CFD Markets News and Forecasts — 10-02-2023

• USD/CHF jumped from weekly lows after forming a hammer at around the 0.9200 area.
• Near-term, the USD/CHF is upward biased and might test the 0.9300 figure.

The USD/CHF forged a base and climbed back to the 0.9200 area on Friday, following Thursday’s price action, which formed a hammer, that exacerbated the USD/CHF recovery, to current exchange rates. At the time of writing, the USD/CHF is trading at 0.9246, above its opening price by 0.35%.

Long-term, the USD/CHF remains neutral-to-downward biased, but it could print a leg-up and test the 50-day Exponential Moving Average (EMA) at 0.9294. The Relative Strength Index (RSI) entered bullish territory, suggesting that buying pressure is building, contrary to the Rate of Change (RoC), which is neutral.

Short term, the USD/CHF 4-hour chart is bottoming, though downside risks remain. At the time of typing, the USD/CHF is testing the 200-Exponential Moving Average (EMA) at 0.9247 after breaking away from the confluence of the 50/100/20-EMAs.

Oscillators like the Relative Strength Index (RSI) shifted bullish, while the Rate of Change (RoC) backed a bullish continuation, but key resistance areas need to be broken to further cement the USD/CHF upward bias.

Therefore, the USD/CHF first resistance would be the 200-EMA, followed by the 0.9300 figure. A decisive break could trigger a leg-up towards the January 12 high of 0.9360, ahead of the psychological 0.9400 figure.

USD/CHF 4-hour chart

USD/CHF key technical levels

• The US Dollar is set to finish the week with solid gains due to Fed’s hawkish comments and US data.
• US Consumer Sentiment improved, as reported by the University of Michigan.
• The UK avoided a recession in Q4 2022, though its forward economic outlook suggests a weaker British Pound.
• GBP/USD Price Analysis: A daily close below 1.2032 would resume a bearish continuation.

GBP/USD snaps three straight days of gains and drops as it tested the 50-day Exponential Moving Average (EMA) at 1.2126, as UK economic data showed the economy did not grow, while consumer sentiment in the US improved. At the time of writing, the GBP/USD exchanges hands at 1.2055.

Improvement in US consumer sentiment and weak UK GDP weighed on the GBP

The GBP/USD extended a leg down after data from the University of Michigan (UoM) reported that Consumer Sentiment surpassed predictions of 65 and increased to 66.4, indicating a better financial situation. In addition, the expected inflation rate for the year rose from 3.9% in January’s final reading to 4.2%, while the inflation estimations for a five-year period remained steady at 2.9%.

Therefore, the US Dollar Index (DXY), a measure of the greenback’s value vs. a basket of peers, advances 0.60%, up at 103.65, underpinned by US Treasury bond yields, which, affected by hawkish Federal Reserve’s (Fed) speakers commentary during the last week, broke the 3.70% threshold, at 3.728%.

During the European session, the UK economic docket revealed that GDP for the last three months of 2022 stood at 0% and avoided entering a recession, foresaw by the Bank of England (BoE). On a monthly basis, December’s GDP contracted by -0.5%, reported the Office for National Statistics (ONS).

In the meantime, a gloomy scenario in the UK suggests that the British Pound (GBP) would be under pressure as the BoE struggles to tame inflation which reached a 41-year high at 11.1% in October of 2022. The BoE’s latest monetary policy meeting revealed a split vote amongst its members. The BoE forward discussions and guidance would be interesting, which could reassure the central bank’s commitment to tackle inflation.

GBP/USD technical analysis

From a daily chart perspective, the GBP/USD would consolidate within the boundaries of the 50-day EMA  at 1.2126 upwards and the 100-day EMA at 1.2032 downwards. However, the Relative Strength Index (RSI) entered the bearish territory, and the Rate of Change (RoC) turned neutral, making a case for a bearish continuation. Therefore, the GBP/USD next support would be the 100-day EMA at 1.2032, followed by the psychological 1.2000 figure. A decisive break could send the GBP/USD to test the YTD low of 1.1841.

• Gold price extended its losses in the session, down by 0.22%.
• The University of Michigan’s Consumer Sentiment improved, while inflation expectations jumped for 2023.
• Gold Price Forecast: Daily close below the 50-EMA could expose Gold to further selling pressure.

Gold price remains firm at around $1860 after hitting a week-to-date new low of $1852.45 on Friday due to speculations that the US Federal Reserve would raise rates by 25 bps in the next couple of meetings, as money market futures showed. A bid in the US Dollar and US Treasury bond yields reaching fresh 5-week highs capped Gold’s advancement. At the time of writing, XAU/USD is trading at $1858.68, above its opening price by 0.20%.

XAU/USD spiked toward its daily highs on US consumer sentiment

Wall Street continues to trade mixed, with the Nasdaq 100 being the outlier, losing more than 0.50%. A poll by the University of Michigan (UoM) reported that American Consumer Sentiment exceeded estimates of 65 and rose by 66.4, showing an improvement in financial conditions. Meanwhile, inflation expectations for a one-year horizon increased by 4.2% from 3.9% reported on January’s final reading, while for a 5-year horizon, it stood unchanged at 2.9%. XAU/USD’s reacted on the data, reaching as high as $1866.80, though retraced towards current prices.

Hawkish commentary by Fed officials, headwinds for XAU

Elsewhere a slew of Federal Reserve (Fed) officials during the week stated that more rate hikes are coming as the US central bank battles to curb inflation. New York Fed President John Williams commented on moving the Federal Funds rate (FFR) to 5%-5.25%. At the same time, Minnesota’s Fed President Neil Kashkari, a voter in the FOMC in 2023, said that the FFR needs to go as high as 5.4%.

Echoing some of their comments was Lisa D. Cook, who said that it’s appropriate to move in “smaller steps” while the Fed assesses the effects of cumulative tightening. Later the Richmond Fed President Thomas Barkin said that the Fed is “unequivocally” hitting the brakes on the economy.

Gold weakens as US Treasury bond yields and the USD rise

In the meantime, US Treasury bond yields continued to underpin the US Dollar (USD). The 10-year benchmark note rate is up six bps, at around weekly highs of 3.728%, a headwind for XAU’s prices. The US Dollar Index (DXY), which tracks the buck’s value vs. a basket of peers, advances 0.37% daily, up at 103.57.

Gold technical analysis

XAU/USD’s daily chart portrays the yellow metal as neutral-to-downward biased, though the consolidation around $1860 and a subsequent break could pave the way for further losses. However, the 50-day Exponential Moving Average (EMA) at $1856.50 could cap Gold’s fall. Next support lies at the December 27 high-turned-support at $1833.29, followed by the 100-day EMA at $1816.91.

GBP/USD briefly dropped below the 1.20 level earlier this week. Economists at Rabobank expect the pair to see further dips below 1.20 in the coming months.

EUR/GBP seen at 0.90 around the middle of the year 

“We expect to see further dips below GBP/USD 1.20 in the coming months.”

“While EUR/GBP has dropped back from its recent highs, it remains in an ascending channel, and we retain our forecast for a move to 0.90 around the middle of the year.”

“On March 15, Chancellor Hunt is due to present his spring budget. Hunt has provided reassurances to the market that he will not be pulling any rabbits from the hat next month, given the need to reduce inflation. This may avoid any crisis for the gilt market, but it suggests the potential for little change in the prevailing economic gloom. This is likely to leave GBP on the back foot.” 

Silver has dropped back again this year. But strategists at Commerzbank expect increasing Gold prices to lift Silver too.

Supply deficit likely to shrink on Silver market

“Global demand is likely to decrease as compared with its record high last year. Growing supply is anticipated at the same time: mining production is expected to reach its highest level since 2016 and the supply of scrap Silver to post the highest level in a decade.”

“As these two effects combined will probably mean that the supply deficit this year will not be even half as high as it was last year, the Silver Institute sees little potential for pronounced price rises this year. With its cautious prediction of an average price of $23 this year, it is more sceptical than we are.” 

“We expect rising Gold prices in the second half of the year to pull up the Silver price too.”

Strategists at Rabobank analyze the path of Brent Crude Oil for the next months. In their view, a slump in prices is unlikely to last.

Brent will appreciate and average $90 for Q3 and Q4 2023

“Brent prices could see the $60s very briefly in a financial sell-off caused by an official recession. This is unlikely to last, as we believe that there are multiple levels of support in the $70s and our expectations are that Brent will appreciate and average $90 for Q3 and Q4 2023.”

“On the products side, we expect ULSD to average $3.01/gal for the year and gasoil $865/mt off the continuing shortage of global diesel inventories.” 

Emerging markets have continued to lag so far in 2023. But economists at UBS now see a much more favorable backdrop for emerging markets.

Emerging markets well-positioned to be early beneficiaries of the three inflection points 

“Emerging markets are closely linked to the fortunes of the Chinese economy, which should rebound as the country opens up.”

“Easing financial conditions and a weaker US Dollar have historically been linked with strong emerging market performance.”

“Valuations are appealing on a relative basis and corporate fundamentals are turning the corner.”

The Mexican central bank (Banxico) surprisingly opted to raise its policy rate by 50 bps. The MXN reacted sharply appreciating. However, the Peso could still come under pressure if Banxico does not remain hawkish, economists at Commerzbank report.

Banxico maintains pace and sends MXN soaring

“Banxico surprised with a 50 bps rate hike to now 11%, sending the MXN soaring.”

“Banxico is proving to be an inflation fighter after the departure of central bank member Gerardo Esquivel, who was considered a big dove, which should in principle help the Peso.”

“The big question now is where the peak in the interest rate cycle will be, since core inflation in particular shows no signs of easing yet, which makes it important for Banxico to remain hawkish. Otherwise, it risks that the MXN will ultimately be punished after all.”

• UoM Consumer Confidence Index rose more than expected in February's flash estimate.
• US Dollar Index clings to daily gains near 103.50.

Consumer sentiment in the US improved in early February with the University of Michigan's (UoM) Consumer Confidence Index rising to 66.4 from 64.9 in January. This reading came in better than the market expectation of 65.

"Year-ahead inflation expectations rebounded to 4.2% this month, from 3.9% in January and 4.4% in December," the UoM noted in its publication. "Long-run inflation expectations remained at 2.9% for the third straight month and stayed within the narrow 2.9-3.1% range for 18 of the last 19 months."

Market reaction

The US Dollar preserves its strength after this report and the US Dollar Index was last seen rising 0.28% on the day at 103.48.

• The USD/JPY 1-hour chart falling wedge was invalidated by a price violation on BoJ’s Ueda news.
• USD/JPY Price Analysis: Long-term is still downward biased unless it breaks resistance around 133.00.

USD/JPY remains pressured by rumors that Kazuo Ueda will be appointed as the new Bank of Japan (BoJ) Governor, sending the USD/JPY diving to its weekly low of 129.79. Nevertheless, the USD/JPY recovered some ground, exchanging hands at around 130.90, slightly above the 20-day Exponential Moving Average (EMA).

From a daily chart perspective, the USD/JPY remains downward biased, but buyers reclaiming the 20-day EMA at 130.72 could put into play the psychological 131.00 level. The Relative Strength Index (RSI) suggests that a bearish continuation is likely, while the Rate of Change (RoC) shifted neutral.

Intraday, the USD/JPY one-hour chart portrays the pair as downward biased. On Thursday’s analysis, I wrote, “the formation of a falling wedge, suggesting a bullish continuation, which could lift prices towards 131.60 and the January 11 high at 132.87,” and added mixed signals between the RSI and the RoC, suggesting that caution is warranted. Hence, BoJ’s news invalidated the chart pattern and opened the door for further losses.

For USD/JPY to resume its upward bias, it must clear the day’s high at 131.87, followed by the weekly high at 132.90. On the other hand, and in the most probable scenario, the USD/JPY could retest the week’s low. Therefore, the USD/JPY first support would be the S1 daily pivot at 130.64. A breach of the latter will expose the psychological 130.000 level, followed by the lows of the week/session at 129.79.

USD/JPY One-hour chart

USD/JPY key technical levels

The Australian Dollar has been a solid performer in recent months and is up 11% from its October 2022 low. Economists at Wells Fargo believe this positive trend can continue and forecast AUD/USD at 0.7800 by mid-2024.

Resilient Australian growth and favorable RBA monetary policy dynamics versus the Fed

“Given our outlook for Australia to enjoy a reasonably steady expansion over time and avoid recession, our base case remains for some further monetary policy tightening before a pause in rate hikes.”

“We believe resilient Australian growth and favorable RBA monetary policy dynamics versus the Fed are the main factors that should be supportive of the Australian Dollar over the medium term.”

“We have adopted a more constructive medium-term outlook for AUD/USD, targeting an exchange rate of 0.7800 by mid-2024. We expect the Aussie to be an outperformer among G10 currencies during this period.”

The Canadian Dollar was the third best performing currency in G10 in January. Economists at ING expect the USD/CAD pair to dip below 1.30 in the second quarter.

Some silver linings from CAD after BoC pause

“The BoC most likely hit the peak of its tightening cycle, as it brought rates to 4.5% and signalled more hikes are not on the cards for now. The dovish shift by the BoC was not a sudden move and had been largely priced in, which means that CAD can now potentially benefit from the fact that a lower peak rate means less economic impact and above all less pain for the troubled housing market.”

“CAD is not our favourite commodity currency for 2023 given a deteriorating domestic and US economic outlook, but can still count on respectable rate attractiveness and high-beta to risk sentiment.” 

“A move below 1.30 in USD/CAD looks likely by the second quarter.”

Gold has been virtually unable to recover from its setback. Economists at Commerzbank expect the yellow metal to struggle for the time being.

Previously very optimistic investors more cautious

“Gold lacks the strength to match the correction. The extent to which speculative investors are to blame for this, having previously topped up their net long positions noticeably, remains to be seen.”

“The CFTC has still not published any data following the cyberattack. However, we have pointed out repeatedly that there is a lack of support from ETF investors with a more long-term investment horizon. This would probably require more clarity about the future course of US monetary policy.”

The main economic data release was the release of the latest GDP data from the UK although it has had a limited impact on the Pound. Economists at MUFG Bank point out the next support levels in the GBP/USD pair.

Weak end to the year for UK economy narrowly avoiding technical recession

“The UK contracted more sharply than expected in December by -0.5%. As a result, the UK economy recorded flat growth for Q4 as a whole just narrowly avoiding two consecutive quarters of negative growth.”

“The continued weak growth outlook will support expectations that the BoE is close to the end of their rate hike cycle.”

“The recent dovish shift in policy guidance from the BoE has weighed on Pound performance which alongside the hawkish repricing of Fed policy has dragged Cable back down towards support at the 1.2000 level. The 200-Day Moving Average also comes in at 1.1950 which is the next level of support.”

The US Bureau of Labor Statistics announced on Friday that it revised the monthly Consumer Price Index (CPI) for December to +0.1% from -0.1%, based on updated seasonal adjustment factors.

For the same period, the Core CPI, which excludes volatile food and energy prices, got revised higher to +0.4% from +0.3%, as reported by Reuters.

Market reaction

The US Dollar preserves its strength following this announcement. As of writing, the US Dollar Index was trading at 103.40, where it was up 0.2% on a daily basis. 

• USD/CAD adds to its heavy intraday losses and drops back closer to the weekly low.
• Bullish oil prices, the upbeat Canadian jobs report boost Loonie and exert pressure.
• Hawkish Fed expectations, recession fears underpin the USD and should limit losses.

The USD/CAD pair extends its intraday retracement slide from the vicinity of the weekly high, around the 1.3475 region and continues losing ground through the early North American session. The downward momentum picks up pace in reaction to the upbeat Canadian employment details and drags spot prices to the 1.3370 area, or the lower end of the weekly range.

