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Yesterday’s US inflation data was the last possible barrier to the much-expected extra 25bp cut from the Federal Reserve (Fed) next week, and the release went well. The figures came spot on expectations. Headline inflation inched slightly higher from 2.6% to 2.7% while core inflation remained sticky at 3.3%. If you ask me, with Trump’s pro-growth policies and tariff threats threatening to give a positive jolt to inflation in the coming months, a core inflation figure that’s insistently above the 3% doesn’t necessarily call for an extra 25bp cut, but this is most probably what the Fed will do. The Fed will most probably cut one more time this year with activity on Fed funds futures assessing nearly 100% probability to it, and take a breather in January.

As such, the US 2-year yield is now around 4.16% - having held ground above the 4.10% mark, certainly on the thinking that the Fed should slow down rate cuts next year. The 10-year yield is advancing toward 4.30% level, up from 4.13% at the lowest of December, and the major indices rally with joy. The S&P500 closed a few points below an ATH yesterday, while Nasdaq 100 jumped 1.82% to an ATH. But it’s not only the Fed. It’s also tech related news. Google for example jumped nearly 5.5% to a record high on news that the company made a ‘major development’ in quantum computing using its Willow quantum chip that helped the company’s quantum computer to solve a problem in just five minutes instead of septillion years by using a supercomputer. The company didn’t give away any use case for such a powerful computing, and quantum computers are far from mass adoption, but the latest news gave hope to investors that the Willow chip could give them an advantage in their AI race. Before I move forward, quantum stocks gained yesterday on the news, Defiance Quantum ETF jumped to an ATH before giving back gains. The price moves in quantum will likely be volatile at this stage given that commercialization is not due in the foreseeable future, but chasing interesting entry levels is interesting. Coming back to my chip story, Broadcom – that’s due to announce earnings today - flirted with ATH yesterday on news that they are developing an AI chip with Apple – who is also interested in Amazon’s Trainium chips, mind you. Of course, the news that the Big Tech companies are now building their own chips to train their own AI models could be bad news for Nvidia which made around 50% of its last quarter revenue from the Big Tech companies. But happily, TSMC said that its sales rose 34% in November – hinting that AI demand remains strong despite the growing worries of slower spending. Nvidia gained more than 3% yesterday, while AMD rebounded 1.90% from the lowest level since summer.

In Europe, the news are much less future-oriented and exciting, to be honest. But the Stoxx 600 is better bid on hope that the European Central Bank (ECB) will step up its support to the economy. In this context, the ECB is expected to deliver another 25bp cut at today’s meeting. Some have been expecting the ECB to do more than that. Since Donald Trump won the US presidential election, the increased risks on European economies due to tariff threats brought some investors and analysts to bet for a 50bp cut as an immediate reaction. Others, like me, think that the ECB would better deliver a cautious 25bp cut today AND shift its focus from inflation to growth, as doing so will open the way for a series of rate cuts instead of a jumbo cut that the zone doesn’t need in a hurry. As I wrote earlier this week, the euro could avoid an aggressive selloff provided that the dovishness from the ECB has been already priced in – starting from Trump’s victory day. The EURUSD fell from around 1.10 down to 1.0340 over that period. As such, I wouldn’t be surprised to see the euro bulls resist to a dovish announcement – if Lagarde could convince investors that they are taking measures to boost growth and that the measures could work. Of course, there is no telling that a growth-supportive monetary policy will lead to growth – especially given that the member states are expected to tighten their fiscal policies to control their budget deficit, and that’s not necessarily growth supportive– yes I am looking at you, France and Germany. But a sufficiently supportive ECB stance and a contained euro depreciation could back a further rise in European stock valuations and help them to extend this year’s rally. Of course, the valuations on index level hide the ugly economic fundamentals of the Eurozone companies, as only a handful of the companies contributed to the gains at the index level. Those companies include SAP that benefits from the AI rally, Siemens, and Novo Nordisk. But the carmakers and luxury-stuff makers for example struggle big time. Therefore, stock picking in the European equity complex is a good idea.

