MARKETS Following an initial surge early in the session, U.S. stocks maintained a strong performance, with the S&P 500 steadily grinding toward record territory. Notably, the Dow achieved another record high, contributing to the overall impressive showing on the broader New York ticker tape. Without a tablespoon of doubt, investors are encouragingly acknowledging that inflation has experienced a notable decline across most major economies from the peak observed last year. Notably, this has occurred without the need for a recession. The United States and most G10 economies outperformed expectations in 2023, and despite this positive economic performance, inflation followed a favourable downward trajectory, confounding many Fed critics.  The welcome retreat in headline inflation, with Personal Consumption Expenditures (PCE) assuredly in tow, is now laying the groundwork for potential interest rate relief in 2024—a point underscored by last week's decision by the Federal Open Market Committee (FOMC). Consequently, financial markets are currently basking in anticipation of a more festive holiday season, revelling in the optimism of profitable Santa Rally cheer. Indeed, The Federal Reserve seems ready to offer relief in the coming year, signalling the likelihood of at least three rate reductions in 2024. And the bond markets are promptly off the races, anticipating the Fed will mechanically take this action as inflation ebbs further. Rates on 10-year Treasury bonds have already dropped to 3.9%, a notable decrease from the 5 % observed less than two months ago, all transpiring without explicit economic softening. Indeed, investors are coalescing around the notion that the Federal Reserve will start trimming interest rates as inflation approaches containment.  The effective single mandate in force since early 2022 appears no longer applicable. Taking the latest Fed guidance at face value, they have seemingly reverted to the dual mandate, prioritizing a foundational level of economic growth, even if it means immolating the proverbial "last" inflation "mile" – such as the transition from 3% core price growth back to 2%. FOREX MARKETS The short-covering rally in USDJPY following the BoJ was more robust than anticipated; in my view, it provided an excellent chance to re-enter USDJPY shorts. However, the current time of the year and the unpredictability of year-end financing charges have likely tempered a more substantial reversion. So, we have covered our high 144 reversion trade as liquidity metrics have fallen off in the New York afternoon. We think the market read too much in BoJ Governor Ueda's pushback against any notion that Fed policy shifts influence the timing of monetary policy actions in Japan.  The Federal Reserve no longer sets interest rates; the bond market does. After all, from the October highs near 8%, the 30-year fixed mortgage rate has experienced a significant drop, thanks to a remarkable rally at the long end of the U.S. Treasury curve. Freddie Mac's weekly update showed the six percent handle this week for the first time since August 10. Notably, the continued rally in the U.S. Treasury market is expected to keep the 10-year JGB yield below the current reference rate of 1%, justifying and providing an open window for a shift in the yield curve control policy in January. After experiencing a setback overnight, the yen is expected to return to being primarily influenced by U.S. interest rates, where a soft PCE reading could send USDJPY back into the 142 handle. Additionally, market attention will remain focused on statements and communications from Federal Reserve officials. OIL MARKETS In response to the disruptions in shipping at the Red Sea and despite Operation "Prosperity Guardian," a coalition to address security challenges in the Red Sea, oil prices were pushed higher on a combination of holiday hedges and goldilocks arriving at the oil patch.  As the holiday season draws near, achieving a stable outcome for the region appears elusive. The prolonged conflict in Gaza continues to fuel an escalating humanitarian crisis, adding political pressure on multiple actors. This situation raises concerns about a potential expansion of the conflict. Amidst ongoing rocket attacks and bombings, the inherent uncertainty of war increases the likelihood of unforeseen events and substantial miscalculations, which could lead to further escalation of the already volatile situation.