Statistics Canada reported that the number of employed people rose 150K in January, surpassing even the most optimistic estimates. Adding to this, the unemployment rate held steady at 5% against expectations for a modest uptick to 5.1%. This, along with the prevalent bullish sentiment surrounding crude oil prices, underpins the commodity-linked Loonie and exerts heavy downward pressure on the USD/CAD pair.

The US Dollar, on the other hand, stands tall near a one-month high and should limit losses, at least for now. Against the backdrop of the recent hawkish commentary by several FOMC members, a weaker tone around the equity markets - amid looming recession risks - is seen underpinning the safe-haven buck. This, along with the divergent Fed-BoC policy outlook, could lend support to the USD/CAD pair.

Investors seem convinced that the Fed will stick to its hawkish stance to tame inflation. In contrast, the Bank of Canada is expected to be the first major central bank to pause the policy-tightening cycle following eight rate hikes in the past 11 months. This, in turn, supports prospects for the emergence of some dip-buying around the USD/CAD pair, warranting some caution for bearish traders.

Technical levels to watch

• EUR/USD resumes the downside following Thursday’s decent uptick.
• A deeper decline could see the monthly low near 1.0670 retested.

EUR/USD keeps the weekly range bound theme unchanged and now breaks below the key 1.0700 support on Friday.

In case losses gather extra impulse, then the pair could rapidly challenge the so far February low at 1.0669 (February 7). The loss of the latter could pave the way for further retracement to the 2023 low at 1.0481 (January 6).

In the longer run, the constructive view remains unchanged while above the 200-day SMA, today at 1.0321.

EUR/USD daily chart

• AUD/USD comes under some selling pressure on Friday amid some follow-through USD buying.
• Hawkish Fed expectations push the US bond yields higher and continue to underpin the buck.
• Looming recession risks also benefit the safe-haven USD and weigh on the risk-sensitive Aussie.

The AUD/USD pair fades an intraday uptick to the 0.6960 area and retreats to the lower end of its daily range heading into the North American session. The pair is currently placed around the 0.6925-036920 region and remains at the mercy of the US Dollar price dynamics.

A combination of supporting factors assists the US Dollar to stand tall near a one-month high, which, in turn, is seen exerting some downward pressure on the AUD/USD pair. Against the backdrop of hawkish signals from Fed officials, a fresh wave of the global risk-aversion trade provides a goodish lift to the safe-haven buck.

In fact, several FOMC policymakers, including Chair Jerome Powell, earlier this week stressed the need for additional interest rate hikes to fully gain control of inflation. The prospects for additional policy tightening by the Fed push the US Treasury bond yields higher, which, in turn, continues to act as a tailwind for the USD.

Investors, meanwhile, remain worried about economic headwinds stemming from rapidly rising borrowing costs. Adding to this, the deeply inverted US Treasury yield curve point to growing concerns about looming recession risks. This is seen as another factor that contributes to driving flows away from the risk-sensitive Aussie.

The downside for the AUD/USD pair, however, remains cushioned in the wake of a more hawkish outlook by the Reserve Bank of Australia (RBA). The minutes of the latest RBA policy meeting signalled further rate increases will be needed to ensure that inflation returns to target.  This, in turn, warrants some caution for bearish traders.

Next on tap is the release of the Preliminary US Michigan Consumer Sentiment Index. This, along with a scheduled speech by Fed Governor Christopher Waller, might influence the USD demand and provide some impetus to the AUD/USD pair. Traders will further take cues from the broader risk sentiment to grab short-term opportunities.

Technical levels to watch

USD/CAD stays relatively quiet near the upper-limit of its weekly range at around 1.3450. Economists at Société Générale discuss the pair’s technical outlook.

A short-term rebound towards 1.3520/1.3540 is on the cards

“The USD/CAD pair appears to be forming a base.” 

“A short-term rebound is not ruled out towards 1.3520/1.3540 and December high of 1.3700. This must be overcome to affirm the next leg of uptrend.” 

“Only if 1.3260/1.3220 gets violated, would there be a risk of a deeper pullback.”

See: USD/CAD to dip under 1.34 if Canada jobs data surprise to the upside – BofA

• The index maintains the choppiness unchanged this week.
• Further side-lined trading is likely in the short term.

DXY reverses Thursday’s decline to weekly lows and regains the area well north of the 103.00 barrier on Friday.

The recent price action leaves the door open to the continuation of the consolidative phase for the time being. Against that, the upper end of the range appears capped by the vicinity of the 104.00 mark, while weekly lows near 102.60 seem to emerge as a decent initial contention.

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 has drifted back to the 1.07 area. Economists at Scotiabank note that the pair could fall to the 1.05/06 region.

Bearish

“Intraday weakness below the 1.0730/35 support zone (now minor resistance intraday) risks seeing EUR losses extend somewhat more as spot’s recent consolidation range has broken down.”

“EUR/USD support is 1.0670/80 (55-Day Moving Average which held losses earlier this week at 1.0682). EUR losses could extend to the 1.05/1.06 range below there.”

See – EUR/USD: Lower end remains the more vulnerable one – Commerzbank

• EUR/JPY comes under further pressure below the 200-day SMA.
• The continuation of the downtrend could see the 138.00 region revisited.

EUR/JPY reverses the recent 2-day bounce and drops to 3-week lows in the 139.50 zone at the end of the week.

While the cross is expected to maintain the side-lined theme in the short term, a convincing breakdown of the 200-day SMA at 141.03 should open the taps to extra weakness with the immediate target at the contention zone around 138.00.

In the meantme, below the 200-day SMA, the outlook for the cross is expected to remain bearish.

EUR/JPY daily chart

• Gold price struggles to gain traction and seesaws between tepid gains/minor losses.
• A stronger US Dollar, Federal Reserve’s hawkish signals seem to cap the XAU/USD.
• Looming recession risks lend some support to the metal and help limit the downside.

Gold price meets with some supply near the $1,872 region, or the 100-hour Simple Moving Average (SMA), and stalls its modest intraday recovery from over a one-month low touched this Friday. The XAU/USD is currently placed in neutral territory, just above the $1,860 level, and is influenced by a combination of diverging forces.

Stronger US Dollar acts as a headwind for Gold price

The US Dollar (USD) stands tall near its highest level since January touched earlier this week amid the prospects for further policy tightening by the Federal Reserve (Fed). This, in turn, is seen acting as a headwind for the US Dollar-denominated Gold price. That said, the prevalent risk-off environment - as depicted by a generally weaker tone around the equity markets - lends some support to the safe-haven XAU/USD and helps limit the downside, at least for the time being.

Federal Reserve’s hawkish signals also cap Gold price

Investors now seem convinced that the Fed will stick to its hawkish stance and the expectations were reaffirmed by a slew of Federal Open Market Committee (FOMC) members this week. In fact, policymakers, including Fed Chair Jerome Powell, stressed the need for additional interest rate hikes to fully gain control of inflation. This, in turn, pushes the US Treasury bond yields higher, which underpins the Greenback and further contributes to capping the non-yielding Gold price.

Recession fears help limit losses for safe-haven XAU/USD

Market participants, meanwhile, remain concerned about economic headwinds stemming from the continuous rise in borrowing costs. Recession fears are further fueled by the deeply inverted US Treasury yield curve. In fact, the difference between two-year and 10-year US Treasury notes was the widest since the early 1980s on Thursday. This, in turn, tempers investors' appetite for riskier assets and lends some support to Gold price, warranting caution before positioning for further losses.

Focus shifts to consumer inflation figures from United States

Traders might also refrain from placing aggressive bets and prefer to move to the sidelines ahead of the latest consumer inflation figures from the United States (US), due for release next Tuesday. In the meantime, the Preliminary US Michigan Consumer Sentiment Index, along with a scheduled speech by Fed Governor Christopher Waller, could provide some impetus to Gold price. Nevertheless, the XAU/USD seems poised to settle nearly unchanged for the week, just above the 50-day SMA.

Gold price technical outlook

From a technical perspective, acceptance below the $1,855 region (50-day SMA) will be seen as a fresh trigger for bearish traders and pave the way for deeper losses. Gold price could then slide to the next relevant support near the $1,830 area en route to the $1,818-$1,817 zone and the $1,800 round figure. On the flip side, momentum beyond the $1,875 hurdle is likely to meet with a fresh supply ahead of the $1,900 mark. The latter should act as a pivotal point, above which a bout of a short-covering could lift the Gold price to the $1,925-$1,930 congestion zone.

Key levels to watch

USD/JPY has been subjected to a bout of volatility on reports that Kazuo Ueda will be the next BoJ Governor. But economists at Rabobank stick to their USD/JPY forecast.

Scope for a move to USD/JPY 128 on a three-month view

“Given what is known so far, a Bank of Japan with Ueda at the helm has not altered our view of BoJ policies. We continue to expect a very cautious outlook to prevail with conditions building for a modest withdrawal of accommodation this year. We expect this would commence with an adjustment to YCC.”

“Bearing in mind that other central banks are already edging towards peak interest rates and could be cutting rates in 2024, there may only be a limited time-frame for the BoJ to tighten policy without causing undue stress on the JPY exchange rate.” 

“Assuming some relaxation in YCC, we see scope for a move to USD/JPY 128 on a three-month view. However, a hawkish Fed is likely to limit scope for JPY appreciation.”

Senior Economist Julia Goh and Economist Loke Siew Ting at UOB Group, assess the lates labour market report from Malaysia.

Key Takeaways

“Malaysia’s labour market conditions remained broadly stable in Dec 2022, with both unemployment rate and labour force participation rate holding unchanged at 3.6% and 69.8% respectively. This was aligned with full operation of all economic activities for nearly one year amid persistent scaring effects of the COVID-19 pandemic on the economy. For the full year of 2022, unemployment rate averaged 3.9% (2021: 4.6%), remaining above the pre-pandemic 2015-2019 long term average of 3.3%.”

“Total employment recorded the smallest gain in 17 months of 21.8k or 0.1% m/m to 16.13mn in Dec (Nov: +27.1k or +0.2% m/m to 16.11mn), the highest level on record. The slower gain was mainly driven by all economic sectors, led by services and manufacturing sectors.”

“The latest performance of all labour market indicators continued to affirm our view of a slower recovery momentum in Malaysia’s labour market since Jul 2022. Although China’s reopening from 8 Jan 2023 has spurred optimism for Southeast Asia including Malaysia’s tourism sector and growth recovery this year, the impact may be more gradual in 1H23 amid capacity constraints and inflation risks. Taking this and other lingering economic headwinds into consideration as well as pending additional job-related initiatives from the 2023 budget that will be re-tabled on 24 Feb, we keep our year-end jobless rate forecast at 3.2% for 2023 (vs official est: 3.5%-3.7%, end-2022: 3.6%).”

The S&P 500 finished lower as the index posted a -0.88% loss. It was the first back-to-back -1.0% days for the S&P 500 since mid-December. The index could suffer a deeper fall on failure to hold above 4000/3930, economists at Société Générale report.

A pullback is underway

“S&P 500 broke out above a multi-month trend line resulting in extension of its rebound. It recently approached intermittent resistance of 4218 representing previous bearish gap.” 

“Currently, a pullback is underway. However, the trend line and the 200-DMA near 4000/3930 should be a short-term support zone. A break below this would be essential to affirm an extended down move.”

Friday's Canada jobs report for the month of January could drag the USD/CAD pair down if data surprise to the upside, economists at Bank of America Global Research report.

CAD/USD  has had a strong positive correlation with Canada employment data surprises

“We find over the past two years, the CAD/USD exchange rate has had a strong positive correlation with Canada employment data surprises.”

“Our economists and consensus forecast both look for Canada to add 15K employment for Jan 2023. The risk may be to the upside, given two recent large surprises for Oct and Dec 2022, respectively leading to immediate 0.57% and 0.72% CAD/USD rallies in the two hours after the data release.”

“In the event that CA employment data indeed surprises to the upside this Friday, we would expect some tailwind for CAD and for USD/CAD to fall below the 1.34-handle.”

See – Canadian Employment Preview: Forecasts from five major banks, little if any gain

Economists at ING think there are more downside risks to NZD compared to AUD over the course of 2023. 

NZD less attractive than AUD

“An ultra-hawkish Reserve Bank of New Zealand is good from a carry perspective, but has already generated a large slump in house prices. This trend may accelerate and pose serious threats to the economic outlook.” 

“We think the RBNZ will underdeliver and fall well short of their projected 5.5% peak rate to save the property market.”

“The resignation of the NZ prime minister does not have major implications for now, but might add a little uncertainty along the way.”

“AUD/NZD to break through 1.10 soon.”

UOB Group’s Head of Research Suan Teck Kin, CFA, reviews the latest interest rate decision by the RBI.

Key Takeaways

“The Reserve Bank of India (RBI) at its Feb 2023 Monetary Policy Committee meeting lifted the benchmark repo rate as widely expected, by 25bps to 6.50%. This followed the downshifting to 35bps hike (to 6.25%) at the Dec 2022 MPC after three consecutive rounds of 50bps move. The current repo rate is at a level last seen in Jan 2019, just before RBI entered its policy accommodative phase.”

“Inflation pressure remains RBI’s overriding concern and the main policy objective, as core inflation rate stayed above the upper band of the target inflation rate (4%+/-2%) for the second straight month in Dec 2022, despite overall inflation trending below the 6% level for the second consecutive month. RBI noted that core inflation “remains sticky” but expected inflation to moderate in 2023-24 and “to rule above” the 4% target.”

“Outlook – With RBI’s policy priority on containing inflation pressures while being mindful of the ongoing pass-through of input costs, and that the stickiness of core inflation is “a matter of concern”, the central bank’s hawkish tone signals that its job is not done yet. This is also reinforced by RBI’s comments that overall monetary conditions “remain accommodative”. Based on the above factors, the RBI is unlikely to be taking a pause anytime soon. We thus pencil in one final interest rate rise of 25bps, to 6.75%, at the next MPC meeting (3-6 Apr 2023).”

In the view of Antje Praefcke, FX Analyst at Commerzbank, positive data from the United States has the potential to lift the greenback.

Price and labour market data will have even more potential to move USD

“The Fed drives at the sight and is basing its decisions very much on the data. That means that presumably any data – in particular price and labour market data – will have even more potential to move the Dollar in the foreseeable future.”

“The Dollar will appreciate more significantly in case of good US data than it eases in case of negative data. That means the lower end in EUR/USD remains the more vulnerable one.”

The Dollar is struggling to find clear direction in the current market environment. Economists at ING think the greenback may lack clear direction until next week’s inflation data.

The waiting game is on

“We suspect key Dollar crosses will stay rangebound until the next key data releases. Next week’s CPI is the real risk event. And if the general risk environment proves resilient for another session today, the Dollar should still find a floor on the back of some defensive positioning ahead of next week’s inflation data, as happened in the run-up to the Fed meeting.”

“Fed communication remains important, but secondary to data. Additional policy remarks from the Fed’s Christopher Waller and Patrick Harker today are not likely to be a game changer for the Dollar.” 

“DXY may keep hovering around the 103 handle into next week’s CPI report.”

UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang expect the current upside momentum in USD/CNH to remain intact above the 6.7400 level.

Key Quotes

24-hour view: “Yesterday, we held the view that the bias for USD is to the upside. However, USD traded between 6.7765 and 6.8049 before closing unchanged at 6.7970. The underlying tone still appears to be a tad firm and USD is likely to edge higher today. However, any advance is unlikely to break 6.8150. Support is at 6.7880, followed by 6.7765.”

Next 1-3 weeks: “On Monday (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.”

• USD/JPY attracts fresh buying following a sharp intraday fall to the 129.80 area, or the weekly low.
• Dovish remarks by the possible BoJ governor candidate weigh on the JPY and lend some support.
• Hawkish Fed expectations, rising US bond yields underpin the USD and provide an additional boost.

