CFD Markets News and Forecasts — 06-02-2023

• USD/CHF is displaying a lackluster performance after reaching to near the 0.9280-0.9290 supply zone.
• Fresh commentary from US President that the balloon incident doesn’t weaken US-China relations might improve risk appetite.
• An acceptance above the 0.9280-0.9290 supply zone is required for a fresh upside.

The USD/CHF pair is demonstrating a loss in the upside momentum after reaching to near the round-level resistance of 0.9300 in the early Tokyo session. The Swiss franc asset is struggling to extend gains ahead of the commentary from Federal Reserve (Fed) Chair Jerome Powell.

Risk-perceived assets remained jittery on US-China tensions and fresh risk of United States recession amid deepening expectations of further policy tightening by the Fed. However, fresh commentary from US President Joe Biden that the balloon incident doesn’t weaken US-China relations might improve the risk appetite of the market participants.

The US Dollar Index (DXY) is expected to remain lackluster after a three-day winning streak as investors await fresh triggers for acceptance at elevated levels.

After reaching to the supply zone in a 0.9280-0.9290 range, USD/CHF has sensed barricades amid an absence of acceptance signs at elevated levels. The Swiss franc asset is showing an inventory adjustment, which conveys that the US Dollar is gathering strength for a confident breakout.

The 20-period Exponential Moving Average (EMA) at 0.9267 is acting as a major support for the US Dollar bulls.

Meanwhile, the Relative Strength Index (RSI) (14) has yet not surrendered the oscillation in the bullish range of 60.00-80.00, which indicates that the upside momentum is still active.

Going forward, a break above the supply zone in a 0.9280-0.9290 range will expose the asset to January 12 high around 0.9360 followed by the round-level resistance at 0.9400.

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

• Silver prices break downwards from a megaphone formation, suggesting that XAG/USD bias is downwards.
• Silver Price Analysis: Downward biased and will face strong resistance at around$22.29.

Silver price slides below a downslope trendline of a megaphone formation and also beneath the 100-day Exponential Moving Average (EMA) as Tuesday’s Asian session begins. At the time of writing, the XAG/USD exchanges hands at $22.25.

Silver Price Analysis: XAG/USD Technical Outlook

From a technical perspective, the XAG/USD is neutral-to-downward biased. Silver’s fall under a megaphone trendline could exacerbate the white metal’s fall toward the 100-day EMA at $22.29. A breach of the latter and the 200-day EMA at $21.94 would be in play, which, once cleared, and XAG/USD might test the November 28 swing low at $20.87.

Given the backdrop, oscillators like the Relative Strength Index (RSI) and the Rate of Change (RoC) suggest that selling pressure is gathering momentum.

Nevertheless, as an alternate scenario, the XAG/USD first resistance would be the 100-day EMA at $22.29. Once cleared, the non-yielding metal could climb toward the 50-day EMA at $23.05, ahead of the 20-day EMA at $23.32.

Silver Key Technical Levels

The Bank of Japan's (BoJ) aggressive market operations to defend its policy band for yields has not only sapped liquidity in the government bond market but also drastically limited the scope for speculation in bond futures, reported Reuters.

Key findings

Also read: USD/JPY Price Analysis: Bulls move in and target 133.00 ahead of the 200-DMA

• AUD/USD bounces off one-month low as traders brace for RBA.
• Market sentiment remains sour amid optimism towards US and mixed headlines surrounding US-China ties.
• RBA eyes fourth consecutive 0.25% rate hike, surprise invitation to Aussie buyers on 0.50% rate hike can’t be ruled out.
• Australia trade numbers, Fed Chair Powell’s speech also important for fresh impulse.

AUD/USD bounces off the 0.6860 support confluence, picking up bids to around 0.6885 during early Tuesday in Asia as trader brace for the Reserve Bank of Australia’s (RBA) monetary policy meeting. Not only the key support and the pre-RBA consolidation but recent positives on the US-China might have also put a floor under the risk-barometer prices. Even so, the quote remains around the lowest levels in a month while searching for clear directions of late.

The Aussie pair refreshed its multi-day low, despite witnessing mixed data, as the US Dollar cheers receding fears of recession and the recent hawkish bets on the Federal Reserve (Fed), especially after Friday’s upbeat jobs and activity numbers from the US. Also exerting downside pressure on the quote were fears of US-China tension after the US shot down a Chinese balloon and pushed back a diplomatic visit to Beijing. However, the latest comments from US President Joe Bide appear soothing on the matter as he said, “The balloon incident does not weaken US-China relations.”

On Monday, US Treasury Secretary Janet Yellen and President Biden both turned down expectations of the US recession and underpinned the US Dollar strength. The greenback also cheered sustained run-up in the US Treasury bond yields and downbeat equities as traders renew hawkish bets on the Fed after strong US data.

On the other hand, Australia’s fourth quarter (Q4) Retail Sales disappointed but monthly inflation data from TD Securities managed to put a floor under the AUD/USD price. Additionally positive for the Aussie pair were risk-positive headlines surrounding the ties between Canberra and Beijing.

Following a virtual meeting between trade ministers of Australia and China on February 6, China’s Commerce Ministry said that Australian and Chinese trade and commerce ministers conducted pragmatic and candid exchanges.

Amid these plays, Wall Street closed in the red and the US 10-year Treasury bond yields extended the last Friday’s rebound, which in turn allowed the US Dollar Index (DXY) to remain firmer for the third consecutive day.

Moving on, AUD/USD traders may take clues from ANZ Commodity Price Index for January and Australian trade numbers for December ahead of the RBA Interest Rate Decision. That said, the Aussie traders are already aware of the 0.25% rate hike and hence only the hawkish guide from RBA Rate Statement and/or a 0.50% rate hike could recall the pair buyers.

Also read: Reserve Bank of Australia Preview: No choice but to keep hiking rates

It should be noted that Fed Chairman Jerome Powell is also up for a speech and will be observed closely for clear directions.

Technical analysis

Failure to break the 0.6860 support confluence, comprising the 50-DMA and 61.8% Fibonacci retracement level of the June-October 2022 downturn, triggered AUD/USD pair’s latest bounce. However, bearish MACD signals and a sustained closing below the three-month-old previous support line, close to 0.6930 by the press time, keep the Aussie bears hopeful.

• AUD/JPY is oscillating in a rangebound territory ahead of the RBA’s interest rate policy.
• The RBA is widely expected to announce a fourth consecutive 25 bps interest rate hike.
• The majority of Japanese officials have denied headlines pertaining nomination of Masayoshi Amamiya as BoJ Governor.

The AUD/JPY is displaying back-and-forth moves around 91.30 as investors are awaiting the interest rate decision by the Reserve Bank of Australia (RBA) for fresh impetus. Signs of volatility contraction are visible in the cross ahead of RBA policy as investors will keenly focus on remarks over inflation projections.

A historic jump in the Australian Consumer Price Index (CPI) to 7.8% for the fourth quarter of CY2022 dictates that households are bound for extremely higher payouts to necessities and durables. Also, the Australian inflationary pressures have not peaked yet, which gives a green signal to the continuation of policy tightening by the central bank.

To tame soaring inflation, RBA Governor Philip Lowe has already pushed the Official Cash Rate (OCR) to 3.10% and further escalation in interest rates cannot be ruled out.

Analysts at ING expect “RBA to hike rates by 25 bps to 3.35%. Considering the much higher-than-expected inflation readings over the past two months, we have increased our peak RBA cash rate forecast to 4.1% from 3.6%, assuming that there are two further months of 25 bps hikes ahead. AN occurrence of the same would be the fourth consecutive 25 bps rate hike by the central bank.

Meanwhile, a virtual meeting between trade partners of Australia and China on Monday is broadly setting a positive tone for the Australian Dollar. China is willing to restart the economic, trade exchange mechanism with Australia and hopes that the latter will provide Chinese firms with a fair, open, non-discriminatory business environment.

On the Japanese Yen front, The Yen displayed sheer volatility after a report from Nikkei claimed that the Japanese government has approached Bank of Japan (BoJ) Deputy Governor Masayoshi Amamiya to succeed Haruhiko Kuroda as the head of the central bank.

Japan’s Deputy Chief Cabinet Secretary Yoshihiko Isozaki clarified on Monday that there is “no truth to report BoJ Deputy Gov Amamiya sounded out for the next BoJ governor.

Also, Japan's Finance Minister Shunichi Suzuki cited “I have not heard anything about the nomination of Amamiya as BoJ Governor,” as reported by Reuters.

“British central bank was prepared to do more to get inflation back to target,” said Bank of England (BoE) Chief Economist Huw Pill on Monday per Reuters. The news also states that the BoE suggested last week that interest rates were approaching their peak.

Key comments

Also read: BoE’s Mann: Next step in bank rate is that it is more likely to be another hike

German Economy Minister Robert Habeck expressed optimism on Monday about resolving a European Union trade dispute with Washington, saying he saw room for compromise on certain elements of the US Inflation Reduction Act and its green subsidies, reported Reuters.

Reuters also quotes Germany’s Habeck as saying, “There is still a fair chance to reach agreements that will allow European industry to participate, and not be excluded from, the Inflation Reduction Act."

“The US legislative process was completed, but work was now underway on regulations implementing the law,” also mentioned Germany’s Habeck while adding, “That process was far advanced, or more or less completed, for the automotive and battery sectors, but was still ongoing for the areas of hydrogen, critical minerals and raw materials.”

The news also quotes President Joe Biden's top economic adviser Brian Deese as saying, “Europe and other U.S. allies could actually benefit from the U.S. investments planned since they would accelerate reductions in the cost of next-generation technologies that are critical for the world.”

"Europe and other allied countries have nothing to fear from the Inflation Reduction Act and quite a bit to gain," US President Biden’s Adviser Deese said.

Germany’s Habeck is slated to meet with US Treasury Secretary Janet Yellen on Tuesday along with French Finance Minister Bruno Le Maire per Reuters.

Additional reads

US President Biden: The balloon incident does not weaken US-China relations

EUR/USD dives beneath 1.0750 to 4-week lows around 1.0720s

German Factory Orders jumps 3.2% MoM in December vs. 2.0% expected

• USD/CAD is expected to perform lackluster ahead of Fed Powell’s speech.
• Significant gains will be added to the Loonie asset after a confident breakout of the Rising Channel.
• An oscillating in the bullish range by the RSI (14) favors upside bias.

The USD/CAD pair has turned sideways after a marginal correction from 1.3476 in the early Tokyo session. The Loonie asset is expected to resume its upside journey amid strength in the US Dollar Index (DXY) ahead of the speech from Federal Reserve (Fed) chair Jerome Powell for interest rate guidance. Also, Bank of Canada (BoC) Governor Tiff Macklem will provide commentary about further policy action.

S&P500 witnessed a steep fall on Monday on expectations that the Fed might consider more rate hikes amid fresh concerns after upbeat US Nonfarm Payrolls (NFP) data, portraying a sheer fall in investors’ risk appetite. The US Dollar Index (DXY) is expected to continue its three-day winning streak amid soaring hawkish Fed bets. Also, declining demand for US government bonds will keep yields solid.

Apart from that, investors will keep an eye on the movement of oil price as it has shown a sheer recovery move after dropping below $72.70, It is worth noting that Canada is a leading exporter of oil to the United States and higher oil price will support the Canadian Dollar.

USD/CAD is building strength to deliver a breakout of the Falling Channel chart pattern on a four-hour scale. The Loonie asset is expected to build an inventory accumulation as the US Dollar needs stellar buying interest for a confident breakout. A breakout of the chart pattern will be tested with a marginal correction around 1.3440.

The 10-period Exponential Moving Average (EMA) at 1.3435 will continue to act as major support for the US Dollar bulls.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a bullish range of 60.00-80.000, demonstrating an active upside momentum.

After a breakout of the Falling Channel chart pattern, testing of the breakout around 1.3440 could be an optimal buying opportunity, which will drive the asset towards January 19 high at 1.3521 followed by January 6 low at 1.3538.

In an alternative scenario, a confident downside break below Monday’s low around 1.3400 will drag the asset toward January 3 low at 1.3321. A slippage below the latter will drag the asset toward February 2 low at 1.3262.

USD/CAD four-hour chart

• EUR/USD holds lower grounds at one-month bottom, steadies after three-day downtrend.
• Downbeat MACD signals, RSI (14) join trend line breakdown to favor sellers.
• Three-month-old ascending trend line adds to the downside filters.
• Buyers need validation from 1.0930 to retake control.

EUR/USD licks its wounds at the lowest levels in a month, depressed around 1.0725 during early Tuesday in Asia. That said, the major currency pair dropped during the last consecutive three days.

Not only the three-day downtrend but the quote’s sustained downside break of an ascending trend line from early November join the bearish MACD signals and the downbeat RSI (14), not oversold, to keep sellers hopeful.

As a result, the EUR/USD pair’s further downside towards the 50-DMA, around 1.0690, appears imminent.

However, a three-month-long upward-sloping trend line, close to 1.0655 could challenge the EUR/USD bears afterward.

In a case where the EUR/USD pairs remain bearish past 1.0655, the previous monthly low near 1.0480 and the 200-DMA level surrounding 1.0320 will gain the market’s attention.

Alternatively, recovery remains elusive unless the quote stays below the support-turned-resistance line, around 1.0850.

Even so, multiple tops marked around 1.0930 appears more important as the validation point for the EUR/USD buyers.

Following that, a run-up towards the 1.1000 psychological magnet and then refreshing the monthly high, currently around 1.1030, can’t be ruled out.

Overall, EUR/USD is likely to remain bearish with the 50-DMA and ascending trend line from November 11 acting as immediate support to watch.

EUR/USD: Daily chart

Trend: Further downside expected

“The risk of a recession in the United States was still very low,” said US President Joe Biden on Monday upon his return to the White House after spending the weekend at the Camp David presidential retreat.

US President Biden also turned down the negative impact of the latest Chinese balloon shooting by the US on the Sino-American ties.

It should be noted that US President Biden will deliver the State of the Union (SOTU) address on Tuesday and is likely to call for maximum tax on billionaires and promote US-made goods and materials.

Market implications

The news should have ideally helped the market sentiment but the early hours of the Asian session fail to portray the impact. That said, the risk barometer AUD/USD pair remains pressured ahead of the Reserve Bank of Australia (RBA) monetary policy meeting.

Also read: AUD/USD slumps below the 50-day EMA to the 0.6880 area

• Gold price has faced barricades around the 23.6% Fibo retracement at $1,880.00 as yields soar.
• The commentary from Fed Powell about interest rate guidance will be keenly watched.
• The USD Index has refreshed its four-week high at 103.28 amid a risk-off mood.

Gold price (XAU/USD) is displaying a sideways auction after building a cushion around $1,860.00 in the early Asian session. The precious metal is expected to display more weakness after surrendering immediate support as US Treasury yields are gaining dramatically ahead of the speech by Federal Reserve (Fed) chair Jerome Powell. The return generated by 10-year US Treasury bonds has scaled to nearly 3.65% with sheer pace.

Markets remained jittery on Monday led by US-China tensions and tight United States labor market data, which has infused fresh blood into Fed’s policy tightening spell. The risk aversion theme kept S&P500 in a negative trajectory consecutive for the second trading session. The US Dollar Index (DXY) extended its upside journey after surpassing the 102.80 resistance and refreshed its four-week high at 103.28.

For further guidance, the commentary from Fed’s Powell about the roadmap of taming stubborn inflation and fresh concerns about inflation projections due to a rebound in labor market conditions will be keenly watched. Meanwhile, U.S. Treasury Secretary Janet Yellen said on Monday the United States may avoid a recession as inflation is coming down while the labor market remains strong, as reported by Reuters.

Gold technical analysis

Gold price has sensed rejection after attempting to scale above the 203.6% Fibonacci retracement (placed from November 3 low at $1,616.69 to February 2 high of around $1,960.00) at around $1,880.00 on a four-hour scale. A rejection around 23.6% Fibo retracement indicates that the asset has been exposed to the next cushion at 38.2% Fibo retracement placed around $1,829.45.

A bear cross, represented by the 20-and 50-period Exponential Moving Averages (EMAs) at $1,921.60, adds to the downside filters.

Adding to that, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which indicates more weakness ahead.

Gold four-hour chart

• Since last Thursday, the GBP/USD has lost more than 3% as the US Dollar strengthened.
• GBP/USD Price Analysis: Daily close below the 100-DMA would exacerbate a test of 1.2000.

The Pound Sterling (GBP) capped its fall against the US Dollar (USD) on Monday at around the 100-day Exponential Moving Average (EMA) at 1.2028, though the GBP/USD remains below the latter. That said, a GBP/USD daily close would keep bears hopeful of testing the 1.2000 figure. At the time of writing, the GBP/USD hovers around 1.2024 after hitting a daily high of 1.2077.

GBP/USD Price Analysis: Technical outlook

Since last Thursday, after the Bank of England (BoE) raised rates by 50 bps, lifting the Bank Rate to 4%, the GBP/USD collapsed by 1.20%. Then it was followed by last Friday’s US jobs data, which exerted downward pressure, sending the GBP/USD into a tailspin, plummeting more than 150 pips in the session toward the 1.2050 area.

All that said, the technical outlook is tilted to the downside. Oscillators like the Relative Strength Index (RSI) and the Rate of Change (RoC0 turned bearish. The latter shows that sellers are gathering strong momentum, posing a threat to crack the psychological 1.2000.

If the GBP/USD breaks below 1.20, that would open the door for further downside. Once cleared, GBP/USD’s next support would be 1.1900, followed by a two-month-old upslope trendline that passes at around 1.1880-1.1900 and then the YTD Low at 1.1841.

GBP/USD Key Technical Levels

• AUD/USD trims its earlier losses as the Reserve Bank of Australia policy decision looms.
• The Reserve Bank of Australia is expected to raise rates by 25 bps to 3.35%.
• AUD/USD Price Analysis: Shifted downward biased as bears eye 0.6800.

