CFD Markets News and Forecasts — 08-02-2023

• WTI is showing a loss in the upside momentum after reaching near $78.50.
• Solid China recovery is expected to keep the oil price in bullish territory.
• The oil price has ignored fresh hawkish Fed bets as the interest rate hikes won’t be aggressive ahead.

West Texas Intermediate (WTI), futures on NYMEX, are struggling to extend their upside journey above the immediate resistance of $78.50 in the early Tokyo session. The oil price is expected to continue its upside as investors have ignored the hawkish stance from Federal Reserve (Fed) chair Jerome Powell and his teammates on interest rates.

Investors are anticipating a recession in the United States as the Fed has confirmed more interest rate hikes in its battle against inflation, which has become stubborn in nature. However, the pace of policy tightening by the Fed won’t be aggressive this time as the Consumer Price Index (CPI) is in a declining trend.

Meanwhile, US Treasury Secretary Janet Yellen cited “While inflation remained elevated, there were encouraging signs that supply-demand mismatches were easing in many sectors of the economy,”

On Wednesday, the release of a build-up of oil inventories by the US Energy Information Administration (EIA) failed to pause the upside momentum in the oil price. The EIA reported a build-up in oil stockpiles by 2.42 million barrels for the week ending February 03.

The US Dollar Index (DXY) is aiming to stabilize itself above the critical resistance of 103.00 amid fresh concerns about further interest rate hikes by the Fed.

Meanwhile, rising demand for oil in China after a bleak year amid a recovery in domestic demand and exports is supporting the oil price. This week, International Energy Agency (IEA) Executive Director Fatih Birol on the sidelines of the India Energy Week conference cited “Oil producers may have to reconsider their output policies following a demand recovery in China, the world's second-largest oil consumer,” as reported by Reuters. He further added, “Half of the growth in global oil demand this year will come from China.”

Meanwhile, an Iranian official delivered an encouraging outlook on oil prices citing that oil prices are going up to about $100/bbl in the second half of 2023.

• US Dollar Index reverses early-week pullback from monthly high.
• Fed officials, US Treasury Secretary Yellen highlight strong inflation to defend current policies.
• Receding fears of US-China tension, retreat in yields and light calendar challenge DXY traders.
• Multiple EU statistics, weekly US Jobless Claims may entertain traders.

US Dollar Index (DXY) holds onto the previous day’s recovery moves around 103.50 as bulls brace for the third consecutive weekly gain in a row amid hawkish comments from the US policymakers. It’s worth noting, however, that the lack of major data/events joins mixed concerns surrounding the latest geopolitical tension between the US and China to probe the greenback’s gauge versus the six major currencies.

Talking about the Federal Reserve (Fed) officials, Fed Governor Christopher Waller teased a long fight with a 2.0% inflation target by citing expectations of tighter monetary policy for longer than expected. New York Federal Reserve President John Williams was almost on the same line while saying that the labor market is still very strong and noted that they have more work to do on rates, adding data will determine the path of rate hikes.

Further, Fed Governor Lisa Cook said that the central bank remains focused on restoring price stability, as inflation is still running too high. She added that they would need a restrictive monetary policy for some time.

It should be noted that US Treasury Secretary Janet Yellen also mentioned, “While inflation remained elevated, there were encouraging signs that supply-demand mismatches were easing in many sectors of the economy.”

However, the former Fed Chair Yellen also mentioned that it was important to improve communications with Chinese counterparts on economic issues, which in turn eased the US-China tension which escalated on the weekend news of the US shooting a Chinese balloon and terming it a spy. Further, US President Joe Biden also tried placating the Sino-American tussle as he said, “We intend to compete completely with China but we are not seeking conflict, as that has been the case so far.”

Not only easing fears of China but a retreat in the US Treasury bond yields also challenges the US Dollar Index bulls. That said, the US 10-year Treasury bond yields reversed from a one-month high to snap a three-day uptrend on Wednesday, pressured around 3.62% at the latest. The same helped S&P 500 Futures to ignore Wall Street’s downbeat closing and remain mostly unchanged as of late.

Looking forward, multiple statistics from Europe relating to inflation and growth may entertain DXY traders on Thursday as the European Central Bank (ECB) officials are also hawkish but lack support from the data and can weigh on the US Dollar Index in case of strong economics. The same also highlights the US Weekly Initial Jobless Claims.

Technical analysis

A daily closing beyond the 50-DMA hurdle of 103.50 becomes necessary for the US Dollar Index bull’s conviction.

• Silver price seesaws between 50% and 61.8% Fibonacci retracement levels so far in the week.
• 21-EMA adds to the upside filters while downbeat RSI teases XAG/USD sellers.
• The $21.70, $20.90 can probe bears below the “Golden ratio”.

Silver price (XAG/USD) fades the previous day’s recovery moves as it retreats to $22.30 during early Thursday in Asia. Even so, the bright metal defends the weekly trading range inside crucial Fibonacci retracement levels of the quote’s upside from late November 2022 to early February 2023.

Even if the $0.50 range restricts Silver price moves of late, RSI conditions and the 21-bar Exponential Moving Average (EMA), around $22.50 by the press time, make it hard for the buyers to take control.

In a case where XAG/USD crosses the weekly trading range between $22.10 and $22.60, described by the 61.8% and 50% Fibonacci retracement levels respectively, the metal price could aim for the $23.00 round figure.

Following that, multiple hurdles near $23.10-15 could test the upside momentum before directing the quote to the $24.50 hurdle. Also acting as an upside filter is the monthly peak of $24.63.

On the flip side, a clear break of the $22.10 range support needs validation from the $22.00 round figure to convince the Silver bears.

In that case, the November 24 high near $21.70 and November 29 swing low near $20.90 could act as intermediate halts ahead of highlighting the $20.00 psychological magnet for the XAG/USD sellers.

Silver: Four-hour chart

Trend: Further downside expected

• NZD/JPY is subdued as the Asian session begins, following the formation of a doji, portraying indecision amongst traders.
• Bearish pennant in the NZD/JPY 1-hour chart warrants downward pressure lying ahead.

NZD/JPY failed to gain traction upward/downwards on Wednesday’s session, and meanders at around this week’s lows, as Thursday’s Asian Pacific session begins. At the time of writing, the NZD/JPY exchanges hands at 82.87, almost flat.

The NZD/JPY daily chart portrays the cross-currency pair as neutral to slightly downward biased, though it failed to gain traction on Wednesday. A doji surfaced nearby the low of the week of 82.65, which could exacerbate a consolidation in the near term. If that scenario plays out, the NZD/JPY will trade within the 82.65-83.00 for the remainder of the session unless a catalyst triggers the NZD/JPY to break above/below the range.

Upwards, the NZD/JPY first resistance would be the 20-day Exponential Moving Average (EMA) at 83.44, ahead of the 200-day EMA at 83.85. On the downside, the NZD/JPY’s next support would be the lows of the week at 82.65, followed by the psychological 82.00 mark

In the short term, the NZD/JPY1-hour chart portrays the formation of a bearish-pennant, which suggests downward action lies ahead. A break below the pennant bottom-trendline will pave the way for further losses and, on its first leg-down, would slide toward the S1 daily pivot at 82.62.

The NZD/JPY downtrend’s next stop would be the S2 pivot at 82.44, ahead of the S3 daily pivot at 82.24.

NZD/JPY: One-hour chart

NZD/JPY key technical levels

• A downside break of the Inverted Flag pattern will drag EUR/JPY firmly.
• The 50-and 200-EMAs have delivered a death cross, which adds to the downside filters.
• High volatility is expected from the cross as investors await German inflation data.

The EUR/JPY pair dropped after facing barricades around 141.00 in the early Asian session. The pullback move in the cross seems to lack strength, which could result in a resumption in the downside move. EUR/JPY is following the footprints of weaker EUR/USD, amid the risk aversion theme.

For further guidance, investors will keep an eye on the preliminary German inflation data. The annual Harmonized Index of Consumer Prices (HICP) (Jan) is expected to strengthen further to 10.0% from the prior release of 9.6%. The double-digit inflation figure might add to troubles for the European Central Bank (ECB), which has already pushed interest rates to 2.50%, and more interest rate hikes are in pipeline, according to the commentary from ECB policymaker Klass Knot.

EUR/JPY is auctioning an Inverted Flag chart pattern on an hourly chart, which indicates a sheer consolidation that is followed by a breakdown. Usually, the consolidation phase of the chart pattern serves as an inventory adjustment in which those participants initiate shorts, which prefer to enter an auction after the establishment of a bearish bias.

A death cross, represented by the 50-and 200-period Exponential Moving Averages (EMAs) at 141.32, adds to the downside filters.

The Relative Strength Index (RSI) (14) has entered into the 40.00-60.0 range from the bearish range of 20.00-40.00. However, the strength is missing in the recovery move, which could delight sellers with a pullback selling opportunity.

Should the cross breaks below February 7 low around 140.30, Japanese Yen bulls will drag the asset toward January 17 high at 139.62 followed by the horizontal support plotted from January 13 low around 138.00.

Alternatively, the cross needs to surpass January 25 high at 142.29 for an upside move, which will drive the asset toward January 11 high at 142.61 followed by October 24 low at 143.72.

EUR/JPY hourly chart

“We intend to compete completely with China but we are not seeking conflict, as that has been the case so far,” said US President Joe Biden during a PBS interview late Wednesday.

US President Biden also confirmed that relations with China have not taken a big hit.

Market sentiment improves a bit

Comments from US President Biden join the recent statements from US Treasury Secretary Janet Yellen to tame the fears emanating from Sino-American ties. The same appears to have put a floor under the risk barometer AUD/USD pair around 0.6920, following the pair’s reversal from the weekly high the previous day.

Also read: AUD/USD declines towards 0.6900 as Fed policymakers sound hawkish on rate guidance

“While inflation remained elevated, there were encouraging signs that supply-demand mismatches were easing in many sectors of the economy,” US Treasury Secretary Janet Yellen spoke at an Ultium Cells LLC electric vehicle battery plant under construction near Nashville.

US Treasury Secretary Yellen also added, “Over the past two years, we have worked successfully to ease supply chain pressures, and that includes funding pop-up container yards and moving several ports to 24/7 operations.”

The diplomat also said she still hopes to be able to visit China but has no specific details on plans or timing.

“A team of US Treasury officials was scheduled to travel to China this month to prepare for a visit, but that was before a diplomatic row over a Chinese balloon that Washington claims were spying on the United States. The United States shot down the balloon on Saturday,” reported Reuters.

The former Fed Chair Yellen also mentioned that it was important to improve communications with Chinese counterparts on economic issues.

Market implications

The news seemed to have failed to inspire traders amid hawkish comments from Federal Reserve (Fed) officials.

Also read: EUR/USD stays pressured near 1.0700 as Fed, ECB policymakers defend higher interest rates

• USD/CAD grinds higher after bouncing off 50-SMA, one-week-old support line.
• Upbeat oscillators back the rebound from key support to help buyers approach three-week-long resistance line.
• Descending trend line from late December 2022 appears the key hurdle.

USD/CAD buyers take a breather around 1.3450 during Thursday’s sluggish Asian session, following their return to the desk from a one-week low. In doing so, the Loonie pair justifies the previous day’s rebound from a convergence of the 50-SMA and a weekly ascending trend line.

Also keeping the pair buyers hopeful is the impending bull cross on the MACD and the upbeat RSI (14) that backs the latest recovery.

As a result, the USD/CAD bulls approach a downward-sloping resistance line from January 19, close to 1.3470, a break of which could quickly propel prices towards the late January peak surrounding 1.3520.

It should be noted, however, that a seven-week-old descending resistance line, close to 1.3590, appears a crucial resistance for the bulls to watch past 1.3520 as it holds the key to a run-up towards 1.3700.

Alternatively, pullback moves remain elusive unless the quote stays beyond the 1.3370 support confluence including the aforementioned SMA and immediate trend line support.

Following that, the 1.3300 round figure and the monthly low near 1.3260 should gain the market’s attention.

In a case where USD/CAD remains bearish past 1.3260, an area comprising the last July’s top and November 2022 low, around 1.3220-25, could challenge the sellers.

USD/CAD: Four-hour chart

Trend: Further upside expected

• USD/JPY registers minuscule gains as the Asian session starts after a 0.25% gain on Wednesday.
• USD/JPY: To remain range-bound, trapped within the 20/50-day EMAs.

USD/JPY capped its losses at around the 20-day Exponential Moving Average (EMA) on Wednesday and is testing the January 18 daily high of 131.57 as Thursday’s Asian session begins. The USD/JPY is trading at 131.37 after hitting the 20-day EMA at around 130.70.

USD/JPY Price Analysis: Technical outlook

From a daily chart perspective, the USD/JPY entered a consolidation phase following Tuesday’s intervention by Japanese authorities in the FX space. The USD/JPY would likely finish the week trading within the 20/50-day EMAs, each at 130.70-132.72, respectively, amidst the lack of a market-moving event in the financial markets.

Nonetheless, oscillators like the Relative Strength Index (RSI) remain in bullish territory, though a flat slope suggests indecision amongst USD/JPY traders. The Rate of Change (RoC) portrays a scenario of bearish continuation.

If the USD/JPY aims higher, it will face key resistance levels. First, the 132.00 psychological level, followed by the 50-day EMA at 132.72, ahead of the 133.00 figure. On the other hand, a bearish continuation would send the USD/JPY sliding towards 131.00. Break below, and the 20-day EMA would be tested at 130.70. A breach of the latter will expose the 130.00 psychological level.

USD/JPY key technical levels

• GBP/USD is expected to witness more downside below 1.2050 amid the souring market mood.
• Fed policymakers have cleared that the battle against stubborn inflation will continue for a more extended period.
• The UK GDP is expected to display a flat performance on a quarterly basis on Friday.

The GBP/USD pair has gradually dropped to near 1.2065 and is expected to continue its downside journey after surrendering the immediate support of 1.2050. The Cable is struggling to maintain its feet as the risk appetite of the market participants has trimmed significantly. The odds of the continuation of the policy tightening streak by the Federal Reserve (Fed) is fading the appeal for risk-perceived assets.

S&P500 sensed a steep selling interest on Wednesday as Fed policymakers have cleared that the battle against stubborn inflation will continue for a longer period. Accordingly, the Fed would consider keeping higher interest rates for a more extended period to achieve price stability.  

The US Dollar Index (DXY) is aiming to sustain itself above 103.00 as the street is expecting that strong demand for labor will be followed by higher employment bills. Job seekers might be having more negotiation power, which could result in a higher labor cost index ahead. Meanwhile, the yields on 10-year US Treasury bonds dropped to near 3.61%.

New York Fed President John Williams clarified that the Fed has yet not reached a restrictive policy, which could be sufficient enough to tame solid inflation. Also, the central bank will be required to maintain a hawkish policy for a few years to make sure that the 2% inflation target will achieve confidently, as reported by Wall Street Journal.

Meanwhile, the Pound Sterling is likely to display a power-pack action after releasing the United Kingdom Gross Domestic Product (GDP) (Q4) data, scheduled for Friday. As per the consensus, the preliminary annual GDP data is expected to expand by 0.4% lower than the former release of 1.9%. And, the quarterly data is expected to remain flat against a contraction of 0.3%.

Apart from the GDP figures, Industrial Production and Manufacturing Production will be of utmost importance.

• EUR/USD holds lower ground after reversing the corrective bounce before a few hours.
• Both Fed and ECB policymakers appear hawkish but the strong US data, yields help USD to pare previous losses.
• Markets remain dicey amid a lack of major data/events.
• German Inflation, EU economic forecasts and US Weekly Jobless Claims eyed.

EUR/USD remains pressured around 1.0710, following a reversal from 1.0760, as bears keep the reins for the fifth consecutive day during early Thursday. In doing so, the major currency pair justifies the hawkish comments from the European Central Bank (ECB) and the Federal Reserve (Fed) policymakers. It’s worth noting that the comparatively upbeat US data than Europe seems to defend the hawkish comments from the Fed and weigh on the EUR/USD price.

That said, Federal Reserve Governor Christopher Waller teased a long fight with a 2.0% inflation target by citing expectations of tighter monetary policy for longer than expected. On the same line, Governor Lisa Cook said that the central bank remains focused on restoring price stability, as inflation is still running too high. She added that they would need a restrictive monetary policy for some time.

Furthermore, New York Federal Reserve President John Williams said that the labor market is still very strong and noted that they have more work to do on rates, adding data will determine the path of rate hikes.

Elsewhere, ECB policymaker Klaas Knot said that headline inflation appears to have peaked but added that keeping the current pace of hikes into May could well be needed if underlying inflation does not materially abate.

While a slew of Fed and ECB policymakers spoke much about defending the restrictive monetary policy, Friday’s upbeat US jobs report and activity data contrast with the comparatively lighter EU statistics to justify the Fed’s hawkish stand, which in turn exerts downside pressure on the EUR/USD price.

Additionally, a rebound in the US 10-year Treasury bond yields, after a downbeat start to Wednesday, joins Wall Street’s negative closing to weigh on the EUR/USD prices.

Moving on, preliminary readings of Germany’s Harmonized Index of Consumer Prices for January will precede the quarterly prints of European Commission releases Economic Growth Forecasts to entertain EUR/USD traders.

Technical analysis

An 11-week-old ascending support line joins the 50-day Exponential Moving Average (EMA) to highlight 1.0670-65 as the key level for the bear’s conviction.

• AUD/USD is eyeing more weakness to near 0.6900 amid hawkish Fed policymakers’ guidance.
• Fed Waller cited the battle to reach the 2% inflation target "might be a long fight".
• The Australian Dollar will dance to the tunes of China’s inflation data.

The AUD/USD pair has gauged an intermediate cushion around 0.6920 in the early Asian session. The Aussie asset is expected to continue the downside momentum as signs of a pullback are missing yet. Also, the risk profile is negative as investors are expecting that more interest rate hikes by the Federal Reserve (Fed) will deepen recession fears in the United States.

S&P500 witnessed a sell-off by the market participants as further rate hikes by the Fed will soften the economic activities further, portraying a risk aversion theme. Apart from that, the proposal from US President Joe Biden to tax billionaires heavily by quadrupling taxes on corporate buybacks to which investors show dissatisfaction.

The US Dollar Index (DXY) is aiming to shift its auction profile above 103.00 as upbeat labor market data has triggered the risk of further policy tightening by the Federal Reserve (Fed). Contrary to that, the return provided on 10-year US Treasury bonds dropped below 3.62%.

Fed Governor Christopher Waller said on Wednesday that inflation seems poised to continue slowing this year but the US central bank's battle to reach its 2% target "might be a long fight" with monetary policy kept tighter for longer than anticipated, as Reuters reported. The strong labor market data will also be followed by higher employment costs to address the former, which could trigger upward pressure on the inflation projections.

• The Gold price is correcting to a 38.2% Fibonacci retracement level.
• The Gold price bears are lurking around Federal Reserve's hawkish tones.

Gold price closed with its third-straight gain on Wednesday despite a firmer US Dollar that was recovering in a phase of hawkish Federal Reserve sentiment following Friday's US Nonfarm Payrolls job report. Gold price travelled between a low of $1,869.20 and $1,886.33 on the day.

