Today market outlook

[Zeologic]

Gold prices are still under pressure ahead of the Fed rate decision

Yesterday's gold price drew a bearish candle with a small body after previously drawing an indecision candle. Price formed a high of $2658, a low of $2533, and closed at $2644, slightly below the middle band line.

Last week the price of gold began to decline from around $2725 with two consecutive downward candles due to the strengthening of the USD and the influence of the Chinese economy.

Yesterday, gold prices continued their decline amid US economic data which released retail sales rising 0.7%, better than expectations of 0.6%. US Census Bureau reports Advance estimates of U.S. retail and food services sales for November 2024, were $724.6 billion, an increase of 0.7 percent (±0.5 percent) from the previous month, and up 3.8 percent (±0.5 percent) from November 2023.

The dollar index (DXY) has shown a consolidation value in the range of 106.937, slightly up from a low of 106.698. The US dollar traded mixed across foreign exchange exchanges strengthening against commodity currencies such as CAD and AUD and barely falling against European currencies, as the Federal Reserve's monetary policy announcement drew closer. The Fed will announce its decision on monetary policy on Wednesday and is widely anticipated to cut its benchmark interest rate by 25 basis points. The focus will then turn to the Summary of Economic Projections (SEP) and Chairman Jerome Powell's statement on what may happen in 2025.

In China, annual Industrial Production rose 5.4% as expected from 5.3% previously. However, retail sales data showed 3.0% lower than the previous 4.8%, even below market expectations of 5.0%.

Apart from waiting for the important momentum of the Fed's interest rate decision, investors will also focus on UK economic data. The annual CPI is forecast to rise 2.6% from the previous revision of 2.3%.

[Zeologic]

The Fed cut interest rates by 25 basis points. The USD strengthened sharply afterward

Yesterday the price of Silver (XAGUSD) fell drawing a bearish candle with a long body crossing the lower band and MA 200 from the upper side. Price formed a high of 30,567, a low of 29,305, and closed at 29,348.

In the FOMC Statement released on December 18, the Fed decided to lower the target range for the federal funds rate by 25 bps to 4.25% – 4.50%, in line with analyst expectations. The Fed noted that inflation has made progress toward its 2% target but remains high. The central bank believes that the risks to achieving its employment and inflation targets are broadly balanced.

The Fed also projects that the change in real GDP in 2024 is expected at 2.5%, The forecast for 2025 was increased from 2.0% to 2.1%. Unemployment Rate projection for 2025 is estimated to be lower at 4.4% to 4.3%. Meanwhile, the projected federal funds rate for 2025 was increased from 3.4% to 3.9%. The 2026 estimate was also increased from 2.9% to 3.4%.

The dollar index (DXY) strengthened sharply from a low of 106,823 to a high of 108,269 as traders focused on the Fed's economic projections. Changes in the projected federal funds rate have led to bullishness in the US dollar.

As a result, many major currencies depreciated against the USD, including silver prices which fell after the Fed lowered interest rates by 25 basis points.

Today investors will also wait for other important economic news. The Bank of England rate is predicted to remain unchanged at 4.75%. Meanwhile, in the US we will be waiting for the release of GDP and Unemployment Claims data which might change market direction.

[Zeologic]

The Japanese yen weakened more against the US dollar

The price of the USDJPY pair yesterday drew a long-body bullish candlestick with a slight shadow on the top candle. Price formed a low of 154,439, a high of 157,807, and closed at 157,396. The rise in the USDJPY pair and even breaking the upper band line indicates a strong rally.

The weakening of the Japanese Yen was due to the strengthening of the US dollar after the Fed lowered interest rates yesterday and the US economic projections in the FOMC statement which received a market response have brought the dollar index (DXY) up from a low of 106,823 to now at a high of 108,103 for two days in a row.

The Fed projects two rate cuts in 2025 which sends US Yields and the USD soaring.

On the other hand, the BOJ kept its benchmark interest rate unchanged at 0.25% with Governor Ueda failing to clarify whether they will raise interest rates in January, as had been anticipated by some market sources. According to Ueda, prolonged easing conditions could cause a spike in inflation.

From within the country, Japanese politics may have an impact on the Japanese Yen. The ruling Liberal Democratic Party (LDP) does not have a majority in parliament, it could be forced to call new elections. A clearer win for the LDP would ensure stability and potentially strengthen the Yen.

However, if the opposition ultimately succeeds and returns to leading there is possibility for fiscal expansion that could weaken the currency.

If the government continues without elections, it is likely that the budget will not be so high as to maintain the currency.

Today, investors focusing at the US Core PCE (Personal Consumption Expenditures) Price Index, one of the Fed's most widely used inflation indicators, which is expected to fall 0.2% from the previous 0.3%.