The AUD/USD extended its fall since last Friday's solid US jobs report, augmented speculations that the US Federal Reserve (Fed) might increase rates above market players' expectations for a peak of 5%. Of late, the Australian Dollar (AUD) has trimmed some of those losses vs. the US Dollar (USD), as a monetary policy decision of the Reserve Bank of Australia (RBA) looms. At the time of writing, the AUD/USD is trading at 0.6883.

US data from the last week boosted the US Dollar

Wall Street continued to portray a risk-off impulse. The AUD/USD rebounded at daily lows of 0.6855 and is testing the 50-day Exponential Moving Average (EMA) at 0.6893.

The US Bureau of Labor Statistics (BLS) revealed that Nonfarm Payrolls for December surged by 517K jobs, blowing forecasts for a gain of almost 200K, while the Unemployment Rate dived to a 53-year low to 3.4% from a 3.5% previous month. Consequently, money market futures had priced the Federal Funds Rate (FFR) to be lifted to 5.25%-5.50%, per World Interest Rate Probabilities (WIRP).

The Australian economic docket will feature the Reserve Bank of Australia (RBA) monetary policy decision on Tuesday, February 7, at 03:30 GMT. Most analysts estimate the RBA would raise rates by 25 basis points (bps) to 3.35% and would update its forecasts at the meeting. Those would be available once the Statement of Monetary Policy (SoMP) is revealed on Friday.

Also read: RBA Preview: Forecasts from 10 major banks, looking for any clues that the Bank is considering pausing

Meanwhile, the US economic docket will feature Fed speaking led by Chairman Jerome Powell and Fed Governor Michael Barr. Data-wise, the US Trade Balance would be featured.

AUD/USD technical analysis

With the AUD/USD failing to crack the 200-day Exponential Moving Average (EMA) and the 100-day EMA, each at 0.7144 and 0.7016, the pair shifted from neutral to downward biased. As the major extended its losses below the 50-day EMA, it would accelerate the downtrend toward the 0.6800 figure, but firstly, AUD/USD sellers need to clear the 20-day EMA at 0.6820.

As an alternate scenario, if the AUD/USD reclaims 0.6900, a test of the 100-day EMA at 0.7016 is likely, though to reach the 200-day EMA, it would need a surprise by the Reserve Bank of Australia (RBA).

What you need to take care of on Tuesday, February 7:

The US Dollar extended its Friday rally to fresh February highs against most major rivals, fueled by a dismal market mood.

Political tensions between Washington and Beijing weighed on the market mood, further fueling demand for the American currency. An apparent surveillance balloon from China flew through US skies last week, with the saga ending after President Joe Biden's administration took it down on Saturday. As a result, diplomatic relations between both countries were temporarily interrupted as the United States postponed Secretary of State Blinken's forthcoming trip to China.

EUR/USD fell to 1.0708, bouncing towards the current 1.0720 price zone but ending a third consecutive day in the red. Poor EU data further weighed on the Euro. Germany published December Factory Orders, which fell by 10.1% YoY, much worse than anticipated. On the other, Euro Zone Retail Sales fell by 2.7% MoM in January and by 2.8% compared to a year earlier.

GBP/USD trades around 1.2020. Earlier in the day, Bank of England Chief Economist Huw Pill said that UK policymakers are prepared to do more to get inflation back to target, as chances of inflation getting embedded in the United Kingdom are higher than in Europe.

AUD/USD trades around 0.6880 ahead of the Reserve Bank of Australia's monetary policy decision. The Canadian Dollar edged sharply lower, with USD/CAD now hovering at around 1.3440.

USD/JPY gapped higher at the weekly opening, and the gap remains unfilled. The pair currently trades at around 132.50, with eyes on a potential pullback to 131.20.

US Treasury yields advanced. The 10-year note currently yields 3.63%, up 10 bps, while the 2-year note offers 4.43%, up 13 bps. Stock markets, on the other hand, trade in the red, WITH US indexes losing some ground after their European counterparts settled in the red. 

Spot gold bottomed at $1,860.20 a troy ounce, a fresh one-month low, bouncing modestly to end the day at $1,866. Crude oil prices fell intraday but managed to recover some ground. WTI posted a modest intraday advance and settled at $74.30. 

• Western Texas Intermediate recovers some ground even though the US Dollar remains buoyant.
• IEA’s Director commented that China’s reopening would drive oil prices.
• WTI Technical Analysis: Triple bottom looms around $72.50.

US crude oil benchmark known as Western Texas Intermediate (WTI) records minimal gains after diving toward an eight-week low at $72.30 per barrel on Monday, exchanging hands at around $73.96 per barrel, capped by a strong US Dollar (USD) across the board.

Wall Street’s extended its losses on Monday due to market participants repricing a less dovish Federal Reserve (Fed) as expected. Money market futures estimates 50 bps of rate hikes by the US central banks, which would lift the Fed Funds target to the 5%-5.25% range. Hence, the greenback continues to extend its recovery, as shown by the US Dollar Index, a measure of the buck’s value against a basket of six currencies, up 0.69%, at 103.703.

Since last Friday, WTI has slid 3%, following the robust US employment data.

Even though a strong US Dollar is a headwind for the “black gold,” China’s reopening prospects remain a driver for oil prices, as the International Energy Agency (IEA) Executive Director Fatih Birol reported. Birol commented that producers might reconsider their output policies as China’s Covid-19 relaxation would increase demand for crude. He added, “We expect about half of the growth in global oil demand this year will come from China.”

Oil traders should be aware that price caps on Russian products began on Sunday, as G7 nations, the EU and Australia, agreed on price limits of oil-refined Russian products.

WTI Technical Analysis

Technically, WTI is still downward biased as long as the quote stands below $82.00 PB. Additionally, last Friday’s WTI failure to crack the 20-day Exponential Moving Average (EMA) at $77.65 exacerbated oil’s fall toward the year’s lows, at $72.30, breaking below the January 4 low of $72.50.

Nevertheless, since then, oil has rebounded and is aiming toward the $73.80 area, opening the door for a leg up. Hence, WTI’s first resistance would be $74.00. A breach of the latter will expose the 20-day EMA at 77.64, followed by the $78.00 psychological level, ahead of the 50-day EMA at $78.77. Conversely, WTI’s would resume downwards once it breaks beneath $72.30.

• USD/JPY gapped up since the Asian session by about 30 pips, reaching a daily high of 132.90.
• USD/JPY Price Analysis: Neutral biased, but tilted upwards, with bulls eyeing 133.00.

The USD/JPY gapped toward new 5-week highs shy of the 50-day Exponential Moving Average (EMA) by just two pips at 132.89 and remained nearby, about to challenge the 133.00 psychological price level. The last US jobs report crushed estimates, bolstering the US Dollar (USD) on speculations for further Federal Reserve’s (Fed) aggression. Therefore, the USD/JPY rallied 3.45% since Friday and exchanged hands at 132.79 after hitting a low of 131.51.

USD/JPY Price Analysis: Technical outlook

The USD/JPY shifted neutral biased after gapping up from around 131.20 to current exchange rates. On its way up, the major reclaimed the 20-day Exponential Moving Average (EMA) at 130.53, and it’s poised to crack the 50-day EMA at 132.91, ahead of the 133.00 figure.

With the Relative Strength Index (RSI) and the Rate of Change (RoC), oscillators shifted bullish, opening the door for further upside. However, it should be said that the USD/JPY would face the trend-setter 200-day EMA at 133.88, which, once cleared, would pave the way to test the 100-day EMA above the 135.00 figure.

As an alternate scenario, the USD/JPY first support would be 132.00. A breach of the latter and the USD/JPY could test the day’s low at 131.51, followed by last Friday’s high at 131.20. Once those demand zones are broken, it would expose the 20-day EMA at 130.29.

USD/JPY Key Technical Levels

• EUR/USD stumbles to multi-week lows at around 1.0720s on a buoyant US Dollar.
• Last week’s EU’s retail sales disappointed, while factory activity in Germany improved as orders rose.
• EUR/USD Price Analysis: After dropping below the 100-DMA, risks are skewed to the downside.

The EUR/USD extended its fall to new four-week lows at around 1.0720s due to broad US Dollar (USD) strength after last Friday’s data reaffirmed the need for higher interest rates in the United States. Hence, money market futures began to price in higher interest rates, underpinning the US Treasury bond yields and the buck. At the time of typing, the EUR/USD exchanges hands at 1.0730.

Factory orders in Germany advanced, though the Euro remains downward pressured

The EUR/USD lost traction on Friday, as the US Department of Labor revealed that 517K jobs were added to the economy, crushing the 200K expectations and sending the Unemployment Rate dipping towards 3.4% from 3.5%. That triggered a sell-off of currencies, except the buck in the FX space, particularly the Euro. Even though the European Central Bank (ECB) raised rates by 50 bps, President Lagarde’s press conference was perceived as dovish, albeit the chorus of hawks expecting further aggression by the central bank.

Datawise, the European docket reported soft Retail Sales for December, which plunged to -2.7% MoM, vs. a -2.5% contraction expected. Consequently, the YoY rate was -2.8% compared to -2.7% estimates by street analysts.

Earlier in the European session, Germany revealed that factory orders improved from December’s 4.4% MoM plunge to 3.2% expansion, smashing estimates of 2%, but annually paced, barely improved to -10.1% vs. -10.2% estimated. In other data, Industrial Production in Germany and Spain will be featured on Tuesday, while Italy will do it on Friday.

On central bank speaking, the ECB’s Robert Holtzmann said, “Monetary policy must continue to show its teeth until we see a credible convergence to our inflation target.” At the same time, Kazaks added that if the incoming data meet the ECB’s current expectations, “rates will be raised by 50 basis points in March.

An absent economic calendar shifted traders’ focus to Tuesday on the US front. The docket will feature the Trade Balance alongside the Federal Reserve Chair Jerome Powell’s interview at the Economic Club of Washington.

EUR/USD Technical Analysis

After last Friday’s US NFP report, the EUR/USD broke crucial support at the 100-day Exponential Moving Average (EMA) at 1.0850. In addition, an inverted hammer, a bearish signal, emerged, opening the door for further downside. Therefore, the Euro resumed its downtrend, plunging last Friday’s low of 1.0835 and beneath 1.0800 below. That said, the EUR/USD next support would be the 1.0700 psychological level, which, once cleared, would expose the 50-day EMA At 1.0579, followed by the 20-day EMA at 1.0533, ahead of the 1.0500 mark.

The Market Participants Survey for the fourth quarter of 2022 published by the Bank of Canada (BOC) showed on Monday that the median of responses for the policy rate by end-2023 stood at 4%, forecasting a 50 bps cut.

The median forecast for the real Gross Domestic Product (GDP) points to a fall of 0.4% in 2023 and an expansion of 2% in 2024.

Market reaction

USD/CAD retreated from the weekly high it set at 1.3475 earlier in the session after this report and was last seen trading at 1.3445, where it was up 0.35% on the day.

On Friday, AUD/USD dove back below the 0.700 level. Economists at Rabobank continue to see scope for AUD/USD to strengthen to 0.72 towards the back half of this year.

AUD/USD to trade mostly in the 0.69-0.70 area on a three-month view

“An as expected 25 bps rate hike from the RBA this week, should not in itself create much of a reaction from the AUD. However, any rhetoric which pushes back against the risk of a forthcoming policy pause should lend support.”

We expect AUD/USD to trade mostly in the 0.69-0.70 area on a three-month view as the market assesses the policy outlook of both the Fed and the RBA.”

“We look for a move to AUD/USD 0.72 in the latter half of the year assuming China’s economic recovery remains on track.”

See – RBA Preview: Forecasts from 10 major banks, looking for any clues that the Bank is considering pausing

The Dollar peaked in September when real rates also peaked. Kit Juckes, Chief Global FX Strategist at Société Générale, expects to see the end of the downtrend for now.

A bucket of cold water to calm Dollar bears down

“A pause seems likely. This week’s economic calendar is short on major market-moving data, and market participants may find themselves discussing the meaning of the US data rather than doing anything.”  

“We’d warn that the rates and FX market reactions are tame so far, and that leaves room for the Dollar bounce to go further.”

“USD/JPY to 135, EUR/USD to 1.05 and GBP/USD back below 1.20 seem more likely this month than another slide for the Dollar. 

“But none of that alters the two key market drivers. Firstly, as the risk of a deep global downturn fades, the Dollar remains vulnerable; and secondly, the lack of a new dominant theme means we can see choppy trading conditions until one emerges.” 

Economists at the bank of Montreal point out prerequisites needed to lift EUR/USD and GBP/USD above 1.10 and 1.25, respectively.

Reduced risk of economic hard landing in Europe provides better support to EUR and GBP

“It’s one month into 2023 and the reduced risk of an economic hard landing in Europe is providing better support to the EUR and the GBP. However, for sustained appreciation vs the USD, we think these currencies need a very sold risk appetite picture, and continued improvement in inflation.”

“Progress in the Ukraine war, limited disappointment in energy prices, and smooth global trade (‘Goldilocks’) may also be prerequisites for substantial progress above 1.10 in EUR/USD and 1.25 in GBP/USD.”

• Last week’s strong US labor market report warranted further US Federal Reserve action.
• Money market futures have shown 50 bps of rate hikes priced in for the May meeting.
• Gold Price Analysis: Neutral with risk skewed to the downside.

Gold price fall is being stopped as bulls entered the market at last Friday’s low of around $1860 and reclaimed $1870. A staggering US Nonfarm Payrolls report and markets repricing further interest rate hikes augmented demand for the greenback, a headwind for the non-yielding metal. At the time of writing, the XAU/USD exchanges hands at $1868.77, up by half of a one percentage point.

Gold’s pressured by expectations for a hawkish Fed, strong US Dollar

Wall Street continued to stumble after the US Department of Labor revealed that the United States (US) economy added more than 500K jobs to the economy, while the unemployment rate dropped to a 53-and-a-half-year low level of 3.4%. That reignited the spark that the US Federal Reserve (Fed) might need to raise rates, above the market’s expectations, with traders foreseeing a rate cut in the second half of 2023.

World Interest Rate Probabilities (WIRP) suggest that 50 bps are priced in for the next couple of meetings, while chances stand at 90% for the June meeting. That would take the Federal Funds target to the 5%-5.25% range, aligned with FOMC’s December dot plots.

In the meantime, the US Dollar Index, a gauge of the buck’s value vs. its peers, advances 0.50%, up at 103.519, putting a lid on Gold’s recovery, alongside the US 10-year Treasury bond yield, up nine basis points (bps) at 3.616%.

Gold trader’s focus shifted to Federal Reserve Chair Jerome Powell’s interview at the Economic Club of Washington, alongside the Trade Balance and President Joe Biden’s delivery of the State of the Union before the US Congress, on Tuesday.

Gold Price Analysis: XAU/USD Technical Outlook

Technically speaking, XAU/USD found its foot at around $1860, shy of testing the 50-day Exponential Moving Average (EMA) at $1854.87. Although the yellow metal hit a daily high of $1881.31, risks are skewed to the downside. Supporting the aforementioned is the Relative Strength Index (RSP) collapsing to bearish territory, while the Rate of Change (RoC) portrays sellers gathering momentum.

Therefore, the XAU/USD first support would be February’s 6 low at $1860.44. Break below will expose the 50-day EMA at $1854.85, followed by the 100-day EMA at 1812.85, ahead of the $1800 psychological level.

S&P 500 extended its year-to-date rally last week despite the fact that the index 500 fell 1% on Friday. Economists at Merrill note that a lot of technicians are pointing to further upside overall.

A lot of technicians believe that the next resistance is 4325

“The last time you had a deeply inverted yield curve this deep and stocks rallied this aggressively off their lows from the October lows of say 3490 on the S&P 500 give or take was 1979 and then between 2006 and mid-2007 when the S&P rallied 25% off its lows.”

“If you go 25% off the lows of 3490, in today’s terms that moves the index to 4350. That’s not the target. These are just technical structural factors that if similar patterns hold as the last time we had a deeply inverted curve and stocks rallied this aggressively off their lows on average about 25%, it could take S&P 500 to 4250.” 

“Now, if you look at technical analysis, a lot of technicians believe that the next resistance is 4325. That is not our expertise here in CIO, but with the momentum taking us above 4100, a lot of technicians are pointing to further upside overall.”

The Reserve Bank of Australia (RBA) will announce its next monetary policy decision on Tuesday, February 7 at 03:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of ten major banks regarding the upcoming central bank's decision.

RBA is expected to hike rates by 25 basis points to 3.35%. Updated macro forecasts will come at this week’s meeting. The bank then releases its Statement on Monetary Policy Friday. This report will contain updated forecasts.

ANZ

“Another upgrade to inflation forecasts in the RBA’s February Statement on Monetary Policy will provide further support for an increase in the cash rate. We expect the RBA to lift its end-2023 trimmed mean inflation forecast from 3.8% to 4.2%. Importantly, we think the February forecasts will include a return to 3% YoY inflation, which is the top of the target band, in Q2 2025. While a 25 bps hike is the most likely option, we expect the Board to consider a 50 bps hike. Early signs of a slowdown in consumer spending and a softening in business conditions should be enough though for the RBA that demand is responding to higher rates, allowing it to stick to 25 bps.”

ING

“RBA is expected to hike rates by 25 bps. Considering the much higher-than-expected inflation readings over the past two months, we have increased our peak RBA cash rate forecast to 4.1% from 3.6%, assuming that there are two further months of 25 bps hikes ahead. We see a slight softening of the labour and housing markets, but this is not likely to be decisive for future rate decisions. There will be a subsequent statement on monetary policy on 10 February and this will likely provide more clarity on direction.”

Standard Chartered

“We expect the RBA to hike the cash rate by another 25 bps to 3.35% from 3.10% previously. This would be the fourth consecutive 25 bps rate hike since October. In aggregate, the central bank would have hiked by 325 bps since it started its rate-hiking cycle back in May. On balance, we see the RBA hiking again in February, followed by another 15 bps in March. We see still-elevated inflation as a risk to further hikes.”

