Reuters conveyed Bank of Japan (BOJ) Summary of Opinions for the latest monetary policy meeting as Tokyo opens for Wednesday.

Among the key discussions at the monetary policy meeting, the Yield Curve Control (YCC) gained a major attention as it triggered the Yen’s rally.

Key quotes

more to come...

• Oil prices have sensed fresh demand after a marginal correction to near $79.50.
• The US Dollar index is trading sideways below 104.00 amid the unavailability of potential triggers.
• Russia’s ban on oil supply to G7 and the European Union, and a higher revision for China’s GDP have supported oil prices.

West Texas Intermediate (WTI), futures on NYMEX, have resumed their upside journey after correcting to near $79.50 in the late New York session. The oil price has attempted a rebound as supply worries have deepened further after Russian President Vladimir Putin decided to ban the supply of oil to G7 countries and the European Union by levying a price cap.

Black gold is also hogging the limelight amid lackluster performance by the US Dollar Index (DXY). Despite sheer volatility in the United States equities, the USD index is trading sideways below 104.00 amid the unavailability of potential triggers.

Earlier G7 countries and the European Union levied a price cap on Russian oil at $60.00 to restrict it from funding arms and ammunition for war against Ukraine. In retaliation, President Vladimir Putin signed a decree that bans the sale of Russian oil to countries that imposed the oil price cap. It will run from February 1 to July 1.

Apart from the supply worries, the action moves from China for reopening the economy after a prolonged lockdown have also infused fresh blood into the oil bulls. Despite a spike in Covid-19 cases, the Chinese administration has dismantled quarantine rules for inbound travelers, which is going to ease supply chain disruptions. A major step towards reopening of the economy to regain the path of progress is supporting the oil price.

A fresh campaign of scrapping restrictions on Covid-related measures in China has resulted in the revision of the Gross Domestic Product (GDP) forecast.  In a statement released by China’s National Bureau of Statistics (NBS), the agency said that they have revised the country’s estimate of 2023 GDP growth to 8.4% from 8.1% previously.

• USD/CHF bears take a breather after snapping two-day winning streak.
• US 10-year Treasury bond yields refresh multi-day high despite mixed data.
• China-linked optimism underpins hawkish hopes from the Fed amid holiday season.
• Swiss ZEW Survey, US Pending Home Sales eyed for fresh impulse.

USD/CHF struggles for clear directions as it makes rounds to 0.9300 during early Wednesday, following the first daily negative closing in three. The Swiss Franc (CHF) pair’s latest weakness could be linked to the run-up in the US Treasury bond yields. However, the holiday season and the cautious optimism in the market seem to challenge the downside momentum.

US 10-year Treasury bond yields rose to the fresh high in six weeks the previous day, sidelined near 3.85% by the press time, as the positive mood surrounding China’s reopening helped renew hopes of faster Fed rate hikes.

The hawkish Fed concerns might have taken clues from the improvement in the US Good Trade Balance for November, $-83.3B versus $98.8B prior, while ignoring softer prints of the US S&P/Case-Shiller Home Price Indices for October, 8.6% YoY versus 9.7% expected and 10.4% previous readings. It’s worth noting that the previously mixed readings of the US inflation and growth figures raised doubts about the Federal Reserve’s (Fed) hawkish move, especially after the US central bank appeared cautiously optimistic over the rate hikes in its latest monetary policy meeting.

Elsewhere, China’s easing of the Coronavirus-linked activity restrictions joined an upward revision to the 2021 Gross Domestic Production forecast to favor the sentiment despite the sluggish holiday season. That said, China mentioned that it would stop requiring inbound travelers to go into quarantine from January 8, the National Health Commission (NHC) said late on Monday, a major step towards loosening its curbs, per Reuters. The news joins China’s National Bureau of Statistics (NBS) upward revision to the 2021 GDP growth to 8.4% from 8.1% previous forecast also favored the risk-on mood.

It should be observed that the optimism surrounding China also allows the Fed hawks to retake control amid fewer challenges to the growth and fears of more inflation, which in turn allows the US Treasury bond yields to remain firmer and underpin the USD/CHF declines.

That said, the light calendar and the year-end holiday season seem to challenge the USD/CHF traders ahead of the Swiss ZEW Survey – Expectations for December, expected -50.5 versus -57.5 prior. Also important to watch will be the US Pending Home Sales for November which holds the market consensus of 0.6% versus -4.6% previous readings.

Overall, USD/CHF bears are likely to witness hardships amid a light calendar but the bulls are surely off the table.

Technical analysis

A two-week-old bullish channel, currently between 0.9235 and 0.9350, suggests a short-term recovery of the USD/CHF pair despite the quote’s repeated failures to cross the 21-DMA hurdle, close to 0.9340 by the press time.

• USD/CAD has attempted a recovery after dropping below 1.3500 as the risk-off mood has regained traction.
• Firmer oil prices led by growing supply worries as Russia bans oil supply have supported the Canadian Dollar.
• The 10-year US Treasury yields have jumped to near 3.85% amid the risk aversion theme.

The USD/CAD pair has sensed buying interest after dropping to near 1.3500 in the early Asian session. The Loonie asset has picked strength as the risk-aversion theme is gaining traction amid volatility in a festive week. The major has shown signs of reversal after displaying a perpendicular downside move on Tuesday as firmer oil prices supported the Canadian Dollar.

The risk profile is highly obscure amid the unavailability of solid triggers for decisive moves in the currency market. Also, easing lockdown restrictions for inbound travelers in China failed to uplift the market mood. S&P500 remained under pressure on Tuesday as tech-savvy stocks faced immense heat. The US Dollar Index (DXY) has turned sideways around 103.80 after failing to cross the crucial resistance of 104.00.

Meanwhile, the risk aversion theme led by illiquid markets due to the festive week is impacting the US Treasury bonds. The 10-year US Treasury yields have jumped to near 3.85%.

The Canadian Dollar hogged the limelight on firmer oil prices. West Texas Intermediate (WTI) futures have dropped marginally but have resumed their upside journey and are expected to recapture the critical resistance of $80.00 led by growing supply worries and China’s progress towards reopening of the economy despite a spike in Covid cases.

Oil supply worries escalated after Russian President Vladimir Putin signed a decree that bans the sale of Russian oil to countries that imposed the oil price cap.

On the United States front, Thomas M. Mertens, a Researcher from the Federal Reserve (Fed) Bank of San Francisco’s Economic Research Department came out with a recession predictor based on macroeconomic time series, particularly the jobless unemployment rate. He cited that no predictors indicate an upcoming recession over the next two quarters currently. And, the jobless rate does not currently signal an impending recession.

• GBP/USD struggles to keep the bounce off one-month-old ascending support line.
• Sustained downside break of 200-SMA, downbeat RSI conditions keep sellers hopeful.
• The 1.2080 resistance confluence restricts immediate recovery moves.

GBP/USD stays defensive around 1.2030, fading the bounce off the monthly support line, as bears await fresh clues to retake control during early Wednesday.

That said, an upward-sloping support line from November 30, around the 1.2000 psychological magnet by the press time, restricts the Cable pair’s short-term downside.

However, the latest successful break of the 200-SMA joins the downbeat RSI (14), not oversold, to keep bears hopeful of conquering the stated support and retaking control.

Following that, the monthly low of 1.1990 and the late November bottom surrounding 1.1900 could lure the GBP/USD sellers. Though, the 50% and 61.8% Fibonacci retracement levels of the pair’s November-December run-up, respectively near 1.1800 and 1.1645, could challenge the quote’s further declines.

It’s worth noting that the late October swing high adds strength to the 1.1645 support level.

Alternatively, a convergence of the 200-SMA and one-week-old descending trend line highlights the 1.2080 level as the key hurdle for the GBP/USD bulls.

In a case where the Cable buyers keep the reins past 1.2080, the previous weekly top near 1.2245 and the early December top close to 1.2345 could probe the upside momentum before highlighting the monthly peak of 1.2445 as the target for the GBP/USD bulls.

GBP/USD: Four-hour chart

Trend: Further downside expected

Thomas M. Mertens, a Researcher from the Federal Reserve Bank of San Francisco’s Economic Research Department came out with a recession predictor based on macroeconomic time series, particularly the jobless unemployment rate.

The researcher claims that this predictor is almost as accurate as the slope of the yield curve but is more accurate at shorter horizons.

Key quotes

Currently, none of these predictors indicate an upcoming recession over the next two quarters. However, the underlying trend in these macroeconomic time series has started to turn and the predictions might change in the coming months.

The jobless rate does not currently signal an impending recession, nor do other macroeconomic time series analyzed using the same methodology.

In general, however, examining these series suggests that the business cycle is at a maturing stage when expansions typically come to an end.

Market implications

The economic update could help boost the latest corrective bounce in the US Dollar amid the holiday-thinned trading.

Also read: Forex Today: US Dollar on the backfoot as optimism persists

• EUR/USD is expected to display a lackluster show amid the year-ending vacation week.
• Market sentiment turned risk-averse on Tuesday despite China easing quarantine rules for inbound travelers.
• In spite of supply chain disruptions easing expectations, German firms expect a mild recession in CY2023.

The EUR/USD pair is showing signs of volatility contraction after wild moves recorded on Tuesday. The major currency pair is expected to remain sideways around 1.0640 amid an absence of a potential trigger for a decisive move. The holiday-truncated week with the unavailability of economic events is resulting in lackluster performance by the FX domain.

Market sentiment turned risk-averse on Tuesday despite easing quarantine rules for inbound travelers by the Chinese administration- a major step towards reopening the economy to delight international trade. S&P500 surrendered its revival move recorded on Friday as tech stocks face immense pressure. Meanwhile, the return on US Treasury bonds has fetched the limelight. The 10-year US Treasury yields have accelerated to near 3.85%.

Meanwhile, the US Dollar Index (DXY) is displaying back-and-forth moves around 103.83 and is expected to continue its lackluster performance. The USD Index is holding its territory despite the United States Census Bureau revealing on Tuesday that the US international rate deficit declined by $15.5 billion to $83.3 billion in November from $98.8 billion in October.

A decline in economic activities indicates a slowdown as the impact of higher interest rates has started shaking firms’ operations. This might result in lower wages and a slower employment process ahead. However, the context will support a cooldown of ultra-hot inflation in the United States economy.

On the Eurozone front, firms in Germany are expecting a mild recession in CY2023 despite the expectations of a gradual ease in supply chain disruptions. BDI’s President Siegfried Russwurm said, "The last quarter of 2022 and the start of 2023 are likely to be accompanied by a decline in economic activity. However, we expect only a slight slump" as reported by Reuters.

• Gold price struggles to reverse the latest retreat from multi-day high.
• China eases Covid-linked activity restrictions, revises up Gross Domestic Production forecasts to back XAU/USD bulls.
• Uptick in United States Treasury bond yields underpin US Dollar rebound and challenge Gold buyers amid holiday season.
• Geopolitical fears surrounding Russia also challenge XAU/USD upside.

Gold price (XAU/USD) seesaws around $1,813 after reversing from the fresh high since June as traders seek more clues to entertain traders during the holiday-thinned season on early Wednesday. The yellow metal renewed a multi-day high amid optimism surrounding China but the run-up in the United States Treasury bond yields seemed to have probed the XAU/USD bulls afterward.

China lures the Gold buyers

China’s easing of the Coronavirus-linked activity restrictions joined an upward revision to the 2021 Gross Domestic Production forecast to favor Gold bulls amid a sluggish holiday season.

That said, China mentioned that it would stop requiring inbound travelers to go into quarantine from January 8, the National Health Commission (NHC) said late on Monday, a major step towards loosening its curbs, per Reuters. The news joins China’s National Bureau of Statistics (NBS) upward revision to the 2021 GDP growth to 8.4% from 8.1% previously also favor the Gold buyers.

Given the strong positive connection between the Gold price and China, due to the dragon nation’s heavy usage of the metal, the recent positive headlines surrounding Beijing favor Gold buyers.