[Zeologic]

Will gold shine even more towards the end of the year?

The price of gold on Friday last week drew a bullish candle with a fairly long body. Price formed a high of $2631, a low of $2589, and closed at $2622 on FXOpen.

Throughout 2024, the price of gold experienced a significant price increase until finally drawing a new all time high in 2024.

Gold's journey as a safe-haven asset throughout 2024 received a positive boost amid the Gaza and Ukraine conflicts and central bank purchases.

This year the central bank has also reduced interest rates in a number of countries, which has contributed to gold's performance. India's decision to reduce gold import duties to the lowest level has also contributed to gold demand in the last decade.

In November when Trump won the 2024 US election, gold came under pressure from the strengthening USD until it fell from its highest level, dampening the hopes of some investors who expected gold to rise further. Gold, which had previously risen, suddenly turned down, stopping its previous winning streak.

At the Fed meeting last December, the US central bank lowered interest rates by 25 bps. Gold prices tried to stretch again, on Friday weekend the price formed a bullish candle trying to recover from previous losses.

Even though the Fed cut interest rates by 25 bps, the revised Summary of Economic Projections (SEP) or dot plot, shows that policymakers see the policy rate at 3.9% by the end of 2025, implying a 50 bps cut over the course of the year, compared to with 100 bp projected in the September SEP.

A slower decline may reduce the pace of gold demand, as bond yields may be more attractive than maintaining gold exposure.

In 2025, gold may face the obstacles of the Fed's monetary policy decisions, Trump's economic and foreign policies, and geopolitical risk changing being the main drivers.

On the other hand, China, which is a global gold importer, is also being challenged by Trump's increase in tariffs and may retaliate in a trade war which will allow the economy to slow down and reduce demand for gold.

[Zeologic]

USDCHF rose around 0.90018 as USD strengthened.

The USDCHF pair yesterday drew a bullish candle with a long body almost the same as the length of the previous bearish candle. USDCHF price formed a low of 0.89216, a high of 0.90018, and closed at 0.89835. The pair is attempting a recovery from Friday's weekend losses.

The US dollar recovered as traders expected the Fed to hold interest rates steady in January. The dollar index (DXY) which tracks the US dollar against six major currencies is now at 108.079 slightly up from a low of 107.684.

The Fed's latest dot plot shows it sees the Federal Funds rate heading to 3.9% in 2025. According to the CME group's Fedwatch tool, the probability of the Fed leaving interest rates unchanged at its January 29, 2025 meeting is 93.6% and the probability of a 25 bps cut is only 6.4%.

Fed policymakers are expected to take a cautious approach to rate cuts due to uncertainty over Trump's upcoming policy.

Meanwhile, the Swiss National Bank (SNB) is predicted to loosen monetary policy further amid concerns that inflation is below the bank's 2% target. The SNB has lowered interest rates by 125 basis points (bp) this year to 0.5%.

Today there is no important news on the economic calendar ahead of Christmas, allowing trading volume to be uncertain.

[Zeologic]

Bitcoin increases even ahead of Christmas

When the forex market is more sluggish due to the decline in trading volume ahead of Christmas, it is different from Bitcoin in the crypto market. BTCUSD rose yesterday drawing a bullish long-body candle indicating a strong rebound. BTCUSD formed a low at 93528 high of 99444 and closed at 98401.

Before Christmas, several banks closed in Europe, such as Germany, which closed early, the impact on the forex market was quite significant, reducing transaction volume and market volatility. Several pairs such as Gold, Silver, EURUSD, USDJPY, and GBPUSD, are seen moving steadily sideways near the previous open. In contrast to the Bitcoin market which seems to experience different market patterns compared to forex. Bitcoin yesterday tried to rebound after consecutive declines after the Fed projected 2025 interest rates.

Major changes in Bitcoin are influenced by Bitcoin whales such as Micro Strategy, and BlackRock. Micro Strategy, for example, dared to purchase Bitcoin worth $516 million BTC even though Bitcoin prices were already high. It seems they are optimistic about Bitcoin's future potential. Moreover, Elon Musk, who is part of Trump's cabinet, is an influential figure in the Bitcoin market, which allows him to influence Trump's looser policies in the crypto market. Now Micro Strategy's holdings have reached 444 262 BTC.

Meanwhile, community sentiment on Coinmarketcap shows bullish expectations with 79% of votes and 21% of votes for bearish. This means that the majority of people in this community still believe in the bullish prospects for Bitcoin in the future. Meanwhile, the Fear and Greed indicator points to number 55 which is closer to the neutral position. The value of this indicator indicates the level of fear and greed for an asset. A value of 100 is considered market extremely greedy and the possibility of correction. A value of 0 means the market is extremely fearful and the a possibility of a rebound.

