Source: Euronews

Crude oil prices were heading towards a weekly gain earlier today following an update from the World Bank on the growth prospects of the Chinese economy next year.

Brent crude was trading at $73.18 per barrel at the time of writing, with West Texas Intermediate at $69.58 per barrel, after the World Bank revised upwards its GDP forecast for China for both this year and next. China itself issued an upward revision of its 2023 GDP growth, and it was a sizable revision, at 2.7%, which may have also helped fuel optimism about demand.

Separately, the American Petroleum Institute’s latest weekly oil inventory estimate suggested a solid draw at 3.2 million barrels, a further sign of strong demand for the commodity in its biggest market. The Energy Information Administration’s estimate of weekly crude oil inventory changes is due out today, with a two-day delay due to the Christmas holidays.

The benchmarks are set for a modest loss on an annual basis, however, largely due to the oversized focus on Chinese demand and persistent though unjustified expectations that OEPC+ would start bringing oil back to the market whatever the price level. OPEC+ did not start bringing oil back, acutely aware of prices, but this did not prevent traders from making bearish bets on expectations to that effect.

The annual decline in prices could also partially be attributed to the fact that the war in the Middle East failed to cause any disruption in oil supply despite several escalation events that could have resulted in just that. Yet when an exchange of missile strikes between Iran and Israel failed to ignite the region, traders rightly concluded no one in the Middle East wanted an oil supply disruption. This effectively put a cap on prices.

“The oil market is set to see fairly modest demand growth once again in 2025, which is partly cyclical and partly structural,” ING commodity analysts Warren Patterson and Ewa Manthey said in a new 2025 outlook. “In addition, we see another year of strong non-OPEC supply growth while OPEC still sits on a significant amount of spare production capacity, which should continue to provide comfort to the market.”

Source: OILPRICE

Source: AP

USD/CHF recovers its recent losses from the last two sessions amid thin trading activity following the Christmas holiday, trading around 0.9000 during the European hours on Friday. This upside of the USD/CHF pair could be attributed to a stronger US Dollar (USD), driven by growing expectations of fewer rate cuts by the US Federal Reserve (Fed).

In its December meeting, the Fed reduced interest rates by a quarter point and revised its 2025 projection to include only two rate cuts, down from the previously forecasted four. However, the likelihood of additional rate cuts next year was tempered by moderate US PCE inflation data.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against its six major peers, trades above 108.00, slightly below its highest level since November 2022. However, the upside of the Greenback could be restrained as US Treasury bond yields remain subdued on Friday. 2-year and 10-year yields stand at 4.33% and 4.58%, respectively, at the time of writing.

The USD/CHF pair faced headwinds as the Swiss Franc (CHF) strengthened following the release of Swiss GDP data, which indicated stronger-than-expected economic growth and an acceleration in Q3 on a year-over-year basis. However, recent remarks from Swiss National Bank President Martin Schlegel, suggesting that interest rates in Switzerland might dip below zero, remain fresh in traders' minds.

Source: FXSTREET

Yen saw broad declines during Asian session, briefly falling below 158 against Dollar, but the selloff was quickly mitigated by verbal intervention, as least partially.

The decline was triggered by weaker-than-expected Tokyo inflation data. Stripping out energy and food prices, core-core inflation remained relatively stable, signaling limited urgency for BoJ to proceed with further rate hikes in the near term.

This aligns with the cautious tone seen in the BoJ’s December meeting summary, which revealed deep divisions among policymakers. While a minority of hawks pushed for “forward-looking” and “preemptive” actions, the majority seemed favoring a measured approach, citing concerns over wage growth and external risks.

Verbal intervention from Japanese officials helped limit losses in Yen, nevertheless. Finance Minister Katsunobu Kato reiterated the government’s commitment to addressing excessive currency movements, stating, “The Japanese government has been alarmed by foreign exchange developments, including those driven by speculators, and will take appropriate action against excessive moves.” While this provided temporary relief, it was insufficient to reverse Yen’s broader weakness.

