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German Ifo Business Climate Index declined to 84.7 in December, missing expectations of 85.6 and falling from 85.7 in November. This drop highlights persistent economic challenges in Europe’s largest economy, with sentiment continuing to slide amid growing uncertainty. While Current Assessment Index surprised to the upside, rising to 85.1 (above forecasts of 84.0), Expectations Index fell sharply fro 87.0 to 84.4, undershooting the anticipated 87.5.

Sectoral data painted a concerning picture. Sentiment in manufacturing dropped further, from -22.0 to -24.8. Services sector weakened from -3.5 to -5.6. Trade saw a sharper decline from -26.6 to -29.5. Meanwhile, the only bright spot came from construction, where sentiment improved from -29.0 to -26.1, though it remains firmly in negative territory.

The Ifo Institute underscored the gravity of the situation, warning that “the weakness of the German economy has become chronic.”

Full German Ifo release here.

The EUR/USD pair is trading neutrally around 1.0510 as market participants adopt a cautious stance ahead of the Federal Reserve's upcoming decision on interest rates. With the December meeting set to begin tonight and conclude tomorrow, all eyes are on the potential rate adjustment. The prevailing expectation is a 25 basis point cut, with a 94% probability factored by market consensus. Additionally, there's a 37% chance that this might be the only cut or that rates might not change at all in 2025, contributing to the current market apprehension.

As inflation concerns loom for 2025, influenced by uncertain policy decisions and economic stimulation measures, the Fed is expected to adopt a more cautious tone in its communications. This approach is aimed at providing the flexibility to respond effectively to economic indicators as they evolve.

Today, the market is also focused on the release of November's retail sales and industrial production data from the US. These indicators are crucial for assessing the current state of the US economy and could influence the Fed's policy direction.

Technical analysis of EUR/USD

H4 chart: the EUR/USD has recently completed a correction wave at 1.0533 and appears poised for a downward movement towards 1.0420. Following the achievement of this target, a corrective move to 1.0475 is expected. Post-correction, another decline towards 1.0340 may commence. The MACD indicator supports this bearish outlook, with its signal line below zero and trending downwards, suggesting further declines.

H1 chart: on the H1 chart, the pair has retraced from 1.0533 and initiated a downward wave targeting 1.0485. Upon reaching this level, the formation of a consolidation range is anticipated. A breakout below this range could lead to a continued descent towards 1.0440 and potentially extend to 1.0420. The Stochastic oscillator corroborates this scenario, with its signal line currently below 50 and expected to drop further towards 20, indicating a continuation of the bearish momentum.

Daily Pivots: (S1) 194.18; (P) 195.03; (R1) 196.41; More...

GBP/JPY's rebound from 188.07 resumed by breaking through 194.98 and intraday bias is back on the upside. Corrective pattern from 180.00 could be extending with another rising level. Further rise should be seen to 199.79 resistance. On the downside, break of 192.84 minor support will turn bias back to the downside for 188.07 instead.

In the bigger picture, price actions from 208.09 are seen as a correction to whole rally from 123.94 (2020 low). The range of consolidation should be set between 38.2% retracement of 123.94 to 208.09 at 175.94 and 208.09. However, decisive break of 175.94 will argue that deeper correction is underway.

Daily Pivots: (S1) 161.40; (P) 161.80; (R1) 162.47; More...

Intraday bias in EUR/JPY is turned neutral first with current retreat. Another rise is in favor as long as 159.09 support holds. Sideway pattern from 154.40 might still be in progress with another rising leg. Break of 162.46 will target 166.67 resistance. Nevertheless, break of 159.09 will bring retest of 156.16 instead.

In the bigger picture, price actions from 175.41 are seen as correction to rally from 114.42 (2020 low). The range of consolidation should have been set between 38.2% retracement of 114.42 to 175.41 at 152.11 and 175.41 high. However, decisive break of 152.11 would argue that deeper correction is underway.

Daily Pivots: (S1) 0.8265; (P) 0.8296; (R1) 0.8320; More...

EUR/GBP's deep decline today and break of 0.8290 minor support turned intraday bias back to the downside for retesting 0.8224. Firm break there will resume larger down trend to 0.8201 key support. On the upside, break of 0.8326 resistance will resume the rebound to 38.2% retracement of 0.8624 to 0.8224 at 0.8377.

In the bigger picture, focus is now on whether 0.8201 key support (2022 low) is strong enough to complete the whole down trend from 0.9267 (2022 high). In any case, medium term outlook will be neutral at best until decisive break of 0.8624 key resistance. Otherwise, risk will stay on the downside even in case of strong rebound.

