the US Dollar fails to capitalize on risk-off flows, in the face of the USD/JPY sell-off. The Japanese yen jumped on expectations that the Bank of Japan (BoJ) could potentially unwind its ultra-loose monetary policy, following the news that government could soon revise a joint statement with the Bank of Japan (BOJ) over the latter's inflation target. USD/JPY tumbled to 135.77 lows before recovering above 136.00, where it now wavers.

Meanwhile, the rally in the US Treasury bond yields across the curve amid flattish S&P 500 futures also does little to inspire the US Dollar bulls. The rates on the US government bonds remain underpinned by the hawkish commentary from the Cleveland Fed President Loretta Mester on Sunday. Mester said that she sees rates rising more than most policymakers have forecast. The benchmark 10-year US Treasury bond yields are 1.21% higher on the day at 3.52%, as of writing.

The weakness in the US Dollar could be also attributed to the deepening contraction in US business activity. The S&P Global preliminary US Composite Output Index dropped to 44.6 in December vs. 46.4 previous, as new orders slumped to the lowest level in just over two and a half years.

Among the G10 FX currencies, besides the strong Japanese yen, the AUD/USD pair is also holding gains above 0.6700, despite discouraging Chinese data and Covid concerns. According to a survey conducted by the World Economics Survey, China's Business Confidence Index dropped to 48.1 in December vs 51.8 in November, its lowest since January 2013.

However, NZD/USD is struggling to defend the bids at around 0.6375 while USD/CAD remains pressured below 1.3700 amid rising WTI prices and a weaker US Dollar. WTI is advancing on hopes of an improved demand outlook from China and on US’ decision to buy back oil for its state reserves. However, hawkish central banks’ policy outcomes-induced recession fears keep a check on the black gold’s upside.

EUR/USD is clinging to recovery gains around the 1.0600 region, underpinned by the hawkish ECB policy outlook. The focus now shifts to the German IFO business survey for fresh trading impetus, in absence of top-tier US economic data releases this Monday.

GBP/USD is consolidating gains below 1.2200, having failed to resist above the latter in early Asia. The UK economic challenges amid persistent strikes and recession fears limit the upside attempts in Cable. The BoE’s dovish rate hike also keeps GBP bulls cautious.  

Bitcoin is licking its wounds slightly above the two-week lows of $16,532 reached on Friday.

• Ethereum price at make-or-break, ETH buyers guess what comes first $1,075 or $1,420

• GBP/JPY fades bounce off two-week low as it approaches the key support.
• 100-DMA, five-week-old ascending support line restricts short-term downside.
• Bearish MACD signals, clear break of 50-DMA favor sellers.

GBP/JPY bears keep the reins, fading the day-start bounce off 165.20, ahead of Monday’s London open.

That said, the cross-currency pair’s daily closing below the 50-DMA joins the bearish MACD signals to favor GBP/JPY bears. However, a convergence of the 100-DMA and an upward-sloping trend line from November 11, near 164.70, appears a tough nut to crack for the bears.

In a case where the prices drop below 164.70, November’s low near 163.00 could act as an extra filter towards the south before highlighting the 160.00 psychological magnet.

It should be noted, however, that October’s low near 159.75 could challenge the GBP/JPY bears afterward.

Alternatively, recovery moves appear elusive unless the quote provides a daily closing beyond the 50-DMA level of 167.15.

In that case, a five-week-old horizontal resistance area near 169.00-169.20 will act as the key hurdle to the upside. Also acting as an extra filter is the 170.00 round figure.

Overall, GBP/JPY remains on the back foot as it breaks key support and has MACD as a backup to call the bears. However, the downside moves appear to have limited room unless providing a daily closing below 164.70.

GBP/JPY: Daily chart

Trend: Further downside expected

• EUR/USD remains sidelined after an upbeat start to the likely quiet week.
• Softer US data, hawkish ECB outshine Fed talks amid light calendar, year-end sluggish sentiment.
• Firmer yields, recession woes challenge pair buyers, sellers await US PCE Price Index.

EUR/USD seesaws near 1.0600 as it snaps two-day downtrend amid early Monday in Europe.

The major currency pair’s latest inaction could be linked to the cautious sentiment ahead of this week’s US data, as well as mixed concerns surrounding European growth. However, hawkish comments from the European Central Bank (ECB) policymakers and the central bank’s readiness for higher rates keep buyers hopeful.

During the last week, European PMIs have been better than the first readings of the US activity data and bolstered the bullish bias of the ECB policymakers. Additionally, chatters that the bloc’s policymakers may ease control on the oil price cap to get the resolution passed also keep the EUR/USD prices firmer, via hopes of higher oil prices and a stronger need to tame the higher inflation.

