Following November’s strong labor market report, attention now shifts to upcoming inflation data as markets evaluate its implications for monetary policy. With wage growth at 4.0% YoY and a resilient job market, the Federal Reserve may face pressure to maintain a cautious approach to rate adjustments. Investors will closely monitor CPI figures to assess inflationary trends and their potential impact on economic growth and interest rates heading into 2025. Meanwhile, tariff-related stresses are beginning to affect the manufacturing and services sectors.

Beyond the US, international political developments, including geopolitical tensions in the Middle East and Ukraine, as well as political uncertainty in France, Germany, and South Korea, are adding to global economic uncertainties. Additionally, we gained further insights into the economic conditions of various advanced and emerging economies.

In the week ahead, the key focus will be on consumer inflation data from major economies, including the US, EU, and China, alongside interest rate decisions from the ECB, SNB, RBA, BoC, and BCB.

U.S. Economy: Review and Expectations

November’s economic data reveals mixed signals for the U.S. economy. The labor market showed resilience, with 227K jobs added, rebounding from October’s hurricane- and strike-induced slowdown. However, job gains remain heavily concentrated in the service sector, while retail and manufacturing employment declined, raising concerns about consumer spending power in the coming months. The unemployment rate rose to 4.2%, accompanied by a 0.1% drop in labor force participation to 62.5%. Job openings indicate a gradual cooling trend, suggesting a less robust labor market compared to recent years.

On the economic activity front, the ISM Manufacturing PMI improved to 48.4, driven by new orders, but concerns linger over tariff impacts and production costs. Additionally, the ISM Services Index slipped to 52.1, indicating slower growth with rising price pressures, unlike stronger holiday sales projections.

Overall, the economy remains resilient but faces headwinds from tariffs, interest rates, and sector-specific challenges. On the stock market front, the Nasdaq and S&P 500 closed higher, signaling a positive outlook for economic activity, particularly in the technology sector. However, manufacturing, retail, and financial companies require more attention, especially considering the slowing Dow Jones, while other U.S. indices are printing new records.

Fed Chair Powell’s recent comments suggest a cautious approach; however, the potential for the Fed to hold rates steady during its December 17 meeting decreased last week to less than 20%, compared to 33% the week before. Powell’s statement about finding a “neutral” stance hints at a slower rate-cutting cycle than markets anticipate in 2025, potentially supporting the dollar. Current market odds for a 25-basis point rate cut stand at 84%, according to FedWatch tools.

In the week ahead, CPI data for November will be crucial. A higher inflation figure compared to the previous month could provide further support for the dollar, while a lower figure might weaken it.

Inflation progress has slowed, with consumer prices rising 0.2% in October, pushing the annual rate to 2.6%. However, with core CPI increasing by 0.3% for a third consecutive month, doubts about inflation’s trajectory are resurfacing, especially considering new challenges like potential tariffs and tax cuts. These complications could hinder the Fed’s goal of reaching its 2% target. The November CPI is expected to repeat the 0.2% monthly increase for the third consecutive month, with annual inflation rising to 2.7%. Increasing gas and food prices, along with firming core goods inflation, suggest persistent price pressures, keeping core CPI steady at 3.3%.

As for market reactions, we remain optimistic about the U.S. dollar, especially given the ongoing geopolitical tensions around the world and the New Year’s Eve holiday season, which typically increases demand for the greenback. However, this demand could be limited, as inflation numbers are unlikely to alter the expected 25 bps rate cut at the December meeting. For the U.S. Dollar Index, we anticipate sideway movements within the range of 105.20 to 106 for most of the week.

In the stock markets, the overall positive sentiment and the Santa Rally can still provide support. However, caution is warranted due to lingering uncertainties about the Federal Reserve’s policies for next year, which may cause some investors to hesitate before committing additional funds to the markets. Examining the S&P 500 chart, we observe that despite a weakening bullish momentum, a gradual uptrend remains possible. The RSI at 66 on the H4 chart supports this view, as long as prices remain above 6,000.

Euro and ECB

For the Eurozone, the week ahead will largely focus on central bank monetary policy meetings and interest rate decisions, especially after last week’s weak PMIs. Economic activity across the Eurozone continued to soften in November, with PMI data signaling contraction:

• Composite PMI declined to 48.3, well below the neutral 50.0 mark, reflecting a slowdown in overall economic activity.
• The Services PMI fell to 49.5 from October’s 51.6, indicating a shrinking service sector.
• The Manufacturing PMI also dropped to 45.2, lower than the previous 46.0, highlighting ongoing struggles in the industrial sector.

The data points to persistent economic weakness across the Eurozone, with both services and manufacturing sectors under pressure due to subdued demand and high costs. Policymakers face growing challenges in reigniting growth amid this tough economic environment.

