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• Gold price attracts some sellers on the higher US dollar and bond yields.
• US Retail Sales came in well above expectations in December.
• Traders decreased their bets on interest rate cuts from the Federal Reserve (Fed) in March.
• The discouraging Chinese economic data exerts some selling pressure on the yellow metal.

Gold price (XAU/USD) drops to the $2,000 mark during the early Asian trading hours on Thursday. The downward momentum of yellow metal is supported by the strong economic data in the US, which dampened expectations of an imminent cut in interest rates. At press time, the gold price is trading at $2,007, up 0.07% on the day.

Meanwhile, the US Dollar Index (DXY), a measure of the USD’s value relative to the majority of its most significant trading partners, soars to the new 2024 peak near 103.70. The US Treasury yields edge higher across the curve, with the 10-year yield standing at 4.10%.

Investors are uncertain about the timeframe that the Federal Reserve (Fed) could start discussing the interest rate cuts. According to the CME Fedwatch tool, traders see 57% odds for a 25 basis points (bps) interest rate cut in March, down from 70% at the start of the week.

Furthermore, the better-than-expected US Retail Sales data pushed back expectations of rate cuts. On Wednesday, December Retail Sales came in at 0.6% MoM versus 0.3% prior. For the control group, the Retail Sales figure arrived at 0.8% in December from the previous reading of 0.5%.

The sentiment around further deterioration in Chinese data releases weighs on the gold price as China is one of the world's largest gold consumers. The nation’s Gross Domestic Product (GDP) expanded at 5.2% last year, missing expectations of 5.3%. Industrial production rose 6.8% YoY in December, and Retail Sales eased to 7.4% YoY in December from 10.1% in the previous month.

Traders will keep an eye on the US Housing Starts, Building Permits, weekly Initial Claims, and Philly Fed Manufacturing Index, due on Thursday. These figures could give a clear direction to the gold price.

• AUD/USD extends its downside around 0.6550 on the firmer USD. 
• US Retail Sales came in at 0.6% MoM in December vs. 0.3% prior, beating expectations.
• The Reserve Bank of Australia (RBA) maintains its cautious stance and forecasts only two rate cuts this year. 
• The Australian Unemployment Rate and Employment Change for December will be the highlights on Thursday. 

The AUD/USD pair remains under selling pressure during the early Asian session on Thursday. The downtick of the pair is driven by the discouraging Chinese data and the stronger US Dollar (USD) broadly. AUD/USD bounces off the fresh six-week lows near 0.6520 and currently trades around 0.6552, gaining 0.04% on the day. 

Data from the Commerce Department reported on Wednesday that US Retail Sales rose 0.6% MoM in December from 0.3% in November, better than the estimation of 0.4%. Meanwhile, the Retail Sales Control Group grew 0.8% MoM in December from 0.5% in the previous reading, stronger than expected. 

The Greenback gains traction for the fourth consecutive day as the Federal Reserve's (Fed) rate cut expectations ease. The US central bank seems not yet sure that inflation will reach 2% and Fed Governor Christopher Waller said on Tuesday that any rate cuts this year should be done "methodically and carefully.”

On the Aussie front, the current cash rate sits at 4.34% after a hike of 25 basis points (bps) at the Reserve Bank of Australia (RBA) November meeting. The RBA maintains its cautious stance and forecasts only two rate cuts this year, whereas the US financial markets have priced in six rate cuts by the end of the year. Investors await the Australian labor data on Thursday for fresh impetus. The Unemployment Rate is estimated to remain at 3.9% for December. 

Later on Thursday, market players will closely monitor the Australian employment data, including the Unemployment Rate and Employment Change for December. On the US docket, Housing Starts, Building Permits, weekly Initial Claims, and the Philly Fed Manufacturing Index will be due. 

• EUR/JPY up 0.73%, influenced by risk-off sentiment and expectations of delayed rate cuts by major banks.
• Upward trend faces resistance at 161.24; breach could target 162.00 level.
• Downside risks for EUR/JPY below 161.00, with supports at 159.95 and key confluence at 159.23.

The Euro (EUR) rose sharply against the Japanese Yen (JPY) on Wednesday, up 0.73% amid a risk-off impulse and economic data suggesting that major central banks would deter cutting rates in the near term. At the time of writing, the EUR/JPY trades at 161.12, posting minuscule losses of 0.07% as Thursday’s Asian session begins.

From a technical standpoint, the EUR/JPY daily chart portrays the pair as upward biased, extending its gains past the 161.00 figure, but its advance was capped at previous support turned resistance at around 161.24, the November 21 swing low. A breach of the latter will expose the 162.00 figure, followed by the November 27 high at 163.72.

On the flip side, if sellers drag the EUR/JPY below the 161.00 mark, that can pave the way for further losses. But they would face immediate support at the January 17 low of 159.95, followed by the confluence of the January 16 daily low and the Tenkan-Sen at around 159.23, ahead of the Senkou Span B at 158.71

EUR/JPY Price Action – Daily Chart

EUR/JPY Technical Levels

New Zealand's Food Price Index (FPI) saw its lowest annual food price increase since December of 2021 according to StatsNZ. While food prices were broadly higher across the five main categories for the year ended December, December also saw a fourth consecutive month of MoM declines in food inflation.

Monthly food prices fell 0.1% in December, a slowly pace of declines than November's 0.2% downturn, but still a step lower.

Food prices still remain notably higher than this time last year, despite a total of 5 out of 12 months of headline FPI declines.

Grocers and non-alcoholic beverages were up 5.4 and 5.5% over the year respectively, while restaurants and ready-to-eat foods saw the biggest gains of 7.1%. Fruits and vegetables kept the overall numbers from going much higher, seeing only 1.5% in overall price gains YoY.

Market Reaction 

The NZD/USD is trading in-line with near-term momentum in early Thursday trading, holding onto a recovery back above the 0.6100 handle from earlier Wednesday.

About New Zealand's Food Price Index

The Food Price Index (FPI) released by the Statistics New Zealand measures price changes of food bought by households. New Zealand depends upon exporting agricultural goods and food products. Thus, high food prices relatively suggest an increase of trade interests. A high reading is seen as positive (or bullish) for the NZD, while a low reading is negative (or Bearish)

• 10-year Treasury note yields climb to 4.129%, and 30-year bonds reach 4.344%, reflecting investors' alignment with the Fed's cautious policy outlook.
• Positive US Retail Sales and Industrial Production data contribute to rising bond yields and slight gains in the USD, currently at 103.38.
• Fed Governor Waller's emphasis on a methodical approach to easing monetary policy prompts market recalibration, reducing bets on aggressive rate cuts.

US Treasury yields across the yield curve climbed to five-week highs as the 10-year note rose to 4.129%, while the 30-year bond jumped as high as 4.344%, on investors adhering to the US Federal Reserve (Fed) “higher for longer” mantra. Consequently, that sponsored a leg-up in the Greenback (USD) though pared some of its gain, clings to minuscule gains of 0.05%, at 103.38.

Investors adopt the “higher-for-longer” mantra as US 2-year yields skyrocketed

Traders during the US session witnessed the release of US Retail Sales for December, which saw an increase of 0.6%, surpassing both the forecasted rise of 0.4% and the figures from November. Later, the US Federal Reserve reported a modest improvement in Industrial Production, which grew by 0.1%. This marks a positive shift after a period of contraction and stagnation in October and November of the previous year.

In addition to that, earlier data revealed during the European session revealed that the UK’s inflation exceeded forecasts, sparking a jump in global bond yields.

At the beginning of the week, investors were expecting 175 basis points of rate cuts by the Fed in 2024. But throughout the session, they adjusted their bets, and now expect 145 basis points of monetary easing, which means they trimmed one rate cut.

On Tuesday, Federal Reserve Governor Christopher Waller said the Fed is not in a hurry to ease its monetary policy, as inflation is "within striking distance" of their target. While he is open to the idea of reducing interest rates, Waller cautioned that any such policy changes need to be "carefully calibrated and not rushed," emphasizing the importance of waiting until the risks of inflation reigniting have significantly diminished.

The US 10-year Treasury note climbed four basis points, up to 4.106%, while the 30-year bond rose five basis points toward 4.344%, before retreating to 4.323%. Meanwhile, the diversion of the US 10s-2s yield curve, halted, as the 2-year Treasury note climbed 13 basis points of expectations that the Fed would remain reluctant to easy policy as the markets expected.

Ahead of the week, the US economic docket will feature US Initial Jobless Claims, and further Fed speakers will cross the wires on Thursday, followed by Friday’s University of Michigan (UoM) Consumer Sentiment.

US 10s-2s Spread Chart

• The NZD/JPY rose by 0.20% towards 90.47.
• Indicators on the daily chart suggest that the bulls are holding strong.
• The Yen was one of the worst-performing currencies in the session.
• The SMAs indicate firm control of bulls over the longer term.

In Wednesday's session, the NZD/JPY was seen trading at 90.47, showing modest gains of 0.20%. Despite a neutral to bullish outlook on the daily chart, bulls maintain a tenacious grip. With sellers momentarily silenced, the buyers also dominate the four-hour chart, albeit taking a breather, hinting at the possibility of further upside momentum.

The daily chart reveals a somewhat balanced playing field in the market but tilted to the upside. The Relative Strength Index (RSI) portrays an upward trajectory within the positive territory, indicating an increasing buying momentum. Simultaneously, the Moving Average Convergence Divergence (MACD) shows flat green bars, suggesting a flat momentum with a bullish bias. In the meantime, the pair is trading above the 20, 100, and 200-day Simple Moving Averages (SMAs), confirming that the bullish sentiments may still hold in the larger time frame despite some negative waves in the short run. In essence, the overall daily technical patterns exhibit a scenario where the bulls hold their ground and have a slight upper hand over the sellers.

Moving toward the four-hour chart, the pictures are similar. The RSI appears flat but remains positive, unveiling a short-term stagnancy in buying pressure lining with the MACD. Although the bulls are taking a breather at this juncture, they still seem to maintain control.

NZD/JPY technical levels

NZD/JPY daily chart

• The GBP/JPY found additional topside on Wednesday as Yen recedes further.
• Japanese Yen continues to get pulled under by BoJ policy stance.
• UK CPI beat the street, UK Retail Sales slated for Friday.

The GBP/JPY found fresh chart paper on the high side towards the 190.00 major handle, climbing over a full percent on the day as the Pound Sterling (GBP) catches a lift against the beleaguered Japanese Yen (JPY) after a better-than-expected print in the UK’s Consumer Price Index (CPI) inflation. 

UK CPI inflation printed better than markets expected early Wednesday, showing MoM CPI in December climbed 0.4%, double the median market forecast of 0.2% and eating away at the previous period’s downside print of -0.2%. With inflation stickier than investors expected, odds of the Bank of England (BoE) kicking off a round of rate cuts are vanishing into the ether, pulling down risk assets and sending the GBPbroadly higher on repatriation flows.

The UK Retail Price Index in December also rose 0.5% versus the forecast 0.4% and previous -0.1%, adding to rate-hungry investors’ chagrin.

The Bank of Japan (BoJ) remains firmly committed to a hyper-easy monetary policy stance, and the BoJ is determined to continue dragging the Yen under the bow as policymakers at the Japanese central bank fear a possible decline in inflation below the BoJ’s 2% target sometime in the future.

Figures on Japanese Machinery Orders in November are expected early in Thursday’s Asia market session, with MoM Machinery Orders expected to decline 0.8% compared to October’s 0.7% growth. The annualized YoY Machinery Orders through November are expected to recover from the previous period’s -2.2% to 0.2% as near-term declines enter the data series from the near end.

GBP traders will get one more crack at the data calendar on Friday when UK Retail sales figures for December print, and median market forecasts are calling for a MoM print of -0.5% (last 1.3%) and a YoY print of 1.1% (previous 0.1%) for the year through December.

GBP/JPY Technical Outlook

The GBP/JPY’s recent rise through the 186.00 handle has the pair set for a challenge of 189.00 if selling pressure doesn’t set in to bring the pair back down to the median. In the near-time, average prices are far below current price action with the 200-hour Simple Moving Average (SMA) lagging momentum back at 185.00, and it’ll take a 1.6% decline from current bids to bring the pair back in-line with the median.

The GBP/JPY remains well-bid on daily candlesticks, continuing to push higher after January’s early rebound from the 200-day SMA near 180.00. Continued bullish momentum will see the pair making multi-year highs above 188.66, while the downside is capped off by a technical floor at the 50-day SMA near 184.00.

GBP/JPY Hourly Chart

GBP/JPY Daily Chart

GBP/JPY Technical Levels

• Silver price down 1.58%, nearing $22.50, amid strong US Retail Sales and Industrial Production data.
• Waller's comments on cautious rate cuts prompt market to rethink Fed easing expectations."
• Technical outlook: Further silver price decline possible, with focus on $22.00 and $21.88; $23.00 critical for recovery.

Silver price stays depressed for the second straight day, though it appears to have bottomed at around the $22.50 area for the third occasion during the last couple of months, as it loses 1.58% after hitting a daily high of $22.94.

XAG/USD falters, bottoms at around $22.50 as investors adjust Fed rate cut trajectory

Fundamentally speaking, solid economic data from the United States (US) bolstered the Greenback (USD) as US Treasury yields resumed to the upside. Retail Sales for December rose by 0.6%, exceeding forecasts of a 0.4% jump and November’s reading. Lately, the US Federal Reserve announced that Industrial Production improved modestly by 0.1%, after contracting and stagnating in October and November of last year.

Meanwhile, Fed officials continued to push back against aggressive rate cuts, even though most of them see at least three rate cuts, as portrayed by December’s Summary of Economic Projections (SEP). Yesterday’s comments of Fed Governor Christopher Waller, who said that he supports rate cuts but added the US central bank is in no rush to relax policy. That sparked a reaction on bets that the Fed would ease policy faster than expected, as seen with investors trimming odds from 175 basis points of rate cuts at the beginning of the week to 148.

XAG/USD Price Analysis: Technical outlook

Therefore, further Silver’s weakness is expected, though sellers must push prices below $22.50. A breach of that level will expose the $22.00 a troy ounce figure, followed by the November 13 swing low of $21.88. Further downside is seen at the October 3 low of $20.69. Contrarily, if buyers regain $23.00, that could pav the way for challenging the 100-day moving average (DMA) at $23.20.

XAG/USD Technical Levels

Further reduction of bets on an interest rate cut by the Fed in March propelled the USD Index (DXY) to a new yearly high and aligned with the extra narrative suggesting the ECB could wait until the summer to trim its rates, which eventually appears to have bolstered the late bounce in the single currency. By the same token, higher-than-expected UK inflation figures seem to have lent support to the view of a steady hand by the BoE in the next few months.

Here is what you need to know on Thursday, January 18:

The Greenback gathered extra pace on Wednesday and pushed the USD Index (DXY) to new 2024 peaks near 103.70 against the backdrop of further gains in US yields across different maturities. The resilience of the US economy will be put to the test on Thursday with the releases of Housing Starts, Building Permits, usual weekly Initial Claims and the always-relevant Philly Fed Manufacturing Index.

EUR/USD dropped to new multi-week lows near 1.0840 band on the back of persistent strength in the greenback, while ECB officials continued to pour cold water over expectations of interest rate cuts by the bank in H1 2024. Moving forward, the ECB will release its Accounts of the latest meeting, while President Lagarde is due to speak at the WEF in Davos.

Despite the dollar’s dominance, the British pound managed to derive support from higher-than-expected UK inflation figures in December, which in turn helped GBP/USD chart decent gains at the end of the day. There will be no data releases across the Channel on Thursday.

The needle-like march north in USD/JPY surpassed the 148.00 barrier amidst the continuation of the upside momentum in the greenback in combination with another firm session in US yields across the board. On Thursday, Machinery Orders and final Industrial Production readings, coupled with weekly Foreign Bond Investment should keep traders entertained early in Asia.

There was no respite for the selling pressure around the Aussie dollar on Wednesday. That said, AUD/USD sank to fresh six-week lows near 0.6520 in response to usual dollar dynamics and discouraging results from the Chinese docket. Next of note in Australia is the labour market report for the month of December.

The intense move higher in the dollar, coupled with rising US yields across the curve, weighed further on both Gold and Silver. The sentiment around the latter further deteriorated in the wake of Chinese data releases.

Prices of the WTI rose past the $72.00 mark per barrel and partially reversed the recent weakness on the back of an upbeat report from the OPEC despite the poor prints from China and the stronger dollar. Traders’ focus will be on the release of the usual weekly report on US crude oil inventories by the EIA.

• US Dollar strength is hampering Crude Oil barrel bids.
• Disappointing growth figures from China depress energy markets on demand concerns.
• A late-day rebound brought Crude Oil back on-balance for Wednesday.

Lagging growth from China, steadily increasing global Crude Oil production, and a rising US Dollar (USD) saw West Texas Intermediate (WTI) US Crude Oil fall into a fresh low for the week near $70.60. 