HSBC

“We expect the RBA to deliver a 25 bps hike. Hawkish comments hinting at further hikes could open some upside for the AUD over the near term.”

TDS

“Accelerating services inflation locks in a 25 bps hike. We forecast a follow-up 25 bps hike in Mar taking terminal to 3.6% but the statement may open the door to pausing after next week. Official forecasts will be released 10th Feb, but the statement will provide a flavour of what to expect. Wage f/c's to be revised higher but the inflation trajectory to be left broadly unchanged.”

NAB

“We expect the Board will deliver another 25 bps increase. Important for the outlook will be updated forecasts, previewed in the post-meeting statement and detailed in Friday’s SoMP on 10 February. We expect the forecasts to continue to draw a path to a soft landing, but the characterisation of the risks will be key to determine whether the RBA continues to be confident that it can return inflation to target without pushing rates deep into restrictive territory. We see the cash rate increasing by 25 bps in February and March to a peak of 3.6%.”

Crédit Agricole

“We expect the RBA to raise its cash rate by 25 bps to 3.35%, which would not have much impact on the AUD as the market is about 75% priced for such a hike. Softening household consumption and employment growth leave the market a little hesitant to fully price in a 25 bps rate hike. This data also leaves investors on the lookout for any signs from the RBA of a pause in its tightening cycle. With the market still pricing in an RBA terminal rate of between 3.60%.” 

Danske Bank

“We look for a 25 bps hike.”

SocGen

“We expect the RBA to increase the cash rate target from 3.10% to 3.35%, marking its fourth consecutive ‘baby-step’ hike of 25 bps since October last year. The RBA policymakers are clearly more focused on the slowdown of economic growth, although macroeconomic indicators (especially inflation and employment) do not support a termination of the rate-hike cycle at this juncture. We maintain our base scenario that the RBA will end the tightening cycle at a terminal policy rate of 3.85% in April.”

Citibank

“RBA will likely raise its policy rate for the 9th consecutive time by 25 bps, taking the cash rate to 3.35%. With inflation well above the target band at 7.8%, the real policy rate remains negative and likely to remain there until around mid-2024. The RBA is also likely to signal further interest rate increases are likely and the risks to this week’s meeting also remain tilted hawkish with a non-trivial likelihood of a 50 bps increase. We now expect the RBA’s terminal cash rate view to rise from 3.35% in Q1 to 3.85% in Q2 while also lifting their inflation forecast for Australia with year-ended headline inflation for 2023 now forecast to be 1.4pp higher to 5.4% and underlying inflation also 1.3pp higher at 5.0%. We expect the RBA to lift the inflation forecasts to June 2024, ie, inflation to remain higher for longer in the February SMP due on Friday. This brings into focus the March and April RBA meetings that leave at least two more 25 bps hikes on the table to take the cash rate to 3.85%.”

• Canada Ivey PMI improved at a much stronger pace than expected in January.
• USD/CAD continues to trade in positive territory near 1.3450.

The Ivey Purchasing Managers Index (PMI), an economic index which measures the month-to-month variation in economic activity in Canada, climbed to 60.1 (seasonally adjusted) in January from 33.4 in December. This reading came in better than the market expectation of 55.2.

Further details of the publication revealed that the Employment Index edged higher to 60.5 from 59.5 and the Prices Index declined to 63.6 from 67.5.

Market reaction

USD/CAD showed no immediate reaction to this report and was last seen trading at 1.3450, where it was up 0.4% on a daily basis.

• GBP/USD manages to reverse part of the recent sell-off.
• BoE’s C.Mann sees upside risks to the inflation outlook.
• UK Construction PMI improved a tad in January.

The British pound manages to somewhat shrug off the current dollar strength and motivates GBP/USD to rebound from earlier lows near 1.2020 on Monday.

GBP/USD looks supported near 1.2020

GBP/USD regains the smile and leaves behind the earlier drop to fresh 5-week lows in the 1.2025/20 band at the beginning of the week.

In fact, Cable manages to gather some upside traction despite the persistent buying interest in the greenback, which has already lifted the USD Index (DXY) to new 4-week peaks well north of the 103.00 barrier.

In the UK docket, BoE MPC member C.Mann said she sees upside risks to the inflation outlook, at the time when she added that the consequences of under-tightening far outweigh the alternative.

Data wise, New Car Sales expanded 14.7% in the year to January and the S&P Global/CIPS Construction PMI dropped marginally to 48.4 in the same month (from 48.8).

What to look for around GBP

Same as with the rest of the risk complex, the British pound is expected to track the dollar’s price action and the policy divergence between the Federal Reserve and the Bank of England when it comes to Cable’s near-term direction.

Furthermore, the UK economy’s bleak outlook in the next months coupled with elevated inflation leaves the prospects for further gains in the Sterling somewhat curtailed in the short term, while a BoE near its terminal rate does not look helpful for the currency either.

Key events in the UK this week: BRC Retail Sales Monitor (Tuesday) – Flash Q4 GDP Growth Rate, Balance of Trade, Construction Output, Industrial Production, Manufacturing Production (Friday).

GBP/USD levels to consider

As of writing, the pair is gaining 0.02% at 1.2052 and a breakout of 1.2174 (55-day SMA) would open the door to 1.2447 (2023 high January 23) and then 1.2666 (weekly high May 27 2022). On the other hand, the next support emerges at 1.1950 (200-day SMA) followed by 1.1841 (2023 low January 6) and finally 1.1807 (100-day SMA).

Economists at Wells Fargo believe the Mexican Peso will be able to absorb decoupling from the Fed and the currency will not come under undue pressure.

USD/MXN can move toward 18.00 by the middle of this year

“Prudent monetary policy decisions and effective forward guidance should support the Peso, while broad-based USD depreciation can help the Mexican currency strengthen against greenback during the decoupling.”

“Even with diverging paths for monetary policy between Banxico and the Fed, we believe the USD/MXN exchange rate can move toward 18.00 by the middle of this year and eventually trade with a 17 handle by the end of 2023 and into 2024.” 

Economists at ANZ believe Gold will be largely guided by US economic data. A hot job market will keep Fed hawkish, pummeling the yellow metal.

Strong labour data provides more room for the Fed to remain hawkish

“Labor data has been strong despite aggressive rate hikes, providing more room for the Fed to remain hawkish and delaying any rate cut until inflation comes into its target range. We see this as a headwind for the Gold price, triggering profit booking after the recent price rally.”

“Physical Gold demand is holding up in China as the economy reopens. Central banks are continuing their buying spree amid elevated geopolitical risks.”

Senior Economist at UOB Group Julia Goh and Economist Loke Siew Ting comment on the expected increase in tourism in Malaysia and its impact on the GDP.

Key Takeaways

“The global tourism sector is expected to make a big leap this year as China reopens its borders and eases domestic restrictions sooner than expected since 8 Jan 2023. The World Tourism Organisation (UNWTO) projects that international tourist arrivals could reach 80%-95% of pre-pandemic levels in 2023 (vs. 63% in 2022) despite lingering global headwinds.”

“More than 32mn Chinese travelers visited Southeast Asia before the pandemic mainly to Thailand, Vietnam, Malaysia, Cambodia, and Laos. The effect of stronger tourism activity is expected to boost Malaysia’s GDP by at least 1.0ppt, which further supports our baseline GDP growth forecast of 4.0% for 2023. The uplift will come through further recovery in tourist arrivals, resumption of China outbound travelling, and sustained domestic tourism demand.”

“Key risks to Malaysia’s tourism outlook include a weaker global outlook, slower China recovery and return of China tourists, capacity constraints, and inflation risks. To mitigate these downside risks and sustain the tourism recovery will require consistent and stable reopening of countries and borders, minimal quarantine restrictions and requirements, affordable travel, improved travel connectivity, visa facilitation, processing of passports, build-up of capacity (i.e. airline seats, hotel rooms, and supply of labour), technology improvements and e-payment facilities, better safety and security.”

• EUR/USD picks up further downside traction near 1.0750.
• Losses could accelerate below the 3-month line near 1.0760.

EUR/USD extends the corrective decline for the third consecutive session and flirts with the 1.0750 region at the beginning of the week.

A convincing breakdown of the 3-month support line around 1.0760 could open the door to extra weakness in the short-term horizon. Against that, there is an interim support at the 55-day SMA at 1.0655 prior to the 2023 low at 1.0481 (January 6).

In the longer run, the constructive view remains unchanged while above the 200-day SMA, today at 1.0318.

EUR/USD daily chart

UOB Group’s Senior Economist Alvin Liew reviews the latest PMI figures in Singapore.

Key Takeaways

“Even as we are pleasantly surprised by Jan’s uptick, Singapore’s manufacturing Purchasing Managers’ Index (PMI) still remained in contraction territory although it edged higher slightly by 0.1 point to 49.8 in Jan (from 49.7 in Dec), the fifth consecutive month of contraction in overall activity for the manufacturing sector.”

“Similarly, the electronics sector PMI remained in contraction territory but enjoyed a slightly better uptick of 0.2 point to 49.1 in Jan from 48.9 in Dec. This was nonetheless the 6th consecutive contraction since Aug 2022. The reason for the improvement was attributed to slower contraction for most of the sub-indices within both of the Jan PMIs, but importantly, these sub-indices still remained in contraction territory (i.e sub-50).”

“Manufacturing PMI Outlook – The small uptick in Jan overall and electronics PMIs was a surprise to us but does not change our negative view for manufacturing in 2023. Despite the Jan improvement, most of the sub-indices within the PMI surveys remained in contraction territory and we have also kept our view of weaker external demand and the electronics downcycle remaining in place, which are typically a bad combination for economies which are trade reliant with a significant share of manufacturing related to electronics, such as Singapore, South Korea and Taiwan. We expect the PMIs for Singapore to stay in contraction territory in the first three months of 2023 and the weakness may extend for at least another quarter (or even two).”

EUR/USD moved below 1.08. A break under the 50-Day Moving Average (DMA) at 1.0680 could deepen the fall, economists at Société Générale report.

50-DMA at 1.0680 is crucial support

“Formation of weekly Inverted Hammer points towards the possibility of a pause.”

“The 50-DMA at 1.0680 is crucial support. Break can lead to a deeper pullback towards January low of 1.0480.” 

“Reclaiming 1.1040 would be essential to affirm the next leg of up move.” 

See – EUR/USD: Risks are skewed towards further pullback – OCBC

• The index pushes higher and consolidates the breakout of 103.00,
• There is an interim hurdle at the 55-day SMA at 103.88.

The march north in the index appears unabated and now extends the recovery from last week’s lows near 100.80 to the area well above the 103.00 yardstick.

DXY surpasses the 3-month line and this allows for the continuation of the upside momentum to, initially, the temporary 55-day SMA, today at 103.88. Further up, there are no relevant hurdles until the 2023 top at 105.63 (January 6).

In the longer run, while below the 200-day SMA at 106.45, the outlook for the index remains negative.

DXY daily chart

• USD/CAD attracts some dip-buying on Monday amid a strong follow-through USD buying.
• An uptick in oil prices underpins the Loonie and caps any meaningful upside for the major.
• The fundamental backdrop still favours bulls and supports prospects for additional gains.

The USD/CAD pair reverses an intraday dip to sub-1.3400 levels and climbs to a four-day high during the first half of trading action on Monday. Spot prices, however, struggle to capitalize on the move and remain below mid-1.3400s through the early North American session.

The US Dollar builds on Friday's solid bounce from a nine-month low and gains strong follow-through traction, which, in turn, acts as a tailwind for the USD/CAD pair. The upbeat US monthly employment details pointed to the underlying strength in the labor market and fueled speculations that the Fed will keep hiking interest rates to tame inflation. This continues to push the US Treasury bond yields higher and underpins the buck.

Meanwhile, expectations that the US central bank will stick to its hawkish stance for longer, along with fears of worsening US-China relations, take its toll on the global risk sentiment. This is evident from a sea of red across the equity markets, which is seen as another factor benefitting the safe-haven greenback. That said, an uptick in oil prices underpins the commodity-linked loonie and keeps a lid on any further gains for the USD/CAD pair.

Turkey's oil terminal in Ceyhan halted after a major earthquake struck nearby early on Monday. This, along with price caps on Russian products that took effect on Sunday, raises supply concerns and provides a modest lift to oil prices. That said, the uncertainty about a strong recovery in the Chinese economy and looming recession risks might hold back bulls from placing aggressive bets around the black liquid, at least for the time being.

This, in turn, favours the USD/CAD bulls and supports prospects for a further near-term appreciating move. Hence, some follow-through strength beyond last week's swing high, around the 1.3470 area, looks like a distinct possibility. The momentum could get extended further towards the 1.3500 psychological mark en route to a technically significant 100-day SMA support breakpoint, now turned resistance, currently around the 1.3525-1.3530 region.

Technical levels to watch

The Dollar is around 10% off the highs seen in late September. Consensus expects the Dollar to weaken further this year, and economists at ING agree.

Sustained EUR/USD gains beyond 1.15 may be harder to achieve in H2

“At the heart of the bearish Dollar view is the call that the Fed will shift to a reflationary stance in the second half of 2023, US short-dated yields will fall and those yield differentials will move against the Dollar.”

“Lower natural gas prices have seen the eurozone terms of trade improve markedly and justify fundamentally higher levels of the Euro. Assuming that the China reopening story continues to evolve positively, we think this confluence of factors can drive EUR/USD steadily higher throughout 2023. Most of the gains, however, may come in the second quarter, when US inflation is seen falling quite sharply.”

“Sustained EUR/USD gains beyond 1.15 may be harder to achieve in the second half – especially if US debt ceiling negotiations are pushed to the limit.”

• Silver registers a modest recovery from a nearly one-month low and snaps a two-day losing streak.
• Oversold RSI (14) on hourly charts helps the XAG/USD to find support near the 23.6% Fibo. level.
• The technical setup, however, favours bearish traders and supports prospects for additional losses.

Silver stages a modest intraday recovery from a nearly one-month low, around the $22.20-$22.15 region touched earlier this Monday and reverses a part of Friday's heavy losses. The white metal, for now, seems to have snapped a two-day losing streak, though the near-term technical setup seems tilted firmly in favour of bearish traders.

The steep decline witnessed over the past two trading sessions confirmed a near-term breakdown through the $23.00-$22.90 strong horizontal support. The said area marked the lower end of a nearly two-month-old trading range and coincided with the 23.6% Fibonacci retracement level of the recent rally from October 2022. Furthermore, acceptance below the 50-day SMA adds credence to the negative outlook for the XAG/USD.

That said, the oversold RSI (14) on hourly charts assists the XAG/USD to find support near the 38.2% Fibo. level and stall its sharp pullback from the highest level since April 2022 touched last week. Hence, it will be prudent to wait for some follow-through selling below the $22.20-$22.15 area before positioning for a fall below the $22.00 mark, towards the next relevant support near the 100-day SMA, around the $21.60-$21.55 zone.

On the flip side, the aforementioned confluence support breakpoint near the $23.00-$22.90 region now seems to act as an immediate strong barrier. Any subsequent move up might now be seen as a selling opportunity and runs the risk of fizzling out near the 50-day SMA, currently around the $23.30-$23.35 region. That said, a sustained strength beyond will negate the bearish bias and prompt some short-covering around the XAG/USD.

Silver daily chart

Key levels to watch

AUD/USD up move appears to have petered out. In the view of economists at Société Générale, the 200-Day Moving Average (DMA) at 0.6800/0.6750 is likely to provide support.

A large downside is not envisaged

“An initial pullback has brought the pair back towards the upper limit of November/December range. A large downside is not envisaged; the 200-DMA at 0.6800/0.6750 is a crucial support zone. Only if this gets violated, would there be a risk of a deeper pullback.”

“Defence of the MA is likely to result in a bounce towards recent peak of 0.7130/0.7170. Overcoming this would mean an extended uptrend.”

In an interview with ABC, US Treasury Secretary Janet Yellen said on Monday that the US economy is still strong and resilient. "You don't have a recession when you have the lowest unemployment rate in 53 years," Yellen added.

Key takeaways

"Inflation remains too high but it is coming down."

"Confident the US will find a path where inflation declines significantly and economy remains strong."

"Not to pay America's bills on time would produce an economic and financial catastrophe."

Market reaction

The US Dollar Index showed no immediate reaction to these comments and was last seen rising 0.2% on the day at 103.18.

US Dollar clings to last week's recovery gains on the back of the impressive January jobs report on Friday. Economists at Commerzbank expect the greenback to remain on a solid foot.

Gleanings from the US labour market report

“Instead of the 200K jobs created expected by analysts it turned out to be approx. 500K, instead of a rise in the unemployment rate to 3.6% we saw a fall to 3.4%. Combined with the recent rise in the number of job vacancies this provides an image of a US labor market that is heavily overheating.”

“So far – let us not delude ourselves – a considerable part of the USD valuation was based on the fact that in the US capital was particularly profitable thanks to a labor force that did not even dream of maternity laws, sick or holiday pay. If this were to change due to a long-term shortage of labor, part of the attractiveness of USD would be lost. However, these are medium- to long-term considerations.” 

“For now, the USD bulls are happy about the prospect that the Fed will hardly have to consider the real-economic consequences of a more restrictive monetary policy in view of such a strong labor market. And that means: there is a prospect of higher USD carry than previously assumed.”

• AUD/USD turns lower for the third straight day and is pressured by a combination of factors.
• Strong follow-through USD buying and the risk-off mood act weigh on the risk-sensitive Aussie.
• The downside seems limited in the absence of US macro data and ahead of the RBA on Tuesday.

The AUD/USD pair struggles to preserve its modest intraday gains on Monday and attracts fresh sellers in the vicinity of mid-0.6900s. The pair turns back lower for the third successive day and retreats to the 0.6900 mark during the mid-European session, closer to over a two-week low touched earlier today.

