• GBP/JPY has slipped below the 168.00 cushion as investors see BOE interest rates near peak.
• BOE’s Mann favored a 75 bps rate hike citing the further risk of higher inflation due to the tight labor market.
• UK annual Retail Sales may contract by 5.6% while monthly data will drop to 0.3%.

The GBP/JPY pair has surrendered the crucial support of 168.00 in the early Asian session amid mixed responses from Bank of England (BOE) policymakers on interest rates. The cross is following the footprints of GBP/USD, portraying a risk-off impulse that has been supported by the market participants.

The asset witnessed intense pressure after BOE Governor Andrew Bailey announced its December monetary policy. The BOE hiked its interest rates by 50 basis points (bps) to 3.5%, in line with the market consensus. What impacted the strength of the pound Sterling was the statement that more interest rate hikes may be required ahead.  This bolsters the case that the BOE interest rate is near its peak, however, the policy will remain restrictive till the achievement of price stability.

Two BOE Monetary Policy Committee (MPC) members voted for the maintenance of a status quo by the central as they believed that the current monetary policy is tight enough to contain inflationary pressures. While BOE policymaker Catherine Mann favored a 75 bps rate hike citing the further risk of higher inflation due to the tight labor market and a recent jump in earnings by the households, which may offset the recent decline in November’s inflation report.

Going forward, investors will keep an eye on United Kingdom Retail Sales data, which will release on Friday. As per the projections, the annual economic data (Nov) is expected to contract by 5.6% against a contraction of 6.1% released earlier. While the monthly data would drop to 0.3% from the former release of 0.6%.

On the Tokyo front, investors are keeping an eye on Jibun Bank PMI data. The Manufacturing PMI is expected to decline to 48 vs. 49 in the prior release. The Services PMI is seen higher at 51.1 against the prior figure of 50.3.

• USD/CAD is decelerating on the bid and the bears are moving in.
• Bears eye a 50% mean reversion and the micro bullish trendline.

As per the prior analysis, USD/CAD Price Analysis: Bears eye a break of bull cycle trendline, the Canadian Dollar was out of favour on Thursday and USD/CAD remains within the bull cycle trend as the following analysis will illustrate. 

USD/CAD prior analysis

It was stated that the M-formation was a reversion pattern that could draw the price into the neckline. It was suggested that if this were to act as a resistance, the micro trendline would come under pressure and open the risk of a substantial continuation to the downside for the days ahead.

However, we have seen the price revert and burst through the neckline and thus rendering the setup useless. Instead, the bulls are back in control and staying the course with prospects of a move into the 1.37s and 1.38s. 

USD/CAD update

USD/CAD H4 chart

The price is decelerating on the bid and the bears are moving in. This puts the focus on a move into the 50% mean reversion and micro bullish trendline. The 61.8% ratio is just below and could be tapped into for a test of 1.3600 prior to the next bullish impulse. 

• Risk aversion amidst further Federal Reserve tightening spurred the rally on the USD/JPY.
• USD/JPY Price Analysis: Range-bound, about to clear crucial DMAs.

The USD/JPY bounces off the 200-day Exponential Moving Average (EMA) and rises above the 137.00 mark on Thursday, courtesy of a risk-off impulse spurred by the US Federal Reserve (Fed) rate hike. Investors bracing for further tightening, keep the US Dollar (USD) bid against the Japanese Yen (JPY). At the time of writing, the USD/JPY exchanges hands at 137.74 as the Asian session begins, 50 pips shy of the 20-day Exponential Moving Average (EMA) at 137.99.

USD/JPY Price Analysis: Technical outlook

The USD/JPY daily chart illustrates the pair range-bound, within the 133.60-138.00 range, during the last eleven days. At the bottom of the range lies the 200-day EMA at 135.15, and on the top is the 20-day EMA. Oscillators like the Relative Strength Index (RSI) in the bearish territory is almost flat, while the Rate of Change (RoC) portrays that buying pressure is almost non-existent, opening the door for a mean reversion.

For that scenario to play out, the USD/JPY must fail to clear the 138.00 mark. After that, the USD/JPY next support would be the 137.00 mark, which, once cleared, could expose the December 14 daily high of 135.99, ahead of the 200-day EMA at 135.16.

As an alternate scenario, the USD/JPY first resistance would be the 138.00 mark. A breach of the latter will expose essential supply zones, like the 100-day EMA at 139.70, ahead of the psychological 140.00 figure.

USD/JPY Key Technical Levels

• AUD/JPY licks its wounds at weekly low, sidelined of late.
• Clear break of 50-SMA, two-week-old ascending trend line favor sellers.
• Area comprising lows marked since early October gains the bear’s attention.
• Buyers need validation form 200-SMA before retaking control.

AUD/JPY holds lower ground near 93.30 during Friday’s Asian session, after posting the biggest daily loss in two weeks the previous day.

In doing so, the cross-currency pair braces for further downside as it already broke the key support late Thursday.

That said, a clear downside break of convergence of the 50-SMA and a fortnight-old ascending trend line, around 92.40-50 by the press time, keeps AUD/JPY bears hopeful of witnessing further downside.

The AUD/JPY sellers also take clues from the bearish MACD signals while aiming for the 92.00 threshold as the immediate support.

It’s worth noting that the horizontal region comprising multiple lows marked since early October, near 91.10, appears the key support to watch past 92.00, a break of which will highlight the October month low near 90.85 for the AUD/JPY bears.

Alternatively, recovery remains elusive below the 92.40-50 support-turned-resistance.

Even so, a downward-sloping resistance line from November 01, close to the 93.00 round figure, could challenge the AUD/JPY bears.

In a case where the pair manages to remain firmer past 93.00, the 200-SMA and 50% Fibonacci retracement of the pair’s late October moves, near 93.30, will be crucial to watch.

AUD/JPY: Four-hour chart

Trend: Further downside expected

• GBP/USD licks its wounds after posting the biggest daily loss in six weeks.
• Bank of England’s dovish rate hike, broad risk-aversion wave favored British Pound sellers.
• Mixed data from United States failed to stop US Dollar bulls.
• United Kingdom Retail Sales, Purchasing Managers’ Indexes will be important for Cable traders.

GBP/USD bears take a breather around 1.2180 during early Friday in Asia, following the heaviest daily slump in 1.5 months, as the British Pound traders await key data from the United Kingdom. That said, Cable witnessed heavy losses the previous day as the Bank of England (BOE) couldn’t please the bulls despite announcing an interest rate hike. It’s worth noting that the overall hawkish moves by major central banks allowed the US Dollar to regain upside momentum and exerted downside pressure on the quote.

Bank of England’s dovish hike recalled GBP/USD bears

Bank of England (BOE) raised the policy rate by 50 basis points (bps) to 3.5% as expected but couldn’t please the GBP/USD buyers.

On the other hand, statements like “Majority of MPC judges further increases in bank rate may be required," gained major attention and drowned the Cable prices afterward. Also adding strength to the bearish bias was the pattern of the Monetary Policy Committee’s (MPC) voting pattern as two out of nine MPC members voted against raising rates.

It should be noted that the “Old Lady”, Bank of England’s informal name, appreciated the government's new Autumn Statement and signaled fewer rate hikes, which also weighed on the GBP/USD prices.

Fears surrounding United Kingdom economy also weigh on British Pound

In addition to the BOE’s dovish rate hike and downbeat economic projections, the looming fears of a recession in the United Kingdom also gained major attention after the policymakers conveyed fears of soaring energy bills and cold weather. On the same line could be the looming labor strikes in Britain. It’s worth noting that the political jitters surrounding Brexit are an extra burden on the GBP/USD prices.

US Dollar cheered risk aversion, ignored mixed United States data

Although the BOE announced a dovish hike, the Old Lady managed to join the likes of the US Federal Reserve (Fed), Swiss National Bank (SNB) and the European Central Bank (ECB) as it offered a 0.50% rate increase. Although the major central banks eased the volume of the interest rate increases, all of them showed readiness to keep the rates higher for a longer time, which in turn joined the inflation fears and highlighted the recession woes. As a result, the traders rushed to the US Dollar for risk safety and the same weighed on the GBP/USD prices.

In doing so, the US Dollar paid little attention to the mostly downbeat data at home. That said, the United States Retail Sales flashed -0.6% MoM figure in November versus 0.1% expected and 1.3% prior while manufacturing survey details from Philadelphia Fed and New York Fed came in disappointing for the said month. Further, Industrial Production eased in November and the Jobless Claims also dropped for the week ended on December 09.

United Kingdom Retail Sales, Purchasing Managers’ Indexes eyed

Having witnessed the BOE-led slump, GBP/USD traders will pay attention to the United Kingdom Retail Sales, the key for the British Gross Domestic Product (GDP), as well as the first readings of the December month Purchasing Managers’ Indexes (PMIs) from S&P Global/CIPS.

Forecasts suggest that the UK Retail Sales may improve to -5.6% YoY versus -6.1% prior while the Retail Sales ex-Fuel could arrive at -5.8% YoY from -6.7% previous readings. Further, the UK’s S&P Global/CIPS Manufacturing PMI could ease to 46.3 from 46.5 prior while the more important Services PMI may also drop to 48.5 from 48.8 prior. As a result, the Composite PMI could also decline to 48.0 from 48.2 previous readings.

Hence, the scheduled data portray a mixed picture for the GBP/USD prices but the Bank of England (BOE) inspired pessimism could keep the British Pound depressed.

GBP/USD technical analysis

With its daily closing below a six-week-old ascending trend line, GBP/USD confirmed a rising wedge bearish chart formation and suggests further downside. The bearish bias also takes clues from the absence of the overbought Relative Strength Index (RSI), located at 14.

Although the theoretical target of rising wedge confirmation directs the British Pound bears toward October’s low near 1.0925, the 200-DMA and 50-DMA, respectively around 1.2100 and 1.1730, could offer intermediate halts during the expected south run.

Also likely to act as an intermediate halt for the Cable is the 1.2000 psychological magnet and July’s low near 1.1760.

Alternatively, the British Pound’s recovery remains elusive unless the quote defies the rising wedge breakdown, by rising back beyond the support-turned-resistance line near 1.2355.

Even so, the 61.8% Fibonacci retracement level of the GBP/USD pair’s Januaray-September downside, around 1.2450, will precede the stated wedge’s upper line, close to 1.2610, to challenge the bulls.

Overall, GBP/USD is in the bear’s territory but the 200-DMA may offer immediate support.

GBP/USD: Daily chart

Trend: Further downside expected

• USD/CHF is struggling to capture 0.9300 despite downbeat market sentiment.
• S&P500 faced intense selling pressure amid mounting recession risks.
• SNB Jordan hiked interest rates by 50 bps, as expected, to 1% to keep inflation stable at around 2%.

The USD/CHF pair has been struggling to sustain above the immediate hurdle of 0.9300 in the early Asian session. The Swiss Franc major asset witnessed a strong reversal in the New York session amid negative market sentiment, which improved the appeal for safe-haven assets. At the press time, the major has dropped to near 0.9276 but is expected to find support ahead.

S&P500 faced severe pressure on Thursday amid mounting recession risk as an interest rate peak projection above 5% is sufficient to create havoc among firms that are debt-laden. Also, companies would prefer to postpone their expansion plans to dodge higher interest obligations. No doubt, the United States Consumer Price Index (CPI) data has softened but the battle against stubborn inflation is far from over.

The US Dollar Index (DXY) has corrected marginally after a rally to near 104.80. The corrective move doesn’t seem to be a reversal for now and the USD Index may resume its upside journey ahead. Meanwhile, the 10-year US Treasury yields are continuously facing pressure and have dropped to near 3.45%.

The asset displayed some volatility on Thursday after the Swiss National Bank hiked its interest rates by 50 basis points (bps), as expected, to 1%. SNB Chairman Thomas J. Jordan is required to avoid sheer divergence in the policy rate with European Central Bank (ECB). Also, Switzerland's inflation rate is comfortably above 2%, which is needed to remain stable.

• EUR/USD has found an intermediate cushion around 1.0600, the downside remains favored on risk-off mood.
• The ECB sees two more 50 bps interest rate hikes consecutively to combat ramp-up inflation.
• Fed’s higher interest rate peak guidance has renewed recession fears in the US economy.

The EUR/USD pair has picked bids after dropping to near the round-level support of 1.0600 in the early Asian session. The major currency pair has turned sideways around 1.0620 but is likely to witness pressure amid negative market sentiment.

The US Dollar Index (DXY) has corrected gradually to near 104.60 after a firmer rally to near 104.80 as investors parked their funds in safe-haven to dodge sheer volatility. S&P500 witnessed an intense sell-off on Thursday as recession risk soars after the Federal Reserve (Fed) hiked interest rate guidance as the road to success on roaring inflation is far from sight.

On Thursday, the Euro bulls displayed wild gyration after the European Central Bank (ECB) President Christine Lagarde hiked interest rates by 50 basis points (bps) to 2.50%. The EUR/USD pair printed a fresh six-month high at 1.0700 but failed to hold gains and dropped significantly.

The commentary from ECB President that food and energy inflation will continue to rise from January has created havoc among investors in the Eurozone economy. The households are already facing tremendous pressure due to the higher headline Consumer Price Index (CPI) and further escalation in catalysts will dampen the market mood. ECB’s Lagarde sees two more 50 bps rate hikes consecutively to contain inflation, which indicates higher inflation peak guidance than estimated earlier at 3%.

On the United States front, investors are awaiting S&P PMI data for further guidance. As per the consensus, the preliminary Manufacturing PMI would remain steady at 47.7 while the Services PMI  might escalate to 46.8 from the former release of 46.2.

• The Euro gained traction against the Japanese Yen for fundamental reasons, supported by a bounce at the 20-day EMA.
• EUR/JPY Price Analysis: Upward biased above 146.00; otherwise, a fall towards 145.00 is on the cards.

The EUR/JPY soared more than 150 pips on Thursday following the European Central Bank’s (ECB) decision to hike rates by 50 bps while guiding that it would continue to raise rates. Consequently, the EUR/JPY rallied, and as the Asian session began, the EUR/JPY exchanges hands at 146.36, below its opening price.

EUR/JPY Price Analysis: Technical outlook

The EUR/JPY daily chart suggests the pair is upward biased since it cleared all the daily Exponential Moving Averages (EMAs). Nevertheless, it was further cemented by Thursday’s price action, with the EUR/JPY breaking November’s 23 immediate resistance at 146.13, which opened the door for a new 5-week high at 146.72. Oscillators are mixed, with the Relative Strength Index (RSI) in bullish territory but flat, while the Rate of Change (RoC) on its 9-day period suggests that prices could be close to overextending and subject to a mean reversion move.

The EUR/JPY key resistance levels lie at 147.11 November 9 swing high. A breach of the latter will expose the October 31 daily peak of 147.75, followed by the YTD high at 148.40.

As an alternate scenario, EUR/JPY’s failure to hold to gains above 146.00 could play for the sellers’ hands. Therefore, the EUR/JPY first support would be the 145.00 psychological mark, followed by the 20-day EMA at 144.56, followed closely by the 50-day EMA at 144.13, and the 100-day EMA at 142.75.

EUR/JPY Key Technical Levels

• AUD/USD stabilizes, holds lower grounds, after falling the most in 33 months.
• Preliminary S&P Global PMIs for Australia came in softer for December.
• Central bank moves, downbeat China data amplified risk-aversion and underpinned US Dollar demand.
• US PMIs, risk catalysts will be in focus for fresh impulse.

AUD/USD stays depressed around 0.6700, after falling the most since March 2020, as risk-aversion joins downbeat Aussie data. That said, the Australian Dollar’s latest weakness could be linked to the softer activity numbers for the nation published early Friday morning in the Asia-Pacific region.

The preliminary readings of the S&P Global PMIs for Australia showed an overall decline in December. That said, the headlines Manufacturing PMI dropped to 50.4 from 51.3 prior while Services PMI fell to 46.9 versus 47.6. Further, the Composite PMI also weakened to 47.3 from 48.0 previous readings.

It’s worth noting that the hawkish central bank actions joined the downbeat China data and superseded the mostly upbeat Aussie jobs report to drown the AUD/USD prices the previous day.

That said, the US Federal Reserve, Bank of England, Swiss National and the European Central Bank all of them announced a 0.50% rate hike and showed readiness to keep the higher rates for longer. The same raised fears of economic slowdown as forecasts concerning inflation and growth have been disappointing.

Additionally, China’s Retail Sales slumped to -5.9% in November versus -3.6% expected and -0.5% prior while Industrial Production came in at 2.2% compared to 3.3% market forecasts and 5.0% previous readings. Further, Australia’s Consumer Inflation Expectations dropped to 5.2% for December versus 5.7% expected and 6.0% prior while a jump in Employment Change and a static Unemployment Rate failed to impress the Australia Dollar (AUD).

It should be noted that the data from the US have been mixed and couldn’t provide any clear directions. That said, the US Retail Sales flashed -0.6% MoM figure in November versus 0.1% expected and 1.3% prior while manufacturing survey details from Philadelphia Fed and New York Fed came in disappointing for the said month. Further, Industrial Production eased in November and the Jobless Claims also dropped for the week ended on December 09.

Amid these plays, the Wall Street benchmarks closed in the red and the US Treasury yields regain upside momentum, which in turn underpinned the US Dollar’s demand and weighed on the AUD/USD.

Moving on, the first readings for the US S&P Global PMIs for December will be important for clear directions.

Technical analysis

A daily closing below an upward-sloping support line from November 21, now resistance near 0.6715, teases AUD/USD sellers. However, the 100-DMA support around 0.6670 challenges the immediate downside.

• USD/CAD is looking to recapture a five-week high at 1.3700 amid a risk-off market mood.
• Soaring recession risk resulted in a steep fall in risk-perceived currencies like S&P500.
• Oil price is oscillating in a range of $75.50-77.50 as investors await fresh trigger for decisive action.

The USD/CAD pair is aiming to continue its upside momentum and retest the fresh five-week high at 1.3700 ahead. The Canadian Dollar major asset is expected to extend its upside recovery amid a solid risk aversion theme underpinned by the market participants.

S&P500 plummeted on Thursday as the recession risk soared after the Federal Reserve (Fed) stepped up interest rate peak guidance to achieve price stability, portraying a risk-off mood. The US Dollar Index (DXY) showed a solid recovery to near 104.80. The USD Index has corrected marginally to near 104.60, however, the upside momentum is still intact.

Meanwhile, US government bonds continued to gain demand from the market participants as the Fed shifted to a slower and smaller interest rate hike approach. The 10-year US Treasury yields have dropped further to near 3.45%.

On Thursday, the United States Retail Sales data displayed a downbeat show despite accelerating employment numbers and earnings in November. The monthly Retail Sales data (Nov) reported a contraction of 0.6% while the street was expecting a contraction of 0.1%. A decline in retail demand indicates more downside pressure on inflation ahead as lower consumer spending is the key to a lower Consumer Price Index (CPI). This will force producers to cut prices of goods and services ahead.

Meanwhile, oil prices are displaying topsy-turvy moves after a sheer bullish reversal. The black gold is oscillating in a range of $75.50-77.50 as investors await a fresh trigger for decisive action. It is worth noting that Canada is a leading oil exporter to the United States and higher oil prices support the Canadian Dollar.

• Slightly negative US economic data bolstered the US Dollar amidst risk aversion.
• US Retail Sales plunged, while unemployment claims continued to show a resilient labor market.
• NZD/USD Price Analysis: Undergoing a pullback but a daily close below 0.6400, traders could expect downward pressure.

The New Zeland Dollar (NZD) dropped sharply against the US Dollar (USD) after a central bank bonanza witnessed 50 bps rate hikes by the US Federal Reserve (Fed), the Bank of England (BoE), and the European Central Bank (ECB), in the last couple of days. Most policymakers coincide with inflation being too high, opening the door for further tightening. Therefore, the NZD/USD plummets more than 1.81%, trading at 0.6347 after hitting a daily high of 0.6443.

US Dollar rises amidst a tranche of negative US data

Wall Street is set to finish the day with losses. Economic data from the United States (US) showed signs that Fed’s policy is being felt by Americans, as November Retail Sales shrank 0.6% MoM vs. estimates of 0.1% contraction, reported the US Department of Commerce. At the same time, the US Bureau of Labor Statistics (BLS) revealed the Initial Jobless Claims for the last week dropped by 211K against estimates of a 232K rise, showing the labor market resilience, despite the Fed’s aggressive rate hikes to cool down inflation.

Further data showed that the Philadelphia Fed Manufacturing Index and the New York Fed Manufacturing Index missed estimates, further deepening their contraction to -13.8 and -11.2, respectively. Later, Industrial Production (IP) shrank by 0.2% MoM, below expectations for a 0.1% increase.

Aside from this, the New Zealand economic docket featured the Manufacturing PMI for November, which fell to 47.4 below October’s 49.3 print. Meanwhile, New Zealand’s GDP data for Q3 revealed a remarkable growth of 2.0%, far surpassing expectations from the Reserve Bank of New Zealand, which had anticipated only a 0.8% expansion. This was an upward revision on the prior quarter’s revised 1.9%.

