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ECB’s Wunsch: Four more rate cuts is a meaningful scenario that I feel relatively comfortable with

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European Central Bank (ECB) policymaker Pierre Wunsch said on Wednesday that “four more rate cuts is a meaningful scenario that I feel relatively comfortable with.”

Additional quotes

Impact of tariffs depends on reaction in the exchange rate.

A larger euro depreciation would cushion the impact of tariffs on growth.

But it would make a larger impact on inflation.

If Euro touches parity against the dollar, we wouldn’t lose as much in terms of competitiveness.

I guess we’ll land with rates somewhere around 2%.

Four more rate cuts is a meaningful scenario that I feel relatively comfortable with.

There is no appetite to change inflation target.

Market reaction

As of writing, EUR/USD is defending bets at around 1.0500, awaiting the Fed decision for a fresh direction.

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Ripple investors book $1.5 billion in profits after RLUSD launch, XRP struggles near $2.58 resistance

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  • XRP has risen over 10% since Ripple launched the RLUSD stablecoin.
  • XRP investors booked nearly $1.5 billion in profits in the past 24 hours following its recent price rise.
  • XRP struggles near the $2.58 resistance as investors maintain the $4.75 target.

Ripple (XRP) is up 3% on Wednesday after witnessing significant profit-taking among its investors following the launch of the RLUSD stablecoin. Whales have soaked up the selling pressure from profit-takers as XRP struggles near the $2.58 resistance level.

XRP investors realized $1.48 billion in profits following RLUSD launch

Ripple confirmed in an X post on Tuesday that its RLUSD stablecoin has gone live across exchanges, including Uphold, MoonPay, Keyrock, Archax, Bitso and CoinMENA.

After Ripple’s initial announcement of RLUSD’s launch on Monday, XRP began rallying, rising over 10% since the announcement.

Following the rise, XRP investors continued their profit-taking behavior, realizing over $1.48 billion in profits. This is the second-highest single-day realized profits XRP has seen in 2024.

The sustained high prices in the face of such significant profit-taking show buyers have been weathering the selling activity from profit-takers.

XRP Network Realized Profit/Loss

XRP Network Realized Profit/Loss | Santiment

However, it’s important to note that consistent profit-taking at elevated levels could signal local market tops. This potentially explains why XRP has been consolidating since December 2.

The buying pressure that has kept prices afloat must have come from whales, as Santiment data shows XRP whale holdings increased by over 800 million XRP, worth nearly $2 billion, in the past two days. The growing amount of whale holdings signals bullish sentiment is still dominant in the market.

XRP Whale Supply Distribution

XRP Whale Supply Distribution | Santiment

Despite the bullish whale activity, XRP’s Weighted Sentiment is at low levels, indicating the wider market doesn’t hold a bullish view on its price.

Ripple’s XRP struggles near $2.58 resistance amid quest for new all-time high at $4.75

XRP is up 3% after sustaining nearly $26 million in liquidations in the past 24 hours, per Coinglass data. The total amount of liquidated long positions accounted for $12.74 million, and short liquidations reached $13.22 million.

XRP continued validating a flag pattern on Wednesday after testing the resistance level near $2.58. The remittance-based token has established the upper boundary of the flag channel as a key support level.

XRP/USDT daily chart

XRP/USDT daily chart

If XRP manages to overcome the resistance level at $2.58 and $2.92 with a high volume move, it could smash its all-time high resistance and rally to $4.75.

The Relative Strength Index (RSI) and Stochastic Oscillator are near their overbought regions, indicating prices are getting overheated.

A daily candlestick close below the support level at $1.96 will invalidate the thesis.

SEC vs Ripple lawsuit FAQs

It depends on the transaction, according to a court ruling released on July 14, 2023: For institutional investors or over-the-counter sales, XRP is a security. For retail investors who bought the token via programmatic sales on exchanges, on-demand liquidity services and other platforms, XRP is not a security.

The United States Securities & Exchange Commission (SEC) accused Ripple and its executives of raising more than $1.3 billion through an unregistered asset offering of the XRP token. While the judge ruled that programmatic sales aren’t considered securities, sales of XRP tokens to institutional investors are indeed investment contracts. In this last case, Ripple did breach the US securities law and had to pay a $125 million civil fine.

