General Market Analysis – 16/12/24

Economic

Summary:

This week is set to be significant for financial markets, with key updates from some of the world’s major central banks.

US Markets Consolidate Ahead of a Big Week – Dow Off 0.2%

It was a relatively muted trading day on Friday, as expected, with investors digesting recent updates and looking ahead to another key trading week. The Dow dipped 0.20%, the S&P closed flat, and the Nasdaq gained just 0.12% in lacklustre trading. Currencies traded in relatively tight ranges, with the dollar edging higher.

There were, however, some notable moves in treasuries and commodities. The US 2-year yield added 5.4 basis points, rising to 4.245%, while the benchmark 10-year yield gained 6.9 basis points, reaching 4.397%. Oil prices pushed higher again as traders evaluated EU sanctions on Russia, with Brent crude adding 1.47% to $74.49 and WTI rising 1.81% to $71.29. Gold saw another drop from recent highs, losing 1.21% on the day to close the New York session at $2,649.65.

Central Bank Focus This Week

This week is set to be significant for financial markets, with key updates from some of the world’s major central banks. The Federal Reserve’s meeting, concluding late in the US trading day on Wednesday, will undoubtedly be the major focus. However, with a 25-basis-point cut already well priced in, the outcome could prove to be a non-event.

The Bank of England and the Bank of Japan are also due to update markets on interest rates. Both are expected to keep rates on hold, and these meetings may have a greater potential to move markets than the Fed’s announcement. FX traders anticipate significant activity around these events, with any surprises likely to come from the latter two meetings. Consequently, stronger moves in the pound and the yen may be seen as the week progresses.

Busy Day to Kick Off a Busy Week

Monday features an unusually packed calendar to start what could be a pivotal week for financial markets. A raft of Flash Manufacturing and Services PMI figures is due across all sessions, with data coming from Australia, France, Germany, the EU, the UK, and the US.

The Asian session includes several key Chinese updates, with Industrial Production and Retail Sales data in the spotlight. In the European session, ECB President Christine Lagarde is scheduled to speak, followed later by Bank of Canada Governor Tiff Macklem, who will address an audience in Vancouver.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

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Glendon

Economic

The debate between automated trading and manual trading has become a focal point in the world of forex and other financial markets. While each method offers its own set of advantages, many traders—especially newcomers—are unaware of the dark side of both trading styles. From scams involving false promises of "perfect" trading algorithms to deceptive brokers targeting those new to manual strategies, both automated and manual trading can lead to massive losses if you're not careful.

What Is Automated Trading?

Automated trading involves using computer algorithms to execute trades without human intervention. Traders set predefined rules based on technical indicators, price levels, or market trends, and the trading system automatically places orders according to these criteria. Many believe that automated trading removes the emotional bias from decisions and works tirelessly 24/7, capturing opportunities even when the trader is asleep.

However, not all automated trading systems are built equally. While some are genuinely effective, many are marketed by scam brokers promising astronomical returns. These systems, often referred to as "black-box" algorithms, are designed to trick traders into thinking they’re following a flawless, profit-generating formula. Unfortunately, the reality is far from what is promised.

The Allure and Risk of Automated Trading

The Promise of Easy Profits

Automated trading is often marketed by scam brokers as a “set it and forget it” solution. They promise easy profits with little effort on the trader’s part. This allure is tempting for traders, especially beginners, who want to enter the market without the need for in-depth market knowledge or experience. However, the reality is that these systems rarely deliver the returns they promise. Scam brokers create the illusion of success, but in most cases, the algorithms are rigged to funnel money away from traders rather than towards them.

Lack of Transparency and Control

One major downside of automated trading is the lack of transparency. If you’re using a proprietary algorithm, you often don’t know exactly how it works or what data it relies on. In many cases, this lack of insight makes it nearly impossible to assess its true effectiveness or adjust its parameters if it starts losing money. Worse, some scam brokers sell you access to a system that is poorly designed or even deliberately faulty, all in the name of generating profits for the scammer.

