Forex

As macroeconomic concerns have eased and geopolitical fears have partially subsided, forex market witnessed a significant rise and fall of major currency rates in December 2023.

As the markets close out the 2023 business year, the USD/JPY is back in the 141.00 support level as the pair continues to struggle to gain momentum in either direction.

Prior to the New Year's long weekend, post-holiday currency markets saw a thin week. As of Friday, the last trading day of the year, the US Dollar (USD) is down 0.3% vs the Japanese Yen (JPY), losing a full percentage point for the week.

The Euro (EUR) ended last year up 3% vs the US Dollar (USD), having risen 5.8% from the lowest prices of the year in October when it was trading around 1.0450. Even though the EUR/USD is still down almost 2% from its July peak of 1.1275 in 2023, the pair is moving toward the optimistic side as larger markets keep selling off the US dollar in anticipation of rate cuts by the Federal Reserve (Fed) in 2024.

The GBP/USD pair is cycling in short-term congestion, probing again into intraday median levels slightly over the 1.2700 handle. In the annualized number, the UK's Nationwide Housing Prices declined more than anticipated, coming in at -1.8% over the year ending in December as opposed to the predicted -1.4%.

The markets were anticipating a more robust recovery from the -2.0% print from the prior period. Declining UK economic data are restraining the Pound Sterling (GBP). The GBP is primarily being supported by a widespread sell-off in the US Dollar as investors bet on the Federal Reserve (Fed) cutting rates more quickly and deeply in the new year.

AUDUSD bias remained positive during December 2023, with the recent reversal being perceived as a price correction from levels that were overbought. The immediate support is at 0.6780, and it is at 0.6720 below. Resistances on the upswing are located at 0.6845 and 0.6870.

Commodities

The previous surge in crude oil prices was attributed to supply restrictions resulting from tensions in the Red Sea and Russia's intention to extend its output limits. Specifically, looking at the 4-hour chart, Brent crude oil is testing the upper limit of its declining channel.If the price breaks the Pivot Point level ($78.40), look for a move to the next negative objectives, such as S1 ($76.25) close to the mid-channel point of interest, then S3 ($71.48) at the channel support.

Should the rally persist over R1 ($81.02), it may indicate that bulls in crude oil are unwilling to give up, potentially leading to a reversal from the downward trend. Then, UK oil can aim for the higher targets around R2 ($83.18) or possibly R3 ($85.79).

Gold prices rose due to risk-on flows as well as anti-dollar sentiment throughout the second half of December. However, during the past week, limited liquidity restrained significant changes.

The 4-hour chart of the precious metal shows it has established higher lows in addition to higher highs to converge inside a rising wedge pattern. However, mixed indications are coming from technical indicators. The fact that the 100 SMA is exceeding the 200 SMA suggests that a bullish move is imminent, although Stochastic has been signaling buyer fatigue for a while.

The Pivot Point level, at $2,046.65 and $2,022.61, close to the 100 SMA dynamic support, might occur if the wedge bottom and R1 ($2,077.25) are broken.

Silver price experienced a sharp decline following the breakdown of the fresh rising channel pattern plotted within a two-hour scale. The price has returned to $23.60, its two-week low. There is further loss ahead as the 20-day Exponential Moving Average, which is currently at $24.00, is dropping.

The negative 20.00–40.00 range of the Relative Strength Index (RSI) (14) suggests that the downward momentum is still present.

Indices

December 2023 saw a critical change in sentiment for the US Dollar Index. The window of opportunities is shrinking for traders looking to profit from this rally after going short on the US dollar. The first upside resistance level to the face is located around the December 21 low, or 101.78. It is not out of the question that the DXY could test the declining trend line around 103.00, even though there is still a long way to go.

For a bearish outlook, the crucial level at 101.70, the bottom of August 4 and 10, has already disappeared and needs to be more severely beaten up to be of any assistance. The new support, close to 100.82, aligns with the low points from February to April and may still be relevant this Friday. But if that level breaks, nothing will stop DXY from moving into the sub-100 range.

US rates are stabilizing close to multi-month lows in the interim. The 2-year rate is 4.29%, while the 5-year and 10-year yields were 3.87%. These three yields, which have all seen modest increases and upward moves, limit the upside potential for the stock index. Furthermore, as indicated by the DXY index, the US dollar bounced back and reached 101.35, posing a threat to the S&P.

On the final trading day of 2023, the S&P 500 index sits at 4,785.50 as the current bullish trend appears to be leveling down. There could be some downward moves ahead to consolidate gains since the stock index will conclude with a 24% annual gain and record its ninth straight winning week.

Market Events

The US Institute for Supply Management reported a rise of ISM Services PMI to 52.7 on 5 December compared to 51.8 in November 2023. However, the JOLTS JOB Opening was down to 8.73M vs. 9.31 (forecast) published on the same day.

On December 6th, the November ADP Employment Change was revealed as 103K, less than anticipated (131K). Within two hours of this report, the Bank of Canada declared the 5% Overnight Rate to remain unchanged.

US nonfarm payrolls for November was 199K, exceeding estimates of 184K reported on December 8th. Additionally, the Average Hourly Earnings also increased to 0.4% compared to 0.2% in the previous month.

The UK economy shrank by 0.3% in October, far more than the -0.1% predicted, according to statistics from the National Statistics. This was after a 0.2% increase in September, as reported on 13 December.

US Federal Reserve confirmed the Federal Funds Rate will remain unchanged (5.50%) on 14 December. On the same day, the US Census Bureau published that retail sales climbed to 0.3% compared to -0.2% in November.

According to the US Bureau of Economic Analysis report on 21 December, the US final GDP dropped to 4.9% compared to the expectation of 5.2%. On the following day, the British Office for National Statistics reported that UK Retail Sales increased to 1.3% compared to the expectation of 0.4%.