• GBP/JPY has witnessed a sell-off and has dropped vertically to near 160.20.
• The announcement of the review of secular loose monetary policy by the BoJ has strengthened the Japanese Yen.
• Pessimism for Pound Sterling and the UK economy seems over, which will be brighter for London in CY2023.

The GBP/JPY pair has sensed immense pressure after failing to shift its auction profile above the immediate resistance of 161.00 in the early Asian session. The cross has slipped sharply to near 160.40 as the Bank of Japan (BoJ) has announced that it will review the negative impact of ultra-loose monetary policy from a secular period next week, reported Yomiuri.

Chatters over exit from decade-long ultra-loose monetary policy in the Japanese region has gained strength amid difficulties in expanding wages and supporting the Japanese yen against the strengthening US Dollar. Earlier, Michio Saito, Director-General of the Financial Bureau at Japan’s Ministry of Finance (MoF), said in a statement early Wednesday, “interest rates remain low but the current situation won't last indefinitely.”

On the United Kingdom front, the UK economy faced sheer volatility amid poor risk-management systems by commercial banks and political instability led by the debacle of former Prime Ministers Boris Johnson and Liz Truss in CY2022. The current year seems brighter for the Pound Sterling after current UK PM Rishi Sunak held a higher position.

In the view of economists at MUFG Bank, we may have reached “peak pessimism” for the UK and the Pound. Much greater political stability this year than last is one factor here and we can very likely assume that PM Sunak will bring greater credibility after the turmoil of 2022. “Another consequence of having Rishi Sunak at No. 10 is the prospect of better relations with the EU and with that a possible deal to break the deadlock regarding the Northern Ireland Protocol.”

On the economic data front, investors will keep an eye on the UK Production data, which is scheduled for Friday. On an annual basis, Industrial Production is expected to contract by 3.0% and Manufacturing Production may contract by 4.8%. This might impact harshly on the United Kingdom economy but will delight the Bank of England (BOE) as it will trim inflation projections.

• EUR/JPY stalls its rally and clashes with a confluence of technical indicators.
• A break below the 20-day EMA could pave the way toward the 200-day EMA at 140.24.
• EUR buyers reclaiming 142.00 would set the stage to challenge the 100-day EMA.

The EUR/JPY gained some traction during the Wednesday session and reached a new two-week high at 142.85 before reversing its course and closed at 142.39. As Thursday’s Asian Pacific session begins, the EUR/JPY continues the late downtrend, registering decent losses of 0.14%, and trades at 142.12 at the time of writing.

EUR/JPY Price Analysis: Technical outlook

After piercing the EUR/JPY 50-day Exponential Moving Average (EMA) at 142.50, and the 100-day at 142.21, the cross-currency reversed its course, snapping four days of straight gains. Nevertheless, to resume its downtrend in the short-term, the EUR/JPY needs to clear the 20-day EMA at 141.65, which, once surpassed, the pair could fall towards the 141.00 mark, ahead of the 200-day EMA at 140.24.

The previously-mentioned scenario is backed by oscillators, with the Relative Strength Index (RSI), although at bullish territory, its slope is downwards, about to cross under the 50-midline. In contrast, the Rate of Change (RoC) portrays upside volatility as higher. Therefore, EUR/JPY traders might refrain from opening fresh EUR short positions until the RoC shifts bearish.

As an alternative scenario, if the EUR/JPY resumes its uptrend, key resistance levels are the 100-day EMA at 142.21, followed by the 50-day EMA at 142.50, and then the 143.00 mark.

EUR/JPY Key Technical Levels

• Silver price picks up bids to snap three-day uptrend.
• RSI, MACD conditions also favor the rebound from the key support line, 200-SMA, suggesting further advances.
• Three-week-old horizontal support zone appears crucial for bulls.

Silver price (XAG/USD) licks its wounds around $23.40 amid early Thursday in Asia, printing the first daily gains in four as of late.

In doing so, the bright metal bounces off a one-month-long ascending trend line, as well as the 200-SMA.

The commodity’s recovery moves also take clues from the above 40.0 RSI (14), as well as recently improving MACD signals.

As a result, the XAG/USD is likely to extend the latest recovery moves toward the $22.00 round figure.

However, a horizontal area comprising multiple levels marked since December 21, near $24.30, could challenge the quote’s further upside.

It should be observed that the monthly high near $24.55 could act as the last defense of the XAG/USD bears past $24.30, a break of which won’t hesitate to direct Silver price towards the April 2022 high near $26.25.

On the contrary, the aforementioned support line and the 200-SMA restrict the immediate downside of the Silver price near $23.30 and $23.20 in that order.

Following that, the monthly low of $23.10 and the mid-December trough surrounding $22.55 will be in focus.

Overall, the Silver price is likely to remain firmer but the road toward the north is long and bumpy.

Silver price: Four-hour chart

Trend: Further upside expected

Japanese media Yomiuri came out with the news suggesting another hawkish move by the Bank of Japan (BoJ) during its next week’s monetary policy meeting. The news signaled that the Japanese central bank is up for reviewing the side effects of massive monetary easing in the monetary policy meeting next week.

“BoJ reviews due to skewed interest rates in markets even after last month's tweak in bond yield control policy,” adds Yomiuri per Reuters.

USD/JPY slides

Following the news, the USD/JPY pair dropped around 50 pips to 131.90, close to 132.10 by the press time.

Also read: USD/JPY bulls eye a break of key daily resistance with US CPI eyed

• USD/CHF has turned sideways after a firmer recovery move from around 0.9200.
• A follow-up buying after a Double Bottom formation indicates the strength of the US Dollar.
• The RSI (14) has comfortably shifted into the bullish range of 60.00-80.00, which indicates more upside ahead.

The USD/CHF pair has picked strength after a minor correction to near 0.9300 in the Asian session. The Swiss franc asset faced barricades near 0.9325 in an attempt to extend its upside journey. On Wednesday, the major displayed a responsive buying action after dropping to near 0.9204.

The major could remain inside the woods ahead of the release of the United States inflation data. Meanwhile, the risk appetite of investors is significantly improved as S&P500 has displayed back-to-back bullish trading sessions despite anxiety ahead of the release of the US Consumer Price Index (CPI) data. The US Dollar Index (DXY) is hovering around 103.00.

On an hourly scale, USD/CHF witnessed a sharp bullish reversal after forming a Double Bottom chart pattern near the round-level support of 0.9200. After sensing weak selling interest near the aforementioned support, bulls made a comeback and pushed the asset higher vigorously.

The 20-and 50-period Exponential Moving Averages (EMAs) at 0.9283 and 0.9260 are upward-sloping now, which adds to the upside filters.

Meanwhile, the Relative Strength Index (RSI) (14) has comfortably shifted into the bullish range of 60.00-80.00 from the 40.00-60.00 range, which indicates that the bullish momentum has been triggered.

Going forward, a break above Wednesday’s high at 0.9332 will drive the asset towards December 12 high at 0.9367 followed by the round-level resistance at 0.9400.

Alternatively, a slippage below Monday’s low at 0.9167 will result in a fresh downside journey toward the March low at 0.9150. A downside move below the March low will expose the asset to January 17 low at 0.9117.

USD/CHF hourly chart

• GBP/USD picks up bids to snap two-day downtrend.
• Fears from UK’s public sector workers’ strike challenge bulls despite broadly softer US Dollar.
• Dovish Fedspeak, market’s optimism adds strength to Cable’s recovery moves.
• US CPI for December will be crucial for near-term directions, softer print could add to weekly gains.

GBP/USD buyers flex muscles around the mid-1.2100s, following the downbeat performance in the last two days, as markets await the key US Consumer Price Index (CPI) for December during early Thursday. In doing so, the Cable pair remains well-set for the biggest weekly gains since late November.

The quote’s latest weakness could be linked to the likely increase in the UK’s economic hardships due to the fears emanating from the strikes of the British public sector workers. To solve the same, UK Prime Minister Rishi Sunak eased his front to come to a mid-point but the situation didn’t improve and the unions are warning over a much bigger protest starting from February 01. “Britain's Public and Commercial Services (PCS) union said on Wednesday 100,000 of its members across 124 government departments would take strike action on Feb. 1 in a dispute over pay, pensions and job security,” reported Reuters.

Elsewhere, the market’s cautious optimism amid the risk-positive headlines surrounding China, as well as receding fears of hawkish Fed actions seemed to have kept the GBP/USD buyers hopeful.

Recently, Federal Reserve’s Boston President Susan Collins backed the smaller rate increases while stating that she leans at this stage to a 25 bps hike. However, she also mentioned that it is very data-dependent.

On other hand, China’s total reopening and early signals of heavy holiday shopping join the chatters that the People’s Bank of China (PBOC) will adhere to rate cuts in 2023 to spread the Beijing-inspired optimism.

It should be noted that the firmer prints of equities and downbeat US Treasury yields also restricted GBP/USD downside despite not-so-positive headlines from the UK. That said, the US 10-year Treasury yields dropped nearly eight basis points (bps) 3.54% while Wall Street closed in the green.

Looking forward, GBP/USD traders are likely to witness further recovery moves amid downbeat expectations from the US CPI data, expected 6.5% YoY versus 7.1% prior. Considering this, analysts at Australia and New Zealand Banking Group (ANZ) said, “Current price action indicates that the market wants and is expecting a fairly benign data print. The consensus is that core CPI rose 0.3% m/m; we are forecasting 0.4% m/m.”

Technical analysis

Wednesday’s Dragonfly Doji and the GBP/USD pair’s ability to remain firmer past 21-DMA, around 1.2085 by the press time, keeps buyers hopeful.

• NZD/USD struggles to defend weekly gains despite keeping recent technical breakouts.
• Convergence of weekly resistance line, 61.8% Fibonacci retracement level guards immediate upside amid bearish MACD signals.
• Sustained trading beyond 200-SMA, previous resistance line from early December keeps buyers hopeful.

NZD/USD retreats to 0.6370 as bulls take a breather ahead of the key inflation data from China and the US on early Thursday.

In doing so, the Kiwi pair fades the previous day’s bounce off the 200-Simple Moving Average (SMA). Also adding strength to the pullback moves could be the bearish MACD signals.

Even so, the NZD/USD buyers defend Friday’s upside break of the one-month-old descending resistance line, now support, as well as the 200-SMA. On the same line is the firmer RSI (14) line, not overbought.

Hence, the NZD/USD price is likely to struggle despite keeping the latest bullish signals.

That said, a convergence of the weekly descending trend line joins the 61.8% Fibonacci retracement level of the pair’s December-January downturn, around 0.6390, appears a tough nut to crack for the NZD/USD bulls.

Following that, the monthly high around 0.6415 appears additional upside filter for the quote to cross to justify the traders’ bullish bias.

In a case where the NZD/USD remains firmer past 0.6415, the odds of witnessing a run-up toward the previous monthly peak of 0.6514 can’t be ruled out.

Meanwhile, the 200-SMA and the aforementioned resistance-turned-support line, close to 0.6335 and 0.6295 in that order, restrict the short-term downside of the NZD/USD pair.

If the Kiwi pair sellers keep the reins past 0.6295, the recent hopes of witnessing a north-run take a backseat as prices could challenge the monthly low of 0.6190.

NZD/USD: Four-hour chart

Trend: Pullback expected

• AUD/JPY is expected to re-test 92.00 but is inside the woods following cues from AUD/USD.
• Investors are awaiting China’s inflation data for fresh impetus.
• It seems that few days of sunlight left for the ultra-loose monetary policy approach in Japan.

The AUD/JPY pair is struggling to come out of the woods as investors are awaiting the release of China’s Consumer Price Index (CPI) data for fresh impetus. The risk barometer has shifted sideways around 91.50, following footprints of AUD/USD ahead of the release of the United States inflation data.

According to the estimates, annual CPI (Dec) is set to improve to 1.8% from the former release of 1.6%. While the monthly figure may contract by 0.1% against the prior release of -0.2%. Also, the Producer Price Index (PPI) could contract by 0.1%. The Chinese economy is operating at lower inflation levels after remaining locked for a lengthy period due to the Covid-19 epidemic. This might force the People’s Bank of China (PBOC) to announce some policy-easing measures to spurt the level of economic activities.

On Wednesday, the cross turned sideways after a bullish action supported by the release of the higher-than-projected Australian inflation and upbeat Retail Sales data. The monthly price index (Nov) in the Australian economy landed at 7.4% vs. the consensus of 7.3% and the former release of 6.9%. Apart from that, monthly Retail Sales (Nov) jumped to 1.4% against the projections of 0.6%.

Stronger-than-anticipated inflation and retail demand by households are going to compel the Reserve Bank of Australia (RBA) to continue hiking interest rates further to tame soaring inflation. Currently, the Official Cash Rate (OCR) of the RBA is at 3.10%.

On the Tokyo front, Michio Saito, Director-General of the Financial Bureau at Japan’s Ministry of Finance (MoF), said in a statement early Wednesday, “interest rates remain low but the current situation won't last indefinitely.” Japanese administration and the Bank of Japan (BoJ) are looking to review their decade-long ultra-loose monetary policy to conclude deflation and an easy policy approach.

• AUD/USD awaits fresh clues to extend recent gains, eyes fourth weekly upside.
• Dovish Fed talks, upbeat Aussie data allowed bulls to keep the reins.
• Wait for inflation data from China, US joined light calendar elsewhere to restrict moves.
• Markets anticipate mixed data but improvement in China CPI could favor bulls.

AUD/USD portrays pre-data anxiety as it struggles to extend the previous day’s run-up, taking rounds to 0.6900 during the initial hours of Thursday’s Asian session. Even so, the Aussie pair stays on the way to post four consecutive weekly gains while staying around the highest levels since late August 2022.

The quote’s latest gains could be linked to the market’s cautious optimism amid the risk-positive headlines surrounding China, as well as receding fears of hawkish Fed actions. Adding strength to the AUD/USD upside could be the recently firmer data from Australia.

That said, Australia’s seasonally adjusted Retail Sales grew 1.4% MoM versus 0.6% expected and -0.2% prior while the Monthly Consumer Price Index rose 7.4% compared to -5.7% market forecasts and -3.9% previous readings.

Elsewhere, Federal Reserve’s Boston representative Susan Collins reiterated her support for the smaller rate increases. The policymaker said that she leans at this stage to a 25 bps hike. However, she also mentioned that it is very data-dependent.

Talking about China, the dragon nation’s total reopening and early signals of heavy holiday shopping join the chatters that the People’s Bank of China (PBOC) will adhere to rate cuts in 2023 to spread the Beijing-inspired optimism. On the same line, the recent improvement in the Sino-Aussie ties also helps AUD/USD to remain firmer.

It should be observed that the easing of the US Treasury bond yields and an upbeat performance by equities also added strength to the AUD/USD upside, due to the pair’s risk-barometer status.

On Wednesday, the US 10-year Treasury yields dropped nearly eight basis points (bps) 3.54% while Wall Street closed in the green.

Moving on, Australian trade numbers for November will precede China’s inflation data for December to direct immediate AUD/USD moves. Given the likely easing in the Aussie Trade Balance to 10,500M versus 12,217M prior, the quote may witness a pullback in the initial hours before the expectedly firmer China Consumer Price Index (CPI) and Producer Price Index (PPI) figures could favor the bulls. Above all, US CPI will be crucial as the Fed hawks run out of steam.

Technical analysis

AUD/USD grinds higher between a two-month-old resistance line and the 200-DMA, respectively near 0.6960 and 0.6830.

• USD/CAD extends its losses after sliding below a five-month-old support trendline that surpasses 1.3500.
• USD/CAD Price Analysis: A breach below 1.3357 could pave the way for further downside; otherwise, a test of 1.3500 is on the cards

USD/CAD reverses its uptrend and drops below the 100-day Exponential Moving Average (EMA) at 1.3427, set to finish Wednesday’s session with losses of almost 0.01%. At the time of writing, the USD/CAD is trading at 1.3423 after hitting a daily high of 1.3445.

USD/CAD Price Analysis: Technical outlook

From a daily chart perspective, the USD/CAD is still neutral-biased, though slightly skewed to the downside. Once USD/CAD’s price action broke below a five-month-old upslope support trendline drawn from August 2022 lows on January 6, the USD/CAD resumed its downtrend, which stalled around the current week’s low of 1.3357.

To extend its downtrend, the USD/CAD needs to break below 1.3357 to extend its losses to the November 24 daily low of 1.3316, ahead of the 1.3300 mark. Once hurdled, the USD/CAD would be poised to test the 200-day EMA at 1.3238.

The USD/CAD downward bias in the near term is supported by the Relative Strength Index (RSI) in bearish territory, while the Rate of Change (RoC) portrays steady downward volatility, meaning that sellers remain in charge.

USD/CAD Key Technical Levels

• Gold Price is steady ahead of crucial United States of America Consumer Price Index (CPI) inflation data due Thursday.
• US Dollar pressured vs. risk markets that performed well ahead of the December CPI report.
• Gold price has dropped below key structure following the test of equal highs and is now printing prospects of a bearish head and shoulders.