Daily Pivots: (S1) 1.6476; (P) 1.6503; (R1) 1.6529; More...

Range trading continues in EUR/AUD and intraday bias remains neutral. On the upside, decisive break of 1.6598 resistance should confirm that whole fall from 1.7180 has complete with three waves down to 1.5963. Further rise should then be seen to retest 1.7180 next. Nevertheless, sustained break of 1.6359 will indicate rejection by 1.6598, and turn bias back to the downside.

In the bigger picture, EUR/AUD is holding on to 1.5996 key support despite brief breach. Larger up trend from 1.4281 (2022 low) is still in favor to resume through 1.7180 at a later stage. Nevertheless, sustained break of 1.5995 will indicate that such up trend has completed. Deeper decline would be seen to 61.8% retracement of 1.4281 to 1.7180 at 1.5388, even as a correction.

Daily Pivots: (S1) 0.9369; (P) 0.9386; (R1) 0.9422; More....

EUR/CHF's rally from 0.9204 continues today and intraday bias stays on the upside. Sustained trading above 100% projection of 0.9204 to 0.9343 from 0.9254 at 0.9393 will pave the way to 0.9444 resistance and then 161.8% projection at 0.9479. On the downside, below 0.9350 support will turn intraday bias neutral first. But further rally will remain in favor as long as 0.9254 support holds.

In the bigger picture, the break of 55 D EMA (now at 0.9359) suggests that a medium term bottom might be in place already. Strong rise could be seen 38.2% retracement of 0.9928 to 0.9204 at 0.9481. Reaction from there would reveal whether rebound from 0.9204 is merely a corrective rise, or reversing the down trend from 0.9928.

• USDCAD unlocks new 4-year high, poised for further gains
• Caution required as overbought signals detected
• US retail sales, Canadian CPI due at 13:30 GMT

USDCAD has been performing exceptionally well after forcefully breaking a symmetrical triangle on the upside.

The pair unlocked a four-and-a-half year high of 1.4279 earlier today, continuing to press toward the upper band of a bullish channel. The 1.4330-1.4365 area is now in sight as the US and Canadian CPI inflation data loom in the calendar. A break higher could propel the price toward the 1.4500 level, last seen in March 2020, unless the 1.4400 psychological mark caps the bullish action beforehand.

According to the RSI and the stochastic oscillator, the market is treading in overbought waters, and a slowdown might be imminent. Perhaps if the 1.4260 blocks the way up, forcing a close below 1.4200, the price may seek shelter within the 1.4075-1.4100 territory, where the 20-day exponential moving average (EMA) and the lower band of the two-month-old bullish channel are sitting. Failure to pivot there could confirm additional losses toward the 1.4000 level and the 50-day EMA.

All in all, USDCAD is in a clear bullish trend and may have some extra room for improvement before it takes a breather. Key resistance is located in the 1.4330-1.4360 range, while the 1.4200 level could offer support in the event of a pullback.

Daily Pivots: (S1) 1.0483; (P) 1.0504; (R1) 1.0533; More...

Intraday bias in EUR/USD stays neutral and outlook is unchanged. Corrective pattern from 1.0330 might extend further. But outlook will stay bearish as long as 55 D EMA (now at 1.0674) holds. On the downside, below 1.0452 will bring retest of 1.0330 low.

In the bigger picture, focus stays on 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404. Strong rebound from this level will keep price actions from 1.1273 (2023 high) as a medium term consolidation pattern only. However, sustained break of 1.0404 will raise the chance that whole up trend from 0.9534 has reversed. That would pave the way to 61.8% retracement at 1.0199 first. Firm break there will target 0.9534 low again.

Daily Pivots: (S1) 1.2630; (P) 1.2664; (R1) 1.2719; More...

Range trading continues in GBP/USD and intraday bias remains neutral. On the downside, break of 1.2615 minor support will indicate that corrective recovery from 1.2486 has completed. Retest of this low should be seen next, and break will target 1.2298 cluster support zone. Nevertheless, break of 1.2810 will turn bias to upside for stronger rebound.

In the bigger picture, price actions from 1.3433 medium term are seen as correcting whole up trend from 1.0351 (2022 low). Deeper decline could be seen to 38.2% retracement of 1.0351 to 1.3433 at 1.2256, which is close to 1.2298 structural support. But strong support is expected there to bring rebound to extend the corrective pattern.