Risks of Over-Optimization

Automated trading systems can fall victim to over-optimization, where the algorithm is adjusted to perform well based on historical data but fails to adapt to current market conditions. This can lead to poor decision-making during periods of volatility or unforeseen market events. Scam brokers may try to convince traders that their system is infallible, but in reality, it may only be tailored to past trends that no longer hold true in the market.

What Is Manual Trading?

Manual trading, on the other hand, involves the trader executing orders based on their own analysis and discretion. Using tools like chart patterns, technical indicators, and fundamental analysis, manual traders aim to identify profitable trades and execute them at opportune moments. While it requires more effort, knowledge, and time, manual trading gives traders full control over their strategies and decisions.

The Allure and Risk of Manual Trading

The Emotional Factor

One of the biggest challenges with manual trading is the emotional aspect. Fear, greed, and impatience can cloud a trader’s judgment, leading them to make poor decisions. While some brokers advertise that their manual trading platform can help mitigate these emotions, the reality is that all traders face psychological challenges at some point. Scam brokers may exploit this weakness by offering strategies that promise to reduce risk or promise guaranteed results, only to lure traders into risky or manipulated trades.

Deceptive “Success” Signals

Manual trading also opens the door to scams in the form of misleading signals or fake expert advice. Many brokers offer “proven” strategies or market signals that supposedly lead to consistent profits. These services may come with hidden costs, or worse, the signals themselves might be rigged or untested. When a trader follows these signals, they often end up losing money or being forced into high-risk trades they don’t fully understand.

Lack of Automated Assistance

Manual trading can be mentally exhausting. Without the aid of automation, a trader must stay glued to their screen for extended periods to catch optimal trade opportunities. This long exposure can lead to poor decision-making due to fatigue, stress, or lack of focus. Scammers prey on this by offering manual trading platforms that promise to simplify the process, yet they often end up with fees, untrustworthy signals, or worse, manipulation of trades that cause traders to lose their funds.

The Common Scam Across Both Methods

Regardless of whether you’re trading manually or through automation, scammers tend to use similar tactics to lure unsuspecting traders:

Unrealistic Promises of Profits: Both automated trading systems and manual signal services are often advertised with promises of guaranteed profits, no losses, or high returns. These promises are often too good to be true and are a hallmark of fraudulent services.

Fake or Manipulated Reviews: Scammers often populate forums or social media with fake reviews or testimonials to create the illusion of credibility. They may also feature fabricated screenshots of impressive gains or success stories to lure new clients into their traps.

Hidden Fees and Costs: Both methods are prone to hidden fees. Automated trading systems might charge for access to algorithms that don’t work as advertised. Meanwhile, manual trading services may charge for overpriced signals, hidden subscription fees, or bait-and-switch tactics, where the trader is offered a "discount" that isn’t really a deal.

Lack of Regulation: Many scam brokers offering both automated and manual trading options operate without any regulation, making it difficult for traders to seek justice or get their money back if things go wrong.

How to Protect Yourself

Whether you're considering manual or automated trading, the key is to be aware of the risks and make informed decisions. Here’s how to protect yourself:

Choose a Regulated Broker: Always ensure that the broker is regulated by a trusted financial authority (such as the FCA, ASIC, or CySEC). This adds an additional layer of security.

Avoid Unrealistic Promises: If it sounds too good to be true, it probably is. Steer clear of brokers or systems promising guaranteed profits.

Research Thoroughly: Read reviews from reputable sources and check for complaints or scam reports before committing to any trading platform.

Start Small: Whether trading manually or using automation, always start with a small amount of capital to test the platform’s credibility and withdraw functionality before scaling up.