United States Treasury bond yields challenge XAU/USD upside

Contrary to the China-linked optimism, a run-up in the United States Treasury bond yields challenges Gold buyers amid hawkish hopes from the Federal Reserve (Fed). “The yield on 10-year Treasury notes was up 10.4 basis points at 3.851% after hitting a five-week high of 3.862%,” said Reuters while also adding that the yield on the 30-year Treasury bond was up 11.5 bps at 3.937%.

On the same line, Reuters also mentioned that the shorter-dated bonds saw their yields fall from their highs of the day after an auction of $42 billion in two-year notes, which was viewed as strong by analysts, with a high yield of 4.373% and demand for the debt at 2.71 times the notes on sale.

Geopolitical fears test the Gold buyers

Apart from the firmer US Treasury bond yields, fears surrounding Russia, China and North Korea also challenge Gold buyers. Russian President Vladimir Putin recently signed a decree to ban oil exports to the countries accepting the price cap. On the same line could be Moscow’s ongoing tussles with Kyiv. On the same line could be the US-China tension and the North-South Korean problems, recently triggered by a drone.

Light calendar highlights sentiment details for fresh impulse

Given the lack of major data/events, Gold traders should pay attention to the risk catalysts for clear directions. In doing so, the headlines surrounding China, US Treasury bond yields and Russia should be watched carefully.

Gold price technical analysis

Gold price marked another defeat from the $1,825 horizontal resistance, despite refreshing a six-month high while ticking up to $1,833. However, firmer prints of the Relative Strength Index (RSI), placed at 14, joined the bullish signals from the Moving Average Convergence and Divergence (MACD) indicator, to keep XAU/USD bulls hopeful of another battle with the $1,825 hurdle.

During the Gold’s successful trading beyond $1,825, June’s top near $1,880 and late March swing low around $1,890 can test the XAU/USD buyers before offering them the $1,900 threshold.

Alternatively, a one-week-old ascending support line, close to $1,803, precedes the $1,800 round figure to restrict the short-term Gold downside.

Also acting as the key challenges for the Gold sellers is an upward-sloping support line from early December, close to $1,780, as well as the 200-SMA support near $1,778.

Overall, firmer oscillators join the higher-low formation of the Gold price to keep buyers on the table.

Gold price: Four-hour chart

Trend: Bullish

• AUD/USD is expected to display sheer weakness after shifting its auction profile below 0.6730.
• China’s easing quarantine rules for inbound travelers have failed to keep the risk on impulse solid.
• The Australian Dollar has failed to regain strength despite a revision in China’s GDP to 8.4% from 8.1% estimated earlier.

The AUD/USD pair is hovering around Tuesday’s low near 0.6730 in the early Asian session. The US Dollar Index (DXY) has managed to hold the 104.00 area despite rising expectations of a less-hawkish monetary policy by the Federal Reserve (Fed). The Aussie asset is at a make-or-break level and therefore is expected to remain on tenterhooks.

Meanwhile, the risk impulse has been turned sour again after S&P500 failed to capitalize on Friday’s revival move on Tuesday. Easing quarantine rules by China failed to keep the risk appetite theme firm in the global market. The 10-year US Treasury yields have escalated to near 3.85%.

The Australian Dollar has failed to regain strength despite easing Covid curbs by the Chinese administration. The Chinese government is trying to get on the path of progress with sheer enthusiasm. The nation has scrapped the quarantine rule for inbound travelers despite a solid spike in Covid cases. Apart from the easing Covid restrictions, positive revision of China’s Gross Domestic Product (GDP) failed to provide support to the antipodean.

In a statement released on Tuesday, China’s National Bureau of Statistics (NBS) said that they have revised the country’s estimate of 2021 GDP growth to 8.4% from 8.1% previously.

On the United States front, a swift fall in United States Durable Goods Orders and consumption expenditure by households is likely to impact the USD Index ahead. Economists at ING are of the view that the recession will accelerate inflation's slide and allow the Fed to respond with rate cuts before 2023 is out.

• Mixed US macroeconomic data partially weighed on the American Dollar.
• Chinese focus on economic growth boosted optimism among speculative interest.
• NZD/USD is at risk of extending its latest decline, particularly once below 0.6230.

A broadly weaker US Dollar helped NZD/USD to peak at 0.6317 on Tuesday but finished the day in the red at around 0.6245. Commodity-linked currencies surged throughout the first half of the day amid a better market mood weighing on the greenback but managed to recover some ground ahead of the close.

The Canadian Dollar was the weakest, as oil prices turned sharply lower in the final hour of trading, followed by the NZD, which shed ground despite encouraging Chinese headlines. According to different news agencies, the country is moving further away from its zero-covid policy as the focus has gyrated towards economic growth. There were also headlines indicating that the local health system is stressed amid multiplying contagions, but it was not enough to overshadow the good mood.

US data released following the long weekend was generally discouraging. The US November Trade Balance posted a deficit of $83.3 billion, improving from the previous deficit of $98.8 billion. Wholesale Inventories for the same month were up 1%, worse than the 0.7% expected, while the October Housing Price Index remained pat. Finally, the December Dallas Fed Manufacturing Business Index contracted to -18.8 from -14.4 in the previous month.

NZD/USD Technical Outlook

The NZD/USD pair’s near-term outlook favors the downside, as in the 4-hour chart, the pair trades below a flat 20 SMA, while technical indicators head nowhere just below their midlines. The intraday low at 0.6230 provides immediate support, later followed by 0.6155. The mentioned 20 SMA currently stands at around 0.6270, the level to surpass to confirm further gains towards the 0.6340 price zone.

What you need to take care of on Tuesday, December 28:

The US Dollar extended its Friday slide, ending Tuesday with modest losses against most major rivals. Softening US inflation, as per data released last week, coupled with Chinese news to boost the market sentiment after a long weekend.

China upwardly revised its Gross Domestic Product (GDP) estimate for 2021, bringing it up to 8.4% from 8.1%. Additionally, the government continues to ease covid-related restrictions, which will mitigate the negative impact limitations had on the economy. Finally, the China Immigration Administration announced it would resume issuing visas for mainland citizens travelling abroad.

Global stocks were supported by speculation the Chinese government would focus on boosting growth and move further away from its covid-zero policy. Wall Street traded mixed, with the DJIA up, but the Nasdaq Composite is shedding roughly 100 points.

On a down note, Russian  President Vladimir Putin signed a decree that bans the sale of Russian oil to countries that imposed the oil price cap. It will run from February 1 to July 1. There are reports softening the headline and noting that it does not necessarily imply oil exports to countries with formal bans.

The EUR/USD pair keeps hovering at around 1.0650, while GBP/USD is down to 1.2025. The AUD/USD pair trades in the 0.6730 price zone, while USD/CAD hovers around 1.3520. Easing oil prices weighed on the CAD as the WTI trades at around $79.30 a barrel. Finally, USD/JPY ticked higher and trades at 133.35.

Gold peaked at a fresh 3-week high of $1,833.32 but eased towards its comfort zone at around $1,815 by the end of the day.

• US Treasury yields advance in thin trading, Wall Street trades mixed.
• The US Dollar is weak amid signs of easing US inflation and growth-related hopes.
• XAU/USD jumped to a fresh three-week high but quickly returned to its comfort zone.

XAU/USD jumped to a fresh three-week high of $1,833.32 a troy ounce following Wall Street’s opening amid a better market mood maintaining market players in risk-on mode. Stocks advanced despite tepid US data, while the greenback rallied despite firmer US Treasury yields.

The bullish momentum of the bright metal faded as the session developed, and it fell back towards the current $1,810 price zone, retaining its long-term upward bias. It is worth adding that volumes are low heading into year-end, with most major pairs and assets holding within familiar levels, despite some short-lived directional spikes.

US Dollar down amid an upbeat mood

Market participants welcome news that US inflation keeps receding, according to the core PCE Price Index released last Friday. Another catalyst for the upbeat mood came from China, as the country is further easing COVID-related restrictions.

Technically, according to FXStreet.com chief analyst Valeria Bednarik, “the daily chart shows that the pair keeps developing above all of its moving averages, with the 20 Simple Moving Average (SMA) extending its advance above the 200 SMA, in line with the dominant bullish trend. Technical indicators, in the meantime, picked up from around their midlines, offering firmly bullish upward slopes within positive levels.” 

Crude oil prices are up on Tuesday, helped by the ruling optimism that pushes most stock markets into the green. Easing Chinese covid-related restrictions, as the local government puts the focus on economic growth, boosted sentiment. Still some news agencies report that the Chinese health system is stressed amid the exponential number of new cases. Nevertheless, a good mood prevails.

Oil is finding additional support from Russian news, as President Vladimir Putin signed a decree that bans the sale of Russian oil to countries that imposed the oil price cap. It will run from February 1 to July 1. There are reports softening the headline and noting that it does not necessarily imply oil exports to the countries that have formal bans.

At the time being, West Texas Intermediate trades at $80.69 a barrel, its highest since December 5, easing from an intraday high of $81.18.

The January official employment report will be released on January 6. According to analysts at Wells Fargo, payrolls will slowdown from the previous months but still hold above the 200K level in December.  

Key Quotes: 

“The November employment report was not encouraging for Federal Reserve policymakers who are striving to bring the labor market into better balance. Nonfarm payrolls again blew past expectations, increasing by 263K in November. Wage growth was also much stronger than expected, and over the past three months, average hourly earnings rose at a 5.8% annualized rate, nearly double the pre-pandemic pace of wage growth. Making matters worse, new labor supply that might help put water on the fire was again not forthcoming; the labor force participation rate fell by a tenth of a percent and is now below where it was in January.”

“The next employment report will be released on January 6 but will be data for the final month of 2022. We look for hiring to downshift from the November pace but to remain a still-strong 205K. Chair Powell and company will be analyzing the report closely for signs that new labor supply is coming on line and that wage growth is moving closer to a pace that would be consistent with 2% inflation. Another strong reading for nonfarm payrolls should keep the central bank in tightening mode when it concludes its first meeting of 2023 on February 1.”

• Volatile session for Silver that is facing difficulties to consolidate above $24.00.
• Higher US yields and a mixed dollar weighs on XAU/USD limiting XAG/USD.
• Price is biased to the upside but it needs to break $24.25/30.

Silver is having a positive but volatile day on Tuesday. Recently XAG/USD rebounded from a session low at $23.80 to $24.28, matching last week high and then pulled back. It is hovering around $24.00 with a bullish bias, still facing important resistance ahead.

The improvement in risk appetite at the beginning of the week boosted commodities, particularly after last week’s US inflation data. At the same time, bonds in the US and Europe dropped. Higher yields limited the upside in Gold, the decline of the Dollar, and the break above $24.25/30 of XAG/USD.

As of writing, XAG/USD is hovering around $24.00. A short-term uptrend line is seen at $23.85. A consolidation below would suggest a correction ahead with an initial target at $23.55 and then $23.35 (Dec 22 low).

A firm break above $24.25 would clear the way to more gains targeting $24.55 and then the $25.00 zone.

XAG/USD 4-hour chart

Technical levels

• The Loonie outperforms during the American session.
• WTI rebounds and approaches daily highs.
• Wall Street trims losses, US yields print fresh highs.

The USD/CAD is hovering around 1.3510 after hitting at 1.3484, the lowest level in three weeks, amid an improvement in market sentiment. The Loonie is outperforming.

Technicals, oil and equities supporting CAD

The USD/CAD broke a relevant support area located at 1.3520 and accelerated the downside. If the pair manages to remain below, more losses under 1.3500 seems likely.

The Loonie is outperforming on Tuesday, supported not only by technical developments but also by higher crude oil prices. The WTI barrel is up by 1.41%, approaching the $81.00 area again.

In Wall Street, the stock market is off lows with the S&P 500 up by 0.31% as of writing, and the Nasdaq down by 0.80%, off lows. Volume remains low favoring uncoordinated moves.

Technical levels

In the view of analysts at Société Générale, a rally beyond 1.2450 is crucial to affirm uptrend on GBP/USD.

