EUR/USD falls for the second consecutive day amid a stronger US dollar and expectations that the Fed will maintain high interest rates for an extended period.
Possible technical scenarios:
As we can see on the daily chart, EUR/USD has fallen below the 1.0344 level, leaving enough room to reach the next support at 1.0220.
Fundamental drivers of volatility:
A stronger US dollar is exerting pressure on EUR/USD. This week's US economic data supports the US dollar's position, as the Fed finds more reasons to maintain its current monetary policy. The Services Purchasing Managers' Index (PMI) increased to 54.1, and JOLTS job openings rose to 8.09 million, surpassing expectations.
Fed officials, including Raphael Bostic and Lisa Cook, continue to emphasize the need for caution in rate cuts, given persistent inflation and a robust labor market. This stance is bolstering the US dollar and weighing on EUR/USD.
On the other hand, the ECB is expected to cut rates in 2025, adding further selling pressure on the euro. Despite a 2.5% annual growth in retail sales in Germany, the 0.6% monthly decline in November, along with weak economic growth prospects in the eurozone, continue to hinder the euro's performance.
The pair's dynamics this week will be affected by US labor market data (Nonfarm Payrolls) on Friday and the release of the FOMC minutes on Wednesday. The forecast of a decline to 154 thousand employed may induce short-term volatility in the market.
Intraday technical picture:
On the 4H chart of EUR/USD, the pair has pulled back from the dotted resistance at 1.0448 and is now halfway to the 1.0220 support level.
GBP/USD remains under pressure, falling below 1.2500 as the US dollar strengthens.
Possible technical scenarios:
Judging by the unfolding situation on the daily chart, GBP/USD has dropped below the 1.2430 level. A consolidation below this level would allow the price to continue its decline toward the next support at 1.2306.
Fundamental drivers of volatility:
The 3.1% annual growth in retail sales (according to BRC) in the UK failed to provide substantial support for the pound, as the US dollar continues to strengthen amid strong PMI data and expectations of the Fed keeping rates high in 2025.
Investors are focusing on US data this week. On Wednesday, the ADP employment report is due, with forecasts suggesting a drop in employment from 146 thousand to 131 thousand. Later in the day, the release of the FOMC minutes may offer further insight into the Fed's future plans.
The key event will be the labor market report on Friday: average hourly earnings are expected to grow by 0.3%, with the unemployment rate holding steady at 4.2%. The number of new jobs is forecast to decline to 154 thousand from 227 thousand previously. Stronger-than-expected data could reinforce the dollar's position in the pair.
Intraday technical picture:
Based on the 4H chart of GBP/USD, the price has turned downward from the resistance of the descending channel, leaving room for further movement toward the 1.2306 level.
The USD/JPY pair is consolidating near the multi-month high reached yesterday, influenced by the growing yield differential between US and Japanese bonds.
Possible technical scenarios:
On the daily chart, USD/JPY is holding above 157.10. The price is currently testing the local dotted resistance at 158.06. A consolidation above this level would open the way for further growth toward the target of 160.21.
Fundamental drivers of volatility:
Uncertainty surrounding the timing of a potential Bank of Japan rate hike continues to weaken the yen, although growing speculation about possible interventions by Japanese authorities to support the national currency is limiting further bearish bets.
Governor of the Bank of Japan Kazuo Ueda has reiterated his readiness to raise rates if economic conditions improve, but the timing remains unclear. While the yield on Japanese 10-year bonds has reached its highest level since 2011, the yield gap with US Treasuries continues to put pressure on the yen.
On the other hand, the US dollar remains strong, bolstered by strong non-manufacturing PMI data and an increase in job openings to 8.09 million in November. These factors support expectations that the Fed will reduce the frequency of rate cuts compared to earlier forecasts.
Investors are waiting for the release of the FOMC minutes this week, which will influence the short-term dynamics of the pair. Attention is also on Friday’s US employment report, with non-farm payrolls expected to show growth and average hourly earnings projected to rise modestly.
Intraday technical picture:
The 4H chart of USD/JPY shows that there is an attempt to exit the sideways range between 155.88 and 158.06 (between the two dotted lines) upwards. If successful, the price may continue to rise toward the 160.21 level. Alternatively, the price could return to the sideways range and decline within it.
USD/CAD remains in an uptrend, supported by the continued strengthening of the US dollar.
Possible technical scenarios:
As we can see on the daily chart, USD/CAD has risen above the 1.4349 level once again, and it could continue its ascent toward the resistance at 1.4467 marked with dotted lines. If it is overcome, it will open the way for further movement to the next level at 1.4556.
Fundamental drivers of volatility:
The US dollar is strengthening, bolstered by strong economic data, including the ISM report, which highlighted increased activity and rising prices. This supports expectations that the Fed will maintain its hawkish stance. Investors are also awaiting the release of the FOMC minutes and Friday's Nonfarm Payrolls report for additional insights into future rate decisions.
On the other hand, the Canadian dollar remains under pressure. Political uncertainty in Canada has risen following Prime Minister Justin Trudeau's resignation announcement, which could trigger a snap election. Economic data has provided some support to the Canadian dollar, with the Ivey PMI rising to 54.7, though it fell short of expectations, indicating moderate economic growth.
In the coming days, the key drivers for the USD/CAD pair will be US and Canadian employment data. These reports are expected to guide the pair’s direction, given the strengthening global economic and political factors.
Intraday technical picture:
According to the 4H chart of USD/CAD, the price is attempting to consolidate above the support at 1.4349. If successful, the price is likely to continue its rise toward the 1.4467 target.
Oil prices have been rising since the beginning of the year, as production cuts set the stage for reduced supply.
Possible technical scenarios:
On the daily chart, the price is implementing an upward exit from a symmetrical triangle, with a potential for further upward movement. A breakout of the 77.25 level and a subsequent consolidation above it would allow the price to continue rising toward the target of 79.70.
Fundamental drivers of volatility:
Oil prices are rising due to reduced production by OPEC countries and supply cuts from Russia. Additional support is coming from data released by the American Petroleum Institute, which showed a decrease in US oil reserves last week, suggesting stable demand.
An unexpected rise in job vacancies in the US, indicating increased economic activity, has also fueled expectations of higher energy demand, contributing to the price increase.
According to a Reuters poll, OPEC oil production fell in December after two months of growth. The decline was largely due to field maintenance in the UAE, which offset increases in production from Nigeria and other countries.
The market is closely watching data on oil reserves and production levels, as these will likely dictate the next price movements.
Intraday technical picture:
On the 4H chart of Brent, the price has experienced a local pullback after testing the resistance at 77.25. The nearest support level is at 75.18.
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