Other than the ECB, the BoC cut by 50bp yesterday, and the SNB could opt for 50bp to counter the franc’s appreciation.

In focus today

In the euro area, we expect the ECB to deliver a 25bp rate cut. Although that is the consensus, markets price in around a 15% probability of a 50bp cut this morning according to Reuters. Rather than focusing on the size of the rate cut, we should focus on where the policy rate will end in this cutting cycle, albeit we do not expect any verbal guidance on this. Markets may however interpret a 50bp cut as a signal of a lower terminal rate - and that may even be a signal that the ECB wants to send. For further details see ECB Preview - A disputed 25bp rate cut, 6 December.

In Switzerland, markets are pricing in around 35bp for the meeting and consensus favours the 25bp cut over the larger 50bp. We expect another cut in March with risks skewed towards further cuts.

In Sweden, we get the full Swedish inflation report for November. Last week's flash release showed a sharp uptick in CPIF to 1.9% - a whopping full percentage point above the Riksbank's forecast. Thus far, the flash estimates have proven reliable and as such we do not expect any revisions today.

In Norway, we expect the regional survey to signal continued restrained optimism among domestic corporates, indicating a 0.2-0.3% growth rate in the next quarter (Q1/25). In that case we expect Norges Bank to consider domestic growth 'as expected' and be neutral to the rate path in the monetary policy report next week, despite actual growth in Q3 being higher than anticipated. The crucial point will be the indicators for capacity utilization and labour shortage. Another significant lift in these measures of slack makes it more likely that Norges Bank will consider growth as 'accelerating and above trend'. Also, keep an eye on the expected wage growth for next year. A downward revision to around 4% should reduce the rate path directly, but also affect risk assessment as the risk of cost-driven inflation should abate.

In Japan, overnight we get the Bank of Japan's (BoJ) extensive quarterly Tankan business survey, which will shed some more light on how the economic recovery has fared in Q4. PMI data has been on the weak side. The survey will be scrutinised by the BoJ, and it will be key to the decision on the policy meeting next week.

Economic and market news

What happened yesterday

In the US, headline prices grew 0.3% m/m seasonally adjusted (cons. 0.3%, 2.7% y/y) while core inflation was also 0.3% (cons. 0.3%, 3.3% y/y), in line with consensus. The data is very volatile from one month to another, so it is important not to put too much weight on any single reading, but the overall signal is still positive for the Fed. Short-end UST yields ticked lower as markets have now basically fully priced in the Fed's rate cut next week.

In Canada, Bank of Canada delivered a 50bp cut, as expected by markets and most analysts. Importantly, the forward guidance included a hawkish twist, with the central bank no longer explicitly stating an expectation of further rate cuts. USD/CAD took a knee-jerk move lower amid the hawkish twist, while the reaction in Canadian yields was more mixed. A 50bp cut to 3.25% also meant that the policy rate was at the upper range of the BoC's estimate for the neutral rate. With the communication that day, it seemed increasingly likely that the BoC would slow down its incremental cut pace to at least 2x25, reaching its midpoint estimate for the neutral rate of 2.75% in March.

In China, the monetary authorities are considering a currency devaluation of the CNY according to Reuters who spoke to persons who have knowledge about the discussion. The reason for the consideration is US President elect Trump's threat of imposing even higher tariffs on goods produced in China, which could hit Chinese exports.

Equities: Global equities were higher yesterday with notable sectoral differences. Large-cap cyclical growth, particularly in consumer discretionary and communications services, registered markedly higher, while the majority of sectors, led by defensives, were lower. This divergence was also evident in the US indices' performance yesterday, with the Dow losing 0.2% and Nasdaq gaining 1.8%. We have discussed this phenomenon previously, but it bears repeating: This is a classic late-cycle scenario in which investors continue to chase the winners and abandon the losers, leading to a widening spread in relative valuations. In the US yesterday, the Dow registered a decrease of 0.2%, the S&P 500 increased by 0.8%, the Nasdaq rose by 1.8%, and the Russell 2000 saw a gain of 0.5%. Most Asian markets are higher this morning, and the same is true for European futures. US futures on major indices are all lower this morning.