The post-NFP strong US Dollar recovery from a nine-month low remains uninterrupted on the first day of a new week, which, in turn, is seen exerting some downward pressure on the AUD/USD pair. The upbeat US monthly employment details pointed to the underlying strength in the labor market and should allow the Fed to keep hiking interest rates. This, in turn, continues to push the US Treasury bond yields higher and underpins the greenback.

Apart from this, the prevalent risk-off environment is seen driving haven flows towards the buck and further weighs on the risk sentiment. Expectations that the US central bank will stick to its hawkish stance for longer, along with fears of worsening US-China relations, take its toll on the global risk sentiment. This is evident from a sea of red across the equity markets and forces investors to take refuge in safe-haven assets.

The downside for the AUD/USD pair remains limited, at least for the time being, as traders await the latest monetary policy update by the Reserve Bank of Australia (RBA). The central bank is scheduled to announce its decision during the Asian session on Tuesday and is expected to hike interest rates by 25 bps for the fourth time in a row. The bets were reaffirmed by the stronger domestic CPI, which rose to the highest level since 1990 in Q4.

Hence, it will be prudent to wait for strong follow-through selling before traders start positioning for an extension of the recent pullback from the highest level June 2022 touched last week. In the absence of any relevant market-moving economic releases from the US, the greenback remains at the mercy of the US bond yields. This, along with the broader risk sentiment, might produce short-term opportunities around the AUD/USD pair.

Technical levels to watch

• EUR/JPY advances further and flirts with YTD highs below 143.00.
• Extra upside remains in store above the 200-day SMA (140.96).

EUR/JPY adds to Friday’s strong advance and approaches the key 143.00 region at the beginning of the week.

EUR/JPY extends the recent sharp rebound and leaves behind the key 200-day SMA, today at 140.96, at the same time breaking above the multi-session consolidative theme and opening the door to potential extra gains in the very near term.

That said, the next up barrier of note now comes at the December 2022 peak at 146.72 (December 15).

EUR/JPY daily chart

GBP/USD has formed a potential double top after failing to cross 1.2450. Economists at Société Générale expect to see a down move towards 1.1840, with a break below here opening up more losses.

Double top, watch neckline at 1.1840

“GBP/USD has failed to reclaim December peak of 1.2450 on second attempt forming a double top. Daily MACD has started posting negative divergence denoting receding upward momentum.” 

“A short-term pullback is not ruled out; neckline of the formation at 1.1840 is crucial support. Break can lead to an extended down move towards 1.1640 and target of the pattern at 1.1250.”  

“Short-term price action could remain range-bound. A move beyond 1.2450 would be essential to affirm next leg of uptrend.”

Economist at UOB Group Lee Sue Ann assesses the latest ECB event on February 2.

Key Takeaways

“The European Central Bank (ECB), at its first meeting of the year, lifted interest rates by 50bps. It also gave more details on how it intends to shrink its EUR5tn bond portfolio, reaffirming a monthly cap of EUR15bn between Mar and Jun on maturing debt that is allowed to expire.”

“The latest decision follows a slew of encouraging economic data, showing a further retreat in inflation and receding chances of a recession in the 20member region. These factors give the ECB room to remain hawkish. But just how far and how fast the ECB will go from there, is still unclear.”

“In line with our current forecasts, the ECB is expected to hike by another 50bps at the next meeting on 16 Mar. This will bring the refinancing rate to 3.50% and the deposit rate to 3.00% by 1Q23. The Mar meeting will also feature a new set of economic forecasts that should heavily influence the ECB’s decision going forward, and we will update our ECB forecasts accordingly then.”

In light of advanced prints from CME Group for natural gas futures, open interest extended the uptrend in place since January 24 and rose by around 10.5K contracts on Friday. Volume, on the other hand, shrank for the second session in a row, now by around 23.7K contracts.

Natural Gas: Next on the downside comes $2.00

Friday’s session saw another negative performance of natural gas prices. The decline, once again, was amidst an uptick in open interest and keeps favouring further weakness in the very near term. Against that, the next key level of note is expected at the $2.00 mark per MMBtu.

Lee Sue Ann, Economist at UOB Group, reviews the latest BoE monetary policy meeting (February 2).

Key Takeaways

“As expected, at its first meeting of 2023, the Bank of England (BOE)’s Monetary Policy Committee (MPC) voted by a majority of 7-2 to increase the Bank Rate by 50bps to 4%. The latest decision marked the 10th increase since the BOE started hiking in Dec 2021, bringing the key rate to its highest since 2008.”

“The BOE dialed back some of its previous bleak economic forecasts. Annual CPI inflation is expected to fall to around 4% towards the end of this year, alongside a much shorter and shallower recession than previously set out. However, the MPC noted that the labor market remains tight and domestic price and wage pressures have been stickier than expected, suggesting risks of greater persistence in underlying inflation.”

“We see the BOE nearing the end of its current tightening cycle, penciling in 25bps hikes at the next 2 meetings on 23 Mar and 11 May, seeing the Bank Rate peak at 4.5%. We recognize, though, the risks to our forecasts given the BOE’s challenge of fighting inflation amid a difficult economic outlook, as reflected by the range of views on the MPC at this meeting.”

Sterling is trading on a slightly steadier footing as the UK government attempts to restore fiscal credibility. Still, economists at ING expect the EUR/GBP to reach the 0.90/91 region by end-2023.

Sterling may hold its gains through the first half of the year

“Sterling may hold its gains through the first half of the year as the Bank of England stays hawkish. But clearer signs of easing labour market and price pressures in the second half of 2023 will see conviction build of a forthcoming BoE easing cycle.”

“EUR/GBP may well be ending the year nearer 0.90/91.” 

CME Group’s flash data for crude oil futures markets noted traders increased their open interest positions for yet another session on Friday, this time by around 23.5K contracts. Volume followed suit and went up by more than 227K contracts, reversing the previous daily drop.

WTI keeps targeting the YTD low at $72.50

Prices of the WTI dropped sharply and extended the weekly leg lower on Friday. The strong decline came in tandem with increasing open interest and volume and is indicative that extra pullbacks remain well in store for the time being. The immediate support of note emerges at the 2023 low at $72.50 per barrel (January 5).

Further gains in USD/CNH are likely while above the 6.7400 level, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “The jump of 1.00% (NY close of 6.8063) in USD last Friday came as a surprise (we were expecting sideways trading). While USD extended its ascent in Asian trade, conditions are deeply overbought. That said, USD could continue to rise even though the major resistance at 6.8800 is unlikely to come under threat today (there is another resistance at 6.8500). Support is at 6.8000, followed by 6.7800.”

Next 1-3 weeks: “Our view last Thursday (02 Feb, spot at 6.7120) for USD to weaken was invalidated as it burst above our ‘strong resistance’ level at 6.7550 and rocketed to a high of 6.8100. Short-term conditions are deeply overbought but as long as the ‘strong support’ level, currently at 6.7400 is not breached, USD could rise further to 6.8500, as high as 6.8800.”

EUR/USD extended its pullback amid broad Dollar strength, which came on the back of strong US data. Economists at OCBC Bank expect the world's most popular currency pair to continue struggling for now.

Corrective pullback

“Daily momentum turned mild bearish while RSI fell. Risks are skewed towards further pullback.”

“Support at 1.0760, 1.0680 (50DMA, 23.6% fibo retracement of September low to February high).”

“Resistance at 1.0830 (21 DMA), 1.0940 and 1.1040 (recent high).”

See – EUR/USD: Support around 1.0730-1.0750 would be a welcome development for bulls – ING

Open interest in gold futures markets dropped for the second session in a row on Friday, this time by around 18.2K contracts according to preliminary readings from CME Group. Volume, instead, rose for the fourth session in a row, this time by around 53.6K contracts.

Gold looks at another test of $1900

Gold prices accelerated the sell-off to the $1860 region last Friday. The sharp drop was amidst diminishing open interest and is supportive of a probable bounce in the short term. That said, the next targer of note now emerges at the key $1900 mark per ounce troy.

Further improvement in the sentiment could motivate USD/JPY to revisit the 133.75 level ahead of 134.75 in the short term, note Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “USD lifted off last Friday and rocketed to a high of 131.21. USD extended its ascent in Asian trade today. While further USD gains are possible, the major resistance at 133.35 might not come into view today (next resistance is at 134.75). In order to keep the overbought momentum going, USD should not move below 131.10 (minor support is at 131.60).”

Next 1-3 weeks: “Our view from last Thursday (02 Feb, spot at 128.40) for USD to weaken to 127.20 was incorrect as it jumped above our ‘strong resistance’ level at 129.90. The outsized advance and the corresponding sharp increase in upward momentum suggest USD could rise further. The levels to watch are at 133.35 and 134.75. In order to keep the strong momentum going, USD must stay above the ‘strong support’ level, currently at 129.80.”

US Dollar maintains bid tone. Economists at Société Générale expect the USD Index (DXY) to extend the rebound and see potential to reach the January peak near 105.60.

Defending 101.40 is essential for persistence in up move

“The Dollar Index approached the earlier highlighted potential support zone near 100.60/100.00 representing peak of 2015. A sharp rebound has taken shape resulting in formation of a weekly hammer. This denotes downward momentum is gradually receding.” 

“The index is expected to inch higher gradually towards 50-DMA at 103.70/104.10. Overcoming this could mean a revisit of January peak near 105.60.”

“Defending 101.40, the 76.4% retracement of the rebound is essential for persistence in up move.”

The Norwegian Krone has had a horrible start to 2023. A lower interest rate differential has hurt the NOK and economists at Nordea expect EUR/NOK to trade sideways in the near-term.

NOK gets knocked down as rate differentials dwindle

“The combination of lower energy prices and dwindling interest rate differentials are the key reasons behind the NOK’s decline.”

“While the ECB will be the central bank to hike the most in the coming months, Norges Bank could have a few surprises in its sleeve. The Norwegian economy has fared better than feared, wage growth has been higher than expected, and the NOK is weaker than Norges Bank pencilled in. This argues for higher rates than previously signalled. That said, all stars need to be aligned for the NOK to perform and we believe EUR/NOK will move about sideways in the short-term.”

• Gold price catches some bids on Monday and stages a recovery from a nearly four-week low.
• The prevalent risk-off environment is seen lending some support to the safe-haven commodity.
• Hawkish Fed expectations, rising US bond yields underpin the US Dollar and cap the upside.

Gold price attracts some buyers near the $1,860 region, or a nearly four-week low touched earlier this Monday and sticks to its modest gains through the first half of the European session. The XAU/USD, for now, seems to have snapped a two-day losing streak and stalled the recent pullback from its highest level since April 2022 touched last week.

Risk-off mood benefits safe-haven Gold price

The prevalent risk-off environment - as depicted by a generally weaker tone around the equity markets - turns out to be a key factor lending support to the safe-haven Gold price. The global risk sentiment takes a hit amid fears of worsening US-China relations, especially after Washington’s decision last week to shoot down a Chinese balloon that traversed American airspace. This comes amid concerns about a strong recovery in the Chinese economy and the economic headwinds stemming from the continuous rise in borrowing costs.

Hawkish Fed expectations cap gains for Gold price

That said, a combination of factors holds back bulls from placing aggressive bets around Gold price and keeps a lid on any meaningful upside, at least for the time being. The upbeat monthly jobs report released from the United States (US) on Friday fueled speculations that the Federal Reserve (Fed) will stick to its hawkish stance for longer. This, in turn, pushes the US Treasury bond yields higher, which underpins the US Dollar (USD) and acts as a headwind for the non-yielding yellow metal, at least for the time being.

Stronger US Dollar also acts as headwind for Gold price

In fact, the USD Index, which tracks the Greenback against a basket of currencies, is seen building on Friday's post-NFP strong recovery from a nine-month low. This might further contribute to capping gains for the US Dollar-denominated Gold price. Hence, it will be prudent to wait for strong follow-through buying before confirming that the recent corrective decline from a multi-month top has run its course. Furthermore, absent relevant market-moving economic data warrants caution before positioning for any further upside.

Gold price technical outlook

From a technical perspective, weakness below the multi-week low, around the $1,860 region, could drag the Gold price to the $1,825 horizontal support en route to the $1,800 round-figure mark. This is followed by the very important 200-day Simple Moving Average (SMA), currently around the $1,776-$1,775 area. The latter should act as a pivotal point, which if broken decisively should set the stage for a deeper corrective decline.

On the flip side, any subsequent move up is likely to confront some resistance near the $1,890-$1.892 zone ahead of the $1,900 mark. A sustained strength beyond has the potential to lift the Gold price to the $1,920 horizontal barrier, above which a bout of a short-covering move could push the XAU/USD towards the $1,950 region. This is closely followed by the multi-month peak, around the $1,960 area touched last week. A sustained strength beyond the latter should allow bulls to aim to conquer the $2,000 psychological mark for the first time since March 2022.

Key levels to watch

Three threads are influencing market sentiment at the start of this week. US Dollar may find support, in the view of economists at ING.

Upside risks this week

“Three key themes are highly influencing the market mood at the start of this week: 1) Friday’s very strong US jobs data; 2) US-China tensions over the Chinese air balloon; 3) reports about the next Bank of Japan (BoJ) governor. All in all, these three themes appear to be pointing primarily at upside risks for the Dollar this week.”

“We think DXY could consolidate around the 103.00 mark until new first-tier data in the US are released next week and could reignite the re-rating of US growth and Fed rate expectations.”

• Eurozone Retail Sales came in at -2.7% MoM in January vs. -2.5% expected.
• Retail Sales in the bloc arrived at -2.8% YoY in January vs. -2.7% expected.

Eurozone’s Retail Sales dropped by 2.7% MoM in January versus -2.5% expected and 1.2% last, the official figures released by Eurostat showed on Monday.

On an annualized basis, the bloc’s Retail Sales came in at -2.8% in January versus -2.5% recorded in December and -2.7% consensus forecast.

FX implications

The Euro remains under pressure on the downbeat Eurozone data. At the time of writing, the major is trading at 1.0765, down 0.26% on the day.

About Eurozone Retail Sales

The Retail Sales released by Eurostat are a measure of changes in sales of the Eurozone retail sector. It shows the performance of the retail sector in the short term. Percent changes reflect the rate of changes of such sales. The changes are widely followed as an indicator of consumer spending. Usually, positive economic growth anticipates "Bullishness" for the EUR, while a low reading is seen as negative, or bearish, for the EUR.

In the opinion of Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, extra losses in AUD/USD are expected to meet a tough support around the 0.6825 level.

Key Quotes

24-hour view: “We did not anticipate the sharp selloff in AUD last Friday (we were expecting AUD to range trade). While clearly oversold, there is room for AUD to weaken further. However, a sustained decline below 0.6870 is unlikely. Resistance is at 0.6950, a break of 0.6980 would indicate that the weakness in AUD has stabilized.”

Next 1-3 weeks: “Last Friday (03 Feb, spot at 0.7075), we indicated that instead of heading higher, AUD is more likely to consolidate between 0.7000 and 0.7135. We did not anticipate the sharp selloff as AUD plunged by 2.16% (NY close of 0.6924), its largest 1-day drop since Dec last year. While AUD could weaken further, we expect 0.6825 to offer solid support. The downside risk is intact as long as AUD stays below the ‘strong resistance’ level, currently at 0.7025.”

The Reserve Bank of Australia (RBA) will hold its first monetary policy meeting of the year on Tuesday. Much speaks in favor of a further interest rate hike of 25 bps. The more interesting question for the FX market is probably what will happen afterward, as economists at Commerzbank note.

Fed is expected to do much more than the RBA

“Another rate hike is likely to be decided tomorrow, followed by a further rate hike in March. The RBA should then slowly approach the end of the interest rate cycle. However, much of this is already priced in.”

“The focus will shift more to rate cut expectations in the second half of the year. Here, the Fed is expected to do much more than the RBA. This is largely due to the more robust economic outlook in Australia, which has recently further improved as a result of the lifting of the Chinese covid measures.” 

“We see the risks in AUD/USD rather on the upside.”

• GBP/USD rebounds from a one-month low touched on Monday, though lacks follow-through.
• A combination of factors continues to push the USD higher and acts as a headwind for the pair.
• A dovish assessment of the BoE’s decision last week further contributes to capping the upside.

The GBP/USD pair attracts some buyers near the 1.2030-1.2025 region and stages a modest recovery from a one-month low touched earlier this Monday. The pair hovers near the daily top, around the 1.2060 area through the first half of the European session, though lacks follow-through amid strong follow-through US Dollar buying.

In fact, the USD Index, which tracks the greenback against a basket of currencies, is seen building on Friday's solid bounce from a nine-month low and drawing support from a combination of factors. The upbeat US monthly jobs report (NPF) forced investors to scale back their expectations for an imminent pause in the Fed's policy-tightening cycle. This, in turn, pushes the US Treasury bond yields higher and continues to boost the greenback. Adding to this, the prevalent risk-off mood further seems to underpin the safe-haven buck and contributes to capping the upside for the GBP/USD pair.

Expectations that the US central bank will stick to its hawkish stance for longer fuel concerns about economic headwinds stemming from the continuous rise in borrowing costs. Adding to this, fears of worsening US-China relations take its toll on the global risk sentiment, which is evident from a generally weaker tone around the equity markets. In the latest blow to ties between the world's two largest economies, Beijing on Monday stepped up its condemnation of Washington’s decision to shoot down a Chinese balloon. China claimed that the balloon had accidentally drifted into American airspace.

Apart from the aforementioned factors, a dovish assessment of the Bank of England (BoE) decision last week is also seen keeping a lid on the British Pound. The BoE, in its monetary policy statement, removed the phrase that they would "respond forcefully, as necessary". 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, suggests that the current rate-hiking cycle might be nearing the end and supports prospects for the emergence of fresh selling around the GBP/USD pair at higher levels.

On the economic data front, the UK Construction PMI remains in contraction territory for the second straight month and came in at 48.4 for January, down 48.8 previous. This further makes it prudent to wait for strong follow-through buying before confirming that the recent pullback from the 1.2445-1.2450 resistance zone, or a multi-month top has run its course. There isn't any relevant market-moving economic data due for release from the US, leaving the buck at the mercy of the US bond yields. This, along with the broader risk sentiment, might provide some impetus to the GBP/USD pair.

