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• Pronounced weakness in manufacturing activities in Germany may spread to the broader Eurozone.
• ECB may be forced to remove its “restrictive monetary policy” forward guidance next Thursday and evolve into a “recession fighting” move.
• The medium-term downtrend of EUR/USD remains intact but a mean reversion corrective rebound may occur first below 1.0770 key medium-term resistance.

For next Thursday, 12 December European Central Bank (ECB) monetary policy outcome, market participants are likely to expect a 25-basis point (bps) cut rather than a more aggressive reduction of 50 bps based on short-term interest rate futures pricing.

If such a scenario occurs, it will be the fourth interest rate cut in the Eurozone since June to lower the key deposit rate further to 3%. Hence, it will be paramount to scrutinize the latest ECB’s forward monetary policy guidance for hints of further and or more aggressive monetary policy stance in 2025 via its latest macroeconomic projections which are released next Thursday as well, and ECB President Lagarde’s press conference.

Weakness in German manufacturing growth has spread to the wider Eurozone

Fig 1: Germany, Eurozone Manufacturing PMI & 2-year yield spread of German Bund/US Treasury Note as of 5 December 2024 (Source: MacroMicro, click to enlarge chart)

“When Germany catches a cold, the entire Eurozone has the flu”. Germany, being the bellwether economy of the Eurozone has continued to flash out recessionary-liked leading economic conditions.

After a peak of 45.50 seen on the German manufacturing PMI at the start of 2024, manufacturing activities continued their downward spiral of deterioration and further contracted in November to 43.

Notably, the January 2024 peak of the German manufacturing PMI before it inched down further occurred ahead of the broader-based Eurozone manufacturing PMI that peaked later in May. Thereafter, it increased its pace of contraction to hit 45.2 in November from 46 in the previous month of October.

Therefore, if manufacturing activities in Germany continue to slip further in the red, it may drag down the entire Eurozone’s economic growth prospects.

This negative feedback loop mechanism has already been playing out in the two-year yield spread between the German Bund and the US Treasury Note where the yield spread peaked at -1.34% in mid-September 2024 and dropped significantly by 80 bps to hit -2.14% on Thursday, 5 December which was a two-year low (see Fig 1).

To negate the adverse effects of “Germany’s flu” on the entire Eurozone, the ECB may need to set a forward guidance in the upcoming meeting next Thursday, 12 December that restrictive monetary policy is over, and preventing recession is now the priority in the Eurozone.

EUR/USD is shaping a potential corrective rebound within its medium-term downtrend

Fig 2: EUR/USD medium-term & major trends as of 6 Dec 2024 (Source: TradingView, click to enlarge chart)

In the lens of technical analysis, the directional movement of highly liquid tradable financial instruments does not move vertically but oscillates within broader trends.

Since its recent 52-week low of 1.0332 printed on 22 November 2024, the EUR/USD has consolidated in a sideway range configuration ahead of today’s key US non-farm payrolls data release.

Its daily RSI momentum indicator has just staged a bullish breakout above a key parallel descending resistance after it hit an oversold condition on 22 November, the same day as the current 52-week low (see Fig 2).

The current condition of the daily RSI indicator suggests that bullish momentum has surfaced to at least support a potential mean reversion corrective rebound scenario with intermediate resistance to watch at 1.0670, and above it exposes the 1.0770 key medium-term pivotal resistance before another round of impulsive down move sequence materializes to resume its medium-term downtrend phase.

Only a break below the intermediate support of 1.0420 reinstates a direct bearish tone to see the next medium-term support coming in at 1.0200.

• USDCAD stays on the sidelines ahead of November’s jobs data
• Bearish pressures likely but sellers need a close below 1.4000

USDCAD is currently treading water, caught in a neutral symmetrical triangle at the top of the two-month-old uptrend as traders are holding their breath ahead of the release of key U.S. and Canadian jobs data.

The technical indicators suggest the short-term bias is leaning to the downside as the stochastic oscillator is set for a negative reversal and the MACD continues to decelerate below its red signal line. Nevertheless, traders may stay patient until the price breaks above the 1.4075-1.4100 area or falls below 1.4000.

In the event of a bullish breakout, the pair may re-challenge November’s four-year high of 1.4172 and if this proves easy to overcome this time, it could speed up toward the resistance line at 1.4265. Next, the rally could pause around the 1.4370 region if the 1.4300 psychological mark gives the green light.

On the downside, a step below the 20-day exponential moving average (EMA) at 1.4000 could activate selling orders toward the 1.3945 barrier, while a deeper pullback could take a breather near the 50-day SMA currently at 1.3900. If the bears claim the latter, the downfall could stretch aggressively to 1.3820.

Summing up, USDCAD is holding a neutral-to-bearish bias, monitoring the 1.4000 and 1.4100 levels, as a break in either direction could determine the next significant move.

