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• EURUSD holds within tight range in near term
• MACD and RSI were below their mid-levels

EURUSD had another pullback off the lower boundary of the short-term trading range within 1.0450–1.0600, but the 20-day simple moving average (SMA) seems to be a tough obstacle to surpass.

Technically, the RSI indicator is pointing upwards below the neutral threshold of 50, while the MACD is holding above its trigger line beneath the zero level. Both confirm an upside retracement in the market.

If the pair successfully breaks above the immediate 20-day SMA line at 1.0520, it will retest the 1.0600 mark. A move above this region would be the green light for more increases until the 1.0665 resistance and the 50-day SMA at 1.0680. Further upward pressure could pave the way for the 200-day SMA at 1.0830.

On the other hand, a slide below the 1.0450 key level could lead to a retouch of the two-year low of 1.0330, ahead of the November 2022 low at 1.0220.

All in all, EURUSD has been developing within a consolidation area since mid-November, and the current risks are negative.

• The proposed policies of Trumponomics 2.0 may ignite a further uptick in inflationary expectations in the US.
• Market-transacted inflationary expectations gauge, the 5-year and 10-year US breakeven inflation rates have been trending higher since September 2024.
• The Fed may switch its current dovish monetary policy to a “wait and see” pivot stance on 18 December FOMC.
• Watch the US$2,716 key medium-term resistance on Gold (XAU/USD).

Since our last publication, the price actions of Gold (XAU/USD) have staged a minor bounce of 7% to revisit the prior minor swing of US$2,710 printed on 8 November twice; on 22 November and 11 December but failed to make a significant breakout above US$2,710.

The yellow metal traded lower last Friday, 13 December, and reintegrated below its 50-day moving average which suggests that the bulls are being subdued as we head into a key event this week; the US Federal Reserve monetary policy decision and the release of its latest economic projections (“dot plot”) this Wednesday, 18 December.

Market participants in the Fed funds futures market have already priced in with near certainty (97.1% chance based on the CME FedWatch tool as of 16 December) that the Fed will proceed to cut by 25 basis points (bps), its third cut to bring to Fed funds rate to 4.25-4.50%.

A less dovish Fed may be on the horizon next

Fig 1: 5-year & 10-year US breakeven inflation rates major trends as of 13 Dec 2024 (Source: TradingView, click to enlarge chart)

Market-transacted financial instruments have started to price in a further uptick in US inflationary expectations as derived from the movements of both the 5-year and 10-year US breakeven inflation rates that have been trending upwards since the start of the current Fed’s interest rate cut cycle on September 2024, to hover at 2.40% and 2.33% respectively as of 16 December 2024, above the Fed’s long-term inflation target of 2% (see Fig 1).

The primary catalyst for the current medium-term uptrend movements of the 5-year and 10-year US breakeven inflation rates have been triggered by the proposed policies of Trumponomics 2.0 that consist of deeper corporate tax cuts and higher trade tariffs imposed on US imports that will likely revive inflationary pressures in 2025, and beyond.

Based on the CME FedWatch tool as of 16 December 2024, market participants are expecting another two potential Fed funds rate cuts of 25 bps each in 2025 to bring the Fed funds rate to 3.75-4.00%, which is lesser than the last “dot plot” implied projection released on 18 September FOMC meeting that highlighted an approximate of four interest rate cuts of 25 bps each in 2025 (to bring the Fed funds rate to 3.4%) based on a median projection from Fed officials.

Bullish reversal in 10-year US Treasury real yield

Fig 2: 10-year US Treasury real yield medium-term & major trends as of 13 Dec 2024 (Source: TradingView, click to enlarge chart)

Last week, the 10-year US Treasury real yield staged a significant V-shaped rebound of 16 bps after a retest on its key medium-term support at the 1.90% level on Monday, 9 December.

A potential further push up towards the 2.29% medium-term resistance will increase the opportunity cost of holding Gold (XAU/USD), and eventually cap its bullish strength at least in the short to medium-term horizon (see Fig 2).

An important point to note is that the major uptrend phase of Gold (XAU/USD) in place since October 2023 remains intact. Also, it is likely to be supported by the longer-term effects of higher trade tariffs component of Trumponomics 2.0 which may lead to a further escalation of deglobalization that can trigger headwinds to global economic growth where Gold (XAU/USD) may see higher demand due to its defensive hedging element.

Watch the US$2,716 key medium-term resistance on Gold (XAU/USD)

Fig 3: Gold (XAU/USD) medium-term & major trends as of 16 Dec 2024 (Source: TradingView, click to enlarge chart)

Since its recent current all-time high of US$2,716 printed on 31 October, the price actions of Gold (XAU/USD) have started to oscillate in consolidation configuration with a lingering risk of facing a multi-week corrective decline to retest its key 200-day moving average within its major uptrend phase in place since 6 October 2023.

