Recovery Set to Commence, Yet Anticipated to Be Fleeting

Forex

Central Bank

Summary:

The EURUSD was unable to breach the high of 1.0450 from last Friday during Monday's European session and subsequently experienced a significant decline. ECB President Christine Lagarde expressed confidence in further progress towards disinflation, in an interview with the Financial Times published on Monday.

BUY EURUSD

EXP

TRADING

1.03927

Entry Price

1.06000

1.03300

1.03920 -0.00131 -0.13%

0.0

Pips

Flat

1.03300

Exit Price

1.03927

Entry Price

1.06000

Fundamentals

The EURUSD initiated its recovery from the 1.0350 region. A pivotal bearish trendline is taking shape, with resistance around 1.0450 on the 4-hour chart.

ECB President Christine Lagarde, in an interview with the Financial Times, articulated optimism regarding the proximity to the inflation target. She indicated that the ECB is "very close" to proclaiming that the inflation rate has "sustainably" returned to its 2% medium-term objective. The latest inflation rate, at 2.2%, reflects the success of the ECB's monetary tightening policies. However, she highlighted lingering concerns in the service sector, where inflation remains elevated at 3.9%. She noted that while there are signs of a slight deceleration in service sector inflation, there is "not much change."

In response to threats of U.S. tariffs, Lagarde emphasized the economic risks of retaliatory trade measures and stated that "retaliation is a poor strategy." She cautioned that tit-for-tat trade conflicts could detrimentally impact the global economy.

Recovery Set to Commence, Yet Anticipated to Be Fleeting_1

Technical Analysis

The EURUSD concluded last week's trading near 1.0401. The asset continues to traverse within a descending channel. Moving averages suggest a bearish trend for the asset. Prices have broken below the area between the signal lines, indicating that selling pressure persists and may continue to decline from the current level.

As part of last week's euro depreciation, it is anticipated that the EURUSD will attempt to drop and test the support area near 1.0200 in the new year. However, before that, the asset is expected to rebound from last week's lows and continue to ascend. The potential growth target is the 1.0600 level range.

Another signal supporting the EURUSD's ascent is the test of the support line on the Relative Strength Index (RSI). The second signal is the rebound from the support area on the price chart.

Trading Recommendations

Trading Direction: Sell

Entry Price: 1.0378

Target Price: 1.0600

Stop Loss: 1.0330

Valid Until: January 7, 2025, 23:55:00

Support: 1.0378/1.0343/1.0333

Resistance: 1.0450/1.0488/1.0541

Risk Warnings and Disclaimers

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Warren Takunda

Commodity

Summary:

Gold prices are advancing for the third consecutive day, recovering from last week's one-month low.

SELL XAUUSD

EXP

TRADING

2620.00

Entry Price

2540.00

2660.00

2616.71 +4.14 +0.16%

0.0

Pips

Flat

2540.00

Exit Price

2620.00

Entry Price

2660.00

Gold prices (XAU/USD) continue to build on their recent recovery, marking a positive trajectory for the third day in a row after reaching a one-month low last Thursday. The yellow metal is buoyed by haven flows, which have been amplified by geopolitical risks, including the ongoing tensions between Russia and Ukraine, as well as the volatile situation in Gaza. These factors have sparked a renewed demand for safe-haven assets such as gold. However, despite this upward momentum, gold’s price recovery faces significant headwinds.

As we progress through the early part of the European trading session, gold's gains appear tentative, with a cautious risk tone in global markets. A more positive risk sentiment has started to emerge, with equities making slight gains and contributing to a softening in haven demand. While geopolitical risks and fears of a prolonged trade war between the US and China have supported gold in the near term, the broader risk appetite is beginning to act as a drag on the commodity’s rise.

One of the key factors keeping a lid on gold’s price is the strength of the US Dollar (USD). Following last week’s hawkish comments from the Federal Reserve, the US dollar has attracted renewed demand, especially on dips. The Fed’s signals of a prolonged period of elevated interest rates have pushed US Treasury yields to multi-month highs, further attracting buyers to the USD. This in turn has created a negative impact on gold, a non-yielding asset, as investors seek higher returns from government bonds.

