Forex Signals Brief December 20: Can PCE Inflaiton Surprise to the Upside?
Today we have retail sales numbers from the UK and Canada, but the highlight will be the US PCE inflation which might send the USD either way.
The USD exhibited a mixed performance in the forex market, with notable gains against the JPY, which was the largest mover, appreciating by 1.69%. The dollar also rose by 0.60% against the GBP. Both the Bank of Japan (BOJ) and the Bank of England (BOE) kept their rates unchanged; however, their decisions were perceived as dovish, leading to declines in the JPY and GBP.
The BOE’s decision not to change rates was accompanied by an unexpected vote split, with three members—Dhingra, Ramsden, and Taylor—favoring a 25 basis point cut, resulting in a 6-3 vote compared to the anticipated 8-1. This contributed to GBPUSD’s decline after an initial rise during the European session, as the USD strengthened. The BOE’s dovish tone has continued to weigh on the GBP.
In the U.S., positive economic data provided further support for the dollar. Existing home sales surpassed 4 million in November, while initial unemployment claims showed a decline. The Dow Jones Industrial Average broke its 10-day losing streak, closing higher, even as broader U.S. stock indices surrendered their earlier gains and ended the session lower.
Today’s Market Expectations
Today the People’s Bank of China (PBoC) is not expected to adjust the Loan Prime Rate (LPR) during its upcoming policy announcement. However, the Politburo’s recent pivot toward a “moderately loose” monetary stance suggests that a significant rate cut could be imminent. Such a move would mark the first tangible step toward implementing this shift in monetary policy.
In the European session we have the Retail Sales report from the UK, which are expected to show a return to growth, jumping by 0.5% after the -0.7% decline in October. However, that won’t change much for the GBP and the Bank of England, which sounded increasingly dovish yesterday, despite keeping interest rates on hold this time.
In the United States, the latest Personal Consumption Expenditures (PCE) data offers a mixed picture. The month-over-month PCE is steady at 0.2%, while the Core PCE M/M has eased to 0.1% from the prior 0.3%. Year-over-year, the PCE is projected to rise to 2.5% from 2.3%, with the Core PCE expected to remain unchanged at 2.8%. Given that PCE forecasts are often based on CPI and PPI releases, the market is unlikely to react unless there is a substantial departure from the anticipated figures.
Forex Signals Update
Yesterday we tried to remain long on the USD after the surge on Wednesday night following the hawkish FED rate cut, however there was a pullback which caught us on the wrong side. But, the USD resumed the upside momentum in the US session and we made up for the losses with three winning forex signals.
The 100 Daily SMA Turns Into Resistance for Gold
Gold markets have also experienced notable volatility, largely driven by evolving monetary expectations. Last week, strong U.S. services PMI data and anticipated Federal Reserve rate cuts led to a $100 drop in gold prices after failing to breach the $2,725 resistance level. Prices found support near $2,633, close to the 20-day Simple Moving Average (gray), but broke below the 100 SMA (green) which turned into resistance yesterday, confirming the bearish momentum in Gold.
XAU/USD – Daily Chart
USD/CAD Remains Supported by MAs During This Uptrend
USD/CAD pair has demonstrated significant movement. Earlier this week, the pair surged above 1.43, bolstered by two key developments: a weaker-than-expected Canadian CPI inflation report, which heightened pressure on the Bank of Canada to continue easing rates, and the Federal Reserve’s aggressive rate cut combined with DOT Plot projections, signaling fewer rate cuts in 2025. However, the rally lost steam as the pair retreated to the 1.4340 range earlier today, where it found support at the 50 Simple Moving Average (SMA) on the H1 chart, suggesting the potential for renewed upward momentum.
USD/CAD – Daily Chart
Cryptocurrency Update
Bitcoin Retreats After Climbing Above $108,000
In cryptocurrency markets, Bitcoin experienced significant volatility. Earlier this week, Bitcoin surged beyond $108,000 but began declining before the FOMC’s decision. Following the Federal Reserve’s aggressive 25 basis point rate cut, Bitcoin fell sharply, dropping from $102,500 to $100,000 within hours. The key level to watch is $98,677, the Asian session low that previously triggered a rebound but sellers returned and sent the price to $96,000.
BTC/USD – Daily chart
Ethereum Retreats Below the $4,000 Level Again
Ethereum also experienced fluctuations, recovering from a dip below $3,000 to trade near $4,000 early this week. However, after Monday’s rally, it failed to maintain gains above the $4,000 level, reflecting persistent market instability. Ethereum’s retreat escalated further yesterday falling below the $3,500 level.
ETH/USD – Daily chart
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