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Daily Pivots: (S1) 0.8903; (P) 0.8939; (R1) 0.8963; More…

Intraday bias in USD/CHF remains neutral as consolidations continue below 0.8974 temporary top. While deeper pullback cannot be ruled out, outlook stay bullish as long as 0.8735 support holds. Break of 0.8974 will resume larger rise from 0.8374 to 61.8% projection of 0.8374 to 0.8956 from 0.8735 at 0.9095.

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern, with rise from 0.8374 as the third leg. Overall outlook will continue to stay bearish as long as 0.9223 resistance holds. Break of 0.8332 low is in favor at a later stage when the consolidation completes.

The forex and stock markets are holding steady today, with limited volatility as traders anticipate FOMC rate decision and updated economic projections. A 25bps rate cut, reducing the target range to 4.25–4.50%, is virtually certain. However, the market’s focus lies on the tone and guidance Fed delivers. Critical questions include whether a pause in easing could be on the table for January, the expected pace of rate cuts throughout 2025, and the revision of the neutral rate, which could indicate where Fed sees the terminal rate of the current cycle.

Tomorrow, attention will turn to BOJ and BoE, both expected to hold rates steady. For BoJ, markets are watching for any signs that further rate hikes could be planned for early 2025, particularly in January, amid ongoing efforts to manage inflation and normalize policy. Meanwhile, BoE's MPC voting split will be a key focus. Traders will look to the statement for policymakers’ views on recent data surprises and how the Autumn Budget is shaping their outlook, especially as inflation remains persistent in key sectors like services.

Technically, some attention could be in S&P 500's reaction to FOMC today. Recent up trend stalled after hitting 61.8% projection of 4103.78 to 5669.67 from 5119.26 at 6086.98. Selloff today could set up deeper correction to 55 D EMA (now at 5911.81) before resuming the up trend. On the other hand, clearing of 6086.98 will pave the way towards 100% projections at 6685.15 in early part of next year.

In Europe, at the time of writing, FTSE is up 0.21%. DAX is up 0.14%. CAC is up 0.26%. UK 10-year yield is up 0.0246 at 4.550. Germany 10-year yield is up 0.0118 at 2.245. Earlier in Asia, Nikkei fell -0.72%. Hong Kong HSI rose 0.83%. China Shanghai SSE rose 0.62%. Singapore Strait Times fell -0.53%. Japan 10-year JGB yield is down -09.0106 at 1.067.

ECB’s Lane stresses agility in rate path amid elevated uncertainty

ECB Chief Economist Philip Lane highlighted the importance of maintaining "agility" in monetary policy decisions during a speech today. Lane emphasized that in the current environment of elevated uncertainty, ECB’s "prudent" approach will be guided by a meeting-by-meeting strategy without pre-committing to any specific rate path.

Lane outlined that the pace of monetary easing will depend on the balance of risks. If the inflation outlook or economic momentum experiences upside shocks, "monetary easing can proceed more slowly " compared to the December projections.

Conversely, in the case of downside shocks, the easing process could accelerate. He further noted that the rate path would also depend on ECB’s "ongoing assessment of underlying inflation dynamics and the strength of monetary policy transmission."

Eurozone CPI finalized at 2.2% in Nov, core at 2.7% yoy

Eurozone headline inflation for November was finalized at 2.2% yoy, up from October’s 2.0%. Meanwhile, Core CPI, which excludes food, alcohol, and tobacco, eased to 2.7% yoy, down from October’s 2.9%.

Services contributed the most to the Eurozone annual inflation rate, adding +1.74 percentage points, followed by food, alcohol, and tobacco (+0.53 pp) and non-energy industrial goods (+0.17 pp). Energy, on the other hand, detracted -0.19 percentage points, reflecting subdued demand and easing energy prices.