Gold price was capped at the highest in more than eight months on Wednesday, while investors anticipate the United States of America Consumer Price Index (CPI) inflation data due Thursday. At the time of writing, Gold price is flat on the day at $1,876 but it had travelled between a low of $1,867.22 and reached a high of $1,886.69.

US Consumer Price Index is key for Gold price 

The moves come ahead of the December inflation report, which is expected to show US prices rose by an annualized 6.5%. This is lower than November's 7.1% pace. Investors are monitoring the Consumer Price Index closely as the expectations are that if it were to continue to decelerate, so too will the Federal Reserve's pace of rate hikes. 

In this regard, analysts at TD Securities explained that they are looking for the core Consumer Price Index to have edged higher on a monthly basis in December, ''closing out the year on a relatively stronger footing,'' they said.

''Indeed, we forecast a firm 0.3% MoM increase, as services inflation likely gained momentum. In terms of the headline, we expect the Consumer Price Index inflation to register a slight decline on an unrounded basis in December, but rounded up to flat MoM, as energy prices offered large relief again. Our MoM projections imply that headline and core CPI inflation likely lost speed on a YoY basis in December.''

US Dollar could depend on US CPI

As for the US Dollar, the analysts said, ''unless the core measure significantly surprises to the upside, US Dollar rallies should be sold into. We think the bar is high to compel a reversal of fortune despite the US Dollar tactically stretched.''

Meanwhile, the DXY index, which measures the US Dollar vs. a basket of currencies, is trading flat near 103.24 after meeting a new cycle low Monday near 102.944.  The next target to the downside is the May low near 101.297. However, the US Dollar is poised for a bullish continuation technically speaking where an M-formation is in play: 

The M-formation on the US dollar chart is a reversion pattern and the price would be expected to move in for the restest of the resistance structures and neckline of the pattern between 103.50 and 104.00. Such a move in the US Dollar would align with a 38.2% Fibonacci retracement and a 50% mean reversion at the extreme, a major weight for Gold price. 

China has been on the bid, supporting Gold price higher

Analysts at TD Securities argued that ''the strength in Gold price is inconsistent with the bearish macro backdrop, as highlighted by its diverging relationship with real rates.''

The analysts explained that ''under the hood, relentless buying from China has fueled a squeeze on CTA trend follower positioning over the past months, and has yet to show signs of abating.'' The analysts said ''mysterious large-scale Chinese purchases of gold have single-handedly catalyzed a $150/oz rally.''

''Our tracking of positioning for the top ten traders in China highlights a continued accumulation of gold, with this cohort adding another 2.4 tonnes of notional gold to their net length overnight,'' the analysts at TD Securities added. 

''CTA trend followers could still exacerbate upside flows with a break north of the $1,900/oz mark likely to spark a sizeable buying program equivalent to nearly +8% of algos' maximum historical position size,'' the analysts explained.

Gold price technical analysis

However, Gold price has started to show signs that its four-day bullish impulse is starting to decelerate given Wednesday's doji:

The following technical analysis of the Gold price arrives at a bearish conclusion, at least for the near term:

In the prior day's analysis, it was explained that on the daily Gold price chart, we could see prior equal highs finally being tested and ''swept'' as follows:

The phenomenon occurs on a fractal basis whereby the equal levels are ''swept'' only to fuel a reversal in the Gold price. We are still in this process and the Gold price moved in on liquidity in the $1,886s on Wednesday. This was an area of expected resistance highlighted the prior day on the 4-hour chart: 

Gold price, H4 chart update

As per the prior analysis, the Gold price has indeed dropped below the structure following the test of the equal highs. The Gold price is now printing prospects of a bearish head and shoulders pattern as potential peak formation into the US consumer Price Index. Gold price bears will need to break the $1,870 structure that ultimately guards the target area some $20/oz below to test the $1,850s. 

• EUR/USD is demonstrating volatility contraction as the focus has shifted to the US inflation data.
• A consecutive bullish session reported by S&P500 indicates that the risk profile is extremely solid.
• Improved risk appetite has weighed down the 10-year US Treasury yields to 3.54%.

The EUR/USD pair is displaying back-and-forth moves around 1.0750 in the early Tokyo session. The major currency major is showing extreme volatility contraction, which indicates that investors are not ready to build fresh positions before the release of the United States inflation data.

The risk profile seems extremely solid as S&P500 has recorded two consecutive bullish trading sessions. It seems that investors are optimistic on CY2023. Also, the demand for US government bonds remained upbeat, which led to a significant fall in the 10-year US Treasury yields to 3.54%. The US Dollar Index (DXY) continued its sideways profile around 103.00 ahead of the US Consumer Price Index (CPI) data.

This time, the inflation data is getting pivotal for the market participants as wage inflation has shown meaningful signs of deceleration, which Federal Reserve (Fed) policymakers were considering a major threat to the agenda of achieving price stability.

The headline CPI (Dec) is expected to continue its declining spree and may drop to 6.5% from the former figure of 7.1%. While the core CPI that excludes oil and food prices might slip to 5.7% from 6.0% reported earlier. Weaker retail demand, a spree of declining employment additions in the United States economy, a slowdown in economic activities, and now a fall in employment bills have collectively resulted in lower consensus for inflation projections.

On the Eurozone front, after European Central Bank (ECB)'s governing council member Mario Centeno, another ECB member and French central bank governor Francois Villeroy de Galhau said on Wednesday, the central bank should aim to reach the terminal rate by the summer. He further added that ECB needs to be pragmatic about the pace of rate hikes.

• GBP/USD's 1.2170, 1.2150 and 1.2113 (daily W-formation neckline target area) areas were in focus. 
• Meanwhile, key structure target levels have either given out or are being tested, guarding against a full-on capitulation of the bulls.

As per the start of the week's technical analysis for GBP/USD, GBP/USD Price Analysis: Bullish impulse is decelerating, eyes on 1.2150, where the outlook has been bearish while below 1.2400 and 1.2220 nearer-term highs, cable has remained hamstrung to the downside as the following illustrates. Meanwhile, the US Consumer Price Index could be the catalyst to trigger a move below 1.2100 recent lows. 

GBP/USD prior analysis

The market was on the back side of the recent supportive trendline at the start of the week and the price broke 1.1900 structure leaving a bearish bias on the charts.

Zoomed in...

The W-formation was supportive of the bearish thesis given that it is a reversion pattern. It was stated that GBP/USD would be expected to move in towards the neckline and day's lows of near 1.2080. So far, we have seen the price dishevelled to test 1.21 the figure and test the structure that guards against a run to the prior broken lows of 1.1900 and 1.1778 below there.

It was stated that the lower time frames can be monitored for a deceleration of the bullish run and signs of distribution as follows: 

1.2170, 1.2150 and 1.2113 (daily W-formation neckline target area) areas were meanwhile key structure target levels that have either given out or are being tested, guarding against a full-on capitulation of the bulls and bears taking over towards the 1.1900 target area.

GBP/USD update, daily and H1 charts

Noting that fiscal policy risk is adding to inflation pressure, European Central Bank policymaker Pablo Hernandez de Cos said on Wednesday that the ECB will continue to raise interest rates significantly at future meetings at a steady pace.

"Keeping interest rates at tight levels will reduce inflation by dampening demand and will also protect against the risk of a persistent upward shift in inflation expectations," De Cos told a financial event in the evening.

EUR/USD update

EUR/USD rose to a seven-month high on Wednesday but is now treading water into the US Consumer Price Index event on Thursday which traders hope to get some clarification of where interest rates are headed. At its highest level since May 31, EUR/USD reached 1.0776 on Wednesday, moving up from a low of 1.0725.

• The New Zealand Dollar failed to gain traction despite a risk-on impulse.
• US Dollar remains soft amidst growing speculations for a soft US CPI print.
• China’s reopening could bolster the NZD outlook in the near term.

The NZD/USD prints successive series of doji’s, suggesting that neither buyers nor sellers are in charge, ahead of Thursday’s US Consumer Price Index (CPI) release. Hence, the NZD/USD is trading at 0.6374 above its opening price after hitting a daily high of 0.6388.

Wall Street is set to finish the session with solid gains between 0.56% and 1.24%. The NZD/USD remains in choppy trading as investors brace for the release of crucial US economic data. The consensus estimates that headline inflation in the US, known as the Consumer Price Index (CPI), would drop to 0% MoM, while year-over-year data is expected to decelerate from 7.1% to 6.5%. Excluding volatile items inflation, the so-called core CPI is forecasted to rise 0.3% MoM, while the consensus for annual-based core inflation is 5.7%.

Even though the World Bank’s tweaked its global growth forecasts to the downside, the New Zealand Dollar (NZD) remains linked to China’s economy. China’s reopening could trigger another leg-up in commodities. However, according to ANZ Bank, “tighter global monetary policy in the second half of the year” could help curb commodity inflation.

In the meantime, the US Dollar Index, a gauge of the buck’s value vs. its peers, continues to weaken, down by 0.05%, though it remains hovering around the 103.200 area.

Therefore, the NZD/USD might continue to trade sideways as traders get ready for US economic data releases. However, the New Zealand (NZ) docket will unveil Building Permits for December.

NZD/USD Key Technical Levels

What you need to take care of on Thursday, January 12:

Market players held their breath for a second consecutive day, with major pairs holding on to familiar levels. Tensions mounted ahead of the release of the December US Consumer Price Index (CPI), with the focus on central banks’ officials.

European Central Bank (ECB) officials were mostly hawkish, underpinning the EUR. French central bank governor Francois Villeroy de Galhau said the ECB should aim to reach the terminal rate by the summer, confirming they would have to raise rates further in the coming months. Governor of Austria's central bank Robert Holzmann opted for a more aggressive stance, noting that "rates will have to rise significantly further to reach levels that are sufficiently restrictive to ensure a timely return of inflation to target." He finally added that it's too early to discuss a possible terminal rate. Finally, ECB’s Governing Council member Olli Rehn said that rates in the Euro Zone will still have to rise significantly in the next couple of meetings and reach restrictive levels to dampen inflation.  

Across the pond, US Federal Reserve’s Boston representative Susan Collins supported smaller rate hikes. Collins said that she thinks 25 bps or 50bps  would be reasonable, adding she leans at this stage to a 25 bps hike, but clarifying it is very data-dependent.

The Kremlin restated that President Vladimir Putin is open to talks on Ukraine, although adding that an arrangement should be on Russian terms. A peaceful solution to the conflict remains far away.

EUR/USD keeps hovering around 1.0750, unchanged for a second consecutive day, while GBP/USD settled around 1.2140. The AUD/USD pair started the day on the back foot, but trimmed losses and posted a modest advance, trading just above the 0.6900 level. The USD/CAD pair hovers around 1.3420, while USD/JPY  stands at 132.40.

Gold hit a fresh eight-month high of $1,886.63 a troy ounce, but retreated ahead of Wall Street’s opening, ending the day with modest gains at around $1,877.00.

Crude oil prices rallied, helped by a report from the US Energy Information Administration (EIA) as the organism expects global consumption of liquid fuels such as gasoline, diesel, and jet fuel, to set new record highs in 2024. The headline overshadowed a large build in US stockpiles.

Attention on Thursday will be on the United States Consumer Price Index, foreseen up by 6.5% YoY in December. The core reading is seen up by 5.7%, easing from the previous 6%.

BTC Trading Plan: Wait for the fireworks on Thursday and plan for $19,000

• USD/JPY traders await the US CPI data for the next major scheduled catalyst. 
• The price is coiled and an inverse daily head and shoulders could be in the making.

USD/JPY is attempting to move higher during a light schedule in the North American session but has run into offers as US stocks climb to fresh highs for the week. at the time of writing, USD/JPY is trading back to flat for the day at 132.35 but has travelled between a low of 132.06 and 132.87 the high for Tuesday and the week so far.

Wall Street's main indexes are bid as investors keenly await the US consumer price index which seems to have weighed on the US Dollar and US Treasury yields in the recent hours of the session. The 10-year yield is now down by 1.66% and meeting an hourly support structure near 3.563%. If this were to hold, this would offer the greenback some support also and fend off the USD/JPY bears leaving the cross to tread water into the CPI data on Thursday where traders expect to get more clarity on the Federal Reserve's rate hike trajectory.

In this regard, analysts at TD Securities explained that they are looking for core prices to have edged higher on a monthly basis in December, ''closing out the year on a relatively stronger footing,'' they said.

''Indeed, we forecast a firm 0.3% MoM increase, as services inflation likely gained momentum. In terms of the headline, we expect CPI inflation to register a slight decline on an unrounded basis in December, but rounded up to flat MoM, as energy prices offered large relief again. Our MoM projections imply that headline and core CPI inflation likely lost speed on a YoY basis in December.''

As for the US Dollar, the analysts said ''Unless the core measure significantly surprises to the upside, USD rallies should be sold into. We think the bar is high to compel a reversal of fortune despite the USD tactically stretched.''

USD/JPY technical analysis

As per the prior analysis, USD/JPY Price Analysis: Consolidation into US CPI, bulls on the prowl, the price is coiled and an inverse daily head and shoulders could be in the making:

Such an outcome would take out the daily resistance and tie in with the bullish outlook for DXY as follows, where an M-formation is in play: 

The M-formation is a reversion pattern and the price would be expected to move in for the restest of the resistance structures and neckline of the pattern between 103.50 and 104.00. Such a move would align with a 38.2% Fibonacci retracement and a 50% mean reversion at the extreme.

• WTI rallied more than 3% due to increased optimism on China’s re-opening.
• An increase in US stockpiles was not an excuse for WTI to continue to advance.
• WTI Price Analysis: If it reclaims $78.00, it will exacerbate a rally to $80.00.

Western Texas Intermediate (WTI), the US crude oil benchmark, rises more than 3% Wednesday, breaking above the 20-day Exponential Moving Average (EMA) at $76.55 after erasing Tuesday’s losses. A risk-on impulse, a softer US Dollar (USD), and a jump in US oil inventories are tailwinds for the black gold. At the time of writing, WTI exchanges hand at $77.30.

Traders’ mood remains optimistic, as shown by global equities rising. Estimations that December’s CPI is expected to show annual inflation cooling down to 6.5%, from 7.1% in November, maintained flows ebbing toward risk-perceived assets.

Soft inflation reading in the US would be US Dollar negative, which could boost oil’s demand as the dollar-denominated commodity would be cheaper for buyers holding other currencies.

The US Federal Reserve is expected to raise rates by 25 bps at the February meeting and again in March after a 50 basis point hike in December.

Sources quoted by Reuters said, “China could bounce back strongly, especially if backed by monetary and fiscal stimulus. Central banks may discover they have room to cut rates if inflation falls substantially and economies are in a recession.”

Oil prices rose as hopes for an improved global economic outlook and concern over the impact of sanctions on Russian crude output outweighed a higher-than-expected build in US crude and fuel stocks.

The US Energy Information Administration (EIA) reported that crude inventories rose by 19.0 M barrels last week, the third largest weekly gain ever and the most since stocks rose by a record 21.6 million barrels in February 2021.

WTI Price Analysis: Technical outlook

From a technical perspective, WTI is still neutral-to-downward biased, which, if it continued to rise further, would clash with the confluence of the 50-day EMA and a three-month-old downslope resistance trendline around $79.09. Oscillators like the Relative Strength Index (RSI) suggest that buyers are gathering momentum, but the Rate of Change (RoC), suggests the advance could be gradual as volatility levels remain depressed.

If WTI reclaims $78.00, that could open the door toward the abovementioned confluence of technical indicators, which, once cleared, will exacerbate a WTI’s rally to $80.00 per barrel. On the other hand, failure at $78.00 could keep prices lower, and open the door for sellers, to reclaim the 20-day EMA at $76.56.

The New York Times reported that the Boston Federal Reserve's Susan Collins backs a slowdown in rate increases. 

Collins was reported saying that she was leaning toward a quarter-point move at the central bank’s February 1 meeting.

More to come...

• Gold traders bracing for December’s US CPI data weighed on the yellow metal prices.
• The US Dollar rises, contrarily to US Treasury bond yields, dropping.
• Gold Price Analysis: Could test $1900 once it clears $188; otherwise, it could test $1860.

Gold’s rally stalled around $1887 after hitting an eight-month new high, though it erased some of those gains, turning negative on Wednesday amidst an upbeat market sentiment. Speculations that softer-than-estimated US inflation report Thursday could spur a Fed pivot increased. However, the greenback is recovering, a headwind for XAU/USD prices. At the time of writing, the XAU/USD is trading at $1873.68.

Gold Price falls despite risk-on mood, falling yields

US equities continue to advance in the mid-New York session, portraying investors’ mood. The XAU/USD is perceived as traders booked profits ahead of December’s US inflation report. Data is estimated to show the Consumer Price Index (CPI) on a monthly basis, dropping to 0%, while year-over-year data is expected to fall from 7.1% to 6.5%. Excluding volatile items inflation, the so-called core CPI is forecasted to rise 0.3% MoM, while the consensus for annual-based core inflation is 5.7%.