Support aligns at 1.1900

“Recent peak at 1.2450 is expected to be an intermittent resistance. Failure to cross above this hurdle can result in a phase of pullback.”

“Recent pivot low of 1.1900 is near term support. Break can lead to a deeper pullback towards October high of 1.1640.”

“A move beyond 1.2450 would be essential for affirming a larger uptrend. In case this crossover materializes, the up move could persist towards 1.2750, the 61.8% retracement from February 2021 and 1.3250/1.3300.”

• Gold climbed above $1,830 for the first time since late June.
• XAU/USD volatility increases amid thin liquidity conditions.
• Rising US Treasury bond yields don't seem to be limiting the pair's upside.

After dropping toward $1,800 in the early American session on Tuesday, Gold price gathered bullish momentum and rose above $1,830 for the first time since June 22 before retreating modestly. As of writing, XAU/USD was up 1.3% on the day at $1,823.

Earlier in the day, China announced that it will reopen its borders and forego quarantine obligations from January 8. With this decision, China will essentially be ending its zero-COVID policy. This development seems to be helping XAU/USD push higher on heightened optimism for an improving demand outlook.

Meanwhile, the 10-year US Treasury bond yield holds in positive territory above $3.8% but does little to nothing to derail Gold price's rally.

It's also worth noting that liquidity conditions remain thin in markets following the long weekend and ahead of the New Year holiday, possibly causing XAU/USD's volatility to remain high.

Earlier in the day, the data from the US showed that house prices remained unchanged in October. Additionally, the Federal Reserve Bank of Dallas' Texas Manufacturing Survey showed that the General Business Activity Index declined to -18.8 in December from -14.4 in November. The US Dollar struggles to find demand following the data releases, allowing Gold price to preserve its bullish momentum.

Technical levels to watch for

• Wall Street trims losses, DXY approaches daily lows.
• Bond yields off highs, after reaching weekly highs.
• EUR/USD remains sideways with bullish bias.

The EUR/USD has recovered 1.0611, reaching the lowest level since last Thursday and then bounced sharply to the upside, approaching daily highs as equity prices in Wall Street rebounded.

The improvement in risk sentiment sent the US Dollar down across the board. The DXY is hovering around 104.00, down by 0.25% in the day. In Wall Street ,the Dow Jones is up by 0.28% and the Nasdaq falls by 0.75% (was down by more than 1% a few minutes ago).

Yields rise

US and European bond yields area higher on Tuesday, off highs. The US-year yield peaked at 3.83%, the highest in a month. The German 10-year matched the 2022 high at 2.53%. The divergence between both bonds is at levels not seen since October 2020 and is supporting the Euro.

European Central Bank Governing Council member Klaas Knot said on Tuesday he believes that the central bank has only just passed the halfway point of its tightening cycle and needs to be “in there for the long game” to tame high inflation.

Looking at 1.0660/70 again

The EUR/USD is back above 1.0640 (20-hour Simple Moving Average) and approaching the 1.0660/70 resistance area. A break higher would clear the way for a test of 1.0700. The following level is the recent top at 1.0735/40. A consolidation far from 1.0620 should strengthen the bullish bias.

On the flip side, another failure around 1.0670 should suggest the consolidation range with support at 1.0580 is still in place.

Technical levels

S&P 500 remains capped by its 200-Day Moving Average (DMA) and downtrend from the beginning of the year. Economists at Credit Suisse look for an eventual move below the 2022 lows, with 3234/3195 as their core objective.

Sustained close above 4101 needed to suggest core trend may have shifted sideways

“We look for a retest of key support from the 200-week average at 3663. A sustained move below here should further reinforce the bear market, clearing the way for a retest of the 2022 lows and 50% retracement of the 2021/2022 bull trend at 3505/3492. Whilst this should again be respected, we look for this to be removed in due course for a decline to the Q1 2020 pre-pandemic high at 3394 next, with our core objective at 3234/3195. We would look for this to then ideally prove a solid floor.”

“Key resistance is seen starting at the 200DMA, currently at 4022, ahead of the 2022 downtrend and December high at 4101. A sustained close above this latter level would suggest the worst of the bear market weakness may have indeed been seen. We would not though look for a new bull market to arise, rather further near-term strength to 4300/4325, but for this to then cap and for a potentially lengthy and broad sideways range to unfold.”

US Dollar strength and central bank tightening have weighed heavily on Gold in 2022. Next year, economists at ING expect Gold to rebound as Fed easing starts.

There is room for more downside with further tightening expected

“We expect Gold to remain on a downward trend during the Fed’s ongoing tightening cycle. But while in the short term we see more downside for XAU/USD amid monetary tightening, any hints from the Fed of an easing in its aggressive hiking cycle should start to provide support to prices. For this to happen, we would likely need to see signs of a significant decline in inflation.”

“We should see inflation coming off quite drastically over 2023 and this will then open the door for the Fed to start cutting rates over 2H23.” 

“Under the assumption that we see easing over 2H23, we expect Gold to move higher over the course of 2023 with XAU/USD reaching $1,850 in 4Q23.”

• The Euro hits resistance at 0.8855 after rallying to fresh two-month highs.
• The Pound remains vulnerable on BoE's dovishness.
• EUR/GBP seen at 0.85 in one year time – Danske bank.

The Euro rally from 0.8800 seen on Tuesday’s European market session, has found resistance at 0.8855. The pair, however, remains steady at two-month highs, above 0.8830, with mid-October’s peak, at 08865 on sight.

The Pound, on the defensive on the back of a dovish BoE

The Sterling has remained on the back foot over the last few days, which has helped the Euro to appreciate nearly 3% over the last two weeks. The Bank of England delivered a “dovish hike” after their December monetary policy meeting, which has acted as a headwind for the GBP.

The bank slowed down the monetary tightening pace with a 0.5% hike and with two of the nine committee members voting to leave rates unchanged. This suggests that the bank’s normalization cycle might be approaching its end.

In a quiet post-Christmas market, with a thin macroeconomic docket, the euro is trading moderately higher, underpinned by a solid EUR/USD amid the softer tone of the US Dollar. News that China is planning to end quarantine for inbound travelers has boosted risk appetite, weighing demand for the safe-haven USD.

EUR/GBP seen lower over the coming months – Danske Bank

Looking forward, analysts at Danske Bank maintain a negative outlook on the pair: “We remain cautiously optimistic that the cross will head modestly lower as a global growth slowdown and the relative appeal of UK assets to investors are positive for GBP relative to EUR (…) Forecast: 0.87 (1M), 0.86 (3M), 0.85 (6M), 0.85 (12M).”

Technical levels to watch

• Home prices in the US stayed unchanged in October.
• US Dollar Index stays in its daily range above 104.00.

House prices in the US remained unchanged on a monthly basis in October, the monthly data published by the US Federal Housing Finance Agency showed on Tuesday. This reading came in below the market expectation for an increase of 0.8%.

Meanwhile, the S&P/Case-Shiller Home Price Index arrived at 8.6% on a yearly basis in October, compared to analysts' estimate of 10.4%.

Market reaction

The US Dollar Index showed no immediate reaction to these figures and was last seen losing 0.05% on the day at 104.26.

• International trade deficit of the US declined by $15.5 billion in October.
• US Dollar Index stays above 104.00 after the data. 

The data published by the US Census Bureau revealed on Tuesday that the US international rate deficit declined by $15.5 billion to $83.3 billion in November from $98.8 billion in October. 

"Exports of goods for November were $168.9 billion, $5.3 billion less than October exports," the publication further read. "Imports of goods for November were $252.2 billion, $20.8 billion less than October imports."

Market reaction

The US Dollar Index showed no immediate reaction to this report and was last seen posting small daily losses at 104.22.

• The US dollar pushes higher and reaches week highs above 133.15.
• BoJ Kuroda discards any near-term exit from easy policy.
• The dollar trims losses following a soft market opening.

The US Dollar seems to be shrugging off the previous soft tone, with the USD/JPU pushing higher on Tuesday’s European session to breach recent highs at 133.15 and hit fresh one-week highs near 133.40.

BoJ Kuroda discards a near-term exit of easy policy

The Governor of the Bank of Japan, Haruhiko Kuroda dismissed on Monday any chance of a near-term exit from the bank’s ultra-expansive monetary policy, increasing negative pressure on the Japanese yen. Such speculation has been going on in the markets since the bank relaxed its yield curve control. 

On the other hand, the US dollar is trimming losses against its main rivals following a soft week opening amid the risk appetite triggered by the Chinese Government’s decision to scrap quarantine for inbound travelers.

In a thin post-Christmas market, Japanese figures have been mixed, with employment data showing slightly better than expected readings, while retail consumption eased to 2.6% in November, below the consensus 2.8% and the 4.4% reading seen in October.

In the US calendar, the focus will be on the US Goods Trade Balance, Housing prices, and the Dallas Fed Manufacturing Index, although the impact on currencies is likely to be limited.

Technical levels to watch

CAD has come under pressure over the last month. Economists at Danske Bank expect USD/CAD to move gradually higher toward 1.39 over the coming months.

Good downside potential in EUR/CAD

“We still pencil in a stronger USD which alongside a broad tightening of global financial conditions should act as a supportive factor for the cross. That said, if we are right that energy as sector will be among the winners in the coming years that does leave some attractive properties of a long CAD position.”

“While our USD/CAD profile still points higher we think there’s a good downside potential in EUR/CAD.”

“Forecast: 1.36 (1M), 1.38 (3M), 1.39 (6M), 1.39 (12M).”

• Oil prices fail at $81 and retread below $80.
• News that china will scrap covid quarantine has boosted commodity prices.
• The escalating tensions between the US and Russia are cooling investors' optimism.

WTI prices are turning negative on daily charts, with the US benchmark crude retreating from three-week highs at $81.00, back to levels below $80 at the time of writing.

From a wider perspective, however, oil prices remain trading within an upward trending channel from early December lows at $70.30, on track to test the 50-day SMA, now around $81.35.

Oil prices jumped on news from China

Before that, crude prices opened Tuesday session on a bid tone, buoyed by the announcement of Chinese authorities’ decision to end quarantine for inbound travelers, which has been welcomed by financial markets.

Asian stock indexes posted gains on Tuesday with the MSCI Asia=Pacific Index advancing 0.6%. In Europe, major indexes are going through advances from 0.05%in London to 1% in Paris or 0.68% in Frankfurt. US Stock Futures are also showing gains of around 0.5%.

Investors’ optimism, however, has been tamed by the verbal escalation of Russian authorities amid the Ukrainian war. Russian Foreign minister Sergei Lavrov has urged Ukrainian authorities to fulfill Moscow’s demands or the Russian army will decide the fate of Ukraine.

Before that, the Russian ambassador to the US, Anatoly Antonov accused the US of carrying out a “proxy war” against Russia and warned about the high risks of a clash between the US and Russia

Technical levels to watch

A turbulent year is coming to an end in the oil market. Strategists at Commerzbank expect Brent Crude Oil to rise again in 2023 and trade around $95 by the middle of the year.

Significant tightening looms on the oil market

“We are convinced that oil prices will rise again strongly in the first half of next year, as the situation on the oil market is likely to tighten considerably.”

“Demand will exceed supply again from the middle of the year onwards and the already low inventories will fall further. We, therefore, think that the current price weakness is only short-lived and expect a significant price recovery in the coming months. By the middle of the year, a barrel of Brent Oil should cost $95 again.”

“In the unlikely event that prices do not recover, we expect further production cuts by OPEC+. In addition, the US government has announced its intention to replenish strategic reserves at a WTI price around $70. This should counteract a further slide in the WTI price.”

• GBP/USD U-turns at 1.2110 and retreats to 1.2035 area
• The USD trims losses after a negative market opening.
• The market mood remains positive on the back of easing covid restrictions in China.

The Pound is performing a sharp U-turn on Tuesday, The pair’s run-up from last Friday’s lows at 1.2020 has been capped at 1.2110 earlier today, before giving away most of the ground taken on the previous days and returning to 1.2035 so far.