Conclusion: The Dark Side of Trading

Both automated and manual trading offer unique opportunities, but they also come with significant risks. While automation promises ease and speed, it’s often a front for scam brokers preying on naive traders. Manual trading, while giving full control, also opens the door to emotional pitfalls and misleading advice. Always ensure that you’re dealing with a regulated, trustworthy broker, and be wary of any offer that seems too good to be true.

Final Word: Whether you choose automated or manual trading, protecting yourself from scams requires vigilance, skepticism, and a thorough understanding of the risks involved.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Glendon

Economic

The foreign exchange market offers an array of trading options, with currency pairs ranging from major to minor and exotic. Exotic forex pairs, often seen as an avenue for high-risk, high-reward trading, have gained popularity among traders looking to maximize profits. However, behind the allure of these pairs lies a darker truth—many traders fall victim to scams and unethical brokers when dealing with exotic pairs. In this article, we’ll explore why trading exotic forex pairs can be risky, the signs of potential scams, and how to protect yourself.

What Are Exotic Forex Pairs?

Exotic forex pairs involve a major currency paired with the currency of a developing or emerging market. Examples include USD/TRY (US Dollar/Turkish Lira), USD/ZAR (US Dollar/South African Rand), or EUR/INR (Euro/Indian Rupee). These currencies tend to have lower liquidity compared to major pairs like EUR/USD or GBP/USD, making them more volatile and subject to greater fluctuations in value.

While these pairs can present opportunities for traders to profit from these price swings, they also carry significant risks, especially when paired with brokers that operate without proper regulation.

Why Are Exotic Pairs So Risky?

Higher Volatility

Exotic pairs are notoriously volatile. Currencies in emerging markets are often subject to drastic price changes due to political instability, economic events, or market sentiment. While volatility can be attractive to traders looking for big moves, it also means that the market can shift unexpectedly, leading to rapid losses. Unregulated brokers who promote exotic pairs may exploit this volatility to manipulate trades, causing unwarranted losses for traders.

Lack of Liquidity

Liquidity refers to how easily a currency can be bought or sold without significantly affecting its price. Exotic currency pairs often have lower liquidity, meaning it may be difficult to execute trades at desired prices. This can result in large slippage—where orders are filled at worse-than-expected prices—making trading even more unpredictable.

Increased Spreads and Hidden Fees

Many brokers who offer exotic forex pairs impose larger spreads to compensate for the lack of liquidity. This means that traders are required to pay more to enter and exit trades. In addition to the spread, some brokers may also charge hidden fees, including account maintenance fees or unannounced withdrawal fees. These fees often aren't disclosed clearly, leaving traders blindsided.

Scam Brokers Target Exotic Pair Traders

Exotic pairs’ volatility and complexity make them prime targets for scam brokers. Many shady brokers lure inexperienced traders with promises of high returns from exotic forex pairs, capitalizing on the traders’ ignorance of the risks involved. Once a trader signs up and deposits funds, the broker may manipulate trades, deny withdrawal requests, or lock accounts, leaving traders with no way to recover their funds.

The Dark Side: Scam Brokers and Exotic Pairs

Traders who venture into exotic pairs are often drawn by the promise of higher profits, but they fail to account for the associated risks and the potential for falling victim to scams. Scam brokers may offer seemingly attractive trading conditions, such as low initial deposits or high leverage, to entice traders to open accounts and trade exotic pairs.

Once a trader becomes involved, the broker may engage in unethical practices such as:

Delayed or Denied Withdrawals: The trader may attempt to withdraw profits or even their initial deposit, only to find that the request is delayed indefinitely or denied altogether.

Manipulation of Trades: A scam broker may manipulate the price of an exotic pair, executing trades at prices different from the market value or even preventing the trader from closing their positions.

Fake Bonuses and Promotions: To encourage traders to deposit more funds, scam brokers often offer fake bonuses or promotions. These may come with hidden terms that make it almost impossible to withdraw the bonus funds, leading to further losses.