Federal Reserve speakers out in force

Federal Reserve chair Jerome Powell on Tuesday said the central bank will stay the course despite strong economic data which gave rise to the bin in the Gold price. The Federal Reserve's mantra that interest rates will stay higher for longer, however, came to light on Wednesday which underpinned the hawkish take of comments from Federal Reserve Jerome Powell's Economic Club of Washington on Tuesday when he said rates might need to move higher if the US economy remained strong. 

Federal Reserve's John Williams reinforced that interest rates were “barely into restrictive territory”, and rates would need to stay at a restrictive level “for a few years to make sure we get inflation to 2%”.  Federal Reserve's Lisa Cook argued that they “need a restrictive policy for some time to cool prices”. Federal Reserve's Neel Kashkari emphasised that the “services side of the economy is still hot”, noting the lack of progress on core services inflation ex-housing. As a consequence, the US Dollar was able to run higher in the US session which helped the Gold price bears with a sell-off in the cash open on Wall Street. 

Gold price technical analysis

The Gold price is correcting to a 38.2% Fibonacci retracement level within a 1000 pip box and a bias to the downside for the coming times while below $1,900 and on the backside of three weeks of rise.

• GBP/JPY rebounds at weekly lows and is forming a bullish harami, suggesting that prices could aim higher.
• Immediate resistance levels for the GBP/JPY lie at 159.00, ahead of the 20-DMA and 160.00.
• For a bearish continuation, the GBP/JPY needs to clear 157.42, aiming to reach 157.00.

The Pound Sterling (GBP) trims some of Tuesday’s losses, and climbs toward the 158.50 area on Wednesday, boosted by an upbeat sentiment across the financial markets. A speech by the Federal Reserve Chair Jerome Powell spurred a risk-on impulse and weakened safe-haven peers. At the time of writing, the GBP/JPY exchanges hands at 158.53.

GBP/JPY Price Analysis: Technical outlook

The GBP/JPY bounced from weekly lows reached on Tuesday at around 157.42, with the cross-currency pair testing a one-month-old downslope previous resistance trendline, which turned support and capped the GBP/JPY’s fall. However, as shown by the daily chart, GBP/JPY’s price action would remain sideways, though tilted downwards, as long as the long-term moving averages stay above the exchange rate.

For the GBP/JPY pair to continue its bearish path, it would need to break below the weekly low of 157.42, which, once cleared, would send the GBP/JPY sliding toward the February 3 low of 156.72. A breach of the latter and the 156.00 figure is up for grabs.

As an alternate scenario, the GBP/JPY key resistance areas lie at the 20-day Exponential Moving Average (EMA) at 159.42, followed by the 160.00 psychological level. Break above and the GBP/JPY could rally and test the 50-day EMA at 160.96.

GBP/JPY key technical levels

• NZD/USD bears are in play towards the close on Wall Street.
• US Dollar remains bid in a corrective phase on Fed sentiment. 

NZD/USD  recovered from one-month lows this week but failed to put in a fresh high on Wednesday, with the pair travelling between a low of 0.6296 and a high of 0.6348. The markets took a dovish view on comments from U.S. Federal Reserve Chairman Jerome Powell on Tuesday that helped to lift the commodity currencies despite Friday's strong US Nonfarm Payrolls jobs data.

Overall, however, on the day, both the Kiwi and the US dollar index, DXY, are little changed with it being a calendar void of catalysts besides Federal Reserve speakers who continued to emphasise the need for monetary policy settings to remain restrictive.

Fed's John Williams reinforced that interest rates were “barely into restrictive territory”, and rates would need to stay at a restrictive level “for a few years to make sure we get inflation to 2%”.  Fed's Lisa Cook argued that they “need restrictive policy for some time to cool prices”. Fed's Neel Kashkari emphasised that the “services side of the economy is still hot”, noting the lack of progress on core services inflation ex-housing.  As a consequence, the US Dollar was able to run higher in the US session, sinking all ships, including NZD/USD that continues to bleed into the cash close on Wall Street. 

What you need to take care of on Thursday, February 9:

The US Dollar ended Wednesday mixed, as the optimism triggered by US Federal Reserve Chairman Jerome Powell faded throughout the day. European stock indexes managed to post modest advances, but Wall Street settled in the red. Still, US government bond yields remained steady around Tuesday’s closing levels, limiting the USD strength.

The Euro remains among the weakest US Dollar rivals, currently trading at around 1.0725. European Central Bank (ECB) officials were on the wires repeating their hawkish rhetoric. ECB policymaker Klaas Knot said that headline inflation appears to have peaked but added that keeping the current pace of hikes into May could well be needed if underlying inflation does not materially abate.

Across the pond, Fed Governor Lisa Cook said that the central bank remains focused on restoring price stability, as inflation is still running too high. She added that they would need a restrictive monetary policy for some time. Also, New York Federal Reserve President John Williams said that the labor market is still very strong and noted that they have more work to do on rates, adding data will determine the path of rate hikes. Finally, Fed Governor Christopher Waller warned that interest rates could go higher than expected.

The GBP/USD pair trades around 1.2070, holding on to modest intraday gains.

The Bank of Canada published the newly inaugurated Minutes of its latest monetary policy meeting- The document had no impact on the CAD as the BOC signaled a pause in rate hikes after announcing their decision. USD/CAD trades at around 1.3430.

AUD/USD is down to 0.6920 as the poor performance of Wall Street weighed on the pair. Finally, USD/JPY advanced, now hovering around 131.40.

Spot gold peaked at the beginning of the day at a fresh weekly high of $1,886.31 but quickly retreated, now trading at around $1,874. Crude oil prices, on the other hand, maintained the positive momentum, and WTI currently trades at $78.40 a barrel. 

• USD/CAD bulls are moving in despite the prior day's bearish close. 
• The US Dollar has firmed on hawkish sentiment brewing around the Fed again and a dovish BoC. 

In this scenario, we have a 61.8% Fibonacci retracement level near 1.3350 below the neckline near 1.3380. However, given that the price is attempting to close higher for the day, that will leave an emphasis on the upside where eyes look to 1.3475. 

The Canadian Dollar is trapped between 1.3440 and 1.3420s, below a 2-½-month high of 1.326 that was scored at the start of the month.

The US Dollar continues with its relentless comeback as the markets fear that the Federal Reserve is not as close to a pivot as first presumed on the back of what was regarded as a dovish outcome from the Federal Reserve interest rate decision last week. At the same time, the Bank of Canada is expected to be the first major central bank to pause rate increases after delivering eight rate hikes in the past 11 months.

At the time of writing, USD/CAD is trading towards the highs of the day but the bears are present, chipping away as a key support structure of the consolidation of the day's highs. USD/CAD has travelled between a low of 1.3359 and 1.3444 so far and has been forced higher on a dovish sentiment at the Bank of Canada that has hiked its key interest rate to 4.5% in January, the highest level in 15 years.

Meanwhile, however, Governor Tiff Macklem said no further rate hikes would be needed if, as expected, the economy stalled and inflation fell. The summary of Governing Council deliberations were released today and they showed that policymakers decided to hike rates in January because of labour-market tightness and stronger-than-expected growth.

As for the US Dollar, it too is trapped up high following today's rally, testing the boundaries of 104 the figure and 103.00 on the downside as per the DXY index as investors paused selling the greenback, a day after Federal Reserve Chair Jerome Powell did not significantly change his US interest rate outlook. There is an air of nervousness considering a very strong US jobs report last week although the outlook remained tilted to the downside as the Fed nears the end of its tightening cycle.

The markets are trying to price in rate cuts by the end of the year, although Fed officials keep sounding the alarm over the prospects of higher for longer inflation, dependent on data which is fuelling a recovery in the greenback:

The bulls are in charge while above 103.00 but the price is testing the dynamic trendline support. If this were to give way, a bearish thesis can be drawn for a continuation lower below 103.00.

USD/CAD technical analysis

Meanwhile, USD/CAD is up high in the day's range but the bias is to the downside given the draw of the W-formation's neckline:                                        

The pattern is a reversion pattern and tends to pull the price toward the neckline for the restest of the support in that area. In this scenario, we have a 61.8% Fibonacci retracement level near 1.3350 below the neckline near 1.3380. However, given that the price is attempting to close higher for the day, that will leave an emphasis on the upside where eyes look to 1.3475. 

An account of the deliberations of the Bank of Canada’s Governing Council leading to the monetary policy decision on January 25, 2023 has been released as follows:

"While Governing Council was acutely aware of ongoing uncertainty, they concluded that data since the October MPR had largely reinforced their confidence that inflation would come down through 2023.

"Members framed the decision along two dimensions: • whether to leave the policy rate where it was or to increase it by 25 basis points • whether to maintain similar forward-looking language as in the previous policy statement or to adjust it to signal a pause

"The case for leaving the policy rate at 4.25% was that developments with respect to both the economy and inflation were beginning to move in the right direction and that policy had been forceful and just needed more time to do its work.

"The case for raising the rate by an additional 25 basis points was twofold. First, doing so reflected the fact that developments in the real economy since the December decision had been quite strong:

• Labour market data continued to indicate tightness. • Third quarter GDP growth was stronger than expected, and fourth quarter economic activity was also likely to be stronger than previously projected.

"In other words, data on both the labour market and economic activity suggested that there was more excess demand in the economy in the fourth quarter of 2022 than previously forecast.

"A second rationale for raising the rate by an additional 25 basis points related to the risk of inflation getting stuck somewhere above 2% later in the projection.

"Putting in place some additional tightening now could help insure against that outcome.

"Members were in broad agreement that, going forward, it would be appropriate to pause any additional tightening to allow economic developments to unfold. The Bank had been forceful to date in tightening monetary policy, and the full impact was still to come. In addition, there were enough “green shoots” of progress. Allowing time for further progress to occur would recognize the lags in the transmission of monetary policy and balance the risk of over- versus under-tightening.

"Members discussed how to communicate this need to pause. They reflected on their previous communication in December, which had indicated Governing Council would consider whether the policy interest rate needs to rise further. That communication had also articulated three developments Council would be assessing:

• How tighter monetary policy is working to slow demand • how supply challenges are resolving • how inflation and inflation expectations are responding

"They agreed that the December communication conveyed more of a data-dependent, “decision-by-decision” stance about whether to raise the policy rate further. They debated whether that remained appropriate. Through further discussion, they drew a few conclusions:

• Council wanted to convey that the bar for additional rate increases was now higher. If the economy and inflation were to unfold broadly in line with the projection, they agreed they would probably not need to raise rates further. • Council also wanted to give a clear sense that they would need an accumulation of evidence to determine whether further rate increases would be required to return inflation to the 2% target. • Members also felt it was important to be clear about the conditionality of any pause. Given inflation was still well above the target, Governing Council continued to be more concerned about upside risks. In its determination to return inflation to the 2% target, Governing Council would be prepared to raise the policy rate further if these upside risks materialized.

"Governing Council reached a consensus to increase the policy rate by 25 basis points and adjust its communications to indicate a conditional pause on any further policy tightening.

USD/CAD update

The bulls are putting up a last-ditch effort to contain the price above the key structure around the 1.3420 as follows: 

• USD/CHF remains range-bound though it meanders slightly below the 0.9200 figure.
• USD/CHF: If it reclaims the 50-day EMA, it will shift neutral; otherwise, a resumption of the downtrend is likely.

The USD/CHF drops for two consecutive days, though buyers are reclaiming the February 7 daily low of 0.9191, as they are eyeing to reclaim the 50-day EMA at 0.9299. At the time of writing, the USD/CHF exchanges hands at around 0.9200.

USD/CHF Price Analysis: Technical outlook

After dropping beneath 0.9200, the USD/CHF encountered solid support at around 0.9180s, beneath a two-month-old downslope resistance trendline, that turned support. It should be said that the USD/CHF pair is still neutral to downward biased, but with the 20-day Exponential Moving Average (EMA) resting at 0.9215, the USD/CHF could rally in the near term.

Nevertheless, oscillators like the Relative Strength Index (RSI) suggest that a bearish continuation is expected after crossing beneath the 50 mid-line. Contrarily, the Rate of Change (RoC) indicates sideways action.

For the USD/CHF to shift neutral, buyers must reclaim the 50-day EMA at 0.9299. Once that happens, then USD/CHF buyers could be poised to test the 100-day EMA at 0.9416. ahead of the 200-day EMA at 0.9478.

For a resumption of the downtrend, the USD/CHF needs to crack the February 3 daily low of 0.9112, which could pave the way for a retest of the YTD low at 0.9059.

USD/CHF key technical levels

Federal Reserve Governor Christopher Waller said on Wednesday that inflation seems poised to continue slowing this year but the US central bank's battle to reach its 2% target "might be a long fight" with monetary policy kept tighter for longer than anticipated, as Reuters reported.

Key comments

"There are signs that food, energy, and shelter prices will moderate this year," Waller said in remarks prepared for delivery at an Arkansas State University conference, and that the Fed's rapid increases in interest rates had begun "to pay off."

"But I'm not seeing signals of ... quick decline in the economic data, and I am prepared for a longer fight," Waller said.

The surprisingly strong gain of 517,000 jobs in January showed the economy was holding up well, for example, Waller said, but also meant that "labor income will also be robust and buoy consumer spending, which could maintain upward pressure on inflation in the months ahead."

Though wage growth has slowed, the decline is "not enough," Waller said.

"The Fed will need to keep a tight stance of monetary policy for some time."

US Dollar update

More to come...

• USD/JPY bears are testing structure support that guards yesterday's closing price.
• Bears will remain in control while below the micro-trendline resistance. 

USD/JPY is starting to break down the bullish structure and the bears are moving in as the US Dollar comes under pressure following a Federal Reserve-speaker-fueled rally in the US session. The following illustrates a bias to the downside based on the week's closing prices so far with Tuesday snapping the Friday Nonfarm Payrolls-induced rally that had led to two days of higher closes. 

USD/JPY daily charts

The thesis is bullish now that the price has broken to the backside of the old bearish trendline resistance. However, following Friday's bullish breakout, a correction is in play and the question is how far has this got to run still? 

The thesis is that it is more common, following such a strong bearish close that the next day(s) will continue lower on the momentum of the first day. Therefore, Wednesday would be a high probability short set-up:

However, so far the bulls have been able to make a comeback on the day, moving in on the London session's lows around 130.60 and driving the bears all the way back to a high of 131.53 in the US session. For the thesis to play out, the bears need to get back below Tuesday's closing price of 130.99 and at the time of writing, there are some 20 pips to go. The ATR is around 170 pips and the range of the day so far has been 94 pips so there is room for a further push from the bears.

USD/JPY M15 chart

The bears are testing structure support that guards yesterday's closing price but they will remain in control while below the micro-trendline resistance. 

• WTI is registering solid gains of 0.43% on Wednesday.
• Less hawkish comments by Fed Chair Jerome Powell underpinned oil prices.
• WTI Technical Analysis: Neutral- downward, though a leg-up can get as high as $80.00.

Western Texas Intermediate (WTI), the US crude oil benchmark, edges up by a margin of 0.50% as a risk-on impulse hits the market, which, worried about an astonishing US jobs report, expected a hawkish tilt of Federal Reserve (Fed) Chair Jerome Powell, on Tuesday. Nevertheless, Powell’s muted response gave the green light to traders seeking risk. At the time of writing, WTI is trading at $77.93 per barrel.

WTI has recovered from diving toward the weekly lows of $72.30 on Monday. Expectations after last Friday’s Nonfarm Payrolls report for January added that the US economy added more than 500K jobs, pressured investors as they scrambled to square off their positions in riskier assets ahead of yesterday’s speech by Jerome Powell.

Powell said interest rates would need to increase if solid labor market data threatened to derail the Fed’s progress to curb inflation. However, he declined to give any forward guidance regarding future rate hikes and their size.

That said, investors’ worries faded as higher interest rates in the United States (US) suggested the greenback could strengthen, which means oil prices are high for buyers holding other currencies.

The reopening of China after relaxing Covid-19 restrictions is expected to support the demand for fuel. In the meantime, the Organization of Petroleum Export Countries and its allies (OPEC+) decided to keep crude output unchanged, as an Iranian official said the cartel is likely to stick to its current policy on Wednesday.

Nevertheless, a solid inventory report from the US capped oil prices, as an increment in supply makes oil cheaper. The US Energy Information Administration (EIA) revealed that oil production in the US rose to its highest level since April 2020.

WTI technical analysis

Technically speaking, WTI remains neutral to downward biased, and the ongoing correction might offer sellers better entry prices. Nevertheless, if WTI’s bulls reclaim the 50-day Exponential Moving Average (EMA) at $78.71, a move toward the $80.00 figure is up for grabs. However, a resumption of the downtrend is likely to happen once WTI dives below the 20-day EMA at $77.70. Once cleared, oil prices could slide towards the February 7 low of $74.40, ahead of the weekly low of $72.30.

British fighter jet deliveries to Ukraine would have military and political ramifications for the entire European continent - Tass cites the Russian embassy.

More to come...

• GBP/USD is making tracks higher and bulls eye the 38.2% Fibonacci target of around the 1.2120s.
• On the 15-minute chart, GBP/USD is breaking the structure after putting in a higher low for the New York session.
• A break of 1.2092 is now what the bulls need to solidify the prospects of a push higher for the end of the day.

As per the prior analysis, GBP/USD Price Analysis: Bulls moving in on the bear's break of 1.2090 structure, the price rallied in a continuation of the bullish correction into the Daily bearish impulse as outlined in the article. We are now in the throws of a bullish reversal of the New York session with targets for a second bullish close for the middle of the week's trade as the following will illustrate. 

GBP/USD prior analysis

GBP/USD bulls moved in on Tuesday and were setting the foundations for a bullish correction of the slide from the 1.23s at the start of February. The following illustrated the bullish bias for Wednesday (today):

The price had rallied from a low of 1.1960 to a high of 1.2095, taking out Monday's high, MH, and breaking structures, BoS, along the way, The price had also moved to the backside of the prior bearish dynamic resistance, (bearish trendline), that was expected to act as a counter-trendline. 

The breakout of those structures left the directional bias in favour of a meanwhile bullish correction on the daily chart for Wednesday, pending a bullish close on Tuesday (yesterday): 

Zoomed in...

This left the foundations of a long trade for whichever session traders were. Asia was a sideways session, setting the foundations for an explosive move to the upside in the London day whereby GBP/USD rallied from a low of 1.2037 to a high of 1.2109. 

GBP/USD, what now?

The question is whether there is anything left in the tank from the bulls in the US session. For the day to close bullish, which was yesterday's thesis, the price must close higher than Tuesday's closing price of 1.2046. The daily ATR is 122 pips and for the day so far the range has been between 1.2030 and 1.2109, 79 pips. This leaves further to go on the upside if the minimum of the daily ATR is to be reached coming in at around 1.2250. 

