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EURUSD: ⬇️ Sell

• EURUSD reversed from resistance area
• Likely to fall to support level 1.1600

EURUSD currency pair recently reversed from the resistance area between the resistance levels 1.1800 and 1.1910 (former multi-month high from September) – intersecting with the upper daily Bollinger Band.

The downward reversal from this from the resistance area created the daily Japanese candlesticks reversal pattern Shooting Star.

Given the strength of the nearby resistance area, EURUSD currency pair can be expected to fall to the next round support level 1.1600 (low of the previous wave 2).

AUDJPY: ⬆️ Buy

• AUDJPY reversed from support area
• Likely to rise to resistance level 104.25

AUDJPY currency pair recently reversed up from the support area between the support level 102.30 (former monthly high from November) and the support trendline of the daily up channel from October.

The support level 102.30 was further strengthened by the 38.2% Fibonacci correction of the sharp upward impulse from November.

Given the strong daily uptrend and continuation of the bearish yen sentiment, AUDJPY currency pair can be expected to rise to the next resistance level 104.25 (top of the previous impulse wave iii).

• ECB decided to leave its key policy rates unchanged with the deposit facility rate at 2.00% as widely expected by markets and consensus.
• The new staff projections delivered a hawkish surprise for markets with upward revisions to growth over the entire horizon and to inflation in 2026. However, the moves faded during the press conference as Lagarde’s “meeting by meeting” approach and lack of guidance did not reaffirm Schnabel’s hawkish views.
• We maintain our call that the ECB will leave the deposit rate unchanged at 2.00% throughout both 2026 and 2027.

As widely expected, the ECB decided to keep its policy rates unchanged at today’s meeting, leaving the deposit rate at 2.00%. The new staff projections delivered a hawkish surprise for markets with upward revisions to growth over the entire horizon and to inflation in 2026 (see chart 1). The GDP forecast for 2026 was revised up to 1.2% y/y (from 1.0%) and to 1.4% y/y in 2027 (from: 1.3%). Headline inflation was revised up to 2.2% y/y (from: 1.9%) in 2026 and core inflation to 2.2% y/y (from: 1.9%). Markets reacted by sending front-end rates higher and EUR/USD rose on the hawkish staff projections. We note that the inflation projections are on the high side compared to our own, market pricing, and consensus expectations (see chart 2). Hence, we think there is a good chance that the ECB would end up disappointed on inflation in 2026, which should reduce expectations for hikes. While we think the forecasts are optimistic, the staff projections do nevertheless cement the view in the ECBs that they are in a good place with no need for imminent rate cuts.

During the press conference Lagarde was asked whether it was more likely that the next move would be a hike relative to a cut, referencing Schnabel’s recent interview. Lagarde did not answer the question directly and instead said that the consensus in the ECB was that all options remained open and that they stick to a meeting-by-meeting approach. In our view, this highlights that the consensus in the Governing Council is clearly less hawkish compared to Schnabel especially due to diverging views on the inflation outlook. At the same time, Lagarde also said that she would not give forward guidance by commenting on market pricing given that uncertainty is still very high. The fact that she is referring to high uncertainty implies that staff projections play a smaller role in deciding current policy changes like we saw in September. Lagarde’s descriptive comments on the economy and decision not to agree with Schnabel’s view led to a fading of the initial rise in rates following the hawkish staff projections. Hence rates ended the meeting flat and EUR/USD little changed as we expected.

We maintain our call that the ECB will leave the deposit rate unchanged at 2.00% throughout both 2026 and 2027. Higher than expected activity and wage growth has reduced the need for cuts in 2026 while our expectations of a clear undershooting of inflation the comings years should keep the ECB from hiking in 2027. We have liked our paying bias the past months also supported by recent data. While we cannot exclude that rates can continue to move slightly higher in the very near-term, we are increasingly attentive to the risk-reward skew on a 1–3-month basis to start to favour receivers.

