CFD Markets News and Forecasts — 31-01-2024

• US indexes saw red on Wednesday after Fed waffled on early rate cuts.
• Market expectations of faster, sooner rate cuts ran against a hard wall.
• US Fed continues to wait for further signs that inflation will ease.

US equity indexes declined across the board on Wednesday, faltering after market hopes for a faster pace of rate cuts from the Federal Reserve (Fed) discovered just how far ahead of policymakers they’ve run. Before the Fed’s monetary policy statement and Fed chairman Jerome Powell’s press conference, money markets were pricing in nearly a 60% chance of a rate cut from the US central bank by the beginning of March.

Jerome Powell speaks on policy outlook after deciding to keep interest rate unchanged

Post-Fed, rate swaps have receded on rate trim expectations, with March priced in at 64% chance of another rate hold, but May’s Fed rate call is now fully priced in for at least 25 basis points in rate cuts according to the CME’s FedWatch Tool.

The Dow Jones Industrial Average (DJIA) trimmed 317 points to close down 0.82% at $38,150.30, with the Standard & Poor’s 500 (SP500) index shedding nearly 80 points, ending Wednesday at $4,845.65, down 1.61%.

The NASDAQ Composite equity index got hit the hardest amidst a tech sector pullback, tumbling over 345 points to end Wednesday at $15,164.01, down a blustery 2.23%.

S&P 500 technical outlook

The S&P 500 large-cap index saw it’s lowest bids in over a week, ending firmly planted in the red after falling back below the $4,900.00 handle. Intraday momentum has the SP500 geared for a downside run at the 200-hour Simple Moving Average (SMA) near $4,835.00, with the next technical support zone priced in from last week’s intraday swing highs into $4,800.00.

Despite Wednesday’s turnaround, the SP500 remains firmly planted in bull country, with the index facing its second down week out of the last 14 consecutive trading weeks, assuming investors are unable to drag the index back over Monday’s opening bids near $4,886.00 before Friday’s closing bell.

S&P 500 hourly chart

S&P 500 daily chart

• NZD/USD trades in negative territory for the second consecutive day near 0.6115. 
• The FOMC kept the target range for the Federal Funds Rate unchanged at 5.25–5.50%, as widely expected. 
• The markets anticipate the RBNZ to cut OCR sooner rather than later, with three cuts already priced in this year.
• Traders will watch the US weekly Initial Jobless Claims and ISM Manufacturing PMI, due on Thursday. 

The NZD/USD pair remains on the defensive above the 0.6100 mark during the early Asian session on Thursday. The Federal Reserve (Fed) left rates unchanged at its January meeting and opened the door to rate cuts. However, Fed Chairman Jerome Powell indicated that the rate cut in March is too early. The pair currently trades around 0.6115, adding 0.03% on the day.  

Following the Fed interest rate decision, the US central bank maintained its benchmark interest rate on Wednesday in a range of 5.25%–5.50% and stated that it won't begin lowering the target range until it sees further progress on inflation moving sustainably toward the 2% target. Investors had been anticipating a possible rate cut cycle at the March meeting, but Fed Chair Powell said that's probably not the most likely case. 

On the other hand, the Reserve Bank of New Zealand (RBNZ) targets maintaining inflation within the 1% to 3% range, with its focus on keeping future inflation around the 2% midpoint. With inflation easing, financial markets expect the Official Cash Rate (OCR) to be cut sooner rather than later, with three cuts already priced in this year.

Moving on, the January Chinese Caixin Manufacturing PMI, US weekly Initial Jobless Claims and ISM Manufacturing PMI will be due on Thursday. The attention will shift to US employment data on Friday, including Nonfarm Payrolls, Unemployment Rate, and Average Hourly Earnings for January. 

• AUD/USD steady near 0.6566 post-Fed decision to hold rates, signaling cautious 2024 policy outlook.
• Jerome Powell's remarks on inflation, rate cuts contribute to USD recovery, affect Treasury yields.
• Australia's cooling inflation, steady manufacturing PMI inform RBA rate decision prospects, impacting AUD.

The Aussie Dollar (AUD) begins Thursday’s Asian session unchanged versus the US Dollar (USD) as the US Federal Reserve (Fed) decides to hold rates and opens the door to ease policy in 2024. Even though the initial reaction to the statement was muted, Fed’s Chair Powell press conference underpinned the Greenback (USD). At the time of writing, the AUD/USD exchanges hands at 0.6566, almost flat.

Aussie tumbled post Fed decision, though begins Asian session near weekly lows

Risk aversion is driving the financial markets. in the monetary policy statement, the Fed acknowledged that inflation has eased over the last year but remains elevated. Therefore, they stated that rates might have peaked while adding they could ease policy if inflation “moves sustainable toward 2 percent.”

In his press conference, the Fed Chair Jerome Powell adopted a more balanced approach, adding that it’s too early to declare victory on inflation. He added that Fed officials are not confident of lowering rates at the upcoming March meeting, adding that a March cut is not the base case for officials.

After that, the US Dollar paired some of its earlier losses, but US Treasury yields plunged. The AUD/USD edged below the 200-day moving average (DMA) at 0.6574, and achieved a daily close below the latter.

Data-wise, US labor market data witnessed the ADP report showing that private hiring slowed from 158K in December to 107K jobs, below estimates. The Employment Cost Index (ECI) sought by Fed officials as a measure of wages inflation, rose 0.9% QoQ, below estimates of 1.1%. The data suggests the jobs market is easing.

On the Australia front, inflation slowed sharply in the fourth quarter of 2023, from 5.4% YoY to 4.1%, and trimmed mean fell from 5.1% YoY to 4.2%. According to ANZ analysts, this could prevent the Reserve Bank of Australia (RBA) from hiking rates, suggesting the cash rate might have peaked.

Recently, Australia’s Judo Bank Manufacturing PMI final reading for January rose to 50.1 from the preliminary reading of 47.6.

AUD/USD Key Technical Levels

The Australian Judo Bank Manufacturing Purchasing Managers' Index (PMI) for January showed business growth eked out a crawl of 50.1 MoM, stepping up from December's 47.6 as Australia heads further into a soft landing economic scenario.

The seasonally-adjusted Manufacturing PMI saw a slight revision from the preliminary 50.3 that was previously posted, but the figure remains in positive territory above the key 50.0 level.

Broadly softer economic conditions in Australia have led to a general slowdown in business activity, including new business orders, including exports.

According to Warren Hogan, Chief Economic Advisor at Judo Bank:

About the Australian Judo Bank Manufacturing PMI

The Manufacturing Purchasing Managers Index (PMI), released on a monthly basis by Judo Bank and S&P Global, is a leading indicator gauging business activity in Australia’s manufacturing sector. The data is derived from surveys of senior executives at private-sector companies. 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 manufacturing economy is generally expanding, a bullish sign for the Australian Dollar (AUD). Meanwhile, a reading below 50 signals that activity among goods producers is generally declining, which is seen as bearish for AUD.

As expected, the Federal Reserve left its interest rates unchanged at its event on Wednesday, removing wording regarding potential rate hikes, reiterating that inflation remains elevated and that economic activity has been expanding at a robust pace.

Here is what you need to know on Thursday, February 1:

The greenback derived further strength in response to the hawkish tilt by Chief Powell at its press conference following the widely anticipated decision to leave rates unchanged by the Fed, motivating the USD Index (DXY) to fade the initial pessimism and regain upside traction. Moving forward, Initial Jobless Claims and the ISM Manufacturing PMI should take centre stage on February 1.

EUR/USD challenged YTD lows in the sub-1.0800 region following the Fed gathering, extending at the same time its multi-session consolidative theme. In the euro docket, the final Manufacturing PMI is due on Thursday, along with the flash Inflation Rate in the bloc and the speech by ECB President Lagarde.

It will be a big day for the British pound, as the BoE meets and is largely anticipated to keep its monetary status quo on February 1. Further data will show the final Manufacturing PMI for the month of January. GBP/USD, in the meantime, remained stuck within the so-far yearly range between 1.2600 and 1.2800.

Diminishing US yields prompted a slight drop in USD/JPY, which briefly flirted with the 146.00 support. On Thursday, the only release of note in Japan will be the weekly Foreign Bond Investment.

Further range bound remains the most likely scenario in the near term for AUD/USD. Thursday’s calendar in Oz includes the advanced prints for Building Permits during December.

Crude oil prices dropped markedly in response to a larger-than-expected build of US weekly stockpiles, while Chinese concerns also helped with the downside.

Gold prices rose to two-week highs around the $2050 mark per troy ounce just to end the session around $2030, while Silver prices added to Tuesday’s losses and breached the $23.00 yardstick.

Federal Reserve Chairman Jerome Powell explains the decision to leave the policy rate, federal funds rate, unchanged at the range of 5.25-5.5% and responds to questions in the post-meeting press conference.

Key quotes

"Not in a position to put a number on number of months of low inflation needed to have confidence."

"We have growing confidence in the inflation data but we have to get it right."

"We want to make sure we get the job on inflation done in a sustainable way."

"We won't keep it a secret when we have confidence on inflation."

"If we get very strong inflation data and it heads back up, we will go slower or later or both."

"If inflation data is better than expected, we would do the opposite."

"Not so worried that growth is too strong and inflation could come back."

"Continued declines in inflation are what we are looking for."

"Growth only matters in how it interacts with our dual mandate."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."

• GBP/USD sees a downturn, trading between 1.2660 and 1.2690, after Fed maintains rates and Chair Powell downplays immediate rate cut prospects.
• Powell's remarks indicate rate cuts depend on economic conditions, with no immediate plans for reduction, adding pressure on the Pound.
• The Fed's unanimous decision to hold rates steady and focus on inflation targets influences currency markets, with mixed responses in Treasury yields and the Dollar Index.

The GBP/USD extended its losses late in the North American session, as the Federal Reserve (Fed) decided to keep rates unchanged, while Fed Chair Powell poured cold water on rate cut speculations for March. At the time of writing, the major trades were volatile, around 1.2660 – 1.2690, as Fed Chair Powell is taking the stance

Fed Chair Powell comments

Fed Chair Jerome Powell stated that policy rates have likely reached their peak, suggesting the possibility of rate reductions within the year. However, he emphasized that any decision on rate cuts would be contingent on the progression of the economy. Powell highlighted the ongoing uncertainty in the economic outlook and clarified that decisions on monetary policy would be determined on a meeting-by-meeting basis.

He also mentioned that the topic of rate cuts was not a subject of discussion in the recent meeting, indicating that the Federal Reserve is not in a hurry to declare success in its battle against inflation. Additionally, Powell recently expressed his view that a rate cut in March is unlikely to be considered.

Summary of the Fed’s monetary policy statement

During their monetary policy meeting, Federal Reserve officials unanimously agreed to maintain interest rates as they currently are. They emphasized the need to wait for greater assurance that inflation is steadily moving towards the 2% target before considering any rate reductions. The Fed also noted that the prospects of meeting their dual mandate are improving and stressed their ongoing vigilance concerning inflation risks.

As for the balance sheet reduction, the plan will continue as previously outlined, coupled with stricter controls on Federal Open Market Committee (FOMC) confidential information for all Fed staff with access to it.

Following this announcement, rate cut expectations for the March meeting are at 50% odds vs. May. The US 10-year Treasury note yield briefly surged to 4% before settling back to around 3.97%. Concurrently, the US Dollar Index (DXY) initially moved towards 103.50 but then slightly retreated to 103.35.

GBP/USD Reaction to Fed’s Chair Jerome Powell remarks

The GBP/USD spiked towards 1.2730 before aiming lower as US Treasury bond yields advanced, followed by the Greenback (USD). Once it cleared the 1.2700 figure, it exposed the 50-day moving average (DMA) at 1.2668, followed by the 1.2600 mark. On the upside, the first resistance would be 1.2700, followed by the day’s high at 1.2750 before 1.2800.

• Gold price dips within the $2030 - $2040 range following Federal Reserve Chair Jerome Powell's comments post-rate decision.
• Powell indicates potential rate cuts depending on economic progress, stressing no rush in shifting the current monetary policy.
• XAU/USD reacts to Powell's dismissal of a March rate cut and his emphasis on a cautious approach to managing inflation.

Gold price trims earlier gains and retreats after the US Federal Reserve decided to keep rates unchanged while pushing back against speculation of rate cuts. In addition, the US Federal Reserve Chair Jerome Powell, pushed back against rate cuts in March, driving the yellow metal price towards the day lows. At the time of writing, XAU/USD trades volatile within the $2030 - $2040 area as market participants diggest Fed Chairman Jerome Powell’s comments.

Fed Chair Powell comments

Fed Chair Jerome Powell commented that policy rates likely peaked and has opened the door to rate cuts this year, adding that it would depend on the evolution of the economy. He added the economic outlook remains uncertain, and would decide meeting by meeting. He added that no rate cuts were discussed in the meeting, and they’re in no rush to declare victory on the fight on inflation.

Recently, he said that he doesn’t think a rate cut in March is on the table.

Sumary of the monetary policy statement

In its monetary policy meeting, Fed officials voted unanimously to keep rates unchanged. They noted that it would be appropriate to reduce rates until there is greater confidence that inflation is sustainably moving toward its 2% goal. The Fed added that risks of achieving the Fed dual mandate are moving into better balance and emphasized that the committee will remain “highly attentive” to inflation risks.

Regarding the reduction of the balance sheet, it would remain as previously described while tightening restrictions on all Fed staff with access to confidential FOMC information.

After the data, the US 10-year Treasury note yield spiked to 4% before retreating somewhat towards 3.97%. At the same time, the US Dollar Index (DXY) aimed toward 103.50 before getting back to 103.35.

XAU/USD Reaction to Fed’s Powell Press conference

Gold is puking toward $2030, extending its losses sharply after Powell’s remarks disregarding a rate cut in March, at around 19:02 GMT. That said, if sellers push prices below the lows of the day of $2032, look for a drop to January 25 low of $2009.66.

On the flip side, if the daily high is taken out, $2050 is up next, followed by the $2090 and $2100 figure.

Federal Reserve Chairman Jerome Powell explains the decision to leave the policy rate, federal funds rate, unchanged at the range of 5.25-5.5% and responds to questions in the post-meeting press conference.

Key quotes

"Supply side has been recovering, that won't go on forever."

"A lot of the economic growth we are seeing is due to post-pandemic healing."

"When that peters out, our restrictive rate will show up more sharply."

"Labor market by many measures is at or near normal."

"Economy is broadly normalizing and that process will take some time."

"Wage setting will probably take a couple of years to get all the way back."

"If inflation moves back up, that would be a surprise at this point."

"More concerned inflation will stabilize at an elevated level."

"Growth is solid to strong last year, labor market is strong."

"We do expect economic growth will moderate."

"12-month inflation is above target, but seem to be getting on track to it."

"Overall it's a pretty good picture on the economy."

"We are not looking for inflation to tap 2% once; we are looking for it to settle out at 2%

"Based on the meeting today, I don't think likely we will have a rate cut in March."

"That's to be seen but I don't think we'll have enough confidence."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."

Federal Reserve Chairman Jerome Powell explains the decision to leave the policy rate, federal funds rate, unchanged at the range of 5.25-5.5% and responds to questions in the post-meeting press conference.

Key quotes

"Economy is broadly normalizing."

"I think lower rent costs are coming and will feed through."

"Supply chains are not yet back fully to where they were."

"There may still be a tailwind on disinflation from goods."