On Tuesday, looking for a bullish setup,  the 1.2180s were eyed in a 50% mean reversion target. On the way there, a 38.2% Fibonacci retracement was located at 1.2129 which is still vulnerable for today and certainly for the remainder of the week: 

On the 15-minute chart, the price is breaking the structure after putting in a higher low for the New York session. A break of 1.2092 is now what the bulls need to solidify the prospects of a push higher for the end of the day towards the 38.2% Fibonacci target of around the 1.2120s:

• Gold price is printing minimal gains of 0.14%, bolstered by lower US real yields.
• Federal Reserve officials remain committed to tackling high inflation in the US, as said by Fed’s Williams and Cook.
• Gold Price Forecast: Sideways, after diving from the YTD high to the 50-DMA.

Gold price is almost flat during the North American session, meandering around the $1870 area after hitting a daily high of $1886.35, though it failed to gain traction as the US Dollar (USD) pares some of its earlier losses. At the time of writing, XAU/USD is trading at around $1875, above its opening price.

Gold remains firm, even though Fed officials underpinned the US Dollar

US equity futures continued to trade negatively amidst a slew of Federal Reserve (Fed) officials emphasizing the need to raise rates to curb elevated inflation. Policymakers led by the New York Fed President John Williams said there’s “uncertainty” around inflation. He added that a jump in inflation could trigger a reaction by the US central bank.

Later, Fed Governor Lisa Cook said that even though the Fed sees improvement in inflation, it’s still running too high. She added that the US central bank is focusing on restoring price stability and reiterated the Fed is not done raising interest rates.

Market participants reacted, sending US Treasury bond yields higher, with the 10-year benchmark note rate at 3.679%. Consequently, the greenback, as shown by the US Dollar Index, registers minuscule gains of 0.09%, at 103.42.

Despite US Treasury yields being up and the buck too, the yellow metal clings to gains, underpinned by falling US Real Yields. The US 10-year TIPS, a proxy for Real Yields, stumbles from 1.351% to 1.326%, a tailwind for precious metals. The XAU/USD meanders around $1874, within the boundaries of the 20 and 50-day Exponential Moving Averages (EMAs), each at $1895.18 and $1856.20, respectively.

Gold Price Forecast: XAU/USD Technical Outlook

Gold’s daily timeframe suggests the yellow metal remains upward biased, though on an ongoing pullback. XAU/USD’s dip from the YTD high of S1959.74 towards Monday’s low of S1860.44 was capped by the 50-day EMA presence. Nevertheless, uncertainty clouds the outlook, as observed by XAU/USD’s price action, registering three successive candles with small bodies but longer upper wicks. That suggests that selling pressure remains.

Downwards, the XAU/USD first support would be $1869.16, followed by $1865.08 and $1860.44. Upwards,  Gold’s first resistance would be $1886.35, followed by the 20-day EMA at $1895.30, ahead of the $1900 figure.

EUR/USD dropped to its lowest level since January 9 at 1.0667 on Tuesday. Economists at Rabobank maintain their three-month EUR/USD forecast of 1.06. 

Fed’s rates unlikely to shift lower

“On the back of the remarks from Powell yesterday, Friday’s labour data release and our ongoing concerns surrounding the impact of tight labour market conditions, we have revised up our forecast for the top of the target range for the Fed funds rate to 5.5% from 5.0%. This underpins our expectation that EUR/USD will dip back to 1.06 on a three-month view and potentially to 1.03 in six-months.” 

“Given that the market is positioned long EUR, we expect the upside for the EUR to remain capped.”

The Swiss Franc is in the doghouse, underperforming the Euro. Economists at HSBC expect this trend to continue over the coming month.

USD/CHF to move sideways over the coming month

“We look for modest CHF weakness against the EUR in the month ahead, given the rate market is prepared for additional tightening with 40 bps already priced in for the 23 March Swiss National Bank (SNB) meeting. 

“We do not expect the CHF’s safe haven allure to be especially in demand for the next few weeks, as concerns over a possible Eurozone recession are on the retreat.”

“One upside risk to the CHF remains any shift in risk aversion owing to, for example, a potential escalation in the conflict in Ukraine.”

“We expect USD/CHF to move sideways over the coming month.”

Gold price is building on its recovery from four-week troughs of $1,860. Still, buyers seem to lack conviction, economists at TD Securities report.

Gold prices still remain overbought

“Shanghai Gold trader liquidations continue to suggest that behemoth Chinese buying activity over the last few months was likely exacerbated by Lunar New Year celebrations amid China's reopening, but is now on track to normalize. Still, with positioning now slightly below average, the pace of liquidations from this cohort could slow. This leaves investors as the marginal buyer or seller, which in the recent context increases the market's focus on upcoming data.” 

“We don't expect substantial downside flow from CTAs until prices break the $1,840 range, but the margin of safety against a marginal buying program is razor-thin above $1,900. In turn, while prices still remain overbought, we don't see imminent downside flow without data corroborating a more hawkish path ahead.”

In an interview with MNI Market News, European Central Bank (ECB) policymaker Klaas Knot said that the headline inflation appears to have peaked, as reported by Reuters. Knot, however, added that keeping current pace of hikes into May could well be needed if underlying inflation does not materially abate.

Additional takeaways

"Sharp decrease in energy prices could bring down headline inflation faster than projected by the ECB."

"Slowdown in growth seems even more shallow, short-lived than expected."

"Increased activity may improve workers' bargaining power, lead to more inflation down the road."

"ECB focus has shifted from energy, headline inflation to breaking underlying inflation."

"Would expect inflation in core goods to start falling first."

"Core services inflation could prove more persistent."

"It will take some time before core inflation slows down."

"Forward-looking wage indicators confirm wage growth will increase further in 2023."

"Policy rates have swiftly been brought into the neutral range."

"Once we see a clear, decisive turn in underlying inflation dynamics, I expect us to move to smaller steps."

Market reaction

These comments don't seem to be helping the Euro gather strength against its rivals. As of writing, the EUR/USD pair was posting small daily losses at 1.0716.

• EUR/GBP retreats further south of the 0.8900 yardstick.
• The appetite for the risky assets loses momentum on Wednesday.
• Flash German CPI, UK GDP figures take centre stage later in the week.

The upside bias in the British pound weighs on EUR/GBP and drags it to weekly lows near 0.8870 on Wednesday.

EUR/GBP weaker on GBP recovery

EUR/GBP retreats for the third session in a row midweek and extend the offered bias following recent 5-month peaks near 0.8980 (February 3).

Indeed, the recent sharp decline in the European currency, particularly in the wake of the US NFP results, put the cross under heavy downside pressure and sponsored the ongoing drop to 4-day lows.

Moving forward, the next steps from both the ECB and the BoE are expected to drive the price action around the cross as well as the progress of the Fed’s normalization process.

So far, the ECB has already anticipated a 25 bps rate hike in March, while investors also appear to lean towards a similar rate hike by the “Old Lady” following the bank’s more optimistic projections unveiled at the latest gathering.

EUR/GBP key levels

The cross is losing 0.15% at 0.8889 and the breakdown of 0.8758 (55-day SMA) would expose 0.8721 (2023 low January 19) and finally 0.8636 (200-day SMA). On the other hand, the next up barrier emerges at 0.8978 (2023 high February 3) followed by 0.9000 (round level) and then 0.9277 (2022 high September 26).

Federal Reserve Governor Lisa Cook said on Wednesday that inflation is still running too high even though it has moderated, as reported by Reuters.

Key takeaways

"Strongly committed to both price stability and employment mandates of the Fed."

"Data are telling a pretty clear story of a historically strong labor market, with still elevated inflation."

"Fed is focused on restoring price stability, will need restrictive monetary policy for some time."

"Without stable prices it will be hard to maintain maximum employment."

"Fed recognizes the benefits a sustained expansion will bring to low and moderate income communities."

"Inflation has severe costs and falls hardest on those living paycheck to paycheck."

"Inflation can be contained without a large increase in unemployment."

"Possible the path of the unemployment rate will be lower than most recent Fed projections."

"In times of uncertainty important not to take too much signal from two or three data points."

"Appropriate now to move in smaller steps as Fed assesses cumulative impact of rate increases so far."

"Fed will stay the course until inflation is contained."

"Fed is starting to see some improvement in inflation data."

"Expect inflation will continue falling this year and next, though progress may be uneven."

"Path of policy rates will depend on how quickly inflation moves towards the 2% goal.

Market reaction

The US Dollar Index edged slightly higher and was last seen posting small daily gains at 103.42.

• USD/MXN recovers some ground after dropping to weekly lows of 18.8231.
• Despite the ongoing upward correction, the USD/MXN is still downward biased.
• USD/MXN: Failure to crack 19.0000 could exacerbate a retest of the YTD lows of 18.50.

The Mexican peso (MXN) is losing ground against the US Dollar (USD) after recovering some ground on Tuesday, following “dovish” perceived remarks by the  US Federal Reserve (Fed) Chair Jerome Powell. The USD/MXN dropped from around 19.1783 towards the week’s lows at 18.8691, but on Wednesday, the buck is recovering. At the time of writing, the USD/MXN exchanges hands at 18.9475, above its opening price by 0.17%.

USD/MXN Price Analysis: Technical outlook

Before Wall Street opened, the USD/MXN pair was trading at around the day’s lows, around 18.8231. However, a risk-off impulse increased demand for the US Dollar, so the USD/MXN is moving upwards.

The USD/MXN daily chart suggests further downside is expected, but the ongoing correction could open the door for further gains. At the time of typing, the USD/MXN has broken the 20-day Exponential Moving Average (EMA) at $18.9134 and could extend its gains towards 19.0000, a psychological resistance. A breach of the latter and the USD/MXN could rally toward January 19 daily high at 19.1085.

For the resumption of the downtrend, the USD/MXN needs a break below the 20-day EMA at 18.9134. Once cleared, that would expose critical support levels. Firstly, the February 7 low of 18.8691, followed by the day’s low at 18.8231, and then the YTD low at 18.50

USD/MXN Key Technical Levels

Economists at Wells Fargo forecast a softer greenback than previously and believe the US Dollar has already embarked upon a prolonged period of depreciation.

US Dollar's depreciation to gather pace in 2024

“Given more resilient growth internationally and a hawkish shift by some foreign central banks in recent months (notably the European Central Bank and Bank of Japan), we believe the USD has embarked upon a prolonged period of depreciation.”

“In the short term, we expect USD depreciation to be gradual as the US economy falls into recession, while the Fed hesitates to lower interest rates prematurely. 

“We expect the US Dollar's depreciation to gather pace in 2024 as we believe the Fed will start cutting interest rates quicker than foreign central banks.”

New York Federal Reserve President John Williams said on Wednesday that the labor market is still very strong and added that they have more work to do on rates, as reported by Reuters.

"The Fed will watch the data to determine the path of rate rises," Williams added and argued that inflation could prove more persistent. "Maybe services prices stay elevated, and if that happens we'll need higher rates."

Market reaction

The US Dollar Index showed no immediate reaction to these remarks and was last seen posting small daily losses at 103.25.

Additional takeaways

"Last year we had a long way to go on rates and that needed big steps."

"We are likely now closer to peak and can take smaller steps."

"25 bps rate hikes seem the best option for now, they allow us to more easily assess rates."

Will USD/CAD eventually fall in 2023? Economists at Bank of America Global Research expect the pair to dive towards 1.25 by the end of the year.

USD/CAD Q1 forecast remains at 1.32 

“We maintain our downtrend USD/CAD forecast for the year despite the Bank of Canada rate hike pause.”

“We believe the Canadian Dollar will benefit from supportive equity factor, energy factor, and seasonality in the coming months.”

“We maintain our Q1 forecast of 1.32 and year-end forecast of 1.25 for the USD/CAD pair.”

• EUR/USD fails to extend the bounce past the 1.0780 level.
• The 3-month line near 1.0780 keeps capping the upside.

EUR/USD bounces off Tuesday’s lows near 1.0670, although the bullish attempt runs out of steam near 1.0760.

As long as the 3-month resistance line near 1.0780 continues to cap the upside, the pair is expected to remain under pressure and thus another move to the February low near 1.0670 should not be discarded just yet.

In the longer run, the constructive view remains unchanged while above the 200-day SMA, today at 1.0319.

EUR/USD daily chart

Equity investors appear optimistic, but US government bonds, Gold and Oil tell a less encouraging story,  Lisa Shalett, Chief Investment Officer, Wealth Management at Morgan Stanley, reports.

Equity gains are merely another bear market bounce

“Recent equity gains are merely another bear market bounce – not the beginning of a sustainable bull market. The current rally seems to be based not on improving economic fundamentals but on easing financial conditions, which we believe are likely to reverse later this year.”

“Even as stocks trade higher, recent market action for other asset classes paints a starkly different picture. US government bonds: Treasury yield curves remain deeply inverted, a time-tested signal that an economic downturn is on the horizon. Gold: Since the October low for the S&P 500, Gold continues to outperform both the S&P 500 and the Nasdaq. Oil: If equity investors are expecting a ‘soft landing’ and potential rebound in economic growth later in 2023, oil prices do not reflect that.”

• GBP/USD scales higher for the second straight day, albeit lacks follow-through buying.
• The risk-off mood drives some haven flows towards the USD and caps gains for the pair.
• The technical setup supports prospects for an eventual break below the 200-day SMA.

The GBP/USD pair builds on the overnight bounce from the 1.1960 area, or over a one-month low and gains some positive traction for the second successive day on Wednesday. Spot prices, however, struggle to capitalize on the move or find acceptance above the 1.2100 mark and retreat around 35 pips from the daily top. The pair is currently placed around the 1.2075 region, still up over 0.30% for the day.

The prevalent risk-off environment - as depicted by a generally weaker tone around the equity markets - assists the safe-haven US Dollar to recover a major part of its intraday losses. This, in turn, is seen as a key factor acting as a headwind for the GBP/USD pair. That said, the prospects for an imminent pause in the Fed's rate-hiking cycle hold back the USD bulls from placing aggressive bets and remain supportive of the bid tone surrounding the major.

Looking at the broader picture, the recent repeated failures near the 1.2450 supply zone constitute the formation of a bearish multiple-top pattern on the daily chart. That said, the emergence of some buying near a technically significant 200-day SMA warrants some caution for bearish traders. This makes it prudent to wait for strong follow-through selling below the overnight swing low, around the 1.1960 zone before positioning for a further depreciating move.

With oscillators on the daily chart holding in the negative territory, the GBP/USD pair might then turn vulnerable to accelerate the fall towards the 1.1900 round figure. The downward trajectory could get extended further towards testing the YTD low, around the 1.1840 region touched on January 6, en route to the 100-day SMA, currently near the 1.1815-1.1810 area.

On the flip side, any meaningful rally beyond the 1.2100 mark is likely to confront stiff resistance ahead of the 1.2200 round figure. The latter coincides with the 100-day SMA, which if cleared might negate the bearish outlook and prompt some short-covering. The GBP/USD pair could then climb to the 1.2235-1.2280 barrier before aiming to reclaim the 1.2300 mark.

GBP/USD daily chart

Key levels to watch

• USD/CAD attracts some buyers near the 1.3360 area, or the weekly low touched on Wednesday.
• A modest pullback in crude oil prices undermines the Loonie and lends some support to the pair.
• A weaker risk tone benefits the USD’s safe-haven status and contributes to the intraday bounce.

The USD/CAD pair rebounds from the weekly low touched this Wednesday and climbs to a fresh daily high, which bulls now looking to build on the momentum beyond the 1.3400 mark.

Crude oil prices surrender a major part of the intraday gains to a one-week low, which, in turn, is seen undermining the commodity-linked Loonie. Apart from this, the prevalent risk-off mood benefits the US Dollar's relative safe-haven status and assists the USD/CAD pair to attract some buyers near the 1.3360 region.

From a technical perspective, any subsequent move up might continue to confront stiff resistance near the top end of over a two-month-old descending channel. The said hurdle is pegged near the 1.3455 area and is followed by the last week's swing high, around the 1.3475 zone, which should now act as a pivotal point.

A sustained strength beyond will be seen as a fresh trigger for bullish traders and set the stage for an extension of the recent recovery move from the lowest level since November 16. Some follow-through buying beyond the 50-day SMA will reaffirm the positive bias and push the USD/CAD pair beyond the 1.3500 psychological mark.

The momentum could get extended towards a technically significant 100-day SMA support breakpoint, now turned resistance near the 1.3530 region, above which bulls might aim to reclaim the 1.3600 mark.

On the flip side, the daily low, around the 1.3360 area, now becomes immediate support to defend ahead of the 1.3300 mark. A convincing break below will make the USD/CAD pair vulnerable to fall below the YTD low, around the 1.3265-1.3266 zone, and test the 1.3200 mark en route to the channel support, around the 1.3160-1.3155 zone.

USD/CAD daily chart

Key levels to watch

• The index struggles to extend the upside and returns to the low-103.00s.
• Bullish attempts should meet the next hurdle around 104.00.

DXY loses some momentum and adds to the rejection from Tuesday’s monthly highs just ahead of the 104.00 hurdle.

While above the 3-month support line near 102.00, further gains look likely, although the index needs to clear the February high at 103.96 (February 7) to allow for the continuation of the uptrend to 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

EUR/USD losses appear to be steadying around the 1.07 point. A break past the 1.0765/70 area could lift the pair to the 1.08 level, economists at Scotiabank report.

Hawkish messaging from the ECB to keep the EUR underpinned

“We think the relatively hawkish messaging from the ECB will serve to keep the EUR underpinned in the short run and that losses to the 1.07 area may provide an opportunity for bargain-hunters to step up to re-establish long positions that were squeezed out by the past week’s volatility.”

“Intraday gains through 1.0765/70 should see spot pick up a little more support towards 1.08.” 

• EUR/JPY alternates gains with losses around 140.50 midweek.
• The 143.00 region remains a tough near-term resistance zone.

EUR/JPY navigates within a narrow range in the mid-140.00s following Tuesday’s sharp sell-off.

While the cross is expected to maintain the side-lined theme in the short term, the 143.00 area remains a solid barrier for bulls. This key resistance zone also appears reinforced by the 100-day SMA, today at 142.89

If the cross breaches the 200-day SMA at 141.00 on a sustainable fashion, the outlook is expected to shift to bearish.

EUR/JPY daily chart

Ahead of tomorrow’s Riksbank decision, economists at Credit Suisse raise their EUR/SEK Q1 target from 11.30 to 11.50 and would look to fade consolidation triggered by hawkish policy rate projections.

Further SEK weakness remains the path of least resistance

“Ahead of tomorrow’s Riksbank decision, we raise our EUR/SEK Q1 target from 11.30 to 11.50.”

“There is a possibility that hawkish policy rate projections could trigger a consolidation in EUR/SEK to the 11.00-11.10 zone: we would expect SEK weakness to resume thereafter.”

See – Riksbank Preview: Forecasts from seven major banks, 50 bps, but the peak is not far off

• USD/JPY remains on the defensive and is pressured by a combination of factors.
• Powell’s less hawkish stance, sliding US bond yields exert pressure on the USD.
• Hawkish BoJ expectations and a weaker risk tone benefit the safe-haven JPY.

The USD/JPY pair edges lower for the second straight day and remains on the defensive through the mid-European session on Wednesday. The pair is currently placed around the 130.80 region, just a few pips above the weekly low touched the previous day.