Summary

The November CPI report creates more questions than answers about the recent pace of price growth. Consumer prices rose 2.7% in the 12 months ending in November, materially below our expectations for a 3.0% gain. The core index similarly fell short of expectations, advancing 2.6% over the past 12 months versus our forecast for a 2.9% increase. The stark miss comes on the heels of the longest-ever government shutdown that led the BLS to skip October data collection and not begin the November collection process until the middle of the month.

As such, we caution against reading too much into today's report. The November data suggest core prices rose 0.16% over the past two months, or an average of 0.08% per month. For comparison, the core index has increased at an average monthly pace of 0.25% this year. CPI data are not revised, and as a result we believe the data will be noisy for at least another month or two. A bounce back in prices in the December CPI report to be released on January 13 is probably coming. Through the noise, we believe inflation is slowing on trend, even if today's reading overstates the magnitude of the slowdown. We remain comfortable with our current projection of rate cuts from the FOMC in March and June of next year.

Inflation Is Slowing, but Not This Much

The government shutdown appears to have caused issues in the consumer price inflation data collection process. The two-month percent change in headline and core CPI were 0.20% and 0.16%, respectively, meaningfully below our forecasts of 0.45% and 0.48%. For context, the two-month change in headline and core CPI from July to September was 0.69% and 0.57%, respectively. This pushed the year-ago pace of headline and core CPI inflation down to 2.7% and 2.6%, a steep decline from 3.0% and 3.1% in September. The slowdown was broad-based across nearly all categories, adding to our suspicions that the shutdown's disruptions caused issues in the data. Data collection didn't begin until the second half of November, which may have skewed the sample more than we anticipated.

Food prices rose 0.06% over the past two months, a significantly slower pace than the 0.25% average monthly rise this year. Taking a step back from this report's noise, forward-looking measures of food-related commodities have slipped into deflation territory, which, when coupled with recent rollbacks on select food tariffs, point to a disinflationary trend in food inflation even if not to the extent implied in today's report. Energy was the lone category that came in reasonably near expectations, rising 1.08% over the past two months and up 4.1% year-over-year in November. This is likely due to gasoline prices being collected from a non survey source and thus being one of the few sub-categories the BLS was able to publish price data for in October. New and used autos prices were also produced under their usual methodology and came in a touch stronger than we expected.

Core goods prices rose only 0.06% between September and November, compared to a 0.15% average monthly rise headed into this report. Similarly, core services rose only 0.16% over the past two months. Shelter inflation was a prime example of the puzzlingly weak inflation data in core. Owners' equivalent rent rose 0.27% over two months, while rents rose just 0.13%. The weak outturn lead these categories down to 3.4% and 3.0%, respectively, on a year-over-year basis, breaking away from their recent trends (chart). In short, we are not putting much weight on the details of this report, and we anticipate a bounce back in the December reading to be released on January 13.

While materially softer than expected, we think the collection issues around this particular report means it will do little to change Fed officials' current views on inflation. Inflation pressures are softening, but not to this degree. With the Fed waiting for (reliable) inflation data before cutting rates again, today's data add to our conviction that the FOMC will be on hold at the January meeting. That said, data issues aside, our belief is that inflation is slowing on trend, even if today's print overstates the slowdown. When paired with the softening in the labor market, we remain comfortable with rate cuts in March and June of next year. At that point, we believe cleaner data will give the Committee more confidence that inflation is leveling off and will soon be moving back toward 2%.

• The Bank of England cut the Bank Rate to 3.75%.
• The vote split was 5-4, as expected.
• The potential of further easing hinges a lot on the continuance of the recent promising disinflation.
• The market reacted by trading EUR/GBP lower and Gilt yields a bit higher.
• We continue to expect one final rate cut to 3.5% in April.

The Bank of England (BoE) cut the Bank rate by 25bp to 3.75% in line with our expectation and market pricing. The vote split was 5-4 (cut vs. keep), which was also in line with consensus. The meeting was one of the small ones and thus included no new economic outlook.