In the meantime, the US Dollar Index, a gauge of the greenback’s value against a basket of six currencies, is erasing earlier losses at 103.371, slightly up by 0.09%. Contrarily, US Treasury bond yields are falling four bps, down to 3.583%. Even though US bond yields extended their losses, XAU/USD continues to edge lower.

On the US monetary policy side, traders’ expectations for a Fed rate hike of 25 bps lie at a 77% chance, as shown by money market futures, while for a 50 bps increase is 23%. Money markets expect the Federal Funds rate (FFR) to peak at around 4.92% in June 2023.

Gold Price Analysis: Technical outlook

After peaking around $1887, XAGU/USD is almost flat. However, a daily close at around the $1876 area, Wednesday’s opening price, could exacerbate a fall toward the current week’s lows of $1865.40. Nevertheless, oscillators like the Relative Strength Index (RSI) and the Rate of Change (RoC) remain in bullish territory and continue to support higher prices, though a consolidation around $1875 ahead of the release of critical US data is on the cards.

XAU/USD will extend its gains towards $1900 if it breaks $1887. On the other hand, a fall beneath $1865.40 could pave the way toward the 20-day EMA at $1830.

• While below 0.6950, the bias for AUD/USD is to the downside for the near term.
• A break of 0.6870 will open the risk of a move into the 0.6800 figure and the targetted area between 0.6791 and 0.6748. 
• US Dollar is also poised for a move higher as per the daily M-formation.

Despite hot domestic economic data that reinforced the case for further increases in interest rates from the Reserve Bank of Australia, AUD/USD has failed to hold onto the knee-jerk gains. At the time of writing, AUD/USD is treading water at 0.69 the figure. The pair has moved between a range of 0.6872 and 0.6925 (highs reached ahead of Frankfurt open, fuelled by data). 

As per the prior analysis, AUD/USD Price Analysis: Bears move in on key 0.6905 support structure, higher time frame traders were triggered into the market on the break of the prior week's and month's highs near 0.6890. While some temporary gains were made on a run to  0.6950 (offered) highs, in-the-money longs have been squeezed back to 0.6859 over the course of the week as the US Dollar perked up and recovered from the lowest levels since the summer of 2022 as per the DXY index. 

Both the DXY and AUD/USD are coiled markets, treading water into the US Consumer Price Index on Thursday. Therefore, a breakout could be imminent. We have some red news on the calendar for the Aussie ahead of the event, but so long as the US Dollar remains firm, this might do little to steer the bears away from targeting the stubborn longs towards 0.6850 that guards volumes between 0.6790 and 0.6750. 

DXY technical analysis

Looking at the DXY index chart, we have a compelling bullish technical outlook that has taken shape as follows: 

The hourly chart shows the price in a coil and in the absence of bearish commitments below the initial balance lows, then the bias is to the upside on a strong close above last month's lows. Liquidity above the equal highs opens prospects of mitigation of the price imbalance between 104.05 and 104.90s.

Looking at the daily chart, an upside bias, for the meanwhile, could also be argued, at least for a test of the 103.50s:

The US Dollar's decline is decelerating after moving to the backside of the bearish trendline and stalling at recent lows of 102.56. However, while below 105.31, the dominant bias is bearish. With that being said, and in accordance with the short-term bearish bias for the Aussie, zooming in on the DXY daily chart, an M-formation is in play: 

The M-formation is a reversion pattern and the price would be expected to move in for the restest of the resistance structures and neckline of the pattern between 103.50 and 104.00. Such a move would align with a 38.2% Fibonacci retracement and a 50% mean reversion at the extreme. Beyond there, then the mitigation of the price imbalance opens the risk of a test of 105 the figure. 

AUD/USD technical analysis

Coming back to the Aussie, a move higher in the greenback would cement the bearish themes for a run towards 0.6750:

While below 0.6950, the bias is to the downside for the near term. That is not to say that the price will automatically fall, and again, there is plenty of red news on tap that could go either way. However, a break of 0.6870 will open the risk of a move into the 0.6800 figure and the targetted area between 0.6791 and 0.6748. 

• XAG/USD is under pressure after breaking short-term support levels during the American session.
• The metal is under pressure, approaching the $23.00 level.
• US Dollar mixed as equity prices rises modestly.

Silver is under pressure during Wednesday’s American session, trading at the lowest level since Friday, near $23.20. The white metal is falling by 1.25%, getting closer to January lows.

Earlier on Wednesday, XAG/USD reached levels above $24.00 but it was rejected and started to move lower. The decline gained speed during the American session and after breaking short-term horizontal and dynamic supports.

Silver price is back under the 20-day Simple Moving Average (SMA), today at $23.60. The mentioned SMA is turning south, suggesting some exhaustion to the upside. The short-term bias is turning to the downside. All could change it XAG/USD manages to rise and hold above $24.00, particularly with a daily close above $24.20.

On the downside, the next target is at the January low at $23.10. Below $23.00 the next support level is seen at $22.80.

Silver Daily chart

Silver 4-hour chart

• EUR/USD rallied on a weak US Dollar and ECB hawkish commentary.
• Federal Reserve Chair Jerome Powell’s speech on Tuesday did not provide any guidance ahead of the US CPI report.
• EUR/USD Price Analysis: A break/close above 1.0770 would pave the way to test 1.0800

The Euro (EUR) resumed its uptrend vs. the US Dollar (USD) and rose to an eight-month new high around 1.0776, ahead of the release of the Consumer Price Index (CPI) in the United States (US), which is foreseen to slow down. Hence the EUR/USD is trading at 1.0759 after hitting a daily low of 1.0725.

Euro climbed on hawkish ECB commentary and expectations that US inflation would ease

Wall Street continues its rally ahead of the release of the US CPI report. The lack of US economic data releases and an irrelevant speech by the US Federal Reserve (Fed) Chair Jerome Powell on Tuesday left the EUR/USD adrift to speculations that US inflation would ease, which could pave the way for a less aggressive Fed. Consequently, the EUR/USD rose steadily.

Aside from this, the EUR/USD got a lift courtesy of several European Central Bank (ECB) officials’ hawkish commentaries. On Tuesday, ECB’s Schnabel said that “interest rates will still have to rise significantly” and that “inflation will not subside by itself.” On Wednesday, the Bank of France Governor and ECB Governing Council (GC) member Francois Villeroy said that the ECB should reach its terminal rate by the summer.

Later, the Austrian Central Bank Governor Robert Holtzmann added that “rates will have to rise significantly further to reach levels that are sufficiently restrictive to ensure a timely return of inflation to target.” Echoing some of his comments was Olli Rehn, who added that rates need to rise “significantly” in the next couple of meetings and reach restrictive levels to dampen inflation.

Ahead of the week, the US economic docket will feature the Consumer Price Index (CPI) report Thursday, with estimates at 0% MoM while annual based is estimated at 6.5%. The so-called Core CPI is foreseen at 0.3% MoM, a tick higher than the previous month, while yearly, it is estimated to come at 5.7%.

EUR/USD Price Analysis: Technical outlook

From a daily chart perspective, the EUR/USD break of weekly highs around 1.0750s opened the door for testing the June 2022 highs of 1.0773. Once that price level is broken, the EUR/USD might test the 1.0800 figure in the near term. That scenario is backed by the Relative Strength Index (RSI) being in bullish territory and aiming higher, though the Rate of Change (RoC) suggests that volatility remains unchanged. Therefore, the EUR/USD might continue to advance steadily or consolidate.

On the other hand, EUR/USD failure to crack 1.0800 would expose the pair to selling pressure, which could tumble the pair to 1.0750, followed by a test of the January 10 daily low of 1.0711 and the 1.0700 figure.

The US Bureau of Labor Statistics will release the Consumer Price Index (CPI) figures for December on Thursday, January 12 at 13:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of 10 major banks regarding the upcoming US inflation print.

The annual CPI is expected to decline to 6.5% from 7.1% in November and see the Core CPI, which excludes volatile food and energy prices, edging lower to 5.7% from 6%. On a monthly basis, the CPI is forecast to stay unchanged while the Core CPI is projected to rise 0.3%.

TDS

“Core prices likely edged higher in Dec, with the index rising 0.3% MoM after printing 0.2% in Nov. Shelter inflation likely remained the key wildcard, though we look for goods deflation to act again as a major offset. Importantly, gas prices likely provided new relief to the CPI, as they fell sharply in Dec. All told, our m/m forecasts imply 6.5%/5.7% YoY for total/core prices.”

RBC Economics

“We expect YoY US consumer price growth to slow significantly in December to 6.3% from 7.1% in November. The steep decline in headline price growth is largely thanks to a significant drop in energy prices. We expect ‘core’ (excluding food & energy products) price growth to slow to 5.6% YoY in December from 6.0% in October. Further signs of declining price growth would support further slowing in the pace of hikes from the Fed. We continue to expect 50 bps of additional hikes to the Fed funds target range in Q1 before a pause at a terminal rate of 4.75% to 5.0%.”

SocGen

“We expect the headline CPI to hold flat against November (0.0%) while moderating to a 6.5% YoY increase, down from the 7.1% posted in November. The Core CPI should be up, and we expect a rise of 0.4% MoM.”

NBF

“The food component likely remained relatively strong, but this increase should have been more than compensated by lower gasoline prices. As a result, headline prices could have decreased 0.1% MoM. If we’re right, the yearon-year rate should come down from 7.1% to 6.7%. The Core index, meanwhile, may have continued to be supported by rising rent prices and advanced 0.3% on a monthly basis. This would translate into a two-tick decline of the 12-month rate to 5.8%.”

Deutsche Bank

“In terms of the MoM rate, the headline CPI is expected at -0.15% at DB with Core CPI expected at +0.22% at DB. In terms of YoY, headline is expected to drop from 7.1% to 6.3% at DB with Core falling from 6% to 5.6%.”

ANZ

“We expect US December Core CPI inflation to rise by 0.4% MoM, with headline flat thanks to lower energy prices. YoY, this would mean core eased to 5.8% from 6.0% and headline to 6.7% from 7.0%.”

ING

“We expect to see a further moderation in the annual rate of inflation from 7.1% down to 6.6%, but this is still more than three times faster than the Federal Reserve’s 2% target. Still, a 0.3% MoM print would lead to the annual rate of Core inflation hitting 5.7% versus 6% in November. We expect to see much sharper falls in the annual rate of inflation from the early second quarter onwards.”

Wells Fargo

“We estimate CPI fell 0.2% in December, bringing the YoY rate down to a 14-month low of 6.3%. We expect another sizable decline in energy prices to weigh on the headline and offset further gains in food and core services prices. But the drop in prices should also be helped along by another decline in core goods, led once again by used autos. We expect core inflation to rise 0.2% with the pace of core services prices little changed. While we believe that shelter inflation is close to its peak, continuing strong gains in the price of other core services can really pump the breaks on progress toward 2% inflation.”

CIBC

“There was more relief in the form of lower gasoline prices for households in December, which will be behind the expected 0.1% monthly decline in total prices. That retrenchment will have been limited by pressure in food prices and an expected 0.2% advance in the core group (excluding food and energy), with the latter likely showing strength in core services tied to the tight labor market, against an easing in core goods prices on weaker demand and the improvement in supply chains and inventories. We are a tick below consensus for both total and core inflation, which could nudge bond yields and the USD lower, but be a plus for equities.”

Commerzbank

“In the US, inflation is clearly on the retreat. From its peak of 9.1% in June, the YoY rate most recently fell to 7.1% in November. For December, we forecast a further decline to 6.4%. Used car prices are likely to have fallen by almost 3% in December from November. We therefore also expect the Core inflation rate to decrease from 6.0% to 5.6%. This would mean a continuation of the easing in inflation – a trend that should continue in 2023. However, we stand by our assessment that the fundamental inflation problem will not be solved. A sustained return to 2% inflation is likely to be prevented by demographically induced labor shortages, the costs of climate policy and increasing protectionism.”

• The Swiss Franc is among the worst performers on Wednesday.
• US Dollar post mixt results during the American session ahead of US CPI.
• USD/CHF rebounds sharply, above the 20-day SMA.

The USD/CHF is rising by more than 70 pips on Wednesday extending the recovery from the multi-month it reached on Monday at 0.9165. The pair rose momentarily above 0.9300 for the first time since Friday.

Following two days of gains, USD/CHF is back above the 20-day Simple Moving Average (SMA) that stands at 0.9285. The bias is still bearish but the 0.9200 area is becoming a strong support.

CHF drops across the board

The Swiss Franc is the worst performer of the American session. Switzerland bonds are soaring. The Swiss 10-year bond yield is falling by more than 10% at the time of writing, at 1.26%, the lowest level since December 19.

The USD/CHF broke above 0.9250 and accelerated to the upside. It peaked at 0.9303 and then pulled back finding support at 0.9285. At the same time EUR/USD trades at fresh multi-month highs above 1.0770. The EUR/CHF is having the best day in months and it hit levels above parity for the first time since July.

The US Dollar is mixed on Wednesday as market participants await the US CPI report due on Thursday. The index is expected to remain unchanged in December with the annual rate falling from 7.1% to 6.5%.

Technical levels

Economists at Scotiabank expect the GBP/USD to stabilize around 1.20 in the first half of the year. A sustained move higher towards 1.25 is likely latter in 2023.

A sizeable correction is likely after the Q4 snap higher from record lows

“We expect stability around current levels through H1 and some modest strength emerging against a generally overvalued USD in H2 as the global monetary policy tightening cycle matures. At this point, we expect investors will be starting to consider the prospect for easier Fed policy and will be ready to re-embrace risk and move out of the USD.”

“From a (broad) technical point of view; we look for firm GBP support on weakness to the 1.14/1.16 range in Q1. 

“A sizeable correction is likely after the Q4 snap higher from record lows. Resistance is 1.2450/00, with an extension to the 1.28/1.30 range likely above 1.25.”

The broad US Dollar tore between opposing forces last month, with the USD Index (DXY) ending the month lower. Economists at HSBC look for USD weakness in 2023.

A US economic soft landing should see the USD broadly weaken

“We believe the USD will weaken further in 2023, as its significant overvaluation (based on the real effective exchange rate (REER) can no longer be supported, once the Fed stops hiking, global growth shows signs of troughing and market volatility comes down.”

“We acknowledge there would be ‘safe-haven’ demand for the USD, if the US economy goes into a deep recession. However, we see that as a risk scenario, rather than an inevitable outcome.”

“If the US economy manages a softer descent, the USD is likely to weaken. That is our base case for 2023.”

• GBP/USD is almost flat, unable to capitalize on the US Dollar weakness.
• Fed’s Powell speech did not provide any forward guidance for the February 1 FOMC meeting.
• GBP/USD Price Analysis: In the near term, it could test the 200-DMA.

The Pound Sterling (GBP) failed to hold to earlier gains against the US Dollar (USD) and augmented selling pressure dragged the GBP/USD down after hitting a daily high of 1.2178. An upbeat market sentiment, as portrayed by US equities, failed to propel the risk-perceived Sterling. At the time of writing, the GBP/USD is trading at 1.2145, slightly below its opening price.

GBP/USD traders brace for the US December's CPI report

Wall Street opened with solid gains after US Federal Reserve Fed Chair Jerome Powell’s speech on Tuesday failed to provide any forward guidance. However, according to Rabobank Analysts, “The Chair was, however, able to squeeze in reference to the Fed prioritizing inflation over employment in the near term, when he said that the case for monetary policy independence lies in the benefits of insulating monetary policy decisions from short-term political considerations.”

Investors shrugged off Powell’s words as US equities closed higher Tuesday. In the meantime, the GBP/USD failed to gain traction even though the greenback continued to weaken. The US Dollar Index, a gauge of the buck’s value against its peers, is losing 0.08% at 103.193.

An absent UK economic calendar keeps traders waiting for the release of the US Consumer Price Index (CPI) report Thursday. Street’s estimates of headline inflation are 0% MoM; on an annual basis, a dip to 6.5% is expected. Excluding volatile items, the so-called Core CPI is foreseen at 0.3% MoM, a tick higher than the previous month, while yearly, it is estimated to come at 5.7%.

GBP/USD Price Analysis: Technical outlook

GBP/USD’s price action in the last three days formed a bullish harami candlestick pattern, suggesting that sellers are moving in. But it should be said that the 200-day Exponential Moving Average (EMA) at 1.2107 would be difficult to surpass by sellers. However, if cleared, that could open the door for a GBP/USD retest of 1.2100, closely followed by the 20-day EMA at 1.2080.

Gold maintains a large base. Strategists at Credit Suisse expect the yellow metal to stretch higher.

Important support is located at $1,729

“We look for further strength to the 61.8% retracement of the 2022 fall and June 2022 high at $1,878/1,896. Whilst we look for this to cap at first, above would raise the prospect of further strength in the broader range to resistance next at $1,973/98, with a fresh cap expected here.” “Only above $2,070/75 would suggest we are seeing a significant and meaningful long-term break higher.” 