At the broader EU level, headline inflation was finalized at 2.5% yoy. Among member states, Ireland registered the lowest annual inflation at 0.5%, followed by Lithuania and Luxembourg (both at 1.1%). On the high end, Romania recorded the highest inflation at 5.4%, with Belgium (4.8%) and Croatia (4.0%) close behind. Compared to October, inflation fell in four EU member states, remained unchanged in three, and rose in twenty.

UK CPI accelerates to 2.6% in Nov, core CPI up to 3.5%

UK CPI accelerated from 2.3% yoy to 2.6% yoy in November, matched expectations. Core CPI, (excluding energy, food, alcohol and tobacco), accelerated from 3.3% yoy to 3.5% yoy, below expectation of 3.6% yoy. CPI goods annual rate rose from -0.3% yoy to 0.4% yoy , while CPI services annual rate was unchanged at 5.0% yoy.

Japan's export rises 3.8% yoy in Nov, while import falls -3.8% yoy

Japan’s exports rose 3.8% yoy in November to JPY 9.152T, supported by increased shipments of chip-making equipment to Taiwan and nonferrous metals to China, marking the second consecutive month of export growth. Imports, however, fell -3.8% yoy to JPY 9.270T, marking their first decline in eight months due to reduced demand for crude oil from Saudi Arabia and electronics parts from Taiwan.

The overall trade deficit stood at JPY -117.6B, extending its red streak to five months. On a seasonally adjusted basis, the deficit widened to JPY -384B from JPY -229B in October, as imports increased 1.9% mom, outpacing the 0.2% mom rise in exports.

Trade with key partners highlighted persistent imbalances. Japan recorded a JPY 664.03B trade surplus with the US, despite exports falling -8.0% yoy, while imports dipped slightly by -0.6% yoy.

Conversely, its trade deficit with China expanded to JPY 682B, as exports grew 4.1% yoy, and imports rose 4.2% yoy.

The trade gap with the EUR remained significant at JPY 210.19B, with exports plunging -12.5% yoy, while imports decreased -5.4% yoy.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.8903; (P) 0.8939; (R1) 0.8963; More…

Intraday bias in USD/CHF remains neutral as consolidations continue below 0.8974 temporary top. While deeper pullback cannot be ruled out, outlook stay bullish as long as 0.8735 support holds. Break of 0.8974 will resume larger rise from 0.8374 to 61.8% projection of 0.8374 to 0.8956 from 0.8735 at 0.9095.

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern, with rise from 0.8374 as the third leg. Overall outlook will continue to stay bearish as long as 0.9223 resistance holds. Break of 0.8332 low is in favor at a later stage when the consolidation completes.

USDJPY remains steady, though at narrower range on Wednesday, awaiting the FOMC verdict later today.

Tuesday’s dip from new three-week high, which interrupted a six-day rally, is likely to be short-lived, as the dollar remains well supported and yen under pressure on wide gap between Fed and BoJ monetary policies.

Fed is expected to deliver a 25 basis points rate cut today, in an action that many see as hawkish cut due expected slowdown in policy easing in 2025, against previous estimations, while Japan’s policymakers will meet on Thursday and widely expected to keep interest rate unchanged.

Bullish technical picture on daily chart adds positive outlook for the dollar (the action remains underpinned by rising thick daily Ichimoku cloud, MA’s create multiple bull-crosses and momentum is positive).

Firm break of cracked Fibo barrier at 153.65 (61.8% retracement of 156.74/148.64 pullback) to generate fresh bullish signal for acceleration towards 154.83 (Fibo 76.4%) and 156.74 (Nov 15 peak) in extension.

Res: 154.47; 154.83; 155.88; 156.74.
Sup: 153.16; 152.87; 152.69; 152.30.

• The FOMC meeting today is highly anticipated due to uncertainty surrounding future US monetary policy.
• Markets expect a 25 bps rate cut today and a slower pace of easing in 2025 due to President-elect Trump’s policies.
• The Fed’s reverse repo rate may be adjusted, potentially impacting the US Dollar’s strength.