This dynamic is most evident on Monday, as the US dollar showed some resilience after pulling back from a two-year high on Friday, following the release of US inflation data. The US Personal Consumption Expenditure (PCE) Price Index, a closely watched measure of inflation, showed signs of moderation, providing a mixed picture for investors. On one hand, the headline PCE inflation edged up slightly to 2.4% in November, from 2.3% in October. On the other hand, the core PCE index, which excludes food and energy prices, came in at 2.8%, slightly below the expected 2.9%, indicating that inflation pressures may be easing.

Despite the slight inflation uptick, the moderation in core inflation gives the Federal Reserve some room to consider slowing the pace of interest rate hikes in the future. However, the Fed has signaled that rate cuts, if any, will be slow and gradual in 2025, a stance that has supported US Treasury yields and the greenback. This hawkish approach has resulted in a cap on gold’s potential upside, with the yellow metal struggling to break through key resistance levels.

Moreover, investors are now turning their attention to the Conference Board's Consumer Confidence Index, which will be released later today. This economic data is expected to provide further insight into the health of the US economy and consumer sentiment. Given the current market climate, where inflation dynamics and the Fed’s monetary stance are critical drivers, any surprising movement in the consumer confidence index could spark renewed interest in gold as a hedge or shift market sentiment towards riskier assets.

Geopolitical Risks Intensify Demand for Gold

Gold’s upward movement is not solely driven by the Fed’s policy actions but is also shaped by external factors. The geopolitical landscape has remained turbulent, contributing to the commodity’s haven appeal. Recently, Russia has been engaging in retaliatory actions against Ukraine, with President Vladimir Putin vowing retribution after Ukraine's major drone strike on the city of Kazan. This has escalated concerns over a broader conflict in the region.

In the Middle East, Israel's military operations in Gaza continue to intensify, with recent airstrikes resulting in casualties, further exacerbating fears of instability. These geopolitical uncertainties have kept gold in demand as investors seek safety amidst the turmoil.

Technical Analysis

From a technical standpoint, gold’s price action over the past sessions has shown some positive momentum. However, as the price approaches key resistance levels, the outlook becomes less certain. The precious metal has been moving towards the Exponential Moving Average (EMA50), but the stochastic oscillator has lost its bullish momentum, suggesting that the market may be turning overbought. This could trigger a short-term bearish reversal, with gold likely to face downward pressure in the coming period.

In terms of price targets, the next support level for gold is seen at $2,540, a level that could serve as a significant barrier to further losses. Should the price fail to hold above this support, the bearish trend is expected to continue, potentially driving the price lower. On the flip side, if gold manages to hold below $2,641, this will confirm the continuation of the downtrend, with additional downside targets at $2,675 and $2,706.

Traders should pay close attention to the $2,641 resistance level, as a breakout above this mark could indicate a more bullish shift, potentially leading to a move higher. However, for now, the market remains cautious, and gold is likely to continue navigating between its support and resistance levels.

TRADE RECOMMENDATION

SELL GOLD

ENTRY PRICE: 2620

STOP LOSS: 2660

TAKE PROFIT: 2540

Risk Warnings and Disclaimers

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Warren Takunda

Economic

Summary:

EUR/USD struggles to sustain gains as ECB President Christine Lagarde expresses confidence in reaching the bank's 2% inflation target sooner.

SELL EURUSD

EXP

TRADING

1.04000

Entry Price

1.02500

1.05500

1.03920 -0.00131 -0.13%

0.0

Pips

Flat

1.02500

Exit Price

1.04000

Entry Price

1.05500

The EUR/USD pair is facing difficulty in maintaining its upward momentum, as it falls short of extending gains beyond Friday’s high of 1.0445 in Monday’s European session. The currency pair’s performance reflects the underperformance of the Euro (EUR) amid dovish remarks from European Central Bank (ECB) President Christine Lagarde, who expressed a confident outlook on the bank’s disinflationary trajectory in a Financial Times interview on Monday.

