Stronger Dollar and Eurozone Deflation Keep EUR/USD Bearish
EUR/USD
Prediction: Decline
Fundamental Analysis:
The EUR/USD pair is under selling pressure, dropping to around 1.0530 during early Asian trading on Monday, mainly due to a stronger U.S. Dollar. Investors are awaiting a speech from ECB President Christine Lagarde and the U.S. ISM Manufacturing PMI data. The fall in EUR/USD is primarily attributed to Germany's November inflation figures, which, despite some improvement, still indicate deflation. The Harmonized Index of Consumer Prices improved from -1.58% to -0.7% month-over-month but rose just 2.4% year-over-year, missing expectations. The ECB may need to consider negative rates, while the Fed is expected to maintain a cautious stance on rate cuts. As a result, further downside for EUR/USD is anticipated due to diverging central bank policies. Upcoming data releases include EU inflation figures and Germany's jobs report, along with U.S. PMI and Nonfarm Payrolls data next week.
Technical Analysis:
If EUR/USD rises above 1.0600, buyers must reclaim the November 6 swing high of 1.0609 to maintain hopes for further gains. If this level is surpassed, 1.0682 becomes the next key target. Conversely, if EUR/USD drops below 1.0500, the pair could test the November 26 low of 1.0424, potentially heading toward the YTD low of 1.0331.
XAU/USD
Prediction: Decline
Fundamental Analysis:
Gold prices have fallen below $2,650 in the Asian session on Monday, pressured by a recovering U.S. Dollar. Geopolitical tensions and Donald Trump's tariff threats on BRICS countries are increasing demand for the Dollar as a safe haven, which negatively impacts Gold. Despite worries over a potential global tariff war, the U.S. Dollar has struggled against major currencies, as markets expect a 25-basis point rate cut from the Fed in December. The dovish sentiment supports Gold prices, which are also benefiting from renewed tensions between Russia and Ukraine. However, the thin trading due to the Thanksgiving holiday makes it uncertain if Gold can sustain its momentum. The Yen’s rebound due to stronger-than-expected inflation data has raised expectations for a rate hike from the Bank of Japan. Upcoming Eurozone inflation reports may also influence Gold prices.
Technical Analysis:
Gold buyers are regaining some control, indicated by the 14-day RSI crossing above 50. However, the ongoing Bear Cross suggests fading bullish momentum. If Gold fails to stay above the 50-day SMA at $2,670, sellers may push prices down toward the previous low of $2,621. Further support lies at the weekly low of $2,605, with the 100-day SMA at $2,573 as the next target. On the upside, a sustained move above $2,670 could aim for $2,700, with resistance at the November 25 high of $2,721.
GBP/USD
Prediction: Decline
Fundamental Analysis:
The GBP/USD pair is under selling pressure, reversing much of Friday’s gains, driven by increased demand for the U.S. Dollar. The pair has dropped back below 1.2700, following a surge to the mid-1.2700s, its highest point in almost three weeks. This decline comes after a 200+ pip recovery from last week’s low near 1.2500. The USD Index remains near a two-week low, as markets price in a 70% chance of a 25-basis point rate cut by the Fed in December, which benefits GBP/USD. However, traders are reducing expectations for further Bank of England rate hikes after UK inflation data showed price growth accelerated in October. Despite this, geopolitical risks and trade concerns could limit GBP/USD's upside potential.
Technical Analysis:
Traders have tempered expectations for another BoE rate cut, with UK inflation accelerating. This supports the Pound's performance against the U.S. Dollar. However, factors like stalled U.S. inflation progress and potential policies from President-elect Trump that could increase inflation might limit GBP/USD's upside. Trade war concerns and safe-haven demand for the Dollar may also cap gains.
USD/JPY
Predictio: Increase
Fundamental Analysis:
USD/JPY is recovering from a one-month low, testing 150.50 during Monday’s Asian session. The rebound is driven by increased demand for the U.S. Dollar, bolstered by Trump's tariff threats and rising geopolitical tensions, while the Japanese Yen faces uncertainty amid potential rate hikes by the Bank of Japan. However, the pair lost some momentum, dropping to around 150.95 early Friday. The Yen strengthened following a stronger-than-expected Tokyo CPI report, which showed a 2.6% year-over-year increase in November, exceeding market expectations.
Technical Analysis:
The core Tokyo CPI in Japan remains above the Bank of Japan's 2% target, leading to speculation about a possible interest rate hike, which strengthens the Yen. This presents challenges for USD/JPY. In contrast, the U.S. PCE data showed inflation reduction has stalled, potentially lowering expectations for Fed rate cuts in 2025. This could lead to slightly higher U.S. bond yields, supporting the Dollar. Currently, markets price a 62.8% chance of a 25-basis point Fed rate cut in December, up from 55.7% earlier this week.
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