CFD Markets News and Forecasts — 03-02-2022

• The Australian dollar weakened vs. the kiwi, attributed to central bank policy divergence.
• On Friday at 00:30 GMT, the RBA will release its Statement of Monetary Policy (SoMP), with its updated forecasts.
• AUD/NZD is downward biased in the near term, as bears eye the 1.0700 figure.

The AUD/NZD retreats from a weekly high at 1.0770 during the day to 1.0715 at the time of writing. On Thursday, the FX complex benefitted risk-sensitive currencies, though, in the pair, the NZD was in charge.

The Australian dollar was on the wrong foot on Thursday. In part, RBA’s stubbornness to push back hiking rates despite ending the Quantitative Easing (QE) program boosts the NZD, which is on its way for the third consecutive rate hike in each of the last three RBNZ meetings. Central bank policy divergence between the RBA and the RBNZ would favor the latter.

In the meantime, at 00:30 GMT, the Reserve Bank of Australia (RBA) would unveil its State of Monetary Policy (SoMP) report to update its forecasts, and that would provide AUD/NZD traders some impetus if it gives any hawkish signal. Market participants widely expect it to maintain a dovish stance.

Meanwhile, the economic docket for New Zealand just featured Building Permits for December on its monthly reading. The figures came in line with the previous reading, up 0.6%.

AUD/NZD Price Forecast: Technical outlook

The AUD/NZD remains upward biased, though it faced strong resistance around 1.0770 on Thursday, at the beginning of the Asian session, a level that could not be recovered through the day. That said, the AUD/NZD pair formed a bearish engulfing candle pattern that covers the price action of the last two trading days.

That said, the AUD/NZD in the near term is downward biased, and its first support would be 1.0700. A breach of the latter would expose January 28 daily low at 1.0655, followed by the January 24 cycle low at 1.0632.

“Cabinet Ministers believe there is ‘50/50’ chance that Boris Johnson will be forced out of office after four of his most senior aides quit Downing Street and his Chancellor publicly rebuked him,” said the Times while conveying political hardships for UK PM Johnson during early Friday morning in Asia.

More to come.

• GBP/USD remains sidelined at two-week top after five-day uptrend.
• MACD, RSI signal further upside but key trend lines, 200-DMA challenge bulls.
• Sellers need validation from 100-DMA, Fibonacci retracement levels can add to trading filters.

GBP/USD bulls take a breather around a fortnight high surrounding 1.3600, during the sixth positive day amid Friday’s Asian session.

In doing so, the cable pair justifies the clear upside break of the 50% Fibonacci retracement (Fibo.) of the July-December 2021 downside, as well as sustained trading beyond the 100-DMA.

Also keeping the GBP/USD buyers hopeful is the firmer RSI line, not overbought, together with the MACD line that teases bulls.

That said, the quote is up for further advances towards a descending resistance line from July, close to 1.3635, as an immediate hurdle.

Following that, the 61.8% Fibo. and a resistance line from September, respectively near 1.3670 and 1.3690, will challenge the GBP/USD upside. It’s worth noting that the 200-DMA level of 1.3712 becomes the last defense for the bears.

Alternatively, pullback moves will initially aim for the 50% Fibo. and 100-DMA, surrounding 1.3570 and 1.3510, before declining towards the latest swing low, also comprising the 23.6% Fibonacci retracement, around 1.3350.

During the pair’s moves between 1.3510 and 1.3350, September’s low near 1.3410 will act as an intermediate halt.

Overall, GBP/USD is likely to extend the recent upside but the road to the north will be a bumpy one.

GBP/USD: Daily chart

Trend: Further upside expected

• AUD/USD dribbles at seven-day top after recently sluggish performance, stay positive on the week.
• Soft USD battles sour sentiment, mixed Aussie data to confuse pair traders.
• Key central banks played their role, US economics also flashed mixed signals.
• RBA SoMP will be closely watched considering strong inflation and policymakers’ refrain from rate hikes, US NFP is important too.

AUD/USD bulls seem running out of steam around the weekly top near 0.7140 amid the initial Asian session on Friday.

The Aussie pair refreshed seven-day high before stepping back from 0.7168. The pullback moves, however, remain lackluster as await the quarterly release of the Reserve Bank of Australia’s (RBA) Statement of Monetary Policy (SoMP). Also challenging the AUD/USD bulls could be the market’s familiar pre-NFP anxiety.

Starting with the central bank actions, the European Central Bank (ECB) and Bank of England (BOE) hawks raised inflation concerns the previous day and propelled the US Treasury yields the most in a week, also drowning the equities. However, the US Dollar Index (DXY) couldn’t be saved from a five-day fall that pushes the greenback gauge towards the biggest weekly fall since March 2020.

That said, the BOE raised benchmark interest rates by 0.25% whereas the ECB refrained from rejecting sooner rate hikes and rather signaled a major policy change brewing, without giving many details though.

Elsewhere, US ISM Services PMI for January and Q4 Nonfarm Productivity came in strong but Factory Orders for December and Q4 Unit Labor Costs weakened, which in turn kept the trades on their toe ahead of the key US Nonfarm Payrolls (NFP) for January. At home, Australia Trade Balance for December eased below 9423M to 8356M as Exports and Imports both decline to 1.0% and 5.0% versus 2.0% and 6.0% respective priors. However, Aussie Building Permits jumped to 8.2% MoM during the stated month against -1.0% market forecast and +3.6% previous readouts. Additionally, the National Australia Bank’s (NAB) Business Confidence also rallied to +18, beyond -10 market consensus and -1 prior.

Moving on, the RBA will release the quarterly SoMP including the Aussie central bank’s economic forecasts and outlook on economic risks at 00:30 GMT.

“The RBA SOMP could create volatility, but it’s difficult to envisage it not being consistent with recent dovish rhetoric, so we may well just coast into the weekend,” said ANZ ahead of the outcome.

The statement will be closely examined amid the recently high inflation fears pushing the major economies towards the rate hike while the RBA rejects any such concerns. Should there be an upward revision in the inflation and GDP forecasts, coupled with the statements suggesting hawkish bias, AUD/USD prices will further room for further upside. Though, odds of witnessing cautious remarks can’t be ruled out, which in turn may allow traders to consolidate recent gains.

Technical analysis

AUD/USD seesaws between 50-SMA and 200-SMA on the four-hour (4H) chart, respectively around 0.7095 and 0.7185. However, receding bullish bias of MACD and repeated failures to cross a fortnight-old resistance line, near 0.7145 at the latest, keep sellers hopeful.

• AUD/JPY grinds higher at two-week top, bracing for the first weekly gains in five.
• Market sentiment remains sour on hawkish central banks but JPY drops on firmer US Yields, virus woes in Japan.
• Aussie data came in mixed the previous day, Japan had light calendar.
• RBA SoMP will be eyed for rate hike concerns as RBA statement, Governor Lowe rejected the same despite strong inflation.

AUD/JPY bulls keep reins around a fortnight high past 82.00 as traders await RBA SoMP during early Friday morning in Asia.

The cross-currency pair cheered softer Japanese yen and comparatively better Aussie data, despite being mixed, to snap the four-week downtrend ahead of the key Aussie event.

US government bond yields rose the most in a week the previous day as the European Central Bank (ECB) and Bank of England (BOE) hawks raised inflation concerns. Among them, the BOE raised benchmark interest rates by 0.25% whereas the ECB refrained from rejecting sooner rate hikes and rather signaled a major policy change brewing, without giving many details though.

It’s worth noting, however, that the losses in equities and market’s cautious sentiment ahead of today’s US monthly jobs report, as well as the Reserve Bank of Australia’s (RBA) Statement of Monetary Policy (SoMP), challenges the AUD/JPY bulls of late.

Talking about data, Australia Trade Balance for December eased below 9423M to 8356M as Exports and Imports both decline to 1.0% and 5.0% versus 2.0% and 6.0% respective priors. However, Aussie Building Permits jumped to 8.2% MoM during the stated month against -1.0% market forecast and +3.6% previous readouts. Additionally, the National Australia Bank’s (NAB) Business Confidence also rallied to +18, beyond -10 market consensus and -1 prior.

RBA SoMP will convey the Aussie central bank’s economic forecasts and outlook on economic risks at 00:30 GMT. The statement will be closely examined amid the recently high inflation fears pushing the major economies towards the rate hike while the RBA rejects any such concerns. Should there be an upward revision in the inflation and GDP forecasts, coupled with the statements suggesting hawkish bias, AUD/JPY prices will further room for further upside. Though, odds of witnessing cautious remarks can’t be ruled out, which in turn may allow traders to consolidate recent gains.

Technical analysis

Although rebound from late December 2021 levels surrounding 80.40 keeps AUD/JPY buyers hopeful, a monthly resistance line precedes a convergence of the 100 and 200-DMAs, respectively near 82.30 and 82.50, to restrict the short-term upside of the pair.

• Gold is consolidating at a critical area on the daily charts.
• Bears are monitoring the US dollar for further downside as we head into the NFP.
• Bulls will note the shortness of the dollar and look for some opportunities to buy it on the cheap. 

The price of gold settled in the spot market on Thursday back in the $1,800's. It made a high of $1,809 and printed a low of $1,788.68. Central banks were the theme and the hawkishness has stripped the yellow metal down a level. The Bank of England and the European Central Banks are firming up on monetary policy, in line with the Fed which is raising the opportunity cost of holding non-yielding bullion.

However, besides the hawkishness at central banks, the US dollar has come unstuck this week from the Fed-bid. A chorus of Fed officials, weaker jobs data and a slide in ISM services from the prior month is weighing on the greenback that fell below 96 DXY on Thursday. 

Following an initial drop, gold has found some solace ahead of  Friday's US Nonfarm Payrolls data. This ''will be keenly watched by precious metal market participants, but we expect a weak jobs print is unlikely to sway the Fed from its decisively hawkish tone,'' analysts at TD Securities explained. However, the analysts also argued that ''a weaker-than-expected NFP report would reinforce the recent USD selloff.''

''It works through two channels: rates and risk. Risk sentiment would likely welcome easier financial conditions, especially if Omicron explains the growth weakness. That said, our dashboard shows the USD reaching oversold levels again so we use this recent pullback as a buying opportunity ahead of next month's Fed meeting.''

Related to gold, the analysts explained that they ''expect the central bank to look past recent weakness as being related to Omicron's fallout, which suggests the precious metals complex will remain under pressure. Indeed, quantitative easing has influenced all asset prices by boosting liquidity premiums, which ignites fears that quantitative tightening will particularly weigh on asset prices including gold.''

The analysts added that ''with this market framework in mind, prices are vulnerable to a deeper consolidation in support of our tactical short gold position. With that said, CTAs have also resumed liquidations, and could once again target a net short position if markets fail to hold above $1803/oz on the day.

Gold technical analysis

As stated at the start of the week's analysis in the Chart of the Week, ''should this playout, and if the bears commit ... additional supply could be the straw that breaks the camel's back for a sizeable continuation to crack the trendline support as follows:

Gold live market

The wick to the downside could draw in some subsequent offers and the NFP's could be the catalyst. With that being said, if the greenback buckles again, then the focus should be on the upside for a deeper correction towards the higher Fibonaccis. 

The M15 DXY chart is offering a bearish bias as follows:

I the prior analysis, however, it was stated that '' if the US dollar continues on its southerly trajectory, then the neckline of the M would be the last defence for a restest of the wedge resistance the $1,850's once again'':

• The British pound rallied up to 150-pips on Thursday’s BoE meeting.
• A mixed market mood was no excuse for the GBP to surge vs. the JPY.
• GBP/JPY is upward biased, as bulls get a breather on their way to 157.00.

On Thursday, the British pound surges courtesy of a Bank of England (BoE) rate hike, increasing to 0.50% their interest rates for the first time since 2008. At the time of writing, the GBP/JPY is trading at 156.39.

The market mood is downbeat, portrayed by US equities recording losses. Meantime, in the FX complex, safe-haven peers, like the JPY and the greenback, record losses against riskier ones, led by the GBP and the antipodeans.

GBP/JPY Price Forecast: Technical outlook

The GBP/JPY remained subdued in the overnight session, meandering around the central daily pivot around 155.19, ahead of the BoE monetary policy decision. Once the news crossed the wired, the GBP/JPY rose 120-pips towards the January 18 daily high, though it fell short 20-pips at 156.50, to retrace later to the R3 daily pivot at 156.21 as BoE’s Chief Andrew Bailey eased the monetary policy decision tone.

That said, the GBP/JPT, as shown by the daily moving averages (DMAs) residing below the spot prices, is upward biased. As the uptrend accelerates, the GBP/JPY would face resistance on the January 18 daily high at 156.90. A breach of the latter would expose a five-month-old downslope trendline lying in the 157.35-55 range. An upside break above would expose the October 20 cycle high at 158.21. 

• AUD/USD is trapped at a wall of daily resistance. 
• Traders need to see a shift out of H4 resistance ad support. 

The day ahead will be key for AUD/USD that is technically overstretched, relatively so, with US Treasury yields rising across the curve after major central banks on Thursday said that there is considerable concern regarding the inflation environment.

''This should see local rates markets open to some selling pressure before the Reserve Bank of Australia Statement of Monetary Policy,'' analysts at ANZ Bank said. Therefore, the focus is on the resistance that the Aussie is facing on the daily chart as follows:

AUD/USD prior analysis

In the prior analysis, AUD/USD Price Analysis: Bears are on the lookout for an opportunity in the deceleration of the bullish daily correction, the resistance was noted as follows:

Bears were in anticipation of a Dijo close followed by a Bearish Engulfing as follows:

AUD/USD live market

Instead, we have seen a Bullish Engulfing which means there is nothing for traders to do on the downside, for now. 

AUD/USD H4

The price is consolidated at this juncture and there needs to be a break of H4 structure, one way or the other before a trend would be offering trader's an opportunity.

• NZD/USD bulls are homing in on the 61.8% golde ratio.
• Markets await the NFP key event which could propel the kiwi higher.  

At 0.6661, the bulls are in charge and the bird of 0.5% higher on Thursday's business in the remaining hour or so of the North American session. The price has climbed from a low of 0.6609 to score a high of 0.6681 so far as traders await the outcome of Friday's US Nonfarm Payrolls event. 

Thursday's focus was on the two central banks meeting, the Bank of England, which hiked by 0.25%, and the European Central Bank which sounded off a more hawkish than expected tone. 

''The Kiwi is higher this morning, riding on the coattails of the EUR, which surged following comments from ECB President Lagarde that were perceived as hawkish. For the most part, Kiwi was an outperformer overnight, and only really lost ground to the EUR,'' analysts at ANZ Bank explained. 

''The overall magnitude of the Kiwi rally was pretty tame though, which is probably to be expected ahead of key US jobs data tonight that has the potential to marginally reshape expectations for Fed policy, which will in turn have a bearing on the USD.''

Critical events coming up

The focus will now be on Friday's Nonfarm Payroll and the Bank of Australia's Statement of Monetary Policy, (SoMP). 

The US NFP could throw more fuel on the US dollar bear's fire. Payrolls likely plunged in January, but only because of temporary Omicron fallout. However, despite the Federal Reserve being expected to look through any near term weakness in the labour market, ''if labour market weakness persists for a couple of months beyond this, then the Fed will rethink its likely rate path,'' analysts at Brown Brothers Harriman argued. 

As for the SoMP, this will be monitored by NZD traders for any signs of bias one way or the other that could lead to volatility in the antipodeans on Friday. ''For now, it’s a global, rather than local, story for the Kiwi now that key data is out of the way, with 3wks to run to the RBNZ MPSm'' analysts at ANZ bank said in the note. 

NZD/USD technical

Meanwhile, the upside is playing out as forecasted in the prior analysis as follows:

NZD/USD Price Analysis: Bulls eye a 61.8% golden ratio in the 0.67 area

NZD/USD weekly chart, prior analysis

''A 50% mean reversion of the weekly bearish leg of its own M-formation aligns with the daily target in the low 0.67 area.''

NZD/USD live market 

The price has now met the daily chart's 50% mean reversion mark as well. A daily bullish close will underpin the bullish bias for a run to the 61.8% golden ratio, potentially to be achieved around the NFP event before the week is out. 

• The S&P 500 slumped back below the 4500 level on Thursday, dropping over 2.0% on the day. 
• Equity market sentiment took a battering after dour earnings guidance from tech giant Meta Platforms (Facebook).
• Focus now shifts to Amazon earnings after the closing bell and Friday’s US jobs report.  

Major US equity indices turned sharply lower on Thursday after an ugly earnings report from Facebook combined with hawkish surprises from the BoE and ECB soured global equity market sentiment and shattered recent positive momentum. The S&P 500 fell back under the 4500 level, a drop of more than 2.0% on the day, with Wednesday and Tuesday’s healthy gains and more now having been given back. The index still trades higher by about 1.3% on the week, but now trades more than 2.0% below Wednesday’s intraday highs near 4600. 

Meta Platforms (formerly Facebook) tanked a staggering more than 25%, wiping more than $200B off of the company’s market capitalization. If Meta shares close at current levels, that would mark the largest single-day valuation drop (in market cap terms, not percent) ever. The tech giant posted a weaker-than-expected earnings forecast, blaming new privacy changes on Apple devices and increasing competition from the likes of TikTok and YouTube. Meanwhile, for the first time in the company’s history, daily active users declined QoQ to 1.929B from 1.93B. 

The more than 25% drop in Facebook’s share price on its own shaved 0.5% off the value of the S&P 500 index. But a contagion effect has seen other publicly traded social media companies also take a battering, with Twitter losing over 5.0%, Pinterest losing over 10% and Snapchat losing over 20%. Sentiment in other major tech/growth stocks, which had recovered well in recent days (spurred in part by good Alphabet earning on Tuesday) also soured. Microsoft was down about 3.0%, Alphabet (Google) was down just under 2.5%, Netflix was down 5.3%, Apple was down 0.7% and Amazon tanked 7.5% ahead of its Q4 earnings release which comes after the closing bell. 

The underperformance of tech and growth names meant that the Nasdaq 100 index faired the worst of the major US indices, dropping 3.8% to nearly erase all of its gains for the week. The Dow also suffered dropping 1.3%. The S&P 500 CBOE volatility index or VIX jumped back to 25.0 from Wednesday’s lows just above 20.0. Equity investors now await the aforementioned earnings from Amazon ahead of the US labour market report on Friday. Tech/growth stocks have been suffering in recent weeks on Fed tightening fears and equity investors will be nervously watching the upcoming jobs report in the context of how it influences market expectations as to the timing and pace of Fed hikes/QT this year.   

• WTI surged above $90.00 for the first time since October 2014 on Thursday. 
• Analysts have been citing a cocktail of supportive factors. 

Front-month WTI futures surged above the $90.00 level for the first time since 2014 in recent trade on Thursday, taking their on-the-day gains to more than $2.0, which would mark the best one-day performance in three weeks. No specific one fundamental catalyst can be singled out as behind the recent surge in prices that has seen WTi rebound more than $3.0 from intra-day lows under $87.00. but analysts/market commentators have been discussing a cocktail of bullish factors in recent days that have been supporting the bullish mood in oil markets. 

Recent bullish factors:

Demand-side

Reopening. With the spread of Omicron fading in developed countries and China's zero Covid-19 approach (for now) working, demand has been improving in recent weeks as economies reopen following winter lockdowns/remain open. Underlying demand optimism was a return to US crude oil inventory declines last week, according to EIA data released on Wednesday. 

Cold US weather. A large winter storm is expected to hit large parts of the US this week, bringing ice and snow to much of the country and increasing near-term demand for energy. 

Supply-side

Measured OPEC+ output hikes and production issues. The group agreed on Wednesday to stick to its policy of lifting output quotas by 400K barrels per day each month, disappointing some who expected a larger hike to output quotas. Even if the cartel had hiked quotas by more, markets aren't convinced the group's actual output can keep up with the quota increases; various supply problems at smaller oil-producing OPEC+ nations have been well publicised as of late and the group's compliance stood at 122% at the end of December, said a Reuters survey. 

Geopolitical risk premia. Tensions remain highly elevated between Russia, Ukraine and NATO. Some sort of military intervention by the Russians into Ukrainian seems to be the base case of many geopolitical strategists. The US and other NATO allies have pledged to hit Russia with massive sanctions if it further invades Ukraine, and the impact this will have on the country's gas and oil exports is highly uncertain. 

What you need to know on Friday, February 4:

European currencies soared after central banks’ decisions, putting pressure on the greenback across the FX board.

The Bank of England hiked its policy rate by 25 basis points to 0.5% as expected, as all voting members aligned to hike, although 4 out of the 9 participants voted for a 0.50% hike. At the same time, MPC members voted unanimously to reduce government bond purchases. The central bank is now expecting inflation to peak at around 7% in April but then fall to 2.15% in a two-year period. GBP/USD hit 1.3627, now hovering around the 1.3600 level.

 The European Central Bank left rates and maintained its guidance on interest rates and financial support. There was a modest twist in the wording of the statement, as policymakers removed the words “in either direction” in the paragraph related to being open to adjusting monetary policy as needed.

