CFD Markets News and Forecasts — 21-02-2024

• GBP/USD edges higher to 1.2638 amid the modest decline of the USD. 
• Fed officials noted that they wanted to see more evidence before starting to cut rates. 
• BoE’s Bailey said that inflation in the UK has fallen and that the technical recession last year is expected to have little effect.
• Investors will closely watch the UK and US PMI data for February, due later on Thursday.

The GBP/USD pair trades stronger below the mid-1.2600s during the early Asian section on Thursday. Investors will turn their attention to the UK and UK S&P Global Purchasing Managers Index (PMI) for February. The major pair currently trades around 1.2638, gaining 0.04% on the day. 

The minutes of the January meeting of the FOMC showed most participants emphasized the risks of moving too quickly to ease the stance of monetary policy, while some participants noted the risk that progress toward price stability could stall. The FOMC policymaker highlighted the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to the 2% target.

The Bank of England (BoE) policymaker Swati Dhingra said on Wednesday that delaying interest rate cuts comes at a cost for living standards and could trigger a hard landing for the UK economy. Dhingra further stated that inflation in the UK is already on a firm downward path as she reaffirmed her case for easing monetary policy. 

BoE governor Andrew Bailey said that inflation had “come down very rapidly” in the UK, and the technical recession the UK economy entered last year is likely to have a low impact. He added that the central bank doesn’t need obvious inflation to come back to target before cutting interest rates. The optimistic comments from BoE’s Bailey provide some support to the Pound Sterling (GBP) and act as a tailwind for GBP/USD. 

Moving on, traders will monitor the UK S&P Global/CIPS PMI and the US S&P Global PMI for February. Also, the weekly Initial Jobless Claims, Existing Home Sales, and the Chicago Fed National Activity Index are due on Thursday. The FOMC’s Cook, Kashkari, Jefferson, and Harker are set to speak.

• WTI climbed back towards $78.00 per barrel on Wednesday.
• API US barrel counts lurched higher once more.
• Geopolitical concerns and hopes of refinery expansion keep barrel bids high.

West Texas Intermediate (WTI) US Crude Oil rebounded on Wednesday as barrel traders continue to price in possible supply lane constraints amidst geopolitical turmoil in the Middle East. Hopes of expanded US refinery activity eating away at a buildup of US Crude Oil supplies are also keeping barrel prices higher, but a growing overhang of US barrel counts is getting harder for energy markets to ignore.

According to the American Petroleum Insitute (API), US Crude Oil supply stocks unexpectedly rose once again for the week ended February 16, with an additional 7.168 million barrels added to US supply. This comes well above the forecast 4.298 million barrels and adds even further to the previous week’s surprise glut of 8.52 million barrels.

According to API barrel counts, US Crude Oil supplies are up an excess of nearly 18 million barrels since the week ended November 2.

US Crude Oil refineries have been slowly coming back online since overall refined petroleum product output declined in 2022 as several refineries went offline for overhauls, upgrades, or security concerns. Barrel traders are betting on an uptick in US refining capacity to eat away at record Crude Oil production within the US and other countries that are not part of the Organization of the Petroleum Exporting Countries (OPEC).

WTI technical outlook

WTI US Crude Oil climbed over 2% bottom-to-top from Wednesday’s low bids near $76.25, and WTI is climbing towards $78.00 per barrel as energy markets pin back into near-term highs.

Daily candlesticks show US Crude Oil in a notably sideways bent as bids knock into the 200-day Simple Moving Average (SMA) near $77.55. WTI has failed to pierce into fresh high ground since peaking at $79.20 in January, and Crude Oil longs are struggling to drag WTI further into bull country after barrel prices bottomed out in December at $67.97.

WTI peaked just shy of $94.00 per barrel last September, and remains down over 17% from that high.

WTI hourly chart

WTI daily chart

• NZD/USD snaps the six-day winning streak around 0.6177 in Thursday’s early Asian session. 
• The FOMC January minutes show no hurry to cut the interest rates.
• The New Zealand annualized Trade Balance narrowed to -12.5 billion YoY in January versus -13.62 billion YoY prior. 
• The US S&P Global PMI, weekly Initial Jobless Claims, and Existing Home Sales are due on Thursday. 

The NZD/USD pair trades on a weaker note below the 0.6200 barrier during the early Asian section on Thursday. The January FOMC Minutes showed that policymakers will need to have greater confidence that inflation will return to target sustainably before cutting rates. NZD/USD currently trades near 0.6177, down 0.05% on the day. 

According to minutes of the FOMC released Wednesday, Federal Reserve (Fed) officials were in no hurry to cut interest rates. Most participants said no cuts would be coming until the central bank held “greater confidence” that inflation was receding. The Fed members will assess both upside and downside risks and are worried about lowering rates too quickly. Traders have pushed out the first rate cut from the March to June meeting, and the expected level of cuts for 2024 is lowered to four from six.  

On the Kiwi front, Statistics New Zealand revealed on Wednesday that the nation’s annualized Trade Balance narrowed to -12.5 billion YoY in January compared to the previous reading of -13.62 billion YoY (revised from -13.57 billion). Meanwhile, Imports came in at 5.91 billion versus 6.22 billion prior. Exports arrived at 4.93 billion from the previous month's 5.85 billion. 

Looking ahead, investors will keep an eye on the US S&P Global PMI data, the usual US weekly Initial Jobless Claims, Existing Home Sales, and the Chicago Fed National Activity Index. Additionally, FOMC’s Cook, Kashkari, Jefferson, and Harker are set to speak later in the day. On Friday, the New Zealand Retail Sales for the fourth quarter (Q4) will be released. 

• AUD/USD marginally down at 0.6550 after Fed reiterates hesitancy on rate cuts amid inflation concerns.
• US 10-year Treasury yields rise, while the DXY dips slightly, reflecting the Fed's cautious outlook.
• Mixed Australian PMI data shows services growth but manufacturing contraction, complicating RBA's policy path.

The Australian Dollar posted minuscule gains on Wednesday against the US Dollar, after the release of the Federal Reserve’s January meeting minutes emphasized policymakers remain hesitant to begin to ease policy. Therefore, the AUD/USD exchanges hands at 0.6550, down by 0.02% as the Asian session begins.

FOMC’s minutes failed to underpin the Greenback

The AUD/USD was subdued throughout most of the session until the minutes were released. The minutes showed that Fed officials are cautious about reducing interest rates prematurely. They stated that they would not consider it suitable to lower interest rates until there is "greater confidence" that inflation is on a sustainable path toward the 2% target. Despite recognizing that the risks associated with fulfilling both Fed’s mandates—price stability and maximum employment—are becoming more balanced, officials emphasized their continued focus on inflationary risks. They also noted that although the economic risks are tilted towards the downside, vigilance towards inflation remains a priority.

After the data, the US 10-year Treasury note yield resumed to the upside, ending the session three and a half basis points up at 4.319%, while the US Dollar fell. The US Dollar Index (DXY) an index that measures the currency’s performance against other six, dropped 0.05%, at 103.99.

Fed speakers remain hawkish, Aussie’s Manufacturing PMI contracts

The Richmond’s Fed President Thomas Barkin crossed the newswires, saying the latest inflation data is “less good,” expressing worries about services inflation.

In the meantime, the Judo Bank Flash PMIs for February were released, with the Composite and Services exceeding January’s readings and exiting from recessionary territory. The Services PMI came at 52.8, up from 491, and the Composite PMI was 51.8, up from 49. The outlier was Manufacturing, which came at 47.7, missing December’s 50.1, suggesting that manufacturing activity is contracting.

Warren Hogan, Chief Economist Advisor at Judo Bank said: “The February Flash PMI results weaken the case for monetary policy easing any time soon. If anything, the improvement in activity indicators in 2024 and a slight uptick in the price indexes suggest that the risks to monetary policy remain even balanced.”

AUD/USD Price Analysis: Technical outlook

the AUD/USD continued to trade sideways after the release of the Fed’s minutes, though sellers stepped in around the 200-day moving average (DMA) at 0.6561, dragging prices below the 0.6550 area. If they would like to remain in charge, the pair must drop below the 100-DMA at 0.6547 and extend below the 0.6500 figure. Once that area is cleared, the next support emerges at the current year-to-date (YTD) low of 0.6442. On the upside, if buyers reclaim the 200-DMA, look for a challenge at the 0.6600 threshold.

Australia's Judo Bank Composite Purchasing Manager Index (PMI) returned to growth figures above 50.0 for the first time since last October, and saw its highest print since May of last year.

The Judo Bank Services PMI fueled the rebound, climbing from 49.1 to a nine-month high of 52.8.

Despite the improvement, Australia's Manufacturing PMI fell back into contraction, printing at 47.7 versus the previous 50.1. The Australian Manufacturing PMI component has only printed above the 50.0 level once in the last 12 consecutive prints.

As noted by Judo Bank, growth in Australia's private sector was driven entirely by the services sector in the first half of the first quarter of 2024, and business sector sentiment remained positive, albeit at a three-month low.

Judo Bank:

Market reaction

The AUD/USD remains stuck near 0.6550 with the pair bolstered by the 200-hour Simple Moving Average (SMA) near 0.6520, but bullish momentum remains pinned below the week's near-term high around 0.6580.

About Australia's Judo Bank Composite PMI

The Composite Purchasing Managers Index (PMI), released on a monthly basis by Judo Bank and S&P Global, is a leading indicator gauging private-business activity in Australia for both the manufacturing and services sectors. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the Australian private economy is generally expanding, a bullish sign for the Australian Dollar (AUD). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for AUD.

• The NZD/JPY pair rallied by 0.53% and stands at 92.88 as of Wednesday's session.
• The daily RSI shows strong buying momentum, reaching overbought conditions.
• A healthy technical correction may be on the horizon in the next sessions.

In Wednesday's session, the NZD/JPY was observed trading at 92.88, marking a 0.53% rally in its progress. The pair reveals sustained buying momentum with the Relative Strength Index (RSI), dwelling in the overbought zone indicating that a pullback may be incoming.

In the daily chart, the Relative Strength Index (RSI) consistently resides in the overbought, and the NZD/JPY pair shows signs of strong buying momentum. Notably, there's been a persistently positive slope, indicating a continued bullish undercurrent. To support this, the Moving Average Convergence Divergence (MACD) histogram is displaying green bars, marking positive momentum. It's been on a steady rise, further underlining the dominance of buyers.

NZD/JPY daily chart

Shifting attention to the hourly chart, the RSI hovers flat in both the positive area and the MACD histogram continues to print green bars, alluding to an overall bullish momentum despite interim dips.

NZD/JPY hourly chart

Overall, despite the short-term flattening depicted in the hourly chart, the significant bullish signals from the daily RSI and both MACD histograms suggest the pair might adhere to an upward trend. Moreover, the NZDJPY stands above its 20,100,200-day Simple Moving Averages (SMAs), reinforcing the predominance of the bulls. However, traders should consider the possibility of a correction in the next session, to consolidate gains.

New Zealand's NZD Trade Balance fell by 976 million in January, adding to the previous month's 368 million decline (revised from -323 million).

The annualized trade balance fell by slightly less at -12.5 billion YoY compared to the previous period's -13.62 billion YoY (revised from -13.57 billion).

January's Imports and Exports both grew less than previous, with MoM Imports coming in at 5.91 billion versus the previous 6.22 billion (revised from 6.26 billion), while monthly Exports came in down by nearly 20% at 4.93 billion compared to the previous 5.85 billion (revised from 5.94 billion).

Market reaction

The NZD/USD remains stuck in near-term chart churn as the pair struggles to make a clean bullish break into the 0.6200 handle, and the Kiwi is adrift near 0.6180.

About New Zealand's Trade Balance

The Trade Balance released by the Statistics New Zealand is a measure of balance amount between import and export, and it is published in New Zealand dollar terms. A positive value shows a trade surplus while a negative value shows a trade deficit. Any variation in the figures influences the domestic economy. If a steady demand in exchange for exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the NZD.

According to reporting by Axios, the US federal government could be pushed into another government shutdown scenario over spending bills.

The self-titled "Freedom Caucus", a collection of far-right adherents within the US legislature, is pushing for a sweeping set of year-long spending restrictions that could trigger a shutdown within the US government.

Key quotes

• EUR/JPY ascends to 162.47, marking a continuous rise influenced by recent Fed monetary policy insights.
• Technical analysis points to key resistance levels, with 163.00 and 163.72 as immediate targets.
• Potential pullback could see support tests at 161.48 and 160.91, depending on market dynamics.

The Euro extended its gains for the second straight day against the Japanese Yen and is up by 0.22% as the EUR/JPY trades at 162.47 late during the North American session.

The release of the latest Federal Reserve (Fed) minutes sponsored a leg-up in the EUR/JPY as the EUR/USD edged slightly up. From a technical standpoint, the pair is trading at year-to-date (YTD) highs, aiming to extend its gains. The first resistance would be the 163.00 figure, followed by the November 27 high at 163.72. A further upside is seen at 164.00, followed by last year’s high at 164.31.

On the flip side, if the pair drops below 162.00, that would pave the way to test the Tenkan-Sen at 161.48 before slumping toward the Senkou Span A at 160.91.

EUR/JPY Price Action – Daily Chart

The Greenback remained slightly on the back foot on Wednesday amidst alternating risk appetite trends and the lack of surprises from the FOMC Minutes, while bets on the potential timing of the first rate cut by the Fed continued to dominate the broad sentiment.

