CFD Markets News and Forecasts — 20-01-2022

• EUR/USD remains pressured after breaking 200-SMA for the first time in two weeks.
• Bearish MACD signals, weekly descending trend line also keep sellers hopeful.
• Two-month-old support line challenges sellers, 61.8% Fibonacci retracement offers immediate support.

EUR/USD fails to cheer greenback weakness, stays depressed around 1.1310 during the initial Asian session on Friday.

While portraying the sober mood of the major pair traders, the quote remains below 200-SMA for the first time in a fortnight amid bearish MACD signals, suggesting further declines.

However, the 61.8% Fibonacci retracement (Fibo.) of November-January upside and a two-month-long rising support line, respectively near 1.1300 and 1.1280, become the key challenges for the EUR/USD sellers.

Should the quote breaks 1.1280, it becomes vulnerable to retest the year 2021 bottom of 1.1186. During the fall, 1.1230 and 1.1200 may act as buffers.

Alternatively, a clear upside break of the 200-SMA level surrounding 1.1330 needs validation from the weekly resistance line, near 1.1360 by the press time, to convince short-term EUR/USD buyers.

Even so, December’s peak of 1.1386 and the 1.1435-40 area may test the pair’s further upside ahead of directing it to the monthly top around 1.1485.

EUR/USD: Four-hour chart

Trend: Further weakness expected

• AUD/USD pauses the latest pullback from 100-DMA, weekly top.
• US-China top diplomats brace for the first meeting of 2022, US Treasury Secretary Yellen expects inflation to ease soon.
• US data weighed on yields, USD contrast to Aussie jobs report, inflation figures that favored AUD.
• Cautious mood to restrict pair’s performance amid light calendar ahead of next week’s FOMC.

AUD/USD hovers around 0.7220 following a U-turn from the weekly top around the 100-DMA. That said, the Aussie pair struggles for a clear direction but stays on the way to post the second consecutive weekly upside during early Friday morning in Asia.

The risk barometer pair cheered strong Aussie employment figures and Inflation expectations, for December and January respectively, during the initial Thursday. The People’s Bank of China (PBOC) surprised markets with a first cut in the 5-year Loan Prime Rate (LPR), by 5 basis points (bps) to 4.60%, in 21 months and helped AUD/USD as well.

The up-moves gained additional support after the US Philadelphia Fed Manufacturing Survey eased and jobless claims jumped to the three-week high, allowing Fed to have some leeway in its fight with the inflation, as recently signaled by US Treasury Secretary Janet Yellen.

Also on the positive side was the latest news from the South China Morning Post (SCMP) suggesting the US-China diplomatic talks after an abrupt rejection of the same on January 10.

Australia’s Unemployment Rate dropped to the 14-year low of 4.2% while the Employment Change also rose past expectations to keep the Aussie policymakers optimistic, which in turn propelled AUD/USD. On the other hand, the US Jobless Claims jumped to the highest since late October and the Philadelphia Fed Manufacturing Survey details also improved for January.

Elsewhere, US Treasury Secretary Yellen recently said in the CNBC interview that Inflation rose by more than most economists, including me, expected and of course, it's our responsibility with the Fed to address that. And we will. Additionally, SCMP signaled that China’s Yang Jiechi and US national security adviser Jake Sullivan are up for a crunch meeting but no date was indicated.

Amid these plays, the US 10-year Treasury yields posted a second consecutive daily loss after refreshing the two-year high on Wednesday. The same weighed on the US Dollar Index (DXY) and propelled gold prices, allowing Antipodeans to cheer the risk-on mood.

Although the recent signals hint at the US Federal Reserve’s (Fed) cautious approach in tacking the jump in inflation, the Fed policymakers are up for a fight and hence market players may remain divided ahead of the next week’s key meeting. The same joins a light calendar to restrict moves of the risk barometer pair AUD/USD for a short-term.

Read: Forex Today: Dollar hit by poor employment figures

Technical analysis

Sustained U-turn from the seven-week-old support line, around 0.7180 by the press time, joins firmer RSI to direct AUD/USD towards the 100-DMA level surrounding 0.7280, also helping it cross.

However, the quote’s further advances will be challenged by the monthly high of 0.7315 and the previous support line from August near 0.7350.

Chinese top diplomat Yang Jiechi and US national security adviser Jake Sullivan are preparing for a crunch meeting on core national security concerns, per South China Morning Post (SCMP).

The news also mentioned sources familiar with the matter as saying, “But the two sides remain deeply divided on protocol and agenda items.”

The key US and Chinese representatives were to meet on January 10 but couldn’t due to the political rift among the world’s top two economies over boycott of the Beijing Winter Olympics, as well as a call by US lawmakers for the UN to publish a report on Xinjiang, the news mentions.

“The US wants to press Beijing over China’s nuclear build-up, while China believes Washington should take the initiative and reduce its vastly larger arsenal first,” said SCMP.

Other issues that could be discussed in the meeting are, “Taiwan, the South China Sea, the East China Sea, Xinjiang and Hong Kong,” per the news.

FX implications

The news should help the Antipodeans and commodities to keep the latest recovery moves.

Read: Forex Today: Dollar hit by poor employment figures

“Inflation rose by more than most economists, including me, expected and of course it's our responsibility with the Fed to address that. And we will,” US Treasury Secretary Janet Yellen said in CNBC interview late Thursday.

Additional quotes

FX implications

The news exerts downside pressure on the risk catalysts, like equities and Antipodeans, after Thursday’s risk-on performance.

Read: Forex Today: Dollar hit by poor employment figures

• AUD/JPY has dipped back towards 82.50 as US equity market sentiment deteriorated, confirming failure to break out of recent ranges.
• The Aussie was underpinned on Thursday by strong jobs data and China monetary policy easing.

Though the currency has pulled back from its earlier session highs in tandem with a pullback from high in the US equity market, the Aussie remains on course to finish Thursday’s trading session as the best performer in the G10. But as sentiment on Wall Street has deteriorated, the safe-haven yen has been climbing the G10 rankings. The net result for AUD/JPY is that the pair has pulled back to trade just above 82.50, where it trades higher by about 0.2% on the day, having at one point earlier in the session challenged the 83.00 level, where it at the time was trading about 0.6% higher.

The Aussie’s outperformance on Thursday came following a stronger than forecast December jobs report, which showed the economy adding 64.8K jobs on the month, well above the 43.3K expected. The unemployment rate also dropped sharply to 4.2% from 4.6%, a much larger drop than the expected decline to 4.5%. The data will come as a surprise to the RBA, who forecast that Australia would end 2021 with an unemployment rate of about 4.75% and that this wouldn’t fall to 4.2% until the end of 2022. The jobs report thus endorsed very hawkish market expectations for RBA interest rate policy – despite the RBA insisting last year that the conditions for a rate hike would not be met until 2023 at the earliest, futures price a 70% probability of lift-off in May.

The data also underpinned expectations that the bank will axe its QE programme in its entirety at the upcoming February meeting. Separately, China’s PBoC eased monetary policy settings with cuts to its one and five-year loan prime rates on Thursday, boosting hopes that the recent slowdown in Chinese growth will abate later in the year, boosting the outlook for Aussie exports. Despite the positive developments that underpinned the Aussie on Thursday, the day’s price action suggests confirmed that AUD/JPY is not yet ready to break out of the recent 82.00-83.00 range that has persisted since last Friday. If risk-appetite stabilises and FX markets are free to trade more as a function of central bank divergence, then a bullish breakout above 83.00, which would open the door to a move towards 84.00, remains very much on the cards.

What you need to know on Friday, January 21:

The greenback traded with a soft tone on Thursday, ending the day mixed across the FX board. The EUR was among the weakest, while the AUD and the CAD were the strongest.

Disappointing US employment-related figures were behind the broad dollar’s weakness at the beginning of the American session, as weekly unemployment claims unexpectedly jumped to 286K in the week ended January 7, the highest reading since late in October. Like most major developed economies, US workers and businesses are struggling with Omicron-related disruptions.  

The US Federal Reserve relies on what it calls “the jobs market at close to full employment” to accelerate an aggressive reduction of its financial support to tame inflation. The unexpected increase in unemployment claims may be just a one-off, but if it keeps rising, the Fed may have to put a break. The central bank is having a monetary policy meeting next week and will unveil the outcome on Wednesday, January 26.

US Treasury yields remain stable through the day, with the yield on the 10-year Treasury note at 1.83%. Stocks, on the other hand, managed to advance, with all US indexes trading in the green heading into the close, although they retreated from intraday highs.

The EUR/USD pair trades around 1.1310, while GBP/USD hovers around 1.1620. The AUD/USD pair peaked at 0.7276, now trading around 0.7240, while USD/CAD stands at 1.2474. The USD/JPY pair is marginally lower at around 114.15.

Gold is ending the day pretty much unchanged, around $1,840 a troy ounce but managed to post a fresh two-month high of $ 1,847.92 a troy ounce. Meanwhile, crude oil prices surged to fresh multi-year highs, with WTI touching $87.08 a barrel but ending the day at around $85.20.

Facebook and Instagram join the NFT mania

• US equities were broadly higher on Thursday, aided as PBoC easing boosted global markets and amid dip-buying.
• The Nasdaq 100 index on Wednesday closed more than 10% below its November record highs, confirming a correction.
• There is lots of focus on Netflix earnings after the Thursday market close.

US equities are trading broadly higher this Thursday, as stocks in the region track gains seen in Europe and, before that, Asia markets are the PBoC on Thursday took further steps to ease monetary policy. The Chinese central bank cut its one-year loan prime rate to 3.7% from 3.8% and its five-year loan prime rate (which is a reference rate for mortgages) to 4.6% from 4.65%. As a result, the S&P 500 currently trades around 0.7% higher in the 4560s, though has pulled back sharply from earlier session highs at 4600 where the index was trading with gains of about 1.5%.

Looking across the S&P 500 GICS sectors, the gains are broad, with the big tech-dominated Information Technology and Communications Services sectors up 0.8% apiece, Financials up 1.0%, Health Care up 0.8% and Industrials up 0.6%. The Nasdaq 100 index is up about 0.8% having bounced from yesterday’s closing levels just above 15K back towards the 15.2K area. Much was made of the fact that the index closed slightly more than 10% below its November record highs above 16.7K. Chatter about the move lower from recent highs in the index, which has been driven primarily by fears of a more hawkish Fed, being an “overreaction”, and about “dip-buying” is growing.

Traders have pointed at upcoming Netflix Q4 earnings after Thursday’s close, the first of the major tech companies, as being a key moment for the tech sector’s near-term direction. Traders and analysts will be assessing whether Netflix was able to bring in enough new subscribers to justify big spending on shows in 2022. A solid report may spur dipping buying, not only in Netflix shares but perhaps across the sector. The proximity of next week’s Fed meeting suggests that extent of any post-Netflix earnings dip-buying across the tech sector might ultimately prove fairly limited.

More clarity from the Fed on their potential rate hike timeline in 2022 will be needed if the Nasdaq 100 is to have a run at recuperating recent losses. Elsewhere, the Dow gained about 0.5% and the CBOE S&P 500 volatility index or VIX stabilised below the annual highs it printed on Wednesday at 24.00, dropping back marginally under 23.00.

• GBP/USD has been choppy but ultimately remained well supported above 1.3600.
• Sterling continues to shrug off Westminster noise surrounding the potential ousting of UK PM Boris Johnson.
• Focus now turns to Friday’s UK Retail Sales data, which is unlikely to impact BoE tightening expectations much.

GBP/USD has been choppy on Thursday with the US dollar seeing a mixed reaction to weaker than expected initial jobless claims and housing data, though the pair has for the most part remained well supported to the north of the 1.3600 level. At current levels in the 1.3620s, cable looks on course to post an on-the-day gain of about 0.1% or roughly 20 pips. Sterling continues to shrug off Westminster noise surrounding the potential ousting of Boris Johnson from his position as UK PM. Analysts note that his potential replacements, such as UK Chancellor Rishi Sunak (who is the front-runner to replace him), would be unlikely to mark a significant shift in economic policy.

Friday’s UK December Retail Sales report is the only remaining tier-one data of note to cable this week. The data is unlikely to dissuade market participants from pricing in a high likelihood that the BoE hikes interest rate by another 25bps on February 3 in wake of this week’s strong UK labour market and hotter than expected inflation data. That should be enough to keep sterling supported until the end of the week, but traders should also note that the US dollar also faces upside risks in the coming days as traders brace for next week’s Fed meeting. The US central bank is expected to endorse money market pricing for as many as four rate hikes in 2022 and give the green light to a rate hike as soon as March.

It may thus prove difficult to trade GBP/USD based upon central bank divergence. A better play might be to see GBP/USD in the short-term as more of a guage for risk appetite, given sterling risk-sensitive properties. After the major US tech index the Nasdaq Composite fell into “correction” territory on Wednesday (i.e. more than 10% down from a recent high), Thursday has seen some stabilisation (aided by more monetary policy easing in China). If stocks continue to stabilise/tentatively recover in the coming days, GBP/USD may be able to move back towards a challenge of 1.3700.

• USD/TRY breaks to the downside but holds well above confluence support.
• CBRT stands pat at 14% this month, ends strings of interest rate cuts
• Daily RSI still holds above 50.00 despite the latest downtick in the spot.

USD/TRY has returned to the red after the Turkish central bank’s (CBRT) no-rate change decision earlier this Thursday.

The spot is trading close to five-day lows of 13.26, gradually breaking lower, as the Turkish lira drew some support from the CBRT policy announcements.

The Turkish central bank kept the key rate steady at 14%, putting an end to strings of rate cuts, which sent the local currency into a downward spiral over the last year.

The major ignores the rebound in the US dollar alongside the Treasury yields after the US 10-year TIPS auction.

USD/TRY: Technical outlook

Looking at USD/TRY’s technical chart, the confluence of the bullish 21 and 50-Daily Moving Averages (DMA) at 13.05 will be a tough nut to crack should the daily lows give way.

A firm break below the latter will trigger a fresh downswing towards the upward-sloping 100-DMA at 11.00.

January lows of 12.76 could come to the rescue of bulls beforehand.

The 14-day Relative Strength Index (RSI) is trading listlessly, at the time of writing, although remains above the midline, keeping buyers hopeful.

Bulls need to find a strong foothold above the 14.00 threshold to negate the recent bearish momentum. The December 21 high of 14.14 will be the next relevant upside target.

USD/TRY: Daily chart

• AUD/USD off the highs despite risk rebound, strong Aussie jobs.
• DXY rebounds as yields pause the pullback, PBOC eases policy further
• Surging covid cases in Australia and Fed-RBA divergence to cap the upside.

AUD/USD is retreating towards 0.7250, having hit a fresh four-day high of 0.7276 in the last hours.

Resurgent US dollar demand across the board is hurting the commitment of the buyers, as the Treasury yields pause their corrective pullback from two-year highs. The US dollar index rises to 95.60, as of writing, up 0.09% on the day.

The aussie spiked to multi-day highs, earlier on, after the US stocks rebounded and fuelled risk recovery across markets, boosting the high-beta currency AUD.

Strong Australian labor market report for December combined with the Chinese central bank’s (PBOC) cuts to the mortgage lending rates add to the bullish sentiment around the aussie pair.

The Australian Unemployment Rate dropped to a 13-year low of 4.25 in the reported period, fanning speculation that the Reserve Bank of Australia (RBA) could end its bond-buying program and bring forward cash rate hikes.

The further upside for AUD/USD could remain elusive amid divergent monetary policy outlooks between the Fed and RBA. Meanwhile, the continuous rise in COVID-19 infection in the most populous state of Australia, New South Wales (NSW), also remains a concerning factor for aussie bulls.

Traders also weigh in the growing risks surrounding the Russia-Ukraine crisis and US President Joe Biden's comments on the US-China trade tariffs.

AUD/USD: Additional levels to consider

• EUR/USD remains on the backfoot as DXY tracks the uptick in the yields.
• ECB minutes showed a divided outlook on inflation, the risk tone remains upbeat.
• Yields and the dollar lead way, as US economic data fail to impress.

EUR/USD is holding the lower ground below 1.1350, as the US dollar attempts a bounce in tandem with the Treasury yields amid a risk-on mood.

The sentiment on Wall Street improved dramatically, in anticipation of the corporate earnings reports. That fuelled a fresh sell-off in the US Treasuries, which in turn, prompted the yields to resume their uptrend. The upturn in the yields lifted the sentiment around the dollar at the euro’s expense.

Escalating Russia-Ukraine crisis, with the US imposing sanctions on four Ukrainian officials, accusing them of destabilizing Ukraine, also boosts demand for the safe-haven US dollar.  

Meanwhile, the shared currency remains undermined by the European Central Bank (ECB) minutes of its December meeting, which underscored policymakers’ division on the inflation outlook. Further, dovish comments from ECB President Christine Lagarde and policymaker Pablo de Cos bode ill for the major.

Looking ahead, the main currency pair continues to remain at the mercy of the price action in the yields and the dollar, as traders shrug off mixed American economic data releases in the downbeat weekly Jobless Claims and Existing Home Sales. The Philadelphia Fed Manufacturing Survey for January, however, outpaced expectations with 23.2. 