It’s worth noting, however, that the higher rates and inflation fears favor the recession woes and underpin the Treasury bond yields, which in turn tease the US Dollar bulls amid a sluggish session. Also likely to have teased the greenback buyers could be the recently hawkish comments from the Fed policymakers, including Federal Reserve Bank of Cleveland President Loretta Mester and New York Federal Reserve President John Williams.

Above all, the year-end consolidation and holiday mood join the light calendar to restrict immediate EUR/USD moves. Even so, the final readings of the US Q3 GDP and the Fed’s preferred version of inflation, namely Friday’s US Core Personal Consumption Expenditures (PCE) - Price Index, expected 4.6% YoY and 5.0% previous readings, will be important to watch for fresh impulse.

Technical analysis

A daily closing beyond the previous support line from November 30, around 1.0640, becomes necessary to convince EUR/USD bulls. Otherwise, a convergence of the 21-DMA and the mid-November peak could challenge the pair sellers near 1.0480.

• GBP/USD rises for the first time in three straight days on Monday.
• Broad US Dollar weakness underpins Cable despite Fed-BoE policy divergence.
• Pound Sterling bulls stay hopeful while above 21DMA, looks to 1.2200.

GBP/USD is consolidating the rebound below the 1.2200 threshold, as bulls trade with caution amid a downbeat market mood at the start of the week on Monday.

Broad-based US Dollar weakness is underpinning the uptick in the Pound Sterling, despite the continued widening policy divergence between the US Federal Reserve (Fed) and the Bank of England (BoE). The slide in the USD/JPY pair is exerting bearish pressure on the US Dollar, as investors pay little heed to the higher Treasury bond yields.

From a short-term technical perspective, the bullish 21-Daily Moving Average (DMA) at 1.2146 continues to offer support to GBP bulls, despite the rising wedge breakdown confirmed last week.

The upside appears more compelling for Cable, as the 14-day Relative Strength Index (RSI) inches higher above the midline.

Meanwhile, the double Bull Cross confirmation, with the 21DMA cutting the 200DMA from below and the 50DMA piercing the 100DMA for the upside, also adds credence to the rebound.

On the upside, GBP buyers need to recapture the 1.2200 barrier to extend the recovery toward Friday’s high at 1.2223, above which a fresh advance toward the wedge support-turned-resistance at 1.2424 will be on the cards. The six-month high at 1.2446 will be next on buyers’ radars.

GBP/USD: Daily chart

On the flip side, failure to defend the 21DMA on a daily closing basis will put the descending 200DMA at 1.2096 under threat.

A sustained break below the latter will initiate a fresh downswing toward the bullish 50DMA at 1.1755.

GBP/USD: Additional technical levels

• Silver price fades bounce off 10-DMA, grinds lower of late.
• 61.8% Fibonacci retracement level, impending bear cross on MACD favor sellers.
• Six-week-old ascending trend line acts as the key support.

Silver price (XAG/USD) fade the previous day’s recovery to around $23.25 during early Monday.

In doing so, the bright metal retreats from the 61.8% Fibonacci retracement level of March-August downside and the 10-DMA level. It’s worth noting that the stated Fibonacci level is also known as the golden ratio and is considered a strong technical resistance.

Not only the metal’s pullback from the strong resistance but the looming bear cross on the MACD, as well as the nearly overbought RSI (14), also tease the Silver bears.

However, a clear downside break of the 10-DMA support near $22.00 appears necessary to convince sellers.

Following that, an upward-sloping trend line from November 03, close to $22.60 by the press time, could challenge the XAG/USD bears before directing them to the 50% Fibonacci retracement level of $22.25.

If at all, the Silver bears keep the reins past $22.25, the odds of witnessing a slump toward October’s peak of $21.25 can’t be ruled out.

On the flip side, a daily closing beyond the 61.8% Fibonacci retracement level of $23.40 could recall the Silver buyers and can poke the monthly peak surrounding $24.15.

Should the Silver buyers keep the driver’s seat past $24.15, April’s high near $26.25 will be in focus.

Silver price: Daily chart

Trend: Further downside expected

According to the latest Reuters poll, nearly half of the economists surveyed believe that the Bank of Japan (BoJ) may unwind its ultra-loose monetary policy between March and October next year.

Additional takeaways

“Of 26 economists polled, 11 expect the central bank will unwind its ultra-loose policy between March and October.”

“Half, or 13, said the BOJ wouldn't scale back until 2024 or later and two still expect the next move to be more easing of policy.”

“The most common means tipped by analysts for the BOJ to unwind stimulus would be a tweak to its forward guidance, according to 15 respondents. “

“Widening the long-term yield cap range from 0.25% was chosen by nine while seven opted for raising the 10-year yield target from 0%.”