Here is what you need to know on Thursday, February 22:

The USD Index (DXY) traded with tepid losses around the 104.00 region against the backdrop of further advances in risk-linked assets. It is PMI day across the board on February 22, while the usual weekly Initial Jobless Claims are also due along with Existing Home Sales, and the Chicago Fed National Activity Index. In addition, FOMC’s Cook, Kashkari, Jefferson, and Harker are due to speak.

EUR/USD maintained its gradual bullish view and rose further north of the 1.0800 hurdle. On February 22, advanced PMIs in Germany and the broader Euroland are expected, seconded by the ECB Accounts and the final Inflation Rate in the euro bloc.

GBP/USD added to Tuesday’s gains and looked to consolidate the move beyond 1.2600 the figure. Preliminary PMIs will be the only releases of note across the Channel on February 22.

USD/JPY kept its multi-session consolidative phase well and sound around the 150.00 zone. In Japan, weekly Foreign Bond Investment readings are scheduled for February 22.

AUD/USD alternated gains with losses in the upper end of the range, an area coincident with the key 200-day SMA around the 0.6560 region. Flash Judo Bank PMIs are due Down Under on February 22.

The resurgence of the tight supply narrative lent support to the prices of WTI, which flirted once again with the $78.00 mark per barrel.

Gold prices advanced modestly to the $2,030 region, maintaining their positive streak in place. In the opposite direction, Silver prices extended their leg lower for the third consecutive day.

• The AUD/JPY trades on gains at 98.33 in Wednesday's session.
• Daily RSI for AUD/JPY suggests bullish momentum with a rising tendency and positive MACD.
• Hourly chart signals possible short-term bearish correction in a bullish bias.
• AUDJPY operating above key SMAs indicates long-term bullish sentiment.

In Wednesday's session, the AUD/JPY pair was spotted making moderate gains, trading at the 98.33 level. The technical landscape exhibits a generally bullish sentiment, boosted by positive momentum in the daily Relative Strength Index (RSI) RSI and Moving Average Convergence Divergence (MACD) histogram. However, a contrasting short-term bearish bias can be glimpsed on the hourly charts, suggesting possible corrective phases. Despite this, the prevailing upward drive exemplified by the pair's position above key SMAs aligns the broader perspective with the bulls.

The daily RSI for the AUDJPY pair hovers in the positive territory with a rising tendency indicating growing bullish momentum in the market. Meanwhile, the MACD histogram prints green bars, signifying positive momentum, and presents an incline that confirms the increasingly bullish sentiment.

AUD/JPY daily chart

Switching to the hourly perspective, the RSI trends lower into the negative territory. This divergence in the RSI values on the daily and hourly charts could hint at a near-term corrective bearish phase within the dominant bullish bias. The MACD histogram here is currently falling, producing red bars, suggesting a slightly stronger negative momentum in the vicinity.

AUD/JPY hourly chart

However, on a broader outlook, with the AUD/JPY operating above its primary SMAs (20, 100, 200-day), indicates the long-term sentiment favors the bulls. Thus, any short-term weakness might be perceived as a healthy technical correction.

• Market shuffles its feet as investors await latest Fed Minutes.
• EU and US PMIs slated for Thursday.
• Friday rounds out the trading week with a smattering of ECB speeches.

EUR/USD drifted into the midrange on Wednesday but is on the soft side as traders wait for the latest Federal Reserve (Fed) Minutes. It is unlikely that the Fed will deliver anything new for traders to chew on though. European and US Purchasing Managers Indices (PMIs) are slated for Thursday, where markets expect a slight improvement in the euro area and a softer print in US activity figures.

Friday wraps up the week with a smattering of speeches from policymakers from the European Central Bank (ECB). The Fed’s latest Monetary Policy Report also drops on Friday.

Daily digest market movers: EUR/USD pulls into the middle ahead of Fed Minutes

• The Fed’s Minutes from its last meeting will be poured over by investors looking for hints about how close the Fed is to cutting rates.
• The Fed still sees around three rate cuts this year, while money markets are still hoping for at least five, according to the CME’s FedWatch Tool.
• Markets are pricing in 70% odds of a first rate trim in June.
• Fed Minutes Preview: Traders await clues for rate outlook as expectations for cuts shift to second quarter
• The EU’s Consumer Confidence in February improved more than expected, printing at -15.5 versus the forecast -15.6, compared to the previous month’s print of -16.1.
• Thursday’s EU HCOB PMIs are broadly expected to recover, with the pan-euro area Composite PMI for February forecast to improve to 48.5 from 47.9.
• A below-50.0 print for the Composite component would represent a ninth straight month in contraction territory.
• Europe’s final Core Harmonized Index of Consumer Prices (HICP) inflation on Thursday is expected to confirm the preliminary print of 3.3% YoY.
• The US is expected to see a slight downtick in its PMI figures, with the Services component forecast to drop to 52.0 from 52.5 and the Manufacturing component expected to drop to 50.5 from 50.7.

Technical analysis: EUR/USD grapples with 1.0800

EUR/USD remains on the bullish side of the 200-hour Simple Moving Average (SMA) near 1.0767 as the pair drifts into the high end in the near term. Price action has continued to extend a rough recovery from last week’s dip into the 1.0700 handle, but halting momentum sees bullish sentiment beginning to thin at the intraday level.

Daily candlesticks have the pair knocking into the 200-day SMA near 1.0830, and topside momentum is facing a significant technical ceiling. The EUR/USD is still facing a pattern of descending highs, and the pair is still down around 3% from December’s peak bids near 1.1140.

EUR/USD hourly chart

EUR/USD daily chart

• Gold price threatens to end its streak of gains amid rising US Treasury yields.
• Market turns cautious ahead of FOMC Minutes and due to recent hawkish Fed indications.
• Adjustments in Fed rate forecasts  following inflation reports and bond auctions affect Gold's appeal.

Gold price retreats on Wednesday after registering four days of straight gains as US Treasury bond yields rise in the vicinity of the release of the Minutes from the Federal Reserve’s (Fed) monetary policy meeting in January. Global equities portray a risk-off environment, while US Treasury bond yields resume to the upside amid speculation that the Minutes could reinforce the “hawkish hold” delivered by Fed Chairman Jerome Powell and his colleagues. At the time of writing, the XAU/USD exchanges hands at $2,022.51, down 0.07%.

Traders are eyeing the release of the Federal Open Market Committee (FOMC) Minutes. Fed officials crossed the newswires, expressing that the US central bank would begin to ease monetary policy toward the second half of 2024. However, on the consumer and producer side, January’s inflation data could cause policymakers to refrain from slashing rates as prices escalated above the 3% threshold.

That triggered a repricing on Fed rate cut expectations as shown by the Chicago Board of Trade (CBOT) data, with traders expecting the Federal Funds Rate (FFR) would be at 4.55% by the end of 2024.

Recently, a US 20-year bond auction triggered a jump in US Treasury yields, with the 10-year note yield up five basis points to 4.327%, a headwind for Gold prices.

Daily digest market movers: Gold retraces as traders expect less dovish Fed

• The CME FedWatch Tool sees traders expect the first 25 bps rate cut by the Fed in June 2024.
• Investors are pricing in 95 basis points of easing throughout 2024.
• The US Dollar Index, tracking the performance of the US Dollar against a basket of six major currencies, is currently trading within a narrow range around 104.10, up 0.03%.
• The latest inflation reports from the US triggered a change of language from Fed officials, who struck a “cautious” tone. Atlanta Fed President Raphael Bostic suggested the Fed is in no rush to ease policy.
• Richmond Fed President Thomas Barkin said the latest inflation reports were “less good,” adding that the US has “a ways to go” to achieve a soft landing.
• San Francisco Fed President Mary Daly stated, “We will need to resist the temptation to act quickly when patience is needed and be prepared to respond agilely as the economy evolves.”
• This week the US economic schedule will feature the release of the latest Federal Reserve Open Market Committee (FOMC) Minutes alongside Fed officials' speeches beginning on Wednesday.
• Traders will get further cues from US S&P Global PMIs, Initial Jobless Claims data and the Chicago Fed National Activity Index, usually a prelude to the Institute for Supply Management's (ISM) Manufacturing PMI.

Technical analysis: Gold stays above 100-day SMA, eyes key resistance near 50-day SMA

Gold is trading range-bound though tilted to the downside as the yellow metal has achieved a successive series of lower highs and lows. Stir resistance at the 50-day Simple Moving Average (SMA) at $2,033.54 might cap XAU/USD’s upside, but if cleared, that would pave the way to test the $2,050.00 figure. Upside risks lie at $2,065.60, the February 1 high.

On the flip side, if sellers step in and push prices below the $2,000 figure, that will expose the 100-day SMA at $2,002.05. The next stop would be the December 13 low at $1,973.13, followed by the 200-day SMA at $1,965.86.

• The NZD/USD is trading at 0.6167 with mild gains amid Wednesday's session.
• FOMC minutes might impact as the USD could strengthen on an unchanged Fed interest rates outlook.
• The RBNZ's policy rate outlook may add pressure on the NZD/USD pair amidst falling inflation.

In Wednesday's session, the NZD/USD traded modestly higher at 0.6167 with the upside limited amid speculations of the Federal Reserve’s (Fed) unchanged rate outlook and softer New Zealand inflation data making the Kiwi struggle to gain ground.

Ahead of the Federal Open Market Committee (FOMC) minutes, the USD holds its ground, with recent data reinforcing the notion that the Federal Reserve is unlikely to lower interest rates in the near term. However, markets will look for insights into the minutes to see the openness of the officials to start cutting or any additional information to continue shaping their expectations for the next meeting. As for now, the easing cycle is being delayed to June.

On the other side of the currency pair, New Zealand reported Q4 Producer Price Index (PPI) with input prices rising by 0.9% QoQ, down from Q3's 1.2%, and output prices by 0.7% QoQ, a slight reduction from 0.8% in the previous quarter. However, a year-on-year view saw an uptick in input prices of 1.9% from Q3's 1.5%. Even though inflation remains high in New Zealand, the easing pressures indicate a trend towards disinflation putting off additional tightening measures from the Reserve Bank of New Zealand’s (RBNZ) back. This aligns with the market expectations of disinflation continuing, and the RBNZ maintaining the policy rate hovering above its neutral estimate, with no additional tightening expected. In that sense, as the Fed and RBNZ seem to align, the pace of the pair may be dictated by the health of each country’s economies.

NZD/USD technical analysis

On the daily chart, the Relative Strength Index (RSI) readings for the NZD/USD show an escalation from the negative territory into the positive zone in the last sessions while the Moving Average Convergence Divergence (MACD) prints green bars, indicating that the bulls are in command.

In relation to the pair's position related to its main Simple Moving Averages (SMAs), it is positioned above the 20, 100, and 200-day SMAs, suggesting a longer-term bullish control.

NZD/USD daily chart

• GBP/JPY tested into the high end as the Yen recedes.
• UK Public Sector Net Borrowing declined sharply in January.
• UK PMIs due in Thursday, markets expected a mixed steady print.

GBP/JPY rotated on Wednesday, marking in a slight new high for the week as the Pound Sterling (GBP) gets a leg up from a broad-market pullback in the Japanese Yen (JPY). Bank of England (BoE) policymaker Swati Dhingra noted on Wednesday that the outlook for UK inflation remains bumpy, but downwards, noting that UK consumption still remains below pre-pandemic levels as the UK lags behind its developed economy cohorts in Europe and the US.

UK Public Sector Net Borrowing, which tracks the UK government’s budget surplus or deficit, tumbled to its lowest print in at least fifteen years, showing a net decline of £-17.615 billion, far below the forecast £18.4 billion. The figure fell back from the previous MoM print of £6.451 billion, though the National Statistics office tracking of the UK’s federal budget is prone to revisions as time goes on.

Thursday brings the UK’s latest Purchasing Manager’s Index (PMI) figures for February, and markets are expecting the UK S&P Global/CIPS Services PMI to tick down to 54.1 from 54.3 MoM. The Manufacturing PMI component is forecast to see a slight improvement to 47.5 from 47.0, and the Composite UK PMI is expected to hold steady at 52.9.

February’s GfK Consumer Confidence slated for Friday is expected to see a slight improvement to -18.0 from -19.0 to round out the trading week, and Japan will be out for Thursday as the country celebrates Japanese Emperor Naruhito’s birthday.

GBP/JPY technical outlook

The Guppy continues to drift into the high end with the pair sticking close to its highest bids since 2015. The GBP/JPY continues to be bolstered by the 200-hour Simple Moving Average (SMA) near 189.00 in the near-term, and momentum is holding firmly in the bullish side despite slowing gains on the chart.

The GBP/JPY continues to test into the 190.00 major handle, and the pair sees firm technical support after rebounding from the 200-day SMA below 182.00 in early 2024. The pair remains up around 6% from December’s choppy swing low into 178.00.

GBP/JPY hourly chart

GBP/JPY daily chart

• USD/JPY reaches 150.30, gaining ahead of key Fed meeting insights, maintaining an upward trajectory.
• Technical indicators highlight bullish stance, with potential resistance near 151.00 amid intervention concerns.
• Support levels at 149.91 and 149.15 to be tested if retreat below 150.00 occurs, signaling possible shifts.

The USD/JPY climb above the 150.00 figure extended its gains ahead of the release of the minutes of the lates Federal Reserve’s (Fed) meeting. At the time of writing, the pair trades at 150.30, up by 0.20%.