Given the backdrop, the NZD/USD extended its losses, as bad news for the US economy might dent sentiment, augmenting appetite for the greenback. Therefore, the NZD/USD ongoing correction could drop toward the 20-day Exponential Moving Average (EMA) at 0.6293 before resuming upwards.

NZD/USD Price Analysis: Technical outlook

The NZD/USD daily chart portrays a drop below 0.6400, registering a new six-day low. It should be said that the fall halted around 0.6319 before tumbling to the 20-day EMA at 0.6293, which, once cleared, could have exposed the 200-day EMA at 0.6249. However, if the NZD/USD fails to reclaim 0.6400, that could open the door for further losses. Otherwise, once 0.6400 is reclaimed, the next resistance would be the 0.6500 mark, ahead of the December 13 swing high at 0.6515.

• Gold Price is pressured and taking on a critical micro trend line. 
• This leaves the bias on the downside while below $1,780/00 and a break of $1,702 open risk to $1,670.

The Gold Price is consolidated towards the lows of the US session range near $1,777.00. XAU/USD fell from a high of $1,808 to a low of $1,774 on Thursday due to a stronger US Dollar. 

''Gold fell amid the decline in investor demand,'' analysts at ANZ Bank said. ''Nevertheless, the global economy is at an inflection point. Tighter monetary policies amid high inflation are likely to slow economic growth in 2023. This backdrop is typically positive for gold,'' the analysts argued. 

''Synchronised rate hikes have weighed on gold in 2022. Although we expect the US fed funds rate to peak at 5%, a pause in rate hiking should turn market sentiment in favour of gold,'' the analysts forecast.

Fed sentiment weighs

On Wednesday, the Federal Reserve projected continued rate hikes to above 5% in 2023, a level not seen since a steep economic downturn in 2007. Due to the hawkish rate hike, investor fears have intensified that the Federal Reserve's battle against inflation using aggressive interest rate hikes could lead to a recession. This has filled a bid into the US Dollar. However, the analysts at ANZ Bank argue that ''we approach the end of US Dollar dominance, and a depreciation in the currency would add further support to investor demand.''

''With the Fed suggesting rates will remain high through 2023, the risk of weak economic growth next year. Gold prices tend to come under pressure ahead of recessions, but then outperform other markets (such as equities) during them,'' the analysts argued. 

On the flip side, analysts at TD Securities expect gold prices to be weighed down by trend follower short acquisitions, ''with prices already flirting with key triggers for several subsequent selling programs just below the $1785/oz mark. In turn, the bar is low for CTAs to add 7% of their maximum historical length to their short position in the yellow metal.''

Gold technical analysis

The price is on the backside of the bearish cycle and has been advancing through the various resistances higher in a short squeeze. If the bulls can get a close above $1,800, then there will be prospects for a continuation towards $1,850 and $1,880.

On the other hand, as illustrated below, zoomed in on the daily chart, the micro trendline was broken in today's bearish impulse. This leaves the bias on the downside while below $1,780/00 and a break of $1,702 open risk to $1,670:

European Union governments have agreed on a 9th package of sanctions against Russia over Moscow's invasion of Ukraine, EU diplomats said.

Bloomberg reported that European Union leaders ''threw their weight behind a quick agreement on a natural gas price cap to put an end to months of political wrangling over an unprecedented intervention to contain the impact of an energy crisis. But they still have yet to settle on a price level.''

''At a summit in Brussels, the leaders agreed to a joint statement calling on the ministers to “finalize” on Monday their work on the so-called market correction mechanism. A deal on the gas price cap would also unlock a broader package of measures to rein in high energy prices that sent businesses and consumers reeling.''

Meanwhile, the package will be formalised through what the EU calls a "written procedure" by Friday noon.

"Sanctions agreed. Written procedure until tomorrow noon," one of the diplomats said.

WTI update

Meanwhile, WTI Price Analysis: Bears eye a break of $75.70 for the sessions ahead,  West Texas Intermediate WTI crude oil which climbed into resistance earlier this week on the back of restrictions on the flow between Canadian and the United States, has seen the bears move in at critical resistance:

WTI is in a bearish cycle, leaving the downside exposed. However, despite breaking the micro trendline, the structure at $75.70 is important and will need to be cleared to confirm the meanwhile downside bias.

• Silver bears are taking on the bullish correction that has so far made a 50% mean reversion of the prior bearish impulse.
• A downside extension towards $22.7250, $22.6070 and $22.4655 could be on the cards.

Silver has been on the back foot due to a rise in the US Dollar following hawkish outcomes from the central bank meetings this week. XAU/USD bears are on the prowl and have already tested a key area of the support structure. If the bears can fend off the bull's correction below $23.2070, then there will be near-term prospects of a downside continuation. Analysts at TD Securities argued that a break below the $22.50/oz mark is needed for trend followers to flatten out their remaining length.

Silver H1 charts

Zoomed in:

The bears are taking on the bullish correction that has so far made a 50% mean reversion of the prior bearish impulse near $23.2070. Should the bears commit, then a downside extension towards $22.7250, $22.6070 and $22.4655 will be on the cards.

• WTI bears are moving in again after a breach of resistance.
• $75.70 structure is important on the hourly chart. 

As per the prior analysis, WTI Price Analysis: Bulls attempt to take on the daily trendline resistance, West Texas Intermediate WTI crude oil that climbed into resistance earlier this week on the back of restrictions on the flow between Canadian and the United States, the bears have moved in at critical resistance:

WTI prior analysis

Bulls met key resistance and continue to struggle towards the closing sessions for the week. On the lower time frames, it was explained that a break of resistance opened the risk of a move into test $77.50 for the days ahead. The price has met $77.74 but has since been rejected as follows: 

WTI update, H1 chart

The price is in a bearish cycle, so the focus is on the downside but despite breaking the micro trendline, the structure at $75.70 is important and will need to be cleared to confirm the meanwhile downside bias. A break of $77.74, on the other hand, could be followed by bullish commitments and flip the switch in a short squeeze putting heart onto the shorts accumulated in December's downtrend. 

What you need to take care of on Friday, December 16:

The US Dollar soared to fresh weekly highs against most major rivals, ending the day with substantial gains amid a risk-averse environment. The greenback rallied since early Asia, as China published discouraging macroeconomic figures.

The country reported November Retail Sales, which plunged by 5.9% YoY, while Industrial Production in the same period rose by 2.2%, below the 3.6% expected. The USD also benefited from hawkish US Federal Reserve Chairman Jerome Powell's hawkish words, reacting late to the US Fed's decision.

On Thursday, The Bank of England, the Switzerland National Bank and the European Central Bank announced their decisions. The three banks hiked rates by 50 bps, although they had different impacts on financial markets.

The UK MPC had quite a split vote, as out of the nine MPC members, 2 voted to maintain rates unchanged, 6 for a 50bps hike, and 1 for a 75bps hike. Also, the BOE removed the wording that "policy is not on a pre-set path" and the part on any changes to the "scale, pace and timing" to the bank rate will depend on the outlook. It was a dovish hike, and GBP/USD plunged, now trading at around 1.2280.

Meanwhile, the Switzerland National Bank also hiked rates by 50 bps to 1%, as expected, but market players ignored it. It is worth adding that Chairman Thomas Jordan noted that further rate hikes could not be ruled out.

Then, it was the turn of the ECB. The central bank delivered as expected. Additionally, Lagarde announced further quantitative tightening through the end of the APP program. The current portfolio will decline at a measured and predictable rate beginning in March 2023, announcing there won't be reinvestments of maturing securities. The monthly average decline will be €15 billion until the end of the second quarter of 2023.

Within the press conference, Lagarde said that policymakers expect to raise rates "significantly further" because inflation is far too high, adding that it is "obvious" that more 50 bps hikes should be expected for a period of time. Finally, she said that a potential recession would be short-lived and shallow. She predicted at least two more 50 bps hikes. The EUR/USD pair soared with the headline, peaking at 1.0735. However, Wall Street's soft opening revived growth-related concerns. US indexes plummeted, and the dollar soared, with EUR/USD currently trading at around 1.0620.

AUD/USD is down to 0.6690, while USD/CAD is up to 1.2670. USD/JPY, in the meantime, surged to 137.80.

 Crude oil prices eased, with WTI settling at $76.10 a barrel. Gold trades at around $1,778 a troy ounce. 

The Mexican Central Bank has raised rates by 50 basis points. 

Reuters reported that the Mexican Central Bank board member Gerardo Esquivel voted in favour of raising the target for the overnight interbank interest rate by 25 basis points to 10.25%:
    
''The decision to raise the interest rate by 50 basis points was not unanimous, however, the board considers it will still be necessary to raise the reference rate in its next monetary policy meeting.

Subsequently, it will assess if the reference rate needs to be further adjusted as well as the pace of adjustments based on the prevailing condition.''

USD/MXN update

The decision was anticipated and has little impact on the Mexican Peso. Overall, however, the bulls are in control although have been forced back from daily resistance. 

• US Dollar remains underpinned by a hawkish Federal Reserve 0.50% rate hike.
• The Federal Funds rate is expected to peak at around 5.10%, per the SEP dot plot.
• USD/CAD: The uptrend is intact, though a clear break above 1.3700 could expose the YTD high of 1.3977.

The USD/CAD rebounds around the 20-day Exponential Moving Average (EMA) and climbs more than 100 pips on Thursday, following the last Federal Reserve (Fed) meeting, which witnessed a 50 bps rate hike to the 4.25-4.50% range Wednesday. Therefore, the US Dollar (USD) stages a comeback after the Canadian Dollar (CAD) pushed the pair toward its weekly lows of around 1.3518. At the time of writing, the USD/CAD is trading at 1.3670, above its opening price by 0.92%.

Federal Reserve's officials to lift rates at around 5%

US equities remain on the defensive as investors assess the Fed’s increase in borrowing costs. In the last meeting of the year, the Fed hiked rates and updated its September projection, including an upward revision of the Federal Funds rate (FFR). Policymakers expect the FFR to sit at around 5.1% through 2023, pushing back investors’ speculations for a Fed pivot, even though money markets are pricing in the first rate cut by December of 2023, according to Eurodollar futures, after an estimated peak of the FFR around 5%.

Delving into the Summary of Economic Projections (SEP), the US Gross Domestic Product (GDP) for 2022 is projected at 0.5% and in 2023 at 0.5%, while inflation is expected to fall to 3.5% in 2023 and will hit 2.1% by 2025.

Aside from this, the US economic docket featured November Retail Sales, which took an unexpected dive from -0.1% to a contraction of 0.6% MoM. On the other hand, Initial Jobless Claims came in lower than anticipated - a sign of strength within the labor market affirmed by Fed Chair Powell’s remarks this week.

After an initial decrease of 0.1% in October, US Industrial Production continued to shrink by a further 0.2%, making it two months of decline consecutively – something not seen since 2009’s recessionary period. The Capacity Utilization rate eased from October’s 79.9% to 79.7% in November.

The US Dollar Index (DXY), which tracks the American Dollar value against a basket of six currencies, soar sharply, up by 1.02% at 104.673. Meanwhile, falling oil price, led by the Western Texas Intermediate (WTI), is dropping 0.92%, at $76.69, a headwind for the Canadian Dollar.

USD/CAD Price Analysis: Technical outlook

Although the USD/CAD uptrend remains intact, it should be said that the ongoing rally could halt at around the 1.3689/1.3700 area. However, the Relative Strength Index (RSI) and the Rate of Change (RoC) suggest that buyers are gathering momentum, but a decisive breach above 1.3700 Is needed, so the USD/CAD might test higher prices.

Therefore, the USD/CAD key resistance levels are 1.3700, followed by November’s 3 high of 1.3808, ahead of the YTD high of 1.3977.

• The Australian Dollar is under pressure in a risk-off environment. 
• The US Dollar has picked up the bid after a slew of hawkish central bank interest rate decisions. 
• The Federal Reserve, Bank of England and European Central Bank have all sounded off a hawkish tone for subsequent meetings, risk-off. 

AUD/USD is down heavily on the day, falling from 0.6869 to a low of 0.6681 as in-the-money longs get squeezed out of what has been several days of a demand for the Australian Dollar. The pair is down by over 2.5% on Thursday in a move that started in Asia, accelerated in Europe and continued in New York trade. AUD/USD is now trading near a one-week low around 0.6695 as investors fret over hawkish tones from a slew of central banks this week, including the Bank of England (BoE), the European Central Bank (ECB) and the Federal Reserve (Fed). 

Australian Dollar down in risk-off markets

As a high beta currency, AUD suffers at times of risk-off. US stock indexes fell sharply on Thursday, with the Dow Jones Industrial Average  (Dow) on track for its steepest single-day fall in three months. The Federal Reserve's guidance for protracted policy tightening quelled hopes of the rate-hike cycle ending anytime soon. The two-day Federal Open Market Committee (FOMC) meeting ended with a 50 bp hike in the target range to 4.0-4.75%, as expected. However, as the dust settled, financial markets eventually focused on the entirety of Federal Reserve chairman Jerome Powell’s message, which was overwhelmingly hawkish and negative for risk appetite and the Australian Dollar.

Bank of England and European Central Bank weigh 

In Europe, the Bank of England delivered its ninth straight rate rise and the eighth of 2022. However, the key takeaway from the event is that even though UK inflation has peaked, the BoE believes more increases will be necessary. The European Central Bank also raised rates by half a percentage point. This was the ECB's fourth successive interest rate hike. The ECB outlined plans to shrink its bloated balance sheet from March, hoping that higher borrowing costs will finally arrest runaway inflation. While the ECB announced a smaller 50bp hike today, it stressed that this slowdown was not a pivot, adding that the terminal rate may have to be higher than the market had priced to date.

As per usual, the Australian Dollar is being driven, in the main, by external factors. With that being said, Australia released a highly anticipated employment report on Thursday. The data reflected a solid labour market performance in November. 64.0k jobs were added vs. 19.0k expected and a revised 43.1k (was 32.2k) in October. A total gain came from 34.2k full-time jobs and 29.8k part-time jobs. The Unemployment Rate was steady at 3.4%, as expected, but the participation rate rose a couple of ticks to 66.8%, bolstering the positive sentiment in the report and reaffirming the Reserve Bank of Australia's (RBA) view of a very tight labour market. 

Markets assess grounds for further Reserve Bank of Australia rate hikes

The key issue for the markets will be what the Reserve Bank of Australia is going to do in February. The decision in December to raise the cash rate and maintain a strong tightening bias points to RBA ‘s firm commitment to the inflation target. WIRP now suggests 55% odds of a 25 bp hike on February 7, up from 45% at the start of this week, while the swaps market is pricing in a peak policy rate near 3.90% vs. 3.65% at the start of this week. 

All in all, the US Dollar is getting traction as markets digest the central bank decisions and hawkish guidance, weighing on the commodity complex (an AUD proxy) and risk assets. DXY, an index that measures the US Dollar, is trading higher near the highs of the day, around 104.80 after two straight down days. However, there is a technically bearish bias in DXY while the index remains on the front side of the bear trend as follows:

AUD/USD and DXY technical analysis

DXY is consolidating below last month's low of near 105.30 and has pierced last week's low of near 104.10:

The US Dollar M-formation is a reversion pattern on the daily charts above which has seen the price rally into the neckline resistance area that meets the bearish trendline. US Dollar Bears need to commit at this juncture or face prospects of the bulls taking on last month's lows of near 105.30 in what could turn into a short squeeze. If on the other hand, the US Dollar bears do commit, then a downside extension will be on the cards with eyes on the June lows near 101.30.

AUD/USD bears lurking

As for AUD/USD, the price has broken channel support and there are eyes on a break to the Volume Point of Control (VPC) of the late August to mid-October bear cycle:

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

• The Pound Sterling losses ground against the US Dollar even though the Bank of England lifted rates by 0.50%.
• US Retail Sales for November disappointed, though they showed the effects of the Federal Reserve policy.
• GBP/USD: The dip towards the confluence of the 20/200-DMAs, could pave the way for a re-test of 1.2400

The Pound Sterling (GBP) failed to gain traction amidst a Bank of England (BoE) 50 bps rate hike, though risk aversion maintains the US Dollar (USD) bid, after hitting six-month lows around 103.448, per the US Dollar Index (DXY). Mixed economic data released by the United States (US) and the aftermath of further rate hikes by the Federal Reserve (Fed) weighed on the GBP. At the time of writing, the GBP/USD is trading at 1.2160, down more than 2%.

Dovish hike by the Bank of England weighed on the GBP/USD

US equities dwindled after the Fed’s decision, which opted to slow the rate increases but updated its terminal rate. The so-called dot plot, where policymakers project the Federal Funds rate (FFR) in the future, was revised from September’s 4.6% to 5.1%, catching investors off guard, as most analysts estimated an adjustment to 4.9%.

Data-wise, the US economy experienced a setback in November as Retail Sales unexpectedly contracted, down 0.6% MoM compared to the anticipated -0.1%. Meanwhile, Initial Jobless Claims rose by 211K despite estimates of 230K, revealing the strength and robustness of today’s labor market acknowledged by Fed Chair Powell during his Wednesday press conference.

Earlier, the Philadelphia and New York Business Indexes reported disappointing figures, with the former sliding 13.8 points below expectations while the latter dropped 11.2, further away from its predicted contraction rate of 1%.

In a move widely expected by analysts, the Bank of England hiked interest rates to 3.50%, an increase of 50 basis points and the highest rate since the financial crisis. However, the decision was not unanimous; two members (Sylvana Tenreyro and Swati Dhingra) opted for no change, while Catherine Mann voted for an even higher increase of 75bps. The BoE said that further rate increases might be required to achieve the bank’s 2% goal. They added, “if the outlook suggested more persistent inflationary pressures, it would respond forcefully, as necessary.”

GBP/USD Price Analysis: Technical outlook

The GBP/USD remains upward biased even though Thursday’s session is witnessing a 240 pip fall, spurred by a perceived “dovish” hike by the Bank of England. Nevertheless, it should be said that the GBP/USD rally from around 1.1700 to 1.2446 resulted from overall US Dollar (USD) weakness. However, the confluence of the 20 and 200-day Exponential Moving Average (EMA) at around 1.2117/15 could halt the downfall if buyers stepped in around the latter.

Although falling, the Relative Strength Index (RSI) is still in bullish territory, while the Rate of Change (Roc) suggests that selling pressure is increasing.

Therefore, the GBP/USD first support would be the 1.2115/17 area, followed by 1.2100. On the flip side, the GBP/USD first resistance would be the 1.2200 mark, followed by the December 5 daily high at 1.2344.

• The Euro soars more than 100 pips against the Pound Sterling.
• ECB Lagarde opened the door for further 50 bps rate hikes in subsequent meetings.
• BoE’s decision ended 75 bps rate hikes, though it stated its commitment to tame inflation.

The EUR/GBP rallies as the New York session progresses after the Bank of England (BoE) and the European Central Bank (ECB) decisions to hike rates by 50 bps each in their last monetary policy meetings of 2022. At the time of writing, the Euro (EUR) has gained traction against the Pound Sterling (GBP) and is trading at 0.8705, above its opening price by 1.30%.

ECB and BoE raised rates by 50 bps

Risk aversion keeps the EUR/GBP soaring sharply. The ECB’s decision to raise rates by 50 bps was widely expected, but the Quantitative Tightening (QT) announcement surprised the markets. The ECB’s QT will start in March 2023 at a €15 billion pace, and it will run through Q2 and be set on an ongoing basis. The ECB updated its inflation forecasts for 2024 and 2025, expecting to hit 3.4% and 2.3%, respectively. Due to the upward revisions on inflation, the ECB stated that rates would still need to rise “significantly further.”

Meanwhile, ECB’s President Christine Lagarde said that it was “obvious” to expect 50 bps rate hikes for some time, adding that February, March, and April could also witness a 0.50% hike to the depo facility. Following Lagarde’s remarks, market pricing puts the ECB terminal rate at around 3%.

Elsewhere, the Bank of England hiked rates by 50 bps, lifting the Bank Rate to 3.50%, as widely expected by analysts. The decision was not unanimously approved, with a 7-2 split, with BoE members Tenreyro and Dhingra opting for a no change, while Catherine Mann voted for a 75 bps rate hike. The BoE’s said that further rate increases might be required to achieve the bank’s 2% goal. They added, “if the outlook suggested more persistent inflationary pressures, it would respond forcefully, as necessary.”

EUR/GBP Reaction

After the decisions, the EUR/GBP extended its gains due to the “hawkishness” perceived on the ECB’s side, while the BoE reiterated in its previous meeting that the terminal rate was substantially lower than what markets were pricing. Since the decision, the EUR/GBP climbed from 0.8610 to 0.8723 daily highs.

EUR/GBP Key Technical Levels

Data released on Thursday showed a larger-than-expected decline in retail sales during November. Analysts at Wells Fargo point out that sales in categories more reliant on credit started to turn and holiday sales categories flopped. While they expect spending to contract in 2023, they point out it's too soon to call this the start of a sustained decline in goods spending.

