CFD Markets News and Forecasts — 03-02-2023

• USD/CAD resumed its uptrend once it reclaimed the February 1 daily high at 1.3379.
• USD/CAD Price Analysis: A daily close above 1.3400 will exacerbate a rally to 1.3500. otherwise, further downside is expected.

USD/CAD climbs in the North American session after hitting a daily low of 1.3311 before Wall Street opened. Nevertheless, a strong US jobs report bolstered the US Dollar, the strongest currency in the FX space. At the time of writing, the USD/CAD exchanges hand at 1.3402.

USD/CAD Price Analysis: Technical outlook

Technically speaking, the USD/CAD is still neutral-to-upward biased, though it reclaimed some resistance levels after testing the 200-day Exponential Moving Average (EMA) a couple of days ago. On its way north, the USD/CAD pair conquered an upslope-support trendline that was broken on January 31, which means the uptrend could resume shortly.

Therefore, the USD/CAD next resistance would be the 50-day EMA at 1.3443. Break above, and the USD/CAD pair would rally to January 31 daily high at 1.3471, followed by 1.3500.

As an alternate scenario, the USD/CAD first support would be the 1.3400 mark. Once cleared, the USD/CAD might test the 20-day EMA at 1.3388, followed by a downslope trendline turned support at 1.3355-65, and then the 1.3300 psychological barrier.

USD/CAD Key Technical Levels

• The Pound Sterling opposes no resistance to upbeat economic data in the United States.
• US jobs data and services activity showed that the US economy remains solid despite the US Federal Reserve tightening cycle.
• For the next week, GBP/USD traders are eyeing the UK GDP and US Fed speakers.

GBP/USD nosedives and extended its losses past the 50 and 200-day Exponential Moving Average (EMA) on Friday after a surprisingly strong jobs report from the United States (US) that increased speculations that the Federal Reserve (Fed) could raise rates back above Wednesday’s 25 basis points mark (bps). At the time of writing, the GBP/USD is trading at 1.2060 after reaching a daily high of 1.2265.

GBP/USD plunged on positive US economic data, warranting further Fed tightening

Investors’ sentiment turned sour after January’s Nonfarm Payrolls report was released. Data showed that the economy added 517K new jobs against the 200K estimated; consequently, the Unemployment Rate tumbled from 3.5% to 3.4%. Additionally, December’s data was revised upward, which means the US Federal Reserve still has ways to go to curb stubbornly high inflation towards the 2% goal.

As the headline crossed the screens, the GBP/USD dived from around its daily highs at 1.2260s and collapsed 200 pips towards the 1.2060 area. In the meantime, the US Dollar Index, a measure of the greenback’s value against a basket of six currencies, rose to a new three-week high at 102.90, up 0.94%.

Later, the Institute for Supply Management (ISM) revealed that services industry activity climbed above expansionary territory, boosted by new orders, while prices paid moderated. The ISM Non-Manufacturing PMI rose by 55.2 last month, vs. 49.2 in December and above the 50.4 foreseen by analysts.

Earlier in the European session, the UK S&P Global/CIPS Services PMI had its worst month in two years, falling to 48.7, down from December’s 49.9, its lowest level since January 2021. Therefore, the S&P Composite PMI, combining manufacturing and services data, slumped to 48.5 in January from 49.0 last month.

What to watch?

Next week’s UK economic calendar will feature the Monetary Policy Report Hearings and the Gross Domestic Product (GDP) MoM and QoQ. Across the pond, the US economic docket will feature the US Federal Reserve speakers, namely Jerome Powell and John C. Williams from the New York Fed. Additionally, Initial Jobless Claims and the University of Michigan (UoM) Consumer Sentiment would shed some light regarding the status of the US economy.

GBP/USD Key Technical Levels

The ISM Service PMI released on Friday showed the index rose back above 50, into expansion territory. Analysts at Wells Fargo, point out that after just a single month under 50, the services ISM shot back up into expansion. However, they warn the breadth of services expansion has still slowed.

Key quotes:

“The slowdown in services activity to end last year now looks more like a blip rather than the start of a lasting slowdown in the sector. That's at least according to the latest ISM services release, which revealed the index advanced 6.0 points to 55.2 after a temporary drop below 50 in December.”

“While we find it easy to talk away some of the weakness in this report, month-to-month movements in the ISM can be volatile and the breadth of expansion has eased.”

“Most components of the ISM improved, with the measure of business activity up 6.9 points to 60.4 and new orders matching that index level leaping 15.2 points after registering contraction in December. New orders now match the highest level registered over the past 12 months, an indication that activity continues to hold up in the services sector.”

“The easing of supply problems is also somewhat benefiting price pressure. At 67.8 the prices paid index remains firmly in expansion, but it has declined the past four consecutive months.”

Strategists at Rabobank point out that the change in the Bank of England’s language favours the doves, they see scope for further rate rises. They continue to expect poor United Kingdom fundamentals to be a drag on the British Pound.  

Key quotes:

“The USD has found further traction on the back of the January US jobs report. That said, the single currency has still managed to climb against the beleaguered GBP, with the latter undermined by the market’s interpretation that the BoE may be even closer to peak policy rates. EUR/GBP continues to edge towards our 0.90 target. We maintain our forecast of EUR/USD1.06 on a 3 month view.”

“Weak productivity, low investment growth, high inflation, recession conditions (albeit at a less severe pace that previously signalled by the Bank), and a current account deficit are all likely to weigh on GBP this year. We continue to expect EUR/GBP to grind higher to 0.90 by the middle of the year and while we see scope for another move below GBP/USD 1.20 on a 3 month view.”

The data published on Friday by the US Bureau of Labor Statistics (BLS) showed that Nonfarm Payrolls rose by 517K in January, well above market consensus. The numbers triggered a rally of the US dollar.  Analysts at Wells Fargo point out that there is still plenty of additional economic data between now and the March FOMC meeting, including another employment report and two more CPI reports, but they argue that even after accounting for the flattering seasonal effect on January payrolls, the report argues for the Fed to stay in a hawkish mood.

Key quotes:

“Seasonal adjustment factors appear to have flattered the headline as smaller-than-usual post-holiday layoffs bolstered the payrolls numbers. But the unusually few layoffs that translated into such a strong headline gain is indicative of what remains an incredibly strong jobs market, and other details of today's report underscored this strength.”

“Benchmark revisions increased the level of employment over the past couple years and showed stronger hiring momentum heading into 2023. At the same time, the unemployment rate fell to 3.4%, the lowest reading since 1969. Average hourly earnings growth remained solid and registered a 4.6% annualized rate over the past three months.”

“We suspect members of the FOMC will be cautious in reading too much into the magnitude of January's payroll gain, but the firm pace of average hourly earnings growth and a 53-year low in the unemployment rate should keep a 25 bps rate hike at the March 22 FOMC as the base case and another possible increase in May in play.”

• WTI is set to finish the week with more than 2% losses.
• Factors like solid US jobs data and the EU’s embargo on Russian oil-related products underpin WTI.
• WTI Technical Analysis: Near-term shifted upward biased, and it might test $80.00.

The US crude oil benchmark, known as Western Texas Intermediate (WTI)., jumped after the release of a solid job report in the United States (US), though prices are still headed for a weekly loss. At the time of writing, WTI exchanges hand at $77.85 per barrel, at the time of writing.

WTI’s extended its gains on Friday due to a surprising report from the US Department of Labor (DoL) which showed that in January, the economy created 517,000 jobs, surpassing the expected 200,000. As a result, the Unemployment Rate decreased from 3.5% to 3.4%, and the previous month’s figures were revised upwards.

In the meantime, the European oil embargo on Russian refined products that would begin on February 5 is being eyed by oil traders. Russian authorities commented that the EU’s ban could lead to a further imbalance in the global energy markets.

Meanwhile, according to ANZ analysts, China’s reopening has witnessed a sharp increase in traffic in its largest 15 cities following the lunar new year holiday.

All that said, WTI might continue to trim some of its weekly losses as investors are eyeing the 20-day Exponential Moving Average (EMA) at $78.47. Once broken, that could open the door for further upside.

WTI Technical Analysis

WTI’s daily chart portrays oil forming a bullish engulfing candle pattern after bouncing from three-week lows. Although the two-candle pattern is bullish, WTI still needs to hurdle essential resistance levels on the upside. WTI’s first resistance would be the 20-day EMA at $78.42, followed by the 50-day EMA at $79.19, which, once cleated, could pave the way toward the $80.00 per barrel figure.

Gold price surged by $30 immediately after the Fed’s meeting on Wednesday evening and reached $1,960 the following day. Economists at Commerzbank see upside risks to their XAU/USD year-end forecast of $1,850.

US interest rate outlook to remain the more important driver

“The US interest rate outlook is likely to remain the more important driver in the medium term.” 

“There is still a substantial discrepancy between the market’s expectation and the Fed’s view of the inflation trajectory and the corresponding interest rate trajectory. Since Wednesday, however, the probability has increased that the Fed is shifting more toward the market’s view. This results in an upside risk to our Gold price forecast of $1,850 at year’s end.”

• US Dollar soars across the board after NFP.
• US ISM Service brings in more favourable data.
• Silver drops by more than 3% on Friday; down 8% from Thursday’s peak.

Metals extended the sell-off after the US official employment report. Silver hits fresh monthly lows near $22.50 and is having the worst day in months.

Strong labor market, Service sector expanding again

US economic data released on Friday came in above expectations, reflecting a strong labor market and an improvement in service sector activity. The numbers boosted the US Dollar and Treasury bond yields. Wall Street is moving without a clear direction.

The data published on Friday by the US Bureau of Labor Statistics (BLS) showed that Nonfarm Payrolls rose by 517K in January, significantly above the market expectation of 185K. November and December’s figures were revised higher. The unemployment rate dropped unexpectable to 3.4%.

A different report released more recently revealed that economic activity in the service sector turned into expansion territory in January with the ISM Service PMI rising from 49.2 in December to 55.2, surpassing the market expectations of 50.4. In addition, the Price Paid Index dropped modestly from 68.1 to 67.8, above consensus of 65.5.

Silver hit a fresh low after the ISM data at $22.47, the lowest since December 7. As the end of the week looms, XAG/USD attempts to trim losses and trades at $22.65, down 3.40% for the day. From Thursday’s high it has fallen 8%.

Technical added pressure to XAG/USD and suggest at the moment that more losses are likely. Price is breaking a one-and-a-half consolidation range to the downside, after being rejected again from above $24.00.

Interim support emerges around $22.50, and below is the strong barrier at around $22.00. A recovery back above $23.00 could alleviate the bearish pressure.

XAG/USD daily chart 

Technical levels

EUR/USD came briefly above 1.10 this week before falling to just below 1.09 today. Economists at Nordea note that the rate differentials continue to point toward a higher EUR/USD ahead.

EUR/USD to move about sideways in the near term

“Given that the ECB has had room for more positive rate surprises than the Fed, a higher EUR/USD is understandable.”

“The better outlook on the Euro Area’s energy balance also points toward a lower risk-premium on the Euro.” 

“In the short-term, we see EUR/USD moving about sideways as markets reprice expectations on both the Fed and the ECB, however, it is clear that the rate differentials continue to point toward a higher EUR/USD ahead. China's reopening also points in that direction due to a better outlook for the global economy.”

GBP gained further in January, mainly versus USD. Economists at MUFG Bank believe that the Pound could struggle in the near term before a sustained appreciation trend emerges.

Global risk a key support for GBP

“The sharp decline in natural gas prices and the continued reopening of China have helped lift global growth expectations and equity markets. The rolling correlation of GBP and global equity markets is currently close to multi-decade highs underlining the importance of broader market conditions.” 

“A sense of political stability, a less severe recession and policy rates peaking should help confidence in the UK improve later this year. However, there remains a probability of a worsening in global investor risk sentiment which could see GBP weaken in the near-term before a sustained appreciation trend emerges.”

• AUD/USD falls sharply by more than 100 pips on US economic data.
• The US Nonfarm Payrolls report almost tripled the market’s expectations for job creation.
• US ISM Non-Manufacturing PMI is back at expansionary territory.

AUD/USD collapsed after US economic data revealed on Friday showed that the labor market remains tight, and it would keep the US Federal Reserve under pressure to bring down inflation to the 2% target. That, alongside the US Dollar paring WEdneadys losses on Thursday, are the reasons for today’s price action. At the time of writing, the AUD/USD exchanges hands at around 0.6970s.

US jobs data surprised investors, as further Fed action is expected

Wall Street opened the last trading session of the week with losses. The US Department of Labor (DoL) revealed January’s data that surprised investors, with Nonfarm Payrolls data smashing expectations as the economy created 517K jobs in the economy, exceeding estimates for the creation of just 200K jobs. Consequently, the Unemployment Rate fell to 3.4% from 3.5%, while December’s figures were revised upward.

Average Hourly Earnings, sought by the US Federal Reserve as a measure of wages inflation, linked to last week’s Employment Cost Index (ECI), came at 0.3% MoM, in line with forecasts but lower than December’s report.