EUR/USD: Additional levels to consider

• WTI recently broke above its prior $85.00-$86.00 intra-day tradig range to hit session highs near $87.00.
• The official EIA inventory report wasn’t as bearish as feared, helping WTI recover back into the green on the day.

Front-month WTI futures leapt above their previous intra-day $85.00-$86.00 per barrel trading range to hit highs in at $87.00 in recent trade and, at current levels near $86.50, now trade back in the green on the day. WTI still trades about $1.50 below Wednesday’s multi-year peaks near-$88.00, but is equally about $1.50 up from Asia Pacific session lows, with the latest official US crude inventory report not as bearish as feared. Wednesday’s private API inventory report had suggested that crude oil stocks had risen by 1.4M barrels last week versus prior expectations for a small draw. However, official EIA data showed that inventories had risen by just half a million barrels last week. The fall in distillate stocks of 1.2M barrels was roughly in line with that of the API report, whilst the build in gasoline stocks was much higher at over 5.8M barrels versus 3.5M barrels in the API report.

In terms of the major themes driving crude oil markets right now, amid consensus expectations for robust demand this year, supply-side themes are currently getting more attention. Chief amongst them is OPEC+’s ongoing struggles to lift output in line with recent output quota hikes. On Wednesday, the IEA said the producer group produced 800K barrels per day less than its production target in December and the recent outage of an Iraqi-Turkish pipeline and attack on UAE infrastructure highlighted the risk of continued underproduction. Meanwhile, with Russia seemingly on the verge of a military incursion into Ukraine, there is uncertainty about what kind of sanctions the world’s third-largest crude oil producer may face and whether this might affect their oil exports. For now, geopolitics, supply fears and expectations for continued robust demand will likely keep prices underpinned and analysts will likely continue to call for $100 per barrel oil this year.

• Technical indicators are modestly biased to the upside in the short-term in USD/MXN.
• Pair needs to break and hold above 20.55 to clear the way to more gains.

The USD/MXN is falling on Thursday after hitting on Wednesday a two week high at 20.52. The bullish bias in the near term is still intact, while at the same time the dominant trend still points south.

The pair is correcting to the upside from the main bearish trend, after finding support at 20.25/30. A decline below 20.35 should point to a new test of the critical area of 20.25/20.30 that includes the flat 200-day simple moving average.

On the upside, daily close above 20.55 (100-day SMA) should strengthen the US dollar. The next resistance stands at 20.70 and then at 20.90.

The weekly chart showed the 20-week SMA at 20.53; a close above would be a negative development for the Mexican peso, suggesting a potential bottom has been established.

USD/MXN daily chart

• USD/CAD is sold-off heavily into the US dollar’s weakness amid easing T-yields.
• Surging WTI prices keep the downside momentum intact in the major.
• The pair eyes daily close below 200-DMA to unleash additional declines.

USD/CAD is struggling to extend the rebound from near two-month lows of 1.2451 in the American session, as the relentless rise in WTI prices continues to undermine the sentiment around the major.

Despite the latest downtick, the Canadian dollar preserves most of the daily advance, as oil prices continue to ride higher on escalating geopolitical tensions, with the US imposing sanctions on four Ukrainian officials it accused of destabilizing the latter, as America is trying hard to dissuade Russia from invading Ukraine. 

Meanwhile, the black gold shrugged off a build in the US weekly crude stockpiles to the tune of 515K, according to the data published by Energy Information Administration on Thursday. The risk-on market profile aids the rally in the higher-yielding oil, adding credence to the bullish momentum around the resource-linked loonie.

On the US dollar-side of the equation, the pullback in the Treasury yields from two-year highs kept the greenback pressured, in turn, rendering negative for the spot. The correction in the US rates comes after it rallied hard earlier this week on aggressive Fed rate hike expectations.

Technically, USD/CAD remains vulnerable while below the critical horizontal 200-Daily Moving Average (DMA) at 1.2501.

That said, the recent range lows near 1.2450 appear at risk, as the 14-day Relative Strength Index (RSI) points north below the midline.

Meanwhile, the bear cross remains in play after the 21-DMA breached the 50-DMA from above on Tuesday.

A fresh downswing, if triggered, could expose the round level of 1.2400 while any meaningful recovery will need acceptance above the 200-DMA on a daily closing basis.

USD/CAD: Daily chart

USD/CAD: Additional levels to consider

• NZD/USD is currently struggling to push above the 0.6800 level, hampered by resistance in the form of the 21DMA.
• The pair found support during APac trade at a trendline going back to mid-December.
• A break below this support could open the door to a push lower towards 0.6700.  

Though the pair does trade reasonably higher versus Asia Pacific session lows in the 0.6750s, NZD/USD is currently struggling to push above 0.6800, with the 21-day moving average acting as resistance for a second successive session. Amid a lack of domestic data or positive drivers, the kiwi has struggled to emulate the outperformance seen in its Aussie counterpart, which is deriving an independent boost from strong Australian labour market data. Indeed, chatter from New Zealand PM Jacinda Ardern about a potential toughening of domestic Covid-19 curbs in case of community transmission in the country, albeit not about a return to the fullscale lockdowns of old, may well be hampering the kiwi.

It was notable during the Asia Pacific session how NZD/USD found support at an uptrend that has been in play since the middle of December. The pair’s struggles to get back above 0.6800, however, suggest it is vulnerable to a broader pick up in the fortunes of the US dollar heading into next week’s Fed meeting. A push higher by the DXY on hawkish expectations, for example, could translate into a bearish breakout below 0.6750 and on towards a test of December lows just above 0.6700. For now, sub-par US weekly jobless claims data that saw initial claims leap to 280K from 230K the week prior, perhaps indicative of some Omicron-related labour market weakness, has been enough to keep the buck bulls at bay.

• Japanese yen among top performers as US yields remain steady.
• DXY down for the day but off lows.
• USD/JPY heads for lowest daily close in a month.

The USD/JPY dropped further during the American session and bottomed at 113.95, the lowest level in six days. The move lower took place amid a stronger Japanese yen across the board and despite higher equity prices in Wall Street.

Unexpected increase in Jobless Claims

Economic data from the US showed Initial Jobless Claims came in at 286K, the highest level in three months, the Philadelphia Fed Business Outlook rose more than expected to 23.2 from 15.4 and Existing Home Sales dropped 4.6% in December. The numbers weighed on the US dollar and supported the recovery in equity prices.

Next week, the Federal Reserve will have its two day meeting, announcing their decision on Wednesday. Market participants await signs for a March rate hike. The greenback has been rising on the back of those speculations, losing momentum early in January.

The USD/JPY is correcting lower and a daily close below 114.00 should point to further weakness from a technical perspective. The next support stands at 113.50. On the upside, a recovery above 114.95 (20-day moving average) would be a sign that the correction is over

Technical levels

• Spot silver has surged another near 2.0% to above $24.50 on Thursday, taking its on-the-week gains above 7.0%.
• Recent stabilisation of the US dollar and US real yields has given precious metals the green light to rally.
• XAG/USD is currently testing its 200DMA, having failed to break above it on both of the last two attempts recently.

In a bullish medium-term signal, spot silver (XAG/USD) prices broke to the north of a key long-term downtrend (linking the May, June and November 2021 highs) on Thursday to surge above the $24.50 per troy ounce level. At current levels around the $24.60 mark, spot prices are now up nearly 2.0% on the day, taking gains on the week to over 7.0%. The precious metal is now eyeing a test of its 200DMA at $24.65, a break above which would open the door to a test of the $25.00 level and the November 2021 highs in the $25.40s.

Over the past two days, during which time XAG/USD has rallied about $1.20 from underneath the $23.50 level, precious metals have taken the opportunity to rally amid subdued trading conditions in US bond and currency markets. The rally in US real yields has faded over the past two sessions and the DXY, which started the week on a strong footing, has struggled to hold above 95.50.

Meanwhile, China has been easing monetary policy settings, with the PBoC already cutting MLF and mortgage rates this week and pledging to embark on further stimulus in the weeks ahead. This has boosted appetite for base metals (copper, iron ore, nickel etc.) on hopes for Chinese growth to stabilise and pick up again later in the year and seems to be aiding spot silver – a greater proportion of silver’s demand comes from industrial usage in comparison to gold.

Looking ahead for the precious metal, technical momentum has clearly swung in a substantially bullish direction but, for this to continue, a break above the 200DMA will be needed. Over the past seven months, XAG/USD has tested its 200DMA on two occasions and failed to break above it twice. Both of these failed attempts were followed by significant drawdowns (of 17.5% and 15.6%). With the Fed on course to tighten in 2022 and risks for the US dollar and real yields subsequently tilted to the upside, some traders may see XAG/USD’s current levels as a good time to add to short positions. Some may be reluctant to sell into such a ferocious rally, however.

The pound is again pushing higher this afternoon. GBP should remain well supported in the coming weeks. But with a lot of rate hikes already in the price, economists at Rabobank see GBP as vulnerable to a correction later on in the year. 

Strong and stable leadership may generate a modest rally in the pound

“On anticipation that the market will unwind some of the anticipated policy tightening, we see scope for the pound to fall back by the middle of the year.”

“Stronger leadership in the UK could provide encouragement about the prospects for post-Brexit Britain and help to bolster the pound.”

“While we expect GBP to remain well supported vs. the EUR in the weeks ahead, we see scope for a move back towards 0.85 on a 3 to 6-month view.”

• EUR/GBP recently pushed to fresh 23-month lows underneath the 0.8310 level on Thursday.
• The release of the latest ECB minutes did not impact FX market sentiment.
• Markets are focused on another likely rate hikes from the BoE next month.

EUR/GBP recently pushed to fresh 23-month lows underneath the 0.8310 level on Thursday and is now down about 0.3% on the session and eyeing a test of 0.8300. The release of the latest ECB minutes did not impact FX market sentiment as it did not contain any surprises/new revelations. EUR/GBP’s latest push lower marks a near 70 pip reversal from Wednesday’s highs near 0.8380, with traders seemingly having taken the opportunity provided by the rally to add to short positions as the pair retested its November 2021 lows (at 0.8380).

Traders might reason that with the recent run of data strongly supportive of expectations for the BoE to hike interest rates again in February, BoE/ECB policy divergence is set to remain a key driver of EUR/GBP downside. Recall that labour market data on Tuesday saw the UK unemployment rate drop back to pre-pandemic levels and that Consumer Price Inflation data on Wednesday hit its highest in 30 years.

Some analysts are calling for the pair to retest late-2019/early-2020 lows in the 0.8270/80s soon, despite uncertainty about whether Boris Johnson will stay in his role as UK PM. Indeed, analysts at Berenberg said a change in PM could actually end up as a positive for UK markets, given that the Conservative party would likely choose a replacement based on who has the best chance of beating Labour leader Keir Starmer at the next general election.

The bank argues that a new PM would likely pursue “similar policies to Johnson in a much calmer and more deliberate fashion”. ING says that “unsurprisingly, political risk has not damaged GBP”, and adds that “the focus remains squarely on whether the BoE hikes 25bp on February 3”. The bank continues to favour EUR/GBP retesting the aforementioned 2019/2020 sub-0.8300 lows soon.

• Gold rises for the second day in a row, heads for the highest close in two months.
• Dollar mixed across the board as equity prices rebound.

Gold broke to the upside following US economic data, and it peaked during the American session at $1847, the highest level in almost two months. It holds a bullish tone but shows difficulties holding above $1845.

Metals are up for the second day in a row. XAG/USD is up 1.78% at $24.58, the highest level since November 22. Gold and silver have broken relevant short-term technical levels boosting further the upside.

Another factor helping metals is the pullback in US yields from the recent peak together with Thursday’s rebound in Wall Street. The Dow Jones gains 0.83% and the Nasdaq 1.47%.

Economic data in the US came in mixed. Initial Jobless Claims jumped to 286K, the highest level in three months and significantly above expectations. On the positive, the Philly Fed Index rose from 15.4 to 23.2 in December. The last report, Existing Home Sales came in at 6.18 million (annual rate) below the 6.44 of market consensus.

Levels to watch

The technical bias continues to point to the upside, after breaking on Wednesday the $1830 area. Now XAU/USD is facing resistance in the band $1845/50. Above resistance levels are seen at $1855 followed by $1864.

A pullback under $1830 should remove the positive bias and favor further losses, targeting $1820 initially and then $1810.

Technical levels

• The daily pullback in DXY meets support near 95.40.
• US yields remain in corrective mode along the curve so far.
• Initial Claims surprised to the downside last week.

The greenback, in terms of the US Dollar Index (DXY), now alternates gains with losses around the 95.60 region.

US Dollar Index offered on lower yields, mixed data

After bottoming out in the vicinity of the 95.40 level, the index managed to regain some composure and trim those earlier losses.

The knee-jerk reaction in the buck, in the meantime, looks underpinned by another negative performance in US yields, while mixed results from the US calendar on Thursday added to the downbeat mood in DXY.

Initial Claims rose more than expected by 286K in the week to January 15, while the Philly Fed bettered consensus at 23.2 for the current month. In addition, Existing Home Sales dropped 4.6% MoM in December to 6.18M units.

US Dollar Index relevant levels

Now, the index is losing 0.09% at 95.53 and a break above 95.83 (weekly high Jan.18) would open the door to 96.46 (2022 high Jan.4) and finally 96.93 (2021 high Nov.24). On the flip side, the next down barrier emerges at 94.78 (100-day SMA) followed by 94.62 (2022 low Jan.14) and then 93.27 (monthly low Oct.28 2021).

• Existing home sales dropped 4.6% in December.
• The data did not result in an FX market reaction. 

US Existing Home sales fell by 4.6% in December according to data published by the National Association of Realtors on Monday. That took the 12-month rolling number of sales lower to 6.18M from 6.48M in November, lower than the expected 6.44M. The median price of homes sold was $358K, up 15.8% YoY. 

Market Reaction

FX markets did not react to the latest housing market data. 

• WTI is trading in the mid-$85.00s after bearish inventory data knocked it back from highs.
• But for now, geopolitics, supply fears and expectations for continued robust demand will likely keep prices underpinned.

Front-month WTI futures have spent Thursday’s session consolidating in the $85.00s amid a lack of fresh catalysts to drive the price action either way. At current levels near $85.50, WTI trades slightly more than 50 cents lower on the session. Indeed, crude oil markets appeared to experience selling pressure ahead of the Wednesday futures market close at 2200GMT before gapping lower at the Thursday futures market reopen at 2300GMT as a result of bearish inventory figures. At current levels, WTI is about $2.0 below Wednesday’s highs.

According to the latest weekly private US inventory report from API, crude oil stocks rose by 1.4M barrels last week versus consensus expectations for a 0.9M barrel decline. Gasoline stocks, meanwhile, rose by 3.5M barrels whilst distillate stocks fell by 1.2M barrels. If official data released by the US EIA at 1530GMT confirm Wednesday’s API figures, that would mark the first rise in crude oil stocks in seven weeks. This could further weigh on prices and technicians would be keenly watching how WTI responds to support in the $85.00 area.

In terms of the major themes driving crude oil markets right now, amid consensus expectations for robust demand this year, supply-side themes are currently getting more attention. Chief amongst them is OPEC+’s ongoing struggles to lift output in line with recent output quota hikes. On Wednesday, the IEA said the producer group produced 800K barrels per day less than its production target in December and the recent outage of an Iraqi-Turkish pipeline and attack on UAE infrastructure highlighted the risk of continued underproduction.

Meanwhile, with Russia seemingly on the verge of a military incursion into Ukraine, there is uncertainty about what kind of sanctions the world’s third-largest crude oil producer may face and whether this might affect their oil exports. For now, geopolitics, supply fears, and expectations for continued robust demand will likely keep prices underpinned and analysts will likely continue to call for $100 per barrel oil this year.

USD/CAD has maintained a tight, sideways trading range around 1.25 this week. Economists at Scotiabank think the pair is set to move downward towards the October low around 1.22.

Bear trend remains deeply entrenched

“Short-term price action suggests firm USD support on dips in European trade which might tilt intraday risks towards a test of the low 1.25s early in our session. But we think the broader, bear trend remains deeply entrenched in this market and modest USD gains are likely to attract better USD selling pressure.” 

“Broader price patterns continue to reflect strong, longer run resistance in the low 1.26 zone and downside potential in the USD to the upper 1.22s – effectively a retest of the Oct low. A break below this point indicates scope for additional CAD gains in the medium term towards 1.20.”

• The headline Philly Fed manufacturing index rose to 23.2, above the expected 20.0. 
• FX markets did not react to the stronger than expected survey. 

According to a report from the Federal Reserve Bank of Philadelphia released on Thursday, the headline Manufacturing Activity Index of the Manufacturing Business Outlook Survey rose to 23.2 in January from 20.0 in December. That was bigger than the expected rise to 20.0. 

Subindices

• The New Orders Index rose to 17.9 from 13.7. 
• The Prices Paid Index rose to 72.5 from 66.1.
• The Employment Index fell to 26.1 from 33.9. 
• The Six-Month Business Conditions Index rose to 28.7 from 19.0. 
• The Six-Month Capital Expenditures Index rose to 26.2 from 20.0. 

