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Daily Pivots: (S1) 1.0203; (P) 1.0289; (R1) 1.0353; More...

Intraday bias in EUR/USD remains on the downside at this point, as fall from 1.1213 is in progress to 1.0199 fibonacci level. Decisive break there will solidify the case of larger bearish trend reversal. Next target will be 61.8% projection of 1.1213 to 1.0330 from 1.0629 at 1.0083. On the upside, above 1.0343 support turned resistance will turn intraday bias neutral first. But outlook will now stay bearish as long as 1.0629 resistance holds, in case of recovery.

In the bigger picture, current development suggests that rebound from 0.9534 (2022 low) has already completed at 1.1274 after rejection by 55 M EMA. Deeper fall should be seen to 61.8 retracement of 0.9534 to 1.1274 at 1.0199. Sustained trading below there will pave way back to 0.9534 low. This will now remain the favored case as long as 1.0629 resistance holds.

European currencies remain on the defensive as the new trading year unfolds, with Euro struggling near its lowest level against Dollar since 2022 and Sterling hovering close to a nine-month low. Dollar, while firm, is holding steady in narrow ranges against Yen and commodity-linked currencies, with traders awaiting fresh signals from today’s ISM Manufacturing PMI.

Europe’s economic outlook has been further clouded by an energy price surge. This week, Russian natural gas flows to the EU via Ukraine ceased after the expiration of a five-year transit agreement, forcing European nations to seek pricier LNG imports elsewhere. This development adds another layer of strain to energy-reliant economies like Germany, France, and the UK, worsening their already fragile terms of trade.

US natural gas futures reflected the energy market's unease, spiking to 4.474 earlier this week before retreating. Key resistance now stands at the 38.2% retracement of 10.03 to 1.570 at 4.870. Strong resistance is expected to cap further gains for now, setting the stage for medium-term range trading above 3.024 resistance turned support. However, decisive break above 4.870 could signal significant shifts in energy market dynamics, and could prompt panic rally towards 61.8% retracement at 6.798.

Trade tensions and diverging monetary policies are adding further pressure on European currencies. US president-elect Donald Trump has once again stoked fears of a trade war, tweeting today, "Tariffs will pay off our debt and MAKE AMERICA WEALTHY AGAIN!" This statement reinforces expectations of a more aggressive US trade agenda under his administration, which takes office on January 20. European economies, already struggling with stagnant growth, could face additional headwinds if punitive tariffs are imposed on exports to the US.

The monetary policy outlook for 2025 is also weighing on market sentiment. ECB is expected to proceed with steady rate cuts, totaling around 100 bps by the summer. BoE may also reduce rates by 60 basis points this year, with the possibility of deeper cuts of 100bps if economic conditions deteriorate further. In contrast, Fed is likely to adopt a more cautious easing path, with markets pricing in fewer than 50 basis points of cuts for the year. Yesterday’s US jobless claims report, which revealed an eight-month low in initial claims, highlighted the relative resilience of the US labor market. Upcoming ISM data and non-farm payroll data will be critical in solidifying these expectations for Fed’s policy path.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.0203; (P) 1.0289; (R1) 1.0353; More...

Intraday bias in EUR/USD remains on the downside at this point, as fall from 1.1213 is in progress to 1.0199 fibonacci level. Decisive break there will solidify the case of larger bearish trend reversal. Next target will be 61.8% projection of 1.1213 to 1.0330 from 1.0629 at 1.0083. On the upside, above 1.0343 support turned resistance will turn intraday bias neutral first. But outlook will now stay bearish as long as 1.0629 resistance holds, in case of recovery.

In the bigger picture, current development suggests that rebound from 0.9534 (2022 low) has already completed at 1.1274 after rejection by 55 M EMA. Deeper fall should be seen to 61.8 retracement of 0.9534 to 1.1274 at 1.0199. Sustained trading below there will pave way back to 0.9534 low. This will now remain the favored case as long as 1.0629 resistance holds.

In focus today

From the US, the ISM Manufacturing index for December is due for release. The latest PMI survey and hard industrial production data have pointed towards subdued output growth. In the evening, Richmond Fed's Barkin will be on the wires.

In yesterday's version, we incorrectly stated that we expect the Bank of Japan to hold rates unchanged at 0.25% at the January meeting. This was an error. We expect them to raise interest rates by 25 basis points to 0.50%. We apologise for any confusion this may have caused.