“Support is seen at $1,780 initially, and then more importantly at the ‘neckline’ to the base at $1,729.”

European Central Bank (ECB) Governing Council member Olli Rehn said on Wednesday that rates in the Eurozone will still have to rise significantly in the next couple of meetings and reach restrictive levels to dampen inflation, as reported by Reuters.

In December, Rehn had said that he was expecting the ECB to hike the policy rate by 50 basis points in February and March.

Market reaction

EUR/USD pair edged higher with the initial reaction to these comments. As of writing, the pair was trading at its highest level since late May at 1.0768, rising 0.3% on a daily basis.

Canada's economy appears to have lost some momentum in recent months. Subsequently, economists at Wells Fargo also expect the Loonie to weaken over the coming months.

USD/CAD seen at 1.35 by Q1-2024

“We believe a contracting Canadian economy and an end to Bank of Canada tightening could contribute to some underperformance by the Canadian Dollar over the short-to-medium term.”

“We see the possibility for some weakness in the Loonie through Q1-2023, and see only a moderate rebound in the CAD over time.”

“Even acknowledging that risks are tilted toward less CAD softness than our base case forecast projects (which targets a USD/CAD exchange rate of 1.35 by Q1-2024), we still expect the Loonie to be an underperformer among the G10 currencies over the medium-term.”

• The index alternates gains with losses near 103.30 midweek.
• US yields trade in a mixed fashion ahead of US CPI (Thursday).
• MBA Mortgage Applications expanded 1.2% WoW.

The greenback, in term of the USD Index (DXY), keeps the range bound theme unchanged around 103.30 on Wednesday.

USD Index focuses on US CPI results

The index maintains a narrow trading range amidst the prevailing cautious stance from market participants, all in light of the upcoming release of US inflation figures gauged by the CPI (Thursday).

Indeed, another weak print in the US consumer prices in December could intensify investors’ perception of a Fed’s pivot in its normalization process and add further conviction of a deceleration in inflation.

So far, and according to CME Group’s FedWatch Tool, the probability of a 25 bps rate raise at the February 1 meeting is at nearly 80% (from around 40% a month ago).

Earlier in the US data space, MBA Mortgage Applications expanded 1.2% n the week to January 6.

What to look for around USD

The dollar remains under pressure and trades in a side-lined fashion in the 103.00 region amidst investors’ prudence ahead of US CPI due on Thursday.

The mixed results from the US Nonfarm Payrolls for the month of December (Friday) seem to have reignited the idea of a probable pivot in the Fed’s policy in the next months, which comes in contrast to the message from the latest FOMC Minutes, where the Committee advocated the need to remain within a restrictive stance for longer, at the time when it ruled out any interest rate reduction for the current year.

Furthermore, the tight labour market, still elevated inflation and the resilient economy are also seen supportive of the firm message from the Federal Reserve and its hiking cycle.

Key events in the US this week: MBA Mortgage Applications (Wednesday) – Inflation Rate, Initial Jobless Claims, Monthly Budget Statement (Thursday) – Flash Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is retreating 0.06% at 103.21 and the breach of 102.94 (monthly low January 9) would open the door to 101.29 (monthly low May 30) and finally 100.00 (psychological level). On the other hand, the next up barrier comes at 105.63 (monthly high January 6) followed by 106.37 (200-day SMA) and then 107.19 (weekly high November 30).

AUD/USD remains well within the striking distance of its highest level since late August. Economists at Société Générale believe that the pair could reach the mid-0.70s.

Scope for bearish rate surprises is limited for now

“The RBA is still dragging its feet and the monetary/fiscal policy mix isn’t helpful, but the rates market is only pricing another 75 bps of hikes from here, so scope for bearish rate surprises is limited for now.”

“We dream of AUD/USD trading in the 0.80s but while that may be too much, the mid-0.70s are within reach.”

• USD/JPY edges higher on Wednesday and hits a fresh weekly high amid a modest USD uptick.
• Bets for smaller Fed rate hikes, sliding US bond yields might cap gains for the USD and the pair.
• Traders might also refrain from placing aggressive bets ahead of the US CPI report on Thursday.

The USD/JPY pair gains some positive traction on Wednesday and climbs to the 133.00 neighbourhood, or a fresh weekly top during the early North American session. The uptick, however, lacks bullish conviction and runs the risk of fizzling out rather quickly.

The US Dollar attracts some dip-buying and moves away from a seven-month low touched on Tuesday, which, in turn, is seen lending some support to the USD/JPY pair. Apart from this, a generally positive tone around the equity markets undermines the safe-haven Japanese Yen and provides a modest lift to the major. That said, growing acceptance that the Fed will soften its hawkish stance might hold back bulls from placing aggressive bets and keep a lid on any meaningful upside for spot prices, at least for now.

Friday’s mixed jobs report from the United States (US) showed a slowdown in wage growth and pointed to signs of easing inflationary pressures. Furthermore, business activity in the US services sector hit the worst level since 2009, suggesting that the effect of the Fed's large rate hikes in 2022 is being felt in the economy. This, in turn, lifted bets for smaller Fed rate hikes going forward, which keeps the US Treasury bond yields depressed near a multi-week low and should act as a headwind for the USD.

Apart from this, speculations that the Bank of Japan (BoJ) will eventually phase out its ultra-loose monetary policy settings might further contribute to capping the USD/JPY pair. Traders might also refrain from placing directional bets and prefer to move to the sidelines ahead of the release of the US consumer inflation figures on Thursday. The crucial US CPI report will influence the Fed's policy outlook, which, in turn, will drive the USD and provide a fresh directional impetus to the pair.

In the meantime, the US bond yields, the US price dynamics and the broader market risk sentiment will be looked upon for some short-term trading opportunities around the USD/JPY pair. Nevertheless, the aforementioned fundamental backdrop warrants some caution for bullish traders and positioning for any further appreciating move in the absence of any relevant economic data from the US.

Technical levels to watch

• Gold price struggles to capitalize on its intraday positive move to a fresh multi-month peak.
• A modest US Dollar strength and a positive risk tone act as a headwind for the commodity.
• Bets for smaller Fed rate hikes help limit losses as the focus remains on the US CPI report.

Gold price surrenders modest intraday gains to a fresh eight-month peak, around the $1,886-$1,887 area touched earlier this Wednesday and turns neutral heading into the North American session. Currently placed just above the $1,875 level, the downside for the XAU/USD remains cushioned amid expectations for a less aggressive policy tightening by the Federal Reserve (Fed).

Bets for less aggressive Federal Reserve lend support to Gold price

Friday’s mixed jobs report from the United States (US) showed a slowdown in wage growth and pointed to signs of easing inflationary pressures. Furthermore, business activity in the US services sector hit the worst level since 2009, suggesting that the effect of the Fed's large rate hikes in 2022 is being felt in the economy. This, in turn, lifted bets for smaller Fed rate hikes going forward, which keeps the US Treasury bond yields depressed near a multi-week low and might continue to lend support to the non-yielding Gold price.

Modest US Dollar strength, positive risk tone caps Gold price

That said, a modest US Dollar (USD) uptick is holding back bullish traders from placing aggressive bets. A stronger Greenback tends to act as a headwind for the US Dollar-denominated Gold price. Apart from this, a generally positive tone around the equity markets further contributes to capping the upside for the safe-haven precious metal, at least for the time being. Traders also seem reluctant and prefer to move to the sidelines ahead of the release of the latest consumer inflation figures from the United States (US), due on Thursday.

Focus remains on consumer inflation figures from United States

The crucial US CPI report will play a key role in influencing the Federal Reserve's rate-hike path and driving Gold price in the near term. Policymakers have indicated that they remain committed to combat high inflation and that rates could remain elevated for longer, or until there is clear evidence that consumer prices are falling. Hence, a stronger US CPI print will lift bets for a more hawkish Fed and push the XAU/USD back down.

Heading into the key data risk, sliding US bond yields could act as a headwind for the Greenback in the absence of any relevant market-moving economic releases from the US. This might continue to lend some support to the Gold price. Apart from this, traders might take cues from the broader risk sentiment to grab short-term opportunities around the XAU/USD.

Gold price technical outlook

From a technical perspective, any meaningful corrective slide is likely to find decent support near the $1,865-$1,860 resistance breakpoint. A sustained break below might prompt some technical selling and drag the Gold price to the $1,835-$1,833 horizontal support. On the flip side, the next level of resistance is pegged near the $1,900 round figure. A sustained strength beyond will be seen as a fresh trigger for bullish traders and pave the way for an extension of the near-term appreciating move.

Key levels to watch

USD/CAD consolidates but still trades shy of fair value, according to economists at Scotiabank.

A drop to the upper 1.32s should play out

“The CAD has corrected some of the more excessive undervaluation our fair value model highlighted last week but spot remains well above its 1.3249 estimated equilibrium, suggesting that the market should continue to push lower and that scope for USD gains is limited in the short run.”

“We spot minor resistance at 1.3450 and stronger resistance at 1.3475/00 intraday. Support is 1.3410 and 1.3355.”

“Broader technical signals suggest a drop to the upper 1.32s should play out after the break under the Dec/Jan range.”

Sterling is a modest under-performer on the session. Economists at Scotiabank expect the GBP/USD pair to hold above 1.21 to keep the undertone constructive.

Gains back above 1.2175 would be constructive

“Cable’s drift off the early week high just above 1.22 remains limited and could still be construed as a bullish – potentially – consolidation ahead of another push higher.” 

“Cable is well-supported in the low 1.21 area but support will have to hold to keep the undertone constructive.”

“Tuesday’s inside range sessions casts a slightly more negative look to the daily chart. Gains back above 1.2175 intraday would be constructive.”

• EUR/USD keeps the bid tone unchanged near 1.0750 on Wednesday.
• The surpass of recent peaks around 1.0760 exposes a move to 1.0800.

EUR/USD is up for the fourth straight session and revisits the 1.0750 region midweek.

In case bulls remain in control, the breakout of the January high at 1.0760 (January 9) could put the June 2022 peak at 1.0773 (June 27) to the test closely followed by the May 2022 top at 1.0786 (May 30).

Extra gains from here should target the key round level at 1.0800.

In the meantime, further gains remain in store for the pair while above the 200-day SMA at 1.0308.

EUR/USD daily chart

Economists at TD Securities analyze how tomorrow's all important US Consumer Price Index (CPI) print could impact the Dollar and the USD/JPY and EUR/USD pairs.

The bar is high to compel a reversal of fortune

“The market has moved back to fading Fed hawkishness and putting the USD on the back-foot. An on-consensus print does not strike us as a particular threat to the latter. Moreover, it is not evidently clear that a positive surprise on core inflation would tremendously alter the path for the USD either.”

“As much as the USD looks stretched on a tactical basis, we think the bar is high to compel a reversal of fortune. USD rallies should be sold into.”

“With the BoJ meeting next week, USD/JPY is a clear candidate for more downside. Meanwhile, EUR/USD has shown the capacity to rally again; 1.0780/00 is all that stands in the way of another melt-up.”

• EUR/GBP scales higher for the third straight day and touches a fresh weekly high on Wednesday.
• Dovish BoE expectations weigh on the British Pound and remain supportive of the momentum.
• The recent hawkish ECB rhetoric underpins the Euro and supports prospects for additional gains.

The EUR/GBP cross builds on its goodish rebound from over a two-week low and gains some follow-through traction for the third successive day on Wednesday. The momentum lifts spot prices to a fresh weekly high during the mid-European session, with bulls now eyeing a breakout through the 0.8865-0.8875 supply zone.

The British Pound continues with its relative underperformance, which, along with a modest uptick in the shared currency, acts as a tailwind for the EUR/GBP cross. A bleak outlook for the UK economy has been fueling speculations that the Bank of England (BoE) is nearing the end of the current rate-hiking cycle. This, in turn, is seen as a key factor undermining the Sterling.

Furthermore, hawkish rhetoric from several European Central Bank (ECB) policymakers benefits the Euro and further lends support to the EUR/GBP cross. In fact, the ECB governing council member Robert Holzmann said on Wednesday that rates will have to rise significantly further to reach levels that are sufficiently restrictive to ensure a timely return of inflation to target.

In the absence of any relevant market-moving economic releases, either from the UK or the Eurozone, the fundamental backdrop supports prospects for a further near-term appreciating move. Bulls, however, might wait for a sustained move beyond the 0.8865-0.8875 hurdle before placing fresh bets. The EUR/GBP cross might then aim to reclaim the 0.9000 psychological mark in the near term.

Technical levels to watch

• The index extends the consolidative mood in the low-103.00s.
• The breach of the January low near 102.90 exposes a deeper pullback.

DXY keeps treading water around the 103.30 zone on Wednesday.

Bearish moves could put the so far January low at 102.94 (January 9) to the test in the near term, while a break below this level carries the potential to spark a retracement to, initially, the May 2022 low around 101.30 (May 30) ahead of the psychological 100.00 level.

In the meantime, while below the 200-day SMA at 106.37 the outlook for the index should remain tilted to the negative side.

DXY daily chart

EUR/USD was last seen trading at around 1.0750. Economists at Scotiabank expect the pair to break past the mid-1.07s.

Eurozone assets remain attractive

“The stars have aligned to put the EUR in a good position to extend its run higher. EUR sentiment has clearly improved amid retreating recession risks, helped by unseasonably warm weather reducing the impact of the energy crunch, and continued ECB hawkishness.” 

“Eurozone assets remain attractive (strong returns relative to US stock market since Oct), giving the EUR some additional tailwinds.”

“A weak US CPI report tomorrow will likely push spot through the mid-1.07s.” 

Economists at TD Securities note that the South African Rand will likely face challenges that could negatively impact its current resilience. 

USD/ZAR at 17.85 in Q1 2023 and 17.50 by year-end

“The ZAR's resilience is likely to be tested in the coming months as local macroeconomic variables return to the old normal.”

“South Africa's trade balance is undergoing a quick return to factory settings around flat which implies a negative current account balance. At best, South Africa will end the year with a small surplus, but we expect the C/A to drop to -1.8% of GDP in 2023 and to remain in deficit going forward.” 

“We now expect USD/ZAR at 17.85 in Q1 2023 and 17.50 by year-end.”

• EUR/JPY advances further north of the 142.00 mark midweek
• Bulls now target the weekly high around the 143.00 zone (December 28).

EUR/JPY trades with gains for the fourth session in a row and climbs to multi-day peaks near 142.50 on Wednesday.

Considering the ongoing price action, further upside remains well favoured in the near term. Against that, the immediate up barrier appears at the weekly high at 142.93 (December 28), which appears reinforced by the vicinity of the 100-day SMA, today at 143.05.

The outlook for EUR/JPY should remain positive while above the 200-day SMA at 140.62.

EUR/JPY daily chart

In the view of economists at MUFG Bank, we may have reached “peak pessimism” for the UK and the Pound. Therefore, the outlook in 2023 is somewhat brighter.

Positive developments emerging

“Much greater political stability this year than last is one factor here and we can very likely assume that PM Sunak will bring greater credibility after the turmoil of 2022. With that comes the probability of greater fiscal credibility too. Furthermore, the drop in natural gas prices, if sustained, will greatly add to fiscal credibility as well.”

“Another consequence of having Rishi Sunak at No. 10 is the prospect of better relations with the EU and with that a possible deal to break the deadlock regarding the Northern Ireland Protocol.” 

“Since the run-in to the Brexit referendum and beyond there have been very few periods of Leveraged and Asset Manager positioning combined being net long GBP. When that does happen, those periods have coincided with GBP appreciation. We are now currently close to turning to net long GBP.”

In Poland, economists at TD Securities see EUR/PLN stabilize around 4.60.

PLN could weaken somewhat in Q1 2023

“PLN could weaken somewhat in Q1 2023 on peak inflation and peak recession risks. However, over the long term, we continue to hold a positive view on Zloty and think that EUR/PLN will fall back to 4.60 by the end of 2023.”

“The NBP started hiking much earlier than the ECB, therefore front-loading the effects of monetary tightening, and will likely continue to reap its positive effects down the line.”

Senior Economist Julia Goh and Economist Loke Siew Ting at UOB Group review the latest FX reserves figures in the Malaysian economy.

Key Takeaways

“Malaysia recorded foreign portfolio outflows for a fourth consecutive month in Dec (at -MYR2.4bn vs -MYR1.3bn in Nov), taking the full-year non-resident portfolio outflows to MYR5.6bn in 2022 (2021: +MYR30.4bn). Dec’s foreign portfolio outflows were broad based, led by Malaysian equity outflows of MYR1.5bn (Nov: -MYR0.3bn) against Malaysian debt securities outflows of MYR0.9bn (Nov: -MYR1.0bn). However, the 2022 full-year non-resident portfolio outflows of MYR5.6bn were solely driven by debt outflows (-MYR9.8bn) as the equities segment recorded cumulative inflows of MYR4.2bn last year.”

