• Silver prices bounce and cling to gains, despite a buoyant US Dollar.
• Near-term, XAG/USD might consolidate, as mixed signals between the RSI/RoC suggest caution is warranted.

Silver is recovering some ground after falling to weekly lows during the New York session of $22.56. However, a late buying impulse keeps XAG/USD trading in the green with gains of 0.41%. At the time of writing, the XAG/USD is trading at $23.21, above its opening price, and set to finish the week with losses of 1.23%.

Silver Price Analysis: Technical outlook

The XAG/USD daily chart depicts that the non-yielding metal remains upward biased after testing an upslope support trendline drawn from November lows. However, failure to crack the latter and its confluence with the 20-day EMA triggered Silver recovery. Also, the Relative Strength Index (RSI) and the Rate of Change (RoC) suggest that buyers are gathering momentum, and a daily close above the December 15 close of $23.05 could keep the trend intact.

In the near-term, the XAG/USD one-hour chart suggests that Silver’s dip below $22.60 opened the door for sellers to lean onto the 200-Exponential Moving Average (EMA) at $23.22 as immediate intraday resistance. Furthermore, mixed signals between the RSI – aiming upwards, and RoC – depicting buying pressure losing momentum might refrain traders from opening new positions.

Nevertheless, if XAG/USD breaks above the 200-EMA, the immediate ceiling level would be the daily pivot at $23.33, followed by the R1 pivot at $23.69. On the downside, the XAG/USD first support would be the 50-EMA at 23.16. A breach of the latter will expose December’s 15 daily low at $23.06, ahead of the $23.00 mark.

Silver Key Technical Levels

• Risk aversion weighed on high-beta currencies like the Australian Dollar.
• Global central banks hiking rates and eyeing additional increases sounded recession alarms, dampening investors’ mood.
• AUD/USD Price Analysis: Downward biased, after tumbling from weekly highs, heading to the 50-day EMA.

The Australian Dollar (AUD) slides against the US Dollar (USD) amidst a dampened market sentiment as an economic slowdown looms, after a central bank bonanza, featuring the US Federal Reserve (Fed), the Bank of England (BoE), and the European Central Bank (ECB) raising rates by 50 bps each. Additionally,  policymakers emphasized the need to do what’s needed to tackle inflation, which keeps investors uneasy. Therefore, the AUD/USD is trading at 0.6690, below its opening price.

AUD/USD Price Analysis: Technical outlook

After Thursday’s drop from around 0.6870 toward 0.6670, the AUD/USD is poised for a deeper correction. Market sentiment, and technical factors led by buyers unable to decisively clear the 200-day Exponential Moving Average (EMA) at 0.6831, exacerbated the Aussie Dollar’s fall toward current exchange rates. On its way south, the AUD/USD cleared the 20-day EMA at 06724, which halted Friday’s upside, as the AUD/USD is set to finish the week with losses of 1.60%.

Furthermore, a break below December 15 swing low at 0.6676 could exacerbate the AUD/USD’s fall toward the 50-day EMA at 0.6658, accelerating the downtrend to the 0.6600 mark. Oscillators like the Relative Strength Index (RSI) crossed to bearish territory, while the Rate of Change (RoC), is headed to the downside, cementing the case for a deeper correction.

As an alternate scenario, if the AUD/USD reclaims the 0.6700 mark, a test of the 200-day EMA at 0.6831 is on the cards. A breach of the latter will expose 0.6916 September’s 13 high, followed by the 0.7000 psychological mark.

AUD/USD Key Technical Levels

• S&P Global PMIs for the United States sound the alarms of an upcoming recession.
• Federal Reserve tightening hit consumers while the labor market remains stable.
• USD/CAD Price Analysis: A decisive break above 1.3700 can pave the way for a test of 1.3800.

After hitting a daily low of 1.3617, the USD/CAD climbs toward the 1.3700 figure in the North American session after the US Federal Reserve (Fed) decided to raise rates by 50 bps last Wednesday and sparked recessionary woes. Therefore, the USD/CAD is trading at 1.3684, above its opening price by 0.16%.

Fed’s policy begins to hit lagging indicators

Sentiment remains downbeat as US equities tumble. The Federal Reserve’s tightening cycle is finally catching up with the economy after several data released during the week pointed to an economic slowdown in the United States (US). On Friday, December’s S&P Global PMIs figures were worse than expected, reigniting recession fears.

Before the Fed’s decision, inflation in the US eased from 7.7% YoY to 7.1%, while core figures cooled down to 6% YoY from 6.1% in the previous month. Although the US Fed Chair Jerome Powell welcomed the news, he insisted that inflation is high and that the Fed still has some ways to go.

On Thursday, after the Fed’s decision, Retail Sales were the next piece of the puzzle that signaled that, indeed, the US economy is decelerating, dropping 0.6% MoM vs. estimates of 0.1% contraction and trailing October’s 1.3% increase. Also, Manufacturing Indices revealed by the Philadelphia and New York Fed pointed to worsening conditions, implying that the US is headed into a recession.

However, not everything was negative. The labor market is yet to feel the effects of the US central bank policies. Initial Jobless Claims for the last week rose by 211K despite estimates of 230K, revealing the strength and robustness of today’s labor market.

Given the fundamental backdrop and the lack of tier 1 Canadian data, the USD/CAD is driven by the US Dollar’s dynamics. The USD Dollar Index, a gauge of the buck’s value against a basket of peers, rises 0.01% at 104.591, a tailwind for the USD/CAD. In the meantime, and due to the linkage of the Loonie (CAD) with oil prices, Western Texas Intermediate (WTI) is dropping 1.74%, down to $74.91 per barrel, weighing on the CAD.

Fed’s Daly and Williams crossed wires

Of late, it should be said that Fed officials have been crossing newswires. The New York Fed President Joh Williams expects rates to peak at around 5% to 5.50% in 2023. He added that supply chains are improving, though his base case is that the economy would not fall into a recession. Later, the San Francisco Fed President Mary Daly said that everyone at the Fed expected rates to be held for all of 2023, and added that she does not know why the markets are so optimistic about inflation.

USD/CAD Price Analysis: Technical outlook

The USD/CAD remains upward biased, though unable to crack the 1.3700 figure so far. Break above will open the door for further gains, eyeing the November 3 daily high at 1.3808, ahead of the YTD high of 1.3977. Oscillators like the Relative Strength Index (RSI) and the Rate of Change (RoC), suggest that upward pressure is mounting, so buyers might be preparing to assault the 1.3700 mark before the weekend. As an alternate scenario, the USD/CAD first support would be the day’s low at 1.3617, followed by 1.3600.

• The USD/JPY failed to gain traction despite rising US Treasury yields.
• USD/JPY Price Analysis: Remains upward biased, though a pullback toward 136.00 is on the cards.

The USD/JPY fell after testing the 20-day Exponential Moving Average (EMA) around 137.88 and dropped below the 137.00 mark in the North American session amid a risk-off impulse. At the time of writing, the USD/JPY is trading at 136.63, below its opening price by 0.84%, after hitting a high of 137.80.

USD/JPY Price Analysis: Technical outlook

From a daily chart perspective, the USD/JPY remains range-bound, within the boundaries of the 20-day EMA and the 200-day EMA, each at 137.88-135.14, respectively. The Relative Strength Index (RSI), at bearish territory, aims downward, while the Rate of Change (RoC) is almost flat, signaling that buying pressure has faded.

Short term, the USD/JPY one-hour chart suggests that buyers are taking a respite after hitting 138.17. The major dived towards the confluence of the 78.6% Fibonacci retracement and the 100-EMA around 136.60, appearing to find support. Nevertheless, if the latter is breached, a fall toward the S1 daily pivot at 135.96 is on the cards. Contrarily, if the USD/JPY rallies toward the 61.8% Fibonacci level at 136.96, a test of the 137.00 figure is likely. Break above will expose the December 13 daily high at 137.97, ahead of the 138.00 mark.

USD/JPY Key Technical Levels

The AUD/USD pair dropped sharply on Thursday and it stabilized slightly below 0.6700 on Friday. According to analysts from Danske Bank, the AUD/USD pair will move lower over the next months. They forecast it at 0.66 in three months and at 0.65 in six months. 

Key Quotes: 

“Lower-than-expected inflation prints from the US, consequent speculation on Fed possibly easing its monetary policy earlier and the turnaround in Chinese Covid-policies have continued to support AUD/USD.”

“The Reserve Bank of Australia (RBA) hiked rates again by 25bp in the December meeting. While RBA signalled that rate hikes would continue in 2023, markets are pricing around 50% probability of a pause in the hiking cycle amid weakening economy and especially the housing market.”

“We still think that especially the Fed will have to continue tightening financial conditions in early 2023, which supports broad USD. While the worsening Covid-situation is weighing on Chinese economy during winter, the gradual reopening could support Australian export prices going forward. We maintain a modestly downward-sloping forecast profile.”

The USD/JPY pair is about to end the week hovering around 136.50/80, near the same level it had a week ago. Analysts from Danske Bank forecast the pair at 137 in a month, at 139 in three months, and then to move lower, reaching 128 in twelve months. 

Key Quotes:

“Upside risks to USD/JPY come from a continued pressure for higher global yields, although intervention will likely cap sudden moves higher. If global slowdown turns into a more severe recession and speculators unwind short JPY positions, flatter yield curves and cheaper energy can quickly become a tailwind for JPY.”

“The key driver of USD/JPY remains the global inflation outlook and US treasury yields. Following the lower than expected US October and November CPI prints, JPY has strengthened quite significantly but remains weak in a historical perspective. With the US labour market still in good shape, we continue to see a pressure on Fed to tighten further and elevated energy prices will weigh on the JPY in the short term. Looking further ahead, we do expect a stronger JPY.”
 

On Thursday, the Bank of Mexico rose the key interest rate by 50 basis points to 10.5%, following the same hike from the Federal Reserve. According to the Research Department at BBVA, Banxico will decouple from the Fed in 2023 and they see lower growth and inflation in Mexico. 

Key Quotes: 

“We expect lower growth and inflation in 2023. GDP would grow 3.0% in 2022 driven by the manufacturing sector. We stick to our 0.6% GDP growth forecast for 2023 but with an upward bias considering the 3Q22 data, INEGI’s revisions, and the effect of nearshoring.”

“November will mark the peak of core inflation; headline inflation is already declining. We are more optimistic than the consensus for 2023.”

“We anticipate that Banxico will decouple from the Fed in 2023; we expect the start of a rate cut cycle by the third quarter of next year.”

“We expect the exchange rate will be 19.6 pesos per dollar by December 2022 and 20.1 pesos per dollar by the end of 2023.”

Gold managed to rise slightly above the 200-day SMA despite Thursday's sharp decline. While above here, XAU/USD retains a bullish bias, FXStreet's Eren Sengezer reports

The $1,780/$1,775 area aligns as initial support

“In case XAU/USD stabilizes above $1,790 (200-day SMA) and confirms that level as support, it could test $1,800 in the short term before targeting $1,830 (Fibonacci 50% retracement of the long-term downtrend) and $1,860 (static level).”

“On the downside, $1,780/$1,775 area (Fibonacci 38.2% retracement, 20-day SMA) aligns as initial support before $1,740 (static level) and $1,720 (100-day SMA, 50-day SMA).”

• Gold rebounds from weekly lows after being able to hold above $1,770.
• Wall Street indices drop more than 1% on Friday, adding to weekly losses.
• US data: Preliminary November S&P Global PMI below expectations.

Gold price rebounded further from weekly lows following the release of the US S&P Global PMI report, hitting a fresh daily high at $1,793. It is about to end the week at the same level it had seven days ago.

Moving away from $1,770

XAUD/USD broke above $1,785 after the release of the US S&P Global PMI report that came in below expectations. According to the preliminary report, in December the S&P Global Manufacturing PMI fell from 47.7 to 46.2, against market consensus of 47.7. The S&P Global Services PMI fell unexpectedly from 46.2 in November to 44.4 in December.

The economic numbers weighed on the US Dollar that pulled back across the board momentarily. The decline in equity prices in Wall Street limited the downside for the greenback.

The $1,800 area still critical

As of writing, XAU/USD is hovering around $1,790 around the same level it had a week ago. Gold price managed to remain above the key short-term support of $1,770 on Friday.

The weekly chart shows Gold price unable to post a close above $1,800. Technical indicators are starting to favor a correction in the short term. It the yellow metal manages to firmly break $1,800 with a confirmation close, it would suggest more gains ahead toward $1,860 initially and then an approximation to $1,900.

XAU/USD weekly chart 

EUR/USD rose to 1.07 after the hawkish ECB surprise. Economists at Nordea expect the pair to stretch higher toward 1.10 over the next month.

EUR/USD seen at 1.13 by the end of 2023

“A high possibility of a new year rally in stock markets (which would favour a weaker USD) together with a rate differential which has moved in favour of the EUR imply a high likelihood for EUR/USD to move even higher than the current 1.06. We believe that from a tactical perspective, EUR/USD is most likely to see 1.10 over the next month.” 

“Our 3M forecast of EUR/USD at 0.99 seems too optimistic on behalf of the USD given how markets have changed their view on the Fed compared to the ECB lately. However, we still maintain our downside bias in EUR/USD in 3M to 6M as we see stocks taking a tumble lower on the back of higher rates than markets currently anticipate.”

“Overall, EUR/USD down to the 1.04 area seems more reasonable than 0.99 in the next 3M. Longer out, a successful reopening in China and a pause in rate hikes point toward a higher EUR/USD. We see EUR/USD at 1.13 by the end of 2023.”

Economists at ANZ Bank have raised their Gold price forecast for the end of next year to $1,900. 

Some scope for a retracement of recent gains in the near term

“Short term, we see some scope for a retracement of recent gains. This would be largely off the back of a stronger USD. Investor positioning shows non-commercial short positions built to a sizeable level in Q3 2022, but some of those positions have been trimmed as expectations of a slower rate hike cycle developed.”

“As global growth slows through Q2 amid elevated geopolitical risks, we expect safe haven buying to lift the gold price. We have subsequently raised our year-end (2023) target to $1,900.”

See – Gold Price Forecast: XAU/USD may shine again, seen at $1,850 by end-2023 – Commerzbank

• S&P Global PMIs in the United States sparked recession jitters and bolstered the US Dollar.
• Eurozone data was better than estimated, though inflation remains high, while PMIs in contractionary territory.
• EUR/USD Price Analysis: Daily close below 1.0592 to exacerbate a fall to the 20-day EMA.

