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Japanese monthly Industrial Production fell short of growth expectations in December, printing at 1.8% MoM compared to the market's median forecast of a rebound to 2.4% and failing to pull further away from November's -0.9% print.

Annualized Japan Industrial Production likewise showed further deceleration, with the YoY figure coming in at -0.7% for the year ended December, improving from the previous period's -1.4% but still etching in additional declines.

About Japanese Industrial Production

The Industrial Production released by the Ministry of Economy, Trade and Industry measures outputs of the Japanese factories and mines. Changes in industrial production are widely followed as a major indicator of strength in the manufacturing sector. A high reading is seen as bullish for the JPY, whereas a low reading is seen as bearish.

• GBP/USD trades on a flat note with a mild negative bias around 1.2695.
• The Federal Open Market Committee (FOMC) is likely to keep the rate unchanged in the range of 5.25–5.50% for the fourth straight time.
• The Bank of England (BoE) is expected to leave interest rates unchanged at its first meeting of the year.
• The FOMC and BoE interest rate decisions will be the highlights of this week. 

The GBP/USD pair holds below the 1.2700 mark during the early Asian session on Wednesday. Later on Wednesday, UK Nationwide Housing Prices for January will be due ahead of the Federal Open Market Committee (FOMC) monetary policy meeting. The major currently trades around 1.2695, unchanged for the day.

The FOMC is widely anticipated to keep interest rates unchanged in the range of 5.25–5.50% for the fourth straight time. At the Fed's December meeting, Fed officials expected three rate cuts in 2024. However, the meeting minutes revealed that the future of monetary policy remains uncertain. According to CME Group’s FedWatch tool, traders have priced in 50% odds of rate cuts at the next meeting in March.

On the British Pound front, the Bank of England (BoE) is likely to maintain the status quo on the rate for the fourth time in a row. BoE governor Andrew Bailey said in December that there was “some way to go” as the central bank believed inflation would not return to its 2% target until 2025. Nonetheless, economists expect the BoE to open the door to a change of tack later this year. 

Market players will closely monitor the FOMC interest rate decision and press conference on Wednesday. Also, the January US ADP Employment Change will be released. On Thursday, the BoE monetary policy meeting will be in the spotlight. Traders will also be looking to see whether the BoE changes its language, stating that monetary policy will most likely need to be restrictive for an extended period of time.

Japanese Retail Sales, or Retail Trade as it's referred to by the Japanese Ministry of Economy, Trade and Tourism came in well under expectations early Wednesday, with headline annualized Retail Sales for the year ended December growing by just 2.1% compared to the forecast 5.1%, falling even further back from the previous period's 5.3%.

Seasonally-adjusted December Japanese Retail Trade declined by 0.8% MoM, compared to November's print of 1.0%.

Market reaction

The USD/JPY is ticking down into 147.40 immediately after release after the pair caught a downside bounce from the 200-hour Simple Moving Average (SMA) mid-Tuesday just shy of the 148.00 handle.

About Japanese Retail Trade

The Retail Trade released by the Ministry of Economy, Trade and Industry captures the aggregate sales made through a business location (usually a store) in which the principal activity is the sale of merchandise and related services to the general public, for household or personal consumption. Consumer spending is a key important indicator for the Japanese economy. A high reading is positive for the JPY, while a low reading is negative.

• AUD/USD continues to cycle around the 0.6600 handle.
• Aussie CPI print for Q4 2023 expected to show further inflation easing.
• US Fed rate call, NFP labor figures to weigh down the rest of the trading week.

AUD/USD cycled in a familiar pattern around the 0.6600 price point on Tuesday as Antipodeans gear up for a fresh print of Australian Consumer Price Index (CPI) inflation figures with the next rate call from the US Federal Reserve (Fed0 in the barrel for Wednesday and US Nonfarm Payrolls (NFP) labor figures slated for Friday.

Australia’s QoQ CPI is expected to ease back to 0.8% from the previous quarter’s 1.2%, and the Reserve Bank of Australia’s (RBA) Trimmed Mean CPI for the annualized fourth quarter is likewise forecast to clip down from 5.2% to 4.3%.

Australia Monthly CPI Preview: Inflation expected to ease further

The heavy-hitters this week revolve around a one-two punch of another Fed rate call and Friday’s US NFP labor print. The Fed is broadly expected to keep rates on hold this week, but cut-hungry investors are having a hard time letting go of bets for a March rate cut, with 44% of the rate swap market still hoping for a rate cut by March according to the CME’s FedWatch Tool.

This week’s US NFP print is expected to show a slight cooling in US labor markets, with the NFP forecast to come in at 180K in January compared to December’s 216K. Markets have routinely undershot NFP forecasts recently, and a topside upset could see investors suffering a rate tantrum as a stubbornly-healthy US labor market reduces chances of rate cuts happening sooner rather than later.

AUD/USD technical outlook

AUD/USD continues to get hung up on the 0.6600 handle, with intraday price action cycling the major price level with near-term momentum getting propped up by a bullish tilt in the 200-hour Simple Moving Average (SMA) rising into 0.6590.

Daily candlesticks remain underpinned by the 200-day SMA at 0.6570, and the AUD/USD is caught in a dense congestion zone between the 50-day and 200-day SMAs as the pair consolidates into the midrange.

AUD/USD Hourly chart

AUD/USD Daily chart

• NZD/USD posts modest gains near 0.6135 in Wednesday’s early Asian session.
• The number of job openings in the US rose to 9.026 million in December;  Consumer Confidence surged to a two-year high in January.
• RBNZ’s Conway maintained the hawkish stance and pushed back on rate cut expectations this year.
• The FOMC interest rate decision and press conference will be closely watched by traders.

The NZD/USD pair trims gains but is still comfortably above 0.6100 during the early Asian session on Wednesday. The stronger-than-expected labor market data might convince the Federal Reserve (Fed) to delay cutting rates this year, which caps the downside of the US Dollar (USD). Investors will closely watch the Federal Open Market Committee (FOMC) decision later on Wednesday, with no change in rate expected. At press time, the NZD/USD pair is trading at 0.6135, adding 0.02% for the day.

Data released from the Bureau of Labor Statistics on Tuesday showed that the number of job openings in the United States rose to 9.026 million in December, above the November figure which was revised up to 8.925 million. Meanwhile, Conference Board Consumer Confidence surged to a two-year high in January, coming in at 114.8 in January versus 108.0 prior. Both reports failed to boost the Greenback as traders prefer to wait on the sidelines ahead of the FOMC meeting.

The FOMC is anticipated to leave its monetary conditions unaltered. The markets will focus on any hint of the timing of a potential interest rate cut from the Chair Jerome Powell’s press conference. The dovish remarks from Powell might exert some selling pressure on the USD and act as a headwind for the NZD/USD pair.

On the Kiwi front, the Reserve Bank of New Zealand (RBNZ) Chief Economist Paul Conway maintained a hawkish stance and pushed back on rate cut expectations. Conway stated on Tuesday that recent economic data indicate that monetary policy is working as the economy slows and inflation eases. However, there is still some way to go before inflation reaches the target midpoint of 2%.

The US ADP Employment Change for January will be due on Wednesday, ahead of the FOMC interest rate decision and the press conference. On Friday, the attention will shift to US employment data, including Nonfarm Payrolls, and Unemployment Rate.

• US stocks spread heading into the midweek as investors brace for Fed rate call.
• Tech stocks that initially led the latest risk rally are hesitating ahead of earnings.
• Fed set to hold rates on Wednesday, traders looking for hints about March rate cut.

US equity indexes spread on Tuesday, with the Standard & Poor’s 500 (SP500) and the Dow Jones Industrial Average (DJIA) closing in opposite directions after the DJIA clipped into a new all-time high and the SP500 closed softly lower as the tech sector drags ahead of key earnings reports and traders bracing for another rate call from the Federal Reserve (Fed) on Wednesday as US Nonfarm Payrolls (NFP) labor figures loom over the horizon on Friday.

The tech sector led US equities by the nose into all-time highs across US indexes in the recent rally, fueled in part by earnings expectations on the back of developments in the AI spheres, as investors bet big on demand for products from chipmakers to fuel tech investment in the burgeoning space. Recent earnings have started to show cracks however, with major companies like Tesla, Alphabet, and Apple missing broad-market growth expectations and adding dark clouds to the market’s previously-rosy outlook on the prospect of forever growth in the tech sector.

Fed Preview: Forecasts from 10 major banks

The Fed will be presenting its latest rate call and monetary policy statement to markets on Wednesday at 19:00 GMT. Federal Reserve Chairman Jerome Powell is broadly expected to keep rates on hold at the end of the Fed’s two-day deliberations as investors continue to get pushed back on rate cut hopes. In December, money markets had priced in a nearly 90% chance of getting a first rate cut from the Fed as soon as March, but equity markets hungry for cheaper lending and borrowing costs have run up against the hard wall of a stubbornly-resilient US domestic economy with continuing tightness in the labor market and inflation that remains a threat despite continuing to ease toward policymaker targets.

According to the CME’s FedWatch Tool, rate swaps are pricing in a 56% chance of no rate cut from the Fed in March, and investors have pivoted to focus on May’s outlook, where money markets are pricing nearly a 70% chance of a cut.

The Dow Jones Industrial Average ended Tuesday at $38,467.31, ending in the green for a fourth straight trading session and gaining 0.35% on the day, gaining 133.86 points.

On the downside, the SP500 ended the day softly back, declining almost 3 points to end the day down 0.06% at $4,924.97. The NASDAQ Composite index also shed weight on Tuesday, declining 0.76% and shedding 118.15 points to close at $15,509.90.

NASDAQ 100 technical outlook

The NASDAQ 100 large-cap equity index lost nearly a full percent on Tuesday peak-to-trough, falling from the day’s early high of $17,612.50 to a near-term low of $17,442.31. The major index shed 0.97% before a slim recovery to end the day down 133.82 points or 0.76% at $17,487.68.

The NASDAQ 100 set a fresh all-time high last week at $17,668.73 but the major index has struggled to develop bullish legs over the key figure, closing at a record high of $17,596.12 on Monday but unable to etch in fresh highs above last week’s peak.

The NASDAQ large-cap index is on pace to close deep in the green for a third straight month and is currently trading up nearly 25% from last October’s bottom near the $14,000.00 major price handle.

NASDAQ 100 daily chart

• Gold continues upward trend, influenced by geopolitical risks and US economic data.
• Strong US labor market and consumer confidence contrast could affect Fed officials rate cut forecasts.
• Investor attention on upcoming Fed announcement and Jerome Powell's press conference for future policy insights.

Gold prices remain in an uptrend following data from the United States (US), which emphasized a possible “soft landing” is achievable for the US economy. Although that should be negative for Gold, rising tensions in the Middle East underpins the non-yielding metal. At the time of writing, XAU/USD exchanges hands at $2036.50, virtually unchanged as the Asian Wednesday session begins.

XAU/USD stays firm as market participants awaits Powell

On Tuesday, bullion rose a modest 0.17%, sponsored by a fall in US Treasury bond yields, amid expectations that the Federal Reserve will keep rates unchanged on Wednesday’s meeting. After that, XAU/USD traders would await Fed Chairman Jerome Powell's press conference, looking for some forward guidance.

Data-wise, December’s JOLTS report was hot, indicating the tight labor market. Vacancies rose by 9.02 million, exceeding November’s data and forecasts of 8.75 million. At the same time, the Conference Board (CB) revealed that Consumer Confidence jumped the most in the last three months, rising to 114.8 in January from 108 in December, slightly below the consensus of 115.0. Dana Peterson, Chief Economist at the Conference Board, said, “January's increase in consumer confidence likely reflected slower inflation, anticipation of lower interest rates ahead, and generally favorable employment conditions as companies continue to hoard labor.”

In addition, XAU/USD gathered traction as the US 10-year Treasury bond yield dropped four basis points (bps) to 4.036%, a headwind for the Greenback. (USD). Consequently, the US Dollar Index (DXY), which tracks the buck’s performance against a basket of peers, slid 0.04% at 103.41.

Tomorrow, the US economic docket will feature the ADP Employment Change report and the Chicago PMI. At 19:00 GMT, the Fed will announce its monetary policy decision, followed by the Fed Chair Jerome Powell press conference.

XAU/USD Price Analysis: Technical outlook

The XAU/USD is neutrally biased, but the clearing of the 50-day moving average (DMA) has opened the door to challenge the psychological $2050.00 mark. Once cleared, buyers could push prices toward the December 28 high of  $2088.48, followed by the $2100 figure. In the outcome of sellers moving in and dragging prices below the 50-DMA at $2032.08, that would exacerbate a drop toward the January 25 swing low of $2009.66.

• EUR/JPY edges up after robust Euro area GDP figures and subdued Japanese inflation impact market sentiment.
• Technical analysis suggests a potential move towards the Tenkan-Sen at 160.54, with 161.00 and January 19 high at 161.87 as key resistance levels.
• Downward pressure remains a risk, with crucial support near the 159.50 - 159.70 range and further potential decline towards 159.00 and 158.47.

The EUR/JPY advances modestly on Tuesday, and buyers recover the psychological 160.00 figure. Solid GDP data from the Euro area, along with lower-than-expected inflation data in Japan, eases the pressure off the Bank of Japan (BoJ) to end its ultra-loose policy. At the time of writing, the pair exchanges hands at 160.08, after hitting a daily low of 159.21.

The pair is neutral biased as the daily chat portrays. But, the recent fundamental news, along with an improvement in risk appetite, could pave the way to test resistance at the Tenkan-Sen at 160.54. A decisive break could sponsor a leg-up to the 161.00 mark before buyers step in and lift the exchange rate toward January’s 19 high at 161.87. Further upside is seen at 162.00.

Conversely, if EUR/JPY sellers’ step in and prevent a daily close above 160.00, that would exacerbate a leg-down. The first support would be a seven-month-old support trendline at around 159.50 – 159.70, also a confluence with the Senkou Span A at 159.50. Once that area is cleared, expect a drop to 159.00, before diving to the Senkou Span B at 158.47.

EUR/JPY Price Action – Daily Chart

EUR/JPY Technical Levels

• The Australian Monthly Consumer Price Index rate is foreseen at 3.7% YoY in December. 
• The Quarterly CPI inflation is expected to have eased further in the last quarter of 2023. 
• The Australian Dollar is bearish ahead of inflation figures and the upcoming RBA monetary policy decision.

The Australian Bureau of Statistics (ABS) will release two different inflation reports on Wednesday. On the one hand, the organism will publish the quarterly Consumer Price Index (CPI) for the last quarter of 2023, and on the other hand, the Monthly CPI, estimated annually, for December. Additionally, the quarterly report includes the Trimmed Mean Consumer Price Index, the Reserve Bank of Australia's (RBA) favorite inflation gauge. 

The figures are critical ahead of the RBA monetary policy meeting on February 6, as the central bank aims to keep the annual CPI rate between 2% and 3%. Price pressures in Australia are clearly moving in the right direction, although they are still above the desired levels. 