Lagarde’s comments point toward a sustainable return to the ECB’s medium-term inflation target of 2%, a level the bank sees as a neutral rate to avoid economic stagnation. “We’re getting very close to that stage when we can declare that we have sustainably brought inflation to our medium-term 2% target,” she stated. The ECB’s aggressive monetary policy has been key to this outlook, with the bank cutting its Deposit Facility rate by 100 basis points (bps) this year. Given the persistent economic challenges facing the Eurozone, it’s expected that another 100-bps rate cut could be on the horizon for next year.

The current environment suggests a cautious but determined ECB, with near-unanimous backing from its policymakers on continuing a measured approach to rate reductions. Market expectations have priced in further cuts, potentially bringing rates down toward 2%. This would help mitigate the risk of inflation overshooting the target in the medium term, an outcome the ECB aims to avoid.

On the other side of the Atlantic, the US dollar (USD) has found some stability after a sharp sell-off on Friday. The sell-off was triggered by data showing slower-than-expected growth in the US Personal Consumption Expenditure (PCE) Price Index, which is the Federal Reserve’s preferred inflation gauge. Core PCE inflation, which tracks price changes excluding food and energy, rose by 2.8% year-over-year, slightly below the 2.9% forecast. On a monthly basis, both headline and core PCE inflation saw a modest 0.1% rise, further complicating the Fed’s outlook for 2025.

The Federal Reserve, which has already implemented several interest rate hikes this year, is now facing a slowdown in the disinflation process. This, coupled with growing uncertainty over the economic impact of President-elect Donald Trump’s policies, has led to a revision in the central bank’s interest rate expectations. Cleveland Fed President Beth Hammack, who was the lone dissenter in last Wednesday’s policy meeting, voted to leave rates unchanged. She emphasized the need for the Fed to gather more data before committing to any further rate reductions. “I prefer to hold interest rates steady until we see further evidence that inflation is resuming its path to the 2% objective,” Hammack remarked.

In a similar vein, Chicago Fed President Austan Goolsbee expressed concerns about the impact of Trump’s incoming policies on the economy, suggesting that these factors would likely result in fewer rate cuts in 2025. Initially, Goolsbee had forecasted a 100-basis points reduction, but the uncertainty surrounding tax, immigration, and trade policies has led him to revise his expectations. The shift in tone from the Fed highlights the increasing complexity of the central bank’s decision-making as it weighs both domestic economic factors and geopolitical risks.

As the holiday season approaches, trading volumes are expected to thin considerably. With Christmas Eve and Boxing Day coming up on Wednesday and Thursday, respectively, traders are bracing for a quieter week. This absence of major market participants could result in subdued price action across asset classes, including the EUR/USD pair.

Technical Analysis

For the EUR/USD pair, technical analysis suggests a bearish outlook in the short term. The pair briefly bounced upwards toward the key resistance level of 1.0475, but momentum indicators such as the Stochastic Oscillator have entered overbought territory, signaling a potential reversal. Additionally, the Exponential Moving Average (EMA50) continues to exert downward pressure on the pair, suggesting that bearish forces may dominate in the coming sessions.

Traders should watch for a potential decline toward the support level of 1.0333, with further downside possible if this level is breached. A break below 1.0333 would open the door for a move toward the 1.0250 level. However, any upside movement beyond the 1.0475 resistance could invalidate the bearish outlook and signal further consolidation or upward momentum.

TRADE RECOMMENDATION

SELL EURUSD

ENTRY PRICE: 1.0400

STOP LOSS: 1.0550

TAKE PROFIT: 1.0250

Risk Warnings and Disclaimers

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Warren Takunda

Economic

Summary:

The EUR/JPY pair extends its losses following comments from ECB President Christine Lagarde, signaling progress towards achieving the 2% inflation target.