Technical levels to watch

The Eurozone Sentix Investor Confidence index improves further to -8.0 in February from -17.5 in January vs. -12.8 expected.

The Current Situation in the Eurozone rose to -10.0 from -19.3. Meanwhile, the Expectations Index rose to -6.0 from -15.8 in January, hitting its highest level since last February.

Key takeaways

"The increase of 9.5 points signals that a recession is off the table for the time being. Instead, the scenario of stagnation is gaining in contour" as the absence of an energy crisis and rosy corporate news contribute to a turnaround.

“At economic turning points, the expectations index normally turns positive faster than the current situation index, which has not been the case so far: "Investors expect the status quo of the economy to be maintained to some extent."

EUR/USD reaction 

The shared currency is unimpressed by the upbeat Eurozone Sentix data. EUR/USD is trading at 1.0772, down 0.19% on the day.

• EUR/USD looks unable to pick up some upside traction.
• The greenback remains bid post-Payrolls north of 103.00.
• EMU Sentix Index comes next in the domestic docket.

The selling pressure around the single currency remains well and sound and drags EUR/USD to new multi-session lows near 1.0770 at the beginning of the week.

EUR/USD on the defensive amidst further USD gains

The pair starts the week on the back foot and retreats further south of the 1.0800 support on Monday, as investors continue to digest the solid prints from the January Payrolls published last Friday.

Indeed, those better-than-estimated results from the US labour market lend further legs to the view that the Federal Reserve might move further into the restrictive territory, which in turn supports the dollar and the recent rebound in US yields.

The pair, in the meantime, drops for the third session in a row and gives away more than 2 cents since last week’s tops around the 1.1030 region.

Data wise in the euro area, Factory Orders in Germany expanded more than expected 3.2% MoM in December, while the Construction PMI improved to 43.3 in January and New Car Registrations contracted 2.6% over the last twelve months. In the broader Euroland, the Construction PMI rose to 46.1 during last month, while the Sentix Index, Retail Sales and the speech by Chair Lagarde are due next.

What to look for around EUR

The pronounced sell-off post-US NFP appears somewhat mitigated on Monday, although the selling pressure around the euro remains in place for the time being.

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 last week.

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 Factory Orders/Construction PMI, EMU Retail Sales/Sentix Index, ECB Lagarde (Monday) – Germany Flash Inflation Rate (Thursday).

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 retreating 0.18% at 1.0773 and the breakdown of 1.0769 (weekly low February 6) would target 1.0766 (weekly low January 17) en route to 1.0656 (55-day SMA). On the flip side, the next up barrier emerges at 1.1032 (2023 high February 2) followed by 1.1100 (round level) and finally 1.1184 (weekly low March 31 2022).

EUR/USD lost more than 100 pips on Friday and closed below 1.0800. Economists at ING expect the pair to find firm support at the 1.0730-50 region.  

Euro is highly exposed to a worsening in Chinese sentiment

“Given the ongoing correction and soft momentum in EUR/USD, support around 1.0730-1.0750 in the pair would already be a welcome development for EUR bulls.” 

“Remember that the Euro is highly exposed to a worsening in Chinese sentiment.”

“We think that any rebound may lose steam around the 1.0870-1.0900 area.”

Further losses in GBP/USD in the next weeks remain on the cards, according to Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “While we expected GBP to weaken last Friday, we held the view that ‘1.2120 is unlikely to come under threat’. However, GBP weakened more than expected as it plunged to a low of 1.2047. While clearly oversold, the decline has scope to dip to the support at 1.2000 before stabilization is likely. Today, the next support at 1.1950 is likely out of reach. Resistance is at 1.2100 but only a breach of 1.2150 would indicate that the weakness in GBP has stabilized.”

Next 1-3 weeks: “We turned negative on GBP last Thursday (03 Feb, spot at 1.2225) even though we indicated that any decline is likely to face solid support at 1.2120. The anticipated support did not materialize as GBP sliced through 1.2120 and plunged to a low of 1.2047. The further increase in downward momentum suggests more GBP weakness. The next significant support is at last month’s low of 1.1845. That said, it remains to be seen if GBP has enough momentum to drop to this level (there is a minor support at 1.1950). Overall, only a breach of 1.2200 (‘strong resistance’ level was at 1.2320 last Friday) would indicate that the current downward momentum has eased.”

“The risk of doing too little dwarfs thr risk of overtightening policy,” European Central Bank (ECB) policymaker Robert Holzmann said on Monday.

He added that “policy must continue to show "teeth" until a credible convergence to inflation target.”

Meanwhile, another ECB policymaker Martins Kazaks noted that “there will be a 50 bps rate hike in March barring significant data shock.”

Market reaction

At the time of writing, EUIR/USD is trading listlessly below 1.0800, down 0.06% so far.

In addition to the general USD strength, the Yen got a good battering this morning. The reasons were rumors that Masayoshi Amamiya would become the new governor of the BoJ. But Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, expects the Japanese government to nominate another candidate.

Rumours about Kuroda’s successor

“Amamiya is seen as a close ally of the current BoJ governor Haruhiko Kuroda. That means: the nomination of Amamiya would make it seem plausible that the BoJ continues its ultra-expansionary monetary policy and that the small restrictive step was nothing but a completely unsuccessful attempt at smoothing out the distortions that have been caused by the yield curve control.”

“Of course, the government rushed to deny the rumors of the nomination of Amamiya. But as is often the case: denials can never be so good as to not leave a small residue of doubt.” 

“It might make sense for the Japanese government to install a governor of the BoJ who is not quite as dogmatically committed to ultra-expansionary monetary policy as Kuroda and Amamiya. Due to these considerations, I tend towards believing the governments' denials more than the market does.”

Bank of England (BoE) policymaker Catherine Mann said in a scheduled appearance on Monday that in my view the next step in the bank rate is that it is more likely to be another hike.

Further comments

“I see material upside risk to the inflation outlook.”

“I seek significant and sustained deceleration in the CPI.”

Market reaction

GBP/USD is holding the latest upside near 1.2060 on the above comments. The pair is up 0.08% on the day.

China’s Commerce Ministry said in a statement on Monday that Australian and Chinese trade and commerce ministers conducted pragmatic and candid exchanges.

Additional comments

• NZD/USD stages a modest recovery from a one-month low, though lacks follow-through buying.
• A stronger USD, along with the risk-off environment, acts as a headwind for the risk-sensitive Kiwi.
• The fundamental backdrop supports prospects for an extension of the recent decline for the pair.

The NZD/USD pair finds some support near the 0.6300 mark and rebounds a few pips from a one-month low touched earlier this Monday. Spot prices, however, struggle to capitalize on the move and remain vulnerable to extend the recent sharp pullback from the highest level since June 2022 touched last week.

A combination of factors assists the US Dollar to build on Friday's strong recovery from a nine-month low and caps the upside for the NZD/USD pair. The upbeat US monthly jobs report forced investors to scale back their expectations for an imminent pause in the Fed's policy-tightening cycle. This, along with the prevalent risk-off environment, further underpins the safe-haven buck and acts as a headwind for the risk-sensitive Kiwi.

The headline NFP print surpassed even the most optimistic estimates and showed that the US economy added 517K new jobs in January. Furthermore, the unemployment rate unexpectedly dipped to 3.4% during the reported month and pointed to the underlying strength in the US labor market. This could allow the Fed to keep raising interest rates, which, in turn, pushes the US Treasury bond yields higher and continues to benefit the greenback.

Meanwhile, expectations that the US central bank will stick to its hawkish stance for longer fuel concerns about economic headwinds stemming from the continuous rise in borrowing costs. Adding to this, unimpressive quarterly earnings reports from tech companies leads to a further decline in the equity markets. The fundamental backdrop seems tilted firmly in favour of the USD bulls and supports prospects for additional losses for the NZD/USD pair.

There isn't any major market-moving economic data due for release from the US on Monday, leaving the greenback at the mercy of the US bond yields. Apart from this, the broader risk sentiment might influence the USD price dynamics and contribute to producing short-term trading opportunities around the NZD/USD pair.

Technical levels to watch

GBP/USD fell sharply in the second half of the previous week and touched its lowest level in a month at 1.2033. Economists at ING expect the pair to challenge the 1.20 level soon.

Growth data in focus this week

“We expect the British economy to have narrowly avoided a technical recession in the fourth quarter. Still, a 1Q23-2Q23 recession is more than possible, although that could be milder than previously expected thanks to lower energy prices.”

“Growth data and BoE speakers will be the two domestic inputs for the Pound this week, although global risk sentiment, geopolitical developments and a supported Dollar may work against any positive domestic news.”

“Cable may heavily test 1.2000 soon.”

USD/INR remained well supported last week, aided by the firmer Dollar last Friday. The Reserve Bank of India (RBI) could provide some support to the Rupee is signals more rate hikes at this week’s meeting, economists at Commerzbank report.

RBI set to hike further

“The latest S&P Global services PMI for January for India remained strong at 57.2. The report noted new businesses during January which is helping to offset the slowdown in external demand. The other side of the coin however is that cost pressures remain firm. This is consistent with sticky core inflation, excluding food and energy. As such, RBI can’t afford to pivot too early to a neutral tone as yet.”

“We expect RBI to hike by another 25 bps to 6.50% this Wednesday and probably stick to a relatively hawkish bias.” 

“Suggestions of more hikes from RBI could provide some support for INR.”

• USD/CAD struggles to capitalize on a modest bullish gap opening on Monday.
• An uptick in crude oil prices underpins the Loonie and acts as a headwind.
• A combination of factors continues to benefit the USD and lends support.

The USD/CAD pair fills the modest bullish gap opening on Monday and retreats to the 1.3400 mark during the early part of the European session.

Crude oil prices edge higher and recover a part of Friday's slide to over a one-month low, which, in turn, is seen underpinning the commodity-linked Loonie and acting as a headwind for the USD/CAD pair. The downside, however, remains cushioned amid strong follow-through US Dollar buying interest.

In fact, the USD Index, which tracks the greenback against a basket of currencies, builds on Friday's solid recovery from a nine-month low and continues to draw support from a combination of factors. The upbeat US jobs data could allow the Fed to stick to its hawkish stance and keep raising rates.

The expectations push the US Treasury bond yields higher, which, along with the risk-off environment, is seen benefitting the safe-haven greenback. This, in turn, suggests that the path of least resistance for the USD/CAD pair is to the upside and any meaningful slide is likely to get bought into.

There isn't any major market-moving economic data due for release from the US on Monday, leaving the USD at the mercy of the US bond yields and the broader market risk sentiment. Apart from this, traders will take cues from oil price dynamics to grab short-term opportunities around the USD/CAD pair.

Technical levels to watch

A focus on Bank of Japan (BoJ) succession and prospective policy changes could see renewed JPY strength, according to economists at HSBC.

Improving current account balance should also be helping

“A move lower in USD/JPY over the coming few weeks will mostly rely on the outlook for BoJ policy change, but other more medium-term forces (such as improving current account balance) should also be helping in the background.” 

“BoJ Governor Kuroda’s term ends on 8 April but the process of identifying his successor is likely to become more prominent in February. This will keep the narrative of potential policy change front and center in the coming weeks even if that change may have to wait for a number of months.”

“With the JPY still undervalued (based on its real effective exchange rate) and residents underhedged, we think the ingredients are in place for a renewed move lower in USD/JPY.”

Here is what you need to know on Monday, February 6:

Markets have started the new week in a calm manner and the US Dollar manages to stay resilient against its major rivals after having registered impressive gains on the back of the impressive January jobs report on Friday. The US Dollar Index (DXY) holds at fresh multi-week highs near 103.00 and the benchmark 10-year US Treasury bond yield stays in positive territory at around 3.55%. US stock index futures are down between 0.3% and 0.6% in the European morning, reflecting a cautious market tone. Sentix Investor Confidence Index for February and January Retail Sales will be featured in the European economic docket on Monday. There won't be any high-tier data releases from the US and market participants will pay close attention to Fedspeak.

The data published by the US Bureau of Labor Statistics revealed on Friday that Nonfarm Payrolls (NFP) in the US rose by 571,000 in January, surpassing the market expectation of 185,000 by a wide margin. Although the annual wage inflation, as measured by the Average Hourly Earnings, declined to 4.4% in January, December's reading of 4.6% got revised higher to 4.9%. The US Dollar surged higher on the impressive NFP reading and the DXY snapped a three-week losing streak, gaining 1% on a weekly basis. 

EUR/USD lost more than 100 pips on Friday and closed below 1.0800. The pair struggles to stage a rebound in the early European session on Monday. The data from Germany revealed that Factory Orders rose by 3.2% in December. Although this print came in better than the market expectation for an increase of 2%, it failed to help the Euro find demand. Retail Sales in the Eurozone are forecast to decline by 2.5% on a monthly basis in January.

GBP/USD fell sharply in the second half of the previous week and touched its lowest level in a month at 1.2033 during the Asian trading hours on Monday. The pair managed to stage a rebound and was last seen trading modestly higher on the day slightly above 1.2050.

USD/JPY opened with a large bullish gap and reached its highest level in nearly a month above 132.50 before retreating below 132.00 in the European morning. Earlier in the day, the Nikkei reported that Japan's government has approached Bank of Japan Deputy Gov. Masayoshi Amamiya as a possible successor to central bank chief Haruhiko Kuroda. Commenting on the report, “I have not heard anything about nomination of Amamiya as BoJ Governor,” said Japan's Finance Minister Shunichi Suzuki.

Pressured by surging US Treasury bond yields, Gold price lost more than 4% in the second half of the previous week. XAU/USD tries to stage a recovery early Monday and was last seen trading above $1,875, rising more than 0.5% on a daily basis.

Bitcoin extended its downward correction over the weekend and continued to push lower early Monday. At the time of press, BTC/USD was trading modestly lower on the day at around $22,800. Ethereum snapped a five-day winning streak on Sunday and lost more than 2% on a daily basis. ETH/USD stays relative quiet early Monday and fluctuates in a tight channel above $1,600.

Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group suggest EUR/USD risks a potential drop to the 1.0700 region in the next few weeks.

Key Quotes

24-hour view: “Our expectation for EUR to trade in a range was incorrect as it lurched lower and plummeted by 1.07% (NY close of 1.0793). Strong downward momentum suggests EUR could drop below 1.0755, the next support at 1.0700 is unlikely to come under threat today. Resistance is at 1.0825, followed by 1.0855.”

Next 1-3 weeks: “Last Friday (03 Feb, spot at 1.0905), we indicated that there was a rapid loss in upward momentum. However, we were of the view that EUR could consolidate between 1.0820 and 1.1020 first before heading higher. During NY trade, EUR plunged to a low of 1.0790. The price actions are likely the early stages of a pullback. The pullback could extend to 1.0700. Looking ahead, the next major support below 1.0700 is at 1.0615. Overall, only a breach of 1.0890 would indicate that the downside risk has subsided.”

• USD/JPY retreats a few pips from over a three-week high touched earlier this Monday.
• The risk-off mood benefits the safe-haven JPY and acts as a headwind for the major.
• A combination of supporting factors should help limit any meaningful intraday decline.

The USD/JPY pair struggles to capitalize on its modest bullish gap opening and retreats a few pips from over a three-week high touched earlier this Monday. The pair is currently placed just below the 132.00 mark, still up over 0.50% for the day, and seems poised to appreciate further.

The prevalent risk-off environment - as depicted by a generally weaker tone around the equity markets - underpins the safe-haven Japanese Yen (JPY) and acts as a headwind for the USD/JPY pair. That said, reports that Bank of Japan (BoJ) Deputy Governor Masayoshi Amamiya - an advocate of ultra-loose policy - will take over as the governor might keep a lid on any further gains for the JPY. Apart from this, strong follow-through US Dollar buying supports prospects for a further near-term appreciating move for the pair and an extension of last week's bounce from the 128.00 mark.

The US monthly jobs report (NFP) released on Friday showed that the economy added 517K jobs in January, beating consensus estimates by a big margin. Furthermore, the unemployment rate unexpectedly fell to edged down to 3.4%, or the lowest since May 1969. Average Hourly Earnings, meanwhile, rose 0.3% MoM and 4.4% over the past 12 months, down from 0.4% in December and 4.9%, respectively. Nevertheless, the data was strong enough to allow the Federal Reserve to keep hiking interest rates, which, in turn, is seen pushing the US Treasury bond yields higher and lending support to the greenback.

The fundamental backdrop seems tilted in favour of bullish traders, suggesting that any meaningful dip could now be seen as buying opportunity and is more likely to remain limited. In the absence of any relevant market-moving economic releases from the US on Monday, the US bond yields will continue to play a key role in influencing the USD price dynamics. Apart from this, the broader risk sentiment will drive demand for the safe-haven JPY and contribute to producing short-term opportunities around the USD/JPY pair.

Technical levels to watch

• German Factory Orders rebounded 3.2% MoM in December vs. 2.0% expected.
• German Factory output slumped 10.1% YoY in December vs. -7.1% expected.
• EUR/USD remains unfazed below 1.0800 following the mixed German data.

The German Factory Orders jumped more than expected in December, suggesting that the manufacturing sector activity is making a comeback.

According to the latest data published by the Federal Statistics Office showed on Monday, contracts for goods ‘Made in Germany’ came in at 3.2% on the month vs. 2.0% expected and -4.4% prior,

On an annualized basis, Germany’s Industrial Orders arrived at -10.1% in the reported month vs. -7.1% expected and -10.2% booked in November.

FX implications

The shared currency shows little to no reaction to the mixed German factory data.  At the time of writing, EUR/USD is down 0.06% on the day, trading at 1.0785.

Gold broke back below $1,900. XAU/USD is making a tepid recovery attempt toward the $1,900 level at the start of the week on Monday but is not out of the woods yet, FXStreet’s Dhwani Meha reports.

