US Dollar Index

The dollar traded flat, unimpressed by headlines about China stepping up bond issuance next year. Chinese policymakers plan to issue a record 3 trillion yuan of special government bonds in 2025, a record high. The dollar index is above 108.00, very close to setting a two-year high. The dollar held firm in light holiday trading, with the dollar index currently trading around 108.11 in Asia on Thursday. The dollar has risen more than 7% since the end of September, partly due to growing expectations that the US economy will accelerate under the policies of President-elect Trump, while persistently higher inflation has curbed market expectations for how aggressively the Federal Reserve will cut interest rates. These expectations for the United States are in stark contrast to growth forecasts and interest rate views of other economies and central banks around the world, resulting in a widening interest rate gap. The path of rate cuts projected by the Federal Reserve last week was more cautious than the market expected.

This week, the dollar index has fluctuated in a narrow range. Now, it looks like the dollar index will be close to a two-year high on Christmas and New Year. On the plus side, the trend line originating from December 28, 2023 acts as a moving cap. The next strong resistance level appears at 109.00 (round mark). Once this level is exceeded, 109.29, which is the peak level on July 14, 2022, comes into play. The first downside resistance level is at 107.60, which has now turned from resistance to support. The second level that may prevent any selling pressure is the psychological mark of 107.00.

Today, you can consider shorting the US dollar index around 108.20, stop loss: 108.30, target: 107.80, 107.70

WTI crude oil

On Thursday (December 25), US crude oil was reported at US$70.00/barrel, returning to the vicinity of the central axis of the range oscillation. In 2024, the overall oil price showed a volatile downward trend. In the first quarter, oil prices rose unilaterally and reached the highest point of the year, mainly due to OPEC+ production cuts on the supply side. Geopolitically, the continued war between Russia and Ukraine and the escalation of the Israeli-Palestinian conflict have driven oil prices up. Since the beginning of the year, OPEC+ has continued to implement production cuts, which has played a certain supporting role in oil prices. By the end of November, market supply expectations had stabilized, driving oil prices up. Subsequently, due to the cooling of geopolitical risks due to Israel's lack of substantial retaliation, weak supply and demand fundamentals, a decline in demand, and the OPEC+ meeting maintaining a production cut policy, oil prices have fluctuated and narrowed until now.

In terms of recent technical trends, the short-term active key resistance is $70.75 (100-day moving average), and $71.46 (February 5 low) act as a solid resistance level. If more support for oil bulls emerges, the next key levels will be $72.23 (50.0% Fibonacci rebound from $77.93 to $66.53), and $72.54 (November 7 high). As for the downside, the 20-day moving average of $69.12 and $68.81 (December 17 low) are still the first solid support nearby.

Today, consider going long on crude oil around 69.30, stop loss: 69.10; target: 70.60; 70.70

Spot gold

Thursday (Beijing time, December 26), despite the lack of strong follow-up buying. Geopolitical tensions and trade war concerns provided support for safe-haven gold. Spot gold fluctuated in a narrow range and is currently trading around $2,630.00/oz. Due to the Christmas holiday, the market was light. The rise in the yield on US Treasury bonds, which was generally regarded as the risk-free rate 10 years ago, or the opportunity cost of holding gold, will dampen the attractiveness of gold. If the US dollar and US Treasury yields remain strong, it may further weigh on the price of gold. It should be reminded that although the US financial markets will resume trading today, most European countries are still closed today, and overall trading is expected to be somewhat limited.

From a technical perspective, the recent recovery from a one-month low along the ascending channel has formed a bearish flag pattern on the hourly chart. In addition, the oscillator indicators on the daily chart are still in negative territory, indicating that the path of least resistance for gold prices is down. That said, it remains prudent to wait for a convincing break below the channel support level, which currently hovers around $2,605-2,600, before preparing for any further depreciation. The subsequent decline may pull gold prices back to the monthly low of around $2,583 hit last week. On the other hand, the $2,633-2,634 range or multi-day high hit on Monday, near the top of the ascending channel, could see an upside move. From a technical perspective, gold prices face resistance around the $2,650-2,670 range for any rebound. Traders will be watching this support closely for signs of a reversal or continuation of the bearish trend.

Consider going long on gold before 2,630.00 today, Stop Loss: 2,626.00; Target: 2640.00; 2645.00

AUD/USD

This week, the previous minutes of the December Reserve Bank of Australia meeting reiterated that upside inflation risks have decreased, reaffirming bets on a rate cut in early 2025. This, coupled with concerns about China's fragile economic recovery and the US-China trade war, weakened the Australian dollar and weighed on it. The AUD/USD currency is trading in a narrow range above 0.6200. Spot prices remain around the lowest level since October 2022, 0.6199, touched last week, and appear likely to extend a nearly three-month downtrend. Rising bets that the Reserve Bank of Australia could start cutting interest rates early next year amid concerns about China's fragile economic recovery could continue to weaken the Australian dollar. On the other hand, the immediate market reaction was short-lived due to the Fed's hawkish turn, which in turn supported the US dollar and limited gains for the AUD/USD pair.