Chinese growth figures disappointed early Wednesday, with China’s annualized Gross Domestic Product (GDP) through the fourth quarter missing expectations of 5.3%, printing at 5.2% compared to the previous quarter’s 4.9%.

With Chinese growth failing to hit market expectations, concerns are mounting that China’s demand for fossil fuels will decline looking forward, widening the gap between global demand for Crude Oil and current production rates that are already outpacing demand despite steep production cuts from the Organization for the Petroleum Exporting Countries (OPEC). 

With US production continuing to increase Crude Oil production into new all-time highs, OPEC is going to have to commit to even steeper production caps moving forward, a move that will become increasingly undesirable for smaller member states within the oil cartel who are already depressing Crude Oil output as much as their government budgets can afford.

Despite downside pressures, including a rising US Dollar on Wednesday, Crude Oil markets found a leg up on ongoing geopolitical concerns with Iran-backed Houthi rebel is Yemen determined to continue attacking civilian cargo ships passing through the Red Sea en route for the Suez Canal.

Many private logistics companies have rerouted shipping lanes around the continent of Africa to connect Europe and Asia, limiting the potential for supply constraints, but energies markets remain determined to fear the possibility of Crude Oil supply being unable to make it to market amidst Red Sea tensions.

WTI Technical Outlook

WTI’s early decline on Wednesday saw a rebound back above the 200-hour Simple Moving Average (SMA) near $72.40 as US Crude Oil heads back towards the $73.00 handle. 

Crude Oil’s back-and-forth on Wednesday sees WTI pushing into the middle of a long-term congestion pattern forming up on daily candlesticks with a nearly-flat 200-day SMA near $78.00 and a declining 50-day SMA pressing down on intraday price action from $74.00.

WTI Hourly Chart

WTI Daily Chart

WTI Technical Levels

• Gold's downward trend continues, losing more than 1% due to strong US Retail Sales data and a surge in US Treasury yields.
• The upward trajectory of the US Dollar Index to a five-week high and hawkish Fed comments contribute to Gold's decline.
• Traders focus shift on upcoming US unemployment and consumer sentiment data as they recalibrate the Fed’s interest rate cuts expectations.

Gold price is on the back foot, losing more than 1% in the back-to-back trading sessions on Wednesday, as solid economic data from the United States (US) sent US yields rising while traders scramble to pare Federal Reserve’s rate cut bets.

XAU/USD losses amid rising US yields, as traders price out almost a 50% chance of Fed rate cut in March

A solid US Retail Sales report was the main reason for Gold’s fall as US Treasury bond yields continued to aim higher. The US Department of Commerce showed that sales in December exceeded forecasts of 0.4% and jumped 0.6%. The data boosted the Greenback to a five-week high of 103.69, according to the US Dollar Index (DXY), and US Treasury bond yields continued to advance.

Expectations for an interest rate cut by the Federal Reserve (Fed) plunged from 63% a day ago to 52% after today’s data and Tuesday's remarks of Fed Governor Waller that there is "no reason to move as quickly or cut [interest rates] as rapidly as in the past," suggesting a more cautious approach to monetary policy adjustments. Despite this caution, he is willing to support rate cuts if there is a definitive decrease in inflation.

Lately, Industrial Production (IP) in the US has expanded by 0.1%, exceeding the forecast and the previous month's 0% increase, helped by a pickup in motor-vehicle production linked to the United Auto Workers (UAW) strike.

Sources cited by Reuters said, “Markets were betting that the Fed was starting to cut rates already at the end of the first quarter of this year, and now they're recalibrating a bit after hawkish comments from some members of the Federal Reserve.”

Ahead of the week, the US calendar will feature further Fed speakers, along with unemployment claims data on Thursday and the release of the University of Michigan’s (UoM) Consumer Sentiment poll.

XAU/USD Price Analysis: Technical outlook

The XAU/USD diving below the 50-day moving average (DMA) exacerbated the drop toward the $2001 year-to-date (YTD) low. Although buyers of the non-yielding metal moved in and lifted the spot price to current levels, Gold is at the brisk of extending its losses, below the $2000 mark. A decisive break of that level will expose the confluence of the 100 and 200-DMAs at around $1971/$1963, respectively.

• DXY Index rises decisively, trading with gains around 103.50 level above the 100-day SMA.
• US Retail Sales in the last month of 2023 rose higher than expected.
• Markets ease their dovish bets on the Fed for March and May FOMC meetings.

The US Dollar (USD) reached a notable stride, trading at 103.50 while confidently deflecting the pressures of the 100-day SMA. This robust stride has been primarily fueled by the strong US Retail Sales data from December and a notable rise in US Treasury yields, both of which show that markets are adjusting their bets on the Federal Reserve’s (Fed) rate-cutting timeline. 

The resilient US economy, evidenced by the latest data, is making adjustments to the market's dovish bets, albeit odds for rate cuts in March and May still hover around 50%. In December, CPI inflation picked up, as well as the job creation pace and wages, while economic activity remains strong, which is making markets believe that the Fed might not consider cutting rates too soon.

Daily Digest Market Movers: US Dollar ascends, bolstered by strong Retail Sales from December

• December's Retail Sales reported by the US Census Bureau outperformed consensus, registering 0.6% growth versus the 0.4% forecast and 0.3% from the previous period. 
• The Fed's Beige book report didn't trigger any movements on the Greenback. It stated that the majority of the twelve Federal Reserve districts reported little or no change in economic since the last release.
• An uptick was observed in US bond yields as 2-year, 5-year, and 10-year notes currently trade at 4.30%, 4.02%, and 4.09%, respectively.
• As per the CME FedWatch Tool, the odds of cuts for March and May eased, but they remain high at around 50%.

Technical Analysis: DXY bulls step in and regain the 100-day SMA but now must defend it

The indicators on the daily chart reflect a somewhat bullish bias. The Relative Strength Index (RSI) demonstrates a positive slope in positive territory, endorsing growing buying momentum. The Moving Average Convergence Divergence (MACD) shows rising green bars, indicating the continuance of upward traction in favor of bulls.

The position of the index regarding Simple Moving Averages (SMAs) reveals a mixed picture. The DXY is now positioned above the 20 and 100-day SMAs, an encouraging sight for the buyers. However, it remains below the 200-day SMA, suggesting an undercurrent of bearish sentiment. Despite the recent bearish movements, bulls appear to be gaining ground.

Support levels: 103.40 (100-day SMA), 103.00, 102.80, 102.50.
Resistance levels: 103.60, 103.80, 104.00.

• The AUD/JPY currently trades at 96.97, gaining a marginal 0.10%.
• Weak Chinese data weakened both the AUD and JPY.
• Indicators on the daily chart favor the bulls.

In Wednesday's session, the AUD/JPY was spotted at 96.97, gaining a subtle 0.10% gain, and it seems buyers remain in control with the daily chart appearing neutral to bullish and bulls proving their strength in the four-hour chart framework. On the fundamental side, both the AUD and JPY weakened during the sessions due to the report of soft Chinese economic figures, which contributed to their being the worst-performing currencies amongst their peers.

Examining the daily chart indicators, the Relative Strength Index (RSI) depicts a flat position within the positive territory, signifying a balanced momentum, while the Moving Average Convergence Divergence (MACD) also exhibits a similar pattern, depicting flat green bars. Additionally, the pair currently sails above its 20, 100, and 200-day Simple Moving Averages (SMAs), a potent sign of bullish dominance. This scenario suggests that despite a near-term balance in buying momentum, the broader spectrum remains favorable for the bulls, who seem to be assertively holding their ground.

Moving onto a shorter time frame, the four-hour chart paints a picture of more evident bullish momentum. Indicators highlight the strengthening buying force, with a positive slope and territory for the four-hour Relative Strength Index (RSI), hinting at the continuation of the upward momentum. The Moving Average Convergence Divergence (MACD) on this chart manifests flat green bars, confirming the existing bullish strength. Therefore, in this shorter time frame, there's a clear presence of buying momentum, accentuating the prevailing bullish outlook.

AUD/JPY technical levels

AUD/JPY daily chart

• GBP/USD up 0.25%, buoyed by UK's unexpected inflation increase to 4% year-on-year.
• US Retail Sales growth, Fed's slow rate cut approach pose challenges, capping GBP's upside.
• UK's rising inflation pressures Bank of England, contrasting with anticipated Fed rate cut in March.

The Pound Sterling (GBP) registered decent gains versus the US Dollar (USD) on Wednesday after a solid report from the Office for National Statistics (ONS) outshone US Retail Sales data for December. Nevertheless, not all has been said, as the GBP/USD pared some of its gains, but it remains up 0.25%, at 1.2667, after hitting a low of 1.2596.

Jump in UK inflation, could deter the BoE from cutting rates, tailwind for GBP/USD

Data from the US Department of Commerce revealed that Retail Sales in December expanded above estimates in month-over-month numbers, at 0.6%. At the same time, in 12 months to December data, sales grew at a 5.6% rate, crushing November’s 4%. Lately, the US Federal Reserve (Fed) revealed that Industrial Production for the same period edged up by 0.1%, a substantial recovery after plunging 0.0.8% in October and printing a 0% reading in the next month.

After the data, the Greenback remained in the driver’s seat, a headwind for the GBP/USD pair. The US Dollar gained momentum following remarks from Fed Governor Waller, who stressed there’s “no reason to move as quickly or cut as rapidly as in the past,” keeping investors in check despite supporting rate cuts if inflation continued to trend sustainably towards its 2% goal.

Across the pond, the ONS in the UK revealed that inflation jumped the most in December, for the first time in 10-months, and increased the pressure on the Bank of England (BoE). Consequently, the Pound Sterling, rose against the US Dollar and the Euro (EUR). Figures showed that yearly inflation rose 4%, above the consensus of 3..8%, while underlying inflation surpassed the 5% threshold.

Sources cited by Reuters said “The stronger than expected reading for both core and services inflation in December .. are disappointing and will discourage the BoE from beginning to cut rates sooner.” Market participants expect the BoE to cut rates 80% in May, while odds for a Fed rate cut are seen at 60% in March¸ lower than yesterday’s 76.3%.

GBP/USD Price Analysis: Technical outlook

The GBP/USD daily chart portrays the pair as neutral to downward biased, even thought price action on Wednesday, could complete a ‘bullish piercing’ pattern, which would suggest further upside is seen. Nevertheless, given that the most important UK data is on the rearview mirror, that could pave the way to challenge the 50-day moving average at 1.2599, below the 1.2600 as sellers could test the 200-day moving average (DMA) at 1.2545. On the other hand, if buyers lift the pair above 1.2700, that could shift the bias to neutral, and open the door for a 1.2800 test.

• DXY Index rises decisively, trading with gains around 103.50 level above the 100-day SMA.
• US Retail Sales in the last month of 2023 rose higher than expected.
• Markets ease their dovish bets on the Fed for March and May FOMC meetings.

The US Dollar (USD) reached a notable stride, trading at 103.50 while confidently deflecting the pressures of the 100-day SMA. This robust stride has been primarily fueled by the strong US Retail Sales data from December and a notable rise in US Treasury yields, both of which show that markets are adjusting their bets on the Federal Reserve’s (Fed) rate-cutting timeline. 

The resilient US economy, evidenced by the latest data, is making adjustments to the market's dovish bets, albeit odds for rate cuts in March and May still hover around 50%. In December, CPI inflation picked up, as well as the job creation pace and wages, while economic activity remains strong, which is making markets believe that the Fed might not consider cutting rates too soon.

Daily digest market movers: US Dollar ascends, bolstered by strong Retail Sales from December

• December's Retail Sales reported by the US Census Bureau outperformed consensus, registering 0.6% growth versus the 0.4% forecast and 0.3% from the previous period. 
• Later in the session, the Fed will release its Beige Book to provide markets further insight on the US economy’s situation.
• An uptick was observed in US bond yields as 2-year, 5-year and 10-year notes currently trade at 4.30%, 4.02%, and 4.09%, respectively.
• As per the CME FedWatch Tool, the odds of cuts for March and May eased, but they remain high at around 50%.

Technical Analysis: DXY bulls step in and regain the 100-day SMA but now must defend it

The indicators on the daily chart reflect a somewhat bullish bias. The Relative Strength Index (RSI) demonstrates a positive slope in positive territory, endorsing growing buying momentum. The Moving Average Convergence Divergence (MACD) shows rising green bars, indicating the continuance of upward traction in favor of bulls.

The position of the index regarding Simple Moving Averages (SMAs) reveals a mixed picture. The DXY is now positioned above the 20 and 100-day SMAs, an encouraging sight for the buyers. However, it remains below the 200-day SMA, suggesting an undercurrent of bearish sentiment. Despite the recent bearish movements, bulls appear to be gaining ground.

Support levels: 103.40 (100-day SMA), 103.00, 102.80, 102.50.
Resistance levels: 103.60, 103.80, 104.00.

• European indexes saw declines across the board in the mid-week.
• Inflation, policymaker talking points continue to flummox rate cut hopes.
• Stubborn inflation remains a key policy roadblock for both the EU and the UK.

European stocks shed weight on Wednesday, dragging broad indexes down into the red and sending Germany’s DAX index into its lowest bids of the year thus far and challenging prices not seen since early December.

UK inflation unexpectedly rose to 4% in December, driving back market hopes of near-term rate cuts from the Bank of England (BoE) with money markets angling for the first round of rate trimming from both the BoE and the European Central Bank (ECB) sometime around the end of the first quarter. With UK inflation plaguing BoE policymakers and officials from the ECB talking down rate cut hopes at the World Economic Forum (WEF) in Davos, Switzerland, markets are caught looking incredibly over-invested in rate cut expectations.

ECB President Christine Lagarde noted that a summer rate cut could be “likely” from the ECB, tentatively falling in-line with rate outlooks from other ECB officials, but the ECB President leaned heavier into a cautionary stance. ECB President Lagarde noted specifically that Services sector inflation remains above 4%, a price growth level that will need to come down before the ECB can even begin to consider rate cuts.

The pan-European STOXX600 major equity index declined 1.13% on Wednesday, falling 5.35 points to close at €467.71 while France’s CAC40 shed nearly 80 points to close down 1.07% at €7,318.69.

Germany’s DAX index fell a comparatively sedate 0.84% as one of the better-performing indexes from Europe, declining just under 140 points to close at €16,431.69.

London’s FTSE tumbled nearly 1.5% for the mid-week market session, falling 112 points and ending the day at £7,446.29.

DAX Technical Outlook

The German DAX equity index fell to a six-week low near €16,330 and is set for one of its worst weeks since August, down peak-to-trough 2.4% from Monday’s opening bids near €16,730.

The equity index caught a late rebound into the €16,400 region to finish Wednesday slightly up from the floor, but the DAX still sees accelerating declines in the near-term as bearish price action tumbles away from the 200-hour Simple Moving Average (SMA) near €16,640.

Wednesday’s declines bring the DAX within touch distance of the 50-day SMA just above €16,200, and the equity index is down 3.4% from December’s peak just below the €17,000 handle.

DAX Hourly Chart

DAX Daily Chart

DAX Technical Levels

• The Euro is mixed on Wednesday, sees lopsided gains overall.
• Europe saw a slight uptick in final HICP inflation in December.
• ECB continues to stamp out rate cut bets, US Fed lets data do the work for them.

The Euro (EUR) saw some gains on Wednesday, but still found room to the downside against the US Dollar (USD) as hotter-than-expected US Retail Sales triggered safety flows back into the US Dollar.

Final Core Harmonized Index of Consumer Prices (HICP) from Europe saw a slight uptick in the MoM figure in December, but overall printed as expected, and European Central Bank (ECB) officials continue to bat down rate cut expectations from money markets. On the US side, Retail Sales climbed much more than investors anticipated in December, leaving rate betters in the lurch as swaps trim bets on how many rate cuts the Federal Reserve (Fed) will see in 2024.

Daily digest market movers: Euro sees some gains but declines further against USD

• Finalized Core HICP inflation from Europe saw a slight uptick in December MoM, up to 0.5% from the preliminary 0.4%.
• Annualized Core HICP inflation held steady at 3.4%.
• ECB officials continue to run the circuit of talking down market expectations of ECB rate cuts.
• On Wednesday, ECB’s President Lagarde made her first of three appearances at the World Economic Forum in Davos, Switzerland.
• ECB President Lagarde didn’t rule out the possibility of a rate cut either before or during the summer season, but leaned heavily into “data-dependency” rhetoric, highlighting that Services sector inflation remains near 4%, well above targets.
• US Retail Sales figures dominated market flows in the mid-week market session, climbing to 0.6% in December, well above the previous print of 0.3% and beating the forecast of 0.4%.
• With retail activity on the rise and the US economy still posting healthy employment figures, market expectations of several rate cuts from the Fed are coming under intense pressure.
• Fed swaps have trimmed bets of a March cut from the Fed to just 50%, well down from the peak of 90% in December.

Technical Analysis: EUR/USD touches below 1.0850 for the first time in over a month

The Euro (EUR) remains well-bid on Wednesday, climbing around two-thirds of a percent against the Australian Dollar (AUD) and the Japanese Yen (JPY). The Euro clipped into the low side against the US Dollar and the Pound Sterling (GBP), shedding around a fifth of a percent and four-tenths of a percent respectively.