The US Dollar comes under some renewed selling pressure amid a fresh leg down in the US Treasury bond yields and acts as a headwind for the USD/JPY pair. Fed Chair Jerome Powell on Tuesday acknowledged that rates might need to move higher than expected if the economy remained strong, though struck a balanced tone on inflation. This, in turn, fueled speculations about an imminent pause in the Fed's policy-tightening cycle, which, in turn, is seen dragging the US bond yields lower.

The Japanese Yen (JPY), on the other hand, draws support from expectations that high inflation could invite a more hawkish stance from the Bank of Japan (BoJ) later this year. Apart from this, a weaker risk tone further benefits the safe-haven JPY and exerts downward pressure on the USD/JPY pair. The market sentiment remains fragile amid worries about economic headwinds stemming from rising borrowing costs, the COVID-19 outbreak in China and fears about worsening US-China relations.

The aforementioned fundamental backdrop suggests that the path of least resistance for the USD/JPY pair is to the downside. That said, the lack of follow-through selling warrants some caution for aggressive bearish traders in the absence of any relevant market-moving economic releases. That said, speeches by influential FOMC members could provide some impetus to the greenback. Apart from this, the broader risk sentiment should allow traders to grab short-term opportunities around the USD/JPY pair.

Technical levels to watch

Lee Sue Ann, Economist at UOB Group, comments on the latest RBA interest rate decision (February 7).

Key Takeaways

“The Reserve Bank of Australia (RBA) decided to increase the cash rate target by 25bps to 3.35% at its first meeting of the year. Taking into account today’s move, the RBA has raised the cash rate by 325bps since May 2022.”

“The RBA stated that its priority is to return inflation to target, and that further increases in interest rates will be needed over the months ahead. We are penciling in another two more 25bps hike, which will take the OCR to 3.85%, before looking for a pause.”

“That said, the releases of 4Q22 wage price index later this month on 22 Feb and 4Q22 GDP on 1 Mar will be closely watched. Before that, the RBA will be releasing its Statement of Monetary Policy (SoMP) coming Fri (10 Feb).”

GBP/USD stages bull reversal. Gains through the low/mid-1.21 area should see Cable pick up a little more momentum, economists at Scotiabank report.

Dips likely to be taken advantage of by buyers

“Cable formed bullish key reversal session yesterday (new low, higher close and higher high relative to Monday), strongly signaling a reversal in the pound’s recent slide.”

“Intraday gains are struggling a little around the 1.21 point but modest dips are likely to be taken advantage of by buyers.” 

“Gains through the low/mid-1.21 area should see the GBP pick up a little more momentum in the next few days.”

“Support is 1.2045/50.”

• AUD/USD attracts some buyers for the second successive day, though lacks bullish conviction.
• Expectations for a less hawkish Fed, sliding US bond yields weigh on the USD and lend support.
• Looming recession risks and the cautious mood act as a headwind for the risk-sensitive Aussie.

The AUD/USD pair adds to the previous day's strong gains and edges higher for the second successive day on Wednesday. Spot prices, however, seem to struggle to capitalize on the move and remain below the 0.7000 psychological mark through the mid-European session.

The Australian Dollar continues to draw some support from the RBA's hawkish outlook, signalling that further rate increases will be needed to ensure that inflation returns to target. Apart from this, the emergence of fresh selling around the US Dollar turns out to be another factor acting as a tailwind for the AUD/USD pair.

Against the backdrop of the upbeat US NFP report, Fed Chair Jerome Powell on Tuesday acknowledged that interest rates might need to move higher than expected if the economy remained strong. Powell, however, reiterated that the process of disinflation was underway and fueled speculations that interest rates may not rise much further.

Reviving bets for an imminent pause in the Fed's policy-tightening cycle triggers a fresh leg down in the US Treasury bond yields, which, in turn, weighs on the USD and lends support to the AUD/USD pair. That said, a generally weaker tone around the equity markets holds back bulls from placing fresh bets around the risk-sensitive Aussie.

The market sentiment remains fragile amid worries about economic headwinds stemming from the continuous rise in borrowing costs, the COVID-19 outbreak in China and the protracted Russia-Ukraine war. Apart from this, fears about worsening US-China relations further temper investors' appetite for riskier assets and cap the AUD/USD pair.

The aforementioned mixed fundamental backdrop makes it prudent to wait for some follow-through buying before confirming that the recent pullback from the highest level since June 2022 has run its course. In the absence of any relevant market-moving US macro data, traders on Wednesday will take cues from speeches by influential FOMC members.

Technical levels to watch

USD/INR is not far off the 83.00 psychological barrier. A break past 82.95/83.3o would clear the path for more gains, economists at Société Générale report.

82.30 is short-term support

“USD/INR faced stiff resistance at 83.30 last October and since then it has evolved within a sideways consolidation resembling a symmetrical triangle. It is now close to the upper limit of this range at 82.95/83.30. This remains a crucial resistance, only a break above would mean next leg of uptrend.”

“Recent bullish gap at 82.30 is a short-term support. In case this gets violated, there could be a risk of a pullback towards the lower band at 81.00/80.90.”

Economist at UOB Group Enrico Tanuwidjaja assesses the latest GDP results in Indonesia.

Key Takeaways

“4Q22 GDP growth came in relatively well within general expectations at 5.0% y/y (3Q22: 5.7%) or slowing to 0.4% q/q from 1.8% in the preceding quarter.  This has brought about the full year 2022 GDP growth at 5.3%, strongest in the aftermath of post-pandemic recovery (2020: -2%; 2021: 3.7%).”

“Though easing, contribution from all the expenditure side, except continued contraction in government spending, continue to sustain growth momentum. From the sectoral output basis, all sectors recorded growth in 3Q22, with transportation and logistics topping growth pace for 2 quarters in a row, consistent with the ongoing reopening that virtually has undone all the pandemic mobility and activity restrictions.”

“Moderating global commodity prices as well as the inflation-biting impact on the domestic household consumption is likely to render slower growth for the Indonesian economy this year. We also have factored in seasonally higher fiscal impacts from election-related unto growth in the latter half of this year. All in all, we forecast Indonesia’s GDP to grow by around 5% in 2023.”

For EUR/USD, immediate support lies at 1.0680. A break below here would open up room for more losses towards January low of 1.0480, economists at Société Générale report.

January peak of 1.0940 should cap

“EUR/USD has staged a pullback towards the 50-DMA at 1.0680 which is a potential support. A bounce is not ruled out, however, January peak of 1.0940 should cap.”

“Break of 1.0680 can extend the decline towards 1.0560 and January low of 1.0480.”

See – EUR/USD: Further explorations below 1.0700 are possible in the coming days – ING

Comments from Fed officials are set to drive US Dollar's action. The Dollar still faces moderate upside risks this week, but stabilization looks more likely today, in the view of economists at ING.

There is room for the general Fed rhetoric to stay on the hawkish side

“We think markets may feel relatively comfortable with the current pricing for a 5.15% peak rate for now, even though risks are skewed towards another 10 bps of tightening being added into the curve. This means that the Dollar’s upward correction may have a bit more to run, but we doubt this will morph into a sustained USD uptrend from this point on.” 

“There is room for the general Fed rhetoric to stay on the hawkish side and while we think the absence of key data can favour some stabilisation in the Dollar today, risks are skewed towards another small leg higher in the greenback.”

Japan’s government said that cooperation with the business and labor circles is essential. Economists at Commerzbank analyze the implications of the upcoming negotiations on wage rises. 

Japan’s version of Germany’s contrat social of the 1960s and 70s?

“This time it is being reported that the government was planning to bring employers’ representatives and unions together for them to agree on wage rises. Any German reader with a good memory (and who is old enough) might remember a similar arrangement in Germany in the 1960s and 1970s (‘konzertierte Aktion’ or contrat social).”

“The Germans do not have fond memories of such an arrangement. It ended in bitter disagreement. That might work better in Japan. And even if one was sceptical, a government initiative like that would be informative for JPY investors. It would prove that the government is interested after all in creating sustainable reflation. In that context, the nomination of a hawkish BoJ Chair would be illogical.”

“Before you run off and sell JPY, let me warn you: a government’s behavior is not always as consistent as I have assumed up to this point. If the government urges the two sides of industry towards higher wages, this could be due to an attempt to gain the support of the voters rather than a coherent macroeconomic plan.”

Senior Economist at UOB Group Alvin Liew reviews the recently published US jobs report for the month of January.

Key Takeaways

“The US started 2023 with a bang, exceeding all expectations with 517,000 jobs added in Jan while the jobless rate receded to a 53-year low of 3.4%, as the unemployed numbers fell by 28,000 to 5.69 million and participation rate inched up to 62.4%. Wage growth continued but the pace was in line with forecast, and slower at 0.3% m/m, 4.4% y/y (below Dec prints).”

“Wage growth further below 5% may give the Federal Reserve (Fed) some comfort the risk of wage-price spiral is not imminent, but Jan’s sterling job creation pace is likely to keep the Fed on track for further hikes in 1Q 2023. We and the markets still assign a high probability the Fed will hike rates by another 25-bps to 4.75-5.00% in 21/22 Mar 2023 FOMC.”

Today, we have a meeting of the National Bank of Poland (NBP) on the agenda. Poland may confirm stable rates, with the Zloty slowing down its recent losses, economists at ING report.

NBP to confirm stable rates

“We expect rates to remain unchanged. This is in line with market expectations and it is hard to expect any surprises.”

“It is hard for us to find reasons to be positive at the moment, at least until the Court of Justice of the European Union's decision on FX mortgages. Until then, we cannot rule out EUR/PLN touching 4.80.”

“In the short term, the rise in PLN market rates and improvement in the interest rate differential should stop further depreciation for now.”

“Unless we see more pressure from the US Dollar side, we believe the Zloty will erase some of the recent losses and return to the 4.72-74 EUR/PLN range.”

• Gold price gains traction for the third successive day and climbs to a fresh weekly high.
• A weaker US Dollar and expectations for a less hawkish Federal Reserve act as a tailwind.
• Looming recession risks weigh on investors’ sentiment and remains supportive of the move. 

Gold price is building on its bounce from the $1,860 area, or a one-month low touched earlier this week and gaining traction for the third straight day on Wednesday. The momentum lifts the XAU/USD to a fresh weekly high, around the $1,886 region during the first half of the European session and is sponsored by a combination of factors.

Weaker US Dollar acts as a tailwind for Gold price

The US Dollar (USD) comes under renewed selling pressure and erodes a part of its recent strong gains to a one-month top amid the uncertainty about the Federal Reserve's (Fed) policy outlook. In fact, Fed Chair Jerome Powell on Tuesday acknowledged the need to raise interest rates further due to strength in the labor market and elevated inflation. Furthermore, Minneapolis Fed President Neel Kashkari said the central bank would probably have to raise interest rates to at least 5.4% to tame high inflation.

Powell's less-hawkish stance offers additional support to Gold price

Powell, however, reiterated that the disinflationary process was underway, fueling speculations about an imminent pause in the Fed's policy-tightening cycle. Investors now seem convinced that interest rates may not rise much further, which is evident from a fresh leg down in the US Treasury bond yields. This, in turn, is seen weighing on the Greenback and acting as a tailwind for the US Dollar-denominated Gold price. Apart from this, a generally weaker risk tone further benefits the safe-haven XAU/USD.

Softer risk tone further benefits safe-haven XAU/USD

The market sentiment remains fragile amid worries about economic headwinds stemming from the continuous rise in borrowing costs, the COVID-19 outbreak in China and the protracted Russia-Ukraine war. Apart from this, fears about worsening US-China relations - amid growing tensions over a suspected Chinese surveillance balloon - temper investors' appetite for riskier assets. This, in turn, favours bullish traders and supports prospects for additional near-term gains for Gold price.

There isn't any major market-moving economic data due for release from the US on Wednesday, leaving the USD at the mercy of the US bond yields. Later during the North American session, traders will take cues from speeches by influential Federal Open Market Committee (FOMC) members. This, along with the broader risk sentiment should produce some meaningful trading opportunities around the non-yielding Gold price.

Gold price technical outlook

From a technical perspective, any subsequent move up is likely to confront near the $1,900 round-figure 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.

On the flip side, the one-month low, around the $1,860 region, now seems to protect the immediate downside. A convincing break below would make the Gold price vulnerable to accelerate the fall towards the $1,825 horizontal support en route to the $1,800 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 will be seen as a fresh trigger for bearish traders.

Key levels to watch

Economists at Commerzbank analyze the future path of USD exchange rates.  

USD valuation depends on US inflation and on the short-term US interest rates

“USD valuation? That depends on US inflation and also on the short-term US interest rates. Because the USD can be sold and bought short-term too. But because the FX market looks ahead, so that a USD move that can be expected for the future will arise now, it is yields with a longer maturity after all that are decisive.”

“Real 5Yx5Y yields’ spread compared with the corresponding euro zone yields has narrowed recently (when EUR/USD principally appreciated). That is now over. That means: the market does not expect higher inflation, but envisages that the Fed will have to try harder to control it. That is why the Dollar appreciates; and not because higher US yields increase the effectiveness of current US monetary policy.”

While above the 6.7400 level, USD/CNH could challenge the 6.8500 region ahead of 6.8800, note UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: “We expected USD to trade within a range of 6.7800/6.8200 yesterday. USD subsequently traded between 6.7765 and 6.8070. The underlying tone has softened somewhat and USD is likely to edge lower today. However, any decline is unlikely to break below 6.7600 (next support is at 6.7400). On the upside, a breach of 6.8000 would indicate that the current mild downward pressure has faded.”

Next 1-3 weeks: “Two days ago (06 Feb, spot at 6.8200), we highlighted that while short-term conditions are deeply overbought, 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. We continue to hold the same view.”

The Riksbank is set to announce its Interest Rate Decision on Thursday, February 9 at 08:30 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of seven major banks for the upcoming central bank's meeting. 

Riksbank is expected to hike rates by 50 basis points to 3%. At the last policy meeting on November 24, the Riksbank hiked rates by 75 bps. 

TDS

“We look for the Riksbank to deliver a 50 bps hike, in line with market pricing but above the 28 bps implied by the Bank's rate path. While growth has been weak and core CPIF came in roughly as the Bank expected, a hawkish shift from the ECB and a much weaker SEK has put notable pressure on the Bank. We then see two more 25 bps hikes to bring the policy rate to a 3.50% terminal.”

ING

“With new Governor Erik Thedeen warning against recent SEK weakness, and the Riksbank saying in the past that it wants to stay ahead of the ECB in its tightening cycle, we expect a 50 bps rate hike. Nevertheless, with the housing market under pressure, we think we’re nearing the top for Swedish rates. We expect one further 25 bps hike in April, marking the top of the cycle.”

Swedbank

“We expect the Riksbank to raise the policy rate by 50 bps to 3%. And the rate path is likely to be bumped up to signal another 25 bps hike later this spring. This will be Erik Thedéen’s and Aino Bunge’s first meeting, which adds to the uncertainty. Our forecast is that given the high inflation, the ECB’s rate hike plans and the weak Krona, the Riksbank will continue to rise by 25 bps both in April and June.” 

Nordea

“We expect the Riksbank to increase the policy rate by 50 bps to 3% and signal at least one more rate hike ahead by 25 bps. A weak SEK is creating headaches for the Riksbaken and adds to upside risks on SEK rates. We think an upward sloping policy rate path into the second half of the year with no rate cuts may be needed to guard against further SEK weakening. Looking at what markets currently expect, pricing for the next two meetings is reasonable, but rate cuts are discounted too early.”

Danske Bank

“We look for a 50 bps hike.”

SocGen

“Sweden’s Riksbank is playing catch up (like the ECB) and will probably tighten by 50 bps despite the danger of the economy entering a recession this quarter.”

Wells Fargo

“For February, we expect the Riksbank to raise its repo rate 50 bps to 3.00%. Moreover, given how elevated inflation is, we now also expect the Riksbank to hike its rate another 25 bps to 3.25% in April, above our previous forecast peak for the policy rate of 3.00%. The Riksbank also publishes updated projections, including for economic growth, inflation and the policy rate path, which should also provide an indication of whether the central bank believes interest rates will need to be raised by more than previously anticipated.”

• USD/CAD drifts lower for the second straight day and is pressured by a combination of factors.
• The ongoing rally in oil prices underpins the Loonie and weighs on the pair amid a weaker USD.
• A sustained break below the 1.3400 mark might have already set the stage for additional losses.

The USD/CAD pair extends this week's retracement slide from the 1.3470-1.3475 region and remains under heavy selling pressure for the second successive day on Wednesday. The downward trajectory picks up pace during the first half of the European session and drags spot prices to 
fresh weekly low, around the 1.3365 region in the last hour.

Crude oil prices add to the previous day's strong gains and scale higher for the third successive day amid concerns about supply disruptions caused by a major earthquake in Turkey. This, in turn, is seen underpinning the commodity-linked Loonie, which, along with the emergence of fresh selling around the US Dollar, exerts downward pressure on the USD/CAD pair.

Fed Chair Jerome Powell failed to offer fresh hawkish signals on Tuesday and reiterated that the process of disinflation was underway. The comments dampen market expectations that the Fed will stick to its hawkish stance and raises hopes that interest rates may not rise much further. This, in turn, drags the US Treasury bond yields lower and weighs on the USD.

The prevalent cautious mood, however, could lend some support to the safe-haven greenback. The market sentiment remains fragile amid worries about economic headwinds stemming from rapidly rising borrowing costs, the COVID-19 outbreak in China and the protracted Russia-Ukraine war. Furthermore, looming recession risks might keep a lid on any further gains for the black liquid.

The aforementioned factors might contribute to limiting the downside for the USD/CAD pair, at least for the time being. That said, the overnight break below the 1.3400 round-figure mark suggests that the USD/CAD pair's recent strong recovery move from the lowest level since November 16 has run its course and supports prospects for a further intraday depreciating move.

In the absence of any relevant market-moving economic data from the US, traders will take cues from scheduled speeches by influential FOMC members. This, along with the US bond yields and the broader risk sentiment, will drive the USD. Apart from this, oil price dynamics should provide some impetus and allow traders to grab short-term opportunities around the USD/CAD pair.

Technical levels to watch

• EUR/USD rebounds from monthly lows near 1.0670.
• The dollar gives away further ground after Powell’s comments.
• Retail Sales in Italy surprised to the upside in December.

Following fresh lows in the vicinity of 1.0670 on Tuesday, EUR/USD manages to regain some balance and advance north of 1.0700 the figure on Wednesday.

EUR/USD: Next target comes at 1.0800

EUR/USD trades with decent gains and reclaims the 1.0750 region on the back of the renewed selling pressure surrounding the greenback midweek.

Extra wings to the upside bias in the pair also comes from increasing investors’ appetite for the risk-associated assets in a context where market participants seem to have fully assessed the recent strong prints from the US jobs report as well as remarks by Chair Powell on Tuesday.

The daily bounce in spot also finds support in the equally decent move higher in the German 10-year Bund yields, which approach the 2.40% level amidst the fourth consecutive daily uptick.