Following the soft November inflation print yesterday, there was a chance of a bigger majority voting for a rate cut, which would have been a dovish sign. Deputy governor Lombardelli would have been the most obvious candidate, but she continued to vote for keep. The four dissenters (Lombardelli, Greene, Mann and Pill) refer to continued too high wage pressures and are not convinced that the monetary policy stance is meaningfully restrictive. That said, they acknowledge the recent progress in disinflation and Greene explicitly states that she believes inflation risks have shifted to the downside. Thus, while the MPC remains split, the hawkish voters have become less hawkish since the November meeting. Governor Bailey's remarks are quite balanced, and he and deputy governor Breeden (most neutral leaning voters) highlight that more disinflationary signs are needed to cut rates further.

BoE call. We think Governor Bailey will take a cautious approach and listen to both the dovish and the hawkish camp when timing the next rate cut and that a majority will vote for a final rate cut at the April meeting.

Market reaction. Gilt yields traded a couple of basis points higher, and EUR/GBP lower as the chance of a more dovish cut was priced in ahead of the meeting.·

Markets

The Bank England as expected cut its policy rate by 25 bps to 3.75%. Despite the recent softening in inflation, the decision was made by the smallest of margins in a 5-4 vote. Governor Bailey was the swing voter to tilt the balance. In this respect, the message from the decision was a bit more ‘hawkish’ than some in the market anticipated. The BoE assesses that the risk from greater inflation persistence has become somewhat less pronounced, while the downside risk to medium term inflation from weaker demand remained. The central bank assesses that the restrictiveness of monetary policy had fallen as the Bank Rate had been progressively reduced, making judgements on further easing becoming a closer call. The minutes showed that members continued to place different weights on the main risks to inflation. However, even comments from some of the dissenters suggest that they also acknowledge the improvement in the disinflationary dynamics. The central bank overall concludes that the Bank Rate is likely to continue on a gradual downward path. In the wake of the decision, markets slightly delayed the timing a next cut (April no longer fully discounted). Still we see some room to err on the dovish side of expectations in case of milder inflation and labour market readings. UK ST bond yields are rising by up to 3 bps (2-y). The 30-y gilt yield eases 1 bp. Sterling again whipsawed/rebounded with EUR/GBP declining from the 0.8785 area to currently 0.875. The EUR/GBP 0.8720 area remains a strong support/resistance for sterling.

The ECB as expected left its deposit rate unchanged at 2%. The policy statement and the new staff forecasts brought few surprises. The ECB raised growth forecasts for the period 2025-2027 to 1.4%-1.2%-1.4% from 1.2%-1%-1.3% with 2028 growth projected at 1.4%. Also core inflation was slightly upwardly revised over the 2026-28 horizon (2.2 %-1.9%-and 2%) mainly as staff sees service inflation declining more slowly. Overall, the central bank still sees inflation stabilizing at the 2% target in the medium term. During the press conference Chair Lagarde maintained all optionality and didn’t give any guidance on the timing or even direction of a next step. The impact on EMU yields was limited. German Bund yields are changing less than 1 bp. After ceding some ground earlier in the session, EUR/USD rebounded back to the 1.174 area, mainly due to softer US CPI.

The BLS released US November CPI inflation data. Due to the government shutdown, the BLS was unable to collect October data and make M/M-comparisons. Still November inflation showed an unexpectedly sharp decline from September (headline 2.7% and core 2.6%, both from 3%). Even as some statistical issues might still be in play, the data should gave dovish oriented Fed members some comfort that there is room for follow-up easing in Q1 2026 especially if accompanied with soft labour market data. US yields today decline between 5 bps (5-y) and 3 bps (30-y).