The Pound loses ground in spite of the positive market mood

The Sterling has failed to capitalize on the positive market mood seen on Tuesday. News that Chinese authorities will scrap quarantine requirements for inbound travelers has been welcomed by investors, which reflects on the advances in the world's major stock markets.

Furthermore, the US dollar is trimming losses after a negative opening, weighed by the positive market mood and increasing hopes that the Federal Reserve will soften its monetary tightening path in 2023.

Data released on Friday showed that the US Core PCE Prices Index, the Fed’s preferred inflation gauge, showed the third consecutive decline in November, suggesting that the inflationary peak might have passed. Beyond that, consumer spending slowed down in November, adding reasons for the US Central Bank to reconsider its hawkish stance.

In absence of key macroeconomic releases in the UK, a Financial Times report from retail intelligence provider Springboard announced a decline in boxing day sales despite the increase of shoppers from last year, when COVID-19 restrictions kept consumers at home.

In the US, investors’ focus will be on the release of the US Goods Trade Balance, Housing prices, and the Dallas Fed Manufacturing Index, although the impact on currency crosses is likely to be limited.

Technical levels to watch

• The US dollar accelerates its downtrend and reaches levels below 0.9300.
• Hopes of a slowdown in Fed tightening are hurting the USD.
• News that China is easing covid restrictions further has boosted market mood.

The US Dollar resumed its near-term downtrend against the Swiss Franc on Tuesday, with the pair extending its pullback from last week’s highs at 0.9345 to levels below 0.9300. The pair drops about 0.5% so far today, retracing the previous three day’s recovery.

Hopes of Fed easing are hurting the Dollar

US macroeconomic figures released last Friday have boosted hopes of a slowdown on the Federal Reserve’s monetary tightening path in 2023, which has hurt demand for the Greenback.

The US Core Personal Consumption Expenditures Price Index, a gauge closely observed by the Fed to assess inflationary trends, eased in November for the third consecutive month, suggesting that the price pressures might have started a deceleration trend.

Furthermore, consumer spending remained practically unchanged from the previous months. These figures pave the way for the Federal Reserve to ease its tightening path.

On the other hand, Chinese authorities have announced the end of COVID-19 restrictions for inbound travelers. The National Health Committee assured that from January 8, quarantines for visitors to China will be scrapped, which has boosted risk appetite in an otherwise quiet post-Christmas market, adding selling pressure to the safe-haven USD.

Technical levels to watch

Economists at Danske Bank expect EUR/CHF to resume its move downward in the coming months and see the pair at 0.96 in a 6-12 month horizon.

Relative rates to prove a headwind for CHF in the short run 

“In the near term, we expect relative rates to prove a headwind for CHF, why we expect the cross to remain elevated at 0.98 in 1M. Further out, we continue to forecast the cross to move lower on the back of fundamentals and a tighter global investment environment.”

“We forecast the cross at 0.96 in 6M-12M.”

“The key upside risks to our forecast are global yield curves steepening amid a shift in the global investment environment and/or the SNB falling further behind the curve.”

• The USD dives for the third consecutive day.
• Hopes of Fed easing are weighing on the Greenback.
• The Lonie appreciates with oil prices rising steadily.

The US Dollar has extended losses against its Canadian counterpart on Tuesday reaching to hit session lows at 1.3526, only a few pips above three-week lows at 1.3520.

Hopes of Fed easing are weighing on the US Dollar

The greenback has remained on the back foot on the back of the release of Friday’s macroeconomic figures. The PCE core prices Index showed cooling inflation for the third consecutive month, while US consumer spending remained practically unchanged in November.

These figures add reasons to anticipate a slowdown in Federal Reserve's rate hikes, which is acting as a headwind for the US dollar.

Furthermore, oil prices have continued crawling higher, with the US benchmark WTI reaching levels past $80, which has appreciated nearly 15% from early December lows. The rising crude prices offer additional support to the commodity-linked CAD, which has gained about 1.25% over the last seven days.

USD/CAD about to test 1.3520 support

From a technical point of view, the breach of trendline support in the vicinity of 1.3600 has negated the USD/CAD’s upside trend from Mid-November lows at 1.3230, and the pair seems set to test 1.3520 support area, which could trigger further selling pressure.

A confirmation below the mentioned 1.3520 might boost confidence for bears to push the pair towards the 100-day SMA, now at 1.3410 on its way to December 5 low at 1.3385.

On the upside, the pair should return above the 50’day SMA, at 1.3540 to ease negative pressure and attempt to regain the previous trendline support at 1.3630 before aiming for December’s peak, at 1.3700.

USD/CAD Daily Chart

Technical levels to watch

Copper (LME) prices are now down around 30% from their peak in February. The short-term demand outlook for the red metal remains weak, but economists at ING expect Copper to move back higher in th long run.

Macro headwinds to keep pressure on Copper 

“Recession fears, China's slowdown due to its Covid-19 restrictions, and the Fed’s interest rate hiking path will continue to drive Copper’s short-term price outlook, however tightening supply should maintain the red metal’s price support above $7,500 throughout 2023.”

“We believe Copper prices will remain under pressure until the global growth outlook starts to improve. Tight supply will then become the key focus for the market, which should support prices above $8,000 in the last quarter of 2023.”

“Longer-term, we believe Copper demand will improve amid the accelerated move into renewables and electric vehicles (EVs). Copper has no substitutes for its use in EVs, wind and solar energy, and its appeal to investors as a key green metal will support higher prices over the next few years.”

Economists at Danske Bank forecast EUR/GBP at 0.85 in 12 months as global growth slowdowns and relative appeal of UK assets to investors are a positive for the Pound relative to EUR.

Modestly lower in 2023

“In the very near-term, we expect fragile risk appetite and too aggressive market pricing on the BoE to keep EUR/GBP around current levels.”

“Further out, we remain cautiously optimistic that the cross will head modestly lower as a global growth slowdown and the relative appeal of UK assets to investors are a positive for GBP relative to EUR.”

“Forecast: 0.87 (1M), 0.86 (3M), 0.85 (6M), 0.85 (12M).”

• The kiwi appreciates for the third consecutive day to test 0.6315 resistance.
• Easing covid restrictions in China has boosted market sentiment.
• The US dollar remains soft on hopes that the Fed will ease its tightening pace.

The New Zealand Dollar is taking bids on Tuesday to extend its three-day rally from last week's lows.at 0.6230 to test Monday’s high at 0.6315. The pair appreciates 0.25% on the day to hit session highs at 0.6318 although, so far it seems unable to confirm above the mentioned o.6315.

The Kiwi remains bid, buoyed by the positive market sentiment

The upbeat market mood seen at the start of a very quiet post-Christmas week is underpinning New Zealand Dollar’s uptrend.

News that the Chinese National Health Commission is set to scrap the quarantine for inbound travelers has been welcomed by the markets, boosting sentiment-linked currencies like the Kiwi.

On the other hand, the sharper-than-expected decline in Chinese industrial profits which fell by 3.6% year-on-year in November, against previous estimations of a 3.0% drop, has tamed the appetite for risk.

On the other hand, the US dollar is showing a soft tone, weighed by macroeconomic data seen on Friday. The US Core PCE Prices Index, one of the Federal Reserve’s preferred inflation gauges, declined for the third consecutive month in November, suggesting that the peak of inflation might already be behind.

These figures, coupled with the stalled consumer spending data, are providing reasons to the Fed to moderate its tightening pace, ultimately adding negative pressure to the greenback.

Technical levels to watch

Economists at Danske Bank expect EUR/SEK to move higher over the coming months to 11.20 due to weak growth dynamics, relative monetary policy and the Riksbank’s disregard for SEK weakness.

Range-bound near-term, then higher

“We stick to our non-consensus view on the SEK amid weak growth dynamics, especially for Europe, scope for another downturn in global equities and relative monetary policy where the Riksbank is far behind the Fed and treats the SEK with benign neglect. Furthermore, the interest-rate weapon is a double-edged sword for the SEK as too much tightening runs the risk of hurting the housing market and thus scaring away investors from SEK assets. These factors suggest that the EUR/SEK uptrend in 3-6M remains intact.”

“In the 6-12M perspective, the Fed pivot and generally bigger optimism about the global economy may be real and with that a sustainable recovery in risk assets and the SEK.” 

“Forecast: 10.80 (1M), 11.00 (3M), 11.20 (6M), 11.00 (12M).”

• The Aussie appreciates for the third consecutive day to test 0.6765.
• China's decision to ease covid restrictions further boosts market sentiment.
• The safe-haven USD suffers on risk appetite and hopes of Fed easing.

The Aussie is trading on a firm tone on Tuesday, buoyed by positive market sentiment. The pair is rallying for the third consecutive day, extending its rebound from 0.6650, to test the last two week’s high at 0.6765.

AUD/USD reached session highs at 0.6775 in the early European session, before pulling back, although it maintains its bid tone intact, with bearish moves so far contained above 0.6755.

The Aussie appreciates as China eases covid restrictions further

Appetite for risk has been boosted on Tuesday by news from the Chinese National Health Commission, announcing the end of the quarantine for inbound travelers from January, 8. Beyond that, the Commission affirmed that its management of COVID-19 will be downgraded from the current top-level Category A to a less strict Category B.

The sentiment-linked Australian dollar appreciates about 0.6% so far on Tuesday, buoyed by the upbeat market mood. Most Asian stock markets have posted moderate gains, while the European indexes are trading with advances between 0.05% in London to 0.84% in Paris.

On the other end, the US dollar remains on the back foot. The moderate risk appetite and the US data seen on Friday, with the softening inflation pressures paving the path for the Fed to ease its monetary tightening pace, are acting as headwinds for the Greenback.

In a very quiet post-Christmas session, with a thin macroeconomic docket, the focus will be on the North American session, with the release of the US Goods Trade Balance, Housing prices, and the Dallas Fed Manufacturing Index. The impact on Forex markets, however, is likely to be minor.

Technical levels to watch

• Gold price has kicked off the week on a right footing, eyeing key $1,825 resistance.
• China’s further reopening boosts risk sentiment, sends Gold price higher.
• Gold’s uptrend remains intact despite holiday-thinned market conditions.

Gold price is extending the previous week’s uptrend, as a holiday-thinned light trading offers buyers conducive conditions. The main catalyst, however, behind the Gold price advance is China’s further Covid reopening-led risk-on sentiment. The market optimism is weighing negatively on the safe-haven US Dollar, which makes the USD-priced bullion more expense for foreign buyers. The US S&P 500 futures are up over 0.50% on the day, representing the upbeat market mood. Looking ahead, the risk trends and the US Dollar price action will continue influencing the bright metal amid thin liquidity and absence of high-tier US economic data.

Also read: Gold challenges a strong dynamic resistance 

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price needs a fresh spurt of buying to cross the Fibonacci 38.2% one-week resistance at $1,810.

The next critical upside hurdle is seen at the Fibonacci 23.6% one-week at $1,814, above which a run toward the pivot point one-week R1 at $1,820 cannot be ruled out.

The previous week’s high at $1,825 is the level to beat for Gold bulls.

Alternatively, the SMA5 one-day at $1,804 offers immediate support to Gold buyers. A firm break below the latter will put the $1,800 level at risk. That level is the confluence of the SMA10 one-day, Fibonacci 61.8% one-week and SMA200 one-hour.

In case bears flex their muscles, then $1,797 will be seen as a powerful barrier, where the Fibonacci 61.8% one-day aligns.  

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.

Economists at Danske Bank expect Brent Crude Oil to trade lower in the next year. The price could fall as low as $80 in the fourth quarter.

A rebound of USD will further weigh on prices

“We revise lower our oil price forecast and look for Brent to average $90/bbl in H1 next year and fall to $80/bbl in Q4.”

“Global inflation pressures have started to ease, in particular in the US, and Russia looks able to continue to sell oil to the Asian market. A rebound of USD will further weigh on prices.”

• Euro rally hits resistance at 1.0665 and retreats to 10640.
• The common currency remains bid against a softer USD.
• News that China is planning to scrap restrictions on inbound travelers has boosted risk appetite.

