The Reserve Bank of Australia is likely to keep the Official Cash Rate at 3.6% after its December meeting. This decision will be shared along with a Monetary Policy Statement, and RBA Governor Michele Bullock will hold a press conference soon after. This week, all eyes are on the decisions from central banks in Canada, Australia, and Switzerland, which are expected to keep their rates unchanged. Meanwhile, the Federal Reserve is predicted to lower rates, attracting considerable market attention. Cryptocurrencies such as Bitcoin, Ethereum, and Ripple saw small recoveries on Monday. Retail interest remains strong, even with recent outflows from Bitcoin and Ethereum Exchange Traded Funds (ETFs). Gold prices dropped below $4,200 once Wall Street opened. The US Dollar gained strength as markets anticipated the Federal Reserve meeting, which could influence future short-term policies. The EUR/USD pair fell by 0.05% due to the US Dollar’s strength, trading at 1.1637. Similarly, GBP/USD moved toward 1.3300 as traders stayed cautious ahead of the Fed’s decision, limiting gains for this currency pair. With the Federal Reserve expected to cut rates while central banks in Australia, Canada, and Switzerland hold steady, a clear difference in policies is apparent. Markets are already pricing this change, with the CME FedWatch Tool showing an over 85% chance of a 25-basis-point cut this week. This situation creates unique opportunities in currency pairs, as the weakening dollar faces more stable currencies. Currently, the strong US Dollar is pushing EUR/USD toward 1.1600 and GBP/USD below 1.3300, which goes against the expectation of a rate cut. This suggests traders might be preparing for a surprise hawkish statement from the Fed, or they believe the rate cut is already factored in. Implied volatility on major currency options has risen over 15% in the past week, indicating traders should expect significant movements in either direction after the announcement. Gold’s drop below $4,200 an ounce, influenced by the strong dollar, presents a challenge for traders who could use derivatives to benefit. A dovish Fed cut could weaken the dollar and boost gold prices, making call options an appealing strategy for those looking for a rebound. A similar situation was seen in late 2023, where gold remained stable before rallying significantly after the Fed confirmed its dovish stance. A slight rise in the 3-year U.S. note auction yield to 3.614% reflects some unease in the bond market. This caution likely comes from the recent CPI report, which showed core inflation stubbornly above 3%. While a rate cut is anticipated now, future cuts are not guaranteed, posing a risk that interest rate futures traders need to manage carefully. In the cryptocurrency market, there is a noticeable gap between retail and institutional sentiment. Retail interest is backing a small recovery, but last week’s data indicated over $500 million in net outflows from major spot Bitcoin ETFs. This suggests institutional players are reducing their exposure ahead of the Fed’s decision, leading to a fragile environment where volatility options might be useful.

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