Market reaction

FX markets did not react to the stronger than expected Philly Fed survey. 

• There were 286K initial claims in the week ending on January 8, more than expected. 
• In a reaction to the data, the dollar saw modest negative ticks.

There were 286,000 initial claims for unemployment benefits in the US during the week ending January 15, data published by the US Department of Labor (DoL) revealed on Thursday. This reading followed last week's print of 231,000 (revised up from 230K) and was well above consensus market expectations for 220,000. Continued claims in the week ending on January 8 also came in higher than expected at 1635K versus expectations for a more modest rise to 1580K from 1551K the week before. The insured unemployment rate rose slightly to 1.2% from 1.1%. 

Market Reaction

The DXY saw some modest negative ticks in response to the data and has now dropped back to test the 95.50 area.  

• AUD/USD gained traction for the second straight day, albeit struggled to capitalize on the move.
• Elevated US bond yields helped revive the USD demand and acted as a headwind for the major.
• The formation of a bearish flag on the daily chart also warrants some caution for bullish traders.

The AUD/USD pair built on the previous day's rebound from an over one-month-old ascending channel support and gained traction for the second successive day on Thursday.

The upbeat Australian employment details, along with signs of stability in the equity markets turned out to be a key factor that benefitted the perceived riskier aussie. The AUD/USD pair shot to a one-week high, though bulls struggled to capitalize on the move beyond mid-0.7200s amid reviving US dollar demand.

Firming expectations for an eventual Fed lift-off in March remained supportive of elevated US Treasury bond yields and acted as a tailwind for the greenback. Nevertheless, the AUD/USD pair, so far, has held in the positive territory and was last seen trading around the 0.7240 region during the early North American session.

Looking at the technical picture, the recent recovery from the 2021 low – levels just below the key 0.7000 psychological mark – has been along an upward sloping channel. Given the sharp decline from the October 2021 swing high, the mentioned trend channel seems to constitute the formation of a bearish flag pattern.

That said, neutral technical indicators on the daily chart haven't been supportive of a firm near-term direction and warrant some caution before placing aggressive bets. Hence, it will be prudent to wait for a convincing break below the channel support, currently near the 0.7180 area, before positioning for a further decline.

The AUD/USD pair might then accelerate the downward towards testing the 0.7100 round-figure mark. The downward trajectory could further get extended towards the 0.7060-55 intermediate support before the pair eventually drops back to challenge the 0.7000 mark.

On the flip side, a sustained strength beyond the 0.7250 area has the potential to lift the AUD/USD pair towards the 200-day SMA, just ahead of the 0.7300 mark. Some follow-through buying should pave the way for a move towards challenging the trend-channel resistance, around the 0.7345 region, which should act as a pivotal point.

AUD/USD daily chart

Technical levels to watch

• EUR/USD returns to the negative territory near 1.1330.
• Sellers aim at another visit to the 2022 low at 1.1272.

EUR/USD’s initial bullish attempt seems to have run out of steam in the proximity of 1.1380 on Thursday.

The bias appears tilted to further retracement in the very near term. That said, a deeper decline remains on the cards if spot breaks below the weekly low at 1.1314 (January 18). Such a move should open the door to a test of the so far YTD low at 1.1272 (January 4).

The longer term negative outlook for EUR/USD is seen unchanged while below the key 200-day SMA at 1.1719.

EUR/USD daily chart

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GBP/USD has settled in the lower 1.36s after its decline from the mid-figure area that began last week. Economists at Scotiabank expect cable to find solid support at 1.36 and bounce back to test the 1.37 level.

Below 1.3590/600, support is at 1.3575

“The 1.36 figure zone is set to act as decent support for the GBP in its upward trend since mid-December.”

“The 1.3635 mark fell short of a test of mid-figure resistance through which the GBP will have to break to form a more convincing reversal of recent losses and test 1.37; the 200-day MA at 1.3734 follows as resistance.” 

“Below 1.3590/600, support is 1.3575 and the 100-day MA of 1.3546.”

EUR/USD trades flat. Economists at Scotiabank expect the world’s most popular currency pair to settle within a 1.1250-1.1350 range if it fails to surpass the mid-1.13s in the coming days.

Break of 1.14 faces resistance at 1.1420/35

“EUR/USD may struggle in the near-term to push past the mid-1.13s and a failure to do so in the coming days would likely see the EUR re-settle in the ~1.1250-1.1350 range where it sat through December and part of January.” 

“Support is 1.1315 followed by the 1.13 zone.” 

“A break of 1.14 faces resistance at 1.1420/35 and then the mid-figure area.”

• EUR/USD did not react to the latest ECB minutes release which contained few new surprises.
• The pair continues to pivot the 1.1350 area as analysts warn central bank divergence could yet send it lower.
• The uptrend that has supported the price action since late November is a key level to watch.

The latest ECB minutes release contained little by way of surprises or new revelations that recent “sources” hadn’t already leaked to the press, hence the lack of any notable EUR/USD reaction. The pair thus continues to pivot the 1.1350 area and at current levels in the 1.1330s, trades flat on the session. In wake of the minutes, the consensus analyst view very much remains that the ECB currently does not see the conditions for rate hikes in 2022, or indeed in its forecast horizon, having been met. However, the bank is clearly wary of upside inflation risks (a major source of dissenting votes at the last meeting) and, as a result, is ready to pivot hawkishly and in a data-dependent manner if upside risks manifest.

Recent inflation data suggests this upside scenario is becoming ever more possible. German producer prices grew at a pace of 24.2% in December, well above expectations for 19.4% and at a fresh record high. Meanwhile, the final estimate of Eurozone December Consumer Price Inflation confirmed last month’s rise to 5.0% (also a record high for the Eurozone). But even if the upside inflation scenarios manifest, not many analysts expect the ECB to live up to already very hawkish money market pricing, which currently imply rate hikes starting as soon as October. Given that the Fed is very likely to live up to or perhaps even exceed money market expectations for four rate hikes in 2022, the theme of central bank divergence is likely to continue to weigh on EUR/USD in 2022.

US data in the form of weekly jobless claims, the January Philly Fed manufacturing survey and more housing figures likely won’t shift the macro narrative driving currencies much given the proximity to next week’s Fed meeting. But strong data may encourage further EUR/USD selling, with the pair already about 0.7% lower on the week. The main support levels to watch are the weekly lows just under 1.1320 and the 50-day moving average at 1.1321. Then there is the uptrend which has been supporting the price action going all the way back to late November. Should that break, that would open the door to technical selling that could eventually send EUR/USD all the way back to the 2021 lows under 1.1200.

• The UK political turmoil failed to assist GBP/USD to capitalize on its modest intraday gains.
• Elevated US bond reived the USD demand and prompted intraday selling around the pair.
• Rising BoE rate hike bets acted as a tailwind for sterling and helped limit any further slide.

The GBP/USD pair surrendered its modest intraday gains and was last seen hovering near the daily low, around the 1.3600 mark heading into the North American session.

Growing demands for UK Prime Minister Boris Johnson's resignation over a series of lockdown parties in Downing Street turned out to be a key factor that acted as a headwind for the British pound. The GBP/USD pair met with a fresh supply near the 1.3635 region on Thursday and was further pressured by the emergence of some US dollar dip-buying.

Firming expectations that the Fed would begin raising interest rates in March to contain stubbornly high inflation remained supportive of the elevated US Treasury bond yields. This, in turn, helped revive the USD demand. That said, signs of stability in the equity markets kept a lid on any meaningful upside for the safe-haven greenback.

Apart from this, rising bets for additional rate hikes by the Bank of England could help limit any deeper losses for the GBP/USD pair. The market bets were reaffirmed by Wednesday's release of the US CPI print. This, along with the announcement that COVID-19 restrictions in the UK would be lifted next week, should lend some support to sterling.

The mixed fundamental backdrop warrants some caution before placing aggressive directional bets ahead of the crucial FOMC monetary policy meeting on January 25-26. Investors will look for clearer signals about the timing when the Fed will commence the rate hike cycle. This will influence the USD and provide a fresh impetus to the GBP/USD pair.

In the meantime, traders on Thursday will take cues from the US economic docket, featuring the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and Existing Home Sales data. This, along with the US bond yields and the broader market risk sentiment, will drive the USD demand and produce some trading opportunities around the GBP/USD pair.

Technical levels to watch

According to the accounts of the December European Central Bank monetary policy meeting, it was cautioned that a "higher for longer" inflation scenario could not be ruled out. 

Additional Points: 

"Members concurred that the recent and projected near-term increase in inflation was driven largely by temporary factors that were expected to ease in the course of 2022."

"It was stressed that the projected convergence of inflation expectations towards 2% was to be welcomed although the outlook was surrounded by exceptionally high uncertainty."

"For 2023 and 2024, inflation in the baseline projection was already relatively close to 2% and, considering the upside risk to the projection, could easily turn out above 2%."

"It was seen as important to preserve the flexibility to act decisively to keep inflation expectations anchored in both directions, and thus also preserve the credibility of the governing council."

"The governing council should therefore communicate clearly that it was ready to act if price pressures proved to be more persistent."

"The ECB is ready to act if price pressures proved to be more persistent and inflation failed to fall below the target as quickly as the baseline projections foresaw."

"Concerns were also expressed about any premature scaling back of monetary stimulus and asset purchases."

"Progress on economic recovery and towards the governing council’s 2% medium-term inflation target permitted a gradual normalisation of the monetary policy stance."

"Members widely agreed that substantial monetary policy support was still needed."

"It was argued that the governing council should look through the current supply disruptions."

"There were also growing risks to financial stability, especially in the housing market."

"The point was made that declaring an end to the emergency might be considered premature given the current deterioration in the pandemic situation."

"It was questioned whether lengthening the reinvestment horizon could be interpreted as adding more monetary stimulus."

"A concern was voiced that continued asset purchases could lead to an unwelcome flattening of the yield curve if short-term interest rates needed to be raised before the end of the reinvestment horizon."

"The governing council should retain the ability to calibrate and recalibrate the monetary policy stance in a data-driven manner in either direction."

"Some members retained reservations about some elements of the proposed package such that they could not support the overall package. These reservations pertained, in particular, to the recalibration of APP purchases and the extension of the PEPP."

• Spot gold is consolidating just under $1840 after Wednesday’s short-squeeze.
• Technicians may look to $1830 support to build longs, but analysts warn that gold is “expensive” given higher real yields.

Spot gold (XAU/USD) prices are consolidating just under the $1840 mark on Thursday following Wednesday’s short-squeeze that saw prices surge from around $1810 and above resistance in the $1830 area. Many market participants had been calling for gold to move lower in recent weeks as hawkish Fed bets have been amped up and as real yields have moved higher. Some likely placed their stops just above recent highs in the $1830s and triggering of these may have contributed to the speed of the move through the $1830s and above $1840.

Any dip back to the $1830 area may be used by the gold bulls as an opportunity to reload on longs and perhaps target a move towards Q4 2021 highs in the $1870s. However, it is notable that with real yields substantially higher versus when spot gold was last at current levels near $1840, some may view the precious metal as not relatively more expensive. On November 22 when XAU/USD was last trading near $1840, 10-year TIPS yields were around -1.0%, versus current levels about 40bps higher.

Ahead of next week’s Fed meeting, which is expected to be a hawkish affair, analysts warn that spot gold remains at risk of experiencing selling pressure. A tense geopolitical backdrop, with Russia seemingly on the verge of a military incursion into Ukraine, may continue to offer the safe-haven metal some support, however.

• DXY reverses the initial pullback and returns to the 95.60 area.
• Further gains likely above the 4-month line near 95.30.

DXY manages to bounce off daily lows in the 95.40/45 band on Thursday.

The intense upside in the dollar has recently surpassed the 4-month line, today near 95.30, and in doing so it has reinstated the short-term bullish bias. That said, the next target is seen at the weekly high at 95.83 (January 18) ahead of the YTD high at 96.46 recorded on January 4.

Looking at the broader picture, the longer-term positive stance in the dollar remains unchanged above the 200-day SMA at 93.19.

DXY daily chart

• EUR/JPY retreats further and retests the mid-129.00s on Thursday.
• The continuation of the downside targets the 128.80 region.

EUR/JPY is down for the third consecutive session and extends the bearish move to the 129.50 zone on Thursday.

Price action in the cross now seems to favour extra decline in the short-term horizon, particularly after EUR/JPY remains unable to retest/surpass the YTD peaks in the 131.50/60 region (January 5). Against that, extra losses could retest the Fibo level (of the October-December drop) at 128.82.

While below the 200-day SMA, today at 130.53, the outlook for the cross is expected to remain negative.

EUR/JPY daily chart

• USD/JPY attracted dip-buying near 114.00 on Thursday, though lacked bullish conviction.
• Stability in the equity markets undermine the safe-haven JPY and extended some support.
• Elevated US bond yields revived the USD demand and also acted as a tailwind for the pair.

The USD/JPY pair had good two-way price moves through the mid-European session and was last seen trading in the neutral territory, around the 114.30 region.

A combination of supporting factors assisted the USD/JPY pair to defend the 114.00 mark and stage a goodish intraday bounce from the weekly low set earlier this Thursday. Signs of stability in the equity markets undermined the safe-haven Japanese yen. This, along with the recent widening of the US-Japanese government bond yield differential, acted as a tailwind for the major.

In fact, the yield on the 10-year Japanese government bond remained near zero due to the Bank of Japan's yield curve control policy. Conversely, the yield on the benchmark 10-year US government bond shot to the highest level since January 2022 on Wednesday amid growing market acceptance that the Fed would begin raising interest rates in March to combat stubbornly high inflation.

Moreover, the US 2-year notes, which are highly sensitive to rate hike expectations, held steady above the 1.0% threshold, or the highest level since February 2020. This, in turn, helped revive the US dollar demand, which further extended some support to the USD/JPY pair. Bulls, however, struggled to capitalize on the intraday uptick or find acceptance above mid-114.00s.

The lack of follow-through buying suggests that investors now seem reluctant to place aggressive bets ahead of the upcoming FOMC policy meeting on January 25-26. This warrants some caution before confirming that the recent pullback from the 116.35 area, or a five-year high touched earlier this January, has run its course and positioning for any meaningful gains.

Market participants now look forward to the US economic docket – featuring the releases of the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and Existing Home Sales data. This, along with the US bond yields, will drive the USD demand. Apart from this, the broader market risk sentiment should produce some trading opportunities around the USD/JPY pair.

Technical levels to watch

Senior Economist at UOB Group Alvin Liew comments on the latest BoJ monetary policy event.

Key Takeaways

“The Bank of Japan (BOJ), as widely expected, decided to keep its policy measures unchanged at its Monetary Policy Meeting (MPM) on 18 Jan 2022.”

“In its latest outlook for economic activity and prices (The Bank’s View), the most notable change was the upgrade of its FY2022-2023 inflation forecasts to 1.1% from 0.9% and 1.0% previously. The BOJ noted that risks to price outlook were “evenly balanced”, seen as a signal acknowledging the recent supply-constraint effects and commodity-driven price pressures.”

“The other change was the downgrade of its FY2021 growth forecast to 2.8% (from 3.4%) while upgrading FY2022 growth to 3.8% (from 2.9%) and lowering FY2023 growth to 1.1% (from 1.3%). The BOJ also kept its cautious recovery outlook but highlighted the risks to economic activity are skewed to the downside for now due to COVID-19 impact but will be expected to be balanced thereafter.”

“While the inflation outlook has been upgraded, it remains a distance away from the 2% target (at least till FY2023) and as such it does not change our view that the BOJ will not be tightening anytime soon and will maintain its massive stimulus for the next few years. There remains an entrenched belief that the BOJ has reached the end of the line on normalisation and will remain in a holding pattern on policy until at least April 2023 when Governor Kuroda is scheduled to leave the BOJ.”

• USD/TRY tests fresh weekly lows near 13.30 on Thursday.
• The CBRT left the One-Week Repo Rate unchanged at 14.00%.
• The CBRT said available policy tools prioritize the Turkish lira.

The Turkish lira is gathering further traction and now dragging USD/TRY to weekly lows in the 13.2500/2000 band on Thursday.

USD/TRY weaker on steady CBRT

USD/TRY is now seen dropping for the second session in a row as the lira remains bid vs. the greenback following the decision by the Turkish central bank (CBRT) to leave the One-Week Repo Rate unchanged at 14.00% at its meeting on Thursday. It was the first time the central bank kept the policy rate on hold since August.

The CBRT statement showed the central bank “blames” the “unhealthy price formations” in the FX space, supply disruptions and demand developments for the ongoing (very) high inflation.

In addition, the CBRT said that it will prioritize the lira when it comes to the policy framework and reiterated the willingness to achieve the medium-term inflation target of 5% YoY.

USD/TRY key levels

So far, the pair is retreating 0.01% at 13.3730 and a drop below 12.7523 (2022 low Jan.3) would pave the way for a test of 12.6123 (55-day SMA) and finally 10.2027 (monthly low Dec.23). On the other hand, the next up barrier lines up at 13.9319 (2022 high Jan.10) followed by 18.2582 (all-time high Dec.20) and then 19.0000 (round level).