“Japan's annualized growth projection was upgraded to 3.3% for the current quarter but downgraded to 0.8% for January-March.”

“Analysts slightly raised Japan's inflation forecasts for each quarter up to April-June 2023, with core consumer prices now expected to increase 2.8% in the current fiscal year and 1.8% in fiscal 2023, respectively.”

This comes a day ahead of the BoJ monetary policy announcements on Tuesday.

• USD/INR pares intraday gains around six-week high, stays depressed of late.
• US Dollar remains depressed on softer US PMIs, ignore hawkish Fedspeak.
• Market players expect continuous grind between 82.70 and 83.00.
• RBI Minutes, US Core PCE Price Index in focus.

USD/INR remains pressured around 82.70, keeping the previous day’s pullback from a one-month high during early Monday. In doing so, the USD/INR appears mostly directionless, despite printing mild losses, as traders seem cautious ahead of Wednesday’s monetary policy meeting Minutes of the Reserve Bank of India (RBI).

That said, the US Dollar weakness appears the key catalyst behind the Indian Rupee (INR) pair’s latest losses, as it snaps a two-day uptrend amid a sluggish start to the week. That said, the US Dollar Index (DXY) prints the first daily loss in three, down 0.20% intraday near 104.55, amid cautious optimism in the market. In doing so, the DXY struggles to justify the recently hawkish comments from Federal Reserve Bank of Cleveland President Loretta Mester and New York Federal Reserve President John Williams. The reason could be linked to Friday’s downbeat prints of the preliminary US PMIs for December, as well as the Fed’s 0.50% rate hike.

It’s worth noting that trading sentiment in India appears sour as Reuters mentioned, “The Indian rupee is expected to weaken marginally this week, with the focus on US economic data and broad moves in the dollar, while government bond yields could see an upside given the caution that has set in recently.”

Elsewhere, talks surrounding the Bank of Japan’s (BOJ) end of ultra-loose monetary policy and China’s readiness for heavy stimulus, amid mixed concerns over the Covid conditions, challenge the market’s moves amid a lack of major data/events.

Looking forward, USD/INR traders should pay attention to Wednesday’s RBI Meeting Minutes for clear directions. “The RBI raised the repo rate by 35 basis points to 6.25% at that meeting, in which Governor Shaktikanta Das highlighted inflation concerns,” mentioned Reuters. The pair buyers may want to confirm the inflationary fears in this week’s RBI Minutes.

On the other hand, the Fed’s preferred inflation gauge, namely Friday’s US Core Personal Consumption Expenditures (PCE) - Price Index for November, expected 4.6% YoY versus 5.0% prior, will be crucial for the USD/INR pair traders.

Technical analysis

An eight-day-old ascending trend channel defends USD/INR bulls between 82.60 and 83.15.

• Gold price is consolidating Friday’s rebound amid a mixed market sentiment on Monday.
• Hawkish Fed outlook, China’s covid woes fail to impress US Dollar bulls.
• US Treasury yields rally, capping the Gold price upside. Will it reclaim $1,800?

Gold price is treading water just below $1,800, as investors fail to find a clear directional impetus amid a broadly weaker US Dollar and higher Treasury bond yields. The US Dollar is feeling the pull of gravity, dragged down by the USD/JPY sell-off while the US Treasury bond yields benefit from hawkish comments from the Cleveland Fed President Loretta Mester. Despite the hawkish Fed outlook, Gold price is looking to extend the renewed upside, underpinned by the bullish technical setup and encouraging news from India. Last week, India’sgovernment raised the base import prices of crude palm oil and soy oil, gold and silver, as prices jumped in the world market. Investors will closely follow the US Dollar price action and risk trends amid a relatively quiet start to the Christmas week.

Also read: Gold Price Forecast: XAU/USD eyes a sustained move above $1,800 amid bullish technical setup

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price is gathering strength to yearn for a decisive break above the powerful resistance aligned at $1,795. That level is the convergence of the SMA5 one-day, Fibonacci 38.2% one-week and the previous high four-hour.

If bulls manage to find a strong foothold above the latter, then a minor resistance at $1,798 will be tested. The next stop for Gold bulls is seen at the pivot point one-day R1 at $1,800.

A fresh advance toward the Fibonacci 61.8% one-week at $1,805 could be in the offing on a sustained buying.

On the downside, strong support awaits at around $1,787, the intersection of the Fibonacci 38.2% one-day, SMA200 one-day, the previous month’s high and the Fibonacci 23.6% one-week.

A breach of the latter will expose the Fibonacci 61.8% one-day at $1,783. Further south, the pivot point one-day S1 at $1,780 could come to the rescue of Gold buyers.

