Important calendar events
The dollar remained firm last week, and the dollar index hovered close to the 108.1 level. US treasury yields gained strength, with the US 10-year bond yield rising from 4.54% to 4.63%. A risk-off sentiment prevailed last week near the end of 2024, and increased demand for safe-haven assets boosted the dollar.
US labor data released on Thursday were optimistic, boosting the dollar. US unemployment Claims dropped to 219K for the week of December 20 from 220K the week before, against expectations of a 223K print.
The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%. Fed Chair Jerome Powell delivered a hawkish message after the policy meeting, emphasizing the need to be cautious about further rate cuts. Powell stated that the Fed’s approach will remain data-driven and hinted that the pace of future rate cuts will be slower, as inflation in the US remains above the central bank’s 2% target.
The Fed’s Summary of Economic Projections, or dot plot, was also released after the policy meeting. This is a chart that is updated quarterly and records each Fed official's projection for the central bank's interest rate. The Fed’s latest dot plot indicated that only two rate cuts will take place in 2025, down from four projected in September. In quantitative terms, policymakers expect to deliver a total of 50 basis points of rate cuts in 2025, which will bring the central bank’s interest rate to 3.9% by the end of 2025, which is significantly higher than the 3.4% estimated in September. In addition, the Fed’s projections indicate that a more normalized monetary policy with a 3.4% interest rate will be reached in 2026, indicating a policy shift to a more hawkish stance.
US inflation is proving to be sticky despite the Federal Reserve’s efforts to bring it down to its 2.0% target. US Headline inflation rose to 2.7% year-on-year in November from 2.6% in October. Monthly inflation rose by 0.3% in November, the same as in October, which was in line with expectations. Core CPI, which excludes food and energy, rose by 0.3% in November.
Final GDP data for the third quarter of the year showed that the US economy expanded by 3.1% in the third quarter of 2024, up from 2.8% estimated earlier. In addition, the US economy expanded by 3.0% in the second quarter of the year and by 1.4% in the first quarter of the year.
EUR/USD traded sideways last week, oscillating around the 1.042 level. If the EUR/USD pair declines, it may find support at 1.034, while resistance may be encountered near 1.053.
The ECB lowered its benchmark interest rate by 25 basis points in December, bringing its main refinancing rate to 3.15%. This was the fourth rate cut for the ECB this year, which started its easing cycle in June and has already lowered interest rates by a total of 100 bps. More importantly, ECB President Christine Lagarde hinted at further easing in the coming months as Eurozone inflation nears the central bank’s target while the economy remains weak.
Lagarde’s press conference after the policy meeting was dovish, raising expectations of further rate cuts. Lagarde admitted that several policymakers advocated for a sharper rate cut of 50bps at December’s meeting and market expectations of future ECB rate cuts rose after Lagarde’s speech. The central bank is currently expected to cut interest rates up to five more times next year, to a total of 125bps, until neutral policy settings are reached. Expectations that the ECB will return to a more normalized policy setting sooner than the Fed, are putting pressure on the EUR/USD rate.
Eurozone inflation remains above the ECB’s 2% target and may prevent the ECB from cutting interest rates in December. Eurozone inflation rose to 2.3% year-on-year in November from 2.0% in October, which was in line with expectations. Core CPI, which excludes food and energy, remained steady at 2.7% in November, against expectations of a 2.8% print.
Flash GDP data showed that the Eurozone economy expanded by 0.4% in Q3 of 2024, rising from 0.2% in Q2. The Eurozone economy also expanded by 0.3% in the first quarter of 2024. The economic outlook of the EU remains fragile as prolonged tightening has brought the Euro area economy to the brink of recession.
GBP/USD dropped from 1.258 to 1.250 early last week, but pared losses towards the end of the week, rising back to 1.258. If the GBP/USD rate goes up, it may encounter resistance at 1.281, while support may be found near 1.247.
The BOE kept interest rates steady at its latest policy meeting, having cut interest rates twice already this year. MPC members voted 6-3 to keep rates on hold, with three members in favor of cutting interest rates. Last week’s MPC voting shows a shift to a hawkish direction, as policymakers had voted with a strong majority of 8-1 to cut rates to 4.75% in October.