The EUR/USD pair rallied on comments from President Lagarde, as she did not rule out a rate hike this year, quite a hawkish shift from her December statement. Even further, he made it clear that policymakers are concerned about inflation, although he repeated that rate hikes would continue to depend on the three criteria of their forward guidance. Finally, Lagarde added that “Compared with our expectations in December, risks to the inflation outlook are tilted to the upside, particularly in the near term.” EUR/USD peaked at 1.1451 and currently trades in the 1.1430 price zone.

Commodity-linked currencies were little changed against the greenback. AUD/USD is unchanged at around 0.7130, while USD/CAD hovers around 1.2670.

The USD/JPY nears 115.00 at the end of the American session, as government bond yields edged higher. The yield on the 10-year Treasury note is currently at 1.82%.

Gold trimmed intraday losses and finished the day at around $1,805.00 a troy ounce. Crude oil prices rallied in the American afternoon, with WTI ending the day at $90 a barrel.

On Friday, the focus will be on the US Nonfarm Payrolls report. The country is expected to have added 150K new jobs in January, while the unemployment rate is foreseen steady at 3.9%.

Bitcoin price prepares to rebound after Russian finance minister vows to let banks sell cryptos

Richmond Fed President Thomas Barkin said on Thursday that beginning interest rate hikes is a "straightforward call", although the ultimate level and pace of rate increases remains uncertain. Barkin continued that he sees no need to "restrain" the economy right now. Pandemic effects are still making it hard to anticipate labour market improvements, supply chains and the path of inflation,  he added. The quest for the Fed right now, he continued, is to get policy "into a better position" should high inflation persist. Barkin said that he would like to get the Fed funds rate back to its pre-pandemic levels in the 1.5-1.75% area before assessing if it should be moved to a clearly "restrictive" level. 

Market Reaction

Currency markets do not appear to have reacted much to the latest comments from Fed's Barkin. 

• Silver rebounded well from support at $22.00 though still trades lower on the day under $22.50.
• Hawkish central banks in Europe spurred upside in global developed market yields, hurting the appeal of precious metals. 
• Focus now shifts to Friday’s US jobs report; strong wage growth could send silver lower towards the mid-$21.00s. 

Though the precious metal has enjoyed a sharp recovery from earlier session lows at just above $22.00 per troy ounce, rebounding nearly 2.0% to current levels in the $22.40s, it continues to trade lower by about 0.9% on the session, having started the day in the $22.60s. A sharp rise in US and global bond yields in wake of a double dose of hawkishness from two major European central bank has had precious metals markets on the back foot, despite sharp downside in the global equity space as a result of horrible Facebook earnings. Equity market downside would typically be associated with an increased safe-haven bid in precious metals, but the increase in the opportunity cost of holding non-yielding assets like silver (represented by higher yields) has robbed the metal of any potential gains.

Silver bulls will take heart having seen how well support in the form of annual lows in the $22.00 area held up on Thursday. But with the trajectory of global monetary policy now pointing firmly in the direction of tightening, not many will be betting on a long-term rebound. That suggests that the $22.00 level is vulnerable, though traders are unlikely to attempt to push silver below it ahead of Friday’s labour market report, to which Fed monetary policy tightening expectations will be highly sensitive. Metrics pertaining to wage growth have been flagged by Fed members are the thing to watch, suggesting any upside surprise in Friday’s Average Hourly Earnings data could trigger a hawkish shift in Fed policy expectations. Such an eventuality could be the catalyst to send silver under $22.00. 

In this bearish scenario, attention would immediately turn to the next area of support in the $21.40s (a 4.4% drop from current levels), a double bottom from September and December 2021. In the longer run, if global developed market yields continue to buy into the tighter central bank policy story and yields continue to surge, silver could be looking at a break back towards support in the form of a high from all the way back to June 2016.  

• USD/JPY is holding at critical daily chart support.
• The focus is on clearing through low volumes around 115 the figure. 

The daily chart contains a complex market structure which the following illustration breaks down and arrives at a bullish conclusion. 

Firstly, the old downtrend was broken on Jan. 26 and lower high of the 18th on Jan. 27. This price action left a W-formation on the charts. The price, as it typically does, moved back to retest the neckline of the W-formation on Feb.2's low in a correction.

USD/JPY daily chart

Since then, the price has stabilised around a 61.8% Fibonacci of the prior bullish breakout of the downtrend ad has started to move in on a historically low volume area near 115 the figure. There could be some selling pressure to hold off initial tests here, but if bulls commit to USD/JPY above 114.50,  then, the price would be expected to be attracted towards 115.50 on a break of 115 the figure.

USD/JPY H4 chart

The lower time frames, such as the H4 chart can offer some deeper insight into the market structure and levels of importance. As illustrated, there are prospects of an inverse head ad shoulders forming from which the price would be expected to extend higher beyond 115.00 following a restest of support.

• The GBP/CAD climbs courtesy of the Bank of England’s (BoE) monetary policy, retraces at the press conference.
• The market sentiment has deteriorated as the North American session advances.
• GBP/CAD formed a bearish-harami, exposing the confluence of the 50 and the 100-SMAs in the 4-hour chart.

On Thursday, after a jump towards new weekly tops post-BoE around 1.7300, the GBP/CAD retreats but stays in the green during the day. At the time of writing, the GBP/CAD is trading at 1.7249.

Market sentiment conditions are depressed as European bourses printed losses between 0.27% and 1.76%. Across the pond is the same story, with major US equity indices recording losses, between 0.77% and almost 3%. In the FX market, the gainers are the EUR, NZD, and the GBP, while the CAD follows the CHF and the JPY as the laggards.

GBP/CAD Price Forecast: Technical outlook

The GBP/CAD 4-hour chart depicts the pair as upward biased. Even though the H4-simple moving averages (SMAs) are in a disorderly bullish/bearish order, they reside below the spot price, confirming the bias. However, the GBP/CAD tested the January 5 daily high at 1.7313 but failed to reclaim that price level, exposing the GBP to selling pressure.

That said, the GBP/CAD formed a bearish-harami pattern. On its way down, the GBP/CAD first support would be 1.7211. A breach of the latter would expose crucial support levels, like the January 14 daily high at 1.7187, followed by the 200-SMA at 1.7234, and then the confluence of the 50 and 100-SMAs around the 1.7096-83 area.

• GBP/USD bulls are cashing in following BoE rally ahead of critical US NFP data on Friday. 
• 1.3660 could be targeted on any subsequent US dollar weakness around NFP.

At 1.3605, GBP/USD off its highs of the day by is still positive by some 0.23% following the Bank of England that raised interest rates to 0.5% on Thursday. Technically, there could be more to come as per the technical analysis below. 

Meanwhile, the decision had been well telegraphed in the weeks leading into the meeting and markets had priced it in, but the clincher was the fact that nearly half its policymakers wanted a bigger increase to contain rampant price pressures. Back in December, the BoE was the first of the major central bank to actually raise its base rate since the pandemic began. It also signalled further modest tightening "in the coming months".

''In a surprise split decision, four of the nine Monetary Policy Committee members wanted to raise rates to 0.75% in what would have been the biggest increase in borrowing costs since the BoE became operationally independent 25 years ago,'' Reuters reported following the event. ''A slim majority, including Governor Andrew Bailey, voted for a 0.25 percentage point increase.''

BoE summary

In summary of the event, analysts at Rabobank sent out a note as follows:

As a consequence, cable vaulted over the psychological 1.3600 mark and printed a high of 1.3628. This was the highest level since Jan. 20. Additionally, UK gilts sold off, with the 10-year yield at its highest since January 2019.

The question now is whether there is more fuel in the sterling bull's tank. Fundamentally, maybe not. Analysts at Td Securities argued that ''GBP's recent price action has reflected a weaker USD rather than GBP strength. Plus, our market dashboard has been calling for a USD pullback recently, given positioning and valuations.''

The analysts added that ''now that things are cleaner, we like scaling back into USD longs, suggesting another near-term GBP top. Still, GBP should outperform the low-yielders, like EUR, CHF, JPY, in the interim.''

Moreover, a main takeaway from the meeting was the fact that the BoE governor, Andrew Bailey, told investors not to assume the central was embarking on a long series of rate hikes. He explained that there would have to be a trade-off between strong inflation and weakening growth as many households see their incomes squeezed.

Now its time to look into the US dollar

However, looking beyond that and away from UK domestics, Friday's Nonfarm Payrolls is now the focus. This could be the catalyst that sterling bulls might use to squeeze out the remaining drops from this bullish leg in cable. 

Wednesday's shocking ADP report could be regarded as a bearish prelude for Friday's Nonfarm Payrolls. This might be an event that could hammer down the greenback's coffin that it was placed in on Thursday when DXY broke below 96 and tumbled to the day's lows following a worsening series of ISM Services data, (59.9 vs 62.3 prior). 

As illustrated, the H4 chart is leaving a bearish wick, so if this is filled, then cable can keep going. The 15-min chart is bearish below the resistance and 95.10 is eyed. 

Meanwhile, US officials have been hinting at an awful jobs number Friday and the ADP seems to have confirmed this on Thursday. (A total of -301k jobs were lost vs. an expected gain of 180k, while December was revised to 776k from 807k previously). 

Traders will be cautious that while the Federal Reserve is expected to look through ay near term weakness in the labour market, and subsequently hikes in March regardless of tomorrow's jobs data outcome, as analysts at Brown Brothers Harriman explained, ''if labour market weakness persists for a couple of months beyond this, then the Fed will rethink its likely rate path.'' Therefore, a poor number could still hurt the greenback and enable GBP to glide higher. 

GBP/USD technical analysis

As per the pre-BoE analysis, GBP/USD bulls stay on course ahead of the BoE event, the upside potential was highlighted as follows:

''The price has burst through what might have been expected to be a firmer resistance on the 4-hour charts near 1.3525. A break of 1.3580 could set the stage for a rally through to the 1.3660s to mitigate an old imbalance of price between here and there. ''

GBP/USD live market

The price extended the rally and has started to correct, penetrating the 38.2% Fibonacci retracement already with the 50% mean reversion in its sights where it meets a prior high. 1.3660 could be targeted on any subsequent US dollar weakness before the week is out. 

• On Thursday, the shared currency advances 1.22% against the greenback.
• The ECB recognizes that inflations risks are tilted to the “upside,” not transitory.
• EUR/USD is bearish biased, but a daily close above 1.1440 could shift the bias towards a neutral-bullish.

The shared currency rallied almost 180-pips from the daily lows towards 1.1450, 20-pips above the 100-DMA. Nevertheless, it retreated somewhat on top of it, as bulls take a breather towards December’s 2021 highs around 1.1482. At the time of writing, the EUR/USD is trading at 1.1439.

ECB’s hawkish hold spurred a rally on the EUR

Thursday’s session did not disappoint at all. The ECB released its monetary policy decision, where the central bank kept everything unchanged. Nevertheless, it is worth noting that for the first time, the ECB acknowledged that “risks to the inflation outlook are tilted to the upside,” perceived as a hawkish hold by investors, as witnessed by the reaction of the pair.

One thing to punctual is that ECB’s President Christine Lagarde, when asked about hiking rates, backpedaled, refusing to say that “it is very unlikely that we will raise interest rates in the year 2022.” When Lagarde was asked about the possibility of ECB rate hikes in 2022, she said that “she never makes pledges without conditions; will be paying attention to data.”

Analysts at ING mentioned that “Lagarde opened the door to a speeding up of asset purchase reductions and a rate hike this year.”

Meanwhile, when Lagarde’s finished her press conference, Reuters reported that “ECB policymakers see policy change at the March meeting if inflation does not ease.”

In the meantime, the US economic docket featured the ISM Non-Manufacturing PMI for January, which came at 59.9, four-tenths higher than the 59.5 foreseen by analysts, but trailed December’s 62.3 reading. Moreover, Initial Jobless Claims for the week ending on January 29 came at 238K, better than the 245K foreseen by analysts, and lower than the previous week revised upwards, to 261K. The market mainly ignored the news, as EUR/USD traders were focused on the ECB.

Now that the ECB meeting is in the rearview mirror, EUR/USD traders focus on the US Nonfarm Payrolls report for January, expected at 199K. However, Wednesday’s ADP report with companies slashing 300K jobs could prelude the number.

EUR/USD Price Forecast: Technical outlook

The EUR/USD daily chart depicts the pair is testing the 100-DMA at 1.1430, after an upside break of the 50-DMA at 1.1312, in the 180-pip jump. Despite the sharp upward movement, from a technical perspective still bearish biased.

For the EUR/USD from a technical perspective, to shift from a bearish bias to a neutral-bullish stance, first would need a daily close above the confluence of the 100-DMA and Pitchfork’s channel top-trendline lying near the 100-DMA. In that outcome, the first resistance would be January 14 daily high at 1.1482, followed by 1.1500.

Failure at the above mentioned, then the EUR/USD would tumble below 1.1400. The following support would be an upslope trendline, drawn from November 2021, lows around 1.1320-40, and then the 50-DMA at 1.1312.

• USD/CAD has reversed back lower from earlier highs above 1.2700 as oil prices have advanced.
• Thursday’s US data dump didn’t have much FX market impact as focus shifts to Friday’s US and Canadian jobs reports.
• Forecasters have been growing more bearish on USD/CAD as of late, according to the latest Reuters poll.   

USD/CAD has traded in a relatively directionless fashion on Thursday, initially strengthening towards above 1.2700 as the Canadian dollar weakened in tandem with an earnings-driven downturn in global equities, but more recently dropping back to the 1.2675 area on rising oil prices. At current levels, the pair is back to trading broadly flat on the day, with the latest US data dump having an only limited impact on FX markets with focus more on European central bank meetings. 

For reference, the latest US ISM Services PMI survey for January was broadly in line with consensus, weakening to its lowest since March 2021 to reflect the spread of Omicron, but remaining at robust levels. Meanwhile, the latest US jobless claims report showed initial claims heading back lower again in an early sign that the pandemic impact on the US labour market began to ease in late January. Perhaps most importantly, Q4 Unit Labour Cost data came in substantially weaker than expected, dovetailing with last week’s alternative Q4 Employment Cost Index figures. 

Traders will be looking to Friday’s US labour market report for further evidence of easing US wage pressures, which the Fed has recently flagged as a notable upside risk to inflation. If Average Hourly Earnings on Friday also disappoint, that could exacerbate recent USD weakness that has seen USD/CAD pull back from the upper 1.2700s. Note that there will also be plenty of focus on Friday’s Canadian labour market report, which is out at the same time as the US data. 

Forecasts becoming more bullish

In other notable news, Reuters released a survey on Thursday that showed market participants have grown more bearish on USD/CAD amid expectations for further crude oil upside and amid bets the BoC will outpace the Fed regarding monetary tightening. The median three-month forecast according to the latest poll was for USD/CAD to drop to 1.2500 versus last month’s three-month forecast for USD/CAD to slip to 1.2600. The median 12-month forecast fell to 1.22 from 1.2350 one month ago.  

Technical Outlook

Looking at USD/CAD over a longer time horizon and from a technical perspective, if the above forecasts prove correct, that implies USD/CAD will break to the south of a long-term uptrend that has been supporting the pair since last June in the next three-months. Again, assuming the forecasts are correct, USD/CAD would then break below its January lows in the mid-1.2400s and then plough below its Q4 2021 lows at 1.2300 over the course of the rest of the year. If the long-term uptrend is broken, such a move does seem likely from a technical standpoint. 

Conversely, should the forecasts prove wrong and USD/CAD reverse higher, traders should keep an eye on the critical 1.2950 resistance zone that has capped the price action since late December 2020 and prior to that offered support going all the way back to late-2019. With USD/CAD having formed a long-term ascending triangle, a break above this resistance zone would be highly meaningful from a technical standpoint and would imply a push higher towards the next big resistance zone in the mid-1.30s. 

On Friday, the official US employment report is due. Market consensus points to an increase of 150K in payrolls. Recent data, like the ADP report, warns about a negative reading. Analysts from TD Securities estimate a decline of 200K in jobs in January. 

Key Quotes: 

“Payrolls likely plunged in January, but only because of temporary Omicron fallout; if anything, we see downside risk to our -200k estimate. Several Fed officials have already made clear that they will discount weak data as temporary. Also, we see upside risk on average hourly earnings, with an already strong trend likely to be added to by temporary Omicron effects relating to the composition of payrolls and the length of the workweek. Our 0.6% m/m estimate for hourly earnings implies 5.3% y/y, up from 4.7% y/y in December.”

“A weaker-than-expected NFP report would reinforce the recent USD selloff. It works through two channels: rates and risk. Risk sentiment would likely welcome easier financial conditions, especially if Omicron explains the growth weakness. That said, our dashboard shows the USD reaching oversold levels again so we use this recent pullback as a buying opportunity ahead of next month's Fed meeting.”
 

Data released on Thursday showed the ISM Service Index dropped to the lowest level in 11 months in January. Analysts at Wells Fargo point out it reflects how a lack of available workers and persistent supply shortages “are weighing on firms' ability to keep up with activity in the service sector despite what is still a strong, if somewhat moderating, demand environment.”

Key Quotes: 

“The ISM for the service sector fell 2.4 points to 59.9 in January. The decline was not quite as bad as feared by the consensus and is still at a level of expansion that is consistent with a steady pace of growth for the service sector. That said, throughout the comments and within the various subcomponents, there was a theme that just about everything is still in short supply and that is slowing production despite a robust demand environment.”

“Every supply-related indicator in the release suggests the same thing: supply chains are still a problem. Supplier deliveries rose 1.8 points to 65.7 last month, an indication that service-providers are still far from seeing a transition to smooth sourcing of products.”

“It is a mixed bag for hiring with five industries able to find people and add to payrolls and eight industries reporting outright reduction in employment in January. Overall the risk is to the downside for the labor market in January; the employment component fell 2.4 points to 52.3 and while that is still consistent with expansion, we still expect tomorrow's employment report to show a decline of 100K jobs in January.”
 

The Bank of England announced on Thursday it rose the key interest rate by 25 basis points as expected. Four members of the Monetary Policy Committee (MPC) voted for a 50 bps increase. Analysts at Rabobank, point out the medium-term inflation forecasts suggest the peak in the key rate might be much lower than the 1.50% the market is currently pricing. They forecast another 25 bps rate increase as soon as the next meeting.

Key Quotes: 

“After bottling a widely expected rate increase in November and then defying the risks of Omicron when it pressed ahead with a 15 bps increase in December, the Bank of England MPC finally conformed to market expectations. But only just: the vote to raise the Bank rate to 0.50% was split 5-to-4. Policy makers Haskel, Mann, Ramsden and Saunders instead voted for a 50 bps increase, giving the MPC a bit more bang for the buck. Traders pulled forward bets on future rate increases: the market currently expects Bank rate to reach 1.00% in May.”

“We remain of the view that this tightening cycle is going to be more limited than what is currently priced in front-end rates and don’t expect the Bank of England to be able to match the Fed’s hiking pace this year or next. That said, the newfound hawkishness on the part of the Fed may provide the central bank with some cover. We forecast another 25 bps rate increase as soon as next meeting, before the MPC may decide it’s best to take a pause and re-assess.”
 

• The Australian dollar advances sharply in the week, 2.29%.
• The FX complex market sentiment is mixed, led by the EUR and the antipodeans.
• AUD/USD is downward biased though a leg-up towards the 100-DMA at 0.7252 is on the cards.

The Australian dollar extends its weekly gains on Thursday and is trading at 0.7152  at the time of writing. The market sentiment is downbeat in the equity markets. European and US stock indices print losses.

Meanwhile, in the FX complex, the market mood is mixed. The strongest currency is the EUR, followed by the antipodeans, whilst the JPY is the laggard. 
The US Dollar Index, a gauge of the greenback’s value against its peers, sheds 0.44%, sitting at 95.51. Contrarily, US Treasury yields rise, with the 2-year reaching a daily high at 1..204% but retreated to 1.189% at press time.

Mixed US macroeconomic data weighs on the greenback

The US economic docket featured the ISM Non-Manufacturing PMI for January, which came at 59.9, four-tenths higher than the 59.5 foreseen by analysts, but trailed December’s 62.3 reading. 

Anthony Nieves, chair of the ISM Services Business Committee, said that “respondents continue to be impacted by coronavirus pandemic-related supply chain issues, including capacity constraints, demand-pull inflation, logistical challenges, and labor shortages.” Concerning the impact of the Covid-19 Omicron variant, he stated that it “disrupted operations,” primarily due to the shortage of staff.  

Initial Jobless Claims for the week ending on January 29 came at 238K, better than the 245K foreseen by analysts, and lower than the previous week revised upwards, to 261K. The market mainly ignored the news, per the pair’s reaction.

That said, AUD/USD trader’s focus is on the US Nonfarm Payrolls report for January, expected at 199K. However, Wednesday’s ADP report with companies slashing 300K jobs could be a prelude to the number

AUD/USD Price Forecast: Technical outlook

The AUD/USD remains downward biased from a technical perspective. The daily moving averages (DMAs) are above the spot price, with the 50-DMA at 0.7163, the closest to the current price action. Nevertheless, recent fundamental developments and market sentiment could not be ruled out and would exert upward pressure on the pair.

