Market enters holiday mode with low liquidity as traders await Christmas. Mixed sentiment surrounds the US Fed's 2025 plans after a surprising Core PCE Price Index, while geopolitical concerns add uncertainty. The US Dollar picks up bids to reverse Friday’s losses while GBPUSD shifts trend following initial recovery, impacted by weak UK GDP. That said, EURUSD pulls back, while Gold and Crude Oil inch higher in a slow start to the holiday-shortened week.
Although Friday’s US Core PCE Price Index raised doubts about the Fed’s rate cuts in 2025, the overall sentiment surrounding the US central bank’s moves in the upcoming year remains hawkish, especially after last week’s FOMC. The same joins increasing optimism about raising the US debt ceiling and underpin the US Dollar strength. Furthermore, geopolitical woes surrounding the Middle East and China, as well as trade war fears, also help the safe haven Dollar to remain firmer.
While the US Dollar recovers, the EURUSD lacks upside momentum as European Central Bank (ECB) President Christine Lagarde hints at further rate cuts in her interview with the Financial Times (FT). It’s worth noting that political turmoil in Germany and France and the disappointing prints of the Eurozone Consumer Confidence also exert downside pressure on the Euro pair.
Be it the firmer US Dollar or softer-than-expected Q3 UK GDP, 0.0% QoQ versus 0.1% expected and 0.4% prior, the GBPUSD justifies all to reverse the previous day’s recovery from a seven-month low. It’s worth noting that the Bank of England’s (BoE) inability to convince buyers with its status quo monetary policy in the last week joined mostly downbeat British data to keep the Pound sellers hopeful.
USDJPY picks up bids to reverse the previous day’s retreat from a five-month high, especially amid mixed feelings about the Bank of Japan’s (BoJ) next rate hikes and the market intervention to defend the Yen. Additionally, the Yen pair’s consolidation ahead of this week’s BoJ Minutes and Japan inflation data also propels the prices amid the firmer US Dollar.
NZDUSD ignores the US Dollar’s strength amid news of China’s more stimulus and an absence of risk-negative news from New Zealand which recently drowned the Kiwi pair.
AUDUSD fails to justify China-linked optimism amid broad worries about the Sino-American trade woes and geopolitical tensions. Also weighing on the Aussie pair could be the firmer US Dollar and likely monetary policy divergence between the US Federal Reserve (Fed) and the Reserve Bank of Australia (RBA).
USDCAD snaps a two-day losing streak while ignoring a recovery in the crude oil, Canada’s key export, as political jitters in Canada escalate while the Bank of Canada (BoC) remains certain of cutting rates further, especially after the recent downbeat data from the nation.
Geopolitical concerns join the year-end consolidation and an illiquid trading session to help commodities reverse previous losses, especially the crude oil. Gold has an added advantage in the form of China stimulus to print a three-day uptrend.
Bitcoin (BTCUSD) and Ethereum (ETHUSD) lick their wounds after a hefty fall in the last week as crypto traders reassess industry optimism due to Donald Trump presidency. It’s worth noting that the year-end consolidation joined firmer US Dollar and hawkish Fed bias to trigger these pairs’ fall in the last week.
Looking forward, traders will focus on Canada's monthly GDP and BoC Summary of Deliberations. However, the US Chicago Fed National Activity Index and December Consumer Confidence will be key to shaping market sentiment. While the US Dollar is likely to remain strong, any surprises could spark a corrective bounce amid year-end consolidation. Gold and Crude Oil may continue to recover, while cryptocurrencies and equities are set to consolidate previous losses.
May the trading luck be with you!
