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UK CPI accelerated from 2.3% yoy to 2.6% yoy in November, matched expectations.Core CPI, (excluding energy, food, alcohol and tobacco), accelerated from 3.3% yoy to 3.5% yoy, below expectation of 3.6% yoy. CPI goods annual rate rose from -0.3% yoy to 0.4% yoy , while CPI services annual rate was unchanged at 5.0% yoy.

Full UK CPI release here.

Japan’s exports rose 3.8% yoy in November to JPY 9.152T, supported by increased shipments of chip-making equipment to Taiwan and nonferrous metals to China, marking the second consecutive month of export growth. Imports, however, fell -3.8% yoy to JPY 9.270T, marking their first decline in eight months due to reduced demand for crude oil from Saudi Arabia and electronics parts from Taiwan.

The overall trade deficit stood at JPY -117.6B, extending its red streak to five months. On a seasonally adjusted basis, the deficit widened to JPY -384B from JPY -229B in October, as imports increased 1.9% mom, outpacing the 0.2% mom rise in exports.

Trade with key partners highlighted persistent imbalances. Japan recorded a JPY 664.03B trade surplus with the US, despite exports falling -8.0% yoy, while imports dipped slightly by -0.6% yoy.

Conversely, its trade deficit with China expanded to JPY 682B, as exports grew 4.1% yoy, and imports rose 4.2% yoy.

The trade gap with the EUR remained significant at JPY 210.19B, with exports plunging -12.5% yoy, while imports decreased -5.4% yoy.

Short Term Elliott Wave View in Bitcoin (BTCUSD) suggests rally from 6 September 2024 low is in progress as a 5 waves impulse. Up from 6 September, wave 1 ended at 66508 and dips in wave 2 ended at 58867. The crypto-currency has extended higher in wave 3 towards 103647 as the 1 hour chart below. Pullback in wave 4 unfolded as a zigzag Elliott Wave structure. Down from wave 3, wave ((a)) ended at 97917 and wave ((b)) ended at 99577. Wave ((c)) lower ended at 92310 which completed wave 4 in higher degree.

Bitcoin has resumed higher in wave 5. Up from wave 4, wave ((i)) ended at 101251 and wave ((ii)) pullback ended at 94249 as a zigzag structure. Down from wave ((i)), wave (a) ended at 98752 and wave (b) ended at 101407. Wave (c) lower ended at 94249 which completed wave ((ii)) in higher degree. The crypto-currency has extended higher in wave ((iii)). Up from wave ((ii)), wave (i) ended at 102582 and pullback in wave (ii) ended at 99250. Wave (iii) higher ended at 107821. Pullback in wave (iv) is in progress as an expanded flat before it turns higher again. Near term, as far as pivot at 92310 low stays intact, expect dips to find support in 3, 7, or 11 swing and the crypto-currency to extend higher.

Bitcoin (BTCUSD 60 Minutes Elliott Wave Chart

BTCUSD Elliott Wave Video

https://www.youtube.com/watch?v=hkDiQVf9Hiw

Key Highlights

• Gold failed to clear the $2,725 resistance and corrected gains.
• A connecting bullish trend line is forming with support at $2,630 on the 4-hour chart.
• Oil prices are struggling to clear the $71.50 resistance.
• EUR/USD could decline if it breaks the 1.0450 support level.

Gold Price Technical Analysis

Gold prices remained well-bid near the $2,615 zone against the US Dollar. The price formed a base and started a fresh increase above $2,640 and $2,680.

The 4-hour chart of XAU/USD indicates that the price even climbed above $2,700 but struggled to clear the $2,725 level. As a result, there was a bearish reaction below the $2,700 and $2,680 levels. The price dipped below the 50% Fib retracement level of the upward move from the $2,613 swing low to the $2,726 high.

It even settled below the 100 Simple Moving Average (red, 4 hours) and the 200 Simple Moving Average (green, 4 hours). On the downside, initial support is near the $2,630.

There is also a connecting bullish trend line forming with support at $2,630 on the same chart. The first major support is near the $2,610 level. The main support is now $2,600. A downside break below the $2,600 support might call for more downsides.