A break below the US$2,537 first medium-term support may reinforce the corrective decline sequence to expose the next medium-term support zone of US$2,484/415. It is also a potential inflection zone to kickstart another potential bullish impulsive sequence for Gold (XAU/USD) (see Fig 3).

On the other hand, a clearance above US$2,716 invalidates the corrective decline bearish scenario to revive the bulls towards the next medium-term resistance zone of US$2,850/886 in the first step.

The British pound has moved higher on Monday, after declining 1% last week. In the European session, GBP/USD is trading at 1.2747, up 0.30% on the day.

UK Services improves, manufacturing slips

The UK Services PMI rose to 51.4 in December, up from 50.8 in November, which was a 13-month low. This beat the market estimate of 51.0, but points to weak business activity as demand for UK exports has been weak and confidence among services providers remains subdued.

UK manufacturing is mired in a depression, and the PMI fell to 47.3 in December, down from 48.0 in November and shy of the market estimate of 48.2. This marked the lowest level in eleven months, as production and new orders showed an accelerated decrease.

The weak PMI data followed Friday’s GDP report, which showed a 0.1% decline for a second straight month in October. This missed the market estimate of 0.1%. GDP rose just 0.1% in the three months to October.

The UK releases employment and wage growth numbers on Tuesday. The economy is projected to have lost 12 thousand jobs in the three months to October, after a sparking 200 thousand gain in the previous report. Wages including bonuses is expected to climb to 5% from 4.8%.

The Bank of England meets on Thursday and is expected to hold the cash rate at 4.75% after cutting rates by 25 basis points in November. The economy could use another rate cut but inflation remains a risk to upside, with CPI climbing in October to 2.3% from 1.7%. The BoE will be keeping a close eye on wage growth, which has been a driver of inflation.

The US releases PMIs later today. Manufacturing remained in contraction territory in November at an upwardly revised 49.7 and there is optimism that the new Trump administration’s protectionist stance could benefit US manufacturers.

The services sector is in good shape and improved in November to 56.1, up from 55.0 in October. The uncertainty ahead of the US election is over and lower interest rates have contributed to stronger expansion in services.

GBP/USD Technical

• GBP/USD is testing resistance at 1.2638. The next resistance line is 1.2668
• 1.2592 and 1.2562 are the next support levels

Market Picture

The cryptocurrency market hit record highs in terms of capitalisation, reaching $3.73 trillion at the start of active Asian trading and is sitting at $3.71 trillion at the time of writing. The market digested the overhang of pending selling in Bitcoin near psychologically important levels and continued to move higher.

Bitcoin gained about 3% over the past day, slightly outperforming the broader market. The move into all-time high territory, including this morning’s push above $106K, confirms the bullish bias. This is especially important after a three-week consolidation near the $100K level. An acceleration in growth is now likely if unexpected news from the traditional financial markets doesn’t stop this rally.

Ethereum is struggling at the $4000 level after quickly recovering from a 15% drop ten days ago. The second largest cryptocurrency has a high chance of overcoming resistance at the round level and coming close to updating all-time highs at $4800.

News Background

According to cryptocurrency bank Signum, every $1 billion inflow into the BTC ETF pushes Bitcoin up by 3-6%. Growing institutional interest in the asset sets the stage for a “demand shock” in 2025.

Texas has proposed creating a Bitcoin reserve, and other US states are working on similar proposals. According to the Satoshi Action Fund, at least ten states plan to introduce strategic Bitcoin reserve legislation.

According to a JPMorgan report, publicly traded mining companies have begun implementing a MicroStrategy-style strategy to acquire bitcoins for their balance sheets. The companies are issuing bonds and stocks to fund operating costs and forgoing the sale of mined coins.

MicroStrategy shares will be included in the Nasdaq 100 stock index starting 23 December. That means equity ETFs, including the popular $325 billion Invesco QQQ trust, will automatically start buying them.

Avalanche raised $250 million in a closed token sale ahead of the Avalanche9000 upgrade scheduled for 16 December.

According to a survey conducted by crypto exchange Kraken, 73% of respondents plan to continue investing in crypto assets in 2025. Only 8% of respondents agree that cryptocurrencies are like a financial pyramid scheme.

The USD/JPY pair climbed to 153.77 on Monday, reaching a three-week high. This movement reflects growing investor sentiment that the Bank of Japan (BoJ) will maintain its current interest rate level and continue its pause on monetary policy tightening at this week's meeting. Recent statements from the BoJ have indicated a need for more evidence to substantiate wage increases before considering rate changes.

Expectations of a BoJ rate hike had previously supported the yen, mitigating external pressures. However, confidence in the BoJ's commitment to tightening seems to wane as time progresses.

Despite this, Japan's domestic economic indicators appear positive. October's primary machinery and equipment orders surpassed expectations, and recent reports have shown improvement in both manufacturing and service sector activity in December.