FI: A waiting-for-today's-ECB trading session ended with very little volatility yesterday. German yields traded in a narrow 2bp range through the day across all maturities. The Bank of Canada's decision to cut 50bp was widely anticipated and thus did not inject volatility either. Bank of Canada left out the guidance of further cuts if their baseline outlook materialised. Markets are pricing 26bp for today's ECB meeting and a cumulative 155bp by end of next year.

FX: The market reaction to the in-line US November CPI print was modestly dovish. Front-end US yields initially edged lower following the release but later reversed higher. The USD strengthened broadly across the G10 space. The CAD outperformed in G10, supported by a hawkish 50bp BoC rate cut. EUR/USD declined to around 1.05. In the Scandi space, both NOK and SEK gained against the EUR, with EUR/NOK dropping to around 11.70 and EUR/SEK to just above 11.50. Meanwhile, EUR/GBP continued its downward trend, breaking below 0.8250 for the first time since early 2022. EUR/DKK is trading slightly on the strong side of the central parity ahead of today's ECB meeting. Elsewhere, oil prices have rebounded modestly this week. The market reaction to the in-line US November CPI print was modestly dovish. Front-end US yields initially edged lower following the release but later reversed higher. The USD strengthened broadly across the G10 space. The CAD outperformed in G10, supported by a hawkish 50bp BoC rate cut. EUR/USD declined to around 1.05. In the Scandi space, both NOK and SEK gained against the EUR, with EUR/NOK dropping to around 11.70 and EUR/SEK to just above 11.50. Meanwhile, EUR/GBP continued its downward trend, breaking below 0.8250 for the first time since early 2022. EUR/DKK is trading slightly on the strong side of the central parity ahead of today's ECB meeting. Elsewhere, oil prices have rebounded modestly this week.

Today’s focus is firmly on the monetary policy decisions from SNB and ECB, with markets eager to gauge not just the magnitude of the expected rate cuts but also the tone of their forward guidance. Both central banks are expected to ease, but the precise depth of the cuts and their outlook on future policy will drive market reactions.

SNB is widely anticipated to cut its policy rate by 25bps 1.00% to 0.75%. However, speculation of a more aggressive 50bps cut persists, with financial market pricing increasingly leaning toward this scenario.

SNB has considerable room to maneuver, given Switzerland’s inflation rate of just 0.7%—the lowest among major economies. However, with rates already close to zero, SNB must balance immediate economic support with preserving policy ammunition for the future.

After all, today’s move will not mark the end of the easing cycle of SNB, as economists project further reductions through 2025, driving the policy rate to 0.25% or even zero by the end of next year.

For ECB, the debate has also revolved around the scale of its next move. Recent speculation about a 50bps cut has largely been dismissed following comments from ECB officials, leaving a 25bps reduction in the Deposit Rate to 3.00% as the more probable outcome.

However, market participants are paying close attention to the tone of ECB’s statement and press conference. With inflation expected to settle earlier at target by mid-2025 amid weak economic activity, ECB would signal explicitly the need for sustained easing into next year.

Investors currently expect a cut at every meeting until mid-2025, with the Deposit Rate potentially reaching 1.75% by year-end. However, such an aggressive pace could bring rates below the neutral level.

In terms of market impact, EUR/CHF is the currency pair to watch. Outlook is clearly bearish with EUR/CHF staying well below falling 55 D EMA. However, in case of another dive, 0.9209 key support might continue to provide support for a bounce a second time, barring any drastic surprises. Meanwhile, there would be no clear confirmation of bullish reversal until decisive break of 55 D EMA (now at 0.9362).

Australia’s labor market showed surprising resilience in November as employment grew by 35.6k, surpassing expectations of a 29.6k increase. The standout figure was the 52.6k gain in full-time jobs, offsetting a decline of -17k in part-time positions.

Unemployment rate fell significantly, dropping from 4.1% to 3.9%, well below the anticipated 4.2%. However, a slight dip in the participation rate, from a record high of 67.1% to 67.0%, tempered the optimism.