The EUR/USD tumbled into the 1.0850 region in intraday action on Wednesday, getting pushed further away from the 200-hour Simple Moving Average (SMA) near 1.0940. The pair is testing into one-month lows, down about 1.3% from early January’s test into the 1.1000 major handle.

Wednesday’s downside momentum sees the EUR/USD exploring the 200-day Simple Moving Average, running into technical support at the key moving average and falling into a potential congestion zone between the 50-day and 200-day SMAs just below 1.0900.

EUR/USD Hourly Chart

EUR/USD Daily Chart

• Mexican Peso down 0.38% vs. US Dollar, extending loss to three days due to global risk aversion.
• USD/MXN tests but doesn't break 200-day SMA at 17.37 as market anticipates Mexico's November Retail Sales.
• Strong US economic data and Fed's slow rate cut stance drive USD to five-week high, affecting Peso.

The Mexican Peso extends its losses to three consecutive days against the US Dollar as risk aversion weighs on risk-perceived currencies like the Peso, which tested stir resistance at the 200-day Simple Moving Average (SMA) near 17.37. Still, the exotic pair has trimmed some of its losses, but it remains down on the day by 0.38% as the USD/MXN exchanges hands at 17.28.

Mexico’s economic docket remains absent, with traders looking for the release of November’s Retail Sales, expected to dip to 0.5% MoM and grow 3.2% on a yearly basis.

Across the border, solid economic data from the United States (US) and Federal Reserve (Fed) speakers pushing back against investors' speculations on rate cuts bolstered the Greenback, which, as shown by the US Dollar Index (DXY), gained 0.21% and hit a five-week high of 103.69.

Daily digest market movers: Mexican Peso falls as Fed rate cut bets are trimmed

• US Retail Sales in December smashed estimates, according to data revealed by the US Department of Commerce. Sales on a monthly basis rose by 0.6%, above forecasts of 0.4% and November’s figure of 0.3%. Yearly data jumped 5.6%, surpassing the previous month’s 4%.
• Industrial Production in December expanded above the forecast of 0%, coming in at 0.1% MoM and avoiding back-to-back prints suggesting the economy is stagnating. On a 12-month basis from December, the reading increased by 1%, well above November’s -0.4% drop.
• The USD/MXN advance on Wednesday is sponsored by the jump in US Treasury bond yields, reflecting that traders might have gone too far, pricing more than 150 basis points of rate cuts by the Fed for 2024. The latest comments from Fed Governor Christopher Waller saying there’s “no reason to move as quickly or cut as rapidly as in the past,” kept investors in check despite supporting rate cuts if inflation indeed gets lowered.
• The lack of data in Mexico keeps traders leaning on the latest inflation figures, which edged higher than expected in headline inflation, but core data suggests the Bank of Mexico (Banxico) has done a good job, curbing elevated prices after hiking rates toward 11.25%.
• Although December’s meeting minutes from Banxico (the Central Bank of Mexico) suggest that the central bank might contemplate easing its monetary policy, the inflation report for December could hinder any move toward policy relaxation.
• Analysts at Standard Chartered noted, “We expect the policy rate to be lowered to 9.25% by end-2024, although an official downward revision in the output gap could open the door for more aggressive rate cuts.”
• On January 5, a Reuters poll suggested the Mexican Peso could weaken 5.4% to 18.00 per US Dollar in the 12 months following December.

Technical analysis: Mexican Peso slumps sharply as USD/MXN challenges the 200-day SMA

The USD/MXN is neutrally biased, though the earlier test of the 200-day SMA at 17.37 put sellers in danger of losing that level. Once cleared, it could open the door to challenge higher prices. Up next is the 100-day SMA at 17.41, followed by the December 5 high at 17.56, before testing the May 23 high of 17.99.

On the contrary, sellers need to pull prices below 17.00, which could exacerbate a retest of the January 12 low of 16.82, followed by the January 8 low of 16.78. Once those levels are hurdled, the next demand level would be the August 28 cycle low of 16.69, ahead of last year’s low of 16.62.

USD/MXN Price Action – Daily Chart

• Canadian Dollar sees some gains but loses further ground against US Dollar.
• Low-impact Canada economic data fails to move the needle as investors focus on US data.
• Crude Oil bids struggle to hold steady, limit Loonie gains.

The Canadian Dollar (CAD) found some gains against most of its major currency peers, but saw further declines against the US Dollar (USD) on Wednesday after US Retail Sales ran hotter than markets anticipated. 

Canada’s Raw Material Price Index shrank in December for the second month in a row, keeping materials inflation at its steepest contractionary level since last June, while Foreign Investment in Canadian Securities slightly undershot Canadian investment outflows.

Market focus was squarely on US Retail Sales, which jumped much higher than anticipated, making it difficult for investors to continue betting on a faster pace of rate hikes from the Federal Reserve (Fed).

Daily digest market movers: Canadian Dollar firms up, but not enough to overcome Greenback flows

• Canada’s Raw Material Price Index fell 4.9% in December, in-line with the previous figure (revised down from -4.2%) and completely missing the market forecast of -1.6%.
• Canadian Industrial Product Prices also declined in December, falling 1.5% versus the forecast of -0.7% and declining even further from the previous month’s -0.3% (revised down slightly from -0.4%).
• US Retail Sales climbed 0.6% in December, with Retail Sales excluding automobiles also gaining 0.4% over the same period; median market forecasts expected Retail Sales to come in at 0.4% versus the previous 0.3%.
• US Industrial Production grew 0.1% in December, a scant figure but more than the forecasted flat reading of 0.0% and November’s 0.0% (revised down from 0.2%).
• With the US domestic economy continuing to show signs of strength, money markets are pulling away from Fed rate cut bets in frustration, bolstering the US Dollar across the board.
• Crude Oil markets continue to struggle, weakening the Canadian Dollar’s strength base.
• China’s faltering growth outlook early Wednesday pushed Crude Oil lower as barrel traders grow concerned about China’s fossil fuel demand outlook, while a strengthening US Dollar waters down barrel bids.
• Crude Oil markets continue to see upside shocks as geopolitical concerns weigh on investor sentiment, but faltering Crude Oil momentum sees little support transfer to the Loonie.

Technical Analysis: Canadian Dollar struggles to recover after USD/CAD hits 1.3540

The Canadian Dollar (CAD) is down a fifth of a percent against the US Dollar on Wednesday, shedding around half a percent against the Pound Sterling (GBP), while the CAD gained around two-thirds of a percent against the Australian Dollar (AUD) and the Japanese Yen (JPY).

The Canadian Dollar saw further declines against the US Dollar, with the USD/CAD hitting a five-week high of 1.3540. Intraday momentum is leaning into the top side as US Dollar strength continues to push the pair higher. In the near term, the USD/CAD is trading well above the 200-hour Simple Moving Average (SMA) near 1.3400.

Continued bullish momentum in the USD/CAD has the pair challenging a congestion zone that sees the 50-day and 200-day SMAs consolidating near the 1.3500 handle, and the pair has closed close to flat or in the green for all but one of the last 14 consecutive trading days.

USD/CAD Hourly Chart

USD/CAD Daily Chart

• The EUR/GBP navigates below the 0.8600 level after recording losses of 0.40%.
• Persistent UK inflation bolsters the Pound as dovish bets on the BoE fade.
• The Euro weakens due to the ECB's dovish signals.

The EUR/GBP declined in Wednesday's session, mainly influenced by the dovish stance from the European Central Bank (ECB) and UK inflation data, which surpassed expectations, boosting the Pound.

The UK Office for National Statistics (ONS) ONS has announced a faster growth rate for headline inflation at 0.4%, rebounding from November's 0.2% contraction. In addition, the yearly headline CPI surged to 4%, outperforming the previous 3.9% and the expected 3.8%. As a reaction, market bets are leaning towards less odds of the Bank of England starting its easing cycle in March, but investors are confident that the bank will still cut by 125 bps in 2024.

On the other hand, the ECB Governing Council, led by President Lagarde, sent signals of an early rate cut in summer, reshaping market expectations. However, it emphasized the importance of the number of rate cuts rather than the first cut's timing or the pace of subsequent reductions. As for now, markets are betting on high odds of a first-rate cut in April and, overall, a total of 150 bps of easing in 2024. In that sense, if the BoE and ECB monetary policies diverge, the cross may face further downsides.

EUR/GBP levels to watch

The daily chart suggests that the pair has a strong bearish momentum. The sinking Relative Strength Index (RSI), which is currently in negative territory along with a negative slope, illustrates continual seller influence on the pair. Furthermore, the Moving Average Convergence Divergence (MACD) manifests itself as rising red bars, indicating that the selling pressure is building..

Moreover, the pair's position in relevance to the Simple Moving Averages (SMAs) amplifies this bearish sentiment. Struggling under the pressure of 20, 100, and 200-day SMAs, the pair is desperately crying out for a guiding hand from the buyers. This, however, seems unlikely due to the continued dominance of the bears on a broader scale, as reflected in the daily chart analysis.

EUR/GBP daily chart

From the ECB's perspective, wage settlements will play a significant role in interest rate decisions in the coming months, economists at Commerzbank report.

ECB unlikely to cut key interest rates in April

The Pound Sterling (GBP) has been able to hold onto its late year gains pretty well. Economists at ING analyze the pair’s outlook.

Loose fiscal, tight monetary could help GBP

The Australian labor market figures for December will be released on Thursday, January 18 at 00:30 GMT. Economists at Commerzbank analyze Aussie’s outlook ahead of the employment report.

Is the labor market still robust?

• AUD/USD drops weighed down by strong US economy and China's weak GDP.
• US retail sales grow 0.6% monthly; Industrial Production up 0.1%, strengthening USD.
• Fed Governor Waller's cautious rate cut remarks and China's poor GDP, retail sales spike market uncertainty.

The Australian Dollar (AUD) plunges for the third consecutive day against the US Dollar (USD) on risk aversion following earlier data in the Asian session on China’s GDP. Besides that, robust economic data from the United States (US) accelerated the AUD/USD’s downtrend, and trades at 0.6534, down 0.76%

AUD/USD weighed by solid US Retail Sales, sponsoring a repricing of Fed’s rate cuts

Retail sales in the US exceeded analysts' forecasts in December, according to the US Department of Commerce. On a monthly basis, consumers continued to spend at a healthy rate, with sales topping at 0.6%, above forecasts of 0.4% and November’s data, while on an annual basis, increased by 5.6%, surpassing the previous month’s 4%.

The US Federal Reserve (Fed) recently announced that Industrial Production grew at a 0.1% MoM, exceeding forecasts for stagnation at 0%, while year-over-year figures rose by 1%, crushing November’s -0.4% drop. AUD/USD traders extended the pair’s losses, while the Greenback advanced 0.24%, as shown by the US Dollar Index (DXY) at 103.59.

Additionally, US Treasury bond yields continued to climb, reflecting that investors might have gone too far, pricing more than 150 basis points of rate cuts by the Fed for 2024. The latest comments from Fed Governor Christopher Waller, saying there’s “no reason to move as quickly or cut as rapidly as in the past,” kept investors in check despite supporting rate cuts if inflation indeed gets lowered.

Aside from this, China’s data shifted sentiment sour as GDP rose by a modest 5.2% YoY in December but missed forecasts of 5.3%. That, alongside not being as strong as expected, retail sales hit 7.4% from 8% estimates, worrying market participants as the country goes through a property crisis.

AUD/USD Price Analysis: Technical outlook

At the time of writing, the pair has fallen below the 200-day moving average (DMA) at 0.6580, which opens the door for further losses. However, buyers are capping the plunge near the 100-DMA at 0.6512, which, once hurdled, would clear the path toward the 0.6500 figure. A breach of the latter would be the last nail in the coffin, with sellers having a clear shot of pushing the price toward the next major support at 0.6338, November’s 10 low. On the other hand, if buyers lift spot prices above the 200-DMA, they would have a shot at 0.6600.

Mexican Peso’s (MXN) returns can be explained entirely by US factors. Economists at TD Securities analyze MXN outlook.

US slowdown and a steep Fed cutting cycle in 2024 will allow markets to price in more cuts by Banxico

Despite this week’s move by EUR/USD below the 1.09 level, the Euro (EUR) remains the third best performing G10 currency in the year to date after the US Dollar (USD) and the Pound Sterling (GBP). Economists at Rabobank analyze Euro’s outlook.

Potential for the EUR to slip vs. the GBP and against both the SEK and the NOK

• Industrial Production surprised to the upside in December.
• Manufacturing Production also came in above estimates.

Industrial Production (MoM) in the United States gained 0.1% in December, up from the 0.0% expected by markets. In November, United States Industrial Production (MoM) had advanced by a 0.2%. On a yearly basis, Industrial Production expanded by 1.0%.

In addition, Manufacturing Production increased by a monthly 0.1% in the same period and Capacity Utilization held steady at 78.6%.

What is the United States Industrial Production (MoM)?

The Industrial Production released by the Board of Governors of the Federal Reserve shows the volume of production of US industries such as factories and manufacturing. Up trend is regarded as inflationary which may anticipate interest rates to rise. If High industrial production growth comes out, this may generate a positive sentiment (or bullish) for the USD.

Market reaction

The Greenback receded some ground following the Industrial Production report, although the USD Index (DXY) remained near recent peaks in the 103.50-103.60 band.

• The Greenback pushes higher as US Retail Sales beat expectations. 
• These figures strengthen the case for higher for longer interest rates and provide additional support to the USD.
• The focus now is on the Fed speakers scheduled later today.

The US Dollar has turned higher again on Wednesday, to test resistance at the 148.00 psychological level, boosted by higher-than-expected US Retail Sales figures.

Retail Consumption increased at a 0.5% pace in December, above November’s 0.3% increase and beating expectations of a 0.4% increase. Excluding automobiles, sales of other products rose at a 0.4% pace, twice as fast as the 0.2% forecasted by the market.

These figures confirm that the US economy remains resilient and dampens investors’ hopes of rate cuts in March. In this context, Fed Governor Christopher Waller's comments, warning that it is too early to discuss rate cuts as inflation is still too high, are being reinforced.

Later today, Fed officials Michelle Bowman, Michael Barr, and John Williams are expected to meet the press. The risk for the US Dollar is skewed to the upside, as the BoJ is widely expected to stand pat next week.

The near-term trend remains bullish, after having breached the 61.8% retracement of the late 2023 sell-off. Immediate resistances are at 148.00 and 148.50. Supports lie at 147.11 and 146.35.

Technical levels to watch

• NZD/USD falls sharply on robust US consumer spending momentum.
• Fed policymakers are expected to maintain interest rates higher to ensure inflation declining towards 2%.
• The market mood remains downbeat as China’s GDP fails to meet estimates.

The NZD/USD pair has extended its downside to near 0.6100 as the United States Census Bureau has reported a better-than-projected Retail Sales report for December. The agency reported that consumer spending grew at a strong momentum of 0.6%, doubled from 0.3% growth in November. Investors projected that sales ticket at retailers rose by 0.4%.

An upbeat US Retail Sales data is expected to strengthen Federal Reserve (Fed) policymakers’ stance of maintaining interest rates at restricted levels for a period longer than expected by market participants.

The S&P500 is expected to open on a negative mood, considering weak cues from overnight futures. The US Dollar Index (DXY) has printed a fresh monthly high at 103.60 as investors seem uncertain about when the Fed will start reducing interest rates.

Meanwhile, investors await fresh guidance on interest rates from Federal Reserve (Fed) policymakers: Michael Barr, Michelle Bowman and John William. Fed policymakers are expected to deliver a hawkish guidance as inflationary pressures remain stubbornly higher in the December month.

The market mood remains downbeat due to weak post Covid recovery of the Chinese economy. The annual Q4 Gross Domestic Product (GDP) at 5.2%, missed market expectations of 5.3% but remained higher than the former reading of 4.9%. Quarter GDP grew at a slower pace of 1% as expected. In the third quarter, the Chinese economy was expanded by 1.3%. Being a proxy to China’s economic prospects, the New Zealand Dollar faces an intense sell-off.

The downbeat Electronic Retail Sales data for December has also impacted the New Zealand Dollar. The economic data was contracted by 2% and 0.6% on a monthly and an annual basis respectively.

USD/CAD gains are nearing the 50% Fibonacci retracement of the USD’s Q4 slide at 1.3538. Economists at Scotiabank analyze the pair’s outlook.

Technical point to more losses

GBP/USD soars on higher-than-expected UK Consumer Price Index (CPI) data. Economists at Scotiabank analyze the pair’s outlook.

Markets pared BoE rate cut expectations further in response to upside CPI surprise

• US Retail Sales rose by 0.6% in December, compared to the 0.4% gain of market consensus.
• Core Retail Sales increased by 0.4%, and Control Group Sales by 0.8%.