All that said, the AUD/USD extended its losses, but not without putting a fight around the 0.7000 psychological barrier. Once it gave way, the AUD/USD dropped below the 20-day Exponential Moving Average (EMA) at 0.6992 ad so far is eyeing the confluence of the January 19 daily low and the 50-day EMA at 0.6871.

In the bond market, US Treasury bond yields, mainly the 10-year benchmark note rate, climbed 14.5 bps to 3.54% after falling towards a monthly low of 3.334% on Thursday.

Of late, the US economic calendar revealed that S&P Global PMIs came slightly above estimates. Meanwhile, the ISM Non-Manufacturing PMI Index, which reports the behavior of the services economy, is back above in expansionary territory, rose to 55.2 from 50.4 estimates and way above December’s 49.2

AUD/USD Key Technical Levels

Gold price tumbles sharply after a solid January US Nonfarm Payrolls report. A break under $1,880 would exacerbate losses, strategists at TD Securities report.

Pricing for rate cuts has notably reversed weekly gains

“A wild beat on NFP data is creating shocking whipsaws in recent trends. Pricing for rate cuts has notably reversed weekly gains, adding further support to the broad Dollar, and pummeling Gold prices in the process.” 

“CTA trend followers are unlikely to add to downside flows until prices break the $1,880 range, which suggests the yellow metal will continue to take its cue from the broad Dollar for the time being.” 

“While central banks bought a whopping 417t in 2022Q4, pointing to substantially underreported official purchases, prices are now challenging the uptrend support driven by the recent central bank buying-binge.”

• ISM Services PMI in January rose back into the expansion territory.
• US Dollar Index clings to impressive daily gains above 102.50.

The economic activity in the US service sector expanded at a robust pace in January with the ISM Services PMI rising to 55.2 from 49.2 in December. This reading came in better than the market expectation of 50.4.

Further details of the publication showed that the prices Paid Index edged slightly lower to 67.8 from 68.1 but came in higher than the analysts' estimate of 65.5. 

The Employment Index recovered to 50 from 49.4 and the New Orders Index climbed to 60.4 from 45.2.

Market reaction

The US Dollar Index preserves its bullish momentum after this data and was last seen rising 1.05% on the day at 102.78.

• The index picks up extra pace after another solid NFP print.
• The US labour market shows no signs of weakness so far.
• The US economy added far more jobs than predicted.

The greenback adds to the optimism seen in the second half of the week and lifts the USD Index (DXY) back above the 102.00 hurdle on Friday.

USD Index in multi-session tops

The index climbed further and flirted with the area of recent peaks around 102.60 soon after another stellar prints from the US labour markets. The bull run, however, fizzled out somewhat afterwards.

In fact, the US economy almost tripled the expected job creation in January at 517K jobs vs. 185K estimated, while the jobless rate unexpectedly retreated to 3.4%. Further positive results came from the 4.4% yearly increase in Average Hourly Earnings.

Following Friday’s price action, the dollar remains en route to close the first week with gains after three consecutive pullbacks.

Later in the NA session comes the ISM Non-Manufacturing also for the month of January.

USD Index relevant levels

Now, the index is gaining 0.65% at 102.39 and faces the next up barrier at 102.63 (weekly high February 3) seconded by 102.89 (January 18) and then 103.94 (55-day SMA). On the downside, the breach of 100.82 (2023 low February 2) would open the door to 100.00 (psychological level) and finally 99.81 (weekly low April 21 2022).

• US jobs numbers surpass expectations in January, not earnings.
• US Dollar and Treasury bond yields soar after NFP.
• GBP/USD extends weekly losses as USD jumps on data.

The GBP/USD tumbled from 1.2250 to 1.2100, reaching the lowest level in three weeks after the NFP. During the last hour, it rebounded modestly rising toward 1.2150.

The data published by the US Bureau of Labor Statistics (BLS) revealed on Friday that Nonfarm Payrolls rose by 517K in January, much higher than the market expectation of 185K. November and December's figures were revised higher. The unemployment rate dropped to 3.4%.

The US Dollar rose sharply across the board after the report while US yields soared. At the same time, the Pound printed fresh monthly lows versus the Euro.

A bad end, for a bad week

On a weekly basis, the GBP/USD is having the biggest decline since September at times of the UK government crisis. The result is the combination of a major recovery of the US Dollar during the last two days of the week but also, on the back of a weaker pound following central bank meetings.

On Thursday, as expected, the Bank of England raised the key interest rate by 50 basis points. Analysts at TD Securities point out the Monetary Policy Committee toned down its guidance on the pace of future hikes. "The vote was less dovish than expected (7-2) but language was softened to suggest a meeting-by-meeting approach to hikes from here".

Next week is light in terms of major data releases. Attention will be back of Federal Reserve officials after the latest FOMC meeting and today's employment data. Fed chair Powell is among the official that will speak.

In the UK, Q4 and December GDP data is due next Friday. "Further strikes, a fall in hospital visits, and heavy snowfall likely drove a sharp decline in Dec GDP. However, even this bad a monthly reading won't quite tip the UK into recession—for now at least", said TDS analysts.

Technical levels

Historically mild weather through January has seen natural gas demand slump well below seasonal norms. Is there a bottom in sight for gas markets? Strategists at TD Securities analyze the outlook for the commodity.

Weak prices could keep production growth flat for now

“We expect that weak prices could keep production growth flat for now, but prices would need to fall below $2/MMBtu to induce material economic shut-ins.” 

“While further weather-driven price weakness could be in the cards in the immediate term, we do not anticipate a further rout in prices with the return of Freeport LNG potentially signaling that the bottom is in.”

• Gold plunges after a solid January US NFP report.
• The US economy added more than 500K jobs, and the unemployment rate fell to 3.4%.
• Gold Technical Analysis: To the upside eyeing $1890, and downwards $1850.

Gold price tumbles sharply after the US Department of Labor revealed a staggering Nonfarm Payrolls report that added more jobs to the economy than expected and saw the unemployment rate dip lower. Therefore, the XAU/USD is dropping from daily highs at $1918 and collapsing toward the $1880 area, breaking the 20-day EMA on the way down.

US jobs data crushed expectations; further Fed action warranted

US equity futures remain negative as Wall Street is set to open in the red. The greenback was lifted by a surprisingly upbeat US Nonfarm Payrolls report for January added 517 jobs in the last statement, raising the buck from its ashes, as the US Dollar Index advanced 0.58% and reached a new two-week high at 102.63. Consequently, the XAU/USD extended its losses below the January 18 daily low of $1896.74 and the 20-day Exponential Moving Average (EMA) at $1891.70.

Delving into the data, December’s report was upward revised from 223K to 260K people added to the workforce. Meanwhile, Average Hourly Earnings rose 0.3%in-line with estimates but below December’s 0.4%. The Unemployment Rate dropped from 3.5% in December to 3.4% and pressured the US Federal Reserve (Fed), as a tight labor market could cause another spike in inflation.

In the bond market, US Treasury bond yields, mainly the 10-year benchmark note rate, climbed 12.5 bps to 3.521% after falling towards a monthly low of 3.334% on Thursday.

Ahead into the calendar, the ISM Non-Manufacturing PMI is expected to improve, while the S&P Global Services and Composite PMIs are also headed toward a slight recovery.

Gold’s Technical Analysis

After the NFP report, the XAU/USD dropped from around daily highs and is trapped within the 20-day EMA and the 50-day EMA, each at $1891.70 and $1854.99. An extension below the 50-day EMA would put in play the December 27 daily high-turned-support at $1833.29 before Gold can challenge the 100-day EMA at $1812.11. On the bullish side, XAU/USD needs to reclaim January’s 18 swing low of 1896.74, so bulls can have a chance to test $1900.

The US Dollar will likely weaken anew when uncertainties about the Fed, the US economy’s landing and China’s recovery resolve, in the view of economists at HSBC.

Gap between the Fed’s guidance and the market’s less hawkish perspective remains in place

“We think the path of the USD is likely to remain choppy in the coming months.”

“That gap between the Fed and the market still needs to be resolved, as does the debate about whether the US economy is heading towards a notable recession.”

“China’s growth prospects also remain central to the path for risk appetite and the USD. We believe these will be resolved over time, with the growth-inflation mix turning for the better. This will then open the door to a weaker USD.”

Since its low in October, AUD/USD has been recovering strongly. Economists at Société Générale expect the pair to enjoy further gains.

China’s growth spark is benefiting Australia

“The Chinese reopening remains the dominant macro theme in FX, while AUD/USD performance is strongly linked to Chinese equities.”

“China’s growth spark is also benefiting Australia. Both China and Australia’s trade surpluses have increased, and Australia started the year with the biggest monthly increase in consumer confidence for almost two years.” 

“Australian growth should be one of the least impaired in G10 by the global tightening cycle, likely securing further AUD/USD gains.”

EUR gained further in January. Economists at MUFG Bank expect the EUR/USD pair to extend its race higher.

Upward pressure on yields and increased fragmentation risks 

“The ECB estimated a suppression of the term premium of potentially over 150 bps from QE since the GFC. That term premium is now rising and this is resulting in a narrowing of 10yr spreads versus the US which will help support EUR.”

“Fragmentation risks are a downside risk that could see EUR suffer if there is evidence of supply lifting market volatility. Still, overall we believe the trend for EUR/USD this year will be the upside.”

• USD/JPY rallies around 150 pips in reaction to the mostly upbeat US employment details.
• The US economy added 517K new jobs in January and the jobless rate dropped to 3.4%.
• A weaker risk tone, hawkish BoJ expectations could lend support to the JPY and cap gains.

The USD/JPY pair catches some bids during the early North American session and spikes to a fresh daily top, around the 129.80 region in reaction to the mostly upbeat US employment details.

In fact, the headline NFP print showed that the US economy added 517K jobs in January, surpassing even the most optimistic estimates. Adding to this, the unemployment rate unexpectedly edged down to 3.4% during the reported month from 3.5% in December. The data further points to the underlying strength in the US labor market, which should allow the Fed to stick to its hawkish stance. This, in turn, provides a strong boost to the US Dollar and is seen as a key factor behind the USD/JPY pair's sharp rally of around 150 pips in the last hour.

That said, a combination of factors lends some support to the Japanese Yen (JPY) and fails to assist spot prices to build on the momentum beyond the 200-hour SMA. Diminishing odds for an imminent pause o the Fed's rate-hiking cycle take a toll on the global risk sentiment, which is evident from a weaker tone around the equity markets. This, along with speculations that high inflation may invite a more hawkish stance from the Bank of Japan (BoJ) later this year, underpins the safe-haven JPY and keeps a lid on any further gains for the USD/JPY pair.

Hence, it will be prudent to wait for strong follow-through buying before positioning for an extension of the intraday positive move. Nevertheless, the USD/JPY pair, for now, seems to have erased its modest weekly losses and remains at the mercy of the USD price dynamics.

Technical levels to watch

• EUR/USD reverses initial gains and revisits 1.0850.
• US Non-farm Payrolls surprised (largely) to the upside in January.
• The US unemployment rate dropped to 3.4%.

EUR/USD comes under further downside pressure and rapidly gives away the initial optimism, returning to the mid-1.0800s in the wake of another stellar print from the US jobs report on Friday.

EUR/USD: Gains appear limited near 1.1030 so far

EUR/USD picks up extra selling pressure after the release of the Nonfarm Payrolls showed the US economy added 517K jobs during January, largely surpassing initial estimates for a gain of 185K jobs. In addition, the December reading was also revised up to 260K (from 223K).

Further data saw the Unemployment Rate ticking lower to 3.4% and the key Average Hourly Earnings – a proxy for inflation via wages – rise 0.3% MoM and 4.4% from a year earlier. Additionally, the Participation Rate increased a tad to 62.4% (from 62.3%).

Later in the session, the attention will be on the release of the ISM Non-Manufacturing PMI.

EUR/USD levels to watch

So far, the pair is losing 0.37% at 1.0866. The breakdown of 1.0802 (weekly low January 31) would target 1.0766 (weekly low January 17) en route to 1.0648 (55-day SMA). On the other hand, the immediate up barrier comes at 1.1032 (2023 high February 2) followed by 1.1100 (round level) and finally 1.1184 (weekly low March 31 2022).

• USD/CAD scales higher for the second straight day and builds on the overnight recovery.
• Sliding US bond yields weighs on the USD and keeps a lid on any further gains for the pair.
• Investors now look forward to the closely-watched US monthly jobs data for some impetus.

The USD/CAD pair sticks to its strong intraday gains through the early North American session and is currently placed just above mid-1.3300s, still up over 0.30% for the day.

The overnight US Dollar rebound from a nine-month low run out of steam on the last day of the week amid a modest downtick in the US Treasury bond yields. This, in turn, is seen as a key factor acting as a tailwind for the USD/CAD pair. That said, a generally weaker tone around the equity markets limits the downside for the safe-haven buck and remains supportive of the bid tone surrounding the major.

Apart from this, expectations that robust employment could keep the US inflation higher and allow the Fed to stick to its hawkish stance for longer favours the USD bulls. In fact, an unexpected fall in the US Initial Jobless Claims on Thursday pointed to the underlying strength in the labor market. This might have raised hopes for a positive surprise from the closely-watched US monthly jobs data.

