November month employment statistics from the Australian Bureau of Statistics, up for publishing at 00:30 GMT on Thursday, will be the immediate catalyst for the AUD/USD pair traders.

Market consensus suggests that the headline Unemployment Rate may remain unchanged at 3.4% on a seasonally adjusted basis whereas Employment Change could ease to 19K versus the previous addition of 32.2K. Further, the Participation Rate is expected to improve a bit to 66.6% versus 66.5% prior.

Considering the Reserve Bank of Australia (RBA) policymakers’ recently cautious comments, coupled with the easing Covid trouble in China, today’s Aussie jobs report become crucial for the AUD/USD pair traders. It should be noted that the Aussie Consumer Inflation Expectations for December, scheduled for 00:00 GMT on Thursday, expected 5.7% versus 6.0% prior, also becomes important for the Aussie pair traders. Additionally important will be China’s Industrial Production and Retail Sales numbers for November, up for publishing at 02:00 GMT, expected 3.6% and -3.6% versus 5.0% and -0.5% in that order.

Ahead of the event, analysts at Westpac said,

How could the data affect AUD/USD?

AUD/USD remains troubled around 0.6860-50 after refreshing the six-month high before a few hours. While the pre-data anxiety could be linked to the Aussie pair’s latest resistance to rise, downbeat expectations from the scheduled data also challenge the bulls of late.

Should the actual data arrive stronger, the Aussie pair can manage to cheer the broad US Dollar weakness with upside moves towards refreshing the multi-month top, currently around 0.6880. The pullback moves, however, need validation from November’s peak surrounding 0.6800. Hence, the odds favoring a short-term advance by the AUD/USD are higher even if the bearish bias for the RBA and the scheduled data probe the bulls.

Key Notes

AUD/USD dribbles below 0.6900 after unimpressive Fed, focus on Australia, China data

AUD/USD Forecast: Eyes on Australian employment and inflation data

About the Employment Change

The Employment Change released by the Australian Bureau of Statistics is a measure of the change in the number of employed people in Australia. Generally speaking, a rise in this indicator has positive implications for consumer spending which stimulates economic growth. Therefore, a high reading is seen as positive (or bullish) for the AUD, while a low reading is seen as negative (or bearish).

About the Unemployment Rate

The Unemployment Rate released by the Australian Bureau of Statistics is the number of unemployed workers divided by the total civilian labor force. If the rate hikes, indicates a lack of expansion within the Australian labor market. As a result, a rise leads to weaken the Australian economy. A decrease of the figure is seen as positive (or bullish) for the AUD, while an increase is seen as negative (or bearish).

• AUD/NZD has remained sideways despite the release of solid NZ GDP data.
• A sheer expansion in NZ's economic activities has triggered the risk of further upside in inflation.
• Going by the consensus, the Australian economy added fresh 19K jobs in November.

The AUD/NZD pair is displaying topsy-turvy moves around 1.0630 in the early Asian session. The cross has corrected gradually after hitting a fresh eight-day high at 1.0662 on Wednesday. The asset has remained muted despite the release of solid New Zealand Gross Domestic Product (GDP) data.

The quarterly GDP data for the third quarter of CY2022 has been recorded at 2.0%, higher than the expectations of 0.9% and the prior release of 1.7%. Also, the annual GDP data has soared to 6.4% vs. the consensus of 5.5% and the former figure of 0.4% in the same period. No doubt, a stellar expansion in NZ economic activities is going to provide a cushion to the New Zealand Dollar but will accelerate inflation risks ahead.

The Reserve Bank of New Zealand (RBNZ) is working hard in softening inflationary pressures with extreme policy tightening measures. RBNZ Governor Adrian Orr is going through sleepless nights in strategy-making to contain stubborn inflation. And, a sheer expansion in the extent of economic activities has accelerated the risk of further escalation in the Consumer Price Index (CPI).

On the Australian front, investors are awaiting the release of the Employment data. As per the consensus, the Australian economy has added fresh 19K jobs in November against the former addition of 32.2K. The Unemployment Rate is seen unchanged at 3.4%.

Apart from the payroll data, investors will also focus on 12-month consumer inflation expectations data, which is expected to decline to 5.7% against 6.0% released earlier. A decline in the one-year consumer inflation forecast will delight the Reserve Bank of Australia (RBA).

• AUD/JPY holds lower ground after failing to cross the 200-DMA, 21-DMA.
• Three-month-old descending trend line also exerts downside pressure on prices.
• Bullish MACD signals, short-term upward-sloping support line challenge AUD/JPY sellers.

AUD/JPY takes offers to refresh intraday low around 92.80 during early Thursday, after failing to cross the key hurdles in the last two days.

In doing so, the AUD/JPY pair justifies the latest failure to cross the 21-DMA, the 200-DMA and a downward-sloping resistance line from early September ahead of Australia’s employment report and Consumer Inflation Expectations.

Given the quote’s repeated failures to cross the aforementioned key hurdles, the cross-currency pair is likely to decline toward an eight-day-old ascending support line, near 92.40.

However, the bullish MACD signals suggest a lesser downside gap past 92.40, which if broken will highlight the 92.00 threshold for the AUD/JPY pair sellers.

In a case where the cross-currency pair remains weak past 92.00, the monthly low near 91.15 and October’s trough surrounding 90.85 could challenge the bears before directing them to the 90.00 psychological magnet.

Alternatively, the 21-DMA and the descending trend line from September, respectively around 92.90 and the 93.00 round figure, guard the AUD/JPY pair’s short-term upside ahead of the 200-DMA resistance near 93.25.

Should the AUD/JPY manages to cross the 93.25 hurdle, multiple levels near 94.10-15 could challenge the bulls.

AUD/JPY: Daily chart

Trend: Limited downside expected

• USD/CHF remains sidelined at the lowest levels since March 31, probes two-day downtrend.
• Fed failed to impress US Dollar buyers but the USD/CHF bears remain cautious ahead of the SNB.
• SNB is expected to announce 0.50% rate hike but USD/CHF bulls need more than that to recover.

USD/CHF holds lower grounds near 0.9260, after declining to the fresh low in 9.5 months, as the pair traders await the Swiss National Bank (SNB) Monetary Policy Meeting early Thursday. That said, the Swiss currency pair recently cheered the broad US Dollar weakness to refresh the multi-day low as the Federal Reserve (Fed) fell short of impressing the Greenback bulls despite mildly hawkish announcements.

Fed delivered the 50 bps rate hike, as expected, and upwardly revised the dot-plot to suggest 5.1% as the terminal rate versus 4.6% shown in September’s Statement of Economic Projections (SEP). The US central bank also revised the inflation forecasts towards the north but the growth estimations were cut down for 2023 and 2024.

Elsewhere, Fed Chairman Jerome Powell defended his hawkish image while noting that the ultimate level of rates is more important than how fast they go. The policymaker also added that the Federal Open Market Committee (FOMC) needs to hold rates at their peak until policymakers are "really confident" that inflation comes down in a sustained way.

Following the Fed announcements, the US equities closed on the negative side but the US Treasury bond yields were down too, which in turn weighed on the USD/CHF prices.

Looking forward, USD/CHF traders should keep their eyes on the SNB announcements as the Swiss National Bank is widely expected to unveil a 0.50% rate hike and may sound a bit hawkish.

With this in mind, Citibank signaled, “Strong Franc, slowing Swiss economy, falling energy prices but also the shift in emphasis to balance sheet reduction speak against big rate hikes. However, interest rate differentials are already historically wide and with fewer meetings available, the SNB has to make bigger steps to keep up. We, therefore, expect a 75 bps hike this week.

Also read: SNB Preview: Forecasts from five major banks, new tightening to come

Technical analysis

USD/CHF bears remain in the driver’s seat unless the USD/CHF prices offer a daily closing beyond August month’s low near 0.9370.

• Gold price still seeks a decisive move despite detailed Fed policy guidance.
• The US Dollar faced pressure as the Fed decided to adopt a calm approach for further policy tightening.
• A decline in the United States Retail Sales data will bolster further inflation softening.

Gold price (XAU/USD) is hovering around $1,810.00 in the early Asian session after displaying volatile moves over the interest rate decision and policy guidance by the Federal Reserve (Fed). The precious metal displayed wild gyrations in a $1.796-1,814 range and has now turned extremely quiet as investors are digesting Fed chair Jerome Powell’s commentary before making an informed decision.

The US Dollar Index (DXY) registered a fresh six-month low at 103.49 as the Fed decided to move forward with a calm approach for further policy tightening. S&P500 settled Wednesday on a bearish note as a higher terminal rate projection by the Fed at 5.1% has triggered a risk of liquidity squeeze from the economy, which may escalate recession risks further. Although, the Fed has provided a diplomatic view on recession citing that "No one knows if we are going to have a recession or not."

Meanwhile, the 10-year US Treasury yields have dropped further to 3.48% as less-hawkish Fed monetary policy has triggered demand for US Treasury bonds. Going forward, investors will keep an eye on United States Retail Sales data, which will release on Thursday. The monthly Retail Sales data (Nov) is expected to contract by 0.1% while the prior release was an expansion by 1.3%. A decline in retail demand will bolster further softening in inflation data.

Gold technical analysis

Gold price is auctioning in a Rising Wedge chart pattern on an hourly scale that indicates volatility contraction while reaching near the other end of the tunnel. The 50-and 200-period Exponential Moving Averages (EMAs) at $1.803.67 and $1,790.00 respectively are aiming higher, which adds to the upside filters.

Meanwhile, the Relative Strength Index (RSI) (14) has slipped into the 40.00-60.00 range, which indicates a loss in the upside momentum.

Gold hourly chart

• GBP/JPY begins the Asian session on the wrong foot, slightly down by 0.07%.
• Risk appetite improvement on Wednesday underpinned the GBP/JPY.
• GBP/JPY Price Analysis: Bullish biased, might accelerate the uptrend once it breaches 169.00.

After a volatile Wall Street session spurred by the US Federal Reserve (Fed) monetary policy decision, the GBP/JPY trims some of its Tuesday’s losses, courtesy of a risk-on impulse, despite a hawkish message delivered by Fed Chairman Jerome Powell. Nevertheless, a positive reaction by the GBP/USD pair lifted the GBP/JPY off the weekly lows of 166.70s weekly lows. As the Asian session begins, the GBP/JPY is trading at 168.28, registering minuscule losses of 0.07%.

GBP/JPY Price Analysis: Technical outlook

At the beginning of the week, the GBP/JPY edged toward the psychological 169.00 barriers, though Tuesday probed to be a negative day. The GBP/JPY slid almost 0.70% to the 168.00 area as traders booked profits after a soft US inflation report, augmenting speculations that the Fed would pivot. So risk-perceived or high beta currencies, like the Pound Sterling (GBP), weakened against safe-haven peers like the Japanese Yen (JPY).

Wednesday was different, though it witnessed the GBP/JPY falling below the 20-day Exponential Moving Average (EMA) at 167.22. Still, it recovered ground and printed a daily close above 168.00. Given the backdrop and oscillators slightly skewed to the upside, the GBP/JPY remains bullish.

Therefore, the GBP/JPY first resistance would be December’s 13 daily high of 169.27, followed by the 170.00 psychological price level. A breach of the latter will expose the YTD high of 172.12. As an alternate scenario, the GBP/JPY first support would be 168.00, which, once cleared, could send the pair tumbling toward the 20-day EMA at 167.22.

GBP/JPY Key Technical Levels

• AUD/USD remains sidelined near three-month high after refreshing the top.
• Fed failed to impress US Dollar bulls by marching wide forecasts on rates and economic projections.
• Australian jobs report, Consumer Inflation Expectations and China Industrial Production could entertain Aussie pair traders.
• Fears of RBA’s slower rate hikes, Covid-led easing in China data challenge bulls.

AUD/USD portrays the typical pre-data anxiety as it seesaws around a multi-day high, refreshed before a few hours, during the early Thursday in the Asia-Pacific region. In doing so, the Aussie pair struggles to defend the post-Fed gains ahead of the employment data from Australia and China’s Retail Sales, as well as Industrial Production. That said, the Aussie pair takes rounds to 0.6860-50, after refreshing the multi-day high with 0.6881.

Federal Reserve (Fed) delivered the 50 bps rate hike, as expected, and also upwardly revised the dot-plot to suggest 5.1% as the terminal rate versus 4.6% shown in September’s Statement of Economic Projections (SEP). Further details of the event suggested that the inflation forecasts were upwardly revised and the growth estimations were cut down for 2023 and 2024.

Additionally, Fed Chairman Jerome Powell tried to maintain his hawkish image while noting that the ultimate level of rates is more important than how fast they go. The policymaker also added that the Federal Open Market Committee (FOMC) needs to hold rates at their peak until policymakers are "really confident" inflation comes down in a sustained way.

However, most of these actions were already anticipated and there was nothing out of the box that could have inspired the US Dollar to pare the latest losses. As a result, the US Dollar Index (DXY) stayed depressed near the six-month low despite a temporal bounce.

The US equities closed on the negative side but the US Treasury bond yields were down too, which in turn favored the AUD/USD buyers amid optimism surrounding its key customer China.

Moving on, Australia’s employment report for November, Consumer Inflation Expectations for December and China’s data dump for November will be crucial for the AUD/USD pair traders for immediate directions. The initial forecasts suggest easing in Aussie Employment Change and inflation data, as well as a static Unemployment Rate. On the other hand, downbeat Retail Sales and Industrial Production is expected from China.

To sum up, the US Dollar’s failure to cheer the mildly hawkish Fed announcements may not hold the AUD/USD to remain firmer amid downbeat forecasts for the scheduled data from Australia and China.

Technical analysis

A successful break of the downward-sloping resistance line from June, near 0.6880 by the press time, appears necessary for the AUD/USD buyers to keep the reins.

• GBP/USD grinds higher after refreshing the multi-day top.
• US Dollar remains pressured after unimpressive Federal Reserve decision.
• Statistics from United Kingdom have been mixed, mostly upbeat for GBP/USD.
• Bank of England is up for 50 bps rate hike and can please Cable buyers if avoiding recession fears.

GBP/USD remains firmer around the six-month high, making rounds to 1.2420-30 after refreshing the multi-day top, as the Cable pair traders await the Bank of England (BOE) decision during early Thursday. The British Pound recently cheered broadly softer US Dollar as the Federal Reserve (Fed) failed to impress the greenback buyers. However, the fears of a recession in the United Kingdom (UK), highlighted by the recently softer British data, seem to challenge the Cable bulls of late.

Economics from United Kingdom have been too shallow to favor GBP/USD bulls

Although the GBP/USD pair stays sturdy near the multi-day high and is up for the weekly gain, the major reason is the broad US Dollar weakness than the fundamental strength of the United Kingdom, as portrayed by the latest statistic from Britain.

That said, UK’s headline Consumer Price Index (CPI) eased from the 41-year high of 11.1% to 10.7% YoY in November, compared to the 10.9% YoY market forecast. Further, the British Unemployment Rate matched 3.7% market forecast during the three months to October while Claimant Count Change marked a positive surprise of 30.5K in November versus -13.3K expected and -6.4K prior. Alternatively, Average Earnings and monthly Gross Domestic Product (GDP) for October could be cited as the positive catalysts for the pair.

Divide amongst Bank of England policymakers can tease Cable sellers

In addition to the mixed UK data, a division among the Bank of England (BOE) policymakers also challenges the GBP/USD pair buyers. Although the “Old Lady”, as the BOE is informally termed sometimes, is likely to announce 50 basis points (bps) of an interest rate lift, not all policymakers are in favor of the move as Silvana Tenreyro and Swati Dhingra voted for smaller increases of a quarter and half a percentage point respectively in November meeting. Also, BOE Governor Andrew Bailey’s comments suggesting the terminal rate not be as high as previously predicted by the markets offer extra challenges for the rate-setters and the Cable buyers.

Federal Reserve failed to recall US Dollar bulls

While the aforementioned discussion highlighted the pessimism surrounding the UK economy, the United States Federal Reserve (Fed) fell short of convincing the US Dollar buyer and superseded major negatives for the GBP/USD pair.

That said, the Fed delivered the 50 bps rate hike, as expected, and also upwardly revised the dot-plot to suggest 5.1% as the terminal rate versus 4.6% shown in September’s Statement of Economic Projections (SEP). Further details of the event suggested that the inflation forecasts were upwardly revised and the growth estimations were cut down for 2023 and 2024.

Additionally, Federal Reserve (Fed) Chairman Jerome Powell tried to maintain his hawkish image while noting that the ultimate level of rates is more important than how fast they go. The policymaker also added that the Federal Open Market Committee (FOMC) needs to hold rates at their peak until policymakers are "really confident" inflation comes down in a sustained way.

Despite all the details that could have lured the US Dollar bulls, the Fed failed to impress the greenback buyers as most of them were expected. Also, the recently softer US inflation data and receding Covid fears from China exerted additional downside pressure on the USD and favored the GBP/USD buyers.

Conclusion

To sum up, the GBP/USD pair traders have recently cheered the US Dollar weakness, rather than having strong fundamentals to refresh the multi-day top. As a result, the Bank of England (BOE) may not be able to keep the Cable bulls on board amid the looming economic crisis, namely the recession fears and British workers’ agitations.

Hence, the 50 bps rate hike may not help the GBP/USD to go much higher to the north of the recent tops and could trigger the pair’s pullback should the details of the BOE monetary policy meeting appear pessimistic.

Alternatively, a surprise 75 bps rate hike won’t hesitate to propel the British Pound toward the north.

Technical analysis

GBP/USD pokes 61.8% Fibonacci retracement level of its January-September downside, also known as the golden ratio, as it seesaws around a six-month high. In addition to the key Fibonacci ratio of around 1.2350, the overbought conditions of the Relative Strength Index (RSI) line, placed at 14, also challenge the Cable buyers.

It should be noted that the British Pound also portrays a bull cross between the 50-DMA and the 100-DMA and signals further upside. That said, it is a condition where the near-term moving average crosses the longer one from below and suggests the quote’s further advances.

In a case where the British Pound crosses the 1.2350 hurdle, May’s peak surrounding 1.2665 will act as the last defense of the GBP/USD pair buyers.

Following that, early April’s low near 1.2975, as well as March’s bottom near 1.30000 will be in focus.

On the flip side, an upward-sloping support line from early November puts a floor under the GBP/USD prices near 1.2315, a break of which could quickly drag the Cable towards the 200-DMA support of 1.2105.

It should be noted that the 50% Fibonacci retracement level and the 50-DMA, respectively around 1.2050 and 1.1715, could gain the GBP/USD bear’s attention past 1.2105.

GBP/USD: Daily chart

Trend: Further upside expected

• NZD/USD is aiming to surpass the 0.6460 resistance on solid NZ GDP data.
• The US Dollar Index is exposed to downside risks as the Fed has shifted its approach to less-hawkish policy moves.
• The next catalyst that could be painful for the Fed is the stubborn Average Hourly Earnings.

The NZD/USD pair has recovered to near the critical resistance of 0.6460 after some rhetoric volatile moves in the late New York session. The Kiwi asset is aiming to surpass the 0.6460 hurdle as Statistics New Zealand has reported upbeat Gross Domestic Product (GDP) data.

The quarterly GDP data for the third quarter of CY2022 has landed at 2.0%, higher than the expectations of 0.9% and the prior release of 1.7%. Also, the annual GDP data has soared to 6.4% vs. the consensus of 5.5% and the former figure of 0.4% in the same period.

No doubt, an expansion in the antipodean will support the New Zealand Dollar but will also create more troubles for the Reserve Bank of New Zealand (RBNZ). The NZ central bank is working day and night in bringing price stability in times of stubborn inflation by announcing policy tightening measures at regular intervals. An expansion in the extent of economic activities indicates that the overall demand is robust, which is not an incentive to manufacturers for cutting the price of goods and services.

Meanwhile, the US Dollar Index (DXY) is displaying sideways moves around a fresh six-month low at 103.49. The USD Index is expected to remain on tenterhooks as the Federal Reserve (Fed) has confirmed a smaller and slower interest rate hike approach after softening inflation data consecutively for two months.

Fed chair Jerome Powell has hiked its terminal rate projection from 4.6% to 5.1%, which is to be achieved by the conclusion of CY2023. The Fed is subjected to keep policy restrictive till the achievement of price stability. While Fed chair Jerome Powell has not given any verdict on the recession whether it will arise or not. The next trigger that could create troubles for the Fed is the escalating Average Hourly Earnings, which could keep retail demand solid ahead.

• The EUR/JPY is recovering from Tuesday’s losses and rose 0.38% on Wednesday.
• EUR/JPY: Break above 145.30s could pave the way for further gains.

The EUR/JPY erases some of Tuesday’s losses and clings to gains above the psychological 144.00 figure, after a volatile trading session in Wall Street, following the US Federal Reserve (Fed) decision to hike rates by 50 bps. As the Asian Pacific session begins, the EUR/JPY is trading at 144.60.

EUR/JPY Price Analysis: Technical outlook

The EUR/JPY daily chart suggests the cross is slightly upward biased, though with some risks skewed to the downside. For the cross to extend its weekly gains, the EUR/JPY needs to clear the weekly high reached on December 14 at around 145.34, which would exacerbate a rally toward the November 23 pivot high at 146.13. Once cleared, the next resistance would be the November 9 daily high of 147.11.

EUR/JPY’s failure to clear the weekly high could pave the way for consolidation and a fall toward the week’s lows. The EUR/JPY key support levels would be the 20-day Exponential Moving Average (EMA) at 144.20, followed by the 50-day EMA at 143.97. A breach of the latter would be crucial, exposing 143.17, the current week’s low, which, once removed, will drag prices toward the 100-day EMA at 142.64.