The ruling offers a partial win for both Ripple and the SEC, depending on what one looks at. Ripple gets a big win over the fact that programmatic sales aren’t considered securities, and this could bode well for the broader crypto sector as most of the assets eyed by the SEC’s crackdown are handled by decentralized entities that sold their tokens mostly to retail investors via exchange platforms, experts say. Still, the ruling doesn’t help much to answer the key question of what makes a digital asset a security, so it isn’t clear yet if this lawsuit will set precedent for other open cases that affect dozens of digital assets. Topics such as which is the right degree of decentralization to avoid the “security” label or where to draw the line between institutional and programmatic sales persist.

The SEC has stepped up its enforcement actions toward the blockchain and digital assets industry, filing charges against platforms such as Coinbase or Binance for allegedly violating the US Securities law. The SEC claims that the majority of crypto assets are securities and thus subject to strict regulation. While defendants can use parts of Ripple’s ruling in their favor, the SEC can also find reasons in it to keep its current strategy of regulation by enforcement.

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EUR/USD unplugs bullish attempt, slips back below 1.05

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  • EUR/USD shed a fresh fifth of a percent against the Greenback on Tuesday.
  • Fed-centric US data docket dominates investor sentiment.
  • EU data remains light this week, traders focus on upcoming Fed rate call.

Bullish momentum behind the Euro evaporated on Tuesday, dragging the pair back beneath the 1.0500 handle as traders buckle down for the wait to the Federal Reserve’s (Fed) last rate call of 2024. European data is relatively sparse this week, compelling Fiber traders to navigate a substantial array of US data.

Euro markets largely overlooked multiple European Central Bank (ECB) officials’ appearances earlier in the week, and despite European December PMI figures surpassing expectations. Pan-EU Services PMI survey figures still remain in contraction due to concerns over a deepening economic slowdown in Europe, which continues to unsettle investors and businesses.

US Retail Sales figures lurched higher to 0.7% MoM, stoking some mild concern among investors that maybe the Fed doesn’t need to pursue an aggressive rate-cutting strategy after all, especially when counting a recent uptick in inflation metrics. Despite this, markets are still broadly pricing in a third straight rate cut from the Fed on Wednesday, with 95% odds favoring a 25 bps rate trim according to the CME’s FedWatch Tool.

EUR/USD price forecast

The EUR/USD daily chart reveals a period of consolidation just above the 1.0450 level after the pair’s steep decline from its late October highs near 1.1000. This recent stabilization coincides with investor expectations surrounding the Federal Reserve’s anticipated quarter-point rate cut on Wednesday, which has injected a degree of uncertainty into the greenback’s trajectory. The price action remains capped by the 50-day Exponential Moving Average (EMA) at 1.0658, with the longer-term bearish bias underscored by the 200-day EMA at 1.0809, sloping downward. A break below the key support at 1.0450 could see bears retesting the psychological 1.0400 level, which served as a critical floor in late November.

The MACD indicator at the bottom of the chart shows bearish momentum has eased slightly, as the MACD line flattens and approaches a bullish crossover with the signal line. However, the histogram remains in negative territory, suggesting that upside attempts may still face significant headwinds. A Fed rate cut on Wednesday, if accompanied by a dovish tone, could weaken the dollar further, paving the way for a rebound toward 1.0600 and potentially the 50-day EMA resistance. Conversely, a hawkish surprise may reinforce the dollar’s strength, triggering renewed selling pressure on the EUR/USD pair and opening the door for a retest of yearly lows. Traders are likely to remain cautious ahead of the Fed decision, keeping price action in a tight range in the short term.

EUR/USD daily chart

Euro FAQs

The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

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US Dollar sees upward momentum stall on mixed Retail Sales

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  • DXY trades near 106.80 on Tuesday.
  • Market focus shifts toward upcoming Fed decision on Wednesday.
  • Retail Sales fail to boost US Dollar enthusiasm.

The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, trades with gains around 106.80 on Tuesday, as upward momentum stalls following November’s Retail Sales release. Market focus remains on Wednesday’s decision on interest rates by the Federal Reserve (Fed), and a 25 bps cut is already priced in.