The popularly known NFP report is expected to show that the US economy added 185K jobs in January, down from 223K in the previous month. Moreover, the jobless rate is anticipated to edge higher to 3.6% from 3.5% in December. The data should drive the USD demand. This, along with oil price dynamics might influence the commodity-linked Loonie and provide some impetus to the USD/CAD pair.

Technical levels to watch

The Canadian Dollar may enjoy some modest upside, buoyed by risk appetite, rather than rates, in the opinion of economists at HSBC.

Risk appetite matters far more than rates differentials for USD/CAD

“Our analysis suggests that risk appetite matters far more than rates differentials for USD/CAD.” 

“We believe a potential prolonged pause in the monetary tightening cycle means that the risk of an over-tightening has retreated, reducing the risk of a domestic recession and the threat of a more onerous downturn in the housing market. This may open the door to some risk appetite-related upside for the CAD over the coming few weeks.” 

“The BoC provides the first example of an end, albeit a conditional one, to a developed market’s tightening path in the current cycle. Others are likely to join in the coming months, building a risk-on narrative that will support the CAD this year.”

As widely expected, the ECB Governing Council raised the key interest rates again by 50 basis points. Economists at Commerzbank expect the ECB to reduce the pace of interest rate hikes to 25 bps in May. The deposit rate would then be 3.25%.

Is 3.25% enough?

“As expected, the ECB raised its deposit rate by 50 bps to 2.5%. Moreover, it has already suggested a further rate hike of the same amount for the March meeting.” 

“For the meeting thereafter in May, however, we expect the pace of rate hikes to be reduced to 25 bps because inflation should continue to fall.”

“At 3.25%, the end of the rate hike process would then be reached, even if we do not consider this sufficient to bring inflation back down to 2% in the medium term.”

• AUD/USD remains under some selling pressure for the second successive day on Friday.
• The risk-off impulse weighs on the Aussie, though fresh USD selling helps limit losses.
• Investors now look forward to the key US monthly jobs data (NFP) for a fresh impetus.

The AUD/USD pair is seen extending the previous day's retracement slide from the 0.7155-0.7160 area, or its highest level since June 2022 and losing ground for the second successive day on Friday. The pair remains depressed heading into the North American session and is currently placed near the lower end o its daily range, around mid-0.7000s.

A generally weaker tone around the equity markets turns out to be a key factor weighing on the risk-sensitive Aussie, though the emergence of fresh US Dollar selling limits losses for the AUD/USD pair. Investors remain sceptical about a speedy Chinese economic recovery in the wake of rising COVID-19 cases and lingering supply chain issues. This, along with disappointing quarterly earnings reports from major tech sector players, disrupts the recent positive sentiment around perceived riskier assets.

The USD, on the other hand, fails to capitalize on the overnight bounce from a nine-month low amid a downtick in the US Treasury bond yields. That said, hopes for a positive surprise from the US Nonfarm Payrolls (NFP) might continue to act as a tailwind for the safe-haven Greenback. An unexpected fall in the US Initial Jobless Claims on Thursday pointed to the underlying strength in the labor market and forced investors to scale back their bets for an imminent pause of the Fed's rate-hiking cycle.

Hence, the market focus will remain glued to the release of the closely-watched US monthly jobs data. Market participants seem concerned that robust employment could keep the US inflation higher and allow the Fed to stick to its hawkish stance for longer. This, in turn, could push the US bond yields higher, along with the USD, and set the way for some meaningful corrective decline for the AUD/USD pair. Nevertheless, spot prices, for now, seem to register the first weekly loss in seven.

Technical levels to watch

The US Dollar Index (DXY) weakened further in January after a sharp sell-off in Q4 last year. Economists at MUFG Bank see a weaker USD but do not expect a linear straight-line weakening trend.

Weaker USD as Fed hiking work nearly complete 

“The lion’s share of the tightening has now been completed by the Fed and there are elevated risks of recession as the impact of that tightening begins to play out this year. That is likely to mean the US Dollar weakens this year.”

“High nominal rates, rising real rates and QT will all prove challenging for the markets and will result in volatility and bouts of USD strength as risk aversion sporadically intensifies.”

• EUR/USD resumes the upside following the post-ECB sell-off.
• The surpass of 1.1030 exposes a move to 1.1100.

EUR/USD reverses the recent pessimism and embarks on a recovery north of the 1.0900 hurdle on Friday.

A move beyond the so far 2023 high at 1.1032 (February 2) should retarget the round level at 1.1100 prior to the weekly peak at 1.1184 (March 31 2022).

In the longer run, the constructive view remains unchanged while above the 200-day SMA, today at 1.0317.

EUR/USD daily chart

• The index fades the initial uptick to the 102.00 zone on Friday.
• The negative view persists while below the resistance line near 102.30.

The upside momentum in DXY falters just ahead of the key 102.00 barrier in pre-NFP trading at the end of the week.

In the near term, further losses appear in the pipeline while below the 3-month resistance line near 102.30. If the index manages to clear this region it could accelerate gains to the provisional 55-day SMA, today at 103.93.

Below this line, the dollar is expected to keep the short-term bearish bias unchanged and with the immediate target at the 2023 low at 100.80 (February 2).

In the longer run, while below the 200-day SMA at 106.44, the outlook for the index remains negative.

DXY daily chart

• GBP/USD stages a solid recovery from the 50 DMA support, a nearly three-week low set on Friday.
• Sliding US bond yields fails to assist the USD to capitalize on its bounce and lends some support.
• A dovish assessment of the BoE decision on Thursday could cap gains ahead of the US NFP data.

The GBP/USD pair finds decent support near the 50-day SMA and stages a goodish intraday recovery from the 1.2185-1.2180 region, or a nearly three-week low touched earlier this Friday. The momentum allows spot prices to recover a part of the previous day's Bank of England (BoE)-inspired losses and climb back above the 1.2250 level during the mid-European session.

It is worth recalling that the Uk central bank, in its policy statement, removed the phrase that they would "respond forcefully, as necessary" (to inflation). Furthermore, BoE Governor Andrew Bailey said that inflation will continue to fall this year and more rapidly during the second half of 2023. This, in turn, lifted expectations for a less aggressive policy tightening going forward and undermined the British Pound.

That said, the emergence of fresh US Dollar selling assists the GBP/USD pair to attract some buyers near a technically significant 50-day SMA support. In fact, the USD Index, which tracks the greenback against a basket of currencies, fails to capitalize on the overnight bounce from a nine-month low amid a modest downtick in the US Treasury bond yields. The USD downside, however, seems cushioned ahead of the key US macro data.

Friday's US economic docket highlights the release of the closely-watched US NFP report. An unexpected drop in the US Weekly Initial Jobless Claims pointed to the underlying strength in the labor market and might have lifted expectations for a positive surprise from the official employment details. This, along with a weaker tone around the equity markets, should limit losses for the safe-haven buck and cap the GBP/USD pair.

Technical levels to watch

• EUR/JPY trades with modest losses and adds to Thursday’s strong drop.
• The cross broke below the 200-day SMA, exposing further weakness.

EUR/JPY remains under pressure and briefly revisited the key 140.00 neighbourhood at the end of the week.

The cross appears to have broken below the multi-session consolidative phase as well as the 200-day SMA, today at 140.93.

In doing so, further decline now appears in store in the very near term and with the immediate target at the 138.00 region.

EUR/JPY daily chart

USD/JPY managed to stage a rebound from multi-week lows on Thursday but failed to gather recovery momentum. Economists at  Société Générale note that the pair could see another leg lower on a break under 127.20.

Support 127.20, resistance 129.90

“USD/JPY rebounded towards the upper limit of the steep channel within which recent decline evolved at 131/131.20 (now at 129.90), however, a break is still awaited.”

“Failure to reclaim last week's high of 131/131.20 could mean persistence in decline.” 

“US NFP may test depth of support for stronger Yen and return to a mid-January low of 127.23.”

“Below 127.20, next potential supports are located at 126.50/125.85 representing 2015 high and 124.00.”

See – US NFP Preview: Forecasts from eight major banks, another healthy gain

Economist at UOB Group Enrico Tanuwidjaja reviews the latest inflation figures in Indonesia.

Key Takeaways

“Indonesia’s headline inflation rate eased slightly lower to 5.3% y/y in Jan from 5.5% in Dec last year but it continued to gain on month basis by 0.3%.”

“The food, beverage, and key essential household items and transportation prices continue to underpin the overall elevated level of inflation.”

“We keep our 2023 average inflation forecast to trend down slightly lower to 4% from an average of 4.2% last year. Inflation is likely to edge lower to BI’s target range of 2-4% in 2H23.”

Gold climbed above $1,950 following the Fed meeting. Economists at Commerzbank expect the yellow metal to shed some of its gains in the next few weeks.

Sceptical view of ETF investors

“Short-term investors are pricing in an upcoming end to the rate hike cycle and rate cuts in the near future. We do not rule out a correction in the next few weeks, as this is anything but certain.”

“In this sense, we share the still sceptical view of ETF investors.”

European Central Bank (ECB) Governing Council member Pierre Wunsch told Reuters on Friday that the ECB won't go from a 50 basis points rate hike in March to a zero in May. Wunsch added that a 25 bps or a 50 bps hike was possible in May.

"If core remains persistent, if we keep seeing core momentum being close to 5%, for me a terminal rate of 3.5% would be a minimum," Wunsch further explained and noted that the market reaction to ECB's hawkish tone on Thursday was surprising.

Market reaction

The EUR/USD pair showed no immediate reaction to these comments and was last seen posting small daily gains at 1.0930.

The Danish central bank sanctioned an interest rate hike of 35 bps. This is 15 bps lower compared to the hike from the ECB and should be enough to weaken the DKK, according to economists at Danske Bank.

Denmark hikes 15 bps less than ECB

“Danmarks Nationalbank (DN) hikes 35 bps to 2.10% in response to ECB’s 50 bps rate hike. 

“DN hiked 15 bps less and widened the spread to -40 bps in response to a period of downward pressure on EUR/DKK.” 

“We expect this to be enough to weaken DKK and the need for FX intervention.”

The Dollar has essentially erased all the post-FOMC losses. But today’s Nonfarm Payrolls release in the US brings mostly downside risks for the Dollar, in the view of economists at ING.

Downside risks from data today

“With volatility abating after the key Fed and ECB announcements and some of those defensive trades being unwound, today’s NFP release in the US brings mostly downside risks for the USD.”

“Any evidence that wage growth is losing pace and/or that hiring is slowing down materially would likely fuel rate cut expectations further, and hit the Dollar. 

“US 2-year rates are currently trading 10 bps above the psychological 4.00% mark: a break below may exacerbate a Dollar slump. Should such USD weakness materialise, we think that high-beta currencies may emerge as key winners thanks to the positive impact on risk assets.”

See – US NFP Preview: Forecasts from eight major banks, another healthy gain

EUR/USD eased after the European Central Bank (ECB) meeting. You-Na Park-Heger, FX Analyst at Commerzbank, expects the pair to trade sideways for the time being.

A more hawkish ECB is difficult to imagine

“It emerged yesterday that things are getting increasingly difficult for EUR bulls. A lot seems to be priced into EUR/USD already, and a more hawkish ECB is difficult to imagine.”

“Currently, it looks as if the inflation trend justifies an end to interest rate hikes in the near future, so there is probably no further upside potential in EUR/USD for the time being.”

“A sideways move in EUR/USD, possibly in the 1.08-1.09 range – which we saw prior to the recent test of the 1.10 mark seems most likely to me for now.”

• Gold price struggles to gain any meaningful traction and oscillates in a range on Friday.
• Traders now seem to have moved to the sidelines ahead of the key US monthly jobs data.
• Bets for more rate hikes by Federal Reserve underpin US Dollar and act as a headwind.

Gold price finds some support near the $1,910 region and for now, seems to have stalled the previous day's sharp retracement slide from the highest since April 2022. The XAU/USD, however, seems to struggle to gain any traction and oscillates in a range around the $1,915 area through the first half of the European session.

Modest US Dollar strength caps upside for Gold price

The US Dollar (USD) manages to preserve the overnight recovery gains from a nine-month low, which, in turn, is seen as a key factor acting as a headwind for the US Dollar-denominated Gold price. The USD draws support from hopes for a positive surprise from the Nonfarm Payrolls (NFP), due later during the early North American session from the United States. The expectations were fueled by the upbeat Weekly Initial Jobless Claims released on Thursday, which pointed to the underlying strength in the labor market.

Sliding US bond yields lend support to Gold price

The upbeat data, meanwhile, forces investors to scale back their bets for an imminent pause in the Federal Reserve’s (Fed) rate hike cycle. This is seen as another factor lending support to the buck and capping the upside for the non-yielding Gold price. That said, a modest downtick in the US Treasury bond yields holds back the USD bulls from placing aggressive bets. Apart from this, a generally weaker tone around the equity markets contributes to limiting the downside for the safe-haven XAU/USD, for the time being.