From a momentum point of view, the Relative Strength Index (RSI) suggests that neither buyers/sellers are in charge, with RSI almost flat, nearby 50. However, the Rate of Change (RoC) suggests that buyers are gathering momentum. Therefore, further EUR/JPY upside is expected.

EUR/JPY Key Technical Levels

• EUR/USD bulls press up against key resistance and eye higher. 
• The Euro is eyeing a move through 1.0700.

As per the prior analysis, EUR/USD soars as US CPI comes in below expectations, the Euro is reaching key resistance as shown above but is leaving a W-formation in its tracks. This is a reversion pattern whereby bulls would be expected to move in at a discount from the neckline should there be a testest thereof. 

EUR/USD daily charts

1.0700 is a key level where a measured move of -0.272% of the potential correction's range to support meets the prior mid-summer resistance looking left. We have 1.0790 thereafter as the next level. 

The above chart marks 1.0600 as a key support area and 1.0520s below it as being the CPI take-off point. 

The Gross Domestic Product (GDP), released by Statistics New Zealand has been released as follows and is better than expected:

New Zealand GDP Q3

 +2.0% QoQ vs. expected +0.9%, prior +1.7%.

+6.4% YoY vs. expected +5.5%, prior +0.4%.

NZD/USD is unchanged at 0.6457.

More to come...

About NZ GDP

The Gross Domestic Product (GDP), released by Statistics New Zealand, highlights the overall economic performance on a quarterly basis. The gauge has a significant influence on the Reserve Bank of New Zealand’s (RBNZ) monetary policy decision, in turn affecting the New Zealand dollar. A rise in the GDP rate signifies improvement in the economic conditions, which calls for tighter monetary policy, while a drop suggests deterioration in the activity. An above-forecast GDP reading is seen as NZD bullish

• USD/CAD has reached to near 1.3550 after volatile moves backed by Fed’s hawkish guidance.
• Fed’s terminal rate projection has escalated to 5.1% and it has promised a restrictive policy till inflation reached 2%.
• Oil prices could face volatility ahead as official US oil inventory data has reported a build-up of 10.231M barrels.

The USD/CAD pair has returned from where it started near 1.3550 after wild gyrations in the late New York session. The upside in the Loonie asset remained capped around 1.3610 while the downside got restricted near 1.3520. The Canadian Dollar major asset got severe hiccups after hawkish guidance by the Federal Reserve (Fed) chair Jerome Powell in its last monetary policy announcement of CY2023.

The market mood seems complicated for now as the US Dollar Index (DXY) is hovering near a fresh six-month low and the S&P500 settled with losses on Wednesday. It seems that the market participants need ample time to digest the hawkish guidance from the Fed as an interest rate hike by 50 basis points (bps) is in line with the expectations.

Demand for US Treasury bonds remained elevated as the concept of a smaller and slower interest rate hike is in place now. The 10-year US Treasury yields have dropped to near 3.47%.

An interest rate hike by 50 bps has pushed interest rates to 4.00-4.25% and Fed policymakers see the terminal rate at 5.1% by the end of CY2023. This indicates that there is still room for more rate hikes but the extent will remain smaller. Apart from the higher terminal rate, commentary that has escalated volatility in the global market is the promise of keeping policy restrictive till the inflation plummeted to 2%.

On the oil front, oil prices have extended their gains to near $77.50 in hopes of recovery in economic projections.  A deceleration in the rate hike process might not haunt firms in executing expansion plans, which would accelerate oil demand in the near term. West Texas oil could see some volatility in the near term as official United States oil inventory data has reported a sheer increase in oil stockpiles by 10.231M for the week ending December 09. It is worth noting that Canada is a leading exporter of oil to the US and higher oil prices strengthen the Canadian Dollar.

• Wall Street buckles on a hawkish hike but US stocks are supported.
• The S&P 500 index is retesting the W-formation's neckline and potential support at a 78.6% Fibonacci retracement level. 

US stocks turned lower after the Federal Reserve raised rates by half a percentage point. However, while the Fed has downshifted the pace of tightening, the message given to the financial markets is that they’re not done yet.

 The federal funds target range now stands at 4.25%-4.50%. At the same time, the Fed expects further rate hikes to over 5%, which is more than before. There are no signals yet of a pause in the rate hike cycle, however, the benchmarks started to correct the initial knee-jerk sell-off in the mid-latter part of the event.

The S&P 500 was moving off its lows of 3,965.65 to retest the 4,030s. At the time of writing, the index is trading down 0.6% at 3,995.33. There has been a mirror image in price action across the Nasdaq and Dow Jones as well. 

While the Fed has signalled its plans to keep lifting rates next year to combat high inflation Fed's chair Jerome Powell was speaking and his comments seemed to have given mixed messages to the market. Consequently, we were seeing two-way price action on Wall Street. In US Treasury yields, they have flipped with the 10-year falling back from a high of 3.5610% to print 3.477% currently and on the way towards the day's low of 3.46%.

Fed key takeaways

• The Federal Reserve hikes 50 basis points, as expected
• Target Range stands At 4.25% - 4.50%.
• The vote was unanimous.
• The guidance in the statement repeats that: "The Committee anticipates that ongoing increases in the target range will be appropriate."

Powell's comments 

Opening comments:

Recent comments:

S&P 500 technical analysis

The index is moving within a bullish cycle and channel, currently retesting the W-formation's neckline and potential support at a 78.6% Fibonacci retracement level. If bulls were to step in here, there would be prospects of an upside continuation towards channel resistance and prior highs near 4,200. 

What you need to take care of on Thursday, December 15:

The American Dollar remains on the back foot after the US Federal Reserve announced its monetary policy decision. Financial markets were pretty much on hold ahead of the event, with major pairs confined to tight intraday ranges.

The central bank delivered a 50 basis point rate hike as widely anticipated, while the accompanying statement was pretty much a copy of the previous one.

On guidance, the document showed that "the Committee anticipates that ongoing increases in the target range will be appropriate." Additionally, the Fed's revised Summary of Economic Projections (SEP), the so-called dot plot, showed that the median view of the policy rate at the end of end-2023 stood at 5.1%, up from 4.6% in September's SEP. Finally, growth forecasts have been downwardly revised for 2023 and 2024, while PCE inflation was upwardly revised to 3.1% from 2.8% for 2023, also adjusted to the upside in 2024 and 2025.

Chairman Jerome Powell came out with hawkish comments. Among other things, Powell noted that the ultimate level of rates is more important than how fast they go, adding that the FOMC needs to hold rates at their peak until policymakers are "really confident" inflation comes down in a sustained way.

Finally, he said that the focus remains on moving the policy stance to become restrictive enough, not on rate cuts. His words take their toll on equities, with US indexes plummeting but the dollar barely able to post a short-lived advance. The movements were short-lived, as the greenback quickly resumed its decline as stocks bounced off their lows.

Meanwhile, US Treasury yields edged marginally lower after ticking higher post-Fed.

EUR/USD trades just ahead of the 1.0700 figure, while GBP/USD stands at 1.2430.

The AUD/USD pair flirted with 0.6800 but trimmed losses and hover around 0.6860 ahead of Australian and Chinese first-tier figures. Australia will publish November employment figures on Thursday. The country is expected to have added 19,000 job positions in the month, while the Unemployment Rate is foreseen unchanged at 3.4%. The Participation Rate, however, is expected to have ticked higher, from the current 66.5% to 66.6%. The country will also release December Consumer Inflation Expectations, foreseen at 5.7%, declining from 6% in November.

The USD/CAD pair is down to 1.3545, helped by stronger oil prices. The barrel of WTI currently stands at $77.35.

Gold ended the day little changed at around $1,807 a troy ounce.

Early on Thursday, the focus will be on the Bank of England's and the European Central Bank's monetary policy decisions. 

• US Dollar is back on its backside following a mixed reaction to the Fed event.
• Two-way price action was the outcome in financial asset classes to the Fed and US Dollar prints fresh bear cycle low. 

The US Dollar is tailing off from the highs that were made on the knee-jerk in what was perceived to be a hawkish rate hike of 50 basis points by the United States Federal Reserve. At the time of writing, DXY, an index that measures the US Dollar vs. a basket of currencies, is correcting all of the post-Fed announcement rally from the high of 104.163 to the current level of 103.448.

While the Fed has signalled its plans to keep lifting rates next year to combat high inflationFed's chair Jerome Powell is currently speaking and his comments have given mixed messages to the market. Consequently, we are seeing two-way price action in asset classes, including the US Dollar and bonds. More on Powell below. 

 US Treasury yields have spun around in the 10-year from a high of 3.5610% to print 3.47% currently, well on course towards the day's low of 3.46%.

Fed key takeaways

• The Federal Reserve hikes 50 basis points, as expected
• Target Range stands At 4.25% - 4.50%.
• The vote was unanimous.
• The guidance in the statement repeats that: "The Committee anticipates that ongoing increases in the target range will be appropriate."

Powell's comments 

Opening comments:

Recent comments:

DXY technical analysis

The M-formation is a reversion pattern that has shown up on the daily chart above. While on the front side of the trendline, a move into the neckline could be the next phase of the bearish cycle prior to a downside continuation to test 102.00 and below. 

• The US Federal Reserve raised rates as expected, though pushed back against a Fed pivot.
• Officials expect the Federal Funds rate to peak at around 5.1% in 2023, while rate cuts are seen until 2024.
• According to the Federal Reserve’s projections, the US economy is foreseen to grow by 0.5% in 2022 and 2023.

The NZD/USD remains volatile, fluctuating on Wednesday, following the Federal Reserve’s decision to raise rates by 50 bps while emphasizing the need for a higher “terminal” rate than September’s projections, as reported by the Summary of Economic Projections (SEP). At the time of writing, the NZD/USD remains volatile, trading at 0.6450s, below its opening price.

Federal Reserve Chair Jerome Powell Q&A’s remarks

As the Federal Reserve Chair Jerome Powell takes its Q&A after the release of the monetary policy statement, the NZD/USD has bounced off the day’s lows, almost erasing some of the losses attained at the release of the Fed decision. He reiterated the central bank’s commitment to getting inflation to the 2% target and said that they expect ongoing rate increases to get sufficiently restrictive.

Powell added that 50 bps hikes are still large, and forward decisions would depend on incoming data and would be done meeting by meeting, “taking forceful steps.” The Fed Chair added that history cautions against prematurely loosening policy and reiterated that the central bank would stay on course until inflation reaches the 2% target.

Summary of the Federal Reserve statement

The Federal Reserve Open Market Committee (FOMC) made the widely anticipated decision to raise the Federal Funds rate (FFR) toward 4.25-4.50%. The US central bank decision was spurred by a tight labor market and inflation reflecting various supply and demand imbalances due to the pandemic, higher food and energy prices, and broader price pressures. Policymakers added that further increases in policy are needed for inflation to return back over to the 2% target and stated that “cumulative tightening of monetary policy,” inflation, and economic and financial developments, to achieve the Fed’s target.

According to the Summary of Economic Projections, Federal officials predict a “terminal” rate average near 5.10%, with GDP anticipations at 0.5% for both 2022 and 2023; inflation is expected to reach 3.5% by 2023 before declining further in future years down toward the 2% US central bank, target.

NZD/USD 5-minute Chart

The NZD/USD dropped toward its lows around 0.6402 and so far rallied back towards the pre-release of the Federal Reserve’s policy decision while the Fed Chair Powell takes the stand. It should be said the NZD/USD is back trading in the green, though it would remain volatile. On the upside, the NZD/USD key resistance levels lie at 0.6500, followed by the YTD high of 0.6575, ahead of the 0.6600 mark. On the flip side, the NZD/USD first support would be the 0.6400 mark, followed by the 20-day Exponential Moving Average (EMA) at 0.6288.

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 50 basis points to the range of 4.25-4.5% following the December policy meeting.

Key quotes

"Data we have received so far on inflation for October and November do show a welcome reduction in price pressures; need substantially more evidence though to be confident inflation coming down."

"That recent data gives us greater confidence in our forecasts."

"Inflation in non-housing services is fundamentally about the labor market and wages."

"We see little progress in average hourly earnings coming down."

"We will be looking for wages moving down to more normal levels."

"Our policy is getting close to sufficiently restrictive."

"No one knows if we are going to have a recession or not."

"If lower inflation reports continue, that would increase likelihood of significantly less of an increase in unemployment."

"Largest pain would come from failure to raise rates high enough."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 50 basis points to the range of 4.25-4.5% following the December policy meeting.

Key quotes

"Expect a very large drop in inflation next year, but the jump-off point at beginning of the year is higher."

"Drop in inflation will come from goods sector and by the middle of next year from housing services."

"For the non-housing services sector, that is the key one that needs to get into better balance."

"We want strong wage increases, but consistent with 2% inflation."

"Right now wages are running well above that consistent with 2% inflation."

"Our focus is on moving our policy stance to become restrictive enough, it's not on rate cuts."

"I wouldn't see us considering rate cuts until FOMC is confident inflation moving down in a sustained way."

"There are no rate cuts in the SEP."

"Hard to say how the end of zero-Covid policy in China will affect US inflation."

"China faces very challenging situation on reopening."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 50 basis points to the range of 4.25-4.5% following the December policy meeting.

Key quotes

"I don't think SEP projections qualify as projecting a recession but economy will have very slow growth."

"4.7% unemployment rate is still a strong labor market."

"Firms want to hold on to workers as it's been hard to hire."

"That doesn't sound like a labor market that will have a lot of layoffs."

"Having moved so quickly, we think the appropriate thing to do is to move to a slower pace of rate hikes."

"That will allow us to better balance risks."

"SEP reflects any data that comes out before the meeting and during the meeting. Participants can even change their dots during the meeting."

"By now we would have expected faster progress on inflation."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 50 basis points to the range of 4.25-4.5% following the December policy meeting.

Key quotes

"We will make February decision based on financial conditions, economy."

"How high to raise rates depends on progress on inflation, where financial conditions are and how restrictive we think we need to be."

"At a certain point policy, will be restrictive enough."

"Strong view on FOMC is we need to hold rates at peak until we are really confident inflation is coming down in a sustained way."

"Expect shelter inflation to come down sometime next year."

"Expectation services inflation will not move down quickly, so we'll have to raise rates higher. That's why we have a higher peak rate."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 50 basis points to the range of 4.25-4.5% following the December policy meeting.

Key quotes

"Important financial conditions reflect our policy restraint."

"Focus is not on short-term moves in financial conditions, but persistent moves."

"We are not at a sufficiently restrictive policy stance yet."

"I would also point you to our projections for our peak level of the funds rate."

"Fed policymaker projections are best assessment of where Fed policy rate will be."

"At each subsequent SEP this year, we have increased our estimates of peak rate."

"Can't tell you confidently we won't upgrade the peak at next meeting too, depends on data."

"If data comes in worse, peak could move up but could also move down if inflation data is soft."

"Earlier this year was important to move quickly on rates; now not so important how fast we go."

"Ultimate level of rates is more important."

• GBP/USD has dropped on a stronger US Dollar and hawkish Fed hike.
• The bears are targeting the 1.2350s that guard the trendline support and 1.2250 then 1.2200 below there. 

GBP/USD is offered towards a key support line and trades around 1.2350 after the United States Federal Reserve raised rates by 50 basis points in what has been perceived as a hawkish hike. This is at the conclusion of the Federal Open Market Committee's two-day meeting on Wednesday. The Fed has signalled plans to keep lifting them next year to combat high inflation. Fed's chair Jerome Powell is currently speaking and fanning the flames of a higher terminal rate in his initial comments. More on Powell below. 

Meanwhile, the US Dollar, as measured by the DXY index, is high by 0.11% at the time of writing, making fresh gains on Powell's hawkish remarks. US Treasury yields have also rallied with the 10-year Treasury yield now printing a high of 3.56% on the day from 3.46% the low.

Fed key takeaways

• The Federal Reserve hikes 50 basis points, as expected
• Target Range stands At 4.25% - 4.50%.
• The vote was unanimous.
• The guidance in the statement repeats that: "The Committee anticipates that ongoing increases in the target range will be appropriate."

Watch Fed Chair Powell live

Fed chairman, Jerome Powell's press conference si underway and this can be watched in the live link above. 

Jerome Powell was expected to bring clarity to the interest rate decision and the statement for where the committee views the future of its inflation fight. He was expected to reiterate Fed will raise rates and keep them high until inflation shows concrete signs of coming back to the central bank’s 2% target. This would imply a higher terminal rate which would be expected to support US Treasury yields and the US Dollar, a headwind for the Pound Sterling.

Powell comments so far

GBP/USD technical analysis

The bears are targeting the 1.2350s that guard the trendline support and 1.2250 then 1.2200 below there. 

• The US Federal Reserve hiked rates by 50 bps, and the AUD/USD tumbled from around 0.6880s toward its day’s lows.
• Federal Reserve policymakers expect the Federal Funds rates to peak around 5.1%.
• AUD/USD: Break below 0.6800 can exacerbate a fall toward the 20-DM; otherwise, a rally above 0.6900 is on the cards.

The AUD/USD dropped from daily highs nearby 0.6900, toward its daily lows of 0.6820, following the US Federal Reserve (Fed) monetary policy decision on Wednesday, with Jerome Powell and Co., raising rates by 50 bps, as most analysts expected. However, the monetary policy statement remained unchanged from November’s. Therefore, the AUD/USD is trading volatile, around 0.6800/20, at the time of writing.

Summary of the Fed’s decision

The Federal Reserve Open Market Committee (FOMC) made the widely anticipated decision to raise the Federal Funds rate (FFR) toward 4.25-4.50%. The US central bank decision was spurred by a tight labor market and inflation reflecting various supply and demand imbalances due to the pandemic, higher food and energy prices, and broader price pressures. Officials noted that further increases in policy are needed for inflation to return back over to the 2% target and stated that “cumulative tightening of monetary policy,” inflation, and economic and financial developments, to achieve the Fed’s target.

According to the Summary of Economic Projections, Federal officials predict a “terminal” rate average near 5.10%, with GDP anticipations at 0.5% for both 2022 and 2023; inflation is expected to reach 3.5% by 2023 before declining further in future years down toward the 2% US central bank, target.

Source: Federal Reserve

AUD/USD 5-minute Chart

The AUD/USD tumbled from around 0.6875 toward its daily low of 0.6818 on the release of the monetary policy statement, though it had erased some of its losses, but remains volatile as the Federal Reserve Chair Jerome Powell takes the stance.

A fall below 0.6800 could pave the way toward the 20-day Exponential Moving Average (EMA) at 0.6726. On the upside, a rally above 0.6900 could be expected if Powell turns more dovish as expected.

AUD/USD Key Technical Levels

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 50 basis points to the range of 4.25-4.5% following the December policy meeting.

Key quotes

"50 basis point rate hike is still large."

"We still have some way to go on rate hikes."

"Our projections are not a plan; no certainty on the economy."

"Our decisions will depend on incoming data in its totality."

"We will continue to make decisions meeting by meeting."

"We are taking forceful steps."

"Historical record cautions strongly against premature loosening."

"We still stay the course to get the job done."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 50 basis points to the range of 4.25-4.5% following the December policy meeting.

Key quotes

"Inflation data received in October and November show a welcome reduction in price increases."

"Inflation expectations remain well anchored but that is not grounds for complacency."

"FOMC continues to see risks to inflation as to the upside."

"Financial conditions fluctuate in short term, but important that over time they reflect policy restraint."

"We are seeing effects on demand in interest-rate sensitive sectors, but takes time for the rest of the economy."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 50 basis points to the range of 4.25-4.5% following the December policy meeting.

Key quotes

"We've covered a lot of ground, full effects of tightening yet to be felt."

"We have more work to do."

"Without price stability, no sustained strong labor market."

"We expect ongoing hikes are appropriate to get sufficiently restrictive."

"US economy has slowed significantly from last year."

"Activity in housing has weakened significantly."

"Higher rates also weighing on business fixed investment."

"Labor market remains extremely tight."

"Although job vacancies are down from earlier in year, labor market still out of balance."

• Federal Reserve maintained a neutral-hawkish tone in the monetary policy statement, almost unchanged from November’s.
• Fed officials expect the Federal Funds rate to get as high as 5.1%, vs. 4.6% in September.
• Inflation in the United States is expected to hit the 2% threshold by 2024.

The EUR/USD dropped toward 1.0630s after the Federal Reserve (Fed) raised rates by 50 bps, as widely expected by analysts while maintaining a dovish tone, as investors prepared for the Fed Chair Jerome Powell press conference around 18:30 GMT. At the time of writing, the EUR/USD trades volatile, around the 1.0640/1.0660 range.

Summary of the Federal Reserve monetary policy statement

The Federal Reserve Open Market Committee (FOMC) decided to hike the Federal Funds rate (FFR) as expected toward the 4.25-4.50% range, acknowledging that the labor market remains tight and that inflation remains elevated, “reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”

FOMC officials added that “ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.” Additionally, policymakers expressed that it would take the “cumulative tightening of monetary policy,” inflation, and economic and financial developments.

Regarding the Summary of Economic Projections (SEP), most officials expect the “terminal” rate at around 5.10% according to the median and foresee the Gross Domestic Product (GDP) for 2022 at 0.5% and in 2023 at 0.5%. Inflation is expected to fall to 3.5% in 2023 and will hit the 2.1% mark by 2025.

Source: Federal Reserve

EUR/USD 5-minute Chart

EUR/USD Key Technical Levels

• Gold price has dropped on the Federal Reserve statement and interest rate decision.
• Fed hikes rates with a hawkish statement by 50 basis points, as expected, US Dollar and US Treasury yields rally. 
• There are prospects of a move in Gold price towards $1,850s on the upside or a break below $1,800 opens $1,770/50.