The Central Bank of the Republic of Turkey (CBRT) announced its policy decision this Thursday and left the one-week repo rate unchanged at 14%, in line with the market expectations. 

Join our live coverage on the CBRT event

Market reaction

The Turkish lira moved little in reaction to the announcement, with the USD/TRY hovering near the lower end of a one-week-old trading range, below mid-13.00s.

Key takeaways from the accompanying policy statement:

• A comprehensive review of the policy framework is being conducted with the aim of prioritizing the Turkish lira in all policy tools.
• Expect the disinflation process to start on the back of measures taken.
• Seeing sustainable price and financial stability along with the decline in inflation owing to the base effect.
• Inflation in the recent period has been driven by distorted pricing behaviour due to unhealthy price formations in fx.
• Inflation is also affected by supply-side factors, commodities.
• The cumulative impact of the recent policy decisions being monitored.
• held steady below mid-13.00s, well within a narrow.

Norges Bank confirmed today that the key rate will be hiked in March. Four rate hikes are expected this year – this is a medium-term positive for the krone, in the opinion of economists at ING.

Expect four rate hikes this year

“We expect Norges Bank to signal a total of four 2022 rate hikes at its meeting in March, and there’s little reason to doubt that will happen.”

“Monetary policy remains a bullish factor for Norway's krone in an environment where we expect markets to reward those currencies that can count on hawkish central banks.”

“As soon as market sentiment stabilises, NOK’s attractive yield and benign external drivers point towards further appreciation.” 

“We expect EUR/NOK to slip below 9.90 in 1Q, and to reach 9.50 by year-end.”

• USD/CHF edged lower for the second successive day, though the downside seems cushioned.
• A softer risk tone underpinned the safe-haven CHF and exerted some pressure on the major.
• Elevated US bond yields acted as a tailwind for the USD and helped limit any deeper losses.

The USD/CHF pair recovered a major part of its early lost gound and was last seen trading with only modest intraday losses, around mid-0.9100s during the first half of the European session.

The pair extended the previous day's retracement slide from the weekly swing high, around the 0.9175 region and edged lower for the second successive day on Thursday. A weaker tone around the European equity markets underpinned the safe-haven Swiss franc, which, in turn, was seen as a key factor that exerted pressure on the USD/CHF pair.

On the other hand, elevated US Treasury bond yields, bolstered by the prospects for a faster policy tightening by the Fed, acted as a tailwind for the US dollar. This, in turn, helped limit any further losses for the USD/CHF pair, warranting some caution for aggressive bearish traders and before positioning for any further depreciating move.

Investors seem convinced that the Fed would begin raising interest rates soon and have fully priced in an eventual lift-off in March to combat stubbornly high inflation. The expectations were reaffirmed by last week's data, which showed that the headline US CPI surged to the highest level since June 1982 and core CPI registered the biggest advance since 1991.

Hence, the market focus will remain glued to the upcoming FOMC monetary policy meeting on January 25-26. The outcome will be looked upon for clearer signals about the likely timing when the Fed will be commencing its rate hike cycle. This will influence the near-term USD price dynamics and provide a fresh directional impetus to the USD/CHF pair.

In the meantime, traders on Thursday will take cues from the US macro releases – the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and Existing Home Sales data. This, along with the US bond yields, will drive the USD demand. Apart from this, the broader market risk sentiment should produce some trading opportunities around the USD/CHF pair.

Technical levels to watch

• EUR/NOK trades on a choppy fashion so far this week.
• The Norges Bank left the repo rate unchanged at 0.50%.
• The central bank signalled an interest rate hike in March.

EUR/NOK alternates gains with losses so far this week in the area just below the psychological 10.0000 mark.

EUR/NOK muted on NB decision, looks to oil

EUR/USD resumes the upside following Wednesday’s decline after the Norges Bank left the policy rate unchanged at 0.50% at its meeting on Thursday.

Indeed, the Scandinavian central bank matched estimates on Thursday although it reiterated its intention to hike the key rate at the March event. The Norges Bank justified the decision on the solid performance of the Norwegian fundamentals and noted that the elevated underlying inflation is now approaching the bank’s target.

The bank also noted that there is still uncertainty surrounding the progress of the omicron pandemic, while the Committee expressed its concerns over the potential increase in prices and wages stemming from the supply disruptions and price pressures overseas.

Despite prices of the barrel of the European benchmark Brent crude rose sharply since mid-December, NOK failed to appreciate in an equally (or even close) pace during the same period.

EUR/NOK significant levels

As of writing the cross is gaining 0.18% at 9.9777 and faces the next resistance at 10.0443 (55-day SMA) followed by 10.0782 (2022 high Jan.6) and then 10.1181 (200-day SMA). On the other hand, a breach of 9.9018 (2022 low Jan.13) would open the door to 9.8383 (low Nov.17 2021) and finally 9.8166 (low Nov.1 2021).

• Eurozone inflation arrives at 5.0% YoY in December.
• Monthly CPI in the bloc rises to 0.4% in December.
• EUR/USD remains unfazed around 1.1350 on the EZ data.

According to Eurostat’s final reading of the Eurozone CPI report for December, the consumer prices came in at 5.0% on a yearly basis, in line with the flash estimate of 5.0% and 5.0% expectations. While the core figures rose by 2.6%, matching the 2.6% consensus forecasts.       

On a monthly basis, the bloc’s CPI figure for December arrived at 0.4% versus 0.4% expectations and 0.4% previous while the core CPI numbers also came in at 0.4% versus 0.4% expected and 0.4% last.

Key details (via Eurostat):

“The lowest annual rates were registered in Malta (2.6%), Portugal (2.8%) and Finland (3.2%). The highest annual rates were recorded in Estonia (12.0%), Lithuania (10.7%) and Poland (8.0%). Compared with November, annual inflation fell in seven Member States, remained stable in two and rose in eighteen.”

“In December, the highest contribution to the annual euro area inflation rate came from energy (+2.46 percentage points, pp), followed by services (+1.02 pp), non-energy industrial goods (+0.78 pp) and food, alcohol & tobacco (+0.71 pp).”

FX implications:

EUR/USD is little changed on the data release, currently trading at 1.1349, up 0.07% so far.

GBP/USD seems to have gone into a consolidation phase above 1.3600. However, the near-term technical outlook doesn't yet point to a buildup of bullish momentum and sellers wait for 1.3600 support to fail, FXStreet’s Eren Sengezer reports.

Near-term resistance seems to have formed at 1.3650

“In case Wall Street's main indexes continue to push lower after the opening bell, we could see the dollar regather its strength. On the other hand, GBP/USD could benefit from the risk-positive market environment if US stocks rebound in a convincing way.”

“Interim resistance for GBP/USD seems to have formed at 1.3650, where the 50-period SMA on the four-hour chart is located. The pair needs to rise above that level and start using it as support to attract bulls. 1.3680 (static level) and 1.3700 (psychological level, broken ascending trendline coming from December) align as the next hurdles.”

“On the downside, the 100-period SMA forms dynamic support a little below 1.3600. If we see a four-hour candle close below that support, the next bearish target could be seen at 1.3530 (Fibonacci 38.2% retracement).”

See: GBP/USD could climb as high as 1.3750 – ING

In response to US President Joe Biden’s warnings amidst the Russia-Ukraine crisis, Kremlin came out with a statement on Thursday, stating that it fears US sanctions threats could also embolden Ukraine to try to resolve conflict in Eastern Ukraine militarily, per AFP News Agency.

Additional comments

“Kremlin declines to comment on parliamentarians' call for Putin to recognize breakaway east Ukraine regions as independent states.”

“There is some positive sign of NATO willingness to discuss some security issues with Russia, but they are not the ones that are fundamentally important to Moscow.”

“Doesn't rule out the conversation between Biden and Putin at some point.”

“US sanctions threats do not help reduce tensions in Europe and can have a destabilizing effect.”

Late Wednesday, US President Biden said that “Putin has never seen sanctions like the ones I'm promising.,” threatening that “Russia will be held accountable if it invades, it will be a disaster for Russia if they further invade Ukraine.”

Market reaction

The above comments have little to no impact on the broader market sentiment, reflective of the 0.33% gains in the S&P 500 futures. Meanwhile, the US dollar index is trading flat at 95.50, as of writing.  

Economist at UOB Group Enrico Tanuwidjaja reviews the latest trade balance results in Indonesia.

Key Takeaways

“Trade surplus at record high in 2021, recording a full 12-month cycle of surplus.”

“High commodity prices may sustain the trade surplus momentum in the next quarter.”

“Indonesia may record a small current account surplus in 2021, first in the last decade.”

• EUR/USD extends the upside to the 1.1370 region.
• Final December EMU CPI, ECB Accounts next on tap.
• US Initial Claims, Philly Fed Index come next in the NA session.

The buying interest around the single currency remains unchanged and pushes EUR/USD to 2-day highs in the 1.1370 in the wake of the opening bell in Euroland on Thursday.

EUR/USD underpinned by risk-on trade

EUR/USD posts gains for the second straight session so far in the second half of the week, always in response to the renewed offered stance in the US dollar, which in turn remains under pressure following the decline in US yields.

The early rate cut by the Chinese central bank (PBoC) seems to have bolstered the appetite for riskier assets, motivating spot to extend gains for another session. Indeed, the PBoC reduced the 1Y Loan Prime Rate (LPR) to 3.7% (from 3.8%) and the 5Y LPR to 4.6% (from 4.65%). The bank’s move on the latter was the first one since April 2020.

In the meantime, US yields keep correcting lower and weigh further on the greenback, at the time when market participants seem to be pricing in more and more an interest rate hike by the Fed at the March meeting.

In the domestic calendar, the final December inflation figures in the euro area come next, while the ECB will publish its Account of the last meeting. Earlier, Germany’s Producer Prices rose 5% MoM during December and 24.2% over the last twelve months.

Data wise across the Atlantic, weekly Claims and the Philly Fed manufacturing gauge will be in the limelight seconded by Existing Home Sales.

What to look for around EUR

EUR/USD came under pressure after hitting new YTD highs in the 1.1480 region earlier in the month, finding some contention in the low-1.1300s so far this week. In the meantime, the Fed-ECB policy divergence and the performance of yields are expected to keep driving the price action around the pair for the time being. ECB officials have been quite vocal lately and now acknowledge that high inflation could last longer in the euro area, sparking at the same time fresh speculation regarding a move on rates by the central bank by end of 2022. On another front, the unabated advance of the coronavirus pandemic remains as the exclusive factor to look at when it comes to economic growth prospects and investors’ morale in the region.

Key events in the euro area this week: EMU Final December CPI, ECB Accounts (Thursday) - ECB Lagarde, EC’s Flash Consumer Confidence (Friday).

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

EUR/USD levels to watch

So far, spot is gaining 0.07% at 1.1350 and faces the next up barrier at 1.1482 (2022 high Jan.14) followed by 1.1485 (100-day SMA) and finally 1.1510 (200-week SMA). On the other hand, a break below 1.1314 (weekly low Jan.14) would target 1.1272 (2022 low Jan.4) en route to 1.1221 (monthly low Dec.15 2021).

• GBP/USD edged higher for the second successive day, though lacked bullish conviction.
• Rising bets for additional BoE rate hike extended support amid subdued USD demand.
• The UK political drama acted as a headwind for sterling and capped gains for the major.

The GBP/USD pair maintained its bid tone through the first half of the European session and was last seen trading just a few pips below the daily high, around the 1.3630 region.

The pair edged higher for the second successive day on Thursday and inched back closer to the previous day's swing high, around mid-1.3600s touched in reaction to stronger UK CPI print. In fact, the UK consumer inflation accelerated to 5.4% YoY in December or the highest level in nearly 30 years, lifting bets for additional rate hikes by the Bank of England.

Apart from this, the announcement to lift COVID-19 restrictions imposed to fight the surge in Omicron cases in the UK acted as a tailwind for the British pound. This, along with subdued US dollar demand, further extended some support to the GBP/USD pair, though a combination of factors held back traders from placing aggressive bullish bets and capped the upside.

Firming market expectations that the Fed would begin raising interest rates in March underpinned the buck amid a fresh leg up in the US Treasury bond yields. This, along with growing demands for UK Prime Minister Boris Johnson's resignation over a series of lockdown parties in Downing Street, kept a lid on any meaningful gains for the GBP/USD pair, at least for now.

The fundamental backdrop makes it prudent to wait for a strong follow-through buying before confirming that the recent rejection slide from the very important 200-day SMA has run its course. There isn't any major market-moving economic data due for release from the UK on Thursday, leaving the GBP/USD pair at the mercy of the USD price dynamics.

Meanwhile, the US economic docket features the releases of the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and Existing Home Sales data. Apart from this, traders will take cues from the US bond yields and the broader market risk sentiment, which will influence the greenback and produce some short-term opportunities around the GBP/USD pair.

Technical levels to watch

European Central Bank (ECB) Governing Council member and Spanish central bank chief Pablo Hernandez de Cos said Thursday that he doesn’t expect any interest rate hike this year.

more to come ...

• USD/TRY remains stuck around 13.50, eyes a range breakout CBRT decision.
• CBRT is seen keeping rates on hold at 14%, halting its easing cycle.
• USD/TRY’s path of least resistance appears to the upside, graphically.

USD/TRY is maintaining its prison range around 13.50 so far this week, awaiting a clear directional impetus from the Turkish central bank’s (CBRT) monetary policy decision.

The central bank is due to announce its rate decision at 1100 GMT later on Thursday, with markets expecting the CBRT to hold steady on its key policy rate at 14% in January.

The policy announcement comes a day after Turkey’s President Tayyip Erdogan called on the citizens and companies to convert their foreign currency savings into Turkish lira. The Turkish authorities continue to unveil new measures, in a desperate move to support the beleaguered lira.

The domestic currency lost roughly 45% of its value in 2021, having hit a record low of 18.36 in December. At the time of writing, the pair is trading a better bid at 13.51, with the upside seen as the path of least resistance, as per the daily chart.  

USD/TRY: Technical outlook

Looking at USD/TRY’s technical chart, the pair is trading listlessly, well above the slightly bullish 21-Daily Moving Average (DMA) at 13.07. Just below the latter, the ascending 50-DMA aligns, making the 13.00 round level strong support.

If the CBRT decision cheers the lira bulls, then the spot can decisively break the abovementioned support, opening flooring for a test of the upward-sloping 100-DMA at 11.00.

On the upside, if the CBRT’s status-quo fails to offer any conciliation to the local currency, then the pair could break higher for a retest of the 14.00 level.

Acceptance above the latter is critical to resume the recovery from near 10.50 levels.

The 14-day Relative Strength Index (RSI) is holding steady above the midline, suggesting that the upside bias appears more compelling.

USD/TRY: Daily chart

FX Strategists at UOB Group suggested that a deeper move in USD/CNH appears not favoured in the near term at least.

Key Quotes

24-hour view: “USD traded between 6.3480 and 6.3613 yesterday before closing at 6.3500 (-0.15%). The weakened underlying tone suggests USD could drift lower but the major support at 6.3390 is unlikely to come under threat (minor support is at 6.3430). Resistance is at 6.3570 followed by 6.3610.”

Next 1-3 weeks: “Our latest narrative from Monday (17 Jan, spot at 6.3610) still stands. As highlighted, the odds for further USD weakness are not high. However, only a breach of 6.3710 (no change in ‘strong resistance’ level) would indicate that the downside risk has dissipated. Looking ahead, any decline in USD is expected to encounter solid support at 6.3390 and 6.3300.”

• DXY extends the decline to the 95.40 region on Thursday.
• US yields correct further lower from recent tops.
• Initial Claims, the Philly Fed Index are next in the US docket.

The greenback extends the bearish correction from recent tops and recedes to the 95.40 region when gauges by the US Dollar Index (DXY).

US Dollar Index looks to yields, data

The index loses ground for the second session in a row on Thursday following the continuation of the corrective downside in US yields across the curve. Despite the current knee-jerk in yields, they manage well to keep the trade in the area of recent tops.

In the meantime, the Fed’s potential lift-off in the month of March narrative continues to prevail as the main catalyst for the price action around the buck, always propped up by persevering elevated inflation and amidst the strong economic recovery in the US.

In the docket, the usual weekly Claims are due seconded by the always important Philly Fed Manufacturing Index and Existing Home Sales.

What to look for around USD

The index came under some downside pressure soon after recent peaks near 95.90. In fact, the recovery from as low as the 94.60 area (January 14) almost fully reclaimed the ground lost earlier in the new year, always on the back of the sharp move higher in US yields, firmer speculation of a sooner move on rates by the Federal Reserve and supportive Fedspeak.

Key events in the US this week: Initial Claims, Philly Fed Index, Existing Home Sales (Thursday).

Eminent issues on the back boiler: Start of the Fed’s tightening cycle. US-China trade conflict under the Biden’s administration. Debt ceiling issue. Potential geopolitical effervescence vs. Russia and China.