Key Quotes: 

“It's worth mentioning that despite the pullback in sales last month, the overall level of sales remains elevated, suggesting consumers are continuing to spend at a decent clip this holiday season. Specifically, sales at holiday retailers were still higher than in September, and 5% higher than where they stood last year. But the decline in November suggests some consumer momentum may be starting to fizzle out.”

“Given all the headwinds for consumer spending we have been surprised at the resilience and admittedly had to push out the timing of the eventual retrenchment in spending. While we do expect consumer spending to contract in 2023, this ugly November report might be a bit of a head-fake. Specifically it may be more indicative of the long-delayed pivot form goods to services. Yes, goods spending growth slowed on trend throughout 2022, but it has not yet entered a sustained decline.”
 

As expected, on Wednesday, the Federal Reserve raised the Fed Funds rate by 50 basis points. The Research Department at BBVA, for now, stick to their call for two 25bp rate hikes during the first quarter of next year, with the rate peaking at 4.75-5.00%.

Key Quotes: 

“Hawkish signs indicate that, although inflation is starting to show clear signs of easing, the Fed felt a strong need to reverse the recent decline or avoid a further easing of rates along the yield curve. Although explicitly questioned, Chair Powell avoided signaling that the Fed is uncomfortable with the easing of financial conditions that has occurred after the positive inflation data of recent months, as he only indicated that the Fed’s “focus is not on short-term moves but on persistent moves”, which could likely mean that the Fed expects financial conditions to reverse its path or at least not continue easing.”

“For now, we stick to our call for two 25bp rate hikes in 1Q23, with the fed funds rate peaking at 4.75-5.00%.”

• US Dollar gains momentum while Wall Street tumbles.
• Japanese Yen fails to benefit from risk aversion.
• USD/JPY likely to challenge key resistance around 138.00.

The US Dollar strengthened across the board during the American session, the day after the FOMC meeting and following weaker-than-expected US economic data. The USD/JPP jumped above 137.50, toward the weekly high, despite amid risk aversion.

Wall Street tumbles, the world raises rates

The Japanese yen is among the weakest currencies of the America session as yields rise sharply in Europe and as Treasuries remain steady. In Wall Street, the Dow Jones is falling by 1.95% and the Nasdaq drops more than 2%.

Risk aversion is not helping the Yen so far on Thursday as central bank around the world continue to hike interest rates; the exception is the Bank of Japan.

In the US, economic data released on Thursday came in mixed, offering some divergence. Retail Sales fell more than expected and so did Industrial Production in November, while Initial Jobless Claims fell to 211K, the lowest level in eleven weeks.

Looking again at the 138.00 zone

The rally in USD/JPY sent the price near the weekly took it reached on Monday around the 138.00 zone. The pair peaked at 137.60 and is trading just a few pips below the 20-day Simple Moving Average (currently at 137.85).  A consolidation above 138.00 should open the doors to more gains.

A failure to break the 138.00 zone would keep the current range 138.00/135.00 (20 and 200-day SMAs) intact. A close below 135.00 would point to more losses.

Technical levels

Gold prices tend to come under pressure ahead of recessions, but then outperform other markets (such as equities) during them, strategists at ANZ Bank report.

Gold has performed well during past recessions

“We expect the US to enter a recession in 2023, with GDP falling to 0.2% YoY and contracting by 0.8% QoQ in Q3. The economic growth outlook is compounded by weakness in Europe as it faces ongoing geopolitical risks and energy shortages. This backdrop is typically positive for Gold.”

“Gold prices tend to come under pressure ahead of recessions, with returns over the six months before a recession averaging 2%. It then tends to outperform equities during recessions, with average returns of 16%. For the six months after a recession, Gold continues to deliver decent gains.”

The US Federal Reserve hiked the Federal Funds Rate by 50 bps as widely anticipated. The updated ‘dots’ signal policy rates above 5% in 2023.  EUR/USD recovered near pre-meeting levels despite the hawkish rate projections. But economists at Danske Bank expect the pair to tick down next year.

FOMC signals Fed Funds above 5% in 2023

“We maintain our call for terminal rate at 5.00-5.25%, well in line with the new projections.”

“While Powell noted that Fed looks through short-term volatility in financial conditions, we think the recent easing supports the case for inflation risks still being tilted to the upside.” 

“We continue to see modest near-term upside risks to USD rates, and forecast EUR/USD moving lower in 2023, as broad USD strength plays a key role in maintaining financial conditions restrictive.”

• Gold price slides below $1,800 after hawkish commentary by Fed Chair Jerome Powell.
• The US Dollar remains bid, a headwind for the precious metals space.
• US Retail Sales disappointed, portraying the effects of “cumulative tightening” by the Fed.

Gold price extended its losses following a more “hawkish” than expected Federal Reserve’s (Fed) decision on Wednesday. Even though the 50 bps rate hike by the Federal Reserve, the subsequent language used by its Chairman Jerome Powell further cemented the case for a higher “terminal” rate. At the time of writing, the XAU/USD is trading at $1,782 a troy ounce.

Wall Street is trading with losses after the Fed’s decision. Jerome Powell and Co.’s decision to hike rates but also revise its September projections, lifting the dot plots above the 5% threshold, caught traders off guard, which were expecting a Fed pivot after “just” two months of lower inflation. At his press conference, Jerome Powell said the labor market remains out of balance and that“we have more work to do.” He emphasized that the Fed needs “substantially more evidence of lower inflation” and that the Fed isn’t at a sufficiently restrictive stance yet and still has “some ways to go.”

In the meantime, the US Dollar Index (DXY), a gauge of the buck’s value against a basket of peers, remains positive but trading off the day’s highs of 104.406, weighed by the European Central Bank (ECB) press conference of its President Christine Lagarde. At the time of typing, the DXY is trading at 103.870, gaining 0.26%. Hence, as the US Dollar remained bid, Gold dropped from its multi-month highs of $1,824.47, plunging 1.22% on Thursday.

Elsewhere, the economic docket in the United States (US) featured November Retail Sales, which missed expectations, plummeting 0.6% MoM vs. estimates of 0.1% contraction. Meanwhile, Initial Jobless Claims rose by 211K, less than estimates of 230K, displaying the tightness of the labor market, which was acknowledged by Fed Chair Powell during its Q&A press conference Wednesday.

Additionally, the Philadelphia Fed Business Index and the New York Fed Manufacturing Index missed forecasts by far, with the former sliding -13.8 vs. 10.0 expected, while the latter dropped -11.2 vs. -1.0 contraction.

Of late, Industrial Production (IP) in the US contracts by 0.2% vs. an increase of 0.1%. November’s figures followed the previous month’s 0.1% contraction, while the Capacity Utilization rate eased from October’s 79.9% to 79.7% in November.

Aside from this, XAU/USD has failed to gain traction, even though the EUR/USD is closing to the 1.0700 mark, which would usually be helpful for Gold prices. Though traders taking profits after a volatile trading session appears to be the reason behind the yellow metal fall.

Gold Price Analysis: Technical outlook

XAU/USD remains neutral to upward biased, though it’s testing the 20-day Exponential Moving Average (EMA) at $1,772.50. Oscillators like the Relative Strength Index (RSI) and the Rate of Change (RoC) suggests sellers are gathering momentum. So, in the near term, XAU/USD might test the 20-day EMA, and once cleared, it could pave the way toward the 200-day EMA at $1,762.07.

• ECB raises rates by 50 basis points as expected.
• Lagarde mentions next rate hikes likely to also be 50 bps.
• US economic data mixed, stocks extend slide.
• EUR/USD off highs, back to the 1.0670 area after rising to 1.0735.

The EUR/USD jumped to 1.0735, a fresh six-month high, during ECB Lagarde’s presser. The Euro is among the top performers on Thursday while the US Dollar lost momentum after mixed US data.

ECB boosts EZ yields, EUR

The European Central Bank (ECB) raises key interest rates by 50 basis points to the highest levels since 2009. In the statement, the ECB said it expects to keep rising rates as inflation “remains far too high”. During the press conference, ECB President Christine Lagarde signaled that the next rate hikes will continue to be of 50 basis points.

The comments from the ECB President boosted the Euro across the board, not only versus the US Dollar. EUR/GBP also soared to three-week highs at 0.8700 while EUR/CHF printed monthly highs at 0.9916.

In the US economic data came in mixed. On the positive side, Initial Jobless Claims dropped more than expected to 211K, the lowest level in weeks. Retail Sales in November fell by 0.6%, more than the 0.1% decline of market consensus. The Philly Fed recovered from -19.4 to -13.8. The Empire Index tumbled to -11.2 from 4.5. Industrial Production contracted 0.2% in November against expectations of a 0.1% expansion.

Despite falling versus the Euro, the US Dollar is holding strong across the board on the back of risk aversion and amid steady Treasury yields. In Europe, yields are jumping following the ECB meeting. The German 10-year yield is up by more than 8% to 2.10%, the highest in a month.

The divergence between US Treasuries and EZ bonds on Thursday is adding support to the EUR/USD. The pair moved off highs and is hovering around 1.0680, marginally higher for the day, on its way to the strongest close since mid-June.

The Euro needs to rise and hold above 1.0700 to keep the doors open to more gains. A slide under the 20-hour Simple Moving Average at 1.0650 would change the intraday bias from bullish to neutral/bearish. The next key barriers are seen at 1.0600 and 1.0570.

Technical levels

As expected, the Bank of England raised Bank Rate by 50 bps to 3.50%. The BoE did not provide much for GBP to chew on, economists at TD Securities report.

Not much of a surprise from the BoE

“As broadly expected, the BoE hiked 50 bps to 3.50% and signalled that more hikes are likely. The vote was biased to the downside, with the two most dovish MPC members calling for no hike while hawk Mann voted for 75 bps.”

“Less forward guidance over policy hikes implies less marginal support for GBP.”

“On balance, we think GBP has run most of the course but prefer to see weakness emerge on the crosses (like vs EUR). There is some risk that this bleeds into the USD given holidays approaching as well, but we think the hurdle is high to see major USD weakness emerge.”

Christine Lagarde, President of the European Central Bank (ECB), is delivering her remarks on the policy outlook and responding to questions from the press following the Governing Council's decision to hike key rates by 50 basis points in December.

Key takeaways

"Given financing conditions and expected terminal rate in projection, we need to continue to fight against inflation."

"Info predicates 50 bps next meeting, possibly next one as well, possibly thereafter."

Market reaction

Although the risk-averse market environment seems to be helping the US Dollar limit its losses for the time being, EUR/USD clings to daily gains at around 1.0700 following these comments.

Economists at ING expect EUR/CHF to trend lower in 2023 and see the pair in the 0.95 region into next spring.

EUR/CHF to struggle to hold any gains over 0.99

“If we are right with our call for the Dollar to strengthen into the first quarter of 2023, then EUR/CHF will have to come lower – helped in part by SNB intervention.”

“Our call is that EUR/CHF continues to struggle to hold any gains over 0.99 and heads back to the 0.95 area into next spring.”

The Bank of England (BoE) hiked the Bank Rate by 50 bps to 3.50%. Economists at Danske Bank believe that the EUR/GBP pair is set to move marginally lower.

A dovish 50 bps as BoE nears the end of hiking cycle

“In line with our expectation, the BoE today hiked policy rates by 50 bps, bringing the Bank Rate to 3.50%.”

“We expect the increasingly weak growth outlook to support a near-term ending to the hiking cycle.” 

“We maintain our call for a 25 bps hike in February with risks to our call skewed towards additional hikes in 2023 if inflation pressures show increasing persistence.”

“We see a case for the EUR/GBP cross to move modestly lower as a global growth slowdown and the relative appeal of UK assets to investors are a positive for GBP relative to EUR.”

The US Dollar has remained at stronger levels following the Fed’s hawkish policy update. However, the Fed is unlikely on its own to reverse the bearish tend, economists at MUFG Bank report.

Fed to step down the pace of hikes again to 25 bps in February

“The Fed’s hawkish policy update will provide more support for the US Dollar in the near-term as it serves as a reminder to market participants not to get too carried away in pricing in bigger dovish pivot from the Fed. However, it is unlikely on its own to reverse the bearish tend that has been in pace for the USD since the October US CPI report was released.” 

“Building evidence of softening inflation will discourage the Fed from raising rates as much as planned especially if evidence emerges as well of weakness in the labour market.”

“We still expect the Fed to step down the pace of hikes again to 25 bps in February and doubt it will raise rates above 5.00%.”

Christine Lagarde, President of the European Central Bank (ECB), is delivering her remarks on the policy outlook and responding to questions from the press following the Governing Council's decision to hike key rates by 50 basis points in December.

Key takeaways

"Inflation in December may be a bit lower."

"January and February inflation are likely to be higher."

"What matters is the destination."

"Food and energy inflation will continue to rise."

"We hope for ESM ratification by Italy in short order."

"ESM can be activated if necessary."

Christine Lagarde, President of the European Central Bank (ECB), is delivering her remarks on the policy outlook and responding to questions from the press following the Governing Council's decision to hike key rates by 50 basis points in December.

Key takeaways

"New market expectations will be embedded in future projections."

"There was general consensus on the assessment of the economy."

"There was general agreement on orientation in strategy."

"Not everybody agreed on actual tactics."

"There was very broad majority that we should show perseverance."

"Some might have wanted to do a bit more, bit less."

"We had broad majority for decision."

• Industrial Production in the US continued to contract in November.
• US Dollar Index continues to push lower toward 103.50. 

Industrial Production in the US declined by 0.2% on a monthly basis in November, the Federal Reserve reported on Thursday. This reading followed October's 0.1% contraction and missed the market expectation for an expansion of 0.1%.

Further details of the publication revealed that the Capacity Utilization rate declined modestly to 79.7% from 79.9% in October.

Market reaction

The US Dollar Index stays on the back foot and continues to edge lower toward 103.50. The sharp increase seen in the EUR/USD pair, however, seems to be weighing heavily on the index rather than these data.

GBP/USD was capped at 1.2450 yesterday. The pair could dip to the mid-1.22s in the next 1 -2 days, in the view of economists at Scotiabank.

Intraday price signals are tilting bearish

“Intraday price signals are tilting bearish, with the GBP/USD pair capped at 1.2450 late yesterday for a second time this week.”

“The technical pointers clearly suggest developing downside risk towards 1.2550 at least in the next 1 -2 trading sessions.”

See – GBP/USD: Beyond 1.2450, next hurdles are located at 1.2610 and 1.2750 – SocGen

Christine Lagarde, President of the European Central Bank (ECB), is delivering her remarks on the policy outlook and responding to questions from the press following the Governing Council's decision to hike key rates by 50 basis points in December.

Key takeaways

"Significant and steady pace have to be read together."

"Obvious that we should expect 50 bps hikes for period of time."

"QT would represent roughly half of redemptions over that period."

Market reaction

EUR/USD rose sharply on these comments and was last seen trading at fresh multi-month highs above 1.0700.

Christine Lagarde, President of the European Central Bank (ECB), is delivering her remarks on the policy outlook and responding to questions from the press following the Governing Council's decision to hike key rates by 50 basis points in December.

Key takeaways

"Wages to growth at rates well above historic averages."

"Most measures of underlying inflation around 2%."

"Further above-target revisions in some indicators warrant monitoring."

"Risks to growth on the downside, especially in the near term."

"Risk to inflation primarily on the upside."

"Banks in the Eurozone have adequate capital."

Christine Lagarde, President of the European Central Bank (ECB), is delivering her remarks on the policy outlook and responding to questions from the press following the Governing Council's decision to hike key rates by 50 basis points in December.

Key takeaways

"High inflation, tighter financing conditions dampen spending and production."

"Global growth slowing also due to tighter financial conditions."

"Weaker economy could lead to a somewhat higher unemployment rate."

"Job creation is expected to slow."

"Fiscal measures could exacerbate inflationary pressures."

"Price pressures are strong across sectors partly due to high energy costs."

"Supply bottlenecks are gradually easing."

"Depreciation of Euro has added to inflation."

"Wage growth is strengthening."

• Philly Fed Manufacturing Index improved modestly in December.
• US Dollar Index clings to daily gains above 104.00.

The Federal Reserve Bank of Philadelphia's Manufacturing Business Outlook Survey's diffusion index for current general activity rose to -13.8 in December from -19.4 in November. This print came in worse than the market expectation of -10.

"The survey’s indicators for general activity, new orders, and shipments were all negative, and the firms reported a decline in employment, on balance," the publication read. "The survey’s broad indicators for future activity improved and indicate firms expect growth overall over the next six months."

Market reaction

The US Dollar continues to outperform its rivals after this data with the US Dollar Index rising 0.5% on the day at 104.12.

• Initial Jobless Claims in the US decreased by 20,000 in the week ending December 10.
• US Dollar Index stays in positive territory above 104.00.

There were 211,000 initial jobless claims in the week ending December 10, the weekly data published by the US Department of Labor (DOL) showed on Thursday. This print followed the previous week's print of 231,000 (revised from 230,000) and came better than the market expectation of 230,000.

Further details of the publication revealed that the advance seasonally adjusted insured unemployment rate was 1.2% and the 4-week moving average was 227,250, a decrease of 3,000 from the previous week's revised average.

"The advance number for seasonally adjusted insured unemployment during the week ending December 3 was 1,671,000, an increase of 1,000 from the previous week's revised level," the DOL noted.

Market reaction

This data failed to trigger a noticeable market reaction and the US Dollar Index was last seen rising 0.5% on the day at 104.15.

• EUR/USD trims a part of its intraday losses in reaction to the ECB’s hawkish 50 bps rate hike.
• Disappointing US macro data caps the attempted USD recovery and offers additional support.
• Traders now look to the ECB’s post-meeting press conference for some meaningful impetus.

The EUR/USD pair manages to recover a few pips from the daily low and climbs back above mid-1.0600s after the European Central Bank (ECB) announced its policy decision.

As was priced in the markets, the ECB delivered a 50 bps rate hike at the end of the December policy meeting this Thursday and indicated that it will raise borrowing costs further. In the accompanying policy statement, the central bank noted that inflation remains far too high and is projected to stay above the target for too long.

A more hawkish forward guidance, saying that rates will still have to rise significantly at a steady pace to ensure a timely return of the 2% inflation target, provides a modest lift to the shared currency. The upside for the EUR/USD pair, however, remains capped amid a goodish US Dollar recovery from a six-month low touched earlier this Thursday.

The Fed on Wednesday signalled that it will continue to raise rates to crush inflation. In fact, the so-called dot plot projected at least an additional 75 bps increase in borrowing costs by the end of 2023, lifting the terminal rate rising to 5.1%. This, along with a fresh wave of the global risk-aversion trade further benefits the safe-haven buck.

On the economic data front, the US monthly Retail Sales declined by 0.6% in November, down sharply from the 1.3% increase reported last month and missing estimates for a modest 0.1% fall. Adding to this, the Philly Fed Manufacturing Index also fell short of market expectations and tumbled to -11.2 for December from 4.5 in the previous month.

The data fueled speculations that the Fed will pivot from an ultra-hawkish stance to something more neutral. This is reinforced by depressed US Treasury bond yields depressed, which keep a lid on the attempted USD recovery and lends additional support to the EUR/USD pair. Traders now look to the post-ECB press conference for some meaningful impetus.

Technical levels to watch

• Retail Sales in the US fell at a stronger pace than expected in November.
• US Dollar Index stays in positive territory above 104.00 after the data.

Retail Sales in the United States declined by 0.6% on a monthly basis to $689.4 billion in November. This reading followed October's 1.3% increase and came in worse than the market expectation for a contraction of 0.1%. 

"Total sales for the September 2022 through November 2022 period were up 7.7% from the same period a year ago," the publication read. "Retail trade sales were down 0.8% from October 2022, but up 5.4% above last year."

Market reaction

The US Dollar Index retreated from daily highs with the initial reaction and was last seen rising 0.45% on the day at 104.10.

The European Central Bank (ECB) announced on Thursday that it raised its key rates by 50 basis points (bps) following the December policy meeting as expected. 

With this decision, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 2.5%, 2.75% and 2% respectively.

Follow our live coverage of the market reaction to the ECB's policy announcements.

Market reaction

The EUR/USD pair edged higher with the initial reaction and was last seen trading at 1.0640, where it was still down 0.4% on a daily basis.

Key takeaways from policy statement

"ECB today decided to raise three interest rates by 50 basis points and, based on substantial upward revision to inflation outlook, expects to raise them further."

"In particular, ECB judges that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to 2% medium-term target."

"Keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against risk of a persistent upward shift in inflation expectations."

"ECB's future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach."

"Interest rates are ECB’s primary tool for setting monetary policy stance."

"From beginning of March 2023 onwards, APP portfolio will decline at a measured and predictable pace, as Eurosystem will not reinvest all of principal payments from maturing securities."

"Decline will amount to €15 billion per month on average until end of second quarter of 2023 and its subsequent pace will be determined over time."

"At its February meeting, ECB will announce detailed parameters for reducing APP holdings."