The central bank is expected to leave the Cash Rate unchanged at 4.35%, as it did in the December meeting, following a 25 basis points (bps) hike in November. Previously, the RBA had held rates steady for four consecutive months. The November decision resulted from the Board assessing inflation was easing at a slower pace than earlier forecast. 

What to expect from Australia’s inflation rate numbers?

The ABS is expected to report that inflation was 3.7% YoY in December, down from the 4.3% posted in November. The quarterly CPI is foreseen rising 0.8% QoQ and up 4.3% YoY in the three months to December, while the RBA Trimmed Mean CPI rate is foreseen at 4.3% YoY, declining from the previous 5.2%. 

The anticipated gauges would support an on-hold RBA, but it is too early to discuss rate cuts in Australia. In its latest Statement on Monetary Policy, which is published quarterly in February, May, August and November, policymakers forecasted that it will take until late 2025 for inflation to moderate to under 3%, finally falling into the target range. 

“Inflation is forecast to decline to 3½ per cent by the end of 2024 and to reach a little below 3 per cent at the end of 2025. The forecast decline in inflation is more gradual than anticipated three months ago because domestic inflationary pressures are dissipating more slowly than previously thought,” according to the official document. Furthermore, it added: “Growth in the Australian economy is expected to remain below trend over 2023 and 2024 as cost-of-living pressures and higher interest rates continue to weigh on demand.”

Finally, the International Monetary Fund (IMF) advised Australia to lift interest rates further to achieve its inflation target before 2026. 

In such a scenario, trimming the Cash Rate seems out of the table at the time. If anything, inflation-related figures need to decline much more than anticipated throughout the next few months to allow policymakers a rate-cut discussion. At least, it seems safe to say that rates have peaked. 

It is worth adding that the market is moving ahead of policymakers. In early January, speculative interest was pricing in six rate cuts for 2024, with the Cash Rate expected at 3.75% by the end of the year. That means softer-than-anticipated CPI figures could boost rate-cut odds regardless of RBA’s ability to deliver them. 

How could the Consumer Price Index reports affect AUD/USD?

CPI readings will have a significant impact on the Australian Dollar (AUD) as the figures will guide the RBA's upcoming monetary policy decisions. As usual, the wider the deviation of the outcome from expectations, the larger the price movement. Generally speaking, higher-than-anticipated numbers fuel expectations of rate hikes and tend to boost the AUD. On the contrary, softer-than-expected figures should fuel hopes for soon-to-come rate cuts, and weigh on the local currency, at least in the near term. As the dust settles, easing price pressures should be understood as good news, and end up benefiting the Aussie in the longer run. 

From a technical perspective, AUD/USD trades in the 0.6580 region ahead of the events, after posting a weekly peak of 0.6624 on Tuesday. According to Valeria Bednarik, FXStreet Chief Analyst, “the risk skews to the downside in the daily chart. The pair is currently developing just above a directionless 200 Simple Moving Average (SMA), stuck around the indicator for a second consecutive week. Furthermore, the 20 SMA maintains a firmly bearish slope above the current level, providing dynamic resistance at around 0.6630. Finally, technical indicators stalled their recoveries within negative levels and are slowly resuming their slides, reflecting persistent selling interest.”

Bednarik adds: “Buyers are defending the downside in the 0.6550/60 region, with a break below it exposing the 0.6500 threshold. Below the latter, AUD/USD has scope to test a strong static support level at 0.6470. On the flip side, the pair needs to recover beyond the aforementioned 0.6630 to gain upward traction and approach the 0.6700 figure.” 

• GBP/JPY rebounds from low, buoyed by changing market sentiments and central bank rate speculations.
• Break above Tenkan-Sen (187.72) may signal uptrend, eyeing recent high at 188.91, with 188.00 as pivotal.
• Downside risks if below 186.51; potential supports at 185.77, key 185.00 level, and 184.47 low.

The British Pound (GBP) pares earlier losses against the Japanese Yen (JPY) on Tuesday, even though data eased the pressure off the Bank of England (BoE) to keep interest rates higher. Therefore, the GBP/JPY cross-pair trades at 187.34 after hitting a daily low of 186.51.

From the daily chart perspective, the GBP/JPY is trading sideways just below the Tenkan-Sen level at 187.72 dot. If buyers lift the exchange rate above the Tenkan Sen, that will open the door to challenging the January 23 high at 188.91, but firstly they would need to reclaim 188.00. On the flip side, if sellers step in and drag prices below the January 30 low of 186.51, that will open the door to challenge the Senkou Span A level at 185.77, followed by the psychological 185.00 figure, ahead of the January 12 daily low of 184.47.

GBP/JPY Price Action – Daily Chart

GBP/JPY Technical Levels

• AUD/JPY currently facing minor losses, standing strong at 97.45 after hitting a low of 96.85.
• The cross faced losses following the release of weak Australian Retail Sales figures from December.
• Bulls display resilience but the bears are slowly building momentum.

In Tuesday's session, the AUD/JPY pair was observed at the 97.45 level, recording mild losses but recovering from a low of 96.85 as the Aussie weakened following the release of soft Retail Sales figures. The broader outlook on the daily chart showcased bullish dominance, with the bulls determinedly holding their ground. Meanwhile, the four-hour chart indicated a rapid recovery by the buyers, reaffirming the prevalent bullish sentiment.

Weak December Retail Sales underscore sluggish Australian economic momentum, but markets still only discount a 10% chance of a 25 bps rate cut from the Reserve Bank of Australia (RBA) in February. Meanwhile, mixed labor market figures in Japan including falling unemployment rate and job-to-applicant ratio, gives little impetus for Bank of Japan (BoJ) to rush in pivoting its monetary policy, with market expectations suggesting a June liftoff.

AUD/JPY levels to watch

The indicators on the daily chart are indicating a subtle power of the bulls over the bears. The Relative Strength Index (RSI) is displaying neutrality, situated comfortably in a positive zone. The Moving Average Convergence Divergence (MACD) mirrors this sentiment, with green bars that remain static, neither rising nor falling. That being said, the market sentiment leans slightly in favor of the bulls due to the crosses's position against the Simple Moving Averages (SMAs). Hovering above the 20, 100, and 200-day SMAs, the AUD/JPY displays signs of bullish dominance on a grander scale.

AUD/JPY daily chart

An inconclusive session in the Greenback left the USD Index (DXY) flat around the 103.40 region, while EUR/USD managed to edge further up and revisit the mid-1.0800s in the context of alternating risk-appetite trends prior to FOMC-day.

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

A positive surprise in JOLTs Job Openings coupled with an improvement in Consumer Confidence tracked by the Conference Board seem to have been insufficient to spark some reaction in the Greenback, which succumbed to the pre-FOMC lull. The Fed meets on Wednesday and is largely anticipated to leave its monetary conditions unaltered, while attention is expected to gyrate to Chair Powell’s press conference and to any hint of the timing of a potential interest rate cut. Previously, ADP was expected to report on job creation by the US private sector, seconded by the publication of the Employment Cost Index.

In the euro area, the focus of attention will be in Germany, with the publication of Retail Sales and the labour market report for the month of January, followed by the advanced Inflation Rate for the first month of the year. EUR/USD has been gathering some traction since last Friday, although its short-term price action is expected to largely depend on Fed dynamics.

GBP/USD traded on the defensive and returned to the sub-1.2700 zone despite the dollar’s irresolute price action. Looking at Wednesday’s docket, housing prices measured by Nationwide will be the only release of note.

Further side-lined trading saw USD/JPY reverse Monday’s decline and chart modest gains near the 148.00 barrier. On Wednesday, a busy Japanese calendar includes the BoJ Summary of Opinions, Retail Sales, Flash Industrial Production, Housing Starts, and January Consumer Confidence.

In Australia, traders will closely follow the release of the Q4 Inflation Rate and the December Monthly CPI Indicator ahead of the key RBA meeting next week. In addition, China’s NBS Manufacturing and Non-Manufacturing PMIs should also gather importance. AUD/USD, in the meantime, maintained its consolidative mood around the 0.6600 zone.

Prices of crude oil resumed the upside following Monday’s strong corrective decline, always supported by persevering geopolitical concerns in the Middle East and the Red Sea crisis.

Gold prices added to the positive start of the week and briefly probed the $2050 zone, or multi-day highs. Silver, on the other hand, partially faded Monday’s marked advance.

• AUD/USD fell into familiar lows after a rejection from 0.6625.
• The Aussie found a floor near 0.6575, but upside momentum remains thin.
• Australian CPI inflation in the pipe ahead of Wednesday’s Fed rate call.

AUD/USD is cycling the 0.6600 handle in a rough range as Aussie (AUD) traders gear up for Australian Consumer Price Index (CPI) inflation due during the early Wednesday session ahead of another rate cal from the US Federal Reserve (Fed).

Australia’s fourth-quarter CPI is expected to contract slightly on an annualized basis, with the headline YoY CPI forecast to print at 4.3% versus the previous 5.4% and the QoQ data expected to slip to 0.8% from 1.2%.

On the Fed side, markets are awaiting a pivot from Fed chairman Jerome Powell. Rate swap markets have seen their rate cut bets steadily pushed further out, and the CME’s FedWatch Tool now sees a less than 40% chance of a first rate cut from the Fed in March. Swaps originally priced in an over 80% chance of a March rate trim back in December, but easing inflation and stubbornly strong economic data from the US over the last quarter renders a rate cut from the Fed next to impossible for fear of re-stoking inflationary pressure.

The back half of the trading week will cap off with China’s Caixin Manufacturing Purchasing Managers’ Index (PMI) figure expected to tick down slightly from 50.8 to 50.6, and broader markets will be looking for a softer print in Friday’s US Nonfarm Payrolls. Friday’s NFP is forecast to tick down to 180K for January from December’s 216K.

AUD/USD technical outlook

The AUD/USD reclaimed the 0.6600 handle on Tuesday after a near-term dip into 0.6575, and the pair is catching intraday technical support from the 200-hour Simple Moving Average (SMA) near 0.6590.

The Aussie continues to catch technical support from the 200-day SMA just above 0.6550 on the daily candlesticks. The pair is still caught in a congestion pattern below the 50-day SMA just above 0.6650.

AUD/USD hourly chart

AUD/USD daily chart

• West Texas Intermediate (WTI) oil climbs 1.25%, driven by escalating tensions in the Middle East and positive global economic projections from the IMF.
• IMF's revised forecast boosts optimism for the US and Chinese economies, countering concerns from China’s real estate sector issues.
• Upcoming OPEC+ meeting and expectations of a US crude inventory drawdown boosted Oil prices.

West Texas Intermediate (WTI), the US Crude Oil benchmark, rises amid escalating tensions in the Middle East, along with updated forecasts of the International Monetary Fund (IMF), suggesting the global economy would grow more than expected. At the time of writing, WTI exchanges hands at $77.89, up 1.25%.

Oil price rebounds on Middle East developments, IMF forecasts

The IMF upward reviewed its forecast for the global economy, particularly the US and China, adding that a “soft landing” was in sight, though overall growth and global trade remain below the historical average.

On Monday, China’s property crisis concerns weighed on Oil prices as a Hong Kong court ordered the liquidation of property company China Evergrande Group.

In the meantime, the escalation of the Middle East conflict has boosted Oil prices. US President Joe Biden said the US “…will respond in an appropriate fashion, and it is very possible that what you'll see is a tiered approach here, not just a single action, but essentially multiple actions.”

Aside from this, the Organization of Petroleum Exporting Countries (OPEC+) will meet on February 1, and isn’t expected to provide a decision on the cartel’s Oil supply for April.

Meanwhile, a Reuters poll suggested the US crude inventories were foreseen to have drawn down in the last week some 900K barrels.

WTI Price Analysis: Technical outlook

WTI’s daily chart depicts Oil is neutrally biased, challenging the 200-day moving average (DMA) at $77.45 at the time of writing. If buyers keep prices above the latter, they could test the 100-day moving average (DMA) at $79.28. Once cleared, WTI would turn bullish, and resumes its uptrend toward $80.00. On the other hand, if sellers keep WTI price below the 200-DMA, that could pave the way to the 50-DMA at $73.58.

• EUR/USD extends rebound from 1.0800 on flat QoQ GDP print.
• Euro area bounce remains limited after German GDP constricts.
• German Retail Sales, CPI inflation due Wednesday ahead of Fed rate call.

EUR/USD climbed further on Tuesday after staging a near-term comeback from 1.0800 this week, extending a recovery after Euro area Gross Domestic Product (GDP) figures stayed flat instead of declining as markets forecast.

Europe next sees German Retail Sales and Consumer Price Index (CPI) inflation on Wednesday before the US Federal Reserve (Fed) drops their latest Monetary Policy Statement.

Daily digest market movers: EUR/USD climbs on GDP beat, but upside limited by Greenback bids

• EUR/USD is still up 0.4% from the week’s low of 1.0796 but remains capped by 1.0850.
• European GDP stayed flat at 0.0% for the fourth quarter compared to the forecasted -0.1% decline.
• YoY quarterly GDP also beat the street, printing at 0.1% versus the forecast flat print of 0.0%.
• Clouds still persist in Euro area outlook after German QoQ GDP declines -0.3%, in-line with forecasts.
• German YoY Retail Sales due on Wednesday, last came in at -2.4%.
• German CPI inflation for the year ending in January expected to decline to 3.2% from the previous period’s 3.8%.
• US ADP Employment Change due Wednesday before Fed rate call, ADJ jobs expected to shift lower to 145K in January versus the previous 164K.
• Fed is broadly expected to hold rates steady once more on Wednesday, but markets will be looking for a dovish pivot from Fed Chairman Jerome Powell to reignite rate cut hopes.
• Market sees less than 40% chance of a rate cut in March, May sees just 15% chance of rates staying where they are.

• The DXY Index trades with a neutral bias near 103.50.
• Wednesday’s FOMC decision and labor market data will play a pivotal role.
• Low tier data including labor, housing and consumer confidence figures came in mixed.

The US Dollar (USD) Index holds steady near 103.50 on Tuesday, showing a neutral posture after the release of low-tier data. The two-day Federal Reserve (Fed) meeting kicked off on Tuesday and ends on Wednesday with a press conference from Fed Chair Jerome Powell. This makes the markets turn cautious, lending some support to the USD.

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 holds its ground as markets digest low tier data ahead of Fed’s decision

• According to the US Bureau of Labor Statistics, JOLTs Job Openings for December came in at 9.026M, slightly above the consensus of 8.75M but below November's 8.925M. 
• The Conference Board reported a dip in its Consumer Confidence Index, with a January standing of 114.8 compared to 115 projected and the previous 108. 
• The S&P Case-Shiller Home Price for November fell -0.2% MoM against a 0.1% gain in the prior period. On a yearly basis, it had an increase of 5.4%, lower than the expected 5.8% but up from previous 4.9%.
• 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.