The USD/JPY pair rebounds nearly 140 pips from the weekly low touched during the first half of the European session on Friday and now trades just above the 131.00 mark.

Reports that the Japanese government is likely to appoint Kazuo Ueda as the next Bank of Japan (BoJ) governor boost the domestic currency and prompt aggressive intraday selling around the USD/JPY pair. The initial market reaction, however, fades rather quickly after the possible BoJ governor candidate Ueda said that the current policy is appropriate and added they need to continue the easy policy. This, in turn, undermines the Japanese Yen (JPY), which, along with the emergence of fresh US Dollar buying, assists the pair to rebound swiftly from the 129.80 region.

The USD continues to draw support from diminishing odds for an imminent pause in the Fed's policy tightening cycle. The expectations were lifted by the recent hawkish remarks by several FOMC officials, including Fed Chair Jerome Powell, stressing the need for additional interest rate hikes this week to fully gain control of inflation. This, in turn, pushes the US Treasury bond yields higher, which, in turn, benefits the greenback. That said, looming recession risks lend some support to the safe-haven JPY and keep a lid on further gains for the USD/JPY pair.

Even from a technical perspective, failure to find bearish acceptance below the 130.00 psychological mark and the subsequent bounce warrant caution before positioning for any further decline. That said, a strong follow-through buying is needed to support prospects for an extension of the recent recovery from the 127.20 area, or a multi-month low touched in January. Traders now look to the Preliminary Michigan Consumer Sentiment Index from the US, which, along with Fed Governor Christopher Waller's speech, might provide some impetus to the USD/JPY pair.

Technical levels to watch

The Canadian labour market data due for publication today is likely to attract the utmost attention. Economists at Commerzbank how could the employment report impact the Canadian Dollar (CAD).

Eyes on Canada jobs report

“A surprisingly strong labour market report today is likely to support rate expectations and thus the Loonie only somewhat.”

“A significant surprise to the downside on the other hand will likely put pressure on the Canadian Dollar.”

See – Canadian Employment Preview: Forecasts from five major banks, little if any gain

Kazuo Ueda, the academic the Japanese government is reportedly planning to nominate as the next Governor of Bank of Japan (BOJ), said on Friday that the BOJ's current policy is appropriate and added they need to continue the easy policy.

"It's important to make decisions logically and explain clearly," Ueda responded when asked how he would conduct policy if he were to become the next BoJ Governor, per Reuters.

Market reaction

USD/JPY rebound from daily lows with the initial reaction and was last seen trading at around 131.00, where it was down 0.4% on a daily basis.

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

- EUR/USD: EUR amounts        

• 1.0500 500m
• 1.0525 500m
• 1.0700 203m

- USD/CHF: USD amounts                     

• 0.9045 240m

- EUR/GBP: GBP amounts  

• 0.8800 425m

- USD/JPY: USD amounts       

• 130.00 250m

A brief rally failed to propel EUR/USD back above 1.0800 yesterday. Economists at ING see the pair rangebound for now.

Ability of ECB speakers to lift the Euro appears diminished

“The pair may mostly trade in the 1.07-1.08 range until next week’s data offers clearer direction to the Dollar.”

“Despite an improved risk environment helping the pro-cyclical Euro, below-consensus inflation in Germany yesterday may have made investors more cautious about another EUR rally. In this sense, the ability of European Central Bank speakers to lift the Euro appears diminished.”

• USD/CAD retreats from the 1.3475 supply zone and is pressured by a combination of factors.
• Crude Oil prices jump to a two-week high and underpin the Loonie amid a modest USD slide.
• The divergent Fed-BoC outlook, recession fears lend support ahead of the Canadian jobs data.

The USD/CAD pair continues with its struggle to make it through the 1.3475 resistance zone and attracts some intraday selling on Friday. The intraday downfall drags spot prices to a fresh daily low, around the 1.3430 area during the first half of the European session and is sponsored by a combination of factors.

Crude Oil prices regain strong positive traction and jump back closer to the 100-day SMA resistance, hitting a two-week high. This, in turn, is seen underpinning the commodity-linked Loonie, which, along with a modest US Dollar pullback, exerts some downward pressure on the USD/CAD pair. That said, any meaningful downside seems elusive, warranting some caution for bearish traders before positioning for any further intraday depreciating move.

Worries about a deeper global economic downturn could act as a headwind for the black liquid and keep a lid on any optimism in the markets. Apart from this, expectations for further policy tightening by the Fed favour the USD bulls and support prospects for the emergence of some dip-buying around the USD/CAD pair. In fact, a slew of FOMC members, including Fed Chair Jerome Powell, stressed the need for additional rate hikes to tame inflation.

The Bank of Canada (BoC), on the other hand, is expected to be the first major central bank to pause the policy-tightening cycle following eight rate hikes in the past 11 months. The divergent Fed-BoC outlook on future rate hikes adds credence to the positive bias. Traders, however, might refrain from placing aggressive directional bets around the USD/CAD pair and prefer to wait for the release of the latest Canadian monthly employment details.

Investors will further take cues from the release of the Preliminary Michigan Consumer Sentiment Index from the US. This, along with Fed Governor Christopher Waller's speech and the broader risk sentiment, might influence the USD. Apart from this, Oil price dynamics should contribute to producing short-term trading opportunities around the USD/CAD pair. Nevertheless, spot prices seem poised to end in the positive territory for the second successive week.

Technical levels to watch

• EUR/USD  revisits the 1.0740 area following Thursday's advance.
• The greenback attempts a tepid bounce after the recent pullback.
• Italy’s Industrial Production, ECB’s Schnabel next on tap.

The European currency trades in a vacillating fashion and motivates EUR/USD to hover around the 1.0730/40 band at the end of the week.

EUR/USD remains supported near 1.0670

EUR/USD looks to extend Thursday’s recovery north of 1.0700 the figure on the back of the generalized consolidative mood in the global markets and the lack of direction in the dollar.

In the meantime, the pair remains side-lined in the lower end of the weekly range and appears to have finally digested the steep decline in the wake of the FOMC and ECB gatherings during the previous week.

In the domestic docket, Industrial Production in Italy expanded at a monthly 1.6% in December and 0.1% from a year earlier. Later in the session, Germany will publish the Current Account figures.

In the US, the preliminary Michigan Consumer Sentiment will take centre stage later in the NA session.

What to look for around EUR

EUR/USD seems to have embarked in a consolidative phase following the recent drop to the 1.0670 region, although the resistance line around 1.0800 continues to cap occasional bullish attempts for the time being.

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

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

Key events in the euro area this week: Italy Industrial Production (Friday).

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

EUR/USD levels to watch

So far, the pair is gaining 0.01% at 1.0741 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 1.0681 (55-day SMA) would target 1.0669 (monthly low February 7) en route to 1.0481 (2023 low January 6).

Riksbank’s hawkish surprise motivated to strengthen the Krona. Antje Praefcke, FX Analyst at Commerzbank expects the SEK to enjoy further gains this year.

Riksbank makes a U-turn

“The Riksbank did exactly what it had to: it produced a hawkish statement and thus illustrated that it continues to take decisive action against price risks. In my view that was a job well done! The market is appreciating this decision and is trading SEK at higher levels after it had questioned for some time whether the Riksbank really will dare take this step.”

“Riksbank has proven itself determined in its fight against inflation. The bank itself puts it very well: It is ’important for monetary policy to act when inflation is too high’. I, therefore, stick to my view that the market is trading SEK at excessively low levels and that it should appreciate over the course of the year.”

• Unemployment Rate is forecast to tick up to 5.1%, within a slower Canadian labor market.
• Canadian Dollar has been bullish for most of 2023, needs a stronger-than-expected labor market to keep rallying.
• Bank of Canada future path on monetary policy depends on employment and inflation figures.
  

The Canadian employment report, published by Statistics Canada, will be published on Friday, February 8 at 13:30 GMT. The Unemployment Rate is expected to rise a tad to 5.1% in January from 5% in December as the Canadian economy is forecast to have added only 15K jobs, way lower than the 104K in the previous month. 

As the Bank of Canada (BoC) closes in on the end of its tightening cycle, the labour market data could influence the Canadian Dollar’s (CAD) performance against its rivals. A stronger than expected growth in payrolls and wage inflation, as measured by the Average Hourly Earnings, could help the CAD gather strength against its rivals in the near term. On the other hand, the currency is likely to have a hard time finding demand if the jobs report reveals loosening conditions in the labour market.

Unemployment in Canada could rise a bit, will this affect Bank of Canada plans?

Earlier in the week, the Market Participants Survey for the fourth quarter of 2022 published by the Bank of Canada showed that the median of responses for the monetary policy rate by end-2023 stood at 4%, forecasting a 50 bps cut from the current level. Following the January policy meeting, the BoC hiked its policy rate by 25 basis points to 4.5% and noted that it is likely to hold the interest rate at this level while assessing the impact of cumulative rate increases on the economy. 

A cooldown in the jobs market could definitely allow BoC policymakers to start considering a policy pivot and weigh on the Canadian Dollar. Market expectations for the January Labor Force Survey report are indeed notably lower than the December figures, as economists expect a relatively small job growth (market consensus at 15K) and lightly higher Unemployment Rate (5.1%). 

In its policy statement, the Bank of Canada noted that it is prepared to increase the policy rate further if needed to return inflation to 2% target; continuing the quantitative tightening program. In December, annual wage inflation, represented by the Average Hourly Earnings, stood at 5.2%. A significant increase in that component is likely to be assessed as a factor that would limit the decline in consumer inflation. In that scenario, investors could refrain from betting on further Canadian Dollar weakness.

RBC Economics analysts agree with the market consensus on the release:

“The record squeeze on Canadian labour markets is unlikely to have loosened much in January. We look for a small increase in employment (roughly 5K workers) to add to the 176K surge in positions that played out over the prior four months. We also expect a tick up in the unemployment rate, to 5.1% – still just off multi-decade lows earlier in the summer.”

Will January Canada Unemployment Rate trigger USD/CAD rally?

The Canadian Unemployment Rate for January will be released within the publication of the Labor Force Survey on Friday, February 10 at 13.30 GMT. The market expects softer figures than in December throughout all the key indicators, which could play into the hands of USD/CAD bulls, who have recovered some ground in the past week, as the US Dollar (USD) rallied across the board after the super strong Nonfarm Payrolls data. 

Zooming out a bit, USD/CAD has declined since the beginning of the year amid the broad-based selling pressure surrounding the US Dollar. The pair’s losses, however, were limited as the impressive January jobs report from the US revived expectations for two more 25 bps Fed rate increases in March and May, helping the USD regather its strength.

The pair faces strong support at 1.3300 (psychological level, static level) ahead of 1.3230, where the 200-day Simple Moving Average (SMA) aligns. A daily close below the latter could be seen as a significant bearish development and open the door for an extended slide toward 1.3250 (former resistance, static level). For that type of reaction to occur, though, the jobs report needs to offer surprisingly strong figures in wages and payrolls to revive hawkish BoC monetary policy expectations.

On the upside, 1.3500 (50-day SMA, static level, psychological level) forms interim resistance before 1.3540 (100-day SMA). In case USD/CAD rises above that hurdle and starts using it as support, it could target 1.3700 (static level, psychological level) next. 

Canada unemployment report related content

• Canada Employment: Room for a pronounced CAD impact from a data surprise – ING.
• Canadian Employment Preview: Forecasts from five major banks, little if any gain.
• USD Index remains consolidative in the low-103.00s ahead of data, Fedspeak.

About the Employment Change

The Net Change in Employment is a measure of the change in the number of employed Canadians, provided in Statistics Canada's Labor Force Survey report. In general, an increase in this metric is favorable for consumer spending and it encourages economic expansion. A high rating is therefore viewed as favorable or bullish for the Canadian Dollar, whereas a low reading is viewed as unfavorable or bearish.

About the Unemployment Rate

The number of jobless employees divided by the entire civilian labor force yields the Unemployment Rate, posted by Statistics Canada. It serves as one of the main Canadian economy leading indicators. If the rate is higher, there hasn't been much growth in the Canadian labor market. As a result, a surge typically results in the Canadian Dollar depreciating. Otherwise, a decline in the number is typically considered favorable (or bullish) for the CAD.

• EUR/GBP gains some traction and snaps a four-day losing streak to over a one-week low.
• A rather unimpressive UK GDP report remains supportive of the modest intraday uptick.
• Signs of easing inflationary pressures in the Eurozone keep a lid on any further gains.

The EUR/GBP cross attracts some buyers on Friday and for now, seems to have snapped a four-day losing streak to over a one-week low, around the 0.8840-0.8835 region touched the previous day. The cross sticks to a mildly positive bias through the early part of the European session and is currently placed around the 0.8860-0.8865 area.

The British Pound's relative underperformance comes on the back of a rather unimpressive UK GDP report, which showed that the economy contracted more than anticipated, by 0.5% in December. Furthermore, the economy stagnated during the final three months of 2022. This, to a larger extent, overshadows better-than-expected UK Manufacturing and Industrial Production figures and offers some support to the EUR/GBP cross.

Commenting on the growth figures, Britain's Finance minister Jeremy Hunt said that the economy was more resilient than expected, but still not clear of danger, which, in turn, fails to impress the GBP bulls. The shared currency, on the other hand, draws some support from rising bets for additional jumbo rate hikes from the European Central Bank (ECB) in the coming month. This further acts as a tailwind for the EUR/GBP cross.

That said, signs of easing inflationary pressure in the Eurozone keep a lid on any meaningful gains for the Euro, at least for the time being. Moreover, the lack of follow-through buying warrants some caution before confirming that the EUR/GBP pair's recent sharp pullback from the highest level since September 2022 has run its course.

Technical levels to watch

A test of the 133.30 region in USD/JPY now appears to be fizzling out, note UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: “We expected USD to edge higher yesterday. However, USD dropped to 130.33 before rebounding strongly to close at 131.56 (+0.14%). The advance could extend but a break of 132.20 is unlikely. Support is at 131.15, followed by 130.75.”

Next 1-3 weeks: “Our update from two days ago (08 Feb, spot at 130.90) still stands. As highlighted, while the outlook for USD is still positive, the prospect of it rising to 133.35 has decreased. Overall, only a breach of 130.20 (no change in ‘strong support’ level) would indicate that USD is not advancing further.”

The RBA updated its economic forecasts in its quarterly Statement of Monetary Policy (SoMP). Economists at TD Securities expect the central bank to take a breather at its April meeting. However, a May hike looks highly likely. 

Further interest rate hikes ahead

“There are no significant surprises in the RBA's fresh set of forecasts. Inflation and Wage forecasts were revised up with little to no change in GDP and unemployment projections.”

“The RBA assumes a cash rate peak of 3.75% in H2'23. The risk is this peak is achieved earlier and/or exceeds the RBA's forecast, with a 4% cash rate.”

“The Bank is mindful of the lags in monetary policy but is acutely aware of the upside risks to wages/inflation. We expect the RBA to hike next month, pause in April and hike in May.”

Open interest in natural gas futures markets prolonged the uptrend and rose by just 197 contracts on Thursday according to preliminary readings from CME Group. In the same line, volume extended the erratic performance and went up by around 26.6K contracts.

Natural Gas now moved into a consolidative phase

Prices of natural gas advanced marginally on Thursday. This uptick was accompanied by another increase in open interest and volume, exposing some extra gains near term. This view also appears reinforced by the current oversold conditions of the commodity.

In the opinion of UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, AUD/USD is now predicted to navigate within the 0.6865-0.7055 range in the short-term horizon.

Key Quotes

24-hour view: “We expected AUD to trade sideways between 0.6890 and 0.6970 yesterday. However, AUD rose to 0.7011 and then dropped quickly to end the day at 0.6937 (+0.18%). The sharp but short-lived swings have resulted in a mixed outlook. Further choppy trading is not ruled out, likely between 0.6900 and 0.6995.”