"I would not say we have achieved soft landing yet."

"I am encouraged though by the progress we've made."

"We are not declaring victory."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."

• The AUD/USD recovered above 0.6600.
• The Fed held rates steady as expected at 5.50%.
• Chair Powell embraced policy normalization "at some point" in 2024. 

In Wednesday's session, trends in the AUD/USD  recovered above 0.6600 from 0.6585 during Chair Powell's presser. The Federal Reserve (Fed) didn't change its policy as expected while but markets took the Chairman's words as dovish validating the expectations of the easing cycle to start in May which boosted the pair.

Jerome Powell noted that the inflation data from the last six months was welcomed but that the committee need's to see further data in order to be confident. He also added that it seems likely that the bank will achieve that mentioned confidence and that the officials consider appropiate eventually cutting rates.

AUD/USD levels to watch

Indicators on the daily chart indicate that buyers are holding their ground but as long as the fail to conquer the 20-day Simple Moving Average (SMA), the outlook won't be totally bullish for the immediate short term. On the downside, as long as it holds above the 200 and 100-day SMA, the overall trend will remain positive

Federal Reserve Chairman Jerome Powell explains the decision to leave the policy rate, federal funds rate, unchanged at the range of 5.25-5.5% and responds to questions in the post-meeting press conference.

Key quotes

"If we saw unexpected weakening in the labor market, that would make us cut rates sooner."

"In the base case, where the economy is healthy with a strong labor market, we can be careful as we think about rate cut timing."

"There was no proposal to cut rates today."

"SEP is good evidence of where FOMC is at in terms of forecasts."

"There is a wide disparity of views on the Committee."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."

Federal Reserve Chairman Jerome Powell explains the decision to leave the policy rate, federal funds rate, unchanged at the range of 5.25-5.5% and responds to questions in the post-meeting press conference.

Key quotes

"Almost everyone on the Committee believes it will be appropriate to reduce rates."

"We are trying to identify a place we are confident on inflation to begin the process of dialing back the restrictive level."

"In theory, real rates go up as inflation goes down, but can't mechanically adjust policy."

"We don't know where the neutral rate of interest is."

"We are really in a risk management mode."

"We are managing risks of moving too soon vs moving too late."

"Timing of cuts is linked to our confidence."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."

Federal Reserve Chairman Jerome Powell explains the decision to leave the policy rate, federal funds rate, unchanged at the range of 5.25-5.5% and responds to questions in the post-meeting press conference.

Key quotes

"We need greater confidence that inflation is moving sustainably down."

"We have confidence, but we want to see more data, continuation of good data."

"We had very strong growth last year."

"A year ago we thought we needed some economic softening."

"We want to see strong growth, strong labor market."

"We don't think we necessarily need to see weaker growth for inflation to come down."

"We want inflation to continue to come down."

"We need to see more evidence that confirms what we think we are seeing, gives us confidence we are on sustainable path to 2% inflation."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."

Federal Reserve Chairman Jerome Powell explains the decision to leave the policy rate, federal funds rate, unchanged at the range of 5.25-5.5% and responds to questions in the post-meeting press conference.

Key quotes

"Highly attentive to risks inflation poses to both sides of mandate."

"Our restrictive stance is putting downward pressure on economic activity and inflation."

"Our policy rate is likely at its peak."

"Will likely be appropriate to begin reducing rates sometime this year."

"If economy evolves as expected, we will dial back policy rate this year."

"Economic outlook though is uncertain, ongoing progress on inflation is not assured."

"Prepared to maintain current policy rate for longer if needed."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."

Federal Reserve Chairman Jerome Powell explains the decision to leave the policy rate, federal funds rate, unchanged at the range of 5.25%-5.5% and responds to questions in the post-meeting press conference.

Key quotes

"Economy has made good progress, inflation has eased."

"Path forward is uncertain, fully committed to returning inflation to 2%."

"Over the past two years monetary policy significantly tightened."

"Risks to achieving goals moving into better balance."

"Activity in housing sector is subdued."

"Labor market remains tight."

"Job gains are still strong, labor demand still exceeds supply."

"Inflation has eased notably, remains above goal."

"Lower inflation readings are welcome but we need to see continuing evidence to have confidece returning to target."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."

• GBP/USD shows limited movement, trading between 1.2690 and 1.2730 after the Fed decided to hold interest rates.
• Federal Reserve's unanimous vote to keep rates steady focuses on inflation control and delays rate cuts.
• Investors now look to Fed Chair Jerome Powell's press conference for further direction, with US Treasury yields and Dollar Index reflecting the recent Fed stance.

The GBP/USD is virtually unchanged in the mid-North American session, as the Federal Reserve (Fed) decided to keep rates unchanged, while pouring cold water on rate cut speculations. At the time of writing, the major trades were volatile, around 1.2690 – 1.2730, ahead of the Chair Powell's press conference.

GBP/USD erased its gains following Fed’s decision

During their monetary policy meeting, Federal Reserve officials unanimously agreed to maintain interest rates as they currently are. They emphasized the need to wait for greater assurance that inflation is steadily moving towards the 2% target before considering any rate reductions. The Fed also noted that the prospects of meeting their dual mandate are improving and stressed their ongoing vigilance concerning inflation risks.

As for the balance sheet reduction, the plan will continue as previously outlined, coupled with stricter controls on Federal Open Market Committee (FOMC) confidential information for all Fed staff with access to it.

Following this announcement, rate cut expectations for the March meeting are at 50% odds vs. May. The US 10-year Treasury note yield briefly surged to 4% before settling back to around 3.97%. Concurrently, the US Dollar Index (DXY) initially moved towards 103.50 but then slightly retreated to 103.35.

GBP/USD Reaction to Fed’s Decision

The GBP/USD spiked towards 1.2730 before aiming lower as US Treasury bond yields advanced, followed by the Greenback (USD). Once it cleared the 1.2700 figure, it exposed the 50-day moving average (DMA) at 1.2668, followed by the 1.2600 mark. On the upside, the first resistance would be 1.2700, followed by the day’s high at 1.2750 before 1.2800.

• Gold price oscillates in the $2030 - $2050 range following the Fed's decision to hold interest rates steady.
• Fed officials voted unanimously and emphasized the need to see inflation lowering toward 2%.
• Investors now turn to Fed Chairman Jerome Powell for further insights, with US Treasury yields and the Dollar Index responding to the latest Fed update.

Gold price trims earlier gains and retreats after the US Federal Reserve decided to keep rates unchanged while pushing back against speculation of rate cuts. At the time of writing, XAU/USD trades volatile within the $2030 - $2050 area as market participants await Fed Chairman Jerome Powell’s decision.

XAU/USD trades volatile following Fed’s decision

In its monetary policy meeting, Fed officials voted unanimously to keep rates unchanged. They noted that it would be appropriate to reduce rates until there is greater confidence that inflation is sustainably moving toward its 2% goal. The Fed added that risks of achieving the Fed dual mandate are moving into better balance and emphasized that the committee will remain “highly attentive” to inflation risks.

Regarding the reduction of the balance sheet, it would remain as previously described while tightening restrictions on all Fed staff with access to confidential FOMC information.

After the data, the US 10-year Treasury note yield spiked to 4% before retreating somewhat towards 3.97%. At the same time, the US Dollar Index (DXY) aimed toward 103.50 before getting back to 103.35.

XAU/USD Reaction to Fed’s Decision

Gold dived toward the $2040 area after the Fed’s decision, though it remains seesawing, as mentioned in the first paragraph, capped at $2050. Although XAU/USD hovers at around $2040, downside risks remain, as the Fed’s statement was perceived as hawkish, though the Fed’s Chair Jerome Powell would cross the wires at around 19:30 GMT.

Key resistance lies at the daily high at $2055.98, followed by $2090, ahead of $2100. On the flip side, support emerges at $2032.14, the day’s low, followed by the January 25 low of $2009.66.

• USD/JPY rebounds after a sharp fall as Dollar bids recover post-Fed.
• Fed leaves rates unchanged, cautions uncertainty in economic outlook.
• Markets await Fed chair Powell press conference for dovish hints.

The USD/JPY rebounded in rough chart action after the Federal Reserve (Fed) left rates unchanged with additional cautionary concerns about needing the economic outlook to be more certain and better indicators that US inflation will fall to and stay at 2% moving forward. The Fed sparked a risk-off run that bolstered the US Dollar (USD) on reaction as markets await further details from Fed Chairman Jerome Powell, due to speak at the bottom of the hour.

Fed leaves policy rate unchanged at 5.25%-5.5% as expected

Money markets are now pricing in a 52% chance of no rate cut in March as swap rates pivot to focus on odds of a first cut from the Fed in May, according to the CME's FedWatch Tool.

USD/JPY technical outlook

USD/JPY tumbled into the 146.00 handle early Wednesday, backsliding 1.22% peak-to-trough from the day's peak bids near 147.88.

The pair is pulling back into the midrange below the 147.00 handle after the pair tested its lowest prices in almost three weeks.

USD/JPY Hourly Chart

• AUD/JPY making a decisive downshift with a 0.95% drop, currently stationed at 96.50.
• As the bears push the cross below the 20-day SMA, the outlook turned negative for the cross.
• Despite recent bearish activities, pair remains above both 100 & 200-day SMAs, signalling an overall bullish trend.

In Wednesday's trading session, the AUD/JPY fell to 96.50 after a strong 0.95% decline. The daily chart outlook for the pair appears neutral to bearish, indicative of bears gaining ground. Reinforcing this sentiment, the four-hour chart also leaned towards the bearish side with indicators near the oversold zone.

The daily Relative Strength Index (RSI) shows a downward inclination yet remaining in the positive region, indicating slight selling pressure as well as the rising red bars of the Moving Average Convergence Divergence (MACD). Furthermore, the bears have made an apparent show of power, pushing the cross price below its 20-day Simple Moving Averages (SMA). However, the AUD/JPY remains firm on higher ground, as demonstrated by its position above both the 100 and 200-day SMAs. This solidifies the notion that despite recent bearish challenges, the overall buying force still commands the roost.

Switching to a shorter time frame, the four-hour outlook seems to be also favoring a bearish narrative for the moment. Technical indicators appear oversold, reflecting a growing bearish bias among traders. Simultaneously, the Relative Strength Index (RSI) is on the cusp of the oversold threshold, while the Moving Average Convergence Divergence (MACD) exhibits rising red bars, another pointer to the growing clout of bears in the short-term.

AUD/JPY daily chart

AUD/JPY levels to watch

• GBP/JPY falls over 0.60%, impacted by cautious sentiment before Fed policy decision.
• Drop below Tenkan-Sen (187.45) suggests more decline; watch supports at 186.00, 185.64.
• Recovery hinges on surpassing 187.00; resistance at 187.45, 188.00, and January 23 high of 188.91.

The GBP/JPY plunged sharply during the North American session, down by more than 0.60% as market participants shifted risk-averse ahead of the US Federal Reserve’s (Fed) monetary policy decision. That, alongside the Bank of England (BoE) meeting on Thursday, keeps the Pound Sterling (GBP) downward pressured while the Japanese Yen (JPY) advances. At the time of writing, the cross exchanges hands at 186.15 after hitting a high of 187.59.

The pair is neutral biased but tilted to the downside after diving below the Tenkan-Sen at 187.45, That exacerbated the GBP/JPY fall below 187.00, which opened the door for further downside. The next support surfaces at 186.00, followed by the Senkou Span A at 185.64. Further downside is seen at 185.00.

On the other hand, if buyers step in, they must reclaim 187.00. Once that level is cleared, up next would be the Tenkan-Sen at 187.45, ahead of challenging 188.00, before testing fresh highs at 188.91, the January 23 high.

GBP/JPY Price Action – Daily Chart

GBP/JPY Technical Levels

• EUR/USD saw a hard rally above 1.0880 on ECB rate cut hopes.
• US ADP labor miss drove the pair back into Wednesday’s opening range.
• US Fed head Jerome Powell due at 19:30 GMT after Fed rate call.

EUR/USD saw a hard rally in early Wednesday trading, rising three-quarters of a percent bottom-to-top after misses in German Consumer Price Index (CPI) inflation figures missed the mark, with markets pivoting back into a cautious stance ahead of the Federal Reserve’s (Fed) rate call and following press conference. EUR/USD fell back into the day’s opening bids near 1.0850 as the pair remains stuck in the middle of near-term consolidation.

German Retail Sales backslid early Wednesday, followed by German CPI inflation easing faster than expected, helping to bolster investor sentiment in the midweek that the European Central Bank (ECB) would see the way forward towards a faster pace of rate cuts.

Daily digest market movers: EUR/USD draws into the middle ahead of Powell appearance

• The EUR/USD rallied into 1.0880 after German Retail Sales came in at -1.7% for the year ended December, adding to the previous period’s -2.4% as consumer spending cools off, reinforcing an economic slowdown that will push the ECB towards rate cuts.
• German CPI inflation also declined faster than expected, with annualized German CPI for the year ended January printing at 2.9% versus the forecast 3.3% and the previous period’s 3.7%.
• Pan-European Harmonized Index of Consumer Prices (HICP) figures are due on Thursday.
• European money markets are now pricing in 150 basis points in ECB rate cuts through 2024, up from Tuesday’s swap rate balance of 140 bps.
• Fed chair Jerome Powell due at 19:30 GMT, markets will be straining to find hints of the Fed cutting rates sooner rather than later.
• US ADP Employment Change slumped to 107K in January versus the forecast 145K, declining from the previous month's 158K (revised from 164K).
• US Nonfarm Payroll (NFP) figures due on Friday to cap off the trading week.

Technical analysis: EUR/USD poised for a run post-Fed

EUR/USD pulled in both direction on Wednesday, sagging early into 1.0806 before rallying above 1.0880 and settling back where it started near 1.0850 as the market awaits central bank appearances.

The 200-hour Simple Moving Average (SMA) remains a key technical barrier, capping off upside momentum near 1.0860. The EUR/USD has cycle familiar levels since the middle of January, but downside pressure has been mounting as swing highs continue to lag lower.

Daily candlesticks have the pair stuck on the low end of a congestion pattern at the 200-day SMA near 1.0850, with topside price action capped by the 50-day SMA just north of 1.0900.

EUR/USD hourly chart

EUR/USD daily chart

• GBP/USD rebounds from a low, as subdued US employment figures influence Fed rate decision expectations.
• ADP employment growth slows and the Employment Cost Index falls short of projections, fueling speculations for a rate cut.
• Investors also focus on the Bank of England's upcoming decision and economic outlook, with Governor Bailey's remarks closely watched for policy clues.

The GBP/USD edges higher during the North American session on Wednesday after softer-than-expected economic data from the United States (US) could prompt the US Federal Reserve (Fed) to cut rates. However, market participants seem cautious ahead of the Fed’s decision around 19:00 GMT. The pair exchanges hands at 1.2728 after bouncing from a daily low of 1.2666.

GBP/USD post decent gains as soft US data sparks rate cut speculations

The US economic calendar featured two employment reports in early trading ahead of the FOMC. Private hiring rose less than expected, according to ADP data, with figures dipping from 158K to 107K, also below estimates. The Employment Cost Index for the last quarter of 2023 was 0.9% QoQ, below forecasts and Q3’s number, suggesting the risks of a wage-price spiral.

