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Re: Daily Market News by Xtreamforex.com

RBA Board Considered Stop in December

The Reserve Bank Board considered three options in its deliberations at the December Board meeting. The options were: 50 basis point increase in the cash rate; 25 basis point increase; or no increase. This contrasts with recent meetings when only the 50 basis point and 25 basis point options were considered. Given consistent statement from the Bank about pausing it would come as no surprise that the Board did consider the pause. Indeed, it came as a bigger surprise that 50 basis points was still on the table.

The cause of pausing rested on the theme of placing further emphasis on the lagged effects of a large policy adjustment to date, and the value in proceeding cautiously in an uncertain environment. But this argument seemed to be quickly dismissed, noting that the Bank’s forecasts in the November SOMP were that, despite further increases in interest rates, “inflation was expected to take several years to return to the target range”.

As with the October and November meetings, the case for 25 basis points over 50 basis points relied on the lags associated with policy: “There had already been a significant cumulative increase in interest rates and the full effects of this adjustment would take time to occur”. The impact of the policy changes was also likely to be delayed more than normal sue to the predominance of fixed rate mortgages savings buffers; and the string reopening effect that may extend into the summer holidays.

The Board chose for the first time any recent final paragraph, to strongly emphasis the dangers of inflation further than we have seen in the Minutes of earlier meetings,” High inflation damages the economy and makes life more difficult for people” and of course the Board repeats the wording in an earlier statement that the board expects to increase interest rates further over the period coming ahead but it is not on a pre set path.

Westpac expects the economy to slow through 2023 with stagnation in the second half but does see some momentum extending into 2023. Next meeting in February it will have the December quarter Inflation Report but will also be observing data for the holiday period that may be holding up better than expected.

Based on the analysis in the Minutes, that will set the scene for hikes in both February and March while the May meeting will also be confronted with uncomfortably high inflation for the March quarter and a central bank that is observing tight labor markets and rising wages pressures.

A hike in May will be appropriate following other central banks, who will already be on hold, and the clear evidence of the economic damage builds – time to pause at the June meeting for the rest of the year.

Re: Daily Market News by Xtreamforex.com

Canada:- Inflation Tiptoes in the Right Direction in November

Consumer price inflation took a small step down in November, to 6.8% YoY, after holding steady at 6.9% through September and October.

Canadians got some relief at the pumps in November, with prices down 3.6% m/m, after prices surged 9.2% in October. However, gasoline prices are still up 13.7% versus a year ago.

Food inflation was back on the rise in November, up 10.3% y/y, up from 10.1% in October. Food purchased from stores was up even more versus a year ago at 11.4% y/y.

On net, underlying inflation pressures appeared to have picked up slightly in November. CPI ex-food and energy was 5.4% higher versus a year ago, a tick higher than 5.3% in October. Perhaps more importantly, the two measures that the BoC has indicated provided a more timely gauge of underlying inflation through the pandemic – CPI-trim and CPI-median showed no signs of cooling.

Shelter inflation accelerated again in November, up 7.2% y/y from 6.9% y/y. Upward pressure came from higher mortgage interest costs – which saw the highest increase since 1983 – and rents. Inflation for homeowners replacement cost did to 5.8% y/y thanks to a slowing resale market.

Yesterdays inflation report was a step in the right direction, in line with forecast for a gradual cooling in inflation over the coming year. Core inflation pressures have been somewhat slow to cool, but are roughly consistent with our December forecast. Canadian consumers are showing signs of strain under the weight of high inflation and higher interest rates, with retail sales losing momentum in recent months. This is expected to translate to softer price pressures, which are starting to show up in categories like furniture and clothing.

The Bank of Canada will get to see another inflation report before their next interest rate announcement at the end of January. With the battle against inflation not yet won, expectation is that the Bank will hike a quarter point, and then take a pause to assess the cumulative impact of a year of dramatic tightening on the economy.

Re: Daily Market News by Xtreamforex.com

Japanese Yen Steady Ahead of CPI

The Japanese yen has edged higher on Thursday. In the European session, USD/JPY is trading at 132.09, down 0.27%.

The dust has settled after Tuesday’s dramatic events, when the yen shot up 3.7%. This followed the Bank of Japan’s shocking announcement that it would widen its yield curve control on 10 year bonds from 25 bp to 50 bp. The markets were completely blindsided, which could very well be what Bank of Japan was hoping for.

The markets hadn’t expected any policy moves until after Boj Governor Kuroda ends his term in April, but now there is talk of major policy moves before then, such as raising interest rates out of negative territory. The BoJ released minutes yesterday, but these are minutes of November meeting.

What will be of more interest to the markets is National Core CPI for November. The index is to inch up to 3.7%, up from 3.6% in October. Japan’s inflation rate is much lower than the US or the UK, but price pressures have nonetheless put the squeeze on households and businesses, which became accustomed to decades of deflation.

With economic conditions improving and inflation rising, There has been speculation that the BoJ might consider major policy moves in the short-term, such as exiting from its stimulus program. The BoJ showed this week that it was willing to make significant moves, and more tightening could be on the way.