XAU/USD Current price: 2,041.64 US Treasury yields continue to retreat, with the 10-year note offering its lowest since July. Focus remains on the US Core Personal Consumption Expenditures (PCE) Price Index. XAU/USD advances towards $2,050 with room to extend gains beyond the level. Gold trades with a better tone on Tuesday, helped by the broad US Dollar's weakness. XAU/USD changes hands around $2,0403, approaching the high posted last week at $2,047.90. The positive tone of equities reflects persistent risk appetite, undermining demand for the American currency. Wall Street extends weekly gains, with the Nasdaq Composite reaching record highs for a third consecutive session, in line with central banks-inspired relief. Adding pressure on the USD, Treasury yields resumed their slides. The 10-year government bond offers 3.90% at the time being, its lowest since late in July, while the 2-year note yields 4.43%, holding near the multi-month low posted last week at  4.28% and down 2 basis points (bps) on the day. The United States (US) macroeconomic calendar had little to offer. The country unveiled November Building Permits, which declined by 2.5% MoM and Housing Starts, which rose 14.8% in the same month. Speculative interest awaits the US Federal Reserve's (Fed) favorite inflation measure, the Core Personal Consumption Expenditures (PCE) Price Index, to be released on Friday. XAU/USD short-term technical outlook The daily chart for the XAU/USD pair maintains the risk skewed to the upside. The pair met buyers on an intraday retracement at around a bullish 20 Simple Moving Average (SMA) while the longer moving averages tick modestly higher, far below the shorter one. At the same time, technical indicators post modest intraday advances, although the Momentum indicator remains within neutral levels. XAU/USD is also bullish in the near term. The 4-hour chart shows a flat 100 SMA offered intraday support, while the 20 SMA gains upward traction above the longer one. Finally, technical indicators head north, with the Relative Strength Index (RSI) indicator at around 64 and the Momentum indicator piercing its midline. Overall, XAU/USD is foreseen to advance at a slow pace, as there is no soon-to-come catalyst that could trigger a bullish breakout. Support levels: 2,027.60 2,014.10 2,003.90   Resistance levels:  2,047.90 2,065.60 2,076.10

EUR/USD Current price: 1.0956 The Eurozone confirmed the Harmonized Index of Consumer Prices at 2.4% YoY in November. Market participants remain optimistic ahead of inflation updates from major economies. EUR/USD is technically bullish, although the momentum is limited. The EUR/USD pair extends its modest weekly advance on Tuesday, as the US Dollar remains unattractive in the post-central banks' scenario, with investors looking for better options. Wall Street ended in positive territory on Monday, with the Nasdaq Composite reaching record highs amid persistent optimism. However, the absence of relevant macroeconomic data maintains most major pairs confined within familiar levels, with EUR/USD currently hovering around 1.0950. European Central Bank (ECB) officials delivered some comments. On the one hand, Andrea Enria, chairperson of the European Banking Authority, noted that there are still significant uncertainties and downside risks for Eurozone banks. On the other hand,  Governing Council member Gediminas Simkus said rate cut expectations are too optimistic, adding investors may have gotten ahead of themselves. Finally, Governing Council member and Bank of France President  Francois Villeroy de Galhau stated the central bank will not raise interest anymore. The comments did not impact the Euro, as they put nothing new on the table. Meanwhile, the EU released the final estimate of the November Harmonized Index of Consumer Prices (HICP), confirming the annual gauge at 2.4%. On a monthly basis, the HICP was down 0.6%. The United States (US) session will bring November Building Permits and Housing Starts. Additionally, Canada will publish the November Consumer Price Index (CPI), the first of a row of inflation updates ending Friday with the US Core Personal Consumption Expenditures (PCE) Price Index. EUR/USD short-term technical outlook The EUR/USD pair is biased higher, according to technical readings in the daily chart, as the pair extends its recovery above all its moving averages. The 20 Simple Moving Average (SMA), however, lacks directional strength and stands a few pips below the 23.6% Fibonacci retracement of the 1.0447/1.1016 rally at 1.0883. In the meantime, technical indicators keep heading north, with the Momentum indicator currently standing at neutral levels and the Relative Strength Index (RSI) indicator hovering around 59. In the near term, and according to the 4-hour chart, EUR/USD is neutral-to-bullish. Technical indicators aim marginally higher but lack strength enough to confirm a continued advance. Still, the pair is advancing above a bullish 20 SMA, which develops well above the longer ones, in line with the bulls' dominance. The pair is poised to retest its November monthly high at 1.1016 and even extend its run beyond it. Support levels: 1.0915 1.0880 1.0845 Resistance levels: 1.0965 1.1000 1.1040

EUR/USD started to edge higher toward 1.0950 following Monday's subdued action. The near-term technical outlook points to a build-up of bullish momentum. Hawkish comments from ECB officials could continue to support the Euro. EUR/USD failed to make a decisive move in either direction to begin the week and closed virtually unchanged on Monday. Early Tuesday, the pair started to stretch higher toward 1.0950. In the absence of high-impact data releases, comments from central bank officials could impact the action. The US Dollar held resilient against its major rivals on Monday as the benchmark 10-year US Treasury bond yield recovered toward 4% in the first half of the day. As major equity indexes in the US edged higher following a mixed opening in Wall Street, however, the USD failed to gather recovery momentum and allowed EUR/USD to remain within a tight range.