Nothing worth mentioning in the euro docket other than the 0.2% monthly contraction of Retail Sales in Italy during December. On a yearly basis, sales expanded 3.4%.

In the US calendar, MBA Mortgage Applications and Wholesale Inventories wil come later. In addition, NY Fed J.Williams (permanent voter, centrist), FOMC M.Barr (permanent voter, centrist) and FOMC C.Waller (permanent voter, hawk) are also due to speak.

What to look for around EUR

EUR/USD seems to have embarked on a decent recovery soon after bottoming out in the 1.0670 region on Tuesday, always in response to the loss of upside traction around the dollar.

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 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 gaining 0.28% at 1.0753 and is expected to meet the next up barrier at 1.1032 (2023 high February 2) followed by 1.1100 (round level) and finally 1.1184 (weekly high March 31 2022). On the flip side, a drop below 1.0697 (monthly low February 7) would target 1.0669 (55-day SMA) en route to 1.0481 (2023 low January 6).

EUR/USD broke below 1.0700 yesterday before rebounding. Economists at ING still expect the pair to see levels below this week.

EUR/USD mostly a Dollar story

“Yesterday’s decision by the European Central Bank to cut rates on government deposits to encourage fund withdrawals should not have strong implications for the Euro for the moment.” 

“The process of hawkish re-tuning by ECB officials after last week’s market reaction to President Christine Lagarde's press conference looks likely to continue, although it appears to have been largely factored in by markets.”

“We think that further explorations below 1.0700 are possible in the coming days, but it looks like they will mostly depend on Dollar moves.”

Further upside to the area above 133.00 in USD/JPY seems to have lost traction for the time being, comment UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: “We did not anticipate the sharp drop in USD to 130.46 yesterday (we were expecting USD to trade in a range). The rapid drop appears to be overdone and USD is unlikely to weaken much further. Today, USD is more likely to trade between 130.20 and 132.20.”

Next 1-3 weeks: “Our latest narrative was from Monday (06 Feb, spot at 132.30) where the outsized advance in USD last Friday and the corresponding sharp increase in upward momentum suggest it could rise further. We indicated, the levels to watch are at 133.35 and 134.75. While USD subsequently soared to a high of 132.90, it dropped sharply yesterday and closed lower by 1.21% (NY close of 131.05). The price actions suggest the prospect of USD rising to 133.35 has decreased. However, only a breach of 130.20 (no change in ‘strong support’ level) would indicate that USD is not advancing further.”

RBI has managed USD/INR in an 81.00-83.00 range since Q4 2022. RBI intervention at 83.00 should limit further USD/INR upside in the short term. However, there is risk that the RBI’s intervention level shifts higher (to 84.00) amid strong imports, economists at Credit Suisse report.

FX intervention and trade deficits will drive USD/INR

“In the short term, we expect central bank to continue defending the 83.00 level.” 

“In the medium term, we expect further rupee weakness and think the intervention level could shift higher to 84.00 in Q1. We remain optimistic on Indian GDP, but that optimism is negative for the trade balance and INR.” 

“We reiterate our view USD/INR Q1 forecast range of 81.00-84.00.”

The NZD has steadily appreciated in recent months. Economists at ANZ Bank are expecting the Kiwi to gradually firm over the year.

NZD/AUD forecasts downgraded 

“We upgraded our NZD forecasts – we now see it reaching 0.65 in Q3, 0.67 in Q4, and 0.68 by Q4 next year.”

“We expect positive economic ripples from the rebound in Chinese activity to be another source of NZD strength, particularly against currencies that are less sensitive to Chinese demand (GBP, CAD).”

“Our new forecasts have NZD/AUD continuing to decline. This is predicated on the strength of Australian economic momentum, relative to New Zealand, which is much further ahead in the inflation, growth and interest rate cycle.”

• GBP/USD gains traction for the second straight day and recovers further from over a one-month low.
• The less hawkish signs by Fed’s Powell, sliding US bond yields undermine the USD and lend support.
• Expectations that the BoE is nearing the end of its current rate-hiking cycle cap gains for the Sterling.

The GBP/USD pair builds on the overnight bounce from the vicinity of the 200-day SMA support and gains some follow-through traction for the second straight day on Wednesday. Spot prices climb to a fresh weekly high during the early part of the European session, with bulls now looking to extend the momentum further beyond the 1.2100 round-figure mark.

The US Dollar comes under some renewed selling pressure amid a modest downtick in the US Treasury bond yields and turns out to be a key factor acting as a tailwind for the GBP/USD pair. Fed Chair Jerome Powell failed to offer fresh hawkish signals on Tuesday and reiterated that the process of disinflation was underway. This, in turn, raises hopes that interest rates may not rise much further, which, in turn, exerts some downward pressure on the US bond yields and undermines the greenback.

That said, a generally weaker risk tone helps limit losses for the safe-haven buck and keeps a lid on any further upside for the GBP/USD pair, at least for the time being. The market sentiment remains fragile amid worries about economic headwinds stemming from the continuous rise in borrowing costs, the latest COVID-19 outbreak in China and the protracted Russia-Ukraine war. Apart from this, fears about worsening US-China relations temper investors' appetite for perceived riskier assets.

Apart from this, a dovish assessment of the Bank of England (BoE) decision last week also contributes to capping the GBP/USD pair. In fact, the UK central bank removed the phrase that they would "respond forcefully, as necessary". Furthermore, BoE Governor Andrew Bailey said that inflation will fall more rapidly during the second half of 2023. This raises speculations that the current rate-hiking cycle might be nearing the end and might hold back bulls from placing aggressive bets.

There isn't any major market-moving economic data due for release on Wednesday, either from the UK or the US, leaving the GBP/USD pair at the mercy of the USD price dynamics. Hence, traders now look forward to speeches by influential FOMC members. This, along with the US bond yields and the broader risk sentiment, should drive the USD demand and provide some impetus to the GBP/USD pair. The focus will then shift to the BoE's Monetary Policy Report Hearings on Thursday.

Technical levels to watch

Considering advanced figures from CME Group for natural gas futures markets, open interest remained on the rise on Tuesday, this time by around 8.8K contracts. Volume followed suit and increased by around 260.2K contracts after three consecutive daily pullbacks.

Natural Gas: The $2.30 region holds the downside so far

Natural gas prices extended the recovery on Tuesday amidst rising open interest and volume, leaving the door open to the continuation of the rebound in the very near term. The next up barrier of note appears at the round level at the $3.00 mark per MMBtu, while recent lows near $2.30 seem to offer decent contention.

EUR/GBP is hovering around the 0.89 support. However, economists at ING doubt that the pair is to sustain more losses. 

Don’t read too much into a weaker EUR/GBP

“EUR/GBP is pressing through the 0.8900 support, but we doubt this is the start of a longer downtrend in the pair.”

“The Bank of England’s pushback against dovish rate speculation is happening in tandem with the ECB and we don’t see a key catalyst for the two currencies to dramatically diverge in the current environment.”

According to UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, AUD/USD is now seen navigating within the 0.6865-0.7055 range in the next weeks.

Key Quotes

24-hour view: “We noted yesterday that downward pressure has eased somewhat and that AUD is unlikely to weaken further.  We expected AUD to trade in a range between 0.6865 and 0.6930. While AUD did not weaken further, instead of trading in a range, it rebounded strongly to 0.6989 before ending the day on a strong note at 0.6960 (+1.12%). The sharp rise appears to be overdone but there is room for AUD to test 0.7000 before easing. The major resistance at 0.7055 is not expected to come under threat. Support is at 0.6925, followed by 0.6890.”

Next 1-3 weeks: “After AUD fell sharply, we indicated on Monday (06 Feb, spot at 0.6920) that while AUD could weaken further, the 0.6825 level is expected to offer solid support. However, AUD did not quite test 0.6825 (low of 0.6856 on Monday) and yesterday, it rebounded strongly to a high of 0.6989. The breach of our ‘strong resistance’ level at 0.6980 indicates that the downward pressure has eased. AUD appears to have moved into a consolidation phase and it is likely to trade between 0.6865 and 0.7055 for the time being.”

The US Dollar Index snapped a three-day winning streak on Tuesday with the initial reaction to FOMC Chairman Jerome Powell's comments on the policy outlook. Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, shares his opinion about Powell’s interview.

Central banks should decide to explain the rules of their actions rather than predicting their next move

“How would you implement monetary policy, dear readers, if you were central bank chairs? You would look at the data coming in and act accordingly. That is exactly what the Fed Chair is telling us.”

“I find it silly and tiring wanting to deduct what the central bankers are allegedly planning. What they are going to do depends on the data. We should be pleased that all this forward guidance stuff is coming to an end and that central banks are behaving in a normal manner once again.”

“Central banks should decide once again to explain the rules of their actions to us rather than predicting their next move. That is a much better way of anchoring inflation expectations.”

• NZD/USD manages to hold above the 0.6300 mark amid a modest US Dollar weakness.
• The lack of hawkish signals from Fed’s Powell, sliding US bond yields weigh on the buck.
• A softer risk tone amid looming recession risks could cap gains for the risk-sensitive Kiwi.

The NZD/USD pair struggles to gain any meaningful traction on Wednesday and remains confined in a narrow range, above the 0.6300 mark through the early European session.

A generally softer tone around the equity markets is seen as a key factor acting as a headwind for the risk-sensitive Kiwi, though a modest US Dollar weakness lends support to the NZD/USD pair. The market sentiment remains fragile amid concerns about economic headwinds stemming from rising borrowing costs, the COVID-19 outbreak in China and the protracted Russia-Ukraine war. Apart from this, fears about the worsening US-China relations temper investors' appetite for riskier assets.

The USD, on the other hand, is undermined by speculations for an imminent pause in the Fed's policy-tightening cycle later this year. In fact, Fed Chair Jerome Powell failed to offer hawkish signals on Tuesday and reiterated that the process of disinflation was already underway. This, in turn, fuels speculations that interest rates may not rise much further, which is evident from a fresh leg down in the US Treasury bond yields and exerts some downward pressure on the greenback.

The lack of any strong buying interest, however, warrants some caution for bullish traders and before confirming that the recent pullback from the highest level since June 2022 has run its course. The post-NFP breakdown below the 0.6400 mark, meanwhile, suggests the path of least resistance for the NZD/USD pair. Hence, a subsequent move up could be seen as a selling opportunity and is more likely to remain limited in the absence of any relevant market-moving data from the US.

Technical levels to watch

An Iranian official offered an encouraging outlook on oil prices in his statement on Wednesday.

Key quotes

“I see oil prices going up next year.”

“I see oil prices going up next year to about $100/bbl in the second half of 2023.”

“OPEC+ are likely to continue the current policy in the next meeting.”

Market reaction

WTI was last seen changing hands at $77.65, 0.28% higher on the day. The above comments seem to provide a fresh boost to black gold.

FX option expiries for Feb 8 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0500 519m

- AUD/USD: AUD amounts  

• 0.7190 1.1b

The Indonesian Rupiah strengthened sharply in January. Economists at ING expect IDR to remain supported by China’s recovery.

IDR rally stalled by dovish BI

“Bank Indonesia (BI) hiked policy rates by 25 bps to help slow still-elevated core inflation. However, Governor Perry Warjiyo hinted that the current rate hike cycle was ending, which may help to cap further IDR appreciation.”

“China’s recovery and support for Indonesia’s commodity exports could help support the IDR this year.”

See: USD/IDR set to plunge to 14,500 by end-2023 – MUFG

CME Group’s flash data for crude oil futures markets noted traders scaled back their open interest positions by around 6.2K contracts on Tuesday for the first time since January 19. On the other hand, volume remained choppy and went up by around 183.5K contracts.

WTI: Another visit to the 2023 low is not ruled out

Tuesday’s marked uptick in prices of the WTI was amidst shrinking open interest, which warns against the continuation of the recovery at least in the very near term. That said, a corrective move to the YTD low near the $72.00 mark per barrel should not be ruled out for the time being.

GBP/USD risks a deeper decline in the near term, suggest UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: “We highlighted yesterday that ‘there is room for GBP to move below 1.2000 but any weakness is viewed as part of a lower trading range of 1.1980/1.2060’. We did not anticipate the elevated volatility as GBP dropped to 1.1962, rebounded sharply to 1.2095 before closing at 1.2050 (+0.23%). The price movements are likely part of a broad consolidation range. Today, we expect GBP to trade between 1.2000 and 1.2110.”

Next 1-3 weeks: “Our update from two day ago (06 Feb, spot at 1.2050) is still valid. As highlighted, further increase in downward momentum suggests more GBP weakness but it remains to be seen if the significant support at 1.1845 will come into view. Overall, only a breach of 1.2150 (no change in ‘strong resistance’ level) would indicate that the weakness in GBP that started late last week (see annotations in the chart below) has run its course.”

• The index treads water around 103.30 on Wednesday.
• Markets appear biased towards the risk complex early in Europe.
• Weekly Mortgage Applications, Fedspeak next on tap in the docket.

Price action around the greenback appears somewhat inconclusive in the low-103.00s when measured by the USD Index (DXY) on Wednesday.

USD Index: Bullish attempts look limited near 104.00

The index navigates the area of Tuesday’s closing levels around 103.30 against the backdrop of a tepid improvement in the risk-associated universe, while the recent bull run appears to have met some decent resistance near the 104.00 barrier.

In the meantime, investors seem to have fully digested Friday’s Payrolls figures (517K) and the absence of surprises at Powell’s Q&A session and is expected to shift their focus of attention to the upcoming Fedspeak.

In the US docket, weekly MBA Mortgage Applications and Wholesale Inventories are due later in the NA session seconded by speeches by NY Fed J.Williams (permanent voter, centrist), FOMC M.Barr (permanent voter, centrist) and FOMC C.Waller (permanent voter, hawk).

What to look for around USD

The dollar keeps correcting lower after hitting fresh tops near the 104.00 hurdle on Tuesday, always amidst a better mood in the risk appetite trends.

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. This view, however, is expected to take centre stage in the upcoming speeches by Fed’s rate setters.

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: 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 advancing 0.06% at 103.39 and faces the immediate up barrier at 103.96 (monthly high February 7) seconded by 105.63 (2023 high January 6) and then 106.45 (200-day SMA). On the other hand, 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).

Here is what you need to know on Wednesday, February 8:

The US Dollar Index snapped a three-day winning streak on Tuesday after having fluctuated wildly with the initial reaction to FOMC Chairman Jerome Powell's comments on the policy outlook. In the absence of high-impact macroeconomic data releases, comments from Fed officials, including New York Fed President Williams, Atlanta Fed President Bostic and Minneapolis Fed President Kashkari, will be watched closely by market participants on Wednesday.

In an interview with The Economic Club of Washington, D.C., Powell said that the latest jobs report was certainly stronger than anyone expected and reiterated that they will probably need to do further interest rate increases. The chairman also noted that he expects 2023 to be a year of 'significant declines' in inflation. "We may need to do more if we continue to get strong labour market or higher inflation reports," Powell concluded. During Powell's speech, the US Dollar Index moved up and down in a wide range but ended up closing the day modestly lower.

Meanwhile, US President Joe Biden said in his second State of the Union address that he proposes to quadruple the tax on corporate stock buybacks and called on Congress to pass his proposal for a billionaire minimum tax. Wall Street's main indexes showed no reaction to these comments and registered strong daily gains following the uninspiring start to the week.

During the Asian trading hours, Fitch Ratings announced that it revised 2023 Gross Domestic Product Growth for China to 5% from 4.1%. "We believe the economic recovery will be primarily consumption-led, as households re-engage in activities previously hampered by health controls," Fitch elaborated.

US stock index futures trade virtually unchanged early Wednesday and the benchmark 10-year US Treasury bond yield posts small daily losses at around 3.65%.

EUR/USD dropped to its lowest level since January 9 at 1.0667 on Tuesday but managed to close the day above 1.0700 with the US Dollar struggling to preserve its strength in the late American session. The pair trades marginally higher on the day early Wednesday but stays below 1.0750.

GBP/USD registered small daily gains on Tuesday and seems to have gone into a consolidation phase at around 1.2050 in the European morning on Wednesday.

USD/JPY lost more than 100 pips on Tuesday and has settled slightly above 131.00. Japanese Prime Minister (PM) Fumio Kishida said earlier in the day that they are in the process of choosing the next Bank of Japan (BoJ) Governor nominee.

Following Tuesday's rebound that was fueled by the Reserve Bank of Australia's (RBA) hawkish tone, AUD/USD stays relatively quiet below 0.7000 on Wednesday.

USD/CAD closed in negative territory on Tuesday and was last seen moving sideways slightly below 1.3400. Bank of Canada (BoC) Governor Tiff Macklem said earlier in the day that they need time to gauge how households, businesses adapting to higher rates before making further moves.

Gold price registered small gains on Tuesday as it struggled to gather recovery momentum. At the time of press, XAU/USD was flat on the day at around $1,875.

Bitcoin snapped a five-day losing streak and gained more than 2% on Tuesday. BTC/USD stays relatively quiet and trades near $23,200 early Wednesday. Ethereum rose 3.5% on Tuesday and erased the losses from Sunday and Monday. ETH/USD, however, failed to climb above $1,700 at its first attempt and was last seen trading flat on the day at $1,670.

• Silver catches fresh bids on Wednesday and recovers from over a two-month low set the previous day.
• The technical setup favours bearish traders and supports prospects for a further depreciating move.
• A convincing break below the $22.00 mark will reaffirm the negative outlook and prompt fresh selling.

Silver attracts fresh buying on Tuesday and moves away from over a two-month low, around the $22.00 round figure touched the previous day. The white metal sticks to its modest intraday gains through the early European session and trades near the top end of its daily range, around the $22.35 region.

From a technical perspective, the XAG/USD once again showed some resilience below the 38.2% Fibonacci retracement level of the recent rally from October 2022. The subsequent bounce warrants some caution before positioning for a further near-term depreciating move. That said, oscillators on the daily chart are holding deep in the negative territory and are still far from being in the oversold zone. This, in turn, favours bearish traders.

A convincing break below the $22.00 mark will reaffirm the negative outlook and drag the XAG/USD to the next relevant support near the 100-day SMA, around the $21.70-$21.65 region. This is followed by 50% Fibo. level, around the $21.35 area, below which the metal could fall to the $21.00 level en route to the 61.8% Fibo. level, around the $20.60-$20.55 zone. The descending trend could get extended towards testing the $20.00 psychological mark.

On the flip side, any subsequent move-up is likely to attract fresh sellers near the $22.70 region and remain capped near the $23.00 confluence support breakpoint. The said handle comprised 23.6% Fibo. level and the lower end of a nearly two-month-old trading range and should act as a tough nut to crack for the XAG/USD bulls. That said, a sustained move beyond might offset the negative outlook and shift the near-term bias in favour of bullish traders.

Silver daily chart

Key levels to watch

Gold price attempts another run toward the $1,900 mark. Nevertheless, XAU/USD bulls seem to lack conviction on the road to recovery, as FXSTreet’s Dhwani Mehta notes.

Bearish bias is still intact

“For a sustained move higher, Gold price needs to take out strong resistance around $1,885. The $1,900 threshold will be next on Gold buyers’ radars.”