The FOMC meeting today is key as interest rate meetings tend to be from the US. However, today’s meeting is even more intriguing given all the noise and uncertainty moving forward.

The Fed is shifting its policies from being very restrictive to more balanced. Recent data has shown some stickiness in inflation and with President-elect Trump aiming to boost US economic growth, the Fed is likely to take a careful and slow approach to easing policies in 2025. This for now is where the focus will lie.

Heading into the meeting, markets are expecting around 73 bps of rate cuts through December 2025. This would include the proposed 25 bps cut today, meaning just 50 bps cuts in 2025.

Source: LSEG (click to enlarge)

What to Expect from the FOMC Meeting?

The main driver of late when it comes to US monetary policy decisions has been the US Labor market. The labor market is slowing down, with fewer new jobs, a drop in full-time employment, and a small rise in unemployment. These changes give the Fed a reason to move toward a more balanced policy approach.

Inflation which had been the main focus for the first 6-8 months of the year did take a backseat over the past few months. However recent data suggests that this may rear its ugly head once more in 2025.

Focus heading into the meeting will focus on updates to the Feds economic projections. In particular, the number of rate cuts we may expect in 2025. The consensus heading into the meeting is that President-elect Trump’s plans for stricter immigration controls, new tariffs, and cutting taxes for individuals and businesses are expected to lead the Fed to take a more cautious and slower approach to easing policies in 2025.

I do think that this is on point however, the rhetoric of the Fed will be important. Heading into the meeting we have heard a host of comments from Fed Policymakers who have supported more gradual easing in 2025.

FED Policymaker Comments in the Lead Up to December 18 Meeting:

Source: LSEG (click to enlarge)

The comments from policymakers definitely show a willingness for a slower rate cut path moving forward. In theory this should lead to some US Dollar strength as well as a rise in US Yields.

Having said that, I do expect a pause in January as the meeting will arrive just 9 or so days after President Elect Trump takes office. The March meeting should provide some time to gauge the effects of proposed Trump policy and might give markets a clearer picture for 2025.

Feds Reverse Repo Rate

The minutes from the last FOMC meeting made reference to a possible technical adjustment to the Fed’s reverse repo rate and this may be something to watch as well. The proposal is to lower the reverse repo rate by 5 basis points (bp), bringing it down to match the floor at 4.25%. At the same time, the Fed would also lower its whole interest rate range by 25 bp.

This means the new floor would drop to 4.25%, the ceiling would fall to 4.5%, and the reverse repo rate would shift to align with the new floor.

The other important rate, the interest on reserves (which is what the Fed pays banks for holding their extra money), would also go down by 25 bp, staying 15 bp above the floor as it is now.

One big takeaway here is that lowering the reverse repo rate would make the facility less appealing for banks to use. Eventually, as banks reduce their use of this facility, their reserves (money they hold at the Fed) could shrink.

Is such a move a positive or negative for the US Dollar?

In theory, if the reverse repo rate is lowered, as the Fed is considering, it reduces the interest banks and financial institutions earn when parking their cash with the Fed. This could make US interest rates slightly less attractive. With lower interest returns, some foreign investors might look for better opportunities in other countries with higher rates. If this happens, it could put mild downward pressure on the US Dollar’s strength.Something else to consider heading into the meeting, could such a move cancel out any US Dollar strength that may be gained should the Fed point to a slower rate cut path in 2025? Time will tell.

US Dollar Index

From a technical standpoint, the dollar is at  crossroads as it is back around the multi-month key level at 107.00.

I do expect the US Dollar to maintain its dominance heading into 2025 especially if the Fed meet markets expectations regarding slower cuts in 2025.

This should keep the rate differential in play which has benefited the US Dollar since October.

As the Dollar has defied its seasonal trend by strengthening thus far in December, it would take a surprise later in the day to change the narrative. I do expect this narrative to persist until President trump takes office and begins enacting his policies.

