On Thursday (December 19), the dollar index surged to 108.18, while gold prices plunged to $2,591, and Bitcoin approached the critical level of $100,000. The Federal Reserve's decision to cut rates by 25 basis points was accompanied by a forecast for the 2025 interest rate of 3.9%, above the expected 3.4%, with Chairman Powell signaling a hawkish stance, stating that future rate cuts will require new progress on inflation. Palestinian negotiators revealed that Gaza ceasefire talks have entered the final stage, dampening safe-haven buying in precious metals.
Palestinian negotiator: Gaza ceasefire talks have entered the final stage.
According to the BBC, after months of deadlock, there are new signs that Israel and Hamas may be nearing an agreement on a ceasefire in Gaza and the release of hostages. A senior Palestinian official involved in indirect negotiations disclosed to the British media that the talks are in a "decisive and final stage."
Israeli Defense Minister Israel Katz also stated that both sides are closer to an agreement than ever before. In recent weeks, the U.S., Qatar, and Egypt have resumed mediation efforts, indicating that both sides are more willing to reach an agreement in this ongoing 14-month war. Currently, an Israeli delegation referred to as "working level" is in Doha, the capital of Qatar, where diplomatic activity is quite frequent.
A Palestinian official outlined a three-phase plan that will release civilians and female soldiers held in Gaza within the first 45 days, while the Israeli military will withdraw from city centers, coastal roads, and strategic areas bordering Egypt. The official stated that a mechanism will be established to allow displaced Gazans to return to the northern part of the region. The second phase will release the remaining hostages and withdraw troops, while the third phase will end the war.
Among the 96 hostages still held in Gaza, Israel estimates that 62 are still alive. The plan appears to be based on an agreement proposed by U.S. President Biden on May 31, with reports emphasizing that there are still some key details to resolve. A round of negotiations in mid-October failed to reach an agreement, as Hamas rejected the proposal for a short-term ceasefire.
According to his spokesperson, Katz said on Monday to members of the Israeli Parliament's Foreign Affairs and Defense Committee, "We have never been closer to an agreement on the hostage issue since the last agreement," referring to the exchange of hostages and Palestinian prisoners in Israel in November 2023.
Powell's "hawkish rate cut" and the Fed's rate predictions for next year push dollar demand above 108.
The Federal Open Market Committee (FOMC) on Wednesday voted 11 to 1 to lower the federal funds rate to a range of 4.25-4.5%. Cleveland Fed President Loretta Mester cast the dissenting vote as she preferred to keep rates unchanged.
As the market digests the Federal Reserve's decision to cut interest rates by 25 basis points as expected, demand for the dollar remains strong, breaking above the 108 mark.
Updated forecasts indicate that the interest rate for 2025 will be 3.9%, up from 3.4%. The target rate for 2026 is 3.4%, reflecting a slightly more hawkish mid-term stance, with a more cautious policy position but slightly hawkish. Despite economic uncertainties such as labor market weakness and persistent inflation, the Fed's gradual policy adjustments indicate a cautious balance between controlling price pressures and supporting growth.
The economic situation remains mixed, with inflation still above 2% and signs of weakness in the labor market prompting the Federal Reserve to continue relying on data.
Powell emphasized the uncertainty of interest rate prospects, suggesting that the central bank will gradually adjust its policy, closely monitoring growth and inflation trends. He mentioned that he believes economic activity will remain strong, but the trajectory of interest rates will depend on subsequent data.
He said: "With today's action, we have lowered the policy rate by a full 100 basis points from its peak, and our policy stance is now clearly less restrictive. Therefore, we can be more cautious when considering further adjustments to the policy rate. Rates are still significantly suppressing economic activity, and the Fed is expected to continue cutting rates. However, officials must see more progress on inflation to justify further cuts."
New quarterly forecasts show that several officials expect next year's rate cuts to be less than predicted a few months ago and believe that inflation progress in 2025 will slow significantly. Based on median estimates, they now expect the benchmark interest rate to reach a range of 3.75-4% by the end of 2025, implying two rate cuts of 25 basis points each.