Here is how it looks on the tool

About Technical Confluences Detector

The TCD (Technical Confluences Detector) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc.  If you are a short-term trader, you will find entry points for counter-trend strategies and hunt a few points at a time. If you are a medium-to-long-term trader, this tool will allow you to know in advance the price levels where a medium-to-long-term trend may stop and rest, where to unwind positions, or where to increase your position size.

• NZD/USD prints mild gains to keep Friday’s recovery moves between 50-SMA and 100-SMA.
• Impending bull cross on MACD, sustained bounce off monthly support line keep buyers hopeful.
• 200-SMA, monthly resistance line act as additional trading filters.

NZD/USD grinds higher towards 0.6400, around 0.6385 by the press time, as buyers flirt with the 50-SMA during early Monday.

In doing so, the Kiwi pair defends the previous day’s rebound from the 100-SMA, as well as the recovery moves from an upward-sloping support line from November 17.

Given the impending bull cross on the MACD, as well as the quote’s repeated hesitance in breaking the 100-SMA, NZD/USD is likely to overcome the hurdle of 0.6392 level comprising the 50-SMA.

Following that, the run-up could aim for the 0.6400 and the 0.6500 thresholds before the monthly resistance line, around 0.6535 at the latest, could challenge the bulls.

In a case where NZD/USD manages to keep the reins past 0.6535, June’s top at around 0.6575 and the 0.6600 round figure will be in focus.

Meanwhile, the 100-SMA level surrounding 0.6345 precedes the one-month-long ascending support line, mentioned previously, to restrict the immediate downside near 0.6335.

It’s worth noting, however, that a downside break of the 0.6335 support could quickly drag NZD/USD prices towards the 200-SMA level surrounding 0.6200. However, any further downside appears bumpy.

NZD/USD: Four-hour chart

Trend: Further recovery expected

Chinese state media is reporting some goals laid out in China's annual Central Economic Work Conference.

Key takeaways

“Will strengthen overall coordination of epidemic policies.”

“Ensuring smooth "transition" during the current epidemic and social order.”

"We must insist on stability first next year while we strive for progress.”

Related reads

• China’s business morale hits lowest in almost a decade in December
• AUD/USD Price Analysis: Bulls approach previous support above 0.6700

• USD/JPY extends Friday’s losses to challenge two-week uptrend.
• Chatters over BOJ’s rate hike gain momentum as dovish leader Haruhiko Kuroda nears retirement.
• US Dollar’s failure to cheer hawkish Fedspeak adds strength to the pullback moves.
• Risk catalysts, BOJ and the Fed’s preferred inflation gauge eyed for clear directions.

USD/JPY holds lower grounds near the intraday bottom of 135.77 as the Yen buyers keep the reins ahead of this week’s Bank of Japan (BOJ) monetary policy meeting. With this, the quote prints a two-day downtrend as traders anticipate hawkish signals from the Japanese central bank as the utter dove Governor Haruhiko Kuroda nears his retirement looming in April.

During the weekend, Reuters reported that Japan's government is set to revise a decade-old joint statement with the Bank of Japan (BOJ) that commits the central bank to achieve its 2% inflation "at the earliest date possible," Kyodo news agency reported on Saturday, citing government sources.

Following that, BOJ’s former deputy governor Hirohide Yamaguchi said, “Bank of Japan (BOJ) must make its monetary policy framework more flexible and stand ready to raise its long-term interest rate target next year if the economy can withstand overseas risks.”

However, the latest comments from Japan’s Chief Cabinet Secretary Hirokazu Matsuno challenges the USD/JPY bears while pouring cold water on the face of hawkish expectations from the BOJ. “The government hopes to continue working closely with the Bank of Japan (BoJ) to achieve sustained economic growth and price stability, based on the agreement made in the joint statement,” said Japan’s Matsuno.

On the other hand, the US Dollar Index (DXY) prints the first daily loss in three, down 0.20% intraday near 104.55, amid cautious optimism in the market. In doing so, the DXY struggles to justify the recently hawkish comments from Federal Reserve Bank of Cleveland President Loretta Mester and New York Federal Reserve President John Williams. The reason could be linked to Friday’s downbeat prints of the preliminary US PMIs for December, as well as the Fed’s 0.50% rate hike.

Elsewhere, the US Treasury yields portray recession amid hawkish Fedspeak and hence challenge USD/JPY bears amid a sluggish Asian session.

Looking forward, USD/JPY traders should pay attention to the risk catalysts, as well as BOJ-linked chatters in the market ahead of Tuesday’s Monetary Policy Meeting. Even if the Japanese central bank isn’t expected to alter the current monetary policy during this meeting, the hints for future moves could be enough to please the bears.

Technical analysis

A two-week-old rising wedge formation restricts immediate USD/JPY moves between 134.85 and 138.30.