Daily digest market movers: US Dollar stuck as markets assess Retail Sales figures

  • The two-day Federal Open Market Committee meeting begins on Tuesday as economic fundamentals suggest the Federal Reserve should not cut rates.
  • November Retail Sales data slightly exceeded forecasts but failed to spark renewed US Dollar buying, traders weigh the marginal revisions and mixed underlying details.
  • Monthly Retail Sales grew by 0.7%, beating the 0.5% estimate, while the previous print got revised up to 0.5% from 0.4%.
  • Growth remains solid: The New York Fed’s Nowcast model tracks Q4 growth at 1.9% SAAR, while the Atlanta Fed GDPNow stands at 3.3%.
  • Markets still anticipate a 25-basis-point rate cut on Wednesday, priced at over 95% probability, even as economic data challenge the need for immediate easing.

DXY technical outlook: Indicators improve, but upside momentum fades

US Dollar indicators recovered significant ground last week, yet the index lacks the strength to retest the 107.00–108.00 zone. On Monday, the index pulled back. Although it trades near 106.30 on Tuesday, the overall picture remains constructive if it can stay above its 20-day Simple Moving Average (SMA).

Persistent growth and upbeat US data may keep the Greenback supported, but caution is warranted until a decisive break above near-term resistance levels is seen.

US Dollar FAQs

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

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United States Industrial Production (MoM) came in at -0.1% below forecasts (0.3%) in November

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GBP/USD Forecast: Pound Sterling shows signs of life but upside remains capped

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  • GBP/USD trades marginally higher near 1.2700 in the European session.
  • Upbeat employment data from the UK support Pound Sterling.
  • The pair’s action could turn subdues ahead of UK inflation data and Fed meeting.

Following the sharp decline seen in the second half of the previous week, GBP/USD staged a correction and closed in positive territory on Monday. The pair holds its ground and trades at around 1.2700 in the European session on Tuesday.

US Dollar PRICE Last 7 days

The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the weakest against the British Pound.

 USDEURGBPJPYCADAUDNZDCHF
USD 0.62%0.43%1.72%0.76%1.47%1.79%2.07%
EUR-0.62% -0.18%1.06%0.12%0.84%1.17%1.44%
GBP-0.43%0.18% 1.23%0.31%1.03%1.35%1.63%
JPY-1.72%-1.06%-1.23% -0.94%-0.23%0.08%0.37%
CAD-0.76%-0.12%-0.31%0.94% 0.71%1.04%1.32%
AUD-1.47%-0.84%-1.03%0.23%-0.71% 0.32%0.61%
NZD-1.79%-1.17%-1.35%-0.08%-1.04%-0.32% 0.28%
CHF-2.07%-1.44%-1.63%-0.37%-1.32%-0.61%-0.28% 

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

Early Tuesday, the data published by the UK’s Office for National Statistics (ONS) showed that the ILO Unemployment Rate held steady at 4.3% in the three months to October, as expected. In this period, Employment Change was up by 173,000, while annual wage inflation, as measured by the Average Earnings Excluding Bonus, rose to 5.2% from 4.9%.

Although the negative shift seen in risk mood helps the US Dollar gather strength in the European session, GBP/USD manages to hold its ground following the labor market data.

In the second half of the day, the US Census Bureau will publish Retail Sales data for November, which is expected to post an increase of 0.5% on a monthly basis following the 0.4% growth recorded in October. Ahead of the Federal Reserve’s (Fed) monetary policy announcements, however, the market reaction to this data could remain short-lived. In case Wall Street’s main indexes turn south after the opening bell, the USD could continue to outperform its rivals and cap GBP/USD’s upside.

In the European morning on Wednesday, the UK’s ONS will release the Consumer Price Index (CPI) data for November.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly above 50, reflecting sellers’ hesitancy. In case GBP/USD confirms 1.2700 (100-period Simple Moving Average (SMA), Fibonacci 38.2% retracement of the latest downtrend) as support, it could face the next resistance at 1.2730 (200-period SMA) before 1.2750 (Fibonacci 50% retracement).

Looking south, first support could be spotted at 1.2660 (20-period SMA) ahead of 1.2620 (Fibonacci 23.6% retracement).

Pound Sterling FAQs

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

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Ripple reveals official launch for RLUSD, XRP eyes new all-time high at $4.75

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  • Ripple announced its RLUSD stablecoin will officially launch on Tuesday.
  • RLUSD will go live on platforms including MoonPay, Uphold, CoinMENA, Bitso and ArchaxEx.
  • XRP could rally to a new all-time high of $4.75 if it sustains a high volume above the $2.58 and $2.92 resistance levels.