The Euro rally from 1.0615 area witnessed over the last sessions has been capped at 1.0665 right ahead of Tuesday’s European opening. The pair has pulled back to 1.0630 so far, yet with the short-term upside bias still intact.

Risk appetite hurts the US Dollar

The upbeat market sentiment at the week opening following a three-day weekend has been weighing on the safe-haven USD and boosting the common currency past 1.0630, to test the top of the last two weeks' trading range, around 1.0660.

The US dollar is trading lower on Tuesday, amid a moderate appetite for risk after the Chinese National Health Commission announced that they will scrap the quarantine for inbound travelers from January 8, even with COVID-19 infections rising sharply in the country.

Furthermore, data from last Friday showed that US inflation has eased further, suggesting that the peak of inflation might have been left behind, while consumer spending remained practically steady from the previous month. These figures offer some leeway for the Federal Reserve to ease its monetary tightening pace which has increased selling pressure on the USD.

World stock markets have reacted with advances to news from China, with most Asian indexes posting moderate gains. Likewise, the main European Indexes are posting gains at opening times. The French CAC advances 1%, with the German Dax Index 0.82% up and the British FTSE lagging behind with a 0.05% advance.

With the Eurozone macroeconomic docket practically empty on Tuesday, the focus will be on the release of November’s Preliminary Goods Trade balance, the Housing Prices Index, and the Dallas Fed Manufacturing Index due later today.

Silver (XAG/USD) price looks back on a mixed year. Economists at Commerzbank expect the precious metal to enjoy a favourable market situation next year and end 2023 at $25.

Silver can make up further ground against Gold

“Industrial demand is expected to mark a record level, as is demand for coins and bars as well as jewelry and silverware. This prospect and our forecast of a higher Gold price argue for a rising Silver price.”

“Silver should also benefit from the end of the Fed's interest rate hikes and the speculation on interest rate cuts that will start thereafter. The expected economic recovery following the end of the recession should additionally benefit Silver as a precious metal with a high industrial use.”

“With the easing of corona restrictions in China, Silver demand should receive a further boost, as China is the largest consumer of Silver.” 

“We think Silver can make up further ground against Gold. We expect a price level of $23 at mid-year and a price increase to $25 by the end of 2023. The Gold/Silver ratio would then be 74.”

Japan’s former Top Currency Diplomat Takehiko Nakao said on Tuesday, the Bank of Japan (BoJ) should alter current easing policy framework as side effects mount.

Additional quotes

Market reaction

These comments fail to offer any respite to the Japanese Yen, as USD/JPY recaptures the 133.00 barrier. The pair is trading at 133.10, advancing 0.18% on the day.

Citing a survey conducted by the Federation of German Industries (BDI) and the Association of German Chambers of Industry and Commerce (DIHK), Reuters reported that Germany’s firms brace for a mild recession in 2023 even though supply chain disruptions were expected to gradually ease.

BDI’s President Siegfried Russwurm said, "The last quarter of 2022 and the start of 2023 are likely to be accompanied by a decline in economic activity. However, we expect only a slight slump."

Meanwhile, DIHK President Peter Adrian noted, "Freight rates for container prices are approaching long-term normal values again, and the congestion outside international ports is slowly easing.”

"If the announced relaxations of China's zero-COVID policy are implemented, it would also be a positive signal for global supply chains," Adrian added.

Market reaction

The above comments have little to no impact on the Euro, as EUR/USD is keeping its range at around 1.0650, still adding 0.18% on the day.

EUR/USD has continued its move higher. Economists at Danske bank shift their forecast profile upwards and now expect the pair to move lower to 0.98 in 6-12 months (up from previously 0.95 and 0.93 respectively).

EUR not out of the woods

“We stick to our long-held bearish view on EUR/USD. As we see it, EUR will continue to struggle in 2023 for many of the same reasons it struggled in 2022. We have revised higher our forecast profile though and now expect EUR/USD to fall to 0.98 in 6M-12M vs. 0.95 and 0.93 last month.”

“What could trigger a further rally in EUR/USD, e.g. towards 1.15 and derail our long-held bearish view? One place to look is the global energy crisis. If the supply situation eases then would vastly improve the outlook for Euro Area economy and support EUR. Another place to look is China. A faster end to Covid restrictions would support the Chinese economy and benefit the Euro Area and EUR.” 

In the view of economists at ING, recession will accelerate inflation's slide and allow the Federal Reserve to respond with rate cuts before 2023 is out.

Recession risks mount as businesses pull back

“We're likely to see the jobs market and the outlook for business capital expenditure deteriorate markedly over the next couple of quarters. While the US entered a technical recession in the first half of 2022, this was tied to legacy supply chain issues which led to volatility in trade and inventories. A recession will feel much more ‘real’ this time around.”

Inflation set to hit 2%

“Corporate pricing power already appears to be waning based on survey evidence. The deteriorating activity story will help dampen price and wage pressures further. The composition of the US inflation basket, which is heavily skewed toward housing and vehicles – accounting for more than 40% by weight – is also important for our call that inflation will hit 2% by the end of the year.”

The Fed will respond early and fast with rate cuts

“With the Fed continuing to suggest the risk of doing too little outweighs the risk of doing too much, it appears prepared to accept a recession to ensure inflation is defeated. Given this situation, there is some upside risk to our forecast of 100 bps of rate hikes from here on. But given the prospect of recession and sharply lower inflation, the Fed will be in a position to cut interest rates in the second half of the year.”

Gold price extends previous gains above $1,800. Will XAU/USD recapture $1,825 heading into 2023? FXStreet’s Dhwani Mehta analyzes the pair’s technical picture.

Bulls to target resistance at $1,825

“The path of least resistance for Gold price appears to the upside amid a bunch of healthy support levels. The immediate support awaits at $1,791. Daily closing below the latter will confirm the downside break from the triangle, negating the ongoing bullish momentum. The next downside cap is seen at the mildly bearish 200 Daily Moving Average (DMA) at $1,782. Further south, the dashed horizontal support at $1,773 will be probed.”

“Gold price needs acceptance above the December 14 high of $1,814, for another run toward the critical resistance at $1,825.”

Here is what you need to know on Tuesday, December 27:

Following the three-day weekend, the US Dollar struggles to find demand on Tuesday with the US Dollar Index trading in negative territory below 104.00 following a bearish gap at the opening. November Goods Trade Balance and October Housing Price Index data will be featured in the US economic docket later in the day. US stock index futures trade in positive territory and the 10-year US Treasury bond yield holds steady near above 3.75%.

Earlier in the day, China’s National Bureau of Statistics (NBS) said that they had revised the country’s estimate of 2021 gross domestic product (GDP) growth to 8.4% from 8.1% previously. On a concerning note, reports suggest that China's hospitals are overwhelmed with the number of confirmed coronavirus cases rapidly rising since the country took steps to ease restrictions. Meanwhile, Japan Prime Minister Fumio Kishida announced on Tuesday that they will be requiring travellers from China to quarantine for seven days if they test positive for COVID-19 and added that they will be placing limits on airlines' requests to increase flights to China.

Nevertheless, the relatively upbeat risk mood stays intact in the European morning, making it difficult for the safe haven US Dollar to stay resilient against its rivals. Ahead of the Christmas holiday, the US Bureau of Economic Analysis reported that the Core Personal Consumption Expenditures (PCE) Price Index rose by 0.2% on a monthly basis, brining the annual rate down to 4.7% from 5% in October. Both of these readings came in line with analysts' forecasts.

EUR/USD capitalized on the selling pressure surrounding the US Dollar and climbed above 1.0650 in the European morning on Tuesday.

After having fluctuated in a narrow range during the Asian trading hours, GBP/USD started to stretch higher and was last seen trading above 1.2100.

USD/JPY stays relatively quiet below 133.00 despite the US Dollar weakness. Earlier in the day, Bank of Japan (BOJ) Governor Haruhiko Kuroda said that the decision to tweak the yield curve control strategy was "absolutely no a first step" towards an exit from ultra-loose monetary policy, making it difficult for the Japanese Yen to find demand. 

Gold price edges higher during the European trading hours and trades above $1,807 after having opened with a small bullish gap.

Bitcoin extends its sideways grind slightly below $17,000 early Tuesday. Ethereum struggles to find direction and moves up and down in a narrow channel at around $1,200.

• USD/JPY is treading listlessly amid a quiet start to the holiday-shortened week.
• US Dollar drops with Treasury bond yields amid China-led risk-on mood.
• USD/JPY bulls need acceptance above 133.00 to resume the recovery.

USD/JPY is trading on the defensive heading into the early European morning, as the Japanese yen traders take it easy after a volatile last week.  

The downbeat tone around the pair could be partly due to a broad-based US Dollar weakness, fuelled by persisting risk flows and lower US Treasury bond yields. Reports that China is planning to scrap the quarantine rules for inbound travelers alongside further relaxation of restrictions boosted risk sentiment, weighing negatively on the safe-haven US Dollar.

Light trading following the Christmas holiday weekend also left the USD/JPY pair gyrating in a narrow range below the 133.00 level so far. Markets refrain to place any fresh directional bets on the Japanese yen after the previous week’s surprise yield curve revision by the Bank of Japan (BoJ). The BoJ’s move caught markets off-guard and triggered a fresh sell-off in bonds and stocks globally before a ‘Santa rally’ kicked in the second of the week, helping calm market nerves.

The pair will take cues from risk trends for any moves, as the US data docket remains relatively light amid a holiday-shortened week.

From a short-term technical perspective, USD/JPY is failing to find acceptance above the 133.00 level, threatening recovery attempts.

A sustained move above the latter is needed to extend the corrective upside toward the 133.50 psychological mark.

However, the bearish 21-Daily Moving Average (DMA) cut the mildly bullish 200DMA from above, validating a bear cross on Friday.

The 14-day Relative Strength Index (RSI) is sitting just above the oversold territory, backing the bearish potential.

Friday’s low at 132.15 is the next downside target for sellers, below which the December 22 low at 131.64 could be retested.

USD/JPY: Daily chart

USD/JPY: Additional technical levels

• USD/CAD has surrendered the previous week’s low around 1.3560 amid weakness in the US Dollar Index.
• A decline in the US PCE and US Durable Goods Orders data has cemented expectations for lower inflation ahead.
• An increment in oil prices led by supply worries on expected cuts from Russia has supported the Canadian Dollar.
• USD/CAD is expected to deliver more weakness below 1.3550 amid a Double Top formation.

USD/CAD has witnessed a steep fall after surrendering the previous week’s low around 1.3560 in the early European session. The Loonie has dropped to near 1.3550 and is expected to display more weakness as the US Dollar Index (DXY) has faced immense pressure led by a decline in the United States Personal Consumption Expenditure (PCE) Price Index data released on Friday.

The US Dollar Index has turned sideways in a 103.60-103.80 range after a gap down open. The appeal for the USD Index has been trimmed led by upbeat market sentiment. A significant decline in the consumption expenditure by households in the United States economy has improved the risk appetite of the market participants.

Meanwhile, S&P500 futures have extended their gains after a firmer revival on Friday. A sheer drop in the consumption expenditure and the United States Durable Goods Orders data has provided comfort to the US equities. The return on 10-year US Treasury bonds is hovering around 3.74%.

A decline in US PCE favors further inflation softening

Federal Reserve (Fed) chair Jerome Powell and his teammates are putting their blood and sweat into achieving price stability in the United States economy. Inflation is still roaring, however, a gradual slowdown in the inflationary pressures on a recurring basis is delighting the Fed policymakers.

The headline PCE dropped to 5.5% while the street was expecting a drop of 5.3% but remained significantly lower than the former release of 6.1%. While the core PCE Price Index remained in line with the estimates of 4.7% and lower than the prior release of 5.0%. This has cemented expectations of further decline in the United States inflation ahead. Consumption expenditure by households is a critical inflation indicator and a decline in the same is going to force the producers to curtail prices of goods and services at factory gates.  