US Dollar Index relevant levels

Now, the index is losing 0.12% at 95.50 and a break above 95.83 (weekly high Jan.18) would open the door to 96.46 (2022 high Jan.4) and finally 96.93 (2021 high Nov.24). On the flip side, the next down barrier emerges at 94.78 (100-day SMA) followed by 94.62 (2022 low Jan.14) and then 93.27 (monthly low Oct.28 2021).

How much more can the dollar rise in 2022? James Lord, Global Head of Foreign Exchange and Emerging Market Strategy for Morgan Stanley, believes that the greenback could be close to peaking.

Good time to start to reduce dollar long positions

“We believe that the US dollar could be close to peaking. In fact, we've just changed our dollar call to neutral, which means we think it will just go sideways from here – after being bullish the dollar since June last year.”

“The Fed has indicated it may be close to raising interest rates, and we think that the Fed starting an interest rate hiking cycle could be a signal that the dollar's rise is close to finished. The US dollar tends to rise in the months before lift-off, but fall in the months afterwards. This is a great example of buying the rumor and selling the fact. And if the market is right and the Fed hikes rates as soon as March, the peak of the US dollar for this cycle may not be too far away.”

“What we've seen recently is that other central banks are also starting to think about tightening policy and raising interest rates, which will, to some extent, offset Fed hikes – reducing their impact on the dollar.” 

“We think this may be a good time for investors to start to reduce their dollar long positions, not add to them.”

• A combination of factors prompted fresh selling around USD/CAD on Thursday.
• Bullish oil prices, strong Canadian CPI print continued underpinning the loonie.
• The risk-on mood weighed on the safe-haven USD and did little to lend support.
• Rising US bond yields acted as a tailwind for the USD and could help limit losses.

The USD/CAD pair edged lower through the early European session and dropped to a fresh daily low, around the 1.2480 region in the last hour.

The pair struggled to capitalize on the previous day's goodish rebound from mid-1.2400s, or over two-month low and met with a fresh supply near the 1.2525 area on Thursday. The recent bullish run-up in oil prices, along with Wednesday's stronger Canadian CPI report underpinned the commodity-linked loonie and acted as a headwind for the USD/CAD pair.

In fact, strong demand and short-term supply disruptions pushed crude oil prices to the highest level since late 2014 earlier this week. Moreover, Canada’s annual inflation rate reached a three-decade high in December, which fueled speculations that the Bank of Canada could increase rates as early as next week and further benefitted the Canadian dollar.

On the other hand, a strong recovery in the risk sentiment weighed on the safe-haven US dollar and did little to lend any support to the USD/CAD pair. That said, a fresh leg up in the US Treasury bond yields, bolstered by the prospects for an eventual Fed lift-off in March, should limit the downside for the greenback and the USD/CAD pair, at least for now.

Even from a technical perspective, bulls have been showing some resilience near the mid-1.2400s, which should now act as a pivotal point for traders. Market participants now look forward to the US economic docket – featuring the releases of Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and Existing Home Sales data – for a fresh impetus.

This, along with the US bond yields and the broader market risk sentiment, will influence the buck. Apart from this, traders will take cues from oil price dynamics for some short-term opportunities around the USD/CAD pair. The key focus, however, will remain on next week's central bank event risks – the FOMC and the BoC policy decision on Wednesday.

Technical levels to watch

The best performing G10 currency so far this year has been the Canadian dollar which has strengthened by around 2.0% against the US dollar. Economists at MUFG Bank maintain a bullish outlook for the CAD due to high oil prices and building speculation that the Bank of Canada (BoC) will soon start to raise rates. 

Loonie should continue to shine at start of the New Year

“USD/CAD is currently attempting to break back below support from the 200-day moving average at the 1.2500-level. It would open the door for a retest of the lows from last October at 1.2288.”

“While we do expect the BoC to raise rates on multiple occasions this year, the rate market already appears aggressively priced. We are not as convinced as market participants that the BoC will begin raising rates as soon as this month, although the wait for the first hike is unlikely to be long.”

“Our short-term regression model based on yield spreads and the price of oil is signalling that that USD/CAD should be trading closer to the 1.2000-level. It strongly suggests that even after recent strong gains there is clear room for the Canadian dollar’s upward momentum to extend further at the start of this year.”

Japanese Prime Minister Fumio Kishida said Thursday, he expects the Bank of Japan (BOJ) to maintain its efforts towards achieving the 2% inflation target.

Additional quotes

Market reaction

USD/JPY is trading listlessly around 114.35, little changed on the day, at the time of writing.

Economists at Standard Chartered expect a 25bps Bank of Canada (BoC) hike in January, and see the end-2022 policy rate at 1.5%. Subsequently, the Canadian dollar is set to strenghten, driving the USD/CAD pair lower to the 1.15 level by end-2022.

BoC to deliver another 25bps hike in March

“We now expect BoC to raise its policy rate by 25bps to 0.5% amid soaring inflation readings and robust economic recovery. We expect the BoC to hike again in March and bring the end-2022 policy rate to 1.5% (1.25% prior).”

“The hike is about 65% priced in, so markets could be modestly surprised. We doubt that the BoC will endorse the six hikes now priced in, but the CAD could strengthen a bit if the BoC signals a follow-up hike in March.”

“A clear signal that balance sheet shrinkage is likely to start in H1 would add support for the CAD.”

“We target 1.15 by end-2022.”

USD/JPY is still seen within the 113.70-115.25 range amidst the current mixed outlook, commented FX Strategists at UOB Group.

Key Quotes

24-hour view: “USD drifted to a low of 114.19 yesterday before closing on a soft note at 114.32 (-0.25%). The bias for today is tilted to the downside but any weakness is unlikely to break the major support at 114.00. Resistance is at 114.55 followed by 114.75.”

Next 1-3 weeks: “Our latest narrative was from Monday (17 Jan, spot at 114.30) where we held the view that the prospect for further USD weakness is not high. USD subsequently soared above our ‘strong resistance’ level of 114.75 (high of 115.05) before dropping back down quickly. The choppy price actions have resulted in a mixed outlook and USD could trade within a range of 113.70/115.25 for now.”

A stumbling start for the US Dollar Index (DXY) in early 2022, but it should find its feet into next week’s FOMC as expectations build for a March hike signal, in the view of economists at Westpac. DXY could see a quick sprint toward last year’s 97.94 highs.

Bullish DXY view for the week, month and quarter ahead

“DXY could see a quick sprint toward last year’s 97.94 highs into next week’s Fed, as expectations build that their statement will show a clear signal of intent to move ahead with March lift off.”

“Market pricing for terminal Fed Funds beyond 2023 has been inching higher too, but at 1.75% still falls well shy of the Fed’s 2.5% long-term neutral rate too. And, as the focus shifts to the Fed’s balance sheet and prospects for quantitative tightening, another leg of fresh yield support can form further out the yield curve.” 

“We stick with a bullish DXY view for the week, month and quarter ahead.”

Political noise in the UK is certainly not impacting the pound. Economists at ING expect EUR/GBP to drift to the 0.8270/80 area neighborhood and GBP/USD to lurch higher towards 1.3670 or even 1.3750.

Onwards and upwards

“Unsurprisingly political risk has not damaged GBP, where the focus remains squarely on whether the BoE hikes 25bp on February 3rd. The market tried to dissect yesterday's testimony from Governor Bailey - especially on the issue of Quantitative Tightening - but the Short-Sterling interest rate strip barely budged.”

“We continue to favour EUR/GBP drifting to the 0.8270/80 area.”

“Cable could drift back to 1.3670 or even 1.3750 if we are over-estimating dollar strength.”

EUR/USD trades in a relatively tight range around 1.1350 on Thursday as market participants await the accounts of the European Central Bank (ECB) December policy meeting. 

December ECB minutes in focus today

“EUR/USD is drifting in tight ranges and may continue to do so today.”

“The highlight will be the release of the December ECB minutes. Typically these minutes do not prove too controversial and look unlikely to make any case for the ECB to be in a hurry to raise rates.” 

“We would like to think that 1.1375/85 resistance can hold EUR/USD intra-day – otherwise, we may be looking at a broadly weaker dollar environment.”

USD/IDR struggles for clear direction following a three-day uptrend. Looking ahead, narrowing trade surplus should be moderately bearish to the Indonesian rupiah.

IDR to remain under pressure

“Recovering domestic demand could sustain the narrowing momentum in trade balance, and this should be moderately bearish to the IDR.”

“We expect inflation to increase gradually towards the 3% target in 2022 and expect the BI to deliver its first rate hike by 2Q 2022, delivering a total of 50bp in hikes this year.”

“We believe that any policy response by BI to cushion the impact from prospective US Fed rate hikes should serve to contain depreciation pressures on the IDR.”

GBP/USD started to move sideways above 1.3600 on Thursday. According to economists at Westpac, a dip back below 1.3550/1.36 is a clear risk into next week though that likely presents a buying opportunity for further gains in the months ahead.

Sue Gray’s report may be released early next week

“No date has been confirmed, but the Sue Gray ‘partygate’ investigation report may also be released this weekend/early next week.”

“With another hike fully priced for the March BoE meeting and return to work likely to lift activity strongly through Q1, we see GBP outperformance story continuing.”

“The speed with which the pound has recovered from sub 1.32 early December to crack the top end of a six-month downtrend at circa 1.36 last week leaves us concerned that we may see a near-term correction.”

“A dip below 1.3550/1.36 would add to near-term risks, especially given the possibility of a hawkish FOMC next week and a UK leadership challenge.”

The INR’s moderately bullish start to the year reversed in the past week on the back of higher oil prices. Economists at Société Générale expect the oil price risk to unwind only in a gradual manner and view it as a medium-term risk to the Indian rupee.

RBI’s policy response to a hawkish Fed to be sufficiently supportive of the currency

“Supply bottlenecks are expected to unwind in a gradual manner, and higher energy/commodity prices are likely to persist in the near term and this is detrimental to the INR.”

“Given the significant rise in covid active cases since December, some localized restrictions have been proposed. However, the increase has been moderate. We also expect government-imposed restrictions to remain modest and for the rising number of infections to have a limited impact on the economy, the INR and rates.”

“ IPO-related foreign inflows amounted close to $11bn in 2021 and we expect this strong momentum to continue in 2022, especially with the potentially largest IPO (LIC) in the pipeline. In addition, upside risks to bond inflows related to bond index inclusion remain as well and this is positive for FX and bonds, especially in the long end.”

“The INR exhibits a high sensitivity to policy rate differentials vs the US, and hence we expect any rate hike from the RBI to be moderately positive for the currency.”

• USD/JPY quickly reversed an intraday dip to the weekly low and defended the 114.00 mark.
• A positive risk tone undermined the safe-haven JPY and helped the pair to regain traction.
• A fresh leg up in the US bond yields acted as a tailwind for the USD and remained supportive.

The USD/JPY pair held on to its intraday recovery gains and was last seen trading near the daily high, just below mid-114.00s during the early European session.

The pair attract some buying near the 114.00 mark, or the weekly low touched earlier this Thursday and was supported by a combination of factors. A recovery in the risk sentiment undermined the safe-haven Japanese yen and acted as a tailwind for the USD/JPY pair. Bulls further took cues from elevated US Treasury bond yields, which extended some support to the US dollar.

Firming expectations that the Fed would begin raising interest rates in March to contain stubbornly high inflation remained supportive of the recent runup in the US bond yields. The market bets were further reaffirmed by last week's data, which showed that the headline US CPI surged to the highest level since June 1982 and core CPI registered the biggest advance since 1991.

This, in turn, pushed the yield on the benchmark 10-year US government bond to the highest level since January 2020 on Wednesday. Moreover, the US 2-year notes, which are highly sensitive to rate hike expectations, surged past the 1.0% mark for the first time since February 2020. Hence, the focus will remain glued to the upcoming FOMC policy meeting on January 25-26.

The fundamental backdrop favours bullish traders, though the lack of a strong follow-through buying warrants some caution before positioning for any further gains. Market participants now look forward to the US economic docket – featuring the releases of Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and Existing Home Sales data – for a fresh impetus.

This, along with the US bond yields, will influence the USD price dynamics. Apart from this, traders will take cues from the broader market risk sentiment for some short-term opportunities around the USD/JPY pair.

Technical levels to watch

Economists at Westpac remain bearish, targeting 0.6600 on the NZD/USD pair. The next major NZ event is Q4 CPI on January 27.

Annual NZ CPI inflation in Q4 could set a multi-decade high

“NZD/USD looks bearish near-term. The rise since mid-December looks corrective, and we are watching for a potential break of 0.6755 to signal a larger decline to 0.6600.”

“NZ CPI Q4 data estimates are skewed to the upside, and could show annual inflation was the highest since 1990 if it beats 5.3%. That would lift NZD/USD.” 

“Ahead of NZ CPI, the FOMC announcement could reveal another hawkish shift, depressing NZD/USD.”

Japanese Prime Minister Fumio Kishida said on Thursday that he expects the Bank of Japan (BoJ) to maintain its efforts to realize the 2% inflation target, as reported by Reuters.

"Specific monetary policies including policy target, exit strategies are up to the BoJ to decide," Kishida added and noted that they must work hard on wage hikes amid rising prices.

Market reaction

The USD/JPY pair paid little to no attention to these comments and was last seen trading at 114.45, where it was up 0.1% on a daily basis.

EUR/USD has been having a hard time gathering recovery momentum. As FXStreet’s Eren Sengezer notes, the near-term technical outlook doesn't offer any convincing signs of a reversal yet.

Investors await ECB Meeting Accounts and mid-tier data releases from the US

“Later in the session, the European Central Bank (ECB) will release the December Policy Meeting Accounts. In case the publication shows that some ECB members keep an open mind about a rate hike in 2022, the shared currency could outperform the dollar, at least in the short-term.”

“In the second half of the day, December Existing Home Sales, weekly Initial Jobless Claims and Philadelphia Fed Manufacturing Survey will be featured in the US economic docket. If Thursday's data disappoint, the dollar could lose interest.”

“In case 1.1350, where the 100-period SMA on the four-hour chart and the Fibonacci 61.8% retracement of the latest uptrend align, turns into support, the pair could target 1.1380 (Fibonacci 50% retracement) and 1.1400 (Fibonacci 38.2% retracement).”

“On the downside, the 200-period SMA forms dynamic support near 1.1320. With a decline below that level, additional losses toward 1.1300 (psychological level) and 1.1270 (the starting point of the uptrend coming from early January) could be witnessed.”

See: EUR/USD to edge lower towards 1.10 in the first half of the year – Westpac

In an interview with France Inter radio on Thursday, European Central Bank President (ECB) Christine Lagarde said that they are seeing some signs of stabilisation regarding the supply chain problems, as reported by Reuters.

Additional takeaways

"In 2022, prices should stabilise and gradually go down."

"Seeing inflation in 2022 at 3.2%."

"There are no reasons for us to act in the same way as the US Federal Reserve."

"Would be favourable towards a rise in wages."

Market reaction

These comments don't seem to be having a noticeable impact on the shared currency. As of writing, the EUR/USD pair was posting modest daily gains at 1.1360.

Sustained EUR/USD upside is unlikely to develop while a yawning policy gap opens between the European Central Bank (ECB) and the Federal Reserve. EUR/USD a sell into 1.15 if seen, in the opinion of economists at Westpac.

ECB no match for the Fed

“Peripheral risk is back in the spotlight next week, Italy’s parliament voting on a new president. If Draghi is not re-elected, doubts likely form about Italy’s policy reform path and potential for delays in the disbursement of much-needed Recovery Funds.” 

“Sustained EUR/USD unlikely to develop while a yawning policy gap opens between the ECB and the Fed.” 

“EUR/USD a sell into 1.15 if seen, targeting a run toward 1.10 in 2022H1.”

• The upbeat Australian jobs report, a positive risk tone pushed AUD/USD to a weekly high on Thursday.
• A fresh leg up in the US bond yields underpinned the USD and capped any further upside for the pair.
• Investors now look forward to the US economic releases for some short-term trading opportunities.

The AUD/USD pair maintained its bid tone near the 0.7230 region heading into the European session, albeit has retreated a few pips from the weekly high touched earlier this Thursday.

A combination of supporting factors assisted the AUD/USD pair to build on the overnight positive move and gained some follow-through traction for the second successive day. The Australian dollar drew support from stronger domestic employment details, which showed that the jobless rate dropped to 4.2% in December from 4.6% in the previous month. Adding to this, the number of employed people surpassed expectations and rose 64.8K during the reported month. This, along with a recovery in the global risk sentiment, benefitted the perceived riskier aussie.

Bulls, however, struggled to capitalize on the move or find acceptance above mid-0.7200s amid the emergence of some US dollar dip-buying. Growing market acceptance that the Fed would begin raising interest rates in March to contain stubbornly high inflation continued underpinning the greenback. Apart from this, a fresh leg up in the US Treasury bond yields acted as a tailwind for the buck and kept a lid on any meaningful upside for the AUD/USD pair. This, in turn, warrants some caution before positioning aggressively for any further appreciating move.

Market participants now loo forward to the US economic docket – featuring the releases of Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and Existing Home Sales data. This, along with the US bond yields, will influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities around the AUD/USD pair. That said, the momentum is likely to be limited as investors might refrain from placing fresh directional bets ahead of the crucial FOMC policy meeting on January 25-26.