BUY EURJPY

EXP

TRADING

162.997

Entry Price

167.000

161.000

163.379 -0.114 -0.07%

0.0

Pips

Flat

161.000

Exit Price

162.997

Entry Price

167.000

The EUR/JPY currency pair edged lower on Monday after European Central Bank (ECB) President Christine Lagarde’s interview with the Financial Times revealed that the bank is approaching its goal of anchoring inflation at the 2% medium-term target. This shift, while reassuring for European markets, has sparked caution in currency traders, particularly as Japan’s latest inflation figures suggest that the Bank of Japan (BoJ) may soon tighten its monetary policy.

During the European trading session, the EUR/JPY cross slipped below the 163.00 level, reflecting market uncertainty following Lagarde’s measured optimism on inflation. As the ECB charts a path towards potentially easing monetary policy, the contrast with Japan’s more hawkish signals could create headwinds for the euro against the yen in the near term.

Lagarde underscored that while the ECB is nearing its inflation objective, vigilance remains paramount, especially with persistent price pressures in the services sector. This cautious tone reflects the ECB’s balancing act between fostering economic growth and curbing inflation. Lagarde noted that the aggressive rate hikes of the past two years are yielding results, but the ECB is not yet prepared to declare victory over inflation.

Earlier this month, Lagarde hinted that interest rate cuts could be on the table if inflation continues its downward trajectory. This potential shift towards a more dovish stance aligns with comments from other ECB policymakers. On Saturday, ECB Governing Council member Boris Vujcic told Bloomberg that the bank envisions further reductions in borrowing costs extending into 2025. “The direction is clear—it’s a continuation of the path from 2024, with further reductions in interest rates,” Vujcic remarked. This stance signals growing confidence within the ECB that inflationary pressures will recede sufficiently to allow for gradual policy easing.

Across the Pacific, Japan’s economic landscape is sending contrasting signals. The National Consumer Price Index (CPI) report, released last Friday, painted a picture of rising inflation, reinforcing expectations that the BoJ may be compelled to adjust its ultra-loose monetary policy. November’s CPI jumped to 2.9% year-over-year, a notable increase from 2.3% in October, marking the highest inflation level in three months. Core inflation, which strips out volatile food prices, climbed to 2.7%, exceeding market expectations of 2.6%.

These robust inflation figures have stoked speculation that the BoJ could raise interest rates as early as January or March 2024. However, this prospect remains clouded by the BoJ’s recent decision to maintain its policy rate steady for the third consecutive meeting. The central bank left its short-term rate target within the 0.15%-0.25% range, signaling a cautious approach to monetary tightening.

Traders are closely monitoring the BoJ’s next move, with the release of the bank’s meeting minutes on Tuesday expected to offer further insight into the policymakers’ deliberations. A clearer signal of imminent rate hikes could further strengthen the yen, pressuring the EUR/JPY pair.

Technical Analysis

From a technical perspective, EUR/JPY has struggled to extend gains since last Friday, hovering near 163.40. The pair’s failure to breach the recent high of 163.80 reflects the cautious sentiment dominating the market. Nonetheless, technical indicators suggest that the broader bullish trend remains intact.

The stability of the 55-day moving average (MA55) below current trading levels provides a foundation for continued upward momentum. Furthermore, a strong support line near 162.40 reinforces this outlook. Stochastic indicators are flashing positive momentum signals, suggesting that the pair could resume its upward trajectory in the coming sessions.

Should bullish momentum persist, immediate resistance lies at 164.00, with further upside potential targeting 164.80. Conversely, a break below 162.75 could expose the pair to deeper losses, potentially testing the lower boundary of the recent range.

TRADE RECOMMENDATION

BUY EURJPY

ENTRY PRICE: 163.000

STOP LOSS: 161.000

TAKE PROFIT: 167.000

Risk Warnings and Disclaimers

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Alan

Economic

Forex

Summary:

Eurozone December PMI data reveals ongoing contraction in overall economic activity; analysts broadly reduce growth forecasts for the Eurozone's future prospects.