Technical Analysis: DXY bulls defend the 200-day SMA, further downside on the horizon if lost

On the daily chart, the Relative Strength Index (RSI) portrays a slight positive slope within positive territory, indicating steady buying momentum. This, in combination with the green bars represented by the Moving Average Convergence Divergence (MACD), furthers bullish sentiment and suggests an underlying upward price trajectory.

Meanwhile, the placement of the index with respect to the Simple Moving Averages (SMAs) provides additional insights. Remaining above the 20-day SMA confirms a short-term bullish bias. The DXY’s position below the 100-day SMA could introduce occasional pullbacks, yet sustaining above the 200-day SMA demonstrates that the buying pressure overweighs the selling momentum on larger time frames.

Support Levels:  103.45 (200-day SMA),103.30, 103.00.
Resistance Levels: 103.90,104.00,104.20.

• USD/JPY up 0.20%, driven by higher US Treasury yields and strong US economic indicators.
• US JOLTs data indicates more job openings, reflecting a solid labor market; Consumer Confidence slightly underperforms.
• Anticipation of Fed's decision grows, with rate and balance sheet policies in spotlight, amidst Japan's easing labor market data.

The USD/JPY remains positive in the day, trimming some of its Monday’s losses, sponsored by an uptick in US Treasury yields, which underpinned the Greenback (USD). Data from the United States (US) was solid, though it isn’t expected to move the needle amongst US Federal Reserve’s officials on tomorrow’s decision. At the time of writing, the major exchanges hands at 147.80, up 0.20%.

Strong US JOLTS report and Consumer Confidence, boosts US Dollar

The US Department of Labor revealed the latest Job Opening and Labor Turnover Survey (JOLTs), which showed that job openings are rising, underscoring a strong labor market that powers economic growth. Openings rose 9.02 million, exceeding forecasts of 8.75 million and November’s 8.925 million. The data highlighted the largest increase came in education and health services.

At the same time, the Conference Board (CB) revealed its latest Consumer Confidence pollo, which came at 114.8 in January, from 108 in December, slightly below the consensus of 115.0. Dana Peterson, Chief Economist at the Conference Board, said, “January's increase in consumer confidence likely reflected slower inflation, anticipation of lower interest rates ahead, and generally favorable employment conditions as companies continue to hoard labor.”

Given the data released, the scenario for the US economy for a soft landing has increased, as the economy remains resilient while inflation continues to trend down.

That said, traders’ attention turns to Wednesday's Fed’s monetary policy decision. Most analysts estimate the US central bank would keep rates at 5.25%-5.50% and will eye if policymakers discuss halting the balance sheet reduction. Besides that, market players will be eyeing Chair Jerome Powell's press conference.

In Japan, the unemployment rate fell to 2.4% in December from 2.5%, showing the labor market is cooling, which could prevent the Bank of Japan (BoJ) from ending its negative interest rate cycle. That following last week, Japan’s inflation report dropped below the 2% goal set by the BoJ, and rose by 1.6% YoY, down from 1.9%.

USD/JPY Price Analysis: Technical outlook

the USD/JPY is trading sideways, as the daily chart depicts. Buyers are at the brisk of losing control if the major slips below the Tenkan-Sen level at 147.73. Further downside is seen at the 147.00 figure, ahead of the January 24 cycle low of 146.65. If the pair reclaims 148.00, that could pave the way to challenge the January 19 high at 148.80, ahead of 149.00.

• Canadian Dollar pares back recent gains, but price action remains nearby.
• Canada sees GDP figures on Wednesday, Manufacturing PMI on Thursday.
• US JOLTS beat trims rate cut bets ahead of Wednesday’s FOMC policy statement.

The Canadian Dollar (CAD) shed some points on Tuesday after a moderate data-beat for December’s US JOLTS Job Openings pushed investors back into the US Dollar (USD). 

Canada brings November’s Gross Domestic Product (GDP) figures on Wednesday, which will be followed by the Canadian S&P Global Manufacturing Purchasing Managers Index (PMI) data on Thursday.

The broad market focus this week continues to be Wednesday’s US Federal Reserve (Fed) rate call. Friday brings another print for the US Nonfarm Payrolls (NFP).

Daily digest market movers: Canadian Dollar pulls back from near-term highs

• Canadian Dollar is largely mixed on Tuesday but moderately down against Tuesday’s top performers in the US Dollar and the Euro (EUR).
• US JOLTS Job Openings in December came in at 9.026 million versus the expected decline to 8.75 million from November’s 8.925 million (revised from 8.79 million).
• Initial prints in US labor figures continue to see revisions on an ongoing basis, JOLTS has been revised every month since at least October 2013.
• JOLTS data to see further adjustments from March 6 when the Bureau of Labor Statistics (BLS) incorporates annual updates to current employment statistics as seasonal adjustment factors.
• JOLTS print pushes rate cut expectations further down, rate swaps now see 62% chance of no rate cut from the Fed in March, 17% chance of no rate move in April, according to CME’s FedWatch Tool.
• Investors will be looking for a firmer pivot from Fed Chairman Jerome Powell on Wednesday.
• Fed Monetary Policy Statement slated for 19:00 GMT Wednesday, Federal Open Market Committee (FOMC) Press Conference scheduled for 30 minutes later.
• Canadian GDP forecast to tick up slightly from 0.0% to 0.1% in November.
• Friday’s US NFP forecast to slip to 180K in January from December’s 216K.

Technical Analysis: Canadian Dollar pulls back from recent highs against US Dollar

The Canadian Dollar (CAD) is moderating on Tuesday, gaining a quarter to a third of a percent against the Pound Sterling (GBP) and the Australian Dollar (AUD), while declining around a sixth of a percent against the US Dollar and the Euro.

The USD/CAD tested into the low side at the 1.3400 handle early Tuesday before a Greenback rally made up for near-term losses as USD/CAD splashes around the familiar 1.3430 level.

USD/CAD continues to drift into the low side as the pair grapples with a bearish crossover of the 50-day and 200-day Simple Moving Averages (SMA), pricing in a near-term technical ceiling near the 1.3500 handle. 

A continued drag down will see the USD/CAD crack through 1.3400 to make a fresh run at the last swing low near December’s bottom bid of 1.3177.

USD/CAD hourly chart

USD/CAD daily chart

• The EUR/GBP secured a 0.50% rally to rest at 0.8565.
• The Eurozone’s Q4 GDP data came in better than expected.
• Signs of bearish exhaustion are seen on the daily chart.

On Tuesday's session, the EUR/GBP was witnessed at 0.8565, exhibiting a 0.50% rally. The daily chart reflects a neutral to bullish outlook with bears taking a breather after driving prices to multi-month lows. All eyes are on the Bank of England (BoE) decision on Thursday as monetary policy divergences with the European Central Bank (ECB) are the one who pushed the cross lower in the last sessions.

In Q4 2023, the Eurozone economy measured by the Gross Domestic Product (GDP) stagnated but slightly outperformed market expectations which seemed to have given the EUR a lift. As stated by Eurostat, investment spending slowed, largely due to surged interest rates leading to reduced loan demand. On Wednesday, inflation figures from January are due and may generate further volatility on the pair as it might affect the expectations on the next ECB decisions.

EUR/GBP levels to watch

The daily chart, suggests that the bears ran out of steam. The Relative Strength Index (RSI) shows a positive incline, albeit still within the negative territory, hinting at a decrease in downward momentum. This, coupled with the Moving Average Convergence Divergence (MACD) displaying a reduction of red bars, further strengthens the view that the selling pressure may be lessening. However, the pair's positioning below the 20, 100, and 200-day Simple Moving Averages (SMAs), relays the message that in the grand scheme, bearish momentum remains the dominant force. The recent push to multi-month lows by the bears signifies they are still commanding the market, and that they are currently taking a respite.

Inspecting the shorter four-hour chart, there's a noticeable uptick in buying force. This is evident by the RSI nearing the overbought zone, signifying an increased bullish momentum. The MACD also dovetails with this sentiment as the number of red bars is tapering, suggesting a subsiding in selling forces.

EUR/GBP daily chart

Economists at TD Securities like the Mexican Peso (MXN) and expect the USD/MXN pair to move lower.

The USD is overbought and expensive

• Mexican Peso notches minor gains with USD/MXN trading at 17.23, up 0.03%, as investors assess economic indicators from Mexico.
• Mexican GDP growth falls short of expectations, influenced by Banxico's aggressive interest rate policy now at 11.25%.
• In the US, Consumer Confidence improves and the robust labor market is highlighted by the latest JOLTs report, which could affect Federal Reserve policy.

The Mexican Peso holds minuscule gains versus the US Dollar in early trading during the North American session, sponsored by economic data from Mexico. In the US, the release of the JOLTs reports and Conference Board (CB) Consumer Confidence data could underpin the Greenback (USD), ahead of the US Federal Reserve (Fed) monetary policy decision on Wednesday. The USD/MXN exchanges hands at 17.19, down 0.13%.

Mexico’s economy grew below estimates, revealed the National Statistics Agency (INEGI). Higher interest rates set by the Bank of Mexico (Banxico) at 11.25% is having the desired effect on the economy as the latest GDP data trends lower alongside business activity. Across the border, CB Consumer Confidence improved in January, while the labor market remains hot, according to the JOLTs data.

Daily Digest Market Movers: Mexican Peso barely blinks after GDP figures, awaiting Fed decision

• INEGI revealed that Mexican GDP for Q4 2023 expanded 0.1% QoQ, below forecasts of 0.4% and trailing the 1.1% expansion achieved in the third quarter. For annually based figures, GDP saw its preliminary reading rise by 2.4%, missing forecasts of 3.1% and down from 3.3% in Q3.
• US Job Openings rebounded above the 9 million threshold, the highest level in three months and exceeding estimates of 8.75 million. The data emphasizes the strength of the labor market and might deter Fed officials from cutting rates sooner than expected.
• Further, US data revealed that Consumer Confidence exceeded estimates of 114, coming at 114.8, up from December’s 108. “January's increase in consumer confidence likely reflected slower inflation, anticipation of lower interest rates ahead, and generally favorable employment conditions as companies continue to hoard labor,” said Dana Peterson, Chief Economist at The Conference Board.
• Today’s data shows the Mexican economy remains strong. Coupled with inflation remaining above Banxico’s target, this could delay the first rate cut by Banxico, even though some officials commented that rate trimming could happen in the first quarter of 2024.
• 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.
• 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 status firm as USD/MXN hovers near 17.20

The USD/MXN trades sideways and is about to form an ascending triangle. The 200-day Simple Moving Average (SMA) at 17.34 is the first resistance level. If buyers conquer that level, the next stop 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 flipside, although a less likely scenario, the USD/MXN exchange rate could drop below the 50-day SMA at 17.13. A breach of the latter will expose the January 22 low at 17.05, followed by the 17.00 psychological level.

USD/MXN Price Action – Daily Chart

The US Federal Reserve (Fed) will announce its Interest Rate Decision on Wednesday, January 31 at 19:00 GMT and as we get closer to the release time, here are the expectations as forecast by analysts and researchers of 10 major banks. 

No change in policy is expected as the Fed is set to hold interest rates in the range of 5.25%-5.50%  for the fourth consecutive meeting. Chair Jerome Powell’s press conference will be key. Investors will focus on any potential push back on market speculation regarding rate cuts.

Danske Bank

Commerzbank

ING

TDS

RBC Economics

ABN Amro

Rabobank

NBF

Citi

ANZ

The Australian Bureau of Statistics (ABS) will release the Consumer Price Index (CPI) for December and the fourth quarter (Q4) of 2023 on Wednesday, January 31 at 00:30 GMT and as we get closer to the release time, here are forecasts from economists and researchers of six major banks regarding the upcoming inflation data.

Headline is expected at 3.7% year-on-year in December vs. 4.3% in November. If so, this would be the lowest since December 2021 but still above the Reserve Bank of Australia's (RBA) 2-3% target range. For the fourth quarter, both headline and trimmed mean inflation are expected at 4.3% YoY.

ANZ

ING

Westpac

TDS

SocGen

Citi

European Central Bank (ECB) policymaker Gabriel Makhlouf said on Tuesday that the essence of data-dependency suggests that they should remain open-minded about the interest rate path, per Reuters.

"With disinflation well underway, we are confident in sustainably reaching our target of 2%," Makhlouf added.

Market reaction

These comments don't seem to be having a noticeable impact on the Euro's performance against its major rivals. As of writing, the EUR/USD pair was virtually unchanged on the day at 1.0835.

• US CB Consumer Confidence Index continued to rise in January. 
• US Dollar Index clings to small daily gains above 103.50. 

Consumer sentiment in the US continued to improve in January, with the Conference Board's Consumer Confidence Index rising to its highest level since December 2021 at 114.8 from 108.0 (revised from 110.7) in December.

Further details of the publication showed that the Present Situation Index rose sharply to 161.3 from 147.2 and the Expectations Index advanced to 83.8 from 81.9.

Finally, the one-year consumer inflation rate expectation edged lower to 5.2%, marking the lowest reading since March 2020.

Market reaction

The US Dollar Index edged higher after the data and was last seen gaining 0.1% on the day at 103.60.

The S&P 500 hit record highs on five consecutive days. Can the S&P 500 continue to hit record highs? Investors should stay invested despite all-time highs, analysts at UBS say.

The current conditions remain positive for further equity gains

Gold (XAU/USD) has been trading above the $2,000 mark since mid-December. Strategists at Commerzbank analyze the yellow metal’s outlook.

Significant interest rate cuts over the course of the year 

• EUR/USD holds onto gains as the ECB avoids a technical recession.
• The USD Index stuck in a tight range ahead of Fed’s monetary policy.
• Investors anticipate the Fed keeping interest rates steady.

The EUR/USD pair rises to near 1.0840 as the Eurozone economy has managed to avoid a technical recession. The major currency pair witnesses buying interest as slightly better preliminary Q4 Gross Domestic Product (GDP) data would allow the European Central Bank (ECB) to maintain interest rates higher for sometime more than what investors are anticipating.

Eurostat reported that the economy remained stagnant in the October-December quarter while investors anticipated a de-growth by 0.1%. In annualized terms, the economy grew slightly by 0.1% after remaining stagnant.

The S&P500 is expected to open on a bearish note, considering overnight futures that are negative. The US Dollar Index (DXY) has recovered to near 103.50 but is broadly sideways as investors await the Federal Reserve’s (Fed) monetary policy, which will be announced on Wednesday.

The Fed is seen keeping interest rates steady in the range of 5.25-5.50% for the fourth time in a row while outlook on interest rates will keep investors on their toes. The market mood could turn volatile if the Fed pushes back expectations of a rate-cut in the March or May monetary policy meetings. Fed policymakers have been reiterating the need of keeping interest rates higher for longer than what market participants are anticipating. Premature rate cuts could lead to a sharp uptick in the aggregate demand, which could prompt price pressures.

Before Fed’s interest rate policy, investors will focus on the US JOLTS Job Openings data for December, which will be published at 15:00 GMT. Investors anticipate a slight decline by 4K to 8.75 million from November’s reading.

