The EUR/USD pair is trading within a narrow range around the key 1.0500 level, awaiting the outcome of the Fed's final meeting of the year.
Possible technical scenarios:
On the daily chart of EUR/USD, the trading range for the week remains unchanged, with the pair staying within the range between 1.0478 and 1.0614 since late November. The price has pulled back to the 1.0478 support level, and if it fails to hold and the price consolidates below it, the next target for the pair's decline will be the horizontal level at 1.0344.
Fundamental drivers of volatility:
The key event for the US dollar in the pair on Wednesday will be not only the Fed's rate decision but also the release of the updated economic forecasts (SEP) and the "dot plot." Analysts and traders anticipate a 25 basis point rate cut, bringing the range to 4.25%-4.50%. While this decision is largely priced in, the main focus will be on Fed Chairman Jerome Powell's statements, with expectations that he will signal a pause in rate cuts at upcoming meetings.
Meanwhile, the outlook for the euro remains bearish. The ECB is expected to continue its rate-cutting path, aiming for a neutral level around 2% by 2025. Comments from Finnish central bank head Olli Rehn have confirmed this trend, with the scale and pace of cuts depending on data and analysis at each meeting.
As a result, EUR/USD faces pressure from both a weak euro and a strong dollar.
Intraday technical picture:
The EUR/USD price consolidation at the support level of the sideways range between 1.0478 and 1.0614 could result in either a recovery within this range or a decline to the 1.0344 level. The ability of the 1.0478 level to hold will depend on the US dollar's reaction to the Fed's rhetoric today.
GBP/USD is consolidating this week as market participants remain cautious ahead of the Federal Reserve and Bank of England's monetary policy decisions.
Possible technical scenarios:
Judging by the unfolding situation on the daily chart, the GBP/USD pair has held above the support level at 1.2608. After retreating from this level, it reached the dotted resistance at 1.2723. If it is broken out, this resistance could lead to further gains toward the 1.2792 target.
Fundamental drivers of volatility:
This week, UK inflation data for November came in as expected, raising the likelihood that the Bank of England will maintain its interest rate at 4.75% on Thursday, December 19. However, the split vote within the Monetary Policy Committee (MPC) suggests potential disagreements on future decisions. Investors are paying close attention to the press conference by Bank of England Governor Andrew Bailey to gauge the outlook for monetary easing in 2025.
Meanwhile, the market has already priced in a 25 basis point rate cut by the Fed, bringing its target range to 4.25-4.50% on December 18. Traders will focus on the central bank’s economic forecasts and the dot plot, which will be released after the meeting. The US dollar is showing limited movement ahead of the meeting, which is keeping GBP/USD volatility in check.
Key catalysts also include UK retail sales data and any further signals from the central banks, which will influence the short-term dynamics of GBP/USD.
Intraday technical picture:
According to the 4H chart, GBP/USD is consolidating just below the dotted resistance at 1.2723. Volatility in the pair, driven by the rhetoric from the Fed and BoE, is likely to help the pair establish its position around this key level.
USD/JPY continues to strengthen as the yen struggles to recover, while the US dollar remains robust. The pair’s volatility may increase this week due to the Fed and Bank of Japan meetings.
Possible technical scenarios:
On the daily chart of USD/JPY, the pair has consolidated above the 153.09 level, with room to move towards the next resistance at 154.83.
Fundamental drivers of volatility:
Expectations that the Bank of Japan will keep interest rates unchanged on Thursday limit the potential for JPY appreciation. Meanwhile, rising US Treasury yields and strong US retail sales data continue to support the dollar, putting additional pressure on the yen.
Japanese economic data is sending mixed signals. November's trade balance improved due to a 3.8% increase in exports, driven by a weaker yen and higher demand from the US and China. However, a 3.8% decline in imports offset some of the positive news. While these indicators support the Japanese economy, expectations of a neutral BoJ policy leave investors cautious.
In the US, November retail sales exceeded expectations, reinforcing economic stability. Additionally, the 10-year bond yield reached recent highs, boosting the appeal of the US dollar.
Market participants are also focused on the Fed meeting, with expectations for a 25 basis point rate cut to a range of 4.25%-4.50%, to be announced on Wednesday.
Intraday technical picture:
On the 4H chart of USD/JPY, the price still has some room to move toward the resistance range between 153.09 and 154.83. That said, the pair's short-term direction and targets may be adjusted after the outcomes of the central bank meetings.
USD/CAD continues to strengthen, reaching new highs driven by the weakness of the Canadian dollar and the strength of the US dollar.
Possible technical scenarios:
On the daily chart, USD/CAD is consolidating above the 1.4261 level, approaching the next resistance at 1.4349. A breakout above this level could pave the way for further gains toward the next significant level at 1.4556.
Fundamental drivers of volatility:
Dovish comments from Bank of Canada Governor Tiff Macklem are increasing pressure on the Canadian dollar. Macklem has signaled a cautious stance on monetary policy, fueling expectations of slower economic growth and a potential easing of policy in the future.
Canada's macroeconomic data is also underwhelming. Inflation fell to 1.9% year-on-year, below market expectations. The decline in core inflation strengthens the case for additional economic stimulus. Furthermore, political instability caused by the resignation of the finance minister is adding further pressure on the Canadian dollar.
Meanwhile, the US dollar remains strong ahead of the Federal Reserve's meeting results on Wednesday. The market has nearly fully priced in a 25 basis point rate cut, but investors are also awaiting comments from Fed Chairman Jerome Powell and updated economic forecasts, which could influence the future direction of USD/CAD.
Intraday technical picture:
The 4H chart of USD/CAD shows that the pair has limited room to move within the sideways range between 1.4261 and 1.4349. A potential rise in the US dollar, especially if the Fed adopts a hawkish tone, could trigger a breakout to the upside from this range.
Oil prices are rising cautiously as the market awaits the US Federal Reserve's interest rate decisions.
Possible technical scenarios:
On the daily chart of Brent, the price remains within the sideways range between 70.85 and 75.18, retreating slightly from the upper boundary of the symmetrical triangle. There is still some room for movement toward the lower boundary. An exit from this pattern is possible in either direction. If the price moves upward, the next target for growth would be 79.70.
Fundamental drivers of volatility:
Brent futures have gained support due to a reduction in US crude oil inventories. At the same time, investor focus is on the Fed's economic forecasts, which will shape the rate trajectory until 2026.
The American Petroleum Institute (API) reported a decline in oil reserves by 4.69 million barrels last week, but rising gasoline and distillate inventories somewhat limited the market’s positive reaction. The impact of these factors is tempered by uncertainty surrounding the Fed's monetary policy and concerns about a potential trade war.
A Fed rate cut could stimulate economic growth and increase oil demand. However, worries about US policy and its possible effects on the Fed's autonomy are keeping investors cautious. These concerns limit the potential for a sharp rise in oil prices in the near term.
Intraday technical picture:
The 4H Brent chart shows that the price is fluctuating within the triangle, with a potential pullback toward its lower boundary around the 71.44 level.
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