Aside from this, traders are awaiting the release of the Federal Reserve’s decision, with market participants estimating the US central bank would keep rates unchanged. Instead, they're looking for clues of the beginning of the easing cycle. This was after Fed Chair Jerome Powell and Co. embarked on a tightening cycle that witnessed more than 500 basis points of tightening to curb inflation that reached 9.1% YoY.

On the other side of the Atlantic, the Bank of England is expected to stay pat and release its latest economic projections That along with the BoE’s Governor Andrew Bailey press conference, would be scrutinized by market participants.

GBP/USD Price Analysis: Technical outlook

The major is neutral biased but mildly tilted to the downside, but buyers lifting the exchange rate above 1.2700 could open the door to challenge the next resistance level at 1.2774, toe January 24 cycle high. Once cleared, the pair could resume its path toward 1.3000 but must clear the next resistance at 1.2900. On the other hand, if GBP/USD sellers move in, they could drag the exchange rate below 1.2700, ahead of testing the 50-day moving average (DMA) at 1.2669. Further downside is seen at 1.2600.

• The DXY Index trades with losses on Wednesday at 103.20.
• ADP Employment change figures were lower than expected in January.
• The Fed is expected to hold its policy unchanged in Wednesday’s meeting, messaging will be key.

The US Dollar (USD), as reflected by the DXY Index, is currently trading at 103.20, experiencing losses as a result of weak data from the Automatic Data Processing (ADP) Employment Change report for January. Markets remain cautious ahead of the announcement of the Federal Reserve (Fed) decision later in the session.

Market anticipation regarding the Fed's future decisions are shifting but remain restrained due to robust recent economic data, suggesting that earlier rate cuts are unlikely. The upcoming FOMC decision and jobs data are expected to further steer market sentiment and shape the easing cycle from the Fed.

Daily Digest Market Movers: US Dollar dragged down by disappointing ADP figures

• The ADP Employment Change for January reported by the US significantly missed expectations, with only 107K jobs added as compared to the consensus of 145K and previous figure at 158K.
• On Thursday, markets will receive additional weekly Jobless Claims data; and on Friday, January’s Nonfarm Payrolls figures.
• Market's perspective on the Federal Reserve's next move, as gauged by the CME FedWatch Tool, suggest that investors are confident that the bank won’t change its policy on Wednesday. As for now, markets are seeing the easing cycle starting in May.
• However, the bank’s messaging and tone may change those expectations, setting the pace of the US Dollar for the rest of the week.

Technical Analysis: DXY loses momentum, bulls fail to defend the 200-day SMA

The indicators on the daily chart are reflecting a mixed bag of signals. The Relative Strength Index (RSI), despite its negative slope, is in positive territory. This typically indicates dwindling bullish momentum as buyers lose strength. The Moving Average Convergence Divergence (MACD) presents a similar view as the diminishing green bars could suggest that buying momentum is struggling to keep up its pace.

The Simple Moving Averages (SMAs) reveal a somewhat bearish scenario in the larger picture. The DXY's position under both the 100 and 200-day SMAs showcases the bears' dominance in longer time frames. However, the index still remaining above the 20-day SMA reinforces that the bears still aren’t fully in command and will act as strong support in case of further downward movements.

Support Levels: 103.15, 103.00, 102.90.
Resistance Levels: 103.4 (200-day SMA),103.90,104.00,104.20.

• Tech rally comes under threat as chipmaker expectations outrun earnings.
• Automotive sector sees downside pressure after EU regulators raid tire manufacturers.
• Germany CPI inflation came in below expectations, pan-EU CPI due Thursday.

European equities saw some weakness on Wednesday with Germany’s DAX index declining four-tenths of a percent after German Consumer Price Index (CPI) inflation missed forecasts, and rising costs associated with developing AI-based hardware and software products irks investors who aren’t seeing as much gain in revenues as hoped for on the back of rising demand for AI-powered products.

Germany’s annualized CPI inflation came in below expectations, printing at 2.9% YoY in January versus the 3.2% forecast and falling even further from the previous period’s 3.8%. With inflation in the German economy receding faster than expected, the Euro area’s key economic powerhouse within the union, markets are stepping into bets of higher and faster rate cuts from the European Central Bank (ECB) ahead of Thursday’s broader EU Harmonized Index of Consumer Prices (HICP).

pan-EU annualized HICP inflation for the year ended in January is forecast to tick down from 2.9% to 2.8% YoY. Money markets now see 150 basis points in rate cuts from the ECB through the end of 2024, up from Tuesday’s 140 bps rate trim forecast.

Germany: Inflation decelerates further in January

Growing protests and demonstrations across Europe threaten stability in the agriculture sector as farmers organize into larger blockades, protesting a lack of support from European government agencies. Farmers are looking for the EU to trim back planned declines in subsidies, as well as seeking additional tariff controls on imports from Ukraine, who has diverted the majority of their foreign-bound agriculture products into European markets since the start of the Russian invasion last year that shut Ukraine out from key export markets to the East.

Automotive and car parts markets got weighed down this week by a raid on tire manufacturers by the EU Commission that are accusing the key parts producers of cartel-like behavior. Major producers including Pirelli, Michelin, and Nokian saw their offices raided by UE antitrust regulators on Tuesday, and markets are awaiting an update from the EU Commission, who have a mandate to remain silent on matters until their initial investigation concludes. European tire manufacturers have been accused of price fixing and colluding against the interest of European consumers.

Major tech giants including Microsoft and Alphabet have reported significant revenue increases in AI-associated spaces recently, but costs are rising quickly in the cutting-edge tech sphere, weighing down investor sentiment. Pivots into supplying AI-focused chips and software see prices and costs soaring faster than income gains, and demand for non-AI chips are weighing down semiconductor players.

The Pan-European STOXX600 major equity index eked out a slim gain of 0.07%, gaining a third of a point to close Wednesday at €485.97, bolstered by mega-cap stock gains in the healthcare and utilities sectors offsetting declines in financials and technology.

France’s CAC40 fell nearly 21 points to end Wednesday down 0.27% at €7,656.75, and Germany’s DAX fell 0.4%, shedding 68.58 points to close at €16,903.76.

London’s FTSE also saw accelerated downside, tumbling 0.47% to close down 35.74 points at £7,630.57.

DAX technical outlook

The German DAX equity index trimmed back into the €16,875.00 level on Wednesday, slipping back from the day’s peak near €16,975.00, losing 0.65% peak-to-trough in the process.

The index recovered back into the €16,900.00 handle heading into the market close, but the index finds itself trading on the south side of the 50-hour Simple Moving Average (SMA) for the second time in a week. 

Hesitation in German equities has the DAX struggling to chalk in further gains above December’s peak just shy of the €17,000.00 major price handle, but the major index is still trading firmly into bullish territory well above the 200-day SMA just below €16,000.00.

DAX hourly chart

DAX daily chart

• Mexican Peso depreciates as broader market caution remains before Fed decision.
• US employment data and a low Employment Cost Index shows the labor market is cooling.
• USD/MXN traders eye FOMC, which is expected to adopt a neutral interest rate stance.

The Mexican Peso (MXN) weakens against the US Dollar (USD) on Wednesday and posts losses of more than 0.10% as risk aversion drives the financial markets ahead of the US Federal Reserve’s (Fed) monetary policy decision. Mexico’s economic docket is empty. In the United States, employment data was soft, and the Employment Cost Index (ECI) sought by Fed officials as a measure of inflation in wages dipped below estimates. The USD/MXN trades at 17.16 after hitting a daily low of 17.09.

Wall Street trades with losses as investors prepare for the Fed. The US central bank is expected to keep rates at the 5.25%-5.50% range with the tone of the statement remaining neutral. Following that, Fed Chairman Jerome Powell's press conference is expected to strike a more balanced approach, recalling last December’s ultra-dovish conference.

Daily digest market movers: Mexican Peso virtually unchanged ahead of Fed meeting

• The Employment Cost Index (ECI), a key indicator of wage inflation monitored by Federal Reserve officials, fell from 1.1%QoQ to 0.9% in the fourth quarter, indicating a cooling in the labor market.
• The ADP Employment Change report for the United States showed weaker performance in January, with private hiring rising only 107K jobs, falling short of December’s 158K and the predicted 145K. The report mentioned, “Progress on inflation has brightened the economic picture despite a slowdown in hiring and pay.” As wages had improved in the last semester, “the economy looks like it’s headed toward a soft landing.”
• Mexico’s economy grew below forecasts in the last quarter of 2023. GDP expanded 0.1% QoQ, trailing Q3 1.1% growth and forecasts of 0.4%.
• Given that the Mexican economy remains solid, according to the data revealed in January, the Bank of Mexico (Banxico) could delay easing monetary policy as conditions remain hotter than expected.
• However, if Banxico’s officials remain determined to begin its easing cycle in Q1 of 2024, that could depreciate the emerging market currency due to the reduction of interest rate differentials. That could also underpin the USD/MXN pair toward the psychological 18.00 figure.
• The US labor market remains solid as the latest JOLTS report revealed vacancies exceeded estimates, which could prevent Fed officials from easing policy in the near term.
• Consumer Confidence was higher than the previous month’s data, courtesy of slower inflation, expectations for lower interest rates and “generally favorable employment conditions as companies continue to hoard labor,” said Dana Peterson, Chief Economist at The Conference Board.
• Additional factors that might depreciate the Mexican currency are geopolitical risks and risk aversion.
• Across the border, the US economy remains resilient as GDP in Q4 of last year crushed forecasts despite easing from Q3’s 4.9%. That could force Fed officials to refrain from easing policy, but the latest inflation data suggests they’re close to getting inflation to its 2% target.
• Nevertheless, mixed readings in other data suggest that risks have become more balanced. That is reflected by investors speculating that the Fed will cut rates by 139 basis points during 2024, according to the Chicago Board of Trade (CBOT) data.

Technical Analysis: Mexican Peso steady as USD/MXN looms around 17.15

The USD/MXN trades range-bound, slightly tilted to the upside, capped by key Simple Moving Averages (SMAs), with the 50-day SMA at 17.13 and the 200-day SMA at 17.33. Although it appears closer to the 50-day SMA, market sentiment could lift the exchange rate to the 200-day SMA at 17.33, which, once cleared, could open the door for higher prices. Next resistance would be the 100-day SMA at 17.41, followed by the December 9 high at 17.56. Last of all sits the May 23 high from last year at 17.99.

On the flip side, if the USD/MXN exchange rate drops below the 50-day SMA at 17.13, that will expose the January 22 low at 17.05, followed by the 17.00 psychological level.

USD/MXN Price Action – Daily Chart

• The Canadian Dollar recovered some ground after GDP surprised to the upside.
• Canada saw 0.2% GDP growth in November, which beat consensus.
• Fed rate call and press conference due in the latter half of the US trading session.

The Canadian Dollar (CAD) edged higher on Wednesday after Canadian Gross Domestic Product (GDP) figures beat expectations to post growth for the first time since May. The Federal Reserve’s latest rate call is due at 19:00 GMT, with a press conference to be headed by Fed Chairman Jerome Powell at 19:30 GMT.

Canada saw growth in its MoM GDP for the first time in seven months on Wednesday, sending the Canadian Dollar into recovery mode against the US Dollar (USD), but the CAD still remains in the red against several of its major currency peers. Loonie traders will be looking ahead to Thursday’s January Canadian Purchasing Managers Index (PMI) figures for Canada’s manufacturing sector after the Fed rate call dust settles.

Daily digest market movers: Canadian Dollar surges against the Greenback on GDP growth

• Canadian November GDP growth was a surprise on Wednesday, coming in at 0.2% MoM versus the forecast of 0.1%.
• Canadian GDP printed above 0.0% for the first time in seven months after revisions.
• S&P Global’s Canadian Manufacturing PMI for January is due Thursday, last MoM Manufacturing PMI printed in contraction territory at 45.4.
• US Fed broadly expected to hold rates steady on Wednesday, market focus to pivot to Federal Open Market Committee (FOMC) Press Conference at 19:30 GMT.
• Investors will be looking for hints about when the Fed will cut rates.
• Rate swap bets on a Fed cut in March lurched higher early Wednesday, now pricing in 65% chance of at least a 25 basis point rate trim by March 20 meeting.
• The US Dollar backslid after ADP Employment Change figures came in well below expectations and an unexpected backslide in the Chicago PMI.
• ADP Employment Change in January fell to 107K versus the forecast for 145K, December’s 158K (revised down from 164K).
• January’s Chicago PMI declined to 46.0 instead of the forecasted uptick to 48.0 against December’s 47.2 (revised up from 46.9).
• Volatile ADP figures are prone to steep revisions and has a sketchy-at-best track record for previewing the US Nonfarm Payrolls (NFP) print slated for Friday.
• ADP Employment Change has seen revisions in all but a single month since 2007.

Technical Analysis: Canadian Dollar climbs over the Greenback on Canadian GDP upshot

The Canadian Dollar (CAD) has chalked in some gains on Wednesday, climbing around a fifth of a percent against the US Dollar as the Greenback recedes across the broader market. The CAD is still softer against the Japanese Yen (JPY), the market’s single best-performing currency in the mid-week trading session. The Loonie has shed over half a percent against the Yen for Wednesday.

USD/CAD tumbled to 1.3360 in early US trading, falling 0.6% from the day’s peak of 1.3437. Intraday momentum is dragging the pair back into the 1.3400 handle ahead of the Fed’s policy statement, and investors will be bracing for whips in the USD/CAD.

If the Canadian Dollar achieves a bullish close against the US Dollar on Wednesday, the USD/CAD will etch in its fifth consecutive down day as the pair pulls away toward the downside from the 200-day Simple Moving Average (SMA) near the 1.3500 handle.

USD/CAD Hourly Chart

USD/CAD Daily Chart

The Bank of England (BoE) will announce its Interest Rate Decision on Thursday, February 1 at 12:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of nine major banks.

The BoE is widely expected to leave the policy rate at 5.25% for the fourth straight time. Market participants will majorly focus on the interest rate outlook. 

SocGen

Danske Bank

TDS

Deutsche Bank

Rabobank

ING

ABN Amro

Citi

Wells Fargo

The US Dollar is set to weaken, while FX markets could experience a lot of volatility going forward, analysts at Nordea say.

US economy to continue to do well on a global perspective

• Euro gains to 1.0879 vs. Dollar, driven by disappointing US ADP Employment data and lower wage inflation.
• Fed's FOMC meeting awaited, with rate hold anticipated and Powell's remarks eyed for direction.
• Eurozone's economic slowdown hinted by German inflation, retail sales, and French inflation, stirring ECB rate cut talks.

The Euro stages a comeback against the US Dollar, rising 0.31% amid a busy economic calendar on both sides of the Atlantic. At the time of writing, the EUR/USD trades at 1.0879 after hitting a daily low of 1.0806.

EUR/USD climbs as markest digest US “dovish” data, eye Fed Powell’s speech

Data from the United States (US) featured the ADP Employment Change report, which came soft at 107K in January, below December’s 158K and forecasts of 145K. Nela Richardson, Chief Economist at ADP, said, “Progress on inflation has brightened the economic picture despite a slowdown in hiring and pay,” adding that “Wages adjusted for inflation have improved over the past six months, and the economy looks like it's headed toward a soft landing in the U.S. and globally.”

Recently, the Employment Cost Index (ECI) sought by Federal Reserve (Fed) officials as a measure of wage inflation dipped from 1.1% to 0.9% in Q4, meaning the labor market is cooling.