US Dollar Index (DXY) Daily Chart, December 18, 2024

Source: TradingView.com (click to enlarge)

Support

• 106.50
• 106.00
• 105.63

Resistance

• 107.50
• 108.00
• 109.00

The Federal Reserve is set to announce its interest rate decision today at 21:00 GMT+2, with Fed Chair Jerome Powell holding a press conference 30 minutes later. According to Forex Factory, the market expects a rate cut to 4.25%-4.50% from the current 4.50%-4.75%.

Analysts at Apollo Global Management, in their Economic Outlook, predict:

→ In 2025, the Fed will continue lowering rates but at a slower pace than the market anticipates;

→ By the end of 2025, the rate is expected to settle at 4.0%.

In anticipation of today's decision, the currency markets are experiencing a period of calm.

The technical analysis of the EUR/USD chart shows that the pair consolidates between the upper boundary of a descending channel and the lower black support line, forming a narrowing triangle pattern (highlighted in purple).

Today's Fed meeting could trigger a surge in volatility, potentially driving sharp movements in USD pairs. For EUR/USD, opposite scenarios are possible:

→ An upward movement with a bullish breakout of the upper boundary of the long-term descending channel;

→ Continuation of the downtrend with a breakout below the lower black support line.

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AUD/USD hit new 2024 low and trading near the lowest since Oct 2023 on Thursday, after strong bearish signal was generated on Tuesday’s close below former annual low (0.6348, Aug 5 spike low).

Aussie remains pressured from slower than expected growth of Chinese economy and falling commodity prices, with expectations for Fed’s hawkish cut today to add to negative outlook.

The US central bank is widely expected to cut interest rates by 25 basis points on today’s policy meeting, but markets anticipate that the Fed will significantly downgrade its projections for 2025 (probably to two rate cuts from initially planed four), due to elevated inflation and quite strong economy.

Also, signals that Trump’s administration will fully focus on boosting the US economy, require additional caution, as faster economic growth would fuel inflation and force the central bank to continue monitoring the situation and keep adjusting its policy view.

The pair is on track to register a sustained break of 0.6348 pivot that would open way for attack at 2023 low (0.6270) and probably unmask 2022 low (0.6170) on stronger bearish acceleration.

Firmly bearish daily studies (negative momentum is strengthening, MA’s in full bearish setup with converging 100/200DMA’s on track to form a Death cross) support the notion, with limited upticks on oversold conditions to mark positioning for fresh push higher.

Falling 10DMA (0.6377) should ideally cap, with extended upticks to stall under 0.6430/40 zone (falling 20DMA / former low of Nov 14) to keep larger bears intact.

Res: 0.6348; 0.6377; 0.6440; 0.6465.
Sup: 0.6300; 0.6270; 0.6100; 0.6170.

Gold prices are hovering around 2,650 USD per troy ounce as investors remain cautious, conserving their energy for a potential move depending on the US Federal Reserve’s rate decision later tonight. The predominant market expectation is a 25-basis-point cut in interest rates, but there's significant uncertainty about the Fed’s monetary policy trajectory for 2025, which will be a key focus in today’s announcements.

Recent robust retail sales data from November, showing a 0.7% increase, have stirred discussions among investors that the Fed might decelerate its pace of rate cuts. This surge in retail sales is seen as a pro-inflationary factor, potentially influencing the Fed’s approach towards monetary easing.

A slowdown in rate reductions would likely be unfavourable for Gold, as lower interest rates generally decrease the opportunity cost of holding non-yielding assets like Gold, making it more attractive. Nonetheless, investors should wait for the Federal Reserve’s statement, which could diverge from current market speculations.

Since the start of the year, Gold has appreciated over 28%, potentially ending 2024 with the highest annual gain since 2010.

