• USD/CHF is expected to remain lackluster around 0.9250 as investors await Swiss CPI data.
• An increment in Swiss inflation will attract more rate hikes from the SNB.
• The FOMC minutes will provide a detailed version of December’s monetary policy meeting.

The USD/CHF pair is likely to display a lackluster performance ahead around 0.9250 amid festive mood in various potential markets. Also, the Swiss franc asset is expected to remain sideways as investors are awaiting the release of the Swiss Consumer Price Index (CPI) data for fresh impetus.

Meanwhile, the US Dollar Index (DXY) is aiming to extend its downside journey to near the round-level support of 103.00 amid a decline in safe-haven’s appeal. The mighty USD Index faced immense pressure on Friday after surrendering the crucial support of 103.40. Also, a fresh decline in the inflationary pressures in the United States has weakened its appeal for the USD Index.

S&P500 sensed a minor sell-off on Friday as investors turned cautious after commentary from the International Monetary Fund (IMF). Managing Director Kristalina Georgieva of the IMF cited on the CBS Sunday morning news program that “For much of the global economy, 2023 is going to be a tough year as the main engines of global growth - the United States, Europe, and China – all may experience weakening activity,”.

On the Swiss Franc front, the release of the inflation data will hog the limelight. According to the estimates, the inflation data (Dec) will escalate to 3.4% against the former release of 3.0% on an annual basis. Escalation in the Swiss inflation data might attract more policy hikes from the Swiss National Bank (SNB) ahead.  In December’s monetary policy meeting, SNB Chairman Thomas J. Jordan opened the gates for more policy tightening despite hiking interest rates further by 50 basis points (bps) to ensure price stability.

The USD Index may display an informed move after the release of the Federal Open Market Committee (FOMC) minutes. The FOMC minutes will provide a detailed explanation behind the announcement of the interest rate hike of 50 bps by the Federal Reserve (Fed) in its December monetary policy meeting.

• US Dollar Index remains pressured around seven-month low.
• Seven-week-old falling wedge bullish chart formation challenges the bears but the swing-point is far from here.
• 100-SMA adds strength to the 104.30 resistance confluence.

US Dollar Index (DXY) fails to witness a positive start to 2023 as it remains pressured near the seven-month low, marked the previous day around 103.40, during the early hours of Monday’s Asian session.

The US Dollar’s gauge versus the six major currencies dropped to the lowest levels since early June 2022 on Friday after breaking a two-week-old ascending trend line, currently around 103.85. The downside momentum also took clues from the bearish MACD signals to favor DXY sellers.

With this, the DXY bears are all set to revisit the early June 2022 swing high near 102.70.

However, a seven-week-old falling wedge bullish chart formation’s support line could restrict the quote’s further downside, around 102.35 at the latest.

In a case where the US Dollar Index drops below 102.35, the 102.00 threshold and May 2022 low of 101.30 could lure the sellers.

On the flip side, DXY recovery remains elusive unless crossing the support-turned-resistance surrounding 103.85.

Even so, a convergence of the stated wedge’s upper line and the 100-SMA challenges the US Dollar Index bulls near 104.30 level.

It’s worth noting, however, that a successful break of 104.30 won’t hesitate to propel the quote towards the late November swing high surrounding 108.00.

Overall, DXY is likely to remain bearish but the downside room appears limited.

US Dollar Index: Four-hour chart

Trend: Further downside expected

• USD/CAD struggles to defend the first daily gain in three, retreats of late.
• Oil prices remain firmer despite fears of receding energy demand from China.
• US Dollar bears the burden of softer data, fails to cheer firmer yields.
• Holidays in multiple markets restrict USD/CAD moves ahead of the key data/events.

USD/CAD takes offers to reverse the year-start gains around 1.3550 even as holiday-thinned markets probe traders during early Monday.

In doing so, the Loonie pair cheers firmer prices of Canada’s main export item, WTI crude oil, despite the US Dollar’s recent corrective bounce. It’s worth noting, however, that the lack of major data/events and cautious mood ahead of the Minutes of the latest Federal Open Market Committee (FOMC) meeting, as well as Friday’s December month employment numbers for the US and Canada, probe the Loonie pair traders.