With economic data out of the way, EUR/USD traders' attention turns to the Federal Reserve’s (Fed) Open Market Committee Meeting (FOMC). Most analysts estimate the Fed will keep rates unchanged at 5.25%-5.50%, though most are eyeing Fed Chairman Jerome Powell's speech. Win Thin, an analyst at Brown Brothers Harriman, stated, “We believe Powell will take a much more balanced stance at this meeting, especially given how robust the economy remains.”

Across the pond, German Inflation eased to 3.1% YoY in January versus forecasts of 3.2%, fueling speculations that the European Central Bank (ECB) may cut rates sooner than expected as the Eurozone (EU) economy continued to decelerate according to Flash PMIs revealed in January. Other data from Germany witnessed Retail Sales plunging from 0.7% to -1.6% MoM figures, while inflation in France dipped from 3.7% to 3.1%.

EUR/USD Price Analysis: Technical outlook

The EUR/USD tilted from bearish biased, to neutral-bearish as traders lifted the exchange rate towards the 1.0880s area. Further upside is seen if buyers reclaim 1.0900, with the next key level being the 50-day moving average (DMA) at 1.0916 before challenging 1.1000. On the flip side, if sellers keep the spot price below 1.0900, that could pave the way for a retracement, with their eyes set at the lows of the day at 1.0806.

The Mexican Peso (MXN) collapsed vs. EM peers on the day Trump was elected in 2016. Economists at TD Securities analyze MXN outlook ahead of election noise.

Mexico will not be immune to a US slowdown

• Silver price fails to get a directional steer despite downbeat US private Employment data.
• The USD index witnesses a sell-off as expectations for rate-cut in March by the Fed have slightly improved.
• Focus remains on the Fed’s monetary policy.

Silver price (XAG/USD) trades sideways slightly above the $23.00 resistance in early New York session on Wednesday. The white metal fails to get a directional steer even though the United States Automatic Data Processing (ADP) has reported weaker-than-projected Employment data for January.

The US ADP has reported that 107K workers were hired by private employers against expectations of 145K and the prior reading of 158K. As per the CME Fedwatch tool, expectations for rate-cut in March have increased slightly above 50% after the release of the downbeat US Employment data.

The US Dollar Index (DXY) has witnessed an intense sell-off, dropped to near 103.20. 10-year US Treasury yields have dropped to near 4.02%.

Going forward, investors await the monetary policy decision by the Federal Reserve (Fed). The Fed is widely anticipated to keep interest rates unchanged in the range of 5.25-5.50% for the fourth straight time. Investors would focus on whether slowing demand for labor would impact the outlook on interest rates by Fed policymakers. Dovish signals for March monetary policy meeting would strengthen the appeal for the Silver price bulls.

Silver technical analysis

Silver price has strengthened after delivering a decisive break above the downward-sloping trendline plotted from December 3 high at $25.92. The white metal is expected to find immediate resistance near $23.53. The near-term appeal for the Silver price has turned bullish as it is sustaining above the 50-period Exponential Moving Average (EMA), which trades around $22.90.

The 14-period Relative Strength Index (RSI) has shifted into the bullish range of 60.00-80.00, which indicates that momentum has leaned towards bulls’ side.

Silver four-hour chart

Eurostat will release a first flash estimate of Eurozone Harmonised Index of Consumer Prices (HICP) data for January on Thursday, February 1 at 10:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of six major banks regarding the upcoming EU inflation print.

Headline Eurozone inflation is expected at 2.8% year-on-year vs. 2.9% in December, while core inflation is expected to ease two ticks to 3.2% YoY.

Commerzbank

Deutsche Bank

ABN Amro

SocGen

Citi

TDS

Economists at Standard Chartered analyze Mexican Peso’s (MXN) outlook ahead of upcoming election cycles in both Mexico and the US.

Election cycles to complicate the monetary policy outlook

• Employment Cost Index rose less than forecast in Q4.
• US Dollar Index stays in the red slightly below 103.50 after the data.

Compensation costs for civilian workers, the Employment Cost Index, rose 0.9% in the fourth quarter of 2023, the US Bureau of Labor Statistics reported on Wednesday. This reading followed the 1.1% increase recorded in the previous quarter and came in below the market expectation of 1%.

"Compensation costs for civilian workers increased 4.2% for the 12-month period ending in December 2023 and increased 5.1% in December 2022," the BLS noted in its press release. "Wages and salaries increased 4.3% for the 12-month period ending in December 2023 and increased 5.1% for the 12-month period ending in December 2022."

Market reaction

The US Dollar Index edged slightly lower after this report and was last seen losing 0.06% on the day at 103.35.

• Private sector employment grew at a softer pace than expected in January.
• US Dollar Index continues to fluctuate near 103.50 ahead of the Fed policy announcements.

Private sector employment in the US rose by 107,000 in January, while annual pay was up 5.2% year-over-year, the data published by Automatic Data Processing (ADP) showed on Wednesday. This reading followed the 158,000 increase (revised from 164,000) recorded in December and came in below the market expectation of 145,000.

Commenting on the survey's findings, "progress on inflation has brightened the economic picture despite a slowdown in hiring and pay," said Nela Richardson, chief economist, ADP. "Wages adjusted for inflation have improved over the past six months, and the economy looks like it's headed toward a soft landing in the US and globally."

Market reaction

This report don't seem to be having a noticeable impact on the US Dollar's valuation ahead of the Federal Reserve's highly-anticipated monetary policy announcements. At the time of press, the US Dollar Index was virtually unchanged on the day at 103.42.

According to Destatis, the preliminary Inflation Rate in Germany showed consumer prices rising at a monthly 0.2% in January (from 0.1%) and 2.9% over the last twelve months (from 3.7%).

Furthermore, the resurgence of disinflationary pressures rapidly left behind the annualized rebound observed in the CPI in the last month of 2023.

Market reaction: EUR/USD keeps daily highs near 1.0840

Soon in the wake of the release, price action in EUR/USD remained quite apathetic in the upper end of the daily range around 1.0840, as investors get ready for the publication of the ADP report.

Apart from a period during Autumn 2023, EUR/GBP has been mostly confined to the 0.8700 to 0.8500 range since late May last year. Economists at Rabobank analyze the pair’s outlook.

EUR/GBP set to break lower?

• The US Dollar pops back above a crucial level ahead of Fed meeting. 
• Traders were surprised by upbeat JOLTS numbers, with job openings still at elevated levels. 
• The US Dollar Index is hovering around the 200-day SMA and remains stuck in its pattern. 

The US Dollar (USD) is facing its first main event of 2024 with the US Federal Reserve rate decision for January. All eyes will be on the Federal Reserve Chairman Jerome Powell and what he will deliver to the markets. Although no rate changes are expected, the tone of the statement from Powell can still be either hawkish or dovish and could dampen hopes for a quick rate cut further with a repricing for a (stronger) US Dollar at hand. 

On the economic front, a perfect menu lies ahead of the main event this Wednesday evening. Traders will get the chance to dig into the privately compiled ADP Employment Change report ahead of the official US jobs report on Friday. The Chicago Purchasing Managers’ Index for January is due to be released as well, with traders seeking confirmation of the number jumping out of contraction territory (over 50), like the PMI prints last week. Such a move would help confirm a recovery and soft landing. 

Daily digest market movers: Tensions build up 

• The Mortgage Bankers Association (MBA) is set to release its weekly number of mortgage applications near 12:00 GMT. Previous was at 3.7%.
• At 13:15 the ADP Employment Change report is expected to be released. The previous figure was at 164,000 with 145,000 expected.
• Near 13:30 the Employment Index for the fourth quarter is to be released. The previous figure was 1.1% with 1.0% expected for now.
• At 14:45 the Chicago Purchase Managers Index (PMI) for January will be released. The prior figure reflected contraction at 46.9, with 48 expected this time. Any number above 50 would mean growth. 
• The Federal Open Market Committee (FOMC) is set to release its first rate decision for 2024:
  • At 19:00 GMT the Fed will release its rate decision with a joint written statement.
  • Around 19:30 US Fed Chairman Jerome Powell will take the stage and further go into details on how the Fed sees current conditions in the US. 
• Although a rate change is not expected, the meeting could still hold a hawkish or dovish undertone which could send the Greenback respectively higher or lower in the US Dollar Index. 
• Equity markets are lower after missed earnings from AMD and Alphabet. Add in there the miss on expectations for the Chinese Manufacturing PMI, and risk appetite looks to be very mild this Wednesday. 
• The CME Group’s FedWatch Tool shows that markets are pricing in a 97.9% possibility for an unchanged rate decision this Wednesday evening, with a slim 2.1% chance of a cut.
• The benchmark 10-year US Treasury Note trades near 4.01% and is at the lowest level for this week ahead of the Fed rate decision. 

US Dollar Index Technical Analysis: The moment we have all been waiting for

The US Dollar Index (DXY) might find its catalyst this Wednesday. For nearly two weeks now it has been unable to trade away from both the 55-day (103.02) and the 200-day (103.54) Simple Moving Averages despite several false breaks and both MAs getting all chopped up. 

Although the Fed meeting this Wednesday is unlikely to usher in any rate changes, the outcome could still favor the Greenback if Powell delivers a hawkish statement to the markets. Such a move would see market expectations pushback on when the Fed will make its first rate cut. 

In such a scenario the DXY will be able to break away from the 200-day SMA. Look for 104.36 as the first resistance level to the upside, in the form of the 100-day SMA. If that gets breached as well, nothing will hold the DXY back from heading to either 105.88 or 107.20 – the high of September.  

On the other hand, with the repetition of another break above the 200-day SMA, yet again, a bull trap could also form if prices then start sliding below the same moving average. This would see a long squeeze, with US Dollar bulls being forced to start selling around 103.10 at the 55-day SMA. Once below that, the downturn would be open to 102.00.

Economists at TD Securities discuss the Federal Reserve Interest Rate Decision and its implications for the Bloomberg Dollar Spot Index.

Hawkish (15%)

Base Case (65%)

Dovish (20%)

The EUR/USD pair should trend higher in the coming weeks. However, the Euro is likely to lose ground again in the second half of the year, economists at Commerzbank report.

Interim high in 2024?

• WTI Oil popped to nearly $80 as the US threatened to reimpose sanctions on Venezuela. 
• Oil is still finding its way to importers through other producers. 
• The US Dollar Index firms ahead of the first Federal Reserve rate decision for 2024.

Oil prices are seeing a pickup in volatility on Wednesday, jumping towards the $80 psychological level, as the US said it stands ready to issue new sanctions against the Venezuelan Oil industry. With this move, The US appears to be leveraging political democratic elections in the Latin American country, after the leader of the opposition party got blocked by a court decision, barring Maria Corina Machado from the election.

Meanwhile, the US Dollar Index (DXY, is stuck in a tight technical range that has been underway for nearly two weeks now. With the first US interest-rate decision from the US Federal Reserve due later on Wednesday, markets will be plucking the speech from Chairman Jerome Powell for clues if March or rather June is the right moment for a first rate cut. The US Jobs Report, due on Friday, is also expected to cause a pickup in volatility.. 

Crude Oil (WTI) trades at $76.86 per barrel, and Brent Oil trades at $81.62 per barrel at the time of writing. 

Oil news and market movers: US picks battle with OPEC country

• Overnight numbers from the American Petroleum Institute (API) showed a drawdown of 2.49 million barrels last week.
• At 15:30 GMT, the Energy Information Administration (EIA) is due to release its weekly stockpile change number. Previous was a draw of 9.233 million barrels, while  a much smaller draw of 217,000 is expected.
• Two tankers carrying Russian Oil have been reported to be on their way to India to offload their cargo.
• Saudi Arabia has cancelled its plans to look into a production increase. The news was not picked up amidst the COP28 headlines. However, the kingdom is refraining from jacking up production as the US has substantially scaled up its exports.

Oil Technical Analysis: US picking fights

Oil prices tend to react to any possible disruption in the Oil market.  US sanctions on Venezuela would trigger a supply deficit in the current market, sending oil prices up. This is something that the US really wants to avoid, which makes the US a barking dog that might not actually bite. 

To the upside, resistance at $74 is in the rear view mirror and should act as support. Although price action came very near, $80 will not be easy to beat. Once $80 is broken, $84 is next on the topside. 

The $74 level will act as immediate support on any sudden declines. The $67 level could still come into play as the next support as it aligns with a triple bottom from June. Should that triple bottom break, a new low could be close at $64.35 – the low of May and March 2023 – as the last line of defence.

US WTI Crude Oil: Daily Chart

Economists at HSBC expect both the Japanese Yen (JPY) and the Canadian Dollar (CAD) to trade sideways, followed by modest strength.

Move higher in USD/CAD looks overdone, relative to risk appetite

European Central Bank (ECB) Vice President Luis de Guindos said on Wednesday that economic prospects have worsened since December and added that the Euro area's growth could be weaker this year than the ECB predicted, per Reuters.

"Inflation figures have mostly brought positive surprises recently," de Guindos told Die Zeit. "I think that inflation will be slightly lower than we have predicted."

Market reaction

These comments failed to trigger a noticeable reaction in the Euro. At the time of press, EUR/USD was down 0.06% on the day at 1.0833.

• USD/CAD recovers from 1.3400 amid cautious market mood ahead of Fed’s policy.
• The Fed is seen keeping interest rates unchanged in the range of 5.25-5.50%.
• Oil prices come under pressure as gloomy demand outlook.

The USD/CAD pair discovers buying interest near the round-level cushion of 1.3400. The Loonie asset rebounds as market mood has turned quite cautious ahead of the interest rate decision by the Federal Reserve (Fed) and the Automatic Data Processing (ADP) Employment Change data for January.

S&P500 futures have faces selling pressure in the European session, indicating a risk-aversion theme. The US Dollar Index (DXY) rises as appeal for safe-haven assets improve ahead of Fed’s policy. The Fed is expected to leave interest rates unchanged in the range of 5.25-5.50%. Investors will keenly focus on fresh cues about quantitative easing.

Market participants anticipate that the Fed will start reducing interest rates from May as price pressures are consistently softening.

On the oil front, oil price falls as investors lean towards poor demand outlook against geopolitical tensions. Investors see poor demand for oil in China due to deepening real estate crisis. It is worth noting that Canada is the leading exporter of oil to the United States and lower oil prices weaken the Canadian Dollar.

USD/CAD recovers from December 18 high of 1.3409. The 50% Fibonacci retracement (plotted from November 1 high at 1.3900 to December 27 low of 1.3177) at 1.3540 is acting as a major barricade for the US Dollar bulls. The near-term demand is not bullish enough as it the Loonie asset is trading below the 50-period Exponential Moving Average (EMA).

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, which indicates a consolidation ahead.

An upside move would appear if the asset will break above the 38.2% Fibo retracement, which will placed at 1.3455. This would allow more upside towards the psychological resistance of 1.3500, followed by 50% Fibo retracement at 1.3540.

On the flip side, a downside move below 23.6% Fibo retracement at 1.3350 would drag the asset towards the round-level support of 1.3300 and December 29 high at 1.3265.

USD/CAD four-hour chart

• The Federal Reserve is widely anticipated to keep interest rates unchanged.
• Fed Chairman Jerome Powell could shed further details on upcoming rate cuts.
• The US Dollar could find extra legs in case of a hawkish outcome.  

The Federal Reserve (Fed) will announce the first monetary policy of 2024 on Wednesday, and market participants largely expect the Committee to leave the Fed Funds Target Range unchanged at 5.25%–5.50%. If consensus materializes, the January 31 meeting will be the fourth consecutive meeting the bank has kept its interest rates at the highest level in over two decades.

