Dollar Near Two-Year Highs, UK CPI in Focus (18.11.2024)

The US Dollar Index hovers near two-year highs at 106.6, pressuring EUR/USD at 1.0540 as hawkish Fed expectations weigh on the euro and pound.

The yen weakened to 155 after hints of gradual BoJ rate hikes, while crude oil and gold saw mixed performances amid shifting market dynamics. Gold rebounded to $2,600, supported by geopolitical tensions and Fed uncertainty. The GBP/USD at 1.2630 awaits UK CPI data, which may shape its trajectory. Silver recovered to $30.60, driven by China's economic outlook and US PMI expectations.

EUR/USD Under Pressure as Dollar Soars on Fed

The EUR/USD is trading around 1.0540, while the US Dollar Index remains stable near 106.6 on Monday, hovering close to its highest levels in two years. This comes on growing expectations for fewer Federal Reserve interest rate cuts and optimism regarding the US economy’s performance under a potential second Trump presidency. Last week, Powell signaled that the central bank has no immediate plans to lower rates, citing the economy's resilience, a strong labor market, and ongoing inflationary pressures. Additionally, strong retail sales and inflation data reinforced a more hawkish outlook on Fed policy. While markets still anticipate a 0.25% rate cut in December, projections for further rate cuts through late 2025 have been revised down to 77 basis points, compared to over 100 basis points just a few weeks ago.

Investors are closely monitoring the potential appointment of Donald Trump's Treasury Secretary, with Cantor Fitzgerald CEO Howard Lutnick and investor Scott Bessent emerging as leading candidates for the role. ECB President Christine Lagarde's speech today, before tomorrow's Eurozone CPI data release, will be analyzed for insights into future ECB policy.

In the EUR/USD pair, the initial resistance level is at 1.0600 followed by 1.0650 and 1.0700 as subsequent resistance points. On the downside, the first support level is 1.0500. If this level is breached, the next support levels to watch will be 1.0450 and 1.0400.

Yen Weakens as BoJ Keeps Dovish Stance

The Japanese yen weakened again to around 155 per dollar, reversing some of the gains from the previous session as investors reacted to comments from Bank of Japan Governor Kazuo Ueda. Ueda reiterated that the central bank intends to raise interest rates gradually if the economy evolves as expected but offered no specific timeline for any rate hikes. He also mentioned that the BoJ alert for risks, including those related to the US economy.

On Friday, the yen had strengthened by more than 1% after Japan's Finance Minister Katsunobu Kato hinted that the government might intervene if the currency continues to depreciate too fast. This comment followed the yen's slide to a near four-month low, driven by uncertainty surrounding the BoJ's future rate-hike plans. Meanwhile, the US dollar has gained strength on the back of expectations for fewer Federal Reserve rate cuts and a positive outlook on US economic performance under a potential second Trump presidency.

In the USD/JPY pair, the first support level is at 153.80. If this level is broken, the next support levels to monitor are 152.50 and 151.80. On the upside, resistance levels are at 156.10, 157.50, and 158.00, respectively.

Gold Finds Support, Fed Uncertainty Persists

Gold prices surged to nearly $2,600 per ounce on Monday, recovering from their largest weekly decline since 2021, as the rally in the US dollar paused. Recent US data showed a strong rise in retail sales for October, highlighting the economy's resilience. Comments from several Federal Reserve officials last week added uncertainty over the timing and magnitude of potential rate cuts. However, markets are still pricing at roughly a 65% probability of a 25bps rate cut in December. Investors are now focused on upcoming remarks from other Fed officials this week, looking for clearer signals on the future path of US interest rates. Meanwhile, geopolitical tensions, particularly in the Middle East and the ongoing conflict between Ukraine and Russia, could fuel safe-haven demand, providing additional support for gold.

The first support level for gold is at $2,575, followed by $2,545 and $2,520 while $2,605 serves as a key resistance level, with $2,635 and $2,665 as the next levels to monitor if this resistance is surpassed.

UK Inflation Data Key for GBP/USD Direction

The GBP/USD is trading around 1.2630 following last week's sharp decline. This week, UK CPI data will be released, and its outcome is expected to play a key role in determining the pair's direction. The market anticipates one more rate cut from the Bank of England in December. Meanwhile, expectations of a Trump election win are seen as supportive of the US Dollar Index due to his inflationary policies. This has contributed to the weakening of the pound. However, UK inflation data, along with upcoming economic reports from the US, will be crucial in shaping the market's outlook.

Key support levels for the GBP/USD pair are at 1.2595, 1.2520, and 1.2475. On the upside, resistance levels to watch are at 1.2680, 1.2740, and 1.2820.

Silver Rebounds, Eyes China Data

Silver started the day trading at $30.60, up nearly 1% as it recovered from a sharp decline last week. The sell-off was partly driven by market pricing in the impact of Trump's election, with expectations that his win would weaken China's economy and strengthen the US dollar, both of which contributed to silver's decline. This week, key data from the US, including the PMI reports, as well as China's upcoming Loan Prime Rate announcement, will be crucial for silver. In particular, the lack of market-expected stimulus in China makes this data release especially important, as it could have a significant impact on silver, given its role as an industrial metal.

On the upside, the critical resistance levels to watch are 31.00, 31.60, and 32.10. On the downside, 29.75 remains a significant first support level. If this level is breached, the next support levels to monitor are 29.30 and 28.80, respectively.