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The Euro:- An Uncertain Path

Euro fell below parity with the USD in October. Since then, it has rebounded, but hasn’t returned to the levels at the start of the year. Naturally, the question is whether the pair will continue the trend higher, or turn around for another run at parity. And what does this mean for Euro crosses.

One of the main drivers of the fluctuation in the shared currency last year is likely to be the theme for next year as well. At least through the first half. And that is the ECB’s unique approach to a unique challenge facing the Euro. Other currencies operate within a single economic jurisdiction, but the ECB has to balance the fiscal policy of 19 different countries.

The Euro’s underperformance this year was primarily driven by the ECB being slow to rate hike party. Even when it finally got around to raising rates, it was so far behind everyone else that the currency continued to be weaker until it became relatively clear that the Fed was getting ready to slow down its hiking. The Euro then appreciated, understanding that the ECB will keep hiking through the first quarter, and then start selling bonds in March.

Meanwhile, the Euro’s main trading partners, the US and UK, are seen to be slowing down if not stopping rate hikes. The US is expected to slip into recession during the first half, with inflation coming down quicker than expected over the last couple of months. The UK’s inflation remains high, but it already is in a recession. Meanwhile, the EU is expected to manage modest economic growth in the first quarter, assuming there is no major disruption with energy supplies over the winter.

The pending issue is inflation. Through most of 2022, there was a wide gap between headline and core inflation, as Europe was particularly affected by the high cost of energy. However, crude prices came down at the end of the year. That implies less Euros were being sold to buy energy. IF that trend continues, the downward pressure on the shared currency could be somewhat alleviated.

The higher costs have been filtering through to core inflation. While not as high as the headline number, it is still well over twice the ECB’s target. The issue is that this measure might be more sticky than the headline figure. Which could keep pressure on the ECB to keep tightening, even if the economy starts to suffer. That could put Europe in line to follow the US and the UK into a recession, just later in the year.

Re: Daily Market News by Xtreamforex.com

USD/JPY:- Christmas Week Recovery Rally May Soon Stall Out

Beginning of last week, forex traders were expecting to ease into the holidays with relatively low volatility trade until BOJ Governor Kuroda fired off big of a monetary policy decision, tweaking the central bank’s yield curve control program and effectively raising interest rates by 25bps. This marked a potential sea change for the BOJ and is seen as a precursor to normalizing monetary policy after a decade of ultra-easy policy.

Based on the initial market reaction, one of Japan’s most prominent monetary policy academics, Takashi Ito, noted earlier today that Kuroda’s bazooka ‘may have hit its mark’ and that the BOJ could start ‘hitting its inflation target on a more sustainable basis ‘ in 2023 and beyond.

Not surprisingly, the yen surged against all of its major rivals after the initial announcement, but since then, the currency has gradually given back some of those gains in quiet, low-liquidity holiday trade. As the 4-hour USD/JPY chart below shows, the pair is approaching previous-support-turned-resistance in the 134.50 area, as well as the 100-period EMA, which has consistently capped rallies in the pair since the start of November:

Given the confluence of resistance levels and general low-interest trading environment ahead of year-end, it would be logical for the USD/JPY’s corrective rally to reverse ahead of the weekend. If rates do indeed reverse lower to break the rising channel around 133.00, a continuation toward last week’s lows in the 131.00 area is in play.

Meanwhile, a rally through 135.00 would signal that the correction may have further to run, with bulls turning their eyes toward the early- December highs in the 138.00 area as we head through January.

Re: Daily Market News by Xtreamforex.com

EUR/USD Slides to three week low

The US dollar is showing strong gains against the majors yesterday, with the exception of the Japanese yen. EUR/USD has tumbled by 1.27% and is trading at 1.0528 in Europe.

EUR/USD is sharply lower, despite a very light economic calendar. The only release of note is German CPI, which was released yesterday. Despite the lack of fundamentals, the USD is taking advantage of risk aversion in the markets. There are headwinds everywhere we look. The war in Ukraine, the threat of recession in the US and the eurozone and China’s slowdown all make for a gloomy outlook as we start the new year.

Germany’s inflation has been falling, and the downtrend is expected to continue. The consensus for December CPI is 9.0%, compared to 10.0% in November. If the consensus proves accurate, it could put further pressure on the euro, as the ECB may have to reconsider its hawkish stance on rate policy.

The International Monetary Fund didn’t bring any festive cheer with its pessimistic message on Monday. The IMF warned that 2023 would be tougher than 2022, as the US, EU and China would all see a decline in growth.

After Christmas and New Year’s holidays, the markets are easing back in, as the data calendar gets busier as of Today. We’ll get a look at the Fed minutes from the December meeting, which was a hawkish affair that surprised investors and gave the US Dollar a boost. On Friday, the US release the employment report, which always plays an important factor in the Federal Reserve’s rate policy.

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The Minutes from the December FOMC meeting

The Minutes from the December FOMC meeting showed that Fed members observed that a slowing of interest rate increases would allow the central bank to assess the progress on inflation and employment. Recall that the FOMC slowed the pace of interest rates increase to 50bps from 75bps the prior four meetings. However, that didn’t mean they were happy with the current situation. Powell mentioned in his press conference that they “Welcome the reduction in the monthly pace of price increase, but it will take substantially more evidence to give confidence that inflation is on a sustained downward path.”

