Daily Market Analysis from ForexMart

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EUR/USD: parity in the risk zone

Donald Trump's return to the political arena is alarming for investors, since his economic views, as during the previous presidency, are clearly nationalistic in nature.

The EUR/USD pair fell sharply, reaching a two-year low, due to fears that the trade wars that Trump will inevitably resume will lead to an economic crisis in the eurozone. Economic indicators confirmed the deterioration of the situation: the composite PMI fell below the 50 mark, signaling a reduction in economic activity.

In this regard, markets expect a more aggressive monetary policy of the European Central Bank, which may lead to a fall in the euro to parity with the dollar. Such a scenario was already implemented in 2022 during the outbreak of the military conflict in Ukraine, when the euro weakened amid the energy crisis.

Previously, a similar situation was observed in 2016, when the dollar rose sharply after Trump's election victory, and then weakened by 2017. Such dynamics may be repeated, especially if the minutes of the October Fed meeting turn out to be «dovish» and inflation in Europe decreases.

At the moment, the dollar is holding at 107, and the euro is 104.
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China resists Trump's pressure by strengthening the yuan

The Chinese authorities are facing new tariff threats from US President-elect Donald Trump and are strengthening control over the yuan exchange rate.

Immediately after the end of the US elections, the People's Bank of China began to set the daily reference rate of the yuan above 7.2 per dollar, despite dollar fluctuations and analysts' expectations that the central bank would weaken the currency.

Such actions by the central bank are reminiscent of the tensions that characterized Trump's first term, but now the stakes are even higher. China is balancing between the desire to protect its currency and the need to stimulate economic growth. This forces the central bank to seek a balance between too strong and too weak yuan exchange rate.

Experts believe that the People's Bank of China will keep the yuan relatively stable against the dollar, as it was before. In response to the imposition of additional tariffs, China will rely more on domestic incentives rather than currency devaluation.
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[KostiaForexMart]

China resists Trump's pressure by strengthening the yuan

The Chinese authorities are facing new tariff threats from US President-elect Donald Trump and are strengthening control over the yuan exchange rate.

Immediately after the end of the US elections, the People's Bank of China began to set the daily reference rate of the yuan above 7.2 per dollar, despite dollar fluctuations and analysts' expectations that the central bank would weaken the currency.

Such actions by the central bank are reminiscent of the tensions that characterized Trump's first term, but now the stakes are even higher. China is balancing between the desire to protect its currency and the need to stimulate economic growth. This forces the central bank to seek a balance between too strong and too weak yuan exchange rate.

Experts believe that the People's Bank of China will keep the yuan relatively stable against the dollar, as it was before. In response to the imposition of additional tariffs, China will rely more on domestic incentives rather than currency devaluation.
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The main events by the morning: November 27

The Russian ruble continues to weaken, despite the support from tax payments and stable oil quotes. On the Moscow Exchange, the yuan has exceeded the mark of 14.5 rubles, and the dollar is approaching the level of 106 rubles. The decline in the Russian currency is due to several factors: the aggravation of the geopolitical situation, new sanctions complicating foreign trade calculations, increased demand for imports and rising budget expenditures, as well as the strengthening of the dollar on world markets.

Biden secretly requested an additional $24 billion from Congress to help Ukraine. Of this amount, $16 billion is supposed to be spent on replenishing American weapons stocks, and the remaining funds will be sent directly to Ukraine. Republicans opposed it, accusing Biden of trying to disrupt Donald Trump's possible peace initiatives to resolve the conflict.

Walmart has abandoned the policy of inclusivity, the company's shares are growing. Walmart announced the termination of its support for diversity and inclusivity policies, including severing ties with the Center for Racial Equality and withdrawing from the LGBT rights index (the organization is recognized as extremist and banned in the Russian Federation). Against the background of this decision, the company's shares have been showing growth over the past two days.

The ceasefire agreement between Israel and Hezbollah has entered into force. Israel and Hezbollah have officially stopped fighting in accordance with the new peace agreement. The agreement provides for the gradual control of the Lebanese army over the border territories with the support of the UN Interim Force in Lebanon. Israel, in turn, has pledged to withdraw its troops from southern Lebanon within two months.