The EUR/USD remains subdued during the North American session, following monetary policy meetings by the Federal Reserve (Fed) and the European Central Bank (ECB), with both entities raising rates amidst a period of high and stickier inflation. However, a surprisingly hawkish tone employed by the ECB President Christine Lagarde capped the fall of the Euro (EUR) vs. the US Dollar (USD) amid a wide interest rate differential. Therefore, the EUR/USD is trading at 1.0620s, fluctuating.

Recession fear in the United States increased after the dismal PMIs report

Investors' sentiment remains sour after worldwide central banks continue to tighten monetary conditions. A light US economic docket featured the release of the S&P Global PMI for December missed the estimates, reigniting recessionary fears in the United States (US) economy. Manufacturing PMI dived to 46.2 vs. 47.8 expected, while the Services Index slid to 44.4 from 46.5 foreseen. Consequently, the S&P Global Composite Index dropped to 44.6 against the estimated 46.9.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said, “Business conditions are worsening as 2022 draws to a close, with a steep fall in the PMI indicative of GDP contracting in the fourth quarter at an annualized rate of around 1.5%.” Williamson added that hiring has slowed in the manufacturing and services segment. The survey suggests that Fed rate hikes, although taming inflation, recession risks tilted to the upside.

Of late, the New York Fed President John Williams commented that the labor market remains tight, and that would warrant further action by the Federal Reserve, said in a Bloomberg interview. Williams expects inflation to get towards 3 to 3.5% in 2023, though he added “that the real issue is how do we get it all the way” to the Fes’s 2% target.

Euro area data was encouraging though inflation remains in double digits

Meanwhile, the calendar was busy in the European session, with S&P Global PMIs released for the Euro area, France and Germany, with most of the figures being better than expected. Regarding the Harmonized Index for Consumer Prices (HICP), inflationary data for the Eurozone was 10.1% YoY, below the 10.6% of the previous month, though higher than the estimate of 10% reading. The core reading was unchanged at 5%.

Additionally, some ECB policymakers expressed that inflation poses a challenge, and most members expect further rate hikes at the following meetings.

EUR/USD Price Analysis: Technical outlook

From a daily chart perspective, the EUR/USD is still upward biased, though it should be said that a close below 1.0592 could pave the way for further downside. After the EUR/USD rallied to multi-month highs around 1.0736, since then, it has been a one-way drive south, though the Euro is set to finish the week positive. Oscillators with the Relative Strength Index (RSI) and the Rate of Change (RoC), suggest that a correction might be underway. Though the fall’s scope is unknown, it will face its first support at around 1.0500, closely followed by the 20-day Exponential Moving Average (EMA) dynamic support at 1.0479.

The Mexican Peso (MXN) has been underperforming recently. However, economists at ING expect the USD/MXN pair to move back toward 19.00.

Banxico dances toe-to-toe with the Fed

“Banxico followed the Fed again by hiking the policy rate by 50 bps to 10.50%. That keeps the 600 bps+ policy spread over US rates and should keep the MXN supported. Banxico also said that further rate hikes should be expected. In practice, this should mean another 50 bps hike in February to match the Fed.”

“MXN underperformance should not last long. High rates, low volatility, and Mexico proving the most likely candidate for nearshoring benefits all suggest that USD/MXN should be trading back at 19.00 sooner rather than later.”

• S&P Global Services PMI continued to decline in December.
• US Dollar Index stays in negative territory below 104.50.

S&P Global Services PMI declined to 44.4 in December's flash estimate from 46.2 in November. This print fell short of the market expectation of 46.8. Regarding the price pressure in the service sector, "inflationary pressures in the service sector cooled notably in December, as input costs rose at the softest pace since October 2020," said S&P Global. "Despite some material and labor costs rising, reports of lower wholesale and fuel prices eased pressure on cost burdens."

Further details of the publication revealed that the Composite PMI dropped to 44.5 from 46.4 in the same period.

Commenting on the data, "business conditions are worsening as 2022 draws to a close, with a steep fall in the PMI indicative of GDP contracting in the fourth quarter at an annualised rate of around 1.5%," noted Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. 

Market reaction

The US Dollar came under modest selling pressure on this report and the US Dollar Index was last seen posting small daily losses at 104.42.

• Swiss franc weakens amid higher European bond yields.
• US Dollar firm on the back of risk aversion.
• USD/CHF up on Friday, but still down for the week.

The USD/CHF is rising for the second day in a row. It hit a four-day high at 0.9318 and the pulled back following the US S&P Global PMI that came in below expectations. Still, the Dollar continues to receive support from risk aversion.

USD/CHF off highs, still up

The USD/CHF pulled back to 0.9290 after the economic report but it is still up for the day supported by a stronger US Dollar across the board and a weaker Swiss Franc, following the European Central Bank meeting.

On Wednesday, USD/CHF bottomed at 0.9212, the lowest level since early March. It then started a bullish correction that gained momentum after central bank’s meetings. The Swiss National Bank, the Federal Reserve and the European Central Bank raised rates by 50 basis points to control inflation.

The hawkish tone of the ECB boosted German yields, and weighed on the Swiss Franc. The 10-year German yield jumped from 1.95% to 2.20%. The EUR/CHF cross rose from held above 0.9830 and now is testing 0.9900.

The last economic report of the week, showed the preliminary November US S&P Global Manufacturing PMI fell from 47.7 to 46.2, while the Service PMI fell from 46.2 to 44.4 against expectations of a recovery to 46.8. The numbers weakened the Dollar that pulled back across the board.

On a weekly basis, USD/CHF is still headed toward the lowest close since April, far from the bottom. It is the fourth weekly decline in a row. The rebound from the lows show some difficulties for the pair in extending the downside.

Technical levels

• S&P Global Manufacturing PMI continued to edge lower in early December.
• US Dollar Index declined below 104.50 with the initial reaction.

The economic activity in the US manufacturing sector continued to contract at an accelerating pace in early December with S&P Global Manufacturing PMI dropping to 46.2 from 47.7 in November. This reading came in worse than the market expectation of 47.7.

"Manufacturers registered one of the sharpest declines in new orders since the 2008-9 financial crisis during December, as customer spending waned," S&P Global said in its publication. "The further acceleration in the pace of contraction in new business led to a steeper decrease in production levels."

Market reaction

With the initial reaction, the US Dollar Index declined modestly and was last seen losing 0.2% on the day at 104.38.

EUR/USD surged to its strongest level in over six months at 1.0737 on Thursday. Nonetheless, economists at MUFG Bank expect the pair to struggle to see more gains from here.

Scope for further notable gains in EUR/GBP

“The worsening risk sentiment means EUR/USD is unlikely to shoot further higher from here. Gains for the Euro versus the higher-beta G10 currencies seems more likely. That would be consistent with market conditions turning more volatile which could be the key consequence of some of these central bank meetings this week.”

“Following the more cautious message on future rate hikes by the BoE we see scope for further notable gains in EUR/GBP. Higher EUR/GBP is also consistent with worsening risk sentiment and higher volatility when EUR tends to outperform GBP.”

From its September low around 0.9410, EUR/CHF has recovered some ground. In view of the safe haven dynamic of the Franc, the growth risks in the Eurozone complicates the outlook for the pair, economists at Rabobank report.

Hawkish tone of the ECB initially provided further support for EUR/CHF

“The hawkish tone of the ECB initially provided further support for EUR/CHF. However, the ECB’s policy is essentially aimed at curbing an inflation rate which is to a large extent being led by higher energy and food prices. Tighter financial conditions combined with the risk that energy prices may rise again next year are bad news for growth.”

“In view of the fact that imports of expensive energy imports have weighed heavily on the Eurozone’s current account, the EUR could be more sensitive to a deterioration in risk appetite next year. Commonly, if the risk appetite in the Eurozone is under pressure, the CHF benefits from a safe haven bid.” 

“Given our view that the EUR is not out of the woods, we see risk that EUR/CHF could struggle to break above the 0.99 level on a three-month view.”

EUR/USD struggles despite hawkish ECB and rise in EZ yields. The pair may remain better offered for now for three reasons, according to economists at Scotiabank.

Cautious on the EUR’s near-term outlook

“Positioning (markets were long EUR running into the ECB).”

“Risk aversion (higher yields globally are weighing on stocks and lifting the USD).”

“Technical considerations (the EUR was starting to look overbought after its run higher).”

“We are cautious on the EUR’s near-term outlook but remain bullish from a longer run point of view.”

In an interview with Bloomberg TV on Friday, New York Federal Reserve President John Williams said that it was possible for the FOMC to hike more than the terminal rate projected in the dot plot.

Additional takeaways

"Fed is well on its way to where it needs to be."

"No need for funds rate over 6%."

"Supply chains are improving around the world."

"Seeing more factors helping to lower inflation."

"We are seeing good news in inflation data."

"Core services inflation remains an issue."

"US is not in a recession, doesn't expect it to fall into recession."

Market reaction

The US Dollar Index showed no immediate reaction to these comments and was last seen trading flat on the day at 104.58.

• GBP/USD oscillates in a narrow band near a one-week low touched earlier this Friday.
• The dismal UK data, dovish BoE weigh on the Sterling Pound and acts as a headwind.
• A combination of factors underpins the USD, which also contributes to capping the pair.

The GBP/USD pair struggles to capitalize on its modest intraday bounce from the 1.2120 area, or over a one-week low and remains on the defensive through the early North American session. The pair, so far, has managed to defend a technically significant 200-day SMA and is currently trading around the 1.2175 region.

A combination of factors undermines the British Pound, which, along with some dip-buying around the US Dollar, acts as a headwind for the GBP/USD pair. A dovish outcome from the Bank of England meeting on Thursday, with two MPC members voting to keep interest rates unchanged, undermines the GBP, which is further pressured by the disappointing UK macro data.

The UK Office for National Statistics reported that domestic Retail Sales fell 0.4% in November and were down 5.9% YoY. Furthermore, sales excluding volatile auto and fuel dropped by 0.3% during the reported month, missing consensus estimates. The data fuels concerns that the economy has entered a prolonged recession and favours the GBP/USD bears.

The US Dollar, on the other hand, draws support from a goodish pickup in the US Treasury bond yields, bolstered by a hawkish commentary by the Federal Reserve earlier this week. In fact, the US central bank signalled that it will continue to raise rates to crush inflation and projected at least an additional 75 bps increase in borrowing costs by the end of 2023.

Adding to this, the risk-off impulse - as depicted by a follow-through steep decline in the equity markets - and growing recession fears drive some haven flows towards the Greenback. This is seen as another factor capping gains for the GBP/USD pair. That said, some cross-driven strength stemming from an intraday pullback in the EUR/GBP cross helps limit the downside.

Nevertheless, spot prices remain on track to register modest weekly losses as traders look forward to the flash US PMI prints for December. Apart from this, the US bond yields and the broader risk sentiment will influence the USD price dynamics. This, in turn, should allow traders to grab short-term opportunities around the GBP/USD pair on the last day of the week.

Technical levels to watch

Gold price has had an eventful year, even though by the middle of December it is almost back at the level it was at the beginning of the year. Economists at Commerzbank expect the yellow metal to fall to $1,750 earlier next year before trending back higher towards $1,850 by end-2023.

Gold should be supported by the weakening of the USD

“We expect the Gold price to initially fall back towards $1,750 until it is clear that the Fed's cycle of interest rate hikes is over.” 

“According to Fed Fund Futures, the market still sees the interest rate peak at slightly below 5%. In the short term, there is thus a need for an upward adjustment of interest rate expectations, which should weigh on Gold.”

“After what is expected to be the last interest rate hike in March, a period of unchanged rates is likely to follow before the Fed cuts the key rate again toward the end of 2023 in view of a weak economy and lower inflation. The Fed, on the other hand, is not yet forecasting this. As soon as the Fed also adopts this view, Gold should rise again. This should be the case in the second half of next year.” 

“Gold should also be supported by the weakening of the US Dollar expected by our currency strategists.”

“We expect XAU/USD to rise in the second half of the year to $1,850 by the end of 2023.”

• AUD/USD turns lower for the second straight day and is pressured by a combination of factors.
• The Fed’s hawkish outlook, a pickup in the US bond yields act as a tailwind for the greenback.
• The risk-off mood further benefits the safe-haven USD and weighs on the risk-sensitive Aussie.

The AUD/USD pair meets with a fresh supply following an intraday uptick to the 0.6735 area and turns lower for the second straight day on Friday. Spot prices remain depressed near the 0.6680-0.6675 zone, or over a one-week low, flirting with the 100-day SMA support heading into the North American session.

A more hawkish commentary by the Federal Reserve earlier this week pushes the US Treasury bond yields higher and acts as a tailwind for the US Dollar, which, in turn, weighs on the AUD/USD pair. In fact, the US central bank signalled that it will continue to raise rates to crush inflation and projected at least an additional 75 bps increase in borrowing costs by the end of 2023.

Apart from this, the risk-off mood underpins the safe-haven buck and exerts additional pressure on the risk-sensitive Australian dollar. Worries that rapidly rising borrowing costs will lead to a deeper global downturn temper investors' appetite for perceived riskier assets. This is evident from a sea of red across the equity markets and driving haven flows towards the buck.

The intraday fall for the AUD/USD pair could also be attributed to some technical selling, especially after the overnight breakdown below a multi-week-old ascending trend line. Bearish traders now await sustained weakness below the 100-day SMA before positioning for a further appreciating move. This, in turn, will suggest that spot prices have topped out in the near term.

Next on tap is the US economic docket, featuring the release of the flash PMI prints for December. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Trades will further take cues from the broader risk sentiment to grab short-term opportunities on the last day of the week.

Technical levels to watch

The Swiss Franc is the top performing G10 currency after the US Dollar. Economists at MUFG Bank expect the EUR/CHF to remain below parity in the coming months. 

SNB hikes but intervention a tool also

“The SNB hiked by 50 bps, taking the key policy rate to 1.00%. So despite a policy rate that is much lower than elsewhere, the SNB also stepped down the pace from 75 bps at the last meeting in September and signalled the potential for further hikes going forward. The stepdown in pace was well justified though with inflation in Switzerland much more under control than elsewhere.”

“The SNB can also play a key role in influencing expectations of CHF direction. SNB President Jordan stated that the SNB bought CHF for monetary policy purposes. Holding over USD800 bn of foreign currency to sell will act as a powerful influence in keeping the Franc strong in 2023.” 