Technical analysis of XAU/USD

H4 Chart: Gold has established a consolidation range around the 2,675.55 level on the H4 chart. A growth structure has been formed up to 2726.27, and a corrective movement towards 2,635.00 is unfolding. Looking forward, a continuation of the growth wave towards 2743.85 is anticipated. The MACD indicator supports the bullish outlook, with its signal line below zero but pointed sharply upwards.

H1 Chart: On the H1 chart, Gold has completed a correction to 2,633.00 and is now expected to rise towards 2,680.00. After this increase, a potential decline to 2,658.00 may occur. Once this level is reached, a new growth phase towards 2705.70 will likely extend to 2,743.85. This scenario is corroborated by the Stochastic oscillator, whose signal line is currently above 50 and aiming towards 80, indicating upward momentum.

ECB Chief Economist Philip Lane highlighted the importance of maintaining "agility" in monetary policy decisions during a speech today. Lane emphasized that in the current environment of elevated uncertainty, ECB’s "prudent" approach will be guided by a meeting-by-meeting strategy without pre-committing to any specific rate path.

Lane outlined that the pace of monetary easing will depend on the balance of risks. If the inflation outlook or economic momentum experiences upside shocks, "monetary easing can proceed more slowly " compared to the December projections.

Conversely, in the case of downside shocks, the easing process could accelerate. He further noted that the rate path would also depend on ECB’s "ongoing assessment of underlying inflation dynamics and the strength of monetary policy transmission."

Full speech of ECB's Lane here.

Eurozone headline inflation for November was finalized at 2.2% yoy, up from October’s 2.0%. Meanwhile, Core CPI, which excludes food, alcohol, and tobacco, eased to 2.7% yoy, down from October’s 2.9%.

Services contributed the most to the Eurozone annual inflation rate, adding +1.74 percentage points, followed by food, alcohol, and tobacco (+0.53 pp) and non-energy industrial goods (+0.17 pp). Energy, on the other hand, detracted -0.19 percentage points, reflecting subdued demand and easing energy prices.

At the broader EU level, headline inflation was finalized at 2.5% yoy. Among member states, Ireland registered the lowest annual inflation at 0.5%, followed by Lithuania and Luxembourg (both at 1.1%). On the high end, Romania recorded the highest inflation at 5.4%, with Belgium (4.8%) and Croatia (4.0%) close behind. Compared to October, inflation fell in four EU member states, remained unchanged in three, and rose in twenty.

Full Eurozone CPI final release here.

• AUDUSD extends downtrend to a more-than-a-year low
• A pause is likely, but negative trend could stay in play
• FOMC policy announcement due at 19:00 GMT

AUDUSD is caught in a relentless downtrend, plunging to a 14-month low of 0.6308 on Wednesday following the close below the long-term support trendline from October 2022.

As global markets brace for the Federal Reserve’s final policy meeting of the year, speculation mounts over whether buying the dip could play out in the coming sessions as the price is flirting with the 2023 bottom region of 0.6269-0.6300.

The RSI and the stochastic oscillator are signaling that the sell-off is overstretched, though the indicators have yet to bottom out in the oversold region. Hence, the bears may keep the upper hand for now. If the 0.6200 area allows more declines, the door could open for the 0.6100 round mark and then for the 0.5980 zone taken from April 2020.

On the upside, a break above the falling channel and the 20-day simple moving average (SMA) near 0.6440 could be a major challenge for the bulls who first need to overcome the 0.6388 resistance. If they succeed, the pair could advance toward the 0.6500-0.6530 zone, where the 50-day SMA is located. Slightly higher, a former constraining line at 0.6565 could clear the way toward the 200-day SMA at 0.6615.

It's important to note that both the 50-day and 200-day SMAs have recently formed a death cross; a bearish signal that casts doubt on any immediate trend reversal.

In short, the bearish trend in AUDUSD is firmly in place, with the pair continuing to drift lower in the short term. While a recovery attempt could be possible near the 2023 low, selling interest could remain strong below the 0.6565 level. Hence, the outlook remains predominantly negative for now.