The Trump team is evaluating the possibility of direct talks with Kim Jong Un as part of a «new diplomatic push.» Trump's main goal is to restore communication channels between Washington and Pyongyang, but further political contacts and their schedule have not yet been established. It is also noted that these efforts can reduce the risk of armed conflict.
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Inflation and weak tech forecasts: Why Wall Street markets closed lowe

Wall Street investors react with losses: Nasdaq in the red amid inflation fears
Yesterday's trading on Wall Street ended with losses for all major indices, with the Nasdaq among the leaders of decline. The tech sector suffered significant losses ahead of Thanksgiving as traders grew concerned that the Federal Reserve might back off from aggressive rate cuts amid lingering inflation concerns.

Strong Data, Weak Progress
The U.S. economy posted solid growth figures, with consumer spending data showing a strong increase in October. However, despite the positive results, efforts to reduce inflation appear to be running into trouble, adding to traders' concerns that the Federal Reserve could take a more cautious stance on interest rates.

Markets Expect Fed to Be More Tight
Traders on CME's FedWatch platform have increased their bets by 25 basis points, according to the latest calculations, in anticipation that the Federal Reserve will cut rates at its December meeting. However, rates are expected to remain unchanged in January and March.

New Trade Threats and Their Impact on the Market
Investors are also concerned about the new possible economic consequences of President-elect Donald Trump's statements, who proposed introducing new tariffs on goods from Mexico, Canada, and China. These measures will remain in place until countries take the necessary steps to combat illegal migration and drug trafficking. In particular, Trump announced 25% tariffs on Mexican and Canadian imports and 10% on Chinese goods if countries do not take action against fentanyl and illegal migrants.

Risks to Inflation: Experts' Opinions
Economists at Goldman Sachs expressed concern about the possible long-term consequences of this approach. In their recent report, they warned that further escalation of tariff policy could delay inflation's return to the 2% target. These risks put additional pressure on markets, increasing uncertainty in the economic situation.

Unresolved Issues and Uncertainty in Markets
So, amid strong economic data, trade threats and uncertainty over Fed policy, investors continue to search for clear guidance, which in turn continues to influence the behavior of markets.

Wall Street ends the day lower: Tech sector under pressure
On Wall Street, indices closed lower on Wednesday, weighed down by strong economic data and concerns about the future policy of the Federal Reserve. The Dow Jones Industrial Average (.DJI) fell 138.25 points, or 0.31%, to close at 44,722.06. The S&P 500 (.SPX) lost 22.89 points, or 0.38%, to close at 5,998.74. The Nasdaq Composite (.IXIC) was the biggest loser, falling 115.10 points, or 0.60%, to 19,060.48.

Global markets also under pressure

It wasn't just U.S. stock indexes that suffered a decline. The MSCI index, which tracks global markets (.MIWD00000PUS), lost 0.10%, falling 0.84 points to 858.24. In Europe, the STOXX 600 (.STOXX) ended the day down 0.19%, also confirming the trend of global market sentiment weakening.

Tech sector on the brink of collapse
Stocks of major players in the tech sector attracted particular attention in the markets. For example, Dell (DELL.N) shares fell 12% after the company published disappointing forecasts for quarterly results. HP (HPQ.N) shares also fell 6%, weighing on the overall sentiment in the information technology sector. The sector's index (.SPLRCT) fell 1.2%, highlighting the weakness of the leading tech giants.

Megacaps fall: Nvidia and Microsoft in the red
The biggest tech companies were not spared the negative trends either. Nvidia (NVDA.O) and Microsoft (MSFT.O) shares showed significant declines, which exacerbated the overall decline in the sector. The Philadelphia SE Semiconductor Index (.SOX) lost 1.8%, showing a weak performance for one of the most profitable industries.

Growing interest in small caps, but muted growth in Russell 2000
At the same time, the Russell 2000 index (.RUT), which tracks small company stocks, was a bit on the sidelines of the general decline. After a record high earlier in the week, the index rose by 0.1%, which was the only positive moment among the major stock indices on the trading day.

Results of the day: markets await further signals
So, the latest trading on Wall Street demonstrated restraint among investors. Amid uncertainty related to possible decisions of the Federal Reserve and the state of the global economy, market participants tend to be cautious. Amid weak forecasts for the largest tech companies and uncertainty around tariff policy, the influence of these factors continues to affect investor sentiment.

Investors react to economic data: high growth rates and caution from the Fed
Markets continued to demonstrate restrained sentiment despite positive economic data. Investors were closely watching reports that showed the U.S. economy continued to grow at a solid pace in the third quarter. Notably, new jobless claims fell again last week, bolstering expectations that the Federal Reserve could cut rates in December.