The United States Federal Reserve has hiked rates by 50 basis points at the conclusion of the Federal Open Market Committee's two-day meeting on Wednesday and signalled plans to keep lifting them next year to combat high inflation.

The US Dollar and US Treasury yields have rallied on a hawkish statement and the Gold price has dropped to $1,795 the low so far to test a critical area of daily support as illustrated in the technical analysis below. 

Fed key takeaways

• The Federal Reserve hikes 50 basis points, as expected
• Target Range stands At 4.25% - 4.50%.
• The vote was unanimous.
• The guidance in the statement repeats that: "The Committee anticipates that ongoing increases in the target range will be appropriate."

Watch Fed Chair Powell live

Today's Federal Open Market Committee meeting is bringing an assortment of moves to chew on, including the Fed chairman, Jerome Powell's press conference up next. this can be watched in the live link above. 

Jerome Powell will be looked at to bring clarity to the interest rate decision and the statement for where the committee views the future of its inflation fight. He is expected to reiterate Fed will raise rates and keep them high until inflation shows concrete signs of coming back to the central bank’s 2% target. This might imply a higher terminal rate for which would be expected to support US Treasury yields and the US Dollar, a headwind for the Gold price.  

Gold technical analysis

Prior to the announcement of a 50bp hike, Gold price was at $1,810 and had carved out a W-formation. This is a reversion pattern and was expected to see the price retest at least the neckline support as follows: 

After the Fed

From here, there are prospects of a move towards $1,850s on the upside while a break of the support of the W-formation opens the risk of a run to test below $1,800 and towards $1,770/50 below the bullish trendline supports. 

The Federal Reserve's revised Summary of Economic Projections (SEP), the so-called dot plot, showed that the median view of the policy rate at end-2023 stood at 5.1%, up from 4.6% in September's SEP.

Additional takeaways

"Fed's median view of fed funds rate at end-2024 4.1% (prev 3.9%)."

"Fed's median view of fed funds rate at end-2025 3.1% (prev 2.9%)."

"Fed's median view of fed funds rate in longer run 2.5% (prev 2.5%)."

"Fed sees US GDP growing 0.5% in 2023 (prev 1.2%); 1.6% in 2024 (prev 1.7%); 1.8% in 2025 (prev 1.8%); longer-run at 1.8% (prev 1.8%)."

"Fed sees PCE inflation at 3.1% in 2023 (prev 2.8%); 2.5% in 2024 (prev 2.3%); 2.1% in 2025 (prev 2.0%); longer-run 2.0% (prev 2.0%)."

"Fed sees year-end US jobless rate at 4.6% in 2023 (prev 4.4%), 4.6% in 2024 (prev 4.4%); 4.5% in 2025 (prev 4.3%); longer-run at 4.0% (prev 4.0%)."

"Fed sees core PCE inflation at 3.5% in 2023 (prev 3.1%), 2.5% in 2024 (prev 2.3%), 2.1% in 2025 (prev 2.1%)."

"Only two policymakers project year-end 2023 fed funds rate below 5%."

The US Federal Reserve on Wednesday announced that it raised the policy rate, federal funds rate, by 50 basis points to the range of 4.25-4.5% following the December monetary policy meeting. This decision came in line with the market expectation. 

Follow our live coverage of the Fed's policy announcements and the market reaction.

In its policy statement, the Fed reiterated that ongoing interest rate increases will be appropriate to attain a 'sufficiently restrictive policy stance.'

Additional takeaways as summarized by Reuters

"Will take into account cumulative tightening, policy lags and economic and financial developments in setting rate hike pace."

"Inflation remains elevated, Fed is highly attentive to inflation risks."

"Job gains have been robust, unemployment rate low."

"Recent indicators point to modest growth in spending and production."

"Vote was in favor of policy was unanimous."

Market reaction

The US Dollar Index recovered modestly from the multi-month lows with the initial reaction and was last seen trading flat on the day at around 104.00.

• The Euro tumbles against the Pound Sterling ahead of BoE and ECB’s decisions.
• EU’s Industrial Production in November was weaker than expected, exerting pressure on the Euro.
• The Bank of England and the European Central Bank are expected to hike rates by 50 bps, favoring the GBP.

The EUR/GBP stalled at the 20-day Exponential Moving Average (EMA) at 0.8622 and retraces below the 0.8500 psychological mark, courtesy of broad Pound Sterling (GBP) strength, ahead of monetary policy decisions by the Bank of England (BoE) and the European Central Bank (ECB) on Thursday. Therefore, the EUR/GBP is trading at 0.8584, below its opening price, at the time of writing.

Sentiment remains optimistic ahead of the Federal Reserve monetary policy decision, as shown by US equities. Aside from this, the Euro (EUR) remains downward pressured against the British Pound (GBP), on the economic outlook of both countries. Although in the Euro area, the economic downturn expected in Germany eased, estimations that Germany and Italy would hit a recession remained due to its dependence on industry and reliance on expensive energy.

In the meantime, the Eurozone economic docket featured November’s Industrial Production (IP) for the bloc, with data coming worse than expected at a 2% contraction, beneath estimates of a 1.5% MoM drop, while year-over-year IP remained unchanged at 3.4%.

In the UK, inflation cooled in November from 11.1% to 10.7%, surprising economists who had expected it to remain flat at 10.9%. However, core CPI was still three times higher than what BoE targets as its goal of 2%. A further decrease may be necessary for households within Britain that have struggled with increasing expenses throughout 2020 due mainly to economic hardships caused by Covid-19 pandemic restrictions.

What to watch

The Bank of England (BoE) and the European Central Bank (ECB) are expected to hike rates by 50 bps, which would favor the UK. If both central banks increased rates as expected, the BoE would have the upper hand at 3.50% vs. 2.50% by the ECB. Therefore, further EUR/GBP downside is expected, with traders eyeing a clear break below the 200-day Exponential Moving Average (EMA) at 0.8585.

EUR/GBP Key Technical Levels

• EUR/USD traders get set for the Fed and eye1.0600 as a key support area and 1.0520s below it.
• EUR/USD resistance is marked up as 1.0700 and 1.0790 thereafter.

As per the prior analysis, EUR/USD soars as US CPI comes in below expectations, EUR/USD has continued to test higher in the 1.06 area, taking on the support quarter to reach a high of 1.0671 as the following analysis illustrates. 

All will now depend on the Federal Reserve at the top of the hour but the key levels are identified below:

EUR/USD prior analysis

It was stated, that in the above daily chart, the market was shown to be on the front side of the bullish trend and there was every possibility that the price would continue higher into the in-the-money shorts towards 1.0800/50 in the days or weeks ahead.

EUR/USD update

As illustrated, the price has moved into the target area and is leaving a W-formation in its tracks. This is a reversion pattern whereby bulls would be expected to move in at a discount from the neckline should there be a testest thereof. 

This marks 1.0600 as a key support area and 1.0520s below it as being the CPI take-off point. Above the spot, we have 1.0700 as a key level where a measured move of -0.272% of the potential correction's range to support meets the prior mid-summer resistance looking left. We have 1.0790 thereafter as the next level. 

Jerome Powell, Chairman of the Federal Reserve System, will be delivering his remarks on the monetary policy outlook at a press conference following the meeting of the Board of Governors. Powell's speech will start at 19:30 GMT.

Follow our live coverage of the Fed's policy announcements and the market reaction.

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."

• USD/JPY now all depends on the outcome of the Federal Reserve.
• USD/JPY bears need to get below 134.00 while the bulls need to get above 135.60 and then 138.00.

As per the prior analysis, USD/JPY bears are moving in again ahead of the Fed, the bears have stayed the course and there are high probabilities of a downside continuation, depending on the outcome of the Federal Reserve today. 

USD/JPY prior analysis

It was stated that USD/JPY was eying up the 130.00 area that could be tested in the coming days or weeks if the bears stay the course.

It was said that eyes were turning to the Fed and on a dovish outcome, the level could be reached before the close of the week, noting that tt has not been uncommon for the yen to fly 500 pips in a week:

USD/JPY update

As illustrated, the continuation is in process with a fresh low already in place ahead of the Fed. The bears need to get below 134.00 while the bulls need to get above 135.60 and then 138.00.

• The USD/CHF extends its weekly losses to more than 1%.
• The divergence between the USD/CHF price action and oscillators could suggest that selling pressure is fading.
• USD/CHF Price Analysis: Break below 0.9200 to exacerbate a fall to YTD lows; otherwise, a rally above 0.9300 is almost certain.

The USD/CHF prolongs its fall to a fresh seven-month low, ahead of the Federal Reserve monetary policy decision, tumbles below 0.9300 after Tuesday’s volatile session, witnessing further weakness on the US Dollar (USD), spurred by a soft inflation report. Therefore, the USD/CHF so far is down in the week by 1.11%, and on Wednesday down 0.47%, trading at 0.9243 at the time of typing.

USD/CHF Price Analysis: Technical outlook

The USD/CHF bias remains downwards, as the daily chart depicts, with prices falling to multi-month lows below 0.9300. It should be said that oscillators had barely reacted to price action, with the Relative Strength Index (RSI) remaining slightly above oversold territory. At the same time, the Rate of Change (RoC) continued to aim toward the zero line, suggesting that selling pressure is abating.

Therefore, if the USD/CHF drops below 0.9200, a fall toward February 21 daily low at 0.9150 is on the cards, followed by a re-test of the YTD lows of 0.9091. Nevertheless, with oscillators diverging from the USD/CHF price action, the USD/CHF first resistance would be the 0.9300 psychological level, followed by the December 13 daily high of 0.9375 ahead of the 0.9400 mark.

USD/CHF Key Technical Levels

• Silver remains trading at around $23.80s ahead of the Federal Reserve's last monetary policy meeting of 2022.
• Last Tuesday’s softer inflation CPI in the US paved the way for 50 bps rate hikes.
• Most analysts estimate that the Fed will raise rates by 50 bps.

Silver price is trading with solid gains as investors prepare for the Federal Reserve’s (Fed) monetary policy decision on Wednesday, following the release of softer-than-expected inflation data in the United States (US). Therefore, most analysts expect the US central bank to adjust the tightening size, though the rates’ peak remains unknown. At the time of writing, the XAG/USD is trading at $23.85, above its opening by 0.64%.

Sentiment remains upbeat, as shown by US stocks climbing ahead of the Fed’s decision. The main spotlight in the economic calendar is the Federal Reserve Open Market Committee (FOMC) decision, with analysts estimating a 50 bps rate hike by the Fed. The CME FedWatch Tool portrays odds for a 50 bps are at 82% vs. 18% chances of a 75 bps increase.

During a speech on November 30, Federal Reserve Chairman Jerome Powell said that interest-rate hikes in a smaller size might be “appropriate,” adding that it could happen as soon as the December meeting. Therefore, traders began to repriced in a less hawkish Fed, although Powell pushed back against a Fed pivot, stating that “the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level.”

In the meantime, the US Dollar Index, a gauge of the buck’s value against a basket of six currencies, stumbles 0.26%, down at 103.734, following a softer-than-estimated US inflation data on Tuesday.

The US Department of Labor revealed that November’s Consumer Price Index (CPI) rose less than the 7.3% YoY expected to 7.1%. The so-called core CPI for the same period, which excludes volatile items like food and energy, printed 6.0% vs. 6.3% estimates. The reaction to the data sent the S&P 500 rallying to fresh three-month highs.

Money market futures seem to indicate an upcoming rise in the Federal Funds rate, making it peak at 5.01%. Eurodollar futures portrayed traders speculating that the Federal Reserve would make its first rate cut of around 20 bps by September 2023.

Silver (XAG/USD) Price Analysis: Technical outlook

XAG/USD remains upward biased and rallied above $24.00, on traders speculating that the Federal Reserve might not be as aggressive as inflation continues to slow down. Silver’s rally stalled at around $24.00 per troy ounce as traders brace for the US central bank decision. It should be said that a dovish statement could pave the way above $24.00, exacerbating a rally toward $25.00. Otherwise, a hawkish-than-expected reaction could send the white metal sliding below $23.00, ahead of a fall below the 20-day Exponential Moving Average (EMA) at $22.38.

In a few minutes, at 19:00 GMT the Federal Reserve will announce its decision on monetary policy.  Market participants expect a 50 basis points rate hike. According to the Research Department at BBVA, in spite of positive inflation data and signs since the last meeting, to avoid an unwanted further decline in interest rates along the yield curve, Fed Chair Jerome Powell will likely accompany the FOMC decision with a still relatively hawkish press conference.

Key Quotes: 

“Chair Powell will face two challenges in the press conference: i) trying to convey a clear hawkish message with signs arising in the minutes of the last meeting and in recent speeches that Fed officials no longer hold a consensus view on what to do next, and ii) attempting to avoid an unwanted further decrease of interest rates along the curve by stressing that inflation remains too high and the job of bringing it down is not done, and thus the Fed will stick to it. Chair Powell will stress the updated projections to convey a hawkish message but the growing weakness in core goods inflation is now difficult for the Fed to ignore.”

“Although the Fed will stick to a hawkish tone and updated projections will show higher rates, inflation easing will most likely pick up in coming months. That together with divisions arising within the FOMC will keep alive the discussion on both the terminal rate.”
 
“For now, we stick with our 4.75%-5.00% peak rate forecast and we continue to think
that the Fed will move to the sidelines until late 2023, but the discussion in 2023 will likely shift from (high) inflation to (weak) growth.”
 

• Key events ahead: FOMC statement in a few hours, Banxico decision on Thursday.
• USD/MXN makes sharp moves, and holds bullish bias.
• Volatility is likely to remain elevated in the currency market.

The USD/MXN is rising significantly on Wednesday before the Federal Reserve announces its decision on monetary policy. On Tuesday, the pair suffered the biggest daily decline in months. Volatility jumped after US Consumer Price Index data and is set to remain elevated ahead of the FOMC. The Bank of Mexico will announce its decision on Thursday.

Recently the USD/MXN peaked at 19.91, near the 100-day Simple Moving Average. It failed to hold above 19.85 and then also pulled back under 19.80. The correction extended on Wednesday’s Asian session to 19.50 and it was followed by a rebound.

As of writing, USD/MXN is moving to the upside, trading around 19.70. Still, no clear signs emerge from the chart. The pair could consolidate between 19.85 and the 19.50 support area, reinforced by the 20-day SMA.

Technical indicators continue to favor the upside with RSI moving north without much conviction; Momentum held above the midline. A consolidation below 19.50 would change the outlook to neutral/bearish. On the upside, above 19.80, USD/MXN could rise further to test the 100-day SMA, exposing 20.00. A return above would put the pair back in the 19.80/20.20 range.

USDMXN daily chart

Gold has cleared its 200-Day Moving Average at $1,790. Economists at Credit Suisse expect the yellow metal to enjoy further gains.

Initial support seen at $1,778

“Gold has finally cleared the crucial 200DMA, currently seen at $1,790 and with an existing base in place we look for further strength to the 50% retracement of the 2022 fall at $1,843 next, then the $1,877/1,896 June high and 61.8% retracement.”

“Support is seen at $1,778 initially, with $1,766 ideally now holding to keep the immediate risk higher. Below can see a retest of the ‘neckline’ to the base at $1,729 but with fresh buyers expected here.” 

• Federal Reserve will announce interest rate decision at 19:00 GMT.
• US Dollar holds onto losses, US yields move modestly lower.
• AUD/USD retreats after approaching 0.6900 and the 200-day SMA.

The AUD/USD is moving sideways around 0.6860, up for the day, ahead of the Federal Reserve decision on interest rates. The pair is about to post the highest daily close since mid-September but critical events lie ahead.

It is up to the Fed

The Federal Reserve will announce its decision at 19:00 GMT. It is expected to slow the pace of interest rate hikes to 50 basis points. The focus will be on the statement, the macroeconomic forecasts and Powell’s press conference. Analysts will look for clues about the future path of Fed’s policy.

The outcome of the FOMC meeting will play a key role for the Dollar going forward. A more hawkish Fed will likely help USD recover strength while signs about a near-term peak in the rate cycle could boost the AUD/USD pair. On Thursday, Australia will release the November employment report.

The US Dollar looks weak ahead of the FOMC statement after falling sharply on Tuesday following a softer-than-expected US Consumer Price Index reading. In November price pressure continued to ease. Treasuries rallied, the DXY tumbled and AUD/USD jumped to 0.6893, reaching the highest level in almost three months, slightly below the 200-day Simple Moving Average.

The pair then pulled back, finding support above 0.6820. During the last hours, it has been hovering around 0.6860. The bias remains bullish for the Aussie. It needs a daily close above 0.6900 (200-SMA) to clear the way to more gains. On the flip side, below 0.6800 a test of the 20-day SMA at 0.6735 seems likely.

Technical levels

EUR/USD gained more than 100 pips on Tuesday and reached its strongest level since early June at 1.0672. Economists at Credit Suisse expect the pair to hit the 1.08 level by year-end.

Asymmetric risk of a EUR rise on a surprise 75 bps rate hike

“With our EUR/USD 1.0610 range top breached, we now shift our expected range low for the next month to 1.0440 (close to 7 Dec low) and additionally anticipate a test of May highs near 1.0800 (our new end-2022 target).” 

“We expect a 50 bps rate hike. For the EUR to be genuinely undermined by this ECB decision, ECB chief Lagarde would likely need to sound so dovish about the future pace of hikes and level of terminal rate that the market either materially shifts lower the latter or instead starts to invert the Euribor futures curve much more dramatically.”

“Sticky core inflation and wages leave an asymmetric risk of a EUR surge on a surprise 75 bps rate hike, something we refuse to rule out.”

Economists at TD Securities discuss the Federal Reserve interest rate decision and its implications for EUR/USD and USD/JPY.

Hawkish (25%)

“The FOMC delivers a 50 bps rate hike and the 2023 median SEP dot increases to 5.125% as dovish members shift their projections for the terminal rate higher. Chair Powell calls the recent easing of financial conditions inappropriate and suggests that the Fed may need to increase rates above current market pricing to bring inflation under control. USD/JPY 136.80/00, EUR/USD 1.05.”

Base Case (60%)

“Fed delivers a 50 bps rate hike and the 2023 median dot increases to 4.875% as the Fed continues to stress about inflation that remains too high. Powell maintains the same tone as his remarks at Brookings, suggesting that ‘that ongoing increases in the target range will be appropriate’, leaving the door open to additional 50 bps increases in the future. USD/JPY 134.80, EUR/USD 1.0680.”

Dovish (15%)

“Fed delivers a 50 bps rate hike and the dot plot points to a modest upward shift in the dots for 2023. Chair Powell suggests that inflation may be starting to soften as shelter and goods prices appear to be turning the corner. Powell also reiterates Fed's desire for a soft landing. USD/JPY 133.60, EUR/USD 1.0720.”

See – Fed Preview: Forecasts from 18 major banks, downshift to 50 bps

• GBP/USD fluctuates around 1.2370s, though it remains positive ahead of the Fed’s decision.
• UK inflation eased beneath the 11% threshold, which could cement a 50 bps rate hike by the BoE on Thursday.
• GBP/USD Price Analysis: Upward biased, with buyers eyeing 1.2500.

The GBP/USD climbs in the North American session as traders brace for the Federal Reserve’s (Fed) last monetary policy meeting, which will likely unveil a 50 bps rate hike and release its update in the Summary of Economic Projections (SEP). Hence, the GBP/USD is trading at around 1.2393, registering gains of 0.28% after hitting a high of 1.2400.

GBP/USD traders prepare for the Federal Reserve’s decision

US equities are set to open mixed, as shown by the futures market. A light economic calendar in the United States (US), except for the Federal Reserve Open Market Committee (FOMC) interest rate decision around 18:00 GMT, refrains traders from opening fresh long/short bets in the GBP/USD.

Since Jerome Powell’s speech on November 30, opening the door for smaller rate hikes, as soon as the December meeting, sent the GBP/USD rallying close to 4.50%. Nevertheless, he pushed back against a Fed pivot, stating that “the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level.” Although Jerome Powell’s message tone was neutral, the market perceived it as dovish, as shown by the reaction of the markets.

Earlier data released from the Office for National Statistics (ONS) in the United Kingdom (UK) witnessed inflation easing in November, from 11.1% to 10.7% YoY, and beneath estimates of 10.9%. Regarding the core Consumer Price Index (CPI), it dropped from 6.5% to 6.3% YoY, though remaining three times higher than the Bank of England’s (BoE) goal.

In the meantime, the Bank of England will reveal its monetary policy decision on Thursday, with most analysts expecting a 50 bps rate increase, which would take the Bank Rate to 3.5%. Therefore, the GBP/USD is trapped between the decision of two central banks, leaving the odds in favor of the more hawkish speech between Jerome Powell and Andrew Bailey.

What to watch

At 18:00 GMT, the Federal Reserve would unveil its last monetary policy decision, followed by the Fed Chair Jerome Powell press conference. On Thursday, the Bank of England will reveal its monetary policy stance.

GBP/USD Price Analysis: Technical outlook

From a daily chart, the GBP/USD remains upward biased, though off the highs of the week reached on Tuesday at 1.2443. The Relative Strength Index (RSI) at bullish territory suggests that buyers remain in charge. However, as it approaches overbought conditions, caution is warranted. The Rate of Change (RoC) edging lower means buying pressure is fading, so mixed signals suggest traders should wait until after the Fed’s decision.

The GBP/USD key resistance levels are 1.2400, the 1.2500 psychological figure, followed by the June 7 daily high of 1.2599. On the downside, the GBP/USD essential supports are 1.2300, followed by the intersection of the 20 and 200-day Exponential Moving Averages (EMAs) around 1.2109/11.

S&P 500 remains capped below key resistance at 4,120/4,155. Economist at Credit Suisse maintain their base case of looking for a top below 4,155.