Next 1-3 weeks: “Our update from two days ago (08 Feb, spot at 0.6960) still stands. As highlighted, 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.”

Considering advanced prints from CME Group for crude oil futures markets, open interest shrank by around 2.5K contracts on Thursday, reversing at the same time the previous daily build. Volume followed suit and dropped for the second session in a row, now by around 62.6K contracts.

WTI: Next on the upside comes $82.60

Prices of the WTI reversed a 3-session positive streak on Thursday. The downtick, however, came amidst declining open interest and volume, leaving the door open to the continuation of the upside momentum in the very near term and with the immediate hurdle at the 2023 peak at $82.60 (January 23).

• NZD/USD attracts some dip-buying near 0.6300 on Friday amid a modest USD pullback.
• A modest recovery in the equity markets further offers support to the risk-sensitive Kiwi.
• Hawkish Fed expectations, recession risks could limit the USD losses and cap the major.

The NZD/USD pair reverses an intraday dip to the 0.6300 neighbourhood and climbs to a fresh daily high during the early European session on Friday. The pair is currently placed around the 0.6340 region, up over 0.30% for the day, though remains well below the weekly top touched the previous day.

The US Dollar struggles to capitalize on its modest intraday gains and retreats from a one-month high, which, in turn, assists the NZD/USD pair to attract some dip-buying on the last day of the week. The USD pullback could be attributed to a sudden pickup in demand for the Japanese Yen, led by reports that the Japanese government plans to appoint Kazuo Ueda as the next Bank of Japan governor. Apart from this, a modest bounce in the US equity futures further undermines the safe-haven buck and benefits the risk-sensitive Kiwi.

That said, looming recession risks could keep a lid on any optimism in the markets. The market concerns about a deeper global economic downturn are reinforced by the deeply inverted US Treasury yield curve. Apart from this, the prospects for further policy tightening by the Fed should help limit losses for the Greenback and cap gains for the NZD/USD pair, at least for the time being. It is worth mentioning that several FOMC members, including Fed Chair Jerome Powell, stressed the need for additional rate hikes to tame inflation.

The aforementioned fundamental backdrop warrants some caution before confirming that the NZD/USD pair's recent slide from its highest level since June 2022 has run its course. Traders now look to the Preliminary Michigan Consumer Sentiment Index from the US, due later during the early North American session. This, along with Fed Governor Christopher Waller's speech, might influence the USD. Apart from this, the broader risk sentiment could further contribute to producing short-term trading opportunities around the major.

Technical levels to watch

Canadian jobs numbers have the potential of driving large CAD swings today, economists at ING report.

USD/CAD to test 1.3000 in the coming months

“Markets are pricing little to no chance of further rate hikes, but equally seem reluctant to factor in any rate cuts by year-end. This leaves some room on both ends for a pronounced CAD impact from a data surprise today.” 

“A weak number could fuel easing bets (risk of cuts is higher than expected anyway, in our view), while a strong number – paired with the recent revision higher in Fed rate expectations – could encourage markets to contemplate one last hike by the BoC.”

“We still expect USD/CAD to test 1.3000 in the coming months, but the key driver may be USD weakness rather than Loonie outperformance.” 

See – Canadian Employment Preview: Forecasts from five major banks, little if any gain

The uncertainty about the inflation outlook remains high in the UK. Next week’s data will be key to determine the next rate hikes of the BoE, causing volatility in GBP exchange rates, economists at Commerzbank report.

A rate hike in March is not off the agenda yet

“A rate hike in March is not off the agenda yet, seeing that upside risks for inflation are high. It will have to become clear for example how strikes by public sector workers affect wages. As the labour market also remains quite tight there is the risk of second-round effects.”

“In the end, the BoE has no choice but to wait for further data publication to get a better impression. There will be more opportunity to do that next week when labour market and inflation data is going to be published. Sterling is therefore likely to face a volatile week.”

GBP/USD seems to have now moved into a consolidative phase, likely between 1.2015 and 1.2260, suggest UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: “We did not anticipate the sharp rise in GBP to 1.2193 and the subsequent sharp pullback from the high (we were expecting GBP to trade in a range). Despite the advance, there is no significant improvement in upward momentum and GBP is unlikely to rise further. Today, GBP is more likely to trade sideways, expected to be between 1.2060 and 1.2175.”

Next 1-3 weeks: “Yesterday (09 Feb 2023, spot at 1.2070), we highlighted that there is still a slim chance for GBP to drop to 1.1845. GBP subsequently rose above our ‘strong resistance’ level of 1.2150 (high has been 1.2193). The breach of the ‘strong resistance’ indicates that the GBP weakness that started early this month (see annotations in the chart below) has ended. GBP appears to have entered a consolidation phase and it is likely to trade between 1.2015 and 1.2260 for now.”

• USD/JPY meets with a fresh supply on Friday and is weighed down by reviving demand for the JPY.
• A combination of factors boosts the safe-haven JPY and exerts some downward pressure on the pair.
• A modest USD strength lends some support and helps limit the downside, at least for the time being.

The USD/JPY pair struggles to capitalize on its modest gains recorded over the past two trading sessions and attracts fresh sellers following an early uptick to the 132.00 area on Friday. The intraday slide picks up pace during the early European session and drags spot prices to a fresh daily low, around the 130.60-130.55 region in the last hour.

Reports indicate that the Japanese government plans to appoint Kazuo Ueda as the Bank of Japan's (BoJ) next governor after Haruhiko Kuroda steps down. The report fuels speculations that high inflation may invite a more hawkish stance from the BoJ later this year. This, in turn, boosts the Japanese Yen and turns out to be a key factor behind the USD/JPY pair's latest leg down witnessed over the past hour or so.

Apart from this, the prevalent risk-off environment - as depicted by a generally weaker tone around the equity markets - also benefits the safe-haven JPY and exerts additional pressure on the USD/JPY pair. That said, a modest US Dollar strength, bolstered by the recent hawkish commentary by several FOMC members, lends some support to the major and helps limit the downside for the major, warranting caution for bears.

Hence, it will be prudent to wait for some follow-through selling below the weekly swing low, around the 130.35 area touched on Thursday, before positioning for any further depreciating move. Traders now look to the release of the Preliminary Michigan Consumer Sentiment Index from the US. This, along with Fed Governor Christopher Waller's speech and the broader risk sentiment, could provide a fresh impetus to the USD/JPY pair.

Technical levels to watch

Canada’s employment data for January will be reported by Statistics Canada on Friday, February 10 at 13:30 GMT and as we get closer to the release time, here are forecasts from economists and researchers at five major banks regarding the upcoming jobs figures. 

The North American economy is estimated to have created 15K jobs in January as against a massive jobs growth of 104K reported in December. The Unemployment Rate, however, is seen rising a tick to 5.1% last month from December’s 5%.

TDS

“We look employment to rise by 5K for a deceleration from the recent trend, with services driving job growth, as the UE rate edges higher to 5.1% and wages decelerate to 4.3% YoY.” 

RBC Economics

“The record squeeze on Canadian labour markets is unlikely to have loosened much in January. We look for a small increase in employment (roughly 5K workers) to add to the 176K surge in positions that played out over the prior four months. We also expect a tick up in the unemployment rate, to 5.1% – still just off multi-decade lows earlier in the summer.”

NBF

“We expect employment to have fallen 20K in the first month of 2023. Such a decline would translate into a two-tick increase in the unemployment rate to 5.2%, assuming the participation rate remained steady at 65.0% and the working-age population grew at a strong pace.”

Citibank

“We expect a solid 25K increase in employment in January and continue to see upside risks for employment figures in the near term. A strong 25K pace would put some downward pressure on the unemployment rate, although a more modest increase to 5.1% is more likely due to the rise in participation that could also be related to stronger immigration. We expect usual start-of-year wage increases to boost YoY wages of permanent employees to 4.8% – wage growth of 4-5% is not consistent with 2% inflation.”

CIBC

“We forecast a modest 5K gain in employment during January, which would be below the pace of labour force growth and see the unemployment rate tick up to 5.1%.”

UK Finance Minister Jeremy Hunt said that “the fact the UK was the fastest growing economy in the G7 last year, as well as avoiding a recession, shows our economy is more resilient than many feared."

Additional quotes

“We are not out the woods yet, particularly when it comes to inflation.”

“If we stick to our plan to halve inflation this year, we can be confident of having amongst the best prospects for growth of anywhere in Europe.”

Related reads

• UK Preliminary GDP stagnates in Q4 2022, as expected
• GBP/USD remains depressed near 1.2100 mark, moves little post-UK macro data

Gold price is sitting at the lowest level in five weeks near the $1,850 mark. As FXStreet’s Dhwani Mehta notes, XAU/USD looks south amid Bear Flag.

Further downside pressure 

Gold price confirmed a Bear Flag on Thursday after closing the day below the rising trendline support at $1,871. The bearish continuation pattern has provided extra zest to Gold sellers, as they challenge the critical 50-Daily Moving Average (DMA) at $1,855.”

“The downside bias remains favored, with a sustained move toward the January 5 low of $1,825 eyed should the $1,850 support give way.”

“On the upside, any recovery attempts will need to recapture the bear flag support-turned-resistance at $1,871. The next stop for Gold optimists is seen at around the $1,885 level, the static resistance.”

The Nikkei Asian Review reported on Friday that the Japanese Cabinet is set to appoint Kazuo Ueda as the next Bank of Japan (BoJ) Governor after Haruhiko Kuroda steps down in April.

Additional takeaways

• The index regains some poise following Thursday’s strong sell-off.
• Further consolidation appears likely below the 104.00 region.
• The Flash Consumer Sentiment, Fed’s Waller, Harker come later.

The USD Index (DXY), which tracks the greenback vs. a bundle of its main rival currencies, navigates with humble gains in the 103.30 region ahead of the opening bell in the old continent on Friday.

USD Index bounces off 102.60

Following the strong knee-jerk to the 102.60 zone during the previous session, the index regains some balance and revisits the 103.20/30 band amidst flattish risk appetite trends at the end of the week.

In the meantime, US yields appear to be taking a breather following the marked uptick recorded on Thursday ahead of speeches by FOMC’s C.Waller (permanent voter, hawk) and Philly Fed P.Harker (voter, hawk).

In the meantime, the dollar – and the rest of the global assets – are expected to maintain a somewhat consolidative pace ahead of the publication of key US inflation figures on February 14, always amidst the persistent hawkish narrative from the Federal Reserve vs. investors’ perception that a pivot in the monetary conditions is imminent.

Other than Fed speakers, the US calendar will include the advanced Michigan Consumer Sentiment for the month of February.

What to look for around USD

The dollar remains within a consolidative phase in the upper end of the weekly range above the 103.00 mark against the backdrop of alternating 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: Flash Consumer Sentiment (Friday).

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

USD Index relevant levels

Now, the index is gaining 0.03% at 103.21 and faces the next resistance level 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).

• GBP/USD meets with a fresh supply on Friday and snaps a three-day winning streak.
• A combination of factors pushes the USD to a one-month high and exerts pressure.
• Bulls seem rather unimpressed and largely shrug off the mixed UK economic data.

The GBP/USD pair extends the previous day's retracement slide from the vicinity of the 1.2200 mark, or the weekly high and remains under some selling pressure on Friday. Spot prices languish around the 1.2100 mark through the early European session and react little to the latest UK macro data.

The UK Office for National Statistics reported that the economy contracted by 0.5% in December, down from 0.1% growth reported in the previous month and missing estimates for a 0.3% fall. The Preliminary Q4 GDP print, meanwhile, matched expectations and showed that the economy stagnated during the October-December period as compared to a 0.3% decline in the third quarter. The slight disappointment, however, was offset by better-than-expected UK Manufacturing and Industrial Production figures.

Nevertheless, the mixed economic data fails to push back against market speculations that the Bank of England's rate-hiking cycle is nearing the end and undermines the British Pound. This, along with the prevalent US Dollar buying interest, contributes to the offered tone surrounding the GBP/USD pair. Against the backdrop of hawkish signals from Fed officials, a fresh wave of the global risk-aversion trade turn out to be a key factor that continues to underpin the safe-haven greenback.

The GBP/USD pair, for now, seems to have snapped a three-day winning streak, though the lack of follow-through selling warrants some caution for aggressive bearish traders. Traders now look forward to the US economic docket, featuring the release of the Preliminary Michigan Consumer Sentiment Index. This, along with a scheduled Fed Governor Christopher Waller's speech, the US bond yields and the broader risk sentiment, will drive the USD and provide some impetus to the GBP/USD pair.

Technical levels to watch

• GBP/JPY clings to mild losses following UK data dump.
• Preliminary readings of UK Q4 GDP matches 0.0% market forecasts.
• Yield curve inversion renews recession woes but BoJ talks defend pair buyers.
• Concerns surrounding the next BoJ leadership, economic slowdown fears are the key to follow for fresh impulse.

GBP/JPY stays sidelined near 159.30-20, paying little heed to the UK’s fourth quarter (Q4) Gross Domestic Product (GDP) during early Friday. In doing so, the cross-currency pair portrays the market’s indecision amid mixed signals and cautious mood ahead of the key US inflation precursors.

That said, the first readings of the UK Q4 GDP match forecasts on QoQ and YoY figures while declining more for December month. However, the improvement in Industrial Production and Manufacturing Production seemed to have probed the pair buyers.

Also read: Breaking: UK Preliminary GDP stagnates in Q4 2022, as expected

Earlier in the day, various Bank of Japan (BoJ) officials tried pushing back the hawkish expectations for the Japanese central bank and put a floor under the GBP/JPY price. Recently, Bank of Japan (BoJ) Deputy Governor Masayoshi Amamiya said that (It is) appropriate to maintain the current ultra-loose monetary policy. Before that, BoJ Governor Haruhiko Kuroda said, “The benefits of easing outweigh the costs of side effects.”

On the contrary, a pullback in the Treasury bond yields after renewing the recession fears seems to weigh on the GBP/JPY price. That said, the widest negative difference between the US 10-year and 2-year Treasury bond yields since 1980 amplified the recession woes the previous day. The yield curve inversion remains around the same level as both these key bond yields stay depressed near 3.66% and 4.48% respectively by the press time.

Looking forward, the cautious mood ahead of the next BoJ leadership announcements, up for publishing on Monday, could restrict the GBP/JPY moves. However, the fears of recession and a retreat in yield may weigh on the prices amid downbeat UK concerns, including Brexit and workers’ strikes.

Technical analysis

A daily closing beyond the previous resistance line from January 27, now support around 158.70, keeps the GBP/JPY buyers directed towards the 50-DMA hurdle surrounding 161.20.

The industrial sector activity showed no growth in December, the latest UK industrial and manufacturing production data published by Office for National Statistics (ONS) showed on Friday.

Manufacturing output arrived at 0% MoM in December versus -0.2% expectations and -0.6% registered in November while total industrial output came in at 0.3% MoM vs. -0.2% expected and 0.1% last.

On an annualized basis, the UK manufacturing production figures came in at -5.7% in December, beating expectations of -6.1%. Total industrial output dropped by 4.0% in the final month of the year against -5.3% expected and the previous -4.3% print. 

Separately, the UK goods trade balance numbers were published, which arrived at GBP-19.275  billion in December versus GBP-16.40 billion expectations and GBP-14.655 billion last. The total trade balance (non-EU) came in at GBP-7.484 billion in December versus GBP-3.493 billion previous.

Related reads

• UK Preliminary GDP stagnates in Q4 2022, as expected

• GBP/USD remains depressed near 1.2100 mark, moves little post-UK macro data

Here is what you need to know on Friday, February 10:

Markets remain indecisive in the second half of the week amid a lack of fundamental drivers. Ahead of the weekend, January jobs report from Canada and the University of Michigan's preliminary February Consumer Confidence Index from the US will be watched closely by investors. Participants will continue to assess remarks from central bank officials. 