"ECB will regularly reassess pace of APP portfolio reduction to ensure it remains consistent with overall monetary policy strategy and stance, to preserve market functioning, and to maintain firm control over short-term money market conditions."

"By end of 2023, ECB will also review its operational framework for steering short-term interest rates, which will provide information regarding the endpoint of the balance sheet normalisation process."

"ECB decided to raise interest rates today, and expects to raise them significantly further, because inflation remains far too high and is projected to stay above target for too long."

"According to Eurostat’s flash estimate, inflation was 10.0% in November, slightly lower than 10.6% recorded in October."

"Decline resulted mainly from lower energy price inflation."

"Food price inflation and underlying price pressures across the economy have strengthened and will persist for some time."

"Amid exceptional uncertainty, Eurosystem staff have significantly revised up their inflation projections."

"They now see average inflation reaching 8.4% in 2022 before decreasing to 6.3% in 2023, with inflation expected to decline markedly over course of year."

"Inflation is then projected to average 3.4% in 2024 and 2.3% in 2025."

"Inflation excluding energy and food is projected to be 3.9% on average in 2022 and to rise to 4.2% in 2023, before falling to 2.8% in 2024 and 2.4% in 2025."

"Euro area economy may contract in current quarter and next quarter, owing to energy crisis, high uncertainty, weakening global economic activity and tighter financing conditions."

"According to latest Eurosystem staff projections, a recession would be relatively short-lived and shallow."

"Growth is nonetheless expected to be subdued next year and has been revised down significantly compared with previous projections."

"Beyond near term, growth is projected to recover as current headwinds fade."

"Eurosystem staff projections now see economy growing by 3.4% in 2022, 0.5% in 2023, 1.9% in 2024 and 1.8% in 2025."

EUR/USD is trading soft on the session. The pair may correct recent gains, economists at Scotiabank report.

The move higher may be running out of momentum

“With gains having largely met our short-term technical target (we have been anticipating a move up to the 1.0650/1.0750 range), some consolidation is possible, if not likely in the next few weeks.”

“Daily oscillator signals are bullish, but stretched, and the move higher may be running out of momentum.”

“We see short-term support at 1.0575/00.” 

“Corrective risks may extend to the 1.0250/1.0450 range into Q1.”

Synchronised rate hikes and a stronger US Dollar have weighed on Gold in 2022. But the tide is turning in favour of the yellow metal, in the opinion of economists at ANZ Bank.

Interest rate environment is likely to remain supportive into 2024

“The average performance of Gold in the past five rate hike cycles has been 12-15%, so we can expect that rate of return in 2023, which suggests a target price of $1,900 towards the end of the year.”

“The interest rate environment is likely to remain supportive into 2024, as the Fed starts cutting interest ratesonce inflation is managed within its target range.”

“We also expect a sustained decline in US 10y Real Yields, which is likely to stabilise in H2 2023.” 

“We believe investors will start positioning themselves in H2 2023 against growing recession risks. An economic ‘hard landing’ would be an upside risk for Gold prices, which could bring forward the rate cut in late 2023.”

• GBP/JPY hits a fresh daily low after the BoE announced its decision, though lacks follow-through.
• The 7-2 MPC vote distribution in favour of the rate hike undermines the GBP and exerts pressure.
• A solid USD recovery weighs on the JPY and helps limit any meaningful downside for the cross.
• The risk-off impulse could benefit the safe-haven JPY and cap any meaningful gains for the cross.

The GBP/JPY cross edges lower during the mid-European session and refreshes daily low after the Bank of England announced its policy decision. Spot prices, however, recover a few pips in the last hour and now seem to have stabilized in neutral territory, just above the 168.00 mark.

The UK central bank delivered a widely anticipated 50 bps rate hike at the conclusion of its December policy meeting. The British Pound, however, edges lower in reaction to a three-way MPC vote split, showing that two members voted to keep rates unchanged and one member voted to raise rates by 75 bps. The downside for the GBP/JPY cross, however, remains cushioned in the absence of any major surprises from the BoE.

The Japanese Yen, on the other hand, is weighed down by a solid US Dollar recovery from a six-month low touched earlier this Thursday. This is seen as another factor lending some support to the GBP/JPY cross. That said, the risk-off impulse - as depicted by a sharp intraday slide in the equity markets - seems to benefit the JPY's relatively safe-haven status and should keep a lid on any meaningful upside for the cross.

Furthermore, a bleak outlook for the UK economy might hold back traders from placing aggressive bullish bets around the Sterling Pound. The aforementioned fundamental factors make it prudent to wait for a strong follow-through buying before positioning for any further appreciating move for the GBP/JPY cross.

Technical levels to watch

Christine Lagarde, President of the European Central Bank (ECB), is scheduled to deliver her remarks on the monetary policy outlook at a press conference at 13:45 GMT.

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

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

About ECB's press conference

Following the ECB´s economic policy decision, the ECB President gives a press conference regarding monetary policy. Her comments may influence the volatility of EUR and determine a short-term positive or negative trend. Her hawkish view is considered as positive, or bullish for the EUR, whereas her dovish view is considered as negative, or bearish.

• Gold price extended its daily slide and dropped below $1,780.
• The risk-averse market environment helps the US Dollar continue to gather strength.
• 10-year US Treasury bond yield stays below 3.5%.

Gold price came under renewed bearish pressure and dropped below $1,780 heading into the American session on Thursday, As of writing, XAU/USD was trading at $1,777.50, losing 1.7% on a daily basis.

US Dollar rises on risk aversion

The decisive recovery witnessed in the US Dollar weighs heavily on XAU/USD in the second half of the week. Although the Federal Reserve's hawkish dot plot initially failed to provide a boost to the US Dollar, the currency seems to be benefiting from safe-haven flows on Thursday.

Growing fears over a global economic slowdown following the disappointing macroeconomic data releases from China and renewed concerns about the Fed's tight policy outlook hurting the US economic activity force investors to seek refuge. Reflecting the risk-averse market atmosphere, US stock index futures are down between 0.75% and 1.25% on the day. A sharp decline in Wall Street's main indexes is likely to help the US Dollar preserve its strength in the American session.

In the meantime, the benchmark 10-year US Treasury bond yield stays below the key 3.5% mark, possibly helping XAU/USD limit its losses for the time being.

Later in the session, November Retail Sales and Industrial Production data will be featured in the US economic docket alongside the weekly Initial Jobless Claims figures.

Market participants will also pay close attention to European Central Bank's (ECB) policy announcements and ECB President Christine Lagarde's press conference.

Technical levels to watch for

Neither the dots nor Fed Chair Powell’s press conference had much of an effect on the USD exchange rates. The market doesn’t believe Powell and the FOMC. But if the Fed is correct, the US Dollar could strengthen substantially, economists at Commerzbank report. 

Powell unable to convince the market

“The market doesn’t believe Powell and the FOMC. It doesn’t believe that the Fed’s key rate really will be that high by year-end 2023. In the interim 5% are consistent with the market view. But for year-end 2023 the market only expects 4.35%. Powell’s words did not change that one bit. I don’t remember seeing the market ignore the message of a Fed chair so clearly.”

“Inflation swaps are pricing in CPI inflation of 2.5% for the 1-year horizon, whereas the FOMC expects PCE inflation rates of 3.1% for about the same period of time. Converted into CPI that would correspond to approx. 3.7%. So once again the market’s and the FOMC’s economic projections differ widely and as a result, so does the rate outlook.”

“At some point, the development of US inflation will show who was correct. If it is the Fed USD is likely to appreciate significantly. If it is the market a weak Dollar is justified. Probably even slightly weaker than at present. Because there is one USD-bullish risk less at that stage. Because our economists concur more with the market view, I obviously expect a moderately weaker greenback for 2023.”

• GBP/USD comes under some selling pressure on Thursday, though shows resilience below 1.2300.
• A solid USD recovery from six-month low triggers the initial leg of the intraday corrective decline.
• A 7-2 BoE MPC vote split for a 50 bps rate hike fails to impress bulls or lend any support to the pair.

The GBP/USD pair remains heavily offered through the mid-European session and refreshes the daily low after the Bank of England announced its policy decision on Thursday. Spot prices, however, show some resilience below the 1.2300 mark and quickly recover around 30 pips in the last hour.

As was widely anticipated, the UK central bank raised the interst rate by 50 bps at the end of the December policy meeting. This marked the ninth straight rate hike, though was relatively smaller than November's supersized 75 bps increase amid signs of easing inflationary pressure. Furthermore, a dovish MPC vote spilt, with two members favouring a no change in policy rates, weighs on the British Pound.

The US Dollar, on the other hand, stages a goodish intraday bounce from a six-month low touched earlier this Thursday amid a hawkish assessment of the Federal Reserve's decision on Wednesday. Apart from this, the risk-off impulse - as depicted by a sharp fall in the equity markets - further benefits the safe-haven Greenback and contributes to the offered tone surrounding the GBP/USD pair.

Traders now look to the US economic docket - featuring the release of monthly Retail Sales, the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and Industrial Production data. This, along with the post-ECB volatility and the broader risk sentiment, will influence the USD price dynamics and produce short-term trading opportunities around the GBP/USD pair.

Technical levels to watch

Following its December policy meeting, the Bank of England (BoE) announced that it raised the policy rate by 50 basis points (bps) to 3.5% as expected.

The vote was 6-3 in favor of the rate decision. Two members, Tenreyro and Dhingra, voted to keep rates at 3% while Mann voted to raise it to 3.75%.

Follow our live coverage of the BoE policy announcements and the market reaction.

Market reaction

With the initial market reaction, Pound Sterling came under renewed selling pressure. As f writing, GBP/USD was trading at 1.2315, where it was down 0.85% on a daily basis.

Key takeaways from policy statement

"Majority of MPC judges further increases in bank rate may be required."

"MPC briefed on plans for Q1 2023 gilt sales, BOE will publish plan at 1800 GMT on Friday."

"MPC content with pace of corporate bond unwind, which if sustained will permit earlier unwind than first anticipated."

"Government autumn statement measures lower BOE's Q2 2023 CPI forecast by about 0.75 percentage points."

"Q4 GDP seen -0.1% QoQ (November forecast: -0.3% QoQ)."

"Latest MPC projections suggest CPI inflation has reached its peak, expected to remain very high in coming months."

"Autumn statement measures have a small impact on CPI at one-, two- and three-year horizons."

"BOE's Mann: 75 bp rate rise needed to lean against inflation psychology, price and wage pressure greater than in nov forecst."

"BOE's Tenreyro and Dhingra: 3% bank rate more than sufficient to bring CPI back to target, no strong case to tighten on risk management grounds."

"Labour market remains tight, evidence of inflationary pressures that justified a further forceful BOE response."

GBP/USD touched its highest level since early June near 1.2450 on Wednesday but lost its traction. Economists at Société Générale highlight next resistance levels for the pair.

200DMA at 1.2100/1.2050 is an important support

“Daily MACD has turned flattish highlighting receding upward momentum however a meaningful pullback remains elusive.”

“The 200DMA at 1.2100/1.2050 is an important support; in case this gets violated there could be a risk of a short-term down move.” 

“Beyond 1.2450, next potential hurdles are located at the upper limit of a multi month channel at 1.2610 and 1.2750.”

The Dollar halted its downtrend but failed to rebound sharply after the FOMC.  The US Dollar Index (DXY) could move back to 105 if it stabilises around 103.50-104.00 in the next two days, economists at ING report.

Fed halts Dollar downtrend

“The modest bearish flattening of the US yield curve after the announcement should now create a less unfavourable environment for the Dollar, and we do see room for some support coming the greenback’s way.”

“There are – however – the usual short-term risks to consider. Thin liquidity and seasonal trends may argue against a sustained Dollar rebound at this stage, and we cannot exclude a hawkish surprise by the European Central Bank today.”

“A stabilisation in DXY around 103.50-104.00 in the next two sessions may be a signal the Fed has indeed curbed the Dollar's bearish momentum and may allow a recovery to 105+ into Christmas.”

Economists at TD Securities discuss the European Central Bank (ECB) interest rate decision and its implications for the EUR/USD pair.

Hawkish (30%): 75 bps Hike & Few QT Details

“The hawks win on the rates side, but don't make as much headway on QT as hoped, with few concrete guidelines released other than a commitment to start the programme in the coming months. EUR/USD +0.75%.”

Base Case (50%): 50 bps & QT Framework

“The Governing Council shifts down to a 50bps hike, but it's a compromise slowing in the pace of hikes, with a shift in focus toward QT to placate the hawks. Conditions around the date and pace of QT are likely to remain vague, with the earliest start likely to be in March. EUR/USD +0.15%.”

Dovish (20%): 50 bps & Few QT Details

“The Governing Council shifts down to a 50bps hike, but the doves largely rule the day. QT is outlined in only the most basic terms, leaving no guidance over pace and timing of balance sheet rundown. EUR/USD -0.50%.”

See – ECB Preview: Forecasts from 16 major banks, a hawkish surprise?

ECB monetary policy decision – Overview

The European Central Bank (ECB) is scheduled to announce its monetary policy decision this Thursday at 13:15 GMT, which will be followed by the post-meeting press conference at 13:45 GMT. The minutes of the ECB’s October meeting backed the case for a dovish shift. That said, the recent comments by ECB officials cast doubt on whether the central bank will actually slow its rate-hiking cycle. The current market pricing, meanwhile, assigns a circa 87% chance of a 50 bps lift-off at the end of the December policy meeting. The ECB is also expected to announce quantitative tightening, though the details may only come later, probably at the February meeting. Apart from this, the new economic projections and ECB President Christine Lagarde's comments will be watched closely for clues about the central bank's view on the future policy path.

Analysts at Commerzbank offer a brief preview of the event and write: “The ECB is unlikely to decide on another jumbo rate step of 75 bps but instead opt for 50 bps. This is supported by quite a few statements by members of the ECB Council. The ECB's updated inflation projections also argue for a slower pace of rate hikes. Although it is likely to adjust its short-term projection up again, we expect the projections for headline inflation to remain virtually unchanged in the medium term; the 2025 forecast published for the first time is even likely to be below 2%. The ECB is unlikely to raise its inflation projections because future prices for natural gas (which the bank uses as a technical assumption) have fallen massively since the September projection.”

How could it affect EUR/USD?

Ahead of the key central bank event risk, a goodish US Dollar recovery from a multi-month low prompts some selling around the EUR/USD pair. Given that a 50 bps rate hike is already priced in, markets could react negatively to the expected move. Conversely, a surprise 75 bps rate hike and a hawkish ECB commentary should be enough to provide a strong boost to the shared currency. Nevertheless, the announcement should infuse some volatility around the Euro crosses.

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and writes: “EUR/USD dropped below the mid-point of the ascending regression channel and the Relative Strength ındex (RSI) indicator on the four-hour chart declined toward 50, pointing to a loss of bullish momentum.”

Eren also outlined important technical levels to trade the EURUSD pair: “On the downside, 1.0600 (20-period Simple Moving Average (SMA) on the four-hour chart, psychological level) aligns as interim support ahead of 1.0580 (lower limit of the ascending channel). In case EUR/USD drops below the latter and fails to reclaim it, it could extend its slide toward 1.0550 (50-period SMA) and 1.0500 (psychological level).”

“1.0630 (mid-point of the ascending channel) forms initial resistance. If EUR/USD manages to stabilize above that level, it could target 1.0660 (upper limit of the ascending channel) and 1.0700 (psychological level, static level),” Eren adds further.

Key Notes

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

   •  EUR/USD Forecast: Euro to target fresh multi-month highs on a hawkish ECB

   •  EUR/USD: Only a 75 bps hike by ECB and hawkish surprise from QT discussions will drive a large reaction – ING

About the ECB interest rate decision

ECB Interest Rate Decision is announced by the European Central Bank. Usually, if the ECB is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the EUR. Likewise, if the ECB has a dovish view on the European economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.

BoE Monetary Policy Decision – Overview

The Bank of England (BoE) is scheduled to announce its monetary policy decision this Thursday at 12:00 GMT. The UK central bank is widely expected to raise the interst rate for the ninth consecutive meeting, though the Monetary Policy Committee (MPC) is likely to remain divided over the magnitude of the rate increase. It is worth recalling that two of the nine MPC members were in favour of a smaller increment in November. Hence, the focus will remain on the accompanying monetary policy statement and the MPC vote distribution in the absence of the post-meeting press conference.

Analysts at Deutsche Bank offer a brief preview of the key central bank event and write: “We expect the BoE to hike by 50 bps after last month's 75 bps increase, the only one in the current hiking cycle so far, taking the Bank Rate to 3.5%. We also expect the decision to be accompanied by dovish messaging amidst concerns over potential over-tightening. The risks of sticky inflation and wage pressures, among other factors, are expected to lead to a 4.5% terminal rate by May of next year (50 bps in February and 25 bps in March and May). But growth concerns pose downside risks to the expectations.”

How could it affect GBP/USD?

Against the backdrop of signs of easing inflation pressures, the looming recession risk might force the BoE to adopt a gradual approach towards raising interest rates. This, in turn, suggests that the markets are unlikely to react much to the expected 50 bps rate hike. Conversely, a dovish tilt, or a three-way vote split, could weigh heavily on the British Pound. Apart from this, the ongoing US Dollar recovery from a multi-month low should pave the way for some meaningful corrective pullback for the GBP/USD pair.

Key Notes

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

  •  BoE Preview: Forecasts from 13 major banks, a fairly straightforward 50 bps hike

  •  BoE: Three scenarios and the implications for GBP/USD – TDS

About the BoE interest rate decision

The BoE Interest Rate Decision is announced by the Bank of England. If the BoE is hawkish about the inflationary outlook of the economy and raises the interest rates it will be positive, or bullish, for the GBP. Likewise, if the BoE has a dovish view on the UK economy and keeps the ongoing interest rate, or cuts the interest rate it will be seen as negative, or bearish.

The Bank of England (BoE) is really facing a tough task. Thus, economists at Commerzbank expect the EUR/GBP pair to advance nicely.

Is the BoE facing a tougher time than the ECB?

“This loss in confidence is difficult to regain. A 50 bps rate hike is hardly going to be sufficient to regain it. That is generally expected. 75 bps would constitute a completely different message to the market, but due to the foreseeable economic misery in the UK the BoE is likely to be reluctant to implement that.”

“The BoE t will have to achieve a balancing act between rate hikes and the risk of a more prolonged lean period for the economy while at the same time signalling to the market that it is taking the fight against inflation seriously. In the end, inflation also translates into a loss in prosperity for society.”

“The rise in GBP/USD over the past weeks is due to the weakening of the Dollar. So far Sterling has stood up against the Euro. If it becomes obvious for the market though that the BoE is facing a tougher task in manoeuvring between inflation and recession than the ECB – which is what it looks like – meaning that the ECB is finding it easier to continue its rate cycle, I expect to see rising EUR/GBP levels.”

EUR/USD came within a touching distance of 1.0700 late Wednesday. Economists at ING analyze how the pair could react to the European Central Bank (ECB) policy announcements.

ECB may surprise on hawkish side

“Markets are currently pricing in 54 bps of tightening, but are probably expecting some hawkish signals on quantitative tightening and in the new staff projections. That said, there is still little evidence that the ECB policy is a key driver of EUR/USD. We, therefore, think only a 75 bps hike or the explicit announcement that QT will start at a specific date in early 2023 will be able to drive a large EUR reaction.” 

“Our base-case scenario is that EUR/USD ends today’s sessions around the 1.0600-1.0650 area today. This could signal that the Dollar’s bear trend may have indeed halted for now, and favour a return to 1.0500 in the near term.”

See – ECB Preview: Forecasts from 16 major banks, a hawkish surprise?

Economists at TD Securities discuss the Bank of England interest rate decision and its implications for the GBP/USD pair.

Hawkish (15%): No Change to Guidance

“The expected doves dissent, while Mann votes for 75 bps. Forward guidance remains unchanged and the MPC drops the reference to market pricing being too high. GBP/USD +0.25%.”

Base Case (60%): Slight Tweaks to Guidance

“Language softens on the margin to reflect the downshift to a 50 bps hike, but nothing in the Summary suggests the next meeting will see a further slowdown in the pace of hikes, with 50 bps still on the table for February. A tight labour market is still the focus, despite soft growth numbers. The MPC retains the clause about market pricing being too aggressive. GBP/USD -0.15%.”

Dovish (25%): More Dovish Dissents

“More than two MPC members vote for 0 or 25bps hikes, signalling that the MPC is ready to downshift its pace of hikes further. This would suggest a terminal rate of at most 4%, with hikes ending by March. GBP/USD -1.00%.”

Following the Swiss National Bank's (SNB) decision to raise the policy rate by 50 basis points to 1%, Chairman Thomas Jordan said that they are ready to be active in forex markets.

Additional takeaways

"Not specific on a terminal rate for interest rates."

"Longer end of the inflation forecast is slightly going upwards, indicates current monetary policy doesn't guarantee price stability is ensured."

"Interest rate is our key instrument."

"We are taking exchange rate vs all currencies into account."

"Forex intervention is a secondary tool."

"We have no target for forex sales."

