In the final week before the Christmas holiday, there are just a few loose ends to tidy up for the economic calendar. The primary focus for the US is on Consumer Confidence core PCE inflation and the final reading of Q3 GDP. Elsewhere, the Bank of Japan and Eurozone Consumer Confidence will be watched.

For major markets, the legacy of last week’s data deluge will be the primary focus. The USD has stemmed the tide of selling and is recovering once more after the Fed looked to push back on the “Fed pivot” narrative. However, with central banks hiking rates and trying to maintain a hawkish lean, the main casualty seems to be coming in a correction in equity markets.  

Watch for: 

  • North America – US Consumer Confidence, housing data, final GDP and core PCE. For Canada, CPI inflation will be key.
  • Europe – Eurozone Consumer Confidence and final UK GDP
  • Asia – The Bank of Japan and Japanese CPI
  • LatAm – Half-month inflation for Mexico and Brazil

North America

N.B. Forecasts are the latest available consensus 

US dollar (USD)

The Federal Reserve has tried to stay firm in the tightening of monetary policy. The big question is whether markets believe that it will hike as far as 5% and above. Fed funds futures continue to price for a peak rate below 5% around the spring of 2023 before rate cuts begin in late 2023. Yesterday’s December meeting may have helped to prevent yields from falling lower in the near term, but markets do not believe the Fed will hike more than 50bps from here. Faltering economic activity data points to a path towards recession.

The Dollar Index has been supported near term and this is helping with a technical rally, but a move above 105.80 would be needed for a decisive recovery. The lack of tier-one data this week could mean a relatively quiet period in the run-up to Christmas. 

Canadian dollar (CAD)

The Bank of Canada has been cautious and is pitted against a hawkish-sounding Federal Reserve. However, thepath of rate hikes remains very similar and CAD trades much closer to the USD than other forex majors. Although it is suffering against a rallying USD, it’s relative insulation leaves it well positioned on major forex (ex-USD) if there is a decisive USD rebound.

  • USD/CAD – A trend of higher lows has built since early November and the market is looking to once more push higher this week. A decisive closing break above 1.3700 opens 1.3807. However, it essentially puts the USD on course for a test of the September/October highs of the range again 1.3850/1.3975. It would also leave 1.3518 as a key higher low.     


As a floor has been put under US Treasury yields near term and the USD has picked up, this is driving a corrective move on the commodities complex. Precious metals that had such a strong rally in recent weeks are especially vulnerable to a correction, with silver leading gold lower. However, if a USD rebound continues and risk appetite suffers, this is likely to weigh oil lower too.

  • Brent Crude Oil – Another technical rally has fallen over around the confluence of resistance from the old support band $81.40/$83.55, the falling 21-day moving average and the five-week downtrend. We look to use near-term strength as a chance to sell for a retest of the $75.50 low.
  • Gold – This could be a pivotal week for gold. A continued USD strength would weigh on gold but the technical level to watch is $1765 support. A closing breach completes a small top and would at least imply a fall to test the key support band of $1728/$1735. If the RSI moves below 50 it would confirm that rallies are being seen as a chance to sell, at least near term.
  • Silver – The bull run is in retreat and how the price reacts to the support band at $22.00/$22.50 is the key issue this week. A close below $22.00 would open a decisive near to medium-term corrective move. It would be confirmed if the RSI also fell below 50. Initial resistance at $23.45 needs to be breached to encourage the bulls again.

Wall Street

With the FOMC pushing back on the “Fed pivot” narrative, this is putting a floor under yields. Falling yields have been a primary driver of the Wall Street rally. However if yields begin to tick higher, then this is negative for US equities, especially NASDAQ. However, with a considerable rally in recent weeks, the Dow (and to an extent S&P 500) is at risk of profit-taking as portfolio managers lock in any gains from the rebound in the run-up to Christmas. 

  • S&P 500 futures – The futures have deteriorated sharply coming into this week. A decisive breach of support at 3912 has completed a five-week top pattern and implies c. -190 ticks of further correction in the coming weeks. This would bring the November lows at 3705/3750 back into view. The initial resistance is the neckline and overhead supply between 3912/3945.
  • NASDAQ 100 futures – The confirmed breakdown of the support between 11465/11730 has turned the outlook corrective again. This move has been confirmed in the deterioration in the RSI too. If previous support between 11435/11525 now builds as resistance the prospect of a deeper correction will grow. 
  • Dow futures – Having lost momentum last week, the recovery has rolled over. A close below 33450 along with the breakdown confirmed on the daily RSI has turned the market corrective. Near-term strength now looks to be a chance to sell. A small top pattern implies an unwind to 32200 initially.


N.B. Forecasts are the latest available consensus 

Euro (EUR)

The European Central Bank hiked by 50bps and promised more to come. However, it was the raising of the inflation projection in the staff forecasts that got EUR bulls interested. This keeps a hawkish bias to the policy tone and is helping EUR to perform well on major forex (ex-USD). 

However, traders will be keeping an eye on the core/periphery Eurozone bond yield spreads. The Bund versus Italian BTP spread has moved sharply above 200 basis points and if this rise continues sharply it could weigh on the EUR performance.

