All eyes on US inflation data

Today’s CPI report is anticipated to reveal a fourth consecutive 0.3% rise in the consumer price index, excluding food and fuel. This will represent the final significant inflation data before the Fed’s last policy meeting of the year.  Swap trading projects about an 85% chance of a quarter-point rate reduction this month.

The market is currently reflecting the smallest expected response to CPI since 2021, as indicated by strategists at Bank of America Corp., who believe the readout is especially crucial this time.

A nowcast from Bloomberg Economics aligns with expectations of a persistent core reading while highlighting potential downside risks to the headline figure.

BE’s model examining the broad economic factors affecting US inflation presents mixed signals for the Fed. While disinflationary supply shocks have recently driven inflation rates below their long-term average, demand-related factors are now exerting upward pressure, reversing the easing trend observed over the past year.

China considers weaker yuan

The dollar rose following news that Chinese officials are contemplating a weaker currency in anticipation of increased tariffs under a potential second term for Donald Trump. The offshore yuan slid by as much as 0.5% to 7.2921 against the dollar before recovering slightly, as Reuters reported that policymakers are weighing the option of allowing the yuan to depreciate. Some investors believe that Beijing may depart from its current stable currency policy, permitting a decline to counterbalance tariff effects.

This news from China startled markets that were relatively quiet before important US inflation figures were released. Futures for the S&P 500 and Nasdaq 100 reduced small gains, while the dollar index surged to a two-week high. Additionally, Europe’s Stoxx 600 index dropped alongside a measure of emerging-market stocks, and South Africa’s rand was the weakest among developing country currencies.

US considers stricter sanctions on Russian oil

The Biden administration is contemplating more severe sanctions on Russia’s profitable oil sector to further pressure the Kremlin’s military efforts, particularly as Donald Trump is set to return to the White House.

Details regarding the potential new measures are still in development, but President Joe Biden’s team is reportedly looking at restrictions that could affect certain Russian oil exports, as indicated by anonymous sources familiar with the discussions. 

Brent crude prices are above $72, and technical indicators are gradually improving, suggesting that this stabilization could trigger another increase in the coming days. A potential rally is likely as long as Brent trades above $70.

EURUSD holds steady above 1.05

Since mid-November, the Euro has maintained its position within a consistent range, staying above the support level of 1.05 and encountering solid resistance at 1.0630. Meanwhile, technical indicators are slowly emerging from the oversold zone.

The one-day volatility for EUR/USD reached a session high of 18.49%, marking the third-highest level in the past 21 months, as options traders focus on Thursday’s European Central Bank policy decision.

The weekly chart continues to hint at a potential rally, especially since the pair remains above the 1.05 support. A weekly close below this level would increase downside pressure and could lead to a retest of the 1.0330 level.

Gold near $2700

Gold is anticipated to surge to an all-time high next year, even if the US dollar strengthens. Central banks, including China’s, may increase their gold reserves, as noted by Goldman Sachs Group Inc. Historically, bullion tends to rise during periods of US dollar strength, particularly when trade tariffs and geopolitical tensions push the dollar higher.

Earlier this morning, gold briefly spiked to $2700, which is recognized as a significant resistance level. Observing this level is crucial because breaking above it could lead to further increases, potentially reaching $2720 in the near term.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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