Good Morning! Dollar Index has moved up well above 102 and could test 103-103.50 before coming off while Euro is bearish below 1.0965 for a fall towards 1.0850/1.08. EURJPY is headed towards its upper end of the 154-158 range while USDJPY is expected to fall on testing 144/145. Aussie can rise towards 0.68 but Pound may dip within the 1.2550-1.28 region. USDCNY needs to break past 7.15/16 to maintain its bullishness, else would be vulnerable to see the lower levels of 7.12-7.10 soon. USDRUB could test 91 soon. USDINR tested 82.90 before rising back. There could be some chances of a decline from 83.15/20 again. EURINR is bearish while below 91. The US Treasury yields have inched up slightly but are unlikely to sustain. We expect the yields to see more fall in the coming days. The German yields have bounced back well from their support. If this sustains further rise is possible this week. The 10Yr and 5Yr GoI remained lower but stable. Outlook is bearish to see more fall from here. Dow Jones and DAX outlook is bullish while above the support 37000-36900 and 16600-16500 respectively. Nifty remain bullish for a test of its immediate resistance. Shanghai is attempting to break below the support at 2925. Nikkei is bearish while below the resistance at 33000-33500. Crude prices have come down from levels below their key resistance and have scope to fall from here. Gold can be range bound for a while with a bearish view. Silver looks bearish while below 24.50. Copper can test its lower end of the range before a bounce back can happen. Natural Gas tested its key resistance as expected and has dipped from there. Visit KSHITIJ official site to download the full analysis

As we wind down to the close of 2023, the Federal Reserve (Fed), European Central Bank (ECB) and the Bank of England (BOE) announced their rate policy decisions last week. As expected, all three have kept their respective benchmark rates unchanged. The central banks and market participants will now shift their attention from inflation pressures, pivoting to the timing and magnitude of interest rate cuts in 2024, as these global economies are in various stages of a slowdown. For this article, I have chosen to focus on the Federal Reserve (Fed) and the Bank of Japan (BOJ). With recent US November Unemployment figures, we saw an unexpected strengthening of employment and wages. Non-farm payrolls increased 199,000 last month, compared to 150,000, in the month of October. The unemployment rate fell to 3.7% from 3.9% and monthly wage growth rose more than expected. Additionally, last Tuesday, US CPI figures were released. November's consumer price index ticked up +0.1%, from October. Core CPI also moved higher on a monthly basis. Overall inflation is still declining, as 6-month annualized core inflation is now below 3% for the first time since the beginning of 2021. At Wednesday's FOMC announcement, Fed Chairman Powell and the committee outlined forecasts for a series of rate cuts in 2024. There were additional comments stating "inflation has eased over the past year but remains elevated" and "economic growth has slowed from the third quarter's strong pace". (Source: Bloomberg). These statements clearly are being interpreted by the investment community, as validation that Fed's rate hike policy is complete and a soft landing is imminent. We've seen this reflected with rallies in both the US equity and bond markets. The median average for the aggregate amount of rate cuts in 2024 is now expected to be 75 basis points, or 3-monthly 25 basis points cuts. The timing of them is the question, which certainly will be data dependent. Regarding the BOJ, the last month has shown increased volatility in Japanese Yen (JPY), with an overall decline in USDJPY based on expected rate cuts in the US in 2024. With the continued focus on the fate of the BOJ's negative rate policy, there have been recent statements that have seen JPY appreciate against the USD and subsequently give back some of those gains. Last week, BOJ Governor Ueda hinted that further policy tightening could be a possibility, suggesting an end to their negative rate policy. We witnessed USDJPY dip below 142.00 only to watch a reversal occur over the following days. By this Monday, we saw USDJPY recover to a high around 146.50, after BOJ officials stated they see little need to rush into scrapping their negative interest rate policy, as they have not seen enough evidence of wage growth, supporting inflation (Bloomberg). After the FOMC announcement, USDJPY trended lower again, and at Wednesday's NY close was trading at of 143.00. Thursday morning (11:00 AM EST, Dec 14th) USDJPY continued its decline and was trading in the range of 141.60-142.00.  The upcoming BOJ rate decision is set for tomorrow (Tuesday, Dec 19th). With the recent varying statements, the markets will be paying close attention to the language from their announcement to shed some light on the BOJ's future policy strategy. The graph below is a look at USDJPY over the past month, using market data points from TraditionData. It supports and illustrates the most recent economic announcements and quotes mentioned above. We're approaching the end of an historic year in global interest policy. The focus now will shift to project when the various global economies will begin their anticipated rate cut policies, in 2024. Get out the popcorn and be ready to watch next year's movie unfold! FX Volatility will be increasing! At TraditionData, we pride ourselves on our global footprint with local market expertise through our relationship with Tradition's experienced broking business. We offer extensive coverage across Dollar, Yen, GBP and Euro-based products covering, FX spot / forwards, interest rate derivatives and inflation markets. Get in touch to find out how our OTC market data products can power your business, trading and risk decisions.