The next major support is near the $2,575 level. On the upside, immediate resistance is near the $2,665 level. The first major resistance sits near the $2,670 level.

A clear move above the $2,670 resistance could open the doors for more upsides. The next major resistance could be $2,700, above which the price could rally toward the $2,720 level.

Looking at Oil, there was a decent increase, but the bulls seem to be facing hurdles near the $71.50 level.

Economic Releases to Watch Today

• Euro Zone CPI for Nov 2024 (YoY) - Forecast +2.3%, versus +2.3% previous.
• Euro Zone CPI for Nov 2024 (MoM) - Forecast -0.3%, versus -0.3% previous.
• US Housing Starts for Nov 2024 (MoM) – Forecast 1.340M, versus 1.311M previous.
• US Building Permits for Nov 2024 (MoM) – Forecast 1.430M, versus 1.419M previous.

• Fed is widely expected to cut rates by 25 bps on Wednesday
• But updated dot plot may signal fewer cuts in 2025
• Can the dollar extend its rebound or is a correction due?
• Powell’s press conference at 19:30 GMT could hold the key

Rate cut bets have been pared back

The US Federal Reserve meets this week for the last time in 2024 and it looks set to end the year with its third rate cut since September. However, it’s only in the past week or two that investors have become confident that the central bank will deliver a 25-basis-point reduction in the Fed funds rate when it announces its decision at 19:00 GMT on Wednesday.

A string of upbeat economic indicators as well as inflation edging higher over the last couple of months, not to mention of course Trump’s election victory, have all led to a drastic repricing of the expected number of rate cuts next year. Donald Trump’s re-election and the implications his policies could have on growth and inflation have complicated the Fed’s interest rate path at a time when the US economy continues to defy fears of a slowdown and underlying price pressures remain sticky.

All eyes on new dot plot

If the Fed does trim rates as expected in December, markets currently foresee just two more 25-bps cuts in 2025. That would be about 50 bps less than what FOMC members predicted in the September dot plot. So, what’s the likelihood that the December dot plot will be revised accordingly?

Most Fed officials backed the case for further rate cuts heading into the blackout period but were split on the size of easing that would be warranted with the inflation picture as it is now. With markets having already done the heavy lifting, policymakers will probably pencil in a similar path as implied by traders.

Will the Fed signal several rate cuts or a pause?

In fact, the risk for the dot plot is tilted toward a dovish surprise as some FOMC members may still be optimistic about inflation coming down substantially in 2025 and therefore being able to cut rates by at least three times. Although, if it’s evident that policymakers based their projections on not making too many assumptions about how inflationary Trump’s policies will be, investors might not be very convinced about a more dovish path.

Hence, Jay Powell’s press conference will be as closely watched as ever for gauging the Fed chief’s and his colleagues’ views on inflation and the economy. Earlier in December, Powell said that the Fed can “afford to be a little more cautious”. He is likely to reiterate that there is no rush to take rates closer to the neutral level.

The question is how strongly he will signal a pause in January and is he going to open the door to a longer pause? The odds that the Fed will stand pat in January currently stand at around 87%.

Dollar could climb to a new 2024 high

Should Powell remain worried about the prospect of inflation staying above the Fed’s 2% goal and the dot plot is predicting barely two rate cuts in 2025, the US dollar could stretch its recent bounce back. The greenback’s index against a basket of currencies could easily surpass the November 22 high of 108.07 if both Powell and the dot plot are more hawkish than anticipated.

Moreover, if any hawkish rhetoric is followed up with an uptick in the core PCE price index on Friday when the November readings are due, the dollar’s bullish streak could extend even still.

Such a move, though, would have to be backed by a similar rally in Treasury yields and this poses a downside risk for Wall Street.

If, however, Powell adopts a more balanced tone and is hopeful that there will be further progress in reducing inflation in 2025, the dollar index could pull back towards its 50-day moving average near 105.30 before attempting to breach the 105.00 level.

Clouded Outlook

On the whole, the Fed meeting may not change much about the monetary policy outlook, and this may stay the case until some of the cloud for 2025 has been lifted. Specifically, the Fed is unlikely to let its guard down on inflation until it sees that the incoming Trump administration’s policies on taxes and tariffs won’t pose a huge risk to re-igniting inflationary pressures. This means that the dollar’s downside is limited for now.