Focus remains on monthly jobs data from United States

Traders also seem reluctant and prefer to wait on the sidelines ahead of the release of the closely-watched US monthly employment details. The report is expected to show that the economy added 185K jobs in January, down from 223K in the previous month. Moreover, the jobless rate is anticipated to edge higher to 3.6% from 3.5% in December. The key US macro data will influence the USD demand and provide a fresh impetus to Gold price. Nevertheless, the XAU/USD remains on track for its first weekly fall in seven.

Gold price technical outlook

From a technical perspective, any subsequent slide is likely to find decent support near the $1,900 round-figure mark. A convincing break below might prompt technical selling and expose the $1,880-$1,877 support zone. Gold price could eventually slide to test the next relevant support near the $1,856-$1,855 region.

On the flip side, the $1,920 level now seems to act as an immediate hurdle, above which the XAU/USD could climb back to the $1,949-$1,950 region. Some follow-through buying should allow Gold price to surpass an intermediate hurdle near the $1.970-$1,980 area and aim to reclaim the $2,000 psychological mark for the first time since March 2022.

Key levels to watch

The Pound was slightly weaker after an initially positive reaction to the BoE statement. Economists at ING believe that the EUR/GBP pair is set to break above 0.9000 in the coming months.

EUR/GBP may manage to stay below 0.9000 for now

“It appears that the BoE is not diverging much from market expectations, which means that it may be up to data in the UK to drive any large swings in the Pound rather than surprises from the BoE.”

“With markets doubting the ECB's hawkishness, EUR/GBP may manage to stay below 0.9000 for now, although a break higher seems highly likely over the coming months.”

• EUR/USD alternates gains with losses above the 1.0900 mark.
• Germany, EMU Final Services PMI surprised to the upside in January.
• Markets’ attention will be on the US labour market and ISM Non-Manufacturing.

The single currency continues to digest Thursday’s post-ECB acute pullback and motivates the EUR/USD to trade within a tight range in the low-1.0900s on Friday.

EUR/USD focuses on data

Price action around EUR/USD remains muted so far in the European morning amidst increasing prudence among market participants in light of the upcoming US Nonfarm Payrolls for the month of January (185K exp).

In the meantime, investors continue to adjust to the latest ECB event amidst fresh comments from rate setters. On this, Board member Simkus suggested that the March meeting could not see the last 50 bps rate hike, at the time when he left the door open to another hike in May, although he did not give details on its potential size.

In the domestic calendar, final Services PMIs in Germany and the euro area came at 50.7 and 50.8, respectively, for the month of January. In addition, the ECB published its Survey of Professional Forecasters and now see inflation tracked by the HICP higher in 2023 and 2024 while Real GDP growth expectations appear largely unchanged.

Later in the NA session, the US Nonfarm Payrolls will take centre stage seconded by the Unemployment Rate and the ISM Non-Manufacturing.

What to look for around EUR

The pronounced upside pushed EUR/USD north of the key 1.1000 hurdle on Thursday, although the pair retreated markedly in the wake of the ECB event and retested the 1.0880 region.

In the meantime, price action around the European currency should continue to closely follow dollar dynamics, as well as the potential next moves from the ECB after the central bank delivered a 50 bps at its meeting on Thursday.

Back to the euro area, recession concerns now appear to have dwindled, which at the same time remain an important driver sustaining the ongoing recovery in the single currency as well as the hawkish narrative from the ECB.

Key events in the euro area this week: Germany, EMU Final Services PMI, ECB SPF (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle amidst dwindling bets for a recession in the region and still elevated inflation. Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is gaining 0.06% at 1.0916 and faces the next up barrier at 1.1032 (2023 high February 2) followed by 1.1100 (round level) and finally 1.1184 (weekly low March 31 2022). On the other hand, the breakdown of 1.0802 (weekly low January 31) would target 1.0766 (weekly low January 17) en route to 1.0648 (55-day SMA).

• NZD/USD remains under some selling pressure for the second successive day on Friday.
• The USD adds to the previous day’s recovery gains and exerts some downward pressure.
• A softer risk tone further weighs on the risk-sensitive ahead of the crucial US NFP report.

The NZD/USD pair edges lower for the second successive day on Friday and moves away from its highest level since June 2022 touched the previous day. The pair remains on the defensive through the first half of the European session and is currently placed just above mid-0.6400s.

The US Dollar builds on the overnight recovery move from a nine-month low and gains some follow-through traction on the last day of the week, which, in turn, is seen weighing on the NZD/USD pair. The modest USD uptick could be attributed to some repositioning trade amid hopes for strong US monthly jobs data, due for release later during the early North American session.

An unexpected drop in the US Weekly Initial Jobless Claims pointed to the underlying strength in the labor market and raised the possibility of a positive surprise from the US NFP report. Furthermore, the upbeat data forced investors to re-evaluate their expectations about the Fed's future rate-hike path, which, in turn, prompts some short-covering around the greenback.

The anxiety ahead of the key US macro data is evident from a generally softer tone around the equity markets. This offers additional support to the safe-haven buck and weighs on the risk-sensitive Kiwi. That said, declining US Treasury bond yields hold back the USD bulls from placing aggressive bets and help limit the downside for the NZD/USD pair, at least for now.

From a technical perspective, repeated failures to find acceptance above the 0.6500 psychological mark could be seen as signs of bullish exhaustion. That said, it will still be prudent to wait for strong follow-through selling before confirming that the NZD/USD pair has topped out in the near term and positioning for any meaningful corrective pullback.

Technical levels to watch

Gold price is holding steady above the $1,900 mark. All eyes now turn toward the United States Nonfarm Payrolls (NFP) data release for fresh trading impetus in XAU/USD, FXStreet’s Dhwani Mehta reports.

United States Nonfarm Payrolls data in focus

“A weaker-than-expected US NFP print is likely to bolster the dovish ‘Fed pivot’ expectations, triggering a risk rally at the expense of the US Dollar. In such a scenario, Gold price could receive the much-needed boost to resume its northward trajectory.”

“The US Treasury bond yields face a double whammy, as risk-off flows dominate while traders weigh the dovish Federal Reserve policy outlook. Gold price, therefore, could find some support if the Treasury bond yields sell-off extends.”

See – US NFP Preview: Forecasts from eight major banks, another healthy gain

The European Central Bank (ECB) conducted a survey of Professional Forecasters (SPF) for the first quarter of 2023, with the key findings noted below.

“Eurozone's HICP inflation seen at 5.9% in 2023, 2.7% in 2024, 2.1% in 2025 and longer-term.”

"According to respondents, these changes mainly reflect a combination of recent data outturns, ongoing stronger and broader than expected indirect effects of energy price developments as well as higher forecast wage growth.”

“Expect inflation to fall to 2.1% in 2025, which was not part of the survey in October, and stabilize there in the long term.”

“Real GDP growth expectations largely unchanged.”

“Unemployment rate expectations revised down.”

Market reaction

The above survey findings seem to have some positive impact on the Euro, as EUR/USD is extending its renewed upside above 1.0900. At the time of writing, the pair is trading at 1.0912, modestly flat on the day.

USD/CNH could extend the downtrend further and revisit the 6.6750 level in the next few weeks, comment UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: “Yesterday, we held the view that USD ‘could drop below the Jan’s low of 6.6980’. Our view was incorrect as USD rebounded to a high of 6.7442. The rapid rebound appears to be running ahead of itself and USD is unlikely to advance much further. Today, USD is more likely to trade sideways between 6.7200 and 6.7500.”

Next 1-3 weeks: “We highlighted yesterday (02 Feb, spot at 6.7120) that the rapid increase in downward momentum is likely to lead to USD dropping below last month’s low near 6.6980. There is no change in our view. However, a breach of 6.7550 (no change in ‘strong resistance’ level) would invalidate our view.”

Considering advanced prints from CME Group for natural gas futures markets, open interest increased for yet another session on Thursday, this time by nearly 13K contracts. Volume, on the other hand, went down by around 104.3K contracts after three consecutive daily builds.

Natural Gas could bounce on oversold conditions

There is no respite in the downtrend of natural gas prices. Thursday’s negative price action came in tandem with another increase in open interest, leaving the door open to the continuation of the underlying bearish trend. However, the current oversold conditions of the commodity (as per the RSI around 25) could spark a technical bounce in the short term.

Further downside pressure in USD/JPY could see the 127.20 region revisited in the short-term horizon, note UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: “Our expectation for ‘further USD weakness’ did not materialize as it dipped to 128.07 before rebounding. USD appears to have moved into a consolidation phase and is likely to trade sideways today, between 128.20 and 129.20.”

Next 1-3 weeks: “We continue to hold the same view as yesterday (02 Feb, spot at 128.40). As highlighted, the risk for USD has shifted to the downside toward 127.20. The downside risk is intact as long as the ‘strong resistance’ level at 129.90 (no change in level), is not breached. “

European Central Bank (ECB) policymaker Peter Kazimir said on Friday that “I don't think the March rate hike will be the last.”

Additional comments

“We will decide subsequently how many more will be needed.”

“March rate hike won't bring us to peak of interest rates yet.”

"The battle against inflation is far from won.”

Market reaction

The Euro fails to benefit from the hawkish commentary from the ECB policymakers, trading listlessly at around 1.0900, at the time of writing.

Open interest in crude oil futures markets extended the uptrend and went up by around 24.5K contracts on Thursday according to preliminary readings from CME Group. Volume, instead, reversed two daily builds in a row and dropped by around 43.3K contracts.

WTI: On its way to $72.50

Prices of the WTI prolonged the leg lower on Thursday against the backdrop of increasing open interest. Against that, the commodity could accelerate losses to, initially, the 2023 low at $72.50 per barrel (January 5).

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

- EUR/USD: EUR amounts        

• 1.0950 733m
• 1.1000 475m

- USD/CAD: USD amounts       

• 1.2900 2.3b
• 1.3200 300m
• 1.3500 1.3b

EUR/USD is trading close to 1.0900 after the Fed and ECB meetings. In the view of economists at ING, markets’ doubts on ECB guidance may be a larger short-term driver, and delay another big EUR/USD rally to the second quarter.

Rate differentials may swing meaningfully in favour of the EUR

“EUR/USD rate differential is still more likely to swing in favour of the Euro this year. However, another big rate-driven EUR/USD rally may not be a story for this quarter, as the March meetings may see the Fed push back against rate cut speculation and the ECB still struggles to sell its tightening plans to the market.”

“The second quarter of this year is when the ECB-Fed divergence may emerge more distinctly, as we expect the ECB to deliver another 25 bps and strongly signal rates won’t be cut for some time, while an acceleration of the slowdown in the US economy and inflation will heavily challenge any pledge by the Fed to keep rates at 5.0% for long.”

“We target 1.15 in EUR/USD in 2Q23, and 1.12 in 4Q23.” 

• GBP/USD remains under some selling pressure for the second successive day on Friday.
• A dovish assessment of the BoE decision weighs on the GBP amid a modest USD strength.
• A break below the 1.2200 mark might have set the stage for further losses ahead of NFP.

The GBP/USD pair extends the previous day's rejection slide from the 1.2400 mark and continues losing ground for the second successive day on Friday. Spot prices drop to a nearly three-week low during the first half of the European session, with bears looking to build on the negative momentum further below the 1.2200 round-figure mark.

The British Pound is undermined by a dovish assessment of the Bank of England's (BoE) policy outlook, which, along with a modest US Dollar strength, exerts pressure on the GBP/USD pair. In fact, the BoE raised the policy rate by another 50 bps and noted that further tightening would be required if there were to be evidence of more persistent price pressures. The UK central bank, however, removed the phrase that they would "respond forcefully, as necessary" in its accompanying policy statement. Furthermore, BoE Governor Andrew Bailey said that inflation will continue to fall this year and more rapidly during the second half of 2023. This, in turn, fuels speculations that the current rate-hiking cycle might be nearing the end and continues to weigh on the Sterling.

The US Dollar, on the other hand, is seen building on the overnight goodish rebound from a nine-month low amid some repositioning trade ahead of the closely-watched US NFP report. The US Weekly Initial Jobless Claims data released on Thursday pointed to the underlying strength in the labor market. This, in turn, boosted expectations for strong monthly employment details, due later during the early North American session, and forced investors to re-evaluate their expectations for future rate hikes by the Fed. Apart from this, the prevalent cautious market mood is seen as another factor benefiting the safe-haven greenback.  and contributes to the offered tone surrounding the GBP/USD pair. Moreover, the technical setup supports prospects for a further near-term depreciating move.

The recent repeated failures near the 1.2445 region constitute the formation of bearish multiple tops on the daily chart. The subsequent break below the 1.2200 mark adds credence to the negative outlook and suggests that the path of least resistance for the GBP/USD pair is to the downside. Hence, any attempted recovery move might now be seen as a selling opportunity and runs the risk of fizzling out rather quickly. Spot prices seem poised to weaken further towards the 1.2130-1.2125 intermediate support en route to the 1.2100 round figure.

Technical levels to watch

European Central Bank (ECB) policymaker Gediminas Simkus said on Friday, “a rate cut this year is not very likely.”

Additional quotes

Meanwhile, ECB policymaker Bostjan Vasle said that they will need to rise rates by 50 bps in March, to stay restrictive.