WTI crude oil rose the most in over a week the previous day, grinding near $80.50 at the latest, as a softer US Dollar helped the black gold buyers despite fears of easing demand, mainly due to the Covid fears emanating from China. Also acting as the challenge for the WTI bulls, but were ignored, were the headlines from the US Energy Information Administration (EIA) as it said, “Demand for US crude and petroleum products fell in October even as oil production ticked up to its highest levels since the COVID-19 pandemic.”

On the other hand, the US Dollar Index (DXY) refreshed a six-month low of around 103.40 after witnessing downbeat US data, near 103.47 by the press time. That said, Chicago Purchasing Managers’ Index crossed the market consensus of 41.2 and the 37.2 previous readings to print the 44.9 figures for December. Even so, the activity gauge signaled contraction for the fourth consecutive month. It should be noted that the year-end consolidation also weighed on the DXY amid the sluggish sessions.

The recent updates from China and the International Monetary Fund (IMF), however, appear to challenge the USD/CAD moves going forward.

On Saturday, Chinese President Xi Jinping appeared in a televised speech to mark the New Year and called on for more effort and unity as the country enters a "new phase" in its approach to combating the pandemic. On the same line, China’s NBS Manufacturing purchasing managers' index (PMI) fell to 47.0 in December versus 48.0 market expectations and prior, marking the biggest drop in activities since February 2020. Further, the Non-Manufacturing PMI also slumped to 41.6 during the stated month versus 46.7 previous readings.

Following that, IMF’s Managing Director Kristalina Georgieva said that the New Year is going to be tougher than the year we leave behind. The IMF Chief also added, “Why? Because the three big economies – the US, EU and China – are all slowing down simultaneously.”

Amid these plays, Wall Street closed with losses while the US 10-year Treasury bond yields rose 4.5 basis points (bps) to 3.879%.

Looking forward, holidays in multiple markets could restrict the USD/CAD intraday moves, in addition to the cautious mood ahead of the key data/events. However, the bears appear to run out of steam and hence the odds of witnessing a recovery are high. As a result, the aforementioned catalysts, namely the Fed Minutes and employment numbers for the US and Canada, will be reacted with more strength in the case suggesting the Loonie pair’s rebound.

Technical analysis

Although the USD/CAD pair bounces off 50-DMA support, around 1.3520 by the press time, the recovery remains elusive unless it crosses the previous support line from November 15, near 1.3625 at the latest.

• NZD/USD is expected to display a rangebound structure as investors await Caixin PMI data for fresh cues.
• IMF sees CY2023 as a tough year as the United States, Europe, and China may deliver a decline in economic activities.
• The US Dollar Index may remain volatile ahead of ISM Manufacturing PMI data.

The NZD/USD pair is likely to remain sideways around 0.6350 ahead on Monday. The kiwi asset displayed wild gyration in the late New York session on Friday as investors eased their positions to go light for CY2023. The volatile moves are likely to be compromised from rangebound moves, which will result in lackluster performance by the kiwi asset for a short span of time.

S&P500 ended the CY2022 on a cautious note as the market participants remained dubious over projections for the performance of the equities domain of the United States. Managing Director Kristalina Georgieva of the International Monetary Fund (IMF) cited on the CBS Sunday morning news program that “For much of the global economy, 2023 is going to be a tough year as the main engines of global growth - the United States, Europe, and China – all may experience weakening activity,”.

The US Dollar Index (DXY) dropped to near its six-month low below 103.10 and is likely to extend its losses as investors' risk appetite for risk-sensitive currencies improved. While a caution adopted by investors for the United States equities supported the 10-year US Treasury yields to 3.88%.

Meanwhile, investors are keeping an eye on Caixin Manufacturing PMI data for further guidance in the New Zealand Dollar. As per the consensus, the economic data is expected to drop marginally to 49.3 from the prior release of 49.4.

On the United States front, investors will focus on the ISM Manufacturing PMI data (Dec), which is likely to escalate to 49.6 vs. the former release of 49.0. Apart from that, investors will keep New Orders Index on the radar, which might climb to 48.1 against the prior release of 47.2.

• GBP/USD snaps two-day winning streak with mild losses.
• Another failure to cross 200-SMA triggers pullback inside one-week-old symmetrical triangle.
• Firmer oscillators, 1.2000 psychological magnet challenge the Cable bears.