News & Views

The Swedish Riksbank (RB) left its policy rate unchanged at 1.75% and strengthened the signal that is expected to remain at this level for some time to come. The forecast for the policy rate envisions a first rate hike by end 2027. Swedish inflation developed in line with the September forecast and approached the 2% target. The updated CPIF-path plots average core inflation rates of 2.7%-0.9%-1.7%-2.8% for the 2025-2028 period, virtually unchanged from September. In the meantime, growth has been higher and economic activity is assessed stronger. The situation in the labour market remains weak, but there are signs it is beginning to improve. RB raised its 2025-2027 growth path 1.5%-2.9%-2.5% with the first indication for 2028 at 1.2%. Swedish assets are unmoved with EUR/SEK at 10.90.

The Norges Bank (NB) held its key rate steady at 4%.While NB isn’t in a hurry to reduce it, projections still envision a lowering in the course of 2026 if the economy evolves as projected. The forecast is consistent with 1-2 rate cuts next year and a further reduction to somewhat above 3% towards the end of 2028. The assessment is little changed from September with a weaker krone (raising inflation expectations) and a little more spare capacity in the economy balancing each other out. The outlook for underlying inflation is virtually unchanged with CPI ATE expected to remain sticky, averaging 3.1% this year, 2.7% in 2026, 2.4% in 2027 and 2.2% in 2028. Mainland GDP forecasts for the 2025-2028 period stand at 1.6%-1.3%-1.3%-1.4% from 2%-1.5%-1.3%-1.3% in September. The Norwegian krone recovers part of this week’s (oil-induced) losses as the Norges bank remains reluctant to rapidly return to rate cuts. EUR/NOK falls back to 11.95 after testing 12 support earlier this week.

The government shutdown impacted the Bureau of Labor Statistics' (BLS) data collection process during the month of October. Accordingly, the BLS is not reporting headline and core CPI inflation figures for that month, but they did report some sub-indices that are based on non-survey data. The BLS also noted that the November collection began on November 14^th and extended through the end of the month.

Headline CPI rose 2.7% year-on-year (y/y) in November, well below the consensus forecast of 3.1% and a deceleration from September's 3.0%.

• Energy prices firmed – rising 4.2% y/y from 2.9% in September – while food prices cooled to 2.6% y/y.

Core inflation registered 2.6% y/y (down from 3.0% y/y in September) and the softest reading since March 2021. November's print also came in well below the consensus forecast of 3.0% y/y. The three-month annualized rate of change slowed to just 1.6%.

Price pressures on services inflation cooled sharply, aided by a further easing in primary shelter costs (3.0% from 3.5% in September) and non-housing services (2.6% from 2.3%).

Meanwhile, goods prices unexpectedly slowed, with the three-month annualized rate dropping to 1.1% (from 2.9% in September).

Key Implications

Well, that was a surprise! Disinflationary pressure was evident across the board in November, with both goods and services inflation cooling. That said, we are hesitant to put too much stock in today's figures. The government shutdown delayed the collection of November's data, pushing the collection period into the holiday shopping season where there's traditionally deep discounting. Moreover, much of the decline in services was the result of a sharp slowing in primary shelter costs, suggesting we could see some giveback in the months ahead.

Chair Powell already warned that near-term data could suffer from distortions, suggesting Fed officials won't put too much emphasis on one month's data. That said, should inflation show further signs of cooling in the months ahead, it certainly raises the odds that the timing of further rate cuts is pulled forward, particularly if the labor market were to also show further signs of softening. Treasury yields across the curve fell several basis points following the release, with the 2-and-10-year yield dropping to 3.44% and 4.13%, respectively. Fed futures are nearly fully priced for another quarter-point cut by April.

This morning is a blessing for volatility traders and economists – A triple slate of high-tier change just landed in the past hour and a half.

Starting with the most recent releases, the US CPI (headline) for November landed at 2.7% vs 3.1% expectations – A sharp miss on high expectations and a very good sign for future cuts.

The Core measure actually came lower (2.6% vs 3% exp), reflecting a cooling in the Services sector.