The daily chart portrays the pair as upward biased, sigting above the Ichimoku Cloud (Kumo) and above the Tenkan and Kijun-Sen. That along with Relative Strength Index (RSI) studies at bullish territory, would suggest the USD/JPY could test the 151.00 figure and beyond, if not for Japanese authorities threats to intervene the markets. A breach above 151.00 would expose last year’s high of 151.91.

Conversely, if USD/JPY drops below the 150.00 mark, that would exacerbate a test of the Tenkan-Sen at 149.91. Once cleared, the next support would be the Senkou Span A at 149.15, followed by the Kijun-Sen at 148.39.

USD/JPY Price Action – Daily Chart

• USD/CAD tested a new high for the week but remains tepid.
• Canada’s New Housing Price Index declined slightly in January.
• Fed’s FOMC meeting Minutes to be the key release for Wednesday.

USD/CAD briefly tested a fresh high for the week, but the pair continues to churn in near-term consolidation levels as markets buckle down for the latest meeting Minutes from the Federal Reserve’s (Fed) Federal Open Market Committee (FOMC). Market momentum remains thin with US Purchasing Managers Index (PMI) figures due on Thursday, and the trading week will wrap up with the Fed’s latest Monetary Policy Report on Friday.

Canada saw its New Housing Price Index decline in January with the annualized figure softening at a slower rate than previous. Canadian Retail Sales are due on Thursday but are likely to be engulfed by the US PMI prints.

Daily digest market movers: USD/CAD cycles ahead of FOMC with key data around the corner

• Canada’s New Housing Price Index declined 0.1% in January MoM versus the previous flat print of 0.0%.
• The YoY figure fell 0.7%, less than the previous print of -0.9%.
• The FOMC’s latest meeting Minutes will draw plenty of scrutiny as money markets size up a June rate cut from the Fed.
• Fed Minutes Preview: Investors to scrutinize discussions as markets lean toward June for rate cuts
• Meanwhile, Richmond Fed President Thomas Barkin hit newswires, noting that while the US is on the “back end” of its inflation problem, there’s still further to go.
• Barkin also noted that much of the current declines in inflation have been centered around goods, with services prices remaining problematic for the Fed’s inflation targets.
• Fed's Barkin: Still ways to go to get to a soft landing
• Canada’s Retail Sales due on Thursday are expected to rebound with December’s MoM Retail Sales forecast to print at 0.8% versus the previous print of -0.2%.
• The US’ S&P Global Manufacturing PMI for February, also slated for Thursday, is expected to tick down to 50.5 from 50.7.

Technical analysis: USD/CAD adrift just north of 1.3500

USD/CAD found a little extra room on the high side early Wednesday, touching a new high for the trading week, but the pair remains firmly embedded in near-term technical congestion. The USD/CAD is sticking close to the 1.3500 handle as markets await a firm push in either direction.

The pair finally finished closing last week’s Fair Value Gap (FVG) at 1.3530. The USD/CAD sees a heavy support zone between 1.3480 and 1.3470, just above last week’s Order Block (OB) near 1.3460. Technicals favor a continued bullish break of character, but only if the pair is able to build enough momentum to return to last week’s peak bids near 1.3585.

Daily candles see the USD/CAD continuing to struggle near the 200-day Simple Moving Average (SMA) at 1.3478, but a pattern of higher lows supports a thin push into the bullish side. The USD/CAD is up 2.5% from the last swing low into the 1.3200 handle but still has a ways to go on the high side, still down nearly 3% from last November’s peak near 1.3900.

USD/CAD hourly chart

USD/CAD daily chart

• Mexican Peso is virtually unchanged as Mexico's Retail Sales decline hints at economic pressure.
• Recent data may influence Banxico's rate decisions amidst reduced consumer spending reports.
• Investors' focus shifts to FOMC Minutes for insight into the Fed's rate trajectory and its impact on MXN.

The Mexican Peso (MXN) stays firm against the US Dollar (USD) even though data from Mexico suggests that consumers are spending less, which should weigh on the economy’s outlook. That capped the Peso’s advance while traders awaited the release of the latest Federal Reserve (Fed) meeting Minutes. At the time of writing, the USD/MXN exchanges hands at 17.05, unchanged.

Mexico’s National Statistics Agency revealed that Retail Sales plunged in December, in both monthly and annual figures, an indication that consumers are feeling the pain of higher interest rates set by the Bank of Mexico (Banxico). Today’s data summed to Monday’s Indicator of Economic Activity (IOAE), suggesting the economy shrank -0.7% MoM in January, which could weigh on Banxico’s decision to lower rates at the March meeting.

USD/MXN traders are eyeing the release of the Federal Open Market Committee (FOMC) January Minutes, which are not expected to rock the boat sharply. After the monetary policy statement release last month, Fed Chair Jerome Powell threw cold water on a rate cut in March, while most policymakers commented that the Fed is in no rush to cut rates.

Daily digest market movers: Mexican Peso fluctuates between minimal gains/losses ahead of Fed Minutes

• Mexico’s Retail Sales dropped -0.9% MoM, below estimates of 0.2% expansion. Yearly figures plummeted -0.2% vs. the forecast of a 2.5% increase.
• The Mexican currency could depreciate further if the Mexican government fails to resolve the steel and aluminum dispute with the United States. US Trade Representative Katherine Tai warned the US could reimpose tariffs on the aforementioned commodities.
• Mexico’s economic schedule will feature the release of the Gross Domestic Product (GDP) and February’s Mid-Month inflation data on Thursday.
  • GDP is projected to have grown 0.1% in Q4 2023 and 2.4% YoY.
  • Mid-month underlying inflation for February is foreseen cooling from 4.78% to 4.67 YoY, while headline inflation is projected to drop from 4.9% to 4.7%.
• On Tuesday, the Conference Board (CB) revealed its Leading Economic Index (LEI), which no longer signals an upcoming recession in the US.
• Recently, Richmond Fed President Thomas Barkin said the latest inflation reports were “less good,” adding the US has “a ways to go” to achieve a soft landing.
• Traders will get further cues from US S&P Global PMIs, Initial Jobless Claims data and the Chicago Fed National Activity Index. The latter is usually a prelude to the Institute for Supply Management’s (ISM) Manufacturing PMI.
• US economic data related to price pressures should greatly influence Federal Reserve officials. Although opening the door to easing policy, Fed officials have expressed numerous times that they will not rush rate cuts.
• Fed’s Bostic said patience is required, and he foresees two rate cuts, which could begin in the summer if the data justifies it. Fed’s Daly said, “We will need to resist the temptation to act quickly when patience is needed and be prepared to respond agilely as the economy evolves.”
• Market players are expecting the first rate cut by the Federal Reserve at the June monetary policy meeting as they have trimmed odds for March and May.

Technical analysis: Mexican Peso prints minimal losses as USD/MXN breaks above 17.05

The USD/MXN remains in consolidation, at around 17.05, awaiting a fresh catalyst. If buyers regain the 50-day Simple Moving Average (SMA) at 17.07, the pair could rally toward the 200-day SMA at 17.28. A breach of the latter will expose the 100-day SMA at 17.38, ahead of the 17.50 mark.

On the other hand, if sellers’ step in and cap USD/MXN’s upside, they need to push prices below the 17.00 figure. Once cleared, the next support would be the current year-to-date (YTD) low of 16.78, followed by the 2023 low of 16.62.

USD/MXN Price Action – Daily Chart

• The US Dollar Index shows some weakness ahead of FOMC Minutes from the January meeting with a slight decline to 104.00.
• The Fed's intention to keep rates untouched may fuel further gains for the US Dollar.

The US Dollar Index (DXY) experienced a slight setback, resting at 104.00 in Wednesday’s session. 

The US economy, backed by robust data, shows resilience, reflected in the strength of the Greenback in 2024. Meanwhile, the Federal Reserve (Fed) maintains a hawkish stance, dismissive of near-term rate cuts and keen on keeping rates at restrictive levels. The market aligns progressively with this view, reinforcing expectations of a delayed easing cycle. 

Daily digest market movers: The US Dollar struggles to gain ground as investors look for drivers in the FOMC minutes

• The market’s highlight will be the release of the Federal Open Market Committee (FOMC) Minutes from the last January meeting at 19:00 GMT, which may fuel volatility in the next Fed decision expectations.
• As for now, the CME FedWatch Tool indicates a 20% chance of a rate cut at the next meeting in March and also remains low for May, reflecting the market sentiment leaning toward the Fed's intent to hold rates steady at restrictive levels. 
• Markets are now pushing the start of the interest rate easing to June.

Technical analysis: DXY bulls stand weak and must recover the 100-day SMA

The indicators on the daily chart reflect a balance between buying and selling pressure. The Relative Strength Index (RSI) is in positive territory, but its negative slope suggests that buying momentum is losing steam. The Moving Average Convergence Divergence (MACD), with its decreasing green bars, implies that any bullish momentum is weakening and could potentially flip into a bearish bias.

Furthermore, the positioning of the index compared with its Simple Moving Averages (SMAs) provides an interesting perspective. Despite the bearish pressure, bulls have managed to keep the DXY above the 20-day and 200-day SMAs. This suggests that buyers continue to wield some strength in the broader time horizon.

However, the Dollar Index being below the 100-day SMA may hint at intermediate barriers for bullish movements. Hence, while the broader trend might still be inclined toward buyers, the short-term outlook presents a battle for control between bulls and bears.

More and more ECB representatives believe that the inflation beast will soon be tamed. Economists at Commerzbank analyze domestic inflationary pressure and the latest inflation surveys among companies and show that it is far too early to sound the all-clear.

More companies are planning price increases again

Disappointment summarises the start of 2024 for the Australian Dollar (AUD). Economists at ING analyze Aussie’s outlook.

Softer data does not mean big RBA cuts

• EUR/USD remains stable at 1.0807, with USD gaining ground amid anticipation of FOMC minutes.
• German economic growth projection for 2024 slashed to 0.2%, stoking recession fears.
• US Fed officials signal cautious approach to rate cuts, awaiting disinflation signs in labor and goods markets.

The EUR/USD pair is virtually unchanged in early trading during the North American session, as the Greenback (USD) trims some weekly losses, as the US Dollar Index (DXY) edges back above 104.00. At the time of writing, the major exchanges hands at 1.0807.

DXY rebounds over 104.00; German outlook and FOMC minutes eyed

The Eurozone (EU) economic docket was light, though news from Germany could weigh on the common currency. The German government updated its forecasts for 2024 expecting an economic growth of 0.2%, far less than the 1.3% previously foreseen. A weaker global demand, geopolitical uncertainty, and high inflation dent an economic recovery. In 2023, the economy shrank -0.3%, expected to enter a recession in the first quarter of 2024.

Regarding the economic situation, German Economy Minister Robert Habeck added, “Looking ahead, however, we see clear signs that the trend can improve again,” at a news conference presenting the annual economic report.

In the US, traders are awaiting the release of the latest Federal Open Market Committee (FOMC) minutes. However, the Richmond Fed President Thomas Barkin said the latest CPI and PPI reports were “less good,” showing the dependence of disinflation on goods. He commented that the labor market is improving while emphasizing the US has a “ways to go” to get a soft landing.

US Treasury bond yields had paired their earlier gains as investors await the release of January’s FOMC minutes. Since then, Federal Reserve (Fed) officials have expressed they are ready to cut rates but would not rush the beginning of the easing cycle. Later, the Atlanta Fed President Raphael Bostic will cross the wires.

EUR/USD Price Analysis: Technical outlook

Even though EUR/USD buyers regained the 1.0800 figure, the pair remains vulnerable to selling pressure after failing to reclaim the 200-day moving average (DMA) at 1.0826. If the pair slumps below 1.0800, look for a test of the day’s low of 1.0789 before tumbling toward February’s 20 low at 1.0761. Further downside lies at 1.0700, ahead of the last cycle low of 1.0694. Conversely, if buyers regain the 200-DMA, expect a test of the 1.0900 mark.

Economists at ANZ Bank currently favour an August cut from the Bank of England (BoE), but the main message is rates will be falling this summer.

Conditions for UK rate cuts unfold, August favoured

The market is clearly pre-disposed towards holding an optimistic outlook on Federal Reserve rate cut prospects. Economists at Rabobank analyze its implications for the US Dollar (USD).

Market continues to recalibrate the pace and order of policy moves in the G10

"Monetary policy needs to be forward-looking because moderation of the policy stancerequires time to implement and to feed through to the real economy," Bank of England (BoE) policymaker Swati Dhingra said on Wednesday.

"The outlook for headline inflation appears bumpy but downwards," she added and acknowledged that the UK consumption remains below pre-pandemic level, striking a contrast to the Euro area and the United States.

Dhingra further argued that overtightening the policy often comes with hard landings and scarring of supply capacity.

Market reaction

GBP/USD largely ignored these comments and was last seen rising 0.1% on the day at 1.2630.

• The Fed will release the minutes of the January policy meeting on Wednesday.
• Jerome Powell and co’s discussions surrounding the policy pivot will be scrutinized.
• The US Dollar has been outperforming its major rivals since the beginning of the year.

The Federal Reserve (Fed) will release the minutes of the January policy meeting on Wednesday. Investors will pay close attention to comments regarding the inflation outlook and the possible timing of a policy pivot.

Fed is widely expected to leave the policy rate unchanged in March.

Federal Reserve Chairman Jerome Powell said in the post-meeting press conference in January that he doesn’t see a rate cut in March as likely. "If we saw [an] unexpected weakening in the labor market, that would make us cut rates sooner,” Powell further explained. After the January labor market report showed that Nonfarm Payrolls rose by 353,000, investors saw that as a confirmation of a delay in the policy pivot and refrained from pricing in a rate cut in March.