The US Dollar (USD) struggled to find demand in the first half of the day on Thursday and stayed on the back foot in the early American session. With Wall Street's main indexes dropping back into the red following a strong opening, however, the USD managed to regain its footing.

Early Friday, the US Dollar Index holds steady above 103.00 and the benchmark 10-year US Treasury bond yield moves up and down in a tight channel slightly above 3.65%. Meanwhile, US stock index futures trade flat on the day.

During the Asian trading hours, the data from China revealed that the Consumer Price Index (CPI) declined by 0.8% on a monthly basis in January. On a yearly basis, the CPI came in at 2.1%, slightly below the market expectation of 2.2%.

EUR/USD climbed higher toward 1.0800 on Thursday but lost its bullish momentum in the late American session and erased a large portion of its daily gains. In the European morning, EUR/USD stays relatively quiet below 1.0750.

Although GBP/USD retreated from the six-day high it touched near 1.2200, it managed to close the third straight day in positive territory on Thursday. The pair seems to have gone into a consolidation phase at around 1.2100. The data published by the UK's Office for National Statistics revealed on Friday that the UK economy stagnated in the fourth quarter as expected. On a monthly basis, the Gross Domestic Product contracted by 0.5%. On a slightly positive note, Industrial Production expanded by 0.3% in December, compared to the market expectation for a decrease of 0.2%. 

USD/CAD stays relatively quiet near the upper-limit of its weekly range at around 1.3450 early Friday. Unemployment Rate in Canada is forecast to tick higher to 5.1% in January from 5% in December with the Net Change in Employment declining to 15K from December's strong 104K increase. 

USD/JPY stays indecisive and continues to trade near 131.50. Several news outlets reported on Thursday that the Japanese government is planning to present the new Bank of Japan Governor nominees. Meanwhile, Bank of Japan (BoJ) Deputy Governor Masayoshi Amamiya said on Friday that he doesn’t see any imminent need to make YCC more flexible. Amamiya reiterated that it's appropriate to maintain current ultra-loose monetary policy.

Pressured by the decisive rebound witnessed in the US Treasury bond yield, Gold price turned south late Thursday and snapped a three-day winning streak. At the time of press, XAU/USD was trading at its lowest level since early January below $1860.

Bitcoin lost 5% and broke below the three-week-old trading range on Thursday. BTC/USD stays on the back foot and trades below $22,000 early Friday. Ethereum fell over 6% on Thursday and was last seen trading flat on the day slightly above the key $1,500 level.

• Quarterly GDP for the UK came in at 0% in Q4 vs. 0% expected.
• UK GDP arrived at -0.5% MoM in Dec vs. -0.3% expected.
• GBP/USD whipsaws around 1.2100 on mixed UK GDP.

The UK economy stagnated at 0% QoQ in the three months to December when compared with a 0.3% decline booked in Q3 and 0% expectations.

On an annualized basis, the UK GDP expanded 0.4% in Q4 vs. 0.4% expected and a 1.9% growth seen in the previous quarter.

The UK GDP monthly release showed that the economy contracted by 0.5% in December, coming in at -% vs. -0.3% expected and 0.1% previous.

Meanwhile, the Index of services (September) arrived at 0% 3M/3M and 0% prior and 0.3% anticipated.

Market reaction

GBPUSD dropped and popped in an immediate reaction to the mixed UK growth numbers before regaining the 1.2100 area, where it now wavers. The spot is down 0.14% on the day, as of writing.

About UK GDP

The Gross Domestic Product released by the National Statistics is a measure of the total value of all goods and services produced by the UK. The GDP is considered as a broad measure of the UK economic activity. Generally speaking, a rising trend has a positive effect on the GBP, while a falling trend is seen as negative (or bearish).

CME Group’s flash data for gold futures markets noted traders reduced their open interest positions for yet another session on Thursday, this time by nearly 3K contracts. On the other hand, volume kept the choppiness intact and increased by around 50.6K contracts after the previous daily drop.

Gold: Interim support comes at the 55-day SMA

Thursday’s drop in gold prices was amidst shrinking open interest, which is supportive that a sustained decline appears not favoured in the very near term. Extra downside in the yellow metal is expected to meet a provisional support at the 55-day SMA at $1846 for the time being.

• Silver price portrays corrective bounce near 10-week low.
• Clear downside break of weekly trading range, sustained trading below 200-HMA favor XAG/USD sellers.
• Silver buyers should remain cautious unless renewing monthly high.

Silver price (XAG/USD) picks up bids to print a corrective bounce off the 2.5-month low around $22.00 early Friday morning. In doing so, the bright metal braces for the fourth weekly loss despite poking the support-turned-resistance.

That said, the metal’s clear break of the weekly trading range joins successful trading below the 200-Hour Moving Average (HMA) to keep the Silver sellers hopeful. Adding strength to the downside bias could be the reference to the metal’s previous fall after breaking the short-term trading range.

Hence, the XAG/USD rebound appears elusive unless crossing the support-turned-resistance line of the latest trading range, near $22.05 by the press time.

Even if the quote rises past $22.05, it won’t be able to lure the buyers unless clearly crossing the 200-HMA hurdle surrounding $22.90.

It’s worth noting that the XAG/USD run-up beyond $22.90 appears bumpy and hence upside hopes remain elusive until the quote stays below the current monthly high of $24.63.

On the contrary, the latest swing low of around $21.85 precedes the November 24, 2022 swing high near $21.65 to restrict short-term Silver price downside.

Following that, the late November low of $20.58 and the $20.00 psychological magnet will gain the market’s attention.

Overall, the Silver price remains bearish despite the latest rebound.

Silver price: Hourly chart

Trend: Further weakness expected

According to UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, EUR/USD could see its downside pressure mitigated once 1.0810 is surpassed.

Key Quotes

24-hour view: “We expected EUR to edge lower yesterday. However, EUR rose briefly to 1.0792 before pulling back to close at 1.0736 (+0.25%). The price movements appear to be part of a broad consolidation range. In other words, EUR is likely to trade sideways today, expected to be within a range of 1.0705/1.0775.”

Next 1-3 weeks: “In our most recent narrative from three days ago (07 Feb, spot at 1.0725), we held the view that EUR is likely to weaken further and the level to monitor is at 1.0615. EUR traded mostly sideways the past few days and downward momentum is beginning to wane. That said, only a breach of 1.0810 (no change in ‘strong resistance’ level) would indicate that the weakness that started early this week has come to an end. Overall, while the risk is still on the downside, the chance of EUR dropping to 1.0615 this time around is not high.”

• AUD/USD picks up bids to rebound from intraday low amid sluggish markets.
• Traders pare recent losses amid market’s cautious mood ahead of the key US data.
• RBA SoMP, China inflation numbers failed to impress AUD/USD traders.
• Mixed plays of recession and central bank talks offer inactive session ahead of US consumer-centric data.

AUD/USD consolidates daily losses around 0.6930, bouncing off the intraday low amid early Friday morning in Europe. In doing so, the quote traders lick their wounds amid cautious sentiment ahead of the key US data, as well as amid indecision due to the mixed catalysts.

That said, the quarterly prints of the Reserve Bank of Australia’s (RBA) Statement of Monetary Policy (SoMP) failed to impress the AUD/USD buyers despite posting hawkish economic forecasts and readiness for further interest rate hike. The reason could be linked to the statement saying, “The board is mindful of the rise in interest rates already made and that the policy acts with a lag.”

Also read: RBA hawkish-sounding quarterly Statement on Monetary Policy does little for AUD

Following that, China's Consumer Price Index (CPI) eased to 2.1% YoY versus 2.2% market forecasts, compared to 1.8% prior, while the Producer Price Index (PPI) dropped heavily to -0.8% YoY from -0.7% previous readings and -0.5% consensus. 

Also read: China Consumer Price Index a touch lower than estimates, AUD eyed for reaction

It should be noted that the looming fears of the US recession, as favored the US Treasury bond yields’ inversion, underpin the bearish bias surrounding the AUD/USD pair. However, the previous day’s downbeat US Jobless Claims join the Federal Reserve (Fed) officials’ hesitance in praising higher rate to weigh on the US Dollar and put a floor under the price.

Against this backdrop, S&P 500 Futures print mild losses while the stocks in the Asia-Pacific region remain pressured. However, the retreat in the US Treasury bond yields appears to keep the bears at bay.

Moving on, early signals for the next week’s US inflation data, namely preliminary readings of the US Michigan Consumer Sentiment Index and 5-year Consumer Inflation Expectations for February, will be crucial for the AUD/USD pair traders to watch for clear directions. Considering the upbeat expectations from the scheduled data, as well as the recession woes, the major currency pair is likely to witness further downside.

Technical analysis

Unless breaking the 50-DMA support surrounding 0.6870, the AUD/USD price remains on the bull’s radar targeting the 21-DMA hurdle, around the 0.7000 round figure.

• EUR/USD is expected to deliver more downside to near 1.0700 amid the risk-aversion theme.
• The USD Index has got strength as investors are worried about higher interest rates by the Federal Reserve.
• European Central Bank is still favoring a continuation of a bumper policy tightening spell despite softened German Inflation.
• EUR/USD is struggling to find direction beyond the 50% and 61.8% Fibo retracements gamut.

EUR/USD has dropped firmly to near 1.0720 in the early European session. The major currency pair is expected to deliver more downside to near the round-level support of 1.0700 as Germany’s Harmonized Index of Consumer Prices (HICP) has shown a surprise decline amid falling energy prices and rising worries about ‘higher and longer’ interest rates by the Federal Reserve (Fed).

The Euro is facing immense pressure as the risk-off mood has trimmed the appeal for risk-perceived assets. The risk-aversion theme is supporting the US Dollar Index (DXY), which has pushed it above the 103.00 resistance. The USD Index is aiming to shift its business above 103.00. The alpha provided on the 10-year US Treasury yields is still holding above 3.66%.

Meanwhile, S&P500 futures are facing immense pressure as the street is expecting that the United States recession imminent amid rising interest rates.

Brace for a surprise rise in US Inflation

The spotlight has entirely shifted to the United States Consumer Price Index (CPI) data, which will release on Tuesday. As per the consensus, the headline inflation could soften to 5.8% on an annual basis vs. the prior release of 6.5%. And, the core inflation that excludes the impact of oil and food prices is seen lower at 5.3% against the former release of 5.8%.

Observing the commentary from Richmond Fed President Thomas Barkin on inflation and the stronger-than-projected employment report released in January, it is likely that the price index could surprise the street ahead.

Federal Reserve Barkin argued that it would make sense for the Federal Reserve to steer "more deliberately" from here due to lagged effects of policy, as reported by Reuters. He further added that "While average inflation has peaked, the decline has been distorted by a few goods, the median has stayed high."

A strong labor market in the United States is expected to propel the employment cost index as the shortage of labor will be augmented by higher employment proposals from firms. This could trigger a rebound in the inflation projections as households with higher earnings in possession can lead to higher consumer spending.

Higher US Inflation could fade downside bias for US Dollar

On a broader note, the US Dollar Index has remained in a downtrend in the past three months after the Federal Reserve signaled a deceleration in the policy tightening pace. Inflationary pressures have slowed down consecutively in the past three months and the USD Index has followed the footprints effectively. And, now a halt in inflation’s downside trend could vanish downside bias for the mighty US Dollar.

Economists at MUFG expect the greenback to be underpinned by a strong inflation report. The rationale behind an improvement in the appeal for the US Dollar is the rise in used car prices at the start of this year. Bloomberg reported that average used-vehicle prices rose 2.5% in January according to data from Manheim.

ECB bets still solid despite German inflation softens

Lately, the Eurozone inflation rate has shown a meaningful decline after easing energy prices and higher interest rates by the European Central Bank (ECB). The nation, Germany, that carries out the largest magnitude of activities in the Eurozone revealed a decline in the Harmonized Index of Consumer Prices (HICP) to 9.2% vs. the consensus of 10.0% and the former release of 9.6%. The inflationary pressures have surprisingly slowed, however, the odds of a continuation of bumper interest rate hikes by the European Central Bank are still solid. The inflation rate is still hovering at extremely elevated levels, which needs a monetary policy sufficiently restrictive to tame inflation. Therefore, the room for a continuation of interest rate hikes by European Central Bank President Christine Lagarde is open.

EUR/USD technical outlook

EUR/USD is still auctioning 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 shared currency pair attempted to deliver a breakout of an Ascending triangle chart pattern on Thursday, however, investors were trapped as the breakout move failed to find follow-up buying and drifted back inside the woods.

The 50-period Exponential Moving Average (EMA) at 1.0778 has acted as major barricade for the Euro.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in the 40.00-60.00. A breakdown into the bearish range of 20.00-40.00 will activate the downside momentum.

Bank of Japan (BoJ) Deputy Governor Masayoshi Amamiya said on Friday that he doesn’t see any imminent need to make YCC more flexible.

Additional quotes

• USD/JPY advances towards 132.00 amid dismal market mood, BoJ Kuroda favors policy easing

The UK Economic Data Overview

The British economic calendar is all set to entertain the Cable traders in early Friday, at 07:00 GMT, with the preliminary Gross Domestic Product (GDP) figures for the fourth quarter (Q4) of 2022. Also increasing the importance of that time are monthly GDP figures for December, Trade Balance, Manufacturing Production and Industrial Production details for the stated period.

Having witnessed a 0.3% QoQ contraction in economic activities during the previous quarter, market players will be interested in the first estimation of the UK Q4 GDP figures, expected 0.0%, to back the BOE’s hawkish bias. More interestingly, the MoM figures are expected to turn negative and the YoY numbers signal easing growth in the British economy.

On the other hand, the GBP/USD traders also eye the Index of Services (3M/3M) for the same period, bearing forecasts of 0.3% versus -0.1% prior, for further insight.

Meanwhile, Manufacturing Production, which makes up around 80% of total industrial production, is expected to ease to -0.4% MoM in September versus -1.6% prior. Further, the total Industrial Production is expected to recover from the previous contraction of -1.8% to a -0.2% MoM for the said month.

Considering the yearly figures, the Industrial Production for September is expected to have weakened to -5.3% versus -5.1% previous while the Manufacturing Production is also anticipated to have weakened to -6.1% in the reported month versus -6.7% the last.

Separately, the UK Goods Trade Balance will be reported at the same time, which previously marked a deficit of £1.802 billion.

Deviation impact on GBP/USD

Readers can find FX Street's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined around 10-pips in deviations up to + or -9, although in some cases, if notable enough, a deviation can fuel movements over 30-40 pips.

How could affect GBP/USD?

GBP/USD remains sidelined around 1.2100 heading into Friday’s London open. In doing so, the Cable pair aptly portrays the market’s cautious mood ahead of the key UK data. Not only the British data dump but early signals for the next week’s US inflation data, namely preliminary readings of the US Michigan Consumer Sentiment Index and 5-year Consumer Inflation Expectations for February also amplifies the market’s anxiety.

That said, mixed plays of the UK recession fears, workers’ strikes and Brexit concerns join the US Dollar’s rebound to keep the GBP/USD bears hopeful. However, the dovish Fedspeak and recently downbeat US data weighed on the Cable pair.

That said, the Bank of England (BOE) officials failed to impress GBP/USD buyers the previous day as the majority of them raised doubts about further rate hike concerns despite refraining to signal rate cuts or a pause in tightening the monetary policy.

As a result, the UK Q4 GDP bears downbeat forecasts and chatters over the Bank of England’s (BOE) easy rate hikes are on the table, which in turn challenges the GBP/USD pair traders while pushing them off the bull’s radar. Hence, downbeat prints of the UK Q4 GDP could probe the GBP/USD buyers for a while, unless being too extreme, whereas a positive surprise might enable the Cable pair buyers to overcome the immediate 1.1740 hurdle.