Ripple (XRP) confirmed in a press release on Monday that its RLUSD stablecoin will officially launch on Tuesday across exchanges, including MoonPay, Uphold, CoinMENA, Bitso and ArchaxEx. Bullish sentiments surrounding the launch could help XRP overcome the $2.58 and $2.92 resistance levels.

RLUSD to go live on Tuesday following regulatory approval

Ripple’s much anticipated USD-backed stablecoin is set to go live after a Monday announcement that RLUSD would launch globally on Tuesday.

The news comes after Ripple received approval from the New York Department of Financial Services (NYDFS) on December 10 to lauch the stablecoin, before which the crypto community had anticipated a December 4 launch.

Ripple stated that RLUSD is an “enterprise-grade, USD-denominated stablecoin created with trust, utility, and compliance at its core.”

Ripple’s president, Monica Long, noted in an X post on Monday:

The stablecoin is intended to maintain a 1:1 peg with the US dollar, with reserves of US dollar deposits, short-term Treasury bonds and other liquid cash assets.

RLUSD will go live on exchanges, including MoonPay, Uphold, CoinMENA, Bitso and ArchaxEX. The company stated that it aims to launch the stablecoin on other platforms like Bullish, Bitstamp, Mercado Bitcoin and many others over the next few weeks.

Ripple also plans to use the stablecoin to initiate cross-border payments for its customers starting early next year.

Furthermore, RLUSD will initially be available on the XRP Ledger and Ethereum Mainnet for on-chain users to leverage across DeFi protocols.

Ripple added that an independent auditing firm will issue monthly attestations of RLUSD’s reserve assets to ensure transparency.

Ripple’s XRP validates bullish flag pattern following weekend’s rise

XRP is up 1% after experiencing $18.62 million in liquidations in the past 24 hours, per Coinglass data. The total amount of liquidated long positions is $10.14 million, while short liquidations accounted for $8.48 million.

The remittance-based token validated a bullish flag pattern over the weekend with a breakout above the flag’s descending trendline. XRP rallied further to test the resistance level at $2.58 on Monday after bouncing off the 23.6% Fibonacci Retracement level.

XRP/USDT daily chart

XRP/USDT daily chart

The maximum profit target from the pole’s length indicates that XRP could hit a new all-time high of $4.75. A high volume move above the resistance levels at $2.58 and $2.92 could accelerate the rally to $4.75.

The Relative Strength Index (RSI) and Stochastic Oscillator (Stoch) are above their neutral levels, indicating dominant bullish momentum.

A daily candlestick close below the support level at $1.96 will invalidate the thesis.

Ripple FAQs

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EUR/USD struggles to make headway above 1.05

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  • EUR/USD is trading thin and flat near the 1.0500 handle as bulls struggle.
  • Another Fed rate call and other key US data will keep Fiber focused on the US side this week.
  • Fed expected to cut rates for a third consecutive meeting on Wednesday.

EUR/USD struck a sluggishly bullish note on Monday, drifting into the high end of near-term consolidation just north of the 1.0500 handle, albeit with a notable lack of conviction. European data is comparatively limited this week, leaving Fiber traders to face a hefty data docket on the US side of things.

Markets largely overlooked multiple European Central Bank (ECB) officials’ appearances to kick off the new week. European December PMI figures surpassed expectations, yet Services PMI surveys remain in contraction due to concerns over a deepening economic slowdown in Europe, which continues to unsettle investors and businesses.

Markets are anticipating the Fed’s rate decision on Wednesday, with a 25 bps rate cut fully factored in at 99.1%, according to the CME’s FedWatch Tool. Traders will pay close attention to the Fed’s revised Summary of Economic Projections (SEP) and the interest rate predictions from policymakers.

US PMI data for December presented a mixed picture: the Services PMI hit multi-year highs, whereas the Manufacturing PMI dropped further below 50.0, indicating a contraction. Retail Sales figures will be released on Tuesday but may attract limited market focus ahead of the Fed’s final rate decision of the year.

EUR/USD price forecast

The EUR/USD daily chart reflects an overall bearish trend, as the pair continues to trade below both the 50-day EMA at 1.0659 and the 200-day EMA at 1.0810. The downward-sloping moving averages confirm sustained selling pressure, with the euro unable to regain meaningful ground against the dollar. The MACD indicator remains subdued, with its signal line hovering below zero, signaling weak momentum and caution from buyers.