• USD/CHF remains pressured near intraday low, prints the first daily loss in three.
• Multiple supports stand tall to challenge sellers even as looming bear cross on MACD signal further downside.
• 200-HMA, two-week-old descending trend line guard immediate upside.

USD/CHF holds lower ground near the intraday bottom as bears struggle to retake control, after a two-day leave, during early Monday. That said, the Swiss Franc (CHF) pair prints mild losses near 0.9320 by the press time.

The quote’s latest weakness could be linked to the U-turn from a fortnight-long descending resistance line, as well as the 200-HMA. Also keeping the USD/CHF bears hopeful is the looming bear cross on the MACD indicator.

However, the downside moves remain unconvincing to the pair bears unless the quote stays beyond the previous resistance line from November 30, close to the 0.9300 threshold by the press time.

Also challenging the USD/CHF bulls is an upward-sloping trend line from the last Wednesday, around 0.9280 at the latest.

In a case where the quote remains bearish below 0.9280, the odds of witnessing a downturn toward the monthly low near 0.9215 can’t be ruled out.

On the flip side, buyers need to keep the reins past 0.9350 to mark their dominance. In doing so, the quote should stay past the aforementioned immediate resistance line and the 200-HMA.

Following that, a run-up towards the 0.9400 threshold and then to the monthly high 0.9470 can’t be ruled out.

USD/CHF: Hourly chart

Trend: Further weakness expected

Japan’s Chief Cabinet Secretary Hirokazu Matsuno said on Monday, the government hopes to continue working closely with the Bank of Japan (BoJ) to achieve sustained economic growth and price stability, based on thje agreement made in the joint statement.

He added that the “government hopes the BoJ continues to work closely with them, and seek to sustainably and stably achieve price target with an eye on economic, price and financial developments.”

Market reaction

USD/JPY is down 0.45% on the day, trading at 136.06, at the time of writing. The Japanese yen is cheering the news that the government is set to revise a joint statement with the BoJ over the latter's inflation target, potentially implying a tweak to its ultra-loose monetary policy. 

According to a survey conducted by the World Economics Survey, China's Business Confidence Index dropped to 48.1 in December vs 51.8 in November.

Additional takeaways

Market reaction

AUD/USD is unfazed by the dismal Chinese data, as it benefits from a broadly weaker US Dollar, courtesy of the slide in the USD/JPY pair.

The spot was last seen trading at 0.6715, adding 0.51% on the day.

• GBP/USD renews intraday high to snap two-day downtrend on broad US Dollar weakness.
• UK policymakers stay determined to not budge on nurses' pay despite fears of second nationwide walkout on Tuesday.
• Fears of UK’s more economic pain, BOE’s dovish hike keeps buyers hopeful.
• Final readings of UK Q3 GDP, US Core PCE Price Index for November will be important for clear directions.

GBP/USD pares the biggest weekly loss in six as it refreshes intraday high near 1.2200 during early Monday.

The Cable pair’s latest run-up could be linked to the broad-based US Dollar pullback, despite the hawkish Fedspeak. In doing so, the British Pound also pays a little heed to the headlines suggesting more pain for the UK’s economy, as well as political jitters surrounding the workers’ pay and the resulting walkouts.

That said, The Guardian came out with the news during the weekend that the UK health secretary, Steve Barclay, is expected to contact health unions to urge fresh talks aimed at averting further strikes, amid new warnings that more action could put patients in danger. However, Reuters recently mentioned, “The British government is "resolute" it will not budge on nurses' pay, senior minister Oliver Dowden said on Sunday, ahead of a planned second nationwide walkout by the profession over an average pay offer of 4% while inflation runs at more than 10%.”

It should be noted that an estimated 10,000 nurses in the state-funded National Health Service in England, Wales and Northern Ireland plan to walk out again on Tuesday after staging strikes on Thursday in protest over the pay increase they have been offered.

Furthermore, KPMG’s analysis, shared by The Times, suggests that the UK has already entered a “shallow and protracted recession” that will hit living standards and last until the end of next year, which could have weighed on the GBP/USD prices. “KPMG estimates that the economy entered a recession in the third quarter of this year and will contract by 1.3 percent next year owing to a sharp drop in consumer spending amid rising interest rates,” the news adds.

Elsewhere, hawkish comments from the Presidents of the Federal Reserve Bank of Cleveland and New York tried to challenge the GBP/USD buyers but could not. The reason could be linked to the downbeat prints of the US PMIs for December, published the previous day.

Additionally probing the Cable pair buyers is China’s lowest business confidence in 10 years and the Bank of England’s (BOE) hidden signals that the “Old Lady”, as it is informally known, is up for slower rate hikes and monetary policy normalization.