Inflation in Focus: Fed Faces Choice
However, despite the strong macroeconomic data, inflation remains under pressure. Scott Welch, chief investment officer at Certuity, noted that inflation was slightly above the Fed's desired levels, casting doubt on the possibility of further rate cuts. In his view, this could force the Fed to adopt a more cautious stance.

Trump Tariff Policy: A New Challenge for the Economy

Investors are also concerned about the possible impact of President Donald Trump's tariff policy. Welch stressed that if the proposed tariffs are implemented, they could exacerbate inflationary pressures, which in turn would complicate the task for the Fed, which must balance economic data with the policy initiatives of the new administration.

Uncertainty at the Fed meeting: Will rates be cut?

The minutes of the Federal Reserve's November meeting, released on Tuesday, showed that Fed members remain divided on the issue of future rate cuts. Despite the positive data, they are still unsure how much current rates are constraining economic growth and what approach to take in response to inflation threats and external risks.

S&P 500 on the verge of historic gains, but not without difficulties
Despite these difficulties, the S&P 500 continues to gain strength, heading for its biggest monthly gain in all of 2024. The reading also marked the sixth straight month of gains in seven months, underscoring positive expectations about the impact of President Trump's economic policies on local businesses and the broader economy.

Investor Disappointment: Workday Shares Slip
Not all sectors of the market are seeing positive results, however. Workday (WDAY.O) shares fell 6.2% after the company reported weaker-than-expected subscription revenue guidance. Weak customer spending on its human capital management software weighed on the stock and the broader tech sector.

Takeaway: Uncertainty and Balancing Act
Overall, the market remains in a state of uncertainty, given both economic factors and political risks related to U.S. foreign trade policy. The Federal Reserve, in turn, will be forced to find a balance between supporting growth and controlling inflation, which will be an important factor in determining the future direction of the stock market in the coming months.

US Stock Market: Stock Performance and Holiday Expectations
The New York Stock Exchange saw a predominance of positive sentiment among stocks on Wednesday. The number of advancing stocks significantly outnumbered the decliners, with a ratio of 1.64 to 1. At the same time, the number of new highs on the NYSE reached 406, while there were only 54 new lows. This indicates that most stocks on the exchange continued to move higher.

S&P 500 and Nasdaq: New Highs Amid Market Activity
The S&P 500, in turn, noted 79 new 52-week highs, while not recording a single new low. This confirms the resilience of the index's main stocks. The Nasdaq Composite demonstrated even more noticeable growth, recording 136 new highs and 71 new lows, which also reflects positive sentiment in the tech sector.
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The main events by the morning: November 29

Steelmaking is declining in Russia. According to data for January-October 2024, steel production decreased by 7% compared to the same period last year and amounted to 59.1 million tons. The largest drop was shown by Magnitogorsk Iron and Steel Works (MMK) – by 12% and Severstal – by 8%.

China will restrict exports of tungsten, an important metal used in weapons and semiconductors starting December 1. The new rules require export licenses, which is associated with increased control over dual-use goods. These measures are being taken against the background of strained relations with the United States, which will ban its contractors from purchasing tungsten from China from 2027.

The head of the Russian Defense Ministry arrived in North Korea today. During the visit, a number of meetings with representatives of the military and military-political leadership of the DPRK are planned to discuss bilateral cooperation.

The Japanese Prime Minister announced his desire to conclude a peace treaty with Russia. After the outbreak of hostilities on the territory of Ukraine, Japan imposed sanctions against Russia, which is why Moscow refused to negotiate the status of the Kuril Islands and conclude peace. In his speech, the Prime Minister did not mention the decision to maintain these sanctions until the end of hostilities.

The Brazilian real has updated its historical low on concerns about state finances. Paired with the US dollar, the rial fell to 5.9998 per dollar. Investors are evaluating the long-awaited measures of the administration of Brazilian President Luiz Inacio Lula da Silva to ensure budget balance: spending cuts of 70 billion reais ($12 billion), personal income tax exemption for people with the lowest wages and an increase in this tax for high-income people.
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Hot Forecast for EUR/USD on 02.12.2024

Despite the acceleration of annual inflation in the Eurozone from 2.0% to 2.3%, the euro failed to rise and even weakened. Although the scale of the decline was limited, it still seems illogical. The issue is that most market participants focus on the data highlighted by the media, which tends to emphasize monthly figures rather than annual ones. As it turns out, while annual inflation increased, consumer prices in monthly terms decreased by 0.3%.

