The EUR/USD pair experienced an upward trend this week, influenced by the Federal Reserve's dovish stance and the European Central Bank's hawkish statement.
Possible technical scenarios:
As we can see on the daily chart, the EUR/USD pair saw an increase, halting at the level of November highs. If the price is unable to overcome these highs, there's a chance the pair may retreat to the support at 1.0808. Alternatively, if the highs are surpassed, the pair could extend its growth towards the resistance at 1.1121.
Fundamental drivers of volatility:
Following this week's central bank meetings, a distinctive fundamental outlook emerged. The Federal Reserve declared the end of its monetary tightening cycle on Wednesday. Fed Chair Jerome Powell indicated that discussions about lowering borrowing costs are now on the agenda. The Fed's projections anticipate a 75 basis point interest rate cut next year from the current levels.
In contrast, the ECB adopted a more hawkish tone; Christine Lagarde, the president of the European Central Bank, stated that it is too early to discuss rate cuts, suggesting that elevated borrowing costs could persist for an extended period of time.
Against this backdrop, the EUR/USD pair found fundamental support, and its trajectory will be affected by incoming data and technical factors.
Intraday technical picture:
As evidenced by the 4H chart of the EUR/USD pair, we observe a local resistance at 1.1008 marked with dotted lines. The ability to surpass this level will determine the subsequent price direction. Currently, the pair remains within the range between 1.0958 and 1.1008, while putting the strength of its support to the test.
The GBP/USD pair experienced an uptick driven by the diverging stances of the Fed and the ECB. While the American central bank hinted at a potential rate cut next year, the Bank of England remains firm, deeming discussions about easing monetary policy premature.
Possible technical scenarios:
The GBP/USD pair has reached a resistance at 1.2785 which it may test. If consolidation occurs above this level, it could pave the way for the price to reach 1.2957. If this scenario doesn’t play out, the pair may undergo a downward correction within the range of between 1.2601 and 1.2785.
Fundamental drivers of volatility:
The Bank of England restated its robust position on Thursday, stating that British interest rates will stay elevated for an "extended period of time." Andrew Bailey, the Governor of the Bank of England, refrains from discussing future rate cuts next year, citing unsuitable inflation conditions.
In contrast, the Fed has softened its stance and is open to discussions about the timing of initiating monetary easing, leading to a weakened US dollar and bolstering the pound.
According to information from CME's FedWatch tool, current market estimates suggest a 75% likelihood of a Federal Reserve rate cut in March. Analysts also predict a 150 basis point rate cut by December 2024, doubling the Fed's forecast of a 75 basis point rate cut next year.
Intraday technical picture:
Judging by the unfolding situation on the 4H chart of the GBP/USD pair, the price is consolidating below 1.2785. The pair's subsequent direction hinges on which side of this level the price consolidates.
The decline of the USD/JPY pair persists, driven by the weakening US dollar amid a softer stance from the Federal Reserve.
Possible technical scenarios:
According to the daily chart, USD/JPY has reached the support at 141.49 which it is currently testing. The consolidation below this level may lead to further weakening, extending to the 140.22 level. An alternative scenario involves a rebound towards the resistance at 142.79.
Fundamental drivers of volatility:
The US dollar concludes the week with its most significant depreciation since July, influenced by the Federal Reserve's softened rhetoric and discussions about a potential rate cut next year.
Consequently, the USD/JPY pair lost fundamental support and experienced a downturn even against a weakened yen.
The attention of market players has now shifted to the upcoming Bank of Japan meeting next week. Over 80% of economists predict that the Japanese central bank will end negative interest rates by the end of the next year. At the same time, there are expectations that the Bank of Japan will commence easing the current monetary stimulus in January.
Intraday technical picture:
Based on the look of things on the 4H chart, the USD/JPY pair has entered consolidation within the range between 141.49 and 142.79. The strength of its support will depend on the ongoing dynamics of the US dollar.
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