Market reaction

The Euro is uninspired by the above comments, with EUR/USD eeping its range at around 1.0900, as of writing.

The Bank of England (BoE) hiked its key rate by 50 bps to 4%, but it softened its communication notably. Sterling came under strong selling pressure following the event. Economists at Commerzbank expect further GBP weakness.

BoE signals rate hikes will end soon

“It became clear that the BoE is quite close to the end of its rate hike cycle.” 

“The impression suggests itself that the BoE might have hit the communication break a little too soon, as inflation is in double digits, and it will yet have to be seen whether it eases that quickly after all. The labour market seemed quite robust until now and the news of strikes signals that the risk of rising wages remains quite real.”

“Although the BoE left the door open for further rate hikes, from the FX market’s point of view a more decisive approach would have been desirable in view of the high uncertainty. Against this background, it is hardly surprising that Sterling eased and further Sterling weakness seems likely to us.”

• USD/CAD gains traction for the second straight day and is supported by a combination of factors.
• Sliding crude oil prices undermines the Loonie and acts as a tailwind amid a modest USD strength.
• Traders now look forward to the closely-watched US monthly jobs data (NFP) for a fresh impetus.

The USD/CAD pair gains positive traction for the second successive day on Friday and looks to build on the overnight recovery move from the 1.3280 region, or its lowest level since November 16. Spot prices stick to modest intraday gains, around the 1.3345-1.3350 area through the early European session and draw support from a combination of factors.

Crude oil prices prolong the recent rejection slide from the 100-day SMA hurdle and drop to a nearly four-week low on the last day of the week. The uncertainty over a strong economic recovery in China weighs on the outlook for fuel demand and exerts pressure on the black liquid. This, in turn, is seen undermining the commodity-linked Loonie, which, along with a modest US Dollar strength, lends support to the USD/CAD pair.

The US Weekly Initial Jobless Claims released on Thursday pointed to the underlying strength in the labor market and raises the possibility of strong Nonfarm Payrolls (NFP) data. Furthermore, the upbeat US macro data forces investors to re-evaluate their expectations for future rate hikes by the Fed. Apart from this, the prevalent cautious mood lends support to the safe-haven buck and remains supportive of the USD/CAD pair's uptick.

The global flight to safety, meanwhile, exerts some downward pressure on the US Treasury bond yields, which, in turn, acts as a headwind for the USD. Traders also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the release of the closely-watched US monthly jobs report, due later during the early North American session. This, along with oil price dynamics should provide a fresh impetus to the USD/CAD pair.

Technical levels to watch

Bank of England (BoE) Chief Economist Huw Pill told Times Radio on Friday that it's important for the BoE to not do "too much" on monetary policy, per Reuters.

Key takeaways

"We have had some better news of late."

"MPC's job is to return inflation to target and hold it there over medium term."

"MPC feels it needs to see the job through."

"I am confident Thursday's rate rise was necessary and appropriate."

"I do not want to steer market interest rates on day-to-day basis."

"We have to be prepared for shocks."

"We have to recognise we have done a lot with monetary policy already."

"There is still a lot of policy in the pipeline."

"MPC has changed language quite substantially."

"MPC signalled need for continued watchfulness."

"We have reasonably high degree of confidence we will see inflation fall this year."

"Focus is on whether inflation declines further ahead."

"The notion of whether we are in recession or not may vary during the year."

"It is key to see that underlying all this is very weak performance on supply side of the economy."

Market reaction

Pound Sterling struggles to find demand following these comments and GBP/USD was last seen trading slightly below 1.2200, where it was down 0.22% on a daily basis.

EUR/USD is now firmly below the 1.10 mark. Economists at Danske Bank maintain a clear sell-on-rallies bias for the cross

EUR/USD had defied the turnaround in equities

“In recent weeks, EUR/USD has defied the shift and sudden underperformance of Eurozone equities, which we otherwise deem to have been an important driver behind the EUR/USD rally since September (Eurozone equities overperforming during this period).”

“Our tactical conviction on EUR/USD is not high, but we maintain a clear sell-on-rallies bias for the cross as we still think medium-term drivers indicate that EUR/USD is overvalued (and not undervalued).”

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

Following the highly volatile action witnessed on Wednesday and Thursday, markets seem to have turned cautious on the last trading day of the week. As investors await the January jobs report from the US, the US Dollar Index consolidates Thursday's recovery gains slightly below and US stock index futures trade in negative territory. December Producer Price Index data will be featured in the European economic docket and S&P Global will release the final revisions to January Manufacturing and Services PMIs for Germany, the Eurozone, the UK and the US. Finally, the ISM will publish the US Services PMI ahead of the weekend.

US Nonfarm Payrolls Forecast: Analyzing January NFP release.

The European Central Bank (ECB) decided to raise key rates by 50 basis points (bps) as expected and said that it intends to opt for one more 50 bps hike in March before reassessing the situation. During the press conference, ECB President Christine Lagarde refrained from committing to additional rate increases after March and noted that inflation risks are now more balanced. Lagarde's dovish tone caused EUR/USD to lose its traction and the pair erased a large portion of Wednesday's gains before stabilizing at around 1.0900 on Friday.

ECB Analysis: Lagarde lowers Euro with mixed message on moves beyond March, two more dovish comments.

Meanwhile, the Bank of England (BoE) announced that it hiked the policy rate by 50 bps to 4% with 7 members of the MPC voting in favor of the decision. The BOE's policy statement revealed that the bank lowered inflation forecasts and saw a shallow recession. Additionally, BoE Governor Andrew Bailey noted that they will re-evaluate the policy if the economy evolves in line with their central forecasts. The Pound Sterling came under strong selling pressure following the BOE event and GBP/USD dropped to its lowest level since mid-January at 1.2220. Early Friday, the pair continues to edge lower and trades below 1.2200, pressured by risk aversion.

Bank of England Quick Analysis: Three dovish things that are set to keep Sterling down for longer.

Although US Treasury bond yields continued to stretch lower on Thursday, the renewed US Dollar strength forced XAU/USD to turn south. Gold price retraced its weekly advance and was last seen trading in a tight channel slightly above $1,910.

US January Nonfarm Payrolls Preview: Analyzing Gold price's reaction to NFP surprises.

USD/JPY managed to stage a rebound from multi-week lows on Thursday but failed to gather recovery momentum. Early Friday, the pair is moving up and down slightly above 128.50. Bank of Japan (BoJ) Governor Haruhiko Kuroda told the Japanese parliament on Friday that the BoJ must maintain the ultra-easy policy to support the economy and create an environment for firms to hike wages.

Bitcoin touched its highest level since mid-August above $24,000 on Thursday but ended up posting modest daily losses. BTC/USD was last seen trading flat on the day at around $23,500. Ethereum reversed its direction after rising above $1,700 on Thursday and declined below $1,650 early Friday.

The US Bureau of Labor Statistics (BLS) will release the January jobs report on Friday, February 3 at 13:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of eight major banks regarding the upcoming employment data.

Expectations are for a 185K rise in Nonfarm Payrolls following the 223K increase in December while the Unemployment Rate is expected to inch higher to 3.6% vs. 3.5% seen in December.

Commerzbank

“In December, more than 200K new jobs were created again in the US. However, there were some details in the employment report that point to a gradual weakening of the labor market. For example, the number of temporary workers shrank for the fifth month in a row, a trend previously seen only in the run-up to recessions. In addition, despite continued substantial job creation, the number of hours worked fell. We, therefore, expect job growth to decline further to 180K in January.”

Danske Bank

“We still expect relatively strong employment growth at 200K.”

TDS

“We project payroll gains to have stayed largely unchanged vs December, posting a still solid 220K increase in January. Both the unemployment rate and average hourly earnings should have remained steady: the former at a decades-low 3.5%, and the latter printing a 0.3% MoM gain. Following Powell's flip in script, the market is asymmetric around this number. That is, a positive surprise is not likely to materially derail risk sentiment, while an indication of softness will reinforce it. That's key for the USD and other FX baskets which have more closely aligned itself to equity dynamics. That could prevent the USD from sinking to new lows in the near-term. Ultimately, however, we expect to see dip buying interest in EURUSD towards 1.08.”

SocGen

“We expect another 205K gain and would view any gain above 150K as strong. We expect the unemployment rate to edge up to 3.6%.”

CIBC

“Total hiring likely slowed to a 170K pace in January. That’s still a healthy pace of job growth, and the recent softening in the prime-age labor force participation rate leaves room for solid hiring without putting more upwards pressure on wages. Assuming an increase in participation, the unemployment rate could have increased to 3.6%, while the outsized gain in the hiring on the household survey that was seen in December isn’t likely to have been repeated in January. We’re roughly in line with the consensus expectation, suggesting limited market reaction.”

RBC Economics

“US payroll employment likely continued to rise in January, although the 150K increase in payrolls we expect would be the smallest gain since a drop in December 2020. The labour market remains tight and layoffs are still very low. But the number of job openings has been edging lower and we look for a tick up in the unemployment rate to 3.6% from 3.5% in December.”

NBF

“Payroll growth could come in at 150K. The household survey is expected to show a similar gain. This development could leave the unemployment rate unchanged at 3.5%, assuming the participation rate stayed put at 62.3%.”

Citibank

“We expect a sizable 305K increase in January, with some strength due to more technical factors but still-solid underlying job growth. We expect a somewhat stronger 0.4% increase in average hourly earnings in January compared to December, with roughly balanced risks around our above-consensus forecast. We expect the unemployment rate to remain unchanged at 3.5%, although with some elevated uncertainty around components of the household survey in January.”

• USD/JPY oscillates in a narrow range and is influenced by a combination of diverging forces.
• A modest USD uptick lends support, though weaker US bond yields cap gains ahead of NFP.
• Expectations for a hawkish shift by the BoJ underpin the JPY and further act as a headwind.

The USD/JPY pair struggles to capitalize on the previous day's modest bounce from the vicinity of the 128.00 mark, or a two-week low and oscillates in a narrow range on Friday. Spot prices seesaw between tepid gains/minor losses and hold steady above mid-128.00s through the early European session.

The US Dollar edges higher on the last day of the week and looks to build on its recovery from a nine-month low touched on Thursday, which, in turn, is seen acting as a tailwind for the USD/JPY pair. The USD uptick could be attributed to some repositioning trade ahead of the closely-watched US monthly jobs report, due for release later during the early North American session.

The US Weekly Initial Jobless Claims data released on Thursday pointed to the underlying strength in the labor market and boosted expectations for strong Nonfarm Payrolls (NFP). This, in turn, forced investors to re-evaluate their expectations for future rate hikes by the Fed and lend some support to the USD. That said, weaker US Treasury bond yields cap gains for the buck.

The Japanese Yen, on the other hand, continues to draw support from expectations that high inflation may invite a more hawkish stance from the Bank of Japan (BoJ) later this year. The bets were lifted by Japan's Nationwide core inflation, which reached its highest annualized print since December 1981. This is seen as another factor keeping a lid on the USD/JPY pair, at least for now.

Bullish traders also seem reluctant to place fresh bets in the wake of the overnight breakdown below a symmetrical triangle and ahead of the key US macro data. Nevertheless, the USD/JPY pair seems poised to register losses for the first time in three weeks.

Technical levels to watch

In the opinion of UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, AUD/USD could now trade between 0.7000 and 0.7135 in the short term.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the sharp and rapid rise appears to be overdone but AUD could rise above 0.7170 first before easing’. AUD subsequently rose to 0.7158 before dropping sharply to a low of 0.7069. Despite the decline, downward momentum has not improved much. Today, AUD is likely to trade in a range, expected to be between 0.7040 and 0.7110.”

Next 1-3 weeks: “We noted yesterday (02 Feb, spot at 0.7145) that despite the advance in AUD on Wednesday, upward momentum has not improved much. However, we were of the view that AUD is likely to trade with an upward bias toward 0.7230. AUD rose to 0.7158 before staging a surprisingly sharp pullback. While our ‘strong support’ level at 0.7050 is not breached, upward momentum has more or less fizzled out. In other words, AUD is not ready to head higher to 0.7230. Instead, it is more likely to consolidate between 0.7000 and 0.7135 for now.”

CME Group’s flash data for gold futures markets noted traders trimmed their open interest positions by more than 10K contracts on Thursday, resuming the downtrend following Wednesday’s build. On the other hand, volume went up for the third session in a row, this time by nearly 50K contracts.

Gold appears supported around $1900

Thursday’s strong decline in gold prices came in tandem with shrinking open interest. That said, a sustained retracement looks unlikely in the very near term, while the recent support in the $1900 region per ounce troy should hold the downside for the time being.

• The US Nonfarm Payrolls are foreseen at 185K in January, down from December’s 223K.
• The US Dollar’s fate hinges on the Average Hourly Earnings, which unexpectedly declined to 4.6% in December.
• The Unemployment Rate published by the Bureau of Labor Statistics is seen a tad higher at 3.6% in January.

The Nonfarm Payrolls (NFP) data will be released by the Bureau of Labor Statistics (BLS) this Friday at 13.30 GMT. The last NFP release is set to show that the United States economy created 185K jobs in January. However, a downside surprise cannot be ruled out after the US ADP private sector payrolls dropped sharply to 106K in January, missing expectations of 178K and against the previous reading of 253K. Weak US employment data could exacerbate the pain in the US Dollar (USD).

