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PBOC sets USD/CNY reference rate at 7.0773, an increase from 7.0764
Distinct Policy Tools
The central bank employs several unique policy tools unlike those in Western countries. Key tools include the seven-day Reverse Repo Rate, the Medium-term Lending Facility, foreign exchange interventions, and the Reserve Requirement Ratio. The Loan Prime Rate is the key interest rate that affects loans and mortgages. In China, there are 19 private banks, including well-known digital lenders WeBank and MYbank, which are linked to tech companies Tencent and Ant Group. In 2014, China allowed private capital to enter the mostly state-owned financial sector. The slight drop in the Yuan to 7.0773 indicates that the central bank is okay with a slow depreciation versus the dollar. This small adjustment suggests a policy that may help exports, given recent economic data. For derivative traders, it hints that the PBOC is not trying to defend a specific exchange rate aggressively right now. It’s important to note that this adjustment follows last week’s trade data from November 2025, showing export growth slowing to just 1.5%, much lower than expected. Added to this, a Caixin Manufacturing PMI dipped to 49.8, giving strong reasons for policymakers to guide the currency lower. These figures suggest a likelihood of further managed depreciation in the weeks ahead.Historical Precedent
This situation brings to mind 2023, when fears over the economy and a strong US dollar pushed the USD/CNY rate above 7.30. While we are not at that level now, history indicates that the PBOC will manage any decline gradually instead of making sudden changes. This makes buying options on USD/CNY calls appealing for those wanting to bet on a similar trend while minimizing risk. Given that the central bank aims for stability, we do not anticipate an abrupt devaluation, keeping implied volatility on USD/CNY options relatively low. Currently, implied volatility for 1-month options is around 4.5%, which is low considering the economic pressures. This situation could make selling out-of-the-money USD/CNY puts or using call spreads a smart strategy for collecting premium while maintaining a bullish stance on the USD. Create your live VT Markets account and start trading now.NZD/USD drops to about 0.5775 as markets expect a hawkish Fed decision
China’s Trade Surplus Effect
China’s trade surplus reached a five-month high at 111.68 billion, up from 90.07 billion the previous month. This surge provides support for the New Zealand Dollar, as China is a major trading partner of New Zealand. Upcoming data reports include the US ADP Employment Change average and JOLTS Job Openings for September and October. A surprising increase in these numbers could help limit losses for the US Dollar. The New Zealand Dollar’s value is influenced by several factors, including the health of the New Zealand economy, trade with China, dairy prices, and central bank policies. These elements can cause fluctuations in its value. Currently, with the NZD/USD pair dropping below 0.5800 on December 9, 2025, this week is crucial due to the Federal Reserve’s decisions. The market is expecting a 25-basis-point rate cut, but the focus will be on Fed Chair Powell’s “hawkish” remarks. This indicates that while a cut is coming, the Fed will not rush to make more cuts, which is boosting the US Dollar.Market Response and Strategies
Traders should brace for significant volatility around tomorrow’s Fed announcement, making options strategies appealing. A long straddle, where you buy both a call and a put option at the same strike price and expiration, could be a successful way to profit from major price swings in either direction. We saw similar market movements in late 2023 when uncertainty about the Fed’s decisions led to sharp changes in currency values. Before the Fed meeting, today’s US JOLTS Job Openings and ADP employment data will set the tone. Strong job numbers could support the Fed’s cautious approach, likely pushing the NZD/USD lower. Conversely, disappointing employment figures might challenge the hawkish perspective and trigger a significant rally for the Kiwi dollar. Additionally, China’s trade surplus hitting a five-month high provides solid support for the New Zealand Dollar. A strong Chinese economy benefits New Zealand, which may encourage some traders to sell out-of-the-money puts, believing this strong economic link will prevent the pair from falling below critical support levels. We also need to consider the rate difference between the US and New Zealand, which is a key factor. While the Fed is reducing rates to a range of 3.50%-3.75%, the Reserve Bank of New Zealand (RBNZ) kept its rate at a much higher 5.50% for most of 2024 to combat inflation. This significant yield advantage could attract buyers during major dips, especially if the Fed suggests a long pause after this week’s cut. Create your live VT Markets account and start trading now.Nasdaq futures hold key structure after rejecting 25,855, as intraday projections align within zones
Intraday Trend
The intraday trend is still technically sound, with prices holding above the lower boundary of the rising channel. As of early Tuesday, the Index is trading around 25,719, focusing on a key area that will help decide future movements. Important structural zones will guide the market’s next steps. The middle structure (25,560–25,677) will be critical for market direction, while the upper structure (25,805–25,936) challenges bullish momentum. If the middle structure fails, the lower zone (25,428–25,297) will become the next support level. The daily chart reflects this trend, showing resistance at 25,855. A drop below 25,560–25,677 could significantly change the trend. The market’s path is clear: holding or breaking these key levels will determine the next significant move.Critical Decision Point
Nasdaq futures signal a crucial moment after failing to break the 25,855 barrier twice. This repeated resistance has formed a strong upper limit, and prices are now consolidating just above the important pivot at 25,677. The Volatility Index (VIX) is hovering around 16, showing market calmness but also potential complacency before the next significant movement. The market seems to be coiling within a narrow range as traders wait for final inflation data coming out next week, just ahead of the Federal Reserve’s last policy meeting of the year. The middle structure between 25,560 and 25,677 is where this tension is building. Until something prompts a breakout, prices will likely stay within this range. For a bullish scenario to emerge, we need a clear break and hold above 25,805. Such a move would likely be supported by a dovish Fed outlook and could spark a “Santa Claus rally,” where the Nasdaq 100 has often gained in December. This would lead to targets near 26,000. On the flip side, if we can’t maintain the 25,560 support level, it would signal that the recent upward momentum has faded. The developing bearish divergence on the daily RSI suggests weakening buying power, and a drop below this pivot could quickly lead to a downturn to the 25,428–25,297 support zone as traders cash in profits. This could be intensified if upcoming jobs data shows any surprises. From an options perspective, this clearly defined range makes strategies like straddles or strangles around the 25,677 pivot particularly effective for the expected volatility. For futures traders, these structural levels offer clear lines for managing risk in short-term plays. The current structure provides well-defined entry and exit points. This price behavior reminds us of the consolidation from late 2023, which preceded a breakout to new highs after the Fed’s dovish turn. The present structure suggests we are in a similar holding phase, waiting for a fundamental trigger to define the trend into early 2026. How the market resolves the situation around the 25,677 pivot in the upcoming sessions will be crucial. Create your live VT Markets account and start trading now.Week Ahead: The Fed’s Rate Cut In Focus