No Clear Regulation: Scam brokers often operate without proper regulation from a financial authority, leaving traders with no recourse in case something goes wrong.

How to Protect Yourself from Exotic Pair Trading Scams

If you’re determined to trade exotic pairs, here are several steps you can take to protect yourself from potential scams:

Choose a Regulated Broker: Always ensure that the broker you choose is regulated by a reputable financial authority such as the FCA (UK), ASIC (Australia), or CySEC (Cyprus). Regulation ensures that the broker is held to high standards and offers you legal protection.

Read Reviews and Testimonials: Before signing up with a broker, research reviews from other traders. If many reviews mention issues like withdrawal problems or unresponsive customer support, it’s a red flag.

Start Small and Test Withdrawals: If you're new to exotic pairs, start with small trades and test the withdrawal process to ensure the broker honors withdrawal requests.

Understand the Risks: Exotic pairs may be tempting, but they come with heightened risk. Be sure you fully understand how these pairs move and the potential impact of news and events on their value.

Conclusion: Are Exotic Forex Pairs Worth the Risk?

While exotic forex pairs can offer enticing profit opportunities, they are often plagued by risks, especially when dealing with scam brokers. The high volatility, low liquidity, and the potential for manipulation make these trades far riskier than many traders initially realize. If you are considering trading exotic pairs, it's crucial to choose a regulated broker and understand the inherent risks involved.

Remember: just because a broker offers exotic forex pairs doesn’t mean they are trustworthy. Always do your due diligence to avoid falling victim to scams and ensure your trading experience is secure.

Final Advice: If you're new to forex trading or uncertain about exotic pairs, it may be better to stick with major and minor pairs until you gain more experience and can discern between legitimate brokers and potential scams.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Central Bank

Fed seen taking the sidelines in January

Following the RBA, the BoC, the SNB and the ECB, the central bank bonanza continues next week, with the Fed on Wednesday, and the BoJ and the BoE on Thursday.

Although Wednesday’s data suggested that US inflation was a little bit hotter than in October, market participants became more convinced that the Fed will press the rate-cut button next week, almost fully penciling in a quarter-point reduction. Having said that though, the probability for policymakers taking the sidelines in January has soared to around 80%.

It seems that market participants took the words of several policymakers seriously, who appeared willing to vote in favor of a rate cut at the upcoming meeting, but they also stuck to their guns that a slower rate-reduction path moving forward is necessary.

That belief may be the result of president-elect Trump’s pledge to impose hefty tariffs on imports from around the globe, especially China, as well as his promise for massive corporate tax cuts. These policies are seen as fueling inflation, which has been proving sticky even before Trump’s plans are enacted.

Week Ahead – Fed, BoJ and BoE Conclude End-Year Policy Decisions_1

The stellar performance of the US economy corroborates the notion that Fed officials do not need to rush into lowering interest rates, something also noted by Fed Chair Powell himself. The Atlanta Fed GDP now model is pointing to a strong 3.3% QoQ SAAR growth in Q4, while the latest employment report confirmed that the labor market remains robust and that October’s dismal print was just an outlier, a one-off occasion due to strikes and adverse weather conditions.

Week Ahead – Fed, BoJ and BoE Conclude End-Year Policy Decisions_2

Mind the dots

With all that in mind, a 25bps cut itself is unlikely to shake the markets much. Investors may focus more on hints and clues on how likely a January pause is, as well as on how many rate cuts policymakers are contemplating throughout 2025.

Taking next week’s reduction out of the equation, Fed fund futures are pointing to another 50bps worth of reductions by next December. Combined with an already strong chance for a pause at the first gathering of the year, this poses some downside risks for the US dollar.

Week Ahead – Fed, BoJ and BoE Conclude End-Year Policy Decisions_3

Even if Fed Chair Powell corroborates the notion of a January pause, a median dot for 2025 pointing to more than 50bps worth of rate cuts could disappoint market expectations and thereby weigh on the greenback. At the same time, bets of lower-than-currently expected borrowing costs combined with Trump’s tax cuts, may be celebrated on Wall Street, with equity indices continuing to explore uncharted territories.