Daily Pivots: (S1) 190.53; (P) 191.37; (R1) 192.39; More...

Intraday bias in GBP/JPY remains neutral first. While recovery from 188.07 might extend, further decline is expected as long as 55 D EMA (now at 194.07) holds. On the downside, below 190.33 minor support will turn bias to the downside for 188.07, and then 183.70 support. Firm break there will argue that whole decline from 208.09 is resuming, and target a test on 180.00 low next.

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) 157.85; (P) 158.62; (R1) 159.68; More....

Intraday bias in EUR/JPY remains neutral first. While, recovery from 156.16 might extend, further decline is expected as long as 55 D EMA (now at 162.01) holds. On the downside, below 157.54 minor support will bring retest of 156.16 first. Break there will target 154.40 low next.

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) 0.8274; (P) 0.8287; (R1) 0.8311; More...

EUR/GBP is still bounded in range trading above 0.8259 support and intraday bias stays neutral. On the downside, decisive break of 0.8259 will resume larger down trend to 0.8201 key support. On the upside, break of 0.8311 minor resistance will turn bias back to the upside for recovery. But still, outlook will stay bearish as long a 0.8446 resistance holds, and downside breakout is expected at a later stage.

In the bigger picture, down trend from 0.9267 (2022 high) is in progress. Next target is 0.8201 (2022 low), but strong support should be seen there to bring rebound. However, outlook will remain bearish as long as 0.8624 resistance holds even in case of strong rebound. Decisive break of 0.8201 will indicate long term bearish reversal.

Daily Pivots: (S1) 1.6351; (P) 1.6392; (R1) 1.6448; More...

Intraday bias in EUR/AUD remains on the upside for the moment. Fall from 1.7180 could have completed at 1.5963, after defending 1.5996 key support. Further rise should be seen to 1.6598 resistance first. Firm break there will strengthen this bullish case and target a retest on 1.7180 high. Nevertheless, break of 1.6156 support will turn bias back to the downside for 1.5996 again.

In the bigger picture, immediate focus is now on 1.5996 key support level. Sustained break there will argue that whole up trend from 1.4281 (2022 low) is already reversing. Deeper decline would be seen to 61.8% retracement of 1.4281 to 1.7180 at 1.5388, even as a correction. Nevertheless, strong rebound from current level, followed by break of 1.6359 resistance, will keep medium term outlook neutral at worst.

Daily Pivots: (S1) 0.9286; (P) 0.9305; (R1) 0.9319; More....

EUR/CHF is still bounded in sideway trading and intraday bias stays neutral. Further decline is in favor with 0.9343 resistance intact. On the downside, below 0.9269 minor support will bring retest of 0.9204/9 support zone. Decisive break there will confirm larger down trend resumption. Nevertheless, firm break of 0.9343 will now be a sign of near term bullish reversal, and target 0.9444 resistance for confirmation.

In the bigger picture, outlook will now stay bearish as long as 0.9444 resistance holds. Decisive break of 0.9209 low will resumed long term down trend to 61.8% projection of 0.9772 to 0.9209 from 0.9444 at 0.9096 next.

Daily Pivots: (S1) 1.3996; (P) 1.4039; (R1) 1.4068; More...

No change in USD/CAD's outlook as consolidation continues below 1.4177. Intraday bias remains neutral and further rally is expected with 1.3930 support intact. On the upside, firm break of 1.4177 will resume larger up trend towards 1.4391 projection level. However, break of 1.3926 will turn bias to the downside for deeper pullback to 55 D EMA (now at 1.3879).

In the bigger picture, up trend from 1.2005 (2021) is resuming with break of 1.3976 key resistance (2022 high). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3418 at 1.4391. Now, medium term outlook will remain bullish as long as 1.3418 support holds, even in case of deep pullback.

Daily Pivots: (S1) 0.6432; (P) 0.6443; (R1) 0.6465; More...

AUD/USD's fall from 0.6941 is still in progress and intraday bias stays on the downside for 0.6348 support. Break there will target 0.6269 low next. Considering bullish convergence condition in 4H MACD, break of 0.6503 resistance will indicate short term bottoming, and turn bias to the upside for rebound to 55 D MA (now at 0.6580).

In the bigger picture, rise from 0.6269 (2023 low) should have completed with three waves up to 0.6941. Corrective pattern from 0.6169 (2022 low) is now extending with another falling leg. Deeper decline would be seen back to 0.6269 as sideway trading extends.

Daily Pivots: (S1) 149.59; (P) 150.18; (R1) 150.71; More...

USD/JPY is still bounded in consolidation above 148.64 and intraday bias stays neutral. On the downside, break of 148.64 will strengthen the case that rise from 139.57 has already completed at 156.754. Deeper fall should then be seen to 61.8% retracement of 139.57 to 156.74 at 146.12 next. Nevertheless, firm break of 151.94 resistance will revive near term bullishness and bring retest of 156.74 high.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.