The quiet appearance on the charts hides a growing risk. Should BOJ officials hint at even a slight change in tone, the yen carry trade, one of the major engines behind global market performance could unwind sharply.
With the Fed now in its blackout period, policymakers are unable to guide expectations, leaving markets to lean on a single assumption: easing is coming. Although a policy rate of 3.75% is largely priced in, the Summary of Economic Projections and Powell’s delivery will decide how confidently markets extend their easing outlook into 2026.
The dot plot will be the centrepiece. Traders are looking for clear confirmation that the Fed’s projected path is aligned with what markets have already priced. Any sign of reluctance could trigger a broad repricing across FX and risk-sensitive assets.
QT Ends And Liquidity Shifts
The end of quantitative tightening marks a return to more supportive liquidity dynamics. The Fed’s recent $13.5 billion repo injection, its second-largest since the pandemic, signals strain within the funding system. Historically, when QT concludes during such periods of stress, QE often follows not long after. Although consensus expects a formal move back to QE in 2026, much may hinge on upcoming leadership changes, with Powell’s term ending in May next year.
Prediction markets currently assign Kevin Hassett a 74% chance of becoming the next Fed Chair. Should an early nomination emerge, markets may begin responding more to the anticipated stance of the incoming Chair than to Powell’s current guidance. This shift could pull forward expectations for deeper and earlier easing.
Central Bank Highlights: BOJ, RBA, And BOC
While the US is moving toward a more accommodative stance, several overseas central banks introduce their own layers of uncertainty, with the BOJ representing the most significant swing factor, supported by key signals from Australia’s RBA and Canada’s BOC this week.
If the BOJ raises rates from 0.5% to 0.75% on 19 December, a narrowing yield spread between Japan and the US would make yen-funded carry trades far more expensive to maintain or unwind.
This could force investors to liquidate US assets to settle yen liabilities, potentially triggering a swift, disorderly correction.
Such a scenario would echo previous episodes where carry-trade squeezes produced heightened volatility.
A BOJ-induced shock, however, might also push the Fed towards even more accommodative measures or an earlier re-initiation of QE to stabilise liquidity. Any near-term turbulence could therefore contrast with a more supportive longer-term environment for risk assets.
Beyond Japan, traders should also pay attention to the RBA’s policy messaging and the BOC’s rate decision, as either could influence cross-asset sentiment, particularly if they affirm or challenge the broader global easing trend.
Market Movements Of The Week
USDX

– USDX trades around the 99.10 monitored area where bearish price action is expected.
– If price moves higher, traders should watch 99.40 for renewed bearish structure.
– Downside continuation opens interest at 98.50.
EURUSD

– A move lower into 1.1605 offers a zone to watch for bullish reactions.
– Upside structure may encounter resistance at 1.1710.
GBPUSD

– GBPUSD rejected the 1.3405 monitored area.
– Continued consolidation lower may target 1.3250 for bullish price action.
USDJPY

– USDJPY has traded above the descending trendline.
– If price moves higher, traders should monitor 156.00 for a potential bearish reaction.
Gold (XAUUSD)

– Gold moved higher before reversing lower.
– Key level remains 4175 for near-term reactions.
– If consolidation deepens, the next bullish zone sits near 4070.
SP500

– SP500 broke above the 6888 swing high.
– Traders should monitor how the price behaves within the ascending channel.
Bitcoin (BTCUSD)

– Bitcoin turned lower after breaching the 93156 swing high.
– If consolidation continues, upside structure is monitored once price retakes 90277.
Key Events Of The Week
9 December
1. JP BOJ Gov Ueda speaks
If BOJ signals continuous hiking or a rate increase beyond expectations, USDJPY could trade lower.
2. US JOLTS Job Openings
A weak reading could spur the Fed to act beyond December and weaken USD.
11 December
1. US Federal Funds Rate, Forecast: 3.75%, Previous: 4.00%
Market has priced in the cut. Powell’s statement will likely move markets.
12 December
1. UK GDP m/m, Forecast: 0.10%, Previous: -0.10%
A rebound from negative growth. Refer to the structure.
Bottom Line
The week ahead lies at the intersection of shifting US policy and a rising wave of overseas risk factors. The anticipated Fed rate cut, combined with the end of QT, places liquidity back at the centre of market dynamics, while the BOJ’s upcoming decision may unsettle positions that have relied for years on cheap yen funding.
As these forces interact, trading conditions could tighten abruptly or open up just as quickly.
With this backdrop, attention turns to the Fed’s communication, signals from deep within the financial system, and market reactions around the key levels mapped across USD pairs, equities, commodities, and cryptocurrencies.