“We see EUR/CHF remaining at levels below parity going forward.”

GBP/USD is trading modestly higher. However, net losses on the week leave the pair prone to more weakness, economists at Scotiabank report.

Intraday gains back through 1.2225 may provide some short-term relief

“Net losses on the week (so far) for the GBP leaves Cable looking vulnerable to more corrective pressure to the downside.”

“Support is 1.2100/05.” 

“Intraday gains back through 1.2225 may provide some short-term relief but we expect better selling pressure to emerge near 1.2350.”

See: Sterling is not granted much potential for a recovery – Commerzbank

The Bank of England has recently published the finding of its latest Market Participants Survey that showed the median expectation for peak bank rate stood at 4.25%.

Additional takeaways

"Bank rate expected to peak in March 2023."

"29.8% chance of cut to bank rate within the next year."

"Participants see 76 bln sterling of QE unwind from November 2022-September 2023, 80 billion sterling unwind from September 2023 to September 2024."

"CPI seen at 8.3% in 6 months, 5.5% in one year, 3% in 2 years, 2% in 3 years."

Market reaction

GBP/USD extended its recovery after this publication and was last seen posting modest daily gains at 1.2193.

EUR/USD holds above the 1.06 level. Nonetheless, economists at Danske Bank believe that the pair will struggle to leave the gravity force of parity.

Multiple potential EUR/USD drivers

“Looking ahead it is a tough balancing act for FX markets. On the one hand, higher EUR rates is a clear boost to the carry-attractiveness of the EUR. On the other hand, higher real rates is set to hit Eurozone growth, which is already suffering from the last year’s negative terms-of-trade shock. This will hurt the investment case of Eurozone assets making the EUR look less attractive compared to peers.”

“In the near term, our bearish case for EUR/USD is under pressure. However, we still think EUR/USD is a sell-on-rallies rather than a buy-on-dips.”

“Our adjusted MEVA-model estimates has EUR/USD close to 0.90 as fair (based on terms of trade, unit labour costs and real rates) and unless global growth prospects accelerate next year we think it will remain difficult for EUR/USD to persistently leave the gravity force of parity.”

• USD/CAD attracts some dip-buying on Friday and is supported by a combination of factors.
• Retreating oil prices undermines the Loonie and acts as a tailwind amid a modest USD uptick.
• A sustained move beyond the 1.3700 mark is needed to support prospects for additional gains.

The USD/CAD pair reverses an intraday dip to the 1.3620-1.3615 area and hits a fresh weekly high during the mid-European session on Friday. Spot prices, however, struggle to capitalize on the move and remain below the 1.3700 mark, though the bias seems tilted in favour of bullish traders.

Crude oil prices extend the previous day's retracement slide from over a one-week high and undermine the commodity-linked Loonie. This, along with the emergence of some US Dollar dip-buying, is seen acting as a tailwind for the USD/CAD pair. Investors seem worried that rapidly rising borrowing costs could lead to a deeper global economic downturn and dent fuel demand, which, in turn, is exerting pressure on the black liquid for the second straight day.

The USD, on the other hand, draws support from a more hawkish commentary by the Federal Reserve and is looking to build on the overnight solid rebound from a six-month low. It is worth recalling that the US central bank signalled on Wednesday that it will continue to raise rates to crush inflation. This, in turn, triggers a further recovery in the US Treasury bond yields. Apart from this, the risk-off impulse offers additional support to the safe-haven buck.

The prospects for further policy tightening by major central banks, along with recession fears, take its toll on the global risk sentiment. This is evident from a sea of red across the equity markets, which drives investors to take refuge in traditional safe-haven assets. The USD/CAD bulls, meanwhile, await a sustained strength beyond the 1.3700 round-figure mark before positioning for an extension of the upward trajectory witnessed over the past month or so.

Traders now look forward to the US economic docket, featuring the release of the flash PMI prints for December. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the USD/CAD pair. Apart from this, oil price dynamics should also contribute to producing short-term opportunities on the last day of the week.

Technical levels to watch

AUD/USD stabilises after 2.35% drop yesterday, most since March 2020. Holding above 0.6640/10 support zone is crucial to avoid a deeper fall, economists at Société Générale report.

Move beyond 0.6900 essential for affirming continuation in up-move

“Establishing itself beyond 0.6900 is essential for affirming continuation in up-move.” 

“A short-term consolidation is not ruled out; lower end of recent range at 0.6640/0.6610 is first layer of support. In case this gets violated, a deeper down move is likely towards 0.6520, the 50% retracement of the bounce and 0.6340.” 

The Swiss central bankers once again changed their intervention strategy. In the opinion of economists at Commerzbank, the situation in Switzerland will be of greater significance for the FX market.

The Franc will become a currency that is more complex to value

“Interventions in favour of the Franc would no longer be caused by CHF depreciation. There will only be interventions in favour of the Franc if the SNB considers it necessary from a monetary policy point of view.”

“We now have to figure out whether the SNB’s monetary policy strategy is working out, in particular whether inflation develops as the central bankers had hoped. And if that is not the case, we have to form an opinion as to whether the SNB will prefer to ‘only’ hike interest rates or whether it might prefer to intervene or do both.”

“One thing is clear: the times when Swiss inflation data was almost irrelevant for the CHF exchange rates are likely to be well and truly over. The Franc will become a currency that is more complex to value.”

“Just to ensure that there are no misunderstandings: interest rate policy remains the most important monetary policy tool. But at least the SNB took a first step towards exchange rate policy. That is quite wise for a small, open economy. It sounds quite sensible that in the future the situation in Switzerland will be of greater significance for the FX market.”

Citing Chinese state media, Reuters is reporting headlines from China's annual Central Economic Work Conference.

Key takeaways

"Foundation for China's economic recovery is not solid."

"China's economy faces  relatively big pressures from shrinking demand, supply shock and weakening expectations."

"China will implement prudent monetary policy in 2023."

"China will implement proactive fiscal policy in 2023."

"China's monetary policy will be precise and forceful."

"China will keep liquidity reasonably ample."

"China should better coordinate epidemic prevention and control and economic and social development."

"China will step up macro economic adjustments, strengthen policy coordination."

"China will expand domestic demand, prioritise consumption recovery."

"China will continue to give full play to the role of exports in supporting the economy."

"Housing is for living, not for speculation."

"China will ensure healthy development of property market."

"China will meet reasonable financing needs of the property industry."

"China will effectively prevent and mitigate the risks of high-quality leading property developers."

"China will support rigid and improved housing demand."

"China will encourage private investment in key investment projects."

"China will safeguard bottom lines for preventing systemic risks."

Market reaction

Markets remain risk-averse with the US stock index futures losing around 1% following these comments.

The ECB outlined plans to begin quantitative tightening. Thus, the Euro has still got plenty of upward momentum, in the view of Kit Juckes, Chief Global FX Strategist at Société Générale.

1.0735 will be a crucial barrier to overcome

“With QT coming in Europe (and remember, it was the cocktail of QE and negative rates that saw EUR/USD average 1.13 in the 5 years to 2019, down from 1.33 in the 5 years to 2014), the Euro has still got plenty of upward momentum.”

“A January hangover seems more than likely but not before an excess of bullishness in the coming days, even if yesterday’s high (1.0735) will be a crucial barrier to overcome.”

• Gold price surrenders its modest intraday gains and hangs near a one-week low set on Thursday.
• A more hawkish stance adopted by major central banks acts as a headwind for the commodity.
• The emergence of some US Dollar buying further contributes to capping gains for the XAU/USD.
• The prevalent risk-off environment lends support and helps limit the downside for Gold price.

Gold price struggles to capitalize on its modest intraday uptick and attracts fresh sellers near the $1,785 region on Friday. The XAU/USD slips below the $1,780 level during the first half of the European session and hovers around a one-week low touched on Thursday.

Hawkish central banks act as a headwind for Gold price

The prospects for further policy tightening by major central banks turn out to be a key factor acting as a headwind for the non-yielding Gold price. In fact, the Federal Reserve signalled on Wednesday that it will continue to raise rates to crush inflation. Moreover, policymakers see the terminal rate rising to 5.1%, up from the 4.6% level forecasted in September. The European Central Bank (ECB) also struck a hawkish tone on Thursday and indicated that more interest rate hikes are needed to tame inflation. The Bank of England, meanwhile, offered a similar message and said that more rate hikes were likely in its fight against stubbornly high inflation.

Modest USD uptick contributes to cap Gold price

Apart from this, the emergence of some US Dollar dip-buying, bolstered by a goodish pickup in the US Treasury bond yields, further contributes to capping the upside for the Dollar-denominated Gold price. In fact, the USD Index, which measures the greenback's performance against a basket of currencies, is now looking to build on the previous day's solid rebound from its lowest level since mid-June. That said, the downside remains cushioned, at least for the time being, amid the prevalent risk-off environment, which tends to benefit the safe-haven XAU/USD.

Risk-off impulse could limit losses for Gold price

The market sentiment remains fragile amid concerns that rapidly rising borrowing costs could trigger a deeper global economic downturn. This is evident from a further steep decline in the equity markets, which might force investors to take refuge in traditional safe-haven assets and lend some support to Gold price. This makes it prudent to wait for strong follow-through selling before confirming that the XAU/USD has topped out and positioning for any meaningful corrective pullback in the near term.

Gold price technical outlook

From a technical perspective, the recent two-way price moves around the very important 200-day Simple Moving Average (SMA) might be categorized as a bullish consolidation phase. Moreover, oscillators on the daily chart are holding in the positive territory and support prospects for further gains. That said, repeated failures to find acceptance, or capitalize on the move beyond the %1,800 mark warrant some caution for aggressive traders.

Gold price key levels to watch

EUR/GBP bore the brunt of yesterday's Euro strength. Economists at ING expect the pair to hit 0.89 in the first quarter of next year.

November UK Retail Sales figures look very poor

“EUR/GBP faces the double whammy not only from the hawkish ECB but also from what the hawkish ECB means for the global risk environment. Sterling is a high beta on global risk given its large current account deficit and the large role of financial services in the UK economy.”

“We have an 0.89 forecast for EUR/GBP in 1Q23 and yesterday's ECB move supports the forecast. We have also just seen November UK Retail Sales figures, which all look very poor.”

“Interestingly, the Swiss National Bank (SNB) will protect the Swiss Franc a lot more than the BoE will protect Sterling and that is why we see GBP/CHF heading lower too.”

Antje Praefcke, FX Analyst at Commerzbank, believes that Norges Bank is unlikely to take a dovish approach. Thus, the Norwegian Krone is undervalued at current levels.

Assuming that NB will immediately take a dovish approach is wrong

“Norges Bank was one of the first central banks to start the rate hike cycle. This is why, similar to the Fed, it might be one the first ones to end and reverse it. However, to assume that it will immediately take a dovish approach is wrong in my opinion, as the data does not suggest that.”

“I stick to my view that the market is trading NOK at too weak levels.”

European Central Bank (ECB) policymaker Robert Holzmann said on Friday that “the choice was between hawkish 50 basis points (bps) or dovish 75 bps rate hike.”

Additional quotes

“ECB to go deep into restrictive territory if needed.”

“Does not want to say where the terminal rate is.”

Related reads

• EUR/USD sticks to modest intraday gains, hovers around mid-1.0600s post-Eurozone PMIs
• EUR/GBP prolongs the post-ECB rally, climbs to one-month high around 0.8770 region

European Central Bank (ECB) Governing Council member Olli Rehn said on Friday, “50 basis points (bps) hikes are likely in February and March.”

He added that there is “quite some way to go with rate hikes.”

Market reaction

EUR/USD is off the highs, trading around 1.0610 despite the hawkish comments from the ECB policymaker.

• EUR/GBP gains traction for the second straight day and climbs to a nearly one-month high.
• The ECB’s hawkish outlook continues to underpin the Euro and extends support to the cross.
• The dismal UK Retail Sales data weigh on the British Pound and provide an additional lift.

The EUR/GBP cross is building on the previous day's strong positive move and gaining traction for the second successive day on Friday. The momentum extends through the first half of the European session and lifts spot prices to a nearly one-month high, around the 0.8770 region in the last hour.

A more hawkish stance adopted by the European Central Bank (ECB) on Thursday continues to underpin the shared currency, which turns out to be a key factor acting as a tailwind for the EUR/GBP cross. In fact, the ECB indicated that it will need to raise borrowing costs significantly further to tame inflation, which remains far too high and is projected to stay above the target for too long.

Adding to this, Friday's release of the better-than-expected flash Eurozone PMIs, suggesting that the economic downturn in the region eases in December, offers additional support to the Euro. The British Pound, on the other hand, is pressured by dismal domestic data, showing that Retail Sales fell again in November and fueling concerns that the economy has already entered a prolonged recession.

Apart from the aforementioned fundamental factors, sustained strength beyond a previous strong support breakpoint, around the 0.8700 mark, seems to have prompted some technical buying. any subsequent move up, however, is more likely to confront stiff resistance near the 0.8800-0.8810 supply zone. The latter should act as a pivotal point, which if cleared will be seen as a fresh trigger for bulls.

Technical levels to watch

• UK Manufacturing PMI dropped to 44.7 in December, a big miss.
• Services PMI in the UK comes in at 50.0 in December, beating estimates.
• GBP/USD remains heavily offered near 1.2140 on mixed UK PMIs.

The seasonally adjusted S&P Global/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) dropped further to 44.7 in December versus 46.3 expected and 46.5 – in November’s final reading.

Meanwhile, the Preliminary UK Services Business Activity Index for December arrived at 50.00 when compared to November’s final print of 48.8 and 48.5 expected.

Chris Williamson, Chief Business Economist at S&P Global, commented on the survey

“The December data add to the likelihood that the UK is in recession, with the PMI indicating a 0.3% GDP contraction in the fourth quarter after the 0.2% decline seen in the three months to September.”

“For now, the downturn looks to be relatively mild, and the easing in the rate of decline in December is encouraging news, as is the further marked cooling of inflationary pressures.”

FX implications

Mixed UK Services PMI fails to move the GBP/USD pair. The spot is trading at 1.2140, down 0.29% on the day.  

The Dollar mounted a modest fightback yesterday. Economists at ING expect the US Dollar Index (DXY) to have found support from this week’s events.

