US CPI, Fed Decision to Guide US Dollar, Setups on EUR/USD, USD/JPY, GBP/USD

US DOLLAR FORECAST – EUR/USD, USD/JPY, GBP/USD

• The U.S. dollar is likely to experience increased volatility this week, with several high-impact events on the economic calendar
• Market focus will be on U.S. inflation data on Tuesday and the Fed’s monetary policy announcement on Wednesday
• This article examines the technical outlook for EUR/USD, USD/JPY and GBP/USD, discussing critical price levels to watch in the coming days.

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The week-ahead economic calendar will be packed with high-impact events for the U.S. dollar, but the most important ones that may help define its near-term path will be the November U.S. consumer price index report to be released on Tuesday morning and the Federal Reserve’s monetary policy announcement scheduled for Wednesday afternoon.

Over the past month, the Fed’s interest rate outlook has shifted in a dovish direction, with markets pricing in about 100 basis points of easing over the next 12 months. Although recent data, such as last month’s employment numbers, have been strong and inconsistent with an economy in urgent need of central bank support, traders have held firm in their belief that aggressive cuts are just around the corner.

Projections, however, could become less dovish in the coming days if the latest inflation figure surprises to the upside or displays limited progress towards the Fed’s 2.0% target. In terms of estimates, November headline CPI is forecast to have slowed slightly to 3.1% y-o-y from 3.2% y-o-y previously, while the core gauge is anticipated to remain steady at 4.0% y-o-y.

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INCOMING US DATA

Source: DailyFX Economic Calendar

The December FOMC gathering may be another driver for the reassessment of policy prospects. Although officials are seen holding borrowing costs unchanged when they end their last meeting of the year on Wednesday, they may be inclined to push back against Wall Street’s dovish expectations to prevent financial conditions from easing further.

If the FOMC resists pressure to pivot, comes out swinging and pledges to keep interest rates higher for longer in a convincing manner, U.S. Treasury yields are likely to push upwards, reversing part of their recent pullback. This scenario will be quite bullish for the U.S. dollar, paving the way for further recovery heading into 2024.

With the significant relaxation of financial conditions posing a threat to ongoing efforts to restore price stability and the U.S. economy holding up remarkably well against all odds, the stage seems set for a potentially hawkish outcome at the December FOMC conclave. Whatever unfolds, increased volatility is anticipated in FX markets in the days ahead.

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EUR/USD FORECAST – TECHNICAL ANALYSIS

EUR/USD rallied vigorously last month, but has sold off in recent days, with prices slipping and closing below the 200-day moving average last week – a bearish technical event. If the pair deepens its pullback in the coming days, a retest of the 50-day SMA could come any minute. Continued weakness may shift focus towards trendline support near 1.0620.

Conversely, if EUR/USD stages a turnaround and charges higher, technical resistance is visible near 1.0820, but further gains could be in store on a push above this threshold, with the next area of interest at 1.0960, the 61.8% Fibonacci retracement of the July/October decline. Continued strength may catalyze a retest of November’s highs.

EUR/USD TECHNICAL CHART

EUR/USD Chart Created Using TradingView

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USD/JPY FORECAST – TECHNICAL ANALYSIS

The Japanese yen appreciated significantly last week on speculation that the Bank of Japan would end its policy of negative rates soon, with USD/JPY falling sharply before regaining some ground after bouncing off its 200-day simple moving average. If the rebound extends over the next few trading sessions, resistance appears at 146.00, followed by 146.90-147.30.

On the other hand, if downward impetus resurfaces and sparks new losses for the pair, the 200-day is likely to be the first line of defense against a bearish assault and 141.75 thereafter. USD/JPY may find stability in this region during a pullback before mounting a comeback; however, in the event of a breakdown, the focus turns to 140.70, then trendline support at 139.50.

USD/JPY TECHNICAL CHART

USD/JPY Chart Created Using TradingView

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GBP/USD FORECAST – TECHNICAL ANALYSIS

GBP/USD has trended lower over the past few trading sessions after failing to take out a key ceiling near 1.2720, which corresponds to the 61.8% Fibonacci retracement of the July/October decline. Should losses accelerate in the coming week, support stretches from 1.2480 to 1.2455, where the 200-day SMA converges with a short-term rising trendline. On further weakness, the focus shifts to 1.2340.

Conversely, if cable manages to rebound from its current position, overhead resistance is situated around the 1.2590 mark. To rekindle bullish impetus, the pair needs to take out this technical barrier decisively. The materialization of this move may invite new buyers into the market, creating the right conditions for an upward thrust towards 1.2720.

GBP/USD TECHNICAL CHART

GBP/USD Chart Created Using TradingView