Employment-to-population ratio nudged up to 64.4%, matching levels from a year ago and maintaining its position 2.2% above pre-pandemic levels. Monthly hours worked showed no growth, indicating stability in workforce activity despite the overall gains in employment.

David Taylor, Head of Labour Statistics at the ABS, noted that an unusually high number of unemployed individuals transitioned into employment during November. This dynamic contributed to both the rise in job creation and the sharp fall in unemployment. Taylor also highlighted the role of population growth, which has bolstered labor supply and helped maintain the balance between employment growth and demographic expansion.

Full Australia employment release here.

Key Highlights

• Ethereum is eyeing a key upside break above the $4,000 resistance zone.
• ETH price is facing hurdles near a contracting triangle with resistance near $3,950 on the daily chart.
• Bitcoin price started a decent increase above $98,000 after a short-term downside correction.
• Gold prices extended gains and traded above the $2,700 zone.

Ethereum Technical Analysis

Ethereum started a fresh increase above $3,620 alongside Bitcoin. The bulls were able to pump ETH above the $2,650 and $2,720 resistance levels.

Looking at the daily chart, the price remained well above the 100-day simple moving average (red) and the 200-day simple moving average (green). There was a move above the 50% Fib retracement level of the downward move from the $4,092 swing high to the $3,475 low.

The price is now approaching a couple of key barriers. Immediate resistance is near a contracting triangle with resistance near $3,950 on the daily chart.

The triangle resistance is close to the 76.4% Fib retracement level of the downward move from the $4,092 swing high to the $3,475 low. The next major resistance is near the $4,000 level. A daily close above the $4,000 resistance zone could start another steady increase.

In the stated case, the price may perhaps rise toward the $4,200 level. The next stop for the bulls may perhaps be to a new all-time high.

On the downside, Ethereum might find support near the $3,580 level. The next major support is $3,500, below which the price could slide toward $3,475. Any more losses might call for a move toward the $3,200 level.

Looking at Bitcoin, there was a steady increase above the $98,000 level, and the price might continue to rise toward the $104,000 level.

Economic Releases

• US Initial Jobless Claims - Forecast 220K, versus 224K previous.
• US Producer Price Index for Nov 2024 (MoM) – Forecast +0.2%, versus +0.2% previous.
• US Producer Price Index for Nov 2024 (YoY) – Forecast +3.2%, versus +3.1% previous.

• ECB will meet on Thursday; markets expect a 25bps rate cut
• Doves are likely to push for a more aggressive rate cut
• President Lagarde’s negotiating skills will be put to the test
• The euro could suffer from a 50bps cut; muted impact likely from a smaller move

ECB will meet on Thursday

The ECB will hold its final meeting for 2024 on Thursday, one week before the Fed. Since the previous ECB gathering on October 17, several developments have occurred both domestically and externally.

The political turmoil continues in the eurozone’s two biggest economies. French President Macron remains under pressure to find a new PM and get the 2025 budget approved, and the German campaign for the February general election is fully underway. Meanwhile, President-elect Trump, in anticipation of his White House return on January 20, has already announced tariffs on the closest trade partners of the United States. Additionally, a regime change in Syria and a ceasefire in Lebanon have been added to the numerous changes on the geopolitical landscape.

Amidst these developments, the eurozone economy continues to experience a very soft patch with the PMI surveys painting a rather bleak picture. Considering the political situation, the burden once again falls on the ECB to keep the eurozone economy moving forward.

Four market moving factors on Thursday

Focusing on Thursday’s ECB meeting, there are four factors that could probably prove market moving. The size of the rate cut, the press statement, President Lagarde’s press conference, and the quarterly staff forecasts could increase the subdued volatility seen in euro/dollar over the past week.

In more detail, leading up to the ECB meeting, market expectations fluctuated between 25bps and 50bps rate cuts. Inflation has proven stickier than anticipated, with services inflation edging only a tad lower in November to 3.9%. Both rate cut options have merit, with the doves pushing for a stronger move ahead of Trump’s second term and highlighting the eurozone economy’s need for extra accommodation.