Important top to form

“S&P 500 is still capped as looked for below the downtrend from the beginning of the year, now at 4,120, as well as the 50% retracement of the 2022 fall at 4,155. We continue to look for a top in this 4,120/4,155 zone.”

“Below support at 3,918/07 is now needed to set a top to add weight to our bearish view to suggest the recovery is over and broader downtrend is resuming.”

“A close above 4,155 may be the first real sign that we may have seen the worst of the sell-off for a shift in the major trend to sideways, with key resistance seen next at the 61.8% retracement of the 2022 fall and August high at 4,312/25.”

Economists at Credit Suisse discuss the Swiss National Bank (SNB) interest rate decision and its implications for the EUR/CHF pair.

Very hawkish to hawkish

“The SNB hikes 75 bps or 50 bps, hints at further rate increases and leaves its conditional long-term inflation forecast unchanged at 2% or even revises it upwards. We assign a combined 60% probability to this scenario, 10% to the very hawkish and 50% to the hawkish setup. In both cases, EUR/CHF should trend lower towards our 0.9500 year-end target, especially should the central bank still revise its long-term inflation forecast upwards.”

Neutral

“The central bank hikes 50 bps but revises its conditional long-term inflation forecast lower. This scenario should have a neutral impact on EUR/CHF and has a 20% probability. In this case, we expect EUR/CHF to stay within a range of 0.9600-1.0100 for the near term, with the ECB and SNB rate decisions out of the way.”

Dovish

“The SNB hikes 25 bps, well below market expectations, and revises its long-term inflation forecast lower. This setup would be univocally bearish for the CHF, and we assign a 20% probability to it. In this scenario, we would expect the Franc to weaken significantly and can imagine a new EUR/CHF level of 1.0200 and even 1.0400, respectively, for Q1 2023.”

See – SNB Preview: Forecasts from five major banks, new tightening to come

The sell-off in the US Dollar in recent weeks has lifted EUR/USD completely clear of parity. Looking ahead to the New Year, however, there are plenty of factors that could still unnerve EUR bulls, economists at Rabobank report.

Out of the woods? 

“The ECB has a specific challenge given the different debt profiles within member nations and the possibility of spread widening vs. Bunds, particularly in the BTP market, once QT starts. This could trigger risk aversion and weigh on the EUR.”

“Insofar as the current account surplus of the Eurozone has been eroded by expensive energy imports, the EUR is likely to be more sensitive to bad news than in previous years.” 

“While EUR bulls may be cheered in the short term by less bad recession fears for Germany, less high energy prices and a hawkish ECB, the single currency is not out of the woods. These risks could still push EUR/USD back to parity in 2023.”

The US Dollar has weakened sharply ahead of the FOMC meeting. A hawkish message is unlikely to strengthen the greenback sustainably, in the opinion of economists at MUFG Bank.

Hawkish rhetoric will fall a bit flat 

“The Fed certainly has an incentive to talk hawkishly. The inflation data are clearly good news but market conditions since the last meeting have clearly loosened and the Fed will likely want to curtail that from here.” 

“Since the hawkish FOMC on 2nd November, the S&P 500 is up 4.3%; the 10-year UST bond yield is down over 50 bps and the USD is nearly 7% weaker. Our suspicion at this juncture is that Chair Powell has his work cut out for himself in turning this momentum and any hawkish rhetoric is unlikely to get much traction in the face of yesterday’s weak CPI print.”

“Any US Dollar strength on hawkish rhetoric could reverse quickly.”

See – Fed Preview: Forecasts from 18 major banks, downshift to 50 bps

• USD/CAD gains some positive traction on Wednesday, though lacks follow-through.
• A further recovery in crude oil prices underpins the Loonie and acts as a headwind.
• Bearish USD further contributes to capping gains ahead of the key FOMC decision.

The USD/CAD pair attracts some buying near the 1.3530 region on Wednesday and recovers a part of the previous day's losses. The pair maintains its bid tone through the early North American session and is currently placed just a few pips below the daily low, around the 1.3570-1.3575 zone.

The intraday uptick could be solely attributed to some repositioning trade ahead of the key central bank event risk, though a combination of factors caps the upside for the USD/CAD pair. Crude oil prices gain traction for the third straight day and move further away from the YTD low set last week, which in turn, is seen undermining the commodity-linked Loonie. The US Dollar, on the other hand, languishes near its lowest level since late June touched on Tuesday in the aftermath of softer US CPI and acts as a headwind for the major.

The downside for the USD/CAD pair, meanwhile, is likely to remain limited as traders keenly await the highly-anticipated FOMC decision. The US central bank is widely expected to deliver a relatively smaller 50 bps rate hike at the end of a two-day policy meeting. Furthermore, early indicators suggest that the markets are pricing a 25 bps rate hike at the next FOMC meeting in February 2023. Hence, investors will scrutinize the accompanying policy statement and the so-called dot plot for the Fed's near-term policy outlook.

The outcome will play a key role in driving the USD demand in the near term and provide some meaningful impetus to the USD/CAD pair. Ahead of the crucial event, US crude inventory data from the Energy Information Administration will influence oil price dynamics and allow traders to grab short-term opportunities around the major.

Technical levels to watch

• Gold price retreats further from over a five-month high, though the downside seems cushioned.
• Expectations for a less hawkish Federal Reserve weigh on the US Dollar and should lend support.
• Traders might also refrain from placing aggressive bets ahead of the key central bank event risk.

Gold price edges lower on Wednesday and extends the previous day's late pullback from the $1,824-$1,825 area, or its highest level since late June. The XAU/USD remains on the defensive heading into the North American session, albeit holds above the $1,800 mark as traders await the latest monetary policy update from the Federal Reserve.

Bets for smaller rate hikes by Federal Reserve to lend support to Gold price

The softer-than-expected release of the consumer inflation figures from the United States reaffirmed expectations that the Federal Reserve will slow the pace of its policy tightening. In fact, the US central bank is expected to deliver a relatively smaller 50 bps at the end of a two-day policy meeting later this Wednesday. Furthermore, early indicators suggest that the markets are pricing in a 25 bps rate hike at the next Federal Open Market Committee (FOMC) meeting in February 2023. This, in turn, should offer some support to the non-yielding Gold price.

Softer US Dollar should contribute to limiting losses for Gold price

The market focus, meanwhile, will remain on the accompanying policy statement and the so-called dot plot. Investors will look for fresh cues about the future rate-hike path, which will help determine the next leg of a directional move for Gold price. In the meantime, the US Dollar languishes near a multi-month low touched on Tuesday amid the prospects for a less hawkish Federal Reserve keep. This could further contribute to limiting losses for the Dollar-denominated commodity and warrants some caution before positioning for any meaningful corrective decline.

Investors turn cautious heading into the key central bank event risk

Heading into the key central bank event risk, nervousness about policymakers' view on signs of cooling inflationary pressure in the United States keeps a lid on the recent optimism. This is evident from the cautious mood around the equity markets, which should offer additional support to the safe-haven Gold price. This, in turn, suggests that any subsequent downtick might be seen as a buying opportunity and is more likely to remain limited, at least for the time being.

Gold price technical outlook

From a technical perspective, the overnight breakout through the very important 200-day Simple Moving Average (SMA) and acceptance above the $1,800 mark add credence to the positive outlook. The said handle should now protect the immediate downside for the Gold price, which is closely followed by support near the $1,795-$1,794 area (200 DMA). Some follow-through selling could drag the XAU/USD to the $1,778-$1,777 region en route to the $1,766-$1,765 horizontal support. The latter should act as a strong base, which if broken decisively might negate the near-term bullish bias.

On the flip side, momentum back above the $1,810-$1,812 static barrier might confront some resistance near the multi-month top, around the $1,824-$1,825 region. A sustained strength beyond will reaffirm the constructive set-up and lift the Gold price to the next relevant hurdle near the $1,848-$1,850 supply zone. The upward trajectory could get extended further towards the $1,875 level en route to the June monthly swing high, around the $1,880 region.

Key levels to watch

EUR/USD is holding near its highest since June. Economists at Scotiabank believe that the world's most popular pair could extend its race higher to the 1.0750 area.

Support aligns at 1.0590

“Bullish momentum remains intact – if somewhat stretched on the daily studies.”

“We think EUR gains can extend to the mid-1.07s (61.8% of the 2022 decline at 1.0747) before a consolidation sets in.”

“We spot minor resistance at 1.0690 intraday. Support is 1.0590.”

See: EUR/USD to rally further to 1.0788, then 1.0944 – Credit Suisse

In the view of economists at Credit Suisse, risk-reward to being outright bearish on NOK has deteriorated: they now target a EUR/NOK range between 10.20 and 10.70.

Lower end of EUR/NOK target range set at 10.20

“Market expectations ahead of tomorrow’s Norges Bank rate decision have shifted in a dovish direction in Dec, at the same time as soft US CPI data have cast a more constructive outlook for risk-sensitive currencies (such as NOK). This leaves us with a much less attractive risk-reward to being outright bearish on NOK.”

“We now see our previous EUR/NOK target of 10.70 as the top of a neutral short-term target range, with a lower bound just below the 1 Dec lows, at 10.20.”

See – Norges Bank Preview: Forecasts from five major banks, last hike in December?

Cable remains firmafter having reached a fresh multi-month high of 1.2443 on Tuesday. Economists at Scotiabank expect the GBP/USD pair to attack the 1.2450/60 area.

GBP/USD appears to be consolidating

“Cable is well-supported against rising, short-term trend support off the early Nov low at 1.2320 intraday.”

“The GBP appears to be consolidating ahead of another push higher to retest the 1.2450/60 zone (61.8% of the 2022 decline) and extend towards 1.26/1.27.”

See: GBP/USD could test 1.25 on a negative Dollar reaction to the FOMC decision – ING

EUR/USD has cleared key resistance at 1.0612/15. Economists at Credit Suisse look for further strength to 1.0788, then the 50% retracement and trend resistance at 1.0890/1.0944.

Support at 1.04433 ideally holds to keep the immediate risk higher

“We maintain our positive outlook with resistance seen next at the 1.0788 May high and now we think as far as trend resistance and the 50% retracement of the 20211/2022 fall at 1.0890/1.0944.”

“Support at 1.04433 ideally holds to keep the immediate risk higher. Below can see a deeper corrective setback to the 200-Day Moving Average at 1.0350.”

USD/CAD is little changed on the session. Economists at Scotiabank expect the pair to trade in a 1.35-1.37 range for now.

Durable rebound in risk appetite still needed to lift the CAD more sustainably

“We think USD/CAD is likely to hold in a choppy (perhaps downward-tilting) range for now between 1.35-1.37. A more significant and durable rebound in risk appetite is still needed to lift the Loonie more sustainably, we think.”

“We look for support in the upper 1.34/low 1.35 zone to hold up for now. Resistance is 1.3660/70.”

• USD/JPY drifts lower for the second straight day and drops to over a one-week low.
• Expectations for a less hawkish Fed weigh on the USD and exert downward pressure.
• Any further losses seem limited ahead of the highly-anticipated FOMC policy decision.

The USD/JPY pair remains under some selling pressure for the second straight day on Wednesday and drops to over a one-week low, around mid-134.00s heading into the North American session.

The US Dollar remains on the defensive and languishes near its lowest level since late June, which, in turn, drags the USD/JPY pair lower. The softer-than-expected US consumer inflation figures released on Tuesday reinforced expectations that the Fed will slow the pace of its policy tightening and continues to weigh on the greenback.

In fact, the US central bank is expected to deliver a relatively smaller 50 bps rate hike at the end of a two-day policy meeting later this Wednesday. This keeps the US Treasury bond yields depressed. The resultant narrowing of the US-Japan rate differential drives some flows towards the Japanese Yen and contributes to the USD/JPY pair's downtick.

Moreover, the cautious market mood ahead of the key central bank event risk benefits the safe-haven JPY and exerts additional downward pressure on the USD/JPY pair. Any further downside, however, is likely to remain limited as traders might prefer to wait for the Fed's near-term policy outlook amid signs of easing inflationary pressures in the US.

Hence, the focus will remain glued to the accompanying monetary policy statement and the so-called dot plot. Investors will look for fresh clues about the future rate-hike path. This, in turn, will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the USD/JPY pair.

Technical levels to watch

Swiss National Bank (SNB) meets on Thursday, December 15 at 08:30 GMT, followed by a press conference at 09:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of five major banks regarding the upcoming central bank's Interest Rate Decision. 

SNB is expected to hike rates by 50 basis points to 1%. At the last meeting on September 22, it hiked rates by 75 bps to 0.5%.

ING

“We expect the SNB to raise its policy rate by 50 bps at the December meeting, leading to a total rate increase over the year 2022 of 175 bps in Switzerland, against probably 250 bps in the eurozone and 425 bps in the US over the same period. Going forward, we expect price growth to decelerate gradually but slowly, remaining above target for the first half of the year, before falling back below 2% by the end of 2023. We expect the SNB to make a final 50 bps hike at its March 2023 meeting, bringing the rate to 1.5% and leaving it there for an extended period. We forecast further nominal CHF appreciation in the first half of 2023.”

MUFG

“Given the SNB only meets every quarter there is a greater risk that we do not get a slowdown in pace and another 75 bps rate hike is possible. But a step down to a 50 bps hike seems more likely given the inflation data is much lower in Switzerland than elsewhere.”

Citibank

“The strong Franc, slowing Swiss economy, falling energy prices but also the shift in emphasis to balance sheet reduction speak against big rate hikes. However, interest rate differentials are already historically wide and with fewer meetings available, the SNB has to make bigger steps to keep up. We, therefore, expect a 75 bps hike this week.”

Credit Suisse

“Our FX strategy base case is the market’s central case of a 50 bps hike. Such a move should be Franc supportive, and we stick with our 0.9500 EUR/CHF end-of-Q4 target.”

Danske Bank

“We expect 50 bps the SNB.”

• EUR/USD clings to modest daily gains heading into the American session.
• US stock index futures trade modestly lower on the day.
• Investors await the Federal Reserve's policy announcements and dot plot.

EUR/USD climbed to 1.0670 during the European trading hours and came within a touching distance of the multi-month high it set at 1.0674 on Tuesday. The pair, however, lost its bullish momentum and retreated to the 1.0650 area heading into the American session.

Focus shifts to FOMC meeting

Earlier in the day, the data from the Eurozone showed that Industrial Production in October contracted by 2% on a monthly basis. This reading came in worse than the market expectation for a decline of 1.5% but had little to no impact on the Euro's performance against its rivals.

Meanwhile, the negative shift witnessed in market sentiment with the US stock index futures erasing earlier gains seems to be helping the US Dollar limit its losses for the time being.

On Tuesday, the US Dollar Index dropped to its weakest level in nearly six months at 103.58 after the November Consumer Price Index (CPI) figures came in below market expectations. As of writing, the index was down only 0.1% on the day at 103.87.

In case Wall Street's main indexes push lower after the opening bell, the US Dollar could benefit from safe-haven flows. Nevertheless, market action is likely to remain subdued with investors refraining from making large bets while waiting for the outcome of the FOMC's December policy meeting.

The US Federal Reserve is widely expected to raise its policy rate by 50 basis points. Investors are likely to react to revisions to inflation and terminal rate projections in the Summary of Economic Projections, the so-called dot plot.

EUR/USD Technical Analysis

Economists at Credit Suisse remain unconvinced by the BoE’s willingness to stick to a truly hawkish stance. This, therefore, limits GBP/USD gains to at best matching EUR, with 1.2500 as the new year-end target.

1.2600 should be as far as Cable can rally this year at a stretch

“We expect a 2-5-2 vote in favour of a 50 bps rate hike. We still see a terminal rate of 4.50% in mid-2023, modestly below current market pricing just below 4.70% in Sep ‘23.”

“We have stuck to a view that EUR/GBP will largely gravitate in or around a 0.8600-0.8800 range, being unconvinced by the BoE’s willingness to stick to a truly hawkish stance given ongoing growth risks. This, therefore, limits GBP/USD gains to at best matching EUR, suggesting that the 1.2600 level should be as far as Cable can rally this year at a stretch, with 1.2500 as our new year-end target.”

S&P 500 rebound has once again faltered near the September peak of 4120. The index must hold above the 3850/15 zone to sustain the bounce, economists at Société Générale report.

Receding upward momentum and possibility of a pause

“Daily MACD has dipped below its trigger line denoting receding upward momentum and possibility of a pause.”

“The 50-Day Moving Average near 3850/3815 should be an important support zone near term. Holding above this, the bounce could gradually persist towards the previous gap near 4218.”

The Euro is able to benefit from the renewed Dollar weakness, but only moderately so compared with other currencies. Thus, we have to be cautious with stories that interpret EUR strength into the recent EUR/USD move in addition to USD weakness, in the view of economists at Commerzbank.

Euro is doing moderately well, no more

“We should not confuse high EUR/USD levels with EUR strength.”

“The Euro is doing moderately well, no more. I see little chance of anything beyond that unless Lagarde finds some very clear words.”

• Gold price fluctuates in a tight range above $1,800 on Wednesday.
• The 10-year US T-bond yield holds steady slightly below 3.5%.
• The US Dollar struggles to find demand ahead of the Fed's policy announcements.

Following Tuesday's impressive rally, Gold price moves up and down in a tight range above $1,800. As of writing, XAU/USD was virtually unchanged on the day at $1,809.

Eyes on Fed after US CPI data

The softer-than-expected inflation data from the US triggered a sharp decline in the benchmark 10-year US Treasury bond yield and forced the US Dollar to suffer heavy losses against its major rivals on Tuesday.

As the focus shifts to the Federal Reserve's policy announcement, the 10-year US T-bond yield stays relatively quiet slightly below 3.5%, not allowing XAU/USD to gather bullish momentum.

The Fed is widely expected to raise its policy rate by 50 basis points to the range of 4.25-4.5% following its December policy meeting. Hence, investors will pay close attention to the revised Summary of Economic Projections (SEP), the so-called dot plot, and FOMC Chairman Jerome Powell's comments on the policy outlook in the press conference.

Federal Reserve Preview: How Powell may drain the Dollar of any dot-related gains.

In September's dot plot, the median terminal rate projection stood at 4.6% and policymakers didn't pencil down a rate cut for 2023. With the 'Fed pivot' narrative gaining traction after the November Consumer Price Index data, market participants will scrutinize the SEP to confirm or deny a pivot in the Fed's policy outlook.

US Inflation Quick Analysis: Dollar's fightback is futile, last hurrah in play.

Technical levels to watch for

The Fed prepares to announce another rate hike at 19:00 GMT today. Economists at ING still think Chair Powell will try to deliver a credible rate protest and push back against easing financial conditions. This could take some pressure off the Dollar, but downside risks remain quite high.

In need of some Powell "magic"

“Our perception is that the Fed will want to deliver some sort of ‘rate protest’, essentially pushing back against the recent easing in financial conditions. To do that, Powell will need to downplay the recent abatement in price pressure, stick to the view that the inflation battle is still to be won and ultimately try to re-anchor peak rate expectations to the 5.00% handle. That is easier said than done.”

“While we are in the camp of higher interest rates and a stronger Dollar, we have to admit the risk of wanted or unwanted dovish missteps is elevated.”

“We knew December would be a challenging month for Dollar bulls like ourselves, and downside risks remain significant today. Still, our base case is that the USD can recover some of the lost ground as Powell works his magic to deliver a broadly hawkish – and above all credible – message.”

See – Fed Preview: Forecasts from 18 major banks, downshift to 50 bps

Norges Bank will announce a new rate decision on Thursday, December 15 at 09:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of five major banks regarding the upcoming central bank's Interest Rate Decision.

NB is expected to hike rates by 25 basis points to 2.75%. At the last meeting on November 3, the bank hiked rates by 25 bps.

Nordea

“We still expect a 25 bps hike but have become less convinced that the key rate will need to be raised much further. Hence, the December hike to 2.75% could end up being the last hike from Norges Bank in this cycle.”

MUFG

“We expect another 25 bps hike with the potential for Norges bank to follow the BoC’s lead from last week and hint that they may be in a position to pause.”

TDS

“Another weak Regional Networks survey and softer headline and core inflation likely erased most of the risk of a 50 bps hike at Norges Bank's Dec meeting. That said, inflation is still running much hotter than the Bank's forecast (CPI: 1.1ppts, CPI-ATE: 0.7ppts) and GDP data has consistently been surprising to the upside. Therefore, we wouldn't entirely rule out a 50 bps move.”

Swedbank

“We expect a 25 bps hike in December, followed by a signal that the policy rate may be increased further in Q1 if needed, meaning the terminal rate will probably peak at somewhat below 3.00%. We expect Norges Bank to start cutting rates during second half of next year, but it is too early for the Bank to signal that already now.”

Danske Bank

“We expect 25 bps from Norges Bank.”

• Industrial Production in the euro area and the EU contracted in October.
• EUR/USD stays in positive territory above 1.0650 after the data.

The data published by Eurostat revealed on Wednesday that Industrial Production in the euro area and the EU contracted by 2% and 1.9%, respectively, on a monthly basis in October. The market expectation was for a 1.5% decline in the euro area's production.

When compared to October 2021, Industrial Production in the euro area grew by 3.4%, down from the 5.1% expansion recorded in September.

"In the euro area in October 2022, compared with September 2022, production of energy fell by 3.9%, durable consumer goods by 1.9%, intermediate goods by 1.3% and capital goods by 0.6%, while production of non-durable consumer goods rose by 0.3%," the publication further read.

Market reaction

EUR/USD showed no immediate reaction to these figures and was last seen rising 0.27% on the day at 1.0658.