So in the near term, an AUD/USD test to the confluence of the 100-DMA and a three-month-old downslope trendline around 0.7250-60 is on the cards. However, there would be some hurdles on the way up. The first resistance would be the aforementioned 50-DMA at 0.7163. A breach of it would expose 0.7200, followed by the target abovementioned.

• Euro jumps across the board following ECB meeting.
• EUR/CHF heads for biggest daily gain in years.

The EUR/CHF gained a hundred pips following the European Central Bank meeting as the euro strengthened across the board. The cross opened the day under 1.0400 and recently hit a fresh high at 1.0514, the highest level in two months.

The ECB kept interest rates unchanged as expected. The statement contained few changes from the December meeting. The positive news for the euro started with Lagarde’s press conference. She didn't push back against market pricing of rate hikes in 2022, sending Eurozone bond yields to the upside.

Later, reports mentioned the ECB policymakers see a policy change at the March meeting if inflation does ease. According to the report they see a faster pace of tapering the Asset Purchase Programme. Those reports helped the euro extends gains across the board.

Eurozone government bond yields are sharply higher on Thursday. The 10-german yield reached 0.159%, the highest level since March 2019. The moves in the European bond market also triggered volatility in currencies and commodities. Gold and silver tumbled and then rebounded sharply. Stocks in the US are in red.

The EUR/CHF is testing levels above 1.0500. A daily close above should point to further gains. The next resistance stands at 1.0535, followed by 1.0570. On the flip side, now 1.0445 is the immediate support.

Technical levels

• WTI has pushed higher from earlier sub-$87.00 lows to trade in the mid-$88.00s, up about 50 cents on the day. 
• Oil has shrugged off equity market downside and hawkish BoE/ECB policy meetings to remain supported close to multi-year highs. 

Oil prices have shrugged off earnings-related downside in the global equity space on Thursday, as well as more hawkish than expected BoE and ECB policy meetings, to remain supported close to multi-year highs. Front-month WTI futures have recovered from an earlier session dip below $87.00/barrel to hit session highs above $88.50 in recent trade, with the bulls eyeing a test of Wednesday’s post-OPEC announcement highs near $90.00. At current levels just under $88.50, WTI trades with gains of about 50 cents on the day. 

Recall that the group opted to stick to its existing policy of increasing output at a measured pace of 400K barrels per day (BPD) each month in March. This disappointed some market participants (like Goldman Sachs) who had been calling for the OPEC+ to increase output at a quicker rate amid high oil prices and pressure from oil-importing nations, hence the rally in prices towards $90.00 at the time. 

An explosion on a Nigeria oil-producing vessel with a daily capacity of 22K BPD, while not marking a significant interruption to global supply, highlighted some of the struggles that smaller oil-producing nations like Nigeria (and Angola, Libya etc.) have been having in recent months in keeping up with rising OPEC+ output quotas. OPEC+ compliance to their output pact stood at 122% at the end of December, a Reuters survey revealed recently, largely due to the struggles of smaller producers.   

Traders on Thursday also cited expectations for a winter storm to arrive in the US, thus increasing energy demand there, and Wednesday’s bullish weekly US EIA crude oil inventory report as supportive of crude oil prices. But more broadly, against a backdrop of recovering global demand as the spread of Omicron eases (in developed markets, at least), tight supply (thanks largely to OPEC) and elevated geopolitical risk (thanks to the Russia/Ukraine crisis) oil markets remain in a bullish mood. A break above the $90.00 level for WTI could see the American benchmark for sweet light crude then surge to the next major area of resistance in the $91.50 area in the form of the January 2014 lows.  

European Central Bank policymakers see a policy change at the March meeting if inflation does ease, said sources speaking to Reuters. The sources said that policymakers see a faster pace of tapering of the Asset Purchase Programme (APP) as its first point of call to fight higher inflation. According to the ECB's current policy, the APP will run at a rate of EUR 40B/month in Q2, EUR 30B/month in Q3 and then EUR 20B/month indefinitely from Q4. The sources added that a sizeable minority of ECB policymakers wanted to change policy at Thursday's meeting. 

The latest sources speaking to Reuters dovetail with ECB sources who recently spoke to Bloomberg, who also said that ECB policymakers are prepared for a policy change. The sources speaking to Bloomberg added that the bank had reportedly agreed it sensible to no longer rule out a 2022 rate hike, which likely explains ECB President Christine Lagarde's refusal to reiteration her prior assertion that a 2022 hike was unlikely at Thursday's press conference. The Bloomberg sources said that ending the APP in Q3 was a possibility, though no decision had yet been made on any policy shift. 

Market Reaction

The latest Reuters and Bloomberg sources continue to pump speculation about an earlier move to tighten policy by the ECB appears to be supporting the euro against its major G10 counterparts. 

• EUR/GBP reversed 100 pips higher from just above late-2019/early-2020 lows in the 0.8280s after hawkish ECB commentary. 
• President Lagarde refused to repeat her previous assertion that a rate hike in 2022 is very unlikely.

EUR/GBP has reversed sharply higher from its initial post-BoE session lows in the 0.8280s, where the pair came within a whisker of hitting multi-year lows from back in late-2019/early-2020, and now trades in the 0.8380s. That means the pair, having been as much as 0.5% lower on the day, now trades 0.75% higher. The reversal came after, in her usual post-ECB policy announcement press conference, President Christine Lagarde opted not to repeat her prior assertion that a 2022 rate hike was highly unlikely. The President instead opted to emphasise how the ECB would take a data-dependant approach and said she would make no pledges without conditionalities. 

Market participants interpreted these comments from Lagarde as opening the door to a rate hike sometime later in 2022, boosting the euro substantially. Indeed, Bloomberg just report that, according to sources, the ECB is prepared to recalibrate its policy guidance at the March meeting when it releases new economic forecasts, with policymakers reportedly in agreement that it is not sensible to exclude the possibility of a 2022 rate hike. So it seems that the ECB has won the battle of hawkish surprises this Thursday, with EUR/GBP’s post BoE rate decision weakness having proven short-lived. 

Recall that sterling was boosted prior to the ECB’s rate decision after the BoE hiked interest rates by 25bps and revealed that four out of nine rate-setters had actually wanted a larger 50bps move. EUR/GBP is now eyeing a test of the 0.8400 level. As the ECB tightening narrative gains more traction and tightening bets build, this could be a catalyst to disrupt EUR/GBP’s steady grind lower in recent months. Yes, the BoE is tightening too, and is a long way ahead of the ECB regarding policy normalisation, but there are serious doubts about the health of the UK economy with the cost of living crisis set to worsen substantially in April.   

• Gold breaks under $1800 and drops to lowest since Monday.
• Price testing the $1790 support area; a break lower could trigger more losses.
• Metal under pressure despite the decline of the DXY, affected by higher US yields.

Gold lost more than $10 in a few minutes after breaking under $1800. XAU/USD bottomed at $1788, reaching the lowest level since Monday. It remains under pressure near $1790.

The decline took place even as the US dollar drops sharply. The DXY is down 0.45%, trading at 95.55, the lowest since January 20. In Wall Street the red dominates. The Nasdaq tumbles 2.15% and the Dow Jones drops by 0.85%. The deterioration in risk sentiment is not help for metals.

Higher US yields and technical factors pushed XAU/USD to the downside. The 10-year jumped from 1.78% to 1.84% in a few hours, while the 30-year yield rose to 2.18%, the highest level in a week.

The $1800 was a relevant intraday support. After breaking lower, gold accelerated to the downside. As of writing, it is testing the $1790 area, another relevant technical level. A daily close below should clear the way to more losses, exposing the next support at $1780 (Jan 28 low).

If XAU/USD manages to hold above $1790 it could rebound. A recovery above $1800 would alleviate the bearish pressure. The next resistance stands at $1810.

Technical levels

Federal Reserve Board nominee Philip Jefferson said on Thursday in a Senate hearing that inflation is high and has multiple components, with the pandemic having had very important impacts on supply chains. Monetary policy cannot address the supply side, he noted, but added that the directive is clear that the Fed must take steps to bring inflation back in line with its target. 

Market Reaction

Jefferson's comments have not had a notable impact on markets, though markets will continue to monitor his remarks at the Senate hearing, as well as comments from fellow nominees Sarah Raskin and Lisa Cook. 

• DXY accelerates losses and retests the 95.40 area.
• The ECB left policy rate unchanged, sees inflation receding in H2 2022.
• Initial Claims rose by 238K in the week to January 29.

The greenback quickly left behind the promising start of the session and slipped back into the negative territory well south of the 96.00 mark when tracked by the US Dollar Index (DXY) on Thursday.

US Dollar Index weaker on EUR strength

The index now navigates the area of 2-week lows around 95.50 in the wake of the press conference by Chairwoman C.Lagarde, all after the ECB left key rates unchanged at its event earlier on Thursday.

Indeed, the greenback came under extra pressure after buyers flocked once again to the European currency following Lagarde comments on inflation, which she sees grinding lower in the second half of the year. Lagarde also said the central bank will decide on the future of the bond buying pace at the March meeting, adding that there will be no move on rates until the bank finishes the net bond purchases.

In the US docket, Challenger Job Cuts increased a tad to 19.064K in January, Initial Claims rose by 238K in the week to January 29, the final Services PMI eased to 51.2, the ISM Non-Manufacturing PMI deflated to 59.9 and Factory Orders contracted at a monthly 0.4% in December.

What to look for around USD

The dollar quickly surrendered earlier gains, as the move beyond the 96.00 barrier lacked conviction and was sharply reversed following the ECB monetary policy meeting. Some reasons behind the strong correction in the buck seen as of late can be found in the improved mood in the risk-associated universe and dormant US yields (despite navigating the upper end of the recent range). However, the constructive outlook for the greenback is expected to remain unchanged for the time being on the back of higher yields, persistent elevated inflation, supportive Fedspeak and the solid pace of the US economic recovery.

Key events in the US this week:) Initial Jobless Claims, ISM Non-Manufacturing PMI, Factory Orders (Thursday) – Nonfarm Payrolls, Unemployment Rate (Friday).

Eminent issues on the back boiler: Fed’s rate path this year. US-China trade conflict under the Biden administration. Debt ceiling issues. Escalating geopolitical effervescence vs. Russia and China.

US Dollar Index relevant levels

Now, the index is losing 0.45% at 95.54 and a break above 97.44 (2022 high Jan.28) would open the door to 97.80 (high Jun.30 2020) and finally 98.00 (round level). On the flip side, the next down barrier emerges at 95.42 (weekly low Feb.3) seconded by 95.41 (low Jan.20) and then 94.62 (2022 low Jan.14).

• Headline ISM Services PMI was a touch higher than expected at 59.9 but still its weakest since March 2021. 
• The market reaction to the latest data was muted. 

The headline ISM Services PMI figure fell to 59.9 in January from 62.0 in December, slightly above the expected reading of 59.5 but still the lowest such reading since March 2021, according to the latest release by the Institute for Supply Management.

Subindices:

• Business Activity fell to 59.9 from 68.3 in December. 
• Prices Paid fell to 82.3 from 83.9. 
• New Orders fell to 61.7 from 62.1, its lowest since February 2020. 
• Employment dropped to 52.3 from 54.7, its lowest since June 2021. 

Market Reaction

The market reaction to the latest broadly in line with consensus ISM Services survey has been muted. 

• After the ECB held rates unchanged, the euro rallied courtesy of the jump of the 2-year German Bund.
• ECB’s Lagarde said that the central bank would not hike rates until they completed the QE program.
• EUR/JPY is upward biased, as it broke the daily moving averages (DMAs) after the ECB’s monetary policy decision.

On Thursday, the shared currency advances as the North American session begins vs. the low-yielder Japanese yen, up 1.18%. At the time of writing, the EUR/JPY is trading at 130.88. The market sentiment is mixed, spurred by monetary policy decisions by the Bank of England (BoE) and the European Central Bank (ECB), which concerns the currency pair.

ECB held rates unchanged while the QE persists as scheduled

The ECB kept its deposit rates unchanged at -0.5% while emphasizing that the QE would end in March, when the APP will be lifted to €40 billion per month, followed by a reduction to €20 billion by Q4. The bank also reaffirmed its guidance that QE purchases would end before any increases to interest rates.

Read more: Breaking: ECB leaves rates unchanged, maintains guidance on interest rates and QE

At the ECB press conference, ECB President Christine Lagarde said that “We [ECB] will not hike rates until we have completed net asset purchases, will determine in March what we will apply to these net asset programs for the rest of 2022.” Nevertheless, Lagarde did not say that a rate hike in 2022 is unlikely.

That said, the EUR/JPY skyrocketed near 131.00 on the ECB’s monetary policy decision, which came in line with expectations. However, the 14 basis points jump in the 2-year German Bund spurred demand for the euro, to the detriment of the safe-haven status of the Japanese yen.

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY daily chart depicts an upward bias. During the ECB’s monetary policy decision, it breached all the daily moving averages (DMAs) upwards. It faced resistance at a five-month-old downslope trendline, drawn from October 2021 highs that pass around 131.00.

To the upside, the first resistance would be the trendline mentioned above that looms around 131.00. An upside break would expose January 5 daily high at 131.60, followed by 132.00.

According to the final version of IHS Markit's Services PMI survey, the headline index was 51.2 in January, above the flash estimate for a 50.9 reading. The final Composite PMI came in 51.1 in January, also above the flash reading of 50.8. 

Market Reaction

There does not seem to have been any notable reaction to the latest PMI numbers. 

• EUR/USD reverses the initial pessimism and resumes the upside.
• The ECB left the key policy rate unchanged at its meeting.
• Chairwoman Lagarde expects inflation to recede later in 2022.

EUR/USD manages to return to the positive territory and regain upside pressure further north of the 1.1300 hurdle.

EUR/USD firmer on dollar selling, ECB

EUR/USD now advances for the fifth consecutive session following the upbeat tone at the ECB event and while Chair Lagarde’s press conference is under way.

Despite acknowledging current inflation pressures, Lagarde reiterated that consumer prices are seen losing upside traction later this year. She noted that the impact of the pandemic on the economy is fading away at the time when she said that high energy prices continue to hurt the economy and are largely behind the rise in inflation. She said that price pressures are more widespread and elevated inflation lasted more than estimated.

Lagarde noted that risks to the forecast remain mostly balance and the longer-term inflation measures look stable.

Once again, Lagarde reiterated the bank’s data dependent stance as well as its readiness to adapt all tool as needed. She expects the economic activity to remain somewhat depressed in H1 2022.

According to latest news by agency Bloomberg, money markets now see the ECB hiking rates by 10 bps as soon as in June.

What to look for around EUR

EUR/USD reversed the initial knee-jerk and resumed the sharp advance well north of the 1.1300 barrier on Wednesday, recording at the same time fresh weekly/monthly highs. The pair regained the buying pressure following the ECB and Lagarde’s presser, while the broad risk appetite trends also collaborated with the uptrend as well as some speculation of a sooner-than-anticipated ECB interest rate hike (September maybe?).

Key events in the euro area this week: EMU, Germany Final January Services PMI, ECB Meeting (Thursday) – EMU Retail Sales (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. ECB stance/potential reaction to the persistent elevated inflation in the region. ECB tapering speculation/rate path. Italy elects President of the Republic in late January. Presidential elections in France in April. Geopolitical concerns from the Russia-Ukraine conflict.

EUR/USD levels to watch

So far, spot is gaining 0.74% at 1.1383 and faces the next up barrier at 1.1397 (weekly high Feb.3) seconded 1.1430 (100-day SMA) and finally 1.1482 (2022 high Jan.14). On the other hand, a break below 1.1121 (2022 low Jan.28) would target 1.1100 (round level) en route to 1.1000 (psychological level).

The USD/CAD drifts higher after losses stop in mid 1.26s again. Economists at Scotiabank expect the pair to edge higher towards the 1.2775/1.2800 area on a break above minor resistance at 1.2725.  

Tighter monetary policy conditions in Canada to support CAD gains later in 2022

“Short-term price action is turning a little more constructive for the USD again after three tests – and rejections – of the mid 1.26 area since the turn of the month.”

“Short-term price action reflects firm demand for the USD on dips to the 1.2650/60 zone in the past three days, with near-term risks tilting towards a push above minor resistance at 1.2725; gains through here may allow the USD to push higher still towards 1.2775/00 into the end of the week.”

“Fed policymakers have indicated that balance sheet normalization may not start until much later in the year (once the Fed Funds target rate has reached 1% or so). Relatively tighter monetary policy conditions in Canada should help support CAD gains.”

Asked about the record Eurozone inflation print (for January) released earlier in the week, ECB President Christine Lagarde said that the ECB governing council showed unanimous concern about the impact on the public of current high inflation. In response to a question about whether a rate hike in 2022 remains highly unlikely in light of recent inflation surprises, Lagarde said that she never makes pledges without conditionalities and said that it was important to be attentive to that. She said the bank would be data-dependant and reassess the situation in March (when the ECB issues new economic forecasts) and would not rush into any decisions. She did not repeat the statement that a rate hike in 2022 is unlikely. Some might interpret this as Lagarde opening the door to a change in rate guidance in March which might validate market expectations for a rate hike in Q4 2022. 

Market Reaction

The euro has been surging in recent trade in wake of remarks from Lagarde, with EUR/USD now above 1.1350 from under 1.1300 prior to the start of her press conference. 

• GBP/USD struggled to capitalize on the post-BoE bullish spike to a two-week high.
• The intraday USD buying interest turned out to be a key factor that capped gains.
• Rebounding US bond yields, hawkish Fed expectations extended support to the USD.

The GBP/USD pair faded the post-BoE bullish spike to a fresh two-week high and was last seen trading with modest intraday gains, just below the 1.3600 mark.

The pair caught aggressive bids and rallied nearly 100 pips from the daily swing low, around the 1.3535 region, after the Bank of England announced its policy decision. As was widely expected, the UK central bank raised its benchmark interest rate by 25 bps to 0.50%. The hawkish tilt came from the vote distribution, wherein four out of nine MPC members voted for a 50 bps rate hike. This indicated that policymakers are keen to act amid rising inflationary pressures and provided a strong boost to the British pound.

Adding to this, policymakers also vote 9-0 to start unwinding the £895 billion quantitative easing program by ceasing reinvestment, starting with a maturity of March 2022 gilt. In the post-meeting press conference, the BoE Governor Andrew Bailey said that some further modest tightening is likely in the coming months. This further acted as a tailwind for sterling and pushed the GBP/USD pair to the 1.3625-1.3630 area, though the momentum ran out of the steam amid a goodish pickup in demand for the US dollar.

Despite the fact that Fed officials downplayed the prospects for a 50 bps rate hike in March, traders seem convinced that the Fed will tighten its policy at a faster pace than anticipated. This, along with a fresh leg up in the US Treasury bond yields and a softer tone around the equity markets, extended some support to the greenback. This, in turn, was seen as the only factor that capped the upside for the GBP/USD pair, instead attracted some selling at higher levels and led to a pullback of around 50 pips.

On the US economic data front, the Weekly Initial Jobless Claims fell to 238K during the week ended January 28 as against market expectations for a reading of 245K and the 261K previous. This, however, did little to provide any meaningful impetus, albeit remained supportive of the intraday USD strength. Thursday's US economic docket also features the release of ISM Services PMI, which might allow traders to grab some short-term opportunities around the GBP/USD pair. the focus would then shift to the US NFP report on Friday.

Technical levels to watch

European Central Bank President Christine Lagarde said on Thursday that the Eurozone economy continues to recover, with the economy less hurt by the pandemic, though growth will be subdued in Q1 as shortages restrain activity. Thereafter, the economy will pick up strongly over the course of the year and the labour market continues improving. Inflation will remain elevated for longer than previously expected, she added, with rising energy costs hurting incomes. 

Additional Remarks:

"Bottlenecks may be starting to ease."

"The peristence of underlying inflation increases uncertain."

"Wage growth remains muted."

"Containment measures are affecting travel and toursim."

"This may still persist for some time."

"Most measures of underlying inflation have risen."

"Risks to the outlook are balanced."

"High energy costs could be a drag on consumption and investment."

"There is upside risk particularly in the near term."

Unit Labour Costs in the US rose less than expected in Q4, rising just 0.3% QoQ versus the forecasted 1.5% rise, according to the latest release from the Bureau of Labour Statistics and Department of Labour. Meanwhile, Nonfarm Productivity saw a much larger than expected 6.6% rate in Q4 versus consensus forecasts for a 3.2% rise. 

Market Reaction

Lower than expected labour cost pressure as per the latest BLS/DoL report will ease pressure felt by the Fed to hike interest rates as aggressively in 2022. The dollar has, as a result, been selling off in recent trade, with the DXY dropping from around the 96.20 area to current levels around the 95.60s. Much of this could be as a result of a hawkish reaction to comments from ECB President Christine Lagarde, who didn't rule out a 2022 rate hike. 

• Initial claims fell to 238K in the week ending on January 29, below consensus expectations. 
• The dollar has been falling a result of weak Q4 Unit Labour Cost data rather than reacting to the jobless claims report

There were 238,000 initial claims for unemployment benefits in the US during the week ending January 29, data published by the US Department of Labor (DoL) revealed on Thursday. This reading followed last week's print of 261,000 (revised up from 260,000) and was below with consensus market expectations for 245,000. Continued Claims fell slightly less than expected to 1.628M in the week ending on January 22 from 1.672M the week prior (revised lower from 1.675M) and was slightly above the 1.62M expected. The insured unemployment rate remained unchanged at 1.2%. 