The December staff forecast could point to the future path of ECB rates, with the market focusing on any downward revisions to the 2026 inflation figures. In September, the headline and core inflation forecast for 2026 were kept stable at 1.9% and 2% respectively, thus keeping the door open to further rate cuts. Interestingly, the 2027 figure will be printed for the first time, with the market keen to see how far below the 2% target this forecast could fall. Similarly, another downward revision to growth rates for both 2025 and 2026 could play a role in the discussion about the size of the rate cut.

Additionally, the press statement and, more importantly, Lagarde’s rhetoric at the Q&A session could reveal the thinking process behind Thursday’s decision. A unanimous rate decision could be seen as a personal success for Lagarde, especially since the doves are really worried about Trump’s trade strategy.

Finally, the ECB has adopted a voting pattern in the past few years. Interestingly, on December 12 three hawks, including uber-hawks Nagel and Wunsch, will not have a vote, making Thursday’s gathering one of the most dovish meetings of 2024.

Two main scenarios for the ECB meeting

Putting everything together, investors are faced with two main scenarios:

Scenario 1: The ECB announces a 25bps rate cut, maintains dovish rhetoric and signals its readiness for more aggressive actions if incoming President Trump kicks off a new trade war. The doves will be moderately pleased, with the euro suffering just a tad. The initial disappointment from the lack of a more aggressive rate cut could cause a small upleg against the US dollar, but the move will most likely quickly reverse as President Lagarde holds the press conference.

Scenario 2: Concerned about the underlying economic conditions and the increased possibility of tariffs imposed by Trump on eurozone products, the ECB cuts rates by 50bps and adopts an even more dovish stance. Boosted by the quarterly forecasts showing inflation in both 2026 and 2027 comfortably below 2%, Lagarde comments that the rate cuts will continue, with the ECB deposit rate potentially being pushed well below the neutral rate in 2025.

In this scenario, the euro will probably suffer across the board, with euro/dollar dropping like a stone below the 1.0481-1.0571 range and potentially retesting the 1.0315 level.

• GBPCAD reversed from strong resistance zone
• Likely to fall to support level 1.8000

GBPCAD currency pair recently reversed down from the strong resistance zone located at the intersection of the upper daily Bollinger Band and the key resistance level 1.8100, which has been reversing the pair from September.

The downward reversal from this resistance zone stopped the C-wave of the previous ABC correction (B) from the end of November.

Given the strength of the resistance level 1.8100, GBPCAD currency pair can be expected to correct down to the next round support level 1.8000.

• EURUSD reversed from resistance zone
• Likely to fall to support level 1.0450

EURUSD currency pair recently reversed down with the long-legged Doji from the resistance area between the upper daily Bollinger Band, pivotal resistance level 1.0610 (former multi-month support from April) and the 50% Fibonacci correction of the downward impulse from the start of November.

The downward reversal from this resistance zone started the active minor downward impulse wave 3.

Given the strength of the aforementioned resistance area and the clear daily downtrend, EURUSD currency pair can be expected to fall further to the next support level 1.0450 (low of the earlier minor correction b).

• EURGBP posts another lower low
• Bearish sentiment endorsed by technical oscillators

EURGBP plunged to a new 33-month low of 0.8233 earlier today, creating a lower low in the medium-term outlook and endorsing the strong negative tendency. The momentum oscillators mirror the latest bearish move with the RSI diving towards the 30 level and the MACD strengthening its bearish steam below its trigger and zero lines.

More downside pressure could send traders to the 0.8200 round number, which is the low from March 2022, while below that the inside swing high from March 2016 at 0.8130 could prove to be a turning point barrier.

In the case of a rebound from the latest trough, immediate resistance could be the 0.8260 mark ahead of the 0.8300 handle. Even higher, the 20- and 50-day simple moving averages (SMAs) at 0.8307 and 0.8330 may pause the short-term increase.

All in all, EURGBP has been experiencing an aggressive selling interest since August, and a break above the descending trend line might not be enough to switch the current outlook to positive.