Given the market’s consolidation of the recent moves, despite multiple negatives, the GBP/USD prices may witness further downside should the scheduled prints of the Q3 UK GDP offer a negative surprise. Also, a firmer print of Friday’s US Core Personal Consumption Expenditures (PCE) - Price Index, expected 4.6% YoY and 5.0% previous readings, may as well favor the pair sellers as the same is the Fed’s preferred inflation gauge.

Technical analysis

GBP/USD bounces off a five-week-old ascending support line, around 1.2150 by the press time, but the recovery moves remain elusive unless crossing the 1.2350 hurdle comprising the top early December’s high and the last Wednesday’s swing low.

• EUR/USD remains on the front side of the bullish cycle's trendline.
• The 4-hour M-formation neckline resistance is key as bulls move in.

As per the pre-open analysis, EUR/USD Price Analysis: Bulls under pressure as bears test commitments at 1.0600, there are prospects of an upside correction. Should the bulls commit beyond 1.0650, the 1.07s will be in focus. The following illustrates the bias as per the lower time frames.

EUR/USD daily chart, prior analysis

It was stated that the bulls will need to show up on the front side of the more dominant trendline support or face a downside continuation as explained above.

However, on the upside, we have 1.0700 as a key level. We have 1.0790 thereafter as the next level. 

EUR/USD H4 chart

The 4-hour M-formation is a reversion pattern and while the price remains in a bullish trend on the front side of the bullish trendline, should the neckline resistance give, then there will be prospects of a fresh cycle high for the week ahead.

• AUD/USD refreshes intraday high during the first daily performance in three.
• Bullish MACD signals, multiple recoveries from 0.6670 keeps buyers hopeful.
• 200-SMA acts as an extra upside filter to cross for the bulls before highlighting the monthly peak.

AUD/USD picks up bids to refresh intraday high near 0.6720 during early Monday. In doing so, the Aussie pair prints the first daily gains in three while bouncing off the lowest levels in eight days.

Given the Aussie pair’s multiple failures to defend the bounce off the recent lows, AUD/USD is likely to remain bearish unless crossing the support-turned-resistance line from November 21, around 0.6725.

Even if the quote rises past 0.6725 hurdle, the 200-SMA level surrounding 0.6765 could challenge the Aussie pair’s further upside.

It’s worth noting, however, that the AUD/USD pair’s successful run-up beyond the 0.6765 resistance won’t hesitate to challenge the 0.6800 while targeting the monthly peak of 0.6895.

Alternatively, pullback moves may initially aim for the 61.8% Fibonacci retracement level of the AUD/USD pair’s November 21 to December 13 upside, near the 0.6700 round figure.

Following that, the recent swing lows of around 0.6670 could challenge the AUD/USD bears before giving them control.

In that case, the late November bottom surrounding 0.6585 will be crucial to watch as a break of which could push back the bulls for a longer time.

AUD/USD: Hourly chart

Trend: Limited upside expected

• Gold price seesaws around intraday high after bouncing off one-week low the previous day.
• US Dollar fades recovery moves from six-month low amid year-end sluggish markets, softer US data.
• US Core PCE Price Index appears the key for XAU/USD traders amid hawkish Fed concerns.
• Mixed headlines from China, light calendar elsewhere favor Gold buyers.

Gold price (XAU/USD) grinds higher towards $1,800, refreshing intraday top near $1,795 by the press time, as a softer US Dollar allows the Gold buyers to keep the reins during early Monday. In doing so, the bright metal extends the previous day’s recovery from a nearly eight-day low amid a sluggish last to the likely dull week.

That said, the US Dollar Index (DXY) prints the first daily loss in three, down 0.18% intraday near 104.58, amid cautious optimism in the market, which in turn teases XAU/USD bulls to return.

In doing so, the DXY struggles to justify the recently hawkish comments from Federal Reserve Bank of Cleveland President Loretta Mester and New York Federal Reserve President John Williams. The reason could be linked to Friday’s downbeat prints of the preliminary US PMIs for December, as well as the Fed’s 0.50% rate hike.

Elsewhere, recession fears keep the Gold bears on the table as global central banks defend their hawkish bias amid higher inflation fears. Additionally, mixed concerns surrounding China’s improvement in the Covid conditions also challenge the XAU/USD bulls.

Looking forward, Friday’s US Core Personal Consumption Expenditures (PCE) - Price Index, expected 4.6% YoY and 5.0% previous readings, will be important for the Gold traders as the same is the Fed’s preferred inflation gauge.

Gold price technical analysis

Gold struggles to defend the bounce off the $1,780 support confluence, comprising the 100-SMA and a five-week-old ascending trend line.

That said, bullish MACD signals and firmer RSI (14) keep Gold buyers hopeful of crossing the one-week-old descending resistance line, around $1800.