In addition, the summary of economic projections showed that no one expects rate cuts in 2023, as the median forecast for rates increased from 4.6% to 5.1%. As a result, participants felt that ongoing rate increases are “likely appropriate”. The committee also noted the need for flexibility and optionally in policy decisions and that unwarranted easing in financial conditions could complicate their effort to restore price stability.

The US Dollar Index barely moved on the release of the Minutes, remaining within a range between 104.24 and 104.31.
However, stock traders noticed the hawkishness that the message conveyed, and the NASDAQ 100 sold off nearly 1% within the first 30 minutes of the release.

The NASDAQ 100 has been rangebound since mid-September, trading the lows of October 13th and the 50% retracement from the highs of August 16th to the lows of October 13th, at 10440.64 and 12080.78 respectively. The hawkish Fed Minutes confirm the outcome of the meeting on December 15th , 2022. If the index continues to move lower, the first support is at the lows of December 28th at 10671. Below there, price can fall to the October 13th lows at 10440, then horizontal support dating to July 2020 at 9736.57.

If the markets dismiss the hawkishness of the Minutes as “old news” , the NASDAQ 100 could catch a bid. First resistance is at the gap opening from December 22nd, 2022, at the 11114.23, then the gap fill from the prior day at 11207.38. Above there, price can move to the gap opening from the highs of December 15th, 2022, at 11591.33.

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Decent US Data ahead of Payrolls | Xtreamforex

Today brings this week’s most important data releases both from the Euro area and the US.

In Euro area, flash inflation print for December will be released. Individual country data released thus far suggest that while headline inflation probably continued to decline in December, underlying price pressures remain strong. Consensus is looking for core inflation to have picked up from 5.0% in November to 5.1% in December. Going forward, interpretation of euro area inflation data will become more and more cumbersome as country-specific fiscal measures that compensate households for the rising energy costs will also affect consumer price developments.

In the US, it is time for December payrolls. Consensus expects 200k new jobs while a figure around 100k would be consistent with demographic developments and any higher number implies labor shortages are likely to prevail in US jobs market, upholding wage and price pressures. We will also get IMS Services index where consensus looks for a decline to 55.0 in December from 56.5 in November. Factory orders are also expected to have declined in November.

Heading into the payrolls release today we got some tier-2 data out yesterday. Initial jobless claims showed a downward surprise with a decline to 204k still signaling a robust labor market. The ADP employment report also surprised to the strong side rising 235k in December from 182k in November. While it is not a great predictor of non-farm payrolls it still indicates decent labor demand in line with the job openings data released earlier this week, which were also better than expected and pointed to still strong demand for labor.

ECB member Villeroy said yesterday that the ECB should reach the terminal rate by summer and then hold suggesting rates would stay there for some time. He also stated that the ECB should be pragmatic and not become obsessed with rate increases that are too mechanical. Markets price close to 150bp of further hikes by summer. Central banks have gotten much relief on the inflation front from falling commodity and freight prices but the tight labor markets remain a challenge.

Re: Daily Market News by Xtreamforex.com

Gold & silver Struggle Despite Weak US dollar

Gold came off its earlier highs while silver turned a touch lower in what has been a quietish day. The US dollar fell further lower, extending it sharp losses from Friday when weak ISM data raised speculation that the Fed will be forced to cut interest rates again towards the back end of this year. But the dollar typically rises in Q1, which I something that could undermine the gold rally. In terms of the immediate term and this week, we have two key risk events that could move the dollar thus gold price.

Jerome Powell’s speech is expected while US CPI data for December will be released on Thursday. Both of these macro events have the potential to move dollar sharply again, after a double whammy of bearish news sent the greenback tumbling on Friday, and Monday. The weakness in wages and soft services PMI data both point to subdued economic activity, reducing the need for the Fed to hike rates aggressively to tame inflation. But will the Fed chair acknowledge this on Tuesday, or once again talk up inflation risks ? The analysts are expecting CPI to rise by only 0.1% m/m, there is potential for a positive surprise.

Ahead of these events, Gold has now reached another major technical zone between 1878ish to 1900ish.

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US CPI Preview:- Will lower inflation data cause the Fed to pause

In general, inflation has been slowing over the last few months. Tomorrow, markets will get a look at December’s CPI print. Expectations are that the headline print will continue to move lower to 6.5% YoY vs a November reading of 7.1% YoY. Last month’s reading was the fifth straight monthly decline after reaching a high of 9.1% YoY in June 2022. The print was also the lowest reading since December 2021.

Markets have also now seen that wage growth is slowing. Average Hourly Earnings for December slowed to 4.6% YoY and expectation of 5% YoY and a lower November revised print of 4.8% YoY from 5.1% YoY. The Fed has been worried about wage growth, and this data was the first sign that wages may be rising at a slower pace.