A poor environment for equities and commodities

“Slowdown fears will remain in the ascendancy and this looks like a poor environment for equities and commodities (though this latter asset class could find support from the supply side).” 

“We would like to think DXY has put in some kind of low near 103.50 on Wednesday and that this week's re-assessment of global growth can provide the defensive, high-yielding Dollar with some support.”

“Let's see whether 104.00/104.20 support can hold out short-term and indeed whether the Dollar can hold out at these levels until January when seasonal trends turn more supportive.”

• EUR/USD regains some positive traction on Friday amid a modest USD weakness.
• The ECB’s hawkish outlook acts as a tailwind for the Euro and remains supportive.
• A combination of factors should limit the USD losses and cap the upside for the pair.

The EUR/USD pair attracts some dip-buying on Friday and reverses a part of the overnight retracement slide from its highest level since June 9. The pair sticks to its modest intraday gains through the first half of the European session and is currently trading around mid-1.0600s.

The European Central Bank struck a hawkish tone on Thursday and indicated that it will need to raise borrowing costs significantly further to tame inflation. This, in turn, continues to act as a tailwind for the shared currency. Apart from this, the emergence of fresh US Dollar selling is seen lending some support to the EUR/USD pair.

On the economic data front, the flash version of the Eurozone PMIs showed a slight improvement in the private-sector business activity during December. The gauge, however, remains in contraction territory, which, along with looming recession risks, might hold back bulls from placing fresh bets around the Euro and cap the EUR/USD pair.

The USD downtick, meanwhile, is likely to remain limited amid a hawkish assessment of the FOMC decision on Wednesday, signalling that it will continue to raise rates to crush inflation. Furthermore, the prevalent risk-off mood should help revive demand for the safe-haven greenback and contribute to keeping a lid on the EUR/USD pair.

Even from a technical perspective, repeated failures to find acceptance above the 1.0700 mark could be seen as the first sign of bullish exhaustion. This makes it prudent to wait for some follow-through buying before positioning for an extension of the EUR/USD pair's well-established uptrend witnessed over the past month or so.

Traders now look to the release of the flash US PMI prints for the current month, due later during the early North American session. This, along with the broader risk sentiment, will influence the USD price dynamics and provide some impetus to the EUR/USD pair. Nevertheless, spot prices remain on track to register the highest weekly close since May.

Technical levels to watch

FX option expiries for Dec 16 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0400 1.7b
• 1.0430 479m
• 1.0450 2.1b
• 1.0500 2.1b
• 1.0550 455m
• 1.0600 528m
• 1.0650 425m
• 1.0700 718m
• 1.0750 596m
• 1.0800 1.1b

- GBP/USD: GBP amounts        

• 1.2000 350m
• 1.2100 337m
• 1.2300 460m
• 1.2500 571m

- USD/JPY: USD amounts                     

• 135.00 1.7b
• 136.00 1.2b
• 137.00 786m
• 137.90 400m
• 138.10 400m
• 140.00 1.8b

- USD/CHF: USD amounts        

• 0.9400 500m
• 0.9800 358m
• 1.0000 1.1b

- AUD/USD: AUD amounts  

• 0.6700 875m
• 0.6725 300m
• 0.6800 437m
• 0.6840 837m
• 0.6900 325m
• 0.7060 561m

- USD/CAD: USD amounts       

• 1.3350 850m
• 1.3400 1b
• 1.3565 567m
• 1.3600 310m
• 1.3700 595m

- NZD/USD: NZD amounts

• 0.6300 533m
• 0.6600 302m

- EUR/GBP: EUR amounts        

• 0.8400 850m
• 0.8900 729m
• 0.9000 399m
• 0.9050 475m

As generally expected, the Bank of England (BoE) hiked the key rate by 50 bps to 3.50%. Why did Sterling ease following the decision? In my view of Antje Praefcke, FX Analyst at Commerzbank, there are three different possible explanations.

If you hesitate once, no one will trust you again

“(1.) The market might still assume that the BoE will not act with sufficient determination against inflation. Always along the lines of: if you hesitate once no one will trust you again.”

“(2.) Or the market is concerned that the BoE might hike its key rate too quickly after all and then overshoot, thus exacerbating the economic misery that is already foreseeable.”

“(3.) The market seems to generally question the willingness of central banks to tighten monetary policy. After the BoE hesitated for months, the market now thinks it can be least trusted to suddenly turn into an uber-hawk so that Sterling does not stand a chance either against the euro or the Dollar.”

“I tend towards a mix between (1.) and (3.). However, whichever explanation you pick, the result is fundamentally the same: Sterling is not granted much potential for a recovery and is likely to generally remain under depreciation pressure.”

• Eurozone Manufacturing PMI arrives at 47.8 in December vs. 47.1 expected.
• Bloc’s Services PMI rises to 49.1 in December vs. 48.5 expected.
• EUR/USD extends gains above 1.0650 on the encouraging Eurozone PMIs.

The Eurozone manufacturing sector contraction eased in December, the latest manufacturing activity survey from S&P Global research showed on Friday.

The Eurozone Manufacturing purchasing managers index (PMI) arrived at 47.8 in December vs. 47.1 expectations and 47.1 last. The index reached a three-month top.

The bloc’s Services PMI stood at 49.1 in December vs. 48.5 expected and November’s 48.5, hitting a four-month high.

The S&P Global Eurozone PMI Composite climbed to 48.8 in December vs. 48.0 estimated and 47.8 previous. The gauge registered fresh four-month highs.

Comments from Chris Williamson, Chief Business Economist at S&P Global

“While the further fall in business activity in December signals a strong possibility of recession, the survey also hints that any downturn will be milder than thought likely a few months ago.”

“The data for the fourth quarter are consistent with GDP contracting at a quarterly rate of just less than 0.2%, and forward-looking indicators are currently boding well for the rate of decline to ease further in the first quarter.”

FX implications

EUR/USD extends gains above 1.0650, cheering the upbeat euro area PMIs. The spot is adding 0.22% on the day.

Germany’s central bank, the Bundesbank, said in its latest report, “a recession is now expected for Germany in 2023.”

Additional takeaways

Related reads

• German Preliminary Manufacturing PMI rises to 47.4 in December vs. 46.3 expected
• ECB’s Villeroy: Must not speculate on the number of rate hikes

European Central Bank (ECB) Governing Council member and French central bank governor Francois Villeroy de Galhau made some comments on the interest rates and economic outlook on Friday.

Key quotes

Market reaction

EUR/USD was last seen trading at 1.0640, up 0.15% on the day.

EUR/USD holds in positive territory on Friday. It is hard to say with any confidence that a short-term top is in place as the pair continues to trade and close above 1.0600/10, in the opinion of economists at ING.

Sticking with bearish EUR/USD views into the New Year

“For the time being, we will stick with our bearish EUR/USD views into the New Year.”

“Today's data calendar features the provisional PMI releases for December. These are all expected to remain firmly in recession territory. And we will also see the eurozone October trade balance, which is expected to bounce back from a EUR37 bn deficit in the prior month.”

“Let's see whether today's EUR/USD rally stalls at the 1.0665/0680 area. However, as long as EUR/USD continues to trade and close above 1.0600/10, it is hard to say with any confidence that a short-term top is in place.”

• German Manufacturing PMI arrives at 47.4 in December vs. 46.3 expected.
• Services PMI in Germany jumps to 49.0 in December vs. 46.3 expected.
• EUR/USD remains unfazed at around 1.0635 on upbeat German PMIs.

The German manufacturing and services sectors’ activtiy downturn eased further in December as price pressures continue to cool down, the preliminary manufacturing activity report from S&P Global/BME research showed this Friday.

The Manufacturing PMI in Eurozone’s economic powerhouse came in at 47.4 this month vs. 46.3 expected and 46.2 prior. The index jumped to two-month highs.

Meanwhile, Services PMI jumped from 46.1 in November to 49.0 in December as against the 46.3 estimated. The PMI hit the lowest level in two months.

The S&P Global/BME Preliminary Germany Composite Output Index arrived at 48.9 in December vs. 46.5 expected and November’s 46.3. The gauge reached a three-month peak.

Key comments from Phil Smith, Economics Associate Director at S&P Global

“The latest flash PMI survey paints a somewhat less gloomy picture of Germany’s economy as we head towards the end of the year.”

“Although still in contraction territory, the headline index pointed to a shallower downturn in overall business activity in December, as the declines in both manufacturing and services eased.”

FX implications

EUR/USD is keeping its range play intact around 1.0635 on the upbeat German data. The spot is trading 0.14% higher on the day. 

• Silver edges lower for the second successive day and drops to over a one-week low.
• The technical setup favours bearish traders and supports prospects for further losses.
• Attempted recovery back above the $23.00 round figure is more likely to get sold into.

Silver adds to the previous day's heavy losses and remains under some selling pressure for the second successive day on Friday. The white metal maintains its offered tone through the early European session and drops to over a one-week low, around the $22.75-$22.70 region in the last hour. 

Looking at the broader picture, the overnight sustained break through a one-week-week-old ascending channel and the 100-hour SMA was seen as a fresh trigger for bearish traders. Furthermore, acceptance below the 200-hour SMA, along with bearish oscillators on hourly charts, supports prospects for a further near-term depreciating move for the XAG/USD.

That said, technical indicators on the daily chart - though have been losing positive traction - are still holding in the bullish territory. Hence, any subsequent fall is likely to find decent support near a horizontal resistance breakpoint, around the $22.00 mark. The latter should act as a pivotal point, which if broken should pave the way for deeper losses.

On the flip side, attempted recovery beyond the $23.00 mark (200-hour SMA) could attract fresh sellers near the 100-hour SMA, near the $23.40-$23.45 region. This is followed by the aforementioned ascending trend-channel support breakpoint, around the $23.70 zone, and the $24.00 level. A convincing breakout through the said barriers is needed to negate the negative outlook.

Silver 1-hour chart

Key levels to watch

Danmarks Nationalbank (DN) hiked its key policy rate by 50 bps to 1.75%. The decision to mirror ECB 1:1 should send EUR/DKK back down to 7.4365 near-term, economists at Danske Bank report.

50 bps rate hike amid a still strong DKK

“DN raised its key policy rates 50 bps to 1.75% in response to the 50 bps rate hike from ECB earlier today. DN thus opted to follow ECB 1:1 this time despite the still strong DKK vis-à-vis EUR.”

“The market was expecting DN to hike about 10 bps less than ECB, so the decision to follow ECB 1:1 will likely send EUR/DKK lower and down to 7.4365 again, trigger renewed FX intervention selling over the coming weeks and trigger a further widening of the spread to ECB’s policy rate.”

“We still expect DN to hike 10 bps less than ECB in February and to follow ECB after that, i.e. we forecast DN to hike its key policy rate to 2.90% in May.”

It is not of paramount importance for exchange rates how much currencies yield at the current end or close to it. What is more decisive is the yield expected long-term, in the view of economists at Commerzbank.

Fed will cut its key rate again quickly and significantly

“The market expects that following the rate hike cycle the Fed will cut its key rate again quickly and significantly. It only expects very moderate rate cuts at the end of the rate hikes. While that remains the case, any further Fed rate hike is likely to be seen as a mistake – or at least as less USD-relevant.”

“The areas below the curves of the key rate expectations are much more relevant than the position of the curve at present or in the near future. For that reason, we expect that a revision of the key rate expectations, which happens concurrently for ECB and Fed, might end up being slightly positive for the Euro.”

• USD/JPY comes under fresh selling pressure on Friday amid a modest USD weakness.
• The Fed’s hawkish outlook to revive the USD demand and lend support to the major.
• Fading safe-haven demand could undermine the JPY and help limit losses for the pair.

The USD/JPY pair meets with a fresh supply on Friday and erodes a part of the previous day's rally to over a two-week high. The pair maintains its offered tone through the early European session, though has managed to recover a few pips from the daily low and is currently placed just below mid-137.00s.

The US Dollar struggles to capitalize on the overnight recovery move from a six-month low and comes under some renewed selling pressure on the last day of the week. This, in turn, is seen as a key factor acting as a headwind for the USD/JPY pair. That said, the Fed's hawkish outlook should help revive the USD demand and lend some support to the major, at least for the time being.

It is worth recalling that the US central bank struck a more hawkish tone on Wednesday and signalled that it will continue to raise rates to crush inflation. In the so-called dot plot, policymakers projected at least an additional 75 bps increases in borrowing costs by the end of 2023 and see the terminal rate rising to 5.1%, higher than the 4.6% level forecasted in September.

Apart from this, signs of stability in the financial markets could undermine the safe-haven Japanese Yen and contribute to limiting the downside for the USD/JPY pair. Even from a technical perspective, repeated failures to find bearish acceptance below the very important 200-day SMA and the subsequent bounce warrant caution before positioning for a further near-term depreciating move.

Market participants now look forward to the release of the flash US PMI prints, due later during the early North American session. The data might influence the USD price dynamics, which, along with the broader risk sentiment, should provide some impetus to the USD/JPY pair. Nevertheless, spot prices remain on track to post modest gains for the second successive week.

Technical levels to watch

The velocity of the USD’s rise has been driven by the pace and size of interest rate increases. In the view of economists at ANZ Bank, we are approaching the end of US Dollar dominance.

Scope for USD consolidation in the short term

“We expect currency volatility to continue into 2023, as the synchronised global tightening cycles and recession risks continue to drive returns.”

“We think the USD’s peak was set when the DXY touched 114 in September after rising over 20% since January. The USD’s exceptionalism premium has diminished on rising fears of a US recession. The energy and political risk premiums in Europe and the UK have also waned.”

“In the short term, there is scope for USD consolidation. We expect it to receive safe haven attention due to the rising fear of recessions , and there is also room forhawkish surprises from the Fed that are not currently reflected in the price.”

Here is what you need to know on Friday, December 16:

The US Dollar benefited from the risk-averse market atmosphere on Thursday and outperformed its major rivals with the US Dollar Index gaining nearly 1%. The market mood seems to have improved modestly early Friday, making it difficult for the US Dollar to build on Thursday's rally. S&P Global will release the preliminary Manufacturing and Services PMI report for Germany, the Eurozone, the UK and the US later in the day. The final revision to November inflation figures and October Trade Balance Data will also be featured in the European economic docket. 

On Thursday, the Bank of England (BOE) and the European Central Bank (ECB) both decided to hike policy rates by 50 basis points (bps) as expected. The BOE's policy statement, however, revealed that two members of the Monetary Policy Committee voted to keep the rates unchanged, causing the Pound Sterling to weaken against its rivals.