“It’s worth reminding that Gold price remains vulnerable so long as the 21-Daily Moving Average (DMA) resistance at $1,912 holds.”

“The four-week low of $1,860 is the immediate support, below which the bullish 50DMA at $1,853 could rescue bulls. Acceptance below the latter will trigger a fresh downswing toward the January 5 low of $1,825.”

• Gold price grinds higher past $1,870 support confluence during three-day winning streak.
• Sluggish US Dollar, downbeat Treasury bond yields keep XAU/USD buyers hopeful.
• Gold buyers cheer mixed Fed talks, US President Biden’s unimpressive SOTU and China-linked hopes.
• Light calendar emphasizes risk catalysts for fresh impulse.

Gold price (XAU/USD) remains firmer for the third consecutive day as buyers cheer a sustained rebound from the short-term key support surrounding $1,870 amid sluggish markets. Adding strength to the XAU/USD rebound could be the US Dollar’s lack of momentum, as well as a pullback in the Treasury bond yields.

The reason for the aforementioned US catalysts, namely the USD and yields, could be linked to the Federal Reserve (Fed) Chairman Jerome Powell’s hesitance in defending the hawks even as the US jobs data came in firmer. Also fueling the Gold price is the latest upward revision of China’s growth forecasts by the global rating agency Fitch. Earlier in the day, news of an upward revision to the global central banks’ buying of Gold to record-high levels seemed to have favored the XAU/USD bulls. It should be noted that US President Joe Biden’s State of the Union (SOTU) speech failed to impress market players despite marking an attempt to please voters ahead of next year’s elections.

Given the lack of major data/events ahead of Friday’s US consumer-centric numbers, the central bank talks and previously stated risk catalysts could entertain Gold traders.

Also read: Gold Price Forecast: XAU/USD bulls seem to lack conviction on the road to recovery

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the Gold price manages to remain firmer after crossing two important support levels, suggesting further advances towards the $1,902 key hurdle comprising Pivot Point one-day R3 and Fibonacci 38.2% on one month.

Ahead of that, Fibonacci 23.6% and 38.2% on weekly formation can test the Gold buyers around $1,885 and $1,900 in that order.

It’s worth noting that the XAU/USD run-up beyond $1,902 enables the buyers to challenge the latest swing high surrounding $1,960.

On the flip side, Fibonacci 61.8% on one-day and one-month joins the previous low and SMA10 on four-hour (4H) to restrict the metal’s immediate downside near $1,870.

Following that, a convergence of the previous weekly low, Pivot Point one-day S1 and lower band of the Bollinger on one-day acts as the last defense of the Gold buyers around $1,860.

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.

Open interest in gold futures markets dropped for the fourth session in a row on Tuesday, this time by just 785 contracts according to preliminary readings from CME Group. Volume, instead, resumed the uptrend and went up by around 16.2K contracts.

Gold remains supported around $1860

Gold prices edged higher and extended the positive start of the week on Tuesday. The decent uptick, however, was on the back of declining open interest and leaves the probability of further bounce somewhat diminished in the very near term. In the meantime, the $1860 region still emerges as a firm contention zone.

In the opinion of UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, further weakness could drag EUR/USD to the 1.0615 region in the next few weeks.

Key Quotes

24-hour view: “Yesterday, we held the view that EUR could dip below 1.0700 before stabilization is likely. We highlighted that the next major support at 1.0615 is not expected to come into view and there is another support at 1.0670. Our view was not wrong as EUR dipped to 1.0665 in NY, rebounded to trade choppily before ending the day little changed at 1.0723 (-0.07%). EUR appears to have entered a consolidation phase and it is likely to trade between 1.0680 and 1.0780 today.”

Next 1-3 weeks: “On Monday (06 Feb, spot at 1.0795), we indicated that the pullback in EUR could extend to 1.0700. As EUR declined, we highlighted yesterday (07 Feb, spot at 1.0725) further EUR weakness is likely but oversold short-term conditions could slow the pace of any further decline. We noted, the next level to monitor is at 1.0615. EUR dropped to a low of 1.0665 in NY trade and we continue to hold the same view. The downside risk in EUR is intact as long as it does not break above 1.0850 (no change in ‘strong resistance’ level).”

• USD/JPY treads water after reversing from one-month high.
• Bullish MACD signals, sustained trading beyond previous resistance lines keep buyers hopeful.
• 50-DMA breakout could refresh yearly top and convince buyers to keep the reins.

USD/JPY retreats from intraday high as sellers attack 131.00 during the early hours of Wednesday’s European session. However, the Yen pair remains unchanged on a daily basis, after posting the biggest daily loss on reversing from the 50-DMA hurdle the previous day. In doing so, the USD/JPY pair reversed from the one-month high but failed to conquer a horizontal support area comprising multiple levels marked since December 20, 2022.

Not only the quote’s ability to stay beyond the seven-week-old horizontal support, near 130.50 by the press time, but successful trading beyond the previous resistance line from late November 2022, close to 129.35 at the latest, also keeps the USD/JPY buyers hopeful. Adding strength to the upside bias are the bullish MACD signals.

As a result, the pair is likely to overcome the immediate 50-DMA hurdle surrounding 132.40, which in turn could propel the USD/JPY price towards the previous monthly high of 134.77.

In a case where the quote remains firmer past 134.77, the late 2022 peak surrounding 136.70 and the 140.00 psychological magnet will be crucial to watch.

Alternatively, a downside break of the aforementioned horizontal support near 130.50 will need validation from the 130.00 round figure and the resistance-turned-support line from November, near 129.35, to convince USD/JPY bears.

Following that, a south-run towards the previous monthly low of near 127.20 can’t be ruled out.

USD/JPY: Daily chart

Trend: Further upside expected

• AUD/USD is looking to recapture the critical resistance of 0.6980 as USD Index has dropped.
• Weaker US Treasury yields are weighing on the US Dollar Index.
• Morgan Stanley has revised the interest rate peak for the Fed at 5.25%.

The AUD/USD pair has turned sideways after a gradual upside move above 0.6960 in the early European session. The Aussie asset is struggling to extend gains amid an absence of a potential trigger for a power-pack action in the market.

S&P500 futures have recovered losses shown in the Asian session, but are struggling to add more gains ahead. The risk-taking ability of the market participants is not improving as recent commentary from US President Joe Biden over an altercation with China, while addressing the State of the Union (SOTU), has triggered caution. Broadly, the market mood seems extremely quiet.

The US Dollar Index (DXY) has remained extremely quiet at 103.00 but is showing signs of further weakness as US Treasury yields have accepted negative traction. The USD Index is expected to witness a sheer fall after surrendering the immediate support of 102.90. Meanwhile, the 10-year US Treasury yields have dropped to near 3.65%.

The commentary from Federal Reserve (Fed) chair Jerome Powell has completely vanished the odds of a pause in the policy tightening spell by the Fed. After a slowdown in December’s consumer spending data, economic activities, and the Producer Price Index (PPI) data, the street started betting that the Fed will avoid increasing interest rates further.

While January’s report of US Nonfarm Payrolls (NFP) has turned the table in the favor of a hawkish policy stance. The latest forecast from Morgan Stanley states 25 basis points (bps) rate hike expectation for the March meeting after a strong US jobs report on Friday, before conveying hopes of a 25 bps Fed rate hike in May following Powell’s speech.

The same brings Morgan Stanley’s expectation for the peak rate to 5.00% to 5.25% as per the latest forecasts.

Meanwhile, the Australian Dollar is also expecting further interest rate hikes by the Reserve Bank of Australia (RBA) as the Australian economy has not shown any meaningful signs of a decline in inflationary pressures.

Early Wednesday morning in Europe, the global rating agency Fitch came out with upbeat Gross Domestic Product (GDP) growth forecasts for China by saying, “Fitch Ratings has revised its forecast for China’s economic growth in 2023 to 5.0%, from 4.1% previously.”

The rating giant cites recovery in consumption and activity as the key catalysts for the latest optimism, “Evidence that consumption and activity are recovering faster than initially anticipated after the authorities moved away from their “dynamic zero Covid-19” policy stance in late 2022,” said Fitch.

Key quotes

Also read: AUD/USD aims to reclaim 0.6980 as weak yields weigh USD Index

• USD/CAD holds lower ground while defending the previous day’s reversal from 13-day high.
• US Dollar remains indecisive even as yields retreat, pays little heed to US President Biden’s SOTU amid mixed Fedspeak.
• BoC’s Macklem hints at a pause in rate hikes but failed to impress pair buyers.
• Risk catalysts could entertain Loonie traders ahead of Friday’s key jobs report from Canada.

USD/CAD makes rounds to 1.3400 as bulls and bears jostle during early Wednesday morning in Europe. In doing so, the Loonie pair fails to justify dovish comments from Bank of Canada (BoC) Governor Tiff Macklem, as well as the mildly offered Oil price. Even so, the US Dollar’s failure to rebound enables the quote to remain mildly offered by the press time.

BoC Governor Macklem teases a pause in the rate hike trajectory by asking for time to gauge how households and businesses adapt to higher rates before further moves. The policymaker also said, “Rate hikes have hit homeowners hard.”

On the other hand, Federal Reserve Chairman Jerome Powell said, “Expect 2023 to be a year of significant declines in inflation,” while also adding that if data were to continue to come in stronger than expected, would certainly raise rates more. It’s worth observing that Fed’s Powell showed hesitance in praising the latest jump in the US Nonfarm Payrolls (NFP) during the appearance on Tuesday when asked about the job growth being a likely force behind the Fed's aggressive rate hikes. The same suggests a pause in the Fed rate after currently priced-in two rate hikes worth 0.25%.

Elsewhere, US President Biden delivered his State of the Union (SOTU) speech in the first joint session of Congress since Republicans took control of the House of Representatives in January. During the SOTU, US President Biden showed readiness to work with them for the betterment of America. The policymaker also pushed for the billionaire minimum tax while trying to show a tough stand on China if the dragon nation undermines the US sovereignty.

Furthermore, WTI crude oil snaps a two-day rebound near $77.50 amid dicey markets and mixed concerns surrounding future energy demand. In doing so, the black gold fails to cheer a surprise draw in the private inventory data per the American Petroleum Institute’s (API) Weekly Crude Oil Stock data.

Against this backdrop, the US Dollar Index (DXY) remains sluggish near 103.30, after reversing from a one-month high the previous day. In doing so, the greenback’s gauge versus the six major currencies traces softer US Treasury bond yields while justifying unimpressive comments from US President Joe Biden and Federal Reserve (Fed) officials.

It’s worth noting that the S&P 500 Futures print mild losses near 4,170 while paring the biggest daily jump in nearly a week whereas the US 10-year Treasury bond yields snap a three-day uptrend while retreating from a one-month high of around 3.68% to 3.65% by the press time.

Moving ahead, a light calendar keeps challenging USD/CAD moves ahead of the key Canada monthly employment report, up for publishing on Friday.

Technical analysis

Multiple failures to provide a daily closing beyond the 50-bar Exponential Moving Average (EMA), around 1.3445 by the press time, directs USD/CAD toward the 200-day EMA support of 1.3265.

• EUR/USD is displaying a sideways auction ahead of the German Inflation data.
• The major currency pair is popping between the 50% and 61.8% Fibo retracement.
• A range shift move by the RSI (14) into the 40.00-60.00 zone from the bearish range indicates signs of a bullish reversal.

The EUR/USD pair is oscillating in an extremely narrow range around 1.0730 as investors are awaiting the release of the preliminary German inflation data for fresh impetus. The commentary from US President Joe Biden over the current altercation with China while addressing the State of the Union (SOTU) has failed to impact the risk appetite of the market participants.

The US Dollar Index (DXY) is displaying a sideways performance below 103.00, weighed down by US Treasury yields. The yields generated by 10-year US government bonds have dropped below 3.65%.

On the Eurozone front, the preliminary German Harmonized Index of Consumer Prices (HICP) (Jan) is expected to escalate to 10.0% from the former release of 9.6%.

EUR/USD has turned sideways after a wild movement post commentary from Federal Reserve (Fed) chair Jerome Powell on interest rate guidance. The major currency pair is expected to witness a sheer contraction in volatility ahead, which will result in wider ticks and heavy volume after an expansion in the same.

The shared currency pair is oscillating between the 50% and 61.8% Fibonacci retracements (placed from January 6 low at 1.0483 to February 1 high at 1.1033) at 1.0760 and 1.0694 respectively.

The 20-period Exponential Moving Average (EMA) at 1.0739 is acting as a major barricade for the Euro.

However, the Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range from the bearish range of 20.00-40.00, which indicates signs of a bullish reversal.

Going forward, a break above Tuesday’s high at 1.0766 will drive the asset toward the round-level resistance at 1.0800 followed by 38.2% Fibo retracement at 1.0823.

On the flip side, a break below Tuesday’s low at 1.0669 will drag the major currency pair toward January 4 high at 1.0635 and December 22 low at 1.0573.

EUR/USD two-hour chart

• The Uncertainty over BoJ Kuroda’s successor and disappointed earnings have weighed on Nikkei225.
• RBI Governor has announced a hike in the repo rate by 25 bps to 6.50%.
• Oil prices are looking to add more gains ahead of US oil inventory data.

Markets in the Asian domain are witnessing a sell-off as hawkish interest rate guidance by Federal Reserve (Fed) chair Jerome Powell has escalated fears of a further slowdown in the United States economy. Fed’s Powell has confirmed that investors should brace for more interest rates if the labor market continues to surprise the market with significant additions.

Contrary to the performance of the Asian stocks, S&P500 futures have recovered their morning losses and are now looking to add gains above Tuesday’s bullish session. The US Dollar Index (DXY) has demonstrated a sideways auction despite the commentary from US President Joe Biden at the State of the Union (SOTU) on relations with China and more taxes on billionaires by quadrupling taxes on corporate buybacks.

At the press time, Japan’s Nikkei225 dropped 0.40%, ChinaA50 remained flat, Hang Seng gained 0.30%, and Nifty50 jumped 0.60%.

Disappointing results from Japanese equities weighed on Nikkei225 on Wednesday. Poor earnings have joined uncertainty over Bank of Japan (BoJ) Governor Haruhiko Kuroda’s successor have jolted market sentiment in Japan. Japanese Prime Minister (PM) Fumio Kishida said on Wednesday, “in process of choosing the next Bank of Japan (BoJ) Governor nominee, they are mindful of very strong market attention on the decision.”

Nifty50 has turned volatile after the interest rate decision by the Reserve Bank of Index (RBI). RBI Governor Shaktikanta Das has announced a hike in the repo rate by 25 basis points (bps) to 6.5% as the inflationary pressures are still challenging due to global factors. The real Gross Domestic Product (GDP) growth for FY23-24 is projected at 6.4%. The RBI sees inflation moderating in FY23-24 but above the 4% target.

On the oil front, the oil price is aiming to extend its gains to near $78.00 despite the street estimating a build-up in oil inventories by the United States Energy Information Administration (EIA) ahead. A poll from Reuters indicates a build-up of oil inventories by 2.5 million barrels for the week ending February 03.

• GBP/USD struggles to extend the previous day’s rebound from one-month low, sidelined of late.
• Oscillators suggest further recovery but death cross on the EMAs and 61.8% Fibonacci retracement level probe bulls.
• Five-week-old horizontal support area offers extra filters to the south.

GBP/USD fades the previous day’s rebound from a monthly low around 1.2050 heading into Wednesday’s London open. In doing so, the Cable pair justifies the bearish moving average crossover on the four-hour chart below the key Fibonacci retracement level.

That said, the 50-bar Exponential Moving Average (EMA) crosses the 200-bar EMA from above, which in turn portrays the “Death cross” and suggests further downside of the GBP/USD pair. Also challenging the quote is the 61.8% Fibonacci retracement level of January 06-23 upside, near 1.2080.

It should be observed, however, that the gradual rise in the RSI (14) and the recently firmer MACD signals keep buyers hopeful.

As a result, the GBP/USD pair’s run-up beyond the immediate 1.2080 can’t be ruled out. In that case, the 50% Fibonacci retracement and the 200-EMA, respectively near 1.2150 and 1.2200, will be important to watch.

Should the pair remains firmer past 1.2200, it can again try to cross the 1.2445-50 horizontal hurdle.

On the flip side, the 1.2000 psychological magnet precedes the latest swing low near 1.1960 to limit the short-term GBP/USD downside.

Following that, a horizontal area comprising multiple levels marked since January 03 and the previous monthly low, close to 1.1930 and 1.1840 in that order, should lure the pair sellers.

GBP/USD: Four-hour chart

Trend: Limited upside expected

• USD/INR retreats from five-week high following RBI Interest Rate Decision.
• RBI announces 0.25% lift to the benchmark Repo Rate, matches market forecasts.
• US Dollar pullback, softer yields adds strength to the Indian Rupee rebound.
• Risk catalysts, technical patterns suggest further downside amid a light calendar.

USD/INR bears cheer the Reserve Bank of India’s (RBI) interest rate announcements by renewing the intraday low near 82.60 early Wednesday. In doing so, the Indian Rupee (INR) pair also cheers the broad US Dollar weakness and a pullback in the Oil price.

RBI matches market forecasts by announcing 25 basis points (bps) rate hike. Following the interest rate announcement, RBI Chief Shaktikanta Das said, “While inflation expected to moderate in Fiscal Year 2023-24 (FY24), will rule above the 4% target.”

Apart from the RBI rate hike, a broad weakness in the US Dollar also weighs on the USD/INR prices of late. That said, the US Dollar Index (DXY) remains sluggish near 103.30, after reversing from a one-month high the previous day. In doing so, the greenback’s gauge versus the six major currencies traces softer US Treasury bond yields while justifying unimpressive comments from US President Joe Biden and Federal Reserve (Fed) officials.

US President Biden delivered his State of the Union (SOTU) speech in the first joint session of Congress since Republicans took control of the House of Representatives in January. During the SOTU, US President Biden showed readiness to work with them for the betterment of America. The policymaker also pushed for the billionaire minimum tax while trying to show a tough stand on China if the dragon nation undermines the US sovereignty.

That said, US President Biden previously tried to placate fears of another round of Sino-American tussles by saying, “The balloon incident does not weaken US-China relations.” However, China’s rejection of the Pentagon’s request keeps the geopolitical tension high and teases US Dollar buyers. “China has declined a US request for a phone call between US Defense Secretary Lloyd Austin and Chinese Defense Minister Wei Fenghe,” a Pentagon spokesman said on Tuesday reported Reuters.

On the other hand, Minneapolis Federal Reserve (Fed) President Neel Kashkari told CNN, "We may have to hold rates at a higher level for longer," while adding that he is not forecasting a recession. Following that, Federal Reserve Chairman Jerome Powell said, “Expect 2023 to be a year of significant declines in inflation,” while also adding that if data were to continue to come in stronger than expected, would certainly raise rates more.

It should be noted that Fed’s Powell showed hesitance in praising the latest jump in the US Nonfarm Payrolls (NFP) during the appearance on Tuesday when asked about the job growth being a likely force behind the Fed's aggressive rate hikes. The same suggests a pause in the Fed rate after currently priced-in two rate hikes worth 0.25%.

