On Tuesday (December 17th) during the European trading session, the USD/CAD hit a four-year high and is expected to further rise. EUR/USD is trading around 1.0510, and market participants are adopting a cautious attitude ahead of the Federal Reserve's upcoming interest rate decision. After breaking through the downward trend line, GBP/USD failed to continue its rebound and sold all the way back to the main upward trend line.

The following is a technical analysis of these three currency pairs.

USD/CAD expected to further rise

Earlier today, the currency pair unlocked a four-and-a-half-year high of 1.4279, continuing to push towards the upper band of the bullish channel. With the upcoming release of CPI inflation data for the United States and Canada, the 1.4330-1.4365 region is now within reach. Breaking through the high level may push the price towards the level of 1.4500, which last appeared in March 2020, unless the psychological barrier of 1.4400 limits previous bullish behavior.

According to the relative strength index and random oscillation index, the market is currently in an overbought area, and a slowdown may be imminent. Perhaps if 1.4260 blocks the upward path and forces its closing price below 1.4200, the price may seek refuge within the 1.4075-1.4100 range, which is where the 20 day moving average (EMA) and the lower band of the two month bullish channel are located. If adjustments cannot be made at this position, it may further decline towards the 1.4000 and 50 day moving averages.

Overall, the USD/CAD is in a clear bullish trend, and there may be some additional room for improvement before the break. The key resistance level is located in the range of 1.4330-1.4360, while the 1.4200 level may provide support during a pullback.

Before the Federal Reserve meeting, EUR/USD remained stable

EURUSD is trading around 1.0510, and market participants are adopting a cautious attitude ahead of the Federal Reserve's upcoming interest rate decision. The December meeting will start tonight and end tomorrow, and everyone is paying attention to potential interest rate adjustments. The general expectation is a 25 basis point interest rate cut, and the market consensus believes there is a 94% chance. In addition, there is a 37% chance that this may be the only downward adjustment, or that interest rates may not change in 2025, which exacerbates current market concerns.

Due to inflation concerns looming in 2025 and the impact of uncertain policy decisions and economic stimulus measures, it is expected that the Federal Reserve will adopt a more cautious tone in communication. This method aims to provide flexibility to effectively respond to changes in economic indicators.

Today, the market is also paying attention to the release of retail sales and industrial production data for November in the United States. These indicators are crucial for assessing the current state of the US economy and may influence the policy direction of the Federal Reserve.

On the 4-hour chart, EURUSD has recently completed a correction at 1.0533 and seems to be preparing to move downwards to 1.0420. After achieving this goal, it is expected to be adjusted to 1.0475. After correction, it may start to decline towards 1.0340. The MACD indicator supports this bearish outlook, with its signal line below zero and showing a downward trend, indicating further decline.

GBP outlook bearish

The US dollar continues to consolidate near its high point, with the exception of commodity currencies, where it has consistently held the upper hand. Last week's inflation data in the United States once again disappointed, despite the overall positive data for core personal consumption expenditures, with forecasters expecting a monthly rate increase of 0.13%.

Nevertheless, the yield of US treasury bond bonds continues to climb and has now returned to the post election high. Given the hot US economic data and the continued reduction of economic growth by the Federal Reserve, there are some understandable concerns in the bond market.

The Bank of England (BoE) is facing a tricky balancing act as it prepares for its next policy decision. Despite signs of contraction in the UK economy - a second consecutive month of 0.1% contraction - the latest Bank of England/Ipsos inflation expectations survey highlights the rising public concerns about inflation. The average inflation expectation for the next year has risen from 2.7% in August 2024 to 3%, while the long-term expectation (over five years) has climbed to 3.4%, compared to 3.2% in the previous survey.

The continuously rising inflation expectations are crucial for policy makers, as the public's perception of future inflation will affect current spending behavior. If people believe that prices will rise, they may now increase their spending, thereby driving up demand and further exacerbating real inflation - this is a self reinforcing cycle.

Despite these inflation concerns, the Bank of England is facing increasing pressure to cut interest rates in 2025, with the market expecting to cut rates three to four times. This move aims to stimulate economic growth in the face of an economic slowdown, but inflation risks limit the central bank's ability to take action.

The Bank of England's statement this week will need to carefully balance these conflicting dynamics - addressing inflation concerns without further dampening economic recovery.

Today's UK employment report is better than expected, especially in terms of wage growth, which strengthens the possibility of the Bank of England remaining inactive this week and reduces the likelihood of three interest rate cuts in 2025.

On the daily chart, we can see that GBP/USD failed to continue its rebound after breaking through the downward trend line and sold all the way back to the main upward trend line. This is where buyers enter to rebound to a new high, while sellers will look for a breakthrough below the main trend line, with the next goal being to drop to 1.23.

On the 4-hour chart, we can see that we have a strong area around 1.2715, where prices have reacted multiple times in the past few weeks. The seller may rely on it to break through the main trend line, while the buyer will seek to break through to a higher target new high.