BoJ policymakers are increasingly unconcerned about the weakening yen's potential to accelerate inflation, which is already at desirable levels. However, further yen depreciation could push inflation higher, a scenario that remains on the central bank's radar.

Technical analysis of USD/JPY

H4 chart: USD/JPY has established a consolidation range around the 151.51 level, from which it has continued its upward trajectory. The pair recently touched 153.93, and current technical setups suggest a potential consolidation below this peak. Should the price break downward, a corrective movement to retest 151.51 is possible, followed by another potential rise towards 154.40. The MACD indicator supports this view, with its signal line well above zero but indicating readiness for a downward correction.

H1 chart: The shorter-term H1 chart shows the USD/JPY forming a growth structure aimed at 154.40. After completing a consolidation around 152.70 and achieving a local high at 153.93, a correction back to at least 152.70 is anticipated. Following this correction, the market may initiate a new growth phase targeting 154.40. The Stochastic oscillator aligns with this analysis. It is currently positioned below 80 and poised to move down towards 20, suggesting an impending correction before further upward movement.

ECB President Christine Lagarde's speech today marked a departure from previous guidance shaped by high inflation and significant uncertainty.

Lagarde highlighted that the earlier approach, which aimed to maintain restrictive rates “for as long as necessary,” is no longer aligned with the ECB’s evolving outlook for inflation and risk balance.

However, with "disinflation process well on track" and growth risks becoming more pronounced, ECB now aims for an "appropriate" policy approach.

She reiterated that if data continues to confirm their expectations, ECB expects to lower rates further.

Full speech of ECB's Lagarde here.

Analysing Bitcoin's price on 6th December, we:

→ noted that more likely Trump’s victory in the presidential election and his plans to create a strategic reserve dedicated to Bitcoin were the primary driver of BTC/USD’s growth in November.

→ Identified two ascending channels (highlighted in blue and orange) that mapped the fluctuations within the upward trend, which pushed Bitcoin’s price to $100,000.

Over the weekend, President-elect Trump confirmed his intention to establish a strategic reserve dedicated to Bitcoin, propelling Bitcoin’s price to a new all-time high above $106,000.

Meanwhile, a technical analysis of the BTC/USD 4-hour chart reveals:

→ The price reached the upper boundary of the orange channel, which acted as resistance. The candle’s upper wick suggests potential selling pressure, indicating that major market participants might be taking advantage of the price surge to lock in returns.

→ Narrow-range fluctuations (marked with a blue oval) may indicate the position of the blue channel’s median line, while the RSI indicator is in an overbought zone.

Given these observations, we could suggest that the market is in a vulnerable position for a pullback — possibly toward the blue median line, where Bitcoin’s price might be more balanced for both buyers and sellers.

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• Gold falls below $2,700 after double top
• Maintains neutrality within $2,540-$2,720

Gold came under renewed selling pressure after the bulls ran out of fuel marginally above the previous lower high of $2,721, unable to initiate a clear bullish reversal.

Volatility was low during Monday’s early European trading hours, with the price being squeezed between the 20-day simple moving average (SMA) at $2,655 and the short-term support trendline from November’s low near $2,643.

With the stochastic oscillator sloping downwards and the RSI struggling to move above 50, there is little optimism for a meaningful rally. A close below $2,645 could prompt fresh selling toward the $2,600 round-level, a break of which may further dampen market sentiment, causing a drop to $2,540-$2,560. Additional declines from there would put the price back in a bearish path in the short-term picture, shifting the focus to the $2,480 area.

For the bulls to keep buying interest alive, they should first reclaim the $2,680 area and then sustainably run above the $2,720 wall. If the $2,750 barrier gives the green light, the price may surpass its record high of $2,789 with scope to mark a new higher high, probably near $2,840.

In summary, the recent pullback in the precious metal kept the neutral market structure intact. This might be an opportunity for traders to exercise their patience. A move above $2,720-$2,750 or below $2,540 is required to provide the next direction in the market.

UK PMI Manufacturing PMI slipped from 48.0 to 47.3, an 11-month low. Services PMI improved from 50.4 to 51.4. PMI Composite held steady at 50.5, signaling stagnation in overall economic activity.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, described a "triple whammy" facing businesses: stalled growth, declining employment, and renewed inflationary pressures.

While the PMI suggests that the economy remained broadly stagnant in Q4, the outlook for 2025 appears increasingly uncertain. Weak confidence, labor market retrenchment, and inflation risks could weigh heavily on economic activity.

Williamson said BoE faces the difficult task of balancing support for growth against the need to maintain inflation control, suggesting a cautious approach to monetary easing in the coming months.

Full UK PMI flash release here.

Daily Pivots: (S1) 192.93; (P) 193.69; (R1) 194.53; More...

Intraday bias in GBP/JPY stays neutral as sideway trading continues. Corrective pattern from 180.00 could be extending with another rising level. Above 194.98 will extend the rise from 188.07 to 199.79 resistance. However, break of 192.35 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.