“Bank Negara Malaysia (BNM)’s foreign reserves posted the largest monthly gain in 16 months by USD4.9bn m/m in Dec to end the year of 2022 at USD114.6bn (end-Nov: +USD4.5bn m/m to USD109.7bn). The latest reserves level has considered the quarterly foreign exchange revaluation changes. It is sufficient to finance 5.2 months of imports of goods and services and is 1.0 time of the total short-term external debt.”

“Going forward, we expect financial market’s volatility to persist but the prospects of foreign buying interest returning to emerging market (EM) assets have somewhat brightened following China’s reopening from 8 Jan 2023. The current market expectations for the US Fed reaching the peak of its interest rate hike cycle by 1Q23 alongside a continuation of China’s economic stimulus and consensus of still positive growth outlook for most Asian countries versus a projected mild recession in major advanced economies have also augured well for EM currencies including MYR.”

AUD/USD was last seen trading in positive territory above 0.6900. Economists at OCBC Bank expect the pair to extend its rise.

Retain buy dips bias

“Bullish momentum on weekly chart intact while RSI rose. A potential cup and handle pattern is observed on weekly chart, and this is typically a bullish formation. Completion of pattern puts textbook objective at around 0.75/0.76 levels.”

“Near term pullback not ruled out but bias to buy dips remains.”

“Key resistance at 0.6920 (76.4% fibo), 0.7020 before 0.7150 (Aug high). Support at 0.6840 (200DMA), 0.6760/70 levels (21DMA, 61.8% fibo retracement of Aug high to Oct low) and 0.6680 (50DMA).”

“Medium term, we stick to buying dips. Softer US data (raising hopes for Fed policy calibration) and positive development out of China should keep AUD supported.”

• AUD/USD regains positive traction in reaction to the upbeat Australian macro data.
• Bets for smaller Fed rate hikes weigh on the USD and remain supportive of the move.
• Bulls might refrain from placing fresh bets ahead of the US CPI report on Thursday.

The AUD/USD pair catches fresh bids on Wednesday and maintains its bid tone through the first half of the European session. The pair is currently placed above the 0.6900 mark and remains well within the striking distance of its highest level since late August touched earlier this week.

The Australian Dollar draws support from the upbeat domestic data, which, along with subdued US Dollar demand, is seen pushing the AUD/USD pair higher. The Australian Bureau of Statistics reported that the headline Consumer Price Index (CPI) re-accelerated to the 7.3% YoY rate - a 32-year-high - in November from the 6.9% in the previous month. Furthermore, Australian Retail Sales surpassed the most optimistic estimates and jumped 1.4% in November to a record A$35.9 billion. Adding to this, October's reading was also revised up sharply to show a 0.4% growth as compared to the 0.2% drop originally reported. The data lifts the odds for an additional interest rate hike by the Reserve Bank of Australia in February and remains supportive of the intraday positive move.

The US Dollar, on the other hand, struggles to capitalize on the previous day's bounce from a seven-month low amid firming expectations that the Federal Reserve will soften its hawkish stance. The bets were lifted by last week's data, which showed that the US wage growth in December and pointed to signs of easing inflationary pressures. Furthermore, business activity in the US services sector contracted and hit the worst level since 2009 in December. This, in turn, reaffirmed expectations for a less aggressive policy tightening by the Fed and keeps the US Treasury bond yields depressed near a multi-week low. Apart from this, a generally positive risk tone undermines the safe-haven greenback and provides an additional lift to the risk-sensitive Aussie.

It, however, remains to be seen if the AUD/USD bulls can retain their dominance or opt to lighten their bets as investors keenly await the release of the US consumer inflation data on Thursday. The crucial US CPI report should provide clarity on whether the Fed will have to increase its target rate beyond 5% to curb stubbornly high inflation. This, in turn, will play a key role in influencing the near-term USD price dynamics. In the meantime, the US bond yields and the broader risk sentiment could drive the USD demand, allowing traders to grab short-term opportunities in the absence of any relevant market-moving economic data from the US on Wednesday.

Technical levels to watch

Even though attention seems to focus almost exclusively on the Dollar, one should not lose sight of what the ECB has to say. Economists at Commerzbank analyze how the Euro could be affected.

What ECB rate path would be considered to be EUR neutral?

“It does not only matter whether the ECB rate path will turn out to develop as the market is currently pricing in when it comes to the EUR moves on the FX market. It is likely to be more important how the ECB reacts to inflation developments.”

“Only if inflation falls as quickly as expected by the market, a rate path as depicted below would turn out to be neutral for EUR exchange rates. Would inflation not ease so quickly, any rate cuts (or market expectations of cuts in the near future) would put pressure on the Euro.”

FX markets are consolidating ahead of tomorrow's important December US CPI release. But the Dollar bias is lower, economists at ING note.

Dollar remains vulnerable

“Assuming no upside surprises in inflation then and the increasing focus on China firmly supporting domestic demand, the risk environment is being read as positive.”

“As always, we think the short end of the US yield curve will play a major role in FX markets and as long as two-year US Treasury yields continue to hover near the range lows at 4.20/4.25%, the Dollar will stay on the soft side.” 

“DXY remains soft and we would say the near-term bias remains towards the 102.00 area, unless tomorrow's US CPI release throws a hawkish curveball.”

• USD/CAD struggles to capitalize on the overnight bounce and edges lower on Wednesday.
• An uptick in crude oil prices underpins the Loonie and caps the upside amid a softer USD.
• Traders seem reluctant and prefer to wait for the release of the US CPI report on Thursday.

The USD/CAD pair attracts some sellers in the vicinity of mid-1.3400s on Wednesday and erodes a part of the previous day's recovery gains. Spot prices remain on the defensive through the first half of the European session, though manage to hold above the 1.3400 round-figure mark.

A modest uptick in crude oil prices underpins the commodity-linked Loonie and is seen as a key factor acting as a headwind for the USD/CAD pair. China's biggest pivot away from its strict zero-COVID policy raises hopes for a sharp recovery in fuel demand and acts as a tailwind for the black liquid. That said, worries about a deeper global economic downturn might keep a lid on any meaningful gains for oil prices.

The US Dollar, on the other hand, is weighed down by a fresh leg down in the US Treasury bond yields amid growing acceptance that the Fed will soften its policy stance. Data released from the US last week indicated that the effect of the Fed's large rate hikes in 2022 is being felt in the economy. This, in turn, lifts bets for smaller Fed rate hikes going forward and keeps the US bond yields depressed near a multi-week low.

Apart from this, a generally positive tone around the equity markets is seen denting the greenback's relative safe-haven status. Traders, however, seem reluctant to place aggressive bets around the USD/CAD pair and prefer to wait on the sidelines ahead of the US consumer inflation figures, due for release on Thursday. In the meantime, the US bond yields, along with the US bond yields, could drive the USD demand

Apart from this, oil price dynamics will provide some impetus to the USD/CAD pair and assist traders to grab short-term opportunities. The fundamental backdrop, meanwhile, seems tilted firmly in favour of bearish traders, suggesting that any meaningful positive move is more likely to get sold into and remain capped, at least for now.

Technical levels to watch

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the recently published labour market report in Malaysia.

Key Takeaways

“Malaysia’s labour market posted a more moderate improvement in Nov, with the unemployment rate holding unchanged at 3.6% for the second straight month. The labour force participation rate advanced to an all-time high of 69.8% (from 69.7% in Oct) following a persistent increase in the size of the labour force (Nov: +25.9k or +0.2% m/m to 16.71mn persons vs Oct: +26.3k or +0.2% m/m to 16.68mn).”

“Total employment also saw a slower gain of 27.1k or 0.2% m/m to another record high of 16.11mn in Nov (Oct: +29.3k or +0.2% m/m to 16.08mn). Improved recruitments were seen across all economic sectors, led by services sectors. The mining & quarrying sector posted its first gain in hiring since Jul 2020.”

“Both the slower job gains and uptrend in inactively unemployed since Jul 2022 continued to reinforce our view of a softening recovery momentum in Malaysia’s labour market this year (2023). While China’s reopening is expected to provide positive economic spillover effects to regional countries including Malaysia, gloomier global growth prospects, global tech downcycle, ongoing RussiaUkraine war, and tighter monetary policy will likely impede global demand and labour market recovery ahead. We maintain our unemployment rate projection at 3.2% for 2023 (from an estimated 3.5% for 2022).”

• EUR/USD extends the advance for another session on Wednesday.
• ECB’s Villeroy, Holzmann advocated for higher rates in the next months.
• Investors’ attention remains largely on Thursday’s US CPI release.

The optimism around the European currency remains well and sound and prompts EUR/USD to keep the trade in the upper end of the recent range near 1.0750 midweek.

EUR/USD cautious ahead of US key data

EUR/USD is up for the fourth consecutive session on Wednesday, although further upside now appears somewhat contained around the 1.0750/60 band amidst persistent prudence among traders in light of Thursday’s release of US inflation figures measured by the CPI for the month of December.

The bid bias in spot comes in contrast to the corrective session in the German 10-year Bund yields after two daily gains in a row. Same performance can be seen in the US money markets, where yields retreat across the curve.

Some support for the shared currency emerged from earlier comments from ECB’s Board members Villeroy and Holzmann, who advocated for the continuation of the bank’s tightening cycle, while inflation risks in the region remain tilted to the upside.

In the domestic docket, Italian Retail Sales expanded 0.8% in November vs. the previous month and 4.4% from a year earlier.

In the NA, the only release of note will be the MBA Mortgage Applications in the week to January 6.

What to look for around EUR

EUR/USD has embarked on a strong recovery and has already retaken the key barrier at 1.0700 the figure and beyond.

In the meantime, the European currency is expected to closely follow dollar dynamics, the impact of the energy crisis on the region and the Fed-ECB divergence.

Back to the euro area, the increasing speculation of a potential recession in the bloc emerges as an important domestic headwind facing the euro in the short-term horizon.

Key events in the euro area this week: Italy Retail Sales (Wednesday) - France final Inflation Rate, Germany Full Year GDP Growth, MEU Balance of Trade/Industrial Production (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. Impact of the war in Ukraine and the protracted energy crisis on the region’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is gaining 0.12% at 1.0745 and faces the next resistance level at 1.0760 (monthly high January 9) followed by 1.0773 (monthly high June 27) and finally 1.0786 (monthly high May 30 2022). On the downside, the breach of 1.0481 (monthly low January 6) would target 1.0443 (weekly low December 7) en route to 1.0410 (55-day SMA).

EUR/CZK is in the spotlight as it is threatening to decisively break below 24.00 for the first time since 2011. Economists at Société Générale expect the pair to sustain more losses.

EUR/CZK to continue its decline

“Weekly MACD has remained anchored within negative territory which highlights downward momentum is prevalent.” 

Signals of a meaningful bounce are not yet visible.”

“Failure to hold 23.93 can extend the downtrend towards 23.70 and projections of 23.35.”

See: Rally in the CE3 currencies is consistent with latest data – Commerzbank

USD/JPY is consolidating at the lows. Economists at ING expect the pair to end the quarter around the 128 mark.

Lots of focus on the BoJ

“10-year JGB yields continue to press the topside of the new +/- 0.50% band, with the expectation growing that the band will be widened to +/- 1.00% over the coming months. Despite the BoJ marketing these adjustments as a measure to address JGB market functioning, investors are reading this as BoJ tightening – and Yen positive.”

“Focus on the exit of the ultra-dovish BoJ governor in April means that investors will be very cautious selling the Yen over coming periods.”

“One month realised USD/JPY volatility is still at an incredibly high 16.5% – making the JPY far too volatile for any kind of funding currency – and we think USD/JPY can end the quarter somewhere near 128.”

• GBP/USD meets with a fresh supply on Wednesday, though the downside seems cushioned.
• A bleak outlook for the UK economy undermines the GBP and acts as a headwind for the pair.
• A combination of factors keeps the USD bulls on the defensive and could lend some support.

The GBP/USD pair struggles to capitalize on its modest intraday uptick and attracts some sellers near the 1.2175-1.2180 region on Wednesday. Spot prices slide back below mid-1.2100s during the first half of the European session, though remain well within the previous day's broader trading range.

A bleak outlook for the UK economy has been fueling speculations that the Bank of England (BoE) is nearing the end of the current rate-hiking cycle and undermines the British Pound. This, in turn, is seen as a key factor acting as a headwind for the GBP/USD pair, though subdued US Dollar price action helps limit the downside, at least for the time being.

The USD is weighed down by growing acceptance that the Fed will soften its hawkish stance, bolstered by last week's softer US macro data. In fact, the US NFP report showed a slowdown in the US wage growth in December and pointed to signs of easing inflationary pressures. Furthermore, business activity in the US services sector hit the worst level since 2009 during December.

The data suggested that the effect of the Fed's large rate hikes in 2022 is already being felt in the economy and lifted bets for a less aggressive policy tightening going forward. This, in turn, keeps the US Treasury bond yields depressed near a multi-week low, which, along with a generally positive tone around the equity markets, weighs on the safe-haven buck.

Furthermore, traders also seem reluctant to place aggressive bets and might prefer to wait for the release of the US consumer inflation figures on Thursday. Apart from this, the UK macro data dump on Friday, including the monthly GDP print, will be looked upon for some meaningful impetus. This further warrants some caution before positioning for a firm direction.

Technical levels to watch

European Central Bank (ECB) policymaker Robert Holzmann said on Wednesday, “rates will have to rise significantly further to reach levels that are sufficiently restrictive to ensure a timely return of inflation to target.”

Additional comments

“HICP inflation is expected to subside, but risks remain tilted to the upside amid high uncertainty.”

“No signs of de-anchored market expectations on inflation.”

The continuation of the downtrend carries the potential to drag USD/CNH to the 6.7000 region in the short term, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “We highlighted yesterday that USD “could test the major support at 6.7500 before the risk of a rebound increases”. USD subsequently dropped to 6.7590 before rebounding. Downward pressure has eased and the current price movements are likely part of a consolidation phase. In other words, USD is likely to trade sideways today, expected to be within a range of 6.7690/6.8000.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (10 Jan, spot at 6.7850). As highlighted, USD is likely to continue to weaken and a break of 6.7500 will shift the focus to 6.7000. Overall, only a breacch of 6.8350 (‘strong resistance’ level was at 6.8500 yesterday) would indicate that the USD weakness that started last week has ended.”

European Central Bank (ECB) Governing Council member and French central bank governor Francois Villeroy de Galhau said on Wednesday, the central bank should aim to reach the terminal rate by the summer.

Additional quotes

“Will have to raise rates further in the coming months.”

“ECB needs to be pragmatic about the pace of rate hikes.”

“French inflation likely to have peaked in 1H 2023, should fall to 4% towards the end of the year.”

Market reaction

EUR/USD is little changed at around 1.0740 so far this Wednesday, awaiting the US Consumer Price Index (CPI) data on Thursday for a fresh direction.

The HUF rally of the past month appears to be fading already. What went wrong? There could be a minor technical factor, and a more significant fundamental one, Tatha Ghose, FX Analyst at Commerzbank, reports.

Dire situation surrounding EU funds

“The technical factor could be the issue of $4.25bn of USD bonds last week, which produced a surge in FX inflow, which could have helped HUF performance. Perhaps in a low liquidity situation, the flow made a positive (technical) impact for a few days, which is now reversing.”

“Hungarian Finance Ministry’s Tibor Toth clarified that the government may be able to unfreeze some of its EU funds by H2 2023. However, it was difficult to know whether this was a realistic prospect or not – the Finance Ministry’s clarification probably implies that the necessary reforms are not in place yet, hence the guidance timeframe shifts back to later in H2 2023.”

• Silver catches aggressive bids on Wednesday and snaps a two-day losing streak.
• The technical setup supports prospects for a further intraday appreciating move.
• A convincing break below the $23.00 mark is needed to negate the positive bias.

Silver regains positive traction on Wednesday and reverses its weekly losses recorded over the past two trading sessions. The white metal sticks to its intraday gains through the early European session, with bulls now awaiting a sustained move beyond the $24.00 mark before placing fresh bets.

Meanwhile, technical indicators on the daily chart are still holding in the bullish territory and have been gaining positive traction on hourly charts. This, along with acceptance above the 200-hour SMA, supports prospects for a further near-term appreciating move. Some follow-through buying beyond the $24.00-$24.10 area will reaffirm the constructive setup and pave the way for additional gains.

The XAG/USD might then aim to surpass an intermediate hurdle near the $24.25 zone and accelerate the momentum towards retesting the multi-month high, around the $24.50-$24.55 region touched last week. Some follow-through buying will be seen as a fresh trigger for bullish traders and lift spot prices further towards the $25.00 psychological mark, or the highest level since April 2022.

On the flip side, any meaningful slide back below the 200-hour SMA could attract fresh buyers near the $23.65 horizontal support. This is followed by the overnight swing low, around the $23.45-$23.40 area, below which the XAG/USD could slide to the $23.10-$23.00 support. The latter should act as a base for spot prices, which if broken decisively might shift the bias in favour of bearish traders.