A lower-than-expected inflation reading should prove to be good for stocks and bad for the US Dollar. USD/JPY had been climbing into October 21st , as the MoF intervened for the second time in 2022 in the fx markets. The pair then began moving lower in an orderly channel. However, notice that when the lower-than-expected US CPI prints were released on November 10th and December 13th, the USD/JPY moved aggressively lower. The November 10th move fell 545 pips, more than on either of the intervention days.

The December US CPI reading is to be released on Thursday, January 12th. Inflation has been trending lower since the summer, but will it continue? If CPI continues to be weaker than expectations, watch for USD

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GBP/USD Drifting: The British Pound Is Drifting

The British Pound is drifting for a third day straight. In the European session, GBP/USD is trading at 1.2161, down 0.09%. We could see stronger volatility from the pound before the weekend, with the release of the US inflation report and UK GDP on Friday, both of which are market movers.

There an secure expectation ahead of the US inflation report. Inflation is projected to drop in December, which would be music to the market’s ears. The forecast for headline inflation stands at 6.5%, following the November gain of 7.1%. The core rate, which is more important, is also expected o ease, with the forecast of 5.7% in December, compared to 6.0% in November. The inflation release should result in volatility from the US Dollar. If inflation, particularly the core rate, falls as expected or more, the US dollar will likely lose ground, as speculation will increase that the Fed may have to pivot from its hawkish stance and ease up on the pace of rates. Conversely, if inflation does not fall as much as expected, it would vindicate the Fed’s hawkish position, which the markets may have to grudgingly accept.

The Fed has insisted that further rate hikes are coming, while there have been market players who are expecting a one and done hike in February which will wrap up the current rate cycle. The markets have priced in a peak terminal rate below 5% as well as rate cuts late in the year, while the Fed has been signaling a peak rate of 5-5.25% or even higher.

In the UK, there are no major releases, but Today will be busy, highlighted by monthly GDP and Manufacturing Production. The markets are braced for soft numbers, which could send the pound lower. GDP for November is expected to contract by 0.2% m/m, following a gain of 0.5% in October. Manufacturing Production for November is forecast to come in at -4.8% y/y, after a -4.6% reading in October.

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Australian Dollar Bright Start in 2023

The Australia dollar has started 2023 strongly, rising above 70 cents to highs since August. A softer USD and improved China sentiment have been key. This week’s highlights include Australia’s jobs data, the Bank of Japan decision and US retail sales.

The SUD has risen about 1.6 cents or 2.3% so far in January, to just under 0.7000. Price action was quite mixed in the first few days of the year, the Aussie rally only igniting on 6 January when the USD slumped in response to soft data. While the US December payrolls gain of 223k was quite solid and unemployment rate edged down to 3.5%, there was a declaration in wages growth. Moreover, on the same day the US services ISM survey showed a shocking slide in the headline index, to 49.6 in December from 56.5 in November.

Adding to the softer US dollar tone was last week’s US December inflation data. Overall CPI slowed to 6.5% from 7.1% in November, while the ex-food and energy CPI eased to 5.7% yr from 6.0%. There is clearly a long way to go to the Fed’s 2% target, but economists found signs in the report’s details indicating ongoing softening in inflation pressure.

The improved China mood is helping AUD on crosses, including AUD/NZD rallying above 1.09, from around 1.05-1.06 in mid-December. Any pronounced weakness in China’s Q4 GDP or December activity data seems likely to be downplayed as old news, given the pace of change in China’s Covid rules.

Australia’s key data release this month is Q4 CPI on 25th January, but there is always market interest in the monthly labor force survey. Westpac looks for a 30k rise in total employment, keeping the unemployment rate at a very low 3.4%.

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GBP/USD: Pound Counts on the Best.

As in the US, retail sales in the UK also went down. They fell -1.0% in December, which is significantly lower than the forecast +0.5%. Analysts note that real spending in the country was significantly ahead of GDP in 2020-2022, but the rise in inflation led to a sharp halt in this process. And it is predicted that 2023 will be a period of retribution for this waste.

According to economists at HSBC, one of the world’s largest financial conglomerates, things are not so bad. “With UK inflation likely to have peaked and could potentially slow more than the consensus forecast,” a less aggressive tone of tightening from the BoE now could mean a less dramatic reversal later in the year. And this may eventually become a minor positive factor for the British pound in the coming months. The shift towards better-than-expected domestic data should also be positive for the British pound.

In contrast to the EUR/USD flat trend, the British currency showed growth last week: GBP/USD approached the local December highs on January 18, reaching a height of 1.2435. Pound bulls are inspired by expectations that the Bank of England, in contrast to the fading activity of the Fed, on the contrary, will continue to vigorously tighten its monetary policy. It is predicted that from the current 3.50%, the rate may rise to 4.50 by summer. And an important day on this path may be February 02, when the next meeting of the BoE will take place.

The last chord of the week sounded at 1.2395. The median forecast for GBP/USD in the near future looks like this: 50% of experts believe that it is time for the pound to slow down its growth and are waiting for a correction to the south. Only 15% of experts side with the bulls, and 35% have taken a neutral position. Among the oscillators on D1, 85% are colored green, 15% signal that the pair is overbought.

Highlights for the UK economy in the coming week include Tuesday January 24, when a pool of UK business activity data will be released.

