Euro Weigh on Eurozone Political Uncertainty

• The U.S. dollar stood pat ahead of the Fed's interest rate decision on Wednesday.
• Euro weighs on the German political uncertainty after the parliament voted out Olaf Scholz.

Market Summary

The U.S. dollar remained stable in yesterday's session ahead of the Fed's interest rate decision, which is scheduled for tomorrow. The market widely expects a 25 basis points rate cut, which has already been priced in. However, traders are closely watching today's U.S. Retail Sales data to gauge the strength of the dollar. Meanwhile, the euro faced pressure from political uncertainty following German Chancellor Olaf Scholz's loss in a confidence vote, triggering a snap election. In contrast, the Pound Sterling gained strength, supported by upbeat PMI data.

In the commodity markets, oil prices remained subdued after Chinese Retail Sales data came in weaker than expected, dampening the demand outlook for oil. Gold also struggled for direction, trading near recent lows without a clear catalyst. In the crypto market, Bitcoin (BTC) continued its rally, reaching a new all-time high, driven by market optimism surrounding the upcoming change in U.S. leadership with Trump set to assume office in January next year.

Current rate hike bets on 18th December Fed interest rate decision:

Source: CME Fedwatch Tool

0 bps (1.8%) VS -25 bps (98.2%)

Market Movements

DOLLAR_INDX, H4

The Dollar Index fluctuated ahead of the Feds interest rate decision on Wednesday, which is widely anticipated to include a 25 bps rate cut. With the decision largely priced in, the index appears to have found support near the 106.75 mark. Meanwhile, rising U.S. long-term Treasury yields, now above 4.4%, are likely to lend support to the dollar, bolstering its momentum.

The Dollar Index is currently supported at the 106.75 mark, but the bullish momentum is seemingly easing. The RSI continues to slide while the MACD has a deadly cross on the above and is edging lower, suggesting the bullish momentum is easing with the index.

Resistance level: 106.75, 107.60

Support level: 105.70, 104.55

XAU/USD, H4

Gold prices remain under pressure, suppressed below the critical resistance level near $2,715, forming a double-top pattern that indicates a bearish bias. After sliding by over 2.6%, the precious metal is now trading below the Fair Value Gap, signaling intensified selling pressure at current levels.

Gold continues to slide and is currently capped below the resistance level at the $2568 mark, suggesting a bearish signal for the gold. The RSI is about to break into the oversold zone while the MACD has broken below the zero line, suggesting the bearish momentum is gaining.

Resistance level: 2715.00, 2755.00

Support level: 2614.00, 2555.00

EUR/USD，H4

The EUR/USD pair, despite breaking out of its downtrend channel, traded sideways in yesterday's session as the euro faced renewed headwinds. Political uncertainty in the eurozone intensified after German Chancellor Olaf Scholz lost a confidence vote, triggering the prospect of snap elections in Germany. This development has weighed on the euro, adding a layer of uncertainty to the region's outlook. Traders now turn their attention to tomorrow's CPI reading, which could have a direct impact on the euro's direction, particularly in the context of the European Central Bank's monetary policy stance.

The EUR/USD has broken above from the downtrend channel and is currently supported at its previous high level, suggesting a potential trend reversal for the pair. The RSI is moving upward while the MACD is on the brink of breaking above the zero line, suggesting a bullish momentum is forming.

Resistance level: 1.0606, 1.0702

Support level: 1.0440, 1.0324

Nasdaq, H4

The tech-heavy U.S. equity market led the gains, with the Nasdaq rising by 247 points at the close. Interest rate-sensitive tech stocks are rallying ahead of the Fed's interest rate decision, with the prospect of a rate cut on Wednesday fueling optimism. Mega-cap tech stocks, including Tesla Inc. and Broadcom Inc., saw significant gains in yesterday's session, driving the Nasdaq to a new all-time high. The upbeat performance of these stocks reflects market anticipation of a more dovish stance from the Federal Reserve.

Nasdaq rose by some 1.24% and reached a new all-time high, suggesting a bullish signal for the index. The RSI has gotten into the overbought zone while the MACD continues to edge higher, suggesting that the bullish momentum is gaining.

Resistance level: 22600.00, 23170.00

Support level:21770.00, 21170.00