Market Reaction

There was no discernable reaction to the latest jobless claims data, with the US dollar declining instead as a result of much weaker than expected Unit Labour Cost growth in Q4. 

UK PM Boris Johnson on Thursday said that the UK faces a cost of living crunch and the government has to help people. The package to help with energy costs is necessary and huge, he added, saying that hopefully inflationary pressures will start tpo subside once the world economy regains momentum. When asked about the planned national insurance rise, Johnson said we have to put in the money to fix the health service.

Market Reaction

There has been no reaction to the latest comments from the PM, with focus much more on the BoE. 

Bank of England Governor Bailey on Thursday said that, after adjusting for Covid, underlying wage growth is higher than we would expect for this stage of the economic cycle. We are seeing upwards upward movement in what firms expect wage settlements to be, he noted, though did say that he would not be using the phrase "wage-price spiral" as we are not in that territory. 

Bailey said that this is a hard message, but we are facing a squeeze on real incomes in the UK this year, and that if the BoE doesn't raise the bank rate, the squeeze will be worse. Households are facing a lot of pressure, he added, including on those who are less able to afford it. Government measures will help households, he noted. 

Bailey reiterated that the BoE needs to focus on its inflation objective, before adding that the impact of rate increases on inflation expectations is important for its impact on wage bargaining. The big underlying driver of the hit to living standards in the UK is not something monetary policy can do anything about, he noted, adding that the high price of globally traded goods has persisted for longer than we expected. We are seeing evidence that supply chain difficulties are easing, Bailey continued, but we still need to see a lot more. 

Market Reaction

Sterling does not appear to have reacted too forcefully to the latest comments from Bailey, with GBP/USD having ebbed back to trade at pre-BoE policy announcement levels in the 1.3570s area in recent trade. 

Bank of England Deputy Governor Ben Broadbent said on Thursday that the main reason for wage growth picking up in the UK is the tightness of the labour market. Whilst it is probably that some of the wage rise is due to high inflation, recruitment difficulty is the main cause. The forecasted fall in real incomes was larger in a 12-month period around 2011, he said, adding that although unemployment is around its level a couple of years ago, labour market tightness is greater. There is a question over whether the recent energy price rise is permanent, he said, noting that historically, these swings don't last. 

Market Reaction

Markets have not seen a notable reaction to the latest remarks from BoE's Broadbent. 

• EUR/GBP dropped to a fresh two-year low after the BoE delivered a hawkish rate hike.
• The ECB left its policy settings unchanged and failed to impress bulls or lend any support.
• Investors now await ECB President Lagarde's remarks before placing fresh directional bets.

The EUR/GBP cross recovered a few pips from the post-BoE slump to a fresh two-year low and moved back above the 0.8300 mark after the ECB announced its policy decision.

The cross witnessed aggressive selling after the Bank of England, as was anticipated, hiked the benchmark interest rate by 25 bps to 0.50% this Thursday. The hawkish vote distribution, wherein four MPC members favoured a 50 bps rate hike, provided a strong lift to the British pound and exerted heavy pressure on the EUR/GBP cross.

Adding to this, policymakers also vote 9-0 to start unwinding the £895 billion quantitative easing program. In the post-meeting press conference, the BoE Governor Andrew Bailey said that some further modest tightening is likely in the coming months, which was seen as another factor that continued acting as a tailwind for sterling.

Conversely, the European Central Bank left its monetary policy settings unchanged and failed to inspire the euro bulls or lend any support to the EUR/GBP cross. The downside, however, remains cushioned as investors await the ECB President Christine Lagarde's remarks amid bets for some policy action to combat surging inflation.

It is worth recalling that the Eurozone CPI accelerated to another record high and arrived at 5.1% YoY in January. The data fueled speculations that the ECB could deliver the first rate-hike of 10 bps by July. The markets have also been pricing in a total of 30 bps rate hike by the end of 2022, setting the stage for a disappointment.

The fundamental backdrop seems tilted in favour of bearish traders, though it will be prudent to wait for some follow-through selling below the 0.8380 region before positioning for any further decline. The EUR/GBP cross might then accelerate the downward trajectory towards the 0.8300 round-figure mark en-route the 0.8275 support zone.

Technical levels to watch

• EUR/USD stays offered in the sub-1.1300 region on Thursday. 

• ECB left its key rates unchanged, as widely expected. 

• Investors’ focus now gyrates to Lagarde’s press conference. 

The selling bias in the single currency stays unchanged on Thursday, motivating EUR/USD to keep navigating in the red territory below the 1.1300 barrier.   

EUR/USD now focuses on Lagarde 

EUR/USD remains on the defensive and reverses part of the recent multi-session advance on the back of the resumption of some buying interest in the greenback, at the time when the ECB failed to ignite some upside bias in spot following its unchangd decision on monetary policy.

In fact, no reaction from the pair after the ECB left intact the interest rate on the main refinancing operations, the interest rate on the marginal lending facility and the deposit facility at 0.00%, 0.25% and 0 -0.50%, respectively. 

The ECB said the net purchases of assets under the PEPP will terminate by end of March. Regarding the APP, the bank's monthly purchases will be of €40B in Q2, €30B in Q3 and €20B from October.

Moving forward, market participants will now closely follow the usual press conference by Chairwoman Lagarde and the subsequent Q&A session. 

EUR/USD levels to watch 

So far, spot is losing 0.25% at 1.1273 and faces the next up barrier at 1.1329 (weekly high Feb.2) seconded by 1.1369 (high Jan.20) and finally 1.1429 (100-day SMA). On the other hand, a break below 1.1121 (2022 low Jan.28) would target 1.1100 (round level) en route to 1.1000 (psychological level). 

Speaking in the post-BoE press conference, BoE Governor Andrew Bailey said that the spread of Omicron is expected to have had a depressing impact on UK output in December and January, but that impact is likely to have been short in duration. The global rise in prices for energy and imports will inevitably push up inflation and weigh on incomes, he added. Demand for workers remains robust and job churn elevated, the BoE Governor continued, before adding that underlying pay growth was likely to rise to 4.75% this year before falling.

Rising domestic cost pressures driven by the tight labour market have pushed up inflation, he added, though upwards pressures on inflation are expected to dissipate as global energy prices stabilise. The government's new energy price policies are unlikely to have a material impact on inflation in two or more years' time, he added, though noted that there is unusually high uncertainty surrounding the economic outlook. 

• The ECB held rates and maintained its guidance on rates and QE, as expected, on Thursday. 
• The euro saw very minimal reaction, with focus now on ECB President Christine Lagarde's post-meeting press conference at 1330GMT. 

The European Central Bank opted to leave its deposit rate unchanged at -0.5% on Thursday as unanimously expected. The bank maintained its guidance on interest rates, saying they would remain at present or lower levels until the conditions for a rate hike have been met. The bank also reaffirmed its QE policy guidance from December; that the PEPP will end in March, that in Q2 the APP will be lifted to EUR 40B per month, then tapered back to EUR 20B per month by Q4, while PEPP reinvestments will continue to the end of 2024. The bank also reaffirmed its guidance that QE purchase would end prior to any increases to interest rates. 

Market Reaction

The euro saw some minor knee-jerk weakness in wake of the policy decision, though much of this has now faded and EUR/USD continues to trade near pre-announcement levels just under 1.1300. Focus now shifts to ECB President Christine Lagarde's post-meeting press conference at 1330GMT. Markets want to know if the ECB has shifted its view on inflation at all in wake of recent upside inflation surprises for January. 

• GBP/JPY rallied to over a two-week high after the BoE raised interest rate to 0.50%.
• The hawkish MPC vote distribution provided a strong boost to the British pound.
• Stronger USD weighed on the JPY, which further contributed to the bullish move.

The GBP/JPY cross caught aggressive bids after the Bank of England announced its policy decision and surged to a two-and-half-week high, around mid-156.00s in the last hour.

The British pound strengthened across the board after the BoE, as was widely expected, decided to hike the benchmark interest rate by 25 bps to 0.50% this Thursday. The hawkish surprise came from the vote distribution, where four MPC members voted for a 50 bps rate hike.

Adding to this, policymakers also voted 9-0 to start unwinding the £895 billion quantitative easing program by ceasing reinvestment, starting with the maturing of March 2022 gilts. This, in turn, was seen as a key trigger for bulls and provided a strong lift to the GBP/JPY cross.

On the other hand, the emergence of some US dollar buying weighed on the Japanese yen. This, along with the possibility of some short-term trading stops being triggered above the 155.75-155-80 region, accelerated the GBP/JPY pair's strong intraday positive momentum.

Market participants now look forward to the post-meeting press conference, where comments by the BoE Governor Andrew Bailey will be scrutinized for clues about the near-term policy outlook. This will influence the GBP and provide a fresh impetus to the GBP/JPY cross.

Technical levels to watch

• Four of nine MPC members voted for a 50bps rate rise. 
• Cable is now pushing on towards resistance in the 1.3650 area as focus shifts to the BoE’s post-meeting press conference. 

GBP/USD leapt above 1.3600 in wake of the latest BoE rate decision, where, as expected, rates were lifted by 25bps to 0.5% and QE reinvestments were halted. The bullish impulse appears to have come from the fact that four BoE Monetary Policy Committee (MPC) members voted for a larger 50bps hike that would have taken rates to 0.75%, thus substantially raising the risk of a further rate rise at the BoE’s next meeting. The bank also voted to reduce the size of its corporate bond holdings (currently £20B) to zero by the end of 2023 through non-reinvestments and active sales. The hawkish surprise sent UK yields surging, with the 2-year up 8.5bps to above 1.12% and the 10-year up nearly 10bps to 1.35%. 

The net result for sterling is that it now sits at the top of the G10 performance table on the day, with GBP/USD currently trading about 0.3% higher in the 1.3615 area. Having now cleared resistance in the form of the prior weekly highs in the 1.3580s and the big figure, cable bulls will now eye a test of resistance in the 1.3650 area as attention turns to the BoE’s post-meeting press conference, which kicks off at 1415GMT. 

The Bank of England announced its monetary policy decision on Thursday and raised the benchmark interest rate by 25bps to 0.50%. The Monetary Policy Committee (MPC) voted 5-4 in favour of a 25 bps rate hike. The decision was in line with market expectations and marked the first back-to-back rises since 2004. The BoE MPC voted unanimously to reduce corporate bond holdings through non-reinvestment and active sales, reaching zero holdings no earlier than towards the end of 2023

Key takeaways as summarised by Reuters:

Market reaction

The British pound strengthened across the board in reaction to the announcement, pushing the GBP/USD pair further beyond the 1.3600 mark or a two-week high.

Christine Lagarde, President of the European Central Bank (ECB), is scheduled to deliver her remarks on the monetary policy outlook in a press conference at 13:30 GMT.

Follow our live coverage of ECB's policy announcements and the market reaction.

About ECB's press conference

Following the ECB´s economic policy decision, the ECB President gives a press conference regarding monetary policy. Her comments may influence the volatility of EUR and determine a short-term positive or negative trend. Her hawkish view is considered as positive, or bullish for the EUR, whereas her dovish view is considered as negative, or bearish.

• EUR/USD comes under pressure following recent tops.
• Initial resistance is now seen at the weekly high near 1.1330.

EUR/USD sheds some ground for the first time after four consecutive daily advances on Thursday.

The ongoing strength is deemed as corrective only. That said, further bullish attempts are expected to meet initial resistance at the weekly top at 1.1329 (February 2) ahead of 1.13659 (high January 20).

While below the 4-month resistance line, today near 1.1420, extra losses remain well on the cards. In the longer run, the negative outlook is seen unchanged below the key 200-day SMA at 1.1678.

EUR/USD daily chart

Bank of England (BoE) Governor Andrew Bailey will deliver his remarks on the monetary policy decisions in a press conference at 1230 GMT on Thursday, February 3.

 Follow our live coverage of the BoE policy announcements and the market reaction.

About Andrew Bailey (via bankofengland.co.uk)

"Andrew Bailey previously held the role of Deputy Governor, Prudential Regulation and CEO of the PRA from 1 April 2013. While retaining his role as Executive Director of the Bank, Andrew joined the Financial Services Authority in April 2011 as Deputy Head of the Prudential Business Unit and Director of UK Banks and Building Societies. In July 2012, Andrew became Managing Director of the Prudential Business Unit, with responsibility for the prudential supervision of banks, investment banks and insurance companies. Andrew was appointed as a voting member of the interim Financial Policy Committee at its June 2012 meeting."

• DXY extends the corrective downside to 96.20.
• Next on the downside emerges the 96.00 zone.

DXY manages to reverse three consecutive daily losses and regains the 96.00 barrier and above on Thursday.

So far, the corrective move in the index met support in the 95.80 zone. If sellers regain the upper hand, then the retracement could extend further and retest the weekly low at 95.41 (January 20). The resumption of the upside bias should meet the next hurdle at the YTD peak at 97.80 (January 28).

In the near term, the upside pressure remains intact while above the 4-month line just below 95.00. Looking at the broader picture, the longer-term positive stance in the dollar remains unchanged above the 200-day SMA at 93.40.

DXY daily chart

• EUR/JPY extends the weekly recovery to the 129.60 region.
• Interim up barrier comes at the 100-day SMA (129.88).

EUR/JPY adds to Wednesday’s advance further north of the 129.00 hurdle on Thursday.

In light of the recent price action, further recovery in the cross could be in the pipeline. Against this, there is a temporary barrier at the 100-day SMA at 129.88 prior to the more relevant 200-day SMA, today at 130.44. Further up comes the 3-month resistance line near 130.80, above which the cross could see its downside pressure mitigated.

While below the 200-day SMA, the outlook for the cross is expected to remain negative.

EUR/JPY daily chart

BOE interest rate decision overview

It’s a ‘Super Thursday’ again and time for the Bank of England’s (BOE) second rate hike announcement due at 1200GMT, the first back-to-back lift-off since 2004. The interest rate decision will be accompanied by the release of the Monetary Policy Report (MPR) and the minutes of the policy meeting. Governor Andrew Bailey is scheduled to hold a post-monetary policy decision press conference at 1230GMT.

The BOE is widely expected to raise the benchmark bank rate by 25 bps to 0.50% from 0.25% previous, with an 8-1 voting composition likely in favor of a rate lift-off. Money markets have already priced in a 25-bps rate hike for this month, as Bailey and Co. remain committed to fighting the inflation monster.

The economic indicators continue to back a hawkish move from the BOE, as the “UK Gross Domestic Product surprised with 0.9% growth in November, the unemployment rate dropped to 4.1% in November and inflation exceeded estimates with 5.4% in December,” FXStreet’s Senior Analyst Yohay Elam notes.

How could it affect GBP/USD?

The BOE needs much more than a quarter percentage point rate increase to extend the ongoing uptrend in the pound. Traders will watch out for Bailey’s presser for fresh hints on future rate hikes and the central bank’s plans to squeeze the balance sheet. A more hawkish tilt could drive GBP/USD past the 1.3600 round level. On the other hand, the pair could witness a ‘sell the fact’ trading should the UK’s central bank deliver a dovish hike. Additionally, the quarterly estimates of the Kingdom’s growth and inflation could also have a significant impact on the GBP valuations.

Meanwhile, Haresh Menghani, Editor at FXStreet, outlines important technical levels to trade the major: “The recent move up witnessed over the past one week or so stalled just ahead of the 61.8% Fibonacci retracement level of the 1.3749-1.3358 downfall. A convincing breakthrough the mentioned barrier, around the 1.3600 mark, will set the stage for a further near-term appreciating move. The pair would then accelerate the momentum towards an intermediate hurdle near the 1.3660 area before eventually aiming to reclaim the 1.3700 mark.”

“Any meaningful pullback might find decent support and attract fresh buying near the 38.2% Fibo. level, around the 1.3500 psychological mark. The sustained weakness below might prompt some technical selling and drag the pair towards the 23.6% Fibo. level, around mid-1.3400s,” Haresh added.

Key notes

• GBP/USD Price Analysis: Uptrend falters above 21-DMA ahead of BOE rate decision
• BOE Preview: Bailey needs to go beyond a rate hike to boost GBP/USD on Super Thursday
• Ahead of ECB & BoE: 3 Ways to trade rate decisions

About the BOE interest rate decision

BOE Interest Rate Decision is announced by the Bank of England. If the BOE is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the GBP. Likewise, if the BOE has a dovish view on the UK economy and keeps the ongoing interest rate or cuts the interest rate it is seen as negative, or bearish.

• USD/CAD regained positive traction on Thursday and was supported by a combination of factors.
• Retreating crude oil prices undermined the loonie and extended some support amid stronger USD.
• Investors await key central bank decisions for a fresh impetus ahead of the US ISM Services PMI.

The USD/CAD pair maintained its bid tone through the first half of the European session, with bulls making a fresh attempt to build on the momentum beyond the 1.2700 mark.

A combination of supporting factors assisted the USD/CAD pair to regain some positive traction on Thursday and snap three successive days of the losing streak to a one-week low. Crude oil prices moved away from a fresh seven-year high touched in the previous day and undermined the commodity-linked loonie. Apart from this, a goodish pickup in the US dollar demand acted as a tailwind for the major.

The markets seem to have digested the OPEC+ decision on Wednesday to stick to moderate rises of 400K barrels per day in its output. Adding to this, comments from Iran's Oil Minister, saying the country was ready to return to the market as quickly as possible, prompted profit-taking around the commodity. That said, tight global supplies and geopolitical tensions should limit losses for the black gold.

On the other hand, the USD made a solid comeback and reversed a part of the overnight losses, aggravated by the dismal US ADP report. Despite less hawkish comments by Fed officials, investors seem convinced that the Fed will tighten its policy at a faster pace than anticipated. This, along with an uptick in the US Treasury bond yields and a softer risk tone, extended some support to the greenback.

The uptick, however, lacked bullish conviction and the USD/CAD pair, so far, has struggled to find acceptance above the 1.2700 round figure. The fact that a slew of influential FOMC members downplayed the prospects for a 50 bps rate hike in March held back the USD bulls from placing aggressive bets. This, in turn, was seen as the only factor that capped gains for the USD/CAD pair.

Market participants now look forward to the US economic docket, highlighting the release of the ISM Services PMI later during the early North American session. This, along with the US bond yields and the broader market risk sentiment, might influence the USD demand. Traders will further take cues from oil price dynamics to grab some short-term opportunities around the USD/CAD pair.

Technical levels to watch

AUD/USD has extended its recovery. But strength is ideally capped at 0.7167/83 for a fresh attempt to remove medium-term support at 0.6992/91 – the key lows of late 2020 and 2021, aanalysts at Credit Suisse report.

Close above 0.7183/89 would suggest further strength

“We look to maintain our negative tactical bias whilst below a cluster of resistances at 0.7167/83, which includes the 55-day average and reaction high from last week and for the risk to turn back lower from here.” 

“Support is seen initially at 0.7077, below which can ease the immediate upward pressure for a fall back to 0.7040/33. Beneath this latter areas should confirm the rebound is indeed over for a fresh attempt to remove 0.6992/91 again. A sustained move below here in due course should see a fall to our core objective of the 50% retracement of the entire 2020/2021 uptrend at 0.6758.”

“A close above 0.7183/89 though would suggest further strength can be seen yet toward 0.7213/16 next, then the downtrend from October at 0.7241/48, but with a fresh cap expected here.”

EUR/USD strength has extended further for a test and brief move above the 55-day moving average (DMA), now seen at 1.1305. Ecnomists at Credit Suisse still believe that this is a corrective rebound and expect the pair to plummet to the 1.1019/02 region.

Strength still seen as a corrective rebound

“Our bias is for the 61.8% retracement of the January collapse and price resistance at 1.1344/70 to try and cap further strength and for the broader risk to then turn lower.”

“Support is seen at 1.1266 initially, with a break below 1.1234 needed to add weight to our view for a retest of 1.1120/15. Beneath here in due course should see support next at 1.1075 and then our 1.1019/02 long-held objective – the 78.6% retracement of the 2020/2021 bull trend and top of the base from April/May 2020.” 

“Above 1.1370 can see strength extend further to the 23.6% retracement of the entire 2021/2022 decline at 1.1391, potentially the downtrend from June last year at 1.1420, but with a fresh cap expected here.”

The Canadian dollar strengthened alongside crude prices into mid-January but has since eased off, as the Bank of Canada decided to forgo a January rate hike. According to economists at CIBC Capital Markets, loonie is set to depreciate ahead as the USD strengthens and markets move to price matching rate hike cycles across the Canada-US border.

Substantial relief on crude oil prices is needed to break 1.30

“A March 25bps hike by the Fed is more than priced in, and won't move the needle materially on CAD. But as we move further into the year, we look for the market to add room for more Fed tightening post-2023. That should support a broad strengthening in the USD, and the loonie will follow the pack in weakening, compounded by a paring of BoC rate hike expectations as the year progresses.” 

“To break 1.30 on CAD, we'll need substantial relief on crude oil prices. That could come if Russia-Ukraine tensions ease, the US reaches a nuclear deal with Iran, US shale output continues to ramp up, or OPEC+ countries redistribute some quota room to countries that have the capacity to deliver more oil.”

