Dollar Rally Weakens EUR/USD as Market Eyes Fed’s December Meeting
EUR/USD
Prediction: Decrease
Fundamental Analysis:
EUR/USD fell to approximately 1.0800 on Thursday after the Federal Reserve’s widely expected 25 basis point rate cut. Now that the November decision has passed, market focus shifts to the upcoming Fed meeting on December 18.
The pair rebounded above 1.0800 after initially dipping to around 1.0680, impacted by Donald Trump's election victory and the potential for a "Red Sweep." However, EUR/USD remains under the 200-day moving average near 1.0870, hinting at a possible continued decline.
Meanwhile, the U.S. Dollar sharply reversed course, losing ground after surpassing 105.00 on the Dollar Index (DXY), as U.S. yields fell while German bund yields rose.
The Fed’s statement emphasized easing labor market conditions and inflation nearing its 2% target. Meanwhile, the ECB remains cautious, having recently lowered its deposit rate to 3.25%. Key decisions from both central banks will likely guide EUR/USD’s future direction.
Technical Analysis:
If EUR/USD continues to decline, it may test the November low of 1.0682, followed by the June low of 1.0666. On the upside, the November high at 1.0925 is the first resistance level, with the 55-day SMA at 1.0995 and the 2024 high of 1.1214 as additional resistances. A sustained decline is probable while EUR/USD stays below the 200-day SMA at 1.0868.
The four-hour chart shows potential for a brief recovery, with initial resistance at 1.0824, followed by the 200-day SMA at 1.0932, and then 1.0996. Immediate support levels are at 1.0682, 1.0666, and 1.0649, with the RSI around 48.
XAU/USD
Prediction: Decrease
Fundamental Analysis:
Gold prices hovered around $2,700 in Asian trading on Friday, struggling to extend their recovery near the 50-day SMA support and close to a three-week low. The rising demand for the U.S. Dollar, despite a positive risk sentiment, has pressured gold.
Spot gold rallied after U.S. markets opened, nearing $2,700 after dropping to $2,643.28 earlier. The U.S. Dollar weakened as stocks strengthened post-election, with most Asian and European indexes closing higher.
U.S. indexes remain mixed, with the S&P 500 rallying while the Dow Jones Industrial Average lags. Investors are awaiting the Federal Reserve’s announcement and are watching for potential inflation impacts due to Trump's win, which could support gold prices.
Technical Analysis:
Technically, the upside potential for XAU/USD looks limited. On the daily chart, gold trades below its 20 SMA, which is still bullish. The 100 and 200 SMAs are rising below the current price, signaling a long-term bullish trend. Technical indicators show slight upward movement, with Momentum near neutral and the RSI close to 50, but these increases are not strong enough to suggest further gains.
On the 4-hour chart, indicators have moved from oversold conditions, though upward momentum is waning. Support is around the flat 200 SMA at $2,687.40, with the 20 SMA still declining, limiting short-term bullish potential.
GBP/USD
Prediction: Increase
Fundamental Analysis:
The GBP/USD pair fell to roughly 1.2975 during Friday’s Asian trading as the British Pound weakened following a 25 basis point rate cut by the Bank of England on Thursday. GBP/USD declined over 1% on Wednesday, marking the lowest close since mid-August. The pair briefly recovered to around 1.2950 on Thursday as traders anticipated decisions from both the Bank of England and the Fed.
The U.S. Dollar’s strength has weighed on GBP/USD, influenced by Trump’s election win. The 10-year U.S. Treasury yield rose nearly 4%, with the USD Index seeing its largest one-day increase, over 1.5%.
The BoE is likely to reduce rates to 4.75%, and if some policymakers advocate keeping rates steady, the Pound could gain strength. However, a unanimous rate cut might drive GBP/USD lower. Meanwhile, the Fed is expected to cut rates by another 25 basis points to a range of 4.5%-4.75%. Powell’s emphasis on a data-driven approach will impact the Dollar’s movement and, by extension, GBP/USD.
Technical Analysis:
The 4-hour RSI near 50 indicates a reduction in bearish momentum. GBP/USD is currently between the 100-day and 200-day SMAs, around 1.3000 and 1.2820, respectively.
A sustained rise above 1.3000 could see resistance at 1.3050, followed by 1.3100. Downside support levels are 1.2870 and 1.2820, with a daily close below 1.2820 potentially leading to further losses toward 1.2760.
USD/JPY
Prediction: Increase
Fundamental Analysis:
USD/JPY is holding minor support above 153.00 early Friday, recovering some losses from Thursday after reaching its highest level since July 30. Positive sentiment and a Dollar rebound post-Fed announcement support the pair, but potential Japanese intervention may cap gains.
On Thursday, USD/JPY traded slightly above 153.00 as investors assessed the Fed’s 25 basis point rate cut on November 7. With one remaining Fed meeting in 2024, optimism remains for another 25 basis point cut.
Technical Analysis:
The U.S. Dollar’s overbought rally could push USD/JPY above 155.00 before pausing, although it’s unlikely to reach the next resistance at 156.00 soon. However, the strengthening momentum indicates a potential rise to 156.00.
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