At his latest post-FOMC press conference, Federal Reserve Chair Jerome Powell refrained from giving specific guidance on the timing and pace of rate cuts. However, he emphasized that the Fed would need to implement rate cuts well in advance of annual inflation rates reaching their 2% target. Waiting until the target is achieved could have negative consequences for the economy due to the delayed impact of monetary policy. Additionally, Chair Powell expressed concerns about keeping rates too high for an extended period, as this could potentially hinder economic growth.

In light of the upcoming event, Senior Economist Tom Kenny and Economist Arindam Chakraborty at ANZ comment they continue to adhere to their recent advice that they believe a rate cut around the middle of the year would be fitting, but they must also be receptive to the idea of implementing rate reductions earlier. Monetary policy is no longer following a predetermined path, and the Fed must navigate the delicate balance of achieving sustained inflation at the target while avoiding a rapid increase in real interest rates, which could pose a risk of a sharp economic downturn.

Although there is now a debate among market participants regarding a potential interest rate cut in March or May, it appears that the decision to keep rates unchanged at the January 31 meeting appears to be a “done deal”. According to the FedWatch Tool measured by CME Group, the probability of an interest rate reduction in March surpasses 46% vs. nearly 52% of the same outcome at the May 1 gathering.

Anticipating the Federal Reserve's Outlook: What Lies Ahead?

Having commenced its tightening efforts in the beginning of 2022, the Fed has executed a total of 525 bps of increases to interest rates and diminished its security holdings by more than $1 trillion. Although these measures have had an impact on the economy, according to Powell, their full effects have not yet materialized. Consequently, determining the duration of the required restrictive policy and the timing for initiating cuts is currently challenging.

In the December Summary of Economic Projections (SEP), it has been revealed that the median member of the Federal Open Market Committee (FOMC) now expects a total of 75 basis points of interest rate cuts in 2024. This represents an increase of 25 basis points compared to the projections made during the September meeting. This adjustment in rate expectations may potentially be attributed to a slight downward revision in the Federal Reserve's inflation forecasts. The "dot plot"  reveals a forecast of four additional interest rate cuts in 2025, totaling a decrease of one percentage point. Furthermore, three more reductions are projected for 2026, which would bring the fed funds rate to a range of 2% to 2.25%, aligning it closely with the long-term outlook.

Earlier this month, FOMC Governor Chris Waller stated that the timing of interest rate cuts in the current year would depend on discussions within the Federal Reserve policy-setting panel. He emphasized his preference to delay rate cuts until the Fed is "reasonably convinced" that inflation consistently reaches the target of 2%.

Similarly, Raphael Bostic, the Atlanta Fed's counterpart, expressed his willingness to consider implementing interest rate reductions before July if there is "compelling" evidence of inflation slowing down more rapidly than initially expected. While reaffirming the plan to begin rate cuts in the third quarter, he stressed the importance of exercising caution to prevent premature reductions that could reignite demand and inflationary pressures.

Regarding inflation, Fed officials anticipated a decline in core inflation to reach 3.2% in 2023 (it actually ended the year at 2.9%), dropping to 2.4% in 2024 and then to 2.2% in 2025. Eventually, the expectation is for it to return to the 2% target by the year 2026.

When it comes to inflation tracked by the PCE, the Committee revised its inflation forecast downward at 2.8% for 2023 (the official data eventually came out at 2.6% for December), then 2.4% in 2024, 2.1% in 2025, and 2.0% in 2026.

When will the Fed announce policy decisions and how could they affect EUR/USD?

The Federal Reserve is scheduled to announce its decision and publish the monetary policy statement at 19:00 GMT. This will be followed by Chairman Jerome Powell's press conference at 19:30 GMT. There won’t be an updated dots plot this time.

While it is widely expected that policymakers will maintain the current interest rates at 5.25%, market participants will closely scrutinize Chair Jerome Powell's remarks for any hints regarding the timing of potential rate cuts, especially given the recent decrease in expectations for rate cuts in March.

As the Federal Reserve gets ready for its first meeting of a new year, its challenges look different from those from, say, a year ago. By this time, disinflationary pressures appear to be running firm against the backdrop of higher interest rates, diminishing energy costs and a still pretty tight labor market, all amidst a healthy resilience of the US economy.

Recent strong US fundamentals have reinforced the view above, paving the way for an increasingly likely “soft landing”. On this, Chair Powell is expected to keep a cautious tone and emphasize that there is still work to be done regarding inflation, while keeping the Fed’s data-dependent stance intact.

Other than that, investors should be closely monitoring any signs from Powell regarding the timing of the potential start of an easing cycle

Pablo Piovano, Senior Analyst at FXStreet, notes: “The USD Index (DXY) seems to have embarked on a consolidative phase around the 103.50 zone in the last couple of weeks, in quite a vigilant stance ahead of imminent key events. Around this area also coincides with the critical 200-day SMA. The surpassing of this region could open the door to further gains in the short-term, with an interim target at the 100-day SMA around 104.30, where the December 2023 highs also sit. On the downside, a rapid loss of momentum should not see any contention of significance until the December 2023 low in the 100.60 zone.”

Regarding EUR/USD, Piovano adds: “EUR/USD has kicked off the new trading year well on the defensive, uninterruptedly shedding more than three cents since late December peaks near 1.1140 amidst the resurgence of a strong bid bias in the US Dollar. The loss of the so-far 2024 low around 1.0795 could expose extra weakness to the December low at 1.0723. In case of bouts of strength, the pair should need to subsequently clear the 55-day SMA around 1.0910, seconded by the weekly top around the psychological 1.1000 barrier just to refocus on the December high near 1.1140.

Finally, Piovano suggests that a sustained decline below the critical 200-day SMA in the 1.0840 area should shift the pair’s outlook to the downside, which would allow for a deeper decline initially to the December 2023 low at 1.0723 (December 8). Further losses from here should require an important worsening of the EUR’s outlook, which appears to be unlikely for the time being.”

FOMC speech tracker: Lack of dovish remarks in the new year

Federal Reserve officials alternated some cautious vocabulary with several hawkish speeches, before the 10-day blackout period ahead of their first FOMC meeting and interest rate decision of 2024. December and January have been notable for the lack of dovish speeches from FOMC board members, refusing to commit to any specific dates or targets for rate cuts. 

That said, the general tone going into the meeting is still notably balanced, as over 70% of the analyzed speeches came out with a neutral tone towards monetary policy, enhancing the data-driven approach the Federal Reserve has enforced over the last months.

*Voting members in 2024.

**0-10 scale where 0 is most dovish and 10 is most hawkish.

FOMC speech counter

This content has been partially generated by an AI model trained on a diverse range of data.

Economists at Nordea analyze Norwegian Krone’s (NOK) outlook for the months to come.

Norges Bank is highly unlikely to start cutting rates before the Fed and ECB

• Gold price struggles for direction ahead of Fed’s monetary policy announcement, ADP Employment Change data.
• The Fed is expected to deliver a steady interest rate decision while the future outlook on rates will be the main focus.
• Investors now see the Fed reducing interest rates from May. 

Gold price (XAU/USD) remains sideways as investors await the Federal Reserve’s (Fed) first monetary policy of 2024 and the ADP Employment Change data for January. The Fed is expected to deliver a steady interest rate decision for the fourth time in a row. Investors will keenly focus on the bank’s guidance – future expectation – for interest rates, and that will probably direct  action in the FX domain.

Amid easing price pressures, further quantitative tightening is not expected from the Fed, therefore, market participants will focus on “when and at what pace” the central bank will start reducing interest rates. Investors are anticipating that the Fed will commence the rate-reduction process from May. 

Previous Fed meeting guidance was for 75 basis points (bps) of cuts in interest rates in 2024. The market has been focusing on expectations for early cuts, however, comments from individual policymakers have been advising for keeping interest rates elevated at least for the first-half of the year – until they become confident that the underlying inflation rate will return to the Fed’s 2% target in a timely manner.

Daily Digest Market Movers: Gold price stays on sidelines ahead of Fed meeting

• Gold price oscillates in a tight range near $2,040 as investors await the Federal Reserve’s monetary policy and the ADP Employment Change data for January.
• As per the CME Fedwatch tool, traders are confident about the Fed keeping interest rates unchanged in the range of 5.25-5.50% at the meeting.
• This would be the fourth straight time the Fed has left interest rates steady. 
• Price pressures in the United States economy are consistently declining, which have been refraining Fed policymakers from hiking interest rates further.
• Fresh commentary from Fed policymakers on the outlook of interest rates is of utmost importance as a steady monetary policy decision is largely expected.
• In the last monetary policy meeting, Fed Chair Jerome Powell as well as the Summary of Economic Projections (SEP), which contains the expectations of all members, guided a reduction in interest rates by 75-basis points (bps) in 2024, which boosted demand for risk-perceived assets significantly. 
• Guidance for 75 bps rate cuts also led to expectations for Fed commencing rate-cuts from March but then failed to gather momentum due to resilient US economic data.
• Investors will be interested to see how the Fed will adjust its three rate-cut guidance in coming policy meetings.
• The CME Fedwatch tool indicates that the Fed will probably start the rate-cut campaign from May now (instead of March). Absence of dovish signals for May’s meeting would build pressure on the Gold price and will improve appeal for the US Dollar.
• Meanwhile, the US Dollar Index (DXY) remains topsy-turvy ahead of the US ADP Employment Change data for January. According to the estimates, 145K job-seekers were hired, which were lower than 164K job additions in December.
• This week, various US economic indicators are lined-up, which will keep investors busy. The ISM agency will release the Manufacturing PMI on Thursday, which will be followed by official Employment data, which will be released on Friday. 
• On the global front, geopolitical tensions continue to provide a cushion to bullion. US President Joe Biden vowed to retaliate for aerial drone attacks on US bases near northeastern Jordan.

Technical Analysis: Gold hovers near $2,040

Gold price trades inside Tuesday’s trading range as investors patiently await the Fed policy decision for fresh guidance. The broader trend for Gold price is bullish. The precious metal is forming a Symmetrical Triangle chart pattern on the daily chart. This suggests a probable eventual breakout in the direction of dominant uptrend, although this type of triangle can break in any direction. 

Near-term demand is strong as the asset is auctioning above the 20-day Exponential Moving Average (EMA), which trades around $2,030.

Momentum is still weak as the 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range.

Michael Pfister, FX Analyst at Commerzbank, discusses how the Federal Reserve’s rate decision could impact the US Dollar (USD).

What does Powell surprise us with today?

EUR/USD continues to drift a touch lower. Economists at OCBC Bank analyze the pair’s outlook.

Market bets have shifted in favour of an earlier cut in April

The US Dollar (USD) stays resilient against its rivals. Economists at ING analyze Greenback’s outlook ahead of the Federal Open Market Committee (FOMC) event.

Fed should be in no hurry to cut

GBP/USD trades around 1.2675 levels. Economists at OCBC Bank analyze Cable’s outlook ahead of the Bank of England (BoE) meeting on Thursday.

UK’s resilient economic data should continue to support GBP

• USD/MXN edges lower amid a stronger US Dollar.
• The Mexican Peso gains ground after GDP data for Q4 from INEGI.
• US Dollar appreciates possibly due to the risk aversion sentiment.

USD/MXN loses ground for the second consecutive day ahead of the US Federal Reserve’s (Fed) interest rate decision. Federal Open Market Committee (FOMC) is widely anticipated to maintain its interest rates at 5.5%. However, the CME’s FedWatch Tool suggests a 43% chance of the Fed implementing the first rate cut in March. The USD/MXN pair inches lower to near 17.13 during the European session on Wednesday.

The US Dollar Index (DXY) is appreciating, riding on positive momentum despite the downbeat US Treasury yields. The US Dollar Index (DXY) hovers around 103.50, by the press time. On Tuesday, the US JOLTS Job Openings for December increased to 9.026M against the previous figure of 8.925M and surpassed the anticipated 8.7500M. The US Housing Price Index (MoM) remained consistent at 0.3% in November.

Furthermore, Investors will likely closely scrutinize US ADP Employment Change data as it helps to gauge the potential direction and health of the job market. The subsequent release of the US Nonfarm Payrolls report will provide a more detailed and comprehensive overview of the employment landscape in the United States (US).

The Mexican Peso (MXN) seems to cheer the data from INEGI, which showed that the Mexican GDP for the fourth quarter of 2023 expanded by 0.1% on a quarter-on-quarter basis. However, this figure falls below forecasts of 0.4% and is lower than the 1.1% expansion achieved in the third quarter. On an annual basis, the preliminary reading of GDP showed a rise of 2.4%, missing forecasts of 3.1% and down from 3.3% in the third quarter.

Furthermore, first-half-month inflation data during the last week indicated a resurgence in inflation in Mexico. Additionally, the Mexican Jobless Rate displayed a contraction in the number of unemployed workers in the country. Given these economic indicators, there is speculation that the figures may discourage the Bank of Mexico (Banxico) from considering a reduction in interest rates in its February meeting.

AUD/USD has come under pressure following the soft inflation data from Australia. Economists at Commerzbank analyze Aussie’s outlook.

Inflation leaps downwards

Gold prices rose in India on Wednesday, according to data from India's Multi Commodity Exchange (MCX).

Gold price stood at 62,518 Indian Rupees (INR) per 10 grams, up INR 4 compared with the INR 62,514 it cost on Tuesday.

As for futures contracts, Gold prices increased to INR 62,492 per 10 gms from INR 62,447 per 10 gms.

Prices for Silver futures contracts decreased to INR 72,270 per kg from INR 72,342 per kg.

Global Market Movers: Comex Gold price is pressured by renewed USD demand ahead of the Fed

• The US Dollar regains positive traction amid diminishing odds for a more aggressive policy easing by the Federal Reserve and drags the Comex Gold price away from a two-week high touched the previous day.
• The Job Openings and Labor Turnover Survey (JOLTS) report published by the Bureau of Labor Statistics showed that US job openings unexpectedly increased to 9.02 million in December.
• The Conference Board's US Consumer Confidence Index improved for the third consecutive month and jumped to its highest level since December 2021, to 114.8 in January from the 108.0 previous.
• Adding to this, the International Monetary Fund upgraded its forecast for the US economic growth to 2.1% for 2024, versus the 1.5% rise expected in October, and then ease to 1.7% in 2025.
• This suggested that the US economy is still in good shape for the Fed to start cutting interest rates in the first quarter, which, in turn, acts as a tailwind for the buck and weighs on the metal.
• The yield on the benchmark 10-year US government bond languishes near the 4.0% threshold, which, along with geopolitical risks and China's economic woes, lend support to the XAU/USD.
• China's National Bureau of Statistics reported that the official Manufacturing PMI improved slightly to 49.2 in January, though remained in contraction territory for the fourth straight month.
• This points to a weak domestic recovery and poor external demand, though, to a larger extent, was offset by a further rise in the Non-Manufacturing PMI to 50.7 in January from the 50.4 previous.
• Investors now look to the highly-anticipated FOMC policy decision for cues about the first interest rate cut, which, in turn, will provide a fresh directional impetus to the non-yielding yellow metal.
• Heading into the key central bank event risk, traders will confront the release of the ADP report on private-sector employment and Chicago PMI later during the North American session.

(An automation tool was used in creating this post.)