• GBP/USD steadily climbs back to the 1.2400 mark amid a modest USD weakness.
• The formation of an ascending channel supports prospects for additional gains.
• Traders now look to the key FOMC policy decision for a fresh directional impetus.

The GBP/USD pair edges higher for the fifth successive day on Wednesday and climbs back closer to the 1.2400 mark during the first half of the European session. Spot prices, however, remain below a five-month high touched on Tuesday as traders await the highly-anticipated FOMC policy decision before placing fresh bets.

In the meantime, bets for a relatively smaller 50 bps Fed rate hike keep the US Dollar depressed near its lowest level since late June. Apart from this, a positive risk tone further undermines the safe-haven buck, which, in turn, is seen offering some support to the GBP/USD pair. The intraday uptick, meanwhile, seems rather unaffected by softer-than-expected UK consumer inflation figures released earlier this Wednesday.

From a technical perspective, the recent rally witnessed since late September along an upward-sloping channel constitutes the formation of an ascending channel. This points to a well-established short-term bullish trend and supports prospects for additional gains. The constructive outlook is reinforced by the fact that oscillators on the daily chart are holding in the positive territory and are still far from being in the overbought zone.

Hence, a subsequent strength back towards testing the overnight swing high, around the 1.2440-1.2445 region, looks like a distinct possibility. The momentum could get extended further towards the top end of the aforementioned trend channel, currently pegged around the 1.2500 psychological mark. Some follow-through buying will mark a fresh bullish breakout and set the stage for an extension of the ongoing positive momentum.

On the flip side, the daily swing low, around the 1.2340 area, now seems to protect the immediate downside ahead of the 1.2300 mark. Any further decline might continue to attract some buyers near the 1.2250-1.2245 region. This, in turn, should help limit the downside near the weekly low, around the 1.2200 round figure. Failure to defend the said support levels will negate the positive outlook and shift the bias in favour of bearish traders.

GBP/USD daily chart

Key levels to watch

Germany's Ifo Economic Institute said on Wednesday that the German economy is expected to contract by 0.1% in 2023.

"In the two quarters of the winter half-year 2022/23, the gross domestic product shrinks, but then it goes up again," said Timo Wollmershaeuser, Ifo's head of forecasts, in a statement.

Ifo also said inflation in Germany is forecast to decline to 6.4% in 2023 and to 2.8% in 2024 from 7.8% in 2022.

Market reaction

Germany's DAX 30 Index edged lower following this publication and was last seen losing 0.62% on a daily basis.

The fall in the value of the US Dollar, has weighed on the USD/JPY. Economists at Rabobank expect the pair to move in a 135-138 range over the next three months.

USD looks to have peaked

“We expect the outlook for USD/JPY to be mostly guided by the USD in the coming months.”

“While the USD looks to have peaked, this process could prove to be long a choppy and bring further flurries to the upside in USD/JPY in the coming months.”

“We expect USD/JPY to trade in a 135-138 range on a one to three-month view.”

Citing a source familiar with the matter, Reuters reported on Wednesday that the European Central Bank's (ECB) revised projections will put inflation "comfortably above" 2% in 2024 and "slightly above" 2% in 2025.

The ECB will announce its interest rate decision and release the quarterly projections on Thursday, December 15.

Market reaction

EUR/USD seems to have gained traction with the initial reaction to this headline. As of writing, the pair was trading at 1.0663, where it was up 0.3% on a daily basis.

EUR/SEK is trading in the 10.85/10.90 range. Economists at ING expect the pair to remain elevated for the time being before moving back lower in the second half of 2023.

Moderately bearish scenario for EUR/SEK in 2023

“We currently see some upside risks (to 11.00) for the EUR/SEK pair in the short term driven by a renewed deterioration in market sentiment, especially in Europe.”

“For 2023, we forecast a moderately bearish scenario for EUR/SEK, targeting 10.40/10.50 in the second half of next year.”

• EUR/USD lacks any firm intraday direction and remains confined in a range on Wednesday.
• The underlying bearish sentiment surrounding the USD seems to act as a tailwind for the pair.
• Investors look to the FOMC decision for some impetus ahead of the ECB meeting on Thursday.

The EUR/USD pair struggles to gain any meaningful traction on Wednesday and oscillates in a narrow band through the first half of the European session. Spot prices, however, manage to hold comfortably above the 1.0600 mark and remain well within the striking distance of over a five-month peak touched on Tuesday.

The US Dollar languishes near its lowest level since late June amid expectations for a less aggressive policy tightening by the Fed and acts as a tailwind for the EUR/USD pair. The softer-than-expected US consumer inflation figures released on Tuesday cemented market bets for a relatively smaller 50 bps Fed rate hike at the end of a two-day meeting later this Wednesday. This, in turn, keeps the US Treasury bond yields depressed, which, along with a stable performance around the equity markets, weighs on the safe-haven buck.

Market participants, however, seem nervous and prefer to wait for policymakers' views on signs of easing inflationary pressures in the US. This is lending some support to the Greenback and capping the upside for the EUR/USD pair, at least for the time being. Hence, the market focus will remain glued to the highly-anticipated FOMC decision, due to be announced later during the US session. Apart from this, investors will take cues from the accompanying policy statement and the so-called dot plot for clues about the Fed's rate-hike path.

The outcome will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the EUR/USD pair. The focus will then shift to the European Central Bank (ECB) meeting on Thursday, which should help determine the next leg of a directional move for the major. Heading into key central bank event risks, traders might refrain from placing fresh bets, supporting prospects for an extension of the subdued/range-bound price action.  Nevertheless, both the fundamental and technical backdrop seems tilted in favour of bulls.

Technical levels to watch

The US Dollar suffered heavy losses on Tuesday after Consume Price Index (CPI) figures continued to soften in November. Economists at Commerzbank expect the greenback to extend its downtrend if inflation continues to fall in the US over the coming month.

Hawkish comments unlikely to fuel the USD 

“It would make sense that the Fed chair not only announces less rapid rate hikes but increasingly talks about the Fed’s rate hike cycle coming to an end soon. He might not want that, as a premature end of the fight against inflation might be a more severe one than a delayed one. However, any hawkish comments he might make might sound more like rear-guard action and thus have less USD-positive effect than at times when inflation pressure was higher.”

“It is understandable and justified that the Dollar eased significantly following the publication of the inflation data yesterday. And that we will see more USD weakness if inflation continues to fall in the US over the coming months.”

See – Fed Preview: Forecasts from 18 major banks, downshift to 50 bps

• Silver oscillates in a narrow trading band through the first half of the European session.
• The formation of an ascending channel points to a well-established short-term up trend.
• A convincing break below the 100-hour SMA is needed to negate the constructive setup. 

Silver lacks any firm direction on Wednesday and seesaws between tepid gains/minor losses through the first half of the European session. The XAG/USD is currently placed around the $23.70 area, well below its highest level since late April touched on Tuesday.

From a technical perspective, the recent move-up witnessed over the past week or so has been along an upward-sloping channel. This points to a well-established short-term bullish trend. Furthermore, oscillators on hourly charts have eased from the overbought territory and support prospects for further gains. That said, RSI (14) on the daily chart remains on the verge of breaking above the 70 mark and warrants some caution for bulls.

Nevertheless, any subsequent downtick is likely to find decent support near the lower boundary of the aforementioned trend channel, currently around the mid-$23.00s. This is closely followed by the 100-hour SMA, near the $23.30-$23.25 region, which if broken decisively will negate the positive outlook and shift the near-term bias in favour of bearish traders. The XAG/USD might then accelerate the fall towards the $23.00 round-figure mark.

The next relevant support is pegged just below the $23.00 mark, which coincides with the 200-hour SMA. Some follow-through selling will expose the $22.55 support zone before the XAG/USD eventually drops to the $22.00 round figure. The latter should act as a key pivotal point and a strong base for spot prices, at least for the time being.

On the flip side, the $24.00 mark now becomes immediate hurdle, above which the XAG/USD is likely to surpass the multi-month top, around the $24.15 area, and test the ascending channel resistance. A sustained strength beyond the said barrier, currently around the $24.35 region, will be seen as a fresh trigger for bullish traders and allow the white metal to reclaim the $25.00 psychological mark.

Silver 1-hour chart

Key levels to watch

Inflation has started to decelerate in the UK. These figures, however, were largely ignored by market participants. The Federal Reserve's policy announcements are set to move the GBP/USD pair, economists at ING report.

Inflation slowdown not that relevant now

“The November reading showed a smaller-than-expected MoM CPI reading (0.4% vs expected 0.6%), which brings the YoY number to 10.7% from 11.1% in October. Core inflation slowed from 6.5% to 6.3%.”

“The Pound’s reaction to the data has been quite muted, which is not surprising given the wait-and-see approach ahead of today’s FOMC risk event and since the inflation figures do not suggest a different outcome for tomorrow’s Bank of England meeting.”

“Today, Cable will be primarily moved by the FOMC reaction. We expect a correction below 1.2300, but the risks of a negative Dollar reaction are non-negligible: in that case, 1.2500 may be tested before the Christmas break.”

See – Fed Preview: Forecasts from 18 major banks, downshift to 50 bps

EUR/USD is consolidating above 1.0600. Economists at ING expect the pair to turn back lower below the 1.0500 level on a credible rate protest from the Federal Reserve.

Powell effect larger than the Lagarde effect

“Today’s FOMC announcement will tell us whether the Fed can still offer some support to the Dollar, and tomorrow’s European Central Bank announcement may give hints about balance sheet reduction. However, the Lagarde effect on EUR/USD should be significantly smaller and shorter-lasting than the Powell effect.”

“A dovish Fed today could open the door for a rally to 1.0800 before Christmas, but we favour a correction to sub-1.05 levels instead, fuelled by a Fed rate protest and higher energy prices.”

See – Fed Preview: Forecasts from 18 major banks, downshift to 50 bps

• AUD/USD reverses modest intraday losses, though lacks follow-through buying.
• The risk-on mood lends support to the Aussie; a modest USD uptick caps gains.
• Traders now look to the key FOMC policy decision for a fresh directional impetus.

The AUD/USD pair attracts some dip-buying on Wednesday and stalls the previous day's modest pullback from the vicinity of the 0.6900 mark, or its highest level since September 13. The pair climbs to the top end of its daily trading range during the early European session and is currently placed around the mid-0.6800s.

A generally positive tone around the equity markets turns out to be a key factor benefitting the risk-sensitive Australian Dollar. That said, a modest US Dollar strength could act as a headwind for the AUD/USD pair and keep a lid on any meaningful upside. The USD uptick, meanwhile, could be solely attributed to some repositioning trade ahead of the key central bank event risk and runs the risk of fizzling out quickly amid expectations for a less hawkish Fed.

The softer-than-expected US consumer inflation figures released on Tuesday reaffirmed expectations that the US central bank will slow the pace of its policy tightening. In fact, the Fed is widely expected to deliver a relatively smaller 50 bps rate hike at the end of a two-day meeting later this Wednesday. Hence, investors will closely scrutinize the accompanying monetary policy statement and the so-called "dot plot" for fresh clues about the Fed's rate-hike path.

In the meantime, nervousness about policymakers' view on a significant cooling in US inflation could lend support to the buck and cap gains for the AUD/USD pair. Nevertheless, the fundamental backdrop seems tilted in favour of bullish traders and supports prospects for a further appreciating move. Even from a technical perspective, the overnight breakout through the 0.6800 mark and the emergence of some dip-buying on Wednesday add credence to the positive outlook.

Technical levels to watch

The US Federal Reserve will announce its monetary policy decision on Wednesday, December 14 at 19:00 GMT and as we get closer to the release time, here are the expectations as forecast by analysts and researchers of 18 major banks. 

The Fed is widely expected to raise rates by 50 basis points (bps), slowing down its tightening pace. Meawhile, fresh forecasts are set to show a higher peak interest rate for 2023.

ANZ

“We expect the Fed to hike by 50 bps, taking the top end of the fed funds range to 4.5%. A modest step down from four successive 75 bps hikes. The FOMC is now actively seeking the terminal rate to achieve its inflation objective. We expect the median FOMC official projection for terminal to rise by 50 bps to 5.13% in 2023 relative to its September projection. With inflation proving sticky and the labour market buoyant, the risks to our 5.00% terminal view are to the topside.”

Danske Bank

“We acknowledge that our earlier call of a 75 bps hike appears unlikely, but do not think the need to tighten monetary policy further has disappeared. We adjust our Fed call, and now expect 50 bps hike this week, followed by 50 bps in February and 25 bps in March. Thus, we maintain our call for a terminal rate of 5.00-5.25% unchanged.”

Westpac

“Recent data have given the FOMC enough confidence in their tightening to date and the risks related to inflation to slow the pace of rate hikes from 75 bps to 50 bps at the December meeting. A further moderation is likely to come at the January/February meeting, to 25 bps per move. That said, the rhetoric from Chair Powell at the post-meeting press conference and the overall tone of the Committee’s forecasts will remain hawkish, with the FOMC committed to doing what is necessary to bring inflation back to target without delay. With financial conditions having eased materially and nonfarm payrolls yet to show a sustained increase in labour market slack, we now see the rate hike cycle extending to 4.875% at March. However, by that time, a much weaker labour market and stalled economy will call for an end to hikes, with cuts to come in 2024.”

BofA

“We expect the Fed to raise its target range for the federal funds rate by 50 bps in December to 4.25-4.5%. We expect the median forecast for 2023 to move up by 50 bps to 5.125%, consistent with our terminal rate. We think the dot plot will then point to 100 bps of cuts each in 2024 and 2025. The macro projections in the SEP should be revised to show lower GDP growth and inflation than in September and higher unemployment. We expect Chair Powell to push back against easing in financial conditions and remind investors that a slower pace of hikes does not mean a lower terminal rate, and the Fed's job is far from done.”

Commerzbank

“The Fed will in all likelihood raise its key interest rates by 50 bps and thus not follow up the series of four jumbo steps of 75 bps each with a fifth. This was clearly communicated by the Fed in the run-up to the meeting. This would have put the Fed's key interest rates up by 425 bps in 2022, a very fast pace.”

Nordea

“We expect the Fed to hike the fed funds rate by 50 bps and to increase the rate path by 25 bps for 2023 and 50 bps for 2024. This will leave the dot plot far above the current market pricing for the next two years. We are, however, unsure as to how vocal chairman Powell will be in commenting on market pricing as he has gradually moderated his remarks since the previous FOMC meeting. The other members on the committee are also less in unison about how tough monetary policy should be going forward. We still expect that rates will need to be kept clearly in restrictive territory at around 5% for some time into 2024 in order to moderate economic activity and balance the labour market.”

TDS

“We expect the FOMC to deliver a 50 bps rate increase at its December meeting, lifting the target range for the Fed funds rate to 4.25%-4.50%. In doing so, the Committee would finally move the inflation-adjusted policy stance into restrictive territory. We also look for the FOMC to signal that they will have to move to a higher terminal rate than anticipated in September, and for Chair Powell to build on the message from his Brookings Institute speech in November.”

Swedbank

“We expect that the Fed will downshift from 75 bps to 50 bps in December because of lower inflation and the fact that the federal funds rate has quickly been raised to restrictive levels. The policy rate is getting close to Fed’s preferred measured of inflation (PCE core deflator was 5% YoY in October). And yet, we see a higher risk that the Fed will hike by 75 bps rather than only by 25 bps, given that the jobs report for November was such a strong reading, not least wage growth. We look for the median dot to be revised up by at least 25 bps for 2023, but we see a high possibility of it being by 50 bps. For 2024 and 2025 on the other hand, we expect that the dot plot will continue to indicate cuts, just like it did in September. Given that the dot plot is expected to show a higher federal funds rate, we expect some slight downward revisions to the GDP estimate and upward revisions to the unemployment and inflation estimates.”

Rabobank

“We expect a 50 bps rate hike at the December meeting of the FOMC and an upward revision to the rate projections of FOMC participants, with the terminal rate in 2023 in the neighborhood of 5.0%. We expect that Powell will continue to push back against rate cuts in 2023, repeating that restoring price stability will require holding policy at a restrictive level for some time and that history cautions strongly against prematurely loosening policy. Meanwhile, obscured by Powell’s hawkish consensus view, the dot plot is likely to show considerable disagreement about the terminal rate. This could become more prominent in 2023 when the subset of voters becomes more dovish.”

RBC Economics

“We expect the Fed to hike the fed funds target range by another 50 bps, a step down from 75 bps at each of the past four meetings. Still, some early signs of easing in price pressures could mean interest rates are nearing sufficient levels to bring inflation back towards the Fed’s 2% inflation objective. As focus shifts from the pace of rate hikes to a possible landing spot, updated economic projections from the Federal Open Market Committee will be closely watched for changes in the expected terminal level of the fed funds target. Overall, we still think the Fed will hike by another 50 bps in the first quarter of 2023 before pausing at the 4.75% to 5% range.”

NBF

“The Fed is set to increase its policy rate for the seventh consecutive meeting. FOMC participants have openly signaled that they’d like to slow the pace of rate hikes and as a result, a 50 bps increase is the clear-cut consensus expectation. With little uncertainty on the size of the hike, the focus will instead be on the forward guidance the Fed provides, with an update to their 'dot plot' set to be released. Previously, the median expectation was for a peak policy rate of just below 5% but Chair Powell, and some others, have made the case that a slightly higher peak rate may be needed.”

SocGen

“We look for a 50 bps hike but expect the Fed to emphasise ongoing hikes into 2023.” 

CIBC

“The Fed will press on with a highly-telegraphed 50 bps hike, countering the implicit dovishness inherent in moving to a smaller step up with a message that will emphasize that at least one more similar move lies ahead. We expect the Fed to take the ceiling on the funds rate to 5%, and see that as sufficient, along with supply-side progress, to quell inflation in the coming year. But we could see Powell’s press remarks emphasize that counter to what markets are pricing in, the central bankers will need to maintain that tighter stance through 2023 for the slowdown in growth to open up enough slack to keep inflation grounded in 2024.”

Citibank

“The Fed is poised to slow the pace of rate hikes to 50 bps this week to bring the Fed Funds rate to 4.25-50% but the 2023 median ‘dot’ that may rise to 5.00-5.25%, and Chair Powell may also reiterate his call to focus on the need to counter risks of persistent inflation with higher policy rates.”

Wells Fargo

“We expect to see the fed funds rate rise 50 bps to a range of 4.25%-4.50%. This represents a significant hike over the current range of 3.75%-4.00% but is still a downshift from the four consecutive 75 bps hikes at the prior four FOMC meetings. The FOMC's post-meeting statement and the Summary of Economic Projections (SEP) are likely to be positioned toward hawkishness even with the downshift in rate hikes. We look for the post-meeting statement to again note that ‘ongoing increases’ in the fed funds target will be ‘appropriate,’ and we look for the so-called ‘dot plot’ to shift higher. We now expect the end-of-2023 median fed funds rate estimate to reach 5.00%-5.25%, an increase of 50 bps since September, and where we expect the fed funds rate to be at the end of next year. We also expect that most FOMC members will continue to forecast a ‘soft landing’ with only modestly weaker GDP growth rather than outright recession.”

Swedbank

“We expect the Fed to raise interest rates by 50 bps to 4.25-4.50% in December, thereby slowing down the pace of tightening, as inflation has started to come down and since the federal funds rate has quickly been raised to restrictive levels. Thereafter, we expect another 25 bp in February 2023. We expect the December dot plot to show an upwardly revised median dot for next year since the Fed has clearly signalled that the federal funds rate might end up higher than what they expected previously. The balance sheet continues to decline by up to USD95 bn per month.”

UBS

“We still expect the Fed to moderate the pace of rate hikes to 50 bps but the new dot-plot, economic projections, and comments around the likely trajectory of rates next year, will be key drivers for markets and are likely to spark further volatility.”

OCBC

“We expect the Fed to pare back its pace of rate hike to 50 bps, following its previous four consecutive 75 bps rate hikes. This will bring the Fed funds rate to 4.25%-4.50%.”

• GBP/JPY remains under some selling pressure for the second successive day on Wednesday.
• Softer UK consumer inflation figures undermine the British Pound and act as a headwind.
• A positive risk tone dents the JPY’s relative safe-haven status and lends support to the cross.

The GBP/JPY cross edges lower for the second straight day on Wednesday and retreats further from over a one-month high, around the 169.25 area touched the previous day. The cross remains depressed below the mid-167.00s through the early European session and drifts back closer to the weekly low in reaction to softer UK consumer inflation figures.

The British Pound weakens a bit after the UK Office for National Statistics (ONS) reported that the headline CPI decelerated from the 2% rise reported in the previous month and rose 0.4% MoM in November. 
Furthermore, the yearly rate eased from 11.1% in October to 10.7% during the reported month. Meanwhile, the core inflation gauge, which excludes volatile food and energy items, come in at a 6.3% YoY rate in November as compared to 6.5% in October and anticipated. The data, however, does little to alter market expectations for a 50 bps rate hike by the Bank of England on Thursday and helps limit the downside for the GBP/JPY cross.

The Japanese Yen, on the other hand, struggles to gain any meaningful traction and fails to provide any impetus to the GBP/JPY cross. A generally positive risk tone, bolstered by the optimism over the easing of COVID-19 curbs in China and firming expectations for a less aggressive policy tightening by the Fed, seems to act as a headwind for the safe-haven JPY. This, in turn, supports prospects for the emergence of some dip-buying around the cross, warranting some caution for aggressive bearish traders. Hence, it will be prudent to wait for a sustained weakness below the 167.00 mark before positioning for any further depreciating move.

