The Week Ahead – Santa rally – Orbex Forex Trading Blog

EURUSD advances as ECB may hold longer

The euro recovers as the market hopes the Fed will be among the first movers in easing monetary policy. Even though policymakers are trying to temper market expectations, the race is on for traders as who will be the first to start cutting interest rates: the Fed or the ECB? The former’s head start in the tightening cycle would suggest a first dip by Chair Jerome Powell, potentially by as early as March while the ECB might be content to wait until the summer. This means that a dovish Fed and improved risk sentiment would favour the higher-beta single currency, sending it to last July’s high of 1.1250 with 1.0750 as the closest support.

USDCHF hits 5-month low as Fed pivots

The US dollar weakened as the Fed said the historic tightening was likely over. After hitting a three-year high against the Swissie on the back of aggressive policy normalisation, market participants are betting on the fall of the dollar into 2024 in the wake of its dovish pivot. Things are quieter in the Alps. Despite a slowdown in inflation, a robust economy may make the Swiss National Bank hold onto higher rates for longer, and only pivot after the ECB makes its move, probably in the third quarter of next year. This leaves room for the currency to appreciate. 0.8800 is a fresh hurdle and 0.8400 is the next target.

UKOIL stalls as demand worries outweigh supply jitters

Brent crude remains under pressure due to a gloomy demand outlook going into a new year. Recent market jitters reflect concerns about global trade disruptions due to tensions in the Middle East. The US Treasury toughened sanctions on Russian oil by making it harder for Russian exporters to circumvent the price cap. However, the impact on oil supply could be limited. The underlying driver of the market remains sluggish global demand and China’s economic headwinds, while sporadic buildups in US crude stocks might add a little extra pressure. 84.00 is the immediate resistance and 72.00 a crucial support to defend.

SPX 500 rallies supercharged by easing speculation

The S&P 500 hits a two-year high on a ‘Santa’ rally over revived risk appetite. Slightly soft but not weak US data are just the right flavour for the market, fueling optimism that the Federal Reserve would loosen up on its monetary policy, while the US economy continues to outperform its peers. The question now is how fast the central bank will roll out rate cuts and how many there will be. Some investors have pencilled in three for 2024 but officials’ outspoken reluctance might cloud the judgement. Recovering to 4820 from the lost two years may help investors face the new year with confidence. 4550 is the immediate support.

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