Errante’s The Week Ahead: 9th – 13th December 2024

Highlights of the Week:

Central Bank Decisions in Focus: Central bank rate decisions from the RBA, BOC, SNB, and ECB are anticipated to catalyze significant market movements. The Euro and the AUD are under notable pressure as speculation of potential rate cuts mounts.

US Economic Resilience: The United States continues to demonstrate economic resilience, benefiting from the implementation of Trump-era fiscal policies. Upcoming CPI data and speeches from key Federal Reserve officials are expected to shape the market’s outlook.

Employment Data from Australia and Switzerland: Labor market data from Australia and Switzerland will be essential for understanding broader economic trends, especially in light of the growing pressure on the AUD and CHF.

What Now?

This week presents pivotal decision points for foreign exchange markets as multiple central bank meetings are set to occur, which could prompt substantial movements across major currencies. The European Central Bank (ECB) and Reserve Bank of Australia (RBA) are expected to come under intense scrutiny, given that both economies face significant downward pressure. These dynamics could necessitate rate cuts, and current market sentiment leans towards dovish actions, which could weigh heavily on the Euro and the AUD.

The Euro remains particularly vulnerable, as it trades near a critical support level, exacerbated by growing concerns regarding the ongoing deceleration of economic activity in key Eurozone economies. The upcoming ECB rate decision will be crucial, with traders increasingly betting on the possibility of aggressive monetary easing to stave off a worsening economic outlook. Contributing factors include weaker-than-expected PMI data, persistent geopolitical uncertainty, and the prospect of further economic disruption.

Similarly, the Australian Dollar faces downward pressure due to the growing probability of a dovish shift from the RBA. The combination of softening commodity prices and mixed employment figures has contributed to the bearish sentiment around the AUD. Should the RBA adopt a dovish stance on Tuesday, the currency could see renewed weakness.

Conversely, the United States continues to display economic robustness, largely underpinned by market confidence in Trump’s fiscal policies that aim to stimulate corporate activity. The upcoming CPI data, alongside the Bank of Canada’s rate decision, will further influence market dynamics. Given these circumstances, the USD is expected to maintain its strength as expectations for rate cuts diminish.

Market Events and Announcements:

Times are in GMT+2.

Monday, December 9, 2024:

No high-impact events scheduled.

Tuesday, December 10, 2024:

5:30 AM – AUD: Cash Rate and RBA Rate Statement: The RBA will announce its cash rate decision, with markets closely watching for any dovish adjustments amidst rising economic pressures.

Wednesday, December 11, 2024:

3:30 PM – USD: Core CPI m/m, CPI m/m, and CPI y/y: Key inflation metrics that will influence the Federal Reserve’s approach to future rate policy.

4:45 PM – CAD: BOC Rate Statement and Overnight Rate: The Bank of Canada is expected to hold rates steady, though the accompanying statement will provide insights into the future direction of monetary policy.

5:30 PM – CAD: BOC Press Conference: Governor Macklem’s remarks will clarify the BOC’s policy stance and could induce volatility in the CAD.

Thursday, December 12, 2024:

2:30 AM – AUD: Employment Change and Unemployment Rate: Vital indicators for the Australian labor market, especially significant amidst rising uncertainties and expectations of monetary easing.

10:30 AM – CHF: SNB Monetary Policy Assessment and Policy Rate: The SNB will provide a comprehensive outlook on its policy stance, with significant implications for the CHF, particularly in the face of European economic challenges.

11:00 AM – CHF: SNB Press Conference: Further elaboration from the SNB on its monetary policy trajectory, potentially impacting CHF outlook.

3:15 PM – EUR: Main Refinancing Rate and Monetary Policy Statement: The ECB’s key rate decision, with dovish expectations heightening amidst a pronounced regional economic downturn.

3:45 PM – EUR: ECB Press Conference: Insights from President Lagarde regarding the ECB’s monetary policy direction, which may hint at the extent of future rate easing.

3:30 PM – USD: Core PPI m/m, PPI m/m, and Unemployment Claims: Data releases that will offer insights into producer pricing dynamics and the labor market’s health in the United States.

Friday, December 13, 2024:

9:00 AM – GBP: GDP m/m: A critical measure of the United Kingdom’s monthly economic activity, providing an early gauge of economic health.

Market Insights: Key Charts to Watch

Chart 1: EUR/GBP – Daily Chart

Following a prolonged decline, EUR/GBP is currently trading near 0.82863, testing significant support around the 32-month record low at 0.82675. Despite a minor bounce recently, the pair continues to face downside pressure amid growing expectations of a dovish ECB outcome this week.

Main Scenario:

A break below the recent low at 0.82675 could pave the way for further declines towards the 141.40% Fibonacci extension at 0.82274, followed by the 161.80% extension at 0.82076. The overarching outlook remains bearish as the pair has failed to decisively break above the descending trendline.

Alternative Scenario:

Should the pair rebound and manage to rise above the 61.80% Fibonacci retracement level at 0.83045, it may target the next resistance at 0.83644, a level that coincides with previous highs and could indicate a potential recovery.

Impactful Events:

The ECB’s rate decision and subsequent press conference on Thursday will be pivotal for the Euro’s trajectory. A dovish tone could see the pair break crucial support levels, while an unexpected hawkish stance may trigger a corrective rally.

Key Levels:

Support: 0.82675, 0.82274, 0.82076

Resistance: 0.83045, 0.83644

Chart 2: AUD/USD – Daily Chart

AUD/USD is currently trading around its six-month low, under pressure amid mounting fears of a dovish RBA stance. The pair recently tested a multi-month low at 0.64403 but failed to sustain a rebound, underscoring persistent bearish sentiment in the market.

Main Scenario:

Continued downward movement could see the pair target the 141.40% Fibonacci extension at 0.63950, followed by the 161.80% extension at 0.63728, and eventually the 200% extension at 0.63310. Momentum indicators remain bearish, with MACD signaling sustained downward pressure.

Alternative Scenario:

If the pair finds support and stages a recovery above the recent swing low, it could advance towards the 61.80% Fibonacci retracement at 0.64821. Nevertheless, a definitive move above the key resistance at 0.65496 would be required to negate the current bearish trend.

Impactful Events:

The RBA rate decision on Tuesday and Australian employment figures on Thursday are crucial for the AUD’s direction. A dovish outcome combined with weak labor data could exacerbate AUD weakness.

Key Levels:

Support: 0.63950, 0.63728, 0.63483

Resistance: 0.64403, 0.64821, 0.65496

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