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Despite the Federal Reserve's hawkish stance and the upcoming inauguration of Donald Trump, who has frequently discussed the possibility of new trade tariffs, EUR/USD and GBP/USD managed to find medium-term support last week. Both pairs are now attempting to recover toward recent highs.

GBP/USD

Last week, GBP/USD broke below the November low at 1.2480. However, the pair quickly rebounded above 1.2500, forming a bullish engulfing reversal pattern.

According to technical analysis, GBP/USD has the potential to rise further toward 1.2660–1.2730 if it can sustain levels above 1.2600. On the downside, a retest of 1.2470 could lead to a downward breakout, potentially driving the pair toward 1.2300–1.2400.

This week, trading GBP/USD requires consideration of the relatively empty economic calendar, with major investors staying out of the market. These factors could lead to sharp price swings and false breakouts.

Key Events Affecting GBP/USD Today:

• 15:30 (GMT+2): US Core Durable Goods Orders
• 17:00 (GMT+2): US New Home Sales
• 20:00 (GMT+2): Atlanta Fed GDPNow Indicator

EUR/USD

December has been challenging for EUR/USD buyers. Weak macroeconomic data and the ECB's rate cut have pushed the pair down to 1.0340. Late last week, the price briefly recovered above 1.0400 but dipped below this level again yesterday. Another test of 1.0330 may occur in the coming sessions. If this support level holds, EUR/USD could climb toward 1.0460–1.0520.

According to technical analysis, EUR/USD shows signs of a potential upward correction, provided the price can stabilise above 1.0450. On the daily chart, there is an inverted hammer pattern. Also, there is a possibility of a double bottom formation. A drop below 1.0330, however, would invalidate these patterns.

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It’s never too late to believe in Santa. Investors on Monday were shrugging off the bad news of past week – especially the one that suggested that the Federal Reserve (Fed) would cut its rates only two times in 2025 due to a too resilient US economy. Yesterday’s data that showed that the US durable goods orders fell more than expected in November, the new home sales rebounded slightly less than expected and the consumer confidence unexpectedly dropped in December. This bag of bad news helped tempering the latest hawkish shift in Fed expectations. As such, the buyers are out and buying. The S&P500 rebounded 0.73%, Nasdaq 100 rallied more than 1% and even the European Stoxx 600 eked out a small gain, as Novo Nordisk in Denmark jumped more than 5.5% as investors rushed in to buy a dip on bet that the weight loss drugs are here to stay.

Other than that, the technology stocks kicked off the week in a great shape. Nvidia rallied nearly 3.70%, Apple advanced toward fresh highs, while the Magnificent 7 stocks – together – gained around 1.50%. The small caps however were left behind, with the Russell 2000 index sliding 0.22%. The concentration is back on the menu this year-end – perhaps as the higher yields drive capital toward the big cap companies that are less pressured by higher borrowing costs than their small and mid-cap peers.

Even though the equity markets looked joyful on Monday, the US 2-year papers remained offered and the US dollar erased earlier losses to finish the session higher against most majors. The EURUSD couldn’t hold on to gains above the 1.04 and slipped below this level on expectation that the morose European growth and political shenanigans demand a decent help from the European Central Bank (ECB) next year. In France, Macron placed French politics’ heavy weights in his newly formed government, but even the hefty names will hardly convince its divided government to agree on a budget deal that aims to narrow the French budget deficit. Across the Channel, Cable remained under pressure as softer-than-expected Q3 growth reinforced the 'pain before gain' narrative and boosted appetite for a more supportive Bank of England (BoE) policy while waiting for government spending to show up in the numbers. The EURGBP however remained offered near the 50-DMA and remains set for a further slide toward the 82 cents mark on the diverging ECB and BoE outlooks, where ECB expectations are sensibly softer than the BoE’s. In Japan, the USDJPY is back testing the 157 offers and could easily extend gains toward the 160 mark.

Meagre news and data flow should keep the focus on a more hawkish Fed. The pullbacks in the US dollar are probably good opportunities to buy the dips against most majors. As per equities, the rally extends but the questions regarding the ballooning valuations of Big Tech stocks become louder, too. Two stellar years of more than 20% gains for the S&P500 definitely calls for correction. But no one is willing to leave the festive table, just yet.