Today is Christmas, a holiday for many global banks in the world, allowing for a decrease in transactions on financial markets. However, the crypto market is different from forex, they are mostly traded on exchanges and operate 7 days a week.

[Zeologic]

The EUR/USD pair is forecast to be flat due to the Christmas holidays

In today's trading, the EURUSD pair opened with a slight gap. The open price at 1.04201 was higher than the previous closing of 1.03922 on FXOpen. EURUSD price movements ahead of Christmas look flat. This pair drew a small bearish candle with a low of 1.03836, a high of 1.04100, and a close of 1.03922.

Today it is estimated that the EURUSD pair will still be influenced by the Christmas holidays in various countries. Even though trading is enabled on this pair for today's trading, perhaps many traders are also still celebrating and enjoying the Christmas holidays. Today's calendar schedule shows bank holidays in New Zealand, Australia, Switzerland, Germany, Italy, and the UK which are likely to greatly reduce transactions in the forex market.

Even though there will be the release of US Unemployment Claims which is expected to increase by 223k from the previous 220k, perhaps many investors will not respond due to the holiday period.

The dollar index (DXY) at 108.123 ahead of Christmas shows a small doji candle indicating market indecision. Referring to the EMA 20 line which draws an upward channel below the price, DXY strengthened more.

ECB's Lagarde said she was confident inflation would return to the bank's target of 2% sooner than previously forecast.

Meanwhile, in the latest dot plot, the Fed indicated only two interest rate cuts in 2025. The Fed will make two interest rate cuts of 25 bp at the June and September policy meetings.

[Zeologic]

USDJPY extends to rise post-Christmas

The USDJPY currency pair yesterday drew a bullish candle continuing the JPY's weakness amid fading expectations of a BoJ interest rate hike. Price draws a slightly long-body bullish candle past the previous high. Price formed a high of 158,082, a low of 157,069, and a close of 167,991.

BOJ Governor Kazuo Ueda left open the possibility of waiting longer for the next hike and said the central bank would need more information on wage trends. Additionally, the BoJ's October policy meeting minutes stressed the need for caution amid domestic and global uncertainty. However, widespread inflationary pressures in Japan could force the BoJ to raise interest rates again in early 2025.

Japanese inflation data increased in November, opening up the opportunity for the BoJ to raise interest rates in January or March. Meanwhile, the US central bank signaled that it will slow the pace of interest rate cuts next year and dampened expectations of a sharp narrowing in the US-Japan interest rate gap. This is another factor that weakens the lower-yielding JPY.

However, speculation has emerged that the Japanese government could intervene to shore up its domestic currency which could limit JPY's weakness. Japanese Finance Minister Katsunobu Kato warned against excessive foreign exchange movements and emphasized that the government is ready to act to stabilize the domestic currency.

On the other hand, fears of a trade war triggered by Trump may restrain traders from placing bearish bets on JPY as a safe haven currency.

Next, traders will anticipate core CPI, retail sales, and employment data which will be released today to get a picture of the Japanese economy which might be a clue to the central bank's next policy.

[Zeologic]

EUR/JPY is trading with low volume on Friday

The EURJPY pair drew a small bearish candle on Friday after Japan released inflation and employment data. Price formed a high of 164,819, a low of 164,017, and closed at 164,428 on FXOpen.

Japan released core CPI data on Friday which showed it was higher than the previous period but lower than expected. Core CPI came in at 2.4% from the expected 2.5% and previous data of 2.2%. Meanwhile, Japan's unemployment rate remained the same as the previous period at 2.5% as expected. Meanwhile, annual retail sales showed 2.8%, higher than the previous 1.3%, and exceeded expectations of 1.5%.

On the other hand, the BOJ highlighted the possibility of a gradual increase in interest rates if inflation has the potential to reach 1.0% in fiscal 2025. The BOJ also highlighted the focus on developing wages, service prices, and personal consumption as considerations for increasing interest rates. This is in line with BOJ Governor Kazuo Ueda's statement that the central bank will wait for further data on whether wage growth can maintain its upward momentum next year, to get better clarity on economic trends.

Apart from that, Japan will focus on US economic developments and the policies taken.

Meanwhile, the ECB has moved closer to its goal of sustainably reducing inflation to its medium-term target of 2%. However, Lagarde will continue to pay particular attention to inflation in the services sector. One of the ECB officials, Boris Vujcic, told Bloomberg that the ECB plans to continue lowering borrowing costs in 2025.

Today, looking at the economic calendar schedule, Japan will release the Final Manufacturing PMI which is expected to be the same as previously at 49.5. Meanwhile, Spain will release the annual Flash CPI which is expected to rise 2.6% from the previous 2.4%.