Market reaction

USD/CHF edged slightly lower from the daily highs following these comments and was last seen trading at 0.9285, where it was still up 0.45% on the day.

• EUR/USD retreats from a multi-month high touched on Wednesday amid a goodish USD rebound.
• A hawkish assessment of the FOMC decision and the risk-off impulse benefit the safe-haven buck.
• The downside seems limited as traders keenly await the latest monetary policy update by the ECB.

The EUR/USD pair comes under heavy selling pressure on Thursday and snaps a two-day winning streak to the 1.0700 neighbourhood, or a six-month high touched the precious day. The pair extends its steady intraday descent through the first half of the European session and drops to a fresh daily low, around the 1.0600 mark in the last hour.

A combination of factors assists the US Dollar to stage a goodish recovery from its lowest level since mid-June, which, in turn, is seen exerting downward pressure on the EUR/USD pair. The US central bank on Wednesday signalled that it will continue to raise rates. Moreover, policymakers see the terminal rate rising to 5.1%, an additional 75 bps increases in borrowing costs by the end of 2023. This turns out to be a more hawkish communication than markets expected and offers some support to the greenback. Apart from this, a fresh wave of the global risk-aversion trade - as depicted by a sharp fall in the equity markets - provides an additional boost to the safe-haven buck.

Investors, however, expect the US central bank to pivot from an ultra-hawkish stance to something more neutral. This, in turn, keeps the US Treasury bond yields depressed, which might hold back the USD bulls from placing aggressive bets and lend some support to the EUR/USD pair. Traders might also prefer to wait on the sidelines ahead of the European Central Bank (ECB) decision, scheduled to be announced later this Thursday. The ECB is set to raise interest rates for the fourth time in a row, albeit at a slower pace than at the last two meetings. The current market pricing indicates a greater chance of a 50 bps lift-off amid signs of easing inflationary pressures.

Furthermore, investors will scrutinize ECB President Christine Lagarde's remarks at the post-meeting press conference, which will influence the shared currency. Apart from this, the US macro data - Retail Sales, the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims data and Industrial Production data - should provide some impetus to the EUR/USD pair. Nevertheless, it will still be prudent to wait for strong follow-through selling before confirming that spot prices have formed a near-term top and positioning for any meaningful corrective pullback.

Technical levels to watch

EUR/USD is trading above 1.06. Economists at Commerzbank expect the shared currency to gain further ground.

Lagarde may lecture us long and hard about real economic uncertainties

“Some observers are already writing that the ECB is more hawkish than the Fed. However, that would be a condition we haven't seen for a long time. In my perception, not since the summer of 2011. We may not be there yet.” 

“Lagarde may lecture us long and hard about real economic uncertainties, etc., implicitly adding distinctly dovish tones to her message. But at least it's going in the direction. If the Fed ends its rate hikes earlier than the ECB and when (later) the ECB will remain calm while the Fed prepares the markets for rate cuts, we'll have reached that point. Not yet, but the probability that it will be reached in the foreseeable future is increasing. This justifies further EUR strength. If not today, then later.”

Markets expect 50 bps by the Bank of England. Economists at ING analyze how could the BoE’s policy announcement affect the EUR/GBP and GBP/USD pairs. 

No fireworks by the BoE

“The swap market is fully pricing in a 50 bps hike, and we doubt the reaction in Sterling will be meaningful.” 

“EUR/GBP may be more impacted by potential surprises from the ECB, while some stabilisation or modest recovery by the Dollar may cap GBP/USD and prevent 1.2500 from being tested before year-end.”

“Heading into the new year, we still see a preponderance of downside risks for GBP/USD as hawkish central banks (above all, the Fed) hiking into a recession point to the underperformance of highly risk-sensitive currencies like the Pound.”

See – BoE Preview: Forecasts from 13 major banks, a fairly straightforward 50 bps hike

• USD/CHF attracts some buying on Thursday and snaps a two-day losing streak to a multi-month low.
• A hawkish assessment of the Fed’s decision revives the USD demand and extends support to the pair.
• The CHF weakens after the SNB delivers a 50 bps rate hike and remains supportive of the move up.

The USD/CHF pair stages a goodish intraday recovery from the 0.9220 area on Thursday and snaps a two-day losing streak to an eight month low touched the previous day. The intraday buying picks up pace after the Swiss National Bank (SNB) announced its policy decision and lifts spot prices to the 0.9300 mark during the early part of the European session.

The SNB, as was widely anticipated, hiked interest rates by 50 bps rate hike at the conclusion of its December policy meeting. This marks the third consecutive rate increase in as many meetings, summing up to a total of 175 bps of lift-off in 2022. The Swiss Franc, however, weakened a bit as the central bank reiterated that it will remain active in foreign exchange markets as necessary. This, along with a modest US Dollar rebound, acts as a tailwind for the USD/CHF pair.

A hawkish assessment of the Federal Reserve's decision on Wednesday is seen as a key factor lending some support to the greenback. It is worth mentioning that the US central bank signalled on Wednesday that it will continue to raise rates. Moreover, policymakers see the terminal rate rising to 5.1%, an additional 75 bps increases in borrowing costs by the end of 2023. That said, depressed US Treasury bond yields might hold back the USD bulls from placing aggressive bets. Apart from this, the risk-off impulse could underpin the CHF and keep a lid on any meaningful appreciating move for the USD/CHF pair.

Investors now look to the US economic docket - featuring Retail Sales, the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims data and Industrial Production data. This, along with the US bond yields, will drive the USD demand. Apart from this, traders will further take cues from the broader market risk sentiment to grab short-term opportunities around the USD/CHF pair..

Technical levels to watch

The Swiss National Bank (SNB) raised its benchmark sight deposit interest rate by 50 basis points (bps) to 1.0% from 0.50% previous, as widely expected.

At the December policy meeting, the SNB hiked rates for the third consecutive meeting, summing up to a total of 175 bps of rate increases this year.

Summary of the statement

Market reaction 

In an initial reaction to the SNB rate hike decision, the USD/CHF pair jumped to fresh daily highs near 0.9300, up 0.52% on the day.

About SNB Rate Decision

The Swiss National Bank conducts the country’s monetary policy as an independent central bank. It is obliged by the Constitution and by statute to act in accordance with the interests of the country as a whole. Its primary goal is to ensure price stability, while taking due account of economic developments. In so doing, it creates an appropriate environment for economic growth.

The European Central Bank (ECB) is set to announce its decision on monetary policy on Thursday, December 15 at 13:15 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of 16 major banks.

Markets expect the ECB to moderate its pace of rate hikes to 50 basis points (bps) after two consecutive 75 bps hikes. 

Nordea

“We think the ECB will decide to raise rates by 75 bps for the third time in a row, in a nod to the more hawkish voices in the Governing Council, postpone the decision on the starting date for reducing the huge bond holdings, or set the date for late Q2 or early Q3 2023, in a nod to the more dovish voices in the Governing Council, set the broad guidelines for the reduction in bond holdings, or quantitative tightening (QT), including setting cap values for the amount of bonds allowed to mature each month, with the monthly cap initially set at EUR10 to 20bn per month, signal that while the central bank remains in a data-dependent mode, further hikes look likely and their magnitude is likely to moderate going forward.”

Rabobank

“A 50 bps rate hike seems more likely at this juncture, although we would not fully discount the possibility of a ‘surprise’ 75. We maintain our forecast of a 3% terminal rate. As such, we have extended our policy expectations with a final 25 bps hike in April. We could see quantitative tightening run at a monthly pace of EUR25-30bn, and we have pencilled in a Q2 start date.”

Danske Bank

“We expect the ECB to deliver a 50 bps rate hike with a hawkish twist. Specifically, we expect the ECB to present key principles of the end to reinvestments under the APP process (in which reinvestments will almost come to a full stop) and an open-ended wording for more rate hikes to come. This will be a compromise, which we believe will be palatable to both hawks and doves. We expect the hawks to use the easing of financial conditions in the past weeks to argue for a more aggressive calibration, as the textbook would say that the current ECB stance is not particularly restrictive. The European economy fared surprisingly well in Q3, but we expect the ECB to have a mild recession in its baseline staff projections. For inflation, we expect the new staff projections to only point to headline inflation at the 2% target in 2025. We currently expect ECB rate hikes into Q1 next year, with the deposit rate peaking at 2.75%, but with risks skewed for more hikes.”

SocGen

“We expect that the hawks will settle for hiking rates by a reduced amount of 50 bps, but 75 bps remains a possibility. We also look for clearer language that the policy stance will need to become restrictive, as the (core) inflation forecasts are again revised up and the risk to inflation remains to the upside. For the policy stance to be restrictive, we believe the balance sheet will be reduced by more than what the TLTRO repayments can achieve early next year. Still, the ECB may need some more time to steer clear of high issuance at the start of next year and to assess the TLTRO repayments, before launching a timid QT, hoping for as little market attention as possible. Such a cautious approach constitutes an upside risk to the terminal rate and/or inflation. It will also be important to understand where the ECB sees the balance sheet in the medium term and if there are views that liquidity needs now are higher than in the past.” 

Commerzbank

“The ECB is unlikely to decide on another jumbo rate step of 75 bps but instead opt for 50 bps. This is supported by quite a few statements by members of the ECB Council. The ECB's updated inflation projections also argue for a slower pace of rate hikes. Although it is likely to adjust its short-term projection up again, we expect the projections for headline inflation to remain virtually unchanged in the medium term; the 2025 forecast published for the first time is even likely to be below 2%. The ECB is unlikely to raise its inflation projections because future prices for natural gas (which the bank uses as a technical assumption) have fallen massively since the September projection.”

TDS

“We expect 50 bps hikes across all key interest rates, taking the depo rate to 2.00% at this meeting. A third consecutive 75 bps hike, however, can't be completely ruled out, though we put the odds close to 25% at this stage. Broad QT guidance is likely to be announced as the ECB starts to shift strategy. Our broad expectation is that QT will occur at a pace of roughly EUR150 bn/year, and start sometime by the middle of 2023.”

ING

“We think that the risk of a 75 bps rate hike meeting has clearly increased. Next to the rate hike, the ECB is likely to set out some general principles of how it plans to reduce its bond holdings. We expect the ECB to eventually reduce its reinvestments of bond purchases but to refrain from outright selling of bonds. In any case, next week’s ECB meeting could send us back in time as we witness policymakers still trying to break a wave – a wave of inflation and with it, a wave of speculation around a pivot in monetary policy. What the Bank won't break, is the wave of jumbo rate hikes.”

ANZ

“The ECB’s focus on getting inflation back on a sustainable track towards target will require restrictive policy rates. Given the economic risks that restrictive policy rates bring, we anticipate the central bank will scale back the magnitude of rate rises and favour a 50 bps rather than 75 bps hike this month. For all aspects of monetary policy to be consistent, we expect the ECB will also outline its QT strategy. We think this will be passive and centred on reducing the Eurosystem’s Asset Purchase Programme (APP) rather than reducing the size of the Pandemic Emergency Purchase Programme (PEPP).”

Deutsche Bank

“We are calling for a 50 bps hike and a hawkish communications strategy but do not rule out one more 75 bps hike before the downshift happens. They expect the decision and messaging to be in line with their expectations of a 3% terminal rate, with no rate cuts before the middle of 2024 and c.20% balance sheet contraction by the end of next year, mainly via TLTRO repayments.”

BMO

“It is a tough call, but we see the ECB raising the three key interest rates by 50 bps, a step down from the two consecutive 75 bps rate hikes but bringing the refi rate to 2.50%, the marginal lending facility to 2.75%, and the deposit facility to 2.00%, all 14-year highs. The discussion, however, should not be described as one between hawks and doves; rather, it is between those who are hawkish and those who are even more hawkish. The entire Governing Council agrees that near-record high inflation is their primary problem, but they disagree on how aggressive rate hikes need to be. So, expect hawkish commentary to accompany a 50 bps hike, which will be made at the same time as the EU energy ministers summit.”

Citibank

“We expect the ECB to hike rates by 50 bps, taking the deposit facility rate to 2.00% with the accompanying message that rate hikes will continue till inflation dynamics have convincingly turned. We also expect a decision in principle to start QT in H1’23. Expectations remain for a start in April following a decision at the March meeting, and at a slow pace. We also expect the ECB to follow other forecasters and revise up the HICP inflation profile materially, at least in the near-term.”

Wells Fargo

“For December, we anticipate a step down in the pace of rate hikes, and forecast the ECB to raise its Deposit Rate by 50 bps to 2.00%. The other topic that will likely be discussed is the reduction in the ECB's balance sheet size, or quantitative tightening. Here, we expect ECB policymakers to make an ‘in principle’ decision to proceed with quantitative tightening early next year; however, confirmation and implementation of that decision may not occur until March 2023. Specifically, from March next year we expect the ECB to allow for a passive reduction in holdings under the Asset Purchase Program by allowing bonds to roll off as they mature.”

MUFG

“We expect a 50 bps hike to 2.00% with guidance consistent with further rates hikes in Q1 next year. But that guidance should also provide some hints on the potential for slowing the pace further. We expect two 25 bps rate hikes in Q1 taking the key policy rate to 2.50% – the level at which we expect the ECB to pause.” 

Swedbank

“The Governing Council will increase all base interest rates by 50 bps this Thursday, this will be followed by two more hikes of 25 bps in February and March. Recently we have seen more pronounced divisions of opinion between the hawks and the doves at the ECB. We think that interest rates will peak at a lower level than the current market consensus. However, to appease the hawks the Governing Council is likely to start QT as soon as next month – maturing bonds will be rolled off, but with a cap of EUR20 billion per month. Simultaneous QT and interest-rate increases are a dangerous policy mix in a fragile and indebted euro area, which isn’t out of the energy crisis yet. In all likelihood, monetary tightening will prove to be excessive and will lead to the quick reversal at the end of 2023.”

RBC Economics

“We look for a 50 bps hike by the ECB in December, lifting the deposit rate to 2% which we think is close to neutral. We expect rate hikes to continue at a slower pace in the first quarter of 2023 before the ECB hits pause after its March meeting. The central bank is already shrinking its balance sheet through TLTRO redemptions, and we expect it will add to that by beginning to reduce its APP holdings next spring, shortly after its final rate hike. We should get details from the ECB at its upcoming meeting but at this stage expect passive QT by limiting reinvestment rather than outright asset sales.”

OCBC

“We expect the ECB to moderate its pace of rate hike to 50 bps, following two straight 75 bps hikes in September and October, which will bring its deposit facility rate to 2.00%.”

• EUR/GBP struggles to gain any meaningful traction and remains confined in a range.
• Investors prefer to wait on the sidelines ahead of the BoE and ECB policy decisions.
• The lack of any buying suggests that the recent downtrend is still far from being over.

The EUR/GBP cross extends its sideways consolidative price move on Thursday and remains confined in a narrow trading band around the 0.8600 mark through the early European session. Traders seem reluctant to place directional bets and prefer to wait on the sidelines ahead of the central bank event risks.

The Bank of England will announce its policy decision at 12:00 GMT this Thursday. The UK central bank is widely expected to slow the pace of its policy tightening and deliver a relatively smaller 50 bps rate hike amid signs that inflation in the UK is peaking. In fact, the official data released on Wednesday showed that the UK Consumer Price Index (CPI) decelerated to a 10.7% YoY rate in November from 11.1% in the previous month.

Furthermore, worries about a deeper economic downturn might force the BoE to adopt a gradual approach towards raising interest rates. This, in turn, is holding back traders from placing fresh bullish bets around the British Pound and acting as a tailwind for the EUR/GBP cross. The upside, however, remains capped amid the emergence of some selling around the shared currency, led by a modest US Dollar bounce from a multi-month low.

Apart from this, expectations that the European Central Bank will raise its policy rates at a slower pace, by 50 bps, also contribute to keeping a lid on the EUR/GBP cross. From a technical perspective, the recent subdued price action witnessed over the past three weeks or so could be categorized as a bearish consolidation phase. This, along with the pair's inability to attract any buyers, supports prospects for further losses.

Technical levels to watch

The Swiss National Bank (SNB) is announcing monetary policy today at 08:30 GMT. Economists at ING expect a 50 bps increase – which is unlikely to impact the Franc. 

CHF nominal appreciation in the first half of 2023

“The stabilisation in inflation around 3% should allow a downshift to 50 bps after September’s 75 bps rate hike. This should be broadly in line with market expectations, and the impact on the Franc may prove relatively muted.” 

“We continue to forecast CHF nominal appreciation in the first half of next year.”

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

Norges Bank’s rate meeting today might get interesting. In the view of economists at Commerzbank, the Krone could strengthen if the central bank sticks to its current rate path.

Market might consider Norges Bank to be too dovish

“Norges Bank is likely to hike the key rate by 25 bps to then 2.75%, which is priced in by the market. It will be more interesting to see whether Norges Bank will change its rate path or will cancel the second rate step signalled.”

“In my view, it will not have to throw out the baby with the bath water right away and already reject a further rate step in 2023 at this stage. It could simply limit itself to stressing the uncertainty of the outlook. After all uncertainty as regards inflation and the economy remains high for all central banks.”

“The market might have gone too far in its expectation that Norges Bank will sound dovish so I would not be surprised if NOK was to appreciate if Norges Bank were to stick to its rate path for now, while only underlining the weaker outlook for growth.”

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

The Bank of England (BoE) will announce its interest rate decision on Thursday, December 15 at 12:00 GMT, accompanied by the Minutes of the meeting. As we get closer to the release time, here are the expectations forecast by the economists and researchers of 13 major banks.

The central bank is expected to slow down the pace of tightening, having delivered its biggest rate hike in 33 years in November. A 50 basis points (bps) increase to the policy rate is widely anticipated, lifting it from 3.00% to 3.50%. 

TDS

“We look for a 50 bps hike at this meeting, pushing Bank Rate to 3.50%, with a likely 7-2 vote in favour (Tenreyro and Dhingra are likely to vote for smaller 25 bps hikes, or possibly even for no hike at all; there's a risk Mann votes for 75 bps too). From here, we look for another 50 bps hike in February, and a final 25 bps hike in March, taking Bank Rate to a terminal rate of 4.25%. We expect the MPC to then hold Bank Rate at that level for nearly one year, with the first cut coming in early 2024. We expect QT policy to continue on its current trajectory through 2023 and beyond.”

ING

“Despite higher-than-expected inflation in October, we expect the BoE to revert to a 50 bps hike at its December meeting. Gilts are back to pre-budget crisis levels. They should outperform Bunds but not Treasuries. Sterling has recovered strongly but will struggle to make further gains in a challenging investment environment.”

Danske Bank

“We expect the BoE to revert to a more dovish stance and join the club of 50 bps hikes. We still expect the Bank Rate to peak at 3.75% in February 2023. A slightly dovish BoE and a hawkish ECB should send EUR/GBP higher during the day.”

Rabobank

“We expect the BoE to cap off a tumultuous year with a 50 bps rate increase. That would lift the Bank rate to 3.50%. Two MPC members may favour a smaller rise. We see the central bank continuing to raise rates to 4.75% in the first half of 2023, as spot inflation remains high and the labour market continues to be ‘too’ tight. Central bank tightening will deepen and extend the recession that has already started. We forecast a contraction of -1.1% in 2023 and see no growth in 2024.”

SocGen

“We expect an increase of 50 bps, taking Bank Rate to 3.5%.” 

Deutsche Bank

“We expect the BoE to hike by 50 bps after last month's 75 bps increase, the only one in the current hiking cycle so far, taking the Bank Rate to 3.5%. We also expect the decision to be accompanied by dovish messaging amidst concerns over potential over-tightening. The risks of sticky inflation and wage pressures, among other factors, are expected to lead to a 4.5% terminal rate by May of next year (50 bps in February and 25 bps in March and May). But growth concerns pose downside risks to the expectations.”

BMO

“We look for a 50 bps hike, with a nod to another increase at the next meeting in February, when it will be armed with updated economic growth and CPI projections.”

Citibank

“We expect the MPC to decelerate to 50 bps this week, albeit with a four-way split on the vote. Risks are increasingly skewed towards smaller increments through 2H-2023 as MPC moves from urgent tightening to a more continuous period of economic evaluation.”

Wells Fargo

“We expect the BoE to slow the pace of its rate increase and anticipate a 50 bps hike to 3.50%. Indeed, we see only one further 25 bps hike in early 2023, and a peak policy rate of 3.75% for the current cycle.”

Swedbank

“In our view, a 50 bps hike is the most likely option, reaching a policy rate of 3.50%.”

RBC Economics

“We look for the BoE to revert to a 50 bps hike in December and think the central bank will opt for another 25 bps increase in February before hitting pause on its tightening cycle with the Bank Rate at 3.75%.”

OCBC

“We expect the BoE to raise its bank rate by 50 bps, which will bring it to 3.50%.”

MUFG

“We expect the BoE to deliver a smaller 50 bps and continue to signal that ‘further increases in the Bank Rate may be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets’.”

Swiss National Bank (SNB) is likely to join the club of 50 bps hikes. Economists at Commerzbank will be closet watching the press conference to find new information about the exchange rate policy. 