Re: Daily Market News by Xtreamforex.com

25bp Hike from Bank Of Canada expected

The Bank of Canada are expected to hike interest rates by 25bp tomorrow according to market pricing and economists. The hike would see their benchmark rate rise to 4.5% – its highest level since October 2007 – and on par with the Fed yet above the RBNZ’s 4.25% rate. A 25bp hike would be the slowest pace since their first hike of this cycle in March 2022, after which they moved up 50bp increments, a 100bp hike and a 75bp hike along the way. The central bank will also provide minutes from the meeting on February the 8th, which is the first time in their history.

Money markets suggest an 80% chance of a 25bphike, whilst 25 of 26 economists polled by Reuters also anticipate the move. With a 25bp hike all but a given, it could take a surprise hold to start volatility for traders. But then looking through the latest business and consumer sentiment surveys suggest we could be fast approaching the BOC’s terminal rate.

The BOC pay close attention to their quarterly business and consumer outlook surveys, and the general trend across both is a concern of high inflation weighing on their outlook for the economy. So on that front the rate hikes are doing their job to cool the economy by lowering demand. However, with inflation remaining stubbornly high and both Trimmed Mean and Median CPI hovering near their multi-decade highs and nearly twice the upper bound of their 1 – 3% target range, it leaves the potential for at least 1 or 2 more 25bp hikes.

GBP/CAD Chart: With the BOE making increasingly hawkish comment and the BOC likely nearing the end of their tightening cycle, GBP has risen over the past two weeks. Yet prices have also pulled back the past two days and we’re waiting to see if the cross can hold above support around 1.6445, which comprises of previous highs, the monthly pivot point and the 20-day EMA

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Australia CPI:

Headline CPI 1.9%qtr/7.8%yr; Trimmed Mean 1.7%qtr6.9%yr; Weighted Median 1.6%qtr5.8%yr. Hospitality services most important factor in the upside surprise in the December quarter but with the Trimmed Mean coming in broadly as expected this suggests the pace of core inflation is generally unfolding as we expected.

The CPI lifted 1.9% in the December quarter with the most significant contributions coming from domestic holiday travel & accommodation, electricity, and international holiday travel & accommodation.

The ABS noted that ‘strong demand, particularly over the Christmas holiday period, contributed to price rises for domestic holiday travel and international airfares”. The rises seen for domestic & international travel were notably higher than the historical norm for the December quarter.

The large upsize surprise in the December quarter, compared to our 1.5% forecast, was the 5.4% rise in recreation on the back of a 10.9% increase in holiday travel & accommodation costs. Housing was slightly stronger than expected with slightly stronger gains in dwelling prices and utilities.

Even though food prices continued to rise, driven by meals out & takeaway foods as restaurants/cafes passed on rising ingredients and labor costs, the 0.9% increase was less than our 2.0% forecast. The main downside surprise in food was the 7.3% fall in fruit & vegetables reflecting the increase in supply due to improved weather conditions.

The Trimmed Meas rose 1.7%, a touch more than Westpac’s 1.6% forecast but 0.2ppt more than the market’s 1.5% forecast. This suggests the overall momentum of underlying inflation is broadly as expected.

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Gold Steady and Dollar Undermined:

After silver’s big plunge on Monday, both precious metals have managed to steady the ship, suggesting the move at the start of the week was probably a bear trap.

The US Dollar has come back against the Canadian dollar thanks to a 25- basis point rate hike from the Bank of Canada, with its governor saying that interest rates will be kept at its current level while the bank assesses the impact of the cumulative interest rate increases.

But elsewhere, the likes of the Pound, Euro and Yen all remain supported against the US dollar. This is helping to keep buck-denominated metals supported.

Investors are growing confident that more central banks will be pausing their interest rate hikes soon, as more signs emerge than global inflation is slowing – although the outlook remains uncertain and there have been some surprises here and there. So, Gold remains supported on the view that the days of rate hikes are numbered, but given the impressive gains over past two and a half months, some would argue that much of the positive news is now priced in.

The trend remains bullish and until we see a key reversal pattern in the gold or silver charts, fading the dips continues to remain the dominant strategy.

Gold has found support around $1,920, a level which had served as resistance in the past. For as long as it doesn’t break the structure of higher lows and higher highs, the path of least resistance remains to the upside and a run towards $2,000 cannot be ruled out as a result.

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USD/JPY expected slide

Last year was tough for Japanese yen. USD/JPY gained more than 30% over 2022, striking above 150 in October. While anticipation of slower Fed rate hikes pulled the pair below the 130 level at the start of 2023, the speculations over the destiny of BOJ’s yield control policy grabbed the attention of the Japanese assets in the middle of January.

The BOJ is famous for its slow and steady monetary policy, which aims to boost economic activity and fire inflation. There are two main tools that the BOJ uses: the negative interest rate at -0.1% and the yield-curve control, which allows the 10-year government bond to fluctuate within a pre-determined range to reach the 0% yield target.