Bank of Japan – to hike or not to hike?

Passing the ball to the BoJ, up until very recently, investors were expecting 15bps worth of a rate increase at this gathering, or a 60% chance for a quarter-point hike. However, that probability dropped to around 25% after board member Nakamura said that, although he is not opposed to rate hikes, the decision should be data dependent.

His remarks disappointed those expecting the BoJ to finish the year with a hike, but yet, traders are nearly fully pricing in a quarter-point increase by March as Governor Ueda and his colleagues maintained their readiness to hike again due to an expanding economy, rising wages, and above-target inflation.

Week Ahead – Fed, BoJ and BoE Conclude End-Year Policy Decisions_4

This means that there are upside risks for the yen. A rate hike by the BoJ next week could offer strong support, but even if officials decide to stand pat, strong hints that an increase at the turn of the year is warranted could still prove beneficial.

BoE appears in no rush to cut rates

A few hours later, the central bank torch will be passed to the BoE. Contrary to the Fed, investors are seeing only a 10% chance of a 25bps cut at this gathering. They are not even fully pricing in one before March.

Last month, policymakers lowered the Bank rate from 5.0% to 4.75% but raised their inflation forecasts as finance minister Reeves announced massive government spending in her first budget.

Combined with recent remarks from Governor Bailey that there is still “a distance to travel”, this prompted investors to anticipate no action before the turn of the year and around 75bps worth of reductions by the end of 2025.

The relatively hawkish BoE bets helped the pound to be the only major currency that has not lost ground against the greenback in 2024, and to strongly outperform the neighboring euro as the ECB is expected to cut interest rates by another 115bps in 2025. Trump’s tariff threats pose another risk for the Eurozone and the common currency.

Week Ahead – Fed, BoJ and BoE Conclude End-Year Policy Decisions_5

Ergo, should the BoE maintain a hawkish stance, the pound is likely to remain supported. It could even finish the year higher against the US dollar if the Fed disappoints current market expectations.

Flash PMIs, CPIs and more

What could add extra pressure on the euro next week may be another round of disappointing PMIs on Monday. The preliminary numbers from France and Germany are coming out ahead of the Eurozone’s prints and signs of more economic struggles in these two nations, which are also face political uncertainty, could intensify headaches for euro traders.

Week Ahead – Fed, BoJ and BoE Conclude End-Year Policy Decisions_6

The UK and US preliminary S&P Global PMIs are also out on the same day, but they may attract less attention than the Euro area prints as pound and dollar traders may have their attention fixed on the BoE and Fed central bank decisions.

That said, pound traders may be tempted to incorporate the UK jobs data for October and the UK CPI numbers for November, due out on Tuesday and Wednesday, into their expectations heading into Thursday’s decision. So, the pound could experience some early volatility before Bailey and co. announce their decision. The UK retail sales are due out on Friday.

On Friday, the agenda also includes the US core PCE index for October, which is the Fed’s preferred inflation gauge and is accompanied by the personal income and spending data for the same month.

Speaking about inflation, following the BoC’s decision to cut interest rates by 50bps this week, loonie traders may turn their attention to Canada’s CPI data on Wednesday.

Week Ahead – Fed, BoJ and BoE Conclude End-Year Policy Decisions_7

Although policymakers opted for the bigger move, Governor Macklem said that further reductions would be more gradual. Now, investors are seeing a 40% probability for the Bank to stand pat at the January meeting and signs of inflation stickiness may increase that chance, thereby adding some support to the Canadian dollar.

Source:XM

Risk Warnings and Disclaimers

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Devin

Economic

The AI revolution is “the biggest platform shift since electricity” and, as such, will bring investment opportunities in smaller tech firms that are climbing ever nearer to the Big Tech behemoths, according to one U.K.-based fund manager.