While considering this, FXStreet’s  Dhwani Mehta said,

Ahead of the release, Westpac said,

Key notes

GBP/USD probes bulls after three-day uptrend as UK GDP, US inflation cues loom 

GBP/USD Price Analysis: Drops below 1.2100 as risk-off impulse spikes further

UK GDP Preview: Growth to stagnate but recession narrowly averted

About the UK Economic Data

The Gross Domestic Product released by the Office for National Statistics (ONS) is a measure of the total value of all goods and services produced by the UK. The GDP is considered a broad measure of the UK economic activity. Generally speaking, a rising trend has a positive effect on the GBP, while a falling trend is seen as negative (or bearish).

The Manufacturing Production released by the Office for National Statistics (ONS) measures the manufacturing output. Manufacturing Production is significant as a short-term indicator of the strength of UK manufacturing activity that dominates a large part of total GDP. A high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or bearish).

The trade balance released by the Office for National Statistics (ONS) is a balance between exports and imports of goods. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the GBP.

• USD/CAD grinds higher after positing two-day winning streak.
• Bullish MACD signals, sustained trading beyond weekly support line favor buyers.
• Convergence of 100-DMA, four-month-old resistance line appears a tough nut to crack for bulls.

USD/CAD teases buyers around 1.3465-70 heading into Friday’s European session, after a two-day uptrend, as the Loonie pair traders await crucial statistics from Canada and the US.  In doing so, the quote remains indecisive despite printing minor gains by the press time.

Also read: USD/CAD copies Oil’s inaction near mid-1.3400s, Canada employment, early signals for US inflation eyed

Even so, the bullish MACD signals join the pair’s successful trading above the weekly support line, around 1.3390 by the press time, to keep the buyers hopeful.

That said, the 50-DMA level surrounding 1.3500 guards the USD/CAD pair’s immediate upside before the convergence of the 100-DMA and descending resistance line from early October, close to 1.3540 at the latest.

In a case where the Loonie pair manages to stay beyond 1.3540, the previous monthly high of 1.3685 and the December 2022 peak surrounding 1.3705 will act as the last defense of the USD/CAD bears.

On the flip side, a clear break of the weekly support line, near 1.3390, will aim for the weekly low of 1.3360 before highlighting the monthly bottom surrounding 1.3260.

Should the USD/CAD prices remain weak past 1.3260, November 2022 low and the last July’s peak, respectively around 1.3235 and 1.3220, will gain the market’s attention.

USD/CAD: Daily chart

Trend: Further upside expected

• The risk-off mood ahead of US inflation is keeping Asian indices on the tenterhooks.
• Softer-than-anticipated China inflation numbers have impacted Chinese equities heavily.
• Japanese investors are highly focused for the novel leadership of the BoJ for further cues.

Markets in the Asian domain are demonstrating weakness considering the risk-off market mood propelled ahead of the United States Consumer Price Index (CPI) data, scheduled for Tuesday. S&P500 futures are facing immense pressure as investors are worried that more interest rate hikes by Federal Reserve (Fed) chair Jerome Powell in his battle against stubborn inflation. The 500-US stocks basket futures have reported a sell-off in the past two trading sessions and more losses are in pipeline considered the current move.

At the press time, Japan’s Nikkei225 added 0.25%, ChinaA50 dropped 0.63%, Hang Seng plunged 1.80%, and Nifty50 surrendered 0.36%.

The expression of deflation from China’s Consumer Price Index (CPI) (Jan) report has impacted equities dramatically. The annual inflation data has landed at 2.1%, between the consensus of 2.2% and the prior release of 1.8%. The monthly inflation figure has shown a deflation of 0.8% against an expansion in the inflationary pressures by 0.7%.

Meanwhile, China’s Producer Price Index (PPI) has shown a deflation of 0.8% higher than the projections of 0.5% and the former release of 0.7%. It indicates that producers are heavily cutting prices of goods and services at factory gates due to weak demand by the households.

This might compel the People’s Bank of China (PBoC) and the Chinese authorities to fuel helicopter money to support the economy, which is still recovering from the rollback of pandemic curbs.

Japanese stocks are mildly positive as investors are gearing up for novel Bank of Japan (BoJ) leadership after a long period of service by current Governor Haruhiko Kuroda. Japan’s government might reveal the new nomination for BoJ Governor on Feb 14.

The oil price is juggling above the critical support of $77.50 after a softer China inflation data. An absence in consumer spending recovery despite the lifting of the pandemic controls is indicating that investors need to wait more than anticipated as the economy will take sufficient time in achieving pre-pandemic growth levels.

• USD/MXN pares Banxico-led losses ahead of US consumer-centric data.
• Banxico surprised markets with 0.50% rate hike versus 25 bps expected.
• Recession fears seem to underpin US Dollar rebound after Fed talks, US statistics weighed on the greenback.
• US Michigan Consumer Sentiment Index, inflation expectations eyed ahead of next week’s US CPI.

USD/MXN seesaws around 18.80 as it consolidates the weekly loss, as well as the daily fall, while heading into Friday’s European session. In doing so, the Mexican Peso (MXN) pair fades the Banxico-led moves as the US dollar picks up bids amid a cautious mood in the market.

The Mexican central bank, namely Banxico, surprised markets by announcing 50 basis points (bps) rate hike on Thursday. With this, Banxico surpassed market forecasts of a 0.25% rate lift while citing an effort to tame inflation fears with the increase of the benchmark rate to 11.0%.

On the other hand, the US Dollar suffered from the increase in the weekly initial jobless claims, as well as the downbeat comments from Richmond Federal Reserve (Fed) President Thomas Barkin. That said, the US Weekly Initial Jobless Claims rose to 196K versus 190K expected and 183K prior. “The advance number for seasonally adjusted insured unemployment during the week ending January 28 was 1,688,000, an increase of 38,000 from the previous week's revised level," said the US Department of Labor (DOL) showed on Thursday.

Elsewhere, Fed’s Barkin appeared too dovish while suggesting rate cuts as he said that it would make sense for the Fed to steer "more deliberately" from here due to lagged effects of policy. Previously, Fed Chair Jerome Powell hesitated in cheering the upbeat US jobs report and raised fears of no more hawkish moves from the US central bank.

While delving deeper into the recent moves, the widest negative difference between the US 10-year and 2-year Treasury bond yields since 1980 amplified the recession woes the previous day. The yield curve inversion remains around the same level as both these key bond yields stay inactive near 3.67% and 4.49% respectively by the press time. The same favor the market’s rush towards risk safety and underpins the US Dollar rebound. That said, the US Dollar Index (DXY) prints mild gains around 103.38 at the latest.

Moving on, the early signals for the next week’s US inflation data, namely preliminary readings of the US Michigan Consumer Sentiment Index and 5-year Consumer Inflation Expectations for February, will be crucial for immediate directions. Considering the upbeat expectations from the scheduled data, as well as the recession woes, the currency pair is likely to witness further recovery.

Technical analysis

USD/MXN remains directed towards the multi-month low of 18.50, marked earlier in February, unless providing a daily closing beyond the 50-DMA hurdle surrounding $19.20.

• USD/INR remains sidelined between four-month-old resistance line and 50-DMA.
• A convergence of 100-DMA, ascending trend line from late January appears a tough nut to crack for the pair sellers.
• Indian Rupee sellers need successful break of 82.80 to retake control.

USD/INR remains indecisive around 82.60, challenging the two-day losing streak, as Indian Rupee traders seek fresh clues during early Friday. In doing so, the pair also takes clues from the cautious mood in the market ahead of the early signals for the US inflation, namely preliminary readings of February’s US Michigan Consumer Sentiment Index and 5-year Consumer Inflation Expectations.

That said, the quote’s trading within the key technical hurdles also challenges the momentum traders of late.

It’s worth observing that the bullish MACD signals and firmer RSI (14), however, keep the USD/INR buyers hopeful. On the same line could be the pair’s bounce off the 50-DMA.

As a result, the pair’s another attempt to cross the downward-sloping resistance line from October 2022, close to 82.80 by the press time, appears on the table.

Following that, a run-up towards the all-time high marked in late 2022 around 83.42 can’t be ruled out.

Meanwhile, the 50-DMA restricts the immediate downside of the USD/INR pair to around 82.20 before highlighting the 82.00 support confluence, which includes the 100-DMA and three-week-old ascending trend line.

If at all the USD/INR bears keep the reins past 82.00, the odds of witnessing a gradual south run towards the previous monthly low near 80.90 can’t be ruled out.

Overall, USD/INR is likely to remain depressed but the downside room appears limited, which in teases buyers to build positions for future gains.

USD/INR: Daily chart

Trend: Limited downside expected

• USD/JPY is marching towards 132.00 amid a risk-off mood propelled ahead of US inflation data.
• The US inflation could display an upside surprise as the jobless rate is at a multi-decade low.
• Japan’s government might reveal the new BoJ governor nominee and two deputy governor nominees on Feb. 14.

The USD/JPY pair is marching towards the critical resistance of 132.00 in the Tokyo session. The asset is witnessing significant strength amid the risk-aversion theme and favor for expansionary monetary policy by Bank of Japan (BoJ) Governor Haruhiko Kuroda.

The US Dollar Index (DXY) is aiming to shift its business above the 103.00 resistance amid an improvement in the appeal for safe-haven assets. Risk-perceived assets like S&P500 futures are witnessing selling interest despite a two-day sell-off spell. The United States Consumer Price Index (CPI) data that will release on Tuesday has hogged the limelight.

The consensus is calling for further softening of the headline inflation to 5.8% on an annual basis vs. the prior release of 6.5%. And, the core inflation that strips the impact of oil and food prices is seen lower at 5.3% against the former release of 5.8%. However, commentary from Richmond Fed President Thomas Barkin and the lowest Unemployment Rate recorded in January could surprise investors.

Fed Barkin argued that it would make sense for the Fed to steer "more deliberately" from here due to lagged effects of policy, as reported by Reuters. He further added that "While average inflation has peaked, the decline has been distorted by a few goods, the median has stayed high."

On the Japanese Yen front, BoJ Governor Haruhiko Kuroda said on Friday, “The benefits of easing outweigh the costs of side effects.” He further added that policy easing was appropriate and it gave its utmost efforts."

Meanwhile, Reuters has come up with an update for the release of the nominees for BOJ Kuroda’s successor. The agency reported Japan’s government is planning to present the new Bank of Japan governor nominee and two deputy governor nominees to parliament on Feb. 14.

• GBP/USD has slipped below the crucial support of 1.2100 amid the risk-aversion theme.
• The Pound Sterling bulls will dance to the tunes of the UK’s preliminary GDP (Q4) data.
• A downside move below the demand zone by the Cable indicates weakness ahead.

The GBP/USD pair has surrendered the round-level support of 1.2100 in the Asian session. The Cable has witnessed selling pressure and has lost half of the gains added on Thursday. The downside pressure in the Pound Sterling has been triggered as investors have underpinned the risk-aversion theme ahead of the release of the United States Consumer Price Index (CPI).

The US Dollar Index has climbed above 103.04 as the street believes that January’s upbeat labor market data could propel a surprise rise in the inflation data to be released on Tuesday. Meanwhile, the Pound Sterling bulls will dance to the tunes of the United Kingdom’s preliminary Gross Domestic Product (GDP) (Q4) data.

GBP/USD has corrected to near the demand zone placed in a narrow range of 1.2090-1.2108 on a two-hour chart. The Cable has dropped after facing barricades around the 100-period Exponential Moving Average (EMA) at 1.2158, which adds to the downside filters.

Meanwhile, the Relative Strength Index (RSI) (14) has failed to sustain into the bullish range of 60.00-80.00, which indicates an absence of strength in the Pound Sterling bulls.

A further decline in the Cable below February 9 low at 1.2057 will drag the asset toward January 3 low at 1.1900 followed by horizontal support placed from January 6 low around 1.1841.

On the contrary, a break above January 24 low at 1.2263 will support a bullish reversal and will drive the Cable towards February 2 high around 1.2400. A breach of the latter will send the major toward January 23 high at 1.2448.

GBP/USD two-hour chart

• EUR/USD eyes the second consecutive weekly loss while stretching the previous day’s losses from one-week high.
• Market sentiment dwindles as US Treasury yields renew recession fears but Fed policymakers appear cautious.
• Softer German inflation, a lack of hawkish ECB talks weigh on Euro.
• Early signals for next week’s US inflation eyed for clear directions.

EUR/USD holds lower grounds near 1.0730-25 as it braces for the second consecutive weekly loss ahead of the key US data during early Friday. The major currency pair refreshed the weekly high the previous day before reversing from 1.0790 on recession fears. That said, the quote renews intraday low by the press time.

The widest negative difference between the US 10-year and 2-year Treasury bond yields since 1980 amplified the recession woes the previous day. The yield curve inversion remains around the same level as both these key bond yields stay inactive near 3.67% and 4.49% respectively by the press time.

While the recession woes renewed the US Dollar demand, softer German inflation data also probed the EUR/USD buyers. On Thursday, preliminary readings of Germany’s key inflation gauge, namely the Harmonized Index of Consumer Prices (HICP) eased to 9.2% YoY for January versus 10.0% expected and 9.6% prior. Additionally, an absence of hawkish rhetoric from the European Central Bank (ECB) policymakers, despite rejecting rate cut bias, also seems to weigh on the pair prices.

It’s worth noting that the downbeat prints of the US Weekly Initial Jobless Claims, which rose to 196K versus 190K expected and 183K prior, joined comments from Richmond Federal Reserve (Fed) President Thomas Barkin to initially weigh on the US Dollar. Fed’s Barkin appeared too dovish while suggesting rate cuts as he said that it would make sense for the Fed to steer "more deliberately" from here due to lagged effects of policy. Previously, Fed Chair Jerome Powell hesitated in cheering the upbeat US jobs report and raised fears of no more hawkish moves from the US central bank.  On the same line could be China-linked optimism as US President Biden’s taming of fears emanating from the China balloon shooting joined the hopes of People’s Bank of China’s (PBOC) rate cuts and the restart of the China-based companies’ listing on the US exchanges.

While portraying the mood, S&P 500 Futures struggle for clear directions even as Wall Street closed with losses whereas stocks in the Asia-Pacific region grind lower of late.

Looking ahead, a light calendar in the bloc needs the EUR/USD traders to observe the risk catalysts for intermediate directions ahead of the early signals for the next week’s US inflation data, namely preliminary readings of the US Michigan Consumer Sentiment Index and 5-year Consumer Inflation Expectations for February. Considering the upbeat expectations from the scheduled data, as well as the recession woes, the major currency pair is likely to witness further downside.

Technical analysis

EUR/USD reversed from the one-week high the previous day as the 200-Simple Moving Average (SMA) challenged buyers. Not only the failures to cross the 200-SMA, around 1.0770 by the press time, but the bearish candlestick at the latest swing high, namely the “Gravestone Doji”, also teases the pair sellers.

That said, an upward-sloping support line from Tuesday probes EUR/USD bears near 1.0730 ahead of the one-month-old ascending trend line support, close to 1.0690 at the latest.

• Gold price remains sidelined within short-term key trading range amid contradicting fundamentals, cautious mood.
• Fed policymakers seem less interested in backing aggressive rate hikes amid mixed employment data.
• Recession woes underpin US Dollar demand and weigh on XAU/USD ahead of the key US consumer-centric statistics.

Gold price (XAU/USD) treads water around the mid-$1,800s, despite bracing for the second weekly loss, as market players struggle for clear directions amid contrasting fundamentals and anxiety ahead of the key United States data.  That said, Thursday’s softer US Jobless Claims allowed Richmond Fed President Thomas Barkin to follow Fed Chair Jerome Powell and mark hesitance in raising the rates further. The same joined China-linked optimism to weigh on the US Dollar and allow the XAU/USD to float higher. Alternatively, the widest yield curve inversion since 1980 renews recession fears and puts a floor under the Gold price.