The subsequent downfall has the potential to drag the XAG/USD further towards the $22.60-$22.55 region. The next relevant support is pegged near the $22.10-$22.00 horizontal zone, which if broken decisively will set the stage for an extension of the recent pullback from a multi-month top. 

Silver 1-hour chart

Key levels to watch

EUR/USD remains gently bid. The pair is set to test resistance at 1.0785 and potentially 1.09, economists at ING report.

Options market turns more bullish

“Measures such as the risk reversal – the cost of a 25 delta EUR/USD call option versus a similar EUR/USD put option – continue to move in favour of EUR/USD upside.” 

“As recently as October, the markets were prepared to pay 2% extra in volatility terms for a 3-month 25 delta EUR/USD put option. That skew for Euro puts has now narrowed to 0.67%. The skew turning positive – in favour of EUR/USD calls – would be a big moment for the FX market.”

“The seemingly benign investment environment (despite the horrors in Ukraine) probably has investors wanting to buy EUR/USD on dips.” 

“Today's EUR/USD bias looks towards resistance at 1.0785 and potentially towards the 1.09 area tomorrow, should the US CPI release oblige.”

CME Group’s flash data for natural gas futures markets showed another daily build in open interest on Tuesday, now by around 16.6K contracts. On the other direction, volume shrank by nearly 60K contracts, extending the ongoing choppiness.

Natural Gas: Key support emerges at $3.50

Tuesday’s marked retracement in prices of the natural gas was in tandem with increasing open interest and is indicative that a deeper drop could lie ahead in the very near term. On this, there is a solid contention region around the $3.50 mark per MMBtu, which exposes further decline in case the commodity clears it.

EUR/USD has hardly moved at all since Monday night. That does not necessarily mean that today nothing can happen, in the opinion of Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank.

Waiting for US data

“If one believes in surprisingly high inflation levels that will be done with USD longs, if one believes in surprisingly low inflation, USD shorts will be used. However, any market participants who want to implement such bets would be well advised to wait as long as possible before implementing these positions. Not until one minute before the publication of the data.”

“The longer the period until the event that you are betting on, the more can happen in the meantime. And that creates the risk that one might lose after all – even own inflation projections turned out to be correct.”

“All moves that we see until then can be interpreted as a bet on this data publication and are likely to be revised to a considerable extent if the data turns out differently.”

ECB deposit rate, market interest rate and OIS-based market expectations

Source: ECB, Bloomberg, Commerzbank Research

Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group note USD/JPY is still expected to navigate between 130.50 and 134.50 in the next weeks.

Key Quotes

24-hour view: “We expected USD to drift lower yesterday but we were of the ‘131.00 is unlikely to come into view’. Our expectations did not quite materialize as USD dipped briefly to 131.37 before recovering to trade sideways for the rest of the sessions. Flat momentum indicators suggest further sideways trading, likely between 131.60 and 132.75.”

Next 1-3 weeks: “There is not much to add to our update from Monday (09 Jan, spot at 132.10). As highlighted, after the sharp drop last Friday, USD is likely to trade within a broad range of 130.50 and 134.50 instead of rebounding further.”

• NZD/USD edges higher on Thursday amid renewed USD selling bias, albeit lacks follow-through.
• Bets for less aggressive Fed rate hikes keep the US bond yields depressed and weigh on the USD.
• A positive risk tone further undermines the safe-haven buck and benefits the risk-sensitive Kiwi.
• Traders, however, seem reluctant to place aggressive bets ahead of the US CPI print on Thursday.

The NZD/USD pair reverses an intraday dip to the 0.6340 area and trades with a mildly positive tone during the early European session. The pair is currently placed around the 0.6370-0.6375 region and remains well within the striking distance of a nearly three-week high touched on Monday.

The intraday uptick is sponsored by the emergence of fresh selling around the US Dollar, weighed down by firming expectations that the Fed will soften its hawkish stance. The bets were reaffirmed by last week's data, which showed that the US wage growth in December and pointed to signs of easing inflationary pressures.

Furthermore, business activity in the US services sector contracted and hit the worst level since 2009 in December. This, in turn, fuels speculations for a less aggressive policy tightening by the Fed, which keeps the US Treasury bond yields depressed near a multi-week low and is seen as a key factor undermining the buck.

Apart from this, a generally positive tone around the equity markets dents the greenback's relative safe-haven status and benefits the risk-sensitive Kiwi. The NZD/USD pair, however, lacks bullish conviction as traders seem reluctant to place aggressive bets ahead of the US consumer inflation data, due for release on Thursday.

The crucial US CPI report should provide further clarity on whether the Fed will have to increase its target rate beyond 5% to curb stubbornly high inflation. This, in turn, will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the NZD/USD pair.

In the meantime, the US bond yields could drive the USD demand and provide some impetus to the NZD/USD pair in the absence of any relevant market-moving economic releases from the US. Apart from this, traders will take cues from the broader market risk sentiment to grab short-term opportunities around the major.

Technical levels to watch

Advanced prints from CME Group for crude oil futures markets noted traders added around 23.4K contracts to their open interest positions on Tuesday, keeping the uptrend well in place since December 23. Volume followed suit and rose for the second consecutive session, this time by around 46.3K contracts.

WTI appears supported around $72.50

Tuesday’s small downtick in prices of the barrel of the WTI was amidst rising open interest and volume. That said, the current range bound theme in the commodity is therefore expected to persist at least in the very near term, with the initial contention around $72.50 and the immediate target at the so far weekly high at $76.70.

USD/JPY’s weakness has slowed a little following the aggressive sell-off in Q4. Economists at Credit Suisse expect the pair to eventually find a floor at key support at 127.53/27.

Resistance at 138.14/18 is expected to cap

“Whilst a near-term consolidation phase should be allowed for, resistance at 138.14/18 is expected to cap and strength, if seen, will be seen as temporary and our broader outlook stays negative for further weakness in Q1 back to 129.62, then our core target of the ‘neckline’ to the multi-year base and 50% retracement of the 2020/2022 uptrend at 127.47/27. We would then look for a potentially major floor here.”

“Should weakness directly extend below 127.27/126.36 we would see support next at the 61.8% retracement at 121.44.”

A move above 0.6950 should allow AUD/USD to have another chance to revisit the 0.7000 mark in the near term, suggest Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “Yesterday, we highlighted that AUD ‘is unlikely to advance much further’ and we expected it to ‘trade between 0.6870 and 0.6950’. While AUD did not advance further, it traded within a range of 0.6860/0.6930. The price actions are likely part of a consolidation phase and AUD is likely to trade between 0.6855 and 0.6925 today.”

Next 1-3 weeks: “Yesterday (10 Jan, spot at 0.6910), we indicated that while momentum continues to point to a higher AUD, it must break and stay above 0.6950 before a move to 0.7000 is likely. We continue to hold the same view. Overall, only a breach of 0.6825 (no change in ‘strong support’ level from yesterday) would indicate the current upward pressure has eased.”

Open interest in gold futures markets increased for the third session in a row on Tuesday, this time by around 5.7K contracts according to preliminary readings from CME Group. Volume, instead, reversed two consecutive daily builds and dropped by nearly 41K contracts.

Gold: Next on the upside comes the $2000 mark

Gold prices extended the uptrend in the first half of the week and flirted with the $1880 region on Tuesday. The uptick was on the back of rising open interest, which is supportive of the continuation of the move in the very near term and continues to target the $2000 mark per ounce troy.

Extra gains could encourage GBP/USD to revisit the 1.2330 region in the next few weeks, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “We held the view yesterday that ‘there is room for one more push higher in GBP before the risk of a pullback increases’. However, GBP traded sideways between 1.2111 and 1.2189. The price actions appear to be consolidative and GBP is likely to continue to trade sideways. The expected range for today is 1.2100/1.2200.”

Next 1-3 weeks: “Our update from yesterday (10 Jan, spot at 1.2180) is still valid. As highlighted, after the sharp advance in GBP earlier this week, the odds of GBP breaking the resistance at 1.2270 have increased. The GBP strength is intact as long as it does not break the ‘strong support’ at 1.2030 (no change in level from yesterday).”

• The index treads water in the low-103.00s on Wednesday.
• Markets continue to wait for the release of US inflation figures.
• MBA Mortgage Applications will be the sole data scheduled today.

The greenback extends the consolidative mood above the 103.00 hurdle when tracked by the USD Index (DXY) on Wednesday.

USD Index remains focused on US CPI

The index keeps navigating within a tight range as market participants maintain a cautious stance in light of the upcoming publication of US inflation figures measured by the CPI for the month of December on Thursday.

The release of the December CPI has been growing in importance as of late against the backdrop of rising speculation of a pivot in the Fed’s monetary policy stance, which has been reignited following the latest US labour market report released last Friday.

Later in the NA session, the only results in the docket will be the weekly MBA Mortgage Applications in the week to January 6.

What to look for around USD

The dollar remains under pressure and trades in a side-lined fashion in the 103.00 region amidst investors’ prudence ahead of US CPI due on Thursday.

The mixed results from the US Nonfarm Payrolls for the month of December (Friday) seem to have reignited the idea of a probable pivot in the Fed’s policy in the next months, which comes in contrast to the message from the latest FOMC Minutes, where the Committee advocated the need to remain within a restrictive stance for longer, at the time when it ruled out any interest rate reduction for the current year.

Furthermore, the tight labour market, still elevated inflation and the resilient economy are also seen supportive of the firm message from the Federal Reserve and its hiking cycle.

Key events in the US this week: MBA Mortgage Applications (Wednesday) – Inflation Rate, Initial Jobless Claims, Monthly Budget Statement (Thursday) – Flash Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is retreating 0.10% at 103.17 and the breach of 102.94 (monthly low January 9) would open the door to 101.29 (monthly low May 30) and finally 100.00 (psychological level). On the other hand, the next up barrier comes at 105.63 (monthly high January 6) followed by 106.37 (200-day SMA) and then 107.19 (weekly high November 30).

• USD/JPY steadily climbs back closer to the weekly high, though lacks bullish conviction.
• A positive risk tone undermines the safe-haven JPY and acts as a headwind for the pair.
• Rising bets for smaller Fed rate hikes weigh on the USD and continue to cap the upside.

The USD/JPY pair edges higher on Wednesday and inches back closer to the top end of its weekly range, though the intraday uptick lacks bullish conviction. The pair holds steady below the mid-132.00s through the early European session and is influenced by a combination of diverging forces.

A generally positive tone around the equity markets undermines the safe-haven Japanese Yen and lends some support to the USD/JPY pair. The upside, however, remains capped amid the emergence of fresh US Dollar selling, weighed down by expectations that the Federal Reserve will soften its hawkish stance. The bets were lifted by last week's data, which showed that the US wage growth in December and pointed to signs of easing inflationary pressures.

Furthermore, business activity in the US services sector contracted and hit the worst level since 2009 in December. This, in turn, reaffirmed expectations for relatively smaller rate hikes by the Fed, which keeps the US Treasury bond yields depressed near a multi-week low and continues to weigh on the buck. This, along with speculations that the Bank of Japan will tighten its monetary policy in the near future, acts as a headwind for the USD/JPY pair.

Traders, meanwhile, seem reluctant to place aggressive bets and prefer to wait for the release of the US consumer inflation figures on Thursday. The crucial US CPI report should provide some clarity on whether the Fed will have to increase its target rate beyond 5% to curb stubbornly high inflation. This, in turn, will play a key role in influencing the near-term USD price dynamics and help determine the near-term trajectory for the USD/JPY pair.

In the meantime, the US bond yields could drive the USD demand in the absence of any relevant market-moving economic releases from the US. Apart from this, the broader risk sentiment will be looked upon for short-term trading opportunities around the USD/JPY pair. Nevertheless, the fundamental backdrop suggests that the path of least resistance for spot prices is to the downside and any meaningful upside is more likely to get sold into.

Technical levels to watch

• Gold price rises for the fourth consecutive day amid sluggish markets.
• Mixed clues, light calendar and pre-data anxiety weigh on the US Dollar.
• Global economic slowdown fears join softer US Dollar to highlight Gold’s traditional haven status.
• Expectations of PBOC rate cut, cautious optimism surrounding China adds strength to the XAU/USD upside.

Gold price (XAU/USD) prints a four-day uptrend as bulls cross the $1,880 resistance to register the highest levels since May 2022 during the early hour of Wednesday’s European session. In doing so, the precious metal cheers broad US Dollar weakness, as well as price-positive headlines from China, to please the buyers despite sluggish market conditions.

That said, the US Dollar Index (DXY) reverses the previous day’s corrective bounce around 103.20, down 0.12% intraday, as Treasury bond yields consolidate the previous day’s gains. That said, the US 10-year Treasury yields rose the most in two weeks on Tuesday but are down 0.90% intraday to 3.59% at the latest.

The recent weakness in the US Dollar and the Treasury bond yields could be linked to the downbeat economic forecasts for the US Consumer Price Index (CPI) up for publishing on Thursday. On the same line, fears of the “soft landing” in the US also weigh on the US Dollar. Furthermore, Fed Chair Jerome Powell’s mum on policy guidance adds strength to the DXY’s bearish bias.

Elsewhere, chatters that the People’s Bank of China (PBOC) will announce rate cuts in 2023 joins the readiness of the dragon nation to offer more stimulus in fueling the Gold price, due to China’s status as one of the world’s biggest commodity users.

Adding strength to the XAU/USD bullish bias could be the traders’ rush toward riskier assets in expectations of softer US inflation data, which in turn allows the US stock futures to print mild gains.

Gold price technical analysis

A clear upside break of the 10-month-old horizontal resistance near $1,880 allows the Gold buyers to occupy the driver’s seat amid the bullish MACD signals. Also underpinning the upside bias is the Golden Cross, a condition where 50-DMA crosses the 200-DMA from below and suggests more advances of the underlying.

However, the overbought RSI (14) conditions signal a bumpy road for the XAU/USD towards the north.

That said, the tops marked during May 2022 around $1,910 and late April near $1,920 seem to challenge the short-term Gold buyers.

Following that, a run-up towards the $1,965 hurdle can’t be ruled out, a break of which could easily recall the $2,000 on the XAU/USD chart.

On the contrary, a downside break of $1,880 isn’t necessarily a call to the Gold sellers as the previous resistance line from early October, close to $1,862 by the press time, acts as an extra filter towards the south.

It’s worth noting that the XAU/USD weakness past $1,862 highlights the August 2022 peak surrounding $1,808 as the last defense of the Gold buyers.

Gold price: Daily chart

Trend: Further upside expected

Here is what you need to know on Wednesday, January 11:

Following the volatile action witnessed at the beginning of the week, financial markets remained choppy on Tuesday. In the absence of high-impact data releases and fundamental drivers, major currency pair stay relatively quiet early Wednesday and the US Dollar Index consolidates its weekly losses slightly above 103.00. Ahead of Thursday's highly-anticipated Consumer Price Index (CPI) data from the US, the 10-year Treasury note auction in the US will be looked upon for fresh impetus during the American trading hours. 

Reflecting markets' indecisiveness, US stock index futures trade flat on the day and the benchmark 10-year US Treasury bond yield holds steady at around 3.6%. Meanwhile, Euro Stoxx Futures are up modestly and the Shanghai Composite Index looks to close the day virtually unchanged.

While speaking at Riksbank's International Symposium on Central Bank Independence, FOMC Chairman Jerome Powell refrained from commenting on the policy or the rate outlook on Tuesday. Wall Street's main indexes, however, managed to end the in positive territory and didn't allow the US Dollar to recover Monday's losses.

EUR/USD edged slightly higher and was last seen trading at around 1.0750. On Tuesday, European Central Bank (ECB) Governing Council member Isabel Schnabel said that restrictive monetary policy stance would benefit society over the medium to long run by restoring price stability. On a slightly dovish note, ECB Governing Council member Mario Centeno noted that the current process of interest rates were approaching its end.

The data from Australia showed on Tuesday that Retail Sales rose by 1.4% on a monthly basis in November following October's 0.2% contraction. This reading came in higher than the market expectation for an increase of 0.6%. Additionally, the Consumer Price Index (CPI) rose to 7.4% on a yearly basis in November from 6.9% in October. AUD/USD gained traction following these data releases and was last seen trading in positive territory above 0.6900.

A quarterly survey by the Bank of Japan (BoJ) showed on Wednesday that the ratio of Japanese households expecting prices to rise a year from now stood at 85.0% in December, down from 85.7% in September. USD/JPY showed no reaction to this headline and was last seen trading flat on the day at around 132.30. 

GBP/USD made a technical correction and registered small losses on Tuesday. The pair holds its ground early Wednesday and trades near 1.2170.

Rising US Treasury bond yields limited XAU/USD's upside on Tuesday. With the 10-year US T-bond yield struggling to build on its recent upside, however, Gold price regained its traction and was last seen trading at its highest level in nearly eight months above $1,880.

Bitcoin benefited from the improving risk mood and climbed to a fresh multi-week high near $1,7500 on Tuesday before going into a consolidation phase at around $17,400 on Wednesday. Ethereum rose for the third straight day on Tuesday and was last seen trading flat on the day at $1,330.