“We’re of the firm belief that the winners of this new technology cycle, that really started 18 months, two years ago with the ChatGPT moment [and the] AI revolution, these are not going to be the same winners as the last technology cycle,” Clare Pleydell-Bouverie, co-lead fund manager at Liontrust Asset Management, told CNBC’s Arjun Kharpal last week.

“We’re really focused on the opportunities sat below the Magnificent Seven,” Pleydell-Bouverie said, referencing a group of Big Tech stocks comprising of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.

Many of those tech firms she says are ripe for investment work on AI applications, which the fund manager describes as an emerging club of high-value firms, and one of a number of different layers growing within the wider AI industry.

“This year we’ve been really focused on the AI infrastructure layer of this new technology stack,” she said.

Pleydell-Bouverie warned keen AI investors to see that “you’ve got to build out this new compute infrastructure before you can monetize it.” This includes silicon chips, semiconductor equipment, the likes of Applied Materials, and firms responsible for laying underground cables and networks, she said.

“So, the Broadcom’s, the Amphenol’s, the Arista’s of this world, these are all really crucial components to scale this AI infrastructure. And on top of that, you’ve got the model providers. For the most part, we view these players as quite commoditized ... It’s a complete arms race to build these large foundation models,” she said. Large foundation models refer to machine-learning models that are trained on large amounts of data.

Below the AI application making “stack” are engineering firms “who bring AI to companies and customers,” said Pleydell-Bouverie, adding: “The value at the moment resides still in that AI infrastructure layer, but we see that moving up the stack into next year.”

Nvidia ‘primary beneficiary’ of AI boom

Pleydell-Bouverie believes Nvidia will be the key player for the AI revolution in 2025, striking comparisons with Apple’s surge as the dominant player during the smartphone transition.

Understanding Nvidia’s role in 2025, however, requires investors to view the Magnificent Seven firm in a different light.

“The key misunderstanding about Nvidia is that it’s a chip provider. Looking at the company through this framework … looking at this company through the framework of a backward looking hyperscaler capex [capital expenditure] is fundamentally the wrong way to be looking at this company,” said Pleydell-Bouverie.

Apple co-founder Steve Jobs is credited with integrating a failing operating system with sleek hardware in the mid-1990s, laying down the foundations for it to eventually take advantage of the smartphone boom that would emerge at the turn of the millennium.

Pleydell-Bouverie sees Nvidia accelerating similarly to Apple.

“Nvidia is actually positioning itself to be the operating system for this new AI-infused software that we’re going to really start to see come to market from next year,” she added.

Nvidia has been the primary beneficiary of the ongoing artificial intelligence boom, with its next-generation AI chip Blackwell now in focus. Shares of the company have nearly tripled so far in 2024 — up more than 180% in the year-to-date — making it one the world’s most valuable companies.

Source:CNBC

To stay updated on all economic events of today, please check out our Economic calendar

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Saif

Central Bank

The ECB expectedly cut rates by another 25bp and tweaked its statement while keeping concrete changes limited. The ECB dropped the pledge to keep rates sufficiently restrictive for as long as necessary and instead just said that it is determined to ensure that inflation stabilises sustainably at its 2% medium-term target. Rates are still seen restrictive, but easing financing conditions are already making new borrowing less expensive.

The ECB staff now expects a slower recovery, while the disinflation process is well on track. Changes to the inflation forecasts were moderate, and core inflation is seen at 2.3% in 2025 and 1.9% in both 2026 and 2027, i.e. more or less in line with the target.

The reaction function was kept unchanged and future decisions will still be based on the assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The ECB is not pre-committing to a particular rate path, while future decisions will be made via a data-dependent and meeting-by-meeting approach.

In light of today’s message, we retain our baseline forecast for 25bp rate cuts at every ECB meeting until April next year, when we see the deposit rate hit 2.25%. Risks remain firmly tilted to the downside for this view.