Bearish bias remains in place

“On the revival of selling interest, Gold could resume decline toward the four-week low of $1,860. The next downside target is seen at the $1,850 psychological mark. The bullish 50-DMA hangs around that level.”

“On the other side, Gold's price will hurdle the $1,900 threshold. Acceptance above the latter is critical to recapturing the 21-DMA at $1,913. So long as XAU/USD is below the 21-DMA barrier, bears will likely maintain their control.”

• EUR/JPY buyers keep the reins at five-week high despite recent struggle to overcome 100-DMA.
• Bullish MACD signals, sustained rebound from multi-day-old horizontal support keeps buyers hopeful.
• Convergence of previous support line from March, descending resistance line from late October appears crucial resistance.

EUR/JPY grinds higher past 142.00 as bulls struggle to cross the 100-DMA heading into Monday’s European session. In doing so, the cross-currency pair justifies the bullish MACD signals, as well as a clear bounce off a horizontal support line, stretched from late September 2022, to lure the pair buyers.

However, the 100-DMA challenges the EUR/JPY upside around the 143.00 threshold.

In the case where the EUR/JPY prices remain firmer past 143.00, a convergence of an 11-month-old previous support line and a downward-sloping resistance line from late October 2022, around 145.00, could challenge the pair’s further upside.

It’s worth noting that the EUR/JPY run-up beyond 145.00 won’t hesitate to challenge the late 2022 peak surrounding 148.40 while aiming for the 150.00 psychological magnet.

On the flip side, pullback moves may initially aim for the 140.00 round figure before testing the 38.2% Fibonacci retracement of the pair’s March-October 2022 upside, near 139.23.

Following that, the aforementioned horizontal support line comprising lows marked since late September 2022, near 137.35-30, will be in focus.

Even if the EUR/JPY bears conquer the 137.30 support, the 61.8% Fibonacci retracement level near 133.55 can act as the last defense of the buyers.

EUR/JPY: Daily chart

Trend: Limited upside expected

FX option expiries for Feb 6 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- USD/CAD: USD amounts       

• 1.3350 300m
• 1.3500 280m

• The index looks to extend the breakout of 103.00.
• Markets continue to digest Friday’s strong US Payrolls.
• 3-month/6-month bill Auctions will be the only event in the docket.

The greenback advances modestly around 103.00 mark when tracked by the USD Index (DXY) ahead of the opening bell in the old continent on Monday.

USD Index remains bid following NFP

The index trades in a positive fashion for the third session in a row and hovers around the key 103.00 region at the beginning of the week.

Indeed, the dollar appears on the bid side as market participants continue to assess Friday’s stellar prints from US Nonfarm Payrolls (+517K), while speculation of a tighter-for-longer stance from the Federal Reserve remains on the rise.

Nothing noteworthy in the US docket, with only a a couple of short-term bill auctions scheduled for later in the NA session.

What to look for around USD

The dollar clings to the area of recent highs around the 103.00 zone in the wake of Friday’s release of unexpectedly strong US Payrolls for the month of January.

The idea of a probable pivot/impasse in the Fed’s normalization process now looks mitigated in favour of a tighter-for-longer narrative, which appears almost exclusively underpinned by the recent NFP prints.

The loss of traction in wage inflation, however, seems to lend some support to the view that the Fed’s tightening cycle have started to impact on the robust US labour markets somewhat.

Key events in the US this week: Balance of Trade, Fed Powell, Consumer Credit Change (Tuesday) – MAB Mortgage Applications, Wholesale Inventories (Wednesday) – Initial Jobless Claims (Thursday) – Flash Consumer Sentiment (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 103.10 and faces the next up barrier at 103.87 (55-day SMA) seconded by 105.63 (2023 high January 6) and then 106.45 (200-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).

• EUR/USD struggles for clear directions inside immediate bearish channel.
• Oversold RSI, recent Doji candlestick keeps buyers hopeful.
• Convergence of 200-SMA, 50% Fibonacci retracement appears tough nut to crack for bears.

EUR/USD seesaws near 1.0800 as bulls and bears jostle during a sluggish Monday morning in Europe. In doing so, the major currency pair struggles to justify the recent Doji candlestick inside a three-day-old bearish channel.

That said, bearish MACD signals also tease EUR/USD sellers but a convergence of the 200-SMA, lower line of the stated channel and the 50% Fibonacci retracement level of January-February upside, near 1.0760, restricts the short-term downside of the pair.

In a case where EUR/USD remains bearish past 1.0760, the 61.8% Fibonacci retracement level, also known as the “golden level”, could act as the last defense of the pair buyers around 1.0690.

Should the quote drops below 1.0690, the odds of its slump to the previous monthly low of 1.0483 can’t be ruled out.

Alternatively, recovery moves could aim for the 38.2% Fibonacci retracement level surrounding 1.0825.

However, the upside momentum remains elusive unless the quote stays inside the aforementioned bearish channel, currently between 1.0760 and 1.0890.

In a case where EUR/USD defies the bearish channel formation, Friday’s peak of 1.0930 and the monthly high surrounding 1.1033 may entertain the bulls.

To sum up, EUR/USD stays on the buyer’s radar unless it breaks the 1.0760 support confluence.

EUR/USD: Four-hour chart

Trend: Limited recovery expected

Economist at UOB Group Lee Sue Ann expects the RBA to raise the OCR by 25 bps at its event on February 7.

Key Quotes

“Although we believe the end to the current tightening cycle is near, we have revised our forecasts slightly higher, now looking for the RBA to bring the cash rate to 3.85% before pausing as global growth slows and inflation softens.”

“There is some risk that the RBA takes a slower path if economic data continues to slow in early 2023. But we also bear in mind that the job market has been on a tear and this has driven the unemployment rate toward rock-bottom levels while job vacancies remain very high.”

• AUD/USD has rebounded firmly after dropping to near 0.6950 despite deepening US-China tensions.
• A surprise jump in the US NFP data has faded the expectations of a pause in the Federal Reserve’s policy tightening spell.
• To tame stubborn inflation, the Reserve Bank of Australia will escalate interest rates further.
• AUD/USD is aiming to test the breakdown of the Rising Channel pattern around 0.7000.

AUD/USD has attempted a firmer recovery after dropping to near the round-level support of 0.6900 in the early European session. The Aussie asset has scaled to near 0.6950 despite escalating tensions between the United States and China after the balloon event. A sudden attack ordered by US President Joe Bidden on a Chinese spy balloon, which has been recognized as civilian by the Chinese authorities has resulted in discomfort between the two nations.

The downside bias for the Aussie asset is solid amid escalating geopolitical tensions and rising expectations for further interest rate hike measures by the Federal Reserve (Fed). Also, the Australian Dollar could display some volatile moves ahead of the interest rate decision by the Reserve Bank of Australia (RBA).

S&P500 futures have escalated losses significantly in the Asian session, portraying a risk-off market mood.  The trimmed risk appetite of the market participants has pushed the return offered by the 10-year US Treasury bonds to near 3.55%.

Markets turn jittery as US-China tensions swell

Global equities turned jittery on Monday amid the impact of the US-China suspected spy Chinese balloon event this weekend. Stocks were dumped by the market participants as tensions between the two heavy-weight nations deepened. Chinese authorities condemned the decision of shooting down the Chinese balloon ordered by US President Joe Biden, which the former recognized as a civilian that accidentally entered into United States airspace, which was positioned for meteorological purposes.

The event has been followed by the postponement of the visit of US State of Secretary Antony Blinken to Beijing for which the former cited “nothing had been planned” by either side. This has spooked the market sentiment and therefore, investors have underpinned the risk-aversion theme.

It is worth noting that Australia is a leading trading partner of China and geopolitical tensions between the US and China could have a significant impact on the Australian Dollar.

A surprise rise in US NFP fades Fed pause bets

On Friday, the US Bureau of Labor Statistics reported a surprise jump in the number of payrolls added in an already tight labor market. According to the United States Nonfarm Payrolls (NFP) report, the economy has added fresh 517K, extremely higher than the consensus of 185K and the former release of 260K. The Unemployment Rate was trimmed to a multi-decade low of 3.4% lower than the expectations and the prior release of 3.6% and 3.5% respectively. Apart, from that Average Hourly Earnings dropped to 4.4% from 4.9% released earlier. A decline in earnings data might keep inflation projections in check as lower liquidity with households will not allow them to increase spending. However, a surprise rise in employment numbers could offset the impact of a decline in the labor cost index.

Markets were quite surprised as employment numbers soared despite a contraction in economic activities. The US manufacturing activities are contracting consecutively for the past three months amid higher interest rates by the Fed. Also, consumer spending has toned down recently.

Brace for a hawkish policy and guidance by the RBA

A historic jump in the Australian Consumer Price Index (CPI) (Q4) to 7.8% cleared that the inflation is extremely stubborn and an absence of a peak will bolster the case of further interest rate hikes by the Reserve Bank of Australia. Interest rate decision by the RBA is scheduled for February 8 and RBA Governor Philip Lowe is expected to stretch the Official Cash Rate (OCR) further to strengthen its defence in the battle against inflation.

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.

AUD/USD technical outlook

AUD/USD witnessed a sheer downside after a breakdown of the Rising Channel chart pattern on a four-hourly scale. The chart pattern showed a bearish reversal after an uptrend in a bounded territory. After a sheer fall, the Aussie asset has attempted a recovery and is likely to test the Rising Channel breakdown around the psychological resistance of 0.7000.

The 50-period Exponential Moving Average (EMA) at 0.7038 will act as a major barricade for the Aussie bulls.

Meanwhile, the Relative Strength Index (RSI) (14) is still oscillating in the bearish range of 20.00-40.00, demonstrating the activation of the bearish momentum.

USD/CHF prints mild losses around 0.9250 as bulls retreat from a one-week high heading into Monday’s European session. In doing so, the Swiss currency (CHF) pair prints the first daily loss in three as market sentiment dwindles.

Even so, the options market signals surrounding the USD/CHF pair appear the most bullish in 10 weeks, suggesting brighter chances of the quote’s further recovery. That said, the one-month risk reversal (RR), the spread between the call options and put options, prints the biggest weekly print since late November, to +0.10% at the latest.

The underlying reason for USD/CHF retreat could be linked to the US Dollar’s sluggish moves ahead of Tuesday’s speech of Fed Chairman Jerome Powell. Also challenging the greenback buyers is the lack of major data/events up for publishing during the day.

Also read: USD/CHF Price Analysis: Pullback looks favored before an upside break around 0.9280

Haitham Al Ghais, the Secretary-General of the Organization of the Petroleum Exporting Countries (OPEC), said on Monday that “the collective decision taken in October was the correct decision.”

Additional quotes

“OPEC+ has always played a constructive role in maintaining a balanced market.”

"We believe there is great confidence and trust in OPEC+ and its decisions, where we have proven time and again that we are ready to act immediately and respond to the dynamic nature of the market".        

Related reads

• WTI Price Analysis: Recovery remains elusive below $75.40
• Asian Stock Market: Bears in command as China stocks see the red, Fed concerns propel yields

• Gold price improves from one-month low amid sluggish US Dollar.
• China-linked risk-aversion, Fed concerns and $1,903 resistance confluence challenges XAU/USD rebound.
• Fed Chair Powell’s speech, US data eyed for clear directions after Friday’s upbeat data renewed hawkish Fed bias.

Gold price (XAU/USD) rebounds from monthly low, grinding higher around intraday tops surrounding $1,878 heading into Monday’s European session. In doing so, the yellow metal snaps a two-day downtrend amid the sluggish US Dollar, despite the sour sentiment and hawkish Fed sentiment.

Friday’s upbeat US jobs report and ISM Services PMI renewed chatters that the Federal Reserve (Fed) has some room to increase the rates. That said, the US shooting of a Chinese balloon and canceling Beijing’s visit of Antony Blinken, US Secretary of State, weigh on the market’s risk profile. On the same line was China’s warning to not aggravate the tense situation while also terming the incident as an ‘obvious overreaction’.

The US Dollar Index (DXY) remains inactive even as the US Treasury bond yields rebound and stock futures print mild losses. The reason could be linked to the DXY bull’s indecision ahead of Tuesday’s speech from Fed Chair Jerome Powell.

Also read: Gold Price Forecast: XAU/USD rebounds but not out of the woods yet

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the Gold price grinds higher towards the key resistance confluence comprising the Fibonacci 38.2% on one month and Pivot Point one day R1, around $1,903.

Before that, Fibonacci 61.8% on one day could challenge the Gold buyers around $1,897.

On an immediate basis, Fibonacci 23.6% on one week guards the XAU/USD upside around $1,885.

Meanwhile, Fibonacci 61.8% on one month, close to $1,870, puts a floor under the Gold price.

In a case where XAU/USD remains weak past $1,870, it’s downturn towards the previous monthly low surrounding $1,825 can’t be ruled out.

Overall, the Gold price remains bearish unless staying below $1,905.

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.

• WTI picks up bids to snap three-day downtrend at monthly low.
• Bearish MACD signals, previous support line challenge buyers.
• Upside appears doubtful below 100-DMA, descending trend line from August also challenges the Oil buyers.
• Seven-week-old horizontal support limits immediate downside ahead of 2023 bottom.

WTI crude oil licks its wounds near the one-month low, picking up bids to $73.70 during early Monday morning in Europe. In doing so, the black gold bounces off seven-week-old horizontal support to print the first daily gains in four.

However, the bearish MACD signals join the previous support line from early December 2022 to challenge the WTI recovery. Adding strength to the bearish bias could be the metal’s sustained weakness below the 100-DMA.

Hence, the quote’s latest rebound remains doubtful unless it stays below the support-turned-resistance line, close to $75.40 at the latest. Following that, a run-up toward $78.50 can’t be ruled out.

Even so, the 100-DMA and a descending trend line from late August 2022, respectively near $81.00 and $85.00, could challenge the energy bulls before giving them control.

On the contrary, pullback moves may retest the horizontal area comprising multiple levels marked since mid-December, near $73.40.

In a case where the black gold remains bearish past $73.40, its decline to the year 2023 bottom of $70.27 and then to the $70.00 psychological magnet can’t be ruled out.

Overall, WTI remains on the bear’s radar despite the latest corrective pullback.

WTI: Daily chart

Trend: Further downside expected

Australian Trade Minister Don Farrell said on Monday he will travel to Beijing at China's invitation, as they are working with China to resume full trade.

Additional comments

• GBP/USD has picked up demand after dropping to near 1.2050, however, the downside bias is still solid.
• Escalating geopolitical tensions over the US-China balloon event have trimmed the appeal for risk-perceived assets.
• The Fed is expected to announce two more hikes this year.

The GBP/USD pair has attempted to extend its rebound move above the critical resistance of 1.2050 in the Tokyo session. The Cable gauged an intermediate cushion around 1.2000 amid subdued performance by the US Dollar Index (DXY).

It would be early to consider the short-term pause in Cable’s vertical downside as a reversal as the risk profile is extremely negative amid US-China trade tensions. After US President Joe Biden ordered to shoot down the Chinese spy balloon, tensions between the two giants heated up as Chinese officials warned the US not to aggravate the tense situation.

Meanwhile, the postponement of US Secretary of State Antony Blinken’s visit to Beijing after the balloon event, citing that “nothing had been planned” by either side has signaled signs of disrespect for the Chinese authorities.

Losses in the S&P500 futures are escalating amid deepening US-China tensions, portraying the miserable risk appetite of the market participants. The US Dollar Index (DXY) has shown a marginal correction to near 102.67, however, the upside is still favored.

Considering the jump in the number of payrolls added by the United States economy in January, the street is expecting a continuation of interest rate hikes by the Federal Reserve (Fed). 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%.

On the United Kingdom front, investors are worried about the fact that monetary policy has done little in slowing down inflationary pressures, however, the impact is considerably visible on the economic activities.

Meanwhile, 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, reported Reuters. He further added that we have done a lot with monetary policy already." And "We have a reasonably high degree of confidence we will see inflation fall this year."

• USD/IDR retreat from intraday high on upbeat Indonesia Q4 GDP.
• Indonesia GDP rose 0.36% QoQ in Q4 versus 0.33% expected and 1.81% prior.
• China-linked risk aversion, Fed concerns put a floor under the USD/IDR prices.

USD/IDR fades the week-start rebound as it drops to $15,050 after Indonesia reported the fourth quarter (Q4) Gross Domestic Product (GDP) data. It’s worth noting, however, that the risk-off mood challenges the Indonesian Rupiah (IDR) buyers.

Indonesia’s Q4 GDP marked 0.36% QoQ and 5.01% YoY growth during Q4. In doing so, the growth figures are better than the 0.33% and 4.84% market forecasts but stayed below the 1.81% and 5.72% previous releases.

“Southeast Asia's largest economy expanded 5.31% in 2022, Statistics Indonesia data showed, its best annual growth rate in nine years,” said Reuters following the Indonesia GDP release.

Talking about the risks, The weekend headlines suggesting the US military fighter jet shot down a suspected Chinese spy balloon off the coast of South Carolina join the recently hawkish concerns surrounding the US Federal Reserve (Fed) to weigh on sentiment.

Following the US shooting of the China balloon, US Secretary of State Antony Blinked called off his previously planned visit to Beijing. In a reaction to the event, China President Xi Jinping termed this as an ‘obvious overreaction’ while also warning to not aggravate the tense situation.

Elsewhere, the hawkish Fed better gained new life after Friday’s upbeat US jobs report and activity numbers, which in turn underpinned the recovery in the US Treasury bond yields. Also likely to probe the sentiment could be the cautious mood ahead of Fed Chairman Jerome Powell’s speech on Tuesday, as well as the market’s chatters that China's stimulus will be limited.

Against this backdrop, the MSCI’s index of Asia-Pacific shares ex-Japan slumps 2.0% whereas Indonesia’s IDX Composite drops half a percent by the press time.

Looking forward, risk catalysts will be crucial ahead of Tuesday’s Fed Chair Jerome Powell’s speech. Following that, Friday’s US UoM Consumer Sentiment Index for February, as well as the University of Michigan's 5-year Consumer Inflation expectations, should be eyed for clear directions.