Nothing has changed technically for the Gold price. XAU/USD needs acceptance above $1,880 to keep bulls hopeful, FXStreet0s Dhwani Mehta reports.

Gold price confirms Golden Cross

“Bulls keep looking out for acceptance above the multi-month peak at $1,881. The $1,900 threshold will be next in sight of Gold buyers, above which doors will open toward May 2022 high at $1,910.”

“Adding credence to the bullish potential, the upward-sloping 50-Daily Moving Average (DMA) managed to close Tuesday above the mildly bearish 200DMA, confirming a Golden Cross.”

 “Failure to yield a daily closing above the $1,880 level could offer much-needed respite to Gold sellers. Friday’s low at $1,865 will be the immediate support thereon. Further down, the $1,850 psychological level will be a tough nut to crack for Gold bears.”

Gold Price Forecast: XAU/USD could skyrocket to $2,300 on a move beyond highs at $2,070/2,075 – Credit Suisse

In the opinion of Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, further upside could motivate EUR/USD to challenge the 1.0785 level in the next few weeks.

Key Quotes

24-hour view: “Yesterday, we highlighted that EUR ‘is likely to strengthen further but it might not be able to maintain a foothold above 1.0785’. However, EUR traded in a relatively tight range of 1.0710/1.0758 before closing largely unchanged at 1.0734 (+0.06%). EUR is in a consolidation phase and it is likely to trade between 1.0700 and 1.0760 today.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (10 Jan, spot at 1.0730). As highlighted, the ease with which EUR took out 1.0735 suggests it is likely to take a crack at another strong resistance at 1.0785. The upside risk is intact as long as EUR stays above 1.0650 (no change in ‘strong support’ level). Looking ahead, a breach of 1.0785 will shift the focus to 1.0900.”

FX option expiries for Jan 11 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- USD/JPY: USD amounts                     

• 130.00 350m
• 132.00 600m
• 132.50 1.0b
• 133.50 1.1b

- AUD/USD: AUD amounts  

• 0.6900 352m
• 0.6950 575m
• 0.6990 1.3b    

- USD/CAD: USD amounts       

• 1.3200 800m
• 1.3400 530m

- NZD/USD: NZD amounts

• 0.5850 821m

Michio Saito, Director-General of the Financial Bureau at Japan’s Ministry of Finance (MoF), said in a statement early Wednesday, “interest rates remain low but the current situation won't last indefinitely.”

Additional quotes

“JGB coupon rates will be decided based on prevailing market conditions.”

“Striving to extend the duration of JGB yields by correcting massive issuance of short-term JGBs FY2020.”

Market reaction

USD/JPY was last seen trading at 132.32, up 0.06% on the day.

• GBP/JPY is failing to surpass the immediate resistance of 161.00 as BOJ is discussing an exit from its ultra-loose policy.
• Japanese administration and the BOJ will review their decade-long loose policy under novel BOJ leadership.
• The Pound Sterling may display significant action after the release of UK’s economic activities data.

The GBP/JPY pair has sensed selling pressure after multiple failed attempts of surpassing the critical resistance of 161.00 from the past two trading sessions. The cross is likely to display volatile moves amid chatters over the review of decade-long easy policy under the new Bank of Japan (BoJ) leadership ahead.

Discussions over a review of prolonged ultra-loose monetary policy by the BoJ are getting heated now.  Earlier, Japanese Prime Minister Fumio Kishida said that the administration and the BoJ must discuss their relationship in guiding economic policy after he names a new Bank of Japan (BOJ) governor in April. He further added that the administration is looking to revise its long-decade blueprint of beating deflation and may look for an exit from ultra-loose monetary policy.

And, now former BoJ board member Sayuri Shirai said on Wednesday “Review of last 10 years can be conducted under new BoJ leadership, but difficult to envisage a major change in the policy framework.” It seems that the Japanese economy has considered high inflation environment a better way to combat the Japanese yen's weakness as other economies are constantly shrinking the supply of their respective currencies.

On the United Kingdom front, investors are awaiting the release of the data belonging to economic activities comprising Gross Domestic Product (GDP) figures, Industrial Production, and Manufacturing Production data, which are scheduled for Friday.

Meanwhile, the Bank of England (BOE) has cornered poor execution from Prudential Regulation Authority for their faulty risk-management systems as banks faced high exposure due to sheer market volatility in CY2022. Events like the collapse of Archegos Capital demonstrated firms’ large and concentrated exposure to single counterparties, as reported by Financial Times.

• USD/CHF takes offers to refresh intraday bottom, fades bounce off nine-month low.
• Downside break of weekly support line, bear cross underpin downside bias.
• Recovery moves remain elusive unless crossing 0.9275 hurdle.

USD/CHF breaks an upward-sloping trend line to welcome bears after the previous day’s brief absence. That said, the Swiss Franc (CHF) pair renews its intraday low around 0.9210 during the early hours of Wednesday morning in Europe.

In addition to the downside break of the two-day-old support line, USD/CHF also cheers bear cross of the key moving averages on the hourly format. The bearish moving average crossover could be witnessed as the 100-Hour Moving Average (HMA) slips beneath the 200-HMA.

It's worth noting that an absence of oversold RSI also signals a smooth road to the south for the pair sellers.

As a result, the USD/CHF pair is all set to revisit the monthly low surrounding 0.9165, which is also the lowest level since March 2022.

In a case where the bears keep reins past 0.9165, the 0.9100 round figure and the previous yearly low around 0.9090 will gain the market’s attention.

On the contrary, the support-turned-resistance line stretched from Monday, around 0.9230 by the press time, guards immediate recovery of the USD/CHF pair.

Following that, a three-day-old trend line resistance near 0.9255 could test the pair buyers.

However, the USD/CHF bulls may remain cautious unless witnessing a clear upside break of the key HMA convergence surrounding 0.9275.

USD/CHF: Hourly chart

Trend: Further downside expected

• Australian Dollar has picked strength as Chinese firms have resumed Australian coal imports.
• The USD Index has sensed sheer selling pressure after failing to surpass 103.00.
• Aussie has resumed its upside journey after sensing support around the demand zone plotted in a 0.6884-0.6896 range.

The AUD/USD pair has overstepped its immediate resistance of 0.6917 in the early European session. The Aussie asset has picked strength amid selling pressure in the US Dollar Index (DXY) after the latter failed to surpass the immediate resistance of 103.00.

The market mood is still quiet as S&P500 futures are marginally higher. Out of the major FX currencies, the Australian Dollar is performing better. It seems that the resumption of Australian coal imports by Chinese companies is strengthening the Australian Dollar in comparison with other risk-perceived currencies.

On a four-hour scale, the Aussie asset has resumed its upside journey after sensing support around the demand zone plotted in a 0.6884-0.6896 range. The 20-period Exponential Moving Average (EMA) at 0.6884 is acting as major support for the Australian Dollar. Upward-sloping 50-EMA at 0.6840 indicates that the upside bias is still solid.

Meanwhile, the Relative Strength Index (RSI) is on the edge of recapturing the bullish range of 60.00-80.00, which will trigger the bullish momentum.

For further upside, the Aussie asset needs to surpass Tuesday’s high at 0.6937, which will send the major near the psychological resistance at 0.7000. After conquering 0.7000, Aussie bulls will march towards August 11 high at 0.7137.

On the contrary, a downside move below December 29 low at 0.6710 will drag the major further towards December 22 low at 0.6650 followed by November 21 low at 0.6585.

AUD/USD four-hour chart

USD/CAD takes offers to pare intraday gains around 1.3420 during early Wednesday morning in Europe. In doing so, the Loonie pair fails to trace options market signals as it consolidates the previous day’s recovery moves from a six-week low.

One-month risk reversal (RR) of the USD/CAD pair, a ratio of call options versus put options, also known as the bullish bets and the bearish bets in that order, printed the first positive figures in three days at the latest, to +0.019.

It’s worth noting that the weekly RR printed the biggest positive figures since late September in the last, with a +0.118 level. That said, the current week’s risk reversal appears -0.136 at the latest.

Moving on, the downbeat US Treasury yields and expectations of softer US inflation data may keep the USD/CAD bears hopeful. However, WTI crude oil’s weakness challenges the Loonie pair’s further downside.

Also read: USD/CAD stays mildly bid above 1.3400 as Oil price drops amid recession woes

• WTI takes offers to refresh intraday low, prints two-day downtrend.
• Failures to cross one-week-old descending trend line, 50-SMA favor sellers.
• Bears need validation from $73.00 to keep the reins.

WTI crude oil remains depressed for the second consecutive day, down 0.80% intraday around $74.55 during early Wednesday in Europe.

The black gold’s latest weakness could be linked to its previous failures to cross the one-week-old resistance line, as well as the 50-bar Simple Moving Average (SMA). It’s worth noting that an absence of an oversold RSI (14) adds strength to the bearish bias.

However, an upward-sloping trend line support from early December, close to $74.00 at the latest, challenges the WTI sellers.

Even if the quote breaks the $74.00 support, a broad region comprising multiple levels marked since late November, between $73.60 and $73.00, appears a tough nut to crack for the crude oil bears.

In a case where the energy benchmark drops below $73.00 support, the odds of witnessing a slump toward the previous month’s low near $70.30, as well as an attack on the $70.00 psychological magnet, can’t be ruled out.

Alternatively, the weekly resistance line near $75.15 guards the quote’s immediate upside ahead of the 50-SMA level surrounding $76.15.

Following that, the $80.00 round figure and the monthly top of $81.55 could lure the WTI buyers.

Overall, WTI crude oil remains on the bear’s radar but the downside appears limited unless breaking the $73.00 level.

WTI: Four-hour chart

Trend: Limited downside expected

Former Bank of Japan (BoJ) board member Sayuri Shirai said on Wednesday, “US interest rates are declining so don't expect the Yen to weaken much further.”

Further comments

“Excessive strength in dollar likely to be corrected.”

“Households and companies' inflation expectations are extremely high but market forecasts are below 2%, not much change in inflation trend.”

“BoJ's widening of JGB yield band is an extension of existing policy; aimed at sustainable policy and is a reasonable decision.”

“Given Japan's economic fundamentals, difficult to envisage a fundamental change in monetary policy.”

“If possible, boosting flexibility is the way forward for Japan's monetary policy.”

“Would be good to examine Japan's monetary policy over the last 10 years.”

“Would be good to explore whether there is a simpler, easier-to-understand method in conducting monetary policy.”

“Review of last 10 years can be conducted under new BoJ leadership, but difficult to envisage a major change in policy framework.”

Related reads

• Japanese households expect prices to rise in a year from now – BoJ Survey
• Japan’s Matsuno welcomes various companies' policies for wage hikes

• EUR/USD is juggling below seven-month high at 1.0760 ahead of the United States inflation release.
• Federal Reserve policymakers are revising their policy projections after a drop in wage inflation.
• European Central Bank Centeno sees a deceleration in the inflationary pressures from March.
• EUR/USD is likely to display a volatility expansion while the direction will be based on the US CPI report.

EUR/USD has stretched its consolidation below the critical resistance of 1.0750 in the early European session. The major currency pair is displaying back-and-forth moves as the market mood is extremely quiet ahead of the release of the United States inflation data. The asset is oscillating in an extremely narrow range as investors have shifted to the sidelines.

The US Dollar Index (DXY) is also showing a lack of trading activity, juggling in a narrow range below 103.00 as investors are in a fix ahead of the US Consumer Price Index (CPI) data. S&P500 futures are failing to display a decent action but are holding gains recorded on Tuesday. Contrary to the US equities and USD Index, the return generated by the 10-year US Treasury bonds has dropped below 3.59%.

Fed policymakers in a fix after a drop in wage inflation and economic slowdown

After the release of the Annual Hourly Earnings (Dec), and Manufacturing & Services PMI data last week, Federal Reserve policymakers are in a fix on whether to revise policy projections or to stay firmer with their hawkish viewpoint due to stubbornness in current inflation. Wage inflation dropped to 4.6%, Manufacturing PMI print recorded the lowest since May 2020, and Services PMI witnessed a sheer fall.  

San Francisco Fed President Mary Daly told the Wall Street Journal (WSJ) she would pay close attention to the Consumer Price Index (CPI) data and that both options of 25- and 50-basis points (bps) hikes are open for February monetary policy meeting. A consideration of a 25 bps rate hike for the February meeting when the Federal Reserve has already trimmed its pace of hiking interest rates in December is conveying that Fed policymakers are delighted with the pressure of indicators showing a deceleration in inflationary pressures.

US Inflation to provide a clear picture ahead

According to the consensus, the headline United States CPI (Dec) is expected to continue its declining spree and may drop to 6.5% from the former figure of 7.1%. While the core CPI that excludes oil and food prices might slip to 5.7% from 6.0% reported earlier. Thanks to the declining retail demand, the recent decline in the bargaining power of job-seekers, and a slowdown in economic activities, the street has a lower consensus for the economic data.

The presence of indicators favoring a decline in inflation projections has dented the demand for the USD Index for a while. A note from economists at MUFG Bank claims that only a stronger-than-expected US Consumer Price Index (CPI) would avoid a slide to fresh lows for the USD Index.

Also, Antje Praefcke, FX Analyst at Commerzbank, is expecting inflation figures to remain constant and assumes that this is unlikely to be positive for the US Dollar.

Euro looks confused as European Central Bank sees interest rate peak sooner

The Euro bulls are confused after the release of the Economic Bulletin by the European Central Bank (ECB) and commentary from European Central Bank (ECB)'s governing council member Mario Centeno. Reuters reported that ECB Centeno said on Tuesday the current process of interest rate increases is approaching its end. Centeno expects that the price index will face resistance in January and February but will start falling in March.

Meanwhile, Economic Bulletin published by the European Central Bank is demonstrating a contrary viewpoint. It indicates that wage growth is going to be extremely solid ahead led by robust labor markets that so far have not been substantially affected by an economic slowdown, increases in national minimum wages, and some catch-up between wages and high rates of inflation.

Higher wage inflation is a barrier for central banks in achieving price stability and it might force European Central Bank President Christine Lagarde to continue to keep policy restrictive ahead as households with higher funds for disposal may show bumper retail demand ahead.

EUR/USD technical outlook

EUR/USD is juggling in a range of 1.0712-1.0760 from Monday ahead of the US inflation release. The major currency pair is displaying an inventory adjustment phase around the seven-month high placed on Monday’s high at 1.0760.

Meanwhile, Bollinger Bands (20,2) has squeezed after a juggernaut rally, which indicates a volatility contraction, which will result in wider ticks and heavy volume after an explosion.

A quarterly survey by the Bank of Japan (BoJ) showed on Wednesday, a majority of Japanese households see prices increasing a year from now.

Key takeaways

“The ratio of Japanese households expecting prices to rise a year from now stood at 85.0% in December, down from 85.7% in September.”

“The ratio of households expecting prices to rise five years from now stood at 76.7%, down from 78.3% three months ago.”

This survey is closely watched by the BoJ to determine its inflation outlook.

Market reaction

USD/JPY is consolidating its renewed uptick above 132.00, trading almost unchanged on the day at 132.28.

• GBP/USD remains sidelined after snapping two-day uptrend the previous day, picks up bids of late.
• Cautious optimism allows Cable buyers to retake control ahead of the US CPI.
• UK, Japan brace for defense agreement, British PM praises healthcare conditions despite workers’ strikes.
• Risk catalysts could entertain traders ahead of inflation data.

GBP/USD treads water around 1.2150 heading into Wednesday’s London open as global markets remain mostly quiet ahead of the US inflation data, up for publishing on Thursday.  Also acting as trading barriers are the mixed clues from the macro front, as well as an absence of major data/events ahead of the US Consumer Price Index (CPI) data for December.

That said, the market’s cautious optimism, mainly due to the central bankers’ hesitance in providing any monetary policy clues during the Riksbank event also seems to help the GBP/USD buyers. On the same line could be hopes of more stimulus from China and UK Prime Minister (PM) Rishi Sunak’s optimism surrounding the British healthcare sector despite the present strikes of medical workers.

Elsewhere, fears that China and Russia might not like the defense agreement between the UK and Japan seem to probe the GBP/USD buyers. Additionally weighing on the Cable prices could be the downbeat economic forecasts from the World Bank (WB). On Tuesday, the World Bank (WB) conveyed a pessimistic outlook while expecting the global economy to grow by 1.7% in 2023, down sharply from 3% in June's forecast. The Washington-based institute also raised fears of global recession by citing the scale of recent slowdowns.

Amid these plays, the US 10-year Treasury bond yields retreat to 3.58% after rising 10 basis points (bps) to 3.61% the previous day. On the same line, the upbeat Wall Street closing helps S&P 500 Futures to remain firmer around 3,945, even as the equity gauge fails to impress bulls.

Looking forward, GBP/USD may witness further hardships in luring the momentum traders amid a light calendar. Even so, headlines surrounding the UK’s employment and inflation conditions, as well as from China, may entertain the Cable traders.