The US Dollar has been meandering near 10-month lows against its major rivals, as markets read the latest comments by Federal Reserve (Fed) Chairman Jerome Powell as largely dovish.

Powell referred repeatedly during a news conference to the "disinflationary" process that now appeared to be underway, which markets view as the Fed could be turning a corner on its tightening cycle. While that justifies a weaker USD, the move may have gone too far. This should imply the beckoning of an upside correction in the US Dollar should the Nonfarm Payrolls headline number deliver a positive surprise.

What to expect in the next Nonfarm Payrolls report?

Friday's United States (US) economic docket highlights the release of the closely-watched US monthly labor market data for January. And, the Nonfarm Payrolls expectations are that the economy added 185K jobs during the reported month, down from the 223K job additions in December. The Unemployment Rate is anticipated to tick slightly higher to 3.6% in January. 

Aside from the headline NFP number, investors will closely examine the Average Hourly Earnings, which could offer fresh insight into the possibility of any further rise in inflationary pressures. The US Average Hourly Earnings are expected to print 4.9% YoY in January, up from 4.6% reported in December while on a monthly basis, the wage growth is seen unchanged at 0.3% in the reported period.

Analysts at Commerzbank agree with the consensus of a slowing-down US job market: “In December, more than 200K new jobs were created again in the US. However, there were some details in the employment report that point to a gradual weakening of the labor market. For example, the number of temporary workers shrank for the fifth month in a row, a trend previously seen only in the run-up to recessions. In addition, despite continued substantial job creation, the number of hours worked fell. We, therefore, expect job growth to decline further to 180K in January.”

When will US January Nonfarm Payrolls report be released and how could it affect EUR/USD?

The Nonfarm Payrolls report is scheduled for release at 13:30 GMT on Friday, February 3. As the dust settles over the dovish Federal Reserve and the European Central Bank monetary policy decisions, the EUR/USD pair has entered a phase of downside consolidation near the 1.0900 threshold. Weaker US employment details could trigger a fresh leg down in the USD and provide an additional boost to the main currency pair.

In contrast, any positive surprise could offer legs to the ongoing USD recovery but any upside could be limited amid increased expectations that the US central bank will pause its rate-hiking cycle. This is what revives the US Dollar bears and suggests that the path of least resistance for the EUR/USD pair is to the upside. 

Dhwani Mehta, Analyst at FXStreet, offers a brief technical overview and outlines important technical levels to trade the EUR/USD pair: “With a potential bullish crossover on the daily chart, represented by the bullish 100-Daily Moving Average (DMA) piercing the flattish 200DMA from below, the upside appears more compelling for the EUR/USD pair. The 14-day Relative Strength Index (RSI) is holding comfortably above the midline, keeping buyers hopeful. The pair needs to recapture the 1.0950 psychological barrier to resume the uptrend toward the 1.1000 round figure. 

“On the downside, the EUR/USD pair could extend the correction toward the bullish 21DMA at 1.0837 should the previous day’s low fail to offer support. Further south, the January 31 low at 1.0802 will come to the rescue of the Euro buyers, ” Dhwani adds further.

Nonfarm Payrolls related content

• US January Nonfarm Payrolls Preview: Analyzing Gold price's reaction to NFP surprises
• EUR/USD Price Analysis: Volatility to escalate as USD Index strengthens ahead of US NFP
• Fed to deliver 25bp hikes in March and May for a peak funds rate of 5.00-5.25% – Goldman Sachs

About the Nonfarm Payrolls report

The Nonfarm Payrolls released by the US Bureau of Labor Statistics presents the number of new jobs created during the previous month, in all non-agricultural businesses. 

The monthly changes in payrolls can be extremely volatile, due to their high relation with economic policy decisions made by the US Federal Reserve. The number is also subject to strong reviews in the upcoming months, and those reviews also tend to trigger volatility in the forex board. 

Generally speaking, a high reading is seen as positive (or bullish) for the US Dollar, while a low reading is seen as negative (or bearish), although the previous month's reviews and the Unemployment Rate are as relevant as the headline figure.

Gold price consolidates the pullback from ten-month highs of $1,960. Will XAU/USD defend the 21-Daily Moving Average support? FXStreet’s Dhwani Mehta analyzes the pair’s technical outlook.

Gold needs to recapture $1,920 to extend the rebound 

“Failure to defend he critical short-term ascending 21DMA at $1,914 will trigger a fresh drop toward the $1,900 mark. A sustained move below the latter will open the floor toward the bullish 50DMA at $1,847.”

“Gold price needs to recapture the $1,920 round figure to extend the rebound toward the $1,934-$1,935 supply zone. Should the recovery gather steam, the multi-month highs of $1,960 will be back on Gold bulls’ radars.”

• Silver edges higher on Friday, albeit the intraday uptick lacks follow-through.
• The overnight failure near the $24.50 supply zone warrants caution for bulls
• .Sustained break below the $23.00 mark is needed to confirm negative bias.

Silver attracts some buyers near the 50-day SMA on Friday and stalls the previous day's retracement slide from its highest level since April 2022. The white metal sticks to a mildly positive tone through the early European session, though the intraday uptick lacks bullish conviction.

Looking at the broader picture, the XAG/USD has been oscillating in a familiar band over the past one-and-half month or so, forming a rectangle pattern on the daily chart. This points to indecision among traders and warrants some caution before placing aggressive directional bets. The overnight failure to find acceptance above the $24.50 supply zone validates the trading range resistance, which should now act as a pivotal point.

Given that technical indicators on the daily chart have just started drifting in the negative territory, it will be prudent to wait for a sustained move beyond the said barrier before placing bullish bets. The XAG/USD might then aim to reclaim the $25.00 psychological mark for the first time since April 2022. The momentum could get extended towards the next relevant hurdle near the $25.35 region en route to the $26.00 round figure.

On the flip side, any further slide below the $23.40-$23.30 horizontal zone might continue to find decent support near the $23.00-$22.95 region. This is followed by support near the $22.75 area, which if broken decisively could drag the XAG/USD to the next relevant support near the $22.20-$22.15 zone ahead of the $22.00 mark.

Silver daily chart

Key levels to watch

According to UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, GBP/USD should meet a tough support around 1.2120 in the next few weeks.

Key Quotes

24-hour view: “Our view for the ‘advance in GBP to extend’ was incorrect as it plummeted to 1.2222 before closing on a weak note at 1.2225 (-1.22%). Strong downward momentum suggests further GBP weakness even though the major support at 1.2120 is unlikely to come under threat today (minor support is at 1.2160). On the upside, a breach of 1.2290 (minor resistance is at 1.2260) would indicate the weakness in GBP has stabilized.”

Next 1-3 weeks: “Yesterday (02 Feb, spot at 1.2385), we highlighted that while upward momentum is beginning to build, GBP must break and stay above 1.2450 before a sustained advance is likely. However, GBP plummeted and quickly took out our ‘strong support’ level at 1.2300. The rapid increase in momentum has shifted the risk to the downside but any decline is expected to face solid support at 1.2130. Overall, only a breach of 1.2320 would indicate that the rapid increase in downward momentum has faded.”

• The index looks to extend the post-ECB rebound.
• January Nonfarm Payrolls will take centre stage later.
• Other key data includes the ISM Non-Manufacturing.

The USD Index (DXY), which gauges the greenback vs. a bundle of its main rivals, advances slightly and retargets the key 102.00 barrier at the end of the week.

USD Index focuses on NFP, data

The index extends the bounce off 10-month lows near 100.80 recorded on Thursday and shifts its attention back to the 102.00 barrier against the backdrop of rising cautiousness ahead of upcoming key data releases.

Indeed, the dollar made a sharp U-turn after market participants perceived as dovish the 50 bps rate hike by the ECB at its event on Thursday, helping DXY to almost fully reverse the post-FOMC steep decline.

Later in the US data space, all the attention will be on the release of the Nonfarm Payrolls for the month of January along with the final S&P Global Services PMI, Unemployment Rate and the ISM Non-Manufacturing.

What to look for around USD

The dollar found in the recent ECB decision on rates an excuse to leave behind the area of 10-month lows near the 100.80 region and now refocuses on the key 102.00 barrier.

The idea of a probable pivot/impasse in the Fed’s normalization process continues to hover around the greenback and keeps the price action around the DXY subdued for the time being. This view has been reinforced after the Fed hiked rates by 25 bps on February 1, while speculation of the terminal rate now below 5% gathered some traction as well.

Key events in the US this week: Nonfarm Payrolls, Unemployment Rate, Final Services PMI ISM Non-Manufacturing (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Slower pace of interest rate hikes by the Federal Reserve vs. shrinking odds for a recession in the next months. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is gaining 0.11% at 101.84 and faces the next up barrier at 102.60 (weekly high January 31) seconded by 102.89 (January 18) and then 103.94 (55-day SMA). On the downside, the breach of 100.82 (2023 low February 2) would open the door to 100.00 (psychological level) and finally 99.81 (weekly low April 21 2022).

UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang suggest EUR/USD could now trade within the 1.0820-1.1020 for the time being.

Key Quotes

24-hour view: “We highlighted yesterday that ‘further EUR strength is not ruled out but the major resistance at 1.1120 is unlikely to come into view’.  EUR not only rose less than expected (high of 1.1033), it also dropped sharply to end the day lower by 0.72% (1.0910). Upward momentum has more or less dissipated and EUR is likely to trade in a range today, expected to be between 1.0860 and 1.0980.”

Next 1-3 weeks: “Yesterday (02 Feb, spot at 1.1005), we held the view that EUR has moved out of its consolidation phase and is likely to head higher to 1.1120. We did not expect the sharp pullback that breached our ‘strong support’ level at 1.0900 (low of 1.0883).  The rapid loss of upward momentum suggests EUR is not ready to head to 1.1120 just yet. To put it another way, EUR could consolidate first before heading to 1.1120 at a later stage. In view of the elevated volatility, EUR could trade within a relatively broad range of 1.0820/1.1020 for the time being.”

• USD/CHF is oscillating in a narrow range below 0.9150 as volatility squeezes ahead of US NFP data.
• The demand for US government bonds is accelerating as the street is considering continuation price index softening.
• SNB Jordan has confirmed further interest rate hikes amid rising inflationary pressures.

The USD/CHF pair is displaying a lackluster action below 0.9150 in the early European session after a gradual upside move. The Swiss franc asset is struggling to extend gains as investors are avoiding making significant positions ahead of the release of the United States Nonfarm Payrolls (NFP) data.

After testing Thursday’s high around 101.55, the US Dollar Index (DXY) is facing fragile barriers in extending its upside journey. S&P500 futures are failing to ease losses recorded in the Asian session, portraying a risk-off market mood. The demand for US government bonds is accelerating as the street is considering a continuation of the slowdown in the price index. This has led to a drop in the 10-year US Treasury yields below 3.38%.

Friday’s price action banks upon the release of the US NFP data. Analysts at TD Securities expect a 220K increase in payroll and a modest increase in the Unemployment Rate to 3.6%.

The economic catalyst that will be keenly watched by the market participants will be the labor cost index data. As per the consensus, Average Hourly Earnings data is seen at 4.9% vs. the prior release of 4.6% on an annual basis. While monthly data is seen steady at 0.3%. Considering the fact that labor demand is exceeding the supply, higher negotiation power in favor of job seekers could dent the Consumer Price Index (CPI) declining trend. Households will be with higher purchasing power, which could trigger retail demand again.

On the Swiss franc front, Swiss National Bank (SNB) Chairman Thomas J. Jordan has confirmed further interest rate hikes as price pressures are beyond the tolerance power of the central bank.

• AUD/USD edges lower for the second successive day, though lacks follow-through selling.
• A modest USD strength and the cautious market mood weigh on the risk-sensitive Aussie.
• Traders keenly await the release of the closely-watched US monthly jobs data (NFP report).

The AUD/USD pair extends the previous day's pullback from the 0.7155-0.7160 area, or its highest level since June 2022 and remains under some selling pressure for the second successive day on Friday. The pair remains depressed heading into the European session and is currently placed near the lower end of its daily range, just above mid-0.7000s.

A further US Dollar recovery from a nine-month low touched on Thursday turns out to be a key factor weighing on the AUD/USD pair. The better-than-expected Weekly Initial Jobless Claims data from the US raises the possibility of strong Nonfarm Payrolls (NFP) data and prompts traders to lighten their USD bearish bets. The popularly known NFP report is scheduled for release later during the early North American session and will play a key role in influencing the near-term USD price dynamics.

A surprisingly stronger print will further point to the underlying strength in the US labor market and force investors to re-evaluate their expectations for future rate hikes by the Fed. It is worth mentioning that the markets expect the Fed to reverse its hawkish stance amid concerns that headwinds stemming from rising borrowing costs could lead to a sharp economic slowdown. This led to a sharp USD fall following the announcement of the FOMC monetary policy decision on Wednesday.