Bank of England Governor Andrew Bailey reiterated his former message that the central bank needs to adopt a gradual approach to future rate cuts. Bailey also stressed that the BOE’s policy outlook will remain data-driven and refused to commit to a timeline or magnitude of future rate cuts.
CPI data showed an uptick in British inflation in November. Headline inflation in the UK rose to 2.6% year-on-year in November from 2.3% in October. Core annual inflation, which excludes food and energy, climbed to 3.5% in November from 3.2% in October against 3.6% anticipated.
Final GDP data released on Monday for the third quarter of the year showed that the British economy is stagnating. Earlier forecasts indicated slight economic growth by 0.1% in the third quarter of 2024, but the British economy is being stifled by high interest rates and cannot expand.
USD/JPY gained strength last week, rising from 156.3 to 157.9. If the USD/JPY pair declines, it may find support at 148.6. If the pair climbs, it may find resistance at 158.8.
The BOJ maintained its current monetary policy guidelines steady and its interest rate at 0.25% at its latest policy meeting. BOJ policymakers decided to keep rates unchanged in an 8-1 vote split, as one member voted in favor of a 25-bps hike.
BOJ Governor Kazuo Ueda stated that Japan’s economic and inflationary outlook remains uncertain and stressed that the central bank’s policy will remain data-driven. The BOJ is likely to hold off raising interest rates in the coming months, putting pressure on the Yen. At the same time, the Fed’s rate outlook has become more hawkish than previously anticipated, boosting the USD/JPY rate.
The minutes of the latest BOJ meeting were released on Friday. The minutes showed that policymakers expressed different opinions on the central bank’s rate outlook, with several members speaking in favor of gradual rate hikes. Other BOJ members emphasized the difficulty in predicting a rate hike path, due to changing economic and inflationary conditions.
Inflation in Japan is on the rise, raising the odds of a BOJ rate hike in December and providing support for the Yen. The headline Tokyo CPI inflation rose to 3.0% annually in December, up from 2.6% in November. Headline inflation in Japan rose by 2.7% year-on-year in November from 2.3% in October against expectations of a 2.6% print. In addition, BOJ Core CPI rose to 1.7% year-on-year in November from 1.5% in October against expectations of 1.5%.
Final GDP data for the third quarter of the year showed that Japan’s economy expanded by 0.3%, exceeding initial estimates of 0.2%, but down from 0.7% in the second quarter. The Japanese economy is expanding, after shrinking by 0.5% in the first quarter of the year.
Gold prices traded sideways last week, oscillating around the $2,620 per ounce level. If gold prices rise, they may encounter resistance at $2,726 per ounce, while if gold prices decline, support may be encountered near $2,581 per ounce.
Gold prices are supported by increased Fed rate cut expectations. The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%. A 25-basis point rate cut had been fully priced in, however, and market participants focused mostly on the Fed’s forward guidance.
In his press conference after the policy meeting, Fed Chair Jerome Powell delivered a rather hawkish message, emphasizing the need to be cautious about further rate cuts. Powell stated that the Fed’s approach will remain data-driven and hinted that the pace of future rate cuts will be slower.
In addition, the Fed’s updated dot plot was more hawkish than anticipated, bringing down expectations of future rate cuts. The Fed’s latest dot plot indicated that only two rate cuts will take place in 2025, down from four projected in September.
Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar remained firm last week, and the dollar index hovered close to the 108.1 level. US treasury yields gained strength, with the US 10-year bond yield rising from 4.54% to 4.63%.
Safe-haven demand remains high, due to uncertainty in the Middle East, boosting gold prices. The civil war in Syria is further destabilizing the region. The Syrian rebel army is currently in charge and political instability in Syria is reigniting geopolitical risks, boosting gold prices. In addition, tensions between Israel and Lebanon have cooled after the ceasefire deal, but hostilities between Israel and Hamas continue in the Gaza area. Meanwhile, the situation between Russia and Ukraine remains critical, with Russia threatening to use nuclear missions against Ukraine.
