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The Federal Reserve’s approach to monetary policy remains a pivotal driver of market sentiment.
We consider the trajectory thus far. The Federal Reserve has already reduced interest rates by 75 basis points in 2024. This accommodative policy has provided a boost to equity markets, with the S&P 500 climbing over 25% year-to-date.
We think that this bullish trend reflects traders’ optimism about further rate adjustments to support growth.
The CME FedWatch Tool currently indicates a 66% probability of a 25-basis-point rate cut at the December 18 meeting, which would adjust the federal funds target range to 4.25%–4.50%. As with most decisions by the Fed, however, it will hinge on forthcoming economic data.
The December jobs report is expected to shed light on labour market conditions, with forecasts of 202,000 new nonfarm payrolls contrasting sharply with October’s subdued 12,000 additions. October’s slowdown was largely attributed to disruptions from hurricanes and labour strikes.
Should the December figures meet or exceed expectations, it could reinforce the perception of resilience in the labour market. However, rising unemployment—projected at 4.2%, up from 4.1%—might very likely introduce caution into market forecasts and influence the Fed’s stance on future rate cuts.
Current inflation remains above the Federal Reserve’s 2% target. A robust jobs report combined with steady or falling unemployment could diminish hopes for further easing in 2025, while weak data might bolster arguments for prolonged accommodative measures.
Market participants will likely scrutinise the ISM Manufacturing PMI at 47.7, which reflects a contraction but suggests an improvement from 46.5 previously.
Similarly, the ISM Services PMI, forecasted at 55.5 versus 56.0, will provide insight into non-manufacturing sectors. We see both reports influencing the Fed’s policy path and shaping near-term market moves.
Moving to the charts, the U.S. Dollar Index (USDX) exhibited weak momentum after trading up from the monitored 105.40 area. Traders are eyeing the support zones near 104.90 or 104.30, where bullish price action is anticipated if the index moves lower.
Crude oil prices, specifically WTI, have entered a complex structural phase. USOil recently tested the 69.67 level for the third time before retreating. If prices breach 68.174, further declines to 66.938 or even 65.508 could occur.
Gold’s price action highlights a reactive zone near the 2680 level, where it traded down previously. Any upward move back to this level could trigger bearish price action once more, providing a resistance area for traders looking to capitalise on reversals.
The metal’s behaviour in this range will depend heavily on external factors, such as shifts in USD strength or macroeconomic sentiment.
Natural gas prices have shown resilience, recently trading up before retesting the monitored buy area at 2.70. A bullish outlook emerges as prices move towards 3.13. Consolidation at this level could pave the way for a breakout towards 3.447, suggesting strong upward potential if support levels are respected.
We see that the EUR/USD has a key support area near 1.0630, where consolidation could signal a move higher. If such upward movement occurs, traders will watch for bearish patterns near 1.0710. Similarly, GBP/USD might present bearish setups at 1.2820 or 1.2865 as it climbs, making these levels pivotal for positioning.
As the S&P 500 edges higher, we see more attention being drawn to the 6130 level as a potential area for reversal or continuation patterns. Bitcoin shows a similar dual-path approach, with bullish setups likely around 93800 on declines and resistance at 102150 on rallies.
On Monday, the ISM Manufacturing PMI for the US is due for release. Forecasted at 47.7, it will be a modest improvement from the previous 46.5. This data will be pivotal for gauging manufacturing sector health.
Tuesday’s focus shifts to the JOLTS Job Openings report, projected to show a slight increase to 7.49 million from 7.44 million. This data will be crucial in assessing labour demand amid discussions around Federal Reserve policy.
Next on Wednesday, the spotlight broadens to include the Australian GDP figures, forecasted to rise 0.5% quarter-over-quarter from the previous 0.2%. This could influence the Australian dollar’s trajectory against the USD, especially as traders assess its alignment with Reserve Bank of Australia policy stances.
The US ISM Services PMI is also due, with expectations of a slight dip to 55.5 from 56.0. A strong reading might bolster USD sentiment and exert pressure on commodities like gold and oil.
This week’s focus will be on Friday’s US Non-Farm Employment Change report. As mentioned earlier, forecasts indicate an expected recovery to 202,000 jobs from the previous 12,000 in October. Alongside this, average hourly earnings growth is projected at 0.3%, down from 0.4%, while unemployment is forecasted to edge higher to 4.2% from 4.1%.
If real statistics match these forecasts, the data points will likely shape the market narrative around the Federal Reserve’s December 18 meeting.
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