• EUR/USD drops sharply to near 1.0800 amid anxiety ahead of the Fed’s monetary policy.
• A steady interest rate policy is anticipated by the Fed.
• Weak German Retail Sales could prompt hopes of early rate-cuts by the ECB.

The EUR/USD pair tumbles to near the round-level support of 1.0800 amid weaker German Retail Sales data and the dismal market sentiment. Monthly Retail Sales for December were surprisingly contracted by 1.6% while investors anticipated them expanding by 0.7%. In November, consumer spending was sharply lower by 2.5%.

Annual Retail Sales were down at a slower pace of 1.7% against 2.4% decline in November. This clearly shows that households are facing burden of higher interest rates by the European Central Bank (ECB) and persistent price pressures. A sharp decline in the cost-of-living would prompt expectations of early rate-cuts by the ECB, which has built pressure on the Euro.

ECB president Christine Lagarde is of the view that the central bank will start reducing interest rates from late Summer. Expectations for a delay in rate-cuts improved after a slight increment in the preliminary Q4 Gross Domestic Product (GDP) have waned after the downbeat Retail Sales data.

The Eurozone economy managed to avoid a technical recession as it remained stagnant in the last quarte of 2023 after contracting by 0.1% in the July-September quarter.

The market mood remains cautious as investors await the interest rate decision by the Federal Reserve (Fed). S&P500 futures have generated significant losses in the early European session. The US Dollar Index (DXY) has bounced back slightly above 103.50.

Considering CME Fedwatch tool, investors rates will remain unchanged in the range of 5.25-5.50%. The outlook on interest rates by the Fed will be of utmost importance.

• NZD/USD snaps a two-day winning streak ahead of Fed decision.
• Traders seem to have already factored in the expectation of no adjustments by the Fed in the January meeting.
• The risk aversion sentiment put downward pressure on the New Zealand Dollar.

NZD/USD consolidates after intraday losses, halting its two-day winning streak. The NZD/USD pair trades lower around 0.6120 during the early European session on Wednesday. The US Dollar (USD) is experiencing appreciation against the New Zealand Dollar (NZD), riding on positive momentum ahead of the Federal Reserve's (Fed) interest rate decision later in the day.

It appears that market participants have already factored in the expectation that the Fed will probably make no adjustments in its January meeting. This anticipation is influencing the strength of the US Dollar as investors position themselves in line with these expectations.

The US Dollar Index (DXY) has improved after three days of losses, reaching near 103.60, despite the decline in US Treasury yields. Both the 2-year and 10-year yields on US bond notes have lowered, standing at 4.31% and 4.00%, respectively, at the time of writing. This decline in US yields could exert pressure on the US Dollar.

The Reserve Bank of New Zealand (RBNZ) Chief Economist Paul Conway has adopted a hawkish stance, resisting expectations for rate cuts. In his statement on Tuesday, Conway expressed a cautious but optimistic outlook on the effectiveness of the current monetary policy measures.

The ANZ Business Confidence report for New Zealand shows a positive change in business outlook, with a rise to 36.6 in January from the previous reading of 33.2. This suggests an improvement in the sentiment among businesses regarding the economic environment. However, the ANZ Activity Outlook, which measures expectations for firms' own activity, registered a slight decrease. It came in at 25.6%, down from the prior reading of 29.3%.

While the overall Kiwi business outlook improved, the decline in the Activity Outlook may indicate a more cautious approach before making aggressive bets on the NZD/USD pair.

EUR/USD got a lift off the 1.0800 area on Tuesday. Economists at ING analyze the pair’s outlook.

Soft January CPI releases from Germany and France could fan fears of an April ECB rate cut 

• The Pound Sterling drops amid uncertainty over the Fed and theBoE monetary policy meetings.
• The Fed and the BoE are widely expected to leave interest rates unchanged.
• UK business optimism improves due to soft inflation outlook and expectations of upcoming rate cuts.

The Pound Sterling (GBP) remains under pressure on Wednesday’s European morning as markets brace for the US Federal Reserve’s (Fed) monetary policy meeting. Investors see the Fed leaving interest rates unchanged in the range of 5.25%-5.50%, shifting their focus towards any  guidance about when the central bank will start cutting interest rates and at which speed. In its last monetary policy meeting, the Fed projected a 75-basis-points (bps) reduction in interest rates in 2024.

The GBP/USD pair trades broadly sideways, but a defined action is expected after the Fed and Bank of England (BoE) announce their first monetary policy decisions of 2024. The BoE is also expected to maintain the status quo for the fourth time in a row. Price pressures in the United Kingdom economy have peaked now, but  investors lack confidence about inflation returning to the 2% target in a sustainable manner.

Apart from the Fed decision, market volatility is expected to increase later this Wednesday as investors will focus on the US Automatic Data Processing (ADP) Employment Change data for January. This will be followed by the Institute of Supply Management (ISM) Manufacturing PMI and Nonfarm Payrolls (NFP) data, which will be published on Thursday and Friday, respectively.

Daily digest market movers: Pound Sterling falls while USD Index advances on risk-off mood

• The Pound Sterling remains under pressure as the market mood is quite cautious ahead of the interest rate decision by the Federal Reserve.
• The Fed is anticipated to maintain status-quo, suggesting there is no rush for delivering a dovish signal as inflation in the United States economy is still far from the desired rate of 2%.
• The progress in inflation declining towards the 2% target has slowed as labor market conditions are strong, consumer spending is robust, and the economy is growing at a stronger pace.
• Further moves in the Pound Sterling will also be driven by the Bank of England’s monetary policy decision, which will be announced on Thursday.
• Like the Fed, the BoE is expected to deliver a steady interest rate decision for the fourth straight time, leaving interest rates unchanged at 5.25%.
• As an unchanged monetary policy decision is widely anticipated, market participants will majorly focus on the interest rate outlook.
• Unlike the Fed and the European Central Bank (ECB), BoE policymakers have not discussed the timing or scope of interest rate cuts in 2024. Therefore, discussions about rate cuts would be considered as bearish for the Pound Sterling.
• The reasoning behind BoE’s emphasis on keeping interest rates at the current levels is elevated inflation, which is higher in the UK in comparison with other members of the Group of Seven economies.
• Meanwhile, vulnerable economic growth could be a factor that will force BoE policymakers to discuss rate cuts.
• The Lloyds Bank Business Barometer rose to a two-year high of 44% amid hopes of softer inflation and interest rate cuts. The survey showed that businesses are planning to increase their workforce ahead.
• Meanwhile, the US Dollar Index (DXY) rises as the appeal for safe-haven assets improves ahead of the Fed’s decision.
• Apart from the Fed’s policy decision, investors will focus on the ADP Employment Change data for January, which will be published at 13:15 GMT. Investors anticipate that US private employers hired 145K job-seekers, lower than 164K payroll additions in December.

Technical Analysis: Pound Sterling remains below 1.2700

Pound Sterling faces a sell-off ahead of the Fed’s interest rate policy. The GBP/USD pair continues to face pressure near the round-level resistance of 1.2700. The Cable has been stuck in a tight range between 1.2640-1.2775 during the last two weeks. 

A descending triangle formation is visible on the daily timeframe, which indicates that investors are on the sidelines. The horizontal support of the aforementioned chart pattern is plotted from the December 21 low at 1.2612, while the downward-sloping trendline is placed from the December 28 high at 1.2827. The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, which indicates a lackluster move ahead.

EUR/GBP has been racing towards 0.8500, lowest since August. Economists at MUFG Bank analyze the pair’s outlook.

Scope for further GBP strength versus EUR 

Here is what you need to know on Wednesday, January 31:

Following the choppy action seen earlier in the week, the US Dollar (USD) stays resilient against its rivals on Wednesday. The Federal Reserve (Fed) will announce policy decisions after it concludes the January policy meeting and Chairman Jerome Powell will comment on the policy outlook later in the day. The US economic docket will also feature ADP Employment Change data for January.

The cautious market stance helped the USD find demand in the American session on Tuesday but retreating yields limited the currency's gains. After closing the day virtually unchanged, the USD Index (DXY) gained traction early Wednesday and was last seen holding in positive territory above 103.50. Meanwhile, the benchmark 10-year US Treasury bond yield stays above 4% after declining more than 2% this week and US stock index futures lose between 0.1% and 0.8%.

The Fed is widely expected to leave the interest rate unchanged at 5.25%-5.5%. Investors will look for fresh clues on the possible timing of a policy pivot in the policy statement and Chairman Powell's presser. According to CME FedWatch Tool, markets are currently pricing in a 43% probability of a 25 basis points rate reduction in March.

The data from Australia showed on Wednesday that the Consumer Price Index rose 0.6% on a quarterly basis in the fourth quarter. This reading followed the 1.2% increase recorded in the previous quarter and came in below the market expectation of 0.8%. AUD/USD came under heavy bearish pressure following the soft inflation data and the pair was last seen losing more than 0.5% on the day at around 0.6560.

EUR/USD registered small gains on Tuesday but came under renewed selling pressure during the Asian trading hours on Wednesday and declined toward 1.0800. In an interview with CNN late Tuesday, European Central Bank (ECB) President Christine Lagarde reiterated that they need the disinflationary process to continue before looking into rate cuts.  In the meantime, the data from Germany showed early Wednesday that Retail Sales declined 1.6% on a monthly basis in December, missing the market expectation for a 0.7% increase. Germany's Destatis will release preliminary inflation data for January later in the session.

USD/CAD closed in negative territory for the fourth consecutive trading day on Tuesday. The pair seems to have found support near 1.3400 early Wednesday. Statistics Canada will publish monthly Gross Domestic Product data for November. 

Following Monday's sharp decline, USD/JPY posted marginal gains on Tuesday and continued to stretch higher toward 148.00 early Wednesday. The Consumer Confidence Index in Japan improved to 38 in January from 37.2 in December, the Cabinet Office reported.

GBP/USD touched its lowest level in two weeks below 1.2650 on Tuesday but managed to erase a large portion of its losses to close the day near 1.2700. The pair, however, stays on the back foot early Wednesday and edges lower toward 1.2670.

Gold came within a touching distance of $2,050 amid retreating US yields on Tuesday but failed to preserve its bullish momentum. XAU/USD fluctuates in a tight channel above $2,030 in the European morning.

FX option expiries for Jan 31 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts

• 1.0700 1b
• 1.0800 753m
• 1.0860 842m
• 1.0900 1.1b
• 1.0950 442m
• 1.0955 893m

- GBP/USD: GBP amounts     

• 1.2630 750m
• 1.2700 471m

- USD/JPY: USD amounts                     

• 145.00 2.1b
• 146.00 565m
• 147.25 894m
• 148.00 584m
• 150.00 921m

- AUD/USD: AUD amounts

• 0.6590 862m
• 0.6600 49m

- USD/CAD: USD amounts       

• 1.3400 1b
• 1.3500 380m

Germany's Retail Sales fell 1.6% MoM in December, compared to a 2.5% decline in November, according to the latest data published by Destatis on Wednesday. The market forecast was for a 0.7% increase.

Retail Sales in the Eurozone's economic powerhouse declined 1.7% YoY in December versus a 2.4% annual fall seen in November.

EUR/USD reaction to the German data

The Euro is testing lows against the US Dollar, with the EUR/USD pair losing 0.22% on the day to trade at 1.0815, as of writing.

About German Retail Sales

The Retail Sales released by the Statistisches Bundesamt Deutschland is a measure of changes in sales of the German retail sector. It shows the performance of the retail sector in the short term. Percent changes reflect the rate of changes of such sales. The changes are widely followed as an indicator of consumer spending. Positive economic growth is usually anticipated as "bullish" for the EUR, while a low reading is seen as negative, or bearish, for the EUR.

• USD/CHF gains ground on positive sentiment ahead of Fed decision.
• Fed is expected to not adjust the current rate policy in its January meeting.
• Swiss Trade Balance reduced to 1,248 million in December from 3,833 million prior.

USD/CHF experiences upward movement for the second consecutive session on Wednesday, edging higher to near 0.8630 during the Asian session. This positive momentum is attributed to anticipation and support ahead of the Federal Reserve's (Fed) interest rate decision later in the day. Market participants seem to have priced in the expectation that the Fed will likely make no adjustments in January's meeting.

However, the CME’s FedWatch Tool is indicating a 43% probability of the Federal Reserve implementing the first rate cut in March. Furthermore, there is a 53% chance of a 25 basis points rate cut in May. These probabilities suggest that investors are positioning for potential changes in the Fed's monetary policy in the coming months, which could impact the USD/CHF pair.

On Tuesday, the US JOLTS Job Openings for December showed improvement, reaching 9.026 million compared to the previous figure of 8.925 million and surpassing the anticipated 8.7500 million. The US Housing Price Index (MoM) remained unchanged at 0.3% in November.

Investors are expected to closely watch the US ADP Employment Change data scheduled for release on Wednesday. This data is often considered a precursor to the more comprehensive US Nonfarm Payrolls report, set to be released later in the week.

The Federal Customs Administration of Switzerland released the monthly report for December's Imports, indicating a decrease to 17,551 million from the previous 20,454 million. Exports (MoM) also decreased to 18,798 million from the prior figure of 24,287 million, leading to a reduced Trade Balance of 1,248 million from 3,833 million.

Last week, SNB President Thomas Jordan expressed uncertainty about the Swiss National Bank's (SNB) stance on the persistent strength of the currency. Traders will be observing Wednesday's Real Retail Sales and the ZEW Survey to assess the overall health of the Swiss economy.

• EUR/GBP attracts some sellers in Wednesday’s European session. 
• ECB’s Lagarde said wage data would be crucial in determining when to start monetary easing.
• The Bank of England (BoE) is anticipated to hold rates steady at 5.25% at its January meeting.
• The December German Retail Sales and the CPI inflation data will be due later on Wednesday.

The EUR/GBP cross remains on the defensive below the mid-0.8500s during the early European session on Wednesday. Investors await the German Retail Sales and Consumer Price Index (CPI) data on Wednesday for fresh impetus. The cross currently trades around 0.8535, losing 0.05% on the day. 

The December German Retail Sales and the preliminary CPI inflation data on Wednesday could influence the European Central Bank (ECB) rate path. The CPI figure is expected to drop to 3.3% YoY from 3.7% in the previous reading, while Retail Sales is projected to increase by 0.7% in December after sliding by 2.5% in November. If the report shows weaker-than-expected data, this could exert some selling pressure on the Euro (EUR) against the British Pound (GBP). 

ECB President Christine Lagarde said on Tuesday that it’s premature to begin talking about cuts while adding that wage data would be crucial in determining when to start monetary easing. According to a Reuters analysis of LSEG data, investors have priced in nearly 60% odds of first rate cuts in April.

On the other hand, the Bank of England (BoE) will announce its monetary policy decision on Thursday. Investors anticipate the BoE to hold rates steady at 5.25% at its January meeting. While the central bank may soften its message about the prospect of future cuts, investors expect no rate cuts in the upcoming months. This, in turn, might lift the GBP and act as a headwind for the EUR/GBP cross. 

Looking ahead, market participants will keep an eye on German Retail Sales, CPI inflation, and Unemployment Rate. The BoE monetary policy meeting on Thursday will be in the spotlight. Traders will take cues from the event and find trading opportunities around the EUR/GBP cross.

• AUD/JPY could move downward toward the 23.6% Fibonacci retracement at 96.85.
• The lagging indicator MACD suggests a tepid momentum for the cross.
• A collapse below the 50-day EMA could lead the cross to approach the support zone near the 38.2% Fibonacci retracement at the 96.26 level.