In the Q&A, Lagarde said there had been discussions on a 50bp cut, but in the end there was a strong rally towards 25bp. She added that while upside inflation risks had not vanished, risks to prices are now more two-sided. Lagarde did not offer any new estimates on where the neutral level of rates might lie, as this topic was not discussed. She said the direction of travel was quite clear, but the pace was not and a lot of ground had already been covered.

Financial markets interpreted the message initially slightly dovishly, but the tone changed, when Lagarde emphasised that a lot had already been done, which markets interpreted as suggesting limited room for further easing. The market is currently pricing in around 30bp of easing for the January meeting, i.e. a clear bias in favour of another 25bp cut. The bottom for the deposit rate is priced at around 1.75%. While financial markets are already pricing in steeper cuts than we have in our baseline, weak data could easily push rate expectations further downwards.

More rate cuts ahead

Lower rates already helping to boost loan demand

Only small changes to the ECB projections

The revisions to the ECB September projections were small, just like expected. Somewhat surprisingly, the ECB expects only 1.1% growth next year compared to 1.3% in September. This was said to be mainly due to weak survey data (PMIs) since the last forecast round. GDP data actually surprised the ECB to the upside in Q3. Thus, the ECB sees that the recovery will be rather weak and it will rely much on higher real income and consumption. The ECB continues to see risks to be biased to the downside and compared to the ECB’s earlier projection rounds, one can consider the 1.3% forecast for 2027 growth to be quite weak.

It seems that in general, the ECB has perhaps lowered its long-term growth potential given that despite the weaker GDP numbers, the revisions to the inflation forecast were very small especially for the core inflation and mainly took place in the short-term.

Inflation is seen to return to the 2% target in the course of 2025 and risks around inflation are to both directions. Inflation can turn out to be sticky if wages continue to rise fast and also trade restrictions can cause cost pressures in parts of the supply chains.

The ECB staff sees inflation returning to the target in the course of 2025

Source:ECB Watch

Risk Warnings and Disclaimers

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Danske Bank

Central Bank

Since the FOMC participants filed their latest economic projections in mid-September, market pricing for real terminal policy rate has shifted roughly 60bp higher. Real 1y forward OIS curve stabilizes around 1.7-1.8% level, which is 0.8-0.9% above the September median real long-term dot. While 25bp cut next week is mostly a done deal, the true focus is on how FOMC’s terminal rate view has shifted alongside markets.

While part of the increase in market pricing can be attributed to term premium (NY Fed’s ACM model estimate for 10y term premium is roughly 30bp higher than 3M ago), markets are discounting in expectations of more resilient economy and supportive fiscal policy.

But while we wait for the details on the latter, we struggle to see why the Fed should suddenly be more concerned with the economy overheating again. This week’s CPI data showed continuing cooling in both housing and non-housing services inflation, suggesting that the underlying disinflation trend remains on track. The ratio of job openings to unemployed has stabilized around 1.1, which suggests labour market balance is slightly cooler than before the pandemic. Both market and survey-based measures of inflation expectations remain well aligned with the 2% target.

Still low level of mortgage applications and weak commercial loan demand signals from the Fed’s latest SLOOS data also suggest current policy stance remains restrictive. As such, we think the Fed can continue to reduce rates towards neutral not just next week, but also into 2025. And when it comes to estimating the neutral level, we do not think the magnitude of the shift in market pricing is quite yet justified. More modest upward-shift in longer-term dots could be a dovish surprise for the markets.