However, an upward-sloping trend line from November 15, close to $1,830 by the press time, will be a tough nut to crack for the Gold buyers.

Alternatively, a downside break of the $1,780 support confluence could quickly drag the Gold price toward the monthly low near $1,765.

Following that, a six-week-long horizontal support area surrounding $1,720 could challenge the Gold bears before highlighting the $1,700 threshold.

Gold price: Four-hour chart

Trend: Limited upside expected

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.9746 vs. the previous fix of 6.9791 and the prior close of 6.9750.

About the fix

China maintains strict control of the yuan’s rate on the mainland.

The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.

Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day's closing level and quotations taken from the inter-bank dealer.

• NZD/USD bulls move in for a deeper correction into the prior bearish impulse. 
• As demand for safe haven increases, the bird would be expected to fall. 

NZD/USD is up at the start of the week, higher by 0.14% having popped from a low of 0.6368 to a high of 0.6368 so far despite the market mood turning dark upon further reflection of last week's Federal Reserve meeting. The US Dollar climbed on Friday as risk appetite soured and investors weighed the prospect that the Fed and other central banks still had some way to go. 

As analysts at ANZ Bank explained, ''the Fed may not be hiking as fast, but it still has the highest policy rate in the G10 and will be one of the few central banks to take policy past 5%.''

The other notable one is of course the Reserve Bank of New Zealand, the analysts said but explained that ''this remains a USD show, as we saw by the Kiwi’s failure to capitalise on bumper GDP data yesterday. We expect the next few weeks to be volatile, so buckle up (and enjoy the holidays!).''

Meanwhile, analysts at Rabobank said, ''we see scope for NZD/USD to drop back in the coming months as global growth slows and demand for safe haven increases but look for NZD/USD to move higher again on a 6 to 9-month view.''

NZD/USD technical analysis

As per the prior analysis, NZD/USD Price Analysis: Bulls move in from critical support, bears eye an opportunity, the bulls have moved in and this is giving the bears an opportunity of a discount:

NZD/USD prior analysis

The 4-hour time frame showed the price correcting towards the upside, in accordance to the daily chart analysis.

NZD/USD update

We have seen the correction into resistance and bears will be in anticipation of a bearish structure forming to leave against the prospect of a downside continuation. 

• WTI takes the bids to renew intraday high, snaps two-day downtrend.
• Bearish MACD signals, six-week-old descending trend line challenge buyers.
• Fresh downside remains doubtful beyond $73.40, yearly low could lure bears afterward.

WTI crude oil remains on the front foot around the intraday high of $75.30 as it push back the bears, after a two-day uptrend, during Monday’s Asian session.

In doing so, the black gold recovers from a three-week-old horizontal support area to tease the buyers.

However, bearish MACD signals challenge the latest recovery moves targeting a downward-sloping resistance line from early November, around $77.00 by the press time.

Even if the quote manages to cross the $77.00 hurdle, the previous weekly high and the monthly top, respectively around $77.85 and $83.30 could challenge the energy benchmark’s further upside.

Should the WTI bulls keep the reins past $83.30, the odds of witnessing a run-up toward November’s high surrounding $93.00 can’t be ruled out.

On the flip side, pullback moves remain elusive unless the quote stays beyond the aforementioned horizontal support area around $73.65-40.

Following that, south towards the yearly low marked in the last week around $70.30 could become imminent.

In a case where the WTI bears dominate past $70.30, the $70.00 round figure may test the commodity’s further downside before directing sellers toward December 2021 low near $62.35.

WTI: Four-hour chart

Trend: Limited upside expected

Reuters reported that the Bank of Japan (BOJ) must make its monetary policy framework more flexible and stand ready to raise its long-term interest rate target next year if the economy can withstand overseas risks, former deputy governor Hirohide Yamaguchi said.

He is considered a candidate to become next BOJ governor,.

He said Japan is already seeing signs of "home-made" inflation, in which broadening price hikes heighten public perceptions that inflation will keep rising longer-term.

Key quotes

There's a chance core consumer inflation may stay around 3-4% for a fairly long period/''

Once inflation expectations become entrenched, it's very hard for central banks to control them. That's a risk the BOJ should be mindful of."

When prices start rising, it's very hard to maintain yield curve control" as long-term rates face upward pressure, he said.The remarks contrast with those of Kuroda, who has dismissed the chance of a near-term rate hike on the view the recent rise in inflation will prove temporary."

The BOJ must also ditch a pledge to keep increasing the pace of money printing until inflation stably exceeds 2%.''

The BOJ must get rid of commitments that bind its policy, so it can respond flexibly and nimbly to changes in the economy as needed.

"I don't see any necessity to change the BOJ's joint statement with the government at this moment.''