Considering the published data and the current consumer inflation around 2%, the European Central Bank (ECB) is expected to cut its interest rate by 25 basis points this Thursday, with more than a 90% probability according to ECB OIS. A more dovish tone from ECB policymakers could heighten expectations of further rate cuts, which may put pressure on the euro. Eurozone economic data suggest continued economic difficulties. Political instability, notably in France with the government’s failure to survive a no-confidence vote, and upcoming elections in Germany, add to the uncertainty. Therefore, the ECB’s rate cut is strongly supported by a dimming economic outlook and weakening PMIs, despite gradually declining inflation and elevated wage growth. However, the ECB’s guidance and economic forecasts must be watched closely for hints on the future pace of easing.

Overall, the political situation in Europe remains a continuing concern. We should also not forget the latest tensions in the Middle East, particularly in Syria, which could trigger another wave of migrants moving toward Europe and add to the associated economic challenges. In terms of monetary policy, as mentioned earlier, the ECB may have no alternative but to cut interest rates, as the zone faces economic hardship. If monetary policy remains restrictive, it may raise recession worries, which could put further pressure on the common currency.

From a technical point of view, we can also see the pressure on the euro against its crosses, especially the US dollar. EUR/USD, after a short-lived recovery, seems poised for another downtrend toward 1.03, with immediate resistance around 1.06.

Gold

Gold remained rangebound for the majority of the week, as the precious metal coiled within a $40 range between 2,612 and 2,660. Not even Friday’s jobs data was enough to shake the precious metal into a breakout. Despite the recent weakness and a post-election selloff, the surge in gold remains strong. Over the past 12 months, gold has gained about 50%, marking a significant bull run and a great investment. Market risks and December’s overall demand have overcome the recent weakness, especially the pullback from late October to mid-November.

However, the main driver of gold was global demand, particularly from China, India, and central banks. With U.S. buyers adding to this trend for the remainder of the year, gold is likely to have more room for growth. In the U.S., however, investors largely ignored gold. The recovery was also supported by a weaker dollar in recent days.

From a technical perspective, the overall shape is bullish, with strong support around 2,620. Holding above this level could open the doors for higher levels if XAUUSD can break through its first resistance at 2,660.

Oil, OPEC Decisions, and Market Outlook

Oil prices struggled this week despite OPEC+ continuing their current production cut schedule into 2025. The Organization of the Petroleum Exporting Countries (OPEC)+ pushed back the start of oil output increases by three months until April and extended the full unwinding of cuts by a year until the end of 2026.

At the OPEC meeting, the group agreed to delay the planned oil output increase for three months, which led to some market disappointment. However, this decision is seen as bullish, as it may result in a supply deficit later this winter, especially as demand from China and India rises, and colder weather in Europe could further boost demand.

The EU faces higher energy prices compared to other economies, which could harm its competitiveness, especially during a cold winter. Meanwhile, Russia continues to support OPEC+ decisions despite concerns that the U.S. shale industry benefits most from these output reductions.

Natural gas prices are also recovering as predictions of a late December warm-up are being questioned, with harsh winter weather already affecting parts of the U.S. and Europe. A recent report from the UK suggests that this year may experience the harshest winter in the last five years. Typically, increasing gas prices support oil prices as well, and the market is now pricing higher gas prices.

On the geopolitical front, one of the key energy market drivers, there is still no clear sign of cooling tensions in either the Middle East or Ukraine.

From a technical point of view, unlike the recent reduction, WTI prices remain above their key support at $67, while both RSI and OBV confirm that this downtrend does not have enough strength to continue further. The first and most important resistance is at $69, and then WTI can target $72.

Bitcoin’s Surge

Bitcoin has surpassed $100,000, driven by market optimism, especially following Donald Trump’s crypto-friendly policies. However, the cryptocurrency is showing signs of being overbought, and some analysts predict further growth, with $150,000 as a potential target for 2025.

The price drop saw a 10% decline before reaching back above $100,000, wiping out significant long positions. Events like Mt. Gox resuming BTC transfers and Meitu liquidating over 900 BTC added to market fluctuations. Despite recent sell-offs, interest in Bitcoin remains high, particularly in Asia.

While Bitcoin’s price surge was fueled by technical factors and positive developments such as Trump’s appointment of Paul Atkins to head the SEC, concerns arose from Fed speakers, especially Jerome Powell’s stance that Bitcoin shouldn’t compete with the U.S. dollar.

Bill Dudley, former chairman of the New York Federal Reserve, has voiced concerns about the potential inclusion of Bitcoin in the U.S. national reserves. While some policymakers and crypto enthusiasts argue that Bitcoin could serve as a hedge against inflation and diversify U.S. financial assets, Dudley believes that a Bitcoin reserve could be detrimental.

He argues that Bitcoin’s volatility and lack of income generation make it unsuitable for government reserves. Dudley also points out that Bitcoin is not a true currency due to its slow and expensive transaction process, despite its portability, semi-anonymity, and ability to transfer funds without relying on traditional financial intermediaries.

While the fundamental environment remains positive for the crypto market, especially Bitcoin, technically some correction signals could be confirmed if the price falls below $94,000. Otherwise, the overall trend remains positive.