Later in the session, ECB President Christine Lagarde said in the post-meeting press conference it was obvious that they should expect additional 50 bps rate increases for a "period of time." Elaborating on the matter, Lagarde noted that the information that they currently have predicates a 50 bps increase in key rates in the next two meetings. Although Lagarde's surprisingly hawkish remarks provided a boost to the Euro, the intense flight to safety during American trading hours allowed the US Dollar to preserve its strength. Early Friday, US stock index futures post modest daily gains.

EUR/USD surged to its strongest level in over six months at 1.0737 with the initial reaction to Lagarde's comments but made a sharp U-turn in the second half of the day, closing in negative territory below 1.0630. The pair holds in positive territory above 1.0650 early Friday.

ECB Quick Analysis: Hawks win major concessions, EUR/USD set to rise (assuming quiet spreads).

GBP/USD lost more than 200 pips on Thursday but managed to stage a modest rebound toward the 1.2200 area on Friday. The data published by the UK's Office for National Statistics revealed that Retail Sales in November declined by 0.4% following October's increase of 0.9%. Although this reading came in worse than the market expectation for an expansion of 0.3%, it failed to trigger a noticeable market reaction.

BOE Quick Analysis: Three reasons why Sterling is set to continue suffering.

Fueled by the broad-based US Dollar strength, USD/JPY gained more than 200 pips on Thursday and climbed toward 138.00. Earlier in the day, the data from Japan showed that the Jibun Bank Manufacturing PMI declined to 48.8 in early December from 49 in November. On a positive note, the Jibun Bank Services PMI climbed to 51.7 in the same period from 50.3. Nevertheless, the pair stays on the back foot in the European morning and declines toward 137.00.

The Swiss National Bank raised its policy rate by 50 bps to 1% on Thursday. Commenting on the policy outlook, SNB Chairman Thomas Jordan hinted at further rate hikes by saying, "longer-end of the inflation forecast is slightly going upwards, indicates current monetary policy doesn't guarantee price stability is ensured." USD/CHF, however, shook off the bearish pressure and closed modestly higher on Thursday before going into a consolidation phase slightly above 0.9250 early Friday.

Gold price lost more than 1.5% on Thursday. With the 10-year US Treasury bond yield staying below 3.5%, XAU/USD staged a rebound and climbed above $1,780 on Friday. China's state planner, the National Development and Reform Commission (NDRC), said on Friday that economic growth was expected to continue picking up pace following the implementation of new COVID rules. Markets await announcements following the Central Economic Work Conference.

Bitcoin turned south amid risk aversion and erased the majority of its weekly gains on Thursday. BTC/USD was last seen trading modestly higher on the day near $17,500. Ethereum fell more than 3% on Thursday but didn't have a difficult time holding above. At the time of press, ETH/USD was up nearly 1% on the day at $1,280.

• GBP/USD gains some positive traction on Friday amid a modest USD downtick.
• The disappointing release of the UK Retail Sales fails to provide any impetus.
• A bleak outlook for the UK economy, BoE’s dovish hike favours the GBP bears.
• The Fed’s hawkish outlook, recession fears support prospects for further losses.

The GBP/USD pair attracts some buying on Friday and recovers a part of the previous day's heavy losses to a one-week low. The pair sticks to its modest intraday gains above the 1.2200 mark through the early European session and moves little following the release of the UK macro data.

The UK Office for National Statistics reported that Retail Sales dropped by 0.4% in November against the anticipated growth of 0.3% and the 0.9% increase recorded in the previous month. Furthermore, sales excluding the auto motor fuel unexpectedly fell by 0.3% MoM as compared to the 0.7% rise in October. The data validates a bleak outlook for the UK economy, which, along with a dovish 50 bps rate hike by the Bank of England on Wednesday, supports prospects for some meaningful downside for the GBP/USD pair.

That said, signs of stability in the equity markets prompt some selling around the safe-haven US Dollar and lend support to spot prices, at least for the time being. Meanwhile, the Fed struck a more hawkish tone on Wednesday and signalled that it will continue to raise rates to crush inflation. This, along with looming recession risks, favours the USD bulls and adds credence to the negative outlook for the GBP/USD pair. Hence, any further move up could be seen as a selling opportunity and remain capped.

Friday's economic docket also features the release of the flash PMI prints from the UK and the US. This, along with the broader risk sentiment, will influence the USD price dynamics and provide some impetus to the GBP/USD pair. Nevertheless, spot prices remain on track to register modest losses for the first time in seven weeks and settle well below a six-month high touched on Wednesday.

Technical levels to watch

• The UK Retail Sales came in at -0.4% MoM in November, a big beat.
• Core Retail Sales for the UK dropped by 0.3% MoM in November.
• The cable keeps its range at above 1.2200 on the downbeat UK data.

The UK retail sales arrived at -0.4% over the month in November vs. 0.3% expected and 0.9% previous. The core retail sales, stripping the auto motor fuel sales, fell by 0.3% MoM vs. 0.3% expected and 0.7% previous.

On an annualized basis, the UK retail sales plunged 5.9% in November versus -5.6% expected and -5.9% prior while the core retail sales tumbled 5.9% in the reported month versus -5.8% expectations and -6.4% previous.

Main points (via ONS)

FX implications

GBP/USD is unfazed by the downbeat UK Retail Sales data. The spot was last seen trading at 1.2202, up 0.21% on the day.

• EUR/USD pokes intraday top, reverses the pullback from six-month high.
• Hawkish ECB statements favor EUR/USD bulls ahead of EU/German PMIs for December.
• Final prints of Eurozone inflation also need observing for clear directions.

EUR/USD buyers attack intraday high near 1.0660 as the US Dollar fades the previous day’s corrective bounce off the six-month low heading into Friday’s European session. Also keeping the major currency pair firmer are the hawkish concerns surrounding the European Central Bank (ECB). However, the cautious mood ahead of the key activity data from Germany, the Eurozone and the US seems to challenge the pair buyers of late.

US Dollar Index (DXY) drops 0.35% intraday as sellers approach the daily bottom surrounding 104.20. In doing so, the greenback’s gauge versus the six major currencies fails to trace the firmer US Treasury yields amid a sluggish session.

Dicey markets and mixed US data could also be linked to the EUR/USD pair’s latest run-up. On Thursday, the US Retail Sales flashed -0.6% MoM figure in November versus 0.1% expected and 1.3% prior. Further, manufacturing survey details from Philadelphia Fed and New York Fed came in disappointing for the said month whereas Industrial Production eased in November and the Jobless Claims also dropped for the week ended on December 09.

However, the global central bankers’ rush towards higher rates and readiness to keep them high for longer, to battle the inflation woes, seemed to have triggered the risk-off mood and underpinned the US Dollar demand. On the same line could be the latest Sino-American tussles as Reuters reported that the Biden administration on Thursday added Chinese memory chipmaker YMTC and 21 "major" Chinese players in the artificial intelligence chip sector to a trade blacklist, broadening its crackdown on China's chip industry.

It’s worth noting, however, that ECB President Christine Lagarde’s clear signals for more rate hikes, by saying, "Obvious that we should expect 50 bps hikes for period of time," seemed to have propelled the Euro pair on late Thursday, as well as keeping buyers hopeful of late.

Even so, the EUR/USD pair traders should wait for the final readings of the German and Euro Area activity numbers for December for confirmation. Given the upbeat forecasts for the stated numbers, the major currency pair could remain firmer. However, the likely sluggish prints of the Eurozone inflation, per the final readings of the Harmonized Index of Consumer Prices (HICP) for November, could probe the bulls. Additionally, forecasts surrounding the US S&P Global PMIs appear mixed as Services activities are likely to improve but not the manufacturing ones. Even so, both these sectors are expected to print the below 50 figure that suggests a contraction in activities and could weigh on the US Dollar in case of a downbeat outcome.

Technical analysis

Unless breaking a five-week-old ascending support line, around 1.600 by the press time, EUR/USD buyers remain hopeful of refreshing the monthly high, currently around 1.0735.

Gold price is rebounding toward the $1,800 mark, snapping a two-day corrective decline, amid an impending Bull Cross, FXStreet’s Dhwani Mehta reports.

Daily closing below 21DMA is critical to negate the bullish thesis

“Gold has found buyers once again near the mildly bullish 21-Daily Moving Average (DMA) at $1,772, prompting a tepid bounce toward the bearish 200DMA at $1,787. A sustained break above the latter is needed to extend the recovery momentum toward the $1,800 level. The next upside target is envisioned at the previous day’s high of $1,809.”

“Adding credence to the bullish potential, the upward-sloping 50DMA is set to cut the flattish 100DMA from below, which if materialized on a daily closing basis will confirm a Bull Cross.”

“On the flip side, a sharp drop toward the previous week’s low at $1,766 will be on cards if Gold bears flex their muscles below the 21DMA. Further south, the November-end lows near $1,740 could be on Gold sellers’ radars.”

• US Dollar Index pares the biggest daily gain in 10 weeks amid sluggish session.
• Mixed US statistics, Fed’s hesitance in praising hawks keep sellers hopeful.
• Recession woes and Sino-American tensions keep buyers hopeful ahead of December PMIs.

US Dollar Index (DXY) makes rounds to 104.30-40 as it prints mild losses heading into Friday’s European session. In doing so, the greenback’s gauge versus the six major currencies consolidates the biggest daily gain since early November, marked the previous day.

The DXY’s failure to defend the previous day’s rebound from a six-month low could be linked to recently mixed data in the US and a lack of a major catalyst during early Friday. It’s worth noting that the US Retail Sales flashed -0.6% MoM figure in November versus 0.1% expected and 1.3% prior. Further, manufacturing survey details from Philadelphia Fed and New York Fed came in disappointing for the said month whereas Industrial Production eased in November and the Jobless Claims also dropped for the week ended on December 09.

It’s worth noting that the market sentiment remains dicey as recession woes underpin the Treasury bond yields but the US stock futures and equities in the Asia-Pacific region remain lackluster ahead of the final shot of data from the big week. The reason for the lack of negative performances of equities could be linked to the hopes for more stimulus from China. With the mixed signals, the US Dollar Index fails to extend the previous day’s recovery moves.

On Thursday, the global central bankers’ rush towards higher rates and readiness to keep them high for longer, to battle the inflation woes, seemed to have triggered the risk-off mood and underpinned the US Dollar demand. On the same line could be the latest Sino-American tussles as Reuters reported that the Biden administration on Thursday added Chinese memory chipmaker YMTC and 21 "major" Chinese players in the artificial intelligence chip sector to a trade blacklist, broadening its crackdown on China's chip industry.

Moving on, the market forecasts surrounding the US S&P Global PMIs appear mixed as Services activities are likely to improve but not the manufacturing ones. Even so, both these sectors are expected to print the below 50 figure that suggests a contraction in activities and could weigh on the US Dollar in case of a downbeat outcome. It should be noted, however, that the US Federal Reserve’s (Fed) hesitance in favoring the hawks, despite raising rates by 50 basis points (bps), seems to challenge the DXY bulls.

Technical analysis

US Dollar Index losses could be linked to the failure to cross a one-week-old descending resistance line, around 104.55 by the press time. However, RSI (14) stays near the oversold conditions and hence challenges the odds favoring major declines.

• NZD/USD has sensed selling pressure while stretching its recovery above 0.6370 amid broader pessimism.
• The Federal Reserve is considering wage inflation a major trigger that could propel general inflation.
• The New Zealand Dollar is going to display reflexive moves on the People’s Bank of China monetary policy.
• NZD/USD has retreated after testing the upward-sloping trendline while the downside filters are still solid.

NZD/USD has faced resistance of around 0.6380 in the early European session. The New Zealand Dollar major asset delivered a recovery after dropping to near 0.6320 and stretched its recovery in the Tokyo session as the risk-off impulse witnessed ease. However, the aversion theme is extremely solid on a broader note. The recovery move in the Tokyo session should not be considered a reversal for now as it needs more filters.

Meanwhile, the US Dollar Index (DXY) is displaying a subdued performance amid the absence of a potential trigger ahead. The USD Index is oscillating around 104.35 after correcting from above 104.80. S&P500 futures are extending Thursday’s sell-off as firms in the United States are having the trauma of higher interest obligations led by escalated terminal rate guidance. The 10-year US Treasury yields have attempted recovery and have surpassed 3.48% as the demand for US government bonds has fizzled out.

On the New Zealand front, investors are shifting their focus toward the interest rate decision by the People’s Bank of China (PBoC), which is scheduled for Tuesday. The New Zealand Dollar may display significant volatility, being one of the leading trading partners of China.

Federal Reserve sees wage inflation as a major threat ahead

Average Hourly Earnings in the United States are continuously advancing to justify tight labor demand. Firms spend a significant amount in retaining and hiring talent to maintain a comfortable flow of operational activities. Higher earnings by the households will continue to keep retail demand solid as individuals will be left with decent funds after catering necessities.

Rising wage inflation could propel general inflation ahead as lower inflation can be achieved with a higher unemployment rate. Escalating payroll numbers and eventually robust retail demand would keep inflation on the rooftop.

United States Retail Sales dropped larger than predicted

On Thursday, the monthly Retail Sales data (Nov) contracted by 0.3% while the street was expecting a contraction of 0.1%. A decline in retail demand would result in more inflation softening as firms will be forced to provide goods and services at lower prices.

Analysts at Wells Fargo expect spending to contract in CY2023 but it's too soon to call this the start of a sustained decline in goods spending. For making lower inflation projections, the United States economy is needed to show a sustained decline in consumer spending.

For further guidance, investors are keeping an eye on preliminary S&P PMI data. As per the projections, the Manufacturing PMI is seen unchanged at 47.7 while Service PMI would improve to 46.8 vs. the former release of 46.2.

New Zealand Dollar banks upon PBoC policy for further guidance

The central bank of the second largest economy is going to announce its monetary policy after easing prolonged Covid-19 restrictions. The People’s Bank of China is scheduled to announce its December monetary policy on Tuesday. Citing weaker economic prospects, a troubled real estate market, and contracted retail demand, the People’s Bank of China is expected to announce a dovish monetary policy. People’s Bank of China policymakers should look to trim their Prime Lending Rate (PLR) to support low inflation and deflation in factory-gate prices. A dovish policy stance by the People’s Bank of China is going to strengthen the New Zealand Dollar as the Kiwi economy will receive more business from China.