What does the verb "to weaken" mean?

“The SNB is expected to raise its key interest rate by 50 bps to 1%. At least that's what almost all analysts believe. So it makes sense to assume that as well. I can't imagine that the Swiss monetary watchdogs want to surprise the market too much.”

“There is the question of the future interest rate path. The insights gained in this area are likely to be meager. I think the need for information on exchange rate policy is more justified.”

“The only thing we would like to know is how the SNB defines ‘weakening’. Only if this is clearly understood by the market can it judge the credibility of the SNB's policy. If everyone has to guess what exchange rate policy the SNB has promised us, there can be no confidence in this policy. And then, I fear, it will not be very effective.”

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

• USD/CAD regains some positive traction on Thursday, albeit lacks follow-through buying.
• Retreating oil prices undermines the Loonie and lends support amid a modest USD uptick.
• Depressed US bond yields act as a headwind for the USD and cap the upside for the pair.
• Traders now look to US macro data for some impetus amid a flurry of central bank events.

The USD/CAD pair attracts some dip-buying on Thursday and sticks to a mildly positive tone through the early European session. The pair is currently placed around the 1.3565-1.3570 region, up nearly 0.15% for the day, and is supported by a combination of factors.

Crude oil prices edge lower and stall this week's goodish recovery move from the vicinity of the YTD low, which, in turn, undermines the commodity-linked Loonie. Apart from this, a modest US Dollar bounce from its lowest level since mid-June, bolstered by a hawkish assessment of the Fed's policy decision on Wednesday, acts as a tailwind for the USD/CAD pair. The uptick, meanwhile, lacks follow-through buying, warranting caution before positioning for any meaningful appreciating move.

The US central bank on Wednesday signalled that it will continue to raise rates. Moreover, policymakers see the terminal rate rising to 5.1%, an additional 75 bps increases in borrowing costs by the end of 2023. Investors, however, seem convinced that the Fed will soon pivot from an ultra-hawkish stance to something more neutral. This, in turn, keeps the US Treasury bond yields depressed. Apart from this, a positive risk tone might hold back the USD bulls from placing aggressive bets.

Furthermore, an improvement in the outlook for fuel demand should limit the downside for crude oil prices. In fact, the International Energy Agency (IEA) forecast a rebound in oil demand over the next year amid the latest optimism over the easing of strict COVID-19 restrictions in China and signs of easing global inflationary pressures. This, in turn, should continue to lend some support to the Canadian Dollar and contribute to capping gains for the USD/CAD pair, at least for the time being.

Investors now look to the US economic docket - featuring Retail Sales, the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims data and Industrial Production data. This, along with the US bond yields and the broader market risk sentiment, will drive demand for the safe-haven USD and provide some impetus to the USD/CAD pair. Apart from this, traders will take cues from oil price dynamics to grab short-term opportunities around the major.

Technical levels to watch

Here is what you need to know on Thursday, December 15:

Following the highly volatile action witnessed during the American trading hours on Wednesday, markets stay relatively quiet early Thursday with investors gearing up for the Bank of England and the European Central Bank policy announcements. The Swiss National Bank will also unveil its interest rate decision and the US economic docket will feature Retail Sales and Industrial Production data for November alongside the weekly Initial Jobless Claims and the NY Fed's Empire State Manufacturing Survey.

As expected, the Federal Reserve hiked its policy rate by 50 basis points to the range of 4.25-4.5% following its December policy meeting. The revised Summary of Economic Projections (SEP) showed that the median terminal rate projection rose to 5.1% from 4.6% in September's SEP. Although the initial market reaction to the hawkish dot plot provided a boost to the US Dollar, the currency lost its strength during FOMC Chairman Jerome Powell's press conference. Powell said no one knew if the US economy would tilt into a recession next year or not and added that they could revise the peak rate projection lower if they continued to see soft inflation data. The US Dollar Index (DXY) fell to its weakest level in six months at 103.44 late Wednesday and the 10-year US Treasury bond yield retreated below 3.5%. The risk-averse market environment helps the US Dollar stay resilient against its rivals in the European session on Thursday with the DXY clinging to modest recovery gains slightly below 104.00.

Earlier in the day, the data from China showed that Retail Sales contracted at an annual rate of 5.9% in November, missing the market expectation for a decrease of 3.6%. Additionally, Industrial Production expanded by 2.2% in the same period, compared to analysts' estimate of +3.6%:

Australian Bureau of Statistics announced on Thursday that the Unemployment Rate stayed unchanged at 3.4% in November with the Employment Changed coming in at +64K. Nevertheless, AUD/USD struggled to capitalize on the upbeat data and declined toward 0.6800, pressured by the risk-averse market environment and dismal macroeconomic figures from China.

Similarly, NZD/USD stays on the back foot and trades in negative territory below 0.6450. The data from New Zealand revealed that the Gross Domestic Product expanded at an annual rate of 6.4% in the third quarter, beating analysts' projections of 5.5%.

EUR/USD came within a touching distance of 1.0700 late Wednesday before retreating toward 1.0650 on Thursday. The ECB is widely expected to raise its policy rate by 50 bps. Hence, investors will pay close attention to revised quarterly projections and President Christine Lagarde's comments on QT and the policy outlook. 

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

GBP/USD touched its highest level since early June near 1.2450 on Wednesday but lost its traction. As market participants gear up for the BOE rate announcements, the pair trades in negative territory slightly below 1.2400.

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

USD/JPY struggled to make a decisive move in either direction on Wednesday and closed the day flat. The pair clings to modest daily gains above 135.70 in the European morning.

USD/CHF slumped to its lowest level since late March at 0.9216 late Wednesday but managed to stage a rebound. The pair holds above 0.9250 so far on Thursday. The SNB is expected to raise the policy rate by 50 bps to 1% but some experts think that the bank could opt for a 75 bps hike instead.

Bitcoin rose to its highest level in over a month near $18,400 on Wednesday but erased its daily gains before closing flat below $18,000. BTC/USD edges lower early Thursday and trades near $17,700. Ethereum lost nearly 1% on Wednesday and is already down more than 1% on Thursday, trading slightly below $1,300.

• Gold price bounces off intraday low as traders await key central bank announcements.
• US Dollar rebound teases XAU/USD bears but cautious mood restricts movements.
• Lack of surprises from Fed initially weighed on US Dollar before the recession woes triggered USD rebound.

Gold price (XAU/USD) recovers from the intraday low as it picks up bids to $1,795 heading into Thursday’s European session. The metal’s latest rebound could be linked to the technical correction, as well as the market’s cautious mood ahead of the multiple central bank announcements.

The metal dropped in the last two days as the US Federal Reserve (Fed) showed readiness to keep the interest rate high while announcing the 50 basis points (bps) rate hike, as expected. Also likely to have weighed the XAU/USD price could be the downbeat Industrial Production and Retail Sales data from China, one of the key customers of Gold.

It should be noted, however, that the recent anxiety ahead of the monetary policy decisions from the Swiss National Bank (SNB), European Central Bank (ECB) and the Bank of England (BOE) seemed to have triggered the market’s consolidation. Additionally important is the US Retail Sales for November, expected -0.1% MoM versus 1.3% prior.

Amid these plays, the US 10-year Treasury bond yields probe a two-day downtrend near 3.50% while the two-year US bond yields also extend recovery from the monthly low while printing the first daily positive in three near 4.25%. Also portraying the lackluster markets is the sluggish S&P 500 Futures and mixed performance of the Asia-Pacific shares.

It’s worth mentioning that the US Dollar Index (DXY) prints the first daily gains in three while bouncing off the six-month low, which in turn challenges the Gold buyers.

To sum up, the Gold price remains pressured ahead of the key central bank announcements despite the latest recovery moves.

Technical analysis

Gold price pares intraday losses while bouncing off the 200-Hourly Moving Average (HMA), currently around $1,790. The recovery moves also take clues from the oversold RSI conditions to tease the buyers.

However, bearish MACD signals and multiple hurdles towards the north challenge the XAU/USD bulls. Among them, a two-week-old horizontal resistance area near $1,805 gains the attention of intraday buyers.

Following that, a downward-sloping resistance line from Tuesday, near $1,810, could act as an additional upside filter to challenge the Gold buyers.

On the flip side, an ascending trend line from November 30 adds strength to the $1,790 support, by joining the 200-HMA.

In a case where the Gold price remains bearish past $1,790, the resulting downturn could aim for the weekly low near $1,777 and then to the monthly trough surrounding $1,765.

Overall, the Gold price remains bullish unless breaking $1,790 support confluence.

Gold price: Hourly chart

Trend: Recovery expected

Gold price drops from $1,800. Will XAU/USD defend the 200-Daily Moving Average? FXStreet’s Dhwani Mehta analyzes the pair’s technical outlook.

Gold sellers in control

 “The bearish wedge pattern remains in play, keeping Gold sellers in control, as the price closes in on the critical 200DMA at $1,788. Daily closing below the latter is needed to confirm a correction. The next downside cap is seen at the mildly bullish 21DMA at $1,772. A breach of the last will trigger a fresh sell-off toward the $1,750 psychological level.”

“On the upside, recapturing the $1,810 barrier will call for a retest of the previous day’s high at $1,814. Further up, Gold bulls will target the wedge resistance at $1,825, where the multi-month high aligns.”

FX option expiries for Dec 15 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0415-30 1.06b
• 1.0450 1.93b
• 1.0500 237m
• 1.04530 201m
• 1.0550 426m
• 1.0570-80 419m
• 1.0600 337m
• 1.0700 1.15b

- GBP/USD: GBP amounts        

• 1.2350 435m
• 1.2495-00 549m

- USD/CHF: USD amounts        

• 0.9400 200m

- AUD/USD: AUD amounts  

• 0.6600 302m
• 0.6655-70 479m

- USD/CAD: USD amounts       

• 1.3500 439m
• 1.3850 249m

- NZD/USD: NZD amounts

• 0.6300 200m
• 0.6400 200m

- EUR/JPY: EUR amounts

• 146.00 612m

• NZD/USD seesaws between tepid gains/minor losses through the early European session.
• A hawkish assessment of the Fed’s decision revives the USD demand and caps the upside.
• The disappointing Chinese macro data further contribute to the modest intraday pullback.
• Depressed US bond yields keep a lid on the USD recovery and should help limit the slide.

The NZD/USD pair struggles to capitalize on its modest intraday uptick and attracts some sellers near the 0.6465 region on Thursday. The pair retreats to the lower end of its daily range during the early European session and is currently trading around the 0.6435-0.6430 area.

The US Dollar stages a modest recovery from its lowest level since mid-June amid a hawkish assessment of the Federal Reserve's policy decision on Wednesday and acts as a headwind for the NZD/USD pair. The US central bank delivered a widely anticipated 50 bps rate hike on Wednesday and signalled that it will continue to raise rates to crush inflation. The so-called dot plot projected at least an additional 75 bps increases in borrowing costs by the end of 2023 and the terminal rate rising to 5.1%, up from the 4.6% forecasted in September.

Adding to this, the US central bank expects that it will take longer to get to the 2% inflation goal. Furthermore, Fed Chair Jerome Powell, during the post-meeting press conference, said that more data was needed before the central bank would meaningfully change its view of inflation. This, in turn, offers some support to the buck, which, along with disappointing Chinese macro data, prompts selling around the resources-linked Kiwi. The NZD/USD pair, however, remains well within the overnight range, warranting caution for bearish traders.

Investors seem convinced that the Federal Reserve will soon have to pivot from an ultra-hawkish stance to something more neutral. This, in turn, is keeping the US Treasury bond yields depressed and holding back the USD bulls from placing aggressive bets. Apart from this, a positive risk tone helps limit the downside for the NZD/USD pair, at least for now. Traders now look to the US macro data - Retail Sales, the Philly Fed Manufacturing Index and Weekly Initial Jobless Claims - for some impetus later during the early North American session.

Technical levels to watch

• GBP/USD rebounds from intraday low but stays mildly offered.
• Pullback from three-day-old horizontal resistance teases sellers amid overbought RSI, impending bear cross on MACD.
• Key SMAs add to the downside filters, fortnight-old resistance line also challenges buyers.

GBP/USD remains mildly offered near 1.2400 even as it bounces off the intraday low heading into the London open on Thursday.

In doing so, the Cable pair reverses the early Asian session’s pullback from the double tops marked around 1.2445-50 amid the nearly overbought RSI (14) conditions. Also teasing sellers is the looming bear cross on the MACD indicator.

However, an upward-sloping support line from November 09, close to 1.2310 by the press time, challenges the Cable pair’s immediate downside.

Following that, the 100-SMA level surrounding the 1.2180 level could probe the GBP/USD bears. It should be noted that the 200-SMA level surrounding 1.1910, acts as the last defense of the pair buyers.

Meanwhile, recovery moves not only need to defy the double tops surrounding 1.2445-50 but should also stay firmer past an ascending resistance line from December 01, close to 1.2475, to keep the GBP/USD buyers on the board.

Should the quote remains firmer past 1.2475, the 1.2500 and 1.2600 round figure may challenge the upside momentum before directing the bulls towards May’s peak of 1.2666.

Overall, GBP/USD bulls seem to run out of steam but the bears need validation from 1.2310.

GBP/USD: Four-hour chart

Trend: Limited downside expected

• A formation of the Three While Soldiers candlestick pattern after a fresh 11-month low has triggered a bullish reversal.
• The oil prices are currently facing barricades around the 20-EMA at $77.50.
• A range shift by the RSI (14) from the bearish range to 40.00-60.00 indicates that the bearish bias has faded.

West Texas Intermediate (WTI), futures on NYMEX, have turned sideways around $76.70 after failing to sustain above the critical resistance of $77.50 on Wednesday. For now, the three-day winning spell in the oil price is expected to terminate as market sentiment has turned bearish.

Meanwhile, the US Dollar Index (DXY) has climbed to near 103.90 as hawkish Federal Reserve (Fed) policy guidance has strengthened the risk aversion mood.

On a daily scale, the oil prices have displayed a sheer recovery after forming a Three White Soldiers candlestick pattern. The above-mentioned candlestick pattern is a realistic example of responsive buying action by the market participants and cements the odds of a bullish reversal. The black gold has reversed dramatically after printing a fresh 11-month low at $70.27 last week.

Currently, the 20-period Exponential Moving Average (EMA) at around $77.50 is acting as a major barricade for the oil bulls.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range from the bearish range of 20.00-40.00, which indicates that the downside bias has faded.

Going forward, a break above Wednesday’s high at $77.76 will drive the oil prices toward the psychological resistance at $80.00, followed by December 5 high at $82.74.

Alternatively, a decisive drop below the 11-month low at $70.27 will drag the asset toward 21 December 2021 low at $68.49 and 20 December 2021 low at $66.09.

WTI daily chart

• US Dollar Index rebounds from six-month low, snaps two-day downtrend.
• Fed announced 50 bps rate increase, showed readiness to keep it higher for long.
• A reassessment of Fed’s rate bias seems favoring US Treasury yields and the greenback.
• Multiple central bank announcements, US Retail Sales eyed for fresh impulse.

US Dollar Index (DXY) remains mildly bid around 104.00 as it prints the first daily gains in three during the early Thursday morning in Europe. In doing so, the greenback’s gauge versus the six major currencies traces the firmer US Treasury bond yields amid sluggish market sentiment.

That said, the DXY initially failed to cheer the US Federal Reserve’s (Fed) 0.50% interest rate hike and the readiness to keep it higher for long as traders didn’t find anything new from the statements or Fed actions that were unexpected. However, a reassessment of the Federal Open Market Committee’s (FOMC) moves highlights upward revision of inflation forecasts and a cut in the growth forecasts, as well as the 5.1% terminal rate, as the key hawkish actions and propelled the US Treasury bond yields and the DXY.

That said, the US 10-year Treasury bond yields probe a two-day downtrend near 3.50% while the two-year US bond yields also extend recovery from the monthly low while printing the first daily positive in three near 4.25%.

Also likely to have stopped the US dollar’s downside could be the cautious mood ahead of the multiple central bank announcements, including from the Swiss National Bank (SNB), European Central Bank (ECB) and the Bank of England (BOE), etc.

Amid these plays, the S&P 500 Futures remain directionless while the Asia-Pacific shares grind lower.

Moving on, the aforementioned central bank announcements will join the US Retail Sales for November, expected -0.1% MoM versus 1.3% prior, to direct short-term DXY moves.

Technical analysis

A one-month-old descending support line, close to 103.50 by the press time, joins the oversold RSI conditions to tease DXY bulls.

Also read: US Dollar Index Price Analysis: Monthly support teases DXY bulls amid oversold RSI

• EUR/USD has slipped near 1.0650 as the risk-off mood has gained significant traction.
• Higher interest rate peak guidance and no absolute commentary on recession by the Federal Reserve have supported US Dollar.
• Accelerating Eurozone inflation expectations are expected to force European Central Bank to hike interest rates by 50 bps.
• EUR/USD is expected to remain on tenterhooks as upside seems capped amid sour market mood.

EUR/USD pair has corrected dramatically to near 1.0650 after failing to test the round-level resistance of 1.0700. The major currency pair failed to remain bullish on 50 basis points (bps) interest rate hike by the Federal Reserve (Fed) and the latter’s hawkish guidance acted as nail in the coffin. Recession fears in the United States have escalated as Federal Reserve policymakers see higher interest rate peak in their mission of achieving price stability.

S&P500 futures have surrendered their morning gains and are expected to extend Wednesday’s losses as the risk aversion theme has gained significant traction. US equities are expected to face immense pressure as higher interest rate peak will result in debt-laden firms facing higher interest obligations and therefore weak operating margins.

The US Dollar Index has reached to near 103.90 and is expected to extend its gains ahead as the risk-off impulse has improved safe-haven’s appeal. Meanwhile, the 10-year US Treasury yields are hovering around 3.5%.

The Euro is expected to display significant action after the release of the interest rate decision by the European Central Bank (ECB) ahead.

Federal Reserve’s hawkish guidance provides cushion to the US Dollar

The Federal Reserve was already expected to hike its interest rates by 50 basis points (bps) to 4.25-4.50% as United States Consumer Price Index (CPI) has softened meaningfully led by weakening prices of gasoline and used cars, and airline fares. But, what brought sheer volatility in the FX domain was the hawkish guidance, and commentary on recession and inflation peak by the Fed chair Jerome Powell.    

Although inflationary pressures have dropped significantly from its peak of 9.1% but combat against the former is not over yet. The road to 2% inflation target is still far and therefore, the Fed policymakers have pushed the interest rate peak to 5.1%. Fed chair Jerome Powell has promised that the central bank will keep policy restrictive till it achieves price stability. On inflation peak, Federal Reserve’s Powell cited that it is difficult to say whether inflation has peaked or not. Similar views have been heard about recession as the Federal Reserve believes that No one knows if we are going to have a recession or not."

Rising wages could be the next hurdle for Federal Reserve policymakers

Federal Reserve’s Powell hopes that an absence of slowdown in Average Hourly Earnings could be a threat to decelerating inflation as higher earnings will propel households to accelerate their demand. This would result in an extension in price growth of goods and services by firms. A rebound in the inflationary pressures could put us back to the square one.

Going forward, investors will keep an eye on United States Retail Sales data. November’s Retail Sales are expected to contract by 0.1% vs. an expansion of 1.3% reported earlier. A decline in Retail Sales might impact the US Dollar ahead.

Higher inflation expectations cements further rate hike from European Central Bank

Supply chain crisis in the Eurozone economy have not calmed yet as war tensions between Russia and Ukraine are still solid. This is expected to keep Eurozone inflation expectations solid ahead. The European Central Bank expects the inflation rate to remain above 2% for the next three years, reported Reuters. As runaway prices are still far from reaching conclusion, European Central Bank's (ECB) revised projections has put inflation "comfortably above" 2% in 2024 and "slightly above" 2% in 2025.

This is going to compel European Central Bank President Christine Lagarde to tighten its interest rate policy further to tame roaring inflation. A poll from Reuters claim that the European Central Bank will hike interest rates by 50 bps to 2.5% despite the trading bloc is certain to enter in a recession.

EUR/USD technical outlook

EUR/USD is auctioning inside the Rising Channel chart pattern, formed on a four-hour scale. The Euro bulls are driving the major currency pair higher swiftly. The 20-and 50-period Exponential Moving Averages (EMAs) at 1.0610 and 1.0559 respectively are aiming higher, which indicates more upside ahead.

The Relative Strength Index (RSI) (14) has not surrendered the bullish range of 60.00-80.00 yet, which signifies that the upside momentum is still active.

• USD/JPY picks up bids to snap two-day downtrend.
• Multiple levels marked since December 01 restrict immediate upside.
• Receding bearish bias of MACD signals further recovery.
• 100-SMA acts as the last defense USD/JPY bears.

USD/JPY clings to mild gains during the first daily positive in three around 135.80 heading into Thursday’s European session. In doing so, the yen pair portrays recovery from a two-week-old ascending trend line while poking a resistance area comprising multiple levels marked since early December.

