KVB Market Analysis | 2 December

Product: EUR/USD

Prediction: Decrease

Fundamental Analysis:

The EUR/USD pair is under selling pressure, dropping to around 1.0530 due to a stronger U.S. Dollar in early Asian trading. Investors are awaiting a speech from ECB President Lagarde and the U.S. ISM Manufacturing PMI.

The decline is driven by Germany's November inflation data, which, while improving, still shows deflation. The Harmonized Index of Consumer Prices rose 2.4% year-over-year.

Technical Analysis:

If EUR/USD consistently rises above 1.0600, buyers need to reclaim the November 6 swing high of 1.0609 to maintain hopes for further gains. Clearing this level would open the way to test 1.0682, another key point reached on November 6.

On the other hand, if sellers push EUR/USD below 1.0500, it could lead to a challenge of the November 26 daily low at 1.0424, potentially heading toward the year-to-date low of 1.0331.

Product: XAU/USD

Prediction: Decrease

Fundamental Analysis:

Gold prices have fallen below $2,650 in Monday's Asian session, pressured by a recovering U.S. Dollar. Geopolitical tensions and Donald Trump's tariff threats on BRICS countries are driving demand for the Dollar as a safe haven, negatively impacting Gold.

Despite concerns over a global tariff war, the U.S. Dollar has struggled against major currencies, with markets expecting a 25 basis point rate cut from the Fed in December. Recent U.S. PCE data supports this, with a 63% chance of a cut priced in.

Technical Analysis:

Technically, Gold buyers are regaining some control, as indicated by the 14-day Relative Strength Index briefly crossing the 50 level. However, the ongoing Bear Cross suggests that the bullish momentum may fade.

If Gold doesnt hold above the 50-day SMA at $2,670 for daily closes, sellers are likely to return, pushing prices down toward the previous low of $2,621. The next support level is at the weekly low of $2,605, and a drop below that could lead to the 100-day SMA at $2,573.

On the upside, a sustained move above $2,670 could target the $2,700 level, with further resistance at the November 25 high of $2,721.

Product: GBP/USD

Prediction: Decrease

Fundamental Analysis:

The GBP/USD pair is facing selling pressure at the start of the week, reversing much of Friday's gains that reached the mid-1.2700s, a near three-week high. The decline has pushed prices back below 1.2700, driven by increased U.S. Dollar demand.

The pair had risen over 200 pips from last week's low below 1.2500, which was the weakest since May 2024, due to weaker USD demand.

Technical Analysis:

Traders are scaling back expectations for another interest rate cut by the Bank of England this year, after data showed UK price growth accelerated in October. This supports a stronger British Pound against the U.S. Dollar, reinforcing a positive outlook for the GBP/USD pair. However, several factors may limit significant gains.

U.S. PCE data showed inflation reduction stalled in October, and investors expect President-elect Donald Trump's policies to drive higher inflation. Hawkish minutes from the FOMC suggest the Fed may pause rate cuts if inflation remains high. Geopolitical risks and trade war concerns could boost the Dollar's safe-haven appeal, capping GBP/USD upside.

Product: USD/JPY

Prediction: Increase

Fundamental Analysis:

USD/JPY is recovering from a one-month low, testing the 150.50 level in the Asian session on Monday. This rebound is driven by increased demand for the U.S. Dollar, as Trump's tariff threats and geopolitical tensions boost its safe-haven appeal, while the Japanese Yen faces uncertainty over potential rate hikes from the Bank of Japan.

However, the pair lost some momentum, dropping to around 150.95 early Friday. The Yen strengthened following a stronger-than-expected Tokyo Consumer Price Index report for November. According to Japan's Statistics Bureau, the headline Tokyo CPI rose 2.6% year-over-year in November, up from 1.8% the previous month, while the CPI excluding fresh food and energy increased by 2.2%, exceeding market expectations.

Technical Analysis:

The core Consumer Price Index in Japan has remained above the Bank of Japans 2% target, fueling market hopes for a potential interest rate hike soon. This situation strengthens the Japanese Yen and creates challenges for USD/JPY. BoJ Governor Kazuo Ueda has indicated that the central bank will continue to raise rates if inflation stays on track to reach 2%.

In contrast, Wednesday's U.S. PCE data showed that efforts to reduce inflation have stalled recently, which could lower expectations for the Federal Reserve to cut rates in 2025. This may lead to a slight increase in U.S. bond yields, supporting the Dollar. Currently, markets are pricing in about a 62.8% chance that the Fed will reduce rates by a quarter point in December, up from 55.7% earlier this week, according to the CME FedWatch Tool.