• USD/JPY gained strong positive traction on Thursday and snapped four days of the losing streak.
• A goodish pickup in the USD demand turned out to be a key factor that pushed the pair higher.
• A softer risk tone could benefit the safe-haven JPY and cap gains ahead of the key central banks.

The USD/JPY pair built on its steady intraday ascent and climbed to a fresh daily high, around the 114.70 region during the first half of the European session.

Following an early dip to the 114.30 area, the USD/JPY pair attracted some buying on Thursday and snapped four successive days of the losing streak to a one-week low. The uptick was sponsored by a goodish pickup in demand for the US dollar, which, for now, seems to have stalled its recent sharp pullback from the 18-month peak touched last week.

Despite less hawkish comments by Fed officials, investors seem convinced that the US central bank will tighten its monetary policy at a faster pace than anticipated to contain stubbornly high inflation. Adding to this, an uptick in the US Treasury bond yields turned out to be a key factor that assisted the greenback to regain some positive traction.

The USD uptick could also be attributed to some repositioning trade ahead of the key central bank event risks – the Bank of England and the European Central Bank meetings on Thursday. That said, diminishing odds for a 50 bps Fed rate hike in March might hold back traders from placing aggressive bullish bets around the greenback.

Apart from this, a softer risk tone around the equity markets, the conflict between Russia and the West over Ukraine should lend some support to the safe-haven Japanese yen. This might further contribute to keeping a lid on any meaningful gains for the USD/JPY pair, warranting some caution before positioning for any further appreciating move.

Market participants now look forward to the US economic docket, highlighting the release of the ISM Services PMI. This, along with the US bond yields, might influence the USD price dynamics and provide some impetus to the USD/JPY pair. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities.

Technical levels to watch

• EUR/USD deflates a tad from recent peaks near 1.1330.
• The ECB is expected to keep the policy rate on hold.
• ISM Non-Manufacturing PMI, Initial Claims next in the US docket.

After four consecutive daily advances, EUR/USD now comes under some downside pressure and revisits the 1.1300 neighbourhood on Thursday.

EUR/USD focuses on the ECB

EUR/USD gives away part of the recent strong rebound and slips back to the 1.1300 zone on the back of the tepid recovery in the US dollar.

The move higher in the greenback comes despite the continuation of the side-lined mood in US yields and the perception that the Fed might not be as aggressive as expected when it comes to hiking rates at the March event,

The single currency, in addition, remains vigilant on the imminent ECB gathering, where the potential timing of the eventual normalization of the bank’s monetary conditions, the balance sheet and the views on the persistent elevated inflation are all expected to be at the centre of the debate.

In the docket, Germany final Services PMI came at 52.2 and the same indicator came at 51.1 for the broader euro area. Still in Euroland, Producer Prices are due next while usual Claims are due seconded by the ISM Non-Manufacturing PMI.

What to look for around EUR

EUR/USD surpassed the 1.1300 barrier and recorded fresh tops on Wednesday, coming under some selling pressure afterwards. In the meantime, some cautious trade seems to prevail around the pair ahead of the key ECB event later in the session. In the meantime, the broad risk appetite trends and the recent selling mood in the dollar are expected to keep dictating the price action around the European currency for the time being. Moving forward, the outlook for the pair remains far from rosy despite the rebound, particularly in light of the Fed’s imminent start of the tightening cycle vs. the accommodative-for-longer stance in the ECB, despite the high inflation in the euro area is not giving any things of cooling down for the time being. On another front, the unabated advance of the coronavirus pandemic remains as the exclusive factor to look at when it comes to economic growth prospects and investors’ morale in the region.

Key events in the euro area this week: EMU, Germany Final January Services PMI, ECB Meeting (Thursday) – EMU Retail Sales (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. ECB stance/potential reaction to the persistent elevated inflation in the region. ECB tapering speculation/rate path. Italy elects President of the Republic in late January. Presidential elections in France in April. Geopolitical concerns from the Russia-Ukraine conflict.

EUR/USD levels to watch

So far, spot is losing 0.08% at 1.1292 and faces the next up barrier at 1.1329 (weekly high Feb.2) seconded by 1.1369 (high Jan.20) and finally 1.1429 (100-day SMA). On the other hand, a break below 1.1121 (2022 low Jan.28) would target 1.1100 (round level) en route to 1.1000 (psychological level).

The greenback rallied following the January Fed statement and press conference. Economists at CIBC Capital Markets look for USD gains following consolidation as the Fed starts hiking rates, causing the market to price in more hikes post-2023 as hawkish rhetoric ramps up.

USD consolidates, but further gains ahead

“A rate hike for March is now in the price, and the market is now also pricing in a 30% chance that the Fed will hike by 50bps at that meeting. While we expect the Fed to hike rates four times this year, the market is now leaning towards five. Given the aggressive taper, and signals being sent on quantitative tightening, we don’t see the Fed hiking by 50bps increments.”

“With the market already pricing the Fed's first move aggressively, and USD longs a consensus view, we see a period of consolidation in the near-term before the USD finds it’s footing again.”

EUR/GBP is at the crucial support of 0.8300/0.8270 representing the lower band of its range since July 2016. Below here, the next projections are located at 0.8220 and April 2016 high of 0.8110, economists at Société Générale report.

The 200-DMA at 0.8530/0.860 is an important resistance near-term

“A bounce can’t be ruled out towards 0.8425 and more importantly the 200-DMA at 0.8530/0.8600. This will be an important resistance near-term.”

“Weekly MACD is languishing in negative territory which denotes upside momentum is still lacking.”

“In case the correction persists below 0.8300/0.8270, the pair could witness an extended downtrend towards 0.8220 and April 2016 high of 0.8110.”

In January the Brazilian real appreciated against the US dollar from 5.5700 to 5.2915. However, economists at MUFG Bank, expect to see a weakening trend in 2022 despite the positive start.

Recent BRL better performance is poisoned not to be sustained

“We still think BRL trend is to depreciate, driven not only by the expected stronger US dollar with the normalization of the monetary policy in the US, but also by noises coming from the presidential election scheduled to next October and the still delicate fiscal situation that may be jeopardised in an election year.”

“We expect that once this market adjustment is over, BRL might gradually depreciate throughout the remainder of the year, reaching a rate of 5.80 by the end of 2022.”

Economists at CIBC Capital Markets expect the doves on the European Central Bank (ECB) Governing Council to remain in the driver's seat. Consequently, the shared currency is set to remain under pressure.

Absence of uptick in wages data points towards EUR shorts being rebuilt as EUR/USD heads towards 1.10

“The market is currently pricing in around 18bp of tightening by year-end, as market-rate assumptions have advanced by around 20bp over the last couple of months. We remain unconvinced of the risk of early ECB action, and see a more resolutely dovish central bank as likely to keep the euro under pressure.” 

“The failure to breach the mid-point of the trading range seen over the last two years at 1.1492 supports our notion of EUR weakness.”

“The absence of an uptick in wages data points towards EUR shorts being rebuilt as the currency heads towards 1.10 and levels not seen since Q2 2020.”

• DXY reverses part of the recent pullback and regains 96.00.
• US yields remain within a consolidative theme on Thursday.
• ISM Non-Manufacturing PMI, weekly Claims next on tap later.

The greenback has managed to regain some composure and is attempting to move past the 96.00 barrier as measured by the US Dollar Index (DXY), on Thursday.

US Dollar Index now looks to data

The index has regained its smile and bounced off recent lows in the 95.80 region (February 2), as the strong upside momentum in the risk complex appears to be taking a breather.

Some cautiousness among investors appears to have emerged in light of the upcoming interest rate decisions by the Bank of England and the ECB, both due later in the European afternoon.

In the meantime, the absence of traction in US yields opens the door to the continuation of the range bound theme in the very near term at least, all against the backdrop of persistent repricing of the potential Fed’s rate path.

Later in the session, the usual Initial Claims are due seconded by the ISM Non-Manufacturing PMI and Factory Orders.

What to look for around USD

The dollar met some decent contention in the 95.80 region and now looks to be retaking the 96.00 barrier. Some reasons for the buck's strong correction include the improved mood in the risk-associated universe and dormant US yields (despite navigating the upper end of the recent range). The greenback's overall constructive outlook, however, is expected to remain unchanged for the time being on the back of higher yields, persistent elevated inflation, supportive Fedspeak and the solid pace of the US economic recovery.

Key events in the US this week:) Initial Jobless Claims, ISM Non-Manufacturing PMI, Factory Orders (Thursday) – Nonfarm Payrolls, Unemployment Rate (Friday).

Eminent issues on the back boiler: Fed’s rate path this year. US-China trade conflict under the Biden administration. Debt ceiling issues. Escalating geopolitical effervescence vs. Russia and China.

US Dollar Index relevant levels

Now, the index is gaining 0.14% at 96.12 and a break above 97.44 (2022 high Jan.28) would open the door to 97.80 (high Jun.30 2020) and finally 98.00 (round level). On the flip side, the next down barrier emerges at 95.80 (weekly low Feb.2) seconded by 95.41 (low Jan.20) and then 94.62 (2022 low Jan.14).

In January, the Indonesian rupiah weakened against the US dollar from 14,257 to 14,366. Economists at MUFG Bank forecast the USD/IDR pair at 14,400 by end-March and at 14,600 by year-end. 

Bank Indonesia (BI) to hike policy rates after inflation heads higher in 2022

“Inflation is also set to rise higher, to 2.6% in 2022 after 1.6% in 2021. This will bring inflation to within the BI inflation target range of 2-4% and allow the BI to shift attention from growth/inflation towards maintaining financial stability.” 

“We believe that BI will hike its policy rates twice in H2-2022, bringing the 7D RR to 4.00% by the end of the year.”

“We forecast USD/IDR at 14,400 at end-March, and heading higher to 14,600 by the end of the year.”

The extension of UK political uncertainty, while markets look to be pricing in too much Bank of England (BoE) tightening, point towards a negative GBP/USD bias into mid-year, economists at CIBC Capital Markets report.

Negative sterling bias maintained

“The BoE is set to consider their own balance sheet moderation once rates reach 0.5%, and we expect February to witness back-to-back rate hikes for the first time since 2004. BoE QT will see the bank no longer looking to reinvest maturing gilt proceeds, and that balance sheet.”

“The combination of slower growth and QT points towards a period of policy inertia, potentially for at least six months, in contrast to the 59bp of hikes discounted by May. The correction in assumptions is likely to drag on sterling valuations.” 

“UK political uncertainty is set to remain evident while the current account deficit status of the UK remains a concern should hot money inflows prove to be compromised, pointing towards maintaining a negative GBP/USD bias into mid-year.”

• A goodish pickup in the USD demand prompted some selling around AUD/USD on Thursday.
• A softer tone around the equity markets further undermined the perceived riskier aussie.
• Investors now await the BoE/ECB policy decisions for some impetus ahead of the US data.

The AUD/USD pair remained on the defensive through the early part of the European session and was last seen hovering near the daily low, around the 0.7115 region.

The pair witnessed some selling on Thursday and for now, seems to have snapped three successive days of the winning streak to the weekly high touched in the previous day. As investors looked past Wednesday's awful US ADP report, the US dollar made a strong comeback and exerted some pressure on the AUD/USD pair.

Despite less hawkish comments by Fed officials, investors seem convinced that the US central bank will tighten its monetary policy at a faster pace than anticipated to contain stubbornly high inflation. This, in turn, was seen as a key factor that assisted the USD to stall its recent sharp pullback from the 18-month peak.

The greenback was further supported by an uptick in the US Treasury bond yields. Apart from this, a softer tone around the equity markets further benefitted the safe-haven greenback and weighed on the perceived riskier aussie. That said, diminishing odds for a 50 bps Fed rate hike in March might cap gains for the buck.

Investors might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the key central bank event risks – the Bank of England and the European Central Bank meetings. Hence, it will be prudent to wait for a strong follow-through selling before positioning for a fresh leg down for the AUD/USD pair.

The BoE/ECB-inspired volatility in the markets might provide some impetus to the major ahead of the release of the US ISM Services PMI. This, along with the US bond yields, might influence the USD. Traders will further take cues from the broader market risk sentiment for some short-term opportunities around the AUD/USD pair.

Technical levels to watch

The US Dollar Index (DXY) is now 1.3% off last week's high and unwinding most of last week's gains. In the opinion of economists at ING, the dollar could stay under a little pressure.

Softer US ISM services index unlikely to move the dollar

“A softer US ISM services index looks unlikely to move the dollar.”

“DXY could dip to the 95.70 area should Christine Lagarde not find the right words to downplay expectations of a 2022 ECB rate hike.”

See – ECB Preview: Forecasts from 12 major banks, under pressure to explain its stance on inflation

USD/JPY moved to a recent lower high of 115.68 is indicative of momentum loss. Technical indicators flag the chances of another leg lower if intermediate support in the 114.02-113.67 is tested and cracks, Benjamin Wong, Strategist at DBS Bank, reports.

Momentum loss hints a leg lower

“The MACD (moving average convergence/divergence) shows bearish divergence, and the Spearman Indicator indicates a weakened USD. A prolonged loss under the cloud support at 114.02 places the 100-day moving average (DMA) of 113.67 for a potential test.”

“USD is coming to grips with a long-term resistance line that spans all the way back to April 1990’s 160.20 peak. This means the current resistance tagged to this line around 116.77 remains formidable and do require tailwinds of strength to break above it.”

“On the downside, 111.67 is the key level to monitor given it is the convergence of two key moving average levels.”

The impetus towards pricing in a more abrupt Fed tightening cycle has run its course for now, with 4 ½ to 5 hikes priced in for 2022. The US Dollar Index (DXY) is in a retracement phase for now, but the medium-term bull trend remains intact, economists at Westpac report.

Yield support for DXY to continue to grow in coming months

“There are some doubts about near term USD momentum with expectations stabilising around 4 ½ to 5 Fed hikes in 2022, but beyond that the medium-term USD uptrend is in very good shape.”

“The tail risk of an abrupt Fed policy tightening cycle is unlikely to die down until wage and inflation risks have decisively turned.”

“DXY likely respects support around 94.50, another leg higher toward 99-100 on the cards in coming months as the Fed pulls away from a staunchly cautious ECB.”

The Bank of England (BoE) is set to hike its policy rate by 25 basis points to 0.5%. With the “Old Lady” well ahead of the European Central Bank (ECB) in a tightening mode, economists at ING expect the EUR/GBP pair to trade below the 0.8300 level.

A 25bp hike from the BoE

“The baseline view assumes an 8-1 vote for a 25bp rate hike - taking the Bank Rate to 0.50%. We are also interested in the BoE's inflation report and its forecast as to whether CPI is on target in two years' time using the market's very aggressive pricing (1.50% Bank Rate early next year) into account. This is where the BoE would have an opportunity to present a rate protest.”

“Also, today expect much local focus on the energy regulator announcing the size of the regulated energy price increases for April. This will add to the view that UK inflation is heading close to 7% YoY in April – and that a strong pound can insulate against further energy price increases.”

“With the BoE in dynamic tightening mode (and well ahead of the ECB), expect EUR/GBP to trade down to 0.8300.”

See – BoE Preview: Forecasts from 12 major banks, another rate hike

Gold still remains trapped in the converging range of the past year and continues to hover at the sideways creeping 200-day average (DMA), currently at $1,805. Economists at Credit Suisse expect XAU/USD to retest the $1,691/76 area on a break under $1,759/54.

Break above $1,877 is needed to ease fears of a top

“Below $1,759/54 remains needed to clear the way for a retest of key price and retracement support from the lower end of the range at $1,691/76. Only below here though would see a major top established to mark an important change of trend lower, with support then seen at $1,620/15 initially, before $1,572/61.”

“A break above $1,877 is needed to ease fears of a top, but with a break above $1,917 needed to suggest we are seeing a more sustainable move higher, potentially back to the $2,075 record high.”

• A combination of factors assisted GBP/JPY to attract some dip-buying near the 155.00 mark.
• BoE rate hike bets continued underpinning the British pound and helped limit the early slide.
• Resurgent USD demand weighed on the JPY and remained supportive of the BoE event risk.

The GBP/JPY cross reversed an intraday dip and climbed to a two-week high, around the 155.40 region during the early European session.

The cross attracted some dip-buying near the key 155.00 psychological mark on Thursday and has now moved into the positive territory for the fourth successive day. Bulls might now be looking to build on the recent strong rebound from sub-153.00 levels, or support marked by the very important 200-day SMA.

The British pound continued drawing support from expectations that the Bank of England will hike interest rate at its meeting later today. On the other hand, the Japanese yen was weighed down by resurgent US dollar demand. This, in turn, extended some support to the GBP/JPY cross and helped limit the early slide.

Investors, however, might refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the BoE event risk. The UK central bank is widely expected to announce the first back-to-back interest rate hikes since 2004 and signal its approach to start unwinding the £895 billion quantitative easing programme.

The announcement will play a key role in influencing the British pound and provide some impetus to the GBP/JPY cross. Apart from this, the ECB policy decision might infuse some volatility in the markets and drive demand for the safe-haven JPY. This might further allow traders to grab some short-term opportunities around the cross.

Technical levels to watch

Near-term boost from a tiring USD should not last long but could take the kiwi to 0.6700. The 23 February Reserve Bank of New Zealand (RBNZ) is fully priced for a 25bp hike, so yield spreads probably will not help, economists at Westpac report.

There is potential for one last dip below 0.65

“NZD/USD found a recent low at 0.6530 and could potentially bounce to 0.6700 during the days ahead. That’s a reflection of the USD’s pullback, rather than any upbeat local news.”

“Weighing on the NZ has been its fully priced (some would argue slightly overpriced) RBNZ tightening cycle. The RBNZ will need to continue raising interest rates, but it can continue to do so at a measured pace.”

“Yield spreads are unlikely to be helpful during the months ahead, suggesting there’s potential for one last dip in NZD/USD below 0.65.”

In the opinion of strategists at TD Securities, oil is set to shoot into $100 territory should Russia supply risks materialize.

Aluminium, nickel and palladium could also spike 

“Is the risk that the US and much of the Western world will impose very harsh sanctions on Russia which could crater global supply, in the event that it invades Ukraine. This would no doubt cause a significant shortage across many global delivery points (including the US), as US shale and other producers are in no position to fill the gap. This would likely spike prices well above $100/b for key benchmarks.” 

“Other commodities with large Russian supply and energy components which are already in a very tight market, such as aluminium, nickel and palladium, could also spike in an event broad sanctions are imposed on Russia.”

FX option expiries for February 3 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.1150 1.9b
• 1.1175 520m
• 1.1200 656m
• 1.1225 531m
• 1.1250 484m
• 1.1275 405m
• 1.1290 2.3b
• 1.1315 482m

- USD/JPY: USD amounts                     

• 112.50 800m
• 114.50 463m
• 114.90 1.9b
• 115.25 607m

- GBP/USD: GBP amounts        

• 1.3300 593m
• 1.3400 782m
• 1.3500 586m
• 1.3700 471m

- USD/CHF: USD amounts        

• 0.9045 384m

- AUD/USD: AUD amounts

• 0.7110 968m
• 0.7150 1b
• 0.7205 558m

- USD/CAD: USD amounts       

• 1.2650 500m

- NZD/USD: NZD amounts

• 0.6760 376m

- EUR/GBP: EUR amounts

• 0.8300 712m
• 0.8350 472m

The Czech National Bank (CNB) announces its interest rate decision at 13:30 GMT and follows up with a press conference at 14:45 GMT. It will also release its Winter forecast update. Economists at ING forecast the EUR/CZK at the 24.00 level.

No major reasons for a big NZK sell-off

“Most are expecting a 75bp hike today to take the policy rate to 4.50%. It would be quite a hawkish surprise were 5%+ policy rates to be shown in the CNB's forecast today. How high could the CPI forecast be revised? To 7, 8% or higher? And the market will be interested to look at the CNB's expected profile for EUR/CZK. Back in November the CNB was forecasting that EUR/CZK would be trading towards the low 24s through 2022 – and here we are today! Will this forecast now pencil in substantially sub 24 levels for later in the year?”

“The CZK has been a solid EMFX performer this year and we cannot see any major reasons for a big sell-off today.”

“With: i) EUR/USD enjoying new-found support from the ECB (a steady/higher EUR/USD typically sees CE3 currencies out-perform), ii) the CZK now seriously interesting for FX reserve managers with 4%+ rates and iii) probably renewed foreign interest in Czech government bonds as we approach the top of the tightening cycle, EUR/CZK looks firmly on course to 24.00.”  

On a more medium-term perspective, economists at Nomura believe there are several reasons why GBP may underperform its peers.

“Peak BoE pricing with five hikes now priced in this year.”

“US/Russia/NATO concerns weighing on risk sentiment.”

“Equity risk-off and rotation – it’s not just a Russia story, it's a growth/inflation shock too.”

“Brexit's problems with new customs controls are likely to weigh on supply chains.”

“Johnson’s leadership problems are making more noise and distracting from the cost of living crisis.”

EUR/USD climbed to a fresh weekly high of 1.1331 on Wednesday before going into a consolidation phase around 1.1300 early Thursday. Divergence in central bank policy should limit EUR rebounds though further position adjustment could develop around European Central Bank (ECB’s) meeting before EUR/USD downtrend resumes, economists at Westpac report.