US Durable Goods Orders contraction favors less-hawkish Federal Reserve policy

Apart from the decline in the United States PCE data, the catalyst that has impacted the US Dollar Index is the decline in the demand for Durable Goods. The US Durable Goods Orders have contracted by 2.1% against the consensus of a 0.6% contraction. A decline in demand for Durable Goods indicates a further drop in the core inflation measures as a slowdown in demand is critical for softening inflation in the economy.

This may compel the Federal Reserve to go light on the interest rates by looking for a smaller rate hike. Also, a continuous decline in the overall demand could result in a lower interest rate peak by the Fed.

Oil prices above $80.00 support the Canadian Dollar

Oil prices have extended their upside journey and have crossed the psychological hurdle of $80.00 on escalating supply worries after Russia warned of supply cuts to offset the price cap imposed by G7 nations along with the European Union. According to Russia’s Deputy Prime Minister Alexander Novak, Moscow may cut its oil output by 500,000-700,000 barrels a day in early CY2023. Earlier, the G7 levied a price cap on Russian oil supply at $60/barrel to weaken its income for funding arms and ammunitions requirement for war with Ukraine.

It is worth noting that Canada is a leading exporter of oil to the United States and higher oil prices support the Canadian Dollar.

USD/CAD technical outlook

USD/CAD has witnessed a steep fall after forming a Double Top chart pattern on an hourly scale. The Loonie asset witnessed a steep fall while attempting to surpass the crucial resistance of 1.3700 with less enthusiasm and zeal. The major is expected to display sheer downside if it surrenders the crucial support placed from December 14 low around 1.3520.

The 50-and 200-period Exponential Moving Averages (EMAs) at 1.3615 have delivered a death cross, which indicates more weakness in the Lonnie asset ahead.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which signals that the downside momentum has been triggered.

Japan Prime Minister Fumio Kishida said on Tuesday, Japan will require travelers from China to quarantine for seven days if they test positive for COVID-19.

Additional quotes

“Will place limits on airlines' requests to increase China flights.”

“New border measures for China to take effect at midnight on December 30.”

Market reaction

USD/JPY pays little heed to the above headlines, trading listlessly at around 132.80, at the time of writing.

In a statement released on Tuesday, China’s National Bureau of Statistics (NBS) said that they have revised the country’s estimate of 2021 gross domestic product (GDP) growth to 8.4% from 8.1% previously.

Additional takeaways

Related reads

• AUD/USD bulls take a breather around 0.6750 as downbeat China data joins holiday mood
• China’s Industrial Profits drop 3.6% from January to November 2022

• The Cable has attempted a breakout of the Falling Channel amid an upbeat market mood.
• A decline in US PCE Index has trimmed the US Dollar Index’s appeal.
• The RSI (14) is aiming to shift its trading range to the 60.00-80.00 area.

The GBP/USD pair has turned sideways around 1.2080 after a drop from the round-level resistance around 1.2100 in the Asian session. The Cable has corrected marginally after failing to extend gains above 1.2100. The risk profile is cheerful, therefore, the upside bias has not vanished yet.

Meanwhile, the US Dollar Index (DXY) is struggling to regain ground after a sheer drop at open. The USD Index is hovering around 103.75 and is expected to remain on tenterhooks. The return on US 10-year Treasury bonds has dropped to near 3.73%.

The cable has attempted a breakout of the Falling Channel chart pattern formed on an hourly scale. The upper portion of the chart pattern is plotted from December 20 high around 1.2223 while the lower portion is placed from December 20 low at 1.2085. The responsive buying action in the Pound Sterling has pushed the Cable above the 20-and 50-period Exponential Moving Averages (EMAs) at 1.2068 and 1.2072 respectively.

Also, the Relative Strength Index (RSI) (14) is aiming to shift its trading range in the 60.00-80.00 bullish segment to strengthen Pound Sterling.

For a decisive upside move, the Pound Sterling bulls need to push the Cable above Tuesday’s high at 1.2103, which will drive the asset toward December 22 high at 1.2147 followed by December 20 high around 1.2223.

On the contrary, a break down below Friday’s low at 1.2019 will drag the Cable below the psychological support of 1.2000 to November 29 low at 1.1946. A slippage below 1.1946 will extend the downside in the Cable towards November 30 low around 1.1900.

GBP/USD hourly chart

• Gold price pares intraday gains but stays on the way to post the second monthly gain.
• China data consolidates recent optimism amid holiday-thinned markets.
• XAU/USD stays on the front foot as softer US Dollar weighs on Fed bets, China-linked news favor Gold buyers.

Gold price (XAU/USD) retreats from intraday high surrounding $1,807 as bulls await more clues amid the holiday-thinned trading activities on early Tuesday morning in Europe. The metal’s latest pullback could be linked to the US Dollar Index (DXY) rebound from the intraday low, as well as downbeat China data.

US Dollar Index (DXY) consolidates intraday losses as it bounces off the daily low of 103.95. Even so, the greenback’s gauge versus the six major currencies remains negative for the third consecutive day.

On the other hand, China’s Industrial Profits dropped 3.6% during the January-November period versus -3.0% prior.

Additionally, challenging the XAU/USD bulls could be the fresh geopolitical fears emanating from Russia, China and North Korea.

Even so, China’s easing Covid-linked activity restrictions and the People’s Bank of China’s (PBOC) heavy liquidity injections keep the Gold buyers hopeful.

Above all, the receding hawkish bias from the Federal Reserve (Fed), due to the recently downbeat prints of the US Core US Personal Consumption Expenditures (PCE) Price Index and the Durable Goods Orders, for November, seem to keep the Gold buyers hopeful.

While portraying the mood, S&P 500 Futures rise 0.60% intraday to 3,892 whereas the US 10-year Treasury yields remain sluggish at around 3.74% by the press time.

Moving on, the year-end liquidity crunch could join the light calendar to restrict immediate Gold moves.

Gold price technical analysis

Gold price grinds higher after bouncing off the 200-Daily Moving Average (DMA), around $1,782 by the press time. The corrective bounce takes clues from the firmer prints of the RSI (14), not overbought.

However, bearish MACD signals and an upward-sloping resistance line from December 05, close to $1,821 by the press time, challenges the precious metal’s further upside.

In a case where Gold buyers manage to cross the $1,821 hurdle, successful trading beyond the monthly high of around $1,825 becomes necessary for the XAU/USD to remain firmer.

On the downside, a daily closing below the 200-DMA support of $1,782 could quickly drag the bullion prices toward the monthly low surrounding $1,7695.

Following that, $1,740 and the late November swing low near $1,721 could lure the Gold sellers.

Overall, Gold traders are up for further advances despite the latest retreat in prices.

Gold price: Daily chart

Trend: Limited upside expected

• EUR/USD has slipped after testing the previous week’s high around 1.0660, however, the upside is still favored.
• The deadly due of higher interest rates and lower prices for goods at factory gates will impact US CPI vigorously.
• Russia is ready to resume gas supplies to Europe through the Yamal-Europe pipeline.

The EUR/USD pair has witnessed a steep fall in the Asian session after testing the previous week’s high around 1.0660 despite the solid risk appetite theme in the global market. The major currency pair has dropped to near 1.0630, however, the upside bias in the asset has not been ruled out as the overall context is still positive and it could be a minor correction before a bullish storm.

S&P500 futures have added more gains after a revival move on Friday. The US equities seem comfortable after a decline in the United States Personal Consumption Expenditure (PCE) Price Index data. Meanwhile, the US Dollar Index (DXY) is struggling to overcome the opening pain as it dropped firmly below 103.75. The 10-year US Treasury yields have slipped to near 3.73%.

The US Dollar Index is facing immense pressure despite a lower-than-anticipated decline in the US PCE Price Index data. The headline PCE dropped to 5.5% while the street was expecting a drop to 5.3%. While the core PCE remained in line with the estimates of 4.7%.

The extent of a decline in the consumption expenditure by households is going to force manufacturers to trim the prices of goods and services to maintain equilibrium in the demand-supply mechanism. Then, the deadly duo of higher interest rates and declining price index by the producers at factory gates will have a sheer impact on the Consumer Price Index (CPI) gamut.

On the Eurozone front, gas issues will ease in the Eurozone as Russia is ready to resume gas supplies to Europe through the Yamal-Europe pipeline, Russian Deputy Prime Minister Alexander Novak told state TASS news agency,” reported Reuters.

European Central Bank (ECB) Governing Council member, as well as Dutch Governor, Klaas Knot sees more policy tightening in the five policy meetings between now and July 2023 and has warned that ‘The risk of us doing too little is still the bigger risk’.

• Silver price has witnessed a sheer upside led by strength in risk-on profile.
• A slippage in the US PCE Price Index has trimmed US Dollar Index’s appeal.
• The RSI (14) has attempted to shift in the bullish range of 60.00-80.00.

Silver Price (XAG/USD) is facing barricades near $24.00 after a sheer upside in the Asian session. The strengthening of the risk appetite theme has impacted the US Dollar Index (DXY). The USD Index opened on a weaker note to near 103.75 and dropped further to 103.60 as investors are dumping the safe-haven due to a drop in the United States Personal Consumption Expenditure (PCE)-Price Index.

Meanwhile, the 10-year US Treasury yields have slipped below 3.74% as investors see further decline in the US Consumer Price Index (CPI) amid a decline in household expenditure. S&P500 futures have extended their gains after a revival move on Friday as equities are getting comfort from the risk-on profile.

On an hourly scale, Silver Price has been supported by the 200-period Exponential Moving Average (EMA) at around $23.50. The upward-sloping trendline placed from November 28 low around $20.90 will continue to act as a major cushion for the Silver price.

The Relative Strength Index (RSI) (14) has attempted to shift in the bullish range of 60.00-80.00, which will trigger a bullish momentum ahead.

Going forward, a decisive break above the $24.00 resistance will expose Silver price for more upside towards the previous week’s high around $24.30, followed by April 22 high at $24.67.

Alternatively, a break below December 22 low at $23.40 will drag the asset toward December 19 low at $22.84 and December 6 low at $22.03.

Silver hourly chart

• AUD/USD retreats from intraday high but stays positive for the second consecutive day.
• China Industrial Profits drop 3.6% during January-November period, easing Covid restrictions keep sentiment positive.
• Mixed US data weighs on hawkish Fed bets, US Dollar during holiday-thinned markets.

AUD/USD pares intraday gains around 0.6750 during Tuesday’s sluggish morning in Europe. In doing so, the Aussie pair takes clues from the recently flashed downbeat China data. However, cautious optimism in the market joins the receding hawkish bias from the Federal Reserve (Fed) to keep the pair buyers hopeful.

China’s Industrial Profits dropped 3.6% during the January-November period versus -3.0% prior.

It’s worth noting, however, that the People’s Bank of China’s (PBOC) heavy liquidity injections keep the market sentiment firmer despite the downbeat data. That said, the Chinese central bank injected the most funds in two months during the last week.

On a broader front, China scrapped the COVID quarantine rule for inbound travelers starting from January 08. The nation’s National Health Commission also mentioned “China's management of COVID-19 will also be downgraded to the less strict Category B from the current top-level Category A.”

The news joined geopolitical fears emanating from Russia and North Korea to portray cautious optimism in the market. As a result, S&P 500 Futures rise 0.60% intraday to 3,892 whereas the US 10-year Treasury yields remain sluggish at around 3.74% by the press time.

Other than the risk-positive catalysts from China, softer US data also helps AUD/USD to remain on the buyer’s radar. US Core Personal Consumption Expenditures (PCE) Price Index, mostly known as the Fed’s favorite inflation gauge, matched 4.7% YoY forecasts for November versus 5.0% prior. Further, the Durable Goods Orders for the said month marked a contraction of 2.1% compared to -0.6% expected and 0.7% previous readings. More importantly, the Nondefense Capital Goods Orders ex Aircraft marked improvement of 0.2% compared to 0.0% expected and 0.3% revised down prior. Additionally, the Federal Reserve (Fed) Bank of Atlanta’s GDPNow tracker rose to show +3.7% annualized growth for the fourth quarter (Q4) versus +2.7% previous estimates.