NZD/USD technical outlook

NZD/USD has sensed significant demand after dropping to near the upward-sloping trendline from November 21 low at 0.6087. The rebound from the aforementioned trendline needs to pass various filters for a bullish reversal consideration.

A bear cross, represented by the 20-and 200-period Exponential Moving Averages (EMAs) at 0.6384, indicates more weakness ahead.

The Relative Strength Index (RSI) (14) is attempting to shift into the 40.00-60.00 range. A decisive decline in the bearish range of 20.00-40.00 will trigger a bearish momentum.

• WTI remains pressured around intraday low, defends previous day’s U-turn from two-week top.
• Downbeat RSI conditions, pullback from short-term key DMA hints at further weakness.
• 11-week-old bullish triangle gains major attention, highlighting $78.20 as the key hurdle.

WTI crude oil extends the previous day’s pullback from a two-week top as it drops to $75.70 while refreshing intraday low during early Friday morning in Europe.

The black gold’s latest weakness could also be linked to the failure to cross the 21-DMA, around $77.00. Given the downbeat RSI conditions, the WTI crude oil price is likely to witness further selling pressure.

However, November’s low of around $73.65 could act as immediate support for the energy benchmark.

Following that, a downward-sloping trend line from September, forming part of the bullish triangle formation around $69.80, will gain the bear’s attention.

In a case where WTI remains weak past $69.80, the December 2021 low near $62.35 should lure the commodity sellers.

Alternatively, the 21-DMA hurdle surrounding $77.00 guards the quote’s immediate recovery, a break of which could quickly propel the WTI towards the upper line of the stated triangle, near $78.20.

Should the WTI buyers manage to keep the reins past $78.20, the same will confirm the bullish chart pattern and suggest further advances of the quote towards the theoretical target surrounding $101.00.

During the run-up, the previous monthly peak of $92.90 and the August month high near $97.30 can act as buffers.

WTI: Daily chart

Trend: Limited downside expected

AUD/USD retreats from intraday high to 0.6700 amid early Friday morning in Europe. In doing so, the Aussie pair takes clues from the options market while defending the previous day’s bearish bias that portrayed the quote’s heaviest slump in 33 months.

That said, the one-month risk reversal (RR) of AUD/USD,  a gauge of calls to puts, drops the most in three weeks on daily basis, per data source Reuters. That said, the spread between call and put options prints -0.035 level by the press time.

The bearish bias in the options market could be linked to the broad pessimism surrounding global economic transition and central bankers’ moves. Also likely to have weighed on the sentiment could be the US-China tussles, not to forget the dragon nation’s lack of ability to convince traders of the economic recovery.

It should be noted, however, that the weekly RR remains firmer for the fourth consecutive time, to 0.130 at the latest, which in turn challenges the downside bias amid Friday’s sluggish start.

Also read: AUD/USD extends its recovery to near 0.6740 as risk off impulse eases, US PMI in focus

• USD/CAD seesaws around intraday low after reversing from 1.5-month-old resistance line.
• Recovery from 100-SMA joins bullish MACD signals, firmer RSI to suggest further advances.
• 200-SMA, monthly support line adds to the downside filters.

USD/CAD picks up bids to pare intraday losses around 1.3640 during early Friday morning in Europe.

In doing so, the Loonie pair reverses the early Asian session pullback from a six-week-old descending resistance line.

That said, the quote’s bounce off the 100-SMA level, around 1.3530 by the press time, joins the bullish MACD signals and the firmer RSI (14), not overbought, to signal the USD/CAD pair’s further advances.

Hence, the quote’s another battle with the aforementioned resistance line, near 1.3675 at the latest, can’t be ruled out.

However, a clear upside break of the same, as well as a run-up beyond the monthly top of 1.3700, becomes necessary for the USD/CAD bull’s conviction.

Following that, a run-up towards the previous monthly top surrounding 1.3810 can’t be ruled out.

On the flip side, the 61.8% Fibonacci retracement level of the pair’s early November moves, near 1.3585, acts as immediate support to watch during the quote’s further downside.

Additionally challenging the USD/CAD bears is an upward-sloping support line from mid-November and the 200-SMA, respectively around 1.3500 and 1.3480.

To sum up, USD/CAD remains on the bull’s radar despite the loss on daily basis.

USD/CAD: Four-hour chart

Trend: Further recovery expected

• Gold price is facing pressure in holding itself above the immediate resistance of $1,780.00.
• Interest rate hikes by western central banks have weighed on the Gold price.
• The major trend has turned bearish as the Gold price has dropped below the 200-EMA.

Gold price (XAU/USD) is struggling to sustain above the crucial resistance of $1,780.00 in the early European session. The precious metal is facing immense pressure as the western central banks have hiked their interest rates to gain strength in their battle against stubborn inflation. Following the footprints of the Federal Reserve (Fed), the European Central Bank (ECB), the Bank of England (BOE), and the Swiss National Bank (SNB) have pushed their interest rates by 50 basis points (bps).

The US Dollar Index (DXY) corrected to near 104.30 in the early Tokyo session but has rebounded marginally. Meanwhile, S&P500 futures are looking to continue their downside journey amid soaring recession risk in the United States. Fed chair Jerome Powell in his monetary policy speech cited that “No one knows there will be recession or note”. Obscurity over the recession situation has triggered volatility in United States equities.

For further guidance, investors are keeping an eye on preliminary S&P PMI data, which will release on Friday. As per the projections, the Manufacturing PMI is seen unchanged at 47.7 while Service PMI would improve to 46.8 vs. the former release of 46.2. Investors should brace for a long volatility contraction ahead as the quantum of trading will get reduced ahead of the festive week.

Gold technical analysis

On an hourly scale, Gold price is displaying an inventory adjustment near the crucial horizontal support plotted from Tuesday’s low at $1,777.69. The precious metal has surrendered the 200-period Exponential Moving Average (EMA) at $1,788.00, which signals that the long-term trend has turned bearish.

The Relative Strength Index (RSI) (14) is attempting to shift into the 40.00-60.00 but may find barricades as the long-term trend is bearish now.

Gold hourly chart

• GBP/USD prints mild gains around weekly low to pare the biggest daily loss in 1.5 months.
• US Dollar fades recovery moves on mixed data, market’s consolidation.
• UK Retail Sales for November, US/British PMIs for December will be important for fresh impulse.

GBP/USD regains 1.2200 as it consolidates the recent losses amid a sluggish Friday morning in Europe. In doing so, the Cable pair portrays the trader’s positioning before the key UK/US data after bears cheered the Bank of England’s (BOE) dovish rate hike with the biggest daily slump in six weeks.

That said, the US Dollar’s failure to defend the previous day’s rebound from a six-month low, mainly due to mixed data and a lack of a major catalyst also favors the GBP/USD pair buyers. It’s worth noting that the US Retail Sales flashed -0.6% MoM figure in November versus 0.1% expected and 1.3% prior. Further, manufacturing survey details from Philadelphia Fed and New York Fed came in disappointing for the said month whereas Industrial Production eased in November and the Jobless Claims also dropped for the week ended on December 09.

It’s worth noting that the market sentiment remains dicey as recession woes underpin the Treasury bond yields but the US stock futures and equities in the Asia-Pacific region remain lackluster ahead of the final shot of the volatile week. The reason for the lack of negative performances of equities could be linked to the hopes for more stimulus from China.

Even so, the Bank of England’s (BOE) hidden signals for the GBP/USD pair bears and looming economic fears surrounding the UK, mainly due to the extreme weather conditions, workers’ strikes and a new government, suggest the quote further downside.

Other than the BOE-led slump, the US Dollar’s recovery, mainly due to the rush for risk safety, also underpinned the GBP/USD pair’s fall the previous day. The market’s risk aversion could be linked to the major central banks’ readiness for keeping the higher rates for longer, as well as the fresh Sino-American tussles.

Looking forward, UK Retail Sales will be important for the GBP/USD pair traders as an immediate catalyst while the British/US PMIs may direct the pair moves afterward. That said, 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.

On the other hand, the market forecasts surrounding the US S&P Global PMIs appear mixed as Services activities are likely to improve but not the manufacturing ones. Even so, both these sectors are expected to print the below 50 figure that suggests a contraction in activities and could weigh on the US Dollar in case of a downbeat outcome.

Technical analysis

Despite the latest corrective pullback, GBP/USD remains on the bear’s radar unless it defies the previous day’s rising wedge breakdown by crossing the support-turned-resistance near 1.2355.

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

• USD/JPY recovers from intraday low, bounces off three-day-old support line.
• Bearish MACD signals, one-week-old ascending trend line challenge buyers.
• 200-HMA, 134.50 act as the additional downside filters.

USD/JPY picks up bids to 137.40 as it pares intraday losses during early Friday morning in Europe. In doing so, the Yen pair bounces off an upward-sloping support line from Tuesday.

That said, the recovery moves currently aim for the ascending resistance line from December 07, close to 138.10. However, bearish MACD signals and the stated hurdle could challenge the pair’s further upside.

In a case where the USD/JPY pair stays firmer past 138.10, the 139.00 round figure and the November-end swing high near 139.90 could challenge the bulls.

It’s worth noting that the 140.00 round figure acts as the last defense of the pair bears.

Alternatively, a downside break of the aforementioned immediate support line, close to 137.25 by the press time, isn’t an open ticket to the USD/JPY bears as the 200-HMA support around 136.55 could challenge the quote’s further downside.

Following that, the weekly low around 134.50 may probe the USD/JPY bears before directing them to the monthly bottom around 133.60.

If at all the Yen pair remains bearish past 133.60, the odds of witnessing a south-run towards May’s high near 131.30 can’t be ruled out.

USD/JPY: Hourly chart

Trend: Limited recovery expected

• Nikkei225 is facing immense heat on gloomy global outlook post interest rate hikes by Western central banks.
• Debt-laden firms in the US economy will have a nightmare in CY2023 as they will face higher interest obligations.
• Oil prices are displaying a lackluster performance in the absence of updates on pipeline shutdown in the US.

Markets in the Asian domain are majorly facing intense volatility following the footprints of S&P500. Global economic projections have weakened further as the European Central Bank (ECB), the Bank of England (BOE), and the Swiss National Bank (SNB) have traced the size of an interest rate hike by the Federal Reserve (Fed). All European central banks have hiked their interest rates by 50 basis points (bps) in their last monetary policy of CY2022 to tame galloping inflation except the SNB where inflation is just above 2%.

At the press time, Japan’s Nikkei225 plummeted 1.77%, ChinaA50 added 0.20%, Hang Seng added 0.10%, and Nifty50 remained flat.

Asian equities have turned cautious after a poor show by S&P500 on Thursday. The 500-stock basket of the United States dived significantly as higher interest rate peak projection by the Fed has strengthened recession fears. Debt-laden firms in the US economy will have a nightmare in CY2023 as they will face higher interest obligations.

Japanese equities have failed to deliver a recovery despite the upbeat preliminary Jibun Bank PMI data. The Manufacturing PMI has improved to 48.8 vs. the projections of 48.0 but remained lower than the former release of 49.0. And, the Services PMI has escalated to 51.7 against 51.1 as expected and the former release of 50.3.

On the oil front, oil prices have turned sideways in a tad wider range after a stellar recovery from an 11-month low marginally above $70.00. A sideways auction profile in the West Texas Intermediate (WTI) futures is expected to continue its upside journey amid an absence of updates on a major pipeline shutdown from Canada to the United States.

China's state planner, the National Development and Reform Commission (NDRC), announced on Friday that the economy faces a more complex and severe external environment amid weakening global economic growth, requiring arduous work to promote a continuous recovery, per Reuters.

“Economic growth is expected to continue picking up pace following the implementation of new COVID rules,” added the NDRC.

The state planner also mentioned that China will speed up the construction of infrastructure projects and expand effective investment.

AUD/USD retreats

Although the news suggests more investments from the world’s biggest commodity user, as well as a major customer of Australia, the overall pessimism in the communication weighed on the AUD/USD prices following the release. That said, the Aussie pair retreats from its intraday high to 0.6715, paring daily gains to 0.15% by the press time.

Also read: AUD/USD extends its recovery to near 0.6740 as risk off impulse eases, US PMI in focus

Reuters reported on Friday that the US Senate stopgap government funding bill secures enough votes to pass.

The US Senate will now send the bill to US President Joe Biden, averting the risk of a partial shutdown.

Market reaction

The US Dollar is losing further ground in Asian trading this Friday, losing 0.18% on the day at 104.32, as of writing.

• USD/INR reverses from the highest levels in six months, snaps two-day winning streak.
• US Dollar cheered risk aversion wave as central banks prefer higher rates for longer time.
• Easing in Indian trade deficit, traders’ defense of 83.00 and softer oil prices favor pair sellers.
• US PMIs for December eyed for fresh impulse.

USD/INR retreats to 82.75 from a 1.5-month high, marked the previous day, as global markets take a sigh of relief during early Friday.

In doing so, the Indian Rupee pair bears the burden of the market’s consolidation amid a light calendar, as well as the traders’ defense of the 83.00 round figure, not to forget the softer oil prices. Also likely to weigh on the pair could be the recent easing in the Indian trade deficit.

That said, India's trade deficit narrows in November to $23.9 billion from $26.9 billion in October, per the latest readings reported by Reuters. While conveying further details, the news stated that India's merchandise exports for November stood at $31.99 billion, while imports stood at $55.88 billion.

Elsewhere, traders try hard to defend the 83.00 round figure and seemed to have weighed on the quote of late. Reuters quotes an anonymous trader from India as saying, “There will be ‘understandable hesitancy’ among traders with the psychological level of 83 nearby.” The news also adds that It will "take a lot" for the rupee to fall below 83 toward a record low.

It should be noted that the latest weakness in oil prices also exerts downside pressure on the USD/INR due to India’s reliance on energy imports. While the economic slowdown fears were enough for the WTI crude oil to retreat from the weekly top, the downbeat China data and hopes of resumption of output from the Canadian oil pipeline seemed to have weighed on the black gold prices. That said, WTI crude oil remains mildly offered near $76.20 after snapping a four-day uptrend the previous day.

On Thursday, the US Dollar cheered risk-aversion as global central banks propelled benchmark rates in the latest monetary policy announcements and showed readiness to keep the rates higher for longer. On the same line was US President Joe Biden’s crackdown on Chinese chipmakers.