AUD/JPY moves in a downward direction for the second successive day, trading lower around 97.00 during the Asian session on Wednesday. The Australian Dollar (AUD) faces a challenge after the softer consumer inflation data released earlier in the day.

The immediate support appears at 23.6% Fibonacci retracement at 96.85 lined up with the 50-day Exponential Moving Average (EMA) at 96.83. A firm break below the 50-day EMA could put downward pressure on the AUD/JPY cross to approach the major support at the 96.50 level followed by the 38.2% Fibonacci retracement at the 96.26 level.

The technical analysis of the AUD/JPY cross involves examining various indicators. The 14-day Relative Strength Index (RSI), a lagging indicator, is below the 50 level, suggesting a selling pressure and a bearish momentum for the pair.

On the other hand, the Moving Average Convergence Divergence (MACD) for the pair shows tepid momentum in the market. The MACD line is positioned above the centerline but below the signal line. Traders could await confirmation from the MACD indicator before determining the direction of the AUD/JPY cross.

On the upside, the AUD/JPY cross could find the key barrier at 97.50 followed by the weekly high at 97.69. A breakthrough above the latter could prompt the upward sentiment and lead the pair to test the monthly high at 97.88 and the psychological resistance at 98.00 level.

AUD/JPY: Daily Chart

• GBP/USD declines on market caution due to the Middle East tension.
• Fed is expected to keep interest rate unchanged at 5.5% in January’s meeting.
• BoE is expected to maintain a prolonged period of restrictive monetary policy to curb inflation.

GBP/USD extends its losses for the second consecutive session on Wednesday, inching lower to near 1.2680 during the Asian session. The risk aversion sentiment is driving Investors towards the US Dollar (USD), which in turn, undermines the GBP/USD pair. US President Joe Biden has communicated that the United States will respond in a tiered approach to a specific situation following the deadly drone attack on US troops near the Jordan-Syria border.

The US Dollar Index (DXY) snaps a three-day losing streak, improving to near 103.60 despite the decline in the US Treasury yields. The 2-year and 10-year yields on US bond notes stand at 4.31% and 4.02%, respectively, by the press time. Moreover, The Federal Open Market Committee (FOMC) is widely expected to maintain its interest rate at 5.5% in its Wednesday meeting.

According to CME’s FedWatch Tool, there is a 43% probability of the Federal Reserve implementing the first rate cut in March. Additionally, there is a 53% chance of a 25 basis points rate cut in May. Investors are expected to closely monitor the US ADP Employment Change data scheduled for release on Wednesday. This data is often viewed as a precursor to the more comprehensive US Nonfarm Payrolls report, which is set to be released later in the week.

The Bank of England (BoE) is expected to keep the interest rate unchanged for the fourth consecutive time in its upcoming Thursday meeting. BoE Governor Andrew Bailey had mentioned in December that there was "some way to go," expressing the central bank's belief that inflation would not return to its 2.0% target until 2025.

Additionally, BoE members have stressed the importance of maintaining a prolonged period of restrictive monetary policy to address inflation concerns. This commitment could contribute to the strength of the Pound Sterling (GBP) and, consequently, limit the losses of the GBP/USD pair.

• EUR/USD comes under some renewed selling pressure amid a modest pickup in the USD demand.
• The technical setup favours bearish traders and supports prospects for a further depreciating move.
• A sustained strength beyond the 1.0900 mark is needed to negate the near-term negative outlook.

The EUR/USD pair meets with a fresh supply during the Asian session on Wednesday and drops to the 1.0815 region in the last hour, well within the striking distance of its lowest level since December 13 touched earlier this week.

The JOLTS report published on Tuesday showed that US job openings unexpectedly increased to 9.02 million in December and suggested that the labor market is too strong for the Federal Reserve (Fed) to start cutting interest rates in the first quarter. This, along with geopolitical risks stemming from conflicts in the Middle East and China's economic woes, assists the safe-haven US Dollar (USD) to stand tall near its monthly peak and exerts some pressure on the EUR/USD pair.

That said, the recent decline in the US Treasury bond yields might hold back the USD bulls from placing aggressive bets ahead of the highly-anticipated FOMC monetary policy decision, scheduled to be announced later today. Furthermore, the uncertainty over the timing of when the European Central Bank (ECB) will start cutting interest rates could act as a tailwind for the shared currency. This, in turn, might contribute to limiting any further depreciating move for the EUR/USD pair.

From a technical perspective, spot prices, for now, seem to have found acceptance below the 200-day Simple Moving Average (SMA). Moreover, oscillators on the daily chart have been gaining negative traction and are still far from being in the oversold territory. This, in turn, suggests that the path of least resistance for the EUR/USD pair is to the downside. That said, bearish traders might still wait for a sustained break and acceptance below the 1.0800 mark before placing fresh bets.

The subsequent downfall has the potential to drag spot prices to the December monthly swing low, around the 1.0725-1.0720 area, en route to the 1.0700 mark. Some follow-through selling will expose the next relevant support near the 1.0660 region before the EUR/USD pair eventually drops to the 1.0620-1.0615 zone en route to the 1.0600 round figure.

On the flip side, the 1.0845-1.0850 region, or the 200-day SMA, could act as an immediate hurdle ahead of the 1.0880 area and the 1.0900 mark. This is closely followed by a short-term trading range support breakpoint now turned resistance, around the 1.0920 region, which if cleared decisively might trigger a short-covering rally. The EUR/USD pair might then make a fresh attempt to conquer the 1.1000 psychological mark.

EUR/USD daily chart

Technical levels to watch

• Indian Rupee edges lower on the firmer US Dollar ahead of a key US event.
• The Federal Reserve is widely expected to keep the benchmark overnight rate steady in the 5.25%–5.50% range.
• Investors await the FOMC interest rate decision and press conference ahead of the Indian Interim Budget 2024. 

Indian Rupee (INR) trades on a softer note on Wednesday. The recovery of the pair is bolstered by safe-haven flow as traders prefer to wait on the sidelines ahead of the Federal Reserve's Open Market Committee's (FOMC) interest rate decision.

India has attracted attention with its standout growth trajectory. Indian Chief Economic Adviser, V Anantha Nageswaran, stated that India can aspire to become a $7 trillion economy by 2030. However, the risk of sticky inflation and higher oil prices amid the Middle East geopolitical tension might impact the Indian economy.  

The Federal Reserve is widely anticipated to leave benchmark interest rates unchanged at a 23-year high of 5.25–5.5% at its January meeting. The prospects that the first Fed rate cut will happen at the March meeting have faded as the economy continues to show surprising strength. According to the CME FedWatch Tool, the markets have priced in 85% odds of a rate cut at the May meeting. 

Later on Wednesday, FOMC is set to announce its rate decision at 19.00 GMT and Chairman Jerome Powell will hold a press conference at 19.30 GMT. Powell’s speech could provide information on the central bank's outlook and offer some hints about the timeline of rate cuts in 2024. Apart from this, India’s S&P Global Manufacturing PMI for January will be due on Thursday. All eyes will be on the Indian Interim Budget 2024 for fiscal year 2024–25. 

Daily Digest Market Movers: Indian Rupee remains resilient amid global challenges

• India's foreign exchange reserves dropped $2.79 billion to $616.14 billion for the week ending on January 19, according to the Reserve Bank of India (RBI). 
• India's finance minister will present the federal budget for 2024–25 on Thursday, with expectations that the government will lower its fiscal deficit by at least 50 basis points (bps).
• The Indian Rupee became the best-performing currency in Asian markets in January 2024, rising by 1% to 2%.
• The National Statistical Office (NSO) forecasted an Indian growth rate of 7.3% for FY24, compared to 7.2% for FY23. 
• The number of job openings in the US rose to 9.026 million in December, above the November figure, which was revised up to 8.925 million.
• The Conference Board Consumer Confidence surged to a two-year high in January, arriving at 114.8 in January versus 108.0 prior.

Technical Analysis: Indian Rupee extends the range-bound theme between 82.78 and 83.45

Indian Rupee weakens on the day. The USD/INR pair consolidates within a two-month-old descending trend channel of 82.78–83.45. USD/INR remains well-supported above the key 100-period Exponential Moving Average (EMA) on the daily chart. However, the bullish outlook of the pair looks vulnerable as the 14-day Relative Strength Index (RSI) hovers around the 50.0 midlines, suggesting the non-directional movement of the pair.

The first resistance level for the pair will emerge at the upper boundary of the descending trend channel at 83.25. A sustained break above the 83.25 level could pave the way to the next bullish targets all the way up to a high of January 2 at 83.35, en route to a 2023 high of 83.47. On the other hand, a bearish breakout below the confluence of the 100-period EMA and a psychological level at the 83.00–83.05 region would signal the bearish momentum back to a low of December 18 at 82.90, followed by the lower limit of the descending trend channel at 82.72.

• WTI price loses ground despite an escalated tension in the Middle East.
• US President Joe Biden mentioned a tiered approach to respond to a given situation after an attack on a US post in Jordon.
• Chinese Non-Manufacturing and Manufacturing PMI improved to 50.7 and 49.2, respectively in January.
• US Weekly Crude Oil Stock data showed a decrease of 2.50M barrels,  larger than the expected decrease of 0.867M barrels.

West Texas Intermediate (WTI) oil price retraces its recent gains despite an escalated situation in the Middle East. The WTI oil price inches lower to near $77.40 per barrel during the Asian session on Wednesday. US President Joe Biden has stated that the United States (US) will respond appropriately to a given situation after an attack on a US post in Jordon, and there is a possibility of a tiered approach which implies a strategy involving different levels or stages of actions.

On the positive side, Iran-aligned Iraqi armed group Kataib Hezbollah, suspected of being involved in the deadly drone attack on US troops near the Jordan-Syria border, has declared the suspension of all its military operations against the US military in the region.

Crude oil prices may experience a positive impact following the recent update on global economic growth by the International Monetary Fund (IMF). The IMF has revised its forecast, indicating expectations of stronger growth, particularly in the economies of the United States and China. Furthermore, the Chinese monthly Non-Manufacturing Purchasing Managers' Index (PMI) indicated an improvement in the performance of China's service sector for January arrived at 50.7, slightly surpassing the expected figure of 50.6. While, the Manufacturing PMI reached 49.2, meeting the anticipated value and advancing from the previous reading of 49.

The American Petroleum Institute (API) released the US Weekly Crude Oil Stock data on Tuesday for the week ending January 26, showing a decrease of 2.50 million barrels. This marks a larger decline than the expected decrease of 0.867 million barrels, and it's an improvement from the previous week's decline of 6.674 million barrels. The Energy Information Administration (EIA) is anticipated to release improved Crude Oil Stocks Change figures on Wednesday. In addition to the oil market indicators, market participants will closely watch the Federal Reserve's (Fed) activities for further insights into the US economic landscape.

• Gold price extends the overnight pullback from a two-week high amid a modest USD strength.
• Geopolitical risks and China’s economic woes could lend support to the safe-haven XAU/USD.
• Traders might also prefer to wait on the sidelines ahead of the crucial FOMC policy decision.

Gold price (XAU/USD) ticks lower during the Asian session on Wednesday and retreats further from a two-week high, around the $2,048-2,049 region touched the previous day. Investors continue to scale back their expectations on the speed and scale of interest rate cuts by the Federal Reserve (Fed) in the wake of strong US economic data. This assists the US Dollar (USD) to stand tall near its highest level since December 13 touched earlier this week, which, in turn, is seen as a key factor exerting pressure on the precious metal.

That said, the recent decline in the US Treasury bond yields might hold back the USD bulls from placing aggressive bets. This, along with concerns about geopolitical risks stemming from the Middle East conflict, might continue to act as a tailwind for the safe-haven Gold price. Investors might also prefer to move to the sidelines and look to the highly-anticipated FOMC monetary policy meeting before positioning for the next leg of a directional move for the non-yielding yellow metal. This, in turn, warrants caution for bearish traders.

Daily Digest Market Movers: Gold price is undermined by modest USD strength, downside seems limited ahead of FOMC

• The US Dollar regains positive traction amid diminishing odds for a more aggressive policy easing by the Federal Reserve and drags the Gold price away from a two-week high touched the previous day.
• The Job Openings and Labor Turnover Survey (JOLTS) report published by the Bureau of Labor Statistics showed that US job openings unexpectedly increased to 9.02 million in December.
• The Conference Board's US Consumer Confidence Index improved for the third consecutive month and jumped to its highest level since December 2021, to 114.8 in January from the 108.0 previous.
• Adding to this, the International Monetary Fund upgraded its forecast for the US economic growth to 2.1% for 2024, versus the 1.5% rise expected in October, and then ease to 1.7% in 2025.
• This suggested that the US economy is still in good shape for the Fed to start cutting interest rates in the first quarter, which, in turn, acts as a tailwind for the buck and weighs on the metal.
• The yield on the benchmark 10-year US government bond languishes near the 4.0% threshold, which, along with geopolitical risks and China's economic woes, lend support to the XAU/USD.
• China's National Bureau of Statistics reported that the official Manufacturing PMI improved slightly to 49.2 in January, though remained in contraction territory for the fourth straight month.
• This points to a weak domestic recovery and poor external demand, though, to a larger extent, was offset by a further rise in the Non-Manufacturing PMI to 50.7 in January from the 50.4 previous.
• Investors now look to the highly-anticipated FOMC policy decision for cues about the first interest rate cut, which, in turn, will provide a fresh directional impetus to the non-yielding yellow metal.
• Heading into the key central bank event risk, traders will confront the release of the ADP report on private-sector employment and Chicago PMI later during the North American session.

Technical Analysis: Gold price retreats further from two-week high touched on Tuesday, manages to hold above 50-day SMA

The overnight failure to find acceptance above the $2,040-2,042 supply zone and some follow-through selling below the 50-day Simple Moving Average (SMA), currently around the $2,030-2,029 region, will expose the $2,012-2,010 support zone. This is followed by the $2,000 psychological mark, which if broken decisively will be seen as a fresh trigger for bearish traders and pave the way for deeper losses. The Gold price might then accelerate the decline towards the 100-day SMA, currently near the $1,979-1,978 area, before eventually dropping to the very important 200-day SMA, near the $1,964 region.

On the flip side, bulls need to wait for acceptance above the $2,040-2,042 static resistance and a subsequent move beyond the overnight swing high, around the $2,048-2,049 region, before placing fresh bets. Given that oscillators on the daily chart have just started moving into the positive territory, the Gold price could then accelerate the positive move towards the next relevant hurdle near the $2,077 zone. The momentum could extend further and allow bullish traders to aim back towards reclaiming the $2,100 round-figure mark.

• NZD/USD loses ground as traders adopt cautious stance ahead of Fed decision.
• The risk-off sentiment provides support for the US Dollar.
• RBNZ’s Paul Conway pushed back on expectations for rate cuts.

NZD/USD halts its two-day winning streak, trading lower around 0.6120 during the Asian session on Wednesday. The prevailing risk-off sentiment is exerting additional downward pressure on the NZD/USD pair as market participants exercise caution amid heightened tensions in the Middle East. There are expectations that the administration of US President Joe Biden may authorize military strikes in response to a recent drone attack on a US outpost in Jordan.

In terms of economic indicators, the ANZ Business Confidence report indicates an improvement in the business outlook in New Zealand, rising to 36.6 in January from the previous reading of 33.2. However, the ANZ Activity Outlook registered a slight decrease, coming in at 25.6% compared to the prior reading of 29.3%.