The US Dollar (USD) remains range-bound in broad terms and is trading mixed on the session. Economists at Scotiabank analyze Greenback’s outlook.

Short-term technical risks tilted to the downside

USD/CAD tests 1.3400. Economists at Scotiabank analyze the pair’s outlook.

Resistance is 1.3425/1.3450

• AUD/USD drops below 0.6600 as Australian Dollar weakens on downbeat Retail Sales data.
• The USD index hovers near 103.50 ahead of US JOLTS Job Openings data for December.
• Going forward, Fed’s monetary policy and Australian inflation data will be keenly watched.

The AUD/USD pair has dropped below the round-level support of 0.6600 in the late European session. The Aussie asset faces sell-off as the market mood has turned downbeat due to deepening Middle East tensions.

S&P500 futures are facing decent losses in the early New York session, portraying a decline in the risk-appetite of the market participants. The US Dollar Index (DXY) remains stuck in a tight range near 103.50 as investors await the United States JOLTS Job Openings data for December, which will be published at 15:00 GMT.

Investors anticipate that US employers posted 8.75 million fresh new jobs, which are slightly down from 8.79 million advertised in November.

However, major focus this week will be on the interest rate decision by the Fed, which will be announced on Wednesday. The Fed is expected to leave interest rates unchanged in the range of 5.25-5.50% for the fourth time in a row. Investors will keenly focus on the interest rate outlook. As per the CME Fedwatch tool, investors are more confident about Fed to start reducing interest rates from May.

Meanwhile, the Australian Dollar has fallen on the backfoot as a sharp contraction in the monthly Retail Sales data for December has softened the inflation outlook. Consumer spending at retail stores were dropped at a higher pace of 2.7% against expectations of 0.9%. In November, Retail Sales were rose by 1.6%.

Ging forward, investors will focus on the Australian Consumer Price Index (CPI) data for the last quarter of 2023, which will be published on Wednesday. Investors see price pressures grew moderately by 0.8% against an increase of 1.2% in the July-September.

In its updated World Economic Outlook, the International Monetary Fund (IMF) announced that it revised the forecast for global economic growth in 2024 higher to 3.1% from 2.9% in October, per Reuters.

IMF Chief Economist Pierre-Olivier Gourinchas noted that growth was still slower than the historical average of 3.8%, reflecting high interest rates and low productivity growth. The global economy is displaying a remarkable resilience and it's on the final descent toward a soft landing, he added.

Key takeaways

"Global average oil prices to drop 2.3% in 2024 vs 0.7% drop forecast in October; 4.8% decline seen in 2025 vs 4.9% decline."

"IFM sees US GDP growth of 2.1% in 2024 vs 1.5% in October, with growth to ease to 1.7% in 2025 vs earlier forecast of 1.8%."

"IMF revises down Euro area GDP growth forecast to 0.9% in 2024 vs 1.2% in October; 1.7% in 2025 vs 1.8%."

"IMF revises down German GDP growth forecast to 0.5% in 2024 vs 0.9% in October, sees 2025 growth of 1.6% vs 2.0% in October."

"IMF lifts China GDP forecast to 4.6% in 2024 vs 4.2% in October; leaves 2025 forecast unchanged at 4.1%."

"IMF sees relatively limited impact of continued attacks in Red Sea on global inflation or growth outlooks."

"IMF expects Federal Reserve, European Central Bank and Bank of England to keep interest rates at current levels until second half of 2024 before gradual decline."

"Bank of Japan's monetary policy remains appropriate, but BoJ should be ready to raise rates if inflation rises."

Market reaction

This report failed to trigger a noticeable market reaction. At the time of press, the US Dollar Index was virtually unchanged on the day at 103.45.

GBP/USD remains broadly rangebound. Economists at Scotiabank analyze Cable’s outlook.

The 1.2600/1.2825 range may endure for now

EUR/USD has failed to hold below the 1.0800 level. Nonetheless, economists at Rabobank expect the shared currency to remain under downside pressure.

Risk of EUR/USD dipping to 1.0500 on a three-month view

EUR/USD trades off lows. Economists at Scotiabank analyze the world’s most popular currency pair outlook.

Undertone remains soft

• The US Dollar sticks to its pattern of the past two weeks and remains steady. 
• Traders gear up for the week’s first important data point with the US JOLTS release. 
• The US Dollar Index is unable to break away from the 200-day SMA and remains stuck in its pattern. 

The US Dollar (USD) eats into its Monday’s gains returning the Greenback to where it was on Monday morning. The US Dollar has seen safe haven inflows quickly abate in the US trading session as the US Defense department was quick to downplay any rumours on military interventions or retaliation against Iran or Houthi rebels after three US military personnel got killed in a drone attack on a US base in Jordan. The US Dollar Index could get stuck in a range trade again towards Wednesday for the US Federal Reserve’s first rate decision of 2024. 

On the economic front, a perfect appetiser before the main events on Wednesday and Friday comes in the form of the soon-to-be-released US JOLTS Job Openings. Although this is a backward looking index, with the upcoming print covering December, a lower-than-expected number could move the needle. A steep decline in the JOLTS number would point to less demand and less tightness in the job market, which in its turn means a slowdown in the economic activity, as companies would need to pay less to find the proper person for the job, which is again good for lower inflation. Lower inflation means lower rates and a weaker Dollar. 

Daily digest market movers: JOLTS warms up the crowd

• Near 13:55 GMT, the US Redbook Index will be released. The previous result was 5.2%.
• At 14:00 Case-Shiller Housing Data will be released to the markets:
  • The yearly Home Price Index for November is expected to come out at 5.8% from 4.9% previously.
  • The monthly House Price Index for November was at 0.3% for October, with no forecast for November. 
• At 15:00 the JOLTS Job Openings for December are to be released. Previous was at 8.79 million and a small decline to 8.75 million is expected. Should this number be substantially lower, that could point to a slowdown in activity and a drop in wages on the horizon, with the balance shifting from more jobs and less jobseekers to more jobseekers and fewer jobs available. 
• THe US Consumer Confidence for January to be released at the same time. Previous was at 110.7 with 114.5 expected. 
• Equity markets are mildly positive with most European indices up around 0.50%. US equity futures are awaiting Microsoft and Alphabet after the US closing bell. 
• The CME Group’s FedWatch Tool shows that markets are pricing in a 97.9% possibility for an unchanged rate decision on Wednesday, with a slim 2.1% chance of a cut.
• The benchmark 10-year US Treasury Note trades near 4.05% and is the main driver for the US Dollar Index being unable to run away from current levels.  

US Dollar Index Technical Analysis: DXY chained

The US Dollar Index (DXY) had traders at the edge of their seats, seeing if it was finally possible that the US Dollar was able to shun from those two important moving averages: the 55-day (103.06) and the 200-day (103.53) Simple Moving Average (SMA). The safe-haven inflow quickly abated after the US Defense issued statements to confirm it would not seek confrontation in the region after three US military were killed in a drone strike on a US base in Jordan. Meanwhile US equities are holding their breath for big tech earnings this week, as neither a sell-off nor a rally is unfolding at the moment, and no clear risk on or risk off is in play. 

In case the DXY is able to run further away from the 200-day SMA, more upside is in the tank. Look for 104.36 as the first resistance level on the upside, in the form of the 100-day SMA. If that gets breached as well, nothing will hold the DXY from heading to either 105.88 or 107.20 – the high of September.  

With the repetition of another break above the 200-day SMA, yet again, a bull trap could form once prices 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 it, the downturn is open towards 102.00.

GBP/USD rangebound. Economists at Société Générale analyze the pair’s outlook.

Break of 1.2820 would confirm return of upward momentum

• EUR/USD pares losses despite subdued Eurozone, and German GDP growth.
• The Euro faces a challenge in anticipation of ECB rate cuts ahead.
• Eurozone GDP YoY and QoQ showed readings of 0.1% and 0.0%, respectively, in Q4, while the German economy contracted.

The EUR/USD pair retraces its recent gains, edging higher to near 1.0840 during the European trading hours on Tuesday. Still, the Euro has recovered its intraday losses after Eurozone GDP data signaled that the bloc’s economy stagnated in the fourth quarter, better than the mild contraction expected. However, the heightened tension in the Middle East bolsters the US Dollar (USD) and consequently exerts downward pressure on the EUR/USD pair. Anticipation is growing that the United States (US) President Joe Biden’s administration may approve military strikes in response to a recent drone attack on a US outpost in Jordan. This attack resulted in the tragic loss of three US troops and inflicted injuries on at least 24 others.

The Euro (EUR) encounters a challenge due to increasing market expectations of interest rate cuts by the European Central Bank (ECB). There is prevailing anticipation among market participants of a 50 basis points (bps) reduction by June and a more significant 140 bps cut by December. However, on Monday, ECB Vice President Luis de Guindos suggested that the ECB would consider interest rate cuts only when there is confidence that inflation aligns with the central bank's 2.0% goal.

Eurozone seasonally adjusted Gross Domestic Product (GDP) increased by 0.1% YoY in the fourth quarter from the flat 0.0% prior. GDP (QoQ) was unchanged against the expected 0.1% decline. Germany’s preliminary Gross Domestic Product year-over-year contracted by 0.2% in the fourth quarter as expected, against a 0.4% decline prior. GDP (QoQ) decreased by 0.3%, as expected, from the previous figure of a 0.1% fall.

The US Dollar, measured by the US Dollar Index (DXY), may encounter challenges due to the falling US Treasury yields. The release of an enhanced US balance sheet has contributed to the support of prices for US Treasury bonds, undermining the Greenback. This could limit the losses of the EUR/USD pair.

The decrease in US yields seen since October has played a part in reinforcing the sustainability of the US Treasury. Furthermore, the robust economic growth has led to an improvement in tax receipts. The US Treasury Department has recently announced plans to borrow $760 billion in the first quarter, a reduction from the initial estimate of $816 billion in October.

Traders will carefully watch the releases of the US Housing Price Index and Consumer Confidence figures on Tuesday, aiming to gain further insights into the market landscape. The JOLTS job openings figures will also be closely watched. This scrutiny is particularly heightened in anticipation of the scheduled Federal Reserve (Fed) interest rate decision on Wednesday.

Daily digest market movers: EUR/USD loses ground on risk aversion sentiment

• Eurozone Economic Sentiment Indicator came in at 96.2 as expected in January from 96.3 prior.
• European Commission released Business Climate for January, declining by 0.4% against the 0.5% decline in December.
• European Commission Consumer Confidence was unchanged at the reading of -16.1 as expected in January.
• German Gross Domestic Product w.d.a improved to the reading of -0.4% YoY in Q4, from the previous 0.7% decline.
• European Central Bank (ECB) Governing Council member Boris Vujcic stated that it would not have a significant impact on the outcome whether the ECB begins lowering rates in April or June.
• Eurozone Economic sentiment, a broad measure of confidence, fell slightly to 96.2 in January from 96.3 a month earlier. Sentiment among services firms improved, while it deteriorated among manufacturers.
• The Eurozone economy stagnated in the fourth quarter compared with the preceding three-month period. Among the bloc’s main economies, growth in Spain and Italy was significant, while France stagnated and the German economy contracted.
• ECB policymaker Mario Centeno has expressed the view that the ECB should commence rate cuts sooner rather than later, advocating for a gradual approach rather than abrupt moves.
• ECB Governing Council member Peter Kazimir mentioned that a rate cut in June is more likely possible than in April.

Technical Analysis: EUR/USD consolidates after trimming intraday gains

EUR/USD holds steady around 1.0840 on Tuesday after paring back its intraday gains. The critical level at 1.0850 is seen as immediate resistance for the EUR/USD pair. A successful breach above this level might potentially propel the pair towards the 23.6% Fibonacci retracement level at 1.0874, in conjunction with the 14-day Exponential Moving Average (EMA) at 1.0876. Further advancement could see the EUR/USD exploring the region near the psychological barrier at the 1.0900 level.

On the downside, the pair may encounter immediate support at the psychological level of 1.0800, aligning with the monthly low at 1.0795. A decisive break below this monthly low could reinforce bearish sentiment, potentially leading the EUR/USD pair towards the region around the major support at the 1.0750 level.

EUR/USD: Daily Chart

• Natural Gas snaps below $2.10 on US measures to promote greener consumption. 
• Traders are seeing a potential big chunk of demand never returning to markets with US Gas stove measures. 
• The US Dollar Index is staying put ahead of the Fed meeting Wednesday. 

Natural Gas (XNG/USD) has breached the floor of 2023 at $2.10 and is now entering an area not seen since August 2020. The decline comes with efforts from the US and its president Joe Biden to take measures towards promoting a greener economy. A moratorium on LNG export installation in the US is one such measure, while more and stricter efficiency standards for household Gas stoves is another. Overall this means less demand from the US for Natural Gas. 

The US Dollar (USD), which is negatively correlated to Gas prices, was trying to sprint away on Monday with a mix of safe-haven inflows after three US military people were killed over the weekend during a drone strike on a US base in Jordan. The US Defense administration was quick to issue comments that it is not looking for retaliation or expanding military action in the region. This defused the brewing risk-off sentiment and pushed the US Dollar Index (DXY) back to its near opening price from Monday in Asia. 

Natural Gas is trading at $2.07 per MMBtu at the time of writing.  

Natural Gas market movers: Households are at risk of losing their stove

• Asian LNG buyers are looking for alternatives now that the US has placed a moratorium on new LNG mining projects on US soil. 
• Retail sellers of US Gas stoves are facing tougher and more strict rules on components and usage to meet greener regulations from the US energy administration. 
• Mild weather in the EU and UK sees Gas demand dropping to a lower-than-average level for this week. 
• Despite recent turmoil in the Red Sea and Yemen region, Gas supply in the Middle East is still flowing at normal volumes with no supply hiccups at hand at the moment, making the supply side still very much solid and sound. 

Natural Gas Technical Analysis: Back to pre-Covid levels 

Natural Gas is going back in time and is currently trading near levels not seen since August 2020. Should Natural Gas start trading further below $2, it will be just a matter of time before those actual pre-Covid levels will come into play between $1.53 and $1.96. The current US moratorium is no game changer with supply still very much flowing. 

On the upside, Natural Gas is facing some pivotal levels to get back to. First is the low of January at $2.09 which broke on Monday. Next is the intermediary level near $2.48. Once that area gets hit, expect to see a test near $2.57 at the purple line.

A break below the yellow line at $2.10 means big issues for Natural Gas, with a fresh multi-year low. First level to look for on the downside is near $1.96 (orange level) which goes back to August 2020. Next red line to keep an eye on is near $1.51, the low of June 2021. 

XNG/USD (Daily Chart)

Gold slipped to $2,010 last week but XAU/USD is still holding up surprisingly well. Economists at Commerzbank analyze the yellow metal’s outlook.

Gold price defies headwinds from investors

European Central Bank (ECB) Governing Council member Boris Vujcic argued on Tuesday that it would not make a big difference whether the ECB starts lowering rates in April or June, per Reuters.