Technical levels to watch

Here is what you need to know on Wednesday, December 14:

The US Dollar suffered heavy losses against its major rivals on Tuesday after the data published by the US Bureau of Labor Statistics revealed that inflation continued to soften in November. The US Dollar Index consolidates its losses near 104.00 in the early European morning on Wednesday as markets gear up for the Federal Reserve's policy announcements. US stock index futures trade modestly higher on the day following Tuesday's risk rally and the 10-year US Treasury bond yield stays below 3.5%. The European economic docket will feature October Industrial Production data, which is unlikely to trigger a noticeable market reaction.

Fed December Preview: Will US Dollar selloff continue?

The Consumer Price Index (CPI) in the US declined to 7.1% on a yearly basis in November from 7.7% in October. The annual Core CPI fell to 6% in the same period, compared to the market expectation of 6.1%. Lower-than-expected CPI figures weighed on the US Dollar as the 'Fed pivot' narrative gained traction. Nevertheless, the Fed is still widely expected to raise the policy rate by 50 basis points following the December policy meeting and market participants will scrutinize the Summary of Economic Projections for hints of a dovish tilt in the policy outlook.

Federal Reserve Preview: How Powell may drain the Dollar of any dot-related gains.

EUR/USD gained more than 100 pips on Tuesday and reached its strongest level since early June at 1.0672. The pair was last seen moving sideways slightly below 1.0650.

After having reached a fresh multi-month high of 1.2443 on Tuesday, GBP/USD retreated modestly and closed below 1.2400 on Tuesday. The pair trades above 1.2350 early Wednesday. The data from the UK showed that the annual CPI declined to 10.7% in November from 11.1% in October and the Core CPI edged lower to 6.3% from 6.5%. These figures, however, were largely ignored by market participants.

Following Monday's bullish action, USD/JPY fell sharply toward 135.00 on Tuesday. The data from Japan revealed earlier in the day that Industrial Production contracted by 3.2% on a monthly basis in October following September's 2.6% decrease. The pair stayed relatively quiet during the Asian trading hours and extended its sideways grind above 135.00 into the European morning.

Gold price rose nearly 2% on Tuesday and climbed to its highest level in over five months. XAU/USD consolidates its gains at around $1,810 with the 10-year US T-bond yield's losses remaining limited for the time being.

Bitcoin took advantage of the improving market mood on Tuesday and rose to its highest level in five weeks at $18,000. BTC/USD seems to have lost its bullish momentum early Wednesday as it trades slightly below $17,800. Ethereum rose 3.5% on Tuesday and started to consolidate its gains slightly above $1,300. 

Bankman-Fried lawsuits expose FTX's 'Special Treatment' of Alameda Research.

• GBP/USD seesaws around six-month high after UK inflation data.
• UK CPI retreats from 41-year high to 10.7% YoY in November, firmer RPI defends bulls.
• The cautious mood ahead of FOMC Meeting restricts GBP/USD reaction to data.
• Fed is up for 50 bps rate hike, which could favor bulls more after recently firmer UK inflation data.

GBP/USD remains sidelined near the intraday high even as the UK’s headline inflation numbers retreat in November. That said, the Cable pair makes rounds to 1.2370 during the initial hours of Wednesday’s London trading.

UK’s headline Consumer Price Index (CPI) eased from the 41-year high of 11.1% to 10.7% YoY in November, compared to the 10.9% YoY market forecast. Further details suggest that the Core CPI, which excludes volatile food and energy items, marked 6.3% yearly figure versus expectations to reprint the 6.5% YoY number. A surprise factor was the Retail Price Index (RPI) which rose past 13.8% YoY expected to 14.0% during the stated month.

Also read: Breaking: UK annualized inflation drops to 10.7% in November vs.10.9% expected

It should be observed that the prevalence of the Federal Open Market Committee (FOMC) meeting on Wednesday, as well as Thursday’s Bank of England (BOE) monetary policy event, restricts the GBP/USD pair’s reaction to the key UK inflation data.

On Tuesday, the Bank of England (BoE) released its latest Financial Stability Report (FSR) and said, "Widespread signs of financial difficulty among UK households are yet to emerge". Also posting threats to the Cable pair’s upside is the mixed UK jobs report published the previous day. That said, the UK’s Office for National Statistics (ONS) stated that the UK’s monthly Claimant Count Change marked a positive surprise of 30.5K in November versus -13.3K expected and -6.4K prior. Further, the Unemployment Rate matched the 3.7% market forecast during the three months to October. It should be noted that the upbeat average earnings seemed to have favored the GBP/USD buyers.

It’s worth noting that the GBP/USD pair refreshed a multi-day high on Tuesday after the US Consumer Price Index (CPI) dropped to 7.1% YoY in November versus the 7.3% expected and 7.7% prior. Further, the CPI ex Food & Energy, known as the Core CPI, also declined to 6.0% YoY during the stated month compared to 6.1% market forecasts and 6.3% previous readings. “Traders of futures tied to the Federal Reserve’s policy rate boosted bets Tuesday that the U.S. central bank will notch down its interest-rate hike pace further early next year, after a government report showed inflation eased sharply in November,” said Reuters following the data.

Having witnessed the initial reaction to the UK’s inflation data, GBP/USD traders will pay attention to how the US Federal Reserve (Fed) will act during today's FOMC meeting. The market expects 0.50% rate hike and hints of easing strings of the tighter monetary policy starting from 2023. However, any hawkish surprise won’t hesitate to drag the quote from a multi-day top.

Other than the BOE versus Fed drama, headlines surrounding China also become important for additional direction for the GBP/USD pair. The reason could be linked to the hopes of more stimulus from China, as officials from the Asian Development Bank (ADB) and the International Monetary Fund (IMF) appear less convinced by the dragon nation’s easing of the Zero-Covid policy and continue to highlight economic fears.

Technical analysis

GBP/USD buyers remain hopeful unless the quote offers a daily closing below the August month’s high near 1.2290.

• UK CPI softens to 10.7% YoY in November vs. 10.9% expected.
• Monthly UK CPI arrives at 0.4% in November vs. 0.6% expected.
• GBP/USD pares back gains toward 1.2350 on a big miss to the UK CPIs.

The UK annualized Consumer Prices Index (CPI) came in at 10.7% in November against the 11.1% registered in October while missing estimates of a 10.9% print, the UK Office for National Statistics (ONS) reported on Wednesday. The index eased from its highest level since November 1981.

Meanwhile, the core inflation gauge (excluding volatile food and energy items) rose 6.3% YoY last month versus 6.5% seen in October, missing the forecasts of 6.5%.

The monthly figures showed that the UK consumer prices rose by 0.4% in November vs. 0.6% expectations and 2.0% previous.

The UK Retail Price Index for November arrived at 0.6% MoM and 14.0% YoY, bettering estimates across the time horizon.

Additional takeaways (via ONS)

“The largest upward contributions to the annual CPIH inflation rate in November 2022 came from housing and household services (principally from electricity, gas, and other fuels), and food and non-alcoholic beverages.”

“The largest downward contribution to the change in both the CPIH and CPI annual inflation rates between October and November 2022 came from transport, particularly motor fuels, with rising prices in restaurants, cafes and pubs making the largest, partially offsetting, upward contribution.”

FX implications

In an initial reaction to the UK CPI numbers, the GBP/USD pair eased about 15 pips toward 1.2350.

The pair was last seen trading at 1.2365, up 0.10% on the day. The US dollar holds steady heading into the US Federal Reserve policy announcements.

Why does UK inflation matter to traders?

The Bank of England (BOE) is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase in interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

Gold price holds steady above $1,800, consolidating the previous upswing. The yellow metal awaits US Federal Reserve for the next big move, FXStreet’s Dhwani Mehta reports.

Strong support awaits at around $1,790

“Daily closing above the $1,824 upside hurdle will invalidate the bearish wedge formation, opening doors toward $1,850 – the psychological level.”

“On the flip side, strong support awaits at the confluence of the bearish 200-Daily Moving Average (DMA) and the wedge support at around $1,790. The next relevant support is envisioned at the bullish 21DMA at $1,771.”

FX option expiries for Dec 14 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0375-80 1.74b
• 1.0450 564m
• 1.0500 526m
• 1.0545-55 505
• 1.0650 444m
• 1.0700 929m
• 1.0800 406m

- GBP/USD: GBP amounts        

• 1.2120 210m

- USD/JPY: USD amounts                     

• 136.00 355m

- USD/CHF: USD amounts        

• 0.9415 210m

- AUD/USD: AUD amounts  

• 0.6450 960m
• 0.6675 216m
• 0.6750 327m

- USD/CAD: USD amounts       

• 1.3560 1.1b

- NZD/USD: NZD amounts

• 0.6400 1.02b
• 0.6425 1.15b

- EUR/GBP: EUR amounts        

• 0.8700 239m

• USD/CAD grinds higher after bouncing off weekly low.
• Bullish MACD signals, sustained trading beyond convergence of 21-day EMA, one-month-old support line favor buyers.
• Seven-week-old descending trend line restricts recovery moves ahead of monthly high.

USD/CAD remains sidelined around mid-1.3500s, picking up bids to 1.3565 by the press time of early Wednesday morning in Europe.

In doing so, the Loonie pair defends the early Asian session recovery from the 1.3530 support confluence including the 21-day EMA and a one-month-old ascending trend line. Additionally favoring the upside momentum are the bullish MACD signals.

That said, a downward-sloping resistance line from October 21, close to 1.3650 at the latest, restricts the quote’s short-term upside.

Following that, the monthly high of 1.3700 will be crucial resistance as it holds the gate for the USD/CAD pair’s run-up toward the previous monthly high surrounding 1.3810.

It’s worth noting, however, that multiple hurdles near 1.3850 and 1.3900 could test the bulls past 1.3810.

Meanwhile, a daily closing below the 1.3530 support confluence won’t hesitate to challenge the monthly low of 1.3385.

Should the USD/CAD bears keep the reins past 1.3385, the 50% Fibonacci retracement level of August-October upside, near 1.3350, will precede November’s bottom surrounding 1.3230 to challenge the Loonie pair’s further downside. Also acting as a downside filter is the 61.8% Fibonacci retracement level of 1.3200.

USD/CAD: Daily chart

Trend: Further upside expected

• USD/CHF is oscillating below 0.9300 as investors await Federal Reserve’s policy release for fresh cues.
• Investors seek policy guidance for CY2023 from the Federal Reserve as an interest rate hike by 50 bps is highly expected.
• An interest rate hike by 50 bps is expected from the Swiss National Bank to keep inflation near 2%.
• USD/CHF  is expected to resume its downside journey as technical indicators narrate more weakness ahead.

USD/CHF is displaying back-and-forth moves in a narrow range below the critical resistance of 0.9300 in the early European session. The Swiss Franc major asset is manifesting a lackluster performance as investors seek further guidance, which will be provided by the Federal Reserve (Fed) after it will announce its last monetary policy of CY2022 on Wednesday.

The US Dollar Index (DXY) is showing a balanced auction profile of around 104.00 after a recovery from a fresh five-month low at 103.59. On Tuesday, the USD Index displayed a perpendicular turmoil after the release of a soft November inflation report. A meaningful decline in the United States Consumer Price Index (CPI) dampened safe-haven’s appeal. The US Treasury bonds got decent traction which has led to a fall in 10-year yields below 3.50%.

Meanwhile, S&P500 futures have extended their upside momentum on Wednesday amid rising hopes of a slowdown in the pace of the interest rate hike by the Federal Reserve. Analysts at JP Morgan Chase & Co. cited that a soft reading in US CPI data could spark a powerful rally in US equities. Continuations of an upside move in the S&P500 futures are portraying a risk appetite theme in the market.

While the Swiss Franc is awaiting the monetary policy by the Swiss National Bank (SNB), scheduled for Thursday, for fresh impetus.

Soft US Inflation report cements Fed’s interest rate hike by 50 bps

The street was expecting a decline in the US inflationary pressures as the Producers Price Index (PPI) and oil prices remained weak in November. A decline in prices of finished goods at the factory gate by manufacturers is critical for a slowdown in consumer inflation. November’s US PPI reported a drop in headline figures to 7.4% from the former release of 8.0%.

The headline CPI has dropped to 7.1% while the core inflation that doesn’t include oil and gas prices tumbled to 6.0%. Weaker prices of gasoline used cars, and airline fares remained major contributors to the lower price rise index.

A significant deceleration in US inflation has set the ground for less-hawkish monetary policy by the Federal Reserve. Fed policymakers were already advocating for a slowdown in policy tightening pace to reduce financial risks. And, a termination of 75 basis points (bps) rate hike spell looks solid, which will leave the option for a 50 bps rate hike announcement. The Federal Reserve might not choose a 25 bps rate hike as the inflation rate is still extremely diverged from the targeted rate of 2%.

Policy guidance for CY2023 from Fed’s Powell a key trigger ahead

After a second consecutive decline in the United States monthly inflation report, an interest rate hike announcement by 50 bps seems real. Therefore, investors will keep an eye on monetary policy guidance by Federal Reserve chair Jerome Powell for the entire CY2023.

A note from Commerzbank dictates that “The 50 basis points (bps) hike, which is generally expected for tomorrow's FOMC meeting, can be considered almost certain after today's data.” We continue to assume that the Fed will reduce the size of the rate hikes again at the beginning of 2023, moving by only 25 bps in February and March.

Swiss National Bank to replicate expected Federal Reserve’s 50 bps move ahead

The fourth quarterly monetary policy meeting of the Swiss National Bank is scheduled for Thursday and Swiss National Bank Chairman Thomas J. Jordan is expected to hike its interest rate further by 50 bps. A Reuters poll on the Swiss National Bank’s interest rate expectations indicates that the central bank will hike interest rates by 50 bps to 1%. Switzerland’s inflation rate has already dropped from a peak of 3.2% to above 2%. To dodge inflation risks, the Swiss National Bank already shifted its borrowing cost from negative to positive territory for the first time after 2014. Investors also believe that the Swiss National Bank will keep in mind the widening interest rate differential from the European Central Bank (ECB) while drafting monetary policy.

USD/CHF technical outlook

USD/CHF has shifted into a negative trajectory after a downside break of the declining channel formed on a four-hour scale. The Swiss Franc major asset has dropped sharply after hovering around the 20-period Exponential Moving Average (EMA), which indicates that the short-term trend has turned bearish.

The 200-period EMA at 0.9530 is continuously slopping downwards from the past month, which signifies a bearish long-term trend.

Meanwhile, the Relative Strength Index (RSI) (14) is on the verge of slipping into the bearish range of 20.00-40.00, which will trigger a bearish momentum ahead.

The UK CPIs Overview

The cost of living in the UK as represented by the Consumer Price Index (CPI) for November month is due early on Wednesday at 07:00 GMT.

Given the recently released mixed employment data, coupled with the firmer economic activity numbers and the doubts over the Bank of England’s (BOE) next moves, today’s British inflation data will be watched closely by the GBP/USD traders. Also increasing importance for today’s inflation numbers is the existence of the BOE’s monetary policy meeting on Thursday.

That said, the headline CPI inflation is expected to retreat from a 41-year high of 11.1% YoY to a 10.9% yearly figure while the Core CPI, which excludes volatile food and energy items, is likely to reprint the 6.5% YoY number. Talking about the monthly figures, the CPI could ease to 0.6% versus 2.0% prior.

Also important to watch is the Retail Price Index (RPI) figures for November, expected to ease to 0.5% MoM and 13.8% YoY versus 2.5% and 14.2% in that order.

In this regard, Westpac said,

Deviation impact on GBP/USD

Readers can find FXStreet's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined around 20-pips in deviations up to + or -2, although in some cases, if notable enough, a deviation can fuel movements over 60-70 pips.

How could it affect GBP/USD?

GBP/USD remains sidelined around 1.2350 after refreshing the six-month high the previous day. In doing so, the Cable pair portrays the market’s anxiety ahead of the key monetary policy meetings of the US Federal Reserve and the Bank of England (BOE), as well as challenges to the sentiment emanating from China.

Although the BOE has already delivered its strongest rate hike in 33 years and is expected to retreat on Thursday, strong US inflation data won’t stop the policymakers from the “Old Lady, as the BOE is informally called, in announcing another strong rate lift. Additionally, the last monetary policy meeting updates showed a divide between the hawks and doves and hence firmer UK inflation numbers could help the hawks to announce another 0.75% rate hike even if the markets and doves are pushing for a 50 bps move.

Even so, the existence of the Fed’s monetary policy meeting and the “Super Thursday”, comprising BOE’s details of monetary policy actions, could restrict the UK inflation data’s impact on the GBP/USD prices. As a result, the Cable pair may witness a small run-up in case of a positive surprise from the data while a pullback can’t be ruled out if inflation numbers ease.

Technically, GBP/USD buyers remain hopeful unless the quote offers a daily closing below the August month’s high near 1.2290.

Key notes

GBP/USD corrects to near 1.2350, upside seems favored on hopes of a smaller Fed rate hike

GBP/USD Price Analysis: Test of a 20-EMA on gradual correction narrates a fresh buying opportunity

BoE Interest Rate Decision Preview: Focus on vote split amid high inflation and economic gloom

About the UK CPIs

The Consumer Price Index released by the Office for National Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of the GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or Bearish).

• US Dollar Index bounces off six-month low, stays inside falling wedge bullish chart pattern.
• Oversold RSI, multiple hurdles to the south also keep buyers hopeful.
• 61.8% Fibonacci retracement level guards immediate upside, 200-DMA acts as an extra filter to the north.

US Dollar Index (DXY) battles with the bears at the lowest levels since June, defending 104.00 during early Wednesday in Europe. That said, the monthly falling wedge and overbought conditions of the RSI (14) seem to tease buyers ahead of the key Federal Open Market Committee (FOMC) monetary policy meeting.

Also read: US Dollar Index licks its wounds at six-month low near 104.00 ahead of Fed’s verdict

It’s worth noting that the 61.8% Fibonacci retracement level of the DXY’s March-September upside, near 104.25, guards the quote’s immediate upside ahead of the stated wedge’s upper line, close to the 105.00 threshold.

In a case where the greenback’s gauge versus the six major currencies manages to stay firmer past 105.00, an upward trajectory towards the 200-DMA hurdle of 106.75 and then to the theoretical target of 109.50 can’t be ruled out.

During the expected run-up, the 108.00 and July’s peak near 109.30 could act as an intermediate halt.

On the flip side, the stated wedge’s lower line near 103.50 restricts the quote’s nearby fall, a break of which could direct the US Dollar Index bears towards lows marked during early May and the 78.6% Fibonacci retracement level, respectively near 102.35 and 101.30.

Should the DXY remains bearish past 101.30, the sellers could aim for the psychological magnet surrounding 100.00.

US Dollar Index: Daily chart

Trend: Recovery expected

• NZD/USD is looking for a cushion around 0.6430 as investors see a less-hawkish Fed monetary policy.
• The decline in US inflation is backed by a significant drop in gasoline prices, used cars, and airline fares.
• Going forward, a mixed response is expected from New Zealand GDP data.

The NZD/USD pair has turned sideways around 0.6430 after a gradual correction from Tuesday’s high above 0.6500. The Kiwi asset is seeking a cushion as the overall market is still bullish. Anxiety ahead of the Federal Reserve (Fed) policy has seldom impacted the risk-sensitive currencies in the Tokyo session.

The US Dollar index (DXY) is displaying a lackluster performance as investors are awaiting the Fed’s interest rate announcement for making informed decisions. The USD Index is auctioning above 104.10 amid a quiet market mood. Sheer volatility is expected in the US Dollar as the Fed is expected to adopt a less-hawkish sound while dictating the last monetary policy of CY2022.

The 10-year US Treasury yields are continuously oscillating below 3.50% after a decline in the United States Consumer Price Index (CPI) consecutively for the second month. The decline in US inflation is backed by a significant drop in gasoline prices, used cars, and airline fares.

Analysts at RBC Capital Markets see the Fed raising the Fed Funds rate by 50 basis points (bps) on Wednesday and they then pointed out that the more encouraging inflation signs make a pause in early 2023 more likely.

On the New Zealand front, investors are awaiting the release of the Gross Domestic Product (GDP) data, which will release on Thursday. As per the consensus, the quarterly GDP data for the third quarter is seen lower at 0.9% vs. the prior release of 1.7%. While the annual GDP is expected to expand sharply by 5.5% against the former release of 0.4%.

In the Half Year Economic and Fiscal Update, the New Zealand Treasury has forecasted three-quarters of a shrinking economy starting in the second quarter of 2023.

EUR/USD renews intraday low near 1.0600 as it pares the biggest daily jump in a fortnight around a six-month high heading into Wednesday’s European session. In doing so, the Euro braces for the US Federal Open Market Committee (FOMC) monetary policy meeting.

Although the cautious mood ahead of the Fed meeting and China-linked fears weigh on the EUR/USD prices, the firmer signals from the options market and the previous day’s US inflation-led optimism challenge the pair sellers.

Also read: EUR/USD floats above 1.0600 ahead of Federal Reserve monetary policy meeting

That said, one-month risk reversal (RR) for the EUR/USD, a gauge of calls to puts, marked the biggest daily jump since December 02 as per the latest options market data on Reuters.

The RR figure of 0.070 remains in favor of the US dollar bear amid firmer expectations of the Fed’s lower rate hikes. It should be noted that the weekly RR figure of 0.025 could also be cited as supporting the pair buyers as it becomes the fourth consecutive positive reading.

However, the fears that inflation is still high and can push the Fed towards more interest rate increases seem to challenge the pair buyers.

Technically, the EUR/USD buyer’s inability to cross a one-month-old ascending trend line, near 1.0650, joins the overbought RSI (14) conditions to challenge the bulls. Also likely to have probed the upside momentum is the late Doji candlestick at the multi-day top. That said, the previous resistance line from December 05, near 1.0455, could restrict the immediate downside of the pair.