This could change, however, if the labour market starts to deteriorate unexpectedly over the coming months, in which case, the Fed won’t hesitate to lower borrowing costs even if inflation remains problematic.

• BoJ may leave rates unchanged in December's meeting
• Next rate hike may not come until March
• Policy decision is due on Thursday at 03:00 GMT
• Yen weakness continues

Market consensus overwhelmingly for steady rates

The Bank of Japan (BOJ) is anticipated to keep its interest rate steady at 0.25% during its upcoming two-day meeting on December 18-19, the last one for 2024. This decision aligns with the central bank's cautious approach as it seeks more clarity on domestic wage and spending trends, as well as potential policy changes from the incoming US administration under President-elect Donald Trump.

Low rates and yen weakness

Japan's interest rates remain the lowest among developed nations due to the BoJ's long-standing policy to support the country's sluggish economy. Economists see wage growth propelling Japan's economy towards the BoJ's 2% inflation target. However, they suggest the BoJ might wait another month to assess wage-driven inflation dynamics, focusing on the positive momentum from next year's spring wage negotiations and the possible impact from Trump's trade policies.

Timing of rate hikes in question

The BoJ ended its negative interest rate policy in March and raised its short-term policy target to 0.25% in July. It has signaled its readiness to hike again if wages and prices move as projected and strengthen the conviction that Japan will durably hit 2% inflation. However, the central bank has been cautious about the timing of the next rate hike, leading to fluctuations in market expectations between November and December. Traders are almost entirely anticipating a quarter-point increase by March, as Governor Ueda and his  colleagues have reiterated that they are ready to raise rates again in response to a strengthening economy, increasing earnings, and inflation exceeding the target.

Currency risks: Yen's influence on BoJ decisions

Currency risks also play a significant role in the BoJ's decision-making process. Analysts pointed out that the yen's value against the dollar could influence the central bank's actions. A stronger US dollar could weigh on the yen and accelerate the BoJ's policy normalization, while a weaker yen supports Japan's reflation efforts.

Currently, dollar/yen is easing after six consecutive green days but is standing above the 200-day simple moving average (SMA) at 152.10, which is acting as a strong support level. Any upside pressure may send the market to the three-and-a-half-month high of 156.75. However, a descending move below the 151.10 support and the short-term uptrend line may increase the chances for a bearish retracement.

• Gold prices have dropped due to increased US Treasury yields, profit-taking, and the anticipation of a less dovish Fed outlook for 2025.
• The upcoming Fed meeting and its economic projections, especially regarding rate cuts, will significantly impact gold prices.
• India’s gold imports are expected to decline in December due to a lack of festivals and rising gold prices.
• Analysts are optimistic about gold’s prospects in 2025, with a target of $3000/oz, driven by potential Chinese stimulus and increased demand during the Lunar New Year.

Gold has struggled this week continuing its selloff from the back end of last week. An increase in US Treasury yields coupled with profit taking and the potential for a less dovish Fed outlook for 2025, have all played a role.

The selloff has brought the precious metal back to the range (2624-2650) it hovered in ahead of the rally which began on December 9. The Fed meeting tomorrow could be the deciding factor in what Gold prices do heading toward the end of the year.

Gold Traders Face Fed Conundrum

Market participants are heading into this week’s Fed meeting with mixed feelings. The decision at the meeting seems to be a foregone conclusion, why then are market participants adopting a cautious approach?

The decision at this week’s meeting may not hold much sway in the minds of market participants and rightly so in my opinion. I do think that a lot of this has already been priced into the Gold price leaving the updated economic projections and commentary from Fed Chair Powell. This is where I believe all eyes will be focused on in tomorrow’s meeting.

There has been growing consensus over the past month that 2025 may not bring as many rate cuts from the Fed as previously hoped. This stems from a variety of factors, the most pertinent being the return of US President Donald Trump.