GBP/USD begins 2023 on a back foot as it prints mild losses near 1.2080 during the early hours of Monday. In doing so, the Cable pair justifies the previous day’s failure to cross the 200-SMA inside a one-week-old symmetrical triangle formation.

That said, the 200-SMA level, around 1.2100 by the press time, precedes the stated triangle’s upper line near 1.2110 to restrict short-term advances of the GBP/USD prices.

It’s worth noting, however, that the bullish MACD signals and the firmer RSI (14), not overbought, join the 1.2000 psychological magnet to limit the Cable pair’s immediate downside.

Hence, the GBP/USD may remain uninteresting between 1.2110 and 1.2000.

That said, the previous support line from November 17, close to 1.2225 at the latest, adds to the upside filters before giving control to the GBP/USD bulls.

In that case, the quote could challenge December’s peak of 1.2446, a break of which could help the bulls to aim for a May 2022 high of around 1.2665.

On the flip side, a clear downside break of the 1.2000 threshold may direct the GBP/USD bears towards the late November swing low of 1.1900 before highlighting the mid-November swing low near 1.1760.

GBP/USD: Four-hour chart

Trend: Limited downside expected

• EUR/USD is expected to extend its upside journey above 1.0710 on hawkish expression from ECB Lagarde.
• German HICP is likely to advance to 11.8% against the prior release of 11.3%.
• The US Dollar Index dropped to near its six-month low below 103.10.

The EUR/USD pair turned sideways near the round-level resistance of 1.0700 after a decent rally. The major currency pair is expected to display resumption in the upside journey above the immediate hurdle of 1.0710 as the risk appetite theme got elevation.

Risk-perceived assets like S&P500 ended 2022 on a cautious note as analysts have mixed responses over economic projections. On contrary, the risk-sensitive currencies witnessed firmer demand from the market participants. The US Dollar Index (DXY) delivered a downside break of the consolidation formed in a 103.37-104.57 range. While the 10-year US Treasury yields continued their strength and rose to near 3.88%.

The Euro is likely to dance to the tunes of the preliminary German Harmonized Index of Consumer Prices (HICP) data, which will release on Tuesday. As per the estimates, the inflation indicator is likely to advance to 11.8% against the prior release of 11.3%. A rebound in the German inflation is likely to be the outcome of a lower mortgage rate than nominal wage growth.

Analysts at Natixis are of the view that “In the Eurozone, the real long-term interest rate is well below potential growth, and the mortgage rate is lower than nominal wage growth; monetary policy is therefore completely expansionary.”

Also, European Central Bank (ECB) President Christine Lagarde cited higher wage rates as responsible for more juice to already firmer inflation.  ECB President cited that the central bank must prevent this from adding to already high inflation, as reported by Reuters.

For the United States front, analysts at Natixis cited the monetary policy expression as a restrictive one as the mortgage rate is higher than nominal wage growth. Going forward, United States S&P Manufacturing PMI data will remain in focus, which is expected to remain stable at 46.2.

• Gold price grinds higher inside bullish chart pattern as 2023 begins for traders.
• US Dollar weakness underpins XAU/USD strength even as holiday mood limits upside momentum.
• Gold buyers will seek clues about Federal Reserve’s Pivot, can also cheer softer US Nonfarm Payrolls.

Gold price (XAU/USD) begins 2023 without any major surprise as it seesaws near $1,825 during the early hours of Monday’s Asian session. While the New Year holidays in multiple markets appeared to have restricted the metal’s immediate moves, broadly-softer US Dollar kept the bright metal buyers hopeful ahead of this week’s top-tier data and events from the United States. Even so, fears emanating from China and concerns surrounding the global moves in 2023 probe the XAU/USD bulls.

Gold cheers mixed United States data that weigh on US Dollar

In 2022, US Dollar Index (DXY) reported the biggest yearly gain since 2015. Even so, the greenback’s gauge versus the six major currencies reported the last three months as loss-making ones. The reason could be linked to the recently softer data from the United States (US) that fuelled expectations of the Federal Reserve’s (Fed) pause in the rate hikes. It’s worth noting, however, that the Gold price strength, due to the DXY weakness appeared to have recently been challenged by the Covid fears emanating from China, as well as downbeat comments from the International Monetary Fund’s (IMF) Managing Director Kristalina Georgieva.

