Divergent CB Paths, Euro Near Two-Year Low, and Precious Metals in Focus

The euro fell below $1.04, nearing a two-year low, as diverging central bank policies weighed on the currency. The ECB’s cautious stance contrasts with the Fed’s limited rate cut projections, strengthening the dollar. 

Gold climbed to $2,610 per ounce, marking a 27% annual gain driven by central bank buying, geopolitical risks, and easing monetary policies. The British pound weakened to $1.256, pressured by a dovish BoE and weak UK economic data. Meanwhile, silver rebounded to $29.5, supported by lower bond yields but lagging behind gold due to industrial demand uncertainty and China’s overcapacity in solar production.

Euro Weakens as Inflation and Interest Rate Projections Clash

The euro fell below $1.04, nearing its two-year low from late November, and is down nearly 6% in 2024 due to diverging central bank policies. The ECB cut rates for the fourth time in December to 3% but maintained a cautious tone, with President Christine Lagarde highlighting persistent challenges like high services inflation at 3.9% despite headline inflation easing to 2.2%. Meanwhile, the Federal Reserve signaled only two rate cuts for 2025, down from four, boosting the dollar. Investors remain wary of US policy shifts under President-elect Donald Trump, adding uncertainty to the 2025 outlook.

From a technical perspective, the first resistance level is at 1.0465, with further resistance levels at 1.0515 and 1.0575 if the price breaks above. On the downside, the initial support is at 1.0330, followed by additional support levels at 1.0300 and 1.0230.

Yen Falls Below 156 Amid BOJ Policy and US Dollar Trends

The Japanese yen has paused its decline against the US dollar but remains near last week’s multi-month low. The BoJ's cautious stance on rate hikes and the Fed's hawkish outlook limit expectations for narrowing the US-Japan interest rate gap, while favorable risk sentiment pressures the yen. However, strong Japanese inflation data keeps the possibility of a BoJ rate hike in January or March alive. Geopolitical risks, including the Russia-Ukraine conflict and Middle East tensions, offer some support to the yen, while a weaker US dollar and concerns over potential Japanese intervention cap further gains for the USD/JPY pair.

The key resistance level appears to be 157.30, with a break above it potentially targeting 158.30 and 160.00. On the downside, 153.90 is the first major support, followed by 152.70 and 151.00 if the price moves lower.

Gold Surges to $2,610 Amid Central Bank Buying and Market Shifts

Gold rose above $2,610 per ounce on Tuesday amid subdued holiday-season trading. Investors continued to assess the Federal Reserve’s outlook for next year, factoring in a slower pace of rate hikes in 2025 after the Fed signaled fewer reductions. However, this view was challenged by softer US PCE inflation, suggesting the possibility of more rate cuts, which benefits a non-yielding gold. Meanwhile, the World Gold Council reported strong central bank demand, reinforcing gold's status as a safe-haven asset, with central banks as net buyers for over 15 years. The metal is on track for a 27% surge this year, heading for its best performance since 2010, driven by central bank buying, geopolitical tensions, and easing by major banks.

Technically, the first resistance level will be 2635 level. In case of this level’s breach, next levels to watch would be 2670and 2710 consequently. On the downside 2605 will be the first support level. 2575 and 2545 are next levels to monitor if the first support level is breached.

British Pound Dips Amid BoE Rate Policy and Economic Struggles

The GBP/USD pair is trading within a range just below the mid-1.2500s during Tuesday's Asian session, staying close to its lowest level since May, which was reached last week. Both the fundamental factors and technical indicators suggest that the path of least resistance for the pair is likely to be downward. The US Dollar (USD) remains strong near a two-year high, bolstered by the Federal Reserve's (Fed) hawkish signal to slow the pace of interest rate cuts in 2025. In contrast, the British Pound (GBP) is pressured by the Bank of England's (BoE) decision to keep interest rates unchanged, accompanied by a dovish outlook. This reinforces the bearish near-term view for the GBP/USD pair.

The first resistance level for the pair will be 1.2600. In case of this level's breach, the next levels to watch would be 1.2680 and 1.2750. On the downside 1.2475 will be the first support level. 1.2400 and 1.2350 are the next levels to monitor if the first support level is breached.

Silver Rebounds Amid Fed Policy Adjustments and Industrial Concerns

Silver rose above $29.5 per ounce, recovering from the three-month low of $29 on December 19th, as markets reassessed the Fed's hawkishness for next year. Softer November core PCE prices eased fears of overly restrictive rates, lowering bond yields and boosting precious metals. However, silver continued to underperform gold due to its uncertain outlook on industrial demand. Overcapacity in China’s solar panel sector led to a government-led supply regulation program, dimming silver demand. Additional pressure came from the risk of a yuan devaluation tied to China’s loose monetary policies, reducing export prices from the world’s largest silver exporter.

Technically, the first resistance level will be 29.85 level. In case of this level’s breach, the next levels to watch would be 30.20 and 30.70 consequently. On the downside 28.75 will be the first support level. 28.00 and 27.00 are the next levels to monitor if the first support level is breached.