"I think it's more important that we achieve a kind of smooth transition," he added and continued:

"I think that 25 basis point moves are preferable to larger steps. It doesn't have to be continuous, there will some be pauses."

Market reaction

EUR/USD edged slightly higher following these comments and was last seen trading at 1.0845, rising 0.1% on the day.

• USD/JPY could move downward toward the psychological support at 147.00.
• Technical indicators suggest a confirmation of the bullish momentum for the pair.
• A break below the psychological support at 147.00 could lead the pair to test the 23.6% Fibonacci retracement level at 146.78.

USD/JPY stretches lower for the second straight day, trading around 147.30 during the European session on Tuesday. The 14-day Exponential Moving Average (EMA) at 147.06 appears as the immediate support, in conjunction with the psychological level at 147.00.

A collapse below the psychological support level could push the USD/JPY pair to the test support zone around 23.6% Fibonacci retracement level at 146.78 followed by the important level at 146.50. A collapse below the support zone could push the USD/JPY pair to navigate the area around the psychological support at 146.00 before the 38.2% Fibonacci retracement level at 145.53 lined up with the major support at 145.50.

The technical analysis of the Moving Average Convergence Divergence (MACD) for the USD/JPY pair suggests bullish sentiment in the market with the MACD line positioning above the centreline and showing a divergence above the signal line. Additionally, the lagging indicator 14-day Relative Strength Index (RSI) residing above the 50 level suggests a confirmation of a prevailing bullish momentum for the pair.

On the upside, the USD/JPY pair may encounter a barrier around the significant level of 147.50, with additional resistance posed by the psychological barrier at 148.00. A decisive breakthrough above this psychological resistance level could provide support for the pair to advance towards the major level at 148.50. Further upward momentum may lead the pair to approach the previous week's high at 148.69, followed by January’s high at 148.80.

USD/JPY: Daily Chart

Australian inflation figures for the fourth quarter will be released on Wednesday, January 31 at 00:30 GMT. Economists at Commerzbank analyze Aussie’s outlook ahead of the data.

RBA is unlikely to give the all-clear just yet

• EUR/JPY bounces from 159.20 as Eurozone preliminary GDP remains slightly better than estimates.
• The Eurozone economy manages to avoid a technical recession.
• BoJ Ueda is not convinced for exiting from expansionary monetary policy due to slower wage growth.

The EUR/JPY discovers buying interest near 159.20 as the Eurostat has reported better-than-anticipated Gross Domestic Product (GDP) data for the last quarter of 2023. The agency has reported that the Eurozone economy remained stagnant against expectations and the prior reading of a 0.1% de-growth in GDP figures.

On an annualized basis, the Eurozone economy grew slightly by 0.1% while investors anticipated a stagnant performance. This indicates that the economy has managed to avoid a technical recession. It would allow the European Central Bank (ECB) to hold the Main Refinancing Operations Rate at 4.5% for a longer period.

Meanwhile, investors keen to know when the ECB will start reducing interest rates. ECB President Christine Lagarde said earlier that inflation is higher than what the ECB want and rate-cuts could start by late Summer. ECB policymaker Mario Centeno argued that the central bank should start cutting rate sooner than later, while avoiding abrupt moves. On the contrary, ECB Governing Council member Peter Kazimir said that a rate cut in June is more likely than April.

On the Tokyo front, investors await the Bank of Japan’s (BoJ) Summary of Opinions (SOP), which will be released on Wednesday. Investors will keenly focus on signals about an exit from the decade-long ultra-loose monetary policy.

BoJ Governor Kazuo Ueda seems reluctant in policy normalization as wage growth is insufficient to keep price pressures above the required rate of 2%.

• USD/CAD loses ground on downbeat Crude oil prices.
• WTI price depreciates for the second successive session despite heightened geopolitical Middle East tension.
• Biden’s administration could authorize military strikes on Iran-led Houthis.

USD/CAD continues to move downward for the fourth consecutive session on Tuesday, trading lower around 1.3400 during the European session. The Canadian Dollar (CAD) faces downward pressure due to the downbeat Crude oil prices, given Canada is one of the largest oil exporters to the United States (US).

West Texas Intermediate (WTI) oil price depreciates for the second day, edging lower to near $76.80 per barrel, by the press time. However, an intensification of geopolitical tensions in the Middle East is persistently amplifying concerns over the supply of oil. This development is emerging as a crucial factor, which could limit the losses of Crude oil prices.

Additionally, the Loonie Dollar (CAD) received some pressure from the remarks of the Bank of Canada (BoC) Governor Tiff Macklem. He has indicated a shift in focus, moving from discussing whether interest rates are sufficiently high to considering when they might be lowered.

The escalated tension in the Middle East is driving investors toward the US Dollar (USD), which in turn, underpins the USD/CAD pair. US President Joe Biden’s administration could authorize military strikes in response to the recent drone attack on a US outpost in Jordan.

Tuesday's releases of the Housing Price Index and Consumer Confidence figures will be under scrutiny by market participants, aiming to glean additional insights into the US economic landscape. Furthermore, the Federal Reserve (Fed) interest rate decision will be out on Wednesday. On Canada’s docket, Wednesday’s Gross Domestic Product report is expected to show a slight increase in November.

EUR/USD recovers from below 1.0800 Economists at Société Générale analyze the pair’s technical outlook.

Failure to overcome 1.0930 can cause pullback to extend

Economists at Commerzbank expect the European Central Bank (ECB) to find hurdles to cut interest rates.

Difficult for the ECB to cut interest rates significantly

• Gold price jumps further on deepening Middle East tensions.
• Investors brace for Fed policy decision and US labor and Manufacturing PMI data.
• Fed’s outlook on interest rates will be in focus.

Gold price (XAU/USD) continues to advance amid the escalating Middle East crisis as US President Joe Biden has pledged to retaliate for unmanned aerial drone attacks on US service personnel near northeastern Jordan, near the Syrian border. Still, the precious metal could turn sideways as investors await the interest rate decision by the Federal Reserve (Fed), which will be announced on Wednesday.

Traders see the Fed holding interest rates in the range of 5.25%-5.50% amid consistently easing price pressures. Investors will focus on the timing at which Fed policymakers are comfortable for commencing the rate-cut campaign. The Fed is not confident yet that underlying inflation will sustainably return to 2% due to strong labor demand, robust Retail Sales, and a broadly upbeat economic outlook.

This week, investors will remain busy as various economic indicators from the US are lined-up for release. The ADP Employment Change will be released on Wednesday, just before the Fed’s policy announcement. These will be followed by the Institute for Supply Management (ISM) Manufacturing PMI on Thursday and Nonfarm Payrolls (NFP) data on Friday.

Daily digest market movers: Gold price strengthens as appeal for safe-haven assets improves

• Gold price prints a fresh weekly high near $2,040 due to deepening Middle East tensions.
• US President Joe Biden vowed to retaliate for attacking their forces near northeastern Jordan while Iran denies claims of their involvement in these aerial drone attacks.
• Escalating geopolitical tensions have significantly improved the appeal for safe-haven assets, while risk-perceived assets have been hit hard.
• Meanwhile, forward action on the Gold price will be guided by the Federal Reserve’s monetary policy decision, which will be announced on Wednesday.
• The Fed is expected to hold interest rates steady in the range of 5.25%-5.50% for the fourth straight time as price pressures are consistently declining. However, Fed policymakers are still not convinced that inflation will return to the 2% target in a sustainable manner.
• Fed policymakers have been reiterating that interest rates should remain in a restrictive trajectory for some time until price stability is ensured. They warned that premature rate cuts could uplift overall demand, which could lead to a rebound in price pressures.
• Market participants will focus on the interest rate outlook to be provided by Fed policymakers after the announcement of the monetary policy.
• It will be interesting to watch whether the Fed refers to March or May monetary policy meetings for starting the rate-cut process.
• The appeal for Gold would strengthen if the Fed turns dovish for the March policy meeting.
• Apart from the Fed’s policy, US economic data such as ADP Employment Change, ISM Manufacturing PMI, and official employment data for January will be keenly watched.
• But first of all, investors will react to the US JOLTS Job Openings data for December, which will be published at 15:00 GMT. According to the consensus, job openings are expected to come in at 8.75 million, slightly lower from the 8.79 million recorded for November.

Technical Analysis: Gold price refreshes weekly high near $2,040

Gold price rises to near $2,040, supported by geopolitical tensions. The precious metal has strengthened after delivering a breakout of the Symmetrical Triangle chart pattern formed on a daily time frame. A breakout of the aforementioned chart pattern indicates a volatility expansion, which results in wider ticks and heavy volume. The near-term appeal has turned bullish as price is sustaining strongly above the 20-day Exponential Moving Average (EMA). 

However, the 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 area, which indicates that momentum is weak.

The Eurozone economy stagnated on a quarterly basis in the three months to December of 2023, improving from a 0.1% contraction in the third quarter of 2023, the preliminary estimate released by Eurostat showed Tuesday.

The GDP data beat the market’s expectations for a 0.1% deceleration.

The bloc’s GDP  expanded at an annual pace of 0.1% in Q4 vs. 0% in Q3 while beating 0% expectations.

EUR/USD reaction to the Eurozone GDP report

EUR/USD was last seen trading at 1.0823, down 0.08% on the day. Eurozone GDP data failed to move a needle around the Euro.

About Eurozone Preliminary GDP

The Gross Domestic Product released by Eurostat is a measure of the total value of all goods and services produced by the Eurozone. The GDP is considered as a broad measure of the Eurozone's economic activity and health. Usually, a rising trend has a positive effect on the EUR, while a falling trend is seen as negative (or bearish).

Economists at Rabobank analyze Pound Sterling (GBP) outlook ahead of this year’s UK general election.

UK election will fail to ignite budgetary fireworks

AUD/USD hovers around the 0.6600 level. Economists at Rabobank analyze Aussie’s outlook.

AUD/USD to trend towards 0.7000 at the end of the year

• German GDP arrives at -0.3% QoQ in Q4 vs. -0.3% forecast.
• Annual German GDP drops 0.2% in Q4 vs. -0.2% estimate.
• EUR/USD pays little heed to the German Q4 GDP report.

The German economy averted a technical recession, shrinking 0.3% over the quarter in the final quarter of 2023, as against the 0% revision in Q3, according to the preliminary data published by Destatis on Tuesday. The reading matched the expected 0.3% contraction.

Meanwhile, the annual GDP rate declined by 0.2% in Q4 when compared to the third quarter’s revised figure of -0.3% while coming in line with the market forecast.

EUR/USD reaction to the German GDP data

EUR/USD pays little heed to the German GDP report, losing 0.12% on the day to trade at 1.0820. The pair awaits the Eurozone Preliminary GDP data for fresh trading impetus.

(This story was corrected on January 30 at 09:15 GMT to update the previous figures)

About German Preliminary GDP

The Gross Domestic Product released by the Statistisches Bundesamt Deutschland is a measure of the total value of all goods and services produced by Germany. The GDP is considered as a broad measure of German economic activity and health. A high reading or a better-than-expected number has a positive effect on the EUR, while a falling trend is seen as negative (or bearish).

The US Dollar Index (DXY) stays above 103.50. Economists at ING analyze Greenback’s outlook.

Dollar to hold gains against European currencies over the coming days

FX option expiries for Jan 30 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts

• 1.0825 480m
• 1.0875 611m

- USD/JPY: USD amounts                     

• 147.20 580m
• 148.00 549m

- AUD/USD: AUD amounts

• 0.6700 873m

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

Gold price stood at 62,514 Indian Rupees (INR) per 10 grams, up INR 163 compared with the INR 62,351 it cost on Monday.

As for futures contracts, Gold prices increased to INR 62,553 per 10 gms from INR 62,367 per 10 gms.

Prices for Silver futures contracts increased to INR 72,504 per kg from INR 72,377 per kg.

Global Market Movers: Comex Gold price stays hopeful amid rising tensions in the Middle East

• The ongoing downfall in the US Treasury bond yields, along with the risk of a further escalation of geopolitical tensions in the Middle East, lifted the Comex Gold price higher for the second straight day. 
• The US Treasury lowered its forecast for federal borrowing to $760 billion from a prior estimate of $816 billion and dragged the yield on the benchmark 10-year US government bond closer to 4.0%.
• Reports suggest that President Joe Biden will authorize US military action in response to the drone attack by pro-Iranian militias near the Jordan-Syria border that killed three American soldiers.
• A direct US confrontation with Iran will adversely impact global Crude Oil supplies, which could eventually trigger a possible inflation shock for the world economy and hinder global growth.
• Traders, however, might refrain from placing aggressive directional bets and prefer to move on the sidelines ahead of the critical FOMC monetary policy meeting starting this Tuesday.
• The Fed decision on Wednesday and the accompanying policy statement will be scrutinized for cues about the timing of the first rate cut, which will influence the non-yielding yellow metal.
• In the meantime, Tuesday's release of the Conference Board's Consumer Confidence Index and JOLTS Job Openings data from the US might produce short-term trading opportunities. 

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

 Economists at ING analyze structural issues faced by China’s economy and the USD/CNH outlook.

Increasing talk of the PBoC needing to cut interest rates further

• NZD/USD moves in an upward direction amid a subdued US Dollar.
• The improved US balance sheet gives rise to US bond prices, undermining the US Dollar.
• The expected Chinese stimulus could boost the New Zealand Dollar.

NZD/USD inches higher for another session, trading around 0.6140 during the early European hours on Tuesday. The US Dollar (USD) has faced a challenge on downbeat US Treasury yields. The release of an improved US balance sheet has supported US Treasury bond prices, which, in turn, puts downward pressure on the Greenback.

The US Dollar Index (DXY) holds ground around 103.50 with the 2-year and 10-year yields on US Treasury notes standing lower at 4.29% and 4.03%, respectively, by the press time. Moreover, there is a prevailing market risk spurs on escalated tension in the Middle East.

Tuesday's releases of the Housing Price Index and Consumer Confidence figures will be under scrutiny by market observers, aiming to glean additional insights into the US economic landscape.

The prevailing expectation among most economists is for the first rate cut to occur in May or June, though the possibility of a cut at the Federal Reserve's March meeting is not ruled out. Meanwhile, the anticipated Federal Open Market Committee (FOMC) statement on Wednesday, January 31 is expected to yield no adjustment.

The New Zealand Dollar (NZD) seems to have received a boost with the People's Bank of China (PBoC) considering a possible reduction in the Medium-term Lending Facility (MLF) rate. Meanwhile, Reserve Bank of New Zealand (RBNZ) Chief Economist Paul Conway remarked on Tuesday that recent economic data indicates the effectiveness of monetary policy, but there remains a journey ahead before inflation reaches its target midpoint of 2.0%.

• Silver price jumps to near $23.20 as geopolitical tensions deepen.
• Forward action in the FX domain will be guided by the Fed’s monetary policy.
• Investors will focus on the US JOLTS Job Openings data in today’s session.