With an interest rate reduction as early as March becoming increasingly unlikely, investors started to assess whether May would be the right time for the Fed to start loosening the policy. However, the recent data from the US showed that the economy expanded at a stronger pace than expected in the fourth quarter and the disinflation process lost momentum at the beginning of the year. The Bureau of Labor Statistics reported that core inflation in the US, as measured by the change in the Core Consumer Price Index (CPI), rose 3.9% in January, matching December's increase and surpassing analysts' estimate of 3.7%. Following these developments, the probability of a May rate cut declined toward 30% from above-50% earlier in February, as per the CME FedWatch Tool.

Previewing the January FOMC Minutes “the FOMC's change of tone between the December and January meetings portrayed a Committee that has welcomed the progress made on inflation, but that would prefer to see further confirmation amid strong activity data,”  TD Securities analysts said in a note. “The minutes are likely to unveil further color regarding those discussions, as well as talks around QT tapering.”

When will FOMC Minutes be released and how could it affect the US Dollar?

The Fed will release the minutes of the January policy meeting at 19:00 GMT on Wednesday. The USD Index (DXY), which tracks the USD’s valuation against a basket of six major currencies, rose more than 2% in January and it’s up 0.65% so far in February. 

The market positioning suggests that the USD has more room on the upside if FOMC Minutes feed into expectations for a delay in the policy pivot until June. On the other hand, the USD could come under renewed selling pressure if the publication shows that policymakers are willing to consider a rate reduction by May. However, policymakers’ comments in the minutes are likely to be outdated due to the fact that the meeting took place before the latest inflation and employment data releases. Hence, the market reaction could remain short-lived.

Eren Sengezer, European Session Lead Analyst at FXStreet, shares a brief technical outlook for the USD Index:

“The 100-day Simple Moving Average and the Fibonacci 50% retracement of the October-December downtrend form a pivot area at 104.00-104.10. If DXY fails to stabilize above this region, 103.70 (200-day SMA) aligns as the next important support before 103.25 (Fibonacci 38.2% retracement). Looking north, 104.75 (Fibonacci 61.8% retracement) and 105.00 (psychological level, static level) could be set as the next bullish targets in case 104.00-104.10 holds as support.”
 

Over the past six months, Gold prices have risen over 3%. Economists at ANZ Bank analyze the yellow metal’s outlook.

Gold’s recent price consolidation is likely to extend till the end of Q1

See – Gold Price Forecast: Fed policy will remain key to the outlook for XAU/USD in the months ahead – ING

In an interview with Sirius XM on Wednesday, Richmond Federal Reserve Bank President Thomas Barkin said that the US still has "ways to go" go get to a soft landing, per Reuters.

Key takeaways

"Big picture of US data on inflation and jobs has been remarkable."

Recent data on PPI and CPI have been less good, showing dependence of disinflation on goods."

"January data made things harder but should not put too much weight on the month's information given seasonal issues."

"Ease of hiring is not yet back to normal but conditions are improving."

"Interest sensitive sectors are struggling but people still have money to spend on services, experiences."

"Productivity metrics are poor, need to be viewed over longer time periods."

"Weaker growth overseas should not have much impact on a US recovery driven by domestic consumption."

"US is on the back end of its inflation problem; question now is how much longer it will take."

Market reaction

The US Dollar Index showed no immediate reaction to these comments and was last seen trading flat on the day at 104.05.

• Wall Street's main indexes are set to open lower on Wednesday.
• Investors await Federal Reserve's January policy meeting minutes.
• Nasdaq futures are down more than 0.5% ahead of the opening bell.

S&P 500 futures fall 0.35%, Dow Jones futures drop 0.24%, and Nasdaq futures lose 0.64% ahead of the opening bell on Wednesday. 

S&P 500 (SPX) fell 0.6% on Tuesday, Dow Jones (DJIA) lost 0.17% and Nasdaq (IXIC) declined 0.92%.

What to know before stock markets open

• The Consumer Staples Sector rose 1.13% as the best-performing major S&P sector on Tuesday. The Technology Sector plunged 1.7% before hitting the Tuesday close in the red 1.27% as the weakest major sector.
• Discover Financial Services (DFS) was the biggest gainer on the day, rising 12.6% to close at $124.42 on Tuesday. On the other hand, Expeditors International of Washington Inc. (EXPD) fell 6.9% to end at $115.57 as one of the biggest decliners, just beat out by Trade Desk Inc. (TTD), which fell 7.163% to hit closing bell at $82.56.
• Retailer giant Walmart Inc. (WMT) reported an adjusted earning per share of $1.8 ahead of the opening bell on Tuesday. The company said that it expects consolidated net sales to rise in the range of 3%-4% and announced that it will buy smart-TV producer Vizio (VZIO) for about $2.3 billion.
• Home Depot Inc. (HD) said net income in Q4 was $2.8 billion and the adjusted earnings per share was $2.82. The company, however, said that if projects sales for the fiscal year 2024 to be below estimates, citing slowing demand for discretionary items such as flooring, furniture and kitchen, per Reuters.
• The Federal Reserve will release the minutes of the January policy meeting on Wednesday. On Thursday, preliminary February Manufacturing and Services PMI reports for Germany, the Euro area, the UK and the US will be scrutinized by market participants. 
• NVIDIA Corp. (NVDA) and Synopsys Inc. (SNPS) will release quarterly earnings after the closing bell on Wednesday. 
• The Bureau of Labor Statistics reported on Friday that the Producer Price Index (PPI) for final demand in the US rose 0.9% on a yearly basis in January. This reading followed the 1% increase recorded in December but came in above the market expectation of 0.6%. The annual Core PPI rose 2% in the same period, compared to December's increase of 1.8%. On a monthly basis, the Core PPI was up 0.5% following the 0.1% decline recorded in the previous month.
• Inflation in the US, as measured by the change in the Consumer Price Index (CPI), softened to 3.1% on a yearly basis in January from 3.4% in December, the BLS reported on Tuesday. This reading came in above the market expectation of 2.9%. The Core CPI, which excludes volatile food and energy prices, rose 3.9% in the same period and matched December's increase, surpassing analysts' estimate of 3.7%.

The US Dollar Index (DXY) is mild lift on the day. Economists at Scotiabank analyze the index outlook.

Upside potential remains limited

GBP/USD nudges lower. Economists at Scotiabank analyze the pair’s outlook.

Losses through 1.2520/1.2525 turn the picture more negative

EUR/USD drifts back after a solid run higher. Economists at Scotiabank analyze the pair’s outlook.

Firmer support should emerge at 1.0760/1.0770

• The US Dollar in the green with markets bracing for Fed Minutes. 
• Markets are suddenly entertaining a possible rate hike by the Fed in the next three months.  
• The US Dollar Index trades back above 104 and is salvaging the weakness from Tuesday. 

The US Dollar (USD) is in the green as it recovers earlier losses from Tuesday. The US Dollar Index (DXY) jumped higher, back above 104 after the Wall Street Journal reported a shift in the US Fed futures where suddenly a rate hike has become a possibility. The reason for this repricing is a wage report in the Eurozone from the European Central Bank (ECB) that revealed higher wages are still broad based and will result in more longer-term sticky inflation. 

On the economic data front, traders are bracing for the release of the Fed Minutes later this evening. Together with the report of the Wall Street Journal it shows how fragile the market is currently pricing in any possibility whatsoever when it comes to rate policies. Traders will be even more looking for clues in the Minutes on whether the Fed will cut ahead of the summer, over the summer, or will not cut at all and might even hike. 

Daily digest market movers: Really? A rate hike?

• An article from the Wall Street Journal’s Marketwatch is pointing to a small possibility of a rate hike in the coming three months. This probability is not seen in the US Chicago Mercantile Exchange Fed fund futures, but is showing up in options tied to the Secured Overnight Financing Rate.
• Around 12:00 GMT, the weekly Mortgage Bankers Applications (MBA) Index will be released. Previous was a contraction of -2.3%.
• Near 13:55 the delayed Redbook Index is due to be released, with the previous number at 2.5%.
• The US Treasury Department is heading back to markets for a 20-year bond auction near 18:00. 
• THe US Federal Reserve is due to release the Minutes from its latest meeting, near 19:00. 
• Ahead of those Minutes, US Atlanta Fed President Raphael Bostic is due to speak near 13:00, followed by Federal Reserve governor Michelle Bowman around 18:00. 
• Equities are very dispersed with China being the biggest winner this Wednesday. Both the Hang Seng and the Shenzhen Index are up over 1% on the day. European equities are dragging lower with the British FTSE100 down near 1%. US equity futures before the US opening bell are trading in the red. 
• The CME Group’s FedWatch Tool is now looking at the March 20th meeting. Expectations for a pause are 93.5% and 6.5% for a rate cut. 
• The benchmark 10-year US Treasury Note trades around 4.27%, a touch softer than Tuesday when the bond market opened for this week. 

US Dollar Index Technical Analysis: Ahead of the Fed

The US Dollar Index (DXY) is clawing back with traders bracing for the Fed Minutes later this evening. An additional element that is underpinning the DXY is that suddenly rumours on a possible rate hike from the Fed in the coming three months are showing up in the possibilities. This would mean a widening of the rate differential between the US Dollar and other currencies, which would mean the DXY could soar to 106 within three months, should that rate hike materialise. 

Should the US Dollar jump to 105.00 on the back of the Fed Minutes, 105.12 is a key level to keep an eye on. One step beyond there comes 105.88, the high of November 2023. Ultimately, 107.20 – the high of 2023 – could even come back into scope, but that would be when several inflation measures are coming in higher than expected for several weeks in a row. 

The 100-day Simple Moving Average looks to be getting chopped up again, though the DXY looks to be drawn to it each time it snaps below 104.13 The 200-day SMA near 103.72 looks more solid as a support. Should that give way, look for support from the 55-day SMA near 103.17.

The FX options market hints that investors may not be that pessimistic on EUR/USD after all, economists at ING say.

FX options market less pessimistic

• USD/JPY could break below immediate support at the 150.00 psychological level.
• A break below a nine-day EMA at 149.81 could lead the pair to test the major support at 149.50.
• Technical indicators suggest a confirmation of the bullish trend for the pair.

USD/JPY seems to remain in the negative territory for the third consecutive day. The USD/JPY pair hovers near 150.10 during the European session on Wednesday. The immediate support appears at the psychological level of 150.00.

A break below the latter could impact the USD/JPY pair to test the nine-day Exponential Moving Average (EMA) at 149.81 followed by the major support at 149.50. If the pair breaks the major support, it could approach the psychological support zone around the 149.00 level following the 23.6% Fibonacci retracement level of 148.50.

However, the technical analysis for the USD/JPY pair suggests a bullish momentum as the 14-day Relative Strength Index (RSI) is positioned above the 50 level. Additionally, the lagging indicator of the Moving Average Convergence Divergence (MACD) signals a confirmation of the bullish trend, with the MACD line positioned above the centerline and the signal line.

On the upside, the USD/JPY pair could find the resistance zone around the weekly high at 150.43 and the major barrier at 150.50 level. A breakthrough above this zone could lead the pair to revisit February’s high at 150.88 followed by the psychological resistance level of 151.00.

USD/JPY: Daily Chart

Inflation cooled drastically in Canada in January. Economists at Commerzbank analyze the latest Consumer Price Index (CPI) report and its implications for the Bank of Canada (BoC) policy outlook.

Finally, inflation seems to go down

• USD/MXN edges lower despite improved US Dollar on Wednesday.
• The Mexican Peso could depreciate as ING suggests a possible 25 basis points (bps) rate cut in March.
• The Greenback could face a challenge on subdued US Treasury yields.

USD/MXN retraces its recent gains and inches lower to near 17.05 during the European trading hours on Wednesday. However, the Mexican Peso (MXN) may face downward pressure as economists at ING suggest a possible 25 basis points (bps) rate cut in March, although the Bank of Mexico (Banxico) is expected to proceed cautiously in its rate-cutting cycle.

On Monday, Mexico's National Statistics Agency (INEGI) released the Indicator of Economic Activity (IOAE), indicating a 0.7% month-on-month contraction in the economy, despite a 1.3% year-on-year growth. Additionally, Retail Sales data for December is expected to be released on Wednesday.

The US Dollar Index (DXY) holds steady at around 104.10 after recovering intraday losses. The decline in the US Treasury yields pulls back the US Dollar (USD), which in turn, undermines the USD/MXN pair. The 2-year and 10-year yields on US Treasury coupons stand at 4.59% and 4.26%, respectively, at the time of writing.

The US Federal Reserve is expected to maintain elevated policy rates for an extended period to address persistent inflation concerns, particularly in light of last week's strong consumer and producer prices data from the United States (US).

The prospect of higher interest rates is likely to dampen economic activity in the United States (US), potentially impacting company profits. As a result, investors are turning toward the US bond market, causing prices of US Treasury coupons to rise and pulling yields downward.

Traders are eagerly awaiting the release of the Federal Open Market Committee (FOMC) Minutes later in the North American session to gain further insights into the Federal Reserve's interest rates trajectory.

• Natural Gas up over 7% intraday in European trading. 
• Traders are sending Gas higher as the supply side will soon see reduced flows. 
• The US Dollar Index is back above 104 after its decline Tuesday and ahead of the Fed Minutes. 

Natural Gas (XNG/USD) is jumping back to $1.80 in a steep rally which is mainly headline driven. One of the major Shale drillers, Chesapeake, is planning to cut its Natural Gas production already in 2024. The recent crash in Gas prices makes its Gas mining operations nearly unprofitable, and forces the company to cut its output, which means the global supply side will become tighter.    