The most recent candle reveals modest bullish action as EUR/USD closed slightly higher at 1.0517, marking a small rebound after several sessions of sideways movement. However, the pair remains unable to convincingly break above the 1.0550 resistance zone, suggesting limited upside potential in the near term. If buyers gain traction, a retest of the 50-day EMA near 1.0660 could be on the cards. Conversely, failure to sustain this rebound may expose the pair to renewed selling pressure, with support at 1.0450 likely to come into focus. The overall sentiment remains bearish until a clear break above key resistance levels materializes.

EUR/USD daily chart

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US Dollar soft as markets brace for Fed’s decision

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  • The DXY trades slightly lower on Monday.
  • Markets digest recent inflation data and strong S&P PMIs figures.
  • Attention shifts to Wednesday’s Fed rate decision.

The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, trades slightly lower on Monday after a string of data and headlines placed added attention on the upcoming Federal Reserve (Fed) rate decision. The Greenback eases off last week’s strong rally as Chinese economic data and stimulus measures bolster risk appetites.
Despite these developments, rising US Treasury yields help limit losses for the US Dollar, even as the market has priced in a cut on Wednesday. Overall, the currency remains sensitive to incoming data and central bank cues.

Daily digest market movers: US Dollar softens as markets parse hot inflation and solid growth

  • The US Dollar shows weakness on Monday even as the S&P Global Composite PMI rose to 56.6 in December from 54.9, while the Services PMI improved to 58.5 from 56.1. The Manufacturing PMI dipped to 48.3, highlighting a mixed backdrop ahead of the Fed decision.
  • Regarding last week’s data, the November Producer Price Index (PPI) rose 3.0% YoY, exceeding the 2.6% expectation with a revised 2.6% for October (previously 2.4%).
  • Core PPI, excluding food and energy, climbed to 3.4% YoY, beating the 3.2% forecast, and October’s figure was revised to 3.4% (was 3.1%).
  • Consumer Price Index data released last week showed signs of persistent price pressure, doing little to ease policymakers’ inflation concerns.
  • Despite the higher inflation data, markets fully price in a 25-basis-point Fed cut this week, with officials likely delivering a “hawkish cut” that sets the stage for a pause in January.

DXY technical outlook: Indicators rebound but face tough resistance

Indicators recovered significant ground last week but may lack the momentum to break above the 107.00-108.00 zone. On Monday, the Index has retreated from recent highs, reflecting a pause after last week’s rally. 
Still, the outlook remains constructive if the DXY can hold above its 20-day Simple Moving Average (SMA). With mixed data and a pivotal Fed decision looming, traders may remain cautious, awaiting clearer directional cues before pushing the US Dollar materially higher.

Interest rates FAQs

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US Dollar gains with US Services PMI outpacing Germany’s positive print

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  • The US Dollar jumps after the prelimenary December PMI data got released. 
  • Traders are back favoring the Greenback with the Services PMI beating the previous number.
  • The US Dollar Index (DXY) moves back above 107.00 and heads to 107.35.

The US Dollar (USD) is trading higher on Monday after spending most of its time in red numbers at the start of this week. The turnaround comes on the back of a very upbeat release in the preliminary S&P Global Services Purchase Managers Index (PMI) release for December. A print of 58.5 against the previous 56.1 and the concensus 55.7 is smashing it out of the park and is providing the needed tailwind for the Greenback to get out of its disappointing performance earlier this Monday. 

The first move on Monday was initiated after Chinese Retail Sales came in at 3.0% for November, below analysts’ lowest estimate of 4.2% and far below the median estimate of 5.0%. Clearly, the stimulus measures the Chinese government has implemented are not having the impact markets expected them to.

Meanwhile, preliminary S&P Global and Hamburg Commercial Bank (HCOB) Purchase Managers Index (PMI) data for December have been released for European countries and the Eurozone. Overall, manufacturing is sinking further into contraction in both France and Germany. The sole outlier is German Services, which is popping back into expansion at 51.0 against the 49.3 expected. 

German Chancellor Olaf Scholz will be able to use that last data point in his favor during his scheduled meeting at the Bundestag later this Monday, where the chancellor is facing a vote of no confidence. If he loses, the German government will fall, following France’s, with snap elections set to take place possibly on February 23.      