The Bank of Japan’s yield-control policy, introduced in 2016, aimed to keep yield meager to encourage consumer spending. This, in turn, should stimulate inflation. In 2018, the Bank Of Japan announced that the 10-year yield could increase by 0.1% above or below zero. In March 2021, the regulator made the band wider to 0.25% in either direction to reactivate the market’s activity. In 2022, the BOJ raised the ceiling to 0.5% above/below zero and increased bond-buying amid the escalated pressure on the Bank to raise the interest rate. It also added speculation that the Bank would abandon the long-term rate target.

The hawkish policy shift is related to the upcoming end of the BOJ Governor Haruhiko Kuroda’s term. Analysts warn that the BOJ may repeat the Fed’s transitionary rhetoric and start making hawkish steps too late. If this is true and the JPY gains its strength, we may see USD/JPY sliding below the 127 level. In that case, the following targets for sellers will lie at 122.30 and 114.70. The selling pressure may increase after the retest of the 50-day SMA at 133.50.

The recent monetary policy decisions weakened the performance of the Japanese yen. However, high inflation and a leadership change in the Bank of Japan may result in USD/JPY sliding below 120.

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Currency Pair of the Week: EUR/USD

The pair started on a positive note thanks for Spain’s Harmonized CPI, which came in at +5.8 YoY vs 4.7% YoY expected and +5.5% YoY last. Today, Markets will get a look at CPI from France and Germany, ahead of the Eurozone January Preliminary CPI tomorrow. Expectations are for a print of the headline CPI to drop to 9% YoY from 9.2% YoY in December. The Core rate is expected to drop to 5.1% YoY from 5.2% YoY in December. Expectations are for 50bps rate hike, which would bring the key rate to 3.00%. Many members of the committee, including ECB President Christine Lagarde, have already indicated that a 50bps hike is a done deal. Anything different will disappoint the markets. But traders will be watching for signals that another 50 bps rate hike is in the cards for March.

Last week, the US released one of the Fed’s favorite measures of inflation, the Core PCE Price Index. The print was 4.4% YoY, as expected, vs a prior reading of 4.7% YoY. Today, the US will release another important gauge of inflation which the Fed relies heavily on: The Q4 Employment Cost Index. Expectations are for an increase of 1.1% vs a Q3 reading of 1.2%. How will these prints affect the FOMC when it meets tomorrow ? The markets are already pricing in a 99% chance of a 25bps hike, which would bring the Fed Funds rate to 4.75%.

On a daily timeframe, EUR/USD has been moving in an orderly upward sloping channel since the end of November 2022, When price made a near-term low of 1.0223. However, since January 12th, when the pair reached 1.0852, price has been fairly tight, trading near the top trendline of the channel. Since January 18th, the pair has been trading in an ascending wedge with a low of 1.0766 and a high of 1.0930. On Friday, price dipped below the bottom trendline of the wedge but moved back inside it on Monday.

On a 4 hour chart, EUR/USD is moving lower once again out of the ascending wedge. If price continues to move lower, first support is at the low from January 27th at 1.0838. Below there, price can fall to the bottom of the ascending wedge at 1.0766 then horizontal support at 1.0713. However, if price does move back into the wedge, there is a band of resistance at a horizontal trendline dating to April 22nd, 2022, the top trendline of the channel, and the top trendline of the ascending wedge. These all cross between 1.0936 and 1.0966. Above there, price can move all the way back up to the highs from March 31st, 2022 at 1.1185.

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The Bank Of England Preview

The Bank of England has a decision to make tomorrow. It is not “to hike or not to hie”. It is to hike by 25 or 50bps, that’s the question. As well as the rate decision itself, the BoE’s comments on the economic outlook and future tightening, as well as the vote split, will have a big impact on the pound. Barring a big sell-off in risk assets due to the Fed’s policy decision taking first, on Wednesday, the GBP/USD could be heading to 1.25 if the BoE does not deliver a dovish surprise.

An already-split Monetary Policy Committee is unlikely to be unanimous as they consider whether to step down a notch or keep going at the 50-basis-point pace. The markets are about 65% confident of a 50-bps hike to 4.0%, owing above all to high underlying inflation, stronger-than-expected wage growth and surprising resilience of the domestic and European economies.

Insofar as the BoE’s comments on the economy is concerned, it will be interesting to see if the MPC will revise its GDP expectations higher, above all due to lower gas prices. But the focus will be on the Bank’s forecast of inflation. With wage pressures rising, this should keep inflationary pressures elevated, which may mean more rate hikes are needed to be front-loaded in next few meetings.

Will the GBP/USD rise to 1.25 in the event of a 50-bps hike and somewhat hawkish forward guidance? It may already get there if the Fed, deciding on monetary policy the day before, provides a dovish surprise. If that’s the case, then the BoE’s decision might further fuel the rally.

But given that the exchange rate has already been appreciating , the bigger risk is if the Fed and BoE do not confirm to market expectations and our base case scenarios. If the Fed is more hawkish or the BoE more dovish and more split than expected, then this could see GBP/USD correct back towards 1.21 and possibly lower.

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FOMC Hikes Rates and Signals More to Come

As universally expected, the FOMC raised its target range for the federal funds rate by 25 bps at the conclusion of its policy meeting today. But the tightening cycle likely is not over yet as the FOMC noted that it “anticipates that ongoing increases in the target range will be appropriate”.

