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Gold price is as solid as it can be, thanks to the risk-off trade which is only picking up more momentum. With the ongoing weakness in the dollar index, I think it is highly likely that the gold may touch the level of 1265 or even 1270 by the end of this week.

The new catalyst behind this move would be the upcoming US GDP data and the US core durable good number. The expectations are that the US GDP q/q number will print the same reading as the last quarter which was 3.5%. And the US core durable good order data is expected to come more robust, the forecast is for 0.3% while the previous number was 0.2%. Any weakness in these numbers is likely to push the price of gold higher.

Another factor which is also going to support the risk off trade is the ongoing situation about the US government shutdown. The House has backed president Trump in partial shut down of the government unless President Trump gets the funds for this proposed border wall. A partial government shutdown or the full government shut down, both of them are going to create an undesirable environment for investors and equity traders are likely going to push the markets lower.

Renewed U.S-China tensions have already made the uncertainty clouds darker and it appears that the negative narrative is here to stay. Hence, it is likely that the current weakness in the market will continue into next year. Of course, this could all change, if the Fed changes their stance towards their monetary policy, after all, the hawkish monetary policy is one the significant factor which has created the chaos in the equity markets.

Crude and Brent both are up today but still down nearly 10 percent for this week. In fact, the crude price is set to record its worst quarterly fall in four years and this is despite the fact that OPEC pledged to cut production. Of course, the issue is with the higher US stockpiles and the US production and OPEC has no control over that. On top of that, we have feeble global economic growth and chances of minor recession over in the US are also surfacing. Under these scenarios, the oil glut becomes a massive issue for the oil traders. In order to control this glut, we need new measures, this should include the US.

In terms of technical analysis, I think it is likely that the price may start to consolidate at its current levels. The bigger support is at $45 and the resistance is at 50.

As for the crypto market, the Santa rally is here and it is building its momentum. The Bitcoin price is still above the critical level of 4K and as long as we stay above this, it would send a strong bull signal for the market. Going into 2019, fundamental are likely to work in favour of Bitcoin and the Bitcoin ETF is only a matter of time. I expect this to happen in Q1. The stable coin industry could become even bigger as there are reports that Facebook is planning its stable coin, this would be the best use of case of blockchain technology and it would only encourage other market leaders to follow this.

• Fed's dot plot indicates two rates hike next year, down from three
• Bank of England to hold rates steady amid Brexit drama
• EU and Italy find common ground on budget plan

Fed not as dovish as expected

Shares in the US and Asia tumbled after the Federal Open Market Committee (FOMC) raised interest rates by a quarter point to 2.25-2.5% in a widely expected decision and hinted further tightening next year despite the hazards in global economic conditions. The central bank little changed its projections for 2019, downgrading growth to 2.3% and inflation to 1.9%, but investors, who were anticipating the worst from the Fed – from no hike to just one versus three displayed in September's dot plot chart– were surprised to see that policymakers are still aiming for two rate hikes in 2019, with the Fed chief Jerome Powell saying at his press conference that the US economy performed satisfactorily this year and hence policy no longer needed to be accommodative.

Markets though did not seem much convinced about whether the Fed could keep course on its agenda, driving dollar/yen down by 0.52% on Thursday to near two-month lows, while the safe-haven gold was gaining 0.36% on the day after hitting five-month highs on Wednesday. This was interpreted as a sign that investors could turn more vulnerable to upcoming data releases, which could potentially affect rate hike prospects. Headlines that People's Bank of China launched a new tool on Wednesday to boost lending to small and private companies amid a slowing economy and trade restrictions from Washington provided little support to market sentiment.

In contrast to the Fed, the Bank of Japan, which held its policy meeting a few hours later, kept borrowing costs unchanged and reiterated that current stimulus will be maintained for an extended period of time.

Bank of England next to decide on rates

The Bank of England will be next in line to decide on monetary policy on Thursday at 1200 GMT but analysts are certain that policymakers will judge it wise to stand pat on rates as far as Brexit remains unsolved. While the UK Prime Minister, Theresa May, has survived a leadership challenge last week, she still needs to achieve assurances from the EU over the Irish backstop issue and win the support of British MPs before the exit date in March. Yet with both sides preparing strategy plans for a no-deal Brexit it seems that the EU is not willing to soften its stance by allowing changes to the withdrawal agreeement agreed with the UK PM even if the majority of British lawmakers are against it.