SELL EURUSD

EXP

TRADING

1.04153

Entry Price

1.00700

1.05200

1.03920 -0.00131 -0.13%

0.0

Pips

Flat

1.00700

Exit Price

1.04153

Entry Price

1.05200

Fundamentals

Last Monday, the Eurozone's December PMI readings showed that overall economic activity remains in decline. Eurozone Composite PMI came in at 49.5, above forecasts of 48.2 and marginally better than the previous reading of 48.3, but still below the 50 threshold, signifying contraction. Manufacturing PMI stood at 45.2, matching the prior figure, reflecting a twenty-first consecutive month of falling output, with the December decline the sharpest in one year, indicating deep-rooted manufacturing sector weakness.

Germany and France, key Eurozone economies, also displayed signs of economic lethargy. German business activity shrank for a sixth straight month and the manufacturing recession lingered, input costs and output prices accelerated to eight-month and ten-month highs respectively. French manufacturing PMI reached a fifty-five-month nadir.

Furthermore, a recent survey revealed a broad downgrade of Eurozone growth expectations for 2025 and 2026 by analysts, signaling a weaker-than-previously-projected growth scenario.

Technical Analysis

Head-and-Shoulders Top Confirmed, May Extend Decline _1

Analyzing the 4-hour chart, EUR/USD remains entrenched in a downtrend. Meanwhile, the formation of a clear head-and-shoulders top is observable, and the breakdown of the neckline at 1.0470 has opened up further downside space for the asset.

Post breaching the neckline of the head-and-shoulders formation, EUR/USD descended to the 1.0334 support level, rebounding temporarily. However, weakening signs reappeared as it approached beneath the neckline again, confirming the head-and-shoulders pattern, hinting at an increased likelihood of continuation of declines ahead.

Selling at highs is recommended.

Trading Recommendations

Trading direction: Sell

Entry price: 1.0420

Target price: 1.0070

Stop loss: 1.0520

Valid Until: January 06, 2025 23:00:00

Support: 1.0334/1.0222/1.0000

Resistance: 1.0452/1.0533/1.0629

Risk Warnings and Disclaimers

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Winkelmann

Forex

Central Bank

Summary:

Recent remarks from Fed officials lean towards supporting a slower pace of future rate cuts, potentially prolonging the strong US dollar's run.

BUY USDX

EXP

TRADING

107.590

Entry Price

109.800

106.200

107.960 +0.140 +0.13%

0.0

Pips

Flat

106.200

Exit Price

107.590

Entry Price

109.800

Fundamentals

Last week, the Fed delivered a 25-basis-point rate cut as expected. However, divisions emerged and the decision was described as "hard-fought. " Powell expressed caution over future rate cuts, and many officials leaned towards slowing the pace of rate cuts. The 2025 rate cut trajectory may prove shallower than previously anticipated, bolstering the US dollar to reach a near-two-year high.

A dip emerged earlier this week. It was primarily driven by a slowdown in the Fed's preferred inflation measure, with November PCE rising just 0.1% MoM and remaining at 2.4% YoY. This showed milder inflation than anticipated, prompting adjustments to Fed rate cut expectations. However, Trump's new policies might amplify inflation risks, and the consensus on the hawkish rate outlook persists, with reduced rate cut expectations continuing to underpin the U.S. dollar.

Technical Analysis

"Hawkish Rate Cuts" Outlook Continues to Support Dollar _1

From a weekly perspective, the US dollar has sustained the uptrend initiated following the Fed's September initial rate cut, soaring to a near-two-year peak, opening further room for upside gains. Despite retreating somewhat from highs over the weekend through today, the pullback seems limited, suggesting a potential further advance toward the 110.0 level.

"Hawkish Rate Cuts" Outlook Continues to Support Dollar _2

On the 4-hour chart, USDX rallied sharply, breaking the recent consolidation phase. It experienced a minor pullback, but the price still rests upon the former consolidation zone with strong support. The correction has largely stabilized, leaving the possibility for renewed upward movement. Nevertheless, trading volumes may be light coinciding with the holiday season in Europe and America, moderating any extreme moves.