Retail Sales in the US rose 0.6% on a monthly basis in December to $709.9 billion, the data published by the US Census Bureau showed on Wednesday. This reading followed the 0.3% gain recorded in November ($706.0 billion) and came in better than the market expectation of a 0.4% gain.

Retail Sales Ex-Autos rose 0.4% in the same period. Retail Sales Control Group increased 0.8%.

Market reaction

The Greenback recovered some ground following the Retail Sales report. The USD Index (DXY) climbed to a new 2024 peak of 103.60.

This message was edited at 13:47GMT to show that market expectation was 0.4% and not 0.3%, while Retail Sales ex-Autos rose 0.4% instead of 0.6%.

• Silver remains under pressure, with upside attempts limited below $23.00.
• The Dollar is showing muscle with investors awaiting the US Retail Sales report.
• XAG/USD: Below $22.50 bearish momentum will increase.

Silver (XAG/USD), is trading lower for the second consecutive day on Wednesday. The US Dollar remains bid with investors scaling back hopes of Fed easing in 2024 and risk-averse trading, which is acting as a headwind for precious metals.

Fed Governor Christofer Waller discarded any rate cut as long as inflation remains at “striking distance” to the bank’s 2% target, which cast further doubt on investors’ hopes of a major policy shift.

The focus today is on the US Retail Sales. Consumption is expected to have improved in December adding to evidence that the economy remains resilient and strengthening the US-Dollar supportive soft landing narrative.

Somewhat later an array of Fed policymakers will meet the press, likely to strengthen the “higher for longer “ rhetoric.

XAG/USD remains hovering above $22.50 support

The pair is trading within a falling triangle, with price action unable to put a significant distance from the $22.50 support area. Below here, selling pressure might increase, with bears focusing on the $21.90 level.

On the upside, a bullish reaction above $23.53 would ease downside pressure and expose the $24.60 level.

Technical levels to watch

• EUR/GBP tumbles to near 0.8570 as BoE rate cut bets dive after high UK inflation data.
• The BoE is less-likely to guide interest rates cut in February meeting.
• ECB Lagarge sees no victory on inflation yet until it declines in a sustainable manner.

The EUR/GBP pair has witnessed an intense sell-off as the consumer price inflation in the United Kingdom economy for December remained surprisingly stubborn. The cross has dropped to near 0.8570 and is struggling for a firm-footing due as it has provided a strong argument to Bank of England (BoE) policymakers for sticking with restrictive interest rate stance.

The UK Office for National Statistics (ONS) has reported that the headline inflation grew at a stronger pace of 0.4% after contracting 0.2% in November on a monthly basis. The annual headline Consumer Price Index (CPI) accelerated surprisingly to 4% against the former reading of 3.9%. Investors anticipated that annual price pressures will decelerate to 3.8%.

Price pressures were boosted by higher fuel prices, seasonal air fare increase and a slight increase in services inflation. A sticky inflation data has deepened fears of price pressures remaining persistent, allowing the BoE to maintain interest rates unchanged at 5.25% in its February meeting for the fourth time in a row.

Investors’ confidence for the BoE reducing interest rates from March has been faded significantly. This week, the UK ONS reported a steady labor demand and slower wage growth for three months, which improved conviction among investors that the BoE could discuss for rate cuts sooner.

Going forward, market participants will focus on the UK Retail Sales data for December, which will be published on Friday.

On the Eurozone front, European Central Bank (ECB) President Christine Lagarde see rate cuts from summer while speaking at the sidelines of the World economic Forum (WEF) annual meeting in Davos. The statement seems contradicting from other policymakers who have been reiterating the need of maintain a restrictive interest rate stance for longer.

While asked about the outlook on inflation, Lagarde said that a victory over inflation cannot be announced until it declines sustainably to 2%.

The US Dollar (USD) is firmer today but has edged off earlier highs versus the majors. Economists at Scotiabank analyze Greenback’s outlook.

Weak risk mood adds to USD support

EUR/USD losses steady in the upper 1.08s. Economists at Scotiabank analyze the pair’s outlook.

More corrective losses are ahead

• The US Dollar trades in the green across the board after comments from Fed’s Waller.
• Traders are repricing the number and timing of cuts further down the line for the Fed, ECB and BoE. 
• The US Dollar Index jumps to mid-103 and is at a technical turning point for more upside. 

The US Dollar (USD) roars with the US Dollar Index (DXY) popping above a few important technical levels. The move comes with markets finally realizing that rate cuts will not take place before June for either the US Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of England (BoE). US Federal Reserve member Christopher Waller backtracked on his comments from early November and nuanced that rate cuts will come, though only when inflation does not pick up again. 

On the economic front there will be a lot to digest, with a bulk release near 13:30 GMT when US Retail Sales comes out. Meanwhile headlines are being released out of Davos where the World Economic Forum (WEF) is taking place. When that is still not enough, traders can dig their teeth into no less than three Fed speakers throughout this Wednesday. 

Daily digest market movers: What a line up 

• The World Economic Forum in Davos is entering its third day with a lot of headline risk from senior people – central bankers and leaders – making comments, statements and holding interviews. 
• ECB’s Christine Lagarde said that enthusiasm in the markets on rate cuts is not helping to reduce inflation. A rate cut might be likely by the summer. That statement is curious seeing the ECB always shouted they were data dependent, that cuts were not foreseen for 2024 and that forward guidance was impossible. Although rate cuts are negative for a currency, in this case it would mean good news for the EU economy, which sees the Euro off the lows against the US Dollar (EUR/USD).
• Commodity traders will brace for the release of the monthly OPEC market report. Normally foreseen near 12:00 GMT, though seems to be facing delays.
• As well near 12:00, the Mortgage Bankers Association released its weekly MBA Mortgage Applications. Previous number was a rise of 9.9% with this week a rise of 10.4%..
• Bulk data release with Retail Sales at 13:30 GMT:
  • Monthly Import Price Index for December expected to head from -0.4% to -0.5%.
  • Yearly Import Price Index for December seen heading from -1.4% to -2%.
  • Monthly Export Price Index for December to head from -0.9% to -0.6%.
  • Yearly Export Price Index for December will go from -5.2% to -0.7%.
  • Monthly Retail Sales for December expected to head from 0.3% to 0.4%.
  • Retail Sales without Cars is expected to stay steady near 0.2%
  • As always for Retail Sales, the previous number’s revision can often be more important and market moving than the actual number coming out. 
• Fed speakers making their way to the stage this Wednesday: 
  • At 14:00 GMT both Fed members Vice Chairman Michael Barr and Fed’s Board of Governors member Michelle Bowman are speaking.
  • Later this evening at 20:00 GMT, New York Fed’s John Williams will be speaking. 
• Near 14:15 GMT both Industrial Production and Capacity Utilisation will be released. Industrial Production is seen heading to 0% from 0.2% for December, while Capacity Utilisation for December remains quite steady from 78.8% to 78.7%.
  • Around 15:00 the National Association of Home Builders (NAHB) will release its Housing Market Index for January. Previous was at 37, with 39 projected. In that same time slot, Business Inventories will be released, with a steady -0.10% expected for November. 
• Right at the end of this packed Wednesday, near 18:00 GMT the US Treasury is allocating a 20-year Bond and the Fed’s Beige Book will be released near 19:00 GMT. 
• Equity markets are not thriving in this growing yield environment. The goldilocks scenario for rate cuts as of March was fully priced in, and needs to be revalued now. This means a downturn for equities, with Chinese stock indices down across the board near 3%. European equities are nosediving over 1% and US equity futures are holding just above that 1% decline. 
• The CME Group’s FedWatch Tool shows that markets are pricing in a 97.4% chance that the Federal Reserve will keep interest rates unchanged at its January 31 meeting. Around 2.6% expect the first cut already to take place. The more traders reprice cuts to later this year, a small rate hike expectation might come through in the coming days. 
• The benchmark 10-year US Treasury Note jumps to 4.07% and is fueling a stronger US Dollar with its jump in yields. 

US Dollar Index Technical Analysis: Crossroad as we speak

The US Dollar Index (DXY) has made a run for it and is trading near the mid-103 area. A crucial point with no less than two important moving averages being nearby and both just a few pips away from each other. From a pure technical angle, if the DXY can pull off a daily close above these two moving averages, the Greenback can gain no less than 1% towards 104.45. 

The DXY is trading near the 55-day and the 200-day Simple Moving Averages (SMA) at 104.45. In case the DXY can get through that area, look for 104.44 as the first resistance level on the upside, in the form of the 100-day SMA. If that gets scattered as well, nothing will hold the DXY from heading to either 105.88 or 107.20, the high of September.  

The break from this Wednesday could turn into a bull trap, where US Dollar bulls are caught buying into the Greenback when it broke above both the 55-day and the 200-day SMA in early Wednesday trading. Price action would decline substantially and force US Dollar bulls to sell their position at a loss. This would see the DXY first drop to 102.60 at the ascending trend line from September. Once threading below it, the downturn is open to head to 102.

• The US Dollar rallies to fresh one-month highs on dwindling hopes of Fed cuts.
• Later today, the US Retail Sales and an array of Fed speakers will be observed with attention.
• USD/CHF recovery might find resistance at the 0.8665 area.

The US Dollar keeps marching higher after having rallied 1.5% over the last five trading days. The pair has reached its highest price in the mid-range of 0.8650 with investors scaling back Feed rate cut expectations, ahead of the release of US Retail Sales figures.

Retail consumption is expected to have increased at a faster 0.4% pace in December, with the mild weather pushing shoppers to the high street. This is likely to confirm that the US economy remains resilient and that the Fed has still some work to do to bring inflation to target.

After the release, the focus will shift to the speeches of Fed policymakers. NY Fed president John Williams and Board member Michelle Bowman, traditional hawks, plus vice-chair Michael Bar, with a more neutral profile, are likely to share their views on the monetary policy outlook.

A wider perspective shows the pair in a corrective recovery after having depreciated nearly 10% in the last quarter of 2023. The pair is approaching the 38.2% Fibonacci retracement of the mentioned decline, at 0.8665 where it might find some sellers. Above here, the next target is 0.8720.

Supports are at 0.8575 previous resistance area and 0.8460.

Technical levels to watch

The US Dollar (USD) is likely to remain strong in the months ahead, according to economists at HSBC.

Not run out of gas yet

• Christine Lagarde will participate in the World Economic Forum, in Davos.
• ECB President’s speech will be scrutinized for fresh insights on the economy and policy.
• European Central Bank held rates for the second straight meeting in December.  

Christine Lagarde, President of the European Central Bank (ECB), is set to speak on Wednesday at 15:15 GMT at the World Economic Forum (WEF), in Davos. It will be the first of her three appearances at the WEF Annual Meeting this week.

Lagarde is due to participate in a town hall titled "How to Trust Economics" on Wednesday, followed by a panel discussion titled "Uniting Europe's Markets" on Thursday. On Friday, the ECB President will be part of a panel discussion on "The Global Economic Outlook."

Wednesday’s town hall is likely to be an interactive event, with Lagarde expected to share her thoughts on how to ensure long-term and equitable growth while adapting to new economic realities. She might touch upon the topic of monetary policy and inflation during her commentary on the economic outlook.  

Ahead of that event, Lagarde already spoke on the sidelines of the WEF Annual Meeting in Davos, suggesting in a Bloomberg interview that “it is likely that we will cut rates by the summer.”

Christine Lagarde’s remarks still will be closely scrutinized for affirming the pace and the timings of the interest rate cuts expected in the second half of this year. Money markets are currently pricing the ECB to lower policy rates as early as April. However, ECB policymakers have continued to push back against aggressive rate cut expectations, suggesting that the central bank will remain data-dependent on its interest rate outlook.

The European Central Bank held rates for the second meeting in a row in December, as it revised down its growth and inflation forecasts. “The Governing Council’s future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary,” the ECB said in its accompanying statement.

Last Thursday, ECB President Christine Lagarde maintained her hawkish rhetoric, noting that “despite progress, it doesn't mean inflation decline will be smooth,” implying a ‘higher rates for longer’ narrative. Lagarde, however, said that she believes rates have probably peaked.

About Christine Lagarde

Christine Lagarde was born in 1956 in Paris, France. Graduated from Paris West University Nanterre La Défense and became President of the European Central Bank on November 1st 2019. Prior to that, she served as Chairman and Managing Director of the International Monetary Fund between 2011 and 2019. Lagarde previously held various senior ministerial posts in the Government of France: she was Minister of the Economy, Finance and Industry (2007–2011), Minister of Agriculture and Fishing (2007) and Minister of Commerce (2005–2007). 

• The US Dollar has reached fresh six-week highs at 148.00. 
• The widening gap between US and Japanese bond yields, as the market pares back Fed cuts' hopes, is hurting the Yen.
• Later today, the US Retail sales and more Fed speakers might give a fresh impulse to the USD. 

The US Dollar is consolidating gains below the 148.00 area on Wednesday. The pair has appreciated nearly 2% so far this week, with Fed policymakers pushing back hopes of interest rate cuts in the coming months.

On Tuesday, Fed Governor Christopher Waller backed last week’s comments from some of his colleagues warning that is too early to discuss rate cuts with inflation still at high levels.

Higher US Treasury yields are hurting the Yen

Investors’ reassessment of the timing and the intensity of the Fed’s easing cycle has pushed US Treasury yields somewhat higher, increasing the gap with the Japanese bonds and weighing on the Yen.

In Japan, the weak inflation and wage growth levels seen last week have eased pressure on the BoJ to exit its ultra-loose policy. This practically discards any relevant decision at next week’s monetary policy meeting, which is an additional weight on the JPY.

The focus today is on December’s US Retail sales, which are expected to have improved by 0.4%, after a 0.3% reading in November. After that, an array of Fed speakers will provide more info about the bank’s policy plans.

The near-term trend remains bullish, after having breached the 61.8% retracement of the late 2023 sell-off. Immediate resistances are at 148.00 and 148.50. Supports lie at 147.11 and 146.35.

Technical levels to watch

• WTI Oil sinks further as oversupply keeps hitting markets. 
• Despite Red Sea tensions, Oil is still flowing. 
• The US Dollar Index popped above 103 and is at crossroads with more upside on the radar. 

Oil prices are dropping nearly 1% again this Wednesday with Oil traders sending the black fuel cheaper. The move comes on recent numbers from Russia that reveal it is not complying with the production cuts it agreed upon in the last OPEC+ meeting last year. With Russia’s seaborne crude hitting a near 3.43 million barrels per day, it is breaching its commitment to lower its production by 500,000 barrels per day with instead only 134,000 barrels per day. 

Meanwhile, the DXY US Dollar Index is back on the map with first the victory of the former US President Donald Trump in Iowa triggering a substantial appreciation of the Greenback. A second appreciation came overnight with US Federal Reserve’s Christopher Waller who backtracked on earlier dovish comments and now pushed back against the enthusiasm of the markets. In a repricing towards interest rates remaining steady for longer, equities are dropping, yields are soaring and the Greenback has the wind in its sails. 

Crude Oil (WTI) trades at $71.05 per barrel, and Brent Oil trades at $76.58 per barrel at the time of writing. 

Oil News and Market Movers: A lot of moving parts

• The World Economic Forum in Davos is entering its third day with already quite a few comments from central bankers coming out.
• The Monthly OPEC Market report is due to be released near 12:00 GMT.
• Near 21:30, the American Petroleum Institute (API) is due to release the weekly Crude Oil Stockpile. Previous number was a big drawdown of 5.215 million barrels. 
• Local Oil prices in the US are seeing a wider differential with the Bakken shale production facing an outage. Prices near Houston went up by $2.20 per barrel against Cushing (Oklahoma) prices. Substantial drawdowns might occur at Cushing as well, as Midwest refiners will need to revert to Cushing, in order to replace lost supply out of Bakken via the Dakota pipeline. 

Oil Technical Analysis: Can the OPEC report move the needle?

Oil prices are being hit again, for a third day this week. While already trading at a weekly loss, the revelation that Russia is breaching the production cuts it committed to, means bad news for the balance between supply and demand. Another surge in supply means the balance is titled again to lower prices with refiners and buyers have the luxury to pick out the cheapest one to buy from in an overcrowded market of sellers. 

On the upside, $74 continues to act as a line in the sand after yet another failed break above it on Friday.  Although quite far off, $80 comes into the picture should tensions build further. Once $80 is broken, $84 is next on the topside once Oil sees a few daily closes above the $80 level. 

Below $74, the $67 level could still come into play as the next support to trade at, as it aligns with a triple bottom from June. Should that triple bottom break, a new low for 2023 could be close at $64.35 – the low of May and March – as the last line of defence. Although still quite far off, $57.45 is worth mentioning as the next level to keep an eye on if prices fall sharply. 

US WTI Crude Oil: Daily Chart

EUR/CHF clawed back losses last week. Economists at ING analyze the pair’s outlook. 

Looking for the correction higher

USD rebound is unfolding given the richness of US rates curve. Economists at MUFG Bank analyze Greenack’s outlook.