Silver price (XAG/USD) climbs above $23.20 in the early European session. The white metal has capitalized on mounting Middle East tensions, which have improved appeal for safe-haven assets. However, forward action will be guided by the interest rate decision from the Federal Reserve (Fed), which will be announced on Wednesday.

S&P500 futures have posted some losses in the Asian session, portraying a decline in the risk-appetite of the market participants. The US Dollar Index (DXY) has rebounded above 103.50 amid uncertainty ahead of the Fed’s policy. 10-year US Treasury yields have dropped to near 4.05%.

Considering poll from the CME Fedwatch tool, traders are confident that interest rates will remain unchanged in the range of 5.25-5.50%. Investors’ expectations for the first rate-cut decision by the Fed have shifted for May against earlier expectations of March. The US economy is performing well on the grounds of labor market and consumer spending, which could keep price pressures unabated.

Before Fed’s policy, investors will focus on the US JOLTS Job Openings data for December, which will be published at 15:00 GMT. According to the estimates, US employers advertised fresh requirement of 8.75M jobs, slightly lower from 8.79M in November.

Silver technical analysis

Silver price advances towards the resistance zone placed in a narrow range around $23.50 on a two-hour scale. The 50-period Exponential Moving Average (EMA) at $22.90 continues to provide support to the Silver price bulls.

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

Silver two-hour chart

EUR/USD has dipped to the 1.0800 zone. Economists at ING analyze the pair’s outlook.

Range trading is probably likely into Wednesday's FOMC meeting

• The US JOLTS data will be watched closely by investors ahead of the Fed policy announcements.
• Job openings are forecast to edge lower to 8.75 million on the last business day of December.
• Further loosening in labor market conditions might not be enough to convince markets of a Fed rate cut in March.

The Job Openings and Labor Turnover Survey (JOLTS) will be released on Tuesday by the US Bureau of Labor Statistics (BLS). The publication will provide data about the change in the number of job openings in December, alongside the number of layoffs and quits.

JOLTS data will be scrutinized by market participants and Federal Reserve (Fed) policymakers because it could provide valuable insights regarding the supply-demand dynamics in the labor market, a key factor impacting salaries and inflation. While job openings have been trending down during 2023 – a sign of cooling demand for labor – they remain above pre-pandemic levels.

What to expect in the next JOLTS report?

"Over the month, the number of hires and total separations decreased to 5.5 million and 5.3 million, respectively," the BLS noted in its November JOLTS report and added: "Within separations, quits (3.5 million) edged down and layoffs and discharges (1.5 million) changed little."

After declining steadily from 10.5 million to 8.85 million in the January-October period, job openings edged lower to 8.79 million in November. For the upcoming December data, markets expect another slight down tick to 8.75 million.  Meanwhile, Nonfarm Payrolls rose by 216,000 in December following November’s 170,000 increase.

The US Dollar (USD) started the new year on a bullish note. In January, the USD Index is up more than 2%, boosted by diminishing expectations for a Federal Reserve (Fed) rate reduction in March. According to the CME FedWatch Tool, the probability of a 25 basis points rate cut dropped from nearly 80% to 50%. 

FXStreet Analyst Eren Sengezer shares his view on the JOLTS Job Openings data and the potential market reaction:

“JOLTS Job Openings data for December could reaffirm loosening conditions in labor market, unless it unexpectedly rises toward 9.5-10 million range. Investors, however, could refrain from taking a large position based on this data, especially hours before the Fed’s monetary policy announcements. Nevertheless, the immediate reaction to a significant surprise in either direction could be straightforward and remain short-lived. A decline below 8 million in job openings could hurt the USD, while a big increase could provide a boost to the currency”

When will the JOLTS report be released and how could it affect EUR/USD?

Job openings numbers will be published at 15:00 GMT. Eren points out key technical levels to watch for EUR/USD ahead of JOLTS data:

“The 200-day Simple Moving Average and the Fibonacci 38.2% retracement of the October-December uptrend form a pivot level at 1.0850 for EUR/USD. In case this level remains intact as resistance, the pair could test 1.0780 (100-day SMA) and 1.0700 (Fibonacci 61.8% retracement) next. On the upside, 1.0950 (Fibonacci 23.6% retracement) and 1.1000 (psychological level, static level) could be set as bullish targets in case the pair stabilizes above 1.0850.”

• EUR/USD trades slightly above 1.0800 following Monday's decline.
• Near-term technical outlook suggests that the bearish bias remains intact.
• Disappointing growth figures from Germany and Euro area could further weigh on the Euro.

EUR/USD started the week on the back foot and touched its lowest level since mid-December below 1.0800 in the early American session on Monday. Although the pair manages to hold above this level in the European morning on Tuesday, it risks losing it in case European data disappoint.

Mixed comments from European Central Bank (ECB) officials weighed on the Euro on Monday. ECB Vice President Luis de Guindos said inflation risks were tilted to the downside and ECB policymaker Mario Centeno argued that the central bank should start cutting rate sooner than later, while avoiding abrupt moves. On a hawkish note, Governing Council member Peter Kazimir said that a rate cut in June is more probable than April but the exact timing is secondary to the decision's impact.

Later in the session, fourth-quarter Gross Domestic Product (GDP) data for Germany and the Eurozone will be watched closely by market participants.

Investors expect the German economy to shrink by 0.2% on an annual basis and see the European economy stagnate in the same period. A bigger-than-forecast contraction in German GDP or a negative European GDP print could feed into expectations for an ECB rate reduction in April and force EUR/USD to stretch lower.

In the second half of the day, JOLTS Job Openings data for December and the Conference Board's Consumer Confidence Index for January will be featured in the US economic docket. Investors, however, could refrain from taking large positions ahead of the Federal Reserve's policy announcements on Wednesday. Nevertheless, the US Dollar could stay resilient against its rivals unless risk flows start to dominate the action.

EUR/USD Technical Analysis

EUR/USD faces critical support at 1.0800 (Fibonacci 50% retracement of the latest uptrend). A daily close below this level could attract technical sellers and open the door for another leg lower toward 1.0740 (static level) and 1.0700 (Fibonacci 61.8% retracement).

On the upside, 1.0850 (50-period Simple Moving Average (SMA), descending trend line) aligns as first resistance ahead of 1.0900 (psychological level, 100-period SMA) and 1.0940 (200-period SMA).

• Pound Sterling trades sideways ahead of monetary policies by the Fed and the BoE.
• BoE policymakers will be tested on the grounds of high inflation and bleak economic outlook.
• The Fed is expected to define how it will fit 75 basis points rate reduction in 2024.

The Pound Sterling (GBP) trades in a limited zone as investors step to the sidelines ahead of a busy week. The GBP/USD pair struggles for a direction ahead of the interest rate decisions by the Bank of England (BoE) and the Federal Reserve (Fed), which are expected to leave rates unchanged for the fourth time in a row.

While the BoE is expected to hold steady, guidance on the interest rate outlook will be the key factor for further action in the Pound Sterling. The BoE is in a balancing act between vulnerable economic conditions in the domestic and the overseas market and stubborn price pressures. The maintenance of higher interest rates for a longer period by the BoE could dampen labor market and demand conditions while a dovish signal will ramp-up price pressures again.

Market mood seems broadly cautious due to Middle East tensions and Fed’s monetary policy announcement. Investors will keenly watch whether the Fed will choose the March or May meeting for the first rate cut after a prolonged “rate-tightening” campaign.

Daily Digest Market Movers: Pound Sterling remains silent amid cautious market mood

• Pound Sterling oscillates in a tight range near 1.2700 as investors step onto the sidelines ahead of the monetary policies by the Federal Reserve and the Bank of England, which are scheduled for Wednesday and Thursday respectively.
• Decision-making for BoE policymakers is expected to be very complicated as the United Kingdom economy is operating with high inflation and the economic outlook is vulnerable.
• The UK economy witnessed a fall of 0.1% in growth in the third quarter of 2023 as businesses operated with lower capacity due to weak demand.
• A similar performance is anticipated in the final quarter of 2023 as businesses were reluctant to utilize their full capacity or make fresh investment decisions to avoid higher interest obligations.
• The UK economy would be considered to be in a technical recession if it contracts consecutively in the fourth quarter of 2023.
• BoE policymakers consider core and service inflation while making decisions on interest rates, which are at 5.1% and 6.4%, significantly far from what the central bank wants, leaving no chance for consideration of a dovish decision, at least for now.
• On Thursday, the BoE is widely anticipated to keep interest rates unchanged at 5.25% for the fourth time in a row. 
• It would be interesting to watch whether the BoE delivers a dovish guidance due to a deteriorating demand environment or continues to lean towards restrictive interest rates.
• Meanwhile, the market mood remains quiet as investors digest Middle East tensions. 
• The US Dollar Index (DXY) is slightly higher to near 103.50 from Monday’s closing but is expected to remain lacklustre as investors await the Fed policy meeting.
• Like the BoE, the Fed is also expected to keep interest rates unchanged in the range of 5.25-5.50% for the fourth straight time. 
• Market participants seem highly confident that the Fed will start reducing interest rates from May amid easing price pressures.
• In today’s session, investors will keep the US JOLTS Job Openings data on radar. Investors anticipate that US employers posted fresh 8.75M jobs in December against 8.79M in November.

Technical Analysis: Pound Sterling fails to sustain above 1.2700

Pound Sterling remains topsy-turvy near the crucial resistance of 1.2700 ahead of crucial economic events. On a daily time frame, the GBP/USD pair demonstrates a Descending Triangle chart pattern formation, which indicates a sharp volatility contraction but with an upside bias. 

Downward-sloping trendline of the aforementioned chart pattern is drawn from 28 December 2023 high at 1.2827 while the horizontal support is plotted from 21 December 2023 low at 1.2612. The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, which indicates a sideways performance ahead.

The US Dollar (USD) is the best performing G10 currency in the year to date as the market reassesses the outlook for Fed rate cuts this year. Economists at ING analyze Greenback’s outlook. 

Dollar bears require patience

Here is what you need to know on Tuesday, January 30:

Markets remain cautious early Tuesday amid headlines surrounding the Chinese property crisis and escalating geopolitical tensions. Fourth-quarter Gross Domestic Product (GDP) growth figures from Germany and the Eurozone will be watched closely by investors. Later in the day, the Conference Board will publish the US Consumer Confidence Index data for January and the Bureau of Labor Statistics will release JOLTS Job Openings report for December.

The US Dollar Index climbed toward 104.00 on Monday but lost its traction in the late American session. The upbeat performance of technology stocks allowed Nasdaq Composite to gain more than 1% on the day and made it difficult for the US Dollar (USD) to preserve its strength. Meanwhile, the benchmark 10-year US Treasury bond yield declined below 4.1%, putting additional weight on the USD's shoulders.

Early Tuesday, major equity indexes in Asia came under heavy bearish pressure following Monday's reports of Hong Kong's High Court ordering the liquidation of Evergrande Group. At the time of press, Hong Kong's Hang Seng Index was down 2% on the day and the Shanghai Composite was losing more than 0.5%. 

In the meantime, CNN reported that US President Joe Biden's response to Sunday's deadly attack on a US military is likely to be more powerful than previous retaliatory actions. Biden is expected to authorize a military action but experts grow increasingly concerned over a deepening conflict in the region. In the European session on Tuesday, US stock index futures trade marginally lower on the day.

EUR/USD dropped below 1.0800 for the first time in over a month on Monday but managed to stage a technical correction. Early Tuesday, the pair holds steady above 1.0800. The German economy is forecast to shrink at an annual rate of 0.2% in the fourth quarter and the Eurozone economy is expected to stagnate in the same period.

GBP/USD edged lower on Monday but didn't have a difficult time limiting its losses. The pair continues to move sideways at around 1.2700 on Tuesday.

Japan’s Prime Minister Fumio Kishida told parliament on Tuesday that they will do everything possible to bolster household income and added that wage hikes are an urgent issue for his administration. USD/JPY closed in negative territory on Monday and declined below 147.50 early Tuesday.

The data from Australia showed that Retail Sales declined by 2.7% on a monthly basis in December following the 2% increase recorded in November. AUD/USD edged higher in the Asian session despite the disappointing data and was last seen trading above 0.6600.

Gold benefited from retreating US yields and escalating geopolitical tensions on Monday and rose more than 0.5% on a daily basis. XAU/USD holds steady slightly above $2,030 early Tuesday.

• USD/CAD loses traction near 1.3707 despite the firmer US Dollar. 
• The bearish outlook remains intact below the key EMA; RSI indicator is located in the bearish territory below the 50 midline.
• The first support level is seen at 1.3350; the immediate resistance level will emerge at 1.3440.

The USD/CAD pair trades on a softer note for the fourth consecutive day during the early European session on Tuesday. The higher oil prices amid the ongoing geopolitical tensions in the Middle East lift the commodity-linked Loonie and weigh on the USD/CAD pair. The pair currently trades around 1.3705, losing 0.04% on the day. 

Technically, USD/CAD keeps the bearish bias unchanged as the pair is below the 50- and 100-period Exponential Moving Averages (EMA) on the four-hour chart. The path of the least resistance of USD/CAD is to the downside, as the Relative Strength Index (RSI) stands in bearish territory below the 50-midline.

A bearish breakout below the lower limit of the Bollinger Band at 1.3393 will see a drop to a low of January 11 at 1.3350. Any follow-through selling below the latter will expose the 1.3300 psychological support level, en route to a low of January 2 at 1.3228.

On the upside, the first upside barrier of the pair is located at the 100-period EMA at 1.3440. The additional upside filter to watch is the 50-period EMA at 1.3450. Further north, the next hurdle will emerge at the upper boundary of the Bollinger Band at 1.3516, followed by a high of January 25 at 1.3534.

USD/CAD four-hour chart

• EUR/GBP faces downward pressure before the release of GDP data from the Eurozone and Germany.
• BoE officials emphasized prolonging the restrictive monetary policy to tackle inflation.
• ECB is expected to reduce interest rates by 50 bps by June and 140 bps by December 2024.

EUR/GBP continues its downward trend for the second consecutive session, leading up to the upcoming Bank of England (BoE) interest rate decision scheduled for Thursday. As of the Asian session on Tuesday, the pair trades around 0.8520, indicating a decline in value. Investors are closely monitoring these developments in anticipation of the impact the BoE's decision may have on the EUR/GBP pair.

Market expectations suggest that the Bank of England (BoE) is likely to maintain its current interest rate of 5.25%. BoE members have emphasized the significance of sustaining a prolonged period of restrictive monetary policy to tackle inflation concerns, contributing to the strength of the Pound Sterling (GBP). This, in turn, acts as a headwind for the EUR/GBP pair.

However, there has been an adjustment in market participants' expectations for rate cuts, with the first cut now fully priced in for June. Initially anticipated for May, this shift in expectations is noteworthy and is likely to influence trading dynamics for the EUR/GBP pair following the upcoming BoE decision.