The FOMC said that “inflation has eased somewhat’” which Chair Powell reiterated in his post-meeting press conference. But he also noted that the committee “has more work to do” in terms of monetary tightening to bring inflation back to the FOMC’s target of 2% on a sustained basis. Powell also stated that policy will need to be restrictive for some time.
We look for the FOMC to hike the fed funds target rate by 25 bps each at its next two policy meetings. That said, we do not have a high level of conviction regarding the exact amount of tightening that the Committee will need to deliver. The FOMC is in the fine-tuning stage of its tightening cycle, and future rate hikes will depend on incoming data in coming weeks and months.

We look for the FOMC to hike the fed funds rate by 25 bps at each of its next two meetings on March 22 and May 3, which would bring the target range for the fed funds rate to 5.00%-5.25%. That said, we do not have a high level of conviction regarding the exact amount of further tightening that the FOMC will deliver. The Committee is in the fine-tuning stage of its tightening cycle, and the number of remaining rate hikes will depend on incoming economic data in coming weeks and months. We have a degree of conviction, however, in our belief that the FOMC will not be quick to ease policy. Committee members appear to be united in their view that inflation remains too high, and that policy will need to be restrictive in order to bring inflation back to the FOMC’s target of 2% on a sustained basis.

We look for the U.S. economy to slip into a mild recession this year, although we acknowledge that the Fed could potentially still pull off a “soft landing” in which inflation returns to 2% without a significant retrenchment in the labor market. In that regard, stocks and bonds rallied on Powell’s comment that the disinflationary process has started without notable weakening in the labor market. It appears that markets are increasingly buying into the “soft landing” scenario.

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USD/CNH, China’s Economy Expanding

The National Bureau of Statistics China released PMI data this week which shows both the manufacturing and services sector are expanding.

Appetite for risk has enjoyed a great to start to the year, mostly thanks to China reopening and abandoning their covid-zero policy. It was a key reason as to why the International Monetary Fund chose to not downgrade global growth forecasts for the first time in a year, and tentatively call for a ‘turning point’ in the global economy. And that is so far being backed up by data coming for China.

This week we have seen four headline PMI survey released covering manufacturing and services, three of which have beat expectations and expanded. If PMI’s are above 50 is denotes expansion and I favorable for growth prospects in the future. Admittedly manufacturing is the laggard as the NBS print only expanded by 50.1, yet both service PMI’s accelerated higher.

The Caixin prints are a privately run survey, and can be useful to monitor alongside NBS data to get a feel for the overall trend. Something which stands out is that the Caixin survey has mostly had manufacturing within contracting for the next part for two years, yet their services PMI tends to track the oscillations of NBS and Caixin service PMI’s very well. Given the past four cycle average 8.5 months, which suggests the current business cycle in China could trough around September or October this year.

Yield differentials the US and China 2-year treasury mote continue to suggest USD/CNH could be oversold, at least over the near-term. The daily close chart also better shows the potential for a higher low, as part of a countertrend move.
The daily candlestick chart shows a recent pullback has failed to retest the 6.6976 low, and yesterday formed a 2-bar bullish reversal pattern. Whilst prices remain within a small retracement channel, we’re now looking for a break higher and minimum move to the highs around 0.6800.

Should it break higher, then it has the potential to extend to the 138.2% or 161.8% projection levels, the latter of which is by the 200-day EMA.

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RBA Expected to Hike by 25bps

The RBA are expected to rise interest rates by 25 bp to 3.35% tomorrow, which would take rates to their highest level since September 2012. If so, it would be their fourth consecutive 25bp hike and ninth back-to-back hike this cycle – which is their most aggressive in history. Even so, their rates remain well below RBNZ’s 4.25% and Fed’s 4.75%, both of those central bank started hiking considerably sooner than the RBA, and continue to battle high levels of inflation.

Unemployment is 3.5% compared with the RBA’s 3.4% forecast in November, but this is not likely a large enough deviation for it to matter, and employment numbers are robust overall. Wage prices are on target at 3.1% q/q, but inflation is a fly in the ointment for the RBA.

According to a Reuters poll, 30 out of 31 economists expect a 25bp hike to 3.35% tomorrow, up from 23 out of 27 in January. 19 out of 30 see the cash rate peaking at 3.6%, but there is a greater chance of it eventually rising above 4% than the consensus currently estimates. US inflation peaked in July yet the Fed are still hiking, and inflation in Australia has not yet peaked. And whilst China’s reopening has brought with it cheers of a soft landing, it is also inflationary which could see CPI reaming higher and stickier than anticipated later this year. And whilst the employment situation remains robust and inflation remains high, it’s a green light for the RBA to continue hiking.

The Aussie took quite a battering on Thursday and Friday following the Fed’s meeting and strong NFP report, and fell -3.7% from its YTD high by Friday’s close. There’s been a mild attempt move lower today, but we’ve seen the meat of the downside move for now. And with the RBA tipped to hike tomorrow, this leaves the potential for AUD/USD to post a countertrend move ahead of the meeting – with its fate to then be decided by the level of RBA tightening.