Moving on, early signals for US inflation will be eyed closely after China’s Consumer Price Index (CPI) and Producer Price Index (PPI) eased in January. Following that, the next week’s US CPI will be crucial to watch for clear directions as Gold traders appear to lack conviction.

Also read: Gold Price Forecast: XAU/USD defies bullish bias on United States Treasury yield curve inversion, US data eyed

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the Gold price grinds lower after breaking the $1,873 support, comprising Fibonacci 61.8% on one-day and the middle band of the Bollinger on the hourly play.

Even so, a convergence of the previous weekly low, bottom line of the Bollinger on four-hour (4H) and 5-HMA restrict immediate downside of the yellow metal around $1,860.

Following that, a quick decline towards the $1,853 support confluence, encompassing Pivot Point one-month S1, can’t be ruled out.

Alternatively, a successful break of the $1,873 hurdle will need validation from the $1,887 resistance level, including the Fibonacci 23.6% on weekly, to convince Gold buyers.

In that case, the $1,900 round figure will gain the major attention of the XAU/USD bulls.

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.

Bank of Japan (BoJ) Governor Haruhiko Kuroda said on Friday, “the benefits of easing outweigh the costs of side effects.”

Additional quotes

"BoJ easing was appropriate."

"BoJ gave its utmost efforts."

Market reaction

USD/JPY was last seen trading at 131.71, up 0.11% on the day. Kuroda’s support for easy monetary policy fails to boost the Japanese Yen sellers.

• WTI seesaws inside a choppy range after snapping a three-day uptrend the previous day.
• Bearish chart formation, and sluggish oscillators keep sellers hopeful.
• 200-HMA adds to the downside filters before targeting late 2022 low.

WTI crude oil picks up bids to regain $78.00 during early Friday, following its U-turn from a one-week high to print the first daily loss in four on Thursday. It’s worth noting that the black gold’s latest inaction could be linked to sluggish MACD signals and steady RSI (14).

Even so, a one-week-old rising wedge bearish chart formation, currently between $77.30 and $79.30, keeps the Oil sellers hopeful, especially after the previous day’s retreat from the 61.8% Fibonacci retracement level of the quote’s downturn from January 23 to February 03.

That said, a clear downside break of the $77.30 support will need validation from the 200-Hour Moving Average (HMA) support of $76.96 to convince the energy bears.

Following that, the monthly bottom of $72.50 can act as a buffer during the south run targeting the latest multi-month low surrounding $70.30, marked in December 2022. It should be observed that the $70.00 round figure could probe the WTI sellers past $70.30.

Alternatively, WTI recovery could aim for another battle with the aforementioned key Fibonacci retracement hurdle of around $78.80.

Even if the commodity manages to cross the $78.80 hurdle, the stated wedge’s top line, close to $79.30 at the latest, will precede the $80.00 psychological magnet to challenge the quote’s further upside.

Overall, WTI crude oil remains on the bear’s radar despite the latest inaction.

WTI: Hourly chart

Trend: Further downside expected

• USD/CNH has sensed selling pressure and dropped from around 6.8000 as China’s monthly CPI shows deflation.
• Deflation in China’s monthly CPI and PPI might compel authorities to keep the policy expansionary.
• The USD Index is aiming to reclaim the critical resistance of 103.00 as the market mood is quite risk-averse.

The USD/CNH pair has dropped firmly after failing to test the round-level resistance of 6.8000 in the Asian session. The asset has dropped after the release of China’s inflation (Jan) data for January, which remained lower than expected even after the removal of restrictions on the movement of men, materials, and machines by the Chinese administration while rolling back pandemic curbs.

The annual inflation data has landed at 2.1%, between of the consensus of 2.2% and the prior release of 1.8%. The monthly inflation figure has shown a deflation of 0.8% against an expansion in the inflationary pressures by 0.7%.

Meanwhile, China’s Producer Price Index (PPI) has shown a deflation of 0.8% higher than the projections of 0.5% and the former release of 0.7%. It indicates that producers are heavily cutting prices of goods and services at factory gates. This shows an expression of weak demand by the households.

This has bolstered the case for more expansionary policy by the Chinese administration and the People’s Bank of China (PBoC), especially in times when the administration is entirely focused on spurting economic growth.

Meanwhile, the US Dollar Index (DXY) is aiming to reclaim the critical resistance of 103.00 as the market mood is quite risk-averse. The risk appetite of the market participants has extremely faded ahead of the release of the United States Consumer Price Index (CPI) data, which is scheduled for Tuesday. The headline CPI is expected to drop to 5.8% from the former release of 6.5%. Investors should be ready for a surprise upside from the inflationary figures after upbeat US Nonfarm Payrolls (NFP) January.

• USD/CAD pauses two-day uptrend but remains sidelined amid cautious markets.
• Oil price struggles amid recession woes, softer US Dollar.
• Canada employment data will be crucial after BoC’s Macklem teased a pause in rate hikes.
• Preliminary readings of US Michigan Consumer Sentiment, 5-year inflation expectations eyed to forecast next week’s US inflation data.

USD/CAD aptly portrays the pre-data anxiety as it seesaws around 1.3450 during early Friday, after a two-day uptrend, as traders await the key statistics from Canada and the US. In doing so, the Loonie pair also takes clues from the idle Oil price.

Other than the pre-data caution, the mixed sentiment in the market also challenges the USD/CAD pair traders as the recession woes contrast with softer US data and downbeat Fedspeak.

It should be noted that the WTI crude oil remains indecisive around $78.00, after reversing from a one-week high. That said, the recently softer China inflation numbers and recession woes seem to challenge the energy benchmark even as the softer US Dollar underpin the bullish bias.

On Thursday, a negative difference between the US 10-year and 2-year Treasury bond yields amplified the recession woes as the yield curve inversion jumped to the widest since 1980. It’s worth noting that both these key bond yields remain mostly inactive around 3.67% and 4.49% respectively by the press time.

On the other hand, the downbeat prints of the US Weekly Initial Jobless Claims, which rose to 196K versus 190K expected and 183K prior, joined comments from Richmond Federal Reserve (Fed) President Thomas Barkin to weigh on the US Dollar. Fed’s Barkin appeared too dovish while suggesting rate cuts as he said that it would make sense for the Fed to steer "more deliberately" from here due to lagged effects of policy. Previously, Fed Chair Jerome Powell hesitated in cheering the upbeat US jobs report and raised fears of no more hawkish moves from the US central bank.

Amid these plays, S&P 500 Futures struggle for clear directions even as Wall Street closed with losses.

Moving on, Canada employment data for January will be important after Bank of Canada (BoC) Governor Tiff Macklem teased a pause in the rate hike. Additionally, the early signals for the next week’s US inflation data, namely preliminary readings of the United States consumer-centric numbers for February like the Michigan Consumer Sentiment Index and 5-year Consumer Inflation Expectations will be crucial for clear directions.

Forecasts suggest downbeat prints of Canada jobs reports contrasting the US data, which in turn can propel the USD/CAD pair.

Technical analysis

Despite repeatedly bouncing off the 21-DMA, around 1.3390 by the press time, the USD/CAD remains off the bull’s radar unless staying below the 50-DMA hurdle of 1.3495.

Japan's Finance Minister Shun'ichi Suzuki crossed the wires in the session on Friday and said pulling the economy out of deflation and achieving stable growth remain an important policy challenge.

Reuters reported that Suzuki made the comment in parliament when asked whether the government would seek to revise the current joint statement with the Bank of Japan (BOJ) that commits the central bank to achieve its 2% inflation target at the earliest date possible.

Key notes

• What to do with the govt-BoJ policy statement is something that the government must discuss with the new BoJ governor.
• The current policy statement's goal of pulling Japan out of deflation, and achieving stable growth, remain an important policy challenge.
• To overcome this challenge, achieving wage growth is important.

Meanwhile, the Japanese government will present nominees for new the BoJ governor, and deputy governors to parliament on February 14, Reuters quite a lawmaker stating today. Masayoshi Amamiya has emerged as a frontrunner for the Bank of Japan’s next governor and a potential successor to incumbent Haruhiko Kuroda, Nikkei Asia reported on February 6, citing unnamed government officials. Kuroda is set to retire on April 8, after serving as the BoJ governor for two five-year terms.

• NZD/USD has printed a fresh day low at 0.6315 on lower-than expected China CPI data.
• China’s PPI has reported a deflation by 0.8% higher than the projections of 0.5% and the former release of 0.7%.
• The upbeat US labor market could propel consumer spending ahead.

The NZD/USD pair has dropped sharply below 0.6320 as the China’s National Bureau of Statistics (NBS) has reported lower-than-anticipated Consumer Price Index (CPI) (Jan) data. The annual inflation data has landed at 2.1% lower than the consensus of 2.2% but higher than the prior release of 1.8%. Monthly inflation figure has shown a deflation by 0.8% against an expansion in the inflationary pressures by 0.7%.

China’s Producer Price Index (PPI) has shown a deflation by 0.8% higher than the projections of 0.5% and the former release of 0.7%. It indicates that producers are heavily cutting prices of goods and services at factory gates. This shows an expression of weak demand by the households.

Chinese administration and the People’s Bank of China (PBoC) might continue to remain expansionary on stimulus and monetary policy respectively as the economy is recovering after dismantling the pandemic controls.

There is no denying the fact that inflationary pressures in the Chinese economy will elevate ahead as higher stimulus will push commodities in the bullish trajectory. A similar case has been witnessed by western and other Asian countries after they recovered from the pandemic period.

It is worth noting that New Zealand is one of the leading trading partners of China and lower inflation will compel for more stimulus, which will provide support to the New Zealand Dollar.

Meanwhile, the risk tone is negative as investors are getting anxious ahead of the release of the United States Consumer Price Index (CPI) data, which will release next week. S&P500 futures ended Thursday’s session on a weak note as the street is considering higher interest rates by the Federal Reserve (Fed) ahead. The US Dollar Index (DXY) is struggling to sustain above 103.00.

After the release of the strong labor report for January month, a surprise jump in the inflation figures cannot be ruled out. Higher employment could result in higher consumer spending, which carries the potential of fueling consumer spending.

• AUD/USD holds onto the previous day’s bearish technical confirmation as China data favored bears.
• China CPI, PPI both disappoint with softer numbers for January.
• Downside break of weekly ascending trend channel, U-turn from 200-HMA favor sellers.
• 50-HMA joins channel’s support line to challenge immediate recovery near 0.6960.

AUD/USD retreats from intraday high surrounding 0.6950 on downbeat China inflation numbers during early Friday. That said, the softer China Consumer Price Index (CPI) and Producer Price Index (PPI) data for January helped bears to cheer the previous day’s confirmation of bearish bias, via the downside beak of the weekly bullish channel and a U-turn from the 200-Hour Moving Average (HMA).

China CPI eased to 2.1% YoY versus 2.2% market forecasts, compared to 1.8% prior, while the PPI dropped heavily to -0.8% YoY from -0.7% previous readings and -0.5% consensus.

Also read: China Consumer Price Index a touch lower than estimates, AUD eyed for reaction

It should be noted that the 50-HMA joins the aforementioned bullish channel’s lower line to restrict the immediate upside of the Aussie pair to around 0.6960. Adding strength to the downside bias are the bearish MACD signals and the downbeat RSI (14), not oversold.

Even if the quote rises past the 0.6960 hurdle, the 200-HMA near the 0.7000 round figure and an upward-sloping resistance line from Tuesday, close to 0.7015 at the latest, could challenge the AUD/USD buyers.

In a case where the AUD/USD pair remains firmer past 0.7015, the odds of witnessing a run-up toward the aforementioned channel’s top near .7050 can’t be ruled out.

Alternatively, the 0.6900 round figure and the weekly low near 0.6855 lure the AUD/USD bears as of late.

Should the Aussie pair remains weak past 0.6855, the odds of witnessing a south-ward trajectory targeting the previous monthly low near 0.6685 can’t be ruled out.

AUD/USD: Hourly chart

Trend: Further downside expected

The Consumer Price Index released by the National Bureau of Statistics of China has been released as follows:

• China January CPI +0.8% from previous month (Reuters poll +0.7%).
• China January CPI +2.1% from a year ago (Reuters poll +2.2%).

AUD/USD update

Despite the Aussie calendar events today, including the Reserve Bank of Australia's hawkish Monetary Policy Statement, AUD/USD is staying around flat for the day so far following the Chinese data.

AUD/USD, and currency markets in general, are moving sideways at the start of the new day as the US Dollar stays on the bid near hourly resistance as per the DXY index. This is making for a consolidative environment in forex in general and AUD is stuck in familiar tight short-term ranges. Nevertheless, the Chinese data might be a relief for risk appetite in otherwise cautious market conditions concerned with inflation pressures and inflationary data. 

On the data, Reuters reported that ''China's January factory gate prices fell more than economists expected, suggesting that flashes of domestic demand that had stoked consumer prices after the zero-COVID policy ended are not yet strong enough to rekindle upstream sectors.''

Additionally, the Producer Price Index (PPI) was down 0.8% on a year earlier, extending the 0.7% drop the prior month and faster than the 0.5% fall tipped in a Reuters poll.

''Economists expect the cost of living in China will pick up over the coming months, with inflation approaching the target of about 3% that the government set last year,'' Reuters reported. 

About the Consumer Price Index 

The Consumer Price Index is released by the National Bureau of Statistics of China. It is a measure of retail price variations within a representative basket of goods and services. The result is a comprehensive summary of the results extracted from the urban consumer price index and rural consumer price index. The purchasing power of the CNY is dragged down by inflation.

The CPI is a key indicator to measure inflation and changes in purchasing trends. A substantial consumer price index increase would indicate that inflation has become a destabilizing factor in the economy, potentially prompting The People’s Bank of China to tighten monetary policy and fiscal policy risk. Generally speaking, a high reading is seen as positive (or bullish) for the CNY, while a low reading is seen as negative (or Bearish) for the CNY.

In recent trade today, the People’s Bank of China (PBOC) set the yuan at 6.7884 vs. the last close of 6.7850.

About the fix

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

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

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

• GBP/USD remains sidelined after reversing from weekly top, prints mild losses to defy three-day winning streak.
• Cautious mood ahead of key US data, recession woes and BoE talks weigh on Cable pair.
• Downbeat Fedspeak, softer US data allow GBP/USD to grind higher.
• Preliminary readings of UK Q4 GDP, US consumer-centric data for January eyed for clear directions.

GBP/USD pares weekly gains around 1.2100 as it portrays the Cable traders’ anxiety ahead of the key UK and the US data amid early Friday. In doing so, the quote struggles to justify the Federal Reserve’s (Fed) hawkish bias, as well as recession woe.

That said, the market’s fears of economic slowdown join the downbeat catalysts surrounding the UK economy, as well as the Bank of England (BoE) policymakers’ inability to convince markets of their hawkish bias to weigh on GBP/USD prices.

A negative difference between the US 10-year and 2-year Treasury bond yields triggered the recession woes the previous day and weighed on the GBP/USD prices, after the quote renewed weekly top. That said, US Treasury bond yields grind higher following the widest yield curve inversion imprint since 1980. It’s worth noting that both these key bond yields remain mostly inactive around 3.66% and 4.50% respectively by the press time.

On Thursday, Bank of England (BoE) Chief Economist Huw Pill and policymaker Jonathan Haskel testified before the UK Treasury Select Committee alongside Governor Andrew Bailey. Among them, BoE Governor Bailey stated, “We expect inflation to come down rapidly this year.” That said, Chief Economist Huw Pill mentioned that there is substantial further monetary policy tightening still to come through as a result of lags in policy transmission. On the same line, BoE policymaker Jonathan Haskel said that he sees considerable upside risks to the inflation forecast and added that the uncertainty around inflation should be met with forceful policy action.