EUR/USD could move back down to around the 1.06/1.07 area in February

• The Aussie is under increasing bearish pressure amid the unfavorable risk environment
• Hawkish Fed rhetoric is prompting investors to reassess Fed easing expectations and boosting the US Dollar.
• A string of weak Chinese data has increased bearish pressure for the Aussie.
   

Aussie is trading under strong selling pressure. The pair has lost more than 4% so far in January to reach a key support area at the 0.6520/40 range with all eyes on the US Retail Sales data.

US Consumption is expected to have grown 0.4% in December, up from the 0.3% increase seen in November. After that, a slew of Fed policymakers are crossing wires.

Fed speakers are likely to support the US Dollar

Fed speakers are likely to endorse the view of their colleagues, who have warned that is too early to consider rate cuts, with inflation well above the 2% rate of price stability. These comments, mixed with the risk-off environment amid concerns that the situation in the Red Sea will strangle global trade, are underpinning support for the safe-haven Dollar.

Beyond that, data from China, a key Australian partner disappointed earlier today. The Gross Domestic Product grew at a 5.2% pace below expectations of 5.3% and retail sales went 7.4% up below the 8% market consensus and well below November’s 10.1% increase.

These figures revive investors' concerns about the anemic post-COVID recovery in China and cast doubt on Australia’s economic outlook, ultimately increasing negative pressure on the Aussie.

In Australia, recent data has shown that consumer confidence deteriorated in January, which has increased negative pressure on the Aussie.

Technical levels to watch

• EUR/JPY faces barricades near 161.00 as ECB Lagarde sees a rate cut in late spring.
• Oil supply disruptions from Red Sea could lead to upside risks to energy prices in Eurozone.
• The BoJ could postpone BoJ plans of exiting ultra-dovish monetary policy.

The EUR/JPY pair has found an intermediate resistance near 161.00 in the European session. The asset has sensed nominal selling pressure as European Central Bank (ECB) President Christine Lagarde has signalled that the central bank could start the ‘rate-cut’ cycle in summer.

ECB Lagarde refrained herself from announcing a victory over inflation as she believes that price pressures are far from the required rate of 2%. But added that collective wage agreements, which will release after late spring, will provide an idea where households’ income is going. ECB policymakers have been emphasizing on maintaining a restrictive interest rate stance, stating that it is too early to announce rate cuts.

Meanwhile, uncertainty over Middle East tensions have deepened upside risks to energy prices. Iran-backed Houthi group has threatened to retaliate for airstrikes by the US military on their bases in Yemen. Houthi rebels are expected to disrupt the commercial shipments through Red Sea, which could lead to a sharp increase in the oil prices. This can accelerate price pressures in the Eurozone and could delay potential rate cuts.

On the Japanese Yen front, investors await the National Consumer Price Index (CPI) data for December, which will be published on Friday. Price pressures are expected to remain above 2% but are not expected to move needle in favour of an early exit from the ultra-dovish interest rate policy. Earthquake in Japan, easing inflation in Tokyo and bleak wage growth would restrict the BoJ for unwinding the expansionary monetary policy.

• The Dollar has accelerated its recovery, buoyed by fading hopes of early Fed cuts.
• The focus today is on the US Retail Sales figures before more Fed officials meet the press.
• USD/CAD is approaching 1.3545, where it might find some resistance
   

The US Dollar is trading higher against its Canadian Counterpart, with downside attempts finding buyers, as investors reassess their expectations of early and aggressive Fed rate cuts in 2024.

The pair pulled back on Tuesday, with the Canadian Dollar picking up following mixed Canadian CPI and weaker-than-expected US Manufacturing figures. Buyers, however, showed up at 1.3450 and boosted the pair to the 1.3500 area after Fed’s Waller reiterated that the Fed is unlikely to trim rates with inflation well above the 2% target.

The focus today is on the US Retail Sales, which are expected to have increased 0.4% in December, following a 0.3% rise in the previous month. After that, a slew of Fed officials are likely to provide further insight into the bank’s next monetary policy steps.

The technical picture shows the pair correcting higher after a two-month sell-off. Price action is nearing the 50% retracement of the mentioned decline, at 1.3545 where it might find some resistance. Above here, the next target is 1.3625.

Immediate support is at 1.3450, and below here, 1.3340.

Technical levels to watch

The Canadian Dollar’s (CAD) reaction to the latest inflation print for December was rather muted. Economists at Commerzbank analyze Loonie’s outlook.

The BoC is unlikely to cut rates soon

• The Euro languishes at one-month lows amid broad-based Dollar strength.
• Dwindling hopes of Fed rate cuts and geopolitical tensions are underpinning support for the US Dollar.
• Later today the US Retail Sales and a slew of Fed speakers might boost EUR/USD volatility.

The Euro (EUR) is practically flat near one-month lows on Wednesday, consolidating losses after a sharp reversal on Tuesday. The increasing geopolitical tensions in the Middle East and central banker’s rhetoric have pushed back hopes of rate cuts in early 2024, sending investors rushing into safe assets like the US Dollar (USD), which is weighing on the Euro.

On Tuesday, the Federal Reserve (Fed) Governor, Christopher Waller, warned that the bank is unlikely to trim rates while consumer inflation remains at a “striking distance” of the 2% target of price stability. Waller echoed last week’s comments by other Fed policymakers, demonstrating that the market got ahead of itself with the global central banks’ easing expectations.

In this context, and with the increasing tensions in the Red Sea underpinning the safe-haven US Dollar, the focus is now on the US Calendar. Later today, December’s US Retail sales and an array of Fed speakers are likely to boost USD volatility.

Daily digest market movers: Euro succumbs on US Dollar strength as risk appetite falters 

• The Euro is hovering near one-month lows against a stronger USD with all eyes on US consumption figures.
   
• Fed Governor, Christopher Waller struck a hawkish tone on Tuesday and cast further doubt about the possibility of a Fed rate cut in March.
   
• Futures markets are pricing a 63% chance that the Fed will start easing in March, down from 75% at the start of the week.
   
• Later today US Retail sales are expected to show a 0.4% increase in December, following a 0.3% rise in the previous months.
   
• Shortly after the US data is released, Fed board members Michael Barr and Michelle Bowman are likely to give further insight into the bank’s monetary policy outlook.
   
• In the Euro Area, Consumer inflation is expected to confirm the preliminary data which showed an increase in price pressures in December.
   
• Somewhat later, European Central Bank President, Christine Lagarde, and Bundesbank Governor Joachim Nagel will speak. Their comments about the bank’s policy plans will be observed with interest.
   
• The uncertainty in the Red Sea persists, forcing shipping firms to find alternative routes for their cargo. This increases shipping costs and will translate into higher inflationary pressures.
   
• Data from China seen earlier today has added to evidence of the frail growth in the world’s second-largest economy. The third quarter GDP grew at  5.2% year on year, below the 5.3% expected, with retail sales also disappointing.

Technical Analysis: EUR/USD is under increasing bearish pressure below 1.0880 support

The EUR/USD has confirmed its near-term bearish trend with price action piercing the bottom of the last two week’s trading range, and the 38.2% retracement of the October - December rally, at 1.0880. 

In so doing, the pair resumes its downtrend from late December highs, activating a bearish Head and Shoulders pattern. The next support levels are 1.0780 and 1.0725. The H&S measured target is 78.6% Fibonacci retracement of the aforementioned rally, at 1.0600.

On the upside, the pair should regain 1.0880 and the reverse trendline support, now at 1.0925 in order to shift its focus back to the 1.1000 area.
 

EUR/USD 4 Hour Chart

• Gold price falls sharply as Fed Waller maintains a higher for longer interest-rates narrative.
• The last leg of high US inflation has turned out to be significantly stubborn.
• Guidance from three Fed policymakers and US Retail Sales data are due on Wednesday.

Gold price (XAU/USD) has extended its correction on Wednesday as a hawkish commentary from Federal Reserve (Fed) Governor Christopher Waller has casted doubts about a rate cut by the central bank in the March meeting. Fed policymakers have been favouring interest rates to remain higher for longer, defying market expectations, amid a lack of confidence in inflation returning towards the 2% target in a timely and sustainable manner.

The Consumer Price Index (CPI) data for December indicated that the last leg of high price pressures is quite challenging for Fed policymakers, likely due to steady labor market conditions and decent consumer spending momentum. A quick rate cut decision by the Fed can lead to persistence in inflationary pressures and dampen the work done to achieve price stability.

Later in the day, the performance of the US Dollar, Treasury yields and bullions will be guided by the United States Retail Sales and Industrial Production data for December. The chances for the Fed cutting interest rates in March could ease further if the Retail Sales report comes in stronger than projected.

Daily digest market movers: Gold price falls further ahead of US Retail Sales data

• Gold price has extended its losses to near $2,017 and is expected to decline further towards the psychological support of $2,000.
• The downside bias to the Gold price has strengthened as investors are uncertain about when the Federal Reserve could start discussing the timeframe for interest rate cuts.
• A hawkish commentary from Fed Governor Christopher Waller has raised doubts about whether the central bank will cut interest rates in March.
• Christopher Waller commented that the Fed should not rush to take interest rates down until it is ensured that inflation will return to the 2% target in a sustainable manner.
• Waller added that the Fed should proceed with rate cuts “methodically and carefully” to bail out the economy from an expected slowdown. He further added that resilience in the US economy could delay potential reductions in borrowing costs.
• Fed policymakers have become more determined to maintain a restrictive interest rate stance as the December inflation data turned out surprisingly stubborn.
• After Waller’s commentary, Investment banking firm Goldman Sachs said the Fed could cut rates somewhat later or might announce one cut each quarter from April.
• Meanwhile, bets supporting a rate cut by the Fed in March have dropped further. As per the CME Fedwatch tool, trades see a 61.4% chance for a 25-basis points (bps) interest rate cut in March, down from 70% at the start of the week. 
• The increase in the  US Dollar Index (DXY) also weighed on Gold price. The USD Index has slightly corrected after posting a fresh monthly high above 103.50.
• Further action in the US Dollar will be guided by the United States Retail Sales and Industrial Production data for December.
• Investors have projected that Retail Sales increased was 0.4%, higher than the 0.3% rise in November. Industrial Production is seen stagnant after rising 0.2% in November.
• Apart from the US economic data, Fed’s Beige Book and fresh outlook on interest rates from Fed speakers will be keenly watched. On Wednesday, Fed’s  Michael Barr, Michelle Bowman, and John Williams are due to speak. 
• Fed policymakers are expected to endorse a restrictive monetary policy stance for a longer period than what is anticipated by market participants.

Technical Analysis: Gold price drops to near 50-day EMA

Gold price continues its downside below $2,020 after Fed Waller’s hawkish remarks about interest rates. The near-term demand for Gold is not bullish anymore as price has dropped below the 20-day Exponential Moving Average (EMA), which trades around $2,036. The yellow metal has found interim support after sliding to near the 50-day EMA, which oscillates near $2,017. The 14-period Relative Strength Index (RSI) is declining towards 40.00, which could offer some cushion. However, a breakdown below the same will lead to the activation of bearish momentum.

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

Gold price stood at 61,817 Indian Rupees (INR) per 10 grams, down INR 616 compared with the INR 62,433 it cost on Tuesday.

As for futures contracts, Gold prices decreased to INR 61,893 per 10 gms from INR 62,015 per 10 gms.

Prices for Silver futures contracts decreased to INR 71,700 per kg from INR 72,093 per kg.

Global Market Movers: Comex Gold price falls on Fed rate cut uncertainty

• Federal Reserve (Fed) Governor Christopher Waller's remarks on Tuesday further tempered expectations for a March rate cut and act as a headwind for the non-yielding Comex Gold price.
• Waller added that the Fed needs to be cautious and cannot rush into rate cuts as the economy remains in good shape, pushing the US Treasury bond yields sharply higher.
• The yield on the benchmark 10-year US government bond holds steady above the 4.0% threshold, underpinning the US Dollar and capping the non-yielding yellow metal.
• The risk of a further escalation of tensions in the Middle East does little to provide any respite to the safe-haven XAU/USD or impress bullish traders.
• In the latest development, the US carried out another airstrike targeting a Houthi missile facility in Yemen, noting a threat to merchant vessels and US Navy ships.
• The official data released by the National Bureau of Statistics (NBS) showed that China’s economy grew at an annual rate of 5.2% in the final quarter of 2023.
• On a quarterly basis, Chinese GDP expanded by 1.0% in Q3 vs. 1.0% expected, while December Retail Sales and Industrial Production rose by 7.4% YoY and 6.8% YoY, respectively.
• Following the release of the high-impact data, the NBS noted that China's economy faces a complex external environment and low consumer prices reflect insufficient domestic demand.
• The geopolitical risks, along with China's economic woes, might hold back traders from placing aggressive bearish bets around the metal and help limit any further losses.
• Traders now look to the US macro data, which is expected to show that monthly Retail Sales grew by 0.4% in December and Industrial Production remained flat.
• Apart from this, scheduled speeches by Fed Governors Michael Barr and Michelle Bowman might influence the USD and provide some impetus to the commodity.

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

In a busy week for European Central Bank speakers, today sees ECB President Christine Lagarde speak twice. Economists at ING analyze EUR/USD outlook ahead of the speeches.

Let's see what Lagarde has to say

US Dollar Index refreshes five-month highs. Economists at ING analyze Greenback’s outlook ahead of the US Retail Sales report.

DXY to extend gains to the 104.00/104.25 area

See – US Retail Sales Preview: Forecasts from nine major banks, consumers continued spending in December

• GBP/JPY extends its gains on the upbeat UK economic data.
• UK inflation and retail sales data reinforce the strength of the Pound Sterling.
• Traders await Friday’s National Consumer Price Index data from Japan.

GBP/JPY moves on its upward trajectory for the third successive day, trading around 187.10 during the European session on Wednesday. The Pound Sterling (GBP) gained ground following solid economic data from the United Kingdom (UK) released on Wednesday, which in turn, underpinned the GBP/JPY cross. The likelihood of an early rate cut by the Bank of England (BoE) has diminished due to higher price pressures which could deter the central bank from implementing monetary policy easing. Instead, the BoE may adopt a more cautious approach to manage inflation and maintain price stability.

UK Consumer Price Index (CPI) year-over-year rose by 4.0% against the 3.9% prior, exceeding the expected reading of 3.8% in December. The monthly CPI increased by 0.4% against the 0.2% as expected, swinging from the previous decline of 0.2%. Meanwhile, the annual Core CPI remained consistent at 5.1% against the market expectation of 4.9%.

Moreover, the UK Retail Price Index (MoM) grew by 0.5% as compared to the expected 0.4% figure. The annual report showed a growth of 5.2% against the 5.1% expectations in December. However, Producer Price Index - Output (YoY) increased to 0.1% from the previous decrease of 0.1%, falling short of the expected 0.4% reading.

On the flip side, the Japanese Yen (JPY) continues to decline against the British Pound (GBP) due to decreasing consumer prices in Tokyo and weak labor data released last week. This has solidified expectations that the Bank of Japan (BoJ) will postpone its plan to shift away from its extremely accommodative monetary policy stance.

Additionally, the JPY has not found relief from a generally bearish sentiment in equity markets and ongoing geopolitical tensions arising from the Middle East conflict. Traders await Japan’s National Consumer Price Index data to be released on Friday.

China’s GDP growth met official target, but underlying data is a mixed bag. Economists at Commerzbank analyze Yuan’s outlook. 

GDP exceeded target, but challenges remained strong

• USD/MXN could find resistance around the 38.2% Fibonacci retracement at 17.43.
• MACD indicates a shift towards bullish momentum for the pair.
• The 21-day EMA at 17.04 aligned with the psychological level at 17.00 could act as a key support region.

USD/MXN continues to gain ground for the third consecutive session on Wednesday, trading higher around 17.25 during the European session followed by the immediate resistance level around the 38.2% Fibonacci retracement at 17.43.

The 14-day Relative Strength Index (RSI), a momentum oscillator that measures the speed and change of price movements is positioned above the 50 mark, indicating the bullish momentum for the USD/MXN pair.

Additionally, Additionally, the lagging indicator “Moving Average Convergence Divergence (MACD)” lies below the centerline but shows divergence above the signal line, which suggests a potential shift in momentum towards an upward trend.

A breakthrough above the Fibonacci retracement level could influence the USD/MXN pair to test the major level at 17.50 aligned with December’s high at 17.56. if the pair surpasses the latter, it could explore the psychological region around the 18.00 level.

On the downside, the 21-day Exponential Moving Average (EMA) at 17.04 could act as a key support level in conjunction with psychological support at 17.00. A break below the latter could influence the bears of the USD/MXN pair to revisit the weekly low at 16.84 level.

USD/MXN: Daily Chart

The Pound Sterling (GBP) is enjoying a bounce after the December UK Consumer Price Index (CPI) figure came in higher than expected. Economists at ING analyze Cable’s outlook.

EUR/GBP can probably trade closer to 0.8550/0.8600

On Tuesday, the Dollar appreciated quite a bit and EUR/USD declined below 1.09. Economists at Commerzbank analyze the pair’s outlook.