From the perspective of macroeconomic analysis, annual data holds more significance, as it is less prone to distortions caused by seasonal fluctuations. On the other hand, due to these seasonal factors, monthly data can appear quite odd, making conclusions based on them fundamentally flawed. It's worth noting that all reports and meeting minutes from key central banks refer specifically to annual inflation, not monthly changes. Thus, the European Central Bank's decisions will be based on accelerating annual inflation to 2.3%, not the 0.3% monthly price decline. However, the media currently gives the impression that the ECB might continue to lower interest rates.

This perception is likely to strengthen further, supported by labor market data. According to forecasts, the unemployment rate in the Eurozone is expected to rise from 6.3% to 6.4%. Therefore, the euro may experience a slight further decline.
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The main events by the morning: December 3

Russia will receive $1.2 billion from the BRICS bank for the first time in two years. The new BRICS Development Bank is investing $1.2 billion in four projects in Russia, according to the Finance Ministry. The funding will be directed to the preservation of cultural heritage, the development of tourism, the modernization of the judicial system and housing and communal services. Due to sanctions, funds can flow through complex financial schemes.

Trump's «peace plan» for Ukraine, the «Kellogg Plan», has leaked to the network. The media published the alleged details of the «Kellogg Plan» based on OSW Report 2024 data. The main points include lifting isolation from Russia, peace talks, economic incentives for Moscow, support for Ukraine and pressure on Kiev. There are no official confirmations yet.

Chinese banks are ceasing operations with sub-sanctioned Russian banks. Chinese financial institutions have begun to restrict interaction with Russian banks that have recently been sanctioned by the United States. The Bank of China has already imposed restrictions, and the Bank of Kunlun warns of the impending termination of payments by sub-sanctioned banks.

The construction of the last section of the Russia–China gas pipeline has been completed. China has commissioned the last section of the gas pipeline connecting Russia and China. The Nantong–Luzhi section in Jiangsu Province has become the final part of the project, which is now fully operational, according to a statement from the Chinese Pipeline Management Corporation.

The United States may lift sanctions against Bashar al-Assad to weaken Syria's ties with Iran and Russia. According to Reuters, Washington is considering lifting sanctions against Syrian President Bashar al-Assad. The main goal is to reduce Tehran's influence and block the supply of weapons to the Lebanese Hezbollah.
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Forecast for GBP/USD on December 4, 2024

The movement of the pound sterling within the range of 1.2612–1.2708 since November 14 appears to be consolidation, with false breakouts on both sides on November 22 and 29. Following this logic, the price may now attempt a genuine breakout below the lower boundary of the range, targeting a retest of the 1.2510 support.

However, this plan faces resistance from the Marlin oscillator, which has turned upward from the neutral zero line on the daily chart. If this is not the start of a sustained upward movement, it is at least a sign of consolidation. As a result, the price may remain within the range for another 1–2 days until the release of U.S. employment data on Friday.

Today, the UK will release November PMI indexes. Business activity in the services sector is expected to decline from 52.0 to 50.0, while the composite PMI may weaken from 51.8 to 49.9. This could increase the likelihood of the price dropping below the range.

On the H4 chart, the price is struggling with the balance line support. The Marlin oscillator has twice turned downward from the zero line, increasing the likelihood of the price successfully breaking through the support.

Below the 1.2612 level, the price will encounter the MACD line at 1.2582. For a successful break of this level, the price might first consolidate below 1.2612.
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Forecast for USD/JPY on December 5, 2024

Bank of Japan representatives are increasingly expressing concerns about a rate hike ahead of their December 19 meeting (Nakamura), traditionally citing a "broader range of data."

Given the Bank of Japan's caution about sudden market changes and its intention to provide prior notice to investors regarding its actions, the rate may remain unchanged at this meeting. If the price consolidates above the 150.83 level, further growth to 153.60 becomes likely, with the pair potentially reaching this level before the Federal Reserve meeting on December 18.

On the 4-hour chart, growth has only begun following a double divergence with the Marlin oscillator when the price approached the target range of 148.18/50. The initial impulse has been achieved, but the price needs to consolidate above the MACD line at the 151.24 mark, corresponding to yesterday's high.
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