Elsewhere, a pullback in the WTI crude oil price from $77.60 to $77.30 by the press time adds strength to the USD/INR pullback due to India’s reliance on energy imports. However, the Adani-led India stock rout and foreign fund outflow seem to join the strong US jobs report to keep USD/INR buyers hopeful. On the same line could be the Indian government’s push for deficit-cutting measures in the latest Union Budget, which in turn raises doubts about the nation’s future growth capacity.

Against this backdrop, S&P 500 Futures remain indecisive while Indian equities lick their wounds by the press time.

Moving on, a light calendar seems to the USD/INR pair to extend the latest moves unless the scheduled Fed speak appears too hawkish.

Technical analysis

Tuesday’s Doji candlestick at the multi-day high joins nearly overbought RSI (14) tease USD/INR sellers.

Australia's Treasurer Jim Chalmers said on Wednesday, they are not foreseeing a recession for the Australian economy despite a potential downturn.

Key quotes

"The expectation of the Treasury forecasters is higher interest rates combined with difficult global conditions will slow our economy considerably, but they don't expect at this point a recession here in Australia.”

"There is of course, as the RBA governor acknowledged in the statement yesterday, the fact that when interest rates go up, people with a mortgage feel it immediately but the impact on the economy takes a little while to flow through.”

• Gold price is aiming to recapture $1,880.00 as the risk appetite is improving.
• Investors have shrugged-off uncertainty from Powell’s speech and US Biden’s SOTU meeting.
• The Fed might continue keeping rates higher for a longer period as the entire disinflationary process seems complicated.

Gold price (XAU/USD) is aiming to capture the immediate resistance of $1,880.00 in the Asian session. The precious metal rebounded after dropping to near $1870.00 and is expected to add gains ahead as the risk appetite of the market participants is improving.

Investors have digested the hawkish guidance on interest rates delivered by Federal Reserve (Fed) chair Jerome Powell and US President Joe Biden’s commentary at State of the Union (SOTU).

Fed chair Jerome Powell cleared that the central bank will hike interest rates further if the labor market report continues to surprise the market on the upside. The Fed is committed to bringing the inflation rate to 2% and therefore, higher interest rates will continue to stay for a longer horizon.

Meanwhile, US President Joe Biden sounded tough on China citing that “The United States is in strongest position from decades to compete with China or anyone else.”

Risk-perceived assets like S&P500 futures have ignored Powell’s hawkish commentary and US Biden’s tough statement on China and have recovered losses displayed in the Asian session, portraying a risk-on market mood. The US Dollar Index (DXY) is struggling to firm its feet and is expected to resume its downside journey. Also, the 10-year US Treasury yields have slipped to near 3.65%.

Gold technical analysis

Gold price is forming an Inverted Flag chart pattern on a four-hour scale that indicates a sheer consolidation, which is followed by a breakdown in the same. Usually, the consolidation phase of the chart pattern serves as an inventory adjustment in which those participants initiate shorts, which prefer to enter an auction after the establishment of a bearish bias.

The Gold price is also struggling to sustain above the 23.6% Fibonacci retracement (placed from November 11 low at $1,617.32 to February 2 high at $1,959.20) at $1,878.00.

The 20-period Exponential Moving Average (EMA) at $1,882.20 is acting as a major barricade for the Gold price.

Meanwhile, the Relative Strength Index (RSI) (14) is struggling to cross 40.00, which indicates an absence of strength in the Gold bulls.

Gold four-hour chart

• NZD/USD is demonstrating a sideways performance despite improving risk appetite.
• NZ PM Hipkins has announced that minimum wages will increase in line with inflation.
• US Biden’s commentary to protect US sovereignty from China might trigger US-China tensions again.

The NZD/USD pair is displaying back-and-forth moves around 0.6320 in the Tokyo session. The Kiwi asset has not reacted much to the announcement by novel New Zealand Prime Minister Chris Hipkins that minimum wages will be increased in line with the Consumer Price Index (CPI).

NZ Hipkins cited that the income insurance scheme will not continue as proposed and the policy should be refocused on the expense of living. He claimed that a rise in the minimum wage will have a small inflation impact.

It is worth noting that the Reserve Bank of New Zealand (RBNZ) has not confirmed that the interest rate has peaked despite a marginal slowdown in the fourth quarter figures. Therefore, even a minor upside trigger to the inflation rate could create significant troubles for the RBNZ.

Meanwhile, US President Joe Biden has addressed the State of the Union (SOTU) for the second time and the first time against the divided Congress. US President sounded tough on China citing “If China threatens US sovereignty, US will act to protect the country.”

Over tax reforms, US President has proposed to tax billionaires heavily by quadrupling corporate buyback taxes. S&P500 futures appear subdued, at the press time, but could turn volatile as more taxes on investors could trigger a sell-off. The risk appetite is improving as investors have digested the hawkish interest rate guidance from Federal Reserve (Fed) chair Jerome Powell. Also, the yields generated by 10-year US Treasury bonds have dropped to near 3.65%.

• Market sentiment remains dicey even as US President Joe Biden tried to please American voters.
• Biden’s SOTU advocates billionaire minimum tax, sounds tough on China and shows readings to work with Republicans.
• Mixed Fedspeak, light calendar allows US bond sellers to take a breather and weigh on yields.
• Wall Street closed positive despite mixed earnings, S&P 500 Futures print mild losses.

Risk profile remains sluggish during early Wednesday as traders seek clear directions amid no concrete positives from US President Joe Biden’s State of the Union (SOTU) speech. Adding strength to the market’s indecision could be the lack of major data/events.

Even so, the S&P 500 Futures print mild losses near 4,170 while paring the biggest daily jump in nearly a week whereas the US 10-year Treasury bond yields snap a three-day uptrend while retreating from a one-month high of around 3.68% to 3.66% by the press time.

In his first joint session of Congress, since Republicans took control of the House of Representatives in January, US President Biden showed readiness to work with them for the betterment of America. The policymaker also pushes for the billionaire minimum tax while trying to show a tough stand on China if the dragon nation undermines the US sovereignty.

Here’s the live stream piece: US State of the Union 2023: President Joe Biden speech live stream – February 8

US President Biden previously tried to placate fears of another round of Sino-American tussles by saying, “The balloon incident does not weaken US-China relations.” However, China’s rejection of the Pentagon’s request keeps the geopolitical tension high and teases US Dollar buyers. “China has declined a US request for a phone call between US Defense Secretary Lloyd Austin and Chinese Defense Minister Wei Fenghe,” a Pentagon spokesman said on Tuesday reported Reuters.

On the other hand, mixed comments from the US Federal Reserve (Fed) officials and unimpressive data challenge US Dollar bulls. That said, Minneapolis Federal Reserve (Fed) President Neel Kashkari told CNN, "We may have to hold rates at a higher level for longer," while adding that he is not forecasting a recession. Following that, Federal Reserve Chairman Jerome Powell said, “Expect 2023 to be a year of significant declines in inflation,” while also adding that if data were to continue to come in stronger than expected, would certainly raise rates more. With this, the US Dollar Index (DXY) remains sluggish near 103.30, after reversing from a one-month high the previous day.

Looking forward, global markets are likely to remain sluggish amid a lack of major data/events, following the current SOTU. However, the US Dollar’s retreat appears unconvincing after the latest strong jobs and activity report, which in turn could allow Fed policymakers to remain hawkish and challenge the risk appetite.

• USD/JPY has rebounded after dropping below 131.00 posts US Biden’s SOTU commentary.
• US Biden has made a proposal of taxing billionaires by raising tax slab of corporate buyback four times.
• A recovery from USD/JPY indicates that the impact of BoJ’s stealth intervention is fading away.

The USD/JPY pair has sensed a buying interest after correcting below 131.00 in the Asian session. The asset has picked demand as the risk profile is expressing caution amid commentary from US President Joe Biden while addressing his second State of the Union (SOTU) and first in front of a divided Congress.

A consideration of taxing high net-worth individuals in the United States by quadrupling the tax on corporate stock buybacks has resulted in some losses in the S&P500 futures. Apart from that, a proposal of passing legislation to stop big tech from collecting personal data on children might weigh on the 500-US stock basket futures. Therefore, a decline in the risk appetite of the market participants is highly expected.

About relations with China, US Biden commented “We are committed to working with China where it can advance American interests and benefit the world, “If China threatens US sovereignty, the US will act to protect the country.

The US Dollar Index (DXY) is demonstrating a subdued performance as the hawkish interest rate guidance from Federal Reserve (Fed) chair Jerome Powell on Tuesday failed to improve the safe-haven appeal. Fed Powell shrugged off rumors pertaining to a pause in the policy-tightening spell by the Fed, citing that the strong labor market report is the reason why the central bank believes that a hasty decision of sounding dovish could trigger inflation projections on a higher side.

The USD Index displayed sheer volatility despite Minneapolis Fed President Neel Kashkari telling CNN Tuesday that the labor market is still too hot and that it makes it harder to bring inflation down, as reported by Reuters. He further added "We may have to hold rates at a higher level for longer,"

On the Japanese Yen front, it seems that the impact of the Bank of Japan (BoJ) stealth invention in the FX domain to provide support to the Japanese Yen is fading away. The street is expecting the forecast for the Japanese Yen to be based on the selection of BoJ Governor Haruhiko Kuroda’s successor.

A note from OCBC states “Focus this week will be on the list of BoJ nominees that is likely to be presented to parliament on 10 February though there are reports suggesting a delay to next week. Amamiya’s appointment would be most supportive for the USD/JPY upside while Yamaguchi’s appointment could weigh down the Japanese Yen.

Japanese Prime Minister (PM) Fumio Kishida said on Wednesday, “in process of choosing the next Bank of Japan (BoJ) Governor nominee, they are mindful of very strong market attention on the decision.”

Additional comments

• USD/JPY rebounds from 131.00 as US Biden promises to safeguard US interest against China

• AUD/USD clings to mild gains during two-day rebound from monthly low.
• Sustained break of 200-EMA joins upbeat oscillators to favor buyers.
• Two-week-old horizontal resistance area challenges immediate upside while ascending trend line from late December probes bears.

AUD/USD holds onto the previous day’s recovery moves near 0.6960 as buyers keep the reins on crossing the 200-bar Exponential Moving Average (EMA) during early Wednesday. In doing so, the Aussie pair marches towards a fortnight-old horizontal resistance region amid bullish signals from MACD and a gradual rise in the RSI (14) line.

That said, the risk-barometer pair is likely to overcome the immediate hurdle surrounding the 0.7000 psychological magnet. However, an area comprising multiple levels marked since January 18, close to 0.7060 could challenge the AUD/USD buyers afterward.

In a case where the AUD/USD price remains firmer past 0.7060, a run-up towards the 0.7100 round figure and then to the monthly high surrounding 0.7160 can’t be ruled out.

It should be noted that the Aussie pair’s successful rise above 0.7160 could challenge June 2022 high near 0.7285.

Meanwhile, AUD/USD bears aren’t safe if they take entries on the quote’s fresh downside below the 200-EMA, around 0.6935.

The reason could be linked to the quote’s multiple bounces off an upward-sloping support line from late December 2022, close to 0.6865 at the latest. Following that, the monthly low of 0.6855 may act as the last defense of the AUD/USD bulls.

AUD/USD: Four-hour chart

Trend: Further upside expected

New Zealand’s new Prime Minister Chris Hipkins said on Wednesday, “minimum wage to rise in line with CPI from April.”

Additional quotes

Market reaction

NZD/USD is gyrating in a narrow range of around 0.6315, down 0.08% on the day, at the time of writing.

More comments are flowing in from the Bank of Canada (BoC) Governor Tiff Macklem, as he continues to speak on the monetary policy outlook.

“Flags debt load in explaining early rate pause.”

“Rate hikes have hit homeowners hard.”

“Central bank needs time to gauge how households, businesses adapting to higher rates before it makes further moves.”

“Real estate market will probably soften further before it stabilizes later this year.”

On the duration of rate pause says “we can’t put it on a calendar. We don’t know how long it’s going be.”

Market reaction

USD/CAD was last seen trading at 1.3400, modestly flat on the day, maintaining its range play so far this Wednesday.

• EUR/USD steadies during the first positive day in five, mildly bid of late.
• US President Biden tries to convince markets of American competitiveness versus China.
• Mixed comments from Fed speakers, retreat in US Treasury bond yields underpins EUR/USD recovery.
• Comments from central bank officials, risk catalysts eyed amid a light calendar.

EUR/USD floats around 1.0725-30 after snapping a four-day downtrend as the pair traders struggle to believe in the hawkish comments from US President Joe Biden’s State of the Union (SOTU) speech. In doing so, the major currency pair also takes clues from downbeat US Treasury bond yield and mixed comments from the Federal Reserve (Fed) speakers, matching the latest statements from the European Central Bank (ECB) officials.

“We are in the strongest position in decades to compete with china or anyone else,” per the statements of the SOTU pre-release per Reuters. US President Biden is also likely to state that if China threatens US sovereignty, the US will act to protect the country, per the report.

It should be noted that US President Biden tried to placate fears of another round of Sino-American tussles on Monday by saying, “The balloon incident does not weaken US-China relations.” However, China’s rejection of the Pentagon’s request keeps the geopolitical tension high and teases US Dollar buyers. “China has declined a US request for a phone call between US Defense Secretary Lloyd Austin and Chinese Defense Minister Wei Fenghe,” a Pentagon spokesman said on Tuesday reported Reuters.

That said, US 10-year Treasury bond yields snap a three-day uptrend while retreating from a one-month high of around 3.68% to 3.66% by the press time. The same weigh on the US Dollar Index (DXY), down for the second consecutive day to near 103.30 at the latest. That said, the S&P 500 Futures print mild losses to track Wall Street and portray downbeat sentiment.

On Tuesday, Minneapolis Federal Reserve (Fed) President Neel Kashkari told CNN, "We may have to hold rates at a higher level for longer," while adding that he is not forecasting a recession. Following that, Federal Reserve Chairman Jerome Powell said, “Expect 2023 to be a year of significant declines in inflation,” while also adding that if data were to continue to come in stronger than expected, would certainly raise rates more.

On the other hand, ECB policymaker Francois Villeroy de Galhau said on Tuesday that the Eurozone was not very far from the peak of inflation, as reported by Reuters.

Moving on, EUR/USD traders should pay attention to the risk catalysts for fresh impulse amid a light calendar.

Technical analysis

EUR/USD justifies bullish technical set-up comprising Tuesday’s Doji and the Golden cross, suggesting further upside towards the previous support line from early November 2022, around 1.0860.

Also read: EUR/USD Price Analysis: Bullish Doji, Golden cross tease buyers above 1.0700

US President Joe Biden is delivering his second State of the Union address to a Joint Session of Congress at the Capitol on Wednesday.

• US State of the Union 2023: Joe Biden speech live stream – February 8

Key quotes

Market reaction

The US Dollar Index is uninspired by Biden’s remarks, as it clings to the overnight recovery at around 103.35, as of writing.

• EUR/JPY rebounds from short-term key support confluence amid sluggish markets.
• Unimpressive oscillators, descending trend line from late December challenge buyers.
• Multiple hurdles to probe bears past 140.40-30 support confluence.

EUR/JPY picks up bid to 140.80 while paring the biggest daily loss in nearly a month during Wednesday’s sluggish Asian session. In doing so, the cross-currency pair bounces off a convergence of the 200-day Exponential Moving Average (EMA) and an upward-sloping support line from January 19, 2023, close to 140.40-30 at the latest.

The recovery moves, however, gain little support from the oscillators as the RSI (14) remains steady while the MACD signals are mostly sluggish.

Even so, a corrective rebound from an important support towards 141.00 rounds figure can’t be ruled out.

Following that, a six-week-old descending resistance line, close to 142.90 by the press time, will gain the EUR/JPY pair buyer’s attention.

Should the quote manage to stay firmer past 142.90, the 143.00 round figure may act as an extra validation point ahead of portraying the pair’s gradual run-up targeting a descending resistance line from October 2022, around 145.20 at the latest.

Alternatively, a daily closing below the 140.40-30 support confluence, could quickly drag the EUR/JPY price towards the 61.8% Fibonacci retracement level of the pair’s August-October 2022 upside, near 139.10. During the fall, the 140.00 round figure may offer a breathing space to the bears.

It’s worth noting, however, that the EUR/JPY weakness past 139.10 could make it vulnerable to testing an ascending support line from late September 2022, near 138.00 at the latest.

EUR/JPY: Daily chart

Trend: Limited recovery expected

• Gold price is on the backside of the prior bearish trendline and near-term bias is bullish with markets pricing dovish Fed tilt. 
• There are eyes on a move towards a 50% mean reversion for the day ahead while above $1,870.

The Gold price finished the day pretty much unchanged amid a US Dollar which was mixed across the board, pushed and pulled over the comments from the Federal Reserve's Jerome Powell who was speaking at The Economic Club of Washington, D.C. Signature Even.

While he repeated much of the same as he did at the press conference that followed last week's interest rate decision, the markets jumped on the most dovish of comments that were otherwise surrounded by hawkish rhetoric, and the US Dolla crumbled in a knee-jerk reaction.

Gold rallied only to come back under pressure as the markets digested the comments, moving within a range of between $1,865 and a high of $1,884. In Asia, the Gold price is climbing again and has scored a session high of $1,878.46 so far. 

Fed's Powell's key comments

China is raising its Gold reserves

Meanwhile, analysts at ANZ Bank said that buying by central banks remains buoyant, with China raising its gold reserves for a third straight month.

analysts at TD Securities explained that their tracking of Shanghai gold traders' positioning is collapsing. ''Over the last five sessions, SHFE traders liquidated nearly -13.4t of notional gold, which amounts to the fasted-pace liquidation in several years. This corroborates the view that the Chinese buying activity that helped propel gold higher over the last few months was exacerbated by Lunar New Year celebrations amid China's reopening,'' the analysts explained.

''This suggests that a major pillar supporting gold's recent rally is eroding, but with Shanghai trader positioning now slightly below average, the pace of liquidations might slow. This implies that investors may once again become the marginal buyer or seller, which places CTA trend followers in the driver's seat. However, while we don't expect substantial downside flow until prices break the $1840/oz range, the margin of safety against a marginal buying program is low, the analysts at TDS added.''

Gold technical analysis

As the chart illustrates, the Gold price is on the backside of the prior bearish trendline, so the bias is bullish with eyes on a move towards a 50% mean reversion for the day ahead while above $1,870.

Joe Biden, President of the United States (US), is scheduled to address a Joint Session of Congress at the Capitol at 02:00 GMT. His comments on inflation and employment at the annual State of the Union will be closely scrutinized.

Watch Biden’s speech here

Why is the State of the Union speech important?

US President Joe Biden will deliver his second State of the Union address on Tuesday and is expected to use the speech as an unofficial start to the 2024 presidential campaign season.

GBP/USD retreats from intraday high but stays mildly bid around 1.2050 during Wednesday’s mid-Asian session. In doing so, the Cable pair portrays the sluggish markets while taking clues from the options market and the British fundamentals to probe bulls by cautiously defending the bounce off a one-month low.