  • EUR/USD – The USD strengthening has not played out so much versus the EUR, but EUR/USD is still looking precarious in its run higher. Although there are no explicit sell-signals yet, a decisive move below 1.0595 would be a warning and open a potential unwind towards 1.0440. Resistance is growing at 1.0735.

British pound (GBP)

The tone of the Fed and the ECB remains hawkish. However, there is considerable uncertainty over the policy direction of the Bank of England moving forward. Two of the seven MPC voters opted for no change in last week’s meeting. The rate is at 3.50% and the BoE may manage maybe a couple of 25bps hikes at most into 2023, but it is difficult to see much beyond that. Given the parlous state of the UK economy (hiking into a recession with -5% twin deficits) GBP is positioned for a trend of underperformance on major forex.

  • GBP/USD – Having broken the six-week uptrend, Cable is teetering on the brink of turning corrective. A decisive close below 1.2105 support would be a negative signal, especially if confirmed with the RSI moving decisively below 50. It would open an unwind towards the next key higher low at 1.1900. Resistance at 1.2345/1.2450 is growing.


The rallies on European indices have turned decisively into reverse. Given the strength of the October/November rally, the concern is that portfolio managers see the gains ebbing away, leading to a flood of panic profit-taking. The risk is that coming up to the year-end, this could drive an accelerated correction this week.

  • DAX – The range-play between 14125/14605 has become a top pattern as the market has decisively broken the support. This move implies a correction towards 13700/13800. However, the DAX is very reactive to swings in sentiment and is moving sharply lower. The RSI has plenty of downside potential. A move below 13560 would be a bearish signal now.
  • FTSE 100 – The rally is reversing sharply. The concern is that as the RSI is in the low 40s, there is plenty of downside potential. Given the run higher his move would come back towards the support band 7250/7304. The old support of the breakdown around 7440 is now a basis of resistance at 7440/7470.


N.B. Forecasts are the latest available consensus 

Japanese yen (JPY)

The JPY had been in a position of strong outperformance as bond yields of major economies tracked lower. However, with the hawkish lean of the Fed and the ECB pulling yields higher, the JPY is under selling pressure. If yields continue to track higher, worsening interest differentials will continue to harm the outlook for the JPY in the short term at least. The Bank of Japan is not expected to be anything other than its usual dovish and will not help JPY. Higher than expected core CPI could provide some near-term respite though.

  • USD/JPY – The sell-off has stalled but coming into this week this is a market at an inflexion point. The reaction to the resistance band between 137.60/140.00 will be pivotal this week. Closing above 140.00 again would be bullish for a recovery. Key support is building between 133.60/134.50.
  • AUD/JPY – Another near-term rebound has fallen over as the run of lower highs continues. This means the market continues to look towards a test of the 90.51/90.83 July/October lows. Near-term rallies look to be a chance to sell, with resistance at 93.35.

Australian dollar (AUD)

The AUD has been lagging slightly in the past week but underperformance is magnified when risk appetite turns negative. The AUD is a high-risk currency and higher US Treasury yields will drive further corrective pressure.

  • AUD/USD – The Aussie recovery has fallen over. The question is whether it turns corrective now. Reaction to the initial support at 0.6668 will be a gauge this week, however, the RSI falling below 50 is a warning. A move below 0.6585 turns the market decisively corrective. The resistance is strengthening at 0.6850/0.6890.

New Zealand dollar (NZD)

The NZD had been at the forefront of the rally against the USD in recent weeks. However, if there is a shift in broad sentiment (with US yields and USD rebounding) then NZD is prime for profit-taking this week.  

  • NZD/USD – Having been a leader in the recovery NZD is turning lower. The question is how far this unwinding move on NZD/USD goes. Initial support to watch is at 0.6300 as a close below opens a deeper move into 0.6150/0.6250. We are also mindful of the RSI which remains positive for now, but below 50 would be a warning of a correction.


N.B. Forecasts are the latest available consensus 

Brazilian real (BRL)

Brazilian Government bond yields need to be watched with caution. The cost of borrowing is going up. The Brazilian 10-year yield is rising sharply again and is towards the multi-year peak of 13.90% that was hit in the early weeks of Lula winning the presidency. The rise has come as the yields of Lat Am peers such as Mexico and Chile have fallen. This could once more weigh on the BRL outlook. 

  • USD/BRL –the pair has been ticking higher again. A gap at 5.3800 has been filled but not yet closed, so the reaction to this gap is important near term. Closing above 5.3800 opens 5.4600 and potentially the November high at 5.5200. Initial support is at 5.2700. 

Mexican peso (MXN)

Traders will be watching for the retail sales and first half month inflation data this week. Retail sales have been falling but remain positive year on year, whilst inflation is expected to continue to fall decisively to close to 7%. With interest rates raised to 10.50% last week, this will be supportive for MXN.

USD/MXN – The pair has been volatile around the resistance of the old key support floor between 19.750/19.830. Reaction to this resistance continues to be key for the near to medium-term outlook. A decisive close above 19.910 opens further recovery towards 20.175. Support is now at 19.500.   

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