The Fed have thus far said they will wait to see the impact of Trump policies on the economy but one cannot wonder whether this is already at play in the back of their minds. Will it influence discussions and the updated economic projections?

These are the more pressing questions that could drive the next move in Gold prices. As things stand markets are only pricing in around 73bps of rate cuts through December 2025. This means only around 50bps of cuts next year. Any changes to the probabilities here are likely to have a major impact on the US Dollar and Gold prices and could drive prices in the coming weeks.

Source: LSEG (click to enlarge)

India’s Gold Imports Plunge in December

India’s gold imports are expected to drop sharply in December after reaching record highs in November. This slowdown is due to a lack of big festivals and rising gold prices, which are making buyers delay their purchases, according to trade and government officials.

India remains the world’s second largest consumer of the precious metal and this could also be a contributing factor to the recent price decline. Gold imports more than doubled in November compared to the previous month, reaching a record $14.8 billion.

China Stimulus and Lunar New Year

Looking ahead, analysts seem upbeat about the prospects for Gold in 2025. Many have placed a target around the $3000/oz mark. Chinese authorities are looking at increasing stimulus as demand remains weak in the world’s second largest economy.

This week’s retail sales data proved as much, dropping down to 3% YoY from a previous print of 4.8%. Stimulus measures could help push demand in China and thus help gold prices move higher, especially with the Lunar New Year coming up.

During the Lunar New Year period, jewelry demand usually increases because of gift-giving traditions. The hope is that the next round of stimulus by Chinese authorities will finally lead to an improvement in demand as China prepares for an intriguing 2025.

Economic Calendar

Technical Analysis – Gold (XAU/USD)

From a technical analysis standpoint, Gold is already in a bearish trend on the four-hour timeframe with lower highs and lower lows. The selloff has been quite abrupt with no significant pullback materializing. Instead we have had some shallow recoveries like yesterday which have failed to push beyond the 2660 handle.

As things stand a four-hour candle close above the 2660 handle is needed for a change in structure to take place which could embolden bulls. This could lead to a sustained recovery but given the recent selling pressure buyers may remain on edge and not ready to commit.

Market participants will likely derive confidence depending on the rhetoric from the Fed at tomorrows meeting. A dovish outlook for 2025 could lead to a renewed push to 2700 while a more hawkish take on the rate cut path could send Gold below the 2600 handle.

Immediate resistance at 2660 with a break above leading to resistance at the 2675 and 2685 handles.

Immediate support rests 2624 before the 2610 and 2600 handles become the areas of focus.

Gold (XAU/USD) Four-Hour (H4) Chart, December 17, 2024

Source: TradingView (click to enlarge)

Support

• 2624
• 2610
• 2600

Resistance

• 2660
• 2675
• 2685

• EURGBP reversed from resistance level 0.8300
• Likely to fall to support level 0.8225

EURGBP currency pair recently reversed down from the key resistance level 0.8300 (former strong support from October) intersecting with the 61.8% Fibonacci correction of the downward impulse from November.

The downward reversal from the resistance level 0.8300 continues the active short-term impulse wave (v) from the middle of November.

Given the strong daily downtrend and bullish sterling sentiment seen today, EURGBP currency pair can be expected to fall further to the next support level 0.8225 (low of the previous impulse wave i).

• EURJPY erases some gains
• Stochastic and RSI head down

EURJPY has found strong resistance near the 38.2% Fibonacci retracement level of the down leg from 175.37 to 154.40 at 162.30, which overlaps with the 50-day simple moving average (SMA). A downside movement may drive traders towards the 20-day SMA at 159.90 ahead of the 23.6% Fibonacci of 159.30. Steeper decreases could potentially pave the way for the medium-term uptrend line at 156.80.

On the other hand, if the market rises above the critical area of 162.30, it may open the way for the bulls to test the 200-day SMA, which lies near the 50.0% Fibonacci of 164.80. A successful rally beyond this area could send the pair to the three-month high of 166.68.

From a technical standpoint, the stochastic oscillators are flattening in the overbought area, and the RSI is pointing south above the neutral threshold of 50. Both suggest an overstretched market.

All in all, EURJPY has been in a bullish tendency since August but needs a boost to confirm the upside structure.