With macroeconomic worries easing and geopolitical concerns fading (somewhat), currencies generally associated with risk on moves have moved higher, especially during the last couple of weeks. For example, the GBPUSD is up 4% in the last month, now trading at over 1.26 at the time of writing. However, traders shouldn’t get too carried away. As always, sentiment can turn in an instant, especially given it is currently on shaky ground. Here are some key points to consider for December:
- Will inflation continue to ease?
- How will geopolitical tensions impact trader decision-making – take into consideration the current situations in the Middle East, Russia/Ukraine, and US relations with China.
- December/Christmas trading patterns – are there any recurring trends you see during the period? For example, how is the forex market impacted by the supposed “Santa Rally” each year?
US Dollar
After a few months of gains for the US dollar, November (at the time of writing) saw a greenback decline against the other major currencies. This is a function of macroeconomic and geopolitical concerns easing, shifting investor sentiment from negative to positive. Of course, it is difficult to predict the direction of geopolitical tensions, but assuming (hopefully) that things continue to cool, we should see the USD weaken further, and currencies such as the GBP continue to climb. During the month, watch out for the US inflation data release, as well as comments from Fed Chair Jerome Powell on any clues as to the direction of US interest rates.
Key Levels
- EURUSD: Higher – 1.1070, Lower – 1.0840
- GBPUSD: Higher -1.2750, Lower – 1.2400
- USDJPY: Higher – 151.72, Lower – 147.27
Euro
While the euro climbed against risk-off currencies such as the USD and JPY during November, against others such as the GBP and AUD, it has been less successful, not far off the price on November 1. Given the outlook for the Eurozone, it was a slight surprise the euro wasn’t weaker during the month. As reported by Bloomberg, European Central Bank Vice President Luis de Guindos recently said there are risks to the current euro-area growth outlook and that the economy may perform worse than currently expected. Looking to December, keep an eye on the EURGBP. If the current market sentiment resumes, there is a possibility it could head back towards 0.8610.
Key Levels
- EURUSD: Higher – 1.1070, Lower – 1.0840
- EURGBP: Higher – 0.8765, Lower – 0.8610
British Pound
After a pause in the GBP downtrend in October, we had expected the downtrend to continue. However, it’s amazing how fast sentiment can shift in a volatile market. The GBPUSD is now climbing following the fall between July and October. This month, before assessing where it could head, we will caution that a change in geopolitical tensions will render our assessment almost useless. However, in current circumstances, the GBPUSD is expected to climb over the next week at least and possibly into Christmas. Inflation data and interest rate comments from the BoE will also be key in determining the direction.
Key Levels
- EURGBP: Higher – 0.8765, Lower – 0.8610
- GBPUSD: Higher -1.2750, Lower – 1.2400
Japanese Yen
The Japanese yen saw some strength against the USD during November, helped by the expectations that the US Federal Reserve rate hike cycle could be over. There was a lot of talk regarding a BoJ intervention when the USDJPY surged, but data suggested that intervention did not occur. Looking ahead, the USDJPY bounced around some key levels, but the current market sentiment and technical analysis suggest 147.27 could be an area to keep an eye on. To the upside, 151.72 has provided solid resistance so far.
Key Levels
- USDJPY: Higher – 151.72, Lower – 147.27
- EURJPY: Higher – 164.20, Lower – 161.80
People Also Read:
- Market Report – 27th November 2023
- Market Report – 20th November 2023
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- USD Rebounds Despite Softer Policy Expectations
- The Best and Worst Performing Currency Pairs in October 2023
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