Alternatively, geopolitical fears emanating from Russia and North Korea challenge the Aussie pair buyers amid the year-end inaction in the markets.

Amid these plays, S&P 500 Futures rise 0.75% intraday to 3,898 whereas the US 10-year Treasury yields retreat to 3.73% at the latest.

Given the market’s consolidation of intraday gains and the lack of major data/events ahead of Friday’s China PMIs, the pair traders should look for the qualitative catalyst for clear directions.

Technical analysis

Although the 100-DMA restricts short-term AUD/USD downside near 0.6650, a daily closing beyond the 21-DMA hurdle surrounding 0.6740 becomes necessary for the bulls to keep the reins.

• USD/JPY retreats from one-week high to snap three-day uptrend.
• Downside break of weekly support line adds strength to bearish bias.
• 100, 200 EMAs add to the upside filters.

USD/JPY remains depressed around 132.90 as it prints the first daily loss in four during early Tuesday morning in Europe. In doing so, the Yen pair justifies the downside break of a one-wee-old ascending trend line, as well as a U-turn from the 100-hour Exponential Moving Average (EMA).

The pullback move also takes clues from the RSI (14) retreat, as well as an absence of the oversold RSI line.

That said, the USD/JPY price aim for the 23.6% Fibonacci retracement level of December 15-20 downside, near 132.30.

Following that, an upward-sloping support line from the last Wednesday, near the 132.00 round figure could test the USD/JPY bears before directing them to the recently flashed multi-month low near 130.60.

In a case where the USD/JPY pair drops below 130.60, the August 2022 low near 130.40 and the 130.00 psychological magnet could act as the last defense of the buyers.

Alternatively, the support-turned-resistance line and the 100-EMA, respectively around 132.95 and 133.05, could restrict immediate USD/JPY recovery before highlighting the 200-EMA level of 134.00.

Should the USD/JPY bulls keep the reins past 134.00, the December 19 swing low near 135.80 will gain the market’s attention.

It should be noted that the 50% and 61.8% Fibonacci retracement levels, respectively near 134.35 and 135.25, could probe the USD/JPY bulls during the expected rise.

USD/JPY: Hourly chart

Trend: Further downside expected

Japanese Finance Minister Shunichi Suzuki said in a statement on Tuesday that “we will continue to strive for the fiscal year 2025 main balance target.

His comment comes after Japanese Prime Minister Fumio Kishida’s cabinet on Friday approved a record 114.4 trillion yen ($863 billion) in overall spending, including a jump in defense spending,

In response, Suzuki said “budget reliance on bond issuance has actually improved from this year, adding that “I don’t think defense spending has gone overboard.”

Market reaction

USD/JPY was last seen trading at 132.81, on the defensive amid a broadly weaker US Dollar.

• NZD/USD seesaws inside immediate trading range, prints mild gains.
• China Industrial Profits deteriorate, Beijing scraps Covid quarantine rule for inbound travelers.
• US Dollar Index prints three-day downtrend as softer US statistics challenge hawkish Fed bets.

NZD/USD bulls flirt with the 0.6300 round figure while posting a three-day winning streak early Tuesday. In doing so, the Kiwi pair cheers the broadly-softer US Dollar, as well as the risk-on mood. However, recently downbeat data from China joins the holiday mood to probe the bulls.

That said, China’s Industrial Profits dropped 3.6% during the January-November period versus -3.0% previous readings. Further, geopolitical fears emanating from Russia and North Korea also challenge the Kiwi pair buyers amid the year-end inaction in the markets.

Even so, risk appetite remains firmer as scrapped the COVID quarantine rule for inbound travelers, starting from January 08.

Furthermore, the softer prints of the US inflation and output data raise doubts about the Federal Reserve’s (Fed) next hawkish move and hence weigh on the US Dollar. As a result, the US Dollar Index (DXY) drops for the third consecutive day, down 0.13% intraday near 104.05 by the press time.

On Friday, US Core Personal Consumption Expenditures (PCE) Price Index, mostly known as the Fed’s favorite inflation gauge, matched 4.7% YoY forecasts for November versus 5.0% prior. Further, the Durable Goods Orders for the said month marked a contraction of 2.1% compared to -0.6% expected and 0.7% previous readings. More importantly, the Nondefense Capital Goods Orders ex Aircraft marked improvement of 0.2% compared to 0.0% expected and 0.3% revised down prior. Additionally, the Federal Reserve (Fed) Bank of Atlanta’s GDPNow tracker rose to show +3.7% annualized growth for the fourth quarter (Q4) versus +2.7% previous estimates.

Against this backdrop, S&P 500 Futures rise 0.75% intraday to 3,898 whereas the US 10-year Treasury yields retreat to 3.73% at the latest.

Looking forward, China-linked optimism could join the bearish bias from the Fed to propel the NZD/USD pair during a likely inactive week comprising no major data/events.

Technical analysis

An upside break of the previous resistance line from December 15, around 0.6215 by the press time, keeps NZD/USD buyers hopeful amid the bullish MACD signals. However, the 21-DMA hurdle surrounding 0.6345 guards the quote’s immediate upside.

• USD/CAD takes offers after breaking six-week-old ascending trend line support, now resistance.
• The first bearish MACD signal in a month, RSI retreat suggests further downside.
• 50-DMA challenges bears targeting ascending support line from August.
• Bulls need validation from 1.3700 to retake control.

USD/CAD extends the previous day’s bearish move while breaking the short-term key support during early Tuesday. That said, the Loonie pair refreshes intraday low near 1.3545 by the press time.

Not only a downside break of the six-week-old ascending trend line but the biggest bearish MACD signal in a month also favor the USD/CAD sellers. On the same line could be the recently softer RSI (14), not oversold.

As a result, the pair bears are all set to conquer the 50-DMA support of 1.3537, which in turn could direct the south-run towards an upward-sloping support line from August 11, close to 1.3440 by the press time.

In a case where the USD/CAD bears keep the reins past 1.3440, a four-month-long ascending support line, close to 1.3390 at the latest, will act as the last defense of the bulls, a break of which could quickly drag the quote toward the previous monthly low surrounding 1.3225.

Meanwhile, the support-turned-resistance line from mid-November, around 1.3585, challenges the USD/CAD pair’s immediate recovery moves.

Following that, a three-week-long horizontal resistance area near the 1.3700 round figure will be crucial for the bulls, as successful trading beyond the stated hurdle won’t hesitate to cross November’s peak of 1.3808.

USD/CAD: Daily chart

Trend: Further downside expected

Profits of China's major industrial firms fell 3.6%, on an annualized basis, during the period January to November 2022, official data released by the National Bureau of Statistics (NBS) showed on Tuesday.

The NBS said that the industrial firms with annual main business revenue of at least CNY20 million (about USD2.88 million) saw their combined profits reach about CNY7.72 trillion in the reported period.

Industrial output rose 2.2% in November from a year earlier, missing expectations for a 3.6% gain expected and slowing significantly from the 5.0% growth seen in October.

Market reaction

The downbeat Chinese data has capped the upside in the AUD/USD pair. The Aussie is trading at 0.6747, up 0.35% on the day.

• GBP/JPY is approaching 161.00 as BOJ sees a continuation of easy monetary policy.
• BOJ Governor sees rising labor demand ahead and a shift in wage-setting behavior by the firms.
• The BOE needs to slowdown the interest rate hike pace as households are failing to segment monthly installments.

The GBP/JPY pair has extended its gains to near 160.78 after rebounding from near the psychological resistance of 160.00 in the Asian session. The cross has gained sheer momentum as Bank of Japan (BOJ) Governor Haruhiko Kuroda is standing with the decade-long view of easy monetary policy. The asset is aiming to re-test a six-day high around 161.00 as a continuation of loose policy is impacting the Japanese yen.

After the decision of widening the allowance band around BOJ’s yield target, BOJ’s Governor has cleared that the decision was not meant to be a step towards an exit from ultra-loose monetary policy. BOJ Governor sees rising labor demand ahead and a shift in wage-setting behavior by the firms.

While Japan PM Fumio Kishida stated that it was premature to state now whether the government and the central bank could revise a decade-old joint statement that commits the Bank of Japan (BOJ) to achieve its 2% inflation target at the earliest date possible, as reported by Reuters.

In the early Tokyo session, the Japan Statistics Bureau reported a decline in the Unemployment Rate to 2.5% vs. the expectations and the former release of 2.6%. The catalyst that has impacted the Japanese Yen is the weak Retail Sales data. The annual Retail Trade has dropped to 2.6% against the consensus of 2.8% while the monthly Retail Trade (Nov) has contracted by 1.1% while the street was expecting a contraction of 0.2%.

On the UK front, think tank see a slowdown in the interest rate hike by the Bank of England (BOE) as households are failing to augment their monthly payments. Analysts at BBH think that the Bank of England tightening expectations may need to adjust lower after a separate consumer survey showed nearly two million UK households had failed to make at least one mortgage, rent, loan, credit card, or any other bill payment over the last month."

• GBP/USD picks up bids to extend Friday’s recovery.
• UK shoppers’ footfalls jumped 50% last year but stayed well below pre-pandemic levels.
• Mixed US data, risk-on mood enable Cable buyers to keep the reins.

GBP/USD prints mild gains around 1.2085 as the Cable bulls cheer mixed UK statistics, as well as the broad-based US Dollar weakness during Tuesday’s sluggish Asian session.

Recently, the Financial Times (FT) conveyed the British shopping figures from retail intelligence provider Springboard that shows a 50% jump in footfall versus December 26 last year. However, the news mentioned that the foot traffic on the high street was down 25.3% compared with pre-pandemic in 2019, while for shopping centers it was down 36.9%.

On the other hand, the Core US Personal Consumption Expenditures (PCE) Price Index, mostly known as the Fed’s favorite inflation gauge, matched 4.7% YoY forecasts for November versus 5.0% prior. Further, the Durable Goods Orders for the said month marked a contraction of 2.1% compared to -0.6% expected and 0.7% previous readings. More importantly, the Nondefense Capital Goods Orders ex Aircraft marked improvement of 0.2% compared to 0.0% expected and 0.3% revised down prior. Additionally, the Federal Reserve (Fed) Bank of Atlanta’s GDPNow tracker rose to show +3.7% annualized growth for the fourth quarter (Q4) versus +2.7% previous estimates.

It should be noted that China scrapped the COVID quarantine rule for inbound travelers, starting from January 08, which in turn triggered the market’s risk-on mood. The news joined geopolitical fears emanating from Russia and North Korea to portray cautious optimism in the market. As a result, S&P 500 Futures rise 0.60% intraday to 3,892 whereas the US 10-year Treasury yields remain sluggish at around 3.74% by the press time. That said, the US Dollar Index (DXY) prints a three-day downtrend near 104.10 at the latest.

On a broader front, the UK’s recent headline numbers haven’t also been helpful for the Bank of England (BOE) to remain hawkish and hence the bullish bias over the GBP/USD pair remains limited.

Even so, the holiday season and a lack of major data/events could join the recently upbeat sentiment to favor GBP/USD bulls.

Technical analysis

A clear upside break of the two-week-old descending trend line, around 1.2055 by the press time, keeps GBP/USD buyers directed towards the convergence of a downward-sloping resistance line from December 20, as well as the 100-HMA, close to 1.2100.

• Gold price has rebounded after testing the lower portion of the Rising Channel.
• A decline in US households’ expenditure would be offset by lower prices of goods and services.
• An improvement in investors’ risk appetite has dragged the USD Index to near 103.75.

Gold price (XAU/USD) has overstepped Friday’s high around $1,804.00 and is expected to shift its auction profile above the psychological resistance of $1,800.00 in the Tokyo session. The precious metal is expected to continue its upside momentum amid an improvement in the risk appetite of the market participants.

The risk profile has turned positive as investors are betting over a decline in the United States inflation ahead led by a slowdown in the extent of the US Personal Consumption Expenditure (PCE) Price Index. A decline in consumption expenditure reflects that the demand by the households has been trimmed and will be offset by lower prices of goods and services. This led to a recovery in the S&P500 on Friday. Also, a decline in the demand for durable goods has supported expectations for a decline in inflation ahead.