Higher than expected January CPI gives ECB something to talk about

“The divergence in rhetoric between an increasingly hawkish Fed into 2022 and ECB maintaining QE through 2022 drove the EUR/USD slide in late January. Initial EUR rebounds seemed to be position squeezes, but they also occurred as national Jan CPI releases showed more persistent upside pressure culminating in Eurozone headline CPI rising to 5.1% YoY, countering ECB’s projections of declines developing through 2022. Lively debate may develop at ECB’s policy meeting on 3rd Feb, but their March meeting remains more critical for any altering of their accommodation.” 

“Rejections of levels below 1.1200 put EUR/USD back in the tight range of late 2021. Though EUR might retest mid-Jan’s spike to 1.1480 on more position adjustment, any slip back below 1.1200 should reinstate the still compelling yield differential in favour of USD strength.”

See – ECB Preview: Forecasts from 12 major banks, under pressure to explain its stance on inflation

The European Central Bank (ECB) will announce its decision on monetary policy on Thursday, February 3 at 12:45 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of 12 major banks.

The ECB is widely expected to keep its policy settings unchanged but ECB President Christine Lagarde's comments on the inflation outlook will be watched closely by market participants. 

SocGen

“The first meeting of the year will offer a chance to reflect on both the past year and challenges ahead, although the potential impact of escalating tensions between Russia and Ukraine will no doubt need to be discussed. If tensions deepen, resulting in disruptions in energy supply to Europe, we expect the ECB to turn increasingly dovish, focusing on the impact on growth and financial stability, despite likely higher energy inflation in the short term. These concerns aside, the ECB has rapidly gone from being happily behind the curve to genuinely concerned about the persistency of high inflation. Such concerns are unlikely to dissipate rapidly, with upside risks also dominating in the medium-term. For now, we think the ECB will stick to its strategy, and only tighten further once signs of wage acceleration emerge.”

Nordea

“The ECB meeting should not lead to any major changes in the monetary policy outlook. The ECB has been keen to time the bigger reviews in its monetary policy with the quarterly staff forecasts lately, and especially as the central bank provided a rather clear path forward at the December meeting, big changes to that course would be a big surprise. We expect Lagarde’s general tone to be rather slightly dovish than hawkish, while the more hawkish tones may again be represented more in the monetary policy account. However, while Lagarde will likely continue to talk down the possibility of rate hikes this year, she is unlikely to give similar guidance into 2023, which will leave room for more aggressive Fed pricing to spill over to the euroarea.”

ING

“We don’t expect the central bank to give any hints on possible rate hikes. It is highly unlikely that we'll see any new policy announcements. However, the ECB will have to steer market expectations cautiously. The Bank will have to confirm its new hawkishness without sounding too hawkish. If market expectations surge too quickly, higher interest rates could undermine the economic recovery. On the other hand, too much dovishness could damage the ECB’s credibility as an inflation fighter. This is why the ECB needs to avoid rushing from 'inflation patience' to 'inflation panic'. How could they do it? Confirm the December decisions, keep the door open for faster asset purchase reductions and stress the sequencing of policy rate hikes only after the end of asset purchases.”

Nomura

“We expect the ECB’s meeting to make no major changes to policy or guidance. We continue to think that the ECB will be in a position by the end of this year to ready the markets for the end of the APP in early 2023 and, shortly afterwards (June 2023), we expect the beginning of a slow normalisation of policy rates. We think the risks are on the upside to our rate view – namely for an earlier (end-2022/early-2023) and faster (25bp, rather than 10bp) per quarter depo rate tightening.”

Rabobank

“We expect the ECB to stick to its script of transitory inflation, which means that 2022 should only see a reversal of pandemic-related tools and not a broader withdrawal of monetary accommodation aimed at achieving the inflation goal. In fact, even our alternative scenario sees a 2022 lift-off as quite unlikely. Nonetheless, money markets continue to price a first-rate hike before year-end.” 

Danske Bank

“While we do not expect the meeting to bring significant new signals to the market, attention to the elevated inflation and even more data dependence, as well as the difference to Fed, will be in focus. We expect the ECB to convey a robust, yet slowing, economic outlook and an elevated uncertainty on the inflation outlook with a confirmation of inflation expected to settle below the 2% target towards the end of the year and in 2023 and 2024. We expect attention to the recent rise in real rates, but given the absolute level of the metric, we do not believe this would give cause for concern at the ECB. We do not see the ECB giving indications to follow the other major central banks in their tightening cycle. To us, it would be a surprise if the ECB were to announce new TLTRO rounds. We continue to expect the tiering multiplier to be increased to 12 later in the year (most likely in June). From a near-term market reaction perspective, we remain unconvinced whether markets will buy into the ECB's wait-and-see stance and keep the very aggressive front end pricing for Dec-22.” 

TDS

“We expect no material change to ECB messaging at this meeting, with policy largely set in stone until October. With the ECB on auto-pilot this month, we anticipate USD direction will likely reinforce EUR downside, aiming for a dip below 1.10 in EUR/USD.”

BBH

“We expect ECB President Lagarde to push back hard against market tightening expectations. The bank is likely to affirm the end to PEPP in March, which was announced at its last meeting on December 16.  Updated macro forecasts won’t be released until the March 16 meeting. The eurozone economy is clearly slowing and faces many headwinds this year so tighter policy is the last thing needed.  ECB liftoff talk is premature and we think this is a 2023 story. The most recent Bloomberg poll suggests the same, with most respondents looking for liftoff in September 2023. However, the swaps market is pricing in 25 bp of tightening this year, which we view as highly unlikely.” 

Deutsche Bank

“We are now expecting a policy rate liftoff in December 2022 of 25bps. We’re also anticipating a faster pace of tightening, with 25bp hikes in the deposit rate per quarter from December 2022, until rates reach +0.5% in September 2023. In terms of what it means for this February meeting, we expect the slow, step-by-step pivot to exit will continue. Our view is that President Lagarde will reiterate the ECB’s capacity to act once the inflation criteria in the rates guidance are met, whilst at the same time differentiating the needs of the Euro Area from the US.”

ANZ

“We expect the ECB will acknowledge upside inflation risks while re-emphasising its commitment to providing support via favourable financing conditions. On balance, though, we think it will push back on expectations of an early rate hike and stress the need to observe secondary effects. Our expectation now is that QE will end in Q4 this year and rate rises will begin in the middle of 2023.”

Citibank

“The December decision to extend asset purchases at least until Sep’ 22 will keep the Governing Council on hold. But high and rising inflation will likely keep rate setters on their toes. Guidance is unlikely to change, but the balance of risks can potentially appear biased towards a more hawkish message.”

UBS

“The ECB has become more hawkish, but we still expect it to proceed with caution at its upcoming meeting. Following the taper announcement in December, policymakers are likely to bring bond-buying to an end early in 2023. After this, we look for rate hikes in increments of 10 basis points once a quarter beginning in June 2023. This means the region’s equity markets remain well supported.”

PM Boris Johnson fate remains precarious but is not impacting GBP. More critical for the pound rebounds will be the Bank of England (BoE) forward guidance alongside their expected 25bps Bank Rate rise, economists at Westpac report.

BoE guidance will be key given markets pricing of the Bank Rate above 1.00% in 12 months

“The majority of forecasters agree with BoE raising rates 25bps, but what will be of more importance for GBP will be guidance for policy through the year. OIS pricing has lifted to above 1.0% in 12 months, from 0.75% a month ago. The BoE’s quarterly Monetary Policy Review (MPR) is likely to contain lifts to economic forecasts and will also have updates to their influential Agents’ survey. The Agents’ survey has been indicating strong business investment and employment intentions. A further rise in those intentions could be instrumental in altering the prior cautious forward guidance from BoE and affirm the OIS pricing.”

“PM Johnson’s fate is increasingly precarious as more MPs from his own party are lodging no confidence letters. Although he may be able to avoid a leadership challenge until the police report into covid regulation breaches is released, a challenge seems inevitable. However, the impact on GBP could be positive if it were to see a swift resolution.” 

“GBP/USD rejected the flush below 1.3400 and a shift now in BoE guidance could trigger a retest of 1.3750.”

See – BoE Preview: Forecasts from 12 major banks, another rate hike

The Bank of England (BoE) will announce its decision on Thursday, February 3 at 12:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of 12 major banks. 

The market is near unanimous in expecting a 25bp hike. Investors want to know how the bank plans to unwind its massive QE and whether or not additional rate hikes will be needed later this year.

Nomura

“We expect the BoE to continue hiking with a 25bp move. Looking beyond the February decision, we continue to think that the Bank will raise rates throughout this year. We take this opportunity to adjust our BoE view to a 25bp hike every quarter, taking rates to 1.25% by year-end. Two further hikes in H1 2023 would leave rates at a terminal point of 1.75% by the middle of next year.” 

TDS

“We expect the MPC to hike Bank Rate to 0.50% and confirm that Gilts will start maturing off its balance sheet from March. The BoE needs to overdeliver to reverse some of GBP's recent misfortunes. That's unlikely, suggesting a near-term push towards 1.32, reflecting lingering GBP headwinds and further positioning adjustments in the short-term.”

Nordea

“We share the consensus view that the BoE will raise its key rate to 0.5% after the hike in December to 0.25% from 0.1%. Inflation is running hot in the UK, and the labour market is tight with wage growth on the rise. The UK economy has normalised while Omicron is a bump on the road. The phasing out of the restrictions this week will enable the economy to continue to grow. Against this background, a rate hike is more than justified. Moreover, the forward guidance suggests that the BoE may start to run off its balance sheet – halting reinvestments – as the key rate reaches 0.5%. We expect more guidance from the BoE on their intentions. Long-dated gilt yields have surged since December and the end of the reinvestment phase should make room for even higher long-term rates.”

Rabobank

“We expect the BoE to press ahead with a 25 bps rate increase to 0.50%. This would set passive balance sheet reduction in motion. The passthrough from the real income squeeze to real spending should become increasingly visible over the course of 2022 – making the central bank’s policy hostage to fortune. Unless imported cost pressures get embedded in the domestic wage-setting process, the central bank may find itself leaning into an already slowing recovery. We forecast a much less aggressive tightening cycle than what is currently priced in front-end rates, but the Fed’s hawkishness may provide the MPC some cover. We, therefore, look to add another 25 bps hike in May to our forecasts.”

ING

“It's becoming increasingly clear that Omicron's economic impact in the UK has been mild. That, combined with growing fears on the monetary policy committee about elevated headline inflation, suggests the Bank will increase rates by a further 25bp. That also means the threshold to kick-start balance sheet reduction will also have been met, and we'd expect the Bank to end reinvestments of maturing bonds imminently. Keep an eye open for what policymakers have to say on future rate hikes too. Markets, which are pricing roughly five rate rises this year, are likely overestimating what's to come. But we doubt policymakers will offer any material pushback at this stage. We expect a total of two or maybe three rate rises in total this year.”

SocGen

“The BoE meeting is likely to hike Bank Rate to 0.5% and allow, as specified in the updated exit strategy, the automatic reinvestment of maturing bonds in the QE portfolio to end.”

Deutsche Bank

“We expect the BoE to follow up their December rate hike with another 25bps increase, taking the Bank Rate to 0.5%. Furthermore, we expect that the MPC should confirm that any APF reinvestments will cease from here on out, resulting in around GBP38 B falling out of the Bank’s balance sheet this year.”

Danske Bank

“We expect the BoE to hike the Bank Rate to 0.50%. We expect two additional hikes this year (May and November) but risks are skewed towards more rate hikes. Markets are pricing in nearly five rate hikes this year. We expect the BoE to announce ‘passive QT’ (ceasing reinvestments of maturing bonds) in connection with the upcoming meeting. We expect ‘active QT’ (selling bonds to markets) when the Bank Rate reaches 1%. Our base case right now is that happens in November, but since we believe risks are skewed towards more rate hikes, risk is also skewed towards an earlier start for ‘active QT.’ We still think 0.83 is the bottom for EUR/GBP and seeing a case for a slight move higher to 0.84 in 12M in case the BoE is not as hawkish as currently priced.”

ANZ

“We expect the BoE will revise up its 2022 inflation forecast and raise the bank rate by 25bps to 0.5%. Tighter monetary conditions are warranted, especially as GDP is now above pre-pandemic levels. The case for emergency interest rate settings has diminished, and the BoE may update its thinking on QT, given that its balance sheet is close to 40% of GDP.”

BofA

“We expect the BoE to hike 25bp at its meeting this week, then 25bp in May and August. The UK has soft demand but also weak supply. We expect the BoE to confirm it will cease gilt reinvestments when it hikes in February, starting 'passive' Quantitative Tightening (QT). We expect the BoE to also begin active sales in November at an initial pace of GBP5 B a month.”

Citibank

“We now expect a unanimous 25bps hike this week, the beginning of passive QT and potentially more hawkish near-term guidance. The team’s bias remains towards a rapid but ultimately limited monetary tightening in H1-2022, which likely means a refocusing on a subdued medium-term outlook.”

ABN Amro

“We expect the BoE to raise its policy rate by 25bp – the first back-to-back rate rise since 2004. We now expect three rate hikes this year, up from two previously. Thereafter, we expect the Bank to shift to a more gradual semi-annual pace of hikes, with two hikes still expected for 2023. While we expect inflation to remain elevated in the UK over the coming year, price pressure should dissipate substantially in the second half of the year, which should leave the BoE comfortable with a more gradually sloping path for interest rates than markets are currently pricing in.”

• EUR/GBP struggled to capitalize on its modest intraday gains and remained below mid-0.8300s.
• Divergent BoE-ECB monetary policy outlooks continued acting as a headwind and capped gains.
• Investors also seemed reluctant to place directional bets ahead of the key central bank event risks.

The EUR/GBP cross trimmed a part of its modest intraday gains and was last seen trading just a few pips above the daily low, around the 0.8330 area during the early European session.

The cross gained some positive traction during the early part of the trading on Thursday, though the uptick lacked any follow-through and ran out of steam ahead of mid-0.8300s. The upside remains capped amid the divergence between the Bank of England (BoE) and the European Central Bank (ECB) monetary policy outlooks.

The BoE is expected to hike the interest rate again on Thursday, which would be the first back-to-back hikes since 2004. Investors also believe that the UK central bank will signal its approach to start unwinding the £895 billion quantitative easing program, which was seen as a key factor behind sterling's relative outperformance.

Conversely, the ECB could push back against speculations for an early monetary policy action to combat soaring inflation. It is worth recalling that the Eurozone CPI accelerated to another record high and arrived at 5.1% YoY in January, lifting market bets that the ECB could deliver the first rate-hike of 10 bps by July.

Hence, the market focus will remain glued to the key central bank event risks – the BoE and the ECB policy meetings due later this Thursday. In the meantime, investors seemed reluctant to place aggressive directional bets, which further contributed to keeping a lid on any meaningful upside for the EUR/GBP cross.

Technical levels to watch

Here is what you need to know on Thursday, February 3:

The dollar managed to stage a modest rebound in the late American session on Wednesday but the US Dollar Index ended up closing the fourth straight trading day in the negative territory. Ahead of the European Central Bank's (ECB) and the Bank of England's (BOE) highly anticipated policy announcements, major currency pairs stay relatively quiet. Later in the session, weekly Initial Jobless Claims, December Factory Orders and January ISM Services PMI will be featured in the US economic docket.

Meanwhile, US stocks futures indexes are down between 0.3% and 0.5%, pointing to a cautious market mood early Thursday. 

The ECB is widely expected to keep its policy settings unchanged following the February policy meeting but ECB President Christine Lagarde's comments on the inflation outlook will be watched closely by market participants. On Wednesday, Eurostat reported that the annual HICP in the euro area reached an all-time high of 5.1% in January. 

ECB February Preview: Euro bulls hope for a hawkish ECB on hot EU inflation.

The BOE is set to hike its policy rate by 25 basis points to 0.5%. Investors want to know how the bank plans to unwind its massive QE and whether or not additional rate hikes will be needed later this year.

BOE Preview: Bailey needs to go beyond a rate hike to boost GBP/USD on Super Thursday.

EUR/USD climbed to a fresh weekly high of 1.1331 on Wednesday before going into a consolidation phase around 1.1300 early Thursday. A hawkish ECB tone could help the euro continue to gather strength against the dollar and vice versa.

GBP/USD advanced toward 1.3600 but lost its traction. The pair was last seen posting small daily losses around 1.3550.

USD/JPY is moving sideways in a narrow band around mid-114.00s in the early European session. The benchmark 10-year US Treasury bond yield continues to fluctuate between 1.8% and 1.75%, making it difficult for the pair to make a decisive move in either direction.

Gold extended its rebound to $1,811 on Wednesday but started to retreat toward $1,800 early Thursday. 

After rising toward the key $40,000 mark on Thursday, Bitcoin reversed its direction and lost more than 4% on a daily basis. BTC was last seen trading at around $37,000. Ethereum snapped a two-day winning streak on Wednesday and continues to edge lower toward $2,600.

Gold price is off the multi-day highs but holds above $1,800 on ‘Super Thursday’, with eyes on the policy announcements from the Bank of England (BoE) and the European Central Bank (ECB). Upside appears limited, in the view of FXStreet’s Dhwani Mehta.

XAU/USD’s fate hinges on key central bank events

“A hawkish surprise from both the BoE and the ECB, in the face of soaring inflation, will likely add to the renewed weakness in the non-interest-bear bullion. Further, the persisting risk-aversion could deepen on the hawkish outcomes, which could keep the dollar afloat at gold’s expense. In any scenario, gold price stands to lose ground, although the downside may be limited in anticipation of the all-important US Nonfarm Payrolls (NFP) release due on Friday.”

“A failure to find acceptance above $1,813, where the 50 and 200-Simple Moving Averages (SMA) coincide, making it a powerful hurdle, will call for a sharp drop towards $1,800.”

“A firm break above the $1,813 upside barrier will expose the horizontal 100-SMA resistance at $1,819.”

• EUR/JPY retreats from 21-day EMA surrounding weekly top.
• Bearish moving average cross-over, bumpy road to the north challenge buyers.
• Six-week-old ascending trend line offers key support ahead of late 2021 bottom.
• ECB February Preview: Euro bulls hope for a hawkish ECB on hot EU inflation

EUR/JPY struggles for clear direction around the weekly top, recently easing to 129.35 ahead of Thursday’s European session.

The cross-currency pair justifies the market’s cautious sentiment ahead of the European Central Bank (ECB) monetary policy announcements while stepping back from the 21-day EMA amid bearish MACD signals.

It’s worth noting that the 50-day EMA and 200-day EMA, around 129.55-60, add to the upside filters beyond the 21-day EMA level of 129.45.

Given the downbeat MACD signals and multiple moving averages challenging the EUR/JPY bulls, the pair is likely to remain weak unless crossing the 129.60 level.

Even if the quote rises past 129.60, the 130.00 threshold and a descending resistance line from late October, near 130.95, will challenge the pair’s further upside.

Alternatively, the 50-day EMA poses a bearish break below the 200-day EMA to portray a death-cross, which in turn will please sellers to challenge the short-term support line near 128.45 if confirmed.

Following that, the 128.00 round figure and December 2021 low surrounding 127.40 will be crucial to watch for EUR/JPY sellers.

EUR/JPY: Daily chart

Trend: Further weakness expected

• USD/CHF regained positive traction on Thursday and snapped four days of the losing streak.
• Modest USD strength extended some support; a softer risk tone might cap any further gains.
• Investors now look forward to the US ISM Services PMI for some meaningful trading impetus.

The USD/CHF pair maintained its bid tone heading into the European session and was last seen trading near the daily high, just above the 0.9200 round-figure mark.

The pair attracted fresh buying on Thursday and reversed a major part of the overnight losses to a one-week low. This marked the first day of a positive move for the USD/CHF pair in the previous five and was sponsored by a goodish pickup in the US dollar demand, though any meaningful upside still seems elusive.

As investors digested Wednesday's dismal US ADP report, the USD stalled its recent sharp pullback from the 18-month high and drew some support from hawkish Fed expectations. Investors seem convinced that the Fed will tighten its monetary policy at a faster pace than anticipated to contain stubbornly high inflation.

Apart from this, the USD uptick could further be attributed to some repositioning trade ahead of the key central bank event risks – the Bank of England and the European Central Bank meetings. That said, diminishing odds for a 50 bps Fed rate hike in March might hold back the USD bulls from placing aggressive bets.

Moreover, the conflict between Russia and the West over Ukraine could benefit the safe-haven Swiss franc and cap gains for the USD/CHF pair, at least for the time being. Investors might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of Friday's release of the US NFP report.

In the meantime, traders will take cues from Thursday's release of the US ISM Services PMI, due later during the early North American session. This, along with the broader market risk sentiment and the BoE/ECB-inspired volatility, should allow traders to grab some short-term opportunities around the USD/CHF pair.

Technical levels to watch

• GBP/USD’s four-day recovery rally loses steam amid USD rebound.
• The BOE to hike rates by 25bps, more hawkishness is needed to lift the GBP.
• Cable fails to find acceptance above 21-DMA ahead of the BOE announcements.