Given the recently easing bearish bias of the MACD, coupled with the quote’s rebound from the short-term key support line, the USD/JPY may witness further advances.

However, a clear upside break of the 135.80-136.00 area becomes necessary to convince the pair buyers. Even so, the 100-SMA level near 137.15 could challenge the Yen pair recovery.

In a case where the USD/JPY bulls manage to keep the reins past 137.15, a run-up towards the late November swing high near 139.90 and then to the 140.00 round figure can’t be ruled out.

On the contrary, pullback moves need to break the aforementioned support line, near 134.60 at the latest, to recall the USD/JPY bears. Following that, a fall toward the monthly low near 133.60 appears imminent.

Should the USD/JPY pair remains bearish past 133.60, the south-run could aim for the August month’s low near 130.40.

USD/JPY: Four-hour chart

Trend: Limited upside expected

• Asia-Pacific shares remain mildly offered, mostly trading down, amid fears of higher rates.
• Fed/HKMA announced 50 bps rate increases, PBOC keeps one-year MLF unchanged.
• Downbeat China data, rebound in Treasury yields also challenge Asian equities.
• Key central bank moves, US Retail Sales eyed for fresh impulse.

Markets in the Asia-Pacific region remain depressed while taking the leads from the key central banks, as well as data from the regional leader China, during early Thursday. That said, the cautious mood ahead of important central bank announcements also weigh on the sentiment and the equities.

While portraying the mood, the MSCI’s index of the Asia-Pacific shares ex-Japan prints mild gains but Japan’s Nikkei 225 drops half a percent to 28,050 by the press time.

It should be noted that Japan’s trade deficit eased in November but fears of monetary policy tightening by the Bank of Japan (BOJ) seemed to have weighed on the markets in Tokyo.

Elsewhere, China reported disappointing statistics as the dragon nation’s Retail Sales slumped to -5.9% in November versus -3.6% expected and -0.5% prior while the Industrial Production came in at 2.2% compared to 3.3% market forecasts and 5.0% previous readings. Also, the People’s Bank of China (PBOC) held a one-year medium-term lending facility (MLF) rate unchanged for the fourth straight month at 2.75% and highlighted the pessimism in the market.  Furthermore, Hong Kong Monetary Authority announced 50 basis points (bps) rate hike and weighed on the market’s risk profile.

With this, stocks in China and Hong Kong drop, which in turn exert downside pressure on Australian and New Zealand equities, even as Aussie job numbers and New Zealand Gross Domestic Product (GDP) for the third quarter (Q3) came in firmer.

On a broader front, S&P 500 Futures remain directionless but the US 10-year Treasury bond yields probe a two-day downtrend near 3.50%. Further, the US two-year US bond yields also extend recovery from the monthly low while printing the first daily positive in three near 4.25%.

That said, the US Dollar Index (DXY) consolidates recent losses around 103.90, up 0.30% intraday while bouncing off the six-month low amid a cautious mood. The US Dollar’s rebound could also be linked to the reassessment of the Fed verdict, suggesting a 50 bps rate hike and readiness to hold the rate higher for a longer period.

Moving on, announcements from the Swiss National Bank (SNB), European Central Bank (ECB) and the Bank of England (BOE) same could trigger market volatility and are worth observing. Additionally important to watch will be the US Retail Sales for November, expected -0.1% MoM versus 1.3% prior.

• AUD/USD takes offers to refresh intraday low, reverses from 6.5-month-old resistance line.
• Sluggish oscillators add strength to the pullback moves targeting November’s peak.
• Three-week-old ascending trend line, 100-DMA challenge bears before giving them control.

AUD/USD stands on slippery grounds as it drops to 0.6825 while refreshing daily low during early Thursday morning in Europe.

In doing so, the Aussie pair reverses from the downward-sloping resistance line from early June. Given the sluggish prints of the RSI and MACD, the latest pullback from an important hurdle is likely to extend.

However, multiple tops marked since mid-November, near the 0.6800 round figure, could challenge the AUD/USD bears.

Following that, a south-run towards a three-week-long support line, close to 0.6710 at the latest, can’t be ruled out.

In a case where the AUD/USD pair remains bearish past 0.6710, the July low near 0.6680 and the 100-DMA level surrounding 0.6675 by the press time, could challenge the quote’s further downside.

On the flip side, recovery moves need to provide a daily closing beyond the 6.5-month-old resistance line, currently near 0.6880, to recall the AUD/USD bulls.

Even so, the monthly high near 0.6900 and the 50% Fibonacci retracement level of the pair’s April-October downside, near 0.6915, could challenge the upside momentum before highlighting the 0.7000 psychological magnet for the buyers.

AUD/USD: Daily chart

Trend: Limited downside expected

• USD/INR grinds higher around intraday top, extends India Inflation-led rebound.
• US Dollar benefits from market’s cautious mood ahead of key central bank announcements.
• Fed announced 50 bps rate hike, as expected, but showed readiness to keep higher rates for longer.
• Key central bank announcements, US Retail Sales eyed for fresh impulse.

USD/INR makes rounds to an intraday high near 82.65 during early Thursday, extending the previous day’s recovery moves amid mixed sentiment.

That said, the Indian Rupee (INR) dropped the previous day amid downbeat Indian inflation but the US Dollar weakness probed the USD/INR buyers. However, the recently cautious mood in the market, especially as a slew of central bank announcements are in line, seems to underpin the USD rebound and favor the pair to remain firmer.

India’s WPI Inflation eased to 5.85% in November versus 7.0% expected and 8.3% prior. The same turns down the odds of the Reserve Bank of India’s (RBI) further rate hikes and weighs on the INR. On the same line could be the downbeat concerns surrounding the Indian Current Account Deficit (CAD). “India's current account deficit likely rose to its highest in nearly a decade in the July-September quarter as elevated commodity prices and a weak rupee stretched the trade gap even further, a Reuters poll of economists found,” said Reuters.

It’s worth noting that the US Dollar Index (DXY) consolidates recent losses around 103.90, up 0.30% intraday while bouncing off the six-month low amid cautious markets. The US Dollar’s rebound could also be linked to the reassessment of the Fed verdict, suggesting a 50 bps rate hike and readiness to hold the rate higher for a longer period.

To portray the mood, S&P 500 Futures remain mildly offered but the US 10-year Treasury bond yields probe a two-day downtrend near 3.50%. Further, the US two-year US bond yields also extend recovery from the monthly low while printing the first daily positive in three near 4.25%. It should be noted that India’s benchmark equity index, BSE Sensex, prints mild losses of around 62,390 by the press time.

Looking forward, USD/INR traders should pay attention to the multiple central bank announcements, including the Swiss National Bank (SNB), European Central Bank (ECB) and the Bank of England (BOE), as the same could trigger market volatility and propel the US Dollar. Additionally, the US Retail Sales for November, expected -0.1% MoM versus 1.3% prior, may also direct short-term pair moves.

Technical analysis

A daily closing beyond 82.90 appears necessary for the USD/INR bull’s conviction.

• Gold price has witnessed a vertical fall to near $1,790.00 amid a significant recovery in the US Dollar.
• The Fed sees interest rate peak at 5.1% after hiking interest rates by 50 basis points (bps) to 4.25-4.50%.
• As per the consensus, the monthly US Retail Sales (Nov) are expected to contract by 0.1%.

Gold price (XAU/USD) has witnessed a steep fall and has dropped below the psychological support of $1,800.00 in the Asian session. The precious metal has surrendered Federal Reserve (Fed) policy-inspired wild movement low at $1,795.50 and is expected to remain on tenterhooks.

Meanwhile, investors have underpinned the risk-aversion theme as higher interest rate peak guidance by the Fed has escalated recession fears. Fed chair Jerome Powell sees interest rate peak at 5.1% after hiking interest rates by 50 basis points (bps) to 4.25-4.50%. The US Dollar Index (DXY) has advanced to near 103.90 and is expected to recapture the 104.00 resistance ahead.

S&P500 futures have surrendered their entire gains recorded in early Tokyo as Fed chair Jerome Powell has yet not confirmed an inflation peak. Going forward, investors will focus on the release of the United Stated Retail Sales data, which is scheduled for Thursday. November’s Retail Sales are expected to contract by 0.1% vs. an expansion of 1.3% reported earlier. A decline in Retail Sales might support Gold price ahead.

Gold technical analysis

Gold price is declining toward the lower edge of the Rising Wedge chart pattern formed on a four-hour scale. The above-mentioned chart pattern indicates volatility contraction at the end of the tunnel. The precious metal has dropped to near the 50-period Exponential Moving Average (EMA) at $1.790.00 while the 200-EMA at $1,754.34 is still advancing, which indicates that the long-term trend is still intact.

Meanwhile, the Relative Strength Index (RSI) (14) is failing to shift into the bullish range of 60.00-80.00, which indicates that the upside bias has faded.

Gold four-hour chart

• USD/IDR picks up bids on mixed prints of Indonesia trade data for November.
• Indonesia Trade Balance rose more-than-expected to $5.16 billion but Imports and Exports dropped.
• Indonesian Parliament’s move for Bank Indonesia also teases pair buyers.
• US Dollar reverses post-Fed losses amid cautious mood ahead of the key central bank announcements.

USD/IDR remains firmer around the intraday high of $15,640, close to $15,620 by the press time, as mixed Indonesia trade figures join fears of more burden for the Bank Indonesia (BI) during early Thursday. Also favoring the Indonesia Rupiah (IDR) bears is the US Dollar’s rebound from a six-month low as market sentiment dwindles ahead of the key central bank meetings and the US Retail Sales data.

Indonesia's Trade Balance came in at $5.16 billion compared to the $4.25 billion expected and $5.67 billion prior while Imports slumped to -1.89% versus 7.0% market consensus and 17.44% previous readings. Further, Exports eased to 5.58% during the stated month versus 9.50% market forecasts and 12.3% previous readouts.

Earlier in the day, the Indonesian Parliament passed a law to increase the BI’s responsibilities. The new move will hold BI responsible for supporting economic growth and also formalizing the debt monetization operations for the country. “Called the ‘Development and Strengthening of Financial Sector’ bill, the new set of rules are also seen opening the door for ex-politicians to head Bank Indonesia (BI), raising concerns about its independence.”

On the other hand, the US Dollar Index (DXY) consolidates recent losses around 103.80 while bouncing off one-month-old support, as well as the six-month low, as traders turn cautious ahead of multiple central bank announcements. The US Dollar’s rebound could also be linked to the reassessment of the Fed verdict, suggesting a 50 bps rate hike and readiness to hold the rate higher for a longer period.

Amid these plays, S&P 500 Futures remain mildly offered but the US 10-year Treasury bond yields probe a two-day downtrend near 3.50%. Further, the US two-year bond yields also extend recovery from the monthly low while printing the first daily positive in three near 4.25%. It should be noted that Indonesia’s benchmark equity index, IDX Composite, prints mild losses of around 6,765 by the press time.

Looking forward, monetary policy announcements from the Swiss National Bank (SNB), European Central Bank (ECB) and the Bank of England (BOE) could trigger the market’s volatility and propel US Dollar. Also important to watch will be the US Retail Sales for November, expected -0.1% MoM versus 1.3% prior.

Technical analysis

Unless providing a daily close beyond the six-week-old descending resistance line, near $15,715 by the press time, the USD/IDR remains on the bear’s radar.

• GBP/USD has slipped below 1.2400 amid a decent recovery in the US Dollar Index.
• Hawkish Fed guidance is supporting the US Dollar.
• The BOE is expected to hike interest rates further despite softening UK inflation.

The GBP/USD pair has dropped below the round-level support of 1.2400 in the Asian session. The Cable has witnessed selling pressure as the US Dollar has recovered on higher interest rate peak guidance by the Federal Reserve (Fed).

S&P500 futures have surrendered their gains recorded in early Tokyo and are expected to extend losses further as the risk aversion theme is gaining traction. The US Dollar Index (DXY) has extended its gains above 103.80 after registering a fresh six-month low at 103.49. Also, 10-year US Treasury yields have rebounded above 3.51% as the demand for US Treasury bonds has trimmed.

Investors are restricting themselves from parking their money in US government bonds as Fed chair Jerome Powell has cited a new threat that could dampen softening United States Consumer Price Index (CPI) data. Fed’s Powell hopes that an absence of slowdown in Average Hourly Earnings could be a threat to decelerating inflation as higher earnings will compel households to accelerate their demand. This would result in an extension in the price growth of goods and services by firms.

Also, the Fed has escalated interest rate peak guidance at 5.1% and higher borrowing costs could result in increasing financial risks to various firms. Companies that are not cash-rich and are highly dependent on borrowed money to augment their capital needs for long-term and recurring operations will face immense pressure.

On the United Kingdom front, headline annual inflation dropped to 10.7% vs. the expectations and the prior release of 10.9% and 11.1% respectively. Also, the core CPI that excludes oil and gas prices has declined to 6.3%. The Bank of England (BOE) is expected to hike interest rates further despite a decline in United Kingdom inflation as the road to price stability is still out of the sight.

• USD/CNH is inch far from surpassing the immediate resistance of 0.6950 as the Chinese Retail Sales contracted further.
• Chinese annual Retail Sales data (Nov) has contracted by 5.9% vs. -3.6% as expected.
• Fed chair Jerome Powell sees interest rate peak at 5.1% after pushing interest rates at 4.25-4.50%.

The USD/CNH pair has faced intermittent resistance around 6.9650 in the Tokyo session. The asset is expected to surpass the above-mentioned resistance as the National Bureau of Statistics of China has reported weaker Retail Sales data.

The annual Retail Sales data (Nov) has reported a contraction of 5.9% while the street was expecting a contraction of 3.6%. As retail demand has weakened further, it is going to impact negatively the Chinese Consumer Price Index (CPI) ahead. A severe contraction in retail demand is going to compel the People’s Bank of China (PBoC) to look for policy easing to support economic prospects and push inflation higher.

Apart from the Retail Sales data, annual Chinese Industrial Production has dropped to 2.2% vs. the consensus of 3.6% and the prior release of 5.0%. This seems to be the consequence of prolonged Covid-19 lockdown restrictions by the administration to contain the spread. As the Chinese government has rolled back various curbs after the protest from the general public, economic prospects will get track of progress.

Meanwhile, the US Dollar Index (DXY) has displayed a sheer recovery in the Asian session after printing a fresh six-month low at 103.49 on Wednesday. The USD Index has advanced above 103.80 on higher interest rate peak guidance by the Federal Reserve (Fed). Despite a significant United States CPI softening, the road to a 2% inflation target is far from over.

Fed chair Jerome Powell sees interest rate peak at 5.1% after pushing interest rates at 4.00-4.25% on Wednesday and has cited Average Hourly Earnings as the next threat to the harmony in the United States economy.

• USD/CAD picks up bids to print the first daily gains in four, bounces off weekly low.
• Sluggish markets, rebound in US Treasury yields allow US Dollar to pare recent losses.
• WTI crude oil eases from one-week high as downbeat China data, higher interest rates probe oil bulls.

USD/CAD extends recovery from weekly low to refresh intraday high near 1.3570 during the first positive day in four amid early Thursday. In doing so, the Loonie pair takes clues from the latest rebound in the US Dollar, as well as a pullback in Canada’s main export item, WTI crude oil.

US Dollar Index (DXY) consolidates recent losses around 103.80 while bouncing off one-month-old support, as well as the six-month low, as traders turn cautious ahead of multiple central bank announcements.

On the other hand, WTI crude oil snaps a four-day uptrend as it retreats from the weekly top to $76.70 amid fears of lesser demand due to downbeat China data and higher interest rates at the major central banks. Recently, China’s Retail Sales slumped to -5.9% in November versus -3.6% expected and -0.5% prior while Industrial Production came in at 2.2% compared to 3.3% market forecasts and 5.0% previous readings. Previously, OPEC and the International Energy Agency (IEA) forecasted a rebound in oil demand and joined the softer US Dollar to favor the energy bulls.

The market’s reassessment of the Fed verdict, suggesting a 50 bps rate hike and readiness to hold the rate higher for a longer period, could be cited as a reason for the US Dollar’s latest recovery, as well as the USD/CAD pair’s upside.

Against this backdrop, S&P 500 Futures remain mildly offered but the US 10-year Treasury bond yields probe a two-day downtrend near 3.50%. Further, the US two-year bond yields also extend recovery from the monthly low while printing the first daily positive in three near 4.25%.

Moving on, the second-tier data from Canada, mainly relating to housing and employment insurance, may entertain USD/CAD pair traders. However, major attention will be given to the monetary policy announcements from the Swiss National Bank (SNB), European Central Bank (ECB) and the Bank of England (BOE).

Technical analysis

Wednesday’s Doji candlestick above the 21-day Exponential Moving Average (EMA), at 1.3535 by the press time, keeps USD/CAD buyers hopeful of reaching the monthly high near 1.3700.

Jeffrey Gundlach, Wall Street's bond king and Founder and Chief Executive Officer of DoubleLine Capital, made some comments on the US Federal Reserve’s (Fed) policy outlook and recession risks in his interview with CNBC News early Thursday.

Key quotes

Related reads

• US Dollar Index Price Analysis: Monthly support teases DXY bulls amid oversold RSI

• Fed review: FOMC signals Fed Funds above 5% in 2023

• NZD/USD remains pressured around 1.5-month-old ascending support line.
• Repeated failures to cross four-month-old horizontal resistance area, overbought RSI conditions tease sellers.
• Tops marked in May and June add to the upside filters.

NZD/USD sellers attack an upward-sloping trend line from early November, near 0.6420, after China’s headline data disappointed during early Thursday. Even so, firmer prints of New Zealand’s (NZ) third quarter (Q3) Gross Domestic Product (GDP) defend the Kiwi pair.

That said, China’s Retail Sales growth eased to -5.9% in November versus -3.6% expected and -0.5% prior while the Industrial Production came in at 2.2% compared to 3.3% market forecasts and 5.0% previous readings.

At home, NZ Q3 GDP improved to 2.0% QoQ and 6.4% YoY versus 0.9% expected and 5.5% market forecasts in that order. It should be noted that the economic growth came in as 1.7% and 0.4% respectively during the second quarter (Q2).

Technically, the nearly overbought conditions of the RSI (14) join the impending bear cross on the MACD to tease sellers. On the same line is the repeated failure of the Kiwi pair to cross a four-month-old horizontal resistance area surrounding 0.6470-80.

Even if the quote rises past 0.6480, the 0.6500 round figure and tops marked during May and June of 2022, close to 0.6570-75, will be an important hurdle for the NZD/USD bulls to cross to keep the reins.

Alternatively, a daily closing below the ascending support line from early November, around 0.6420, becomes necessary for the NZD/USD bears to take control.

Following that, the mid-June swing high near 0.6395 and November’s peak of 0.6290 could lure the sellers.

NZD/USD: Daily chart

Trend: Further downside expected

Gurpreet Gill, Macro Strategist, Global Fixed Income, Goldman Sachs Asset Management, expresses his view on the likely Bank of England (BoE) monetary policy announcements.

Key quotes

“Wage growth, a key determinant of services inflation, is around 6%, double the level estimated to be consistent with the Bank's 2% inflation target.”

“Broad-based inflationary pressures however mean the Bank is unlikely to pause its hiking cycle too soon.”

“The bank will opt for further hikes in the first half of 2023 until inflation shows less momentum.”

• AUD/USD renews intraday low during the first negative day in three.
• China Retail Sales, Industrial Production flashed downbeat figures for November.
• US Dollar pares post-Fed losses even as market sentiment dwindles ahead of the key central bank announcements.
• US Retail Sales, risk catalysts are also important for fresh impulse.

AUD/USD takes offers to refresh intraday low near 0.6850 as downbeat statistics from China favor the Aussie pair’s technical move during early Thursday. That said, the quote snaps a two-day uptrend while printing mild losses near the highest levels in three months, marked on Tuesday.

China’s Retail Sales growth eased to -5.9% in November versus -3.6% expected and -0.5% prior while the Industrial Production came in at 2.2% compared to 3.3% market forecasts and 5.0% previous readings. The disappointing data from Australia’s largest customer joined the recent rebound in the US Dollar ahead of the key central bank announcements to weigh on the AUD/USD prices.

Earlier in the day, Australia’s Consumer Inflation Expectations dropped to 5.2% for December versus 5.7% expected and 6.0% prior while a jump in Employment Change and static Unemployment Rate allowed the Australia Dollar (AUD) to stay firmer.

It should be noted that the market’s reassessment of the Fed verdict, suggesting 50 bps rate hike and readiness to hold the rate higher for a longer period, could also be cited as a reason for the US Dollar’s latest rebound. That said, the US Dollar Index (DXY) pares recent losses around 103.75 while bouncing off one-month-old support, as well as the six-month low.

While portraying the mood, S&P 500 Future remains directionless but the US 10-year Treasury bond yields probe a two-day downtrend near 3.50%. Further, the two-year counterpart also extends recovery from the monthly low while printing the first daily positive near 4.25% in three.