Technical levels to watch

Considering preliminary readings from CME Group for natural gas futures markets, open interest reversed two consecutive daily builds and dropped by around 4.7K contracts on Wednesday. In the opposite direction, volume rose by around 59.3K contracts after three daily pullbacks in a row.

Natural Gas looks supported near $3.60

Prices of natural gas breached the key 200-day SMA around $4.10 on Wednesday, extending the leg lower after last week’s peaks near $4.90 per MMBtu. The move was in tandem with diminishing open interest, which removes strength from a deeper pullback in the very near term. The commodity is expected to meet support in the $3.60 area, or December 2021 lows.

Gold surged above the key $1,830 resistance on Wednesday. XAU/USD seems to have gone into a consolidation phase around $1,840 early Thursday. In the view of FXStreet’s Dhwani Mehta, the upside remains intact.

Pullbacks could be a good buying opportunity

“The metal closed Wednesday above the rising trendline support at $1,839, where it now wavers. If the corrective decline picks up pace, then XAU/USD could drop further to test the previous critical resistance level around $1,831. Failure to defend the latter could put the bullish 21-Daily Moving Average (DMA) support of $1,815 at risk.”

“The 14-Relative Strength Index (RSI) has turned slightly lower, but still holds comfortably above the midline, suggesting that every dip in the price could be a good buying opportunity.”

“Bulls need to retest the two-month highs of $1,844 before it readies to take on the November 22 high of $1,849. Daily closing above that level could initiate a fresh uptrend in gold, with the $1,900 mark back in sight.”

See – Gold Price Forecast: XAU/USD to complete a major top amid rising Real Yields and stronger USD – Credit Suisse

• GBP/JPY hovers around intraday high during the first positive day in three.
• Bullish chart pattern on 4H needs validation, 50-SMA adds strength to resistance.
• Key Fibonacci retracement levels, 200-SMA act as an additional downside filters.

GBP/JPY seesaws near the daily top of 156.06, up 0.24% intraday heading into Thursday’s London open.

The cross-currency pair rises for the first time in three days while picking up bids inside an eight-day-old falling wedge bearish chart pattern.

Given the gradually rising MACD line from the bearish territory, coupled with the firmer RSI, the GBP/JPY rebound is likely to last longer.

Though, a convergence of the 50-SMA and the upper line of the stated wedge, near 156.50, becomes crucial resistance for the GBP/JPY bulls to watch.

Should the quote rises past 156.50, the monthly high of 157.76 will act as a buffer during the theoretically anticipated rally towards crossing the 2021 peak of 158.22.

On the flip side, the wedge’s support line near 155.35 limits the short-term downside of GBP/JPY ahead of 50% Fibonacci retracement (Fibo.) of December-January upside, near 153.65.

Also challenging the GBP/JPY bears is the 200-SMA level near 153.80, as well as 61.8% Fibo. of 152.67.

Overall, GBP/JPY is up for further advances and the bullish chart pattern hints at the quote’s rally past the 2021 peak until it stays above 200-SMA.

GBP/JPY: Four-hour chart

Trend: Further upside expected

Analysts at Scotiabank offer their take on the Bank of Canada’s (BOC) monetary policy, predicting the policy rate to hit 2% by the end of 2022.

Key quotes

“Despite a clear, but temporary, negative impact of Omicron on economic activity, it is clear that inflationary pressures are larger than earlier assessed and require a more robust monetary policy response.”

“In Canada, we expect a 25bps move on January 26 followed by 150bps of additional tightening for the remainder of the year, for a total increase of 175bps this year.”

The policy rate should hit 2% by the end of 2022. Despite that path, the real policy rate would remain negative through the year.”

Here is what you need to know on Thursday, January 20:

Following a three-day rally, the US Dollar Index closed in the negative territory on Wednesday as retreating US Treasury bond yields made it difficult for the greenback to preserve its strength. With the benchmark 10-year US T-bond yield holding steady near 1.85% early Thursday, the dollar is staying resilient against its rivals. Later in the session, the European Central Bank (ECB) will release the accounts of its December policy meeting. The weekly Initial Jobless Claims, Existing Home Sales and Philadelphia Fed Manufacturing Survey from the US will be looked upon for fresh impetus in the second half of the week.

During the Asian trading hours, the People's Bank of China (PBoC) announced that it lowered the one-year loan prime rate (LPR) by 10 basis points to 3.70% from 3.80% and the five-year LPR by 5 basis points to 4.60% from 4.65%. This development seems to be helping the market mood improve early Thursday with US stocks futures rising between 0.4% and 0.5%. On the other hand, escalating tensions between Russia and Ukraine might not allow a risk rally to gain traction. 

EUR/USD snapped a three-day losing streak and closed in the positive territory on Wednesday. The pair trades in a relatively tight range around 1.1350 in the early European session on Thursday as market participants await the ECB's publication.

AUD/USD climbed to 0.7250 after the data showed that the Unemployment Rate in December declined to 4.2% from 4.6% in November. The positive impact of the upbeat jobs report remained short-lived, however, as the pair remains at the mercy of the dollar's market valuation.

Despite the greenback weakness on Wednesday, USD/CAD pair struggled to find direction as falling crude oil prices limited the loonie's gains. The data published by Statistics Canada showed that the annual Consumer Price Index edged higher to 4.8% in December as expected.

Gold capitalized on falling US Treasury bond yields and surged above the key $1,830 resistance on Wednesday. XAU/USD seems to have gone into a consolidation phase around $1,840 early Thursday.

GBP/USD registered modest daily gains on Wednesday and started to move sideways above 1.3600 on Thursday. There won't be any high-tier macroeconomic data releases from the UK and risk perception could impact the pair's movements in the remainder of the day.

Bitcoin continues to push lower toward $40,000 but the bearish pressure remains modest for the time being. Ethereum is staging a recovery after closing the previous three trading days and losing more than 8% during that period. ETH/YSD was last seen rising nearly 2% on a daily basis at $3,150.

NZD/USD should remain within the 0.6740-0.6870 range in the near term, noted FX Strategists at UOB Group.

Key Quotes

24-hour view: “NZD rose to a high of 0.6810 yesterday before easing off to close at 0.6787 (+0.33%). The movement is viewed as part of a consolidation and NZD is likely to trade between 0.6755 and 0.6805 for today.”

Next 1-3 weeks: “On Monday (17 Jan, spot at 0.6810), we highlighted that the outlook is mixed and NZD is likely to trade between 0.6740 and 0.6870. There is no change in our view even though the underlying tone has softened somewhat. Looking ahead, NZD has to close below 0.6740 before a drop to 0.6700 is likely.”

CME Group’s flash data for crude oil futures markets noted traders scaled back their open interest positions by around 5.5K contracts on Wednesday, recording the first daily drop since the beginning of the year. Volume extended the erratic performance and went up by around 26.3K contracts.

WTI now looks to $90.00 and above

Following new tops past the $87.00 mark per barrel, the WTI closed Wednesday’s session in the red territory amidst shrinking open interest. Against that, occasional bouts of weakness are seen as temporary and corrective only. The resumption of the uptrend should target the round level at $90.00 in the relatively short-term horizon.

• USD/IDR pares Asian session gains after three-day uptrend.
• Bank Indonesia expected to keep benchmark rate unchanged at 3.5%.
• Upbeat market sentiment tests USD/IDR buyers but yields keep sellers away.
• Second-tier US data, geopolitical/trade news are also eyed for short-term direction.

USD/IDR struggles for clear direction around $14,361, following a three-day uptrend heading into Thursday’s European session.

The pair portrays cautious sentiment on the part of traders even as broad sentiment remains firmer, backed by China’s rate cuts. The reason for the Rupiah trader’s indecision could be linked to the upcoming Bank Indonesia (BI) Rate decision, as well as firmer yields.

The People’s Bank of China (PBOC) surprised markets with a first cut in the 5-year Loan Prime Rate (LPR), by 5 basis points (bps) to 4.60%, in 21 months. Also favoring the risk appetite are chatters surrounding US stimulus and easing fears of the South African covid variant, namely Omicron.

However, geopolitical tension surrounding Russia, Iran and North Korea joins fears of monetary policy consolidation, not to forget US-China trade tension, to weigh on the market sentiment, which in turn favors USD/IDR buyers.

At home, Indonesian Finance Minister Sri Mulyani Indrawati said on Wednesday, “Indonesia consumption and production have returned to pre-pandemic levels.” The policymaker also added that the nation’s Q4 GDP is seen around 5% YoY, taking 2021 full-year growth to 4%.

Moving on, BI Rate Decision will be crucial for USD/IDR as China’s surprise may also tease the Indonesian counterparts to give hints of future monetary policy. In this regard, UOB’s Lee Sue Ann said, “Since inflation is still below the 2%-4% of BI’s target range, the central bank will have the policy space to remain accommodative to support the economic recovery.” The Analyst adds, “We keep our BI rate forecast to stay at the current level of 3.50% in the near term and to start hiking its benchmark interest rates in the latter half of 2022.”

Following the BI verdict, US Jobless Claims, Philadelphia Fed Manufacturing Survey for January and December’s Existing Home Sales will decorate the calendar but major attention will be given to virus woes and Fed rate hike chatters.

Technical analysis

USD/IDR forms inverse head-and-shoulders on the daily chart while portraying the latest recovery from the 100-DMA, around $14,275 by the press time. However, the quote needs to cross the $14,456 neckline to confirm the bullish chart pattern.

• Gold price remains at the hands of US Treasury yields’ price action.  
• Inflation concerns and Fed speculation to the lead the way.
• Gold 2022 Outlook: Correlation with US T-bond yields to drive yellow metal.

Gold price briefly disconnected from the price action in the Treasury yields on Wednesday but has returned to its negative relationship with the US rates this Thursday. Gold price has stalled its upsurge, consolidating below two-month highs amid firmer yields. China’s policy easing driven risk-on mood also limits gold’s gains. Although decade-high inflation rates globally have gold bulls covered while Russia-Ukraine crisis also helps keep the buoyant tone intact around the safe-haven.

Read: Gold Price Forecast: ‘Buy the dips’ amid inflation and geopolitical concerns

Gold Price: Key levels to watch

The Technical Confluences Detector shows that the gold price is likely to face a dense cluster of healthy support levels around $1,835, which is the convergence of the Fibonacci 23.6% one-day, pivot point one-week R1 and SMA5 four-hour.

If the downside pressure intensifies, then bears could challenge critical support at $1,831. The previous month’s high coincides with the Fibonacci 38.2% one-day at that point.

The next powerful support is seen around $1,821, which is the intersection of the SMA5 one-day, pivot point one-day S1 and Fibonacci 23.6% one-week.

Alternatively, immediate resistance aligns at the two-month highs of $1,844, above which the pivot point one-week R2 at $1,850.

The pivot point one-day R1 at $1,854 will be the next upside target for gold 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.

FX Strategists at UOB Group noted Cable is expected to remain side-lined between 1.3560 and 1.3725 in the next weeks.

Key Quotes

24-hour view: “GBP traded in a relatively quiet manner yesterday before settling at 1.3613 (+0.11%). Momentum indicators are mostly neutral and GBP is likely to trade sideways for today, expected to be between 1.3585 and 1.3660.”

Next 1-3 weeks: “On Tuesday (18 Jan, spot at 1.3645), we highlighted that the recent GBP strength has run its course and we expected GBP to trade between 1.3560 and 1.3725. GBP subsequently dropped to 1.3573 before rebounding. While the underlying tone has softened, we continue to expect GBP to trade between 1.3560 and 1.3725. Looking ahead, only a clear break 1.3540 would indicate that GBP is ready to head lower in a sustained manner.”

Open interest in gold futures markets increased for the third session in a row on Wednesday, this time by around 16.9K contracts considering advanced figures from CME Group. Volume, instead, extended the choppy activity and shrank by around 68.6K contracts.

Gold now targets the $1,877 level

Wednesday’s strong advance in prices of gold was in tandem with rising open interest, which remains supportive of extra gains in the very near term and with the next target at the November 2021 high at $1,877 per ounce troy (November 16). That potential move, however, could be quite bumpy, as indicated by the decline in volume.

• GBP/USD prints bearish chart pattern on hourly play, confirmation awaited.
• Sustained trading below 200-HMA keeps sellers hopeful amid steady RSI.
• 50-HMA adds strength to the 1.3610 support, bulls need validation from 1.3665.

GBP/USD pares intraday gains inside a bearish chart pattern, around 1.3625 heading into Thursday’s London open.

The cable pair’s corrective pullback from a weekly low during the last two days prints a bear flag chart pattern on the hourly play.

Given the sluggish MACDD and steady RSI, the cable prices are likely to extend the latest weakness. Also portraying the bearish bias is the quote’s sustained trading below the 200-HMA.

However, the 50-HMA adds strength to the 1.3610 support, a break of which will confirm the bearish chart formation and direct prices towards the theoretical target of 1.3450.

During the fall, the recent swing low near 1.3570 and the mid-November peak around 1.3513 will be crucial to watch.

Alternatively, the 200-HMA level of 1.3643 guards short-term GBP/USD rebound ahead of the flag’s upper line, around 1.3665 at the latest.

Following that, a run-up towards the 1.3700 threshold and the monthly high near 1.3750 can’t be ruled out.

GBP/USD: Hourly chart

Trend: Further weakness expected

In opinion of FX Strategists at UOB Group, further pullbacks in EUR/USD are seen limited around the 1.1285 level for the time being.

Key Quotes

24-hour view: “EUR traded in a relatively quiet manner between 1.1315 and 1.1356 yesterday before closing at 1.1341 (+0.14%). Momentum indicators are mostly neutral and EUR is likely to trade sideways for today, expected to be within a range of 1.1320/1.1370.”

Next 1-3 week: “Our latest narrative was from Monday (17 Jan, spot at 1.1410) where we highlighted that ‘upward momentum is beginning to wane and a break of 1.1390 would indicate that 1.1515 is out of reach’. EUR subsequently fell sharply. Despite the sharply decline, downward momentum has not improved by much. There is a slight downward bias from here but any weakness is likely limited to a test of 1.1285. On the upside, a breach 1.1400 would indicate that the current mild downward pressure has eased.”

• Asian equities part ways from Wall Street as China cuts 5-year LPR.
• Australia jobs report, talks over US BBB also favor buyers.
• Omicron woes, Biden’s speech and firmer oil prices test bulls ahead of next week’s key FOMC.

Asian equities grind higher despite the downbeat performance of their US and European counterparts. The reason could be linked to China’s first-rate cut in 21 months, as well as hopes of more stimulus and upbeat Aussie data. However, US Treasury yields rebound joins fears of geopolitical tension and strong oil prices to challenge share markets.

That said, the MSCI’s index of Asia-Pacific shares ex-Japan rises 1.05% whereas Japan’s Nikkei 225 gains 1.43% daily by the press time of the pre-European session on Thursday.

Japan’s Nikkei benefits from a reduction in the trade deficit but risks of further virus-led activity restrictions loom on Tokyo and other 12 prefectures, which in turn probe bulls.

Australia’s Unemployment Rate dropped to the lowest in 14 years while Employment Change also rose past 30.0K forecast for December, which in turn favored ASX 200 to print mild gains by the press time.

Also favoring the Aussie traders, as well as fueling the sentiment in Asia, is the People’s Bank of China’s (PBOC) first cut in the 5-year Loan Prime Rate (LPR), by 5 basis points (bps) to 4.60% in 21 months.

New Zealand’s NZX 50 fails to cheer the market optimism as PM Ardern sounds cautious on the arrival of Omicron in the Pacific nation. Additionally weighing the New Zealand investors are the clues of RBNZ rate hikes.

On a different page, Hong Kong’s Hang Seng becomes the biggest gainer of the region due to China's rate hike whereas stocks in South Korea print mild gains at the latest.

It’s worth noting that equities in India and Indonesia print mild losses amid hopes of monetary policy consolidation as well as geopolitical tension and firmer crude prices.

That said, the US 10-year Treasury yields rose three basis points (bps) to 1.856% whereas the S&P 500 Futures rise 0.40% by the press time even as Wall Street benchmarks had to close in the red.

Moving on, US Jobless Claims, Philadelphia Fed Manufacturing Survey for January and December’s Existing Home Sales will decorate the calendar but major attention will be given to virus woes and Fed rate hike chatters.

Read: US Treasury yields rebound with stock futures on mixed concerns

Turkey's central bank (CBRT) is seen halting its easing cycle this Thursday by keeping the policy rate unchanged at 14%, a Reuters survey of 16 economists revealed.

The central bank is due to announce its rate decision at 1100 GMT later on Thursday.

Key findings

“The bank would halt easing on Thursday of next week, keeping its one-week repo rate unchanged. One economist predicted a 50 basis-point cut to 13.5%.”

“Based on eight predictions, the poll's median rate at year-end was 14.00%, with estimates ranging from 9.00% to 14.75%.”

• CBRT Preview: USD/TRY poised to run at the slightest sign

• USD/CAD remains pressured around intraday low, marks one more attack on 200-DMA, seven-month-old support line.
• WTI crude oil reverses the previous day’s pullback from eight-year top.
• Market sentiment dwindles, yields stay firmer ahead of second-tier US/Canada data.
• US stimulus, Fed and yields are the keywords to search for near-term direction.