The Euro (EUR) is encountering downward pressure following the European Central Bank's (ECB) decision to maintain its Main Refinancing Operations Rate at 4.50% and the Deposit Facility Rate at 4.0%. Despite this decision, there is growing anticipation in the market for ECB rate cuts, with expectations of a 50 basis points (bps) reduction by June and a more substantial 140 bps cut by December 2024.

In a recent statement on Monday, ECB Vice President Luis de Guindos indicated that the ECB would contemplate interest rate cuts once there is confidence that inflation aligns with the central bank's 2.0% goal. He pointed out positive developments in inflation and suggested that these favorable trends would eventually influence the ECB's monetary policy.

Looking ahead, the release of the quarterly Gross Domestic Product (GDP) figures for the Eurozone and Germany is scheduled for Tuesday, adding another layer of significance to the evolving economic landscape.

• GBP/USD consolidates in a trading range near 1.2708 ahead of the Fed and BoE rate decisions this week.
• The Relative Strength Index (RSI) indicator suggests the non-directional action of the pair. 
• The immediate resistance level is located at 1.2738; the next support level will emerge at 1.2675.

The GBP/USD pair remains confined in a narrow trading range above the 1.2700 mark during the early European trading hours on Tuesday. Investors prefer to wait on the sidelines ahead of key events from the Federal Reserve (Fed) and the Bank of England (BoE). At press time, GBP/USD is trading at 1.2708, down 0.02% on the day. 

The Fed is widely anticipated to hold benchmark interest rates steady at a 23-year high of 5.25–5.50% at its January meeting on Wednesday, after a lengthy effort to tame rampant inflation. Meanwhile, the BoE is expected to keep rates steady. Nonetheless, signs that the inflation crisis is easing off might convince the UK central bank to lower rates after all.

From a technical perspective, GBP/USD oscillates in the two-week-old trading range on the four-hour chart. The major pair is above the 100-hour Exponential Moving Average (EMA). However, the bullish outlook of GBP/USD remains vulnerable as the Relative Strength Index (RSI) hovers around the 50 midlines, suggesting the non-directional action of the pair. 

The upper boundary of the Bollinger Band at 1.2738 acts as an immediate resistance level for the pair. A decisive break above the latter will pave the way to a high of January 26 at 1.2758. Further north, the next upside target to watch is a high of January 12 at 1.2785, en route to a high of December 28 at 1.2828.

On the other hand, a breach of the 1.2700 round figure will see a drop to the lower limit of the Bollinger Band at 1.2675. The critical contention level is seen at the 1.2600–1.2610 zone, representing the confluence of the psychological mark and a low of January 2. Any follow-through selling below the latter will expose a low of December 11 at 1.2535.

GBP/USD four-hour chart

Japan’s Prime Minister Fumio Kishida told parliament on Tuesday that they will do "everything possible" to bolster household income.

Additional quotes

Market reaction

At the time of writing, USD/JPY is losing 0.11% on the day to trade at 147.30. The above comments fail to move the needle around the Japanese Yen.

• USD/CHF could face downward pressure due to the downward US Treasury yields.
• An improved US balance sheet weighs on the US yields, undermining the US Dollar.
• Swiss Real Retail Sales and the ZEW Survey may provide cues on Swiss economic health on Wednesday.

USD/CHF attempts to retrace its recent losses, inching higher around 0.8620 during the Asian session on Tuesday. However, the US Dollar (USD) has faced a challenge against the Swiss Franc (CHF) due to the decline in US Treasury yields. The release of an improved US balance sheet has supported prices for US Treasury bonds, which, in turn, puts downward pressure on US yields.

Since October 2023, the decline in US yields has played a role in bolstering the sustainability of the US Treasury. Additionally, enhanced economic growth has resulted in improved tax receipts. The US Treasury Department has recently disclosed its intention to borrow $760 billion in the first quarter, marking a decrease from the initial estimate of $816 billion in October.

The US Dollar Index (DXY) snaps its two-day losing streak, which could be attributed to the risk aversion sentiment on the concern over the escalated tension in the Middle East. US President Joe Biden’s administration is anticipated to authorize military strikes in response to the recent drone attack on a US outpost in Jordan, resulting in the death of three US troops and injuries to at least 24.

Market observers will closely monitor Tuesday's releases of the Housing Price Index and Consumer Confidence figures, seeking additional insights into the market landscape following the scheduled Federal Open Market Committee (FOMC) statement on Wednesday, January 31.

Acknowledging the robust Swiss Franc's impact on inflation containment and challenges faced by domestic companies, SNB President Thomas Jordan expressed uncertainty about the Swiss National Bank's (SNB) stance on the persistent strength of the currency. Attention will be directed towards Wednesday's Real Retail Sales and the ZEW Survey to gauge the overall health of the Swiss economy.

• USD/CNH reverses an Asian session dip and stalls the previous day’s pullback from a multi-day top.
• The technical setup favours bullish traders and supports prospects for a further appreciating move.
• Acceptance below the 7.1870-7.1865 confluence is needed to negate the near-term positive bias.

The USD/CNH pair attracts some dip-buying near the 7.1810-7.1805 area during the Asian session on Tuesday and climbs to a fresh daily peak in the last hour. Spot prices currently trade with a mild positive bias, around the 7.1885-7.1890 region, though remain below a multi-day top touched on Monday.

From a technical perspective, the USD/CNH pair showed resilience below the 7.1870-7.1865 confluence and for now, seems to have stalled the overnight pullback from the 61.8% Fibonacci retracement level of the downfall from a two-month top touched on January 17. The said area comprises the 50% Fibo. level, the 50- and the 100-period Simple Moving Averages (SMAs) on the 4-hour chart, which should now act as a key pivotal point.

Some follow-through selling, leading to a subsequent slide below the 7.1810-7.1805 zone, or the Asian session low, will be seen as a key trigger for intraday bears and drag the USD/CNH pair to the 38.2% Fibo. level, around the 7.1765 region. A convincing break below the latter might expose the next relevant support near the 7.1640-7.1635 area or the 23.6% Fibo. level.

Meanwhile, oscillators on the daily chart have just started gaining positive traction and support prospects for additional gains. That said, any subsequent move-up is likely to confront resistance near the 7.1930 area. This is followed by the 61.8% Fibo. level, around the 7.1970-7.1975 region, which if cleared decisively should pave the way for a move beyond the 7.2000 mark, towards the next relevant hurdle near the 7.2020-7.2030 zone.

USD/CNH 4-hour chart

Technical levels to watch

• Gold price struggles to gain any meaningful traction and oscillates in a range on Tuesday.
• The uncertainty over the timing of the first Fed rate cut caps the upside for the XAU/USD.
• Geopolitical tensions, along with sliding US bond yields, lend support ahead of the FOMC.

Gold price (XAU/USD) fails to capitalize on the previous day's strength beyond the 50-day Simple Moving Average (SMA) and oscillates in a narrow trading band during the Asian session on Tuesday. The precious metal remains below the $2,040-2,042 supply zone and well within a familiar trading band as traders seek more clarity about the timing of when the Federal Reserve (Fed) will start cutting interest rates before placing fresh directional bets. Hence, the focus will remain glued to the outcome of the highly-anticipated two-day FOMC monetary policy meeting, scheduled to be announced on Wednesday.

Heading into the key central bank event risk, investors continue scaling back their expectations for a more aggressive Fed policy easing in 2024 in the wake of a still-resilient US economy. This, in turn, is seen as a key factor acting as a headwind for the non-yielding Gold price, though declining US Treasury bond yields offer support. This, along with the escalating Middle East crisis, should help limit the downside for the safe-haven metal. Traders now look to the Prelim GDP prints from the Eurozone and the US macro data – the Conference Board's Consumer Confidence Index and JOLTS Job Openings – for some impetus.

Daily Digest Market Movers: Gold price lacks any firm direction ahead of the key central bank event risk

• Traders opt to move on the sidelines ahead of the critical FOMC monetary policy meeting starting this Tuesday, which leads to subdued range-bound price action around the Gold price on Tuesday.
• The Fed decision on Wednesday and the accompanying policy statement will be scrutinized for cues about the timing of the first rate cut, which will influence the non-yielding yellow metal.
• In the meantime, the ongoing downfall in the US Treasury bond yields, along with the risk of a further escalation of geopolitical tensions in the Middle East, lends support to the safe-haven XAU/USD.
• The US Treasury lowered its forecast for federal borrowing to $760 billion from a prior estimate of $816 billion and dragged the yield on the benchmark 10-year US government bond closer to 4.0%.
• Reports suggest that President Joe Biden will authorize US military action in response to the drone attack by pro-Iranian militias near the Jordan-Syria border that killed three American soldiers.
• A direct US confrontation with Iran will adversely impact global Crude Oil supplies, which could eventually trigger a possible inflation shock for the world economy and hinder global growth.
• Tuesday's release of the Prelim GDP prints from the Eurozone, along with the Conference Board's Consumer Confidence Index and JOLTS Job Openings data from the US, might provide some impetus.

Technical Analysis: Gold price struggles to build on strength beyond 50-day SMA, remains below a key hurdle

From a technical perspective, bulls might still wait for a sustained move beyond the $2,040-2,042 supply zone before placing fresh bets and positioning for any further gains. Given that oscillators on the daily chart have just started moving into the positive territory, the Gold price could then climb to the $2,077 resistance zone before aiming to reclaim the $2,100 round-figure mark.

On the flip side, the overnight swing low, around the $2,020-2,019 area, now seems to protect the immediate downside ahead of the $2,012-2,010 zone and the $2,000 psychological mark. A convincing break below the latter will be seen as a fresh trigger for bearish traders and expose the 100-day SMA, currently near the $1,978-1,977 region. The Gold price could eventually drop to the very important 200-day SMA, near the $1,964 region.

• EUR/USD could find immediate resistance around the major level at 1.0850.
• Technical analysis suggests that the pair could move toward psychological support at 1.0800.
• The break above the 14-day EMA at 1.0877 could lead the pair to approach the psychological barrier at 1.0900.

EUR/USD hovers around 1.0830 during the Asian session on Tuesday after trimming its intraday gains. The EUR/USD pair grapples to recover the losses registered in the previous session. The significant level at 1.0850 may act as immediate resistance for the EUR/USD pair.

A successful breakthrough above the latter could potentially propel the pair toward the 23.6% Fibonacci retracement level at 1.0889, followed by the 14-day Exponential Moving Average (EMA) at 1.0877. A breakthrough above the resistance zone could propel the EUR/USD pair to explore the region around the psychological barrier at 1.0900 level.

The 14-day Relative Strength Index (RSI) for the EUR/USD pair is situated below the 50 mark, signaling a bearish momentum in the market. In addition, the Moving Average Convergence Divergence (MACD), which is a lagging indicator, suggests a potential confirmation of a downward trend. This is indicated by the MACD line being positioned below the centerline and the signal line.

The EUR/USD pair could find immediate support at the psychological level at 1.0800 aligned with the monthly low at 1.0795. A decisive break below the monthly low could strengthen the bearish sentiment to navigate the region around the major support at the 1.0750 level.

EUR/USD: Daily Chart

• Indian Rupee trades around a flat line amid a modest decline in the US Dollar.
• The Indian Rupee took the lead to become the top-performing currency in the Asian markets for January 2024.
• The Federal Open Market Committee's (FOMC) policy meeting and India’s Interim Budget 2024 are the highlights for this week.

Indian Rupee (INR) trades flat with a mild positive bias on Tuesday. The Indian Rupee regains its ground against the US Dollar on the back of foreign portfolio inflows, becoming the top-performing currency in the Asian markets for January 2024. According to a review by a finance ministry, the Indian economy remains resilient amid global challenges due to robust domestic demand, investment-led strategies, and macroeconomic stability.

The Finance Ministry stated that India is on track to become the world's third-largest economy, with a projected Gross Domestic Product (GDP) of $5 trillion over the next three years. Nonetheless, the external risks from sticky inflation, sluggish growth, and fiscal pressures in the global economy, combined with the ongoing tension around the Red Sea could be a potential threat.

Moving on, investors will closely monitor the Federal Open Market Committee (FOMC) January meeting on Wednesday, which is widely expected to keep its key interest rates steady for the fourth time in a row. The attention will shift to India’s Interim Budget 2024 for fiscal year 2024–25 on Thursday.

Daily Digest Market Movers: Indian Rupee remains resilient to global headwinds

• The Indian Rupee becomes the top-performing currency in the Asian markets for January 2024, appreciated by 1% to 2%.
• As of January 29, India’s GDP was estimated to be $3.7 trillion, marking significant growth from its position as the tenth biggest economy a decade ago, with a GDP of $1.9 trillion.
• The stability of INR was attributed to the Reserve Bank of India’s (RBI) timely intervention in the FX market, both by selling and buying Dollars.
• India's Fiscal Budget 2024–25 is anticipated to lower the fiscal deficit as a percentage of GDP to 5.30% in 2024–25 from 5.90% in the current fiscal year.
• The Indian government plans to boost welfare spending and lower the budget deficit to 4.5% of GDP by fiscal year 2025–26.
• US Dallas Fed Manufacturing Business Index for January came in at -27.4 versus -10.4 prior, its lowest level since May.
• The US Core Personal Consumption Expenditures Price Index (Core PCE) for December, the Fed’s favorite inflation gauge, grew by 0.2% MoM from 0.1% in the previous reading.
• On an annual basis, the Core PCE figure increased by 2.9% YoY from the previous reading of 3.2%.
• According to CME Group's FedWatch tool, the sentiment among traders has evolved, with 42% now anticipating a 25 basis points (bps) rate cut by the US Federal Reserve in March.

Technical Analysis: Indian Rupee continues to consolidate in the 82.78 and 83.45 range

Indian Rupee trades on a flat note on the day. The USD/INR pair remains confined in a two-month-old descending trend channel between 82.78 and 83.45. According to the daily chart, the potential upside of USD/INR looks favorable as the pair is above the key 100-period Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) hovers around the 50.0 midline, indicating the directionlessness of the pair.

The upper boundary of the descending trend channel at 83.25 acts as the first upside barrier for the pair. A decisive break above 83.25 could put a trip back to a high of January 2 at 83.35, followed by a 2023 high of 83.47. On the downside, a clear breakout below the confluence of the 100-period EMA and a psychological level at the 83.00–83.05 zone will put a move to a low of December 18 at 82.90 on the table. Any follow-through selling will drag USD/INR lower to the lower limit of the descending trend channel at 82.72.

• GBP/JPY continues to lose ground as risk aversion heightens due to the Middle East tension.
• Japan’s Unemployment Rate contracted to 2.4% in December from 2.5% prior.
• Biden administration is expected to go for military actions in retaliation to the recent drone attack.
• BoE is expected to maintain its current interest rate of 5.25% in its February meeting.

GBP/JPY extends its losses for the second session on Tuesday, edging lower to near 187.40 during the Asian session. The GBP/JPY cross faces a challenge of risk-off sentiment due to the escalated situation in the Middle East, which drives the investors toward the safe-haven Japanese Yen (JPY), which in turn, acts as a headwind for the GBP/JPY pair.