Elsewhere, the downbeat prints of the US Weekly Initial Jobless Claims and comments from Richmond Federal Reserve (Fed) President Thomas Barkin seemed to have weighed on the US Dollar during the initial Thursday, before the recession woes triggered the USD rebound.

That said, Fed’s Barkin appeared too dovish while suggesting rate cuts as he said that it would make sense for the Fed to steer "more deliberately" from here due to lagged effects of policy. Previously, Fed Chair Jerome Powell hesitated in cheering the upbeat US jobs report and raised fears of no more hawkish moves from the US central bank.

The US Weekly Initial Jobless Claims rose to 196K versus 190K expected and 183K prior. “The advance number for seasonally adjusted insured unemployment during the week ending January 28 was 1,688,000, an increase of 38,000 from the previous week's revised level," said the US Department of Labor (DOL) showed on Thursday.

Against this backdrop, S&P 500 Futures struggle for clear directions while the US Treasury bond yields remain mostly unchanged.

Moving on, preliminary readings of the UK’s fourth quarter (Q4) Gross Domestic Product (GDP), expected 0.0% QoQ versus -0.3% prior, will be crucial for the GBP/USD pair traders to watch amid recession woes. Following that, the early signals for the next week’s US inflation data, namely preliminary readings of the United States consumer-centric numbers for February like the Michigan Consumer Sentiment Index and 5-year Consumer Inflation Expectations will be crucial for clear directions. Considering the upbeat forecasts for China and the US data, the GBP/USD pair is likely to remain pressured unless witnessing any surprises.

Also read: UK GDP Preview: Growth to stagnate but recession narrowly averted

Technical analysis

GBP/USD looks for clear directions as it retreats from the 50-DMA hurdle, around 1.2190 at the latest, inside a three-month-old bullish triangle formation.

• AUD/JPY has slipped sharply from 91.40 despite RBA continuing a hawkish monetary policy ahead.
• Australian inflation has driven higher in December led by rising fuel prices, series demand, and electricity prices.
• Japan’s government is planning to announce the new BoJ governor nominee and two deputy governor nominees on Feb. 14.

The AUD/JPY pair has sensed selling pressure after printing an intraday high above 91.40 in the Asian session. The Australian Dollar has met offered despite the hawkish monetary policy statement by the Reserve Bank of Australia (RBA).

Australian inflation has driven higher in December led by rising fuel prices, series demand, and electricity prices. Electricity prices rose by 7% in December due to the unwinding of rebates in Western Australia.

On growth forecasts, RBA policymakers have projected a Gross Domestic Product (GDP) growth to have been 2.75% in 2022 and to be 1.5% over both 2023 and 2024.

On the Japanese Yen front, investors are awaiting the list of nominations for the successor Bank of Japan (BoJ) Governor Haruhiko Kuroda. Analysts at Commerzbank believe “The nomination, which is expected to take place next week, is likely to upset the Yen exchange rates quite heavily, regardless of which candidate will emerge as the favorite.”

Meanwhile, Japanese Prime Minister Fumio Kishida said, “The administration is in process of choosing the next BoJ Governor nominee, they are mindful of very strong market attention on the decision.” He further added, “It has become more important for someone like the new BoJ governor to have strength in communication.”

An update from Reuters states Japan’s government is planning to present the new Bank of Japan governor nominee and two deputy governor nominees to parliament on Feb. 14

The RBA Monetary Policy Statement released by the Reserve bank of Australia is out as follows:

The RBA has revised up its forecasts for core inflation and wages growth and warned further increases in inetrest rates would be needed to head off a damaging wage-price spiral.

Reuters reported that ''in a hawkish-sounding quarterly Statement on Monetary Policy, the Reserve Bank of Australia (RBA) said domestically-sourced cost pressures were still picking even if consumer price inflation was a whole may have finally peaked last quarter.

While growth in global goods prices had cooled this was yet to show clearly in Australia, while inflation in the service sector had climbed faster than expected.''

AUD/USD update

AUD/USD was unchanged in the release as the US dollar stays strong in Asia. However, the pair could be expected to make a move higher into re-test the break of the structure considering the bullish M-formation. The downside target is near 0.6920/10 which guards 0.69 the figure. 

Key notes

"The Board expects that further increases in interest rates will be needed to ensure that the current period of high inflation is only temporary," said the RBA, implying two or more hikes were waiting in the wings.

"The Board's priority is to return inflation to target. High inflation makes life difficult for people and damages the functioning of the economy. And if high inflation were to become entrenched in people's expectations, it would be very costly to reduce later."

About the RBA statement

The RBA Monetary Policy Statement released by the Reserve bank of Australia reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. It is considered as a clear guide to the future RBA interest rate policy. Any changes in this report affect the AUD volatility. If the RBA statement shows a hawkish outlook, that is seen as positive (or bullish) for the AUD, while a dovish outlook is seen as negatvie (or bearish).

• AUD/USD remains pressured around intraday low, defends latest pullback from weekly low.
• RBA SoMP signals that mindful of rise in interest rates already made, policy acts with a lag.
• US Treasury bond yields triggered recession fears and weigh Aussie pair as well.
• China CPI, early signals of the next week’s US inflation data will be crucial for immediate directions.

AUD/USD struggles for clear directions amid mixed signals from the Reserve Bank of Australia’s (RBA) Statement of Monetary Policy (SoMP) during early Friday. Adding strength to the risk-barometer pair’s inaction could be the cautious mood ahead of early signals for the US inflation, as well as China’s Consumer Price Index (CPI) and Producer Price Index (PPI) data for January.

That said, RBA SoMP revised Aussie economic forecasts and cited the need for further interest rate hikes. However, the statements like the board are mindful of rise in interest rates already made and that the policy acts with a lag seemed to have probed the AUD/USD bulls afterward.

Elsewhere, US Treasury bond yields grind higher after renewing the recession woes the previous day, which in turn exerts downside pressure on the AUD/USD prices. It should be noted that the difference between the US 10-year and 2-year Treasury bond yields turned the widest since 1980. It’s worth noting that both these key bond yields remain mostly inactive around 3.66% and 4.50% respectively by the press time.

On the positive side, US President Biden’s taming of fears emanating from the US-China jitters, following the China balloon shooting by the US, joined the hopes of People’s Bank of China’s (PBOC) rate cuts and the restart of the China-based companies’ listing on the US exchanges to put a floor under the AUD/USD price. Additionally challenging the Aussie pair sellers were comments challenging the Federal Reserve’s (Fed) further rate hikes from Richmond Fed President Thomas Barkin, as well as softer US Weekly Initial Jobless Claims.

Amid these plays, the S&P 500 Futures remain indecisive even after Wall Street’s downbeat closing whereas Australia’s ASX 200 dropped half a percent at the latest.

Looking ahead, China’s headline inflation numbers, namely the CPI and PPI for January, will be eyed closely amid recently mixed economic signals from Australia’s biggest customer. Following that, preliminary readings of the United States consumer-centric numbers for February like the Michigan Consumer Sentiment Index and 5-year Consumer Inflation Expectations will be crucial for clear directions. Considering the upbeat forecasts for China and the US data, the AUD/USD pair is likely to remain pressured unless witnessing any surprises.

Technical analysis

Multiple failures to cross the 21-DMA hurdle, around the 0.7000 round figure, directs AUD/USD towards the 50-DMA, around 0.6870 by the press time.

• USD/JPY has prospects of a move 131.00 while below 131.80.
• On the other hand, if above 132.00, there could be further strength in London with 132.20/50 eyed.

USD/JPY is travelling in a sideways fashion between 131.34 and 131.57 but is leaning bearish in a chop below the highs of February as markets look ahead to the next catalyst for the US Dollar. 

The greenback came to life in the US cash open on Wall Street and US equities tanked. This was despite the gap between two- and 10-year yields staying inverted at -82.3 bps, after steepening to -87.5 bps earlier in the session. The two-year rose 3.4 basis points to 4.488% after hitting an almost 10-week high of 4.514%. 

However, markets are coming to some sense that the show is not over getting inflation down to the Fed's 2% target could easily take more than a year, something that Federal Reserve officials have continued to warn in various speeches since Fed's chairman Jerrome Powell mentioned that disinflation was started to be a theme in economic data. 

A higher-than-expected US Jobless claims number did not keep the greenback down for long as the prospects of a tight labour market keep nervous investors on the sidelines waiting for next week's Consumer Price Index.  

State unemployment benefits rose 13,000 to a seasonally adjusted 196,000 for the week ended Feb. 4, data showed. However, this is still well below the 250k a year prior. Economists polled by Reuters had forecast 190,000 claims for the latest week.

Before next week's data, we will get Friday's slew of numbers including the University of Michigan Consumer Sentiment Survey that could move the needle in markets that are more than ever data-dependent right now. 

Meanwhile, next week's CPI is looming and is expected to show headline inflation for January at 0.5% MoM and core inflation running at 0.3% MoM. ''If these numbers are achieved this would result in an easing of core inflation from 5.7% to 5.4% YoY and headline inflation from 6.6% to 6.2%,'' the analysts at ANZ Bank explained, noting also Retail Sales and manufacturing data er due. 

''If we continue to see strength in these data, then it will be very difficult for Federal Reserve policymakers to signal anything other than a further tightening of monetary policy.''

USD/JPY technical analysis

The DXY is a W-formation on the charts which is a reversion pattern that would be expected to pull in the price for the near term. this leaves the outlook temporarily, at least, for USD/JPY as follows:

The price has bust through a structure but there is a lack of conviction while below prior resistance for the week, so far. Nevertheless, there are prospects of a move 131.00 while below 131.80. On the other hand, a break there and a follow-through above 132.00 could see the starting balance for the day favourable for further strength in London with 132.20/50 eyed:

• AUD/NZD is struggling to shift business above 50% Fibo retracement at 1.0982.
• The 20-and 200-period EMAs have delivered a bull cross at 1.0909, which adds to the upside filters.
• A release of the RBA’s monetary policy statement will trigger a power-pack action.

The AUD/NZD pair has attempted a recovery after testing Thursday’s low around 1.0950 in the Asian session. The cross is aiming to extend its recovery further, however, investors have shifted to the sidelines ahead of the release of the monetary policy statement by the Reserve Bank of Australia (RBA). The RBA monetary policy statement will provide cues about likely policy action ahead in March.

Apart from that, China’s Consumer Price Index (CPI) (Jan) will be keenly watched. The annual inflation rate is expected to increase to 2.2% vs. the former release of 1.8%.

AUD/NZD is struggling to shift its auction above the 50% Fibonacci retracement (placed from September 28 high at 1.1490 to December 16 low at 1.0471) at 1.0982 on the daily chart. The upward-sloping trendline from December 16 low at 1.0471 will act as a major support for the Australian Dollar.

The 20-and 200-period Exponential Moving Averages (EMAs) have delivered a bull cross at 1.0909, which adds to the upside filters.

However, the Relative Strength Index (RSI) (14) is struggling to shift confidently into the bullish range of 60.00-80.00.

Going forward, an upside move above February 1 high at 1.0994 will drive the cross towards February 8 high at 1.1036 followed by October 28 high at 1.1081.

On the flip side, a break below January 27 low at 1.0940 will drag the asset toward the round-level support at 1.0900. A slippage below the latter will expose the cross for more downside toward January 23 high at 1.0853.

AUD/NZD daily chart

• EUR/USD remains pressured after reversing from one-week high.
• Three-day-old ascending trend line probes bears ahead of the key monthly support line.
• Gravestone Doji bearish candlestick, failure to cross 200-SMA keeps Euro bears hopeful.

EUR/USD bears rush towards retaking control as the Euro pair stays depressed around 1.0730 during Friday’s Asian session, following a U-turn from the weekly top.

That said, the major currency pair reversed from the one-week high the previous day as the 200-Simple Moving Average (SMA) challenged buyers.

Not only the failures to cross the 200-SMA, around 1.0770 by the press time, but the bearish candlestick at the latest swing high, namely the “Gravestone Doji”, also teases the EUR/USD bears.

However, an upward-sloping support line from Tuesday probes EUR/USD bears near 1.0730 ahead of the one-month-old ascending trend line support, close to 1.0690 at the latest.

It should be noted that the 61.8% Fibonacci retracement level of the pair’s January-February upside adds strength to the 1.0690 support.

In a case where the EUR/USD remains weak past 1.0690, the odds of witnessing a southward trajectory towards the monthly low of 1.0670 and then to January’s bottom surrounding 1.0485 can’t be ruled.

On the flip side, the pair’s successful trading beyond the 200-SMA level of 1.0770 isn’t an open welcome to the EUR/USD bulls as the weekly top of 1.0790 and the 1.0800 could challenge the further upside.

Should the EUR/USD price rally beyond 1.0800, the previous Friday’s swing high near 1.0940 will be crucial to watch for clear directions.

EUR/USD: Four-hour chart

Trend: Further downside expected

• US Dollar Index keeps the bounce off weekly low, sidelined of late.
• Difference between 10-year and two-year US Treasury bond yields turned the widest since 1980 and triggered recession fears.
• US data, Fed talks and China-linked optimism challenge DXY bulls ahead of US Michigan Consumer Sentiment Index, inflation expectations.

US Dollar Index (DXY) picks up bids to extend the latest recovery from the weekly low, mildly bid near 103.25 during early Friday. In doing so, the greenback’s gauge versus the six major currencies cheers the fresh fears surrounding the economic slowdown ahead of the key US data. It’s worth noting that the downbeat comments from the Federal Reserve (Fed) officials and softer US data, as well as China-inspired market optimism in the Asia-Pacific zone, seem to challenge the DXY buyers.

US Dollar Index refreshed its weekly low on early Thursday as United States President Joe Biden and Treasury Secretary Janet Yellen both turned down the fears of economic slowdown in the US. Adding strength to the DXY’s fall were the statements from Richmond Federal Reserve (Fed) President Thomas Barkin, softer US Weekly Initial Jobless Claims and China story. However, an inversion of the US Treasury bond yield curve renewed recession fears and joined the cautious mood ahead of the early signals for the US inflation, up for publishing the next week, to help the US Dollar rebound.

On Thursday, Fed’s Barkin appeared too dovish while suggesting rate cuts as he said that it would make sense for the Fed to steer "more deliberately" from here due to lagged effects of policy. Previously, Fed Chair Jerome Powell hesitated in cheering the upbeat US jobs report and raised fears of no more hawkish moves from the US central bank.

Talking about the data, the US Weekly Initial Jobless Claims rose to 196K versus 190K expected and 183K prior. “The advance number for seasonally adjusted insured unemployment during the week ending January 28 was 1,688,000, an increase of 38,000 from the previous week's revised level," said the US Department of Labor (DOL) showed on Thursday.

Elsewhere, US President Biden’s taming of fears emanating from the US-China jitters, following the China balloon shooting by the US, joined the hopes of People’s Bank of China’s (PBOC) rate cuts and the restart of the China-based companies’ listing on the US exchanges to favor risk-on mood during early Thursday.

It should be noted, however, that the difference between the 10-year and 2-year Treasury bond yields turned the widest since 1980 as the former prints 3.66% and the latter came in around 4.50%. The same signaled the market’s recession fears and triggered the US Dollar run-up.

Moving on, the preliminary readings of the United States consumer-centric numbers for February like the Michigan Consumer Sentiment Index and 5-year Consumer Inflation Expectations will be crucial to watch for the DXY traders. Above all, the market’s preparations for the next week’s US Consumer Price Index (CPI) will be important to watch. Given the upbeat forecasts for the US consumer sentiment gauge, the US Dollar Index is likely to defend the latest recovery.

Technical analysis

US Dollar Index rebound remains elusive unless providing a successful break of the downward-sloping resistance line from late November 2022, close to 103.85 by the press time.