For the week so far, Dollar is currently the strongest, supported by lingering strength from Fed’s recent hawkish outlook. However, the greenback’s momentum remains constrained, with gains capped below last week’s highs amid thin year-end holiday trading. Euro has emerged as the second-strongest currency, followed by Loonie. Yen has taken the weakest spot, followed by Swiss Franc and Aussie. Both Kiwi and Sterling are positioning in the middle.

Looking ahead, market activity is expected to remain subdued through the rest of the week, with an ultra-light economic calendar offering little to stir volatility. The sole notable release is US goods trade balance, which is unlikely to prompt significant moves. Barring surprises, trading volumes are expected to remain low until after the New Year holiday next week.

BoJ summary highlights division on timing of rate hikes

BoJ Summary of Opinions from its December 18–19 meeting revealed a divided board on the timing of monetary policy normalization. While some members advocated for action soon, citing upside risks to prices, others expressed caution due to slow wage growth, soft overseas demand, and heightened uncertainties.

One member emphasized that with economic activity and prices aligning with BoJ’s outlook, risks to inflation were becoming “skewed to the upside.” The member argued for a “forward-looking, timely, and gradual” adjustment of monetary policy. Similarly, another member noted that the sustained increase in prices over the past three years, partly driven by Yen’s depreciation, would likely contribute to higher underlying inflation, warranting “preemptive” rate hikes.

Conversely, more dovish members maintained that the current risks to prices “do not suggest a pressing need” for rate hike. One member cited uncertainties surrounding tax and fiscal policies in Japan and the stance of the incoming US administration as reasons to maintain the current policy stance, emphasizing a risk management approach.

Overall, the BoJ board appears focused on assessing the outcomes of next year’s spring wage negotiations and the impact of US policy shifts before making further moves toward policy normalization.

Japan’s Tokyo CPI core rises to 2.4% in Dec, but core-core dips to 1.8%

Japan’s Tokyo core CPI (excluding food) rose from 2.2% yoy to 2.4% yoy in December, marking its highest level since August but falling short of expectations for 2.5%. The increase was largely driven by a 13.5% yoy surge in energy prices, reflecting the phase-out of government subsidies for gas and electricity bills. However, when excluding utility costs, inflation pressures appear steady.

Core-core CPI (excluding food and energy) softened to 1.8% yoy from 1.9% yoy, while services inflation edged up slightly from 0.9% to 1.0%. Meanwhile, headline inflation accelerated to 3.0% yoy from 2.6% yoy, with energy and food prices, including rice, contributing significantly to the increase too.

The uptick in Tokyo inflation highlights lingering pressures from rising utility and food costs, which may weigh on consumer spending and deter firms from implementing further price hikes. These factors, coupled with broader signs of economic weakness, could delay BoJ ’s timeline for raising interest rates.

Japan’s industrial output slips -2.3% mom in Nov, indecisive fluctuation continues

Japan’s industrial production declined -2.3% mom in November, outperforming expectations of a -3.4% mom drop, but marking the first contraction in three months.

The decrease was driven by weaker exports of semiconductor manufacturing devices and cars, highlighting challenges in external demand. Out of 15 industrial sectors, 11 recorded declines, while 3 sectors reported gains.

Production machinery saw a significant -9.1% drop, largely due to falling exports of chip-making equipment to Chinese mainland and Taiwan, while motor vehicle output fell -4.3%, and fabricated metal products dropped -5.7%.

Despite the slump, the Ministry of Economy, Trade, and Industry maintained its view that industrial production “fluctuates indecisively,” while warning of risks tied to the economic outlooks of the US and China.

Looking ahead, METI’s poll of manufacturers predicts a rebound, with output expected to rise 2.1% in December and an additional 1.3% in January.

Separately, retail sales posted a robust 2.8% yoy gain, exceeding expectations of 1.5%, signaling resilience in domestic demand.

USD/JPY Daily Outlook

Daily Pivots: (S1) 157.32; (P) 157.70; (R1) 158.42; More…

USD/JPY’s rally is trying to resume by breaching 157.91 temporary top and intraday bias is back on the upside. Rise from 139.57 is extending to 61.8% projection of 139.57 to 156.74 from 148.64 at 159.25 next. Firm break there will pave the way back to 161.94 high. On the downside, though, below 156.88 minor support will turn intraday bias neutral again.

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.

Source: ACTIONFOREX