Morning US Data releases – MarketPulse Economic Calendar

Dollar Lower, Stocks higher, bonds higher (meaning yields went lower) – Classic reaction.

Last year's inflation report was a relatively cool one, leading to a higher base effect.

This release is an even more encouraging report for the Fed, giving back some credibility to its dovish members (Hi Waller and Williams!).

By the way, Jobless Claims came slightly below expectations (224K vs 225K) – Nothing much to see here.

Market reactions to CPI 15M Charts for S&P 500, Oil, 10-Year Bonds, Gold, Bitcoin and the USD. December 18 – Source: TradingView

The Bank of England Cuts rates by 25 bps to 3.75% (Prior 4%) – Pound rallies

Bank of England's Statement – December 18 2025 Meeting. Source: Bank of England

The heavily expected cut was a hawkish one, with Governor Bailey indicating that future cuts will be close calls.

With UK inflation still above 3% and a cooling labor picture (but still growing), the margin of operation for the Bank of England is a small one.

The vote actually came at 5-4 for the 25 bps cut, indicating some dispersion in views and making future cuts even less obvious.

There is about 1.5 cuts priced in for 2026 for the UK Main Rate.

The next decision will be on February 6, 2026.

GBP/USD 1H Chart, December 18, 2025 – Source: TradingView

Cable is up about 700 pips after its hawkish cut and profiting even more from the miss in US CPI weighing on the USD.

Now reaching the 1.3440 to 1.35 Resistance and still evolving within an hourly Bull Channel, it will be interesting to see if there is much juice left to the current rally.

Watch the upwards channel and reaction to its highs (1.34850) if bulls manage to breach the Tuesday highs.

ECB keeps rates unchanged at 2% – Nothing new

The ECB has been a bit boring as of late.

Keeping rates unchanged, forward guidance is one indicating stable rates for the forthcoming times.

Still, the ECB pointed to sticky services inflation which it expects to see remaining high.

I encourage those who want to see more to check out this great review of the decision.

EUR/USD is forming a new range between 1.17 to 1.18 and isn't showing many signs of breaking out.

EUR/USD 2H Chart, December 18, 2025 – Source: TradingView

Safe Trades!

Market Overview

The crypto market capitalisation fell to $2.91T (-2.4% for the day). The surge at the start of the US session on Wednesday only fuelled the bears, who drove the market down to $2.89T by the end of the day, retreating only slightly from these lows. Under intense pressure, the major old altcoins — Ethereum, XRP, and Solana — retreated to multi-month lows, losing about 4% over the past 24 hours.

Bitcoin is trading near $87K, roughly where it was the day before. A sharp jump in price above $90K hit a wall of selling, and now just above this round level is a significant short-term resistance line, which was support until 14 December. However, it is also difficult for the market to find reasons to go below the $85K level, from which the price has been rebounding since the beginning of the week. Additionally, it is worth noting that BTC is trading significantly above its late November lows of $80K, outperforming major altcoins.

Solana’s price fell to $123, testing an important support area from March 2024. Since its peak in September, this seventh-largest altcoin has lost half of its value. The technical rebound that began at the end of November has ended, and if support at $120 fails, the road down to $90 or even $70 will open up.

News Background

Long-term Bitcoin holders have almost completed their active selling phase, according to K33 Research, which anticipates a decrease in selling pressure. Over the past two years, 20% of the supply has returned to the market, and this process is almost complete.

Institutional investors have begun buying Bitcoin at a rate faster than miners can mine it, Capriole notes. For the first time since November, demand from companies has exceeded the inflow of new coins into the market amid a more than 30% drop in the asset from its October highs.

Strategy bought 641 bitcoins daily in 2025, according to Finbold Research. This allowed it to increase its holdings by 223,800 BTC (a 50% increase) in less than a year.

The capacity of the Lightning Network (LN) micropayment network has reached a historic high, thanks to technical improvements and the implementation of the solution by major exchanges. The growth of this indicator is a sign of demand for faster and cheaper transactions.