Technical analysis

Unless providing a daily closing beyond the 200-DMA, around $15,135 by the press time, the USD/IDR bulls are off the table.

• Asia-Pacific shares remain depressed amid fresh bout of risk aversion.
• US blew China’s balloon, canceled Secretary of State Antony’s visit to Beijing.
• Upbeat US jobs report, ISM Services PMI numbers propel yields.
• Risk catalysts are the key to clear directions.

Market sentiment remains sour as fears emanating from the bloc leader China, as well as from the US Federal Reserve (Fed), underpins the latest rebound in the US Treasury bond yields and weigh on equities. While portraying the mood, the MSCI’s index of Asia-Pacific shares ex-Japan slumps 2.0%. However, Japan’s Nikkei 225 rises to a fresh high in seven weeks.

It should be noted that stocks in China are the most negative, followed by those from Hong Kong. The weekend headlines suggesting the US military fighter jet shot down a suspected Chinese spy balloon off the coast of South Carolina weighed on the sentiment as US Secretary of State Antony Blinked called off his previously planned visit to Beijing following the event. In a reaction to the event, China President Xi Jinping termed this as an ‘obvious overreaction’ while also warning to not aggravate the tense situation.

Elsewhere, stocks in Australia and New Zealand also portray mild losses while tracking China whereas Indian equities bear the burden of the Adani stock rout. Furthermore, Indonesia’s IDX Composite drops 0.70% despite firmer Gross Domestic Product (GDP) figures for the fourth quarter (Q4).

On a broader front, S&P 500 Futures extend the previous day’s pullback from the highest levels since August, down 0.30% intraday near 4,140 by the press time. On the same line, the US 10-year Treasury bond yields remain firmer for the third consecutive day, to 3.56% by the press time, following the biggest weekly jump since late September 2022.

Also to note is that Friday’s upbeat US jobs report and activity numbers renewed hawkish bias towards the Federal Reserve (Fed) and underpinned the recovery in the US Treasury bond yields, which in turn weighed on the market’s mood. Also likely to probe the sentiment could be the cautious mood ahead of Fed Chairman Jerome Powell’s speech on Tuesday, as well as the market’s chatters that China's stimulus will be limited.

That said, the US Dollar Index (DXY) extends the previous weekly rebound from the lowest levels since April 2022, despite being sluggish of late, while prices of Crude oil remain pressured but those of Gold improve amid the risk-off mood.

• USD/INR has scaled firmly to near 82.50 as odds for further rate hikes by the Fed soar.
• The RBI is expected to keep the interest rate steady amid a slowdown in retail inflation.
• Market sentiment has turned negative amid US-China tensions.

The USD/INR pair has witnessed immense buying interest in the Asian session and has scaled above the critical resistance of 82.40. The impact of the upbeat United States Nonfarm Payrolls (NFP) data has strengthened the US Dollar Index (DXY).

S&P500 futures are facing sheer pressure in the Asian session as US-China tensions have joined fresh bets over the continuation of interest rate hiking by the Federal Reserve (Fed). The street started expecting a pause in the policy tightening by the Fed as the US Consumer Price Index (CPI) started demonstrating a slowdown led by a contraction in consumer spending and economic activities. However, a fresh jump in the hiring process by the US firms has faded the expectations.

There is no denying the fact that a mammoth rise in the payroll data will trigger a rebound in the inflation projections as higher liquidity with households for disposal will escalate retail demand again. This has triggered a surge in the alpha generated by the 10-year US Treasury yields above 3.55%.

On the Indian rupee front, after the Union budget announcement, investors are shifting their focus toward the announcement of the interest rate decision by the Reserve Bank of India (RBI), which is scheduled for Wednesday. RBI Governor Shaktikanta Das is expected to keep the repo rate steady at 6.5% as retail inflation has slowed down consecutively for the second month. However, core inflation is still a concern for the central bank.

Meanwhile, oil prices are failing to find a cushion after a vertical sell-off to near $73.50 as further higher interest rate hikes by the Fed will deepen US recession fears. It is worth noting that India is one of the leading importers of oil and lower oil prices might strengthen the Indian Rupee.

• EUR/USD is oscillating in a narrow range as investors await Eurozone Retail Sales for fresh cues.
• The risk profile is extremely negative amid escalating hawkish Fed bets.
• ECB members are advocating for two more interest rate hikes ahead.

The EUR/USD pair is displaying a lackluster performance below the round-level resistance of 1.0800 in the Asian session. The major currency pair has turned sideways, following the footprints of the subdued US Dollar Index (DXY). A volatility contraction in the USD Index is expected by the market participants after a one-sided vertical move on Friday.

S&P500 futures are showing losses in the Tokyo session, portraying a risk-off market mood. A minor military action in US-China has further trimmed the risk appetite of the market participants. The return generated by the 10-year US Treasury bonds has witnessed a minor decline but is still holding the 3.55% support.

Bumper United States Nonfarm Payrolls (NFP) data has faded the expectations that the Federal Reserve (Fed) will even consider a pause in its policy tightening spell. Considering an upbeat US labor market, Fed chair Jerome Powell might consider hiking interest rates further as the battle against stubborn inflation could be deadly ahead. For more clarity, investors will keep an eye over the speech from Fed chair Jerome Powell, which is scheduled for Tuesday.

On Eurozone front, after a bumper interest rate hike by the European Central Bank (ECB), the street is expecting that ECB President Christine Lagarde will continue hiking rates as the road to 2% inflation is far from over.

ECB policymaker Peter Kazimir said on Friday that “I don't think the March rate hike will be the last.” Also, ECB Governing Council member Pierre Wunsch supported the view of hawkish interest rate guidance, told Reuters on Friday that the ECB won't go from a 50 basis points (bps) rate hike in March to a zero in May. Wunsch added that a 25 bps or a 50 bps hike is possible in May.

Meanwhile, the Eurozone Retail Sales data will remain in focus. The economic data is expected to contract by 2.7% from a prior contraction of 2.8% on an annual basis.

• Gold price snaps two-day downtrend at the lowest levels in a month.
• US Dollar bulls struggle ahead of Fed Chair Powell’s speech.
• Sino-American tussles renew as Washington shot down Chinese balloon.

Gold price (XAU/USD) consolidates the recent losses as it prints mild gains around $1,875 during early Monday, printing the first positive day in three around the one-month low. In doing so, the precious metal cheers the US Dollar’s inability to stay firmer, as well as takes clues from the US-China tussles, ahead of this week’s key events.

That said, the US Dollar Index (DXY) remains sidelined around 103.00, after posting a two-day rebound from the lowest levels since April 2022. In doing so, the greenback’s gauge versus the six major currencies struggles to justify the strong US jobs report and geopolitical fears surrounding China.

The weekend headlines suggesting the US military fighter jet shot down a suspected Chinese spy balloon off the coast of South Carolina weighed on the sentiment as US Secretary of State Antony Blinked called off his previously planned visit to Beijing following the event. In a reaction to the event, China President Xi Jinping termed this as an ‘obvious overreaction’.

The same joins strong US jobs report and ISM Services PMI data, published on Friday, to challenge the XAU/USD bulls ahead of Fed Chair Jerome Powell’s speech, up for publishing on Tuesday.

Amid these plays, S&P 500 Futures extend the previous day’s pullback from the highest levels since August, down 0.30% intraday near 4,140 by the press time. On the same line, the US 10-year Treasury bond yields remain firmer for the third consecutive day, to 3.56% by the press time, following the biggest weekly jump since late September 2022.

It’s worth noting that a lack of major data seemed to have triggered the XAU/USD rebound from the short-term support but the Gold buyers should remain cautious amid recently hawkish Fed concerns and the US-China tension. Also important to watch will be Friday’s US UoM Consumer Sentiment Index for February, as well as the University of Michigan's 5-year Consumer Inflation expectations.

Gold price technical analysis

Gold price bounces off a seven-week-old ascending trend line, as well as crossing the monthly horizontal hurdle, as XAU/USD bulls approach the 200-Simple Moving Average (SMA) level surrounding $1,880.

The corrective pullback also takes clues from the oversold RSI (14). However, bearish MACD signals and the inability to cross the 200-SMA hurdle keep Gold sellers hopeful.

Even so, the metal’s fresh downside needs validation from the aforementioned support line, close to $1,860 by the press time.

On the contrary, an upside break of the 200-SMA hurdle surrounding $1,880 could direct Gold buyers toward the $1,900 threshold.

Following that, an upward-sloping resistance line from January 16, close to $1,965, as well as the March 2022 peak of around $1,966, will be crucial to watch for Gold buyers to tackle to keep the reins.

Gold price: Four-hour chart

Trend: Further downside expected

• EUR/GBP is displaying back-and-forth moves ahead of the Eurozone Retail Sales data.
• Upward sloping 50-and 200-period EMAs add to the upside filters.
• A bullish range shift by the RSI (14) indicates that the upside momentum is active.

The EUR/GBP pair has turned sideways after a minor corrective move from 0.8980 in the Asian session. The cross is displaying a subdued performance after a five-day winning streak as long liquidation by the market participants has been triggered.

On Monday, the cross will dance to the tunes of Eurozone Retail Sales data. The economic data is expected to contract by 2.7% from a prior contraction of 2.8% on an annual basis. The monthly data is seen contracting by 2.5% against an expansion of 0.8% reported earlier. Households demand has been declining for a few months and a further decline will trim inflation projections, and eventually will delight the European Central Bank (ECB).

EUR/GBP is demonstrating a loss in the upside momentum after delivering a breakout of the symmetrical triangle chart pattern on the daily scale that indicates a sheer decline in volatility, which results in wider ticks and heavy volume after a breakout. Horizontal support is plotted from January 12 high at 0.8867.

Upward sloping 50-and 200-period Exponential Moving Averages (EMAs) at 0.8794 and 0.8662 respectively, add to the upside filters.

The Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which indicates that the upside momentum is active.

After a sheer upside move, a mean-reversion to near the 10-period Exponential Moving Average (EMA) at 0.8868, at the press time, will be a bargain buy for the market participants for an upside to February 2 high at 0.8950 followed by the psychological resistance at 0.9000.

Alternatively, a breakdown of January 27 low at 0.8765 will drag the asset toward January 19 low at 0.8722. A slippage below the latter will drag the cross toward October 4 low at 0.8649.

EUR/GBP daily chart

Bank of Japan (BoJ) Governor Haruhiko Kuroda said on Monday that the central bank will seek to achieve 2% inflation in a stable, sustainable manner while keeping an eye out on side effects.

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Market reaction

USD/JPY is paring back gains to now trade at 131.85, adding 0.52% on the day.

Amidst escalating geopolitical tensions between US and China over the Chinese balloon incursions, a Chinese official warned the US not to aggravate the tense situation.

This comes after US President Joe Biden’s administration lauded the Pentagon for shooting down an alleged Chinese spy balloon off the US Atlantic coast on Saturday.

In response, China angrily voiced its "strong dissatisfaction" at the move and said it may make "necessary responses."

Market reaction

The FX space is relatively unaffected by the US-China conflict but the Chinese stocks are down 1% to 2% so far. The US S&P 500 futures are shedding 0.35% on the day.

AUD/USD is steadily recovering ground above 0.6900, up 0.05% on the day.

• AUD/USD fades bounces off 12-day low, mildly offered by the press time.
• Aussie data came in mixed as Retail Sales shrank less than expected, inflation signals improved.
• US shot China’s balloon terming it a spy, putting Sino-American ties again in danger.
• Risk catalysts will be crucial for immediate directions.

AUD/USD retreats from intraday high, fading the initial reaction to the mixed Aussie data amid risk-off mood amid early Monday. In doing so, the risk-barometer pair prints a three-day downtrend as sellers attack the 0.6900 round figure after refreshing the two-week low.

Earlier in the day, Australia’s fourth quarter (Q4) Retail Sales dropped 0.2% QoQ versus -0.6% expected and prior increase of 0.2%. Additionally, TD Securities Inflation for the nation rose to 0.9% MoM from 0.2% prior, as well as to 6.4% YoY versus 5.9% previous readouts, during January.

Talking about the risk, the weekend headlines suggesting the US military fighter jet shot down a suspected Chinese spy balloon off the coast of South Carolina weighed on the sentiment as US Secretary of State Antony Blinked called off his previously planned visit to Beijing following the event. In a reaction to the event, China President Xi Jinping termed this as an ‘obvious overreaction’.

Elsewhere, the dovish Fed actions couldn’t keep the US Dollar bears hopeful following the strong US jobs report and activity data. That said, the US Bureau of Labor Statistics (BLS) surprised markets by revealing that the Nonfarm Payrolls (NFP) rose by 517K in January, versus 185K expected and 260K (upwardly revised) prior. It’s worth noting that the Unemployment Rate also dropped to 3.4% from 3.5% prior and 3.6% expected but the Average Hourly Earnings eased during the stated month. Furthermore, the rebound in the US ISM Services PMI from 49.2 to 55.2, versus 50.4 expected, also underpinned the rebound in the United States Treasury bond yields and the US Dollar.

That said, S&P 500 Futures extend the previous day’s pullback from the highest levels since August, down 0.30% intraday near 4,140 by the press time. On the same line, the US 10-year Treasury bond yields remain firmer for the third consecutive day, to 3.56% by the press time, following the biggest weekly jump since late September 2022.

Looking forward, headlines surrounding China and the concerns over the Reserve Bank of Australia’s (RBA) next move could entertain AUD/USD pair traders ahead of Tuesday’s speech from Federal Reserve (Fed) Chairman Jerome Powel. Following that, Friday’s US UoM Consumer Sentiment Index for February, as well as the University of Michigan's 5-year Consumer Inflation expectations, will be important for the pair traders to watch.

It should be noted that the market concerns favor a hawkish move from the RBA amid upbeat inflation data but a less than 0.25% rate hike could quickly drag the AUD/USD pair.

Technical analysis

A sustained downside break of a three-month-old ascending trend line, around 0.6930 by the press time, directs AUD/USD further toward the south.

Japan’s Deputy Chief Cabinet Secretary Yoshihiko Isozaki clarified on Monday that there is “no truth to report Bank of Japan (BoJ) Deputy Gov Amamiya sounded out for the next BoJ governor.

Earlier on, the BoJ came out with a statement, citing that “not in a position to comment on governor nomination report.”

Market reaction

The above comments come to the rescue of the Japanese yen, as USD/JPY drops to test the 132.00 level. The pair is trading at 132.09, still up 0.71% on the day.

• USD/JPY grinds higher around three-week top during two-day uptrend.
• Successful break of 130.00 support-confluence join firmer oscillators to favor bulls.
• 50-DMA challenges immediate upside ahead of January’s peak.

USD/JPY remains firmer as buyers keep the reins at the highest levels in three weeks during early Monday. In doing so, the Yen pair also justifies the previous day’s upside break of the key 130.00 hurdle, now support, while portraying a two-day uptrend. That said, the Yen pair trades around 132.30 by the press time.

In addition to the upside break of the previous resistance line from late November 2022 and the 21-DMA, bullish MACD signals and upbeat RSI (14), not overbought, also keep the USD/JPY buyers hopeful.

However, the 50-DMA hurdle surrounding 132.70 presently challenges the USD/JPY bulls. Also acting as an upside filter is the previous monthly peak of around 134.80.

It should be noted that a clear upside break of 134.80 could convince buyers to retake control and reverse the downtrend from early November.

On the flip side, the aforementioned resistance-turned-support confluence near the 130.00 psychological magnet puts a floor under the USD/JPY prices.

Following that, an ascending trend line from mid-January will challenge the USD/JPY sellers around 128.20.

If at all the USD/JPY bears manage to conquer the 128.20 support bottom surrounding 127.20 and May 2022 low near 126.35 could probe them before highlighting the 120.00 round figure.

Overall, USD/JPY is likely to extend the latest recovery but a clear upside break of the 50-DMA becomes necessary for the buyer’s welcome.

USD/JPY: Daily chart

Trend: Further upside expected

• NZD/USD bulls are moving as the weekly cycle gets underway on the bid.
• Bears will eye the 50% mean reversion as a structure to protect. 

New Zealand Dollars took a step back due to a number of factors on Friday, including a drop in European bond yields that ended up benefiting the US dollar ahead of the critical jobs data. The price dropped to test a key support area but the bulls are looking to step in. As part of the weekly cycle, we can see that there are now prospects of a correction to start the week to set up the moves for midweek.

NZD/USD daily chart

The price dropped to test a key support area but the bulls are looking to step in. As part of the weekly cycle, we can see that there are now prospects of a correction to start the week to set up the moves for midweek. A break of 0.6300 will be required to flip the bias into the bear's favour despite the market being on the backside of the broken trend. The 0.6500 areas are the key objective for the bulls but should the bears commit at a 50% mean reversion near 0.6420, then that should be fueling the appetite for the next major move to the downside. 

• Market sentiment remains downbeat as China-linked fears join fresh hawkish concerns over Fed.
• S&P 500 Futures extend pullback from the late August 2022 peak.
• US 10-year Treasury bond yields grind higher after posting the biggest weekly gains in a year.
• Fed Chair Powell’s speech, US consumer sentiment data eyed for clear directions.

Risk profile remains weak as traders take a breather after a volatile week. That said, fears emanating from China and the US data keep the bears hopeful during early Monday.

While portraying the mood, S&P 500 Futures extend the previous day’s pullback from the highest levels since August, down 0.30% intraday near 4,140 by the press time. On the same line, the US 10-year Treasury bond yields remain firmer for the third consecutive day, to 3.56% by the press time, following the biggest weekly jump since late September 2022.

The sour sentiment could be linked to the weekend headlines suggesting the US military fighter jet shot down a suspected Chinese spy balloon off the coast of South Carolina. The same renews the Sino-American tension ahead of US Secretary of State’s visit to Beijing. “China protested the response as an ‘obvious overreaction’,” said Reuters.

