Markets Grapple with Central Bank Policy, Geopolitical Risks, and Mixed Data (12.17.2024)

Global markets faced a complex blend of central bank signals, political uncertainties, and mixed economic indicators on Tuesday.

The euro steadied near $1.05 amid weaker data, ECB rate cut expectations, and ongoing political instability in core Eurozone economies. The yen hovered near recent lows as the BOJ’s timeline for rate hikes remained unclear. Gold found support from geopolitical tensions and China’s policy shifts, while the pound edged up ahead of UK economic releases. Meanwhile, silver struggled under cautious sentiment tied to Fed policy and China’s slowdown. Investors now await key U.S. inflation data, upcoming central bank decisions, and potential policy shifts to gauge the next market moves.

Eurozone Outlook: Mixed PMI Data and Policy Shifts

The euro hovered near $1.05, close to two-year lows, as traders assessed the Eurozone's economic and political outlook. Flash PMIs showed a slower private sector contraction, with services rebounding but manufacturing weak. Germany’s Chancellor lost a confidence vote, triggering snap elections, while France’s new government struggles to pass the 2025 budget.

On the monetary front, the ECB delivered a fourth 25bps rate cut last week but maintained a cautious stance. Analysts expect faster easing to support the fragile economy, while the Fed is set to cut rates by 25bps this week and signal a slower pace for 2025.

Technically, the firs resistance level will be 1.0540 level. In case of this level’s breach, the 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 the next levels to monitor if the first support level is breached.

Japanese Yen Reaches Lowest Point in Three Weeks

The Japanese yen hovered around 154 per dollar on Tuesday, near a three-week low, as markets awaited the US Federal Reserve's policy meeting. The Fed is expected to cut rates by 25bps on Wednesday but may signal fewer cuts for 2025. Domestically, Japan’s economy minister reaffirmed cooperation between the government and the BOJ on monetary policy. Speculation suggests the BOJ may delay a rate hike on Thursday, citing little cost in waiting for clearer signs of wage growth before tightening further.

The key resistance level appears to be 154.20, with a break above it potentially targeting 154.80 and 155.40. On the downside, 152.70 is the first major support, followed by 151.70 and 150.90 if the price moves lower.

Safe-Haven Demand Drives Gold to Record Annual Gains

Gold stabilized around $2,650 per ounce on Tuesday as investors awaited the Federal Reserve's meeting and its 2025 outlook. The Fed is expected to cut rates by 25bps, but uncertainty lingers over future easing, especially amid potential inflation risks under the incoming Trump administration

US data showed stronger private sector growth in December, raising concerns the Fed may limit rate cuts next year, which could weigh on gold. Still, bullion is up 29% this year, its best annual performance since 2010, driven by policy easing, safe-haven demand, and continued central bank purchases.

Technically, the first resistance level will be 2665 level. In case of this level’s breach, the next levels to watch would be 2700 and 2725 consequently. On the downside 2630 will be the first support level. 2600 and 2565 are the next levels to monitor if the first support level is breached.

Pound Increases Before December Cuts

The pound traded around 1.2670, while the dollar index held steady near 106.8 on Tuesday as investors remained cautious ahead of the Federal Reserve's policy announcement. The Fed is expected to cut rates by 25bps on Wednesday, but focus will be on its economic projections for 2025. Market expectations for further rate cuts next year have eased amid inflation concerns, particularly with Donald Trump's potential return to the White House. On the economic front, S&P Global Flash PMIs showed stronger private sector growth, driven by services, while manufacturing remained weak. Investors are also focusing on the Bank of England’s policy decision later this week.

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.

Global Trends Weigh on Silver: Fed Policy and China’s Slowdown

Silver remained below $30.5 per ounce on Tuesday, pressured by expectations of a slower pace of easing from the Federal Reserve next year. While the Fed is expected to cut rates by 25bps this week, it may signal fewer cuts for 2025 amid inflation concerns. Silver also faced headwinds from weak demand in China, the world’s largest metals consumer. November data showed slower retail sales growth and a 17th consecutive monthly decline in new home prices, highlighting persistent property market challenges. Despite Beijing’s recent stimulus pledges, investor optimism remained muted due to a lack of details on the rescue measures.

Technically, the first resistance level will be 30.70 level. In case of this level’s breach, the next levels to watch would be 31.50 and 32.30 consequently. On the downside 29.85 will be the first support level. 29.35 and 29.00 are the next levels to monitor if the first support level is breached.