Given the lack of major catalysts and the market’s consolidation, the USD/INR may witness further pullback ahead of the US PMIs. That said, the market forecasts surrounding the US S&P Global PMIs appear mixed as Services activities are likely to improve but not the manufacturing ones. Even so, both these sectors are expected to print the below 50 figure that suggests a contraction in activities and could weigh on the US Dollar in case of a downbeat outcome.

Technical analysis

A daily closing beyond the 83.00 round figure becomes necessary for the USD/INR pair to stay on the bull’s radar.

• EUR/USD is consolidating in a wider range of 1.0593-1.0736 after ECB-inspired volatility.
• The 200-period EMA at 1.0570 is sloping north, which indicates that the long-term trend is still solid.
• A range shift by the RSI (14) into the 40.00-60.00 gamut is signaling a consolidation ahead.

The EUR/USD pair has sensed selling pressure around the immediate resistance at 1.0660 in the Tokyo session after a firmer recovery move from the crucial support of 1.0600. The Euro bulls have not displayed sheer volatility akin to other risk-sensitive currencies amid a broader negative market sentiment after the monetary policy announcement by the Federal Reserve (Fed).

It looks like hawkish policy guidance by the European Central Bank (ECB) President Christine Lagarde has safeguarded the Euro from a risk-off market mood. At the press time, the US Dollar Index (DXY) extended its correction to near 104.30.

On an hourly scale, the major currency pair is consolidating in a wider range of 1.0593-1.0736. The wilds gyrated move was inspired by ECB’s hawkish policy guidance as an interest rate hike by 50 basis points (bps) was already expected. Usually, a wild move is followed by volatility contraction as the asset gets busy preparing the ground for further decisive action.

The 200-period Exponential Moving Average (EMA) at 1.0570 is sloping north, which indicates that the long-term trend is still solid.

Meanwhile, the Relative Strength Index (RSI) (14) has slipped into the 40.00-60.00 range from the bullish range of 60.00-80.00, which indicates a loss in the upside momentum.

Going forward, a break above Thursday’s high at 1.0736 will drive the asset toward May 30 high at 1.0787 followed by the round-level resistance at 1.0800.

On the flip side, a break below Thursday’s low at 1.0593 will drag the major currency pair toward December 7 high at 1.0550. A breakdown of the latter will expose to the asset for more downside near the psychological support at 1.0500.

EUR/USD hourly chart  

• AUS/USD has advanced to near 0.6735 after recovery as the risk-on profile is regaining traction.
• What dampened the market mood post-Fed Powell’s speech was the lack of confidence that inflation will soft further.
• A decline in Australian one-year consumer inflation expectations might delight the RBA.

The AUD/USD pair has stretched its recovery to near 0.6735 in the Asian session as the risk-off impulse has eased. The Aussie asset rebounded after printing a fresh six-day low at 0.6680. On Thursday, the strength in the US Dollar snapped a five-day rally as investors turned extremely cautious on hawkish guidance by the Federal Reserve (Fed).

The US Dollar Index (DXY) has extended its correction to near 104.30 after a decent rally to near 104.80. Strength in the USD Index is fading as investors are shrugging off uncertainty derived from recession fears after the Fed hiked its terminal rate projection. S&P500 futures have attempted a recovery in the Asian session after bloodshed on Thursday, portraying signs of revival in the risk appetite theme. The 10-year US Treasury yields have rebounded above 3.48%.

The battle against mounting inflation is in progress and it will take ample time to achieve price stability by the Fed. What dampened the market mood after Fed’s monetary policy was the absence of confidence in Fed chair Jerome Powell's speech that inflation will continue to cool down further. Also, rising Average Hourly Earnings are creating troubles for Fed policymakers.

Higher earnings in the palm of households will result in solid retail demand, which could propel price growth in durable goods again. Going forward, investors will focus on preliminary S&P PMI numbers. As per the consensus, the Manufacturing PMI is seen unchanged at 47.7 while Service PMI would improve to 46.8 vs. the former release of 46.2.

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

• NZD/USD picks up bids to pare the first weekly loss in nine.
• US Dollar fails to trace firmer yields amid sluggish markets.
• Central banks renewed recession woes and favored USD bulls previously.
• China-linked headlines keep Kiwi bears hopeful ahead of US activity data for December.

NZD/USD picks up bids to 0.6370 as Kiwi bulls return on early Friday, after a two-day absence.

The quote dropped during the last two days as global central banks rushed towards higher rates to tame inflation. Also exerting downside pressure on the pair could be the risk-negative headlines surrounding China. That said, a lack of major data/events in the Asian session and the market’s consolidation after volatile days seemed to have triggered the NZD/USD’s corrective bounce.

Even so, the challenges to sentiment and expectations favoring the US Dollar keep the bears hopeful ahead of the preliminary US activity numbers for December.

That said, global central banks propelled benchmark rates in the latest monetary policy announcements and showed readiness to keep the rates higher for longer, which in turn added strength to the risk-off mood amid recession woes. US Federal Reserve, Bank of England, Swiss National and the European Central Bank were among the key central banks that shook markets this week and renewed economic slowdown fears.

Elsewhere, US President Joe Biden’s crackdown on Chinese chipmakers also weighed on the market sentiment and allowed the US Dollar to stay firmer, while also drowning the Wall Street benchmarks and favoring the US Treasury bond yields.

With this in mind, the NZD/USD bears appear standing at the gate while waiting for the US PMIs for December. It’s worth noting, however, that the market forecasts surrounding the US S&P Global PMIs appear mixed as Services activities are likely to improve but not the manufacturing ones. Even so, both these sectors are expected to print the below 50 figure that suggests a contraction in activities and could weigh on the US Dollar in case of flashing downbeat figures.

Technical analysis

A five-week-old ascending support line, near 0.6340 by the press time, restricts the short-term NZD/USD downside.

• Gold price is finding fresh demand as US Dollar extends retreat.   
• Hawkish Fed and ECB policy decisions could keep Gold price rebound short-lived.
• Focus shifts to next week’s US PCE inflation, as Gold price remains in a familiar range.

Gold price is attempting a tepid comeback following a massive sell-off witnessed on the back of the hawkish policy outlook adopted by the US Federal Reserve (Fed) and the European Central Bank (ECB) at their respective monetary policy meetings. Both central banks remain committed to keeping interest rates higher until inflation is brought down in a sustained manner. The non-interest-bearing Gold price tends to suffer in a higher interest rates environment. The latest bounce in the bright metal could be linked to the retreat in the US Dollar across the board, as the dust settles over the bumper central bankers’ events. As the Fed remains data-dependent, attention now turns toward the US PCE Price Index, the Fed’s preferred inflation, due next week for fresh hints on the US central banks’ future policy course.

Also read: The story about Gold and the Fed’s U-turn

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price is looking to build its rebound toward the convergence of the Fibonacci 38.2% one-week and Fibonacci 236.6% one-day at $1,783.

A firm break above the latter will add extra zest to the recovery in Gold price, allowing a test of the powerful resistance at around $1,788. That level is the confluence of the previous month’s high, SMA200 one-day, Fibonacci 38.2% one-day and SMA10 one-day.

The next significant upside barrier is seen around $1,793, where the Fibonacci 61.8% one-day and SMA5 one-day coincide.

Alternatively, strong support awaits at the Fibonacci 23.6% one-week at $1,777, below which the previous day’s low at $1,774 will get retested.

The last line of defense for Gold bulls is seen at the previous week’s low at $1,766.

Here is how it looks on the tool

About Technical Confluences Detector

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

• GBP/JPY renews intraday low to extend the previous day’s bearish bias.
• 200-HMA, two-week-old ascending trend line restrict immediate downside.
• Lower highs, bearish MACD signals keep sellers hopeful.

GBP/JPY takes offers to refresh intraday low around 167.50 during Friday’s sluggish morning. In doing so, the cross-currency pair extends the previous day’s pullback from 168.85 amid bearish MACD signals.

As a result, the sellers are all set to poke the 200-HMA support surrounding 167.40. However, an upward-sloping trend line from December 02, close to 167.20 by the press time, could challenge the GBP/JPY bears afterward.

Also acting as the downside filter is an eight-day-long ascending trend line near 166.95, as well as the weekly low near 166.70.

In a case where the GBP/JPY pair remains bearish past 166.70, the December 07 swing low near 166.00 could act as the last defense of the buyers.

Alternatively, recovery moves may initially aim for the 168.00 round figure before challenging the downward-sloping resistance line from Tuesday, close to 168.75.

Following that, the monthly high near 169.30 and the 170.00 psychological magnet could gain the GBP/JPY buyer’s attention.

It’s worth noting that the GBP/JPY pair’s successful run-up beyond 170.00 enables the bulls to aim for the yearly top surrounding 172.15, marked in October.

Overall, GBP/JPY is likely to remain bearish but the road toward the south is long and bumpy.

GBP/JPY: Hourly chart

Trend: Further downside expected

• USD/CAD consolidates the biggest daily gains in three weeks.
• Global markets stabilize after a volatile day, allowing traders to pare recent moves.
• Oil steadies after reversing from weekly top, US Dollar retreats following the heaviest run-up in 10 weeks.
• US PMIs, second-tier Canadian data eyed for fresh impulse.

USD/CAD takes offers to refresh intraday low around 1.3630 as it pares the previous day’s losses during a sluggish Friday morning.

The Loonie pair rallied the most in three weeks on Thursday amid the broad US Dollar run-up and softer prices of Canada’s key export item, WTI crude oil. However, the absence of major data/events during the early day and the cautious mood ahead of the US activity numbers for December seemed to have triggered the quote’s latest pullback.

US Dollar Index (DXY) rallied the most in 10 weeks as global central banks propelled benchmark rates in the latest monetary policy announcements. Not only that, the policymakers’ readiness to keep the rates higher for longer added strength to the risk-off mood amid recession woes.

While the economic slowdown fears were enough for the WTI crude oil to retreat from the weekly top, the downbeat China data and hopes of resumption of output from the Canadian oil pipeline seemed to have weighed on the black gold prices. That said, WTI crude oil remains steady around $76.30 after snapping a four-day uptrend the previous day.

It should be noted that US President Joe Biden’s crackdown on Chinese chipmakers also weighed on the market sentiment and allowed the US Dollar to stay firmer, while also drowning the Wall Street benchmarks and favoring the US Treasury bond yields.

Moving on, the preliminary readings of the December month PMIs for the US will join the second-tier housing, investments and sales data from Canada to direct short-term USD/CAD moves. Given the latest rush towards risk safety, as well as the hawkish Fed and the absence of Bank of Canada (BOC) hawks, the USD/CAD may witness further advances should the oil price remain depressed.

Technical analysis

A six-week-old resistance line near 1.3665 restricts short-term USD/CAD upside. However, the Loonie pair’s downside appears limited as the monthly support line challenges the bears around 1.3500.

• USD/JPY bears are moving in within the sideways consolidation. 
• The Fed is weighing on risk sentiment, supportive of the US Dollar. 

USD/JPY is under pressure in Asia, attempting to correct the US Dollar's rally from the prior day. At the time of writing, USD/JPY is down by some 0.28%, falling from a high of 137.80 to a low of 137.35 so far. 

The US Dollar soared on Thursday, led by strong gains against the yen as investors worry about the risk of recession with the Federal Reserve likely to raise interest rates well into next year. The Federal Reserve chair Jerome Powell said more increases would come next year and the benchmark overnight interest rate would rise above 5% in 2023. Money market participants expect at least two 25 bps rate hikes next year and borrowing costs to peak at about 4.9% by midyear, before falling to around 4.4% by the end of 2023. 

This has fuelled a risk-off tone in markets in the country down to the holidays next week. The US stock indexes closed sharply lower on Thursday. The drop in the benchmarks marked the biggest one-day percentage drop for the S&P and Nasdaq since November 2, and the largest for the Dow since September 13. Each closed at its lowest level since November 9.

JPY remains the worst performing G10-FX YTD

Meanwhile, analysts at Rabobank noted that the ''JPY remains the worst performing G10 currency in the year to date, with losses vs. the USD that currently stand at 14.9%.  However, when USD/JPY hit a recent high at around 151.95, the JPY’s year-to-date drop stood at over 22%.''

• Silver price remains sidelined after confirming bearish chart pattern.
• 100-SMA can offer intermediate halt during theoretical fall signaling fresh monthly low.
• Multiple hurdles to test buyers below, $24.40 acts as the last defense of bears.

Silver price (XAG/USD) seesaws around $23.00 as sellers flirt with the 50-SMA during early Friday, after confirming the rising wedge bearish chart pattern the previous day. Even so, the bright metal prints mild losses after declining the most since December 05 on Thursday.

That said, bearish MACD signals add strength to the downside bias, especially more after the rising wedge confirmation.

As a result, the bight metal remains pressured towards the 100-SMA support of $22.50 despite the latest inaction.

Following that, the monthly low of $22.00 and late November bottom surrounding $20.60 could entertain the XAG/USD bears during the south run to approach the theoretical target of $20.00.

Meanwhile, recovery moves remain elusive unless the quote stays below the aforementioned three-week-old wedge’s lower line, around $23.40 by the press time.

Even so, the weekly resistance line around the $24.00 threshold and the top line of the stated wedge, close to $24.40 by the press time, could challenge the Silver buyers.

In a case where the XAG/USD remains firmer past $24.40, January’s high near $24.70 and the $25.00 could lure the bulls.

Silver: Four-hour chart

Trend: Further downside expected

• BOE’S dovish guidance has snapped a four-day rally in the Cable.
• A Bearish Kicker candlestick pattern that indicates a reversal after an upside trend.
• The RSI (14) has slipped into the 40.00-60.00 range, which indicates a loss in the upside momentum.

The GBP/USD pair has witnessed a rebound after dropping to near 1.2156 on Thursday. The cable went through a sheer sell-off after the Bank of England (BOE) Governor Andrew Bailey sounded dovish on interest rate guidance after hiking current borrowing cost by 50 basis points (bps) to 3.50%.

Meanwhile, the US Dollar Index (DXY) has corrected in its early trade to near 104.45 amid negative market sentiment. Investors have underpinned THE risk aversion theme amid rising recession fears after a hawkish Federal Reserve (Fed) policy.