The US Dollar (USD) is jumping higher this Wednesday after its small retreat on Tuesday. Traders had some catching up to do with the US Public Holiday on Monday, and sent the US Dollar Index (DXY) snapping below 104. Ahead of the US opening bell, the DXY is back above 104 ahead of the US Federal Reserve Minutes from its most recent rate decision meeting. 

Natural Gas is trading at $1.78 per MMBtu at the time of writing.  

Natural Gas market movers: Surplus just got smaller

• The overall Gas supply just got smaller with Chesapeake reducing its output production for 2024. It is set to reduce nearly 20% of its total output for 2024 already.
• LNG is flowing above average with more than 17% inflow on top of the normal 30-day average. 
• The bullet point above shows that Europe is busy refilling and restocking its Gas stores with its eye on the next heating season. 
• Several benchmark futures are soaring with that active buying taking place in the Natural Gas futures markets. 

Natural Gas Technical Analysis: The catalyst markets were waiting for

Natural Gas is finding some reasoning to jump higher, back to the $1.80 pivotal level. The move comes with finally the supply side seeing some disruption ahead for 2024 and which means a repricing (higher) is needed to factor this event in. It becomes very clear that should Gas prices want to move further up, any supply side disruption will be key to accomplish this. 

On the upside, Natural Gas is facing some pivotal technical levels to get back to. Once $1.80 is surpassed, the next stop is $1.99, – the level which, when broken, saw an accelerated decline. After that the blue line at $2.13 comes into view, with the triple bottoms from 2023. In case Natural Gas sees sudden demand pick up, possibly $2.40 could come into play. 

Keep an eye on $1.80, which was a pivotal level back in July 2020 and acts as a cap with a firm rejection earlier this Wednesday. Should the recent headlines start to fade, or more supply emerge in the markets from other firms or countries to fill the gap, $1.64 and $1.53 (the low of 2020) are targets to look out for. 

XNG/USD (Daily Chart)

The Canadian Dollar (CAD) has continued to trade at weaker levels after the release on Tuesday of the softer-than-expected Canadian CPI report for January. Economists at MUFG Bank analyze Loonie’s outlook.

Slowing inflation brings forward BoC rate cut expectations

Economists at Commerzbank analyze the European Central Bank’s (ECB) rate expectations and its implications for the Euro (EUR).

The first interest rate cut will not come in the spring after all

• WTI price extends losses on uncertainty over oil demand due to higher interest rates.
• Iran-led Houthi rebels claimed responsibility for an attack on an Israeli cargo vessel, the MSC Silver.
• United States once again vetoed a draft resolution at the UN Security Council regarding an immediate humanitarian ceasefire.

West Texas Intermediate (WTI) oil price extends its losses for the third successive session on Wednesday. WTI price trades around $76.50 per barrel during the European hours. Crude oil prices decline as market caution grows amid diminishing expectations for early interest rate cuts worldwide. The prospect of higher borrowing costs is expected to dampen global economic activity, consequently reducing demand for oil.

Additionally, Geopolitical conflict in the Middle East leads to concerns about supply disruptions, causing investors to pay higher premiums for futures contracts as a hedge against potential supply shocks. As a result, oil companies are opting to sell crude oil now rather than storing it for future months.

Yemen's Houthi rebels claimed responsibility for an attack on an Israeli cargo vessel, the MSC Silver, in the Gulf of Aden. The Houthi leader stated on Tuesday that further attacks on Israel were planned, potentially targeting Israeli ships in the Red Sea and the Bab al-Mandeb Strait. On Monday, the Houthi group launched additional drone and missile strikes on four shipping vessels in the Red Sea and Bab al-Mandab Strait.

Meanwhile, on Tuesday, the United States once again vetoed a draft resolution at the United Nations Security Council regarding the Israel-Hamas conflict. This action blocked a call for an immediate humanitarian ceasefire. Washington is advocating for the Security Council to adopt a resolution linking a ceasefire to the release of Israeli hostages by Hamas.

US Energy Information Administration’s (EIA) Crude Oil Stocks Change and American Petroleum Institute’s (API) Weekly Crude Oil Stock for the week ending on February 16 will be released later in the North American session.

• USD/CHF consolidates in a tight range above 0.8800 as the focus remains on FOMC minutes.
• The SNB may lead the rate-cut cycle as inflation has been under 2% consecutively for the last eight months.
• Uncertainty ahead of FOMC minutes brings some strength to the US Dollar Index.

The USD/CHF pair oscillates in a narrow range slightly above the round-level support of 0.8800 in the London session on Wednesday. The Swiss Franc asset struggles for a direction as investors await the release of the Federal Open Market Committee (FOMC) minutes, which are scheduled at 19:00 GMT.

The FOMC minutes for the January policy meeting will provide more insights about the timing of long-awaited rate cuts. More clarity of rate-cut timing would improve the appeal for risk-sensitive assets.

Meanwhile, the US Dollar Index (DXY) has delivered a solid recovery move after refreshing its weekly low near 103.80. 10-year US Treasury yields that determine market expectations for interest rates have rebounded to 4.28%.

The Swiss Franc is broadly downbeat as the Swiss National Bank (SNB) appears to lead the rate-cut cycle due to easing price pressures. The annual inflation rate in the Swiss economy has remained below 2% for the last eight months, indicating the achievement of price stability.

USD/CHF trades sideways in a narrow range of 0.8795-0.8838 on an hourly scale. A sideways trend indicates a volatility contraction, followed by a decisive move in either direction. The 50-period Exponential Moving Average (EMA) near 0.8815 remains sticky to the Swiss Franc asset, indicating indecisiveness among market participants.

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, which indicates that investors await a fresh economic trigger.

Fresh upside would emerge if the asset breaks above the three-month high of around 0.8886, which would unlock upside towards the September 20 low at 0.8932 and the November 8 low at 0.8976.

On the contrary, a breakdown below February 15 low at 0.8783 would expose the asset to February 13 low at 0.8746, followed by the round-level support of 0.8700.

USD/CHF hourly chart

Strategists at Deutsche Bank forecast Brent at $88/bbl by the end of 2024.

Continued OPEC+ discipline in a nearly balanced market for H1, and seasonal strength in H2

• Gold price extends upside amid increasing geopolitical uncertainty.
• The US Dollar rebounds ahead of the publication of the FOMC minutes.
• Fed’s Goolsbee said higher interest rates for a longer period can impact labor market conditions.

Gold price (XAU/USD) extends its winning spell to a fifth day on Wednesday as Federal Reserve (Fed) policymakers appear to be divided between the hit of higher interest rates on the United States economy and any possible inflation uptick due to the deepening crisis in the Red Sea.

Most Fed policymakers say that resilient economic indicators, which paint a picture of a robust labor market and strong consumer spending, have bought time to discuss more on rate cuts as these could flare up price pressures again. Chicago Fed Bank President Austan Goolsbee said last week that the outlook of interest rates is tied to the Fed’s confidence in inflation declining to 2%, but he also warned that high rates for an extended period could impact the employment side of the Fed’s dual mandate.

The Fed’s dual mandate is based on achieving full employment and inflation staying at around 2%. 

Goolsbee and other Fed policymakers said that inflation is on track to the central bank’s target of 2% despite the acceleration seen in January.

Investors await the publication of the Federal Open Market Committee (FOMC) minutes for January’s monetary policy meeting. The release will likely provide more cues about when the Fed will start reducing interest rates.

Daily Digest Market Movers: Geopolitics drive upside as investors await signs of Fed pivot

• Gold price trades inside Tuesday’s trading range around $2,025 as investors await the FOMC minutes of the first monetary policy meeting of 2024 to get more insights about the timing of rate cuts.
• The near-term outlook of Gold is bullish due to deepening Middle East tensions.
• Persistent attacks from Iran-backed Houthis on commercial vessels in the Red Sea have escalated geopolitical tensions. Safe-haven assets tend to attract higher foreign inflows in times of geopolitical uncertainty.
• Signs of the Fed’s willingness to keep interest rates higher for longer in the FOMC minutes could contribute further to the positive appeal for Gold. 
• The opportunity cost of holding non-yielding assets, such as Gold, increases when the Fed maintains interest rates higher.
• Meanwhile, the US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, has rebounded strongly from a fresh weekly low of around 103.80.
• The solid USD Index’s recovery indicates uncertainty among market participants ahead of the FOMC minutes.
• Market expectations for Fed rate cuts will guide further action in safe-haven assets.
• As per the CME FedWatch tool, traders see a 54% chance for a 25 basis point (bp) rate cut in the June policy meeting.
• This week, market participants will also focus on the preliminary S&P Global PMI data for February, which will be released on Thursday.
• The Manufacturing PMI is forecasted to come out lower to 50.5 in February from 50.7 in January. The Services PMI, which represents sectors that account for two-thirds of the US economy, is expected to stand at 52.0, lower than the prior reading of 52.5.

Technical Analysis: Gold price aims to stabilize above $2,030

Gold price extends its winning streak for a fifth trading session but struggles to climb above its eight-day high of around $2,031 seen on Tuesday. On a daily time frame, the price is approaching the downward-sloping border of the Symmetrical Triangle chart pattern, which is plotted from December 28’s high at $2,088. The upward-sloping border of the aforementioned chart pattern is placed from December 13’s low at $1,973.

The triangle could break out in either direction. However, the odds marginally favor a move in the direction of the trend before the formation of the triangle – in this case up. A decisive break above or below the triangle boundary lines would indicate a breakout is underway. 

The 14-period Relative Strength Index (RSI) has returned to the 40.00-60.00 range quickly after testing territory below 40.00, indicating a bullish reversal.

EUR/USD saw biggest gain on Tuesday in almost one month (+0.3%). Economists at Société Générale analyze the pair’s outlook.

FOMC minutes could nip Dollar profit-taking

• EUR/USD trims intraday gains to halt its winning streak on Wednesday.
• Euro receives pressure, possibly due to market caution ahead of FOMC minutes.
• Traders await HCOB PMI data from the Eurozone and Germany due on Thursday.
• US Dollar recovers daily losses on the back of improved US bond yields.

The EUR/USD pair trims its intraday gains on Wednesday and faces challenges in extending its winning streak initiated on February 14. The pair experienced upward movement during the Asian session, attributed to a weaker US Dollar (USD) influenced by subdued US Treasury yields. Traders are likely awaiting the release of the Federal Open Market Committee (FOMC) Minutes later in the North American session to gain additional insights into the Federal Reserve's (Fed) position on interest rates.

The Euro receives pressure, possibly due to market caution amidst diminished expectations for early interest rate cuts worldwide. However, China's decision to lower its five-year Loan Prime Rate (LPR) by 25 basis points (bps) to support its economy might provide some support for the Euro, particularly given the close trade ties between China and the Eurozone. Traders are expected to closely monitor the HCOB Purchasing Managers Index (PMI) data from the Eurozone and Germany, slated for release on Thursday.

The US Dollar Index (DXY), which gauges the US Dollar's value against six major currencies, holds steady at around 104.10, while the 2-year and 10-year yields on US Treasury coupons stand at 4.60% and 4.28%, respectively, at the time of writing. The US Federal Reserve is anticipated to uphold elevated policy rates for an extended duration to tackle persistent inflation concerns, especially following last week’s strong consumer and producer prices from the United States (US).

Daily digest market movers: EUR/USD depreciates on improved US Dollar

• The European Central Bank (ECB) released the seasonally adjusted Current Account, which improved to €31.9B in December from November’s reading of €22.5B. The non-seasonally adjusted Current Account increased to €42.7B from €31.7B prior.
• ECB Negotiated Wage Rates (QoQ) grew by 4.46% in the fourth quarter of 2023 against the prior quarter’s 4.69%. Last week, ECB President Christine Lagarde highlighted salaries as "an increasingly important driver of inflation dynamics in the coming quarters."
• Economists at ING analyze the EUR/USD pair’s outlook. Today's attention is on the Eurozone consumer confidence data for February, where a slight improvement is anticipated. Despite prevailing challenges, there's a hopeful sign for the Eurozone economy as wage growth seems to be outpacing inflation, potentially resulting in a boost from rising real incomes.
• According to the German Bundesbank Monthly Report, economists at Deutsche Bundesbank anticipate a general decline in the inflation rate in the upcoming months. The earlier timing of Easter this year compared to last year is expected to influence the prices of package holidays, consequently impacting the inflation rate.
• German Buba Monthly Report projected that inflation for food and other goods will likely decrease further in the coming months. However, price pressures in the services sector are expected to ease at a slower pace, primarily due to the sustained strength in wage growth.
• According to the CME FedWatch Tool, the probability of a Fed rate cut has significantly decreased to 8.5% for March and 30.7% for May. Instead, market sentiment is shifting towards the possibility of easing starting in June, with a likelihood of 54.3%.
• The Federal Reserve's dot plot for this year suggests an anticipation of 75 basis points in rate cuts, while the Fed funds futures market is pricing in approximately 89 basis points in cuts.
• ANZ anticipates that the Federal Reserve (Fed) will commence rate cuts from July 2024.
• 3-Month and 6-Month US Bills auctioned at 5.23% and 5.1%, respectively.

Technical Analysis: EUR/USD maintains its position around the key level of 1.0800

EUR/USD trades near 1.0790 on Wednesday, which is aligned with the key support at the 21-4hour Exponential Moving Average (EMA) at 1.0786 and the 38.2% Fibonacci retracement level at 1.0783. A break below this area could put pressure on the EUR/USD pair to test the major level of 1.0750.