Early on Monday, China will release Caixin composite and service PMIs for December.
Economic and market news

What happened overnight

In China, a government official said that China will increase funding from ultra-long treasury bonds sharply to enhance business investments and consumption-boosting initiatives. The initiatives should finance subsidies for durable goods like cars, appliances and digital products like cell phones, tablets, computers, etc. In December Reuters reported that Chinese policy makers had agreed to issue 3tn CNY worth of these special treasury bonds in 2025. A separate FT scoop is making a reference to anonymous PBOC sources, saying this year the central bank will take steps towards a more orthodox monetary policy, prioritising rate-setting and moving away from loan growth -based targets. Last year, the PBOC clarified that it's main policy objective would be the seven-day repo rate, currently at 1.5%, which it is likely to cut further this year.

What happened yesterday

In Sweden, the minutes from the December Riksbank monetary policy meeting revealed that most Riksbank members are eyeing a cut in either January or March (Q1), rather than later during H1. On the exact timing, Jansson seemingly prefers January ahead of March and Bunge makes a similar comment. Breman said "beginning of 2025", while Thedéen and Seim seem to be on the more hawkish side, not specifying the exact timing but sticking to "H1 25". Our call is for the Riksbank to pause in January and cut in March (and June), but there is clear uncertainty about the exact timing and the minutes give some support to a January cut if anything. Current market pricing and the rate path suggesting a 50/50 distribution between January and March seem fair at this point.

In the euro area, manufacturing PMI for December was revised marginally downwards from 45.2 to 45.1 in the final release. In November it was 45.2. The final service PMIs will be released on Monday next week.

In the UK, manufacturing PMI fell to 47.0 in December from 48.0 in November. The figure was revised down from the preliminary print of 47.3.

FI: 2025's first trading day ended with virtually unchanged yields after a minor rally earlier in the day, thus 10y bunds ended 1bp higher at 2.37%. The rally in the morning seemed to be swap leg driven, dragging the Bund ASW spread briefly into negative territory albeit it ended the day at around 0.5bp. The turnaround in yields came after lower than expected US jobless claims. ECB's Lane speaks tonight.

FX: The broad USD continues to trade on a strong footing, significantly appreciating against both the EUR and GBP in yesterday's session, pushing EUR/USD down to 1.0250 and GBP/USD below 1.24. USD/JPY remains rangebound in the 157-158 range as uncertainty lingers around potential FX intervention and a possible January BoJ rate hike. In the Scandies, the NOK saw notable gains against the EUR, benefitting from a rising oil price, bringing EUR/NOK to around 11.70, while EUR/SEK remains steady near 11.45.

Key Highlights

• USD/JPY started a fresh rally above the 154.50 resistance.
• A key bullish trend line is forming with support at 155.80 on the 4-hour chart.
• EUR/USD accelerated losses and traded below the 1.0340 support.
• GBP/USD also declined and traded below the 1.2475 support.

USD/JPY Technical Analysis

The US Dollar formed a base above the 152.00 level against the Japanese Yen. USD/JPY started a fresh surge above the 154.50 and 155.00 resistance levels.

Looking at the 4-hour chart, the pair settled above the 155.50 level, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour). The pair even climbed above the 157.50 level before the bears appeared.

A high was formed at 158.08 before there was a short-term downside correction. The price dipped below the 157.50 level. However, it remained stable above the 23.6% Fib retracement level of the upward move from the 148.64 swing high to the 158.08 high.

On the downside, immediate support sits near the 155.80 level and the trend line. The next key support sits near the 154.40 level. Any more losses could send the pair toward the 153.50 level or the 50% Fib retracement level of the upward move from the 148.64 swing high to the 158.08 high.

On the upside, the pair is facing hurdles near the 158.00 level. The first major resistance is near the 158.80 level. The next major resistance is near the 159.20 level.

A close above the 159.20 level could set the tone for another increase. In the stated case, the pair could rise toward the 162.00 resistance.

Looking at EUR/USD, the pair started another decline and traded below the 1.0340 support zone to move further into the red zone.

Upcoming Economic Events:

• US ISM Manufacturing Index for Dec 2024 – Forecast 48.3, versus 48.4 previous.

Short Term Elliott Wave view in GBPUSD suggests decline from 12.6.2024 high is in progress as a 5 waves impulse. Down from 12.6.2024 high, wave ((i)) ended at 1.247 and wave ((ii)) rally ended at 1.261 as the 45 minutes chart below shows. Pair has turned lower in wave ((iii)) with internal subdivision as another impulse. Down from wave ((ii)), wave i ended at 1.2548 and rally in wave ii ended at 1.2588. Pair resumed lower in wave iii towards 1.2507. Wave iv rally ended at 1.2548 and wave v lower ended at 1.2498 which completed wave (i) in higher degree. Rally in wave (ii) ended at 1.2607 with internal subdivision as a zigzag.