The market remains on course with its expectations

European Central Bank (ECB) Governing Council member Klaas Knot said on Wednesday, “the rate path priced by markets can be self-defeating.”

Additional comments

Related reads

• Lagarde speech: Inflation is not where the ECB wants it
• Forex Today: Dollar stands tall, as US Retail Sales data grab eyeballs

• NZD/USD loses ground as investors turn back toward US Dollar.
• The mixed Chinese data failed to improve the Kiwi Dollar.
• Traders await December’s US Retail Sales data to gain fresh impetus on the US economic landscape.

NZD/USD extends its losses on the third consecutive day, trading lower to near 0.6120 during the early European hours on Wednesday. The NZD/USD pair experiences downward pressure, influenced by risk aversion related to the geopolitical conflict in the Middle East. Additionally, there appears to be a slowdown in speculations over Federal Reserve (Fed) interest rate cuts in March, contributing to the downward pressure on the pair.

The New Zealand Dollar (NZD) faces downward pressure despite mixed data from China. China's annual Gross Domestic Product (GDP) grew by 5.2% in the fourth quarter, slightly below the expected 5.3%. December's Industrial Production (YoY) increased by 6.8%, surpassing the expected 6.6%. However, Retail Sales year-over-year came in at 7.4%, falling short of the market consensus of 8.0%.

The fear of weaker demand in China weighed on the Kiwi Dollar (NZD). The decline in Chinese consumer prices for a third consecutive month in December, along with a decrease in producer prices, contributed to concerns about economic conditions and demand in New Zealand's major trading partner, given the close economic ties between the two countries.

The US Dollar Index (DXY) holds steady around 103.50, supported by improved US Treasury yields, where the 2-year and 10-year yields stand at 4.26% and 4.07%, respectively. The risk-off sentiment is boosting demand for the US Dollar (USD), along with some assertive remarks from Federal Reserve (Fed) officials.

Traders are closely monitoring the upcoming US Retail Sales data for December, scheduled for release later in the day. This economic indicator provides insights into consumer spending patterns. Additionally, the release of the Fed's Beige Book and a speech by Fed's John C. Williams will be closely watched for further insights into the central bank's monetary policy stance.

• Pound Sterling has discovered strong buying interest as the UK inflation turned out highly stubborn.
• Higher fuel prices and service price index boosted UK consumer price inflation.
• The market mood remains downbeat as investors are uncertain about Fed rate cuts.

The Pound Sterling (GBP) delivers a stalwart recovery after the release of the surprisingly stubborn United Kingdom consumer price inflation data for December. The GBP/USD pair recovers their entire losses as hopes of an early rate cut by the Bank of England (BoE) have waned amid higher price pressures. The Consumer Price Index (CPI) in the UK economy remained stubborn amid significant rise in oil prices due to Russia-Ukraine war and slightly higher service inflation.

A sticky UK inflation report has provided more room to the BoE policymakers to maintain interest rates higher at 5.25% for a longer period. BoE policymakers have been warning from long that it is too early to discuss about the unwinding of higher interest rates as price pressures are far above the required rate of 2%.

Meanwhile, a sharp recovery in the Pound Sterling could stall as the market mood is quite cautious. The market sentiment has turned downbeat as investors are uncertain about when the Federal Reserve (Fed) will start the rate-cut campaign. Going forward, market participants will keenly focus on the United States Retail Sales data for December, which will be published at 13:30 GMT.

Daily Digest Market Movers: Pound Sterling rises on sticky UK Inflation report

• Pound Sterling delivers a V-shape recovery as the United Kingdom inflation data for December has turned out stubbornly higher while investors anticipated to remain soft.
• The UK ONS has reported that monthly headline inflation grew at a stronger pace of 0.4% against expectations of 0.2%. In November, headline price pressures were contracted by 0.2%.
• The annual headline inflation rose by 4.0% against 3.9% growth in November. Market participants anticipated a deceleration to 3.8%.
• Core consumer price inflation that excludes volatile food and oil prices remained sticky at 5.1% while investors projected it softening to 4.9%.
• A sharp increase in price pressures has indicated that the last leg of high inflation is expected to be a challenging task for Bank of England policymakers.
• This will offer a strong argument to BoE policymakers to maintain a restrictive monetary policy stance for a longer period.
• Traders are expected to pare higher bets supporting an early rate cut from the BoE, which were boosted by a sharp decline in wage growth data, released on Tuesday.
• The Pound Sterling witnessed a sharp sell-off in Tuesday’s session on slower wage growth and dismal market mood.
• While labor demand remained steady, UK employers slashes wage growth due to vulnerable demand conditions in the domestic and the overseas market.
• The market mood remains downbeat as traders pare bets in favour of rate cuts by the Federal Reserve from March after the hawkish commentary from Governor Christopher Waller.
• Christopher Waller said the Fed should not rush to reduce interest rates until it get confident that inflation will return to the 2% target in a sustainable manner.
• The US Dollar Index (DXY) has printed a fresh monthly high above 103.50 as investors’ confident for Fed rate cut in March is fading.
• Going forward, the USD Index will be guided by the United States Retail Sales and the Industrial Production data for December.
• As per the estimates, monthly Retail Sales grew at a pace of 0.4% against 0.3% in November. The Industrial Production remained stagnant against 0.2% growth.

Technical Analysis: Pound Sterling recovers from 50-DEMA

Pound Sterling delivers a swift recovery after discovering strong buying interest near the round-level support of 1.2600. The GBP/USD pair has rebounded after testing the 50-day Exponential Moving Average (EMA), which trades around 1.2600. The near-term demand for the Cable would improve if it manages to climb above the 20-day EMA, which oscillates around 1.2690.

The GBP/USD pair manages to hold auction above the 50% Fibonacci retracement at 1.2590 (of the move from 13 July 2023 high at 1.3142 to 4 October 2023 low at 1.2037). The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00, which indicates a listless performance.

Here is what you need to know on Wednesday, January 17:

The US Dollar (USD) continues to maintain its upper hand across the board, as markets remain jittery on the back of China’s economic concerns and persisting Middle East geopolitical tensions. China’s fourth-quarter Gross Domestic Product (GDP) showed that the economic recovery clearly remains shaky.

The world’s second-largest economy expanded 5.2% YoY in the fourth quarter of 2024 but missed the market estimates of a 5.3% growth. On a quarterly basis, the Chinese GDP lost its momentum and rose 1.0% in Q4, as expected. China’s Retail Sales grew 7.4% YoY in December, below the expectations of 8.0%. Industrial Production increased 6.8% YoY in the same period vs. 6.6% expected.

On the geopolitical front,  Iran-backed Houthi rebels struck a US-owned cargo vessel with an anti-ship ballistic missile off the coast of Yemen, keeping investors on the edge.

The US Dollar also finds support from the recent less dovish remarks from US Federal Reserve (Fed) Governor Christopher Waller. Waller walked back on his previous view on the dovish policy pivot, noting on Tuesday that while inflation was approaching the central bank's 2.0% target, the Fed should not rush to cut interest rates until lower inflation can clearly be sustained.

Markets are now pricing in a 62% probability of a rate cut by the Fed in March, according to the CME Group’s FedWatch tool, compared with the 81% likelihood at the start of the week. The Greenback continues to capitalize on easing bets of aggressive Fed rate cuts, courtesy of the hawkish Fed chorus.

That said, the upcoming US Retail Sales data will hold the key for the next leg higher in the USD, as it could help reprice the market’s expectations of the Fed rate cuts this year.

At the time of writing, the US Dollar Index is flirting with five-week highs above 103.50, despite a muted performance in the US Treasury bond yields. Meanwhile, a barometer of risk sentiment, US S&P 500 futures, are down 0.33% on the day, justifying the risk-off market mood.  

Within the G10 currency basket, risk aversion is taking its toll on the Antipodeans, as they extend their downward spiral. AUD/USD is shedding 0.55% on the day to trade near 0.6550 while the NZD/USD is closing in on the 0.6100 level, down 0.30% so far.

USD/JPY keeps pushing higher, alongside the US Dollar, currently approaching 148.00. The pair is up 0.47% on a daily basis.

EUR/USD is trading close to over one-month lows near 1.0850, despite the latest pushback by the European Central Bank’s (ECB) policymakers against interest rates cuts. A mixed German ZEW survey added to the grim Eurozone economic outlook, exerting additional pressure on the Euro. All eyes remain on ECB President Christine Lagarde’s speech at the World Economic Forum (WEF) Annual Meeting in Davos.  

GBP/USD is staging a rebound to test 1.2650 after the headline UK annual CPI inflation surprised with an increase to 4.0% in December, against a drop to 3.8% expected.  

USD/CAD is holding higher ground above 1.3500, as the WTI oil price trades listlessly at around the $72 mark. The geopolitical developments surrounding the Red Sea will continue to grab attention. Meanwhile, the Canadian Dollar has reversed the hotter-than-expected Canadian CPI inflation-led rebound, which poured cold water on early rate-cut bets by the Bank of Canada (BoC).

Gold price is hitting weekly lows near $2,020, extending the previous decline on fading hopes of aggressive Fed rate cuts.

The US Census Bureau will release the December Retail Sales report on Wednesday, January 17 at 13:30 GMT and as we get closer to the release time, here are the forecasts of economists and researchers of nine major banks regarding the upcoming data. 

Retail Sales are expected to have grown at a higher pace of 0.4% against 0.3% increase in November. Consumer spending ex-automobiles is expected to remain steady at 0.2% MoM. The so-called control group used for GDP calculations is expected at 0.2% MoM vs. the prior release of 0.4% in November.

Commerzbank 

ING

Deutsche Bank

RBC Economics

NBF

SocGen

Citi

Wells Fargo

CIBC

Speaking on the sidelines of the World Economic Forum (WEF) Annual Meeting in Davos, European Central Bank (ECB) President Christine Lagarde said that she is “confident inflation will reach the  2.0% target.”

Additional quotes

Market reaction

At the time of writing, EUR/USD is off the five-week lows of 1.0855, trading flat at 1.0868.

• EUR/GBP loses momentum to 0.8595 following stronger UK CPI data.
• The United Kingdom CPI rose 4.0% YoY in December vs. 3.9% prior, stronger than expected.
• German Economic Confidence Unexpectedly improved in January.
• The December Eurozone Harmonized Index of Consumer Prices (HICP) will be due on Wednesday.

The EUR/GBP cross drops below the 0.8600 psychological mark during the early European session on Wednesday. The downtick of the cross is backed by the upbeat December UK inflation. The cross will face the initial support level near a low of 0.8580 and a key resistance level near the 100-day Exponential Moving Averages (EMA) on the daily chart. At press time, EUR/GBP is trading at 0.8595, down 0.11% on the day.

The latest data from the Office for National Statistics on Wednesday revealed that the UK Consumer Price Index rose by 4.0% YoY in December from 3.9% in the previous reading, while the Core CPI arrived at 5.1% YoY versus 5.1% prior. Both figures came in better than market expectations. On a monthly basis, the headline CPI figure grew by 0.4% MoM in December from a 0.2% drop in November, above the consensus of a 0.2% increase. In response to the data, the Pound Sterling (GBP) attracts some buyers and acts as a headwind for the EUR/GBP cross.

On the Euro docket, German Economic Confidence Unexpectedly improved in January. The German ZEW Indicator of Economic Sentiment grew to 15.2 in January from 12.8 in December, better than the market expectation of 12.8. The current situation index dropped to -77.3 versus -77.1 prior, lower than the consensus of -77.0. Meanwhile, the ZEW survey showed that confidence in the Eurozone experienced a slight decrease in January. The figure came in at 22.7 versus 23.0 prior, better than the 21.9 estimated.

An upsurge in inflation in Germany and the Eurozone in December has no impact on monetary policy expectations. The European Central Bank (ECB) officials emphasized the uncertainty over interest rates and inflation and said they would begin cutting interest rates this spring. Nonetheless, ECB chief Mario Centeno said that a rate cut should be part of the discussion and no option should be taken off the table.

Looking ahead, the Eurozone Harmonized Index of Consumer Prices (HICP) for December will be due later on Wednesday. On Friday, investors will monitor the German Producer Price Index (PPI) and UK Retail Sales. These figures could give a clear direction to the EUR/GBP cross.

• Silver price falls sharply to near $22.70 as Fed Waller denied early rate cut discussions.
• The USD Index has climbed to near 103.50 amid a risk-off mood.
• Investors await the US Retail Sales and the Industrial Production data for further guidance.

Silver price (XAG/USD) faces an intense sell-off as Federal Reserve (Fed) policymakers are maintaining the narrative of keeping interest rates higher for a longer period. The white metal has extended its downside to near $22.70 and is expected to remain on the tenterhooks ahead of the United States Retail Sales and Industrial Production data.

S&P500 futures have posted some losses in the Asian session, portraying further decline in the risk-appetite of the market participants.

The US Dollar Index (DXY) has rallied to near 103.50 as Fed Governor Christopher Waller said the central bank could not rush to rate cuts amid revision risks in inflation prints. He added that the Fed will reduce interest rates only if inflation continues to moderate. While the 10-year US Treasury yields have dropped marginally to little above 4.0%.

As per the CME Fedwatch tool, chances in favour of an interest rate cut by 25 basis points (bps) have declined to 62% after a hawkish commentary from Fed Waller.

Going forward, market participants will focus on the US monthly Retail Sales data for December, which will be published at 13:30 GMT. The economic data is seen growing by 0.4% against 0.3% increase in November. The Industrial Production is expected to remain stagnant.

Silver technical analysis

Silver price is declining towards the crucial support that is plotted from December 13 low around $22.51 on a four-hour scale. The 200-period Exponential Moving Average (EMA) around $23.48 has been acting as a major barricade for the Silver price bulls.

The 14-period Relative Strength Index (RSI) has slipped below 40.00, which indicates that a bearish momentum has been triggered.

Silver four-hour chart

• GBP/USD trades in negative territory for two straight days on Wednesday. 
• The major pair holds below the key EMA with an oversold RSI condition.
• The critical support level will emerge at the 1.2600 mark; 1.2686 acts as an immediate resistance level for GBP/USD. 

The GBP/USD pair faces some selling pressure above 1.2600 during the early European session on Wednesday. Investors await the UK Consumer Price Index (CPI) for December for fresh impetus. The headline UK inflation is estimated to grow 3.8% YoY, while the Core CPI is expected to rise 4.9% YoY. GBP/USD currently trades near 1.2607, losing 0.18% on the day. 

Technically, GBP/USD holds below the 100-hour Exponential Moving Averages (EMAs) on the four-hour chart, which means further downside looks favorable.

The key contention level will emerge at the 1.2600 mark, representing the psychological round level and the lower limit of the Bollinger Band. Any decisive follow-through selling below the latter will see a drop to a low of December 7 at 1.2544, followed by the confluence of the round mark and a low of December 13 at 1.2500. 

On the upside, a low of January 8 at 1.2686 acts as an immediate resistance level for GBP/USD. The additional upside filter to watch is a high of January 8 at 1.2767, and finally the upper boundary of the Bollinger Band at the 1.2800 mark.

It’s worth noting that the Relative Strength Index (RSI) holds in bearish territory below 50. However, the oversold RSI condition indicates that further consolidation cannot be ruled out before positioning for any near-term GBP/USD depreciation.

GBP/USD four-hour chart

• USD/CHF moves on an upward trajectory as traders adopt a cautious stance.
• US has conducted a third military strike on a Houthi missile facility in Yemen.
• The recent Swiss inflation data could deter the SNB from reducing policy rates in the next policy meeting.

The USD/CHF pair continues its winning streak that started on Thursday, influenced by a cautious market stance due to concerns over the Israel-Gaza conflict potentially spreading in the region. Amid this geopolitical tension, the USD/CHF pair trades higher around 0.8620 during the Asian session on Wednesday.

The US Central Command has reported another airstrike targeting a Houthi missile facility in Yemen. The reason for this third military strike against Houthi targets is cited as an imminent threat posed by four missiles to merchant vessels and US Navy ships in the Red Sea.

The risk-off sentiment boosts demand for the US Dollar (USD), with the US Dollar Index (DXY) trading higher around 103.40. The recovery in US Treasury yields contributes to the support for the Greenback, along with some assertive remarks from Federal Reserve (Fed) officials.

US Federal Reserve Governor Christopher Waller emphasized that, despite positive developments in the inflation outlook, the central bank is not in a hurry to outline plans for rate cuts. Additionally, Atlanta Federal Reserve President Raphael Bostic suggested over the weekend that premature interest rate cuts could result in fluctuations in inflation.

The recent Swiss economic data, including a slight increase in consumer prices in December and an improvement in Swiss consumer demand in November according to Real Retail Sales figures, could potentially deter the Swiss National Bank (SNB) from reducing interest rates in the upcoming monetary policy meeting.

With the absence of the high-impact data on the Swiss economic calendar, traders observing the ongoing 54th World Economic Forum Annual Meeting in Davos, where over 28,000 leaders from around the world are participating. Global economic discussions and insights shared during the meeting can influence market sentiments. On the US economic front, traders are closely monitoring the upcoming US Retail Sales data for December, scheduled for release on Wednesday.

