As we head into Thursday, December 26, 2024, global markets are expected to experience subdued activity due to the lingering effects of the holiday season. With many financial hubs still on reduced schedules, market liquidity remains thin, creating a perfect environment for unpredictable price swings. While major economic hubs like the U.S. and Japan have released key data earlier in the week, market participants are largely holding back until liquidity normalizes after Boxing Day. This seasonal lull in activity, however, often brings exaggerated moves in currency pairs due to the limited market depth.
The U.S. dollar remains a focal point as traders digest the implications of recent economic data, including U.S. jobless claims and durable goods orders. Meanwhile, markets are also keeping a close eye on Japan’s industrial production figures, which could impact the yen’s trajectory. With risk sentiment subdued amid light trading volumes, the major currency pairs, including USD/JPY, USD/CAD, and AUD/USD, are expected to exhibit choppy but narrow trading ranges. Careful positioning remains crucial as traders prepare for the upcoming year-end volatility.
USD/JPY
The USD/JPY pair displayed moderate volatility on December 25, consolidating near the 157.07 level. The Japanese yen experienced limited movement due to the Bank of Japan’s stable core CPI reading at 2.5%, matching forecasts. Thin liquidity over the Christmas period amplified price movements, but the pair’s broader trend remains upward due to U.S. dollar strength bolstered by recent consumer confidence data.
Technicals in Focus
- MACD: Hovering near the zero line, suggesting subdued momentum.
- Stochastic Oscillator: Entered oversold territory, indicating potential for a short-term rebound.
- 14-day RSI: Neutral, reflecting range-bound behavior.
Trading Strategy: Neutral to Buy
- Buy above 157.10-157.30, targeting 157.60-157.90. Stop loss: Below 156.80.
- Alternatively, sell below 156.70, targeting 156.40-156.10, with stops above 157.10.
USD/CAD
The USD/CAD pair continued its downtrend, closing near 1.4346. A sharp drop in crude oil inventories (-4.7 million barrels) buoyed the Canadian dollar, supported further by higher oil prices. The pair remains under pressure as traders position for upcoming U.S. jobless claims data and Canada’s boxing day closures.
Technicals in Focus
- MACD: Increasing bearish momentum as it moves below the zero line.
- Stochastic Oscillator: Oversold, suggesting limited downside in the near term.
- 14-day RSI: Bearish, indicating continued selling pressure.
Trading Strategy: Neutral to Sell
- Sell below 1.4350, targeting 1.4310-1.4280. Stop loss: Above 1.4380.
- Alternatively, buy above 1.4380, targeting 1.4420-1.4450, with stops below 1.4350.
AUD/USD
The AUD/USD pair exhibited heightened volatility, closing near 0.6230 after oscillating in a tight range throughout the day. The Australian dollar’s movements were influenced by global risk sentiment and anticipation of thin trading volumes during Boxing Day.
Technicals in Focus
- MACD: Flat, indicating weak momentum in either direction.
- Stochastic Oscillator: Oversold, signaling potential for a bounce higher.
- 14-day RSI: Neutral, reflecting indecision among traders.
Trading Strategy: Neutral to Buy
- Buy above 0.6235-0.6250, targeting 0.6270-0.6300. Stop loss: Below 0.6220.
- Alternatively, sell below 0.6215, targeting 0.6190-0.6170, with stops above 0.6235.
Market Outlook
Looking ahead, U.S. initial jobless claims and industrial production data from Japan are expected to dominate market sentiment. The thin holiday liquidity is likely to persist, contributing to exaggerated price movements. Traders should remain cautious as market conditions are expected to normalize gradually as we approach year-end.
In Canada, the holiday closure will limit significant activity in the USD/CAD pair, while the AUD/USD remains sensitive to risk sentiment amid global trade developments. Overall, the markets will continue to be influenced by holiday sentiment, with potential for spikes in volatility on light trading volumes.