Buying at lows is recommended. Try to buy when USDX hits 107.3 and put the target price at 110.0. The stop-loss should stay at 106.4.

Trading Recommendations

Trading direction: Buy

Entry price: 107.3

Target price: 109.8

Stop loss: 106.2

Support: 106.4/107.0

Resistance: 108.0/110.0

Risk Warnings and Disclaimers

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Alan

Cryptocurrency

Summary:

The Fed, in line with market expectations, has reduced the federal funds rate by 25 bps, while also signaling a deceleration in the pace of rate cuts anticipated for the future. Moreover, Chairman Powell’s statement that the Fed has no intention of holding Bitcoin has contributed to a sell-off in the crypto-currency.

BUY BTC-USDT

EXP

TRADING

93227.2

Entry Price

102000.0

89500.0

98704.0 +397.2 +0.40%

0.0

Pips

Flat

89500.0

Exit Price

93227.2

Entry Price

102000.0

Fundamentals

On December 8th, the Fed lowered the federal funds rate by 25 bps as anticipated by market participants. However, the accompanying dot plot indicated a reduction in the number of rate cuts projected for 2025, with the median federal funds rate forecast for the end of 2025 being revised higher to 3.9%, exceeding the market’s prior expectation of 3.4%. This hawkish signal has led to a tightening of market expectations for future liquidity, a decrease in investor risk appetite, and consequently, a sell-off in risk assets such as Bitcoin.

Additionally, Powell unequivocally stated that the Fed has no intention of holding Bitcoin, attributing the matter to the jurisdiction of Congress, which has dampened market confidence in cryptocurrencies.

Nevertheless, as the inauguration of President Trump draws near, should he fulfill his campaign promises regarding the crypto market, the “Trump trade” could potentially continue to bolster Bitcoin’s strength.

Technical Analysis

On the Edge of Volatility - The Short-Term Tug of War_1

From a daily chart perspective, Bitcoin has experienced a sustained decline following the hawkish signals from the Fed, with a significant drop of 3.59% on December 19th alone. The downward trend is expected to persist today.

On the Edge of Volatility - The Short-Term Tug of War_2

On the 4-hour chart, Bitcoin’s market has seen an accelerated decline to the key support level near $94,000, indicating that bears have begun to sell off more aggressively. Consequently, the potential for further downward movement is limited, and the likelihood of a corrective rebound to the upside is gradually increasing.

Furthermore, Bitcoin’s current position is on the Fibonacci retracement 1.0, resonating with the horizontal support level at $94,000. Given the strengthened support at this level, the potential for Bitcoin to reverse and move higher has increased.

Trading Recommendations

Trading Direction: Buy

Entry Price: 93000

Target Price: 102000

Stop Loss: 89500

Deadline: January 3, 2025, 23:00:00

Support: 93900/90800/89711

Resistance: 98770/10280/10380

Risk Warnings and Disclaimers

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Recovery Set to Commence, Yet Anticipated to Be Fleeting

Fundamentals

Technical Analysis

Trading Recommendations

Gold Price Faces Technical Resistance at $2,641 Amid Geopolitical Tensions and Strong USD

EUR/USD Under Pressure After ECB’s Lagarde Affirms Inflation Control, Fed Adjusts 2025 Rate Cut Strategy

Technical Analysis

EUR/JPY Corrects Lower as ECB Nears Inflation Target, BoJ Rate Hike Looms Amid Strong CPI

Head-and-Shoulders Top Confirmed, May Extend Decline

Fundamentals

Technical Analysis

Trading Recommendations

"Hawkish Rate Cuts" Outlook Continues to Support Dollar

Fundamentals

Technical Analysis

Trading Recommendations

On the Edge of Volatility - The Short-Term Tug of War

Fundamentals

Technical Analysis

Trading Recommendations

Risk Disclosure