On Wednesday, May announced that the delayed Brexit vote in the Parliament will be rescheduled in the week beggining January 14.

Meanwhile in FX markets, cable is trading higher by 0.34% so far in the day, benefitting on the back of a weaker dollar. While the BoE meeting is not expected to affect much the pound as no press conference or a new quarterly inflation report are scheduled to be delivered today, a more cautious outlook in the rate statement may pressure the currency. Yet retail sales numbers out of the UK at 0930 GMT could spur some volatility to the market.

Italy avoids EU sanctions

On Wednesday, the Italian Prime Minister, Giuseppe Conte, revealed that the government reached a compromise with the EU to reduce the deficit target to 2.04% of GDP in 2019 from 2.4% proposed previously, without dramatic changes in key budget components. Although the agreement is not the ideal one according to the European Commission, it protects Italy from disciplinary procedures. Yet the European Commission's Vice President Valdis Dombrovskis argued that the composition of the spending plan is still a concern and could result in higher costs in coming years once implemented.

The euro was among the best performers today, changing hands higher by 0.47% against the greenback.

Other highlights

The loonie hit 20-month lows yesterday versus the dollar and remained around that troughs on Thursday as the sharp sell-off in oil markets continued, with WTI crude and the London-based Brent diving by more than 2.5% on Thursday on oversupply concerns and as stock markets melted again. Moreover, the headline CPI figure for the month of November eased to the lowest in 10 months on a yearly basis, while the core measures also appeared weaker, suggesting that the Bank of Canada might not be in a hurry to lift rates.

Cable stands at the front foot and attacks again falling 20SMA (1.2686) which so far capped several attempts in past few sessions.

Pound maintains positive tone, despite cautious tone from the BoE regarding significantly intensifying uncertainty over Brexit.

Strengthening momentum on daily chart underpins, but repeated rejections at 1.2700 zone in past three days that left daily candles with long upper shadows, along with overall negative setup of daily studies, warn of stall.

Markets are awaiting release of UK data today for fresh signals, with trade gap forecasted to widen in Q3 (-21.7B f/c vs -20.3B in Q2) while UK GDP is expected to remain unchanged in Q3 (1.5% y/y / 0.3% q/q).

Softer than expected numbers could hurt pound and increase risk of pullback.

Bullish scenario requires sustained break above 20SMA to generate initial positive signal, with extension and close above pivot at 1.2743 (Fibo 38.2% of 1.3174/1.2476) needed to confirm and signal further recovery.

Res: 1.2707, 1.2743, 1.2760, 1.2810
Sup: 1.2643, 1.2609, 1.2564, 1.2528

Markets

Global core bond were mixed yesterday in the wake of the (from a markets perspective) disappointing Fed policy decision. European equities tried to limit losses, but eventually closed 1%-2% lower. German Bunds edged higher on safe haven flows. The German yield curve flattened with changes varying between -2.7 bps (30-yr) and +0.5 bps (2-yr). Risk sentiment deteriorated even more as the US joined trading. US President Trump revived the risk of a government shutdown, the US/UK accused China again of cyber espionage and oil prices are falling even more. US Treasuries edged lower in a reaction to the possible shutdown, hinting that investors are starting to price in some kind of risk-premium. The US yield curve bear steepened with changes in the range of +2.5 bps (2-yr) to +6.8 bps (30-yr). Today's risk sentiment will be tilted to the downside as there are too many negative wildcards in play, especially in times of (global) growth concerns. We notice a declining appetite for core bonds today at openings, despite the risk-off continuing in Asia this morning. Chinese and Japanese indices are underperforming. Today's eco calendar is richly filled (see headline below), but will remain secondary to investor sentiment.