The anxiety heading into the key data is evident from the prevalent cautious mood around the equity market. This is seen as another factor benefitting the safe-haven greenback and undermining the risk-sensitive Aussie. Spot prices, however, manage to hold comfortably above the 0.7000 psychological mark and the weekly low, warranting some caution for aggressive bearish traders. Hence, it will be prudent to wait for strong follow-through selling before confirming that the AUD/USD pair has topped out already and positioning for any meaningful corrective decline in the near term.

Technical levels to watch

• The oil price has printed a fresh intraday low at $75.80 amid a risk-off market mood ahead of US NFP data.
• West Texas is auctioning in a markdown phase after Wyckoff’s Inventory Distribution breakdown.
• The 50-period EMA is acting as a major barrier for the oil bulls.

West Texas Intermediate (WTI), futures on NYMEX, has refreshed its day’s low at $75.80 in the early European session. The oil price is facing the heat as western central banks have hiked their interest rates further to tame soaring inflation. The asset is expected to test Thursday’s low around $75.30.

The US Dollar Index (DXY) is displaying a lackluster performance after reaching to near 101.55 and is awaiting the release of the United States Nonfarm Payrolls (NFP) data for fresh impetus.

On a four-hour scale, the oil price witnessed a sell-off after an Inventory Distribution breakdown. The inventory distribution in a minor range of $79.50-82.67 indicates a shift of inventory from institutional investors to retail participants. After an inventory distribution breakdown, the asset is in Wyckoff’s markdown phase post a throwback move to near $80.00.

The 50-period Exponential Moving Average (EMA) at $78.65 has acted as a major barricade for the oil price. The Relative Strength Index (RSI) (14) is oscillating in the bearish range of 20.00-40.00 and is indicating more weakness.

After a sheer decline, a pullback move to near the 10-period EMA around $76.65 will be an optimal selling opportunity, which will drag the asset toward February 2 low at $75.15 followed by the horizontal support placed around January 5 low at $73.00.

Alternatively, a rebound move above February 1 high at $79.87 will drive the asset toward January 23 low at $81.19. A breach above the latter will expose the asset for more upside toward January 18 high at $82.67.

WTI four-hour chart

• GBP/USD has attempted to build a cushion around 1.2200 after a perpendicular sell-off.
• Investors are dumping the risk-perceived assets as anxiety among investors is soaring ahead of the US NFP data.
• The BoE might continue hiking interest rates as UK inflation is extremely stubborn.

The GBP/USD pair has sensed a pause in its vertical downside journey to near the round-level support of 1.2200 in the Tokyo session. The downside bias is the Cable is still solid as the US Dollar Index (DXY) is on the verge of recording fresh gains above the immediate resistance of 101.55.

Investors are dumping the risk-perceived assets as anxiety among investors is soaring ahead of the release of the United States Nonfarm Payrolls (NFP) data. Losses in the S&P500 futures are deepening in the Asian session as investors are getting worried that a fresh interest rate hike by the Federal Reserve (Fed) is escalating recession fears.

The US Dollar Index (DXY) is displaying back-and-forth action after reaching near 101.55 and is expected to extend upside amid the risk aversion theme. The 10-year US Treasury yields are facing sheer pressure and have dropped below 3.38%.

An interest rate hike of 50 basis points (bps) by the Bank of England (BoE) to 4% triggered a sell-off in the Pound Sterling on Thursday. On interest rate guidance, BoE Governor Andrew Bailey confirmed further interest rate hikes as the inflationary pressures are still in the double-digit figure. The central bank announced a tenth consecutive interest rate hike, however, the United Kingdom economy is not responding as expected. BoE Governor further cited that firms are expecting a decline in the employment cost ahead. It is worth noting that labor cost has been a major catalyst of stubborn inflation.

Going forward, investors will see a power-pack action after the release of the US NFP data. Analysts at TD Securities expect a 220K increase in payroll and a modest increase in the Unemployment Rate to 3.6%.

• EUR/USD is gauging a cushion around 1.0900 despite the negative market mood.
• A bear cross, represented by the 20-and 50-EMAs around 1.0927, adds to the downside filters.
• The RSI (14) has shifted into the bearish range of 20.00-40.00, which indicates more weakness ahead.

The EUR/USD pair is attempting to build a cushion below 1.0900 in the Asian session. The major currency pair has shown wild moves in the past two trading sessions led by Federal Reserve’s (Fed) interest rate decision-inspired volatility. And is likely to continue further ahead of the United States Nonfarm Payrolls (NFP) data.

Meanwhile, the risk profile is showing pessimism as risk-perceived assets like S&P500 futures are facing sheer pressure. The US Dollar Index (DXY) is struggling to surpass the immediate resistance of 101.55. The 10-year US Treasury yields are continuously declining and have refreshed the day’s low below 3.37%.

EUR/USD witnessed a vertical sell-off after an Inventory Distribution chart formation on an hourly scale. The inventory distribution in a minor range of 1.1006-1.1033 indicates a shift of inventory from institutional investors to retail participants.

The shared currency pair has dropped to near the critical support around February 2 low at 1.0885.

The 20-and 50-period Exponential Moving Averages (EMAs) have delivered a bear cross around 1.0927, which indicates more weakness ahead.

Also, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00 and is indicating more weakness.

The asset might display further weakness after a decisive break below February 2 low at 1.0885, which will drag the asset toward February 1 low at 1.0852 followed by January 31 low around 1.0800.

On the flip side, a break above the intraday high at 1.0916 will strengthen the Euro bulls and will drive the asset toward the horizontal resistance placed from January 23 high at 1.0927 and the psychological resistance at 1.1000.

EUR/USD hourly chart

Bank of Japan (BoJ) Governor Haruhiko Kuroda told the Japanese parliament on Friday, the “BoJ must maintain the ultra-easy policy to support the economy and create an environment for firms to hike wages.”

The central bank chief said that he “expects wages to rise quite significantly due to a very tight job market.”

Market reaction

USD/JPY was last seen trading at 128.57, down 0.07% on the day.

• Gold price is licking its wounds amid a broad United States Dollar rebound.
• Dovish Fed expectations, weak US Treasury bond yields could limit Gold’s downside.
• Gold traders await Friday’s US NFP and Fed Powell’s speech next week for fresh cues.

Gold price (XAU/USD) is defending a minor bid, staying calm after two back-to-back days of intense volatility, steered by the major central banks’ policy decisions. The US Dollar is holding onto its recovery momentum after reaching the lowest level in ten months on the dovish Federal Reserve outcome. Disappointing earnings reports from the American tech giants, Apple Inc., Amazon.com Inc. and Google parent Alphabet Inc., have unnerved markets and lifted the US Dollar demand across the board. The persistent weakness in the US Treasury bond yields, however, is lending support to the Gold price. The focus now shifts toward Friday’s US labor market report and Fed Chair Jerome Powell’s speech scheduled next week for a fresh direction in the Gold price.

Also read: US January Nonfarm Payrolls Preview: Analyzing Gold price's reaction to NFP surprises

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the Gold price is defending strong support aligned at $1,910, where the previous day’s low and the previous week’s low coincide.

A sustained move below the latter will fuel a sharp drop toward the $1,901 level, which is the convergence of the Fibonacci 38.2% one-month and the Bollinger Band four-hour Lower.

Should the downside extend Gold sellers will threaten the pivot point one-day S1 at $1,896.

Alternatively, the immediate resistance is seen at the Fibonacci 23.6% one-month at $1,920, above which the Fibonacci 23.6% one-day at $1,923 will be tested.

The next critical upside barrier is placed at around $1,929, which is the intersection of the SMA5 one-day, Fibonacci 38.2% one-day and the SMA100 on-hour.

Gold bulls need to find a strong foothold above that key hurdle to resume their journey toward the multi-month high of $1,960.

Here is how it looks on the tool

About Technical Confluences Detector

The TCD (Technical Confluences Detector) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc.  If you are a short-term trader, you will find entry points for counter-trend strategies and hunt a few points at a time. If you are a medium-to-long-term trader, this tool will allow you to know in advance the price levels where a medium-to-long-term trend may stop and rest, where to unwind positions, or where to increase your position size.

• USD/CAD has sensed demand after dropping to near 1.3330 amid negative market sentiment.
• Goldman Sachs sees two more interest rate hikes of 25 bps by the Fed in March and May.
• Oil price is likely to continue their downside as central banks have restricted their monetary policy further.

The USD/CAD pair has witnessed buying interest after a corrective move to near 1.3330 in the Tokyo session. The Loonie asset displayed a corrective move as the US Dollar Index (DXY) showed signs of exhaustion in the upside momentum after reaching to near 101.55.

The risk profile is extremely sour as risk-perceived assets like S&P500 futures have witnessed sheer selling pressure in the Asian session. The three-day winning streak in the S&P500 futures is expected to terminate as investors are worried that solid United States employment costs could dent the declining trend in the Consumer Price Index (CPI). This might result in a continuation of policy tightening by the Federal Reserve (Fed).

For the interest rate guidance, the Goldman Sachs Research team said in its client note that it expects the Fed to hike interest rates by 25 basis points (bps) consecutively in March and May. This way the central bank will reach the terminal rate of 5.00-5.25%. The client note claims that the Gross Domestic Growth (GDP) growth will slow to 1.4% in 2023, reflecting a negative impact from tighter financial conditions.

USD/CAD will see a power-pack action after the release of the United States Nonfarm Payrolls (NFP) data. Analysts at TD Securities expect a 220K increase in payroll and a modest increase in the Unemployment Rate to 3.6%.

On the oil front, the oil price is struggling to hold itself above the critical support of $76.00. The further downside in the oil price looks favored as western central banks have tightened their monetary policy to tame soaring inflation. It is worth noting that Canada is a leading exporter of oil to the United States and lower oil price will impact the Canadian Dollar.

• USD/JPY has dropped to near 128.50 as the USD Index is struggling to extend gains above 101.55.
• Subdued US corporate earnings have strengthened the risk-off market mood.
• US Secretary of State Antony Blinken to meet with Chinese President Xi Jinping for a "new phase of stepped-up engagement".

The USD/JPY pair has refreshed its day’s low at 128.50 as the US Dollar Index (DXY) has sensed barricades after testing Thursday’s high around 101.55 in the Asian session. The asset is expected to display volatile moves ahead as investors are getting anxious ahead of the release of the United States Nonfarm Payrolls (NFP) data.

S&P500 futures have extended their losses amid unimpressive earnings by US corporate, portraying a risk-off market mood. The three-day winning spell by the 500-US stock basket futures has terminated for now. Bullish action shown by the USD Index is facing exhaustion after reaching near 101.55, however, the upside bias is intact.

Contrary to the risk-aversion theme, the demand for US government bonds is accelerating vigorously amid deepening signs of inflation softening. The 10-year US Treasury yields have dropped further below 3.37%.

Investors are keenly awaiting the release of the US NFP data for further guidance. According to the estimates, the US economy has added fresh 185K jobs vs. the former release of 223K. The United States labor market is resilient as the demand for labor force is exceeding expectations. Therefore, the employment cost index data could deliver a surprise release ahead. The Unemployment Rate is expected to display an escalation to 3.6% from the prior release of 3.5%.

The headlines conveying US Secretary of State Antony Blinken's meeting with Chinese President Xi Jinping in Beijing could provide strength to the risk-on mood. This could be a "new phase of stepped-up engagement" between the two countries, after further complications to diplomatic relations arising from the Covid-19 pandemic, as reported by Financial Times.

On the Japanese Yen front, Jibun Bank Services PMI (Jan) dropped marginally to 52.3 from the former release of 52.4.

Meanwhile, former Bank of Japan (BOJ) Deputy Governor Hiroshi Nakaso has taken up a post heading a financial conference under the Asia-Pacific Economic Cooperation (APEC) advisory council as reported by Reuters. Former BoJ Deputy Governor is seen as a leading contender to take over incumbent Haruhiko Kuroda, whose term ends on April 8.

The Goldman Sachs Research team said in its client note that it expects the US Federal Reserve (Fed) to hike interest rates by 25 basis points (bps) in March and May.

Key quotes

"In the US, we expect GDP growth to slow to 1.4% in 2023, reflecting a negative impulse from tighter financial conditions. We see a below-consensus 35% probability of entering a recession over the next year due to continued labor market rebalancing and a diminishing drag from fiscal and monetary policy tightening.”

"We expect the Fed to deliver 25bp hikes in March and May for a peak funds rate of 5.00-5.25%. On the fiscal policy front, additional funding in the FY2023 spending bill presents upside risk to our assumption of roughly flat real federal spending growth in 2023.”

• AUD/USD has dropped to near 0.7064 as the market mood has soured.
• The upbeat Caixin Services PMI at 52.9 failed to provide support to the Australian Dollar.
• An interest rate hike of 25 bps is expected from the RBA next week.

The AUD/USD pair has printed a fresh day's low at 0.7064 despite the IHS Markit has reported upbeat Caixin Manufacturing PMI (Jan) data. The economic data has landed at 52.9, significantly higher than the consensus of 47.3 and the prior release of 48.0. China’s Services PMI has remained upbeat despite households being busy celebrating the Lunar New Year festival in January’s last week.

It is worth noting that Australia is a leading trading partner of China and Services PMI the Australian Dollar.