However, the Reserve Bank of New Zealand (RBNZ) Chief Economist Paul Conway has taken a hawkish stance, pushing back on expectations for rate cuts. In his statement on Tuesday, Conway signals a cautious but optimistic outlook on the effectiveness of current monetary policy measures.

The US Dollar Index (DXY) encounters a challenge due to the downbeat United States (US) Treasury yields. The Federal Open Market Committee (FOMC) is widely expected to keep interest rates within the range of 5.25–5.50% in its Wednesday meeting. In the Federal Reserve's (Fed) December meeting, officials anticipated three rate cuts in 2024. Market participants are eagerly anticipating signals from Fed Chairman Jerome Powell.

Rate swap markets have seen a gradual extension of expectations for rate cuts, with the CME’s FedWatch Tool indicating a 43% probability of the first-rate cut from the Fed in March. In contrast, back in December, swaps initially implied an over 80% chance of a rate trim in March. Additionally, there is a 53% chance of a 25 basis points rate cut in May. Investors will be closely monitoring the US ADP Employment Change on Wednesday, ahead of the US Nonfarm Payrolls report later in the week.

The Director of the International Monetary Fund (IMF) Asia and Pacific Department warned on Wednesday, “the escalation of Middle East conflict to affect oil prices, impacting many Asian countries.”

Additional quotes

“Asian central banks may see scope to loosen monetary policy later this year as inflation moderates.”

“Average inflation in Asia fell to 2.6% in 2023 from 3.8% in 2022, with particularly swift progress in emerging economies.”

"Many regional central banks are on course to reach their inflation targets in 2024. Provided policymakers hold steady until inflation is firmly reanchored, scope for monetary easing may emerge later in the year.”

“Divergences ... China's near-zero price growth last year "fueling concerns about deflation ... and Japan's inflation will likely remain above the central bank's 2% target until 2025.”

“There is a risk that divergent monetary stances in the United States and in Asia would trigger sharp exchange rate movements also this year.”

“Escalation of Middle East conflict could affect oil prices, impacting many Asian countries.”

• Australian Dollar depreciates for the second straight session on weaker inflation data from Australia.
• Australia's Monthly CPI reported 3.4% in December, down from November's 4.3%.
• Traders expect two rate cuts from the Reserve Bank of Australia in 2024.
• Chinese Non-Manufacturing and Manufacturing PMI improved to 50.7 and 49.2, respectively in January.
• Fed is expected to maintain interest rates at 5.5% for the fourth consecutive time.

The Australian Dollar (AUD) remains on a downtrend on Wednesday after Australian inflation slowed more than anticipated in the December quarter. This has led traders to factor in the possibility of as many as two rate cuts from the Reserve Bank of Australia (RBA) throughout the year. The prevailing risk-off sentiment is adding further downward pressure on the AUD/USD pair, as market participants exercise caution amid heightened tensions in the Middle East.

Australia's Monthly Consumer Price Index (CPI) recorded a year-on-year increase of 3.4% in December, down from November's 4.3% and below the anticipated 3.7%. The RBA Trimmed Mean CPI (YoY) for the fourth quarter stood at 4.2%, a decline from the 5.2% reported previously and also lower than the expected 4.3%. Meanwhile, the CPI (QoQ) figure came in at 0.6%, softer than the anticipated 0.8% and a notable decrease from the previous reading of 1.2%.

The Reserve Bank of Australia's target range for inflation is 2.0% to 3.0%. Although the current figures are not within this target range, they represent a significant improvement compared to the peak CPI rate of close to 8.0%. The RBA’s policy meeting is scheduled on February 5 and 6, and it is widely expected that the interest rate decision will be to keep interest rates unchanged.

The China Federation of Logistics and Purchasing (CFLP) has released the monthly Non-Manufacturing Purchasing Managers' Index (PMI), indicating an improvement in the performance of China's service sector for January. The reading came in at 50.7, slightly surpassing the expected figure of 50.6. Concurrently, the Manufacturing PMI also demonstrated improvement, reaching 49.2, meeting the anticipated value and advancing from the previous reading of 49. These improved figures could help in limiting the losses of the Aussie Dollar, as given that Australia and China are close trade partners.

The US Dollar Index (DXY) faces a challenge due to the subdued United States (US) Treasury yields. The risk aversion sentiment could intensify as the administration of US President Joe Biden is anticipated to authorize military strikes in response to the recent drone attack on a US outpost in Jordan. Investors will eye on US ADP Employment Change on Wednesday ahead of the US Nonfarm Payrolls later this week.

The Federal Open Market Committee (FOMC) is widely expected to maintain interest rates in the range of 5.25–5.50% for the fourth consecutive time in Wednesday’s meeting. During the Federal Reserve's (Fed) December meeting, officials foresaw three rate cuts in 2024. Investors are keenly awaiting signals from Fed Chairman Jerome Powell. Rate swap markets have witnessed a gradual extension of rate cut expectations, and the CME’s FedWatch Tool indicates a 43% probability of the first-rate cut from the Fed in March. In contrast, back in December, swaps initially implied over an 80% chance of a rate trim in March. Furthermore, there is a 53% chance of a 25 basis points rate cut in May.

Daily Digest Market Movers: Australian Dollar declines after softer Aussie inflation data

• Australia’s Retail Sales (MoM) for December indicated a decline of 2.7%. This figure contrasted with the expected fall of 0.9% and marked a notable reversal from the previous growth of 2.0%.
• Australia's Manufacturing PMI increased from 47.6 to 50.3, showcasing improvement. Services PMI also saw an uptick, rising from 47.1 to 47.9. The Composite PMI registered an increase, reaching 48.1 compared to December's 46.9.
• US balance sheet showed that since October 2023, the decrease in yields has contributed to the sustainability of the US Treasury, and stronger economic growth has led to improved tax receipts. The US Treasury Department recently announced plans to borrow $760 billion in the first quarter, which is lower than the previous estimate of $816 billion in October.
• US JOLTS Job Openings improved to 9.026M in December from 8.925M prior, exceeding the anticipated 8.75M.
• US Housing Price Index (MoM) was unchanged at the reading of 0.3% in November.
• US Core Personal Consumption Expenditures Price Index (PCE) for December showed a 0.2% monthly increase, in line with expectations, compared to 0.1% in the previous reading. The yearly Core PCE rose 2.9%, falling short of the 3.0% expected and the previous reading of 3.2%.
• The US Gross Domestic Product Annualized (Q4) reported a reading of 3.3% against the previous reading of 4.9%, exceeding the market consensus of 2.0%.

Technical Analysis: Australian Dollar maintains its position above the major level of 0.6550

The Australian Dollar trades around 0.6560 on Wednesday followed by the previous week's low at 0.6551, aligning with the significant level at 0.6550. The pair could retest the monthly low at 0.6524 if this support is breached. On the upside, the AUD/USD pair could encounter initial resistance at the psychological level of 0.6600 aligned with the 23.6% Fibonacci retracement level at 0.6606. A breakthrough above the latter could lead the AUD/USD pair to test the 21-day Exponential Moving Average (EMA) at 0.6622 followed by the key resistance level at 0.6650.

AUD/USD: Daily Chart

• USD/CAD recovers some lost ground near 1.3405 on the stronger USD. 
• The Federal Reserve will hold its first rate meeting in 2024 in the range of 5.25–5.50%.
• The Bank of Canada (BoC) said growth in Canada is likely to remain around zero in the first quarter of 2024.
• Investors await the Canadian GDP growth and FOMC rate decision on Wednesday.

The USD/CAD pair snaps the four-day losing streak during the early Asian session on Wednesday. The recovery of the pair is supported by upbeat US job openings and consumer confidence data, which lift the US dollar (USD). The Federal Reserve (Fed) monetary policy meeting on Wednesday will be in the spotlight, with no change in rate expected. At press time, USD/CAD is trading at 1.3405, gaining 0.04% on the day. 

The number of available jobs in the US unexpectedly rose in December to 9.026 million, according to Bureau of Labor Statistics data released Tuesday. It’s the first time openings have popped above 9 million since September. Additionally, the Conference Board Consumer Confidence came in at 114.8 in January versus 108.0 prior, the highest in two years.

The Federal Reserve (Fed) will announce its interest rate decision on Wednesday. Investors believe the Fed will keep the federal funds rate steady in a range of 5.25% to 5.5%. After the Fed meeting, the press conference by Fed Chairman Jerome Powell will be closely watched. Traders will focus on his word for any hints of a rate cut timeline.

Statistics Canada will release the Gross Domestic Product (GDP) for November, which is forecast to expand by 0.1% MoM. The Bank of Canada (BoC) said this week that economic growth in Canada has stalled since mid-2023 and is likely to remain around zero in the first quarter of 2024. Stubborn core inflation readings prompted the BoC to keep its interest rate at a 22-year high last week. Meanwhile, the higher oil price due to the ongoing geopolitical tensions in the Middle East might cap the downside of the commodity-linked Loonie. 

Moving on, the Canadian GDP growth number is due on Wednesday, ahead of the Fed monetary policy meeting and press conference. On Friday, the US Nonfarm Payrolls will be closely watched by market players. These events could give a clear direction to the USD/CAD pair.

• The Japanese Yen attracts haven flows amid geopolitical risks stemming from the Middle East conflict.
• The USD extends its range-bound price action and further exerts downward pressure on USD/JPY.
• Traders now seem reluctant to place aggressive directional bets ahead of the FOMC policy decision.

The Japanese Yen (JPY) regains positive traction during the Asian session on Wednesday and trades near the weekly top against its American counterpart touched the previous day. Worries that the deepening conflict in the Middle East could trigger a wider war in the region help offset disappointing Japanese macro data and underpin the safe-haven JPY. In fact, Japan's Retail Sales and Industrial Production figures fell short of market expectations, giving the Bank of Japan (BoJ) more reason to delay the discussions about exiting negative interest rates. The JPY bulls even shrugged off the BoJ's Summary of Opinions report from the meeting held on January 22-23, which indicated no imminent change in the policy stance.

Meanwhile, the recent decline in the US Treasury bond yields has resulted in the narrowing of the US-Japan rate differential and turns out to be another factor lending some support to the JPY. The US Dollar (USD), on the other hand, remains confined in a familiar range amid the uncertainty over the timing of when the Federal Reserve (Fed) will start cutting interest rates and further contributes to the offered tone surrounding the USD/JPY pair. The downside, however, remains cushioned as traders opt to wait on the sidelines ahead of the highly-anticipated FOMC policy decision later today. Heading into the key central bank event risk, the fundamental backdrop warrants some caution before placing aggressive directional bets.

Daily Digest Market Movers: Japanese Yen benefits from geopolitical tensions, lacks follow-through ahead of Fed decision

• The risk of a further escalation of military action in the Middle East benefits the safe-haven Japanese Yen and exerts pressure on the USD/JPY pair during the Asian session on Wednesday.
• The JPY bulls seem unaffected by rather unimpressive Japanese Retail Sales and Industrial Production figures for December and also shrugged off the Bank of Japan's Summary of Opinions.
• Government data showed that Japanese Retail Sales grew by 2.1% in December, marking the 22nd straight month of increase, though fell short of consensus estimates for a 5.1% rise.
• Japan’s factory output rebounded in December and increased by 1.8% from November, representing the biggest gain since June, though it fell short of expectations for a 2.4% growth.
• Japanese government officials said that the January production forecast is expected to decline due to a partial auto plant suspension and that the Noto earthquake had a limited impact on output planning.
• The Bank of Japan's Summary of Opinions report from the January 2024 monetary policy meeting suggested that the central bank must patiently maintain monetary easing under YCC.
• The US Dollar continues with its struggle to gain any meaningful traction as traders opt to wait for more cues about the Federal Reserve's rate-cut path amid a still resilient US economy.
• The Job Openings and Labor Turnover Survey (JOLTS) report published by the Bureau of Labor Statistics on Tuesday showed that US job openings unexpectedly increased in December.
• The number of job openings on the last business day of December stood at 9.02 million, suggesting that the labor market is too strong for the Fed to start cutting interest rates in the first quarter.
• The markets have lowered the odds of a rate cut in March to well below 50%, though the USD fails to attract buyers ahead of the highly-anticipated FOMC policy decision later this Wednesday.
• The Fed is universally anticipated to leave its key interest rates unchanged, though the accompanying policy statement will be scrutinized for cues about the timing of the first interest rate cut.

Technical Analysis: USD/JPY struggles for a firm near-term direction, remains confined in a range around 100-day SMA

From a technical perspective, the USD/JPY pair has been oscillating in a familiar range around the 100-day Simple Moving Average (SMA) over the past two weeks or so. This points to indecision among traders over the next leg of a directional move and warrants some caution. In the meantime, the 147.00 mark could protect the immediate downside and any subsequent slide is likely to find decent support near last week's swing low, around the 146.65 region. Some follow-through selling, however, will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.

On the flip side, the 147.65 area could act as an immediate hurdle ahead of the 148.00 round figure and the 148.30-148.35 zone. The next relevant hurdle is pegged near the monthly peak, around the 148.80 region. Given that oscillators on the daily chart are holding comfortably in the positive territory, a sustained strength beyond the latter will be seen as a fresh trigger for bullish traders. The USD/JPY pair might then surpass the 149.00 mark and climb to the 149.30-149.35 intermediate hurdle before aiming towards reclaiming the 150.00 psychological mark.

Commenting on the Australian inflation data, the country’s Treasurer Jim Chalmers wrote on X, “today's very welcome results are even better than market expectations, but we know people are still under pressure, which is why @AustralianLabor's cost of living tax cuts for middle Australia are so important.”

“New data from the @ABSStats shows we are making very welcome and encouraging progress in the fight against inflation, Government policies are helping, but this is not mission accomplished because we know people are still under pressure,” Chalmers added.

Related reads

• Australia’s CPI inflation falls to  0.6% in Q4 vs. 0.8% expected
• China's NBS Manufacturing PMI improves to 49.2 in January, as expected

China’s official Manufacturing Purchasing Managers' Index (PMI) downturn eased slightly in January, coming in at 49.2, as against the 49.0 contraction registered in December, according to the latest data released by the National Bureau of Statistics (NBS) on Wednesday.

The market consensus was for a 49.2 readout in the reported month.

The index, however, remained below the 50 mark, which separates expansion from contraction.

The NBS Non-Manufacturing PMI climbed to 50.7 in January versus the expected 50.6 figure and December’s 50.4 print.

AUD/USD reaction to China's PMI data

The mixed Chinese PMIs are having little to no impact on the Australian Dollar, with AUD/USD losing 0.41% on the day to trade at around 0.6575.

On Wednesday, the People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.1039 as compared to the previous day's fix of 7.1055 and 7.1727 Reuters estimates.

European Central Bank (ECB) President Christine spoke with CNN on Tuesday. Lagarde did not provide a timeline for interest rate cuts, but emphasised that wage data would be crucial in determining when to start monetary easing. 

Key quotes

Market reaction

At the time of writing, the EUR/USD pair is trading higher at 1.0845, adding 0.01% on the day.

Bank of Japan (BoJ) published the Summary of Opinions from its January monetary policy meeting on January 22 and 23, with the key findings noted below.

Key quotes

Market reaction

The USD/JPY pair attracts some seller following the BoJ’s Summary of Opinions, losing 0.26% on the day to trade at 147.26, as of writing.