Yamaguchi served as deputy governor for five years until 2013 under Kuroda's predecessor Masaaki Shirakawa. The 2013 statement he helped draft commits the BOJ to meet its 2% inflation "at the earliest date possible."

USD/JPY update

• USD/JPY Price Analysis: Bears in control below trendline resistance

While below the trendline resistance the bias is firmly weighed to the downside. 

• US Dollar Index snaps two-day uptrend with mild losses.
• Fed policymakers keep suggesting higher rates for longer, US PMIs eased in December.
• Firmer prints of Fed’s preferred inflation gauge could help DXY bulls.

US Dollar Index (DXY) drops to 104.70 as it pauses the two-day uptrend amid a sluggish start to the week. In doing so, the greenback’s gauge versus the six major currencies prints mild losses even as the US Federal Reserve (Fed) policymakers appear hawkish in their latest comments.

The Fed tried to convince bulls of its hawkish capacity but lifting the dot-plot and showing readiness to keep the rates higher for longer in the last week. Even so, the 50 bps rate hike and an absence of any majorly positive comments from Fed Chair Jerome Powell favored the DXY bears on a weekly basis.

Recently, New York Fed President John Williams said that it was possible for the FOMC to hike more than the terminal rate projected in the dot plot. On the same line, Cleveland Fed President Loretta Mester said her estimate for interest rates is higher than that of her colleagues and the central bank needs sustained tight policy to defeat inflation.

It should be noted, however, that downbeat US PMIs and the Fed’s hesitance seem to tease the DXY bears ahead of the US central bank’s preferred inflation gauge, namely the US Core Personal Consumption Expenditures (PCE) - Price Index for November, up for publishing on Friday. Recently, the US S&P Global Manufacturing PMI dropped to 46.2 from 47.7 in November, as well as the market expectation of 47.7. Further, S&P Global Services PMI declined to 44.4 in December's flash estimate from 46.2 in November and market expectation of 46.8.

Even so, recent fears emanating from China and a year-end consolidation may help the DXY bulls if the US Core Personal Consumption Expenditures (PCE) - Price Index offer a positive surprise versus 4.6% YoY expected and 5.0% previous readings.

That said, fears of global economic slowdown appear to recently weigh on the market sentiment and underpin the US Treasury bond yields. However, the mildly bid stock futures and equities challenge the DXY bulls.

Moving on, a light calendar for today may restrict DXY moves, which in turn highlights risk catalysts for fresh impulse.

Technical analysis

An upside break of the one-month-old descending trend line, around 104.30 by the press time, keeps DXY bulls hopeful.

• USD/JPY's M-formation on the 4-hour chart is compelling.
• While below the trendline resistance, the bias is firmly weighed to the downside. 

The speculation that the Bank of Japan will tweak its ultra-loose monetary policy under a new central bank governor next year has given the yen a boost as per the prior pre-open analysis:

USD/JPY prior analysis

USD/JPY update

USD/JPY was rejected at the trendline and was printing a low of 135.85 the low prior to a correction of the gap.

USD/JPY H4 chart

The M-formation on the 4-hour chart is compelling. This is a reversion pattern that is drawing the price back towards the neckline of the formation between 136.50 and 137.00. While below the trendline resistance, the fact that the December 15 bearing bar's support was broken, the bias is firmly weighed to the downside. 

• USD/CAD retreats from six-week high, snaps two-day uptrend.
• Oscillators appear to fade bullish bias of late, rising wedge also doubts upside moves.
• 50-DMA acts as immediate support, 1.3730 adds to the upside filters.

USD/CAD remains depressed around 1.3680 as it struggles to defend the two-day uptrend during Monday’s Asian session.

In doing so, the Loonie pair retreats from a seven-day-old horizontal resistance area inside a rising wedge bearish formation established since early November.

Not only the failure to cross the 1.3700 hurdle but the recent performance of the MACD and RSI (14) also tease the USD/CAD bulls as both the oscillators seem to fade the bullish bias of late.

As a result, a downside toward November’s high of 1.3645 appears imminent. However, the 50-DMA support near 1.3555 will be important to push back the buyers.

Even so, the USD/CAD bears need a clear downside break of the stated rising wedge’s support line, close to 1.3510 by the press time, as well as sustained trading below the 1.3500 round figure, to retake control.

Following that, November’s low near 1.3220 may act as an intermediate halt during the south run for the theoretical target of the rising wedge confirmation, around 1.3040.

Alternatively, a clear upside break of the 1.3700 hurdle isn’t a warm welcome for the USD/CAD buyers as the top-line of the aforementioned wedge, near 1.3730 at the latest, could challenge the Loonie pair’s further advances.

In a case where USD/CAD remains firmer past 1.3730, November’s near 1.3810 could gain the market’s attention.

USD/CAD: Daily chart

Trend: Pullback expected