On Friday, Chicago Purchasing Managers’ Index crossed the market consensus of 41.2 and the 37.2 previous readings to print the 44.9 figures for December. Even so, the activity gauge signaled contraction for the fourth consecutive month.

Market fears probe XAU/USD bulls

Despite the broadly weaker DXY in the last three months, the recent fears emanating from the worsening coronavirus conditions in China seem to challenge the Gold buyers, mainly due to Beijing’s status as one of the world’s biggest commodity users.

On Saturday, Chinese President Xi Jinping appeared in a televised speech to mark the New Year and called on for more effort and unity as the country enters a "new phase" in its approach to combating the pandemic.

Following that, IMF’s Managing Director Kristalina Georgieva said that the New Year is going to be tougher than the year we leave behind. The IMF Chief also added, “Why? Because the three big economies – the US, EU and China – are all slowing down simultaneously.”

Given the global economic fears, the XAU/USD bulls may witness further hardships amid the holiday-thinned markets.

Gold traders await Federal Reserve Minutes, United States Nonfarm Payrolls

In addition to the challenges to Gold traders from China and the global economic concerns, the cautious mood ahead of the Minutes of the latest Federal Open Market Committee (FOMC) and monthly employment data for the United States could also challenge the XAU/USD upside.

The scheduled events and data become more important as there has been a gap of one week since the US reported any major catalysts and the US Dollar has been down mostly during the said period. Additionally, the receding hawkish bias on the Federal Reserve’s (Fed) next move also inflates the importance of the scheduled factors.

That said, the FOMC Minutes will be closely observed for any clues on the Fed’s pivot as the US central bank signaled lower rates for longer, which in turn could help the Gold price remain firmer.

On the other hand, downbeat US employment numbers could help the US Dollar to remain easy and propel the Gold price.

Gold price technical analysis

Gold price portrays a one-month-old bullish channel formation on the four-hour chart. The bullion’s upside momentum also justifies bullish signals on the Moving Average Convergence and Divergence (MACD) indicator, as well as the upbeat Relative Strength Index (RSI) line, located at 14.

It’s worth noting, however, that the RSI approaches the overbought territory and suggests the XAU/USD pullback, which in turn highlights a three-week-long horizontal hurdle surrounding $1,825 as the key for the Gold buyers to watch.

Following that, the aforementioned ascending trend channel’s upper line, close to $1,835 by the press time, could challenge the metal’s further upside.

In a case where the Gold bulls ignore the likely overbought RSI and cross the $1,835 resistance, the June 2022 peak of around $1,880 will be in focus.

Alternatively, an upward-sloping support line from Wednesday restricts the immediate downside of the Gold price near $1,820, a break of which could drag the metal towards the 100-Exponential Moving Average (EMA) level near the $1,800 threshold.

Even so, the Gold remains on the bull’s radar unless its stays beyond the stated bullish channel’s support line, near $1,785 at the latest.

Hence, the Gold price is technically strong even if a pullback is brewing as of late.

Gold price: Four-hour chart

Trend: Bullish

Germany's Finance Minister (FinMin) Christian Lindner expects inflation in Europe's biggest economy to drop to 7% this year and to continue falling in 2024 and beyond, but believes high energy prices will become the new normal, reported Reuters.

"The target remains 2%. This must be a top priority for the European Central Bank and the German government," Christian Lindner said in an interview with Bild newspaper published on Sunday per Reuters.

Also read: Lagarde Speech: ECB must stop quick wage growth from fuelling inflation

Additional comments

FX implications

The news should probe European Central Bank (ECB) hawks and may probe the EUR/USD pair’s bullish trajectory. However, discussions surrounding the Federal Reserve’s (Fed) pivot can fuel the major currency pair.

Also read: EUR/USD Price Forecast 2023: Control inflation or avoid recession? Is there a recipe for success?

Chinese President Xi Jinping appeared in a televised speech to mark the New Year on Saturday, per Reuters. The policymaker called on for more effort and unity as the country enters a "new phase" in its approach to combating the pandemic.

