Daily market analysis

Forex Market Analysis: Fed’s Dovish Pivot Impacts Major Pairs and Markets 14 December 2023

December 15, 2023

CURRENCIES:

  • Key Points:
  • US Dollar’s Decline and Technical Setups – Brief Summary:
    • The U.S. dollar experienced a substantial decline across various pairs following the Federal Reserve’s dovish pivot.
    • The Federal Open Market Committee’s (FOMC) dovish policy outlook led to a significant drop in U.S. Treasury yields.
    • This article focuses on the technical outlook for major currency pairs, including EUR/USD, USD/JPY, and GBP/USD, in response to the Fed’s tentative pivot.
    • The DXY index, measuring the U.S. dollar, plunged nearly 0.9% on Wednesday, driven by the unexpected dovish guidance from the Federal Reserve.
    • After concluding its last meeting of the year, the Fed, while keeping borrowing costs unchanged, hinted at an impending strategy pivot by adopting a more lenient stance on inflation and acknowledging discussions about potential rate cuts.
    • The Summary of Economic Projection from the Fed indicated a shift in policy, with the dot plot revealing an anticipated 75 basis points of easing in the coming year, surpassing earlier estimates from September.
    • As the Fed’s forecasts align more closely with market expectations, particularly in terms of rate cuts, this suggests a bearish outlook for the U.S. dollar and yields heading into 2024.
    • In response to the broader decline in the U.S. dollar, EUR/USD surged towards 1.0900, GBP/USD surpassed a crucial level near 1.2600, and USD/JPY faced a significant drop toward its 200-day simple moving average, serving as a crucial support against further retreat.

STOCK MARKET:

  • The Federal Reserve maintains benchmark interest rates at 5.25%-5.50%, the highest in 22 years.
  • Signals a likely total interest rate cut of 75 basis points (0.75%) in the coming year, a shift from the 0.50% cut projected in September.
  • Expects inflation to decrease to 2.4% in 2024 (down from 2.5% in September) and further to 2.2% by 2025.
  • Policy statement introduces language leaving room for rate hikes but indicates a bias against further interest rate increases.
  • Fed Chairman Jerome Powell notes the addition of “any” in the statement, signaling acknowledgment that the peak rate for the cycle may be near.
  • Powell emphasizes the need for more evidence of inflation moving down to the 2% goal, cautioning against premature declarations of victory.
  • Powell declines to provide guidance on the timing of rate cuts but suggests the Fed is discussing when to dial back policy restraints.
  • Fed acknowledges progress in inflation but notes it “remains elevated” and recognizes the economy’s slowdown, forecasting 1.4% growth in 2024.
  • Unemployment rate is expected to rise to 4.1% next year.
  • Recent inflation readings show a decrease closer to the central bank’s target, with the core Personal Consumption Expenditures index at 3.5% in October.
  • The Consumer Price Index on a core basis indicates inflation at 4% in November, consistent with October.

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COMMODITIES:

  • The precious metal experienced a significant decline after reaching a peak of $2,147/oz. on December 4th.
  • Gold is now below the 20-day simple moving average (sma) and is undergoing testing at the 50-day sma.
  • If the current level is breached, the next support lies at $1,960/oz., with the long-dated sma at $1,953.5/oz.
  • Despite the recent fall, gold maintains a pattern of higher lows and higher highs, providing a layer of support.

Styliana Charalambous
Market Analyst

My name is Styliana Charalambous, possessing a professional qualification as a Chartered Certified Accountant and a Bachelor’s Degree in Accounting and Finance. Highly motivated financial analyst with expertise in audit and investment strategies. I have several years of experience in the finance industry, as an audit supervisor at KPMG and the Head of Investment & Market Research in a multinational Fintech company.

Passionate about personal finance, investing, and creating finance content on social media. Lecturer in Accounting & Finance at Canterbury Christ Church University. I am the Founder and CEO of Selfmade Academy, an organization that helps thousands of students worldwide to plan for their financial future and make smart decisions about their money

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