The expectation is that the administration of US President Joe Biden will give the go-ahead for military actions in retaliation to the recent drone attack on a US outpost in Jordan. This attack led to the loss of three US troops and left at least 24 individuals injured.

December’s Unemployment Rate, which comes from the Ministry of Health, Labor and Welfare, showed a reduction in the percentage of unemployed people in Japan. The report showed a contracted figure of 2.4% against the market consensus of remaining consistent at 2.5%. Furthermore, the investors will eye on Retail Trade data scheduled to be released on Wednesday. The annual rate is predicted to print a reading of 4.7% in December, contracting from 5.3% prior.

The Bank of England (BoE) is expected to keep interest rates unchanged at 5.25% during its February monetary policy meeting. Members of the BoE have stressed the importance of maintaining a prolonged period of restrictive monetary policy to address inflation concerns.

BoE Governor Andrew Bailey has expressed the view that it is premature to consider lowering interest rates. Nevertheless, if there are indications that the inflation situation is improving, the central bank might reconsider its stance on rate cuts. Market participants have adjusted their expectations for rate cuts, with the first fully priced in for June instead of May as initially anticipated before the decision.

• WTI attracts some buyers on Tuesday amid fears about supply disruptions in the Middle East.
• Demand concerns in China could act as a headwind for the commodity ahead of the FOMC.
• Traders now look to the API report on US stockpiles for short-term opportunities on Tuesday.

West Texas Intermediate (WTI) US Crude Oil prices tick higher during the Asian session on Tuesday and for now, seem to have stalled the previous day's rejection slide from the 100-day Simple Moving Average (SMA) or a nearly two-month peak.

A further escalation of geopolitical tensions in the Middle East continues to fuel supply concerns and turns out to be a key factor acting as a tailwind for the black liquid. A deadly drone attack on a US base in Jordan by Iran-backed militants killed three American soldiers, marking the first death of US service personnel in the region since the Hamas-Israel war broke out on October 7. Reports suggest that President Joe Biden will authorise US military action, which would begin in the next couple of days and come in waves against a range of targets.

A direct US confrontation with Iran, which exported around 1.2-1.6 million barrels per day or 1-1.5% of Crude Oil through most of 2023, will adversely impact global supply. Adding to this,  an attack on an oil tanker in the Red Sea over the weekend has raised the risks of supply disruptions in the region and might continue to lend some support to Crude Oil prices. That said, the lack of follow-through buying suggests that bulls seem reluctant to place aggressive bets in the wake of demand concerns in China – the world's top Oil importer.

Market participants might also prefer to wait on the sidelines ahead of the highly-anticipated two-day FOMC monetary policy meeting starting this Tuesday. Investors will look for cues about the timing of when the Federal Reserve (Fed) will start cutting interest rates. This, in turn, will influence the US Dollar (USD) price dynamics and drive demand for the USD-denominated commodities. In the meantime, the American Petroleum Institute (API) industry group will publish US stockpile data on Tuesday and provide some impetus to Crude Oil prices.

Technical levels to watch

• USD/CAD trades in negative territory for the fourth consecutive day, near 1.3410.
• Economists expect the first rate cut to occur in May or June, though a cut at the Fed’s March meeting is not off the table.
• Canada is expected to see a slight expansion in November GDP growth numbers.

The USD/CAD pair remains under selling pressure during the early Asian trading hours on Tuesday. Canada’s Gross Domestic Product (GDP) for November will be due on Wednesday, which is forecast to expand by 0.1% MoM. The attention will shift to the Federal Open Market Committee (FOMC) meeting on Wednesday, with no change in rate expected. At press time, USD/CAD is trading at 1.3510, down 0.01% for the day.

The US Core Personal Consumption Expenditures Price Index (PCE) for December, the Fed’s preferred inflation gauge, rose by 0.2% on the month from 0.1% in the previous reading and increased by 2.9% on a yearly basis from the previous reading of 3.2%. On Monday, the US Dallas Fed Manufacturing Business Index for January came in at -27.4 versus -10.4 prior. The Federal Reserve (Fed) will announce its interest rate decision on Wednesday. Most economists expect the first rate cut to occur in May or June, though a cut at the Fed’s March meeting is not off the table.

Apart from this, the rising geopolitical tensions in the Middle East might boost the safe haven currency like the Greenback. Early Tuesday, Sky News reported that US President Joe Biden is likely to authorize US military action in the Middle East as early as Monday night after three American troops were killed and dozens more were injured in an overnight drone strike in northeast Jordan near the Syrian border on Friday.  

On the Loonie front, Canada is expected to see a slight expansion in November GDP growth numbers. The GDP figure is projected to grow by 0.1% compared to the flat 0.0% in October. Meanwhile, a rise in oil prices might lift the commodity-linked Loonie and act as a headwind for the USD/CAD pair. 

Market participants will closely watch the Fed’s upcoming rate decision and monetary policy statement at 19:00 GMT on Wednesday. Traders will take cues from the press conference and find trading opportunities around the USD/CAD pair.

• The Japanese Yen builds on the overnight gains against the USD amid geopolitical risks.
• Hopes for an imminent shift in the BoJ’s policy stance further lend support to the JPY.
• Bulls might prefer to wait for the outcome of a two-day FOMC meeting on Wednesday.

The Japanese Yen (JPY) gains positive traction against its American counterpart for the second straight day on Tuesday, dragging the USD/JPY pair to the 147.25 region during the Asian session. President Joe Biden is expected to authorize US military action in the Middle East in response to the drone attack by pro-Iranian militias near the Jordan-Syria border that killed three American soldiers. This raises the risk of a further escalation of geopolitical tensions, which, in turn, is seen as benefiting the JPY's relative safe-haven status.

Meanwhile, the Bank of Japan (BoJ) signaled last week that conditions for phasing out huge stimulus and pulling short-term interest rates out of negative territory were falling into place. Moreover, expectations that another substantial round of pay hikes by Japanese firms could fuel consumer spending and demand-driven inflation should allow the central bank to pivot away from its ultra-loose monetary policy settings. This, to a larger extent, overshadows signs of slowing inflation in Japan and continues to underpin the JPY.

The US Dollar (USD), on the other hand, is weighed down by the overnight sharp decline in the US Treasury bond yields and turns out to be another factor contributing to the offered tone surrounding the USD/JPY pair. Traders, however, might refrain from placing aggressive directional bets and prefer to wait for more cues about the timing of when the Federal Reserve (Fed) will start cutting interest rates. Hence, the focus will remain glued to the outcome of the highly-anticipated two-day FOMC policy meeting starting today.

Daily Digest Market Movers: Japanese Yen attracts some haven flows amid escalating Middle East tensions

• Against the backdrop of the Bank of Japan's hawkish tilt, fears that a further escalation of conflicts in the Middle East could engulf the region in a wider war benefit the safe-haven Japanese Yen.
• Reports suggest that President Joe Biden will authorize US military action in the Middle East, which would likely begin in the next couple of days and come in waves against a range of targets.
• The US Treasury lowered its forecast for federal borrowing to $760 billion from a prior estimate of $816 billion, dragging the US bond yields lower across the board and undermining the US Dollar.
• The downside for the USD/JPY pair seems limited as traders might prefer to wait for the outcome of a two-day FOMC policy meeting on Wednesday for cues about the timing of the first rate cut.
• Investors have been scaling back their expectations for a more aggressive policy easing by the Fed in 2024 in the wake of the upbeat US macro data and signs that the economy is still in good shape.
• Heading into the key central bank event risk, traders on Tuesday might take cues from the release of the Conference Board’s Consumer Confidence Index and JOLTS Job Openings data.
• Investors this week will also confront the release of important US macroeconomic data scheduled at the beginning of a new month, including the Nonfarm Payrolls (NFP) on Friday.

Technical Analysis: USD/JPY is likely to attract fresh buyers near last week’s swing low, around the 146.65 region

From a technical perspective, the USD/JPY pair currently trades around the 100-day Simple Moving Average (SMA) pivotal point. With oscillators on the daily chart holding comfortably in the positive territory and still far from being in the overbought zone, any subsequent slide below the 147.00 mark 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. Bulls might wait for a sustained strength beyond the latter before placing fresh bets. The USD/JPY pair might then surpass the 149.00 mark and accelerate the positive move towards the 149.30-149.35 intermediate hurdle en route to the 150.00 psychological mark.

• Australian Dollar appreciates for the second straight session amid a stable US Dollar.
• Australia's Retail Sales (MoM) declined by 2.7% in December against the expected fall of 0.9% and the previous growth of 2.0%.
• US Dollar faced a challenge on lower US yields due to the healthier US balance sheet.
• US Treasury Department plans to borrow $760 billion in Q1 lower than the previous estimate of $816 billion in October.

The Australian Dollar (AUD) continues to gain ground on Tuesday amid a stable US Dollar (USD). The AUD/USD pair received upward support as United States (US) bond yields declined in the previous session, a trend attributed to the healthier US balance sheet. 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.

Australia's Bureau of Statistics released the seasonally adjusted Retail Sales (MoM) for December on Tuesday, indicating 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%. Surprisingly, the Aussie Dollar (AUD) strengthened despite the release of disappointing consumer spending data. The AUD's resilience could be attributed to positive sentiments stemming from news about additional stimulus measures in China, consequently motivating the AUD/USD pair. Furthermore, the Australian Consumer Price Index (CPI) data will be eyed on Wednesday, which is expected to decline by 0.8% in the fourth quarter from 1.2% prior.

The US Dollar Index (DXY) shows stability after experiencing losses on Monday, attributed to improved 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, resulting in the death of three US troops and injuries to at least 24.

Investors will closely monitor the Federal Open Market Committee (FOMC) statement scheduled for Wednesday, January 31. The consensus expectation is that the Fed Funds rate will remain unchanged at 5.25-5.50%. However, the prevailing market bias toward a potential rate cut in March may exert downward pressure on the US Dollar (USD). Ahead of the FOMC statement, Tuesday's releases of the Housing Price Index and Consumer Confidence figures will be closely watched for further insights into the market.

Daily Digest Market Movers: Australian Dollar advances amid a stable US Dollar

• 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.
• The Reserve Bank of Australia’s (RBA) Bulletin has indicated that over the past six months, businesses generally expect a moderation in their price growth, with prices anticipated to remain above the RBA's inflation target range of 2.0–3.0%.
• Chinese financial media reported that the People's Bank of China (PBoC) may cut the Medium-term Lending Facility (MLF) rate in the current quarter. The announcement follows the recent statement by PBoC Governor Pan Gongsheng, who revealed that the Bank would reduce the Required Reserve Ratio (RRR) by 50 basis points starting from February 5th.
• 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 moves above the psychological level of 0.6600

The Australian Dollar trades around 0.6620 on Tuesday, encountering initial resistance at the 21-day Exponential Moving Average (EMA) at 0.6629 followed by the key resistance level at 0.6650. A firm breakthrough above the resistance level could improve the sentiment for the AUD/USD pair to surpass the 38.2% Fibonacci retracement level at 0.6657 following the psychological barrier at 0.6700. On the downside, the AUD/USD pair could find immediate support at the psychological level at 0.6600. A break below the latter could push the pair to revisit 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.

AUD/USD: Daily Chart

US President Joe Biden is likely to authorize US military action in the Middle East as early as Monday night, per Sky News. The highly anticipated decision from Biden comes after three American troops were killed and dozens more were injured in an overnight drone strike in northeast Jordan near the Syrian border on Friday.  

Market reaction

At the time of writing, the US Dollar Index (DXY) is trading near 103.41, holding lower while losing 0.05% on the day.

The People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead on Tuesday at 7.1055 as compared to the previous day's fix of 7.1097 and 7.1763 Reuters estimates.

• EUR/USD rebounds to 1.0841 on the softer US Dollar. 
• ECB’s Kazimir said the central bank won’t rush into cutting rates to avoid undoing progress on inflation.
• The Federal Reserve (Fed) is likely to keep its key interest rates steady for the fourth time in a row. 
• The German and Eurozone Q4 Gross Domestic Product (GDP) reports are due on Tuesday. 

The EUR/USD pair recovers some lost ground below the mid-1.0800s during the early Asian trading hours on Tuesday. The rebound of the major pair is driven by the modest decline of the US dollar (USD) and lower US Treasury bond yields. Investors await the advanced Q4 Gross Domestic Product (GDP) from Germany and the Eurozone ahead of the Federal Open Market Committee (FOMC) meeting on Wednesday. The major pair currently trades near 1.0841, adding 0.09% on the day.

The European Central Bank (ECB) Governing Council member Peter Kazimir said that the central bank won’t rush into cutting interest rates to avoid undoing progress on inflation. Kazimir added that it would be risky to act rapidly in response to short-term surprises without having more clarity about the medium term. Additionally, Bank of France governor François Villeroy de Galhau stated that the ECB will cut our rates this year and that everything will be open at the next meeting on March 7.

The advanced Q4 Eurozone Gross Domestic Product (GDP) is due on Tuesday, which is estimated to contract by 0.1% QoQ and remain steady on an annual basis. If the report shows a weaker-than-expected outcome, this could exert some selling pressure on the Euro (EUR) and act as a headwind for the EUR/USD pair. 

Across the pond, the Federal Reserve (Fed) is likely to keep its key interest rates steady for the fourth time in a row. Nonetheless, there is a chance that the Fed might lower the rates by 25 basis points (bps) in March. According to the CME FedWatch Tool, futures traders have priced in a 45.9% likelihood that the Fed would cut interest rates for the first time this cycle in the March meeting.

Looking ahead, the German and Eurozone GDP growth numbers for Q4 will be released on Tuesday. On the US docket, US JOLTS Job Openings and the Consumer Confidence gauge by the Conference Board will be released. The attention will shift to the FOMC meeting on Wednesday.

Australia’s Retail Sales, a measure of the country’s consumer spending, fell 2.7% MoM in December from the previous reading of a 2.0% rise, according to the official data published by the Australian Bureau of Statistics (ABS) on Tuesday. The figure came in weaker than the market expectation with a decrease of 0.9%.

Market reaction

Following Australia’s Retail Sales data, the AUD/USD pair is up 0.05% on the day at 0.6614.

About Australia's Retail Sales

The Retail Sales released by the Australian Bureau of Statistics is a survey of goods sold by retailers is based on a sampling of retail stores of different types and sizes and it''s considered as an indicator of the pace of the Australian economy. It shows the performance of the retail sector over the short and mid-term. Positive economic growth anticipates bullish trends for the AUD, while a low reading is seen as negative or bearish.

The Reserve Bank of New Zealand (RBNZ) Chief Economist Paul Conway said on Tuesday that  the downward revisions to economic activity data does not mean less inflation pressure in the economy.

Key quotes

Market reaction

The NZD/USD pair is trading higher by 0.01% on the day to trade at 0.6134, as of writing.