Read More : https://www.xtreamforex.com/rba-expecte … -by-25bps/

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25bp Hawkish Hike from the RBA

The RBA hiked the cash rate target by 25 basis points to 3.35%

Underlying inflation was above expectations to 6.9%

Strong domestic demand is adding to the inflationary pressures
CPI is expected to decline this year due to global factors and slower growth in domestic demand
Medium-term inflation expectations remain well anchored, and it is important that this remains the case
The labor market remains very tight

Wages growth is expected to continue picking up due to the tight labor market and higher inflation

The board will continue to pay close attention to labor costs and the price-setting behavior of forms in the period ahead.

The RBA hikes the overnight cash rate by 25bp to 3.35% – its highest level since September 2012 – and warned of further increases in the months ahead. The two key words here are ‘increase’ and ‘months’ as it implies more than one hike over the coming months. And with rates at 3.35% it means the market pricing and consensus among economists for a terminal rate of 3.6% is not correct.

Read More : https://www.xtreamforex.com/25bp-hawkis … m-the-rba/

524 (edited by xtreamforex 2023-02-08 10:35:04)

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Powell Continues to be “Less Hawkish”

Fed Chairman Powell continued with his less hawkish commentary today. He started by noting once again that the disinflationary process has started, but it will be bumpy. He also noted that it will be a long process. As a result, the US Dollar initially sold off while stocks moved higher. He said that the surprise in the 517,000 Non-Farms Payroll print proved that it would be a bumpy road. Exactly how long of a process will it be ? Powell said that 2023 will be a year of significant inflation declines and that it will probably take into 2024 to get inflation back down to the 2% target.

The US Dollar Index initially sold off as Powell stuck to the script of the disinflationary process starting. Markets saw this as dovish. Notice that the DXY fell to the gap opening from the past weekend and the support held. However, once it became clear the NFP report did nothing to affect the outlook of the Fed, the DXY moved higher towards the unchanged level from when Powell began speaking. In all, the DXY fell from 103.65 down to 103.00 within 30 minutes, then reversed and bounced all the way back over the next 1 hour.

EUR/USD has been moving higher in a channel formation since mid-November 2022. Price broke above the top, upward sloping trendline of the channel on February 1st after FOMC meeting. However, on February 2nd, price reached a high of 1.1033 and reversed following the ECB meeting. This brought the pair back into the channel and price continued moving lower. Today, EUR/USD reached the bottom trendline of the channel and the 50 Day Moving Average, then bounced to close near unchanged on the day. IF price continues to move lower, the first support below the trendline of the channel is the 38.2% Fibonacci retracement from the lows of November 3rd 2022,to the highs of February 2nd at 1.0535.

Below there, price can move to the lows of January 6th at 1.0482 and then the 50% retracement from the above-mentioned timeframe at 1.0380. However, if the channel support holds, the first resistance is at the top of the channel trendline near 1.0995, then the February 2nd highs at 1.1033. IF price moves above there, the next resistance isn’t until the highs of March 31st 2022 at 1.1185.

One sure thing is that Powell is not the uber hawk he once was and there won’t be any surprise 75bps hikes coming down the line. Markets seem to be enjoying the “less dovish” Powell. Let’s see how long this can last!

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NZD/USD Fails to Push Back Above 50-Day SMA

NZD/USD appears to be stuck in a narrow range as it holds above the weekly low, but the exchange rate may struggle to retain the advance from the January low as it fails to trade back above the 50-day SMA.

Unlike the price action in January, NZD/USD has not responded to the positive slope in the moving average, and the decline from monthly high may lead to a potential shift in the near-term trend if the exchange rate fails to defend the opening range for 2023.

Looking forward, it remains to be seen if the U. of Michigan Consumer Sentiment survey will influence NZD/USD as the update is anticipated to show a further improvement in household confidence, and a positive development may generate a bullish reaction in the US Dollar as it raises the Federal Reserve’s scope to pursue a more restrictive policy.

However, the update to the U. of Michigan survey may do little to sway the US monetary policy outlook as the CME Fed Watch Tool shows a greater than 90% probability for another 25bp rate hike next month, and speculation for an imminent change in regime may continue to curb the appeal of the Greenback as the Federal Open Market Committee emphasizes that ‘shifting to a slower pace will better allow the Committee to assess the economy’s progress toward our goals’.

The USD may continue to face headwinds as the Fed appears to be approaching the end of its hiking-cycle, but NZD/USD may struggle to retain the advance from the January low as it fails to trade back above the 50-day SMA.

NZD/USD appears to have reserved course ahead of the June 2022 high as it no longer responds to the positive slope in the 50-day SMA, with a break below 0.622 to 0.6280 area raising the scope for a run at the January low, which largely lines up with the 200-day SMA.

Failure to defend the yearly opening range may push NZD/USD towards 0.6170, with the next area of interest coming in around 0.6070.

However, lack of momentum to break/close below the 0.6220 to 0.6280 area may push NZD/USD back above the 50-day SMA, with a close above the 0.6380 to 0.6430 region opening up the 0.6510 to 0.6570 zone, which incorporates the monthly high.

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