Yesterday, the USD was trend downward. The ‘dovish Fed rate hike' temporary supported the USD, but the move lacked conviction. Ongoing doubts on the Fed rate strategy going forward gradually put the US dollar again under pressure. The risk-off sentiment and lower oil prices this time didn't help the dollar. The risk of a US government shutdown also weighed on the US currency even as US yields went a few bp higher late in US dealings. This morning, risk sentiment in Asia remains fragile. The trade-weighted dollar stabilizes in the mid 96 area after yesterday's setback. EUR/USD hovers in the mid 1.14 area. Later today, there are mainly second tier eco data in Europe. The eco calendar in the US is well filled with the Final Q3 GDP release, durable goods orders, personal income and spending. In the wake of Wednesday's Fed decision, markets will scrutinize activity data and the PCE price deflators are interesting, too. We see some asymmetrical risk for the US currency, with the dollar being more sensitive to negative than to positive eco news. Headlines on the US government shutdown are a wildcard. Yesterday, EUR/USD already came within reach of the 1.15 resistance. A new test is possible. Market liquidity will dry up over the next days. We maintain the working hypotheses that the 1.1621 resistance will hold for now. That said, market unease/uncertainty with the Fed strategy going forward is not positive for the dollar. In this respect, it also not that sure that the dollar will profit from higher US yields if this is due to the market pricing some kind of US risk premium.

Yesterday, EUR/GBP mainly followed the EUR/USD rebound despite stronger than expected UK retail sales. The BOE as expected left is policy rate unchanged but warned on potential growth risk due to Brexit related uncertainty. EUR/GBP closed the session at 0.9043. Today, the UK budget data are probably of second tier importance for sterling trading. The Brexit headlines might become a bit less prominent as UK politicians are taking their end of year recess. Even so, we don't see a trigger for any meaningful sterling rebound anytime soon. The EUR/GBP 0.91 area is the next important EUR/GBP resistance and might be retested in thin market liquidity conditions.

News Headlines

US President Trump has said he will reject a short-term funding bill that the Senate had passed to avoid a potential US government shutdown. Trump won't back the bill unless $5bn in funding is approved to build a wall along the US-Mexico border.

US and UK authorities have accused China of a worldwide campaign of cyber attacks against the US, the UK and other allies. The US justice department charged two Chinese nationals with conducting several attacks on behalf of the Chinese intelligence service. The Chinese government has denied any involvement in an official statement.

Today's eco calendar is richly filled. In the US, inflation data and durable goods orders for November are published. Canada releases its October GDP results and Consumer Confidence for the EMU is printed.

Pivot (invalidation): 47.20

Our preference Short positions below 47.20 with targets at 45.65 & 44.70 in extension.

Alternative scenario Above 47.20 look for further upside with 47.80 & 48.35 as targets.

Comment As Long as 47.20 is resistance, expect a return to 45.65.

Pivot (invalidation): 14.6800

Our preference Long positions above 14.6800 with targets at 14.8400 & 14.8900 in extension.

Alternative scenario Below 14.6800 look for further downside with 14.6200 & 14.5300 as targets.

Comment Even though a continuation of the consolidation cannot be ruled out, its extent should be limited.

Pivot (invalidation): 1255.00

Our preference Long positions above 1255.00 with targets at 1266.50 & 1272.00 in extension.

Alternative scenario Below 1255.00 look for further downside with 1251.00 & 1246.00 as targets.

Comment The RSI lacks downward momentum.

Pivot (invalidation): 2530.00

Our preference Short positions below 2530.00 with targets at 2420.00 & 2375.00 in extension.

Alternative scenario Above 2530.00 look for further upside with 2575.00 & 2608.00 as targets.

Comment The RSI is bearish and calls for further decline.

Pivot (invalidation): 10700.00

Our preference Short positions below 10700.00 with targets at 10560.00 & 10490.00 in extension.

Alternative scenario Above 10700.00 look for further upside with 10770.00 & 10850.00 as targets.

Comment The RSI is mixed.

Pivot (invalidation): 5.2820

Our preference Short positions below 5.2820 with targets at 5.2400 & 5.2180 in extension.

Alternative scenario Above 5.2820 look for further upside with 5.3210 & 5.3560 as targets.

Comment The upward potential is likely to be limited by the resistance at 5.2820.