USD/CAD refreshes intraday low to 1.2493, down 0.07% on a day ahead of Thursday’s European session.

In doing so, the Loonie pair drops for the fourth consecutive day as traders struggle with mixed catalysts.

On the positive side, firmer prices of Canada’s key export item WTI crude oil and softer US dollar exert downside pressure on the USD/CAD. However, firmer US Treasury yields and challenges to market sentiment seem to keep the buyers hopeful.

WTI crude oil grinds higher around the intraday top of $85.73, up 0.35% on a day, while consolidating the previous day’s pullback from May 2014 levels. The black gold cheers increasing geopolitical tension concerning Russia and Iran, not to forget North Korea, to print the latest gains. Earlier in the day, US President Joe Biden warned Russia not to invade Ukraine.

Elsewhere, US Senate Democrats witnessed another disappointment from Joe Manchin and Kyrsten Sinema as they surprised colleges by voting against a bid to overturn filibuster rule and advance a voting rights bill that could have eased the path for BBB aid package. With this market’s sentiment turns sour and favors US Treasury yields. Additionally, Biden’s praise of Fed Chairman Powell’s style also back the Fed hawks and underpin the bond coupons’ rebound.

Furthermore, the People’s Bank of China’s (PBOC) rate cut and hopes that Democrats will get the much-awaited stimulus rolling, keep market players hopeful, exerting downside pressure on the USD/CAD prices.

It should be noted that the US 10-year Treasury yields rose three basis points (bps) to 1.856% whereas the S&P 500 Futures print mild gains at the latest.

Moving on, Canada ADP Employment Change for December and Employment Insurance Beneficiaries Change for November will precede US Jobless Claims, Philadelphia Fed Manufacturing Survey for January and December’s Existing Home Sales to decorate the calendar.

Technical analysis

In addition to a daily closing below the 200-DMA level of 1.2500, a successful break of an ascending support line from June 01, near 1.2470, becomes necessary for the USD/CAD sellers to keep reins.

Alternatively, the corrective pullback may initially aim for the latest swing high near 1.2570 but USD/CAD buyers are less likely to take an interest until the quote stays below 1.2630.

Morgan Stanley (MS) reiterates its bearish bias for the Swiss Franc (CHF) in its latest research report, published early Thursday in Europe.

The report initially said, “We maintain our bearish bias on CHF.”

While giving reasons, the note cited expectations for four Fed rate hikes in 2022 to see the US 10-yr yields at 2.20% by 2Q22. 

MS also stated, “The SNB remains one of the most dovish central banks in the G10,” which in turn helped them say that the widening yield differentials should keep putting downward pressure on CHF.

Additional quotes

That said, USD/CHF prices bounce from intraday low to 0.9153 but stay negative for the second consecutive day amid mixed concerns.

• EUR/USD pares intraday gains, keeps the previous day’s bounce off weekly low.
• Yields cheer Biden’s speech, firmer US data but EU-US rate spread favor pair buyers.
• ECB Meeting Accounts will be watched for clues of monetary policy consolidation amid strong inflation.
• Final reading of Eurozone CPI, German PPI will precede second-tier US economics to decorate calendar.

EUR/USD extends pullback from daily high with the latest drop to 1.1348 heading into Thursday’s European session.

The currency major bounced off the weekly low on Wednesday as the US dollar eased while tracking the Treasury yields. Though, the latest rebound in the US bond coupons, backed by hawkish hopes from the Fed and upbeat US data, seem to weigh on the quote. Also weighing the quote could be the latest disappointment from the US Senate, as far as voting on the Build Back Better (BBB) plan is concerned.

US Senate Democrats witnessed another disappointment from Joe Manchin and Kyrsten Sinema as they surprised colleges by voting against a bid to overturn filibuster rule and advance a voting rights bill that could have eased the path for BBB aid package. With this market’s sentiment turns sour and directs traders towards the US dollar.

Earlier in the day, US President Joe Biden highlighted Chief Trade negotiator Katherine Tai’s efforts to placate Sino-American trade tussles. However, he also mentioned that the US is “'not there yet' on possible easing of tariffs on Chinese goods”. Biden also said, “China is not meeting its purchase commitments.” Further, his comments favoring Federal Reserve (Fed) Chairman Jerome Powell’s push to recalibrate the support (monetary policy) also raised concerns over faster rate hikes and balance sheet normalization, which in turn favored US Treasury yields.

Additionally, US President Biden directly warned Russia not to invade Ukraine and if they do they’ll lose access to the US dollar, which offered an additional burden on the risk appetite and favored the greenback.

However, reductions in the spread between the US Treasury yields and German Bund yields seem to keep EUR/USD bulls hopeful. That said, the German 10-year Bund yields rose beyond 0.0% for the first time since May 2019 on comments from European Central Bank (ECB) policymaker Francois Villeroy de Galhau.

The ECB Board member said, “There is no longer any justification for "whatever it takes" debt support measures to tackle the covid crisis.”

It’s worth noting that firmer US housing market numbers contrasted with the German inflation data matched initial forecasts for December.

Amid these plays, the US 10-year Treasury yields rose three basis points (bps) to 1.856% whereas the S&P 500 Futures print mild gains at the latest.

Looking forward, the final reading of the Eurozone Consumer Price Index (CPI) for December, expected to confirm a 5.0% forecast, will precede the ECB Meeting Accounts to direct immediate EUR/USD moves. Following that, US Jobless Claims, Philadelphia Fed Manufacturing Survey for January and Existing Home Sales for December decorate the calendar.

While the ECB Meeting Accounts will be watched for hints to curtail stimulus and rate hikes, US data may entertain traders ahead of the next week’s FOMC. Above all, risk catalysts and yields are the key.

Technical analysis

EUR/USD printed the week’s first positive daily closing while bouncing off the 200-SMA by the end of Wednesday. However, the rebound couldn’t cross the 100-SMA and was backed by the bearish MACD signals to trigger the latest pullback.

That said, the quote is on the way to retest the 200-SMA level of 1.1325 but an upward sloping support line from late November, around 1.1300, will challenge the EUR/USD pair’s further downside.

On the contrary, a clear upside break of the 100-SMA level near 1.1355 isn’t a green card for the EUR/USD bulls are a horizontal area from November 30, near 1.1380-85, will challenge the pair’s further advances.

• DXY recovers from intraday low during two-day downtrend.
• Clear downside break of short-term support line, RSI retreat keep sellers hopeful.
• 100-SMA, five-week-old resistance line adds to the upside filters.

US Dollar Index (DXY) consolidates recent losses around 95.52, down 0.08% intraday during early Thursday morning in Europe.

In doing so, the greenback gauge bounces off 50-SMA but keeps the previous day’s downside break of a one-week-old support line, now resistance line around 95.66.

Given the downward sloping RSI line, DXY is likely to remain weak even if it manages to cross the stated immediate trend line hurdle of 95.66.

That said, the 100-SMA and a descending resistance line from December 15, respectively around 95.75 and 96.10, become the key challenges for the US Dollar Index.

Alternatively, a clear downside break of the 50-SMA level of 95.40 won’t hesitate to challenge the monthly low of 94.62.

It’s worth observing that the 95.00 threshold will give an intermediate halt during fall between 95.40 and 94.62 whereas October’s peak of 94.56 acts as an extra filter towards the south.

To sum up, US Dollar Index remains bearish despite the recent corrective pullback from the intraday low.

DXY: Four-hour chart

Trend: Further weakness expected

“China encourages key domestic enterprises to increase investment and promote better supply capacity of the entire chip industry chain,” the country’s Industry Ministry Official Luo Junjie said in a statement on Thursday.

Luo said that he “expects semiconductors will continue to be in short supply over a relatively long period.“

Related reads

• PBOC slashes one-year and five-year loan prime rates to 3.7% and 4.6% respectively
• USD/CNH drops below $6.35 on PBOC rate cut

• USD/INR falls for the second straight day, as bulls fail to resist above 100-DMA.
• The spot clings to 21-DMA support amid a broad US dollar weakness.
• A pullback in WTI price also helps comfort the INR bulls.

USD/INR remains on the defensive for the second day in a row this Thursday, keeping its range below 74.50.

The pair tracks the US dollar weakness while the Indian rupee cheers a pullback in oil prices from seven-year highs.

The greenback holds the lower ground amid a return of the risk appetite on China’s policy easing, although the March Fed rate hike expectations will continue to support the dollar bulls in the coming days.

At the time of writing, the spot is trying hard to defend the 21-Daily Moving Average (DMA) support, now at 74.41, having failed to find acceptance above the horizontal 100-DMA at 74.59.

The pair’s recovery rally from four-month troughs of 73.73 faltered near 74.70 on Wednesday.

The 14-day Relative Strength Index (RSI) has entered into the negative zone, below the midline, justifying the latest downturn in the price.

If the 21-DMA support gives way, then a test of the horizontal 200-DMA at 74.27 will be inevitable.

A sustained break below the latter could revive the recent bearish momentum towards the multi-month lows.

USD/INR: Daily chart

On the flip side, daily closing above 100-DMA will take on USD/INR towards 50-DMA at 74.84.

The level to beat for bulls is envisioned at 75.00, which will guard the further upside.

USD/INR: Additional levels

Analysts at Scotiabank cemented a March Fed rate hike in their latest research report.

Key quotes

“In the United States, we forecast a rate lift-off in March, and foresee a total increase of 175bps in 2022. A less robust labor market in the United States and a need to fully taper asset purchases explain the slightly less aggressive path for the Federal Reserve than the Bank of Canada.”

“Inflation would remain uncomfortably high through 2023 even if rates rise as we predict.”

• US 10-year Treasury yields reverse the previous day’s losses around two-year high.
• S&P 500 Futures ignore Wall Street losses to print mild gains.
• US President Biden’s speech, PBOC rate cuts are the key catalysts.
• US stimulus headlines encourage buyers of late, second-tier data eyed ahead of next week’s FOMC.

Market sentiment remains mixed during early Thursday, despite the latest gains of the US stock futures, as fears of hawkish monetary policy actions and geopolitical tensions battle stimulus hopes.

That said, the benchmark US 10-year Treasury yields rose 2.5 basis points (bps) to 1.852% after reversing from a two-year high of 1.90% the previous day. Further, the S&P 500 Futures rise 0.20% to 4,533 even as Wall Street benchmarks end Wednesday on a softer footing.

US President Joe Biden highlights Chief Trade negotiator Katherine Tai’s efforts to placate Sino-American trade tussles. However, he also mentioned that the US is “'not there yet' on possible easing of tariffs on Chinese goods”. Biden also said, “China is not meeting its purchase commitments.”

Further, comments favoring Federal Reserve (Fed) Chairman Jerome Powell’s push to recalibrate the support also raised concerns over faster rate hikes and balance sheet normalization, which in turn favored the US Treasury yields to recover the previous day’s losses.

It should be noted that Biden’s warning to Russia and hopes of getting the support of Senator Joe Manchin and Kyrsten Sinema to the Build Back Better (BBB) plan during Friday’s initial voting tested the investors but favored T-bond yields.

Following that, the People’s Bank of China’s (PBOC) surprised markets by the first cut in the 5-year Loan Prime Rate (LPR), by 5 basis points (bps) to 4.60% in 21 months.

Elsewhere, firmer Aussie jobs report and New Zealand’s cautious optimism ahead of witnessing the Omicron wave keeps the traders slightly positive during Thursday’s Asian session.

Moving on, developments over the US-China story and the Fed updates, not to forget geopolitics and stimulus, will entertain traders while the US Jobless Claims, Philadelphia Fed Manufacturing Survey for January and Existing Home Sales for December decorate the calendar.

• WTI price snaps the corrective mode from seven-year highs, recaptures $85.
• PBOC LPR cut, weaker US dollar and risk reset underpin the black gold.
• Acceptance above $85.50 is critical to take on the multi-year top once again.

WTI (NYMEX futures) is trading close to $85.50, having staged a solid comeback from a drop to near the $84.60 region.

The correction in oil prices came on the heels of a dour mood on Wall Street overnight, as rallying Treasury yields weighed on the sentiment while traders fret over the Fed rate hike outlook.

The resumption of the key Iraq-Turkey oil pipeline in full flow, after the explosion, also collaborated with the pullback in WTI alongside discouraging monthly report from the International Energy Agency (IEA).

However, the latest recovery in the risk sentiment, in response to the Chinese central bank’s mortgage rate cuts announcement, helps oil price resume the upbeat momentum.

developing story ...

• AUD/USD eases from intraday high but stays above 100-SMA.
• Bullish MACD conditions, firmer RSI keeps buyers hopeful to challenge three-week-old horizontal resistance.
• 200-SMA, seven-week-old support line restricts short-term downside.

AUD/USD bulls take a breather around 0.7235, up 0.21% intraday, following the early Asian session run-up to refresh weekly top. Even so, the quote remains above short-term key SMA during Thursday.

Not only the sustained break of 100-SMA and a successful rebound from 200-SMA but firmer RSI and MACD also favor AUD/USD buyers.

That said, a horizontal area comprising multiple levels marked since December 30, near 0.7280, becomes the key hurdle before directing AUD/USD bulls to the monthly peak of 0.7315.

Meanwhile, pullback moves remain dismal beyond the 100-SMA level of 0.7221, a break of which will highlight the 200-SMA level of 0.7190 for bears to watch.

It should be noted, however, that the quote’s weakness past 0.7190 will be challenged by upward sloping trend lines from December 03 and 20, respectively near 0.7180 and 0.7160.

To sum up, AUD/USD bulls have the controls but need validation from 0.7280.

AUD/USD: Four-hour chart

Trend: Further upside expected

• USD/TRY struggles to overcome the second consecutive weekly losses.
• Turkish President Erdogan urges to convert foreign currency savings to lira, sees FX- demand driven volatility.
• CBRT is expected to keep benchmark rates unchanged at 14.0% but hints of further rate cuts will be crucial to search.
• US Treasury yields regain upside momentum following a pullback from multi-day top.

USD/TRY seesaws around $13.45 as traders await the key Turkish Central Bank (CBRT) verdict during early Thursday.

The quote dropped the previous day on broad US dollar pullback and comments from Turkish President Recep Tayyip Erdogan. It’s worth noting that the 500 basis points (bps) of rate cuts and huge policy moves battle the strong inflation to test USD/TRY traders ahead of the CBRT Interest Rate Decision.

The US Dollar Index (DXY) reversed from weekly top to snap three-day uptrend the previous day after the Treasury yields dropped after refreshing multi-day high. That said, the US 10-year Treasury yields added 2.2 bps to 1.849% at the latest while nearing the highest levels in two years.

The recent rebound in the US Treasury yields could be linked to the speech from US President Joe Biden who praised Fed Chair Jerome Powell, indirectly signaling favor for hawkish Fed actions. Also fueling the bond coupons were challenges to risk appetite marked in Biden’s speech as he touched various risk-sensitive issues ranging from Russia to China, not to forget the Build Back Better (BBB) stimulus.

Read: US President Biden: Inflation has everything to do with supply chain

It’s worth noting that Turkish President Erdogan spoke at a cabinet meeting on Wednesday while urging citizens and companies to convert their foreign currency savings into the Turkish lira, as Ankara seeks to boost demand for the local currency, per Reuters. The national leader earlier said, “there will no longer be volatility in financial markets caused by unbalanced demand for foreign currency, after the lira currency tumbled 44% in value against the dollar last year.”

Looking forward, CBRT moves will be crucial for the USD/TRY traders as the nation still struggles with record inflation data and Erdogan’s push for more rate cuts.

With this in mind, FXStreet’s Valeria Bednarik says,

The December statement suggests that policymakers will pause the easing cycle and monitor its effects in the coming three months.

Read: CBRT Preview: USD/TRY poised to run at the slightest sign

Technical analysis

While 10-DMA restricts the USD/TRY short-term upside to around $13.56, a descending resistance line from December 21, close to $13.85 by the press time, will be crucial for the pair buyers to watch.

Alternatively, 21-DMA near $13.05 restricts the short-term downside of the pair ahead of the $13.00 threshold.

Overall, USD/TRY fades the recovery moves from late December but a clear break of $13.85 will be a strong bullish cal.

• GBP/USD holds onto the previous rebound above 1.3650.
• Hotter UK inflation supports BOE rate hike calls, DXY drops amid risk recovery.
• Bull cross confirmation and bullish RSI allow room for more upside in cable.  

GBP/USD is consolidating gains above 1.3650, as the bulls gather pace for the next push higher.

That said, the spot is looking to extend the previous day’s rebound from five-day lows of 1.3572, as buyers cheer encouraging fundamental and technical catalysts.

Faster-than-expected acceleration in the UK annualized inflation figure for December, which came in at 5.4%, reinforced expectations of an imminent Bank of England (BOE) rate hike in February to tackle the 30-year high inflation in the Kingdom.

Supporting the upside in the spot, the US dollar extends the corrective decline in Asia this Thursday, as the risk sentiment is improving amid more easing announced by the Chinese central bank, earlier today.