This was Xi’s first comments to the public on COVID-19 since his government changed course three weeks ago and relaxed its rigorous policy of lockdowns and mass testing, reported Reuters.

Key comments

Forex implications

The news should weigh on the prices of commodities and Antipodeans, which in turn can exert downside pressure on the AUD/USD and NZD/USD due to Australia and New Zealand’s strong trade links with China.

It’s worth noting that Australia became the latest to join the other developed countries in requiring Chinese travelers to have negative Covid test results. Travelers from China to Australia will need to submit a negative COVID-19 test from Jan. 5, Australian health minister Mark Butler said on Sunday, report Reuters.

Also read: AUD/USD advances towards 0.6850 as focus shifts to Caixin Manufacturing PMI data

Euro zone wages are growing quicker than earlier thought and the European Central Bank must prevent this from adding to already high inflation, ECB President Christine Lagarde told a Croatian newspaper on Saturday, reported Reuters.

ECB’s Lagarde provided no new policy hint in the interview but said the bank must "take the necessary measures" to lower inflation to 2% from its current rate of near 10%, per Reuters.

Key quotes

Market implications

The news should help EUR/USD to remain firmer considering the Federal Reserve’s (Fed) comparatively dovish bias.

Also read: EUR/USD Price Forecast 2023: Control inflation or avoid recession? Is there a recipe for success?

“For much of the global economy, 2023 is going to be a tough year as the main engines of global growth - the United States, Europe and China - all experience weakening activity,” said the International Monetary Fund’s (IMF) Managing Director Kristalina Georgieva on the CBS Sunday morning news program "Face the Nation”, per Reuters.

Key comments

Market implications

News like this should ideally weigh on the market sentiment and commodity prices, as well as the Antipodeans. However, the holiday mood in Asia limits the market’s reaction to it.

The Bank of Japan (BOJ) is considering raising its inflation forecasts in January to show price growth close to its 2% target in fiscal 2023 and 2024, Nikkei reported on Saturday, per Reuters.

Citing people familiar with discussions at the central bank, Nikkei said the proposed changes would show the core consumer price index rising around 3% in fiscal 2022, between 1.6% and 2% in fiscal 2023, and nearly 2% in fiscal 2024.

An additional burden for USD/JPY

USD/JPY is likely to witness additional downside due to the news as it increases the odds of the Bank of Japan’s (BOJ) monetary policy tightening. That said, the Yen pair dropped heavily in the last two days, around 131.30 by the press time.

• AUD/USD is aiming to extend its upside journey towards 0.6850 amid the risk-on market mood.
• China’s Caixin Manufacturing PMI data is likely to drop marginally to 49.3 from 49.4 in the prior release.
• A cautiously optimistic risk profile pushed the 10-year US Treasury yields to 3.88%.

The AUD/USD pair is expected to continue its six-day winning streak after surpassing Friday’s high around 0.6821 ahead. Previously, the Aussie asset ended the week on a bullish note as investors shrugged off China’s Covid caution and poured money into the risk-sensitive assets. The US Dollar Index (DXY) delivered a breaking of the consolidation formed in a range of 103.37-104.57 as safe-haven assets lost their appeal.

S&P500 ended the year on a subdued note, easing 0.25% as investors showed caution on 2023 economic projections, portraying that the risk impulse is cautiously optimistic. Ambiguity in the risk profile resulted in a decline in the demand for US government bonds. The 10-year US Treasury yields sensed the strength and advanced to 3.88%.

Going forward, the Australian Dollar is likely to dance to the tunes of Caixin Manufacturing PMI data for December. As per the consensus, the economic data is expected to drop marginally to 49.3 from the prior release of 49.4.

Last week, official China Manufacturing PMI data dropped to 47.0 vs. the expectations of 49.2 and the former release of 48.0. The scale of economic activities witnessed a sheer fall as households remained busy in protest to support the rollback of Covid-19 restrictions by the Chinese administration. It is worth noting that Australia is a leading trading partner of China and a decline in the extent of China’s manufacturing activities impacts the Australian Dollar.

On the United States front, investors will focus on the S&P Manufacturing PMI data. According to the estimates, the economic data is seen as stable at 46.2.