Most economists surveyed by Bloomberg expect the average interest rate outlook to point to three rate cuts next year.
Technical analysis of the dollar
FXStreet analyst Patricio Martín stated that from a technical perspective, the dollar index has rebounded significantly since this week, but the index still needs to hold the 107.00-108.00 range. If the dollar index can maintain this range, it may continue to rise; otherwise, it may retest 106.00.
Technical analysis of gold
FXEmpire analyst Bruce Powers stated that gold prices have fallen below the recent mid-term volatility low of $2,605, dropping to Wednesday's low of $2,587. This is a bearish signal that could lead to a further decline in gold prices.
The swing low at $2,605 established a higher swing low and laid the groundwork for a bullish continuation above the swing high at $2,721 on November 25. Subsequently, on December 12, the market attempted to break above the $2,721 level, reaching a slight new high of $2,726. However, sellers quickly regained control from there, leading to the decline on Wednesday.
The daily closing price below the $2,605 support level confirms a bearish signal and forces gold to test lower support levels before completing the correction. Please note the parallel descending trend channel on the chart. There was a recent attempt to break through the upper channel line, but it failed a few days later as gold fell back below that line last Friday.
Additionally, recent attempts to recover the 20-day and 50-day moving averages have also failed. On Wednesday, gold faced resistance near the 20-day moving average, having been above it for six consecutive days, while the 20-day moving average fell below the 50-day moving average on November 26 and has not returned above it since. These are all bearish signals and now hold greater significance.
It seems likely that the low volatility level of $2537 will be retested as a support level, and prices may also decline. Generally, once prices are rejected on one side of the channel and begin to move in the other direction, they are likely to eventually reach the opposite trend line. The weekly chart provides clues for this decline, as a bearish weekly shooting star pattern was triggered on Wednesday, representing a failure of the earlier bullish breakout. The failed pattern could lead to significant volatility.
Below $2537 lies the 61.8% Fibonacci retracement level at $2,473, which seems to mark the next potential lower support level for gold. The declining ABCD pattern has also completed near $2,475. It is also a good idea to observe the next lower trend line for signs of support near the Fibonacci retracement level.
Technical analysis of Bitcoin
CoinTelegraph pointed out that Bitcoin retreated after reaching an all-time high of over $108,000 on December 17, indicating that bears have not given up and are selling on rallies. Arthur Hayes, co-founder of BitMEX, wrote in a blog post that the crypto market could crash after Donald Trump's inauguration as President of the United States in January 2025. He stated that the sell-off would occur once market participants realize that any changes in crypto policy would take about a year to implement.
In contrast, Bitfinex analysts expect the decline of Bitcoin's upward trend to be brief due to institutional demand. They estimate that Bitcoin will reach $145,000 by mid-2025 and could potentially hit $200,000 under "favorable conditions."
Vetle Lund, head of K33 Research, noted that persistent purchases by institutional investors have driven the total net assets of U.S. Bitcoin exchange-traded funds (ETFs) to over $129 billion as of December 16, slightly surpassing U.S. gold ETFs. Bloomberg ETF analyst Eric Balchunas stated in an article that the Bitcoin ETF has engaged in such fierce competition with the gold fund just 11 months after its launch, which is "incredible."
On December 16 and 17, Bitcoin bulls pushed prices above the resistance line of the rising channel pattern but failed to maintain higher levels.
While the rising moving averages suggest an advantage for buyers, the negative divergence in the relative strength index (RSI) indicates that the uptrend is losing momentum. This increases the likelihood of a consolidation in the short term.
The 20-day exponential moving average at $99,974 is a key support level to watch. If the price strongly rebounds from the 20-day EMA, the likelihood of breaking the resistance line will increase. This could push Bitcoin up to $113,331 and then to $125,000.
If prices decline and break below the support line, this positive outlook will fail in the short term. This could pull prices down to the 50-day simple moving average at $90,839.