Daily digest market movers: US plays in major league against Europe in second

  • China’s Retail Sales data for November missed market estimates by coming in at 3.0% year-over-year, whereas 4.6% was expected, pushing the Greenback higher against the Chinese Yuan (USD/CNH).
  • The surprise upbeat German Services PMI, combined with the possibility of an announcement about German snap elections, is pushing the Euro higher against the US Dollar (EUR/USD).
  • At 14:45 GMT, the US preliminary S&P Global PMI data for December got released:
    • Services PMI jumped to 58.5, beating the 55.7 estimate and quite far above the previous 56.1. 
    • The Manufacturing component fell further into contraction by 48.3, below the 49.4 estimate and the previous 49.7 print. 
    • The services component will be the leading element, with a weaker US Dollar should services shrink substantially, whereas an upbeat number would trigger more US Dollar strength across the board. 
  • Equities are split with Euro lagging while the S&P Global Services PMI release fires up US equities. The Nasdaq is leading the charge by heading nearly 0.70%. 
  • The CME FedWatch Tool is pricing in another 25 basis points (bps) rate cut by the Fed at the December 18 meeting by 97.1%. 
  • The US 10-year benchmark rate trades at 4.39%, just a sigh below the 4.40% from last week. 

US Dollar Index Technical Analysis: US back to exceptionalism

The US Dollar Index (DXY) shows signs of fatigue, with price action slowing down and starting to trade sideways. Traders feel comfortable with what has been priced in and are probably awaiting anything else until President-elect Donald Trump takes office or should US data fuel any move. The uncertainty on which measures Trump will put in place and which are just threats used as bargaining chips could keep the DXY in a chokehold until late January. 

On the upside, 107.00 remains a key level that needs to be reclaimed before considering 108.00. When and if that finally happens, the fresh 2-year high at 108.07, recorded on November 22, is the next level to watch for. 

Looking down, 106.52 is the new first supportive level in case of profit-taking. Next in line is the pivotal level at 105.53 (the April 11 high), which comes into play before heading into the 104-region. Should the DXY fall towards 104.00, the 200-day Simple Moving Average at 104.19 should catch any falling knife formation. 

US Dollar Index: Daily Chart

US Dollar Index: Daily Chart

Banking crisis FAQs

The Banking Crisis of March 2023 occurred when three US-based banks with heavy exposure to the tech-sector and crypto suffered a spike in withdrawals that revealed severe weaknesses in their balance sheets, resulting in their insolvency. The most high profile of the banks was California-based Silicon Valley Bank (SVB) which experienced a surge in withdrawal requests due to a combination of customers fearing fallout from the FTX debacle, and substantially higher returns being offered elsewhere.

In order to fulfill the redemptions, Silicon Valley Bank had to sell its holdings of predominantly US Treasury bonds. Due to the rise in interest rates caused by the Federal Reserve’s rapid tightening measures, however, Treasury bonds had substantially fallen in value. The news that SVB had taken a $1.8B loss from the sale of its bonds triggered a panic and precipitated a full scale run on the bank that ended with the Federal Deposit Insurance Corporation (FDIC) having to take it over.The crisis spread to San-Francisco-based First Republic which ended up being rescued by a coordinated effort from a group of large US banks. On March 19, Credit Suisse in Switzerland fell foul after several years of poor performance and had to be taken over by UBS.

The Banking Crisis was negative for the US Dollar (USD) because it changed expectations about the future course of interest rates. Prior to the crisis investors had expected the Federal Reserve (Fed) to continue raising interest rates to combat persistently high inflation, however, once it became clear how much stress this was placing on the banking sector by devaluing bank holdings of US Treasury bonds, the expectation was the Fed would pause or even reverse its policy trajectory. Since higher interest rates are positive for the US Dollar, it fell as it discounted the possibility of a policy pivot.

The Banking Crisis was a bullish event for Gold. Firstly it benefited from demand due to its status as a safe-haven asset. Secondly, it led to investors expecting the Federal Reserve (Fed) to pause its aggressive rate-hiking policy, out of fear of the impact on the financial stability of the banking system – lower interest rate expectations reduced the opportunity cost of holding Gold. Thirdly, Gold, which is priced in US Dollars (XAU/USD), rose in value because the US Dollar weakened.

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