For further action, the Australian Dollar is likely to dance to the tune of the interest rate decision by the Reserve Bank of Australia (RBA), which is scheduled for Tuesday. Considering the surprise jump in the Australian Consumer Price Index (CPI) to 7.8% in the fourth quarter of CY2022, RBA Governor Philip Lowe might continue its hawkish stance on interest rates.

Analyst at Deutsche Bank Australia sees the RBA likely to drive the Official Cash Rate (OCR) to 4.1%, citing the most recent inflation update of a 7.8% increase in the CPI, which was slightly higher than expected. “While the RBA will likely move more slowly in 2023 than it did in 2022, we now expect four more 25 basis point hikes this year: 25 basis points in each of February and March, and 25 basis points each at the May and August meetings” as reported by Forbes Advisor.

Meanwhile, investors have turned risk-averse amid soaring anxiety ahead of the release of the United States Nonfarm Payrolls (NFP) data. Risk-perceived assets like S&P500 futures are facing immense pressure. The US Dollar Index (DXY) has recovered to near 101.50 after a corrective move and is likely to remain in the grip of bulls ahead. The 10-year US Treasury yields have dropped further to near 3.38% on expectations that the Federal Reserve (Fed) might consider a pause in its policy tightening spell.

• US Dollar is correcting the Fed sell-off with eyes turning to the NFP event in the US session. 
• The ECB gave the USD bulls a lifeline from a less than hawkish outcome than Euro bulls had hoped for. 

The US Dollar on Friday was perking back to life following a sharp fall to fresh cycle lows on the back of the Federal Reserve chairman Jerome Powell's mixed speech, whereby markets ran with the most optimistic of the comments. Markets have preferred to focus on the prospects of continued disinflationary outcomes in the world's largest economy and Powell gave the bulls a gift when he said that, ''the disinflationary process has started''. 

However, markets took a dovish cue from policymakers at the European Central Bank and the Bank of England, who said inflationary pressures in their economies have become more manageable. The ECB raised key rates 50bp taking the MRO to 3.0%, and indicated it expects a repeat in March. Thereafter, any further hikes will be data-dependent the central bank said. Given the stretch positioning, however, the euro needed more from the event to stay up. ''EUR long positioning sits near the top of our tracking indicator, leaving it vulnerable to lofty market expectations,'' analysts at TD Securities said.

Against a basket of currencies, the US Dollar index, DXY,  rose to 101.90, away from Wednesday's nine-month low of 100.80 ahead of Friday's key Nonfarm Payrolls.  Analysts at ANZ Bank explained that markets are clearly in no mood to embrace any hawkishness, ''and that could be a real limiting factor for the USD.'' 

Friday's Nonfarm Payrolls event will be a critical component of the US interest rate outlook and will drive sentiment in this regard. Analysts at TD Securities are projecting payroll gains to have stayed largely unchanged vs December, posting a still solid 220k increase in January. ''Both the Unemployment Rate and average hourly earnings should have remained steady: the former at a decades-low 3.5%, and the latter printing a 0.3% MoM gain,'' the analysts explained. ''Note that the January jobs report will also include important revisions to the establishment survey data for 2022,'' they added. 

The China Caixin Services PMI™, released by Markit Economics, has been released as follows:

• China Caixin Services PMI Jan: 52.9 (estimated 51.0; previous 48.0).

''China's services activity in January expanded for the first time in five months as spending and travel got a boost from the lifting of stringent COVID-19 curbs, sending business confidence to near 12-year highs, a private sector survey showed on Friday,'' Reuters reported.

"After being hit by the latest wave of COVID infections, the primary focus of economic work should be on accelerating economic recovery and promoting normalised production and social order," said Wang Zhe, senior economist at Caixin Insight Group.

AUD/USD update

AUD has not reacted to the data.

The bulls failed to stay the course filling a move into resistance earlier this week and have been on the back foot ever since as the markets look ahead to the US Nonfarm Payrolls: 

About China The Caixin Services PMI™

The Caixin Services PMI™, released by Markit Economics, is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 private service sector companies. The panel has been carefully selected to accurately replicate the true structure of the services economy.

• NZD/USD is expected to display back-and-forth action ahead of the US NFP release.
• The Symmetrical Triangle formation is hinting a sheer volatility squeeze.
• A range shift by the RSI (14) into the 40.00-60.00 zone from the bullish range of 60.00-80.00 indicates a consolidation ahead.

The NZD/USD pair is demonstrating a sideways action below the immediate resistance of 0.6480 in the Asian session. The Kiwi asset has turned sideways as investors are awaiting the release of the Caixin Services PMI and United States Nonfarm Payrolls (NFP) data for fresh impetus.

Weak earnings have dented the three-day winning spell of the S&P500 futures, which are showing significant losses, portraying a risk aversion theme. The US Dollar Index (DXY) is looking to recapture Thursday’s high around 101.55 after a corrective move as investors’ risk appetite has faded significantly.

NZD/USD is auctioning in a Symmetrical Triangle chart pattern that indicates an extreme squeeze in volatility. The upward-sloping trendline of the chart pattern is placed from January 19 low at 0.6365 while the downward-sloping trendline is plotted from January 18 high at 0.6531. The Kiwi asset displayed a sheer fall on Thursday after failing to find buying strength post delivering a breakout, which resulted in a fakeout later and trapped investors at elevated levels.

The Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range from the bullish range of 60.00-80.00, which indicates a consolidation ahead.

For the downside move, a breakdown below January 31 low at 0.6412 will drag the Kiwi asset toward January 17 low at 0.6366 followed by January 12 low around 0.6300.

On the flip side, the asset needs to surpass Thursday’s high at 0.6538 for resuming the upside move, which will drive the asset toward June 3 high at 0.6576. A breach of the latter will expose the asset to the round-level resistance at 0.6600.

NZD/USD hourly chart

In recent trade today, the People’s Bank of China (PBOC) set the yuan at 6.7382 vs. the last close of 6.7357.

About the fix

China maintains strict control of the yuan’s rate on the mainland.

The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.

Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day's closing level and quotations taken from the inter-bank dealer.

• EUR/USD has shifted below the immediate support of 1.0900 amid the risk-off market mood.
• Federal Reserve might continue tightening the monetary policy further as the labor cost index has not slowed down yet.
• European Central Bank may announce two more interest rate hikes by May to tame high inflation.
• EUR/USD is expected to find an intermediate cushion around 1.0885 after a perpendicular sell-off.

EUR/USD has surrendered the round-level support of 1.0900 in the Asian session. The major currency pair is facing sheer heat as investors have underpinned the risk aversion theme ahead of the release of the United States Nonfarm Payrolls (NFP) data. The Euro witnessed a massive sell-off on Thursday after the interest rate decision by the European Central Bank (ECB) in which the central bank pushed interest rates to 2.50% by announcing a 50 basis point (bp) interest rate hike.

S&P500 futures have met with significant offers in the Tokyo session, showing signs of a halt in the three-day winning spell amid anxiety ahead of the US Employment data. The US Dollar Index (DXY) is struggling to extend above 101.40 after a minor correction from above 101.50, however, the upside bias seems favored due to a sheer decline in investors’ risk appetite. The return generated by 10-year US Treasury bonds has further dropped below 3.39%.

United States NFP data to provide clarity on employment status

Wednesday’s release of the downbeat US Automatic Data Processing (ADP) Employment Change and Job Openings data indicated that labor demand is exceeding the supply in the United States. As per the ADP Employment data, the US economy added 105K jobs in January while job openings showed resilience portraying an absence of an adequate labor force. Also, the US Department of Labor showed a surprise decline in the number of individuals applying for jobless claims for the first time last week to 183K vs. the consensus of 200K. Despite rising interest rates by the Federal Reserve (Fed) and declining economic activities, the US labor market is showing resilience.

According to the estimates, the US NFP data is seen at 185K lower than the former release of 223K. Apart from that, the Unemployment Rate is expected to escalate to 3.6% vs. 3.5% the prior release.

Apart from the official US employment data, investors will also focus on the US ISM Services PMI data. The Services PMI is expected to escalate to 50.3 from the former release of 49.6 while the New Orders Index could jump to 57.6 against 45.2 released earlier.

Fed might not pause policy tightening sooner

After observing a downtrend in the US Consumer Price Index (CPI) and the presence of evidence that invokes confidence for a further slowdown in the inflationary pressures, the street is expecting a pause in the restrictive monetary policy by the Federal Reserve. From the swap market perspective, traders are pricing for an interest rate peak at 4.88% by summer followed by a rate cut to 4.40% by December, as reported by Reuters.

From declining consumer spending and Producer Price Index (PPI) to the slowdown in economic activities, each inflation indicator is calling for a continuation of inflation softening ahead. However, the labor cost index is still a concern for Fed chair Jerome Powell as higher purchasing power with households could trigger revenge buying and therefore a jump in retail demand.

On Friday, the Average Hourly Earnings data is seen at 4.9% vs. the prior release of 4.6% on an annual basis. While monthly data is seen steady at 0.3%. Led by exceeding labor demand against the supply, higher negotiation power in favor of job seekers could dent the price index declining trend, which can shrug off the rumors calling for a pause in the policy tightening pace by the Federal Reserve.

ECB sounds hawkish on interest rate guidance

An interest rate hike of 50 basis points (bps) by the European Central Bank was widely expected. Softening energy prices and easing supply chain bottlenecks have trimmed headline inflation while the core price index that excludes oil and food prices is still solid in Eurozone. Also, ECB President Christine Lagarde cleared that the disinflationary process has yet not been initiated in Eurozone. Therefore, the European Central Bank will continue hiking interest rates to achieve price stability.

For interest-rate guidance, European Central Bank Lagarde explicitly told that the central bank would stay the course in the fight against high inflation and that the magnitude of the interest rate hike will remain similar in March. While two members of the ECB's rate-setting Governing Council told Reuters that at least two more rate hikes are expected ahead.

EUR/USD technical outlook

EUR/USD witnessed a massive sell-off after an Inventory Distribution chart formation on an hourly scale. The inventory distribution in a minor range of 1.1006-1.1033 indicates a shift of inventory from institutional investors to retail participants. EUR/USD might found an intermediate cushion around February 2 low at 1.0885.

The 20-and 50 period Exponential Moving Averages (EMAs) are on the verge of delivering a bear cross, which will strengthen further downside bias.

While, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which indicates that the downside momentum has been triggered.

• GBP/USD bulls face the task of getting back over the line ahead of the NFP.
• Bears are taking on a key layer of support with eyes to 1.2170.

GBP/USD is on the defensive following a recent break of daily structure that led to a colossal sell-off in the London and New York equities opening hours. GBP/USD fell from a high of 1.2401 to a low of 1.2222 by the close of New York. Cable is pr4innting fresh lows in Tokyo of 1.2205 as traders look ahead to the Nonfarm Payrolls today in the US session while the price is destined for lower according to the following analysis:

GBP/USD daily chart

GBP/USD H1 chart

On the hourly time frame, we can see that the bulls need to show up or face prospects of a breakout:

With the test of the support, the question one needs to ask now is whether or not breakout traders chasing the move are about to get trapped:

• USD/CHF is facing barricades in stretching its recovery move above the 0.9140-0.9160 supply zone.
• A hawkish commentary from SNB Chairman failed to strengthen the Swiss Franc bulls.
• The RSI (14) is struggling to scale into the bullish range of 60.00-80.00.

The USD/CHF pair has rebounded after a corrective move to near 0.9115 in the early Asian session. The Swiss franc asset is struggling to stretch an upside rally further as the US Dollar Index (DXY) has turned sideways ahead of the United States Nonfarm Payrolls (NFP) data.

Meanwhile, a hawkish commentary from Swiss National Bank (SNB) Chairman Thomas J. Jordan failed to strengthen the Swiss Franc bulls. SNB’s Jordan confirmed more interest rate hikes as inflationary pressures are stronger than the central bank can tolerate. The SNB is ready to be active in currency markets when necessary.

S&P500 futures have dropped sharply in the Asian session after a three-day winning spell, portraying a sheer decline in investors’ risk appetite. The 10-year US Treasury yields have dropped below 3.40%.

USD/CHF displayed a stellar recovery after testing previous lows plotted from January 18 low at 0.9085 on an hourly scale. The recovery action was extremely solid as it pushed the asset above the 20-and 50-period Exponential Moving Averages (EMAs) at 0.9120 and 0.9130 respectively in no time.

The Swiss franc asset has reached near the supply zone in a 0.9140-0.9160 range. It would be optimal to observe the price action around the supply range before making any constructive position.

Also, the Relative Strength Index (RSI) (14) is struggling to scale into the bullish range of 60.00-80.00. An occurrence of the same will trigger the upside momentum.

For further upside, the major needs to deliver a confident move above the 0.9140-0.9160 supply zone, which will drive the asset toward January 18 high at 0.9246 followed by January 24 high at 0.9280.

On the flip side, a breakdown of Wednesday’s low at 0.9059 will drag the major toward 4 August 2021 low at 0.9018. A slippage below the latter will drag the asset further toward 10 May 2021 low at 0.8986.

USD/CHF hourly chart