Oil prices traded with low volatility last week, with WTI price ending the week close to $70.5 per barrel. If oil prices retreat, they may encounter support near $68.8 per barrel, while resistance may be found near $71.7 per barrel.
US crude oil inventories released on Friday showed an unexpected drop in US crude stockpiles, boosting oil prices. The US Energy Information Administration reported a weekly crude stockpile draw of 4.2M barrels for the week to December 20, against expectations of a much smaller drop by 0.7M barrels and following a drop of 0.9M barrels the week before.
Oil prices gained strength early in the week on reports of further economic stimulus measures in China, which is the world's largest oil importer. Reports that Chinese authorities have agreed to issue over $411 billion worth of special treasury bonds next year boosted oil prices briefly. Oil prices dipped later in the week, however, as markets had time to digest the news.
Oil prices are kept in check by high central banks’ interest rates. The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%. In his press conference after the policy meeting, Fed Chair Jerome Powell delivered a rather hawkish message, emphasizing the need to be cautious about further rate cuts. Powell stated that the Fed’s approach will remain data-driven and hinted that the pace of future rate cuts will be slower. In addition, the Fed’s latest dot plot indicated that only two rate cuts will take place in 2025, down from four projected in September.
OPEC cut oil demand forecasts for 2024 and 2025 for the fifth month in a row in December. OPEC has cut 2024 demand growth by 210K barrels a day to 1.6 million barrels a day. The organization estimates that oil demand will drop by an additional 90K barrels per day into 2025.
OPEC+ has announced that it will extend its voluntary production cuts until the end of the first quarter of 2025, however. Oil prices have been under pressure and the cartel is limiting production in an attempt to raise oil prices.
Meanwhile, concerns of a broadening conflict in the Middle East have been boosting oil prices in the past year. The civil war in Syria has been rekindled, further destabilizing the region. The Syrian rebel army is currently in charge and political instability in Syria is reigniting geopolitical risks, boosting oil prices. Tensions between Israel and Lebanon have cooled after the ceasefire deal, but hostilities between Israel and Hamas continue in the Gaza area. In addition, the situation between Russia and Ukraine remains critical, with Russia threatening to use nuclear missions against Ukraine.
Bitcoin price briefly rose to the $100,000 level on Thursday but plunged to $94,000 towards the end of the week. If the BTC price declines, support can be found at $92,200, while resistance may be encountered at the psychological level of $110,000.
Ethereum price traded sideways with low volatility last week, oscillating around the $3,340 level. If Ethereum's price declines, it may encounter support near $3,210, while if it increases, resistance may be encountered near $3,540.
Bitcoin traded below the key $100,000 level last week, as a risk-off sentiment prevailed during the holiday season, putting pressure on riskier assets. Bitcoin price registered a new all-time high of $108,200 in December after US President-elect Donald Trump confirmed plans to build a Bitcoin strategic reserve. Donald Trump has openly declared his support of crypto markets, announcing that he will make the US ‘the crypto capital of the planet’. Growing expectations that the new government will adopt a pro-crypto regulatory and fiscal policy have been boosting crypto markets, especially since Donald Trump announced plans to accumulate a national crypto stockpile. Trump reaffirmed his pre-election commitment to build a Bitcoin strategic reserve, boosting crypto markets.
Cryptocurrency prices are also affected by central banks’ interest rates. The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%. Indications that the Fed will follow a more hawkish approach than previously anticipated put pressure on crypto markets last week. In his press conference after the policy meeting, Fed Chair Jerome Powell delivered a hawkish message, emphasizing the need to be cautious about further rate cuts. In addition, the Fed’s latest dot plot indicated that only two rate cuts will take place in 2025, down from four projected in September.
Geopolitical concerns are promoting a risk aversion sentiment, however, lowering the appeal of high-risk assets such as cryptocurrencies. The situation between Russia and Ukraine remains critical, with Russia threatening to use nuclear missions against Ukraine. In addition, tensions between Israel and Lebanon have cooled after the ceasefire deal, but hostilities between Israel and Hamas continue in the Gaza area. Meanwhile, the civil war in Syria has been rekindled, further destabilizing the region and lowering risk sentiment.
BTC/USD 1h Chart
ETH/USD 1h Chart
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