Looking forward, monetary policy announcements from the Swiss National Bank (SNB), European Central Bank (ECB) and the Bank of England (BOE) will be important to predict the market’s intraday directions. Should the central banks retreat from their hawkish moves, the US Dollar may witness further upside and can weigh on the AUD/USD prices.

Technical analysis

Although the downward-sloping resistance line from June, near 0.6880 by the press time, triggered the AUD/USD pair’s U-turn from a multi-day high, November’s peak surrounding 0.6800 holds the key to welcome bears.

China’s November Retail Sales YoY, slumped 5.9% vs. 3.6% expected and -0.5% previous while the country’s Industrial Production came in at 2.2% YoY vs. 3.6% estimated and 5.0% prior.

Meanwhile, the Fixed Asset Investment dropped to 5.3% YoY in November vs 5.6% expected and 5.8% last.

Key takeaways (via NBS)

Market reaction

The Australian dollar remains unfazed by the downbeat Chinese data release. The AUD/USD pair is licking its wounds near 0.6850, down 0.25% on the day, as of writing.

• USD/CHF picks up bids to pare losses at the lowest levels since late March.
• Oversold RSI conditions could allow intermediate relief to traders.
• Previous support line from mid-2021, lows marked in August 2022 challenge buyers.
• SNB is likely to announce 50 bps rate hike, Rate Statement will be the key.

USD/CHF licks its wound near the lowest levels in 9.5 months as it prints the first daily gain in three days around 0.9250 during early Thursday. In doing so, the Swiss Franc (CHF) portrays the trader’s consolidation of recent losses ahead of the Swiss National Bank’s (SNB) monetary policy meeting.

Also read: USD/CHF floats at 9.5-month low around 0.9250 after Fed’s verdict, SNB eyed

Given the oversold RSI (14), the USD/CHF could extend the latest recovery moves towards regaining the 0.9300 threshold.

However, the support-turned-resistance line from June 2021, close to 0.9340 by the press time, could challenge the pair buyers afterward.

In a case where the pair buyers manage to cross the 0.9340 key hurdle, the August 2022 low near 0.9370 and the 61.8% Fibonacci retracement level of the pair’s upside from June 2021 to October 2021, near 0.9400, will be an important resistance for the bulls to tackle.

Additionally, the 21-DMA level of 0.9420 acts as the last defense of USD/CHF bears.

On the flip side, the latest trough surrounding 0.9215 and the 0.9200 round figure could challenge intraday USD/CHF sellers. Also likely to restrict the short-term downside of the pair is the 78.6% Fibonacci retracement level near 0.9190.

Should the USD/CHF bears keep the reins past 0.9190, the odds of witnessing a slump toward the yearly low near 0.9090 can’t be ruled out.

USD/CHF: Daily chart

Trend: Limited recovery expected

• EUR/USD is stalling on the bid and the W-formation could play out for a move into the 1.0620s.
• On the upside, we have 1.0700 as a key level where a measured move of -0.272% of the potential correction's range.

As illustrated in the prior analysis, the price has moved into the target area, leaving a W-formation in its tracks. This is a reversion pattern whereby bulls would still be expected to move in at a discount from the neckline should there be a test of 1.0600 or there abouts.

EUR/USD prior analysis

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

EUR/USD update

The price is stalling on the bid and the W-formation could play out for a move into the 1.0620s as a first objective and then to test 1.0600 thereafter. 1.0580 and 1.0520/05 could be the last defence for a significant bearish correction for the weeks ahead and New Year. 

On the upside, however,  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. 

• Gold price remains pressured at intraday low after recently welcoming sellers.
• Bearish RSI divergence, candlestick formation joins US Dollar rebound to weigh on XAU/USD price.
• US data, monetary policy meetings of BOE, SNB and ECB will be crucial for fresh impulse.

Gold price (XAU/USD) remains on the back foot at around $1,800 as the US Dollar manages to rebound from a six-month low amid traders’ reassessment of the Federal Reserve (Fed) announcements during early Thursday. Also likely to have favored the XAU/USD sellers could be the cautious mood ahead of crucial central bank 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. Further, 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. That said, the US 10-year Treasury bond yields probe a two-day downtrend near 3.50% while the two-year counterpart also extends recovery from the monthly low while printing the first daily positive near 4.25% in three.

As a result, the US Dollar Index (DXY) pares recent losses around 103.75 while bouncing off one-month-old support, as well as the six-month low.

Moving on, Gold traders should pay attention to the multiple central bank announcements, starting from the Swiss National Bank (SNB), European Central Bank (ECB) and the Bank of England (BOE), for clear directions. Among them, the ECB will gain major attention amid hawkish expectations and inverse relations with the US Dollar. Hence, the central bankers’ upbeat outcomes may weigh on the Gold price moving forward.

Gold price technical analysis

Gold price stays depressed while justifying the previous day’s hanging man candlestick, as well as the bearish RSI (14) divergence. That said, the higher high in prices failed to gain company from the RSI (14) and hence signal the pullback in the XAU/USD, which in turn joins the bearish candlestick formation, to please the seller.

With this, the Gold bears are likely approaching a three-week-old support line near $1,789, a break of which could quickly drag the yellow metal to the 200-day Exponential Moving Average (EMA) level surrounding $1,762. However, a convergence of the 50-day and 100-day EMAs, near $1,742-40, could challenge the metal’s further downside.

Meanwhile, recovery moves need to defy Wednesday’s bearish candlestick formation by crossing the $1,815 immediate hurdle.

Following that, the latest peak surrounding $1,825 could challenge the Gold buyers targeting June’s peak of around $1,880.

Gold price: Daily chart

Trend: Further downside expected

• USD/JPY is displaying a volatility contraction, setting the ground for a decisive move ahead.
• The Fed has cited Average Hourly Earnings as the next trigger for upside inflation risks.
• US Retail Sales are expected to contract and will bolster further softening in inflation data.

The USD/JPY pair is displaying topsy-turvy moves around 135.40 in the Asian session. The asset is cleaning the mess made by Fed policy-induced volatility through volatility contraction, which will provide a path for a decisive move ahead.

The major witnessed a wild gyration in a 134.50-136.00 range after the Federal Reserve (Fed) shifted to a lower rate hike back by a deceleration in the interest rate. Fed chair Jerome Powell announced a 50 basis point (bps) interest rate hike, which pushed interest rates to 4.25-4.50%.

Meanwhile, the US Dollar Index (DXY) has displayed a marginal rebound move to near 103.70. S&P500 futures have attempted a firmer recovery after setting in red on Wednesday. It seems that investors are shrugging off higher interest rate peak projections and are cheering the novel approach of a smaller and slower interest rate hike, portraying a recovery in the risk appetite theme.

Fed chair Jerome Powell has warned investors that the next catalyst, which carries the potential of reversing the inflation rate is the Average Hourly Earnings, which are not slowing down. Continuous increments in earnings will keep retail demand upbeat and won’t incentivize firms for offering goods and services at lower prices.

Going forward, investors will shift their focus toward the release of Thursday’s United States Retail Sales data. 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.

On the Tokyo front, investors are expecting more stimulus packages from the Japanese administration in order to spurt the extent of economic activities. The Bank of Japan (BOJ) is already favoring policy easing approach to accelerate inflation and is expected to continue further till inflation reaches to 2% target confidently.

The People's Bank of China leaves the China one-year MLF rate at 2.75% (est 2.75%; prev 2.75%)  and the one-year MLF Volume was set at 650B vs. (est 500.0B; prev 850.0B).

USD/CNY is under pressure at a key level of support:

China’s worsening economic slump is expected to keep the People's Bank of China on its easing path. Last month, the reserve requirement ratio for banks was cut, providing them with more cash to extend loans. 

Today , there will be data in Industraial Production and Retail Sales as the most closely watched. 

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.9343 vs. the last close of 6.9520.

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/NZD bulls eye a break out of the bear cycle. 
• A test of the bearish trendline could be on the cards for the days ahead. 

AUD/NZD has rallied with AUD being a stronger performer of late. There have been two key releases for the pair with the New Zealand Gross Domestic Product and Aussie jobs data. However, the markets are digesting the Federal Reserve in the main and are consolidating recent moves. Nevertheless, the following technical analysis illustrates the potential for AUD/USD to break out of a key bearish cycle in the days and final weeks of the year:

AUD/NZD daily charts

As illustrated, the price is printing a W-formation while attempting to break the trendline resistance as it takes on the lower end of the 1.06s. The W-formation can be regarded as a double bottom and therefore a should the neckline hold on retests near 1.0620 on a closing basis,. then the upside is going to be looking favourable. A run to 1.0700 could be on the cards, a level that guards 1.0750 for the days/weeks ahead. 

• GBP/USD bulls take a breather at six-month high, print mild losses of late.
• Double tops, bearish wedge formation joins RSI retreat to tease sellers.
• Key Exponential Moving Averages (EMAs) challenge further downside.

GBP/USD retreats from a six-month high but the bears appear cautious ahead of the key Bank of England (BOE) monetary policy meeting early Thursday. That said, the Cable pair prints the first daily loss in seven days near 1.2420, despite posting meager losses as of late.

Also read: GBP/USD: Cable seesaws at six-month high ahead of Bank of England-inspired ‘Super Thursday’

It’s worth noting that the double tops around 1.2450 and the pullback in the RSI (14) signals that the GBP/USD bulls are running out of steam.

The same could direct the Cable pair toward the 1.2400 round figure before highlighting the 50-EMA level surrounding 1.2360.

However, a convergence of the 100-EMA and support line of a two-week-old rising wedge bearish chart pattern, near 1.2315, appears a tough nut to crack for the GBP/USD bears.

In a case where the Cable pair breaks the 1.2315 support, the 200-EMA level near 1.2255 could act as the last defense of the GBP/USD buyers before giving control to the bears.

On the contrary, a successful break of the double tops surrounding 1.2450 will need validation from the clear run-up past the aforementioned wedge’s upper line, close to 1.2470, to convince GBP/USD bulls.

Following that, the theoretical target for the double tops, near 1.2560, could lure the pair buyers before directing them to the May month’s peak near 1.2665.

GBP/USD: Hourly chart

Trend: Further downside expected

• AUD/USD remained sideways despite the Australian economy added 64K jobs in November.
• A significant decline in 12-month Australian inflation expectations will delight the RBA.
• The US Dollar Index has registered a fresh six-month low on less-hawkish Fed policy.

The AUD/USD pair is still in the hangover of the monetary policy announcement by the Federal Reserve (Fed). The Aussie asset has continued to oscillate around 0.6860 despite the Australian Bureau of Statistics having reported a significant improvement in the Employment Change data. The Australian economy has generated additional 64K jobs vs. the expectations of 19K and former additions of 32.2K. While the Unemployment Rate has remained unchanged at 3.4%.

Earlier, the 12-month Australian consumer inflation expectations dropped to 5.2% against the consensus of 5.7% and the former release of 6.0%. A meaningful decline in inflationary pressures is going to delight the Reserve Bank of Australia (RBA). RBA Governor Philip Lowe has been tightening monetary policy to bring a slowdown in the Consumer Price Index (CPI).

It is worth noting that a slowdown in one-year inflation expectations is not going to compel the RBA to ditch the interest rate expansion further as the road to achieving a 2% inflation rate is far from over. The RBA might continue hiking its Official Cash Rate (OCR) further by 25 basis points (bps).

On the United States front, a shift in the current monetary policy approach by the Federal Reserve (Fed) triggered volatility in the US Dollar. The US Dollar Index (DXY) registered a fresh six-month low at 103.49 after the Fed announced a lower rate hike at 50 bps and ditched the 75 bps rate hike spell. As the fight against inflation will take sufficient time in conquering, the Fed has hiked the interest rate peak at 5.1% to be achieved by the end of CY2023.

• AUD/JPY picks up bids to print the first daily gain in three after mixed data from Australia.
• Australia’s employment report for November, Consumer Inflation Expectations for December came in mixed.
• Yields remain downbeat and weigh on AUD/JPY amid sluggish session.

AUD/JPY picks up bids to print mild gains around 93.00 during the aftermath of Australia’s key employment and inflation numbers. In doing so, the Aussie cross portrays the first daily positive in three despite witnessing mixed data.

That said, Australia’s Consumer Inflation Expectations dropped to 5.2% for December versus 5.7% expected and 6.0% prior while a jump in Employment Change and static Unemployment Rate allowed the Australia Dollar (AUD) to stay firmer. It’s worth noting that the improvement in the Aussie Participation Rate also favored the AUD/JPY bulls.

Also read: Aussie jobs data beats expectations, AUD robust

It should be noted that the consolidation of the US Treasury yields around the multi-day low also seemed to have favored the AUD/JPY pair traders. That said, the US 10-year Treasury bond yields probe a two-day downtrend near 3.50% while the two-year counterpart also extends recovery from the monthly low while printing the first daily positive near 4.25% in three.

The recovery in the yields could be linked to the reassessment of the US Federal Reserve (Fed) monetary policy announcements that initially were perceived as dovish despite the 50 bps rate hike and hints for more such moves.

While the data and yields favor the AUD/JPY bulls, an improvement in Japan’s Merchandise Trade Balance to ¥-227.4B in November versus ¥-1,680.3B expected and ¥-2,166.2B failed to impress the pair bears.

Moving on, the AUD/JPY pair traders will pay attention to the risk catalysts and data from China for fresh impulse. That said, China’s Industrial Production and Retail Sales numbers for November, up for publishing at 02:00 GMT, are expected to print 3.6% and -3.6% figures versus 5.0% and -0.5% priors in that order.

Technical analysis

AUD/JPY 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.

The Australian Bureau of Statistics (ABS) published an overview of trends in the Australian labour market as follows:

• Australia Employment Change Nov: 64.0K (est 19.0K; prev 32.2K).
• Unemployment rate +3.4 pct, s/adj (Reuters poll: +3.4)
• Full time employment +34.2k s/adj
• Participation rate +66.8 pct, s/adj (Reuters poll: +66.6 pct)

''Australia employment jumped past all expectations in November while the jobless rate stayed at five-decade lows as more people went looking for work, a sign interest rates may have to rise further to cool the red-hot labour market,'' Reuters reported.

''Figures from the Australian Bureau of Statistics on Thursday showed net employment surged 64,0000 in November from October, when they jumped 43,100, and blew away forecasts for an increase of just 19,000.

The jobless rate held at 3.4%, though only because the participation rate popped up to match the record peak of 66.8%.''

AUD/USD update

After an initial move lower on the Federal Reserve, AUD/USD finished relatively flat for the US session. It was trading at 0.6860 ahead of the Aussie jobs data, testing the resistance of the bullish channel on the daily chart as follows: 

The W-formation is a reversion pattern where the price would be expected to move into the neckline as a potential support area. In the case above, we have the 50% mean reversion and a 61.8% ratio aligned with the neckline area of the pattern near 0.6800. However, the jobs data was robust and there has been no material shift to the downside as of yet. 0.6650 support needs to give.

About Aussie labour market data

The Australian Bureau of Statistics (ABS) publishes an overview of trends in the Australian labour market, with the unemployment rate a closely watched indicator. It is released about 15 days after the month's end and throws light on the overall economic conditions, as it is highly correlated to consumer spending and inflation. Despite the lagging nature of the indicator, it affects the Reserve Bank of Australia’s (RBA) interest rate decisions, in turn, moving the Australian dollar. The upbeat figure tends to be AUD-positive.

• US Dollar Index seesaws near the lowest levels in six months.
• One-month-old descending trend line triggers repeated bounces of the DXY.
• Oversold RSI suggests corrective move but 200-day EMA appears a tough nut to crack for the bulls.

US Dollar Index (DXY) licks its wounds near the lowest levels since mid-June while taking rounds to 103.70 during early Thursday.

In doing so, the greenback’s gauge versus the six major currencies portrays the fourth bounce off the one-month-old descending support line amid the oversold RSI conditions.

 As a result, a corrective bounce toward the 50% Fibonacci retracement level of the quote’s January-September upside, near 104.70 appears more likely.

However, the 200-day EMA level surrounding 106.00 acts as a crucial challenge for the DXY bulls to tackle before taking control.

In a case where the US Dollar Index remains firmer past 106.00, the odds of witnessing a run-up towards the late November swing high near 108.00 can’t be ruled out.

Alternatively, a downside break of the aforementioned support line, near 103.50 by the press time, could quickly drag the DXY to the 61.8% Fibonacci retracement level of around 102.30.

Following that, the 102.00 round figure may offer an intermediate halt during the south-run targeting May’s low near 101.30.

Should the DXY remains bearish past 101.30, it becomes vulnerable to breaking the 100.00 psychological magnet.

DXY: Daily chart

Trend: Recovery expected

• The oil prices have climbed to near $77.50 as the Fed has ditched a bigger rate hike regime.
• US recession risk has not faded yet as the Fed has hiked its terminal rate projection to 5.1%.
• A solid build-up of oil inventories reported by the EIA has failed to weaken the black gold.

West Texas Intermediate (WTI), futures on NYMEX, have displayed a bullish three-session spell on hopes of a recovery in global economic prospects. The oil prices have climbed above $77.50, recovered dramatically after registering a fresh annual low at $70.61 last week, as the Federal Reserve (Fed) has ditched the bigger interest rate regime.

Termination of the 75 basis points (bps) interest rate hike spell by the Fed is the result of a slowdown in the United States Consumer Price Index (CPI), consecutively for two months. The headline US CPI that inculcates oil and food prices in calculation dropped to 7.1% from the prior release of 7.7%. This has trimmed the risk of recession in the US economy for a while but the recession risk has not faded yet as the Fed policymakers have advocated for a higher terminal rate at 5.1% by the end of CY2023.

Also, Fed chair Jerome Powell has promised to keep policy restrictive enough to achieve a 2% inflation rate. The US Dollar Index (DXY) is hovering around 103.62 after displaying wild gyrations. The US Dollar is expected to display weakness further as the Fed has approved a smaller and slower interest rate hike approach, which will eventually support oil prices.

The oil prices have not reacted much to the solid build-up of oil inventories reported by the official US agency. The US Energy Information Administration (EIA) has reported a build-up of oil stockpiles by 10.231M for the week ending December 09.

Meanwhile, investors are awaiting updates on the Keystone pipeline restart from Canada’s TC Energy Corp. Last week, the 622,000 barrel-per-day pipeline was shut after leaking oil into a creek in Kansas. Over that, the firm will provide an update ahead, as reported by Reuters.

• EUR/USD remains sidelined after refreshing six-month high, retreats of late.
• Fed’s failure to impress US Dollar bulls gives rise to hawkish expectations from ECB.
• ECB is likely to announce 0.50% rate hike but qualitative details will be more important for EUR/USD bulls.

EUR/USD relaxes near the six-month high, retreating to 1.0675 during early Thursday, as the pair traders await the European Central Bank (ECB) monetary policy meeting decision. That said, the quote recently cheered the Federal Reserve’s (Fed) failure to impress the US Dollar bulls despite announcing hawkish details.

Fed matched market expectations while announcing the 50 bps rate hike. The US central bank 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, the Fed revised the inflation forecasts towards the north but the growth estimations were cut down for 2023 and 2024.

Following the quantitative details, 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.

The market reaction appears mostly downbeat as the US Treasury bond yields failed to respect the hawkish Fed and the stocks also pared the initial losses. Also, the US Dollar Index (DXY) remains pressured around the multi-month low, after refreshing the bottom to around 103.40.

Looking forward, EUR/USD may witness sideways performance amid the pre-ECB anxiety as the looming recession fears challenge the policy hawks. Even so, the regional central bank is up for announcing 50 bps rate hike and may unveil details of its Quantitative Tightening (QT) to favor the pair buyers. The same could help the pair to remain firmer if President Christine Lagarde manages to please the hawks by not stepping back from hawkish comments favoring the higher rates.

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

Technical analysis

A convergence of the downward-sloping resistance line from September 2021 and 50% Fibonacci retracement level of the EUR/USD pair’s one-year fall during the September 2021-22 period, around 1.0720, appears a tough nut to crack for the bulls amid overbought RSI.

• USD/CAD is being resisted by the upper quarter of the 1.35s around a 50% mean reversion of the prior bearish impulse.
• A break of the trendline and the 1.3520 opens risk to the 1.3380s.

As per the prior analysis, USD/CAD Price Analysis: Bears on the prowl at key resistance, USD/CAD is chipping away at the trendline support while being resisted by a key area on the daily chart. The following illustrates prospects of a downside continuation for the days ahead with 1.3400 and 1.3380 eyed:

USD/CAD prior analysis

It was stated that the M-formation is a reversion pattern that drew the price into the neckline. It was suggested that if this were to act as a resistance, the micro trendline would come under pressure and open the risk of a substantial continuation to the downside for the days ahead.

USD/CAD update 

The price is pressed against the trend lines and this could lead to a retest into the resistance area between 1.3590 and 1.3560s as illustrated before the bears engage again.

USD/CAD H4 chart

However, as illustrated, the price is resisted by the upper quarter of the 1.35s around a 50% mean reversion of the prior bearish impulse. A break of 1.3520 opens risk to the 1.3380s.