On a daily scale, the Cable has formed a Bearish Kicker candlestick pattern that indicates a reversal after an upside trend. Sheer volatility in the Pound Sterling has snapped a four-day rally in the Cable. The 20-period Exponential Moving Average (EMA) at 1.2115 has not been tested yet, therefore the short-term trend is still solid.

Meanwhile, the Relative Strength Index (RSI) (14) has slipped into the 40.00-60.00 range from the bullish range of 60.00-80.00, which indicates a loss in the upside momentum.

Investors might see selling pressure near the round-level resistance of 1.2200, which will drag the asset toward December 7 low at 1.2107. A breakdown of the latter will expose the Cable for more downside toward November 15 high at 1.2029.

For an upside move, the Cable needs to surpass December 5 high of around 1.2344, which will drive the asset toward Tuesday’s high at 1.2444, followed by the psychological resistance at 1.2500.

GBP/USD daily chart

• USD/CHF takes offers to reverse previous day’s bounce off 8.5-month low.
• Markets stabilize after global central banks portrayed a volatile day, allowing sellers to sneak in.
• Failure to cross support-turned-resistance directs bears towards three-week-old trend line support.
• Preliminary PMIs for December, risk catalysts will be important for fresh impulse.

USD/CHF stays pressured around the intraday low near 0.9270 as it reverses the previous day’s rebound from a multi-day bottom during Friday’s sluggish Asian session.

The Swiss Franc (CHF) pair’s previous recovery could be linked to the market’s rush for the US Dollar in search for safety as major central banks, including the Swiss National Bank (SNB), announced rate hikes. Not only that, the policymakers’ readiness to keep the rate higher for longer also favored the US Dollar’s safe-haven demand.

Additionally, US President Joe Biden’s crackdown on Chinese IT companies added strength to the risk-off mood and propelled the USD/CHF prices.

That said, a lack of major data/events during the early Asian session joins the market’s consolidation after a big day to resume the USD/CHF pair’s downside. Additionally, the favoring the pair sellers is the technical pattern that could term Thursday’s recovery as a corrective bounce which could not clear important resistance.

Moving on, the first readings of December month activity numbers will be important for the USD/CHF pair traders for clear directions.

Technical analysis

A clear downside break of the monthly support line, followed by failure to cross the same during a corrective bounce, keeps the USD/CHF bears hopeful amid steady RSI (14) conditions.

That said, a downward-sloping support line from November 24, close to 0.9225, could restrict the short-term downside of the Swiss Franc (CHF) pair. Following that, a late March low near 0.9195 will be in focus.

Alternatively, recovery moves need to cross the support-turned-resistance, around 0.9300 by the press time, to retake control. Even so, the 50-SMA and the 100-SMA can challenge the buyers around 0.9345 and 0.9390 in that order.

USD/CHF: Four-hour chart

Trend: Limited downside expected    

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.9791 vs. an estimate of 6.9844 and the last close of 6.9760.

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 is on the front side of a determined bearish cycle. 
•  The M-formations on the daily and 4-hour time frames are compelling. 

AUD/NZD has continued to consolidate in what has been a bearish cycle over the course of the autumn and winter months. While on the front side of the dynamic trendline resistance, the price is destined for a downside continuation:

AUD/NZD daily charts

The M-formation is being created below the trendline resistance. A correction into the neckline would be expected to be followed by supply:

AUD/NZ H4 chart

We have the same scenario on the 4-hour chart. The M-formation and move into the Fibonacci scales and neckline of the pattern could lead to supply and be the makings of the downside continuation. 

• EUR/USD picks up bids to refresh intraday high, reverses pullback from six-month top.
• ECB-inspired rally battles with the US Dollar’s safe-haven demand.
• Sluggish markets allow traders to pare recent moves ahead of preliminary PMIs for December.

EUR/USD prints mild gains around 1.0640 as it refreshes the intraday high during early Friday. In doing so, the major currency pair consolidates the biggest daily fall in three weeks while reversing the previous day’s pullback from the highest levels in six months ahead of the key activity data from Europe and the US.

European Central Bank’s (ECB) hawkish hike of 0.50% propelled the EUR/USD pair towards the fresh multi-day peak of 1.0736 late Thursday. However, fears of recession underpinned the US Dollar’s safe-haven demand and drowned the quote afterward.

That said, the ECB matched market forecasts while announcing the 50 basis points (bps) rate hike. However, comments from President Christine Lagarde bolstered the bullish bias as she said, “Info predicates 50 bps next meeting, possibly next one as well, possibly thereafter."  The ECB also announced the plan to end the Asset Purchase Program (APP) via gradual Quantitative Tightening (QT).

It should be noted that the broadly hawkish rate announcements from the major central banks joined the fears of higher inflation and energy crisis to amplify recession concerns, which in turn allowed the US Dollar to cheer its safe-haven status despite witnessing mixed data.

US Retail Sales flashed -0.6% MoM figure in November versus 0.1% expected and 1.3% prior. Further, manufacturing survey details from Philadelphia Fed and New York Fed came in disappointing for the said month whereas 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 slumped and the US Treasury bond yields rallied, which in turn allowed the US Dollar Index (DXY) to print the biggest daily gains in 10 weeks. Recently, S&P 500 Futures and the US Treasury bond yields remain sidelined as traders await the first readings of December month activity numbers for Germany, the Euro Area and the US. Also important to watch will be the final readings of the Eurozone inflation data.

Technical analysis

A five-week-old ascending support line, near 1.0600 by the press time, defends EUR/USD buyers.

• EUR/GBP has shifted its auction profile above 0.8700 after a perpendicular rally.
• The BOE is near to its terminal rate after pushing interest rates to 3.5%.
• Two more consecutive 50 bps interest rate hikes are expected by the ECB.

The EUR/GBP pair is displaying a sideways performance in the Tokyo session after shifting its business above the critical resistance of 0.8700 on Thursday. The cross witnessed immense buying interest by the market participants after the Bank of England (BOE) sounded dovish on policy guidance and the European Central Bank (ECB) announced a hawkish projection for interest rates.

As expected, BOE Governor Andrew Bailey hiked its interest rates by 50 basis points (bps) to 3.25%. The inflation rate in the United Kingdom is in the double-digit figure and the battle against stubborn inflation will remain for a prolonged period, therefore, policy tightening is highly required.

While guiding about upcoming monetary policy action, the BOE cited that the "Majority of Monetary Policy Committee (MPC) judges further increases in bank rate may be required." An absence of surety over further policy tightening has put immense pressure on the Pound Sterling. While casting votes for the interest rate decision, to policymakers favored an unchanged monetary policy as they saw the current interest rate policy as sufficient to combat inflation.

On the Eurozone front, ECB President Christine Lagarde hiked interest rates by 50 bps, in line with expectations. The Eurozone central bank sees inflation sticking well above a 2% target for a longer period led by firmer food price inflation. The ECB has hiked interest rate peak projection as it sees two more 50 bps interest rate hikes consecutively.

For further guidance, the release of the United Kingdom Retail Sales data will be of utmost importance. 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%.

• AUD/USD stays sluggish after falling the most since March 2020.
• Clear downside break of three-week-old support line, bearish MACD signals favor sellers.
• Horizontal area comprising multiple levels marked since October lure bears.

AUD/USD struggles to defend the 0.6700 threshold as traders lick their wounds early Friday, after witnessing the biggest daily fall in 33 months.

Even so, the Aussie pair remains on the seller’s radar as it keeps the recent downside break of the three-week-old support line, now resistance around 0.6720. Also favoring the AUD/USD sellers are the bearish MACD signals.

However, the 200-Exponential Moving Average (EMA) level surrounding 0.6685 restricts the immediate downside of the Aussie pair.

Following that, the November 21 swing low near 0.6580 may act as an extra downside filter before directing the AUD/USD bears toward the 10-week-old horizontal support area near 0.6550.

Alternatively, recovery moves need to stay beyond the 0.6720 support-turned-resistance line to recall the AUD/USD bulls.

Even so, Monday’s bottom surrounding 0.6730 and the early December high near 0.6815 could challenge the upside momentum.

In a case where AUD/USD stays firmer past 0.6815, the odds of witnessing a run-up toward the monthly high near 0.6895 can’t be ruled out.

Overall, AUD/USD bears are taking a breather after portraying a major downside move. However, the sellers are likely to keep the reins unless staying beyond 0.6720.

AUD/USD: Four-hour chart

Trend: Further downside expected

• NZD/USD bears ere a downside extension for the coming days. 
• Bulls are moving in at a key level of support. 

NZD/USD is under pressure towards a critical area of supporting structure. However, the bulls are moving in and there are prospects of a move to test a key area of resistance as the following analysis will illustrate: 

NZD/USD daily charts

The price has carved out an M-formation as it homes in on the major dynamic trendline support and the round 0.63 figure horizontal support. 

The pattern is a reversion formation and the price would be expected to restest the neckline prior to the next surge to the downside. The 38.2% Fibonacci retracement level has a confluence of this area near 0.6390/00.  A break of 0.6300 opens risk to 0.6150/65 and then 0.6080/00.

NZD/USD H4 chart

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

• The US Dollar Index is enjoying significant gains broadly amid uncertainty in global markets.
• S&P500 faced immense pressure as Fed’s higher interest rate peak projection has triggered recession fears.
• A weaker-than-anticipated US Retail Sales might force firms to cut prices of goods and services.

The US Dollar index (DXY) has witnessed a gradual decline to near 104.60 in the early Tokyo session. The USD Index slipped marginally after a rally to near 104.80 as investors underpinned the risk aversion theme amid soaring recession fears in the United States economy.

Risk-sensitive assets like S&P500 futures dived around 2.5% on Thursday as investors see a deep impact on firms that are debt-laden due to higher interest obligations. Firms are expected to display a significant fall in their operating margins. Federal Reserve (Fed) is still not convinced that inflation softening will continue further amid a tight labor market and rising Average Hourly Earnings.

US Dollar ignored downbeat Retail Sales data

Stellar recovery in the US Dollar after a higher interest rate peak projection by the Fed didn’t fade on Thursday’s downbeat Retail Sales data. 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 might force producers to cut prices of goods and services ahead.

Preliminary S&P PMI data eyed

For further guidance, market participants will keep an eye on the preliminary S&P Purchase Managers Index (PMI) data, which will release on Friday. As per the consensus, the Manufacturing PMI is seen unchanged at 47.7 while Service PMI would improve to 46.8 vs. the former release of 46.2. An improvement in preliminary PMI numbers might support the US Dollar further ahead.

• WTI remains pressured after snapping four-day uptrend the previous day.
• Fears of higher rates, more inflation amplified economic slowdown concerns.
• US Dollar cheered risk aversion and weighed on the WTI crude oil prices.
• December’s preliminary PMIs from the key economies eyed for fresh impulse.

WTI crude oil licks its wounds near $76.20 during early Friday, following a U-turn from the weekly top to welcome the bears. In doing so, the black gold traders await the first readings of the key activity numbers from top-notch economies amid fears of recession.

That said, the energy benchmark dropped the most in over a week by printing the first daily loss in five the previous day as global central banks announced rate hikes. Adding to the oil market’s pessimism was the policymakers’ readiness to hold the rates high for a longer time, as well as fears of inflation. As a result, the resulting economic slowdown concerns underpinned the US Dollar’s safe-haven demand and weighed on the Oil.

Additionally, downbeat China data offered extra strength to the black gold sellers due to Beijing’s status as one of the world’s biggest commodity users. 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.

Furthermore, headlines from Canada also weighed on the oil prices as Reuters mentioned, “Canada's TC Energy Corporation said it was resuming operations in a section of its Keystone pipeline, a week after a leak of more than 14,000 barrels of oil in Kansas triggered a shutdown.”

As a result, the oil bears are well-set to retake controls but await the preliminary readings of the December month PMIs for the UK, Europe and the US for clear directions.

Technical analysis

A clear U-turn from the six-week-old descending resistance line, around $77.30 by the press time, favors WTI crude oil sellers to aim for November’s low near $73.65.

• Gold price remains pressured as sellers poke short-term key support line.
• US Dollar recovery triggered XAU/USD’s biggest daily fall in three months.
• Fears of higher interest rates for longer weigh on sentiment and Gold price.
• Preliminary PMIs for December will be important for fresh impulse.

Gold price (XAU/USD) holds lower ground near $1,777-76 support during early Friday morning in Asia. In doing so, the precious metal remains on the seller’s radar ahead of the key PMIs data from the UK, Europe and the US for December.

That said, a broad gamut of 0.50% rate hikes by the US Federal Reserve, Bank of England, Swiss National and the European Central Bank raised fears of higher rates across the board and weighed on the market sentiment, as well as the Gold price. Also challenging the risk appetite and favoring the XAU/USD bears were the central banks’ concerns suggesting their readiness to the higher rates for longer, as well as sour forecasts surrounding inflation and growth.

It should be noted that the risk-aversion drowned the Wall Street benchmarks and favored the US Treasury bond yields, which in turn allowed the US Dollar Index (DXY) to print the biggest daily gain in 10 weeks.

In doing so, the greenback’s gauge versus the six major currencies paid little heed to the mixed data at home as the US Retail Sales flashed -0.6% MoM figure in November versus 0.1% expected and 1.3% prior. Further, manufacturing survey details from Philadelphia Fed and New York Fed came in disappointing for the said month whereas Industrial Production eased in November and the Jobless Claims also dropped for the week ended on December 09.

Elsewhere, downbeat statistics from China, one of the world’s key Gold consumers, also drowned the XAU/USD prices. 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.

To sum up, renewed fears of higher rates and recession weigh on the Gold price while preliminary readings of the December month PMIs for the UK, Europe and the US will be crucial to determine the metal’s further downside.

Gold price technical analysis

Gold price remains pressured as sellers poke a five-week-old ascending trend line. The bearish bias recently gained support from a downside break of the 100-SMA, around $1,780 by the press time.

Also keeping the XAU/USD sellers hopeful are the bearish MACD signals and the RSI (14).

That said, the Gold bears need volition from the $1,775 immediate support to aim for the 200-SMA level surrounding $1,750.

Following that, the early November swing low near $1,700 could lure Gold sellers.

Alternatively, recovery moves need to stay beyond the 100-SMA level surrounding $1,780 to convince intraday buyers. Even so, an upward-sloping resistance line from early November, close to $1,825, could challenge the Gold buyers.

Overall, Gold is likely to witness further downside but the $1,775 level probes bears.

Gold: Four-hour chart

Trend: Further downside expected