The technical analysis of the EUR/USD pair reveals a 14-hour Relative Strength Index (RSI) above the 50 level. Moreover, the Moving Average Convergence Divergence (MACD) is situated above both the centerline and the signal line, providing confirmation of the bullish momentum.

On the upside, the EUR/USD pair could find immediate resistance at a psychological level of 1.0800. A breakthrough above this psychological barrier could provide upward support for the pair to retest the weekly high at 1.0838 recorded on Tuesday.

EUR/USD: Four-Hour Chart

The Japanese Cabinet Office said in its report on Wednesday, the government downgraded its view on the economy in February, marking the first downgrade since November 2023.

Key takeaways

Market reaction 

The Japanese Yen keeps the offered tone intact against the US Dollar following the above report. At the time of writing, the USD/JPY pair is trading around 150.10, up 0.06% on the day.

GBP/USD struggles to to recover. Economists at ING analyze the pair’s outlook.

Fiscal stimulus?

AUD/USD has made some gains recently to come close to the 0.6600 level. Economists at Commerzbank analyze the pair’s outlook.

The RBA will probably stick to its restrictive stance

For a highly volatile FX pair, USD/ZAR has been exceptionally quiet. Economists at ING analyze the pair’s outlook ahead of the South African annual budget.

Rand in focus on pre-election budget

• USD/CAD lacks firm intraday direction and is influenced by a combination of diverging forces.
• Sliding Oil prices, softer Canadian inflation data undermine the Loonie and lend some support.
• The USD languishes near a multi-week low and cap gains ahead of the FOMC meeting minutes.

The USD/CAD pair struggles to capitalize on its gains registered over the past three days and oscillates in a narrow trading band through the first half of the European session on Wednesday. Spot prices, however, manage to hold above the 1.3500 psychological mark as traders keenly await the release of the highly-anticipated FOMC meeting minutes before placing fresh directional bets.

The minutes will be scrutinized closely for cues about the Federal Reserve's (Fed) rate-cut path, which, in turn, will play a key role in influencing the US Dollar (USD) price dynamics and provide a fresh directional impetus to the USD/CAD pair. In the meantime, the markets have fully priced out the possibility of early rate cuts by the Fed, which remains supportive of elevated US Treasury bond yields. This, along with a softer risk tone, lends some support to the safe-haven buck and limits the downside for the currency pair.

Meanwhile, expectations that the Fed will keep interest rates higher for longer have weighed on the outlook for fuel demand and drag Crude Oil prices lower for the second straight day. Apart from this, softer-than-expected Canadian consumer inflation data released on Tuesday is seen as another factor undermining the commodity-linked Loonie and offering support to the USD/CAD pair. In fact, Canadian CPI decelerated to the 2.9% YoY rate in January and core inflation measures dropped to the lowest levels in more than two years.

Meanwhile, fears of supply disruptions from the Middle East remain in the wake of a string of attacks in the Red Sea by Houthi rebels in Yemen. This could act as a tailwind for the Oil prices and hold back traders from placing aggressive bearish bets around the Canadian Dollar (CAD). Moreover, the recent range-bound price action witnessed over the past two weeks or so warrants some caution before confirming a firm near-term direction for the USD/CAD pair in the absence of any relevant economic data on Wednesday.

Technical levels to watch

• Silver price clings to gains ahead of Fed minutes.
• The confidence of Fed policymakers that inflation is in the right direction has dampened the USD Index’s appeal.
• Silver price is expected to deliver stellar gains amid a Descending Triangle breakout.

Silver price (XAU/USD) turns sideways around $23.15 after a strong recovery in the European session on Wednesday. The white metal clings to solid gains as the US Dollar has shifted to the backfoot AS Federal Reserve (Fed) policymakers are confident that the secular inflationary trend is in the right direction despite a one-time rise in price pressures in January

Mixed action is being observed in risk-perceived assets ahead of the release of the Federal Open Market Committee (FOMC) minutes. While S&P500 futures are under pressure, risk-sensitive currencies have been underpinned against the US Dollar. The US Dollar Index (DXY), which gauges the Greenback’s value against six rival currencies, is slightly above the weekly low of around 103.80.

The FOMC minutes will provide more guidance on interest rates and an in-depth explanation behind the Fed maintaining interest rates unchanged in the range of 5.25%-5.50% for the fourth time in a row.

This week, investors will focus on the preliminary S&P Global Manufacturing and Services PMI for February, which will be published on Thursday. The Manufacturing PMI is forecasted to decrease to 50.5 from 50.7 in January. The Services PMI that represents the service sector, which accounts for two-thirds of the United States economy, is expected to release at 52.0, lower than the prior reading of 52.5.

Silver technical analysis

Silver price rebounds after testing the breakout region of the Descending Triangle chart pattern formed on a daily timeframe near $23.00. The near-term outlook for the white metal has turned bullish as it has comfortably settled above the 20 and 50-day Exponential Moving Averages (EMAs), which trade around $22.80 and $23.00, respectively.

The 14-period Relative Strength Index (RSI) approaches the 60.00 hurdle. A decisive break above the same would trigger a bullish momentum.

Silver daily chart

In quiet markets, the US Dollar (USD) is coming slightly lower. Economists at ING analyze Greenback’s outlook.

DXY set to stay confined to something like a 103.80-104.40 range

FX option expiries for Feb 21 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts

• 1.0770 2.4b
• 1.0815 732m
• 1.0900 1.1b

- USD/JPY: USD amounts                     

• 148.50 565m
• 149.70 495m
• 150.00 1.8b

- NZD/USD: NZD amounts

• 0.6060 700m

EUR/USD rose to a two-week high just below 1.0840. Economists at ING analyze the pair’s outlook.

Wage growth is not falling as quickly as inflation

• Pound Sterling faces pressure as the BoE turns slightly dovish.
• BoE Bailey supports market expectations for rate cuts.
• Investors await the FOMC minutes for fresh guidance.

The Pound Sterling (GBP) struggles to hold onto gains in Wednesday’s European session after printing a fresh weekly high near 1.2670. The upside move in the GBP/USD pair on Tuesday was inconsistent with the pace at which the US Dollar fell due to slightly dovish commentary from Bank of England (BoE) Governor Andrew Bailey and other policymakers speaking before UK lawmakers at the UK parliamentary Treasury Select Committee.

Andrew Bailey said market expectations for rate cuts are not “unreasonable” and there are “encouraging signs” that price pressures are easing but refused to comment on the timing and degree of restrictive policy unwinding. 

BoE Deputy Governor Ben Broadbent said the central bank's focus has shifted from the degree of restrictive monetary policy to its duration. Meanwhile, BoE policymaker Swati Dhingra warned about downside risks of restrictive interest rates to the UK economy.

In today’s session, action in the Cable will be guided by the Federal Open Market Committee (FOMC) minutes, which will be published at 19:00 GMT.

Daily Digest Market Movers: Pound Sterling is slightly positive ahead of FOMC minutes

• Pound Sterling corrects gradually to 1.2625 as the US Dollar rebounds ahead of the Federal Reserve (Fed) minutes for the January policy meeting. 
• The FOMC minutes will provide in-depth reasoning behind maintaining interest rates steady in the range of 5.25%-5.50%.
• The US Dollar Index (DXY), which measures the US Dollar’s value against six major currencies, broadly remains on the backfoot as Fed policymakers are confident that inflation is moving in the right direction.
• The Pound Sterling fails to hold gains as Bank of England Governor Andrew Bailey and his teammates said rate cuts can be announced before inflation declines to their 2% target whilst speaking before the United Kingdom parliament’s Treasury Select Committee on Tuesday.
• Andrew Bailey denied to comment on the timing of rate cuts, however, he supported market expectations for the unwinding of historically restrictive interest rate stance.
• Bailey warned about inflation picking up again after returning temporarily to the desired target in spring. He said the BoE wants to achieve price stability sustainably.
• When asked about the economic outlook, Andrew Bailey said the technical recession in the second half of 2023 was historically modest, and an upturn is probably underway.
• Meanwhile, BoE Deputy Governor Ben Broadbent said the labor market is releasing some heat, which indicates that current monetary policy is sufficiently restrictive.
• Ben Broadbent added that the central bank has shifted its focus to the duration of holding interest rates at 5.25%, but rate cuts are not desirable at the current stage due to insufficient evidence.
• Broadbent’s view is based on data that indicates wage growth and service inflation are double the pace consistent with sustainable consumer price inflation.
• Going forward, the preliminary S&P Global/CIPS PMI data for February will guide further action in the Pound Sterling, which will be published on Thursday.
• The Manufacturing PMI is expected to come out below the 50.0 threshold at 47.5, higher than the former reading of 47.0.

Technical Analysis: Pound Sterling falls back from 1.2670

Pound Sterling faces pressure while attempting to recapture a two-week high of 1.2684. The GBP/USD pair is broadly sideways amid a Descending Triangle formation on a daily timeframe. The aforementioned chart pattern indicates a sharp contraction of volatility but with a slightly negative bias due to the formation of lower highs.

The downward-sloping border of the Descending Triangle pattern is plotted from December 28 high at 1.2827, while the horizontal support is placed from December 13 low near 1.2500.

The 20 and 50-day Exponential Moving Averages (EMAs) near 1.2630 continue to act as a barricade for the Pound Sterling bulls.

Meanwhile, 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, indicating an indecisiveness among market participants.

Central bank Gold purchases (or ‘official’ Gold buying) have been the most influential development in the Gold market in the last few years. Why are central banks buying Gold and will this continue?  Strategists at ANZ Bank analyze central bank’s demand for Gold

Central banks continue Gold stockpiling

Here is what you need to know on Wednesday, February 21:

The US Dollar (USD) struggled to find demand on Tuesday, with the USD Index posting its lowest daily close in two weeks near 104.00. The currency is finding it difficult to stage a rebound early Wednesday as market focus shifts to FOMC Minutes. Several Federal Reserve (Fed) policymakers will be delivering speeches later in the day and the European Commission will release the preliminary Consumer Confidence data for February.

The benchmark 10-year US Treasury bond yield edged lower following a three-day weekend and put additional weight on the USD's shoulders. Meanwhile, Wall Street's main indexes closed in negative territory. In the European morning, the 10-year US yield stays below 4.3% and US stock index futures trade marginally lower.

Despite the broad-based USD weakness, USD/CAD registered gains and closed above 1.3500 on Wednesday as soft inflation data from Canada made it difficult for the Canadian Dollar to stay resilient against its rivals. On a yearly basis, the Consumer Price Index (CPI) rose 2.4% in January, down from 3.4% in December and below the market expectation of 3.3%.

During the Asian trading hours, the data from Australia showed that the Wage Price Index rose 0.9% on a quarterly basis in the fourth quarter to match analysts' estimate. After closing the fifth consecutive day in the green, AUD/USD continued to stretch higher on Wednesday and was last seen trading above 0.6550.

Japan's Imports declined by 9.6% on a yearly basis in January, Japan's Ministry of Finance reported early Wednesday. USD/JPY showed no immediate reaction to this data and extended its sideways grind at around 150.00 in the Asian session.

GBP/USD climbed above 1.2650 during the European trading hours on Tuesday but erased a portion of its gains later in the day. The pair was last seen moving up and down in a tight channel at around 1.2620.

EUR/USD benefited from the USD weakness and advanced above 1.0800 on Tuesday. The pair holds steady above this level in the early European morning on Wednesday.

Gold capitalized on retreating yields and continued to push higher on Tuesday. XAU/USD holds its ground mid-week and trades modestly higher on the day at around $2,030.

• EUR/GBP halts its five-day winning streak on Wednesday.
• The Pound Sterling strengthens from the positive comments of BoE Governor Andrew Bailey.
• The Euro depreciates as the market adopts caution due to reduced prospects for early rate cuts globally.

EUR/GBP snaps its five-day winning streak, edging lower to near 0.8560 during the Asian session on Wednesday. The Pound Sterling (GBP) strengthens against the Euro (EUR) on the back of positive comments from the Bank of England (BoE) Governor Andrew Bailey.

Governor Bailey and other policymakers testified before the United Kingdom Parliament on Tuesday. Bailey acknowledged that investors speculating on interest rate cuts this year are not unreasonable. However, he emphasized indicators suggesting that the British economy was rebounding following a recession in late 2023. Bailey also noted that rate cuts could precede inflation dropping below 2%, though he refrained from providing a precise timeline.

BoE Deputy Governor Ben Broadbent highlighted that wage growth and services inflation are both double the rate, aligning with sustainable inflation at 2%. Broadbent further stated that the focus has shifted from the extent of restrictive monetary policy to its duration, but current data does not support rate cuts at this stage.

The EUR/GBP cross receives pressure as the Euro faces challenges, possibly stemming from market caution amid reduced prospects for early interest rate cuts globally. Nonetheless, China's move to decrease its five-year Loan Prime Rate (LPR) by 25 basis points (bps) to bolster its economy could offer some backing to the Euro, given the close trade relations between China and the Eurozone.

Traders are bracing for potential volatility surrounding the forthcoming release of Purchasing Managers Index (PMI) data from both the Eurozone and the United Kingdom, set for Thursday. ECB President Christine Lagarde emphasized the significance of wage data in determining the timing of monetary easing measures.

• NZD/USD seems to test the immediate barrier at the 0.6200 level.
• Technical analysis indicates a momentum shift in an upward direction.
• The pair could find a support region around the major level of 0.6150 and the nine-day EMA at 0.6137.