We expect minor positive revisions to GDP and inflation forecasts for 2024 & 2025 but think 2026 forecasts will remain stable. We think Powell will aim for a neutral tone in his remarks, but he is still likely to verbally open the door for slowing the pace of cuts, in line with what we have heard from other Fed commentators lately. Markets are currently pricing in only 6bp for the January meeting, and we do not expect a dramatic re-pricing after next week, as the decision ultimately hinges on data released later on. 10-12bp (or close to 50/50) would be a fair level at this stage in our view. Markets’ most likely scenario includes 25bp rate cuts in every other meeting during H1 2025, but we still believe the Fed will end up cutting rates in every meeting until June.

ON RRP cut would not predict an imminent end to QT

The Fed could also deliver a 5bp additional technical reduction to the ON RRP rate asdiscussed in the November minutes, which would align it with the lower bound of the FedFunds target range. We do not think it would have a significant impact on the overall policystance, but rather, such a move should be seen as a sign of the Fed wanting to err on theside of caution amid the risk of repeating the repo market turmoil in September 2019.All else equal, the reduction would make it less attractive for money market funds to parkcash into the facility, which could then provide a positive boost to markets’ liquidityconditions. ON RRP usage peaked above USD2300bn around two years ago, but the levelhas already declined to around USD150bn, meaning the impact would be modest eitherway.

Market-based overnight repo rate (SOFR) has traded mostly in tandem with the Fed Fundsrate over past years, but as liquidity conditions have gradually tightened due to QT, SOFRhas seen occasional spikes around month and quarter turn dates. The very latest fixingshave been on the higher side again, which could increase the likelihood of the cut.If the Fed does decide to cut the ON RRP rate, Powell would certainly face questions aboutthe future of QT, which is still draining liquidity at a rough pace of USD40bn/month.

However, the near-term liquidity outlook does not appear too concerning in our view. TheUS debt ceiling suspension ends at the beginning of 2025, which means that the governmentwill start to utilize its cash balance to fund the ongoing deficits until the ceiling is lifted orsuspended again. This could theoretically boost liquidity by as much as USD775bn overthe course of H1 2025. If the remaining funds from the ON RRP facility would also getdrained back to the market, the level of bank reserves could even start rising again despitethe QT. As such, we do not expect the Fed to halt the QT before H2 2025 at earliest. Readmore from the STIR section of RtM USD – December cut in the horizon, 10 December).

Source:Danske Bank

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General Market Analysis – 16/12/24

US Markets Consolidate Ahead of a Big Week – Dow Off 0.2%

Central Bank Focus This Week

Busy Day to Kick Off a Busy Week

Automated Trading vs Manual Trading

What Is Automated Trading?

The Allure and Risk of Automated Trading

The Promise of Easy Profits

Lack of Transparency and Control

Risks of Over-Optimization

What Is Manual Trading?

The Allure and Risk of Manual Trading

The Emotional Factor

Deceptive “Success” Signals

Lack of Automated Assistance

The Common Scam Across Both Methods

How to Protect Yourself

Conclusion: The Dark Side of Trading

Are Exotic Forex Pairs a Scam

What Are Exotic Forex Pairs?

Why Are Exotic Pairs So Risky?

Higher Volatility

Lack of Liquidity

Increased Spreads and Hidden Fees

Scam Brokers Target Exotic Pair Traders

The Dark Side: Scam Brokers and Exotic Pairs

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Week Ahead – Fed, BoJ and BoE Conclude End-Year Policy Decisions

Fed seen taking the sidelines in January

Mind the dots

Bank of Japan – to hike or not to hike?

BoE appears in no rush to cut rates

Flash PMIs, CPIs and more

Source:XM

New AI Winners Beyond Big Tech are set to Emerge, UK Fund Manager Predicts

Nvidia ‘primary beneficiary’ of AI boom

Source:CNBC

Still restrictive, but not for long

More rate cuts ahead

Lower rates already helping to boost loan demand

Only small changes to the ECB projections

The ECB staff sees inflation returning to the target in the course of 2025

Source:ECB Watch

Fed Preview: Gauging for Neutral

ON RRP cut would not predict an imminent end to QT

Source:Danske Bank

Risk Disclosure