Key Highlights

• AUD/USD declined heavily below the 0.6380 and 0.6350 support levels.
• A major bearish trend line is forming with resistance near 0.6280 on the 4-hour chart.
• EUR/USD is consolidating below the 1.0450 resistance zone.
• Gold is attempting to recover above the $2,620 pivot level.

AUD/USD Technical Analysis

The Aussie Dollar started a major decline from well above 0.6500 against the US Dollar. AUD/USD traded below the 0.6450 support to enter a bearish zone.

Looking at the 4-hour chart, the pair gained bearish momentum below 0.6350, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour). Finally, it tested the 0.6200 support zone.

A low was formed at 0.6199 and the pair is now consolidating losses. On the upside, the pair could face resistance near the 0.6280 level. There is also a key bearish trend line forming with resistance near 0.6280 on the same chart.

The trend line is close to the 50% Fib retracement level of the downward move from the 0.6377 swing high to the 0.6199 low. The next major resistance is near the 0.6335 level.

A close above the 0.6335 level could set the tone for another increase. In the stated case, the pair could rise toward the 0.6380 resistance. On the downside, immediate support sits near the 0.6220 level.

The next key support sits near the 0.6200 level. Any more losses could send the pair toward the 0.6180 level. Any more losses might send the pair toward the 0.6150 level.

Looking at Gold, the price is attempting a recovery wave, but the bears might remain active near the $2,640 and $2,650 levels.

Upcoming Economic Events:

• US New Home Sales for Nov 2024 (MoM) – Forecast +0.2% versus -17.3% previous.

• USDJPY reversed from key support level 156.35
• Likely to rise to resistance level 158.00

USDJPY currency pair recently reversed up from the key support level 156.35 (former resistance from November, acting as she support after it was broken last week).

The upward reversal from the support level 156.35 continues the active minor impulse waves iii and 3 – both of which belong to the intermediate impulse wave (3) from the start of December.

USDJPY currency pair can be expected to rise to the next resistance level 158.00, the breakout of which can lead to further gains toward 160.00.

• Nasdaq 100 reversed from strong support level 21000.00
• Likely to rise to resistance level 22000.00

Nasdaq 100 index recently reversed up from the strong support level 21000.00 (former resistance from the start of November), intersecting with the support trendline of the daily up channel from November and the 50% Fibonacci correction of the upward impulse from October.

The upward reversal from the support level 21000.00 created the daily Japanese candlesticks reversal pattern Long-legged Doji.

Given the clear daily uptrend, Nasdaq 100 index can be expected to rise to the next resistance level 22000.00, which stopped the previous impulse wave i.

Formally, inflation figures and lower-than-forecast expectations helped the market to find ground for a rebound. However, the declines of the previous days may have broken the backbone of the bull market. A couple of technical signals indicate this.

Primarily, there is a series of 11 sessions of declines in the Dow Jones. This is one of the most sustained selloffs in the history of the index. The decline has not been particularly intense most of the time, except on 18 December when markets were pressured by a change in expectations from the Fed. This acceleration in the decline coincided with the index falling below its 50-day moving average, from which the index had been bouncing since August. On this indication, we can talk about the breaking of the medium-term uptrend, opening the way to the 200-day. It passes through 40800 and aims upwards to 41000 by the end of the year.

The S&P500 is fighting for the 50-day moving average, remaining below the 6000 level. In this case, the upward trend is not broken yet, as the market reaction to the relatively positive news on Friday brought the index back to its trend curve.

A similar technical picture is even stronger in the Nasdaq100, which was approaching the 50-day MA at its lowest point but bounced back impressively on Friday.

The outlook is most concerning for the Russell2000. This index of small stock market companies has erased all gains since the Republican election victory, losing over 10.5% from a peak in early December to a bottom last Friday. As in the Dow Jones, a break below the 50-day moving average accelerated the sell-off. This index is approaching its 200-day average (now at 2175). It has been trading above this curve since last December, making it an important support level: buying intensified as it approached it.

On a positive note, the Fear and Greed Index fell into the extreme fear area late last week. This is deep enough to provide a reset for the markets, but it is important to understand whether this is the start of a bear market.

So far, the stock markets have been unimpressive, and we cannot say whether the bull or bear camp is dominant. But by the end of the year, the picture will become clearer.