NZD/USD continues to extend its winning streak that began on February 14 on the subdued US Dollar, which could be chalked up to the lower US Treasury yields. The NZD/USD pair rises to near 0.6190 during the Asian trading hours on Wednesday.

The NZD/USD pair may encounter immediate resistance near the psychological threshold of 0.6200. A decisive breakthrough above this psychological barrier could provide upward momentum, potentially leading the pair to explore levels around the 50.0% retracement level of 0.6229, followed by psychological resistance at 0.6250.

Technical analysis indicates a shift in momentum towards the upside. The Moving Average Convergence Divergence (MACD) line, positioned below the centerline, displays divergence above the signal line. Traders are likely to await confirmation from the MACD for a clear directional trend. Moreover, the 14-day Relative Strength Index (RSI), a lagging indicator, is above the 50 level, indicating a bullish sentiment for the NZD/USD pair.

On the downside, immediate support for the NZD/USD pair is anticipated at the key level of 0.6150. A breach below this level could exert downward pressure on the pair, potentially testing the nine-day Exponential Moving Average (EMA) at 0.6137 before approaching the psychological support level of 0.6100.

NZD/USD: Daily Chart

• The USD Index (DXY) struggles to lure buyers amid bets for a Fed rate cut by mid-2024.
• Elevated US bond yields and a softer risk tone should help limit losses for the Greenback.
• Traders further prefer to wait for the FOMC minutes before placing fresh directional bets.

The US Dollar (USD) remains under some selling pressure during the Asian session on Wednesday and trades near its lowest level in almost three weeks touched the previous day. The USD Index (DXY), which tracks the Greenback against a basket of currencies, languishes below the 104.00 mark as traders keenly await the release of the FOMC minutes for a fresh directional impetus.

Investors will look for fresh cues about the Federal Reserve's (Fed) rate-cut path, which will play a key role in determining the near-term trajectory for the USD. In the meantime, growing acceptance that the US central bank will eventually start easing its monetary policy by mid-2024 and expectations of four 25 basis points (bps) rate cuts by the end of this year turn out to be a key factor undermining the Greenback.

Meanwhile, investors have already priced out the possibility of early rate cuts by the Fed amid signs that the US economy is in good shape and hawkish comments by influential FOMC members. This remains supportive of elevated US Treasury bond yields, which, along with a softer tone around the equity markets, could lend some support to the safe-haven Greenback and help limit any further depreciating move.

The initial market reaction to the People’s Bank of China's (PBoC) decision on Tuesday to lower the five-year loan prime rate by 25 bps – the biggest cut since it was introduced in 2019 – turned out to be short-lived amid persistent geopolitical tensions. In fact, a string of attacks on shipping in the Red Sea by Houthi rebels in Yemen have raised the risk of a further escalation of military action in the Middle East.

In addition, a White House official said that the US will announce a major sanctions package against Russia on Friday to hold President Vladimir Putin accountable for the two-year war on Ukraine. Moreover, the DXY has been showing resilience below the 100-day Simple Moving Average (SMA), which also warrants caution before positioning for an extension of the pullback from a three-month top touched last week.

Technical levels to watch

• USD/CHF extends losses towards the vicinity of 0.8800 amid a subdued US Dollar.
• The US Fed is expected to uphold elevated policy rates to tackle persistent inflation.
• Swiss Franc gained support from favorable Swiss Trade Balance figures on Tuesday.

USD/CHF moves downward for the second consecutive day, trading lower near 0.8800 during the Asian session on Wednesday. The weakening of the USD/CHF pair can be attributed to a softer US Dollar (USD), which is influenced by subdued US Treasury yields. This downturn may reflect market sentiment regarding potential rate cuts by the Federal Reserve (Fed) in upcoming meetings.

However, the US Federal Reserve is expected to maintain higher policy rates for an extended period to address persistent inflation concerns, particularly in light of recent robust consumer and producer prices data from the United States (US).

Based on the CME FedWatch Tool, the probability of a Fed rate cut has notably decreased to 8.5% for March and 30.7% for May. Instead, market expectations are now leaning towards the commencement of easing in June, with a likelihood of 54.3%.

The US Dollar Index (DXY) continues to decline, nearing 103.90, while the yields on US Treasury bonds, specifically the 2-year and 10-year, stand at 4.59% and 4.26%, respectively, at the time of writing. Traders are eagerly anticipating the release of the Federal Open Market Committee (FOMC) Minutes later in the North American session to glean further insights into the Federal Reserve's stance on interest rates.

On Tuesday, the Swiss Franc (CHF) received upward support from favorable Swiss Trade Balance figures. The report indicated a trade surplus of 4,738 million in January, surpassing December's figure of 1,271 million. Additionally, the Federal Statistical Office of Switzerland is set to unveil the Employment Level for the fourth quarter of 2023 on Friday.

• Gold price attracts some buyers for the fifth successive day amid modest USD weakness.
• Geopolitical risks also benefit the safe-haven XAU/USD and remain supportive of the upward move.
• Elevated US bond yields could act as a headwind ahead of the key FOMC meeting minutes.

Gold price (XAU/USD) trades with a positive bias for the fifth successive day on Wednesday and is currently placed around the $2,030 level, or a one-week high touched the previous day. The said area coincides with the 50-day Simple Moving Average (SMA) and should act as a pivotal point as traders keenly await the release of the FOMC meeting minutes, due later during the US session. Investors will look for cues about the Federal Reserve's (Fed) rate-cut path, which will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide a fresh directional impetus to the non-yielding yellow metal.

In the meantime, growing acceptance that the Fed will lower rates by mid-2024 keeps the USD bulls depressed near its lowest level in over two weeks set on Tuesday and acts as a tailwind for the Gold price. Adding to this, geopolitical risks stemming from conflicts in the Middle East and the prolonged Russia-Ukraine war remain supportive of the bid tone surrounding the safe-haven precious metal. That said, the latest optimism led by hopes that additional stimulus from China will boost global growth and elevated US Treasury bond yields might hold back traders from placing fresh bullish bets around the XAU/USD.

Daily Digest Market Movers: Gold price is backed by bets for an imminent shift in Fed’s policy stance, softer risk tone

• A combination of supporting factors assists the Gold price to steadily climb back closer to a one-week peak and the 50-day SMA barrier during the Asian session on Wednesday.
• The markets are pricing in four 25 basis points interest rate cuts by the Federal Reserve in 2024, starting from June, which weighs on the US Dollar and lends support to the metal.
• Investors remain concerned about the risk of a further escalation of tensions in the Middle East in the wake of a string of attacks on shipping in the Red Sea by Houthi rebels in Yemen.
• US officials said last week that Russia is developing a space-based anti-satellite nuclear weapon, though President Vladimir Putin said that Moscow is against the deployment of nuclear weapons in space.
• A White House official said that the US will announce a major sanctions package against Russia on Friday to hold President Vladimir Putin accountable for the two-year war on Ukraine.
• The People’s Bank of China lowered the five-year loan prime rate by 25 bps – the biggest cut since it was introduced in 2019 – to support real estate developers and bolster economic growth.
• The yield on the benchmark 10-year US government bond holds comfortably above the 4.0% mark as traders keenly await the FOMC meeting minutes for fresh cues about the rate-cut path.
• Hawkish signals from policymakers will likely renew jitters that the Fed will keep rates higher for longer, which, in turn, should boost the buck and may not be good news for the XAU/USD.

Technical Analysis: Gold price bulls await a convincing breakout through the 50-day SMA before placing aggressive bets

From a technical perspective, sustained strength and acceptance above the 50-day SMA will set the stage for an extension of the recent recovery from the $1,984 region, or a two-month low touched last week. Given that oscillators on the daily chart have been gaining positive traction, the Gold price might then accelerate the positive move towards an intermediate hurdle near the $2,044-2,045 region en route to the $2,065 supply zone.

On the flip side, the $2,016-2,015 area could protect the immediate downside ahead of the 100-day SMA, currently pegged near just below the $2,000 psychological mark. Some follow-through selling, leading to a subsequent break through the $1,984 area, or the monthly low, will be seen as a fresh trigger for bearish traders. The subsequent downfall has the potential to drag the Gold price to the very important 200-day SMA support near the $1,965 region.

• AUD/JPY continues to gain on expected RBA’s hawkish stance about interest rates trajectory.
• Australian Dollar could face hurdles amid softer S&P/ASX 200 Index.
• Japan’s Merchandise Trade Balance Total declined by ¥1,758.3B against the expected deficit of ¥1,925.9B.

AUD/JPY extends its winning streak for the sixth consecutive day as the Australian Dollar (AUD) strengthens against the Japanese Yen (JPY) following the Reserve Bank of Australia's (RBA) meeting minutes, which has transformed market bias towards the possibility of no rate cuts soon. The AUD/JPY cross trades higher around 98.40 during the Asian hours on Wednesday.

The Australian Dollar (AUD) could face hurdles amid softer Aussie financial markets, as the S&P/ASX 200 Index sees its second successive decline, mirroring losses on Wall Street overnight. This downturn is primarily linked to sluggish performance in mining stocks and metal prices.

Additionally, the Australian Bureau of Statistics has unveiled mixed data on the Wage Price Index for the fourth quarter, with little observable impact on the Australian Dollar (AUD).

On the other side, the Ministry of Finance of Japan reported a Trade Balance figure better than expected, potentially supporting the Japanese Yen and thereby limiting gains in the AUD/JPY cross. Japan’s Merchandise Trade Balance Total showed a deficit of ¥1,758.3B in January, against the anticipated deficit of ¥1,925.9B and the previous reading of ¥68.9B.

Moreover, Imports (YoY) declined by 9.6%, greater than the expected drop of 8.4% and the previous decrease of 6.9%. However, Exports surged by 11.9% year-over-year, surpassing both the predicted 9.5% and the prior 9.7%.

On Tuesday, Japanese Finance Ministry official Atsushi Mimura indicated that the government is engaged in discussions with other nations regarding FX intervention. This stance may have provided some bolstering for the JPY.

• EUR/USD could test the resistance zone around the 50-day EMA and a three-week high.
• A break above the major level of 1.0850 could lead the pair to reach a 38.2% Fibonacci retracement at 1.0864.
• Technical indicators suggest a momentum shift towards an upward direction.

EUR/USD continues its winning streak that began on February 14 as the US Dollar (USD) receives downward pressure, which in turn, underpins the EUR/USD pair. The pair edges higher around 1.0810 during the Asian session on Wednesday.

The EUR/USD pair could rise to test the immediate resistance zone around the 50-day Exponential Moving Average (EMA) at 1.0834 and the three-week high at 1.0838. A breakthrough above this zone could exert upward support for the pair to reach the major support at 1.0850 followed by the 38.2% Fibonacci retracement level at 1.0864.

The technical analysis of the EUR/USD pair indicates a potential shift towards upward momentum. While the 14-day Relative Strength Index (RSI) sits at the 50 mark, signaling a neutral stance, the Moving Average Convergence Divergence (MACD) lies below the centreline but shows a divergence above the signal line. Traders may await further confirmation from the MACD to determine a clear directional trend.

On the downside, the immediate support appears at the psychological level at 1.0800 followed by the recent low at 1.0761 recorded on Tuesday. A break below the latter could put downward pressure on the EUR/USD pair to navigate the major support level of 1.0750 with an aim to approach the psychological support at 1.0700.

EUR/USD: Daily Chart

• India’s Nifty and Sensex set for a subdued open after closing in the green for the sixth straight day on Tuesday.  
• Nifty refreshed an all-time high above 22,200, Sensex settled above 73,000.
• Nifty and Sensex await the Fed and RBI Minutes for fresh trading impulse.  

The Sensex 30 and Nifty 50, India’s key benchmark indices, are bracing for a subdued start to Wednesday, having rebounded on Tuesday.

Small losses in the Gift Nifty index and mixed Chinese stocks indicate a flattish to lower open for the Indian indices. Nifty and Sensex extended the bullish momentum on Tuesday, in the run-up to te release of the Minutes of the US Federal Reserve and the Reserve Bank of India (RBI) policy meetings.

The National Stock Exchange (NSE) Nifty 50 ended 0.34% higher on the day at 22,196.95 while the Bombay Stock Exchange (BSE) Sensex 30 finished at 73,057.40, up 0.48%.  

The US stock markets settled lower on Tuesday, as traders returned from the Presidents’ Day holiday on Monday.

Stock market news

• India’s Nifty and Sensex regained upside traction, helped by a rally in private bank stocks and utility sector stocks while ignoring a sell-off in the auto and technology stocks.
• Power Grid Corp, Axis Bank, HDFC Bank, Kotak Bank and NTPC were among the major gainers on the Nifty on Tuesday while losers included Coal India, HeroMoto Corp, Bajaj Auto, TCS and Eicher Motors.
• Among the corporate news, Coal India shares fell 5% after fall in e-auction premium.
• Shares of Whirlpool of India declined after the report of promoter off-loading 24% stake.
• Vibhor Steel Tubes debuted on bourses on February 20.
• On Monday, Bajaj Auto announced February 29 as the record date for a proposed buyback plan amounting to Rs 4,000 crore, at Rs 10,000 per share.
• Shares of Paisalo Digital rallied 15% to hit a record high of Rs 164 on Monday, surging 63% in the past month on promoter buying and strong December quarter (Q3FY24) earnings. 
• Novartis India share price surges nearly 11% to hit a 52-week high as Novartis AG announces sale plans for the company.
• People’s Bank of China (PBoC) cut the five-year Loan Prime Rate (LPR) by a record 25 bps from 4.20% to 3.95%. The PBOC rate cut failed to excite Asian traders.
• India’s trade data for January showed Thursday a shrinking Trade Deficit of $17.49 billion.
• US Consumer Price Index (CPI) and Producer Price Index (PPI) data came in hotter-than-expected and helped push back the market’s expectations of a Fed rate cut from March to June. Markets are currently pricing a 77% chance of a cut in June, the CME Group’s Fed Watch Tool shows.
• Attention now turns toward the Minutes of the Fed January meeting and American tech major Nvidia Earnings report due on Wednesday, as the Indian economic calendar remains devoid of any top-tier data release until Thursday’s RBI Minutes.