Meanwhile, the US Dollar Index (DXY) has dropped sharply to near 103.75 after struggling to cross the immediate resistance of 104.00 as a slowdown in household expenditure might force the Federal Reserve (Fed) to trim the interest rate peak ahead. The 10-year US Treasury yields have dropped further to near 3.73%.

Gold technical analysis

Gold price has rebounded after testing the lower portion of the Rising Channel chart pattern formed on a four-hour scale. The upper portion of the aforementioned chart pattern is plotted from November 15 high of around $1,786.55 while the lower portion is placed from November 29 low around $1,740.00. The 100-period Exponential Moving Average (EMA) at around $1,791.00 has acted as a major support for the Gold price.

Meanwhile, the Relative Strength Index (RSI) (14) has picked strength after dropping to near 40.00, which indicates that the downside is restricted.

Gold four-hour chart

On Tuesday, the People’s Bank of China (PBOC) set the USD/CNY central rate at 6.9546 versus Monday's fix of 6.9825 and market expectations of 6.9555.

Further details reveal that the PBOC injects 194 billion Yuan via the 7-day reverse repos at 2.00% while also infusing 14 billion Yuan via 14-day reverse repos at 2.15%.

It's worth noting that the USD/CNY closed near 6.9634 on the previous day, taking  rounds to the same by the press time.

Additionally important to note is that the PBOC marked the biggest weekly cash injection in two months by the end of Friday.

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.

• EUR/USD picks up bids to Friday’s run-up, mildly bid of late.
• Sustained break of 200-HMA, firmer RSI favor bulls but weekly rectangle could challenge further upside.
• Previous resistance line, monthly high add to the upside filters.

EUR/USD remains on the front foot around the intraday high of 1.0650 as bulls keep the reins during the second consecutive day on early Tuesday.

The major currency pair’s latest upside could be linked to the successful break of the 200-Hour Moving Average (HMA), as well as the firmer RSI (14) line, not oversold.

However, the top line of the one-week-old rectangle formation could challenge the EUR/USD buyers around 1.0660.

Following that, the support-turned-resistance line from December 07, close to 1.0710, will act as the last defense of the EUR/USD bears before giving control to the buyers.

In that case, the monthly high near 1.0740 and tops marked during May around 1.0790 might lure the EUR/USD bulls.

On the contrary, pullback moves remain elusive beyond the 200-HMA level of 1.0624.

Even so, an upward-sloping support line from the last Thursday, near the 1.0600 threshold by the press time, could challenge the EUR/USD bears.

It’s worth noting that the EUR/USD downside past 1.0600 needs validation from the aforementioned rectangle’s bottom, close to 1.0575, to welcome the bears.

Overall, EUR/USD is likely to remain on the bull’s radar even if it has limited upside room towards the north.

EUR/USD: Hourly chart

Trend: Limited upside expected

• AUD/JPY prints mild gains around the highest level in a week.
• China scraps quarantine rules for inbound travelers from early January.
• Japan’s Unemployment Rate, Retail Trade eased in November, Job/Applicants Ratio improved.
• Market sentiment stays firmer amid holiday mood, receding fears of hawkish central bank actions.

AUD/JPY grinds higher around 89.50 as bulls benefit from the cautious optimism in the market during the holiday season. In doing so, the cross-currency pair extends Friday’s gains to print the highest levels in one week, despite the latest retreat.

That said, the quote’s run-up could be linked to the risk-on mood in the market, mainly propelled by China, as well as receding hopes of the hawkish moves by the Bank of Japan (BOJ).

China scrapped the COVID quarantine rule for inbound travelers starting from January 08. The news joined geopolitical fears emanating from Russia and North Korea to portray cautious optimism in the market. As a result, S&P 500 Futures rise 0.60% intraday to 3,892 whereas the US 10-year Treasury yields remain sluggish at around 3.74% by the press time.

The recent comments from Bank of Japan (BOJ) Governor Haruhiko Kuroda and Japanese Prime Minister (PM) Fumio Kishida tried to tame the hawkish expectations from the central bank after it tweaked the monetary policy in the last week. That said, BOJ’s Kuroda stated that widening of yield band not a step toward easy policy exit. On the same line, Japanese PM Kishida ruled out expectations that the government-BOJ will revise the central bank statement.

Talking about the data, Japan’s Unemployment Rate eased to 3.5% in November versus 3.6% expected prior while the Jobs / Applicants Ratio reprinted 1.35 for the said month compared to 1.33 market forecasts. Further, Retail Trade growth eased to 2.6% YoY versus 2.8% consensus and 4.4% upwardly revised prior.

Moving on, a light calendar ahead of Saturday’s China official PMIs will join the year-end inaction in the market to restrict AUD/JPY moves.

Technical analysis

AUD/JPY recovery remains elusive unless providing a daily closing beyond the previous support line from early August, close to 91.20 by the press time.

• AUD/USD has delivered an upside break of the consolidation formed in a narrow range of around 0.6720.
• An establishment above the 50-and 200-EMAs has shifted the long-term trend toward the upside.
• A 60.00-80.00 bullish range shift by the RSI (14) has activated the upside momentum.

The AUD/USD pair has delivered an upside break of the consolidation formed in a narrow range of around 0.6720 in the Asian session. The Aussie asset has accelerated above 0.6750 and is expected to recapture the previous week's high around 0.6770 ahead amid a decent improvement in investors’ risk appetite.

Meanwhile, the US Dollar Index (DXY) is facing stiff resistance around the crucial hurdle of 104.00 as a decline in the United States Personal Consumption Expenditure (PCE)-Price Index has cemented expectations of less-hawkish monetary policy by the Federal Reserve (Fed) ahead.

On an hourly scale, the responsive buying action in the Aussie asset around 0.6660 on Thursday has pushed the asset above the 50-and 200-period Exponential Moving Averages (EMAs) at 0.6703 and 0.6717 respectively. The Australian Dollar will record significant gains after surpassing the previous week’s high of around 0.6770.

Adding to that, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which indicates that the bullish momentum has been activated.

After overstepping the previous week’s high around 0.6770 decisively, the Aussie asset will get exposed to the round-level resistance and December 14 high around 0.6800 and 0.6880 respectively.

On the contrary, a drop below December 12 low of around 0.6630 will drag the asset towards the round-level resistance at 0.6600, followed by November 8 high around 0.6550.

AUD/USD hourly chart

• US Dollar Index takes offers to extend three-day downtrend.
• Two-week-old ascending support line, oversold RSI conditions challenge immediate downside.
• Sellers need validation from 103.75 before eyeing the monthly low.
• Key HMAs, weekly resistance line probe DXY bulls.

US Dollar Index (DXY) remains pressured towards a two-week-old support line as it drops to 104.08 during early Tuesday. In doing so, the greenback’s gauge versus the six major currencies declines for the third consecutive day.

That said, the DXY’s recent downside past the 100-Hour Moving Average (HMA) joins the previous U-turn from a one-week-old descending resistance line to keep bears hopeful. However, the oversold RSI (14) conditions challenge the quote’s further downside.

As a result, an upward-sloping support line from December 14, close to the 104.00 round figure by the press time, restricts the quote’s immediate downside.

Following that, the lows marked during the last Tuesday and Thursday around 103.75 may probe the DXY bears.

In a case where the US Dollar Index declines below 103.75, the odds of witnessing a fresh monthly low, currently around 103.45, can’t be ruled out.

On the flip side, the 100-HMA level of 104.20 precedes the 200-HMA surrounding 104.30 to restrict the quote’s recovery moves ahead of a one-week-old descending resistance line, close to 104.40 at the latest.

Should the quote remains firmer past 104.40, the 105.00 threshold could act as the key hurdle to the north for the US Dollar Index bulls.

US Dollar Index: Hourly chart

Trend: Limited downside expected

• USD/JPY fades recovery from four-month low, holds lower ground near intraday bottom.
• Japan’s Unemployment Rate, Retail Trade drop in November.
• US data arrived mostly softer in the last week, weighed on the hawkish Fed bets.
• Comments from BOJ’s Kuroda, Japan PM Kishida challenge USD/JPY bears.

USD/JPY takes offers to refresh the intraday low near 132.75 as it fails to extend the bounce off a four-month low, marked during the late previous week, amid a softer US Dollar during early Tuesday. The pair’s weakness, however, fails to justify the recently mixed data from the US and Japan, not to forget comments trying to challenge the policy hawks at the Bank of Japan (BOJ).

That said, Japan’s Unemployment Rate eased to 3.5% in November versus 3.6% expected prior while the Jobs / Applicants Ratio reprinted 1.35 for the said month compared to 1.33 market forecasts. Further, Retail Trade growth eased to 2.6% YoY versus 2.8% consensus and 4.4% upwardly revised prior.

On the other hand, the Core US Personal Consumption Expenditures (PCE) Price Index, mostly known as the Fed’s favorite inflation gauge, matched 4.7% YoY forecasts for November versus 5.0% prior. Further, the Durable Goods Orders for the said month marked a contraction of 2.1% compared to -0.6% expected and 0.7% previous readings. More importantly, the Nondefense Capital Goods Orders ex Aircraft marked improvement of 0.2% compared to 0.0% expected and 0.3% revised down prior. Additionally, the Federal Reserve (Fed) Bank of Atlanta’s GDPNow tracker rose to show +3.7% annualized growth for the fourth quarter (Q4) versus +2.7% previous estimates.

It’s worth noting that recent comments from Bank of Japan (BOJ) Governor Haruhiko Kuroda and Japanese Prime Minister (PM) Fumio Kishida tried to tame the hawkish expectations from the central bank after it tweaked the monetary policy in the last week. That said, BOJ’s Kuroda stated that widening of yield band not a step toward easy policy exit. On the same line, Japanese PM Kishida ruled out expectations that the government-BOJ will revise the central bank statement.

Elsewhere, geopolitical fears emanating from Russia, China and North Korea join Beijing’s easing of Covid restrictions to portray cautious optimism in the market. As a result, S&P 500 Futures rise 0.60% intraday to 3,892 whereas the US 10-year Treasury yields remain sluggish at around 3.74% by the press time.

Moving on, a light calendar and the year-end holiday mood could restrict USD/JPY moves.

Technical analysis

Unless providing a daily closing beyond the two-month-old resistance line near 135.40, the USD/JPY bears keep the reins.

• USD/CHF is defending the critical support of 0.9300 despite positive market sentiment.
• S&P500 cheered a decline in the US PCE index as lower demand will be followed by lower prices by manufacturers.
• The US Dollar Index (DXY) is trading choppy around 104.00 and is showing signs of volatility contraction.

The USD/CHF pair has carry-forwarded its Friday’s topsy-turvy movement in a range of 0.9310-0.9330 in the early Asian session. The Swiss franc asset is holding the crucial support of 0.9300 despite positive market sentiment in the FX universe. At the press time, the major sensed barricades while attempting to cross the critical hurdle of 0.9330.

The risk profile seems solid as the S&P500 delivered a decent recovery on Friday after a decline in Federal Reserve (Fed)’s preferred inflation tool. The United States headline Personal Consumption Expenditure (PCE)-Price Index remained higher than anticipated at 5.5% but significantly lower than the former release of 6.1%. A decline in consumption expenditure by households has trimmed inflation expectations further.

Meanwhile, the US Dollar Index (DXY) is trading choppy around 104.00, and is showing signs of volatility contraction. The USD Index is expected to remain sideways further amid less trading activity due to the holiday mood in the global market. The 10-year US Treasury yields have dropped marginally below 3.75% in early trade.

A follow-up decline in the demand for United States Durable Goods has also infused strength in expectations of a further decline in the US Consumer Price Index (CPI) ahead. The economic data was contracted by 2.1% against the expectations of a 0.6% contraction. A decline in durable goods demand will force manufacturers to shift prices lower in order to maintain the equilibrium, which will result in a further decline in inflation ahead.