GBP/USD is battling 1.3550, looking to extend its retreat from an eight-day top of 1.3587, as the US dollar bulls jump onto the bids amid a risk-off market mood.

The cable is snapping its four-day recovery rally also as bulls turn cautious and refrain from placing any fresh bets on the pound ahead of the Bank of England (BOE) showdown.

The BOE is likely to hike rates by another 25-basis points (bps) to 0.50% this ‘Super Thursday’, although it could lead to ‘sell the fact’ trading in the pound, as a 25bps rate lift-off is already discounted.

Further hawkishness from the BOE is needed to revive the uptrend in the cable pair going forward. The ECB policy decision will be also eyed for any cross-driven impact on GBP/USD.

Looking at GBP/USD’s daily chart, the pair is retracing below the 21-Daily Moving Average (DMA) resistance at 1.3560.

The additional decline will see a test of the descending 100-DMA cap at 1.3513. The next downside target is aligned at the 1.3500 round level.

The 14-day Relative Strength Index (RSI) is turning south towards the midline, backing the latest downtick in the price.           

GBP/USD: Daily chart

However, if the bulls regain control, then acceptance above the 21-DMA support-turned-resistance is critical for reviving the bullish reversal from multi-week troughs.  

Further up, the February 2 highs of 1.3587 will get retested, opening doors for recapturing 1.3600.

GBP/USD: Additional technical levels

Considering flash data for natural gas futures markets, open interest rose by nearly 20K contracts on Wednesday, reaching the fifth consecutive daily build. Volume reversed two daily pullbacks in a row and went up sharply by around 454.7K contracts.

Natural Gas now targets $6.00

Wednesday’s acute advance in prices of natural gas was amidst rising open interest and volume, opening the door to the continuation of the uptrend in the very near term. That said, further upside could revisit the November 2021 highs near $5.90 per MMBtu (November 4).

• US Treasury yields pause recent downside, grind lower around weekly bottom.
• S&P 500, Euro Stoxx 50 Futures fail to track Wall Street gains.
• Inflation fears escalate as key central banks brace for monetary policy announcements.
• US data, risk catalysts will add to the busy day ahead of NFP.

Market sentiment stays sluggish as traders await key central bank verdicts amid reflation fears. While portraying the mood, US government bond yields pause the previous downside near the week’s low whereas equity futures in the US and Europe print losses.

That said, the benchmark US 10-year Treasury yields dribble around 1.768% during the third weekly fall. Also portraying the risk-off mood were the 1.0% and 0.50% respective daily losses by the S&P 500 Futures and Euro Stoxx 50 Futures.

It’s worth noting that upbeat earnings from technology giants allowed Wall Street to print mild losses the previous day even as the US ADP Employment Change surprised markets with negative figures of -301K versus +207K market consensus. Earlier in the week, multiple Fed speakers highlighted inflation risks but refrained from providing strong support to a 0.50% rate hike in March.

During today’s early Asian session, US President Biden’s all three Nominees for the Fed Board highlights inflation as a major challenge and showed readiness to act. The inflation fears were also backed by US Treasury Secretary Janet Yellen and Eurozone HICP as well.

Elsewhere, increasing Russian military at the borders signal Moscow’s readiness to invade Ukraine.

Above all, the market’s fears that the European Central Bank (ECB) and the Bank of England (BOE) will track the Fed’s hawkish path keeps sentiment weak.

In addition to the key central bank meetings, US Q4 Nonfarm Productivity and Unit Labor Costs will join the January ISM Services PMI and Factory Orders for December will also offer a busy day to the traders ahead of tomorrow’s US jobs report.

CME Group’s preliminary readings for crude oil futures markets saw traders adding around 24.6K contracts to their open interest positions on Wednesday. Volume followed suit and increased for the second session in a row, this time by nearly 225K contracts, the largest single-day build since January 11.

WTI appears limited near $90.00

Prices of the WTI clinched new tops just below the $90.00 mark per barrel on Wednesday before ending the session with modest losses. The daily downtick was amidst rising open interest and volume, which is supportive of further retracement in the very near term. Collaborating with this view, the commodity navigates the boundaries of the overbought conditions.

Turkish Finance Minister Nureddin Nebati downplays expectations of further depreciation of the lira, in his latest interview with the Nikkei Asian Review.

Additional quotes

“Inflation to peak below 50% in April.”

“2022 growth to be around 5%.

“No substantial fx interventions since December 19.”

Market reaction

Despite the encouraging comments from the Turkish official, the lira loses ground, pushing o fresh daily highs of 13.53. The pair is gaining 0.45% on the day.

• USD/JPY picks up bids to refresh intraday high, snaps four-day downtrend.
• Firmer RSI, clear break of short-term resistance favor buyers.
• 200-HMA, 38.2% Fibonacci retracement restrict immediate upside, sellers need validation from 114.15.

USD/JPY consolidates weekly losses around 114.55 while heading into Thursday’s European session.

The yen pair recently crossed a downward sloping trend line from Monday to refresh intraday top. The bullish bias also gains support from the upbeat RSI line, not oversold.

As a result, the latest advances approach the 200-HMA level near 114.65 before challenging the 38.2% Fibonacci retracement (Fibo.) of January 24-28 upside, near 114.85.

Should USD/JPY bulls keep reins past 114.85, the 115.00 threshold and the weekly peak surrounding 115.55 should return to the charts.

Alternatively, pullback moves remain elusive until staying beyond the previous resistance line of 114.35.

Adding to the downside filters is seven-day-old horizontal support near 114.15, a break of which will not hesitate to direct USD/JPY prices toward 113.50.

Overall, USD/JPY is up for fresh advances as sour sentiment underpins US dollar recovery.

USD/JPY: Hourly chart

Trend: Further recovery expected

Open interest in gold futures markets extended the downtrend for yet another session on Wednesday, this time shrinking by nearly 3K contracts according to advanced figures from CME Group. In the same line, volume dropped by around 8.2K contracts, adding to the recent downside.

Gold capped near $1,810

Gold prices extended the upside for the third session in a row on Wednesday. The move, however, was fuelled by short covering as noted by the backdrop of declining open interest and volume. That said, gains appear limited around the $1,810 area for the time being.

Markets remain unfazed by the recent dovish remarks by the Reserve Bank of Australia (RBA) Governor Phillip Lowe, as they continue pricing interest-rate hikes sometime this year, the latest Bloomberg survey of economists showed Thursday.

Key takeaways

“Nomura Holdings Inc. and Bank of America predict the first hike will come in June, while nine others see it in August, according to a Bloomberg poll of 18 economists, who expect an initial 15 basis-point move to a 0.25% cash rate.” 

“All-but-one of the remainders surveyed forecast lift-off later in the year.”

“Most economists see the cash rate in a range of 1-1.5% by December 2023, from a current record low of 0.1%.”

“Financial markets are wagering Lowe will begin hiking in June and take the cash rate to 2% by the end of next year.”

• USD/CAD grinds higher during the first positive day in four around weekly low.
• WTI crude oil prices weaken the most in eight days amid technical details, OPEC+ verdict.
• BOC’s Macklem raised doubts over inflation, US data disappointed.
• Sour sentiment allows USD to pare weekly losses ahead of key central bank meetings, employment data.

USD/CAD pokes intraday high surrounding 1.2685 during the first daily positive performance in a week heading into Thursday’s European session.

The Loonie pair benefits from the USD rebound, as well as cheering a pullback in prices of Canada’s main export item WTI crude oil. Also, mixed comments from Bank of Canada (BOC) Governor Tiff Macklem add to the bullish bias for the pair.

The US Dollar Index (DXY) pierces the 96.00 threshold while extending the previous day’s bounce off a one-week low. In doing so, the greenback track the US Treasury yields that pare weekly losses, also benefiting from the downbeat prints of S&P 500 Futures.

Behind the risk-off mood is the market’s cautious sentiment ahead of the monetary policy meetings by the European Central Bank (ECB) and the Bank of England (BOE). Also weighing on the risk appetite are the inflation fears, recently cited by Fed Nominees from US President Joe Biden and US Treasury Secretary Janet Yellen.

It’s worth noting that the Bank of Canada (BOC) Governor Tiff Macklem said on Monday that there is some uncertainty about how quickly inflation will come down, according to Reuters. However, Macklem added that the bank is confident that inflation will eventually come down, and that the latest GDP data reinforced the view that Q4 2021 growth was strong. 

Elsewhere, WTI crude oil prices dropped 0.60% intraday near $87.00 following the OPEC+ readiness to ease output by 400,000 barrels per day (bpd) per month. Adding to the bearish bias for the US oil benchmark is the Doji candlestick at an eight-year high on the daily chart.

Looking forward, USD/CAD prices are likely to remain firmer amid risk-off mood and may track the USD performance on central bank announcements. That said, US Q4 Nonfarm Productivity and Unit Labor Costs will join the January ISM Services PMI and Factory Orders for December will also offer a busy day to the USD/CAD traders.

Technical analysis

A clear downside break of the two-week-old support line, now resistance around 1.2715, keeps USD/CAD sellers hopeful. That said, a convergence of 21-day and 50-day EMA restricts short-term USD/CAD declines near 1.2660. Adding to the downside filters is the 200-day EMA level surrounding 1.2630.

There is “no plan to modify the Bank of Japan’s (BOJ) monetary policy,” the central bank’s Masazumi Wakatabe said in a statement on Thursday.

Key quotes

“Don't see any problem with recent moves in 10-year JGB yields as they are moving within the 50-bps range set around BOJ’s 0% target.”

“BOJ ready to ease policy further if downside risks heighten, but now is not the time to debate doing so.”

“BOJ could cut rates if downside risks to economy heighten. “

“Expected decline in monetary base will likely prove temporary.”

“Current inflation seen in Japan isn't driven just by cost-push factors, also reflects solid demand.”

“Hard to achieve BOJ’s 2% price goal with cost-push inflation alone.”

Market reaction

USD/JPY is trading 0.07% on the day, at 114.52, underpinned by the rebound in the US dollar and the Treasury yields.

Analysts at Scotiabank offer a sneak peek at what to expect from the Bank of England’s (BOE) monetary policy announcements due on ‘Super Thursday’ at 1200 GMT.

Key quotes

“We see a 25bps hike but some pushback against market pricing.”

“Market pricing for the BoE has held steady at a 95-100% chance of a hike (in February) and a total of five 25bps hikes by end-2023.”

“We think it’s more likely that the bank delivers only 100bps in rate increases this year, which should eventually act as a headwind for the GBP as markets reprice expectations.”

“We see the 1.36 mark as a near-term ceiling for the GBP.”

“It would take a clear sign from the BoE that it is willing to go above its neutral rate for the pound to test 1.38.”

Read: BOE Preview: Bailey needs to go beyond a rate hike to boost GBP/USD on Super Thursday

• AUD/USD remains on the back foot around intraday low, down for the first time in four days.
• Previous support line, MACD conditions keep buyers hopeful to cross 50-DMA.
• Bears have a bumpy road to the south before hitting 0.6930 support.

AUD/USD refreshes daily bottom around 0.7120 while snapping three-day uptrend during the late Asian session on Thursday.

In doing so, the Aussie pair extends pullback from the 50-DMA towards the previous resistance line from January 13, around 0.7100 at the latest.

However, the MACD line teases bulls as they keep reins past resistance-turned-support, which in turn hint at the quote’s bounce off 0.7100 towards the 50-DMA level of 0.7165.

Adding to the upside filter is the September 2021 low near 0.7170, a break of which will direct AUD/USD bulls towards 0.7280 and the last month’s peak surrounding 0.7315.

On the flip side, a clear break of 0.7100 will aim for the December 2021 low of 0.6993 and the current year's bottom close to 0.6965.

Though, a downward sloping trend line from August near 0.6930 will challenge AUD/USD bears afterward.

AUD/USD: Daily chart

Trend: Recovery expected

• EUR/USD retreats from eight-day top, snaps four-day uptrend.
• Record top inflation, all-time low unemployment rate favor ECB hawks to back rate hikes in 2022.
• The bloc’s central bank isn’t expected to alter monetary policy measures, nor release the revised economic projections.
• US ISM Services PMI, Factory Orders and second-tier jobs data may also entertain traders.

EUR/USD bulls take a pause around 1.1300, after a four-day uptrend to refresh weekly top, amid the pre-ECB mood.

The major currency pair cheered US dollar weakness of late, in addition to the upbeat economics at home. However, cautious sentiment ahead of the key weekly data/events seems to probe the EUR/USD buyers during Thursday’s Asian session.

Inflation fears, recently highlighted by US President Biden’s all three Nominees for the Fed Board, challenge the risk appetite and drag the EUR/USD prices even as the upbeat Eurozone HICP figures propelled the quote to refresh weekly top the previous day. Also on the positive side was the negative surprise from the US ADP Employment Change for January, -301K versus +207K expected. Additionally, US Treasury Secretary Janet Yellen’s latest communication suggesting that describing inflation as transitory was a mistake also renewed reflation fears and weighed on the quote.

Amid these plays, the US 10-year Treasury yields consolidate weekly losses around 1.77% whereas the stock futures in the US and Europe print losses. The sour sentiment adds strength to the US Dollar Index (DXY) and allows the greenback gauge to stabilize around 96.00 despite posting the first weekly loss in three.

That said, a record top print of Eurozone inflation, as per the headline HICP YoY outcome, follows the previously released all-time low Unemployment Rate of the bloc to enable the European Central Bank (ECB) policymakers to convey the bullish bias. However, a difference of fundamentals between the US and the Eurozone, as well as diverse figures of various nations in the region, may allow ECB President Christine Lagarde to reiterate cautious optimism and extend the latest pullback of the EUR/USD prices.

Other than the ECB moves, US Q4 Nonfarm Productivity and Unit Labor Costs will join the January ISM Services PMI and Factory Orders for December to offer a busy day for the EUR/USD traders.

Read: ECB February Preview: Euro bulls hope for a hawkish ECB on hot EU inflation

Technical analysis

Sustained trading beyond the previous resistance line from January 14 and 10-DMA, respectively around 1.1180 and 1.1260, keeps the EUR/USD buyers hopeful as they brace for the key monetary policy meeting by the European Central Bank (ECB). Also adding strength to the bullish bias is the steady RSI line and the MACD conditions that tease bulls.

Alternatively, a clear upside break of the 50-DMA level of 1.1310 will enable the EUR/USD bulls to aim for the 100-DMA surrounding 1.1435.

• Asia-Pacific markets remain mostly downbeat but South Korea offers positive surprise.
• Market’s anxiety ahead of the key central bank meetings joins inflation fears from the US to weigh on sentiment.
• Commodities fade previous upside momentum, DXY licks wounds amid sluggish yields.

Global markets turn cautious as traders brace for the ECB and the BOE monetary policy announcements during early Thursday. Adding to the risk-off mood are the concerns over inflation raised by US President Joe Biden’s picks for Fed Board and US Treasury Secretary Janet Yellen. It’s worth noting, however, that South Korea’s KOSPI prints the biggest daily gains in a year as bourses in Seoul reopen after three-day off.

Amid these plays, MSCI’s index of Asia-Pacific shares outside Japan rise 0.20% intraday whereas Japan’s Nikkei 225 drops around 1.0%.

Japan’s Nikkei bears the burden of covid woes, in addition to the broad risk-negative catalysts, while declining the most among the key Asian indices.

Stocks in Australia print mild losses after witnessing mixed trade and sentiment data earlier in the day whereas New Zealand’s NZX 50 dropped 0.80% intraday while portraying the disappointment from NZ PM Ardern’s five-step plan to reopen borders.

Moving on, South Korea’s Nikkei Manufacturing PMI jumped the most since July, to 52.1 versus 50.1 forecast and 51.9 prior, during January. In addition to the upbeat data, the strong performance of tech stocks on Wall Street also underpins the KOSPI’s run-up.

It’s worth noting that markets in China, Hong Kong and Indonesia remain closed while Indian share prices begin the day on a negative side while tracking global indices.

Looking forward, markets are likely to remain sidelined, mostly risk-off, ahead of the aforementioned monetary policy decisions. Following that, US ISM Services PMI for January, expected 59.5 versus 62.0 prior, will also be important to watch further direction.

Also read: S&P 500 pushes towards 4600 as strong Google earnings extend market rally into fourth day

• GBP/USD traders get set for the BoE as the main evet. 
• US dollar stays pressured, helping the cable bulls along. 

It is a big day for sterling traders with the Bank of England that is expected to lift rates by another 25bps to 0.50% in order to combat ongoing inflation risks.

To this end, the pound has been performing well in its own right but also riding the coattails of US dollar weakness. At 1.3566, cable is flat and consolidating ahead of what could be a rollercoaster ride in European financial markets today. 

First and foremost, the US dollar has been on shaky grounds this week so far. As measured by the DXY index against a basket of rival currencies, the greenback has lost 1.68% so far since the opening of forex markets this week.  

Federal Reserve officials have been backtracking on some of the central bank's earlier hawkish comments, pushing the US dollar into the ground. Even the most renowned hawk, St. Louis Fed President James Bullard, pushed back against a larger rate hike in March.

In late New York afternoon trading on Wednesday, US rate futures priced in about 4.7 hikes this year, or 118.6 basis points of policy tightening, down from the five rate increases seen over the last two days, Reuters reported.

''Futures also showed the probability of a 50-basis-point hike in March has settled at 12.5%, from as high as 32% late last week.''

Meanwhile, one of the greenback's major props was pulled from under its feet when what is often regarded as a prelude to the Nonfarm Payrolls report arrived as a major disappointment on Wednesday. The ADP report fell for the first time in a year in January as soaring COVID-19 infections disrupted business operations.

The data arrived with a decline of 301,000 jobs last month. this was a far cry from the 207,000 in private payrolls expected. Additionally, December was revised lower to show only 776,000 jobs added instead of the initially reported 807,000. 

BoE is the ticket

Focus shifts to the BoE meeting. ''We expect the BOE to deliver a 25bp hike, and potentially signal the case for consecutive hikes going forward,'' analysts at TD Securities said.

''Given positioning and price action, we think a buy the rumour sell the fact playbook is likely.''

''We think the profile skews more negatively for GBP on the day, especially as positioning looks relatively long. That said, external drivers, like risk and the USD, feature prominently in the price action.''

One-month risk reversal (RR) of NZD/USD, a gauge of calls to puts, braces for the biggest weekly upside in six weeks, also snapping the two-week downtrend while flashing +0.2000 figures for the current week, per the data source Reuters.

Even so, NZD/USD prices fade the recent bounce off intraday low, not to forget keeping the previous day’s pullback from the weekly top, down 0.05% intraday around 0.6635.

Technically, NZD/USD prices step back from a confluence of the 10-DMA and a downward sloping trend line from January 13, around 0.6635-40 at the latest.

The pullback moves join bearish MACD signals to suggest further grinding towards the south.

However, a weekly support line near 0.6600 restricts the quote’s immediate downside.

On a broader front, global markets turn cautious ahead of the monetary policy meetings of the European Central Bank (ECB) and Bank of England (BOE).

NZD/USD: Dialy chart

Trend: Further weakness expected

• USD/INR picks up bids to consolidate weekly losses.
• Successful bounce off 100-SMA, sustained break of 200-SMA keep buyers hopeful amid steady RSI.
• Three-week-old previous support line restricts short-term upside.

USD/INR struggles around 74.80 during the third positive day amid early European morning on Thursday.

In doing so, the Indian rupee (INR) pair justifies the early week rebound from the 100-SMA, as well as a clear break of the 200-SMA.

That said, steady RSI also hints at the continuation of recovery moves toward a short-term support-turned-resistance line near 75.05.

Should the quote rise past 75.05 hurdle, a broad horizontal resistance area establishes since late December 2021, around 75.35-40, will challenge USD/INR bulls.

On the flip side, the 200-SMA will test the pullback moves near 74.60 before directing the quote towards the 100-SMA level of 74.55.

Following that, 23.6% Fibonacci retracement of December 16 to January 12 declines near 74.40 may test the USD/INR sellers ahead of directing them to the 74.00 mark.

Overall, USD/INR prices remain pressured with multiple key hurdles to the north.

USD/INR: Four-hour chart

Trend: Further weakness expected

• AUD/JPY bulls are in charge and the price could be o the verge of a breakout. 
• The bullish engulfing ad the prospects of an inverse H&S are in focus. 

AUD/JPY has benefitted of late from a return of risk appetite in global financial markets. The price action has seen a daily bullish engulfing candle followed by a break of the prior highs which leaves the bulls in good stead for continuation to break the daily trendline resistance. 

AUD/JPY daily chart

As illustrated, the price has been in a descending channel for a relatively good length of time with multiple tests of either side of the bearish dynamic range. A breakout could be imminent one way or the other. The formation of what looks to be a bullish inverse Head & Shoulders pattern could be the final stags of this bearish channel. 

The Bank of Korea (BOK) Vice Gov. Lee Seung-heon held a meeting to monitor global financial market situations following the five-day Lunar New Year holiday.

Key quotes

"During the Lunar New Year holiday, international financial markets appear to have remained stable as a whole,"

"But we should not let our guard down and keep close tabs on developments of global risks and their possible impacts on local financial markets and economy.”