However, the ongoing upsurge in the US Treasury yields could help limit the dollar’s decline, in turn, capping cable’s rebound. Meanwhile, the looming Brexit and UK’s political uncertainty also threaten the pound’s recovery.

Technically, the 21-Daily Moving Average (DMA) crossed the horizontal 100-DMA for the upside on a daily closing basis, confirming a bull cross.

The 14-day Relative Strength Index (RSI) inches higher above the midline, backing the bullish view on the pair.

GBP/USD needs acceptance above 1.3650 to extend the recovery momentum towards the 1.3700 round level.

Ahead of that Tuesday’s high of 1.3681 could be challenged.

Alternatively, strong support awaits at around 1.3550, where the 21 and 100-DMA hang around, below which floors will open up for a test of the 1.3500 psychological level.

GBP/USD: Daily chart

GBP/USD: Additional technical levels

• NZD/USD remains pressured around intraday low following multiple catalyst from Australia, China and New Zealand.
• Firmer Aussie jobs report, PBOC rate cut couldn’t withstand NZ PM Ardern’s warning.
• RSI retreat, sluggish MACD direct sellers towards the monthly support.
• Two-month-old horizontal area acts as an additional upside filter.

NZD/USD remains on the back foot around 0.6775, extending early Asian losses during Thursday.

In doing so, the Kiwi pair reverses from 100-SMA while justifying New Zealand Prime Minister Jacinda Ardern’s warning to tighten the activity measures if the Omicron spreads faster.

Read: NZ PM Ardern: Won’t resort to lockdowns when omicron arrives

With this, the quote rejects the previous bullish bias due to the upbeat Aussie jobs report for December and the People’s Bank of China’s (PBOC) first 5-year Loan Prime Rate (LPR) cut in 21 months.

That said, the downward sloping RSI line, not oversold, joins sluggish MACD and failures to cross the 100-SMA to direct NZD/USD prices towards a one-month-old rising support line, around 0.6755 by the press time.

In a case where the pair sellers dominate past 0.6755, the year 2021 trough surrounding 0.6700 will regain the market’s attention.

Alternatively, recovery moves beyond 100-SMA level of 0.6800 may aim for 0.6860 but a horizontal area comprising multiple levels marked since late November, close to 0.6890-95, will be a tough nut to crack for the NZD/USD bulls.

Should NZD/USD prices rally past 0.6895, the 0.6900 will act as a validation point for the rally towards the 0.7000 psychological magnet.

NZD/USD: Four-hour chart

Trend: Further weakness expected

New Zealand Prime Minister Jacinda Ardern said Thursday, the country will not be pushed under another lockdown when the omicron covid variant hits the economy but may tighten the restrictions.

• USD/CNH takes offers to refresh intraday low, declines for the second consecutive day.
• PBOC cuts 1-year, 5-year LPR with 10 and five basis points respectively.
• Sino-American tussles regain market attention following Biden’s speech.
• Firmer yields can test USD/CNH bears, second-tier US data eyed.

USD/CNH refreshes intraday low to $6.3467, down 0.05% on a day during early Thursday following the People’s Bank of China’s (PBOC) rate cut.

The PBOC surprised markets by the first cut in the 5-year Loan Prime Rate (LPR), by 5 basis points (bps) to 4.60% in 21 months. The Chinese central bank also cut the 1-year LPR by 10 bps to 3.70% at the latest.

Read: PBOC slashes one-year and five-year loan prime rates to 3.7% and 4.6% respectively

It’s worth noting that the PBOC Deputy Governor Liu Guoqiang pledged to keep the yuan exchange rate stable the previous day but the reductions in the one-year Medium-term Lending Facility rate to 2.85% from 2.95% have already signaled the PBOC’s actions.

With the PBOC action, China’s 10-year Treasury yields remain pressured around the lowest levels since June 2020, at 2.72% by the press time.

On the other hand, the US 10-year Treasury yields pare the early Asian session gains but stay positive around 1.845%, up 1.8 bps.

It should be observed that the US-China yield spread shrank the most in three years the previous day and favored USD/CNH.

However, challenges concerning the Sino-American trade relations and the hawkish expectations from the US Federal Reserve (Fed), seem to probe the pair sellers of late.

Market’s sentiment soured earlier in the day on US President Joe Biden’s press conference as he touched various risk-sensitive issues ranging from Russia to China, not forget Fed. US President Biden said, “China is not meeting its purchase commitments,” but also mentioned Chief Trade negotiator Katherine Tai’s efforts to placate Sino-American trade tussles.

Biden also praised Fed Chair Jerome Powell’s push to recalibrate the support also raised concerns over faster rate hikes and balance sheet normalization.

Read: US President Biden: Inflation has everything to do with supply chain

Moving on, further developments over the US-China story and the Fed updates, not to forget geopolitics and stimulus, will entertain USD/CNH traders. That said, US Jobless Claims, Philadelphia Fed Manufacturing Survey for January and Existing Home Sales for December will decorate today’s calendar.

Technical analysis

A daily closing below the six-week-old ascending support line, near $6.3450, becomes necessary for the USD/CNH bears to challenge the 2021 bottom surrounding $6.3305. Failing to do so can trigger corrective pullback towards a fortnight-old resistance line near $6.3585.

The People’s Bank of China (PBOC) set the USD/CNY reference rate at 6.3485 on Thursday when compared to the previous fix and the previous close at 6.3624 and 6.3477 respectively.

• PBOC slashes one-year and five-year loan prime rates to 3.7% and 4.6% respectively

The People’s Bank of China (PBOC) is out with the latest statement, announcing that it has cut the one-year loan prime rate (LPR) to 3.70% at its January fixing.

Meanwhile, the five-year LPR was also trimmed to 4.6% in January.  

The five-year LPR was cut for the first since April 2020. In December 2021, the one-year was cut from 3.85% to 3.80%.

The AUD/USD pair is off the multi-day peaks on the PBOC rate decision, still holding onto most of the solid Australian jobs report-led gains. The spot is trading at 0.7245, up 0.49% on the day.

• AUD/JPY pokes two-day-old descending resistance line on strong Australia jobs report for December.
• Aussie Employment Change rose past forecast, Unemployment Rate dropped.
• Firmer RSI, upbeat data keeps buyers hopeful but two-week-long descending trend line is the key hurdle.

AUD/JPY cheered upbeat Australia jobs report while poking an immediate resistance line near 82.70, up 0.27% intraday during early Thursday.

Australia’s headline Employment Change rose past 30.0K forecast to 64.8K while the Unemployment Rate dropped below 4.5% market consensus and 4.6% prior t o4.2%. Further, Fulltime Employment eased below 128.3K previous readouts to 41.5K and the Participation Rate also reprinted 66.1% figure versus 66.2% market forecasts.

Read: Breaking: Australia Employment Report: Upbeat details for December recall AUD/USD buyers

That said, firmer RSI conditions, not overbought, also favor the AUD/JPY bulls to overcome the immediate trend line hurdle surrounding 82.75.

However, the 200-HMA level 82.85 and a descending trend line from January 05, close to 83.30, will challenge the pair buyers afterward.

On the contrary, an upward sloping trend line from the previous day, near 82.45, restricts the quote’s immediate downside ahead of the monthly low of 82.08 and the 82.00 threshold.

Following that, a gradual decline towards the early December swing high near 81.70 can’t be ruled out.

AUD/JPY: Hourly chart

Trend: Further recovery expected

• AUD/USD reversed early Asian losses on upbeat Aussie employment data.
• Australia Employment Change rose past forecast, Unemployment Rate dropped in December.
• Aussie Consumer Inflation Expectations eased, Westpac Consumer Confidence dropped for January.
• Market sentiment dwindles as yields regain after Biden’s speech but stock futures print gains too.

AUD/USD takes the bids to 0.7230, up 0.20% intraday, following the upbeat Australia employment data for December. In doing so, the Aussie pair reverses the early Asian losses to print the second consecutive positive day even if the US Treasury yields regain upside momentum.

That said, Australia’s headline Employment Change rose past 30.0K forecast to 64.8K while the Unemployment Rate dropped below 4.5% market consensus and 4.6% prior t o4.2%. Further, Fulltime Employment eased below 128.3K previous readouts to 41.5K and the Participation Rate also reprinted 66.1% figure versus 66.2% market forecasts.

Read: Breaking: Australia Employment Report: Upbeat details for December recall AUD/USD buyers

Earlier in the day, Westpac Consumer Confidence for January dropped to -2.0%, below -1.0% prior, whereas the Consumer Inflation Expectations for the said month dropped to 4.4% versus 4.8% prior.

It’s worth noting that optimism surrounding the Omicron peak to hit in late January also favors the AUD/USD bulls.

However, fears concerning the geopolitical tussles between Russia and Ukraine join the Sino-American trade tensions to weigh on the risk appetite and probe the AUD/USD bulls. Additionally, US President Biden’s praise to Fed Chair Jerome Powell’s style indirectly favors the Fed hawks and propels the US Treasury yields, which in turn weigh on the Aussie prices.

Read: US President Biden: Inflation has everything to do with supply chain

That said, the US 10-year Treasury yields remain firmer around 1.85% whereas the S&P 500 Futures struggle for clear direction.

Looking forward, the People’s Bank of China (PBOC) rate decision will be important for the AUD/USD traders ahead of the US Jobless Claims, Philadelphia Fed Manufacturing Survey for January and Existing Home Sales for December.

Technical analysis

AUD/USD extends bounce off the seven-week-old support line, suggesting further advances towards the 100-SMA level of 0.7280. However, any further upside will be challenged by the monthly peak of 0.7315.

Alternatively, pullback moves remain elusive beyond the stated support line of 0.7177. Adding to the downside filter is the monthly ascending trend line, near 0.7155.

Australian Bureau of Statistics (ABS) released the latest employment figures for December month as follows:

• Employment Change 64.8K (Reuters poll: 30.0K), prior 366.1K.
• Unemployment rate +4.2 pct, s/adj (Reuters poll: +4.5%), prior +4.6%.
• Full Time Employment 41.5K versus +128.3k prior.
• Participation Rate matched +66.1 pct s/adj prior figures (Reuters poll: +66.2 pct).

Following the data, AUD/USD refreshes intraday top to 0.7230 while breaking the immediate resistance line on the 15-minute chart.

AUD/USD: 15-minute chart

AUD/USD: Daily chart

On the daily basis, the quote extends bounce off the seven-week-old support line, suggesting further advances towards the 100-SMA level of 0.7280. However, any further upside will be challenged by the monthly peak of 0.7315.

Alternatively, pullback moves remain elusive beyond the stated support line of 0.7177. Adding to the downside filter is the monthly ascending trend line, near 0.7155.

Key notes

AUD/USD retreats towards 0.7200 ahead of Aussie employment, PBOC

About the Employment Change

The Employment Change released by the Australian Bureau of Statistics is a measure of the change in the number of employed people in Australia. Generally speaking, a rise in this indicator has positive implications for consumer spending which stimulates economic growth. Therefore, a high reading is seen as positive (or bullish) for the AUD, while a low reading is seen as negative (or bearish).

About the Unemployment Rate

The Unemployment Rate released by the Australian Bureau of Statistics is the number of unemployed workers divided by the total civilian labour force. If the rate hikes indicate a lack of expansion within the Australian labour market. As a result, a rise leads to weaken the Australian economy. A decrease of the figure is seen as positive (or bullish) for the AUD, while an increase is seen as negative (or bearish).

• USD/JPY licks its wounds after the biggest daily losses.
• Yields rebound, S&P 500 Futures drop after Biden’s speech.
• Virus woes join geopolitical and trade fears to weigh on bonds, Fed, China concerns are important too.
• Japan trade deficit eased in December, second-tier US data eyed.

USD/JPY picks up bids to 114.38, up 0.10% intraday on fresh upside momentum during Thursday’s Asian session.

The yen pair recently cheered the US Treasury yields rebound while paying a little heed to Japan trade numbers. That said, the risk barometer pair dropped the most in a week the previous day as market sentiment improved and the US bond coupons eased from the multi-day top.

Japan’s Merchandise Trade Balance Total eased to ¥-582.4B versus ¥-784.1B forecast and ¥-955.6B revised prior in December. Details suggest that the Imports eased to 41.1% versus 42.8% expected whereas the Exports rose past 16.0% forecast to 17.5% during the stated month.

Elsewhere, the US 10-year Treasury yields rose 4.5 basis points (bps) to 1.87% whereas the S&P 500 Futures drop 0.15% intraday to portray the risk-off mood at the latest.

Market sentiment worsened after US President Joe Biden renewed hopes of faster monetary policy normalization by the Federal Reserve (Fed). Also weighing on the risk appetite and favoring the yields were concerns relating to Russia and China.

US President Joe Biden’s press conference was the latest blow to the market’s mood as he touched various risk-sensitive issues ranging from Russia to China, not forget Fed. US President Biden said, “China is not meeting its purchase commitments,” but also mentioned Chief Trade negotiator Katherine Tai’s efforts to placate Sino-American trade tussles.

Biden also praised Fed Chair Jerome Powell’s push to recalibrate the support also raised concerns over faster rate hikes and balance sheet normalization, which in turn exerted additional downside pressure on the USD/JPY prices.

Additionally, quasi emergency in Tokyo and 12 prefectures joins chatters over Tokyo’s inflating of virus alerts to the highest, favored by Yomiuri, also propelled the USD/JPY moves.

Looking forward, US Jobless Claims, Philadelphia Fed Manufacturing Survey for January and Existing Home Sales for December will entertain USD/JPY traders afterward.

Technical analysis

A clear bounce off 50-DMA level near 114.30 directs USD/JPY towards another attempt to cross the 20-DMA hurdle of 115.00.

• Gold consolidates the biggest daily gains since early November.
• Yields rebounded following Biden’s speech supporting Powell, warning Russia and rejecting peace with China.
• PBOC action, risk catalysts will entertain traders ahead of second-tier US data, previous support line eyed for direction.
• Gold Price Forecast: XAU/USD potential strategies in turbulent markets

Gold (XAU/USD) pares the stellar gains posted the previous day around $1,839, down 0.22% intraday during the initial Asian session as market sentiment sours.

The yellow metal jumped to the two-month high on Wednesday after the US Treasury yields stepped back from a multi-day peak and drowned the US dollar. However, the latest speech from US President Joe Biden renewed hopes of faster monetary policy normalization by the Federal Reserve (Fed), which in turn favored bond coupons and dragged the gold prices.

US President Biden highlights Chief Trade negotiator Katherine Tai’s efforts to placate Sino-American trade tussles. However, he also mentioned that the US is “'not there yet' on possible easing of tariffs on Chinese goods”. Biden also said, “China is not meeting its purchase commitments.”

Further, comments favoring Federal Reserve (Fed) Chairman Jerome Powell’s push to recalibrate the support also raised concerns over faster rate hikes and balance sheet normalization, which in turn exerted additional downside pressure on the gold prices.

Additionally, US President Biden directly warned Russia not to invade Ukraine and if they do they’ll lose access to the US dollar.

Elsewhere, uncertainty surrounding the US stimulus and the People’s Bank of China’s (PBOC) next moves also weighed on the gold prices. US President Biden signaled that the talks on the Build Back Better (BBB) stimulus is on but US Senator Joe Manchin rejects the comments. Further, the PBOC is up for conveying its Interest Rate Decision at 01:30 AM GMT with market players equally divided amid the Chinese central bank’s early signals of a rate cut and the latest comments from PBOC Deputy Governor Liu Guoqiang. The PBOC official mentioned that the central bank “will keep yuan exchange rate basically stable.”

Against this backdrop, the US 10-year Treasury yields rose 4.5 basis points (bps) to 1.87% whereas the S&P 500 Futures drop 0.15% intraday to portray the risk-off mood at the latest.

Even so, gold prices do trade beyond the short-term key resistance and hence today’s PBOC verdict, as well as risk catalysts, will be important for the watch during Asia. Following that, US Jobless Claims, Philadelphia Fed Manufacturing Survey for January and Existing Home Sales for December will entertain gold traders afterward.

Technical analysis

Gold keeps the bounce off a 50-DMA to stay above a 13-day-old descending trend line. The recovery moves gain support from firmer RSI and bullish MACD signals, suggesting additional bullish momentum on the table.

That said, the 23.6% Fibonacci retracement (Fibo.) September-November 2021 upside, near $1,840, acts as an immediate hurdle for the gold buyers before challenging multiple lows marked during the mid-November around $1,850.

Should the gold bulls keep reins past $1,850, the late 2021 peak of $1,877 will be the last line of defense for bears, a break of which will throw cards for a rally towards the $1,900 and beyond.

Alternatively, pullback moves remain elusive beyond the resistance-turned-support line from January 03, around $1,825.

Following that, the 50-DMA surrounding $1,806 will be important before directing the metal towards the 100-DMA and five-week-old support line, around $1,795-94.

If at all the gold bears smash $1,794 support, $1,782 and $1,753, comprising the monthly low and 78.6% Fibo. respectively, will be in focus.

Overall, gold buyers have an upper hand both technically, as well as fundamentally, ahead of the next week’s key FOMC.

Gold: Daily chart

Trend: Further upside expected