• EUR/USD extends its losses to near 38.2% Fibonacci retracement level at 1.0867.
• A break below the 1.0850 level could prompt the pair to reach the psychological region around the 1.0800 level.
• The selling interest could outweigh the buying interest at the psychological level of 1.0900.

EUR/USD continues to move on a downward trajectory for the second successive session, trading lower near 1.0870 during the Asian session on Wednesday as the US Dollar (USD) continues to extend its gains. The strength of the USD is attributed to the market caution on the geopolitical situation and upbeat US bond yields. The current level aligns with the 38.2% Fibonacci retracement at the 1.0867 level followed by the major support at the 1.0850 level.

The 14-day Relative Strength Index (RSI), a momentum oscillator that measures the speed and change of price movements, for the EUR/USD pair, is positioned below the 50 mark, indicating a bearish momentum in the market. A break below the support region could put downward pressure on the pair to navigate the area around the psychological support at 1.0800 followed by the 50% retracement level at 1.0787.

Additionally, the trend-following momentum indicator “Moving Average Convergence Divergence (MACD)” line lies above the centerline, but shows a divergence below the signal line for the EUR/USD pair. This divergence indicates a potential shift in momentum towards a downward trend.

On the upside, the psychological level at 1.0900 serves as the immediate resistance, followed by the 14-day Exponential Moving Average (EMA) at 1.0938 and the major barrier at 1.0950 level, where the selling interest tends to outweigh the buying interest. If the EUR/USD pair manages to break above the 1.0950 level, it could inspire bullish momentum, allowing traders to explore the region around the psychological level at 1.1000. Beyond that, attention may turn to January's high at 1.1038 as a further resistance level.

EUR/USD: Daily Chart

• GBP/JPY pulls back after rising to over a one-month top, though the downside seems limited.
• Bets that the BoE will cut rates sharply in 2024 undermine the GBP and exert some pressure.
• Dovish BoJ expectations and a bullish technical setup should limit losses ahead of the UK CPI.

The GBP/JPY cross retreats from its highest level since December 4, around the 186.35 area touched during the Asian session on Wednesday and for now, seems to have snapped a two-day winning streak. Spot prices, however, lack any follow-through selling and currently trade just below the 186.00 mark, nearly unchanged for the day, as traders look to UK Consumer inflation figures before placing fresh directional bets.

Heading into the key data risk, expectations that the Bank of Japan (BoJ) is unlikely to pivot away from its ultra-dovish policy settings continue to undermine the Japanese Yen (JPY) and act as a tailwind for the GBP/JPY cross. Meanwhile, slower wage growth in the UK reinforced market expectations that the Bank of England (BoE) will cut interest rates sharply this year. This, in turn, might hold back traders from placing aggressive bullish bets around the British Pound (GBP).

From a technical perspective, the recent solid rebound from the very important 200-day Simple Moving Average (SMA) and a subsequent breakout through the 100-day SMA favours bullish traders. Moreover, oscillators on the daily chart are holding comfortably in the positive territory and are still far from being in the overbought zone. This further validates the constructive setup and suggests that the path of least resistance for the GBP/JPY cross remains to the upside.

Hence, any meaningful downside might still be seen as a buying opportunity near the 185.40-185.35 region. This should help limit the downside for the GBP/JPY cross near the 185.00 psychological mark. That said, some follow-through selling could expose the weekly swing low, around mid-184.00s, below which spot prices could weaken further below the 184.00 round-figure mark and challenge the 100-day SMA resistance breakpoint, now turned support near the 183.50 zone.

On the flip side, bulls might now wait for a move beyond the 186.35 region, or the monthly peak, before placing fresh bets. The GBP/JPY cross might then aim to reclaim the 187.00 mark with some intermediate resistance near the 186.75-186.80 zone. The upward trajectory could extend further and lift spot prices to the next relevant barrier near the 187.55-187.60 region. en route to the 188.00 round figure and a multi-month top, around the 188.65 area touched in November.

GBP/JPY daily chart

Technical levels to watch

• USD/CAD continues its winning streak on the upbeat US Dollar.
• The decline in the WTI price weakens the Canadian Dollar.
• US Dollar cheers the market sentiment change due to the Middle East conflict.

USD/CAD extends its gains for the fifth successive session, trading higher near to the 1.3500 psychological level during the Asian session on Wednesday. The geopolitical situation in the Middle East is prompting investors to adopt a cautious stance, which is in turn supporting the US Dollar (USD) against other major currencies, including the Canadian Dollar (CAD).

The decline in Crude oil prices is exerting pressure on the Canadian Dollar (CAD), consequently providing support to the USD/CAD pair. Canada, being the largest oil exporter to the United States (US), is particularly sensitive to fluctuations in oil prices. West Texas Intermediate (WTI) crude oil is hovering around $72.10 per barrel after recent losses.

The downward pressure on WTI prices is attributed, in part, to a slight increase in net output from US Crude oil production facilities during the week. Additionally, the completion and expansion of the Trans Mountain pipeline in Canada play a significant role in transporting Crude oil from production areas to refineries and export terminals. Canada's increased Crude oil production in November has positioned the country as the fourth-largest global producer of barrels.

On the US side, the US Dollar Index (DXY) maintains its winning streak, propelled by improved US bond yields. Traders are showing restraint in pricing in potential interest rate cuts by the Federal Reserve (Fed), providing upward support for the Greenback. The ongoing possibility of an escalation in the Israel-Gaza conflict has shifted the positive market sentiment to caution, leading to increased demand for the US Dollar.

• Gold price languishes near the weekly low amid the underlying bullish tone around the USD.
• Reduced bets for a March Fed rate cut push the US bond yields higher and underpin the buck.
• The geopolitical risks and China’s economic woes could limit losses for the safe-haven metal.

Gold price (XAU/USD) struggles to gain any meaningful traction during the Asian session on Wednesday and consolidates the previous day's downfall to the weekly low. Investors further scaled back their expectations for an early interest rate cut by the US central bank in reaction to Federal Reserve (Fed) Christopher Waller's remarks on Tuesday. This, in turn, remains supportive of elevated US Treasury bond yields, which assists the US Dollar (USD) to stand tall near its highest level since December 13 and is seen acting as a headwind for the non-yielding yellow metal.

That said, an escalation of military action in the Middle East, along with persistent worries about slowing growth in China, helps limit the downside for the safe-haven Gold price. Moreover, the precious metal, so far, has managed to hold above the 50-day Simple Moving Average (SMA) support and the monthly trough touched last Thursday. This, in turn, warrants some caution for bearish traders and before positioning for deeper losses. Traders now look to the US macro data and speeches by influential FOMC members for some impetus later during the North American session.

Daily Digest Market Movers: Gold price is undermined by receding bets for an early Fed rate cut and a bullish USD

• Federal Reserve (Fed) Governor Christopher Waller's remarks on Tuesday further tempered expectations for a March rate cut and act as a headwind for the non-yielding Gold price.
• Waller added that the Fed needs to be cautious and cannot rush into rate cuts as the economy remains in good shape, pushing the US Treasury bond yields sharply higher.
• The yield on the benchmark 10-year US government bond holds steady above the 4.0% threshold, underpinning the US Dollar and capping the non-yielding yellow metal.
• The risk of a further escalation of tensions in the Middle East does little to provide any respite to the safe-haven XAU/USD or impress bullish traders.
• In the latest development, the US carried out another airstrike targeting a Houthi missile facility in Yemen, noting a threat to merchant vessels and US Navy ships.
• The official data released by the National Bureau of Statistics (NBS) showed that China’s economy grew at an annual rate of 5.2% in the final quarter of 2023.
• On a quarterly basis, Chinese GDP expanded by 1.0% in Q3 vs. 1.0% expected, while December Retail Sales and Industrial Production rose by 7.4% YoY and 6.8% YoY, respectively.
• Following the release of the high-impact data, the NBS noted that China's economy faces a complex external environment and low consumer prices reflect insufficient domestic demand.
• The geopolitical risks, along with China's economic woes, might hold back traders from placing aggressive bearish bets around the metal and help limit any further losses.
• Traders now look to the US macro data, which is expected to show that monthly Retail Sales grew by 0.4% in December and Industrial Production remained flat.
• Apart from this, scheduled speeches by Fed Governors Michael Barr and Michelle Bowman might influence the USD and provide some impetus to the commodity.

Technical Analysis: Gold price needs to break through the 50-day SMA support for bears to seize near-term control

From a technical perspective, the 50-day SMA, currently around the $2,017 area, followed by the $2,013 region, or the monthly low, could protect the immediate downside ahead of the $2,000 psychological mark. A convincing break below the latter will be seen as a fresh trigger for bearish traders and drag the Gold price towards the December swing low, around the $1,973 zone. The XAU/USD could eventually drop to the $1,969-1,963 confluence, comprising the 100- and 200-day SMAs.

On the flip side, the $2,040-2,045 region now seems to act as an immediate strong barrier ahead of the $2,061-2,062 supply zone. Some follow-through buying has the potential to lift the Gold price further towards the $2,077 area, which if cleared decisively will negate any near-term negative bias. Bullish traders might then aim towards reclaiming the $2,100 psychological mark.

• Indian Rupee drifts lower on the higher US Dollar and bond yields.
• The Reserve Bank of India’s Das said food inflation will be at the top of the central bank’s agenda.
• Investors await US Retail Sales ahead of the RBI’s Das speech at the World Economic Forum Annual Meeting 2024 on Thursday.

Indian Rupee (INR) trades on a softer note on Wednesday amid the extended rally of the US Dollar (USD). Nonetheless, traders place their bets that the INR will break out of its trading range and rally this year as India gains the confidence of foreign exchange investors who believe the Indian Rupee could trample the Greenback.

The Reserve Bank of India (RBI) Governor Shaktikanta Das said at the World Economic Forum (WEF) in Davos on Tuesday that food inflation can be volatile and will be on the top of the central bank’s agenda. WEF president Borge Brende stated that he sees India's growth story intact and running amid geopolitical tensions and a weak investment cycle.

Looking ahead, investors will keep an eye on US Retail Sales on Wednesday, which is estimated to show an increase of 0.4% MoM. On Thursday, the RBI governor Shaktikanta Das will share insights on key challenges and opportunities and his view on monetary policy at the World Economic Forum Annual Meeting 2024 at Davos.

Daily Digest Market Movers: Indian Rupee remains resilient amid geopolitical tensions

• The Reserve Bank of India (RBI) governor Shaktikanta Das said India's economic growth prospects remain robust and retail inflation is slowly moderating towards the 4% target.
• India’s December WPI inflation rose by 0.73% YoY from the previous reading of 0.26%, worse than the market expectation of 0.90%.
• India’s Wholesale Price Food Index arrived at 5.39% YoY in December.
• The Indian economy is predicted to grow by 8% this year, according to World Economic Forum (WEF) president Borge Brende.
• WEF’s Brende expects India will reach a $10 trillion economy, at least in the coming two decades.
• The US NY Empire State Index for January registered the lowest reading since 2020, coming in at -43.7 versus -14.5 prior, below the market consensus of -5.
• Fed Governor Christopher Waller said interest rate cuts are likely this year, but the central bank should not rush to cut its benchmark rate until it is clear lower inflation will be sustained.

Technical Analysis: Indian Rupee keeps the negative view intact in the short term

Indian Rupee trades weaker on the day. The USD/INR pair has maintained the 141.40-144.70 trading range since September 2023. The bearish mood prevails for USD/INR as the pair holds below the key 100-period Exponential Moving Average (EMA) on the daily chart. The short-term patterns lean somewhat negative, supported by the 14-day Relative Strength Index (RSI) which stands below the 50.0 midpoint.

The immediate resistance level for USD/INR will emerge at the upper boundary of the trading range at 83.40. A decisive break above 83.40 will see extended gains to a psychological round mark at 84.00. On the downside, the initial support level is seen at the 83.00 figure. The key contention level to watch is near the confluence of the lower limit of the trading range and a low of September 12 at 82.80. Any follow-through selling will see a drop to a low of August 11 at 82.60, followed by a low of August 24 at 82.40.

• WTI price moves sideways with a negative bias as US oil facilities increase output.
• EIA revealed that the Permian Basin production rose by 5.5 thousand bpd to 5.9 million bpd.
• US Central Command has reported about targeting a Houthi missile facility in Yemen.
• Improved US Dollar impacts the demand for dollar-denominated Crude oil among other countries.

West Texas Intermediate (WTI) price hovers around $72.10 per barrel during the Asian session on Wednesday. The price of the WTI Crude oil experienced downward pressure as United States (US) Crude oil production facilities slightly increased net output during the week. The Energy Information Administration (EIA) disclosed that production in the Permian Basin rose by 5.5 thousand barrels per day to 5.9 million barrels per day.

Moreover, the completion and expansion of the Trans Mountain pipeline, in Canada, play a significant role in facilitating the transportation of Crude oil from production areas to refineries and export terminals. This will ramp up the North American crude oil output. The rise in Canadian crude oil production observed in November has positioned Canada as the fourth-largest global producer of barrels.

The continued supply disruption in the Red Sea is acting as a deterrent to a more significant downward movement in Crude oil prices. In response to the situation, the US Central Command has reported another airstrike targeting a Houthi missile facility in Yemen. The rationale behind this third military strike against Houthi targets is cited as an imminent threat posed by four missiles to merchant vessels and US Navy ships in the region.

The US Dollar Index (DXY) gains upward support following recent remarks from Federal Reserve (Fed) officials. Fed Governor Christopher Waller emphasized that, despite positive developments in the inflation outlook, the central bank is not in a hurry to outline plans for rate cuts. Atlanta Fed President Raphael Bostic also suggested over the weekend that premature interest rate cuts could result in fluctuations in inflation.

The strengthened Greenback is countering the impact of the Red Sea disruption. A stronger US Dollar has implications for the demand for dollar-denominated commodities, including oil, among countries that use other currencies. It can make such commodities more expensive for buyers using alternative currencies.

Shell, the British energy pioneer, has agreed to sell its Nigerian onshore oil and gas subsidiary to a consortium of five primarily local companies for up to $2.4 billion. This move comes as the subsidiary has faced challenges over the years, including issues with theft, sabotage, and operational difficulties, leading to costly repairs and high-profile lawsuits.

Following the release of the high-impact economic data from China for December, the National Bureau of Statistics (NBS) offered its view on the economy during its press conference on Wednesday.

Key quotes (via Reuters)

Related reads

• China’s GDP expands 5.2% YoY in Q4 vs. 5.3% expected
• Australian Dollar hovers below a psychological level after mixed Chinese data

• EUR/USD attempts a modest recovery from over a one-month low touched on Tuesday.
• Mixed signals from ECB policymakers might hold back bulls from placing aggressive bets.
• Diminishing odds for an early Fed rate cut underpin the USD and should cap the upside.

The EUR/USD pair ticks higher during the Asian session on Wednesday and recovers a part of the previous day's downfall to over a one-month low. Spot prices currently trade with modest intraday gains, around the 1.0880 region, though the fundamental backdrop favours bearish traders and suggests that the path of least resistance is to the downside.

The shared currency struggles to attract any buyers in the wake of mixed views on inflation and interest rates by the European Central Bank (ECB) policymakers, raising uncertainty over the timing of rate cut moves. In fact, Bundesbank President Joachim Nagel said on Monday that 
it is too early for the ECB to discuss cutting interest rates as inflation remains high. In contrast, ECB Governing Council Member Tuomas Valimaki on Tuesday signalled his openness to consider lowering interest rates sooner than most of his colleagues. This, along with the underlying bullish sentiment surrounding the US Dollar (USD), validates the near-term negative outlook for the EUR/USD pair.

The USD Index (DXY), which tracks the Greenback's performance against a basket of currencies, stands tall near its highest level since December 13 and continues to draw support from reduced bets for an early rate cut by the Federal Reserve (Fed). Against the backdrop of slightly hot US consumer inflation figures last week, Fed Governor Christopher Waller said on Tuesday that the US central bank needs to be cautious and cannot rush into rate cuts as the economy remains in good shape. This remains supportive of elevated US Treasury bond yields, which, along with a softer risk tone, act as a tailwind for the safe-haven buck and contribute to capping the EUR/USD pair.

Hence, any subsequent move up might still be seen as an opportunity for bearish traders and run the risk of fizzling out rather quickly. Market participants now look to the release of the final Eurozone CPI print, which might influence the Euro. The US economic docket, meanwhile, features monthly Retail Sales and Industrial Production figures, due later during the early North American session. This, along with speeches by Fed Governors Michael Barr and Michelle Bowman, the US bond yields and the broader risk sentiment, will influence the USD and produce short-term trading opportunities around the EUR/USD pair.

Technical levels to watch

• NZD/USD holds positive ground near 0.6150 despite the firmer USD.
• China’s GDP growth numbers for Q4 grew at an annual rate of 5.2%, compared to the 4.9% expansion in Q3.
• Fed’s Waller said the central bank can start slowing the pace of quantitative tightening this year.
• The US Retail Sales data will be the highlight on Wednesday.

