Article by: ETO Markets
The global forex market is experiencing significant volatility as major central banks shift their monetary policy stances. The Federal Reserve's hawkish 25bps rate cut to 4.25%-4.50% has strengthened the US Dollar, while the ECB's dovish outlook and political uncertainty in France have pressured the Euro. The Bank of Japan's decision to maintain ultra-low rates has pushed USD/JPY to monthly highs above …. Market sentiment remains cautious ahead of key economic data releases, with particular focus on US GDP and PCE figures. Major risk factors include geopolitical tensions, diverging central bank policies, and concerns about global growth momentum.
The European market faces mounting pressures as the ECB signals potential rate cuts through June 2025. Flash Manufacturing PMI data shows continued weakness, with French manufacturing at 41.9 and German manufacturing at 42.5, both significantly below expectations. Political instability in France, marked by a no-confidence vote against Prime Minister Barnier's government, adds to regional uncertainties.
In Asia, Japanese markets are in focus following the BoJ's decision to maintain ultra-low rates, despite rising inflation expectations. The USD/JPY pair has broken above the crucial … level, reflecting the widening interest rate differential with the US. Chinese capital outflows reached record levels in November, with a net outflow of $45.7 billion, impacting regional currency dynamics.
The Australian market shows mixed signals as better-than-expected employment data contrasts with weak consumer confidence. The NAB maintains its forecast for the first RBA rate cut in May 2025, though February remains a possibility. China's commitment to a 5% growth target for 2025 provides some support for the AUD, though recent weakness in commodity prices continues to pressure the currency.
The EUR/USD pair remains under significant pressure, trading below …, as monetary policy divergence between central banks continues to drive market dynamics. While the Federal Reserve delivered a hawkish 25 basis points rate cut with projections of only two cuts in 2025, the European Central Bank is expected to pursue a more aggressive easing cycle through June 2025. The euro faces additional headwinds from weak economic indicators, with manufacturing PMIs in contractionary territory and political uncertainty in France adding to concerns. The threat of new tariffs from President-elect Trump and persistent Eurozone economic weakness further weighs on the common currency.
From a technical perspective, the pair faces strong resistance at …, a critical psychological level that has repeatedly rejected upward movements in December 2024, with the 20-day Simple Moving Average near … reinforcing this barrier. On the downside, substantial support exists at …, marked by the November 22 low and multiple historical bounces. This level gains additional significance from its confluence with Fibonacci extension levels. Price action suggests increased selling pressure around the … zone, while the … support area could see defensive buying emerge due to potentially oversold conditions.
The AUD/USD pair continues its bearish trajectory as diverging monetary policy expectations dominate market sentiment. The Reserve Bank of Australia's likely earlier-than-expected rate cuts starting April 2025 contrast sharply with the Federal Reserve's more measured approach of only two cuts projected for 2025. Despite rising Consumer Inflation Expectations to 4.2% in December, the broader economic picture remains mixed, with declining consumer confidence and labour market concerns. China's economic challenges, including potential exposure to new US tariffs and uncertain growth prospects, add further pressure to the Australian dollar given the countries' strong trading relationship.
From a technical perspective, the pair faces immediate resistance at …, a critical level reinforced by the sharp drop on December 19, caused by the Federal Reserve's rate cut. This zone has consistently contained recovery attempts throughout December 2024, with strong selling pressure emerging during each test. If this level is breached, the price could target …. On the downside, the current price has already reached the 2024 yearly low, making the psychological support level at …—marking the descending channel's lower boundary—a crucial defensive zone. Furthermore, traders must wait for clearer directional signals to confirm support.
