Global Markets Adjust to Fresh CB Cuts Among Geopolitical Risks (12.13.2024)

Markets navigated a challenging environment as the euro slipped near a two-year low following another ECB rate cut and hints of further easing. 

The yen weakened amid delayed BOJ hikes, while gold remained steady ahead of a possible Fed rate cut next week. The pound fluctuated under a strong dollar and uncertain economic prospects, and silver lost ground amid concerns about Chinese demand and global tariff tensions. Investors now await key economic data and central bank guidance to clarify the path ahead.

Political Uncertainty and Weak Growth Weigh on the Euro

The euro slipped below $1.05, nearing the two-year low of $1.04 from late November, after the European Central Bank (ECB) cut benchmark rates and hinted at more reductions. As expected, all three main rates were reduced by 25bps, marking the fourth cut this cycle, driven by persistently low inflation. The ECB also removed its guidance on maintaining restrictive rates to combat inflation. Additionally, GDP growth forecasts were lowered, with 2024 projected at 0.7% (down 0.1 percentage points) and 2025 at 1.1% (down 0.2 points), lagging behind U.S. expectations. Political uncertainty in France and Germany added further pressure to the euro.

Technically, the firs resistance level will be 1.0540 level. In case of this level’s breach, next levels to watch would be 1.0600 and 1.0660 consequently. On the downside 1.0450 will be the first support level. 1.0400 and 1.0330 are next levels to monitor if first support level is breached.

Yen Declines, Business Data Awaited

The Japanese yen fell to 153 per dollar on Friday, its lowest in over two weeks, as speculation grew that the Bank of Japan (BOJ) might delay raising interest rates. Market expectations for a 25bps hike this month dropped to 23%, with reports suggesting the BOJ sees "little cost" in postponing further tightening. Officials emphasized the need for more evidence of wage growth before policy adjustments, while noting that concerns about a weaker yen fueling inflation are easing. Meanwhile, sentiment among large Japanese manufacturers improved slightly in Q4, offering modest support for the domestic economy.

The key resistance level appears to be 153.10, with a break above it potentially targeting 153.65 and 154.75. On the downside, 151.00 is the first major support, followed by 149.40 and 148.70 if the price moves lower.

Gold Prices Stabilize as Markets Eye Fed’s Next Move

Gold climbed above $2,680 on Friday, rebounding from a 1% drop in the previous session, as investors analyzed recent economic data. US factory gate prices rose surprisingly in November, raising concerns about persistently high inflation, while initial jobless claims surged to a nearly two-month high, pointing to a softening labor market. Markets largely expect a 25bps Fed rate hike next week, with projections for cuts next year, though uncertainty lingers about their extent. Meanwhile, dovish moves by other central banks, including rate cuts from the SNB (50bps), ECB (25bps), and BoC (50bps), alongside the BoJ's pause on hikes, had minimal impact on gold. The metal is on track for its first weekly gain in three.

Technically, the first resistance level will be 2700 level. In case of this level’s breach, next levels to watch would be 2725 and 2750 consequently. On the downside 2660 will be the first support level. 2630 and 2600 are next levels to monitor if first support level is breached.

Pound Increases Before December Cuts

The GBP/USD dropped to 1.2660 on Friday morning, while the dollar index rose above 107, putting it on track for a 1% weekly gain, its best performance in a month. This rise follows markets factoring in a 25-basis point rate cut by the Federal Reserve next week, although the outlook for 2025 remains uncertain. Data released Thursday showed the headline producer price index increased more than expectations, while the core index grew at the anticipated rate. Additionally, initial jobless claims unexpectedly surged to a nearly two-month high of 242K, significantly exceeding the expected 220K. Markets are currently pricing in a 96% probability of a quarter-point rate cut by the Fed at next week's meeting.

The first resistance level for the pair will be 1.2720. In case of this level's breach, the next levels to watch would be 1.2770 and 1.2810. On the downside 1.2610 will be the first support level. 1.2550 and 1.2500 are the next levels to monitor if the first support level is breached.

Silver Extends Losses as Industrial Demand and Policy Moves Weigh In

Silver dropped below $31 per ounce on Friday, retreating from a one-month high of $32 in the prior session, as concerns over Chinese industrial demand outweighed support from dovish central bank moves. China's willingness to devalue the yuan in response to US tariff threats and its commitment to looser monetary policy pressured silver prices. Overcapacity in China’s solar panel industry led photovoltaic companies to join a government program to regulate supply, further dimming silver demand prospects. Markets anticipate the Fed will cut rates by 25bps next week, following rate reductions by the ECB, BoC, and SNB this week.

Technically, the firs resistance level will be 31.50 level. In case of this level’s breach, next levels to watch would be 32.30 and 33.00 consequently. On the downside 30.70 will be the first support level. 29.85 and 29.35 are next levels to monitor if first support level is breached.