The NZD/USD pair edges higher during the Asian trading hours on Wednesday. The mixed economic data from China failed to boost the China-proxy Kiwi. Investors will take more cues from US Retail Sales later in the day. At press time, NZD/USD is trading at 0.6150, gaining 0.22% for the day.

The latest data from the National Bureau of Statistics of China showed that the nation’s Industrial Production grew 6.8% YoY in December, compared to expectations and the previous reading of 6.6%. Retail Sales eased to 7.4% in December from 10.1% in the previous reading, below the market consensus of 8.0%.

Additionally, China’s Gross Domestic Product (GDP) for the fourth quarter expanded at an annual rate of 5.2%, compared to the 4.9% expansion in the third quarter, worse than the estimation of 5.3%. On a quarterly basis, the Chinese GDP growth number grew by 1.0% in Q3 versus 1.3% prior, in line with the expectation of 1.0%.

On the USD’s front, the Federal Reserve (Fed) held interest rates steady in December for the third time in a row, keeping the benchmark overnight borrowing rate in a targeted range between 5.25%-5.5%. Fed governor Christopher Waller said that the economic activity and the cooling of the labor market made him more confident that the central bank was within striking distance of achieving a sustainable level of 2% PCE inflation. Waller added that he anticipates the Fed can start slowing the pace of quantitative tightening this year.

Investors will shift their focus on the December US Retail Sales. Additionally, the FOMC Barr, Bowman, Woods, and Williams are set to speak later on Wednesday. Traders will take cues from the data and find trading opportunities around the NZD/USD pair.

• Australian Dollar faced challenges on improved US Dollar amid market caution.
• Australian central bank is expected to refrain from increasing interest rates, influenced by eased consumer confidence in January.
• The decline in commodity prices contributed to downward pressure on the AUD.
• China’s annual GDP grew by 5.2%, slightly lower than the 5.3% expected in the fourth quarter.
• Upbeat US Treasury yields contributed to supporting the Greenback.

The Australian Dollar (AUD) attempts to break a losing streak on Wednesday, finding stability against the US Dollar (USD). In the previous session, the AUD/USD pair experienced a decline, influenced by a stronger Greenback, driven by upbeat US Treasury yields. Market participants have reduced their speculation on rate cuts from the US Federal Reserve (Fed). Heightened tensions in the Middle East conflict have also contributed to investor caution. Additionally, a decline in commodity prices, potentially reflecting fears of weaker demand from China, has weighed on the Aussie Dollar (AUD).

Australia's Consumer Confidence data for January showed a contraction, which has contributed to the sentiment that there might not be further policy tightening from the Reserve Bank of Australia (RBA) in its upcoming board meeting in February. This perception, in turn, is putting pressure on the AUD/USD pair.

China’s annual Gross Domestic Product (GDP) grew by 5.2% against the 5.3% as expected in the fourth quarter. December’s Industrial Production (YoY) increased by 6.8%. which was expected to remain consistent at 6.6%. Retail Sales year-over-year came at 7.4%, falling short of the market consensus of 8.0%.

Chinese consumer prices experienced a third consecutive month of decline in December, and producer prices also saw a decrease. This suggests persistent deflationary cost pressures in the country. However, in a speech delivered at the World Economic Forum in Davos, Premier Li Qiang stated on Tuesday that China's economy grew by approximately 5.2% in 2023. This growth rate is slightly better than the official target set by Beijing

The US Dollar Index (DXY) holds steady after a four-day winning streak, supported by recent remarks from Federal Reserve officials. Fed Governor Christopher Waller cautioned that, despite positive developments in the inflation outlook, the central bank is not rushing to outline plans for rate cuts.

Atlanta Fed President Raphael Bostic also suggested over the weekend that premature interest rate cuts could lead to inflation fluctuations. Bostic emphasized that the deceleration of inflation towards the central bank's 2.0% target was expected to slow down in the coming months.

US NY Empire State Manufacturing Index saw a significant decline, dropping to 43.7 in January, well below the expected decrease of 5. Traders will likely monitor the upcoming US Retail Sales data for December. The expectation is for a slight growth in retail sales which could provide insights into consumer spending patterns.

Daily Digest Market Movers: Australian Dollar declines on improved US Dollar

• Australian TD Securities inflation increased by 5.2% YoY in December from 4.4% in November.
• Australia's job advertisements improved by 0.1% in December, swinging from the previous decline of 4.6%.
• People's Bank of China (PBoC) maintained the rate on its medium-term facility steady at 2.5%, increasing the expectation that the Reserve Requirement Ratio will be reduced the following month.
• Chinese Consumer Price Index (YoY) decreased by 0.3% in December, against the expected 0.4% decline. The monthly Consumer Price Index eased to 0.1%, compared to the market expectation of 0.2%. The yearly Producer Price Index fell by 2.7%, slightly exceeding the expected decline of 2.6%.
• Barclays revised its forecast for the first Federal Reserve (Fed) rate cut on Friday, moving it to March from June. In a note released on Friday, Barclays analysts expressed their expectation for the Federal Open Market Committee (FOMC) to reduce the Fed Funds rate by 25 basis points at the March meeting.
• US Bureau of Labor Statistics reported that the December Producer Price Index (PPI) figure was 1.0% year-on-year, compared to the previous reading of 0.8%. The Core PPI YoY arrived at 1.8%, down from 2.0% in November. Monthly, the headline and Core PPI indices remained flat at -0.1% and 0.0%, respectively.
• US Bureau of Labor Statistics reported that the Consumer Price Index (CPI) surged to 3.4% YoY in December, exceeding both November's 3.1% and the anticipated market figure of 3.2%. The monthly CPI growth for December showed a 0.3% increase, surpassing the market analysts' estimated projection of 0.2%. The annual Core CPI stood at 3.9%, a slight decrease from November's 4.0%, while the monthly figure remained steady at 0.3%, in line with expectations.

Technical Analysis: Australian Dollar hovers below the psychological level at 0.6600

The Australian Dollar trades near 0.6590 on Wednesday followed by the immediate psychological resistance level at 0.6600. A break above the barrier could push the AUD/USD pair to approach the major level at 0.6650 following the 14-day Exponential Moving Average (EMA) at 0.6680 and the psychological level at 0.6700. On the downside, the 50% retracement level at 0.6566 could act as a key support level followed by the major support at 0.6550.

AUD/USD: Daily Chart

China’s economy grew at an annual rate of 5.2% in the final quarter of 2023 when compared to the 4.9% expansion in the third quarter, the official data released by the National Bureau of Statistics (NBS) showed on Wednesday. The market estimated an expansion of 5.3% in the reported period.

On a quarterly basis, Chinese Gross Domestic Product (GDP) climbed by 1.0% in Q3 vs. 1.0% expected and 1.3% booked previously.

China’s December Retail Sales YoY, rose 7.4% vs. 8.0% expected and 10.1% prior while the country’s Industrial Production came in at 6.8% YoY vs. 6.6% forecasts and November’s 6.6%.

Meanwhile, the Fixed Asset Investment increased 3.0% YTD YoY in December vs 2.9% expected and 2.9% last.

AUD/USD reaction to China’s data dump

Mixed Chinese data fail to move the needle around the Australian Dollar. AUD/USD is meandering near intraday lows below 0.6600, up 0.06% on the day.

• The Japanese Yen drifts lower for the third successive day amid dovish BoJ expectations.
• Reduced bets for an early Fed rate cut lend support to the USD and the USD/JPY pair.
• Traders now look forward to the US Retail Sales data and Fedspeak for a fresh impetus.

The Japanese Yen (JPY) extends its weakening trend for the third straight day on Wednesday and drops to its lowest level since December 6 against its American counterpart during the Asian session. The Bank of Japan (BoJ) is anticipated to delay the plan to pivot away from its ultra-dovish stance in the wake of a devastating earthquake in central Japan, falling rates of inflation in Tokyo and weak wage data. This, in turn, is seen as a key factor undermining the JPY, which, along with a bullish US Dollar (USD), lifts the USD/JPY pair to 100-day Simple Moving Average (SMA) support breakpoint, now turned resistance, near the 147.45 region.

The overnight hawkish remarks by Federal Reserve (Fed) Governor Christopher Waller forced investors to further scale back their expectations for an interest rate cut in March. This remains supportive of elevated US Treasury bond yields and acts as a tailwind for the Greenback. Meanwhile, receding bets for an early policy easing by the Fed, along with geopolitical tensions and China's economic woes, continue to weigh on investors' sentiment, though fails to lend any support to the safe-haven JPY. This suggests that the path of least resistance for the USD/JPY pair is to the upside and supports prospects for an extension of the monthly uptrend.

Traders now look forward to the US economic docket, highlighting the release of monthly Retail Sales figures, for some impetus later during the early North American session this Wednesday. Apart from this, scheduled speeches by FOMC members, along with the US bond yields, will influence the USD price dynamics and contribute to producing short-term trading opportunities around the USD/JPY pair. The focus, however, will be on Japan's National Core CPI on Friday, which will drive the JPY ahead of the BoJ decision next Tuesday.

Daily Digest Market Movers: Japanese Yen is undermined by fading hopes for a shift in BoJ’s policy stance

• The Japanese Yen continues to be weighed down by the fact that the chances for the Bank of Japan to end its negative rate policy have faded in the wake of domestic factors.
• Against the backdrop of the New Year's Day earthquake in Japan, falling rates of inflation in Tokyo and weaker wage data ensure that BoJ will maintain the status quo.
• The JPY fail to gain any respite from a generally weaker tone around the equity markets and persistent geopolitical tensions stemming from the Israel-Hamas war.
• In the latest development, the US carried out another airstrike targeting a Houthi missile facility in Yemen, noting a threat to merchant vessels and US Navy ships.
• The US Dollar remains well supported by reduced bets for a March interest rate cut by the Federal Reserve and provides an additional boost to the USD/JPY pair.
• Fed Governor Christopher Waller said on Tuesday that the recent data allows the central bank to consider policy rate cuts, but only if inflation continues to moderate.
• Waller added that the Fed needs to be cautious and cannot rush into rate cuts as the economy remains in good shape, pushing the US Treasury bond yields sharply higher.
• The yield on the benchmark 10-year US government bond holds steady above the 4.0% threshold and is seen as another factor acting as a tailwind for the Greenback.
• The US macro data due later this Wednesday is expected to show that monthly Retail Sales grew by 0.4% in December, while Industrial Production remained flat.
• Fed Governors Michael Barr and Michelle Bowman's scheduled speeches during the North American session might further contribute to influencing the USD.

Technical Analysis: USD/JPY bulls await a breakout through the 100-day SMA/61.8% Fibo. confluence hurdle

From a technical perspective, the USD/JPY pair pauses near the 147.45-147.50 confluence, comprising the 100-day SMA and the 61.8% Fibonacci retracement level of the November-December downfall. A sustained strength beyond the said barrier will be seen as a fresh trigger for bullish traders and validate the near-term constructive outlook. Given that oscillators on the daily chart are holding in the positive territory, spot prices might then aim to surpass the 148.00 round figure and test the 148.50 hurdle (November 30 peak). The momentum could extend further towards the 148.80-148.85 region en route to the 149.00 mark and the 149.70-149.75 supply zone and the 150.00 psychological mark.

On the flip side, any corrective decline back below the 147.00 mark is likely to attract fresh buyers near the 146.65 horizontal zone. This should help limit the downside for the USD/JPY pair near the 146.10-146.00 region. The latter should act as a key pivotal point, which if broken decisively will negate the positive bias and prompt aggressive technical selling. The USD/JPY pair could then slide to the 145.45-145.40 intermediate support before dropping to sub-145.00 levels en route to the 144.60 support, the 144.00 mark and the 200-day SMA, currently around the 143.75-143.70 region.

• GBP/USD snaps a three-day losing streak near 1.2637 on Wednesday.
• UK ILO Unemployment Rate remained steady at 4.2% in three months to November.
• The escalating Middle East geopolitical tension lifts safe-haven assets like the US Dollar (USD).
• Investors will closely monitor the UK Consumer Price Index (CPI) and US Retail Sales data for December.

The GBP/USD pair posts modest gains below the mid-1.2600s during the early Asian session on Wednesday. The upside of the pair might be capped due to the softer-than-projected UK wage growth and the ongoing geopolitical tension in the Middle East, which exert some selling pressure on the British Pound (GBP). GBP/USD currently trades around 1.2636, up 0.05% on the day.

Data from the Office for National Statistics (ONS) revealed on Tuesday that the UK ILO Unemployment Rate remained steady at 4.2% in three months to November, in line with market expectation. Meanwhile, the number of people claiming jobless benefits rose by 11.7K in December from an increase of 0.6K in November. Finally, the UK Employment Change data for November arrived at 73K from the previous reading of a 50K gain.

Additionally, the Average Earnings excluding bonuses eased to 6.6% from 7.2%, and the Earnings data including bonuses grew at a slower pace of 6.5% versus 7.2% prior, worse than the 6.8% estimated. The softer UK wage growth in the three months to November supports the case for the Bank of England (BoE) to start cutting interest rates in the coming months.

On the other hand, the rising Middle East geopolitical tension lends some support to safe-haven assets like the US Dollar (USD). The US carried out another airstrike targeting a Houthi missile facility in Yemen. According to US Central Command, the third US military strike against Houthi targets was launched because the four missiles posed an imminent threat to merchant vessels and US Navy ships.

Furthermore, investors have decreased their bet on rate cut speculation from the Federal Reserve (Fed) following Fed Governor Christopher Waller's comments. Waller stated on Tuesday that the central bank will be able to lower the target range for the federal funds rate this year, but it should be lowered methodically and carefully. According to the CME FedWatch tool, investors have priced in a 67% chance that the FOMC will begin cutting rates in March. This, in turn, lifts the Greenback and acts as a headwind for the GBP/USD pair.

Moving on, market participants will monitor the December UK inflation data, as measured by the Consumer Price Index (CPI). The CPI figure is expected to rise 0.2% MoM from a 0.2% drop in November. Additionally, US Retail Sales will be released, which is estimated to grow by 0.4% MoM versus 0.3% prior. Traders will take cues from these figures and find trading opportunities around the GBP/USD pair.

On Wednesday, the People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.1168 as compared to the previous day's fix of 7.1134 and 7.1986 Reuters estimates.

According to US Central Command, the US carried out another airstrike targeting a Houthi missile facility in Yemen. The report stated that the third US military strike against Houthi targets was launched because the four missiles posed an imminent threat to merchant vessels and US Navy ships.

Market reaction

The US Dollar Index (DXY) faces some follow-through buying following the geopolitical tension headline. At the time of writing, the index is trading near 103.38, holding higher while adding 0.04% on the day.

• Gold price drifts lower to $2,025 on the higher USD and US yields. 
• Fed’s Waller said the central bank should lower the rates methodically and carefully when the time is right. 
• The rising geopolitical tension in the Middle East boosts the traditional safe-haven like gold. 
• The Chinese Industrial Production, Retail Sales, and Q4 GDP growth numbers will be released ahead of the US Retail Sales.

Gold price (XUA/USD) remains under pressure below the mid-$2,000s during the early Asian session on Wednesday. The ongoing US Dollar (USD) demand and higher US Treasury yields drag the yellow metal lower. At press time, the gold price is trading at $2,025, losing 0.09% for the day. 

The US Dollar Index (DXY), a measure of the value of the USD against a weighted basket of currencies used by US trade partners, extends its upside to new YTD peaks past the 103.30 mark. The US Treasury yields edge higher, with the 10-year yield standing at 4.05%.

Federal Reserve (Fed) Governor Christopher Waller said on Tuesday that the Fed will be able to lower the target range for the federal funds rate this year. Waller added that when the time is right to begin cutting rates, they should be lowered methodically and carefully. According to the CME FedWatch tool, the markets are pricing in 67% odds that the FOMC will begin cutting the rate in March. However, traders had further ramped up expectations for 2024 to seven cuts but brought it back to six after Waller’s comments.

Iranian-backed Houthi militants in Yemen have begun a new series of attacks in shipping lanes critical for global trade, damaging a US-owned commercial ship on Monday after attempting to hit an American warship the day before. The escalating geopolitical tension in the Middle East raises concerns over supply disruptions and benefits traditional safe-haven assets like gold. 

China’s Premier Li Qiang said on Tuesday that the economy grew by around 5.2% in 2023, surpassing the government’s official growth target for the year without relying on massive stimulus. Nonetheless, the Chinese economic data on Wednesday will be the highlight. China’s Industrial Production is estimated to remain steady at 6.6% in December YoY, while Retail Sales are projected to ease to 8% YoY in December from 10.1% in the previous reading. 

Traders will keep an eye on the Chinese economic data and attention will shift to the December US Retail Sales, due later on Wednesday. The figure is expected to show an increase of 0.4% MoM versus 0.3% prior. These figures could give a clear direction to the gold price.