That said, one-month GBP/USD risk reversal (RR) dropped to -0.010, in favor of puts or bets according to the latest data provided by Reuters. With this, the daily RR dropped for the second consecutive day by the end of Tuesday’s North American session.

It should be observed that the weekly options market gauge prints a three-week downtrend with the -0.0425 being the latest print.

On the positive side, UK Prime Minister Rishi Sunak’s Cabinet reshuffle and mixed comments from the Federal Reserve (Fed) officials seem to favor the GBP/USD buyers.

Also read: GBP/USD appears optimistic on UK PM Sunak’s Cabinet reshuffle, mildly bid near 1.2050 amid mixed Fedspeak

However, a downbeat British economic forecast from the UK National Institute for Economic and Social Research (NIESR) seems to join the bearish RR to probe the cable pair buyers.

Also read: UK's NIESR cuts growth outlook for 2023, warns on living standards

• AUD/NZD has printed an intraday high of 1.1020 amid hawkish RBA bets.
• A breakout of the Symmetrical Triangle has pushed the cross above the 50% Fibo retracement.
• The RSI (14) has climbed above 60.00, which adds to the upside filters.

The AUD/NZD pair has printed an intraday high of 1.1020 on expectations that the Reserve Bank of Australia (RBA) will continue its policy-tightening spell ahead. RBA Governor Philip Lowe will continue hiking interest rates further amid the absence of inflation peak signs in the Australian economy.  

The RBA announced a fourth consecutive 25 bps interest rate hike on Tuesday to 3.35%. While addressing the nation, RBA Governor was very confident that Australian Consumer Price Index (CPI) might decline to 4.75% this year and to around 3% by mid-2025, however, further monetary policy contraction cannot be ruled out.

AUD/NZD has delivered a breakout of the Symmetrical Triangle chart pattern formed on an eight-hour scale, which indicates an expansion in volatility and results in wider ticks and heavy volume. A breakout of the aforementioned chart pattern has pushed the cross above the 50% Fibonacci retracement (placed from September 28 high at 1.1490 to December 16 low at 1.0471) at 1.0984.

The upward-sloping trendline from December 16 low at 1.0471 will continue to act as a major support for the Australian Dollar. Also, the asset has scaled above the 20-period Exponential Moving Average (EMA) at 1.0953, which indicates that the short-term trend is bullish.

The Relative Strength Index (RSI) (14) has scaled into the bullish range of 60.00-80.00, which indicates more upside ahead.

Should the cross breaks above November 11 high at 1.1045, Australian bulls will drive the cross toward the 61.8% Fibo retracement placed around 1.1100 followed by October 26 high around 1.1176.

On the contrary, a break below January 31 low at 1.0881 will drag the cross toward January 10 low around 1.0800. A slippage below the latter will extend the downside toward January 19 low at 1.0737.

AUD/NZD eight-hour chart

In recent trade today, the People’s Bank of China (PBOC) set the yuan at 6.7752 vs. the last close of 6.7870.

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.

• Silver picks up bids to refresh intraday high, bounces off two-month low.
• 100-EMA, bearish MACD signals challenge XAG/USD buyers around multi-day low.
• Convergence of 200-EMA, 38.2% Fibonacci retracement level puts a floor under the Silver price.

Silver price (XAG/USD) buyers jostle with the key Exponential Moving Average (EMA) hurdle as the bright metal rebounds from the two-month low to print the first daily gains in five, up 0.60% intraday near $22.30 during early Wednesday.

In doing so, the XAG/USD pokes the 100-EMA while paring the latest losses. However, the bearish MACD signals and the metal’s trading below the previous support line from early December 2022, now a resistance line around $23.05, challenges the Silver buyers.

That said, a clear upside break of the 100-EMA hurdle surrounding $22.30 could quickly propel the quote to the $23.00 round figures before highlighting the support-turned-resistance line near $23.05.

Following that, multiple resistances could challenges Silver buyers near $23.20 and $24.30 ahead of directing the quote toward the monthly high of $24.63.

On the flip side, the 200-EMA and 38.2% Fibonacci retracement level of the metal’s upside from September 2022 to early February 2023 together offers the $22.00-21.95 crucial support.

In a case where Silver remains bearish past $21.95, the 50% and 61.8% Fibonacci retracements, respectively near $21.10 and $20.25, could challenge the XAG/USD bears. Also acting as the downside filter is the $20.00 round figure.

Overall, the Silver price is likely to improve but the bulls are far from taking control back.

Silver price: Daily chart

Trend: Limited recovery expected

• Dovish Federal Reserve and an on-hold Bank of Canada are the themes.
• USD/CAD has printed a W-formation on the daily chart which is a reversion pattern.
• USD/CAD bulls eye 1.3470s and 1.3520 thereafter while the USD/CAD bears look for prospects of a move to the 1.3260s.

USD/CAD is under pressure as the US Dollar is shunned by the markets in favour of the more dovish rhetoric coming from the Federal Reserve's chairman, Jerome Powell. The Fed chair Powell said for the second time in less than a week that disinflation has started to be seen in the United States of America's economy. At the time of writing, USD/CAD is waning below 1.3400 after the bears took out structure at 1.3397 on Tuesday which has resulted in the first bearish daily close since the start of the month.

Federal Reserve Jerome Powell's key comments

Bank of Canada definitive rates on hold

The bears are on top and Tiff Macklem, the  Governor of the Bank of Canada, said little to support a bullish outlook for USD/CAD.

The Bank of Canada's Tiff Macklem used a speech in Quebec City on Feb. 7 to reiterate that the central bank would be taking a conditional pause on rate hikes over the months ahead although he was also definitive that policymakers aren’t planning on cuts anytime soon. This was the Bank of Canada's governor's first speech of 2023. 

Meanwhile, one of Canada's major exports, oil, gained in value as Saudi Aramco’s move to raise prices boosted sentiment. ''The world’s largest producers increased most prices for its flagship Arab Light grade against expectations of a cut,'' analysts at ANZ Bank explained.

''It signalled the producer is expecting stronger demand, particularly in China which is reopening after years of virus-related restrictions,'' the analysts added. 

Additionally, in its influential monthly Short-Term Energy Outlook, the  Energy Information Administration, EIA, raised its forecast for demand from China this year to 15.8-million barrels per day from 15.7-million bpd.

USD/CAD technical analysis

USD/CAD is breaking structure which leaves the emphasis on the downside while on the backside of the prior bullish trendline support that was broken on Tuesday. We have the first bearish close for USD/CAD since the bull rally at the start of the month and besides some potential price discovery, aka, corrections into the topping cluster of USD/CAD's price, a move lower is a high probability for the day ahead. 

However, from a daily perspective, the USD/CAD support at 1.3387 is important:

USD/CAD zoomed in ...

As we can see, USD/CAD has printed a W-formation on the daily chart. While this is a reversion pattern, USD/CAD bears need to break the neckline and close below it or face bullish pressures that could lead to a move into the 1.3470s and with USD/CAD bulls eyeing 1.3520 thereafter. On a break below the neckline, it would be safe to say that the USD/CAd bears will be well and truly in control with prospects of a move to the 1.3260s.

• USD/CHF takes offers to refresh intraday low, down for the second consecutive day.
• Fed Chair Powell’s hesitance in praising strong US NFP suggests no more than two rate hikes which are already known.
• Mixed signals surrounding US-China tussles, pullback in yields underpin bearish bias.
• US President Joe Biden’s SOTU eyed for fresh impulse.

USD/CHF holds lower grounds near 0.9215, refreshing the intraday low, as the Swiss currency pair cheers broad US Dollar weakness amid Wednesday’s sluggish Asian session. In doing so, the quote drops for the second consecutive day, despite marking minor losses of late.

That said, the US Dollar Index (DXY) prints mild losses near 103.30 as it stretches the previous day’s retreat from the monthly high. In doing so, the greenback’s gauge versus the six major currencies tracks downbeat US Treasury yields amid mixed signals from the Federal Reserve officials.

US 10-year Treasury bond yields snap a three-day uptrend while retreating from a one-month high of around 3.68% to 3.67% by the press time. It should be noted that Minneapolis Federal Reserve (Fed) President Neel Kashkari told CNN on Tuesday, "We may have to hold rates at a higher level for longer," while adding that he is not forecasting a recession. Fed’s Powell showed hesitance in praising the latest jump in the US Nonfarm Payrolls (NFP) during the appearance on Tuesday when asked about the job growth of being a force to the Fed's benchmark interest rate higher than the 5% to 5.25% range currently anticipated. The same suggests a pause in the Fed rate after currently priced-in two rate hikes worth 0.25%.

Alternatively, mixed earnings reports and fresh fears emanating from China seem to weigh on the mood and put a floor under the USD/CHF prices. On Monday, US President Joe Biden tried placating the fears of another round of Sino-American tussles by saying, “The balloon incident does not weaken US-China relations.” However, China’s rejection of the Pentagon’s request keeps the geopolitical tension high and teases US Dollar buyers. “China has declined a US request for a phone call between US Defense Secretary Lloyd Austin and Chinese Defense Minister Wei Fenghe,” a Pentagon spokesman said on Tuesday reported Reuters.

Amid these plays, S&P 500 Futures fail to track Wall Street’s gains while stocks in the Asia-Pacific bloc remain indecisive as traders await US President Biden’s State of the Union (SOTU) speech.

Technical analysis

An 11-week-old resistance line, near 0.9280 by the press time, directs USD/CHF prices towards the south.

• GBP/JPY has witnessed selling pressure after a less-confident pullback to near 158.00.
• The BoJ made a stealth intervention to provide a cushion to the Japanese Yen.
• UK NIESR has cut its GDP forecasts and sees households in severe pain due to the higher cost of living.

The GBP/JPY pair has sensed selling interest while attempting to extend recovery above the critical resistance of 158.00 in the Asian session. The less-confident pullback move by the Pound Sterling has been punished and the downside journey for the cross has resumed.

On Tuesday, the cross was heavily dumped by the market participant. Also, Bank of Japan’ (BoJ) officials confirmed a stealth intervention, a move to provide support to the Japanese Yen.

Meanwhile, the street has started delivering the impact of considering BoJ Deputy Governor Masayoshi Amamiya as a successor of BoJ Haruhiko Kuroda. Economists at OCBC analyzed how each contender for BoJ’s novel leadership will impact the Japanese Yen.

A note from OCBC states “Focus this week will be on the list of BoJ nominees that is likely to be presented to parliament on 10 February though there are reports suggesting a delay to next week. Amamiya’s appointment would be most supportive of the Japanese Yen upside while Yamaguchi’s appointment could weigh down Yen’s strength.

On the United Kingdom front, the Bank of England (BoE) has failed till now in softening inflationary pressures significantly despite being the early adopter of restrictive monetary policy after the pandemic period and pushing interest rates to 4%. The impact of a higher cost of living is making the life of households miserable as they are unable to address their essential expenses.

A report from Britain's National Institute for Economic and Social Research (NIESR) dictates “One in four British households would be unable to pay for food and energy without using up savings, borrowing or seeking other help in the 2023/24 financial year, up from one in five during the current year,” as reported by Reuters.

The agency has cut its Gross Domestic Product (GDP) forecasts to 0.2% from 0.7% forecasted earlier and sees growth of 1.0% in 2024, down from 1.7%. Higher interest rates by  BoE Governor Andrew Bailey in achieving price stability has dented the scale of economic activities.

• USD/JPY extends the previous day’s bearish momentum with a slower pace.
• US Treasury bond yields ease amid mixed news, unimpressive Fed talks and Japan trade numbers.
• Market sentiment remains sluggish as traders await US President Biden’s SOTU.

USD/JPY stays pressured around 130.90 while extending the previous day’s pullback from the highest level in a month. In doing so, the Yen pair tracks the recent weakness in the US Treasury bond yields amid the sluggish start of Wednesday’s Tokyo trading. It’s worth noting that mixed Japan data and Fedspeak joins geopolitical concerns to weigh on the quote of late.

US 10-year Treasury bond yields snap a three-day uptrend while retreating from a one-month high of around 3.68% to 3.67% by the press time. The same weigh on the US Dollar Index (DXY), down for the second consecutive day to near 103.30 at the latest. That said, the S&P 500 Futures print mild losses to track Wall Street and portray downbeat sentiment.

Japan’s trade deficit eased to ¥-1,225.6B versus ¥-1,814.6B expected and ¥-1,537.8B prior but the Current Account balance softened to ¥33.4B from ¥1,803.6B previous readings and ¥98.4B.

Elsewhere, Minneapolis Federal Reserve (Fed) President Neel Kashkari told CNN, "We may have to hold rates at a higher level for longer," while adding that he is not forecasting a recession. Following that, Federal Reserve Chairman Jerome Powell said, “Expect 2023 to be a year of significant declines in inflation,” while also adding that if data were to continue to come in stronger than expected, would certainly raise rates more.

It should be noted that optimism surrounding the Japanese government’s wage talks to labor representatives, during March, seems to have favored the optimism at home. However, China’s rejection of the Pentagon's request keeps the geopolitical tension high.

Looking forward, USD/JPY pair traders should rely on the Bank of Japan (BoJ) talks to aim for further downside, especially amid recent hawkish concerns surrounding the Japanese central bank. Also important to watch will be today’s State of the Union (SOTU) speech from United States President Joe Biden. “US President Joe Biden will face Republicans who question his legitimacy and a public concerned about the country's direction in Tuesday's State of the Union speech that is expected to serve as a blueprint for a 2024 re-election bid,” said Reuters ahead of the event.

Technical analysis

A U-turn from the 50-DMA, around 132.40 at the latest, directs USD/JPY towards the 130.00 round figure.

• AUD/USD is eyeing to recapture the psychological resistance of 0.7000 despite the cautionary market mood.
• Economists at ANZ Bank see two rate hikes by the RBA to 3.85% amid upside bias for inflation projections.
• Fed’s Powell reiterated that the process of achieving price stability will take a significant period of time.

The AUD/USD pair has extended its recovery above the immediate resistance of 0.6960 in the Asian session. The Aussie asset is expected to recapture the psychological resistance of 0.7000 as the street believes that the current monetary policy by Reserve Bank Australia (RBA) believes is not restrictive enough to contain the galloping inflation.

Australian Consumer Price Index (CPI) is still in a rising trend led by global factors, higher energy prices, and an upbeat labor market. An absence of inflation peak projections indicates that the price index is in unchartered territory. Therefore, RBA Governor Philip Lowe has no option other than to continue interest rate hiking to address the inflation mess.

On Tuesday, the RBA announced a 25 basis point (bp) interest rate hike and pushed the Official Cash Rate (OCR) to 3.35%. Economists at ANZ Bank expect two more hikes in March and May. A note from ANZ Bank stated “We continue to expect that the cash rate target will rise another 25 bps in March and then to 3.85% by May 2023. We still see the risks to that peak as tilted to the high side given the momentum in inflationary pressure.”

Risk-perceived currencies are solidifying further despite China has declined a US request for a phone call between U.S. Defense Secretary Lloyd Austin and Chinese Defense Minister Wei Fenghe,” a Pentagon spokesman said on Tuesday reported Reuters. Meanwhile, S&P500 futures are showing marginal losses after a bullish Tuesday, portraying a cautionary market mood.

The US Dollar Index (DXY) dropped below 103.00 despite Federal Reserve (Fed) chair Jerome Powell reiterating that the battle against inflation is far from over. Fed’s Powell confirmed that higher interest rates will prevail for a longer period to achieve price stability. He further added, “The strong jobs report shows you why we think that inflation taming will be a process that takes a significant period of time.”

Britain will dodge recession this year but its people will face the after-effects of a severe fall in living standards caused by surging inflation, which will leave millions struggling to pay their bills, academic researchers forecast on Wednesday per Reuters.

“Britain's National Institute for Economic and Social Research (NIESR) cut its forecast for gross domestic product growth this year to 0.2% from 0.7% in its last forecast in November, and sees growth of 1.0% in 2024, down from 1.7%,” reported Reuters.

The news also quotes NIESR Director Jagjit Chadha saying that the forecasts painted "an incredibly depressing picture", particularly for living standards which are set to stagnate this year after falling sharply last year due to the surge in energy prices.

Key quotes

Market reaction

The news fails to tame the GBP/USD prices as the Cable pair defends the previous day’s rebound from the one-month low, mildly bid around 1.2060 at the latest.

Also read: GBP/USD appears optimistic on UK PM Sunak’s Cabinet reshuffle, mildly bid near 1.2050 amid mixed Fedspeak

• US Dollar bulls are pressured below key trendline resistance.
• The bears broke the horizontal structure that leaves the downside vulnerable for the day ahead. 

The US Dollar dollar fell on Tuesday, reversing earlier moves, as the market perceived comments by the Federal Reserve chair to be dovish. Despite hawkish rhetoric from Powell at the Economic Club of Washington as he reiterated getting inflation back to the Fed's 2% target will take time, the US Dollar was let go of due to prospects of inflation coming down this year.

This leaves the outlook for the greenback bearish, both from a fundamental and technical outlook as the market digests the Federal Reserve and nonfarm, Payrolls data that was released on Friday:

US Dollar H1 chart

As illustrated, the price is leaning into a bullish trendline support but is now on the backside of the prior micro trend line which would now be expected to act as a counter-trendline. The break of the structure near 103.40 leaves the downside vulnerable with eyes on 103.00 for a break below to open the low-hanging fruit towards a test of 102 the figure. 

This all leaves scope for currencies such as the Euro in particular to rally further this week:

The Euro is currently up against major trendline resistance but a break thereof for the day ahead will pout the bullish bias back in vouge.

• EUR/USD grinds near monthly low after posting a bullish candlestick on daily formation.
• Bullish moving average crossover, steady RSI adds strength to the upside bias.
• Three-month-old previous support line holds the key to Euro bull’s conviction.

EUR/USD stays defensive near 1.0730 during inactive early trading hours of Wednesday, following a bounce off monthly low to post the bullish Doji candlestick on Tuesday. In doing so, the major currency pair justifies the steady RSI (14) while also keeping the previous day’s bounce off the 50-DMA support.

It should be noted that the 100-DMA pierced the 200-DMA from below and portrayed a “Golden cross” during the last week, which in turn back the latest upside bias.

However, the recovery remains elusive unless the EUR/USD pair stays below the previous support line from early November 2022, around 1.0860.

Following that, a run-up towards refreshing the monthly peak, currently near 1.1035, can’t be ruled out. Though, the 1.0900 and the 1.1000 round figures may act as intermediate halts during the expected rally.

Meanwhile, a daily closing beneath the 50-DMA, around 1.0700 by the press time, could reject the bullish bias while sustained trading below the previous day’s low of 1.0669 will defy the upbeat signals sent via the Doji candlestick.

In that case, a downward trajectory toward the previous monthly low of 1.0483 can’t be ruled out.

However, the 100-DMA and the 200-DMA, respectively around 1.0345 and 1.0320, could challenge the EUR/USD bears afterward.

EUR/USD: Daily chart

Trend: Further recovery expected