US Conference Board Consumer Confidence dropped to 104.7 in December, falling short of expectations for 113.2 and down from 112.8 in November. Present Situation Index slipped by -1.2 points to 140.2. The more forward-looking Expectations Index plunged -12.6 points to 81.1, nearing the critical 80 threshold that often signals recession risks.

Dana M. Peterson, Chief Economist at The Conference Board, highlighted the nature of the decline: “The recent rebound in consumer confidence was not sustained in December.”

She attributed the drop primarily to weaker future expectations, adding, "Consumers in December were substantially less optimistic about future business conditions and incomes, with pessimism about employment prospects returning after brief optimism in October and November.”

Full US consumer confidence release here.

The Bottom Line:

Today's GDP report shows Canadian economic growth accelerated in October from September; however, the early estimate points to a contraction (-0.1%) in November, consistent with preliminary reports showing softer wholesale sales, declining manufacturing volumes, and flat retail sales.

The Bank of Canada's December messaging pointed to a more gradual approach on rate cuts going forward than the 50 bp reductions in each of October and December, but we continue to expect that interest rate cuts down to a net stimulative 2% overnight rate (below the BoC's estimated neutral range of 2.25% to 3.25%) will be warranted to allow economic growth to strengthen and prevent inflation from falling significantly below the central bank’s 2% target.

The Details:

Canadian GDP expanded 0.3% in October following a revised 0.2% increase in September (upgraded from an initial reading of 0.08% to 0.24%). October's growth exceeded Statistics Canada's preliminary estimate of 0.1%.

The advance estimate pointed to a 0.1% contraction in November. These preliminary figures are typically subject to significant revision, but the pullback in November is consistent with softer looking wholesale and manufacturing sale advance estimates for the month, and a pullback in consumer spending in our own tracking of card transactions.

At current trajectory, Q4 GDP growth appears to be tracking closer to, but still slightly below, the Bank of Canada's 2% forecast.

The goods-producing sector registered its strongest performance since January 2023, expanding 0.9% in October. This growth was primarily driven by the mining, quarrying, and oil and gas extraction sector, which surged 2.4%.

Other goods sectors also showed improvement. Mining support activities rose 1.3% in October, partially reversing declines from the previous two months. Manufacturing output increased 0.3%, breaking a four-month streak of weak readings. StatsCan reported that non-durable manufacturing posted particularly strong growth (+1.2%), boosted by petroleum refineries resuming operations following scheduled maintenance.

Growth in the services sector moderated to 0.1% from September's 0.4% pace. While retail trade output remained flat, wholesale trade advanced 0.5%. The real estate sector maintained its strong momentum (+6.3%), supported by robust home resale activity during the month.

Canadian economic growth jumped 0.3% month-on-month (m/m) in October, ahead of Statistics Canada's advanced guidance and consensus expectations. Early estimates from Statistics Canada point to a slight pullback in November GDP (-0.1% m/m).

October's reading was broad-based, with output expanding in 12 of 20 industries. The goods sector grew by a hefty 0.8% m/m, while the services sector added a modest assist of 0.1% m/m to October's GDP growth.

On a weighted basis, the mining/oil & gas sector posted the biggest tailwind for October activity, gaining 2.4% m/m, with oil & gas extraction (+3.1% m/m) accounted for most of the gain. Elsewhere, the manufacturing sector advanced for a second consecutive month (0.3% m/m), while construction grew by 0.4% m/m.

On the services side, the real estate sector saw its biggest monthly gain so far in 2024, up by 0.5% m/m on the back of a rise in national home sales. Wholesale trade (0.5% m/m) and the transportation sector (0.2% m/m) also recorded gains despite coinciding with the Canada Post strike.

The advanced reading of a slight pullback in growth in November is due in part to a moderation in the oil and gas sector as well as finance and insurance.

Key Implications

Solid October GDP growth combined with upward revisions to the month prior put Canada's economic activity on decent footing to end the year. Early tracking for fourth-quarter GDP suggests trend-like growth (~1.7%), an uptick relative to Q3's more meager gain of just 1%.

The Bank of Canada has cut interest rates by 100 basis points (bps) over their last two meetings. Today's data should assuage fears of excessive downside to Canadian growth in the near-term, which should see the Bank move back to a more measured 25 bps cut at their next policy meeting in January. Looking ahead, more cuts are on the way, with the focus now shifting back to upcoming labour market updates.