“Major economies' stepped-up pace of monitory policy normalization, geopolitical risks, such as rising tensions between Ukraine and Russia, and uncertainty over inflation and economic conditions of major economies as factors that could heighten market volatility.”

Market reaction

USD/KRW is spiking to two-day highs of 1,206.19 on these cautious remarks while a broad US dollar rebound also underpins the currency pair. The spot is up 0.41% so far.

• Gold is solid on the back of US dollar weakness.
• US jobs data has underwhelmed the greenback, sinking as Fed officials dial down aggressive rate hike expectations.
• XAU/USD poised for further losses on Fed's hawkish stance

At $1,808.20, gold is flat on the session so far and little changed over the course of the past few sessions holding above the key $1,800 per ounce level. However, there has been a focus on the US dollar and US Treasury yields that have both retreated after a disappointment in US jobs data.

Spot gold (XAU/USD) is solid on the basis that the greenback extended its losses to a more than a one-week low on Wednesday. In what might be considered as a bearish prelude to this Friday's Nonfarm Payrolls, a dip in the US private sector employment for January due to the increase in COVID-19 infections has weighed on the US dollar. 

US jobs data under scrutiny

In fact, the ADP report fell for the first time in a year in January as soaring COVID-19 infections disrupted business operations. The data arrived with a decline of 301,000 jobs last month. this was a far cry from the 207,000 in private payrolls expected. Additionally, December was revised lower to show only 776,000 jobs added instead of the initially reported 807,000. 

The data poured more fuel onto the US dollar bear's fire that was lit up by Federal Reserve officials this week backtracking on some of the central bank's hawkish comments, pushing the dollar lower. The nail in the coffin was hammered in when renowned hawk St. Louis Fed President James Bullard also pushed back against a larger rate hike in March.

In late New York afternoon trading on Wednesday, US rate futures priced in about 4.7 hikes this year, or 118.6 basis points of policy tightening, down from the five rate increases seen over the last two days, Reuters reported. ''Futures also showed the probability of a 50-basis-point hike in March has settled at 12.5%, from as high as 32% late last week.''

Meanwhile, analysts at TD Securities explained, ''the weak jobs print that we're expecting is unlikely to sway the Fed from its decisively hawkish tone. Instead, we expect the central bank to look past recent weakness as being related to Omicron's fallout.''

''In this context,'' they said, ''the data doesn't help to inform global macro participants on whether we are facing a new regime at the Fed, or whether they are jawboning to tame inflation expectations. We expect that the precious metals complex will struggle to attract capital in this context.''

ECB and BoE are now key

For the day ahead, investors will now focus on the European Central Bank and Bank of England meetings later today for cues on the pace of monetary policy tightening amidst soaring inflation. if there are hawkish outcomes, then the US dollar could come under further pressure. However, this is a double edge sword for gold considering a chorus of hawkish central banks would raise the opportunity cost of holding non-yielding bullion.

Meanwhile, on the geopolitical front, the US will send extra troops to shield Eastern Europe from a potential spillover from the massing of Russian troops near Ukraine, US officials said on Wednesday, Reuters reporting on the matter. Gold is a safe haven asset and could benefit from heightened tension in the region. 

The end of supportive Chinese demand?

Lastly, the analysts at TD Securities noted the influence of Chinese participation in the market. ''Given that Chinese demand overwhelmingly supported gold in recent weeks, a seasonal lull following Lunar New Year could mark the end of supportive Chinese demand, suggesting prices are vulnerable to a deeper consolidation in support of our tactical short gold position.'' To this end, the analysts said, ''CTA trend followers are set to resume liquidations unless prices breach $1820/oz on the session.''

Gold technical analysis

As stated at the start of the week's analysis in the Chart of the Week, ''should this playout, and if the bears commit ... additional supply could be the straw that breaks the camel's back for a sizeable continuation to crack the trendline support as follows:

On the other hand, if the US dollar continues on its southerly trajectory, then the neckline of the M would be the last defence for a restest of the wedge resistance the $1,850's once again:

In a Bloomberg News interview Wednesday, US Treasury Secretary Janet Yellen conceded that calling higher inflation as “transitory” was a mistake while adding that she defended the size of the Biden administration’s stimulus package. 

Tony Danker, Director-General of the Confederation of British Industry (CBI) is likely to warn Thursday, “ministers are in danger of trapping the UK in a future of low growth and high taxes, per the Financial Times.

Key quotes

“The UK tax burden for business was already “at the highest sustained level in peacetime” ahead of the planned 6 percentage point rise in corporation tax to 25 percent from April 2023, which will push the UK down to 31st in the OECD’s competitiveness rankings.”

“It’s a plan that increases business taxes massively without reliefs for investment . . . that funds green investment more than before but less than our competitors . . . that funds a narrow apprenticeship programme while skills shortages continue to hinder growth . . . that stops immigration for skills we need but offers no alternative to get them.”

The level of growth would not be enough to “avoid permanently high taxes given spending pressures.”

This comes ahead of the Bank of England (BOE) monetary policy decision, with a 25-bps rate hike fully priced in by the market.

GBP/USD reaction

GBP/USD was last seen trading at 1.3556, down 0.14% on the day.

• GBP/JPY snaps seven-day uptrend as bulls turn cautious before BOE.
• Weekly support line holds the key to further downside, MACD keeps buyers hopeful.
• 50% Fibonacci retracement joins 100-DMA, 50-DMA to offer tough nut to crack.
• Bank of England Interest Rate Decision: Gilts are the crucial topic

GBP/JPY takes offers to refresh intraday low near 155.10, printing the first daily loss in eight ahead of the Bank of England (BOE) monetary policy meeting.

In doing so, the cross-currency pair portrays a U-turn from the 21-DMA level of 155.50, attacking a one-week-old ascending trend line, near 154.90.

It should be noted, however, that the receding bearish bias of MACD and sustained trading beyond the short-term support line favor buyers.

That said, fresh buying will wait for a clear upside break of the 155.50 level before directing GBP/JPY prices towards 23.6% Fibonacci retracement (Fibo.) of September-October 2021 upside, near 156.00. Following that, the January 2022 peak of 157.75 will be in focus.

Meanwhile, a downside break of the stated support line near 154.90 will direct GBP/JPY towards 38.2% Fibo. level surrounding 154.70.

However, a convergence of the 100-DMA, 50-DMA and 50% Fibonacci retracement level around 153.55-60 become a tough nut to crack for the bears.

GBP/JPY: Daily chart

Trend: Bullish

• WTI crude oil prices stay pressured around intraday low after refreshing eight-year high the previous day.
• OPEC+ agrees to increase oil output by 400,000 bpd per month, EIA inventories mark surprise draw.
• Market sentiment sours amid pre-ECB, BOE anxiety, yields, DXY pare recent losses.
• Risk catalysts eyes, US data add importance to the busy day.

WTI crude oil prices print the heaviest daily fall in over a week, depressed around intraday low of $86.68 during early Thursday.

The oil benchmark refreshed the highest level since 2014 the previous day before stepping back from $88.75. In doing so, the quote printed a bearish Doji candlestick on the daily formation.

That said, the weekly official oil inventories, namely EIA Crude Oil Stocks Change, marked a surprise fall to -1.047M versus +1.525M market consensus and +2.377M prior. Also positive for the oil prices are the fears of Russian invasion of Ukraine as Moscow escalates military presence at the border.

On the contrary, the Organization of the Petroleum Exporting Countries and allies led by Russia, a group known as OPEC+, agreed to the previously announced terms of boosting crude output by 400,000 barrels per day (bpd) per month the previous day, per Reuters. “The 10 members of OPEC with quotas in the OPEC+ group increased production by about 210,000 bpd in January, while Russia's output rose by about 100,000 bpd, according to data published by Reuters,” the news adds.

Additionally, weighing on the oil prices is the market’s anxiety ahead of the key monetary policy meeting by the European Central Bank (ECB) and the Bank of England (BOE). Furthermore, comments highlighting inflation fears from US President Biden’s all three Nominees for the Fed Board hints at the Fed’s hawkish stand in the future and exert additional downside burden on the commodity prices.

Talking about the US data, ADP Employment Change for January surprised markets with -301K figures versus +207K expected, which in turn signal downbeat US jobs report for Friday and also weaken the risk appetite.

Looking forward, global traders may pay a little attention to energy prices with eyes on the ECB and BOE. However, markets are likely to remain sidelined, mostly risk-off, ahead of the aforementioned monetary policy decisions. Following that, US ISM Services PMI for January, expected 59.5 versus 62.0 prior, will also be important to watch further direction.

Technical analysis

A bearish candlestick near the multi-day high joins overbought RSI to hint at the WTI crude oil’s further weakness until the quote stays beyond the latest top near $88.75. However, an upward sloping trend line from December 20, around $86.70, tests the oil sellers before directing them to the 21-DMA level near $84.00.

The Bank of Japan's Deputy Governor, Masazumi Wakatabe has said hitting a  2% inflation for several months won't be meeting BoJ's price target.

Key comments

Hitting 2% inflation for several months won't be meeting BoJ's price target.

Underlying trend inflation must reach or exceed 2% for a sustained basis for Japan's inflation expectations to change.

Appropriate to tighten monetary policy only when price gains driven by external factors trigger second-round effect, push up wages, inflation expectations.

Japan's economic recovery becoming clearer, recovery is likely to continue.

Must be mindful of risk supply constraints may last longer than expected, have a broader impact on the global economy.

Expect Japan's consumer inflation to reach about 1% in spring.

Expect japan's consumer inflation to move around 1% up through fiscal 2023.

Japan's inflation outlook has both upside, downside risks.

Japan firms' pass-through of rising costs to households may accelerate more than expected.

Japan has yet to see inflation stably, sustainably hit BoJ's 2% target.

Premature to normalise monetary policy in japan as economy only just recovering from pandemic's impact, inflation below BoJ's target.

Japan needs to achieve a 'high-pressure economy' where strong demand, tight job market boost wages, investment.

Japan's terms of trade worsening but that is due mostly to rising fuel import costs, rather than the impact of weak yen.

Japan's inflation expectations are not anchored at 2%.

BoJ is conducting monetary easing not just to push up prices, but to achieve a positive cycle in an economy where price rises are accompanied by higher wages, income and jobs.

Market implications 

The price of USD/JPY is unchanged on the statements as markets have priced these assumptions in already. instead, this week's Nonfarm Payrolls will be the key driver for US/JPN rates and the US dollar.

• GBP/AUD is taking off and the bulls are targeting a daily upside extension. 
• The 4-hour time frame is offering a robust structure from where the price is breaking out from. 

GBP/AUD is making an advance ahead of the Bank of England meeting that will occur in London's trade. nevertheless, the bulls are on board as the price breaks away from the critical 4-hour support structure.

GBP/AUD daily charts

As illustrated, the price made a higher daily high of late and has since pulled back to meet a critical daily support area which has held the test of time this week. 

GBP/AUD H4 chart

The bulls are in control on the lower time frames and breaking up following a restest of the 4-hour W-formation's neckline.

• Silver remains on the back foot inside a bearish chart pattern, snaps three-day uptrend.
• Failures to cross 200-SMA, 61.8% Fibonacci retracement keep sellers hopeful.

Silver (XAG/USD) refreshes intraday low around $22.60, 0.31% on a day during early Thursday.

In doing so, the bright metal portrays daily loss for the first time in four while staying inside a bearish flag chart pattern.

That said, the metal’s sustained trading below 200-SMA and 61.8% Fibonacci retracement (Fibo.) of January 07-20 upside, near $23.00, also keep sellers hopeful.

However, a clear downside break of the $22.50 becomes necessary to confirm the theoretical fall targeting the $20.00 threshold. During the fall, the last month’s low near $21.95 and December 2021 bottom surrounding $21.40 may act as intermediate halts.

Alternatively, a daily closing beyond $23.00 isn’t enough to convince silver buyers as the upper line of the stated flag will challenge the run-up near $23.15.

Following that, the 50.0% Fibo. surrounding $23.35 may test XAG/USD bulls before giving them control.

Silver: Four-hour chart

Trend: Further weakness expected

“The US dollar will reign supreme for at least another 3-6 months,” per Reuters’ latest poll conducted between January 31 to February 02. The survey results also mention that it will take a significant change in market expectations for Federal Reserve rate hikes to push it higher.

Additional quotes

Asked how many additional basis points of Fed tightening need to be priced in for this year for the dollar to trade significantly higher, 24 analysts returned a median of 62.5 basis points. That was on top of the roughly 125 basis points currently priced in for the year.

Federal funds futures imply U.S. interest rates will peak at just 1.75%-2.0% in the current cycle. That was lower than the 2.25%-2.50% economists predicted in a separate Reuters poll last month.

The euro was forecast to erase some of its losses for the year and gain over 1.5% over the next 12 months. Those gains would still fall short of recouping an almost 7% loss against the dollar last year.

The Japanese yen, which has benefited from the flare-up in geopolitical tensions and the ensuing flight to safety, was up 0.75% for the year but was expected to give up those gains and drift down 1.5% in a year.

Read: Forex Today: Dollar retains the weak stance ahead of BOE, ECB

• USD/TRY keeps early-week rebound from 50-DMA towards 21-DMA.
• Descending trend line from late December becomes the key hurdle.
• Steady RSI suggests sideways moves between 50-DMA, stated resistance line.

USD/TRY stays firmer around $13.48 during Thursday’s Asian session, holding the latest rebound from the 50-DMA.

The quote’s sustained bounce off the 50-DMA gains support from the steady RSI line to battle the 21-DMA, around $13.53 at the latest.

However, a downward sloping trend line from December 21, near $13.61, becomes the key challenge for the USD/TRY buyers, a break of which will not hesitate to propel the quote towards January’s top surrounding $13.95.

It’s worth mentioning that the USD/TRY bulls need validation from 50% Fibonacci retracement (Fibo.) of December 20-23 downturn, around $14.30, for further upside.

Meanwhile, pullback moves remain elusive until staying beyond the 50-DMA level of $13.42. Also challenging USD/TRY sellers are the lows marked in early January around $13.15 and $12.75.

Should the prices drop below $12.75, USD/TRY bears may not hesitate to challenge the late 2021 bottom close to $10.25.

USD/TRY: Daily chart

Trend: Sideways

• AUD/USD extends pullback from weekly top as Australia data flash mixed signals, sentiment sours.
• Australia Trade Balance eased, Building Permits rally in December, Q4 NAB Business Confidence jump as well.
• RBA’s Lowe sounds too cautious, Aussie Trade Balance, NAB Business Confidence
• US ADP Employment Change offered negative surprise to markets, Fed Nominees highlight inflation fears.

AUD/USD extends pullback from the weekly top, down 0.30% on a day while refreshing intraday low to 0.7115 during Thursday’s Asian session.  In doing so, the Aussie pair justifies its risk-barometer status amid cautious markets, other than being weighed by the mixed data at home.

Australia Trade Balance for December eased below 9423M to 8356M as Exports and Imports both decline to 1.0% and 5.0% versus 2.0% and 6.0% respective priors. However, Aussie Building Permits jumped to 8.2% MoM during the stated month against -1.0% market forecast and +3.6% previous readouts. Additionally, the National Australia Bank’s (NAB) Business Confidence also rallied to +18, beyond -10 market consensus and -1 prior.

Other than the mixed data, the market’s inflation fears, recently highlighted by US President Biden’s all three Nominees for the Fed Board, also challenge the risk appetite and drag the AUD/USD prices. It’s worth noting that the European Central Bank (ECB) and the Bank of England (BOE) are both up for portraying a battle with the high inflation during today’s monetary policy meeting.

On Wednesday, AUD/USD prices initially cheered the softer US dollar to refresh weekly top before easing from 0.7159. The pullback moves could be linked to comments from RBA Governor Philip Lowe and a surprise negative from the US ADP Employment Change for January, -301K versus +207K expected.

That said, RBA’s Lowe repeated the rate statement published the previous day while rejecting inflation fears and highlighting an opportunity to take the Unemployment Rate down by stretching easy money policies, despite favoring an end to the Quantitative Easing (QE).

Amid these plays, the US Treasury yields remain sluggish for the third consecutive week while S&P 500 Futures drop 1.0% at the latest. Also portraying the risk-off mood are the downbeat prices of gold and WTI crude oil. However, the US Dollar Index (DXY) struggles to cheer the sour sentiment as markets shift focus from the hawkish Fed concerns.

Having witnessed the initial market reaction to the Aussie data, AUD/USD traders will pay attention to the major risk catalysts, namely central banks and headlines from Russia for a better view. Also important to watch will be the US ISM Services PMI for January, expected 59.5 versus 62.0 prior.

Technical analysis

Although the 50-DMA level surrounding 0.7165 challenges AUD/USD buyers near the weekly top, the previous support line from January 13, close to 0.7100 by the press time, restricts the bear’s entry.

The Aussie trade surplus is a driver for AUD and the December numbers have been released as follows:

Australia Dec. Balance goods/svcs A$+8,356 mln, s/adj.

Dec goods/services Exports +1 pct MoM, seasonally adjusted.

Australia Dec goods/services Imports +5 pct MoM, seasonally adjusted.

The data was anticipated to fall as reopening demand lifts both import prices and volumes, analysts at Westpac said in a note before the event.

AUD/USD reaction

There has been little reaction to the data this time around as markets have bogger fish to fry in, 1. the Reserve Bank has released its quarterly Statement on Monetary Policy (SMP), and 2. US Nonfarm Payrolls data. 

AUD/USD daily chart

• AUD/USD Price Analysis: Bears are on the lookout for an opportunity in the deceleration of the bullish daily correction

Meanwhile, the bears are monitoring for confirmation that the current bullish daily correction may have ended from Thursday's candle's close.

An ideal and textbook outcome would be a bearish engulfing candle such as this:

About the Trade Balance

The trade balance released by the Australian Bureau of Statistics is the difference in the value of its imports and exports of Australian goods. Export data can give an important reflection of Australian growth, while imports provide an indication of domestic demand. Trade Balance gives an early indication of the net export performance. If a steady demand in exchange for Australian exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the AUD. Review Alex Nekritin's Article - Trading the Aussie with Australia Trade Balance

• USD/JPY stays pressured during five-day downtrend to weekly low.
• Fed Nominees highlight inflation as major challenge, BOE, ECB could lay out plans or act forthwith to tame price pressures.
• US employment numbers surprised to the negative but yields couldn’t recover.
• Japan prints record daily covid infections, US ISM Services PMI important too.

USD/JPY takes offers to refresh intraday low around 114.35 during the consecutive fifth day of downside as markets in Tokyo open for Thursday’s trading.

The risk barometer pair not only cheers the broad US dollar weakness but also portrays the sour sentiment in the market ahead of the key central bank meetings by the press time. Also exerting downside pressure on the USD/JPY could be the coronavirus risks in Japan as well as inflation fears highlighted by all three Fed Nominees from US President Joe Biden.

That said, Japan, unfortunately, refreshed record top daily covid infections on Wednesday. As a result, Kyodo News mentions, “Japan confirmed a record 94,908 coronavirus cases Wednesday, eclipsing the previous record logged late last week by nearly 10,000 and exceeding the 90,000 mark for the first time, as the highly transmissible Omicron variant continues to wreak havoc across the country.”

On the other hand, US President Biden’s all three Nominees for the Fed Board highlights inflation as a major challenge and showed readiness to act.

It’s worth noting that a negative surprise by the US ADP Employment Change for January, -301K versus +207K expected, weighed on the US Dollar Index (DXY), as well as the US 10-year Treasury yields. However, Wall Street managed to close with mild gains but not the S&P 500 Futures that is down 1.0% by the press time.

Furthermore, cautious sentiment ahead of the key monetary policy meetings by the European Central Bank (ECB) and the Bank of England (BOE) also challenges the market sentiment amid recently high inflation pushing policymakers towards taming the easy money.

Given the risk-off mood, the market’s rush towards the traditional safe-havens like the Japanese yen and gold escalates, which in turn drags the USD/JPY prices.

Moving on, markets are likely to remain sidelined, mostly risk-off, ahead of the aforementioned monetary policy decisions. Following that, US ISM Services PMI for January, expected 59.5 versus 62.0 prior, will also be important to watch further direction.

Technical analysis

50-DMA level of 114.30 challenges USD/JPY bears from targeting the 100-DMA support near 113.65. Alternatively, bulls remain hopeful until the quote stays below the November 2021 peak of 115.52.

• USD/CAD bulls are still holding the fort as the week progresses. 
• The bulls will want to get over 1.2710 for prospects of 1.2850 as an objective. 

As per the prior session's analysis, USD/CAD Price Analysis: Bulls are holding the fort at daily support, the bulls have indeed blockaded the fort and the price is up on yesterday's close. The interested and prospective bidders will be monitoring for price action developments over the coming sessions for a bullish structure from which to engage.

USD/CAD prior analysis

The prior analysis addressed the price action in meeting the 50% mean reversion of late January's rally and for how the price was homing in on the 61.8% Fibonacci retracement target near 1.2650. This level was subsequently met during Wednesday's New York open:

USD/CAD live market

USD/CAD H4 chart

The bulls will want to get over 1.2710 and for the price to hold above it for prospects of a break of the counter-trendline resistance and onto the 1.28 area with 1.2850 as an objective.