Also read: EUR/USD Price Analysis: Doji at multi-day top, overbought RSI probe buyers ahead of FOMC

• Asian equities remain mildly bid as easing fears of higher rates jostle with challenges for sentiment.
• US inflation raised hopes of Fed’s pivot in early 2023 but Powell isn’t famous for dovish moves.
• ADP cuts Emerging Asia outlook, IMF’s Georgieva expects slower growth for China.
• Japan’s Tankan figures flash mixed signals, RBA’s Lowe refrained from speaking on monetary policy.

Risk appetite remains firmer in Asia during early Wednesday, even as the Treasury bond yields remain directionless and the US Dollar licks its wounds around a six-month low by the press time.

While portraying the mood, MSCI’s index of Asia-Pacific shares outside Japan printed mild losses but Japan’s Nikkei 225 rises 0.75% intraday to 28,165 at the latest. That said, Japan’s Tankan data shows that Q4 manufacturers' mood worsens while inflation expectations jump to record highs.

“Business confidence among big Japanese manufacturers worsened in the three months to December for a fourth straight quarter, the Bank of Japan's closely watched Tankan survey showed, amid rising costs of living and a slowdown in the global economy,” reported Reuters. The news also stated that Japanese firms' inflation expectations for one and three years ahead both hit the highest level on record.

Elsewhere, the risk-negative catalysts surrounding China also seem to restrict the EUR/JPY latest moves. The International Monetary Fund (IMF) Managing Director Kristalina Georgieva was spotted expecting slower economic growth for China due to the latest jump in the daily Covid cases. Additionally, Bloomberg came out with the news suggesting that the Chinese leaders delayed the economic policy meeting due to the COVID-19 problems. On the same, the Asian Development Bank (ADB) cut China's 2023 economic growth forecast to 4.3% from the 4.5% estimate in September.

It should be noted that the Reserve Bank of Australia (RBA) Governor Philip Lowe spoke recently at the AusPayNet Annual Summit. "Overall, we are optimistic that least-cost routing will help counter the forces that are adding to merchants' payment costs, particularly for small businesses," Lowe said per Reuters. With this, the ASX 200 marks 0.60% intraday upside while NZX 50 rises 0.25%.

Furthermore, hopes of more stimulus from China, raised by the policymakers in Beijing, contrast with the Covid woes to limit the market sentiment.

On a broader front, the S&P 500 Futures print a three-day uptrend near 4,065, up 0.25% intraday, whereas the US 10-year Treasury yields decline one basis point (bps) to 3.49%, after snapping the three-day downtrend.

To sum up, stocks in the Asia-Pacific region remain firmer but the upside momentum is likely to be challenged by the  US Federal Reserve (Fed).

Also read: S&P 500 Futures grind higher, US Treasury bond yields stay pressured as markets await Fed announcements

• USD/INR has jumped to near 82.70 as firmer oil prices have offset the impact of the subdued US Dollar.
• S&P500 futures have extended their gains which indicates that the traction is in favor of risk-sensitive assets.
• Apart from the decline in the interest rate pace, investors will also focus on Fed policy guidance for CY2023.

The USD/INR pair has witnessed a decent buying interest in the opening trade, which has driven the asset towards 82.70 despite a quiet market mood. The asset has displayed a sheer rebound as oil prices have registered significant gains on expectations of a recovery in global economic prospects after a soft landing of the United States inflation in November consecutively for the second month.

The US Dollar Index (DXY) is displaying topsy-turvy moves around 104.10 as investors have shifted to the sidelines ahead of the interest rate decision by the Federal Reserve (Fed). S&P500 futures have extended their gains in the Asian session, which indicates that the traction is in favor of risk-sensitive assets.

The US Treasury bonds have gained immense interest from investors as the Fed is set to announce a smaller rate hike, delighted by a slowdown in the inflationary pressures. The 10-year US Treasury yields have dropped below 3.50%.

The soft landing of November’s inflation report has supported Fed policymakers' view of slowing down the policy tightening pace to safeguard the economy from financial risks and to assess the impact of efforts made in cooling off ultra-hot inflation. Apart from the extent of the decline in the interest rate pace, investors will also focus on policy guidance for CY2023.

On the oil front, soaring oil prices after a decline in US inflation have impacted the Indian Rupee. The Supply crisis in the US after a shutdown of a major pipeline has also strengthened oil prices. It is worth noting that India is a leading importer of oil and higher oil prices accelerate India’s fiscal deficit and eventually impact Indian Rupee.

• USD/JPY prints mild losses as markets turn dicey ahead of the key events.
• 200-DMA, four-month-old support line defend buyers amid bullish MACD signals.
• Sellers remain hopeful unless witnessing a clear break of 138.00 hurdle.

USD/JPY struggles to defend the bounce off the 200-DMA as it seesaws around 135.50 during early Wednesday morning in Europe. In doing so, the Yen pair portrays the market’s cautious mod ahead of the key Federal Open Market Committee (FOMC) monetary policy meeting.

Also read: Fed December Preview: Will US Dollar selloff continue?

It’s worth noting that the looming bear cross on the MACD and multiple hurdles to the north keeps the USD/JPY bears hopeful.

That said, the quote dropped the most in two weeks while reversing from a one-month-old horizontal resistance area comprising a downward-sloping resistance line from October 21, the 21-DMA and multiple tops marked since November 15, around 137.70-138.00.

Hence, the USD/JPY pair’s weakness below the 200-DMA level surrounding 135.35 appears imminent. In that case, an ascending support line from early August, near 133.90, will gain the market’s attention.

Should the Yen pair breaks the 133.90 key support, it becomes vulnerable to challenge August month’s low near 130.40.

Alternatively, an upside clearance of the 138.00 hurdle could recall the USD/JPY bulls targeting the late November swing high of 142.25. During the run-up, the 140.00 threshold may act as an intermediate halt.

Overall, USD/JPY is likely to decline further but the downside appears limited.

USD/JPY: Daily chart

Trend: Limited downside expected

• Gold price remains sidelined at the highest levels in six months.
• US inflation trimmed hawkish Fed bets but Chairman Powell isn’t a famous dove.
• Growth fears surrounding China, steady Treasury bond yields probe XAU/USD bulls.
• Gold bears need hawkish statements from Fed to return.

Gold price (XAU/USD) treads water around $1,810 as bulls take a breather following the biggest daily run-up in a fortnight near the highest levels since June, marked the previous day, during early Wednesday. In doing so, the yellow metal portrays the traders’ indecision amid mixed clues and anxiety ahead of the US Federal Reserve’s (Fed) monetary policy meeting.

The market’s indecision could be witnessed via the mildly bid US stock futures and the sluggish yields. That said, the S&P 500 Futures print a three-day uptrend near 4,065, up 0.25% intraday, whereas the US 10-year Treasury yields decline one basis point (bps) to 3.49%, after snapping the three-day downtrend.

The reason could be linked to the hopes of more stimulus from China, as officials from the Asian Development Bank (ADB) and the International Monetary Fund (IMF) appear less convinced by the dragon nation’s easing of the Zero-Covid policy and continue to highlight economic fears.

Alternatively, downbeat US inflation data, published on Tuesday, raised the hopes of easy rate increases from the Fed. That said, the US Consumer Price Index (CPI) marked the biggest retreat in over a year the previous day, which in turn suggests easing inflation fears and less pressure on the Federal Open Market Committee (FOMC).

As a result, Reuters said, “Fed funds futures prices implied a better-than-even chance that the Fed will follow its expected half-point interest-rate hike this week with a smaller 25-basis-point rate hike in February, ultimately raising rates no higher than the 4.5%-4.75% range in its battle to beat inflation,” said Reuters. The news also added that traders were betting on a second half-point hike in February before the inflation report.

It should, however, be noted that the latest round of the Fed talk has been hawkish and Fed Chairman Jerome Powell isn’t known for dovish moves and may defend the rate hike trajectory by citing the need for more policy tightening. Also acting as a challenge for the Gold buyers could be an upward revision to the US economic forecasts and expectations marking more than 50 bps rate hikes. It’s worth noting that the market expects the last 0.50% rate increase for today before the Fed starts 0.25% lifts to the rate in 2023.

Also read: Fed December Preview: Will US Dollar selloff continue?

Technical analysis

Gold price grinds between a one-week-old previous resistance line and an ascending trend line from resistance from November 15, respectively near $1,805 and $1,820, as traders await the Fed’s verdict.

In doing so, the precious metal also takes clues from the nearly overbought RSI and the bullish MACD signals.

It’s worth noting, however, that the bullion’s successful trading beyond the 100-SMA level surrounding $1,772 keeps the Gold buyers hopeful.

In a case where XAU/USD drops below $1,772, the $1,760 level may test the sellers before directing them to the late November swing low near $1,720.

Meanwhile, an upside clearance of the $1,820 hurdle will highlight tops marked in June 2022, around $1,880 and the $1,900 round figure for the Gold bulls.

Gold price four-hour chart

Trend: Limited upside expected

• AUD/USD has slipped further to near 0.6820 ahead of Fed’s policy meeting.
• The FOMC is expected to hike its interest rate by 50 bps on a second consecutive decline in the annual inflation rate.
• Australian consumer inflation expectations for 12-month period are seen lower at 5.7%.

The AUD/USD pair has extended its correction to near 0.6820 in the Asian session. The Aussie asset is declining continuously after failing to conquer the critical resistance of 0.6900 on Tuesday. Soft United States Consumer Price Index (CPI) data brought a juggernaut rally in the Australian Dollar, however, the latter failed to keep the same.

S&P500 futures have extended their gains in Tokyo session as a slowdown in the price rise index has faded deepening recession fears ahead. The US equities are expected to display a strong run-up as a consecutive decline in inflation has set the ground for a smaller interest rate hike by the Federal Reserve (Fed).

The US Dollar Index (DXY) is holding itself above 104.00 amid a quiet market mood. The USD Index is expected to remain on tenterhooks as a downward shift in the approach of Fed chair Jerome Powell for interest rates may trim safe-haven appeal further. Meanwhile, the 10-year US Treasury yields have dropped further below 3.50% amid a significant improvement in demand for US Treasury bonds.

A significant drop in US inflation is backed by a decline in the cost of gasoline, used cars, and airline fares. The headline inflation dropped to 7.1% while the core CPI that excludes oil and food prices drop to 6.0%.

A soft inflation report has cemented a decline in the interest rate hike pace by the Fed. Analysts at Commerzbank see a rate hike by 50 basis points (bps) in December Federal Open Market Committee (FOMC) meeting. For guidance, “We continue to assume that the Fed will reduce the size of the rate hikes again at the beginning of 2023, moving by only 25 bps in February and March.”

On the Aussie front, investors are awaiting the release of the Employment data. The Employment Change is seen at 19K, lower than the prior release of 32.2K. Apart from that, investors will focus on 12-month consumer inflation expectations, which are expected to decline to 5.7% vs. 6.0% in the prior release.

Reserve Bank of New Zealand (RBNZ) Deputy Governor Christian Hawkesby said on Wednesday that “we need to do even more to lower inflation.

Additional quotes

Market reaction

The hawkish comments from RBNZ’s Hawkesby are helping cushion the downside in the NZD/USD pair. The Kiwi pair is recovering to near 0.6450, still down 0.30% on the day, at the time of writing.

• Silver price is oscillating around $23.70 as investors seek clarity on Fed’s policy.
• The asset has gradually corrected after a breakout of the volatility contraction pattern.
• Advancing 20-and 50-EMAs add to the upside filters.

Silver price (XAG/USD) is displaying a sideways profile around the immediate cushion at $23.70 in the Asian session. The white metal is manifesting a lackluster performance as investors are awaiting Federal Reserve (Fed)’s monetary policy for fresh impetus.

The US Dollar Index (DXY) is displaying a balanced profile as the market mood is extremely quiet ahead of Fed’s policy, which will guide investors for further action. Meanwhile, risk-perceived assets such as S&P500 futures have extended their gains in the Tokyo session.

Silver price delivered a breakout of a volatility contraction chart pattern that results in wider ticks and heavy volume. The asset has corrected after printing a fresh seven-month high around $24.00.The white metal has dropped to near 20-period Exponential Moving Average (EMA), which might present a buying opportunity to investors who prefers to enter in an auction for a bargain buy.

Meanwhile, the 50-EMA at $23.50 is aiming higher, which indicates that the upside trend is intact. The Relative Strength Index (RSI) (14) is looking to reclaim the bullish range of 60.00-80.00 to trigger bullish momentum.

Should the asset Wednesday’s high at $23.80, bulls will drive the Silver price toward Tuesday’s high at $24.11. A break above the latter will expose the asset to refresh a five-month high above April 22 high at $24.66.

Alternatively, a breakdown below Monday’s low at $23.11 will drag Silver price towards December 7 high at $22.72, followed by December 6 low at $22.03.

Silver hourly chart

• USD/CAD picks up bids to refresh intraday high, snaps two-day downtrend.
• Oil price eases on mixed OPEC updates, fears surrounding China and surprise inventory build.
• US Dollar consolidates inflation-led losses ahead of FOMC meeting.
• All eyes on Fed’s pivot and economic projections amid calls for slower rate hike.

USD/CAD renews its intraday top near 1.3575 as it consolidates the recent losses near the weekly low amid early Wednesday morning in Europe. In doing so, the Loonie pair prints the first intraday gains in three days while reversing the previous day’s heavy declines amid a sluggish session ahead of the US Federal Reserve’s (Fed) monetary policy meeting.

In addition to the pre-Fed consolidation, the recently downbeat prices of WTI Crude Oil, Canada’s key export item, also weigh on the Loonie pair. That said, the mixed oil demand forecasts from the Organization of the Petroleum Exporting Countries (OPEC) and a surprise increase in the American Petroleum Institute’s (API) weekly inventory for the week ended on December 09, to 7.819M versus -6.289M prior, also weighed on the black gold prices. With this, the energy benchmark drops towards $75.00 with 0.35% intraday losses at the latest, the first in four days.

Also read: WTI stays defensive above $75.00 on mixed OPEC oil demand forecasts, API inventory build

Additionally, the risk-negative catalysts surrounding China also seem to restrict the market’s latest moves and allow the USD/CAD pair to lick its wounds. The International Monetary Fund (IMF) Managing Director Kristalina Georgieva was spotted expecting slower economic growth for China due to the latest jump in the daily Covid cases. Additionally, Bloomberg came out with the news suggesting that the Chinese leaders delayed the economic policy meeting due to the COVID-19 problems. On the same line, the Asian Development Bank (ADB) cut China's 2023 economic growth forecast to 4.3% from the 4.5% estimate in September.

It’s worth noting that the hopes of easy rate increases from the Fed, especially after the previous day’s downbeat US inflation readings, keep the USD/CAD bears hopeful. The US Consumer Price Index (CPI) dropped to 7.1% YoY in November versus the 7.3% expected and 7.7% prior. Further, the CPI ex Food & Energy, known as the Core CPI, also declined to 6.0% YoY during the stated month compared to 6.1% market forecasts and 6.3% previous readings. “Traders of futures tied to the Federal Reserve’s policy rate boosted bets Tuesday that the U.S. central bank will notch down its interest-rate hike pace further early next year, after a government report showed inflation eased sharply in November,” said Reuters following the data.

Against this backdrop, the S&P 500 Futures print a three-day uptrend near 4,065, up 0.25% intraday, whereas the US 10-year Treasury yields decline one basis point (bps) to 3.49%, after snapping the three-day downtrend.

Looking forward, Canadian Manufacturing Sales for October, expected 2.0% versus 0.0% prior, may entertain the USD/CAD pair traders ahead of the key Federal Open Market Committee (FOMC) monetary policy meeting. If the Fed disappoints markets by diverging from broadly dovish expectations, the US Dollar could recover the latest losses.

Also read: Fed December Preview: Will US Dollar selloff continue?

Technical analysis

Although the 21-day Exponential Moving Average (EMA) restricts short-term USD/CAD downside near 1.3530, buyers need to cross a seven-week-old resistance line near 1.3650 by the press time, to retake control.

• EUR/USD remains mildly bid near the six-month high ahead of the Fed meeting.
• Bearish candlestick, overbought RSI challenge further upside near the monthly resistance line.
• 100-SMA restricts immediate downside ahead of three-week-old ascending support line.
• US inflation cut hawkish Fed bets, favored EUR/USD bulls but FOMC is the key to near-term directions.

EUR/USD picks up bids to reverse the early Asian session pullback from a six-month high, mildly bid near 1.0640 by the press time. Even so, the major currency pair remains inactive during early Wednesday as traders await the key Federal Open Market Committee (FOMC) announcements.

Also read: EUR/USD floats above 1.0600 ahead of Federal Reserve monetary policy meeting

That said, the quote rallied to the highest levels since June the previous day before retreating from 1.0673.

The pullback moves could be linked to the EUR/USD buyer’s inability to cross a one-month-old ascending trend line as the RSI (14) line pokes the overbought territory. Also likely to have challenged the upside momentum is the late Doji candlestick at the multi-day top.

As a result, the pair’s pullback towards 1.0600 round figure appears imminent.

However, the EUR/USD bears are likely to remain off the table unless witnessing a clear downside break of the 100-SMA level surrounding 1.0455.

Following that, an ascending support line from November 21, close to 1.0380 at the latest, will act as the last defense of the EUR/USD bulls.

On the contrary, an upside break of the aforementioned resistance line from mid-November, near 1.0650 as we write, could challenge the EUR/USD pair’s immediate recovery before directing the bulls towards the latest swing high around 1.0675.

In a case where the pair remains firmer past 1.0675, the 1.0700 threshold and highs marked in June around 1.0775 will be in focus.

EUR/USD: Four-hour chart

Trend: Pullback expected

Responding to the Bank of Japan (BoJ) Tankan survey, Japan’s Chief Cabinet Secretary Hirokazu Matsuno said that they “must be vigilant to downside risks from slowing global economy amid monetary tightening and inflation.”

The BoJ closely watched Tankan survey showed early Wednesday that business confidence among big Japanese manufacturers worsened in the three months to December for a fourth straight quarter.

Japan firms' inflation expectations 1 and 3 years ahead both hit the highest level on record, the survey showed.

Market reaction

USD/JPY was last seen trading at 135.50, modestly flat on the day.

In a supplement to its Asia Development Outlook report, the Asian Development Bank (ADB) said that they slashed the 2022 GDP growth outlook for developing Asia, in the face of China’s covid risks, the Russia-Ukraine war and worldwide economic slowdown.

Key takeaways

“Expect 2022 growth in developing Asia to slow to 4.2%, down slightly from its 4.3% forecast in September and marking the fifth time the outlook was downgraded.”

“For next year, the combined bloc’s economy, which includes China and India, is projected to grow 4.6%, much slower than its previous projection of 4.9%.”

“Growth in China will likely be slower than previously thought with the world’s second-largest economy seen expanding 3.0% this year and 4.3% next year, weaker than the ADB’s earlier forecasts of 3.3% and 4.5%, respectively.”

Related reads

• S&P 500 Futures grind higher, US Treasury bond yields stay pressured as markets await Fed announcements
• China plans over $143 billion package to boost domestic chips, compete with US – Reuters

• EUR/JPY licks its wounds after positing the biggest daily loss in two weeks.
• Japan’s Tankan data shows Q4 manufacturers' mood worsens, inflation expectations jump to record high.
• Treasury bond yields remain pressured after snapping three-day uptrend.
• Risk-negative catalysts, anxiety ahead of market-moving events also challenge EUR/JPY pair buyers.

EUR/JPY consolidates the biggest daily loss in a fortnight, also probing the previous day’s U-turn from a three-week top, as it defends the 144.00 threshold during early Wednesday. The cross-currency pair’s latest inaction could be linked to the mixed updates from Japan, as well as the cautious mood ahead of the monetary policy meetings of the US Federal Reserve (Fed) and the European Central Bank (ECB).

“Business confidence among big Japanese manufacturers worsened in the three months to December for a fourth straight quarter, the Bank of Japan's closely watched Tankan survey showed, amid rising costs of living and a slowdown in the global economy,” reported Reuters. The news also stated that Japanese firms' inflation expectations for one and three years ahead both hit the highest level on record.

Elsewhere, the risk-negative catalysts surrounding China also seem to restrict the EUR/JPY latest moves. The International Monetary Fund (IMF) Managing Director Kristalina Georgieva was spotted expecting slower economic growth for China due to the latest jump in the daily Covid cases. Additionally, Bloomberg came out with the news suggesting that the Chinese leaders delayed the economic policy meeting due to the COVID-19 problems. On the same, the Asian Development Bank (ADB) cut China's 2023 economic growth forecast to 4.3% from the 4.5% estimate in September.

It should be noted that Friday’s downbeat US inflation numbers and recently firmer European statistics keep the traders on edge ahead of the upcoming monetary policy meetings of the Fed and the ECB, up for Wednesday and Thursday respectively. The same also limits the EUR/JPY pair’s immediate moves.

While portraying the mood, the S&P 500 Futures print a three-day uptrend near 4,065, up 0.25% intraday, whereas the US 10-year Treasury yields decline one basis point (bps) to 3.49%, after snapping the three-day downtrend.

Moving on, Euro Area Industrial Production for October, expected -1.5% versus 0.9% prior, will be important for EUR/JPY pair but major attention will be given to the Fed’s action. However, the pre-ECB anxiety could challenge the quote’s short-term moves.

Technical analysis

A clear downside break of the eight-day-old ascending support line, now resistance around 144.60, directs EUR/JPY bears toward the monthly low near 140.75.

Analysts at Societe Generale offer a sneak peek at what to expect from Wednesday’s UK Consumer Price Index (CPI) data due for release at 7:00 GMT.