The modest rebound from the more than two-year low could be attributed only to a technical rebound after the 14-day relative strength index (RSI), one of the technical indicators on the daily chart, turned slightly oversold. Meanwhile, the gains were along an ascending channel. Against the backdrop of the recent decline, the channel constituted a bearish flag on the short-term chart. This suggests that the path of least resistance for the AUD/USD pair remains to the downside. Therefore, any further move toward the trend channel barrier, currently located before the 0.6300 mark, could be seen as a selling opportunity. However, a sustained strong breakout could trigger short-covering and push the AUD/USD pair towards the 0.6340-0.6350 horizontal support breakout point, now turned into resistance. On the other hand, a break below the lower line of the aforementioned channel (currently around 0.6230) could continue to find some support around the 0.6200 mark or the year-to-date low of 0.6199. A valid breakout and confirmation below the latter would be seen as a new trigger for bearish traders, making it possible for the AUD/USD pair to accelerate its decline to the intermediate support of 0.6130-0.6125 and challenge the 0.6100 round mark.

Today, consider going long on AUD before 0.6210, stop loss: 0.6200; target: 0.6250; 0.6260.

GBP/USD

GBP/USD is trading in a narrow range around 1.2530 on low volumes following the Christmas break and the upcoming New Year holidays. The pair has been consolidating with small price swings as the market adjusts to the quiet holiday period. From a broader perspective, the US dollar remains strong. Expectations of a slower pace of interest rate cuts by the Federal Reserve next year continue to support the dollar. Fed officials have signaled a more cautious approach to rate cuts, a shift influenced by slower-than-expected slowdown in inflation and uncertainty about the new policies of President-elect Donald Trump. The latest Fed forecasts show that the federal funds rate could fall to 3.9% by the end of 2025, suggesting several rate cuts next year, but fewer than the market expected before last week's decision.

GBP/USD remains vulnerable as it has broken below the rising trendline around 1.2600 drawn from the October 2023 low of 1.2035. The "death cross" represented by the 50-day and 200-day exponential moving averages near 1.2790 also indicates a strong bearish trend in the long term. Technical indicators, the 14-day relative strength index (RSI) fell below 40.00. If the oscillator sustains below this level, it may trigger a new downward momentum. Looking down, the pair is expected to initially find a buffer around 1.2500 (market psychological level). Then around 1.2475 (7-month low). On the upside, if the pair can recover to 1.2600, and 1.2614 (Friday's high) area levels, it may be a sign of recovery.

Today, we suggest going long on GBP before 1.2510, stop loss: 1.2500, target: 1.2570, 1.2680

USD/JPY

USD/JPY challenges the psychological level of 108.00 as the dollar maintains its previous rebound. The draft fiscal plan of the Japanese government on Wednesday revealed that in order to cope with the dual pressures of surging social security spending and rising debt repayment costs, the Japanese government will start an unprecedented fiscal year budget preparation work from April, with a total amount of US$734 billion (equivalent to about 115.5 trillion yen). This figure will undoubtedly increase Japan's debt burden and become the focus of attention at home and abroad. Against this background, the policy shift of the Bank of Japan is particularly eye-catching. After a decade of economic stimulus measures, the Bank of Japan is gradually withdrawing from this historic policy framework, which means that the government will no longer be able to easily use ultra-low borrowing costs and strong support from the central bank to effectively finance the growing debt as before. This change undoubtedly brings unprecedented challenges to the Japanese government's fiscal management.

Observing from the recent trend, USD/JPY hit another near 5-month high of 158.08 yesterday, and the 108.00 (market psychological level) area may constitute an immediate barrier before the multi-month high near 160.00. The continued strength will be seen as a new trigger for bullish traders and pave the way for further gains on the support of positive oscillators on the daily chart. The USD/JPY pair may then aim to break through the intermediate barrier of 158.45 and reclaim the 159.00 level. The momentum may extend further to the 160.00 psychological level. On the other hand, the weakness below the 157.00 round mark now seems to find good support near the 156.65 horizontal area, and if it falls below this level, the USD/JPY pair may slide towards the 156.00 level. Any further decline may be seen as a buying opportunity near the 155.50 area and be limited near the 155.00 psychological level.

Today, it is recommended to short the US dollar before 158.20, stop loss: 158.40; target: 157.30, 157.20

EUR/USD

EUR/USD fluctuated in a narrow range around 1.0400. The price action of the currency pair was flat due to the light trading volume on Wednesday and Thursday (US opening Thursday) due to the FX market holidays for Christmas and Boxing Day respectively. The overall outlook for EUR/USD is bearish. The euro (EUR) weakened slightly at the beginning of the week after European Central Bank President Christine Lagarde said in an interview with the Financial Times that the central bank was "very close" to declaring that inflation has reached its medium-term target of 2% sustainably. The ECB's dovish bets for 2025 continue as the market firmly expects eurozone inflation to return to the bank's 2% target. Traders expect the ECB to cut its deposit facility rate by 25 basis points in the next four policy meetings.

EUR/USD remains below all short- to long-term exponential moving averages. EUR/USD fluctuates around 1.0400, remaining above the two-year low of 1.0332. However, the outlook for EUR/USD remains strongly bearish as all short- to long-term exponential moving averages are declining. The 14-day relative strength index (RSI) fluctuates in the bearish range of the negative 38.00 zone, indicating the presence of downward momentum. Looking down, EUR/USD may fall to the support level of the round number mark of 1.0300 after breaking the two-year low of 1.0332. On the contrary, the 20-day moving average of 1.0477, and the psychological level of 1.0500 (market level) will become the key obstacles for the euro bulls.

Today, it is recommended to go long on EUR before 1.0410, with a stop loss of 1.0400 and a target of 1.0450 and 1.0460.

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