Global markets face low liquidity ahead of key events this week, including today’s US Consumer Price Index (CPI) report and Thursday’s European Central Bank (ECB) policy announcements. Geopolitical tensions also create uncertainty, with mixed signals such as progress in the Israel-Hamas ceasefire and news of China’s stimulus efforts competing with trade war fears linked to Donald Trump. Additionally, growth forecasts from the Asian Development Bank (ADB) are adding to the market’s caution.
Despite these mixed signals, strong US data like the NFIB Small Business Sentiment and Q3 Nonfarm Productivity pushed the US Dollar Index (DXY) toward the weekly high, posting a four-day uptrend by Wednesday morning.
The US Dollar’s strength, combined with dovish comments from ECB’s Francois Villeroy de Galhau and political uncertainty in Germany, is weighing on EURUSD. Talks of a no-confidence vote against German Chancellor Scholz and ongoing production declines forecasted by the VDMA for 2025 add to the bearish sentiment on the Euro. The ECB is expected to cut rates on Thursday, while US inflation data is anticipated to be strong, leading many traders to sell EURUSD ahead of these key events.
Despite the stronger US Dollar, GBPUSD edged higher over the past two days before retreating early Wednesday, as the Pound recovers ahead of today’s US inflation data and Friday’s UK economic report.
Meanwhile, USDJPY bulls face resistance near the 200-SMA, with Japan’s record PPI inflation and mixed results from the Q4 Business Outlook Survey adding pressure. The inflation data strengthens hawkish expectations for the Bank of Japan, making it harder for the pair to rise.
The Australian Dollar (AUD) and New Zealand Dollar (NZD) remain under pressure, as a stronger US Dollar and falling commodity prices weigh on both currencies. AUDUSD is ignoring the Reserve Bank of Australia's (RBA) hawkish stance and optimistic comments from Governor Michele Bullock. Similarly, NZDUSD struggles with economic pessimism in New Zealand and dovish signals from the Reserve Bank of New Zealand (RBNZ).
USDCAD has pulled back from its highest level since April 2020, ending a three-day uptrend, as traders prepare for a Bank of Canada (BoC) rate cut. The retreat is also supported by rising crude oil prices, which help Canada’s economy.
Gold prices are struggling to extend their three-day winning streak, despite hitting a two-week high. The retreat is likely due to a stronger US Dollar and consolidation ahead of the US inflation data. Additionally, hawkish concerns about the Fed in 2025, along with ongoing issues in China, are limiting further gains for the precious metal.
Crude oil, however, is ignoring negative factors and has been on a three-day uptrend, recovering from monthly lows. The EIA's forecast for increased global oil production in 2025, along with a surprise build in US crude oil inventories, is not dampening momentum. Oil prices are being supported by China’s stimulus measures and expectations of strong demand projections from OPEC in today's report.
Concerns about Google’s Willow project and the Israeli attack pressured Bitcoin (BTCUSD) and Ethereum (ETHUSD) the previous day. However, optimism linked to Donald Trump helped the top cryptocurrencies rebound early Wednesday.
With the upbeat US CPI data expected on Wednesday and the ECB likely to cut rates on Thursday, EURUSD could dip further toward its November low. Even if US inflation eases and the ECB surprises with a hawkish stance, the Euro may struggle to bounce due to concerns over Germany’s recession and the ECB’s readiness for more rate cuts.
The US Dollar could benefit from strong Core CPI figures, even if the Fed is set to announce a rate cut next week. Market hopes are focused on slower Fed rate cuts in 2025.
Gold may pull back to support levels around $2,670 and $2,653 on a stronger Dollar, but a downtrend is unlikely unless it drops below $2,627. Upside potential remains limited under $2,721.
USDJPY could break the 200-SMA and target 153.30 while AUDUSD and NZDUSD are expected to decline toward lows from August 2024 and October 2023. USDCAD may reach a multi-year high near 1.4200 following the BoC rate cut, while Crude Oil’s recovery is uncertain unless it breaks the $70.00 resistance.
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