Up from wave (i), wave a ended at 1.2536 and wave b ended at 1.2502. Wave c higher ended at 1.2607 which completed wave (ii). Pair has turned lower in wave (iii). Down from wave (ii), wave i ended at 1.2504 and wave ii ended at 1.2569. Expect pair to extend lower to end wave iii, then it should rally in wave iv before turning lower again. Near term, as far as pivot at 1.2614 high stays intact, expect rally to fail in 3, 7, or 11 swing for further downside.
GBPUSD 45 Minutes Elliott Wave Chart

GBPUSD Elliott Wave Chart

GBPUSD Elliott Wave Video

https://www.youtube.com/watch?v=ca1ewAKNZgs

• US stocks have seen two years of strong growth, driven by tech and AI stocks, and are expected to continue performing well in 2025.
• Concerns remain about high valuations and the dominance of the “Magnificent Seven” tech stocks.
• Tesla deliveries fell in the fourth quarter of 2024 due to increased competition and reduced subsidies.
• January historically sees strong performance in US stocks, and technical analysis suggests the S&P 500 may be poised for a recovery.

US stocks have just enjoyed their second blockbuster year which has propelled Wall Street Indexes to fresh ATHs. Markets are now eyeing a hat-trick of impressive years as President Elect Donald Trump gets ready to return to the White House.

A combination of a solid economy supporting corporate profits, moderating interest rates and pro growth policies are seen by many as the reason 2025 could be another positive year for US equities. The S&P 500 has just recorded its second year of 20% + growth, which also means it has recorded the biggest two-year percentage jump since 1998 per Reuters.

Concern Around ‘Magnificent 7’ dominance

The past two years have also brought up many questions by market participants. The reason being that the rally has been fueled by tech and AI stocks while the magnificent 7 now accounts for about 35% +- of the S&P 500. This has raised concerns with many comparing the rise of AI stocks to that of the dotcom bubble.

While the Magnificent Seven are expected to continue performing well, their relative outperformance compared to the S&P 493 is projected to be only 7% in 2025, indicating a potential shift in market leadership. This is according to data from Goldman Sachs Global Investment Research.

Source: Goldman Sachs Global Investment Research, Isabelnet (click to enlarge)

Market participants seem less concerned with the high valuation environment as the S&P 500 leaves 2024 trading at 24.82 times expected earnings over the next 12 months. According to LSEG, that is well above its long-term average of 15.8, and not far from the 22.6 level it reached earlier this month, its highest since early 2021.

The downside of high valuation historically shows that stocks are more volatile when market expectations are not met with wild swings often occurring. Will 2025 deliver more of the same?

Tesla Deliveries Fall – Competition Heats Up

Elon Musk has been in the news for his rising political and socio-economic commentary of late. However, the year could not get off to a worse start for the world’s richest man as Tesla announced its first drop in yearly deliveries on Thursday, as it delivered fewer electric vehicles than expected in the fourth quarter, and incentives didn’t increase demand for its older models.

Tesla is facing challenges due to reduced subsidies in Europe, a U.S. trend towards cheaper hybrid cars, and stronger competition from China’s BYD.

Tesla was down as much as 3.5% before the opening bell and remains down around 3.8% at the time of writing. Despite this the Nasdaq 100 remains on the front foot following the opening bell, the index was up just over 1%.

Looking Ahead

Looking back at historical performance during the month of January and we see an interesting picture. Based on available data, January usually sees increased investor activity in equity markets, resulting in strong inflows, as the start of a new year often inspires renewed investment strategies and goals.

Another intriguing data point from January shows that US stocks have a tendency to perform strongly during the first half of January, due to factors such as increased investment activity, and positive investor sentiment following the New Year.

Source: Isabelnet, Goldman Sachs (click to enlarge)

Taking the above into account and with the lackluster ‘Santa Rally’ are US stocks on course for a rise ahead of Donald Trump’s inauguration on January 21?

Technical Analysis

S&P 500

From a technical standpoint, the S&P 500 on a daily timeframe remains bearish following a series of lower highs and lower lows.

However, market participants have failed to print a significant lower low over the last 3 trading days which is a sign that bullish pressure may be building. A bullish daily candle close or a a doji daily candle close could set the index up for a recovery.

Looking at the daily chart above and a daily candle close above the recent swing high at 6026 is needed for a structure change which may embolden bulls even more. This could lead to a push toward fresh all time highs.

The 100-day MA is resting at the 5804 handle and a test of this cannot be ruled out before a rally to the upside. Support below the 100-day MA may be found at 5757, 5700 and 5669 respectively.