Key quotes

“Despite a continued rise in core and food inflation, negative base effects should allow a marginal reduction in headline inflation from 11.1% to 11.0% in November, although risks are tilted to the upside.”

“For core, both stronger services and goods inflation should contribute to an acceleration from 6.5% to 6.7%.”

• WTI bulls are making a last-ditch effort to break the $75.00 resistance. 
• Bears are still in control while price remains on the front side of the bearish trendline. 

West Texas Intermediate WTI crude oil rallied on Tuesday due to restrictions on the flow of the black gold between  Canadian and the United States as exports remain restricted following the shutdown of the Keystone pipeline. Meanwhile, the technical, are, however, bearish as per the following analysis on the daily and hourly time frames: 

WTI daily chart

The daily charts show the bears holding the fort below a key bearish daily trendline as the bulls attempt to take on the $75bbls mark. 

WTI H1 chart

The hourly time frame shows the price supported, shower, also there could be a last-ditch effort from the bulls still. A break of resistance opens the risk of a move into test $77.50 for the days ahead. 

• Market sentiment improves amid receding hawkish bets on the Fed.
• S&P 500 Futures stays firmer, US Treasury bond yields remains depressed after snapping three-day uptrend.
• Downbeat US inflation raised concerns for softer rate hikes and favor riskier assets.
• Consolidation, headlines from China probe optimists ahead of the FOMC.

Risk appetite improves during early Wednesday as traders anticipate the Federal Reserve to announce softer rate hikes during today’s Federal Open Market Committee (FOMC) monetary policy meeting. The reason could be linked to the downbeat US inflation data, as well as hopes of economic recovery emanating from higher odds of the Fed’s pivot in early 2023.

While portraying the mood, the S&P 500 Futures print a three-day uptrend near 4,065, up 0.25% intraday, whereas the US 10-year Treasury yields decline one basis point (bps) to 3.49%, after snapping the three-day downtrend.

That said, the US Dollar Index (DXY) slumped after the downbeat US Consumer Price Index (CPI) that dropped to 7.1% YoY in November versus the 7.3% expected and 7.7% prior. Further, the CPI ex Food & Energy, known as the Core CPI, also declined to 6.0% YoY during the stated month compared to 6.1% market forecasts and 6.3% previous readings. “Traders of futures tied to the Federal Reserve’s policy rate boosted bets Tuesday that the U.S. central bank will notch down its interest-rate hike pace further early next year, after a government report showed inflation eased sharply in November,” said Reuters following the data.

It should be noted that the risk-negative catalysts surrounding China and the pre-Fed anxiety seem to restrict the market’s latest moves.

The International Monetary Fund (IMF) Managing Director Kristalina Georgieva was spotted expecting slower economic growth for China due to the latest jump in the daily Covid cases. Additionally, Bloomberg came out with the news suggesting that the Chinese leaders delayed the economic policy meeting due to the COVID-19 problems. On the same, the Asian Development Bank (ADB) cut China's 2023 economic growth forecast to 4.3% from the 4.5% estimate in September.

To sum up, global traders portray the typical pre-Fed anxiety as the latest Fedspeak contrasts the dovish bias and hopes of pivot during early 2023.

Also read: Fed December Preview: Will US Dollar selloff continue?

• The Cable has turned sideways ahead of the interest rate decision by the Fed.
• A gradual corrective move after a symmetrical triangle breakout offers a fresh buying opportunity.
• The RSI (14) needs to climb in the bullish range for a fresh rally.

The GBP/USD pair is displaying a lackluster performance in the Asian session as investors are awaiting the interest rate decision by the Federal Reserve (Fed) for fresh cues. The Cable is hovering around 1.2350 after correcting from a fresh six-month high at 1.2444.

Meanwhile, the US Dollar Index (DXY) is auctioning in a balanced profile as the market mood has turned quiet ahead of Fed’s policy. A slowdown in inflation consecutively for two months has cemented the odds of a lower rate hike by Fed chair Jerome Powell.

The GBP/USD pair has corrected gradually to near the 20-period Exponential Moving Average (EMA) at around 1.2340. Earlier, the Cable displayed a breakout of the Symmetrical Triangle chart pattern, which indicates volatility expansion. Therefore, a gradual correction in an upside trend presents a fresh buying opportunity to the market participants.

Meanwhile, the Relative Strength Index (RSI) (14) has slipped into the 40.00-60.00 range, which indicates that bullish momentum is inactive.

For a confident rebound, the Cable needs to surpass Wednesday’s high of around 1.2379, which will drive the asset toward Tuesday’s high at 1.2444, followed by the psychological resistance at 1.2500.

On the flip side, a drop below Friday’s low of around 1.2200 will drag the asset toward December 7 low at 1.2107. A breakdown of the latter will expose the major for more downside toward November 15 high at 1.2029.

GBP/USD hourly chart

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.9535 vs. the last close of 6.9500.

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.

• AUD/USD consolidates the biggest daily gains in two weeks at a six-month high.
• One-month-old ascending trend channel defends AUD/USD buyers.
• 100-SMA offers immediate support, September’s peak could test the bulls.

AUD/USD takes offers to refresh the intraday low near 0.6830-25 as it pares the biggest daily gains in two weeks, marked the previous day, during early Wednesday. In doing so, the Aussie pair reverses from a resistance line of the one-month-long bullish channel.

Even so, bullish MACD signals challenge the AUD/USD bears as they approach Friday’s swing high near 0.6815.

Following that, the 100-bar Simple Moving Average (SMA) near 0.6745 could restrict the Aussie pair’s further downside before highlighting the stated channel’s lower line, close to the 0.6700 round figure by the press time.

Even if the AUD/USD pair breaks the 0.6700 support, the 200-SMA level and an upward-sloping support line from October 13, respectively near 0.6645 and 0.6670, could restrict the quote’s further downside.

Meanwhile, recovery moves could aim for the aforementioned bullish channel’s top line, close to 0.6885 at the latest.

In a case where the AUD/USD bulls keep the reins past 0.6885, September’s high near 0.6915 could challenge further upsides of the Aussie pair.

Overall, AUD/USD stays on the bull’s radar despite the latest pullback from a multi-day high.

AUD/USD: Four-hour chart

Trend: Limited downside expected

• USD/JPY remains under pressure on the front side of the trendline resistance.
• US Dollar consolidates the US CPI data losses ahead of the Fed. 

USD/JPY fell to a one-week low of 134.65 and is currently down 0.1% in Asia as it consolidates the losses made following the US Consumer Price Index that showed that inflation rose less than expected last month. Traders now exp[etc that the Federal Reserve will slow the pace of rate increases after its two-day meeting on Wednesday.

US CPI drops below the mark

• US CPI MoM Nov: 0.1% (est 0.3%, prev 0.4%).
• US CPI Ex Food And Energy MoM Nov: 0.2% (est 0.3%, prev 0.3%).
• US CPI YoY Nov: 7.1% (est 7.3%, prev 7.7%).
• US CPI Ex Food And Energy YoY Nov: 6.0% (est 6.1%, prev 6.3%).

The Consumer Price Index sent risk assets on a tear with the NASDAQ initially jumping over 400 points. However, US stocks soon were met with supply as traders took profits ahead of the Fed. DXY, an index that measures the greenback vs. a basket of currencies, including the Yen, was down some 0.9% towards the close on Wall Street at 104.03 but off the lows of the day of 103.586. 

Domestically, the Bank of Japan released its closely watched quarterly tankan survey of corporate activity in Japan:

''Business confidence among big Japanese manufacturers worsened in the three months to December for a fourth straight quarter, the Bank of Japan's closely watched tankan survey showed, amid rising costs of living and a slowdown in the global economy,'' Reuters reported. 

''The headline index for big manufacturers' sentiment was plus 7 in December, the survey showed on Wednesday, compared with plus 8 in September and plus 6 expected in a Reuters poll. It was expected to deteriorate further to plus 6 in March.

The survey also showed big firms plan to raise their capital spending by 19.2% in the financial year to March, versus an increase of 20.9% expected by economists and a 21.5% gain seen in the previous survey, the tankan showed.''

Analysts at Rabobank explained that ''the forthcoming spring wage talks will draw strong market interest and could determine the outlook for BoJ policy for next year and beyond.  That said, given its long history battled the psychologies associated with deflation it is likely that the BoJ will retain a very cautious approach to policy. ''

USD/JPY technical analysis

USD/JPY is eying up the 130.00 area that could be tested in the coming days or weeks if the bears stay the course.

Eyes now turn to the Fed and on a dovish outcome, the level could be reached before the close of the week. It has not been uncommon for the yen to fly 500 pips in a week:

• Gold price is hovering around $1,810.00 as investors await Fed’s policy for fresh impetus.
• S&P500 soared as a consecutive decline in US inflation faded recession fears.
• The US Dollar Index (DXY) is struggling to sustain above the 104.00 resistance as odds favor a smaller Fed rate hike.

Gold price (XAU/USD) is juggling around the immediate support of $1,810.00 in the Tokyo session. The precious metal has corrected after printing a fresh five-month high at $1,824.51 on Tuesday. Fresh blood was infused in Gold price after the release of a soft inflation report for November month.

The US Dollar Index (DXY) is struggling to sustain above the 104.00 resistance as a slowdown in inflationary pressures has cemented expectations of a smaller rate hike by the Fed. Fed policymakers were already advocating for a deceleration in the interest rate hike pace after the soft October inflation report. Now, a consecutive significant slowdown in inflation has bolstered the chances of adopting a less-hawkish approach toward the monetary policy.

The risk-appetite theme after a decline in price pressures strengthened S&P500. Futures of the 500-US stock basket are expected to accelerate further as recession fears have faded to a greater extent. Also, the 10-year US Treasury yields have dropped to near 3.50%.

A note from Commerzbank dictates that “The 50 basis points hike, which is generally expected for tomorrow's FOMC meeting, can be considered almost certain after today's data.” We continue to assume that the Fed will reduce the size of the rate hikes again at the beginning of 2023, moving by only 25 bps in February and March.

Gold technical analysis

On an hourly scale, Gold price has corrected to near the demand zone placed in a narrow range of $1,806-1,810. The 20-period Exponential Moving Average (EMA) at $1803.60 will act as a major cushion for Gold price. Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which indicates that the bullish momentum is active.

Gold hourly chart

• NZD/USD takes offers to pare the biggest daily gains in two weeks around six-month high.
• NZ HYEFU forecasts three quarters of negative GDP growth for New Zealand.
• RBNZ defends rate hike forecasts by expecting higher level of employment, inflation.
• US inflation bolstered calls of Fed’s 50 bps rate and less-hawkish policy in 2023 but surprises can’t be ruled out.

NZD/USD justifies downbeat Half Year Economic and Fiscal Update (HYEFU) from New Zealand (NZ) to refresh intraday low near 0.6440 during early Wednesday. Even so, statements from the Reserve Bank of New Zealand (RBNZ) and cautious mood ahead of the key Federal Open Market Committee (FOMC) monetary policy meeting challenge the pair sellers of late.

NZ Treasury sees three quarters of negative Gross Domestic Product (GDP) growth in the current fiscal year 2023 (CY23), reported Reuters. The news also mentioned that New Zealand on Wednesday predicted a budget deficit of NZ$3.63 billion ($2.34 billion) for the fiscal year ending June 30, 2023, narrower than a deficit of NZ$6.63 billion forecast in the country's budget in May.

Following the downbeat announcements, the RBNZ crossed wires, via Reuters, while stating, “Even with the expected slowdown in the period ahead, it is anticipated that the level of employment will remain high.” The New Zealand central bank also metioned that actual and expected inflation is too high and needs to be reduced.

It should be noted, however, that latest fears emanating from China, mainly due to the global and internal pessimism surrounding the Covid conditions, seem to favor the NZD/USD to consolidate the previous day’s gains. The International Monetary Fund (IMF) Managing Director Kristalina Georgieva was spotted expecting slower economic growth for China due to the latest jump in the daily Covid cases. Additionally, Bloomberg came out with the news suggesting that the Chinese leaders delayed the economic policy meeting due to the COVID-19 problems. On the same, the Asian Development Bank (ADB) cut China 2023 economic growth forecast to 4.3% from 4.5% estimate in September.

On Wednesday, the US Dollar Index (DXY) slumped after downbeat US Consumer Price Index (CPI) that dropped to 7.1% YoY in November versus the 7.3% expected and 7.7% prior. Further, the CPI ex Food & Energy, known as the Core CPI, also declined to 6.0% YoY during the stated month compared to 6.1% market forecasts and 6.3% previous readings. “Traders of futures tied to the Federal Reserve’s policy rate boosted bets Tuesday that the U.S. central bank will notch down its interest-rate hike pace further early next year, after a government report showed inflation eased sharply in November,” said Reuters following the data.

Against this backdrop, Wall Street closed positive but the S&P 500 Futures struggle for clear directions. Further, the US Treasury bond yields also remain sidelined after declining the most in a week to snap a three-day uptrend.

Moving on, pre-Fed anxiety could restrict NZD/USD moves but fears of a hawkish surprise can keep the bears hopeful at the multi-day high.

Also read: Fed December Preview: Will US Dollar selloff continue?

Technical analysis

Overbought RSI (14) joins failure to provide a daily closing beyond the key 0.6480 hurdle, comprising tops marked in August and so far in December, to challenge NZD/USD buyers.

Also read: NZD/USD Price Analysis: Bulls need clear break of 0.6480 to keep the driver’s seat

• EUR/USD seesaws around a six-month high after posting the biggest daily gains in two weeks.
• Traders notched down hawkish Federal Reserve bets after United States inflation data, 50 bps rate hike is given.
• Firmer statistics from Germany, Euro Area tame recession woes and underpin bullish bias for Euro.
• Fed’s hints for future rate hikes will be crucial for EUR/USD traders.

EUR/USD portrays the typical pre-Fed consolidation as it makes rounds to 1.0630-20 ahead of the key Federal Open Market Committee (FOMC) monetary policy meeting on Wednesday. In doing so, the Euro stays sidelined near the highest levels in six months, backed by dovish hopes from the US Federal Reserve (Fed), as well as due to recently firmer statistics from Euro Area.

EUR/USD bulls cheer hopes of Federal Reserve’s smaller rate hike

EUR/USD rallied the most in a fortnight after the market’s bets for slower rate increases in 2023 soared on the downbeat release of the US inflation data.

US Consumer Price Index (CPI) dropped to 7.1% YoY in November versus the 7.3% expected and 7.7% prior. Further, the CPI ex Food & Energy, known as the Core CPI, also declined to 6.0% YoY during the stated month compared to 6.1% market forecasts and 6.3% previous readings.

“Fed funds futures prices implied a better-than-even chance that the Fed will follow its expected half-point interest-rate hike this week with a smaller 25-basis-point rate hike in February, ultimately raising rates no higher than the 4.5%-4.75% range in its battle to beat inflation,” said Reuters. The news also added that traders were betting on a second half-point hike in February before the inflation report.

The US inflation data drowned the US Dollar Index (DXY) to a six-month low and allowed Wall Street to close in the positive territory. Further, the US Treasury bond yields also dropped the most in a week to snap a three-day uptrend, which in turn offered additional strength to Euro.

Also read: Fed December Preview: Will US Dollar selloff continue?

Firmer local data also underpin Euro run-up

Other than the less-hawkish Fed bets, the recent improvement in the Euro Area economics also seemed to have favored the EUR/USD prices.

The German ZEW survey data showed that the Economic Sentiment Index rose to -23.3 in December from -36.7 prior and the market expectation of -26.4. Furthermore, the Current Situation Index rose to -61.4 from -64.5 but fell short of the market expectation of -57. It should be noted that the ZEW Economic Sentiment Index for the Eurozone rose to -23.6 from -38.7. 

Risks emanating from China, Russia join pre-Fed, ECB mood to test EUR/USD bulls

The International Monetary Fund (IMF) Managing Director Kristalina Georgieva was spotted expecting slower economic growth for China due to the latest jump in the daily Covid cases. Additionally, Bloomberg came out with the news suggesting that the Chinese leaders delayed the economic policy meeting due to the COVID-19 problems.

On the other hand, Russian President Vladimir Putin is openly rejected supplying oil to countries respecting the Euro Area-backed price cap and is at loggerheads with Ukraine for a long, which in turn challenges the risk appetite and the EUR/USD price.

Above all, the cautious mood ahead of the Federal Reserve’s (Fed) verdict, as well as the anxiety ahead of the European Central Bank (ECB) meeting, keeps the EUR/USD on a dicey floor.

While the Fed is almost set for a 50 bps rate hike, the Euro traders will pay more attention to how the US central bank is prepared to retreat from the rate hike cycle during 2023, as well as the economic projections. “Markets are now obviously going into it with a very dovish mindset – that’ll be fine if the Fed are dovish, but that doesn’t align at all well with recent comms, especially with US services inflation still rising, and the labor market so tight, and we may be in for a bumpy ride,” said analysts at ANZ ahead of the FOMC.

Talking about the ECB, the latest comments from the policymakers and firmer Euro Area data, the regional central bank is expected to sound hawkish despite likely unveiling the 50bps rate hike after two consecutive 75 bps increases in the benchmark rates.

Also read: ECB Preview: Five reasons to expect Lagarde to lift the Euro with a hawkish hike

EUR/USD technical analysis

EUR/USD bulls have miles to go before retaking the throne despite rising to the highest levels in six months, as well as posting the biggest daily jump in a fortnight.

The reason could be witnessed by a slew of upside hurdles for the Euro and the overbought conditions of the Relative Strength Index (RSI) line, placed at 14.

Among the major ones, a downward-sloping resistance line from September 2021, close to 1.0690 by the press time, gains the immediate attention of the EUR/USD bulls.

Following that, a horizontal area comprising March’s low and May’s high, near 1.0785-810, will be a tough nut to crack for the EUR/USD buyers.

In a case where EUR/USD manages to remain firmer past 1.0810, the odds of its run-up towards the high marked in March and the yearly top, respectively near 1.1185 and 1.1495, can’t be ruled out.

Alternatively, pullback moves could aim for the mid-November swing high near 1.0480 before highlighting the 38.2% Fibonacci retracement level of the EUR/USD pair’s one-year-long downturn starting from September 2021, close to 1.0430.

It’s worth observing, however, that a confluence of the 200-DMA and a three-week-old support line, near 1.0365 and 1.0350 in that order, appear the key for the EUR/USD bears as a break of which could re-establish the bearish trend.

Overall, Euro remains off the bear’s radar but the way toward convincing bulls is long and bumpy.

EUR/USD: Daily chart

Trend: Limited upside expected

• EUR/GBP has crossed the 0.8600 hurdle as weak UK Employment data has dampened Pound Sterling’s demand.
• Higher households’ earnings in the UK economy are expected to add duel to inflationary pressures.
• ECB Lagarde is expected to hike interest rates further by 50 bps to 2.5%.

The EUR/GBP pair is hovering around the critical resistance of 0.8600 in the early Tokyo session. The cross rebounded firmly on Tuesday after testing previous week’s low around 0.8560 on weaker United Kingdom Employment data.

November’s Claimant Count Change surprisingly rose by 30.5K while the market participants were expecting a decline of 13.3K. Apart from that, Average Earnings soared to 6.1%, which has bolstered inflation expectations as higher households’ earnings will result in robust retail demand. No doubt, higher earnings will support households in offsetting higher payouts due to inflation-adjusted prices but will also leave more money in the palms of individuals for disposal, which will strengthen retail demand.

Going forward, the UK Consumer Price Index (CPI) data holds significant importance. As per the consensus, the annual headline inflation will decline to 10.9% from the former release of 11.1%. While the core CPI is seen unchanged at 6.5%.

This week, the major trigger in the UK economy will be the interest rate decision by the Bank of England (BOE). To soften the stubborn inflation, BOE Governor Andrew Bailey is expected to hike its interest rates further. Analysts from Danske Bank are expecting a 50 basis point (bps) rate hike announcement. 

The BOE in its latest Financial Stability report said that financial pressures on UK companies, especially for smaller firms, are expected to rise in 2023. Also, widespread signs of financial difficulty among UK households are yet to emerge.

On the Eurozone front, investors are focusing on the monetary policy announcement by the European Central Bank (ECB). ECB President Christine Lagarde is expected to hike its interest rates further by 50 basis points (bps) to 2.5%. The ECB is approaching its terminal rate, which is expected at 3%.

In the Half Year Economic and Fiscal Update, the New Zealand Treasury has forecasted three-quarters of a shrinking economy starting in the second quarter of 2023.

Key notes

• Lifts planned bond issuance by nz$18bln over 4 years.
• Forecasts return to budget surplus in 2024-25.
• Fiscal policy will help RBNZ battle inflation.
• Government will run contractionary fiscal policy.
• To end cut in gasoline tax by March 31.
• Actual and expected inflation is too high and needs to be reduced.
• Expect spending to slow and unemployment levels to increase as more people join the workforce over the coming year.
• It is anticipated that the level of employment will remain high.
• Even with the expected slowdown in the period ahead, it is anticipated that the level of employment will remain high.

NZD/USD update

Fuelled by a softer US dollar, the Kiwi has managed a score into the 0.6500s through 0.6450 resistance ahead of today's Federal Open Market committee. 

• USD/CAD M-formation neckline could be a resistance.
• USD/CAD micro trendline could come under pressure.

USD/CAD is holding its own on the Asian day following a day of intense selling on the back of the US Consumer Price Index outcome that has shifted gears with respect to sentiment around a Federal Reserve picot. USD/CAD is trading at 1.3555 and is technically holding in a bullish trend as the following analysis illustrates: 

USD/CAD daily charts 

The M-formation is a reversion pattern that has drawn the price into the neckline. If this were to act as a resistance, the micro trendline will come under pressure and break of which could lead to a substantial continuation of the downside for the days ahead.