• The Japanese Yen continues with its struggle to gain any meaningful traction on Wednesday.
• Intervention fears act as a tailwind for the JPY, though the BoJ monetary policy uncertainty caps the upside.
• Traders look to the FOMC minutes for cues about the Fed’s rate-cut path and a fresh impetus.

The Japanese Yen (JPY) extends the sideways consolidative price move during the Asian session on Wednesday and remains confined in a one-week-old range against its American counterpart. The recent slump below the 150.00 psychological mark prompted some verbal intervention from the Japanese authorities, which, along with the cautious market mood, underpins the safe-haven JPY. Meanwhile, expectations that the Federal Reserve (Fed) will start cutting interest rates in the coming months keep the US Dollar (USD) bulls on the defensive near a two-week low touched on Tuesday and further contribute to capping the USD/JPY pair.

That said, a recession in Japan fuelled uncertainty about the likely timing of when the Bank of Japan (BoJ) will exit the negative interest rates policy. Apart from this, the latest optimism that additional stimulus from China could boost global growth holds back traders from placing bullish bets around the JPY and helps limit the downside for the USD/JPY pair. Moreover, investors opt to wait on the sidelines ahead of the FOMC meeting minutes, due for release later during the North American session, which will be looked for cues about the Fed's rate-cut path. This, in turn, will influence the USD and provide a fresh impetus to the currency pair.

Daily Digest Market Movers: Japanese Yen extends the range play amid mixed fundamental cues

• Fears that Japanese authorities will intervene in the markets to stem any further weakness in the domestic currency and a softer risk tone lend some support to the safe-haven Japanese Yen.
• Japan's Finance Minister Shunichi Suzuki reiterated on Tuesday that the government is watching FX moves with a high sense of urgency and that the exchange rate was set by a number of factors.
• Adding to this, Japan's Finance Ministry official Atsushi Mimura said that the government can sell assets such as savings and foreign bonds in FX reserves when it is necessary to intervene.
• Mimura added that Japan is always communicating and coordinating with other countries in case of FX intervention and is mindful of maintaining safety and securing liquidity in FX reserves management.
• Data released this Wednesday showed that Japanese exports grew more than expected in January, though a bigger-than-estimated fall in imports pointed to sluggish domestic demand and a weak economy.
• Exports grew 11.9% year-on-year in January, or the highest since November 2022, as compared to a 9.5% fall anticipated, while imports shrank 9.6%, resulting in a lower-than-forecast deficit of ¥1.758 trillion.
• According to the Reuters Tankan poll, Japanese manufacturers’ business confidence fell in February, from the previous month’s reading of 6 to -1, marking the first negative reading since last April.
• This comes on top of a technical recession in Japan, which could derail the Bank of Japan's plan to exit its ultra-easy policy this year and is holding back the JPY bulls from placing aggressive bets.
• The US Dollar struggles near its lowest level in over two weeks amid bets that the Federal Reserve will start cutting interest rates in the coming months and caps the upside for the USD/JPY pair.
• Traders now look to the release of the FOMC meeting minutes for cues about the Fed's rate-cut path, which will drive the USD demand and provide some meaningful impetus to the currency pair.

Technical Analysis: USD/JPY bulls need to wait for a move beyond the multi-month top set last week

From a technical perspective, the recent range-bound price action warrants some caution before positioning for a firm near-term direction. That said, the recent breakout through the 148.70-148.80 horizontal barrier favours bullish traders. Moreover, oscillators on the daily chart are holding in the positive territory and are still away from the overbought zone, validating the constructive outlook for the USD/JPY pair. It, however, will still be prudent to wait for some follow-through buying beyond the mid-150.00s and the 150.85-150.90 region, or a multi-month top set last week, before positioning for any further gains. Spot prices might then climb to the 151.45 intermediate hurdle en route to the 152.00 neighbourhood, or a multi-decade peak set in October 2022 and retested in November 2023.

On the flip side, weakness below the mid-149.00s could attract some buyers near the 149.25-149.20 area. This is followed by the 149.00 round figure and the 148.80-148.70 resistance-turned-support, which should act as a key pivotal point. A convincing break below the latter will suggest that the USD/JPY pair has formed a near-term top and set the stage for some meaningful corrective decline. The subsequent downfall has the potential to drag spot prices to the 148.35-148.30 region en route to the 148.00 mark and the 100-day Simple Moving Average (SMA) support near the 147.70 zone.

• Australian Dollar could extend its gains on a subdued US Dollar.
• Australia’s ASX 200 declines following overnight losses on Wall Street.
• RBA meeting minutes shifted market sentiment towards the likelihood of no rate cuts anytime soon.
• Greenback faces challenges as US Treasury yields decline ahead of FOMC minutes.

The Australian Dollar (AUD) seems to extend its winning streak for the sixth consecutive session on Monday. The AUD receives upward support following the release of the Reserve Bank of Australia's (RBA) meeting minutes, which shifted market sentiment toward the likelihood of no rate cuts soon. Additionally, the decline in the US Dollar (USD) provides further upward support for the AUD/USD pair, possibly due to weaker US Treasury yields ahead of the Federal Open Market Committee (FOMC) Minutes scheduled for Wednesday.

Australian Dollar (AUD) may encounter challenges from weaker Aussie money markets as the S&P/ASX 200 Index declines for the second consecutive session, following overnight losses on Wall Street. This decline is attributed to subdued mining stocks and metals prices. Furthermore, the Australian Bureau of Statistics released mixed Wage Price Index data for the fourth quarter, which does not appear to be influencing the Aussie Dollar (AUD) significantly.

The US Dollar Index (DXY) faces downward pressure as market expectations lean towards no further rate hikes by the Federal Reserve in upcoming meetings. According to the CME FedWatch Tool, the likelihood of a Fed cut has notably decreased to 8.5% and 30.7% for March and May, respectively. The market is now projecting the start of easing to begin in June, with a probability of 54.3%.

Daily Digest Market Movers: Australian Dollar appreciates on weaker US Dollar

• Australian Wage Price Index (QoQ) grew by 0.9% in the fourth quarter as expected, lower than the previous rise of 1.3%. The index rose by 4.2% year-over-year, surpassing the market expectation to be unchanged at 4.1%.
• Westpac Leading Index (MoM) declined by 0.1% in January against the previous reading of flat 0.0%.
• The ANZ-Roy Morgan Consumer Confidence improved to 82.8 this week from 82.6 prior. Remarkably, the index has now spent a record 55 consecutive weeks below the mark of 85.
• RBA’s meeting minutes revealed that the Board deliberated on the possibility of raising rates by 25 basis points (bps) or keeping rates unchanged. While recent data indicated that inflation would return to target within a reasonable timeframe, it was acknowledged that this process would "take some time." Consequently, the board agreed that it was prudent not to rule out another rate hike.
• The People’s Bank of China (PBoC) implemented an unprecedented reduction in the five-year Loan Prime Rate (LPR) by 25 basis points, marking the largest decrease on record, from 4.20% to 3.95%. This move was aimed at bolstering the housing market. However, analysts suggest that the overall impact on stimulating the economy may be marginal.
• The Federal Reserve's dot plot for this year indicates an expectation of 75 basis points in rate cuts, whereas the Fed funds futures market is pricing in approximately 89 basis points in cuts.
• ANZ anticipates that the Federal Reserve (Fed) will commence rate cuts from July 2024.
• 3-Month and 6-Month US Bills auctioned at 5.23% and 5.1%, respectively.

Technical Analysis: Australian Dollar hovers around the major level of 0.6550

The Australian Dollar trades around the major level at 0.6550 on Wednesday. A break below this major level could meet the immediate support around the 14-day Exponential Moving Average (EMA) at 0.6535 followed by the psychological support level of 0.6500. On the upside, the AUD/USD pair could retest the three-week high at 0.6579 followed by the resistance zone around the psychological level of 0.6600 and 38.2% Fibonacci retracement level of 0.6606.

AUD/USD: Daily Chart

• USD/CAD trades in positive territory for the fourth consecutive day around 1.3526. 
• The Canadian CPI came in weaker-than-expected, climbing 2.9% YoY in January from a 3.4% rise in December.
• The hotter-than-expected US inflation data last week lowered the hope for rate cuts from the Fed.
• The FOMC Meeting Minutes will be in the spotlight on Wednesday. 

The USD/CAD pair gains ground above the 1.3500 mark during the early Asian trading hours on Wednesday. A weaker-than-expected Canadian inflation data weighs on the Canadian Dollar (CAD) and acts as a tailwind for USD/CAD. The attention is shifted to the FOMC Meeting Minutes on Wednesday. The pair currently trades near 1.3526, up 0.03% on the day. 

Statistics Canada revealed on Tuesday that the nation’s Consumer Price Index (CPI) climbed 2.9% YoY in January from a 3.4% rise in December, below the market consensus of 3.3%. The inflation data eased into the central bank’s control range for the first time since June, and it might convince the Bank of Canada (BoC) to start considering rate cuts in the coming months.

Meanwhile, the oil prices face some profit-taking and retraces from the three-month highs, which might exert some selling pressure on the commodity-linked Loonie as Canada is the largest oil exporter to the United States (US). 

On the other hand, the stronger-than-expected US Consumer Prices Index and Producer Price Index (PPI) last week trimmed hope for a rate cut from the Federal Reserve (Fed) in March. Traders have priced in a 60% odds of no rate cut in the May meeting, while pricing in an 80% chance of at least a 25 basis point (bps) cut in June, according to the CME FedWatch Tool.  

Market players will closely watch the FOMC Meeting Minutes, due later on Wednesday. The Canadian Retail Sales for December will be due on Thursday, which is expected to improve to 0.8% MoM versus the previous reading of a 0.2% decline. 

The People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead on Wednesday at 7.1030 as compared to the previous day's fix of 7.1068 and 7.1877 Reuters estimates.

• WTI edges lower to $77.10 after reaching a three-month high last week.
• Concerns around global oil demand from the IEA could drag the oil price lower. 
• The rising Middle East geopolitical conflicts might cap the downside of WTI. 

Western Texas Intermediate (WTI), the US crude oil benchmark, is trading around $77.10 on Wednesday. WTI prices edge lower as traders take profits from the crude oil uptick this month. However, the escalating geopolitical tensions in the Middle East might cap the downside of WTI prices. 

Last week, the International Energy Agency (IEA) revised the 2024 oil demand growth prediction downward. The IEA expected global oil demand will grow by 1.22 million barrels per day (bpd) this year, less than OPEC's forecast of 2.25 million bpd. That being said, worries about global demand drag WTI prices lower. 

On the other hand, the rising geopolitical conflict in the Middle East might lift the black gold and cap the downside. Israel carried out attacks in Lebanon and pledged to continue its attacks in Gaza, targeting the southern city of Rafah. On Monday, Houthi militants attacked another commercial ship in the Bab el-Mandeb strait, forcing the crew to abandon the vessel.  

Oil traders will monitor the EIA Crude Oil Stocks Change and API Weekly Crude Oil Stock, due on Wednesday and Thursday, respectively. The highlight will be the FOMC Minutes on Wednesday, which might provide insight into the path to interest rate cuts and the current policy stance of the US Federal Reserve (Fed). These events could significantly impact the USD-denominated WTI price. Oil traders will take cues from the data and find trading opportunities around WTI prices.

• GBP/USD holds positive ground around 1.2625 on Wednesday. 
• Investors trim their bets on rate cut expectations from the Federal Reserve (Fed) from May to June meeting. 
• The BoE Governor's optimistic outlook on the UK economy and policy shifts lifts the British Pound (GBP). 

The GBP/USD pair edges higher above the 1.2600 mark during the early Asian session on Wednesday. The optimistic comments from Bank of England (BoE) Governor Andrew Bailey boosted the Pound Sterling (GBP). The major pair currently trades near 1.2625, unchanged for the day.

Investors lower their bets on the interest rate cuts from the Federal Reserve (Fed) since the US January Producer Price Index (PPI) data last week indicated elevated inflationary pressure in the US economy. The markets expect the first rate cuts from the Fed from the May to June monetary policy meeting. The Federal Reserve Open Market Committee's (FOMC) minutes for January’s policy meeting could provide some insight into the trajectory of interest rates.

On Tuesday, Bank of England (BoE) Governor Andrew Bailey testified on inflation and the economic outlook. Bailey said he was fine with investors betting on interest rate cuts this year, but he pointed to indicators that the British economy was recovering after going into a recession in late 2023. He also noted that inflation does not need to go below 2% before rate cuts occur and that it is not unrealistic to anticipate a rate decrease this year, but he did not provide a precise timeframe.

Looking ahead, the FOMC Minutes will be in the spotlight on Wednesday, and it might give more insight into why Fed policymakers are not confident enough to begin easing policy in Q1 2024. On Thursday, the preliminary US S&P Global PMI for February will be released. These events might provide a clear direction for the GBP/USD pair.