- US CPI to be another clue ahead of Fed decision; USDJPY remains steady around 150.50
- ECB to cut rates by 25 bps; EURUSD fails to extend above 1.0600
- BoC to continue rate cuts in 2024; USDCAD surges to 4½-year high
US CPI data –> USDJPY
The US CPI data will be a crucial announcement this week, as it is the latest clue ahead of the Fed’s interest rate decision at the December 17-18 meeting. A significant market reaction is expected if the headline CPI rises from 2.6% to 2.7% y/y as anticipated, while core CPI is predicted to remain the same at 3.3% y/y. Unless there are any unexpected positive developments, the Federal Reserve is likely to reduce rates and maintain the January meeting as a potential opportunity for a pause.
USDJPY is fluctuating below the short-term uptrend line but remains above the one-month low of 148.63. Also, the 151.10 barrier seems to be a real struggle for the bulls ahead of the simple moving averages (SMAs) which are standing within 151.60-152.70. If the bulls manage to overcome this region, traders may test the inside swing low at 153.25. Otherwise, a drop below the 148.63 support could take the pair until the 146.50-147.15 zone.
ECB policy meeting –> EURUSD
The European Central Bank (ECB) is expected to cut rates by 25 bps, but a cut of 50 bps is not excluded from the equation this time; however, the probability for such a scenario is low. Nonetheless, a fragile economy and reemerging political instability in both France and Germany have led several traders to speculate that the ECB will need to adopt a significantly more aggressive approach to policy easing in the forthcoming months. The euro is unlikely to experience significant fluctuations unless Lagarde employs surprisingly dovish rhetoric during her post-meeting news conference, which could trigger a renewed selloff.
EURUSD had a failed attempt to hold above the 1.0600 psychological level and returned within the 1.0450-1.0600 narrow range in the short-term. The bigger outlook is negative, with the next support lines coming from the previous bottom of 1.0330, the two-year low, and the November trough at 1.0220. Alternatively, a successful climb beyond 1.0600 could add some optimism to traders for further increases to 1.0665 and the 50-day simple moving average (SMA) at 1.0730.
BoC policy meeting –> USDCAD
The Bank of Canada has been at the forefront of global rate cuts, reducing rates four times this year, with the most recent cut being a significant 50 basis points. Will BoC cut rates by 25 or 50 bps this time?
In October, both headline and core inflation measures increased, and the job market is recovering from a weak period. Despite this, economic growth remains slow, and business sentiment is pessimistic, particularly with US president-elect Donald Trump’s threat of imposing 25% tariffs on all Canadian imports. Another factor for the Bank of Canada to consider is the growing yield gap with the US, as the Federal Reserve has been less aggressive and might even pause rate changes soon.
USDCAD had an aggressive buying interest on Friday, adding more than 1% and approaching the four-and-a-half-year high of 1.4176. More upside pressures could take the market towards the 1.4265 resistance, registered in April 2020 and endorsing the bullish picture in the long term. On the other hand, a drop below the 1.4100 round number could send traders to the 20-day SMA at 1.4030. Stochastics and RSI are standing near their overbought levels, indicating a potential downturn.