On the other hand, the Fed announced 0.25% dovish rate hike but managed to regain the hawks’ attention following the strong US jobs report and activity data. That said, the US Bureau of Labor Statistics (BLS) surprised markets by revealing that the Nonfarm Payrolls (NFP) rose by 517K in January, versus 185K expected and 260K (upwardly revised) prior. It’s worth noting that the Unemployment Rate also dropped to 3.4% from 3.5% prior and 3.6% expected but the Average Hourly Earnings eased during the stated month. Furthermore, the rebound in the US ISM Services PMI from 49.2 to 55.2, versus 50.4 expected, also underpinned the rebound in the United States Treasury bond yields and the US Dollar.

That said, the US Dollar Index (DXY) extends the previous weekly rebound from the lowest levels since April 2022 while prices of Crude oil and Gold remain pressured amid the risk-off mood.

It should be noted that stocks in China see the red as the headlines China A50 drops over 2.0% while Hang Seng is also down 1.90% by the press time.

Moving on, updates from this week’s US diplomat’s visit to China will be more important for immediate directions ahead of Tuesday’s speech from Federal Reserve (Fed) Chairman Jerome Powel. Following that, Friday’s US UoM Consumer Sentiment Index for February, as well as the University of Michigan's 5-year Consumer Inflation expectations, will be crucial for fresh impulse.

• GBP/JPY extends Friday’s recovery moves to attack short-term key resistances.
• One-week-old descending trend line precedes key SMAs to challenge bulls.
• Upbeat MACD signals, U-turn from monthly support line keeps buyers hopeful.

GBP/JPY remains firmer around 159.20 as it stretches the previous day’s rebound from a three-week low during early Monday. In doing so, the cross-currency pair also jostles with the short-term key hurdles to keep the reins.

That said, bullish MACD signals join the quote’s sustained bounce off an upward-sloping support line from early January, around 156.75 by the press tie, to keep the GBP/JPY buyers hopeful.

It’s worth noting that the weekly resistance line appears the immediate hurdle for the GBP/JPY bulls to cross, near 159.30 at the latest. Following that, the 100-bar Simple Moving Average (SMA) and the 200-SMA could challenge the pair buyers around 159.40 and 159.50 respectively.

It should be observed that the 160.00 psychological magnet may act as an extra filter towards the north before directing the GBP/JPY upside to the previous monthly peak near 161.85.

Meanwhile, pullback moves could aim for the January 19 swing low surrounding 157.60 before challenging the aforementioned support line close to 156.75.

In a case where GBP/JPY bears keep the reins past 156.75, the mid-January low and the yearly bottom, respectively around 155.65 and 155.35, could test the bears.

To sum up, GBP/JPY is likely to regain the buyer’s confidence but the upside break of 159.50 appears necessary.

GBP/JPY: Four-hour chart

Trend: Further upside expected

• EUR/JPY has recovered firmly to near 142.80 as Japan approaches BoJ’s Amamiya as a successor of BoJ’s Kuroda.
• A spell of a contraction in Eurozone Retail Sales might continue amid higher interest rates by the ECB.
• The ECB is expected to hike interest rates in May further after a 50 bps interest rate hike in March.

The EUR/JPY pair has displayed a sharp recovery move after correcting to near 142.00 in the Asian session. The cross has recovered to near its intraday high around 142.80 as Japan’s administration is trying to rope in Bank of Japan (BoJ) Deputy Governor Masayoshi Amamiya to succeed Haruhiko Kuroda as the head of the central bank, according to a report from Nikkei, reported by Bloomberg.

The nominations for the successor of BoJ’s Kuroda will be finalized in February and discussions about an exit from the decade-long ultra-loose monetary policy will get more fire.

The BoJ has already widened the yield curve to provide more flexibility. Last week, BoJ Deputy Governor Masazumi Wakatabe cited that “BoJ's Dec decision to widen band was a necessary step to make YCC more sustainable, but the move alone may have had the effect of weakening stimulus effect.”

On the Eurozone front, investors are awaiting the release of the Retail Sales data for fresh impetus. The economic data is expected to contract by 2.7% from a prior contraction of 2.8% on an annual basis. The monthly data is seen contracting by 2.5% against an expansion of 0.8% reported earlier.

The Eurozone economy is recording a contraction in consumer spending consecutively for the past five months, which will delight the European Central Bank (ECB) ahead as it will scale down Consumer Price Index (CPI) projections.

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

Bloomberg has reported that should Masayoshi Amamiya become the next Bank of Japan governor, it would be bullish for bonds and weigh on the yen and local financial stocks, according to market participants.

The report explained that ''strategists and economists focused on Japan expect investors may need to recalibrate their expectations for policy adjustment if Amamiya is confirmed. The Nikkei reported that the current deputy governor was approached by the government for the role, a choice that would be seen as likely to extend the central bank’s ultra-easy monetary policy.''

''The shock December decision to tweak yield-curve control illustrated the shockwaves that any hint of BOJ policy change can trigger, sending the yen and Japanese yields soaring and Treasuries lower. Traders pricing in an early withdrawal of stimulus could pull those wagers if they expect a delay to any policy tweaks. The yen retreated in early trading on the reports,'' the article explained. 

Meanwhile, the next BOJ chief will face the delicate task of normalising ultra-loose monetary policy, which is drawing increasing public criticism for distorting market function. The government's nominees will be presented to parliament later this month.

USD/JPY update

USD/JPY is on the way to the opening gap but remains on the backside of the prior bearish trend so the bias is to the upside with the 132.80s eyed. 

In recent trade today, the People’s Bank of China (PBOC) set the yuan at 6.7737 vs. the last close of 6.8002.

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.

• GBP/USD takes offers to refresh monthly low, prints three-day downtrend.
• Dovish concerns surrounding BoE contrasts with the latest rebound in Fed outlook to favor Cable bears.
• Healthcare strikes, the worst monthly Services PMI in two years also weigh on GBP/USD.
• Second-tier catalysts to entertain traders for the day, Fed’s Powell, UK Q4 GDP eyed for clear directions.

GBP/USD stands on slippery grounds as it extends the previous weekly downturn towards 1.2000 psychological magnet, down for the third consecutive day near 1.2030 by the press time. In doing so, the Cable pair justifies downbeat catalysts surrounding the UK and the Bank of England (BoE) while also taking clues from the recently hawkish bias for the Federal Reserve (Fed) ahead of Chairman Jerome Powell’s speech.

Last week, the Bank of England (BoE) announced a 0.50% interest rate hike by matching the market expectations. Following the interest rate announcements, BoE Governor Andrew Bailey said, “BoE's forecast suggests inflation will come down, fall quite sharply.”

Asked if rates might have peaked, says "we have changed the language we used." BoE’s Bailey also added, "Change in language reflects a turning in the corner but very early days."

On a different scenario, 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.

Not only the downbeat comments from BoE officials but the weakest performance of the UK Services PMI in two years, to 48.7 versus 49.9 prior, also weighs on the GBP/USD prices. Additionally, the UK’s healthcare strikes add strength to the pessimism surrounding the British economy. “Britain faces its largest ever strike by health workers on Monday as tens of thousands of nurses and ambulance workers walk out in an escalating pay dispute which the health minister said would place a further strain on the National Health Service (NHS),” reported Reuters.

On the other hand, the Fed announced 0.25% dovish rate hike but managed to regain the hawks’ attention following the strong US jobs report and activity data. That said, the US Bureau of Labor Statistics (BLS) surprised markets by revealing that the Nonfarm Payrolls (NFP) rose by 517K in January, versus 185K expected and 260K (upwardly revised) prior. It’s worth noting that the Unemployment Rate also dropped to 3.4% from 3.5% prior and 3.6% expected but the Average Hourly Earnings eased during the stated month. Furthermore, the rebound in the US ISM Services PMI from 49.2 to 55.2, versus 50.4 expected, also underpinned the rebound in the United States Treasury bond yields and the US Dollar.

Amid these plays, the US 10-year Treasury bond yields remain firmer for the third consecutive day, to 3.56% by the press time, following the biggest weekly jump since late September 2022. Further, the S&P 500 Futures print mild losses and underpin the US Dollar’s safe-haven demand.

Moving on, a light calendar in the UK may allow the GBP/USD bears to keep the reins. However, Tuesday’s speech from Federal Reserve (Fed) Chairman Jerome Powel and Friday’s UK data dump, including the fourth quarter (Q4) Gross Domestic Product (GDP) will be crucial for the pair traders to watch for clear directions. Additionally important are comments from various BoE officials scheduled for publishing during the week.

Technical analysis

A clear downside break of a four-month-old ascending trend line, around 1.2145 by the press time, directs GBP/USD bears towards the 200-DMA support surrounding 1.1950.

• The hourly chart has the 1.3390s as the first support to break.
• Bears eye a 50% mean reversion where bulls might be compelled to move in again at a discount. 

The Canadian Dollar weakened against the US Dollar on Friday and ended its run of weekly gains as the following charts will show.

Data from the US boosted the greenback and sank risk appetite, weighing on the high beta currencies, such as the CAD, as it could make it harder for the Federal Reserve to bring inflation under control. This underpins the technical bullish outlook with the price still on the front side of the dominant trendline:

The break of the near-term resistance, as the chart below shows,  leaves prospects of an imminent move higher:

However, the W-formation leaves prospects of a restest to the downside first:

When moving to the lower timeframes, such as the 4-hour chart, the structure is clear and we need to get below this near-term support as follows:

The hourly chart has the 1.3390s as the first support to break which will put the hourly support line under pressure. If this were to break, we will be looking at a move below .13380 guarding a 50% mean reversion. 

In doing so, the bulls could be compelled to move in at a discount considering the recent major breakout. 

• Gold price is expected to continue its downside journey to near $1,850.00 as US yields have strengthened.
• The speech from Fed chair Jerome Powell will provide the likely monetary policy action ahead.
• Goldman Sachs sees two more interest rate hikes by the Fed in March and May.

Gold price (XAU/USD) has resumed its downside journey after a short-lived pullback to near $1,870.00 in the Asian session. The precious metal is exposed to the critical support of $1,850.00 amid a sheer decline in US government bonds. The 10-year US Treasury yields have escalated their recovery to near 3.57%.

S&P500 futures are showing further losses, portraying a significant drop in the risk appetite of the market participants. The US Dollar Index (DXY) is aiming to scale above 102.80 amid the risk aversion theme. Investors are dumping United States equities as the impressive US employment will compel the Federal Reserve (Fed) the continuation of policy tightening, which will strengthen US recession fears.

For further guidance, the street will focus on the speech from Fed chair Jerome Powell, which is scheduled for Tuesday. Fed Powell is expected to sound hawkish on interest rate guidance amid an extremely tight labor market.

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.

Gold technical analysis

Gold price has demonstrated a nosedive move after delivering a breakdown of the Bearish Megaphone chart pattern that replicates a broadening triangle. The Gold price might find a cushion around the potential support placed from January 5 low around $1,825.08.

The precious metal has extremely diverged from the 20-period Exponential Moving Average (EMA), therefore a mean reversion to the former cannot be ruled out. However, the bearish trend-following action will continue amid the absence of any recovery signals yet.

The Relative Strength Index (RSI) (14) is oscillating in the bearish range of 20.00-40.00, portraying that the downside momentum is extremely solid.

Gold hourly chart

• AUD/JPY picks up bids to refresh intraday high, extends bounce off two-week low.
• Australia Q4 Retail Sales contract less than expected, second-tier data arrive upbeat.
• Sour sentiment exerts downside pressure on the risk-barometer pair.
• Chatters surrounding the next BoJ leader, risk catalysts will be eyed directives ahead of RBA.

AUD/JPY renews an intraday high near 91.40 as Australia Retail Sales dropped less than forecast in the fourth quarter (Q4). Adding strength to the recovery moves could be the broad Japanese Yen (JPY) weakness due to the firmer US Treasury bond yields. However, challenges to sentiment probe the cross-currency pair traders ahead of Tuesday’s Reserve Bank of Australia (RBA) Monetary Policy meeting.

Australia’s fourth quarter (Q4) Retail Sales dropped 0.2% QoQ versus -0.6% expected and prior increase of 0.2%. Earlier in the day, TD Securities Inflation for the nation rose to 0.9% MoM from 0.2% prior, as well as to 6.4% YoY versus 5.9% previous readouts, during January.

Elsewhere, the US 10-year Treasury bond yields remain firmer for the third consecutive day, to 3.56% by the press time, following the biggest weekly jump since late September 2022. The underlying reason for the same could be linked to the firmer US employment and activities data.

Alternatively, talks surrounding the Bank of Japan’s (BoJ) next Governor and recent fears surrounding the US and China ahead of this week’s US diplomat visit to Beijing seem to challenge the risk profile and the AUD/JPY pair buyers.

Recently, Japanese media highlighted the odds of BoJ Deputy Governor Masayoshi Amamiya being the next leader of the Japanese central bank. However, Japan's Finance Minister Shunichi Suzuki mentioned that he has been “out of the loop” on the BoJ nomination. Also, Japan’s Jiji News stated that BoJ’s Amamiya turned down requests to respond on the chatters for him to be the next BoJ Governor. It should be observed that the talks are more important nowadays as Japan witnesses higher inflation and the end of ultra-easy monetary policy is being discussed. Hence, a hawkish leader could propel the JPY.

On a different page, Reuters mentioned that a US military fighter jet shot down a suspected Chinese spy balloon off the coast of South Carolina on Saturday, a week after it first entered US airspace and triggered a dramatic -- and public -- spying saga that worsened Sino-US relations.

It’s worth noting that the S&P 500 Futures print mild losses and the stocks in the Asia-Pacific region are mildly offered to portray the sour sentiment.

Looking forward, AUD/JPY traders may witness a lackluster day ahead of Tuesday’s RBA monetary policy updates. However, the risk catalysts may entertain cross-currency pair traders.

The latest Aussie inflation numbers have been hawkish but the employment data haven’t been in support of aggressive RBA action, which in turn probes AUD/JPY bulls. Even so, Bloomberg said, “Australia’s central bank is all but certain to increase interest rates at its first meeting of the year, with some observers pointing to the risk of a resumption of outsized moves to counter a surprising surge in inflation.”

Technical analysis

A daily closing beyond the 200-day Exponential Moving Average (EMA), around 91.60 by the press time, becomes necessary for the AUD/JPY bulls to retake control.

• AUD/USD is showing a rebound move from 0.6900 as Australian Retail Sales contracted by 0.2% vs. -0.6% the expectations.
• A 25 bps interest rate hike is expected from the RBA this week.
• A sheer rebound in the US Treasury yields has strengthened the risk-aversion theme.

The AUD/USD pair has attempted a recovery of around 0.6900 as the Australian Bureau of Statistics has reported a lower-than-expected contraction in the Retail Sales data for the fourth quarter of CY2022. The economic data has contracted by 0.2% while the street was expected a contraction by 0.6%.

The major catalyst that will trigger volatility in the Australian Dollar will be the announcement of the interest rate decision by the Reserve Bank of Australia (RBA), which is scheduled for Tuesday. Projections for policy stance are extremely hawkish as Australian Consumer Price Index (CPI) has yet not confirmed its peak. The Australian inflation recorded fresh highs of 7.8% in the fourth quarter of CY2022.

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, the risk profile is supporting the safe-haven assets after a gigantic jump in the United States Nonfarm Payrolls (NFP) numbers. The US Dollar Index (DXY) is aiming to shift its auction profile above 102.50. S&P500 futures have continued their downside move in the Asian session, portraying a further decline in the risk appetite of the market participants. The 10-year US Treasury yields have escalated further to near 3.57%.

• EUR/USD remains sidelined after breaking short-term important support.
• Bearish MACD signals, steady RSI favor sellers targeting previous resistance line.
• Convergence of 100-EMA, 200-EMA appears a tough nut to crack for EUR/USD bears.

EUR/USD licks its wounds around 1.0790 after a two-day pullback from the highest levels since April 2022. Even so, the major currency pair defends the previous day’s break of the 21-day Exponential Moving Average (EMA) and an upward-sloping support line from early November 2022.

Not only the sustained downside break of the previous key support confluence but the bearish MACD signals and steady RSI (14) also keeps the EUR/USD sellers hopeful.

That said, a seven-week-old resistance-turned-support line near 1.0660 appears the immediate target for the EUR/USD bears to watch before aiming for the 1.0500 support confluence including the 100-EMA and 200-EMA.

It’s worth noting that the previous monthly low near 1.0480 acts as an extra filter towards the south before welcoming the EUR/USD bears.

On the flip side, the 21-day EMA and the three-month-old previous support line challenge the EUR/USD bulls near 1.0820.

Following that, multiple levels near 1.0900 and 1.0920 could test the pair’s further upside before highlighting the latest peak surrounding 1.1035.

In a case where EUR/USD remains firmer past 1.1035, the odds of witnessing a rally toward the March 2022 high near 1.1185 can’t be ruled out.

Overall, EUR/USD remains on the bear’s radar despite the latest inaction.

EUR/USD: Daily chart

Trend: Further downside expected

As markets await Federal Reserve (Fed) Chairman Jerome Powell’s reaction to the recently hawkish US data, sluggish inflation expectations seem to challenge the US Dollar Index (DXY) bulls during early Monday in Asia, following a two-day rebound from the multi-month low.

That said, the US inflation expectations per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) remain pressured despite firmer US employment data, as well as services activity numbers.

10-year inflation expectations per the aforementioned measure remained depressed near 3.22% while the five-year counterpart struggled to defend the bounce off a fortnight-low surrounding 2.27% by the end of Friday’s North American session.

It should be noted that the US employment report for January joined the upbeat US ISM Services PMI for the stated month to underpin the US Dollar Index (DXY) rebound from the lowest levels since April 2022. However, the DXY traders await Tuesday’s speech from Federal Reserve (Fed) Chairman Jerome Powel for fresh impulse.

Also read: US Dollar Index: DXY bulls take a breather around 103.00 as Fed Chair Powell’s speech looms