S&P 500 Daily Chart, January 2, 2025

Source: TradingView (click to enlarge) 

Support

• 5804
• 5757
• 5700

Resistance

• 5910
• 5950
• 6000

Gold gained nearly 1% in the first trading day in 2025, sending initial positive signal that recovery off $2582 (Dec 18/19 higher base) might be picking up.

The notion is supported by completion of bullish failure swing pattern on daily chart and breach of important barriers at $2637/42 zone (Fibo 38.2% of $2726/$2582 bear-leg /converged 20/30 DMA’s).

Fresh advance penetrated thin daily cloud (spanned between $2642 and $2663) and pressuring daily Kijun-sen ($2654).

Daily close above $2637 is seen as a minimum requirement to keep fresh bulls in play, as 14-d momentum is still in the negative territory and send warning about possible recovery stall.

Fundamentals are expected to remain supportive for the yellow metal, with unstable political and economic situation, sticky inflation, fiscal instability and still a big question mark above possible action of Donald Trump’s administration, marking a solid ground for further gains.

Gold advanced 27% in 2024, marking one of the most significant actions in the history, compared to rallies in 2011 and 2020 and hit new record high at $2790, that exposed psychological $3000 barrier.

However, there is still a long way to complete a corrective phase ($2790/$2536), with pivotal points laying at $2663 (50% retracement) and $2700 zone (Fibo 61.8% / triangle resistance line / psychological), violation of which to improve near-term picture and shift focus to the upside (double-top at $2721/26) and Fibo 76.4% at $2730).

Res: 2663; 2693; 2700; 2726
Sup: 2633; 2621; 2617; 2600

The British pound has started 2025 with sharp losses. In the North American session, GBP/USD is currently trading at 1.2373, down 1.1% on the day.

British pound can’t find its footing

The US dollar has flexed its muscles in recent months and the pound has faltered, sliding 8% since October 1. The pound has fallen to its lowest level since April 2024 and the US dollar, backed by a strong US economy, could continue to pummel the struggling pound. The Fed signaled at the December meeting that it only plans to cut rates twice in 2025, half of the September estimate of four rate cuts.

The BoE ended 2024 on a whimper as it maintained the cash rate at 4.75% at the December meeting. The pause was expected but the vote split was a surprise at 6-3 compared to the forecast of 8-1. The fact that three MPC members voted for a quarter-point cut reflects significant support for the BoE to trim rates and that could mean a cut in February if the December inflation report is lower than expected. The BoE monetary policy summary said that policy would need to remain restrictive until the upside risk to inflation had eased and that the central bank would take a “gradual” approach to easing policy.

UK inflation rose to 2.6% from 2.3% in November. This is the highest level in eight months and the although the alarm bells won’t be ringing at the BoE, policy makers would like to see inflation move back towards the 2% target before cutting rates. The BoE holds its next meeting on Feb. 6 and the December CPI report, which will be released on Jan. 15, will be a critical factor in the BoE rate decision.

GBP/USD Technical

• GBP/USD has pushed below support at 1.2481 and 1.2444 and is testing support at 1.2380. The next support level is 1.2337
• 1.2545 is the next line of resistance

The euro has taken a tumble on Thursday. In the North American session, EUR/USD is currently trading at 1.0246, down 1.06% on the day. The euro has broken below the 1.03 line for the first time since Nov. 2022.

Is euro headed toward parity?

The euro fell more than 6% against the dollar in 2024 and could continue to lose ground in 2025. The Federal Reserve has said it will go slow on rate cuts, a reflection of the strong US economy and resilient labor market. The eurozone economy has been sputtering since late 2022, although the labor market has been overheating. The ECB has cut rates at three straight meetings and seems intent on continuing to lower rates in order to boost the weak economy.

The European Central Bank is expected to cut over 100 basis points this year, more than double the Federal Reserve. A wider US/Europe rate differential will make the dollar more attractive to investors. Could the euro be headed for parity in the near future?

The eurozone released manufacturing PMIs earlier today and the news remains bleak. Among the four largest economies in the eurozone, all are showing contraction in manufacturing activity except for Spain. Germany’s PMI dropped to 42.5 in December, down from 43.0 in October and November, while the eurozone PMI ticked lower to 45.1 in December from 45.2 in November. Manufacturing activity in Germany and the eurozone have been contracting for two years and there doesn’t seem to be much light at the end of tunnel for the struggling manufacturing sector.

We’ll get a look at the US ISM manufacturing PMI on Friday. Manufacturing activity has been contracting and is expected to tick lower to 48.3 in December from 48.4 in November.

EUR/USD Technical

• EUR/USD has pushed below support at 1.0321 and 1.0281. Below, there is support at 1.0231
• There is resistance at 1.0389 and 1.0429