Technical analysis

Tuesday’s hanging man candlestick on the daily chart of GBP/USD raises doubts about the pair’s latest recovery moves.

• Asia-Pacific equities trade mixed amid lackluster markets ahead of China, US inflation.
• US Treasury bond yields fade previous day’s rebound as Fed Chair Powell resisted providing monetary policy outlook.
• Expectations of PBOC rate cut, upbeat Aussie data also put a floor under share prices.
• Hang Sang leads the bulls while NZX 50 pleases bears, WTI crude oil stays pressured.

Equity traders in the Asia-Pacific region witnessed a lackluster Wednesday amid a light calendar and mixed signals from the key markets.

That said, hopes of favorable policy moves from China and Japan seemed to have underpinned the bullish bias, backed by the softer US Treasury bond yields. However, cautious mood ahead of Thursday’s key inflation data from China and the US probe the optimists. Also challenging the share traders in the zone are the downbeat economic forecasts from the World Bank.

While portraying the mood, MSCI’s index of Asia-Pacific shares outside Japan rises 0.24% as it grinds near the seven-month high. On the same line, Japan’s Nikkei 225 adds 1.0% to flash 26,430 as the quote by the press time.

It’s worth noting that the Chinese Securities Journal fuelled speculations that the People’s Bank of China (PBOC) will adhere to rate cuts in 2023, which in turn allowed shares in China and Hong Kong, as well as in Australia, to remain firmer.

Additionally, risk-positive comments from Japan’s Chief Cabinet Secretary Hirokazu Matsuno and Ministry of Finance (MOF) Financial Bureau Chief Michio Saito seem to favor equities in Tokyo.

Elsewhere, firmer prints of Australia’s Retail Sales growth and Inflation data allowed ASX 200 to stay firmer. However, New Zealand’s NZX 50 drops 0.65% intraday amid hawkish expectations from the Reserve Bank of New Zealand (RBNZ).

It should be observed that the global central bank policymakers’ hesitance in providing any major monetary policy signal at the Riksbank event, which took place on Tuesday, joined mixed US data to underpin cautious optimism on a broader front. While portraying the same, US 10-year Treasury bond yields retreat to 3.58% after rising 10 basis points (bps) to 3.61% the previous day. On the same line, the upbeat Wall Street closing helps S&P 500 Futures to print mild gains around 3,945.

Alternatively, the World Bank’s grim economic forecasts challenge traders. On Tuesday, the World Bank (WB) came out with its revised economic forecasts. That said, the WB stated that it expects the global economy to grow by 1.7% in 2023, down sharply from 3% in June's forecast, as reported by Reuters. The Washington-based institute also raised fears of global recession by citing the scale of recent slowdowns. The same could be considered weighing the WTI crude oil prices, down 0.80% intraday near $74.60 by the press time.

Also read: Forex Today: Wait-and-see continues ahead of US inflation figures

• Gold price has continued to trade sideways further around $1,880.00 as the focus has shifted to US inflation data.
• Only a stronger-than-expected US CPI would avoid a slide to fresh lows for the USD Index.
• Lower wage inflation and weaker PMI numbers have forced Fed policymakers to revise their viewpoint on policy projections.

Gold price (XAU/USD) is struggling to find a direction amid a quiet market mood. The precious metal is oscillating below $1,880.00 as investors are likely to restrict themselves from making significant positions before the release of the United States Consumer Price Index (CPI) data.

The continuous struggle from the US Dollar Index (DXY) in reclaiming the 103.00 resistance is portraying the absence of volatility in the market. Also, S&P500 futures are almost trading flat, holding on to Tuesday’s gains. The 10-year US Treasury yields have slipped below 3.59%.

The USD Index has been beaten down by the market participants after a sheer drop in wage inflation and economic activities, which has forced Federal Reserve (Fed) chair Jerome Powell and his teammates to reconsider their viewpoint over terminal rate projections and the pace of hiking interest rates ahead. Investors will get more clarity after the release of Thursday’s inflation data, which is expected to trim further.  

According to the economists at MUFG Bank, only a stronger-than-expected US Consumer Price Index (CPI) on Thursday would avoid a slide to fresh lows for the USD Index.

Gold technical analysis

Gold price is demonstrating an inventory adjustment phase after a firmer rally on an hourly scale. The precious metal might display a decisive move after the release of US inflation data, therefore it is difficult to term it an accumulation or a distribution. The 20-period Exponential Moving Average (EMA) at $1,875.50 is providing support to the Gold bulls. While the 50-EMA at $1,871.90 is still untouched, which indicates that the upside bias is still solid.

The Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range, which indicates an absence of a critical trigger for a decisive action

Gold hourly chart

• USD/INR pares recent losses with mild gains around the key support, snaps five-day losing streak.
• Nearly oversold RSI conditions add strength to recovery expectations.
• Previous support line from early August, two-month-old horizontal resistance challenge bulls.
• Lows marked during December, November can entertain bears ahead of 200-DMA.

USD/INR rebounds from the lowest levels since early December, marked the previous day, as prints the first daily gains around 81.75 during Wednesday.

In doing so, the Indian Rupee (INR) pair bounces off the 100-DMA as the RSI (14) conditions favor short-covering moves.

However, the USD/INR pair buyers need to stay in the driver’s seat beyond crossing the previous support line from August, close to 81.75 at the latest, for conviction.

Even so, a horizontal resistance area comprising multiple levels marked since October 2022, around 82.10-05, could challenge the USD/INR upside.

It’s worth noting that 82.40 appears the last defense of the USD/INR bears, a break of which could quickly propel the quote towards the 83.00 round figure before highlighting the monthly high surrounding 83.10 for the buyers to trace.

Meanwhile, a daily closing below the 100-DMA level of 81.70 could help the USD/INR sellers to keep the reins.

In that case, the lows marked during December and November of 2022, around 81.00 and 80.37 in that order, could gain the bear’s attention.

Following that, the 200-DMA level surrounding 80.15 and the 80.00 psychological magnet could challenge the USD/INR bears afterward.

USD/INR: Daily chart

Trend: Limited upside expected

• Investors are awaiting US/China inflation data for fresh cues.
• The absence of follow-up buying after a Double Bottom formation indicates a lack of strength in the US Dollar.
• Declining 50-EMA adds to the downside filters.

The USD/CNH pair is struggling to extend its recovery move above the critical resistance of 6.8000 in the Asian session. The asset is demonstrating topsy-turvy moves as investors are awaiting the release of the Consumer Price Index (CPI) figures by the United States and China, which are scheduled for Thursday.

The US Dollar Index (DXY) is hovering near the edge of the 103.00 resistance amid a quiet market mood. Also, S&P500 futures are displaying a subdued performance as anxiety soars ahead of inflation data.

On an hourly scale, the major picked strength after forming a Double Bottom chart pattern that indicates a reversal post sensing weak selling interest on testing of the previous lows around 0.6760. However, the absence of follow-up buying conveys the rebound move as mere a pullback, which can be capitalized by investors for building fresh shorts.

The asset is struggling to shift auction above the 20-period Exponential Moving Average (EMA) at 0.6780, which indicates a lack of strength in the US Dollar. Also, the 50-EMA below 0.6800 is declining, which adds to the downside filters.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range, which indicates consolidation head.

For an upside move, USD/CNH needs to surpass the 50-EMA at around 6.8000, which will drive the asset toward January 9 high at 6.8292, followed by January 6 high at 6.8926.

On the contrary, a south-side move below Tuesday’s low at 6.7586 will drag the asset toward July 29 low at 6.7282 and round-level support at 6.7000.

USD/CNH hourly chart

The People’s Bank of China (PBOC) is seen cutting the reserve requirement ratio (RRR) and the over-five-year Loan Prime Rate (LPR) further in 2023, “as authorities implement "accurate and forceful" monetary policy,” China Securities Journal reported, citing experts.

Additional quotes

“To support the real estate sector, cuts to the over-five-year LPR are likely, with Beijing conducting "targeted rate reduction" to help with the property sector recovery.“

“On the demand side, conditions for buyers will be promoted, such as lowering down payment ratios and reducing the interest rate of mortgage loans.“

“Stable economic growth and employment are the current primary focus of policymakers.”

Market reaction

At the time of writing, USD/CNY is trading flat at 6.7780, underpinned by the pause in the US Dollar decline.

• USD/JPY prints mild gains to defend the previous day’s recovery amid a sluggish session.
• Yen fails to cheer upbeat signals from Japanese policymakers as cautious traders prefer US Dollar.
• US inflation is the key to watch for clear directions after central bankers failed to guide markets.

USD/JPY picks up bids to 132.45 during early Wednesday’s sluggish trading as market sentiment appears cautiously optimistic. In doing so, the Yen pair ignores the downbeat prints of the US Treasury yields.

Risk appetite improves during the lackluster day after global central bankers, led by Fed Chair Jerome Powell, refrained from any major signals during their stints at the Riksbank event. On the same line could be the updates from Chinese media suggesting an improvement in investment momentum in the dragon nation.

Elsewhere, Japan’s Chief Cabinet Secretary Hirokazu Matsuno praised Japanese companies’ policies for wage hikes. Earlier in the day, Japan’s Ministry of Finance (MOF) Financial Bureau Chief Michio Saito crossed wires, via Reuters, as he teased higher rates.

It should, however, be noted that the World Bank’s grim economic forecasts join a cautious mood ahead of Thursday’s inflation data from the US to challenge USD/JPY traders. On Tuesday, the World Bank (WB) came out with its revised economic forecasts. That said, the WB stated that it expects the global economy to grow by 1.7% in 2023, down sharply from 3% in June's forecast, as reported by Reuters. The Washington-based institute also raised fears of global recession by citing the scale of recent slowdowns.

While portraying the mood, US 10-year Treasury bond yields retreat to 3.58% after rising 10 basis points (bps) to 3.61% the previous day. On the same line, the upbeat Wall Street closing helps S&P 500 Futures to print mild gains around 3,945.

Looking forward, USD/JPY traders should pay attention to the risk catalysts ahead of the key US Consumer Price Index (CPI) for December, up for publishing on Thursday. Should the headline inflation data arrive as stronger, the Fed’s hesitance in accepting dovish bias could gain the market’s attention and may add strength to the USD/JPY run-up.

Technical analysis

A clear upside break of the 10-DMA, around 132.00 by the press time, signals another attempt by the USD/JPY pair to cross the 21-DMA hurdle, close to 133.25 at the latest.

• Silver price remains depressed below 200-HMA, prints three-day downtrend.
• Bullish MACD signals, steady RSI can defend buyers around short-term key support.
• Buyers need validation from $24.00 to retake control.

Silver price (XAG/USD) holds lower ground near $23.60 amid early Wednesday’s sluggish markets. In doing so, the bright metal drops for the third consecutive day despite positive mild losses.

That said, the quote’s sustained trading below the 200-Hour Moving Average (HMA) keeps the sellers hopeful. Even so, the bullish MACD signals and mostly steady RSI (14) hint at limited downside room.

As a result, an upward-sloping support line from the last Thursday, around $23.50 by the press time, appears to put a floor under the XAG/USD.

In a case where the Silver sellers manage to conquer the $23.50 support, the monthly low of $23.11 and the $23.00 round figure will gain major attention.

However, the $22.50 appears a tough nut to crack for XAG/USD bears afterward as it comprises the June 2022 peak and late December’s trough.

Meanwhile, an upside clearance of the 200-HMA, close to $23.80 at the latest, isn’t enough for the Silver buyer’s conviction as a downward-sloping resistance line from January 03, close to $23.90, should test the quote’s further advances.

Also acting as an upside hurdle is the $24.00 round figure, a break of which could quickly propel prices towards challenging the monthly high, currently around $24.55.

Silver price: Hourly chart

Trend: Limited downside expected

Japan’s Chief Cabinet Secretary Hirokazu Matsuno delivered comments on the hike in wages by the Japanese firms while expressing his displeasure on China's visa suspension to Japan.

Key quotes

His comments come after Uniqlo operator Fast Retailing announced that it will increase annual pay for full-time employees in Japan by up to around 40% in March.

Market reaction

USD/JPY was last seen trading at 132.45, adding 0.14% on the day.

• AUD/NZD is embarking on a test and break of the trendline support despite a hot Aussie data dump.
• The M-formation is a topping pattern and the resistance is so far holding up at the neckline of the pattern near 1.0830.

A break of 1.08 the figure opens the risk of a move to test 1.0750 and then the 1.0720s.

AUD/NZD is flat on the day despite the surprising string Aussie data from earlier in the session. The initial pop in the Aussie was faded and the bears remain on top. at the time of writing, AUD/NZD is trading at 1.0816 and has travelled within a 1.0809 and 1.0834 range so far. 

Australia's Retail Sales and the monthly Consumer Price Index indicator fell in at the same time as follows:

• Australia Retail Sales MoM Nov: 1.4% (est 0.6%, prev -0.2%).
• Australia CPI YoY Nov: 7.4% (est 7.2%, prev 6.9%) - Australia Trimmed Mean YoY Nov: 5.6% (est 5.5%, prev 5.3%).

Subsequently, AUD/USD rallied some 20 pips before meeting resistance through 0.69 the figure at 0.6913. This led to a drop in AUD/NZD and the pair is back testing the daily trendline support as the following technical analysis illustrates:

AUD/NZD price analysis

The above chart is of the daily time frame and it shows that the price is embarking on a test and break of the trendline support. The M-formation is a topping pattern and the resistance is so far holding up at the neckline of the pattern near 1.0830.

A break of 1.08 the figure opens the risk of a move to test 1.0750 and then the 1.0720s.

Citing an industry insider, Global Times reported on Tuesday, China’s steel companies have restarted importing coal from Australia, “as part of efforts to diversify sources of supplies and stabilize import prices.”

Key quotes

"Bids were sought, the contract was signed and the price was relatively reasonable." 

“Coal from Australia is expected to arrive at a port in Southeastern China by late February, without naming the port.”

“The import is considered a positive signal, which will help stabilize domestic coal prices and diversify import channels.”

Market reaction

At the time of writing, AUD/USD is trading at 0.6888, up 0.05% on the day, having failed to find any inspiration from the above report.

• NZD/USD seesaws inside a choppy trading range for the second consecutive day.
• Sluggish markets restrict Kiwi pair’s immediate moves despite upbeat second-tier data from New Zealand.
• US Inflation is the key to clear directions, risk catalysts may entertain intraday traders.

NZD/USD struggles to justify the previous day’s bearish Doji candlestick as it treads water around 0.6370 during early Wednesday. In doing so, the Kiwi pair portrays the market’s inactivity amid a light calendar and mixed catalysts.

Among them, the US Dollar’s hesitance to track the downbeat US Treasury bond yields joins firmer New Zealand (NZ) data and a light calendar elsewhere. Also likely to restrict immediate NZD/USD moves could be the market’s cautious mood ahead of Thursday’s key inflation data for the US and China.

That said, New Zealand’s ANZ Commodity Price Index improved sharply to -0.1% in December versus -5.7% market forecasts and -4.0% prior.

Elsewhere, the US Dollar Index (DXY) remains pressured towards the 103.00 round figure, around 103.30 by the press time, as it struggles to extend Tuesday’s bounce off the seven-month low. In doing so, the greenback traces the downbeat US Treasury yields while also portraying the market’s inaction ahead of the US Consumer Price Index (CPI) data.

It’s worth mentioning that the US 10-year Treasury bond yields rose 10 basis points (bps) to 3.61% the previous day, following a corrective bounce to snap the two-day downtrend. However, the benchmark bond coupons retreated to 3.60% by the press time. The same join the upbeat Wall Street closing to help S&P 500 Futures print mild gains and weigh on the US Dollar’s safe-haven demand.

On a different page, the World Bank’s grim economic outlook and indecision over China’s prospects, following the latest reopening, also seem to trouble the NZD/USD pair amid an absence of any major data at home.

Moving on, NZD/USD may witness further lackluster moves amid anxiety ahead of Thursday’s inflation numbers from China and the US.

Technical analysis

A weekly symmetrical triangle restricts short-term NZD/USD moves between 0.6385 and 0.6345. However, the bearish Doji candlestick, marked the previous day, keeps the sellers hopeful.

• AUD/USD is struggling to shift its auction profile above 0.6900 as US Dollar Index has rebounded.
• The Australian Dollar failed to pick strength despite higher-than-anticipated Australian inflation and Retail Sales data.
• An escalation in inflation print and retail demand might force the RBA to tighten policy further.

The AUD/USD has failed to sustain above the immediate resistance of 0.6900 despite better-than-projected Australian inflation providing strength to the Australian Dollar. The Aussie asset has sensed heat as the US Dollar Index (DXY) has rebounded in its early trade. The USD Index has stretched to near the round-level resistance at 103.00

S&P500 futures have surrendered gains recorded in early Asia, portraying a decline in investors’ risk appetite. Also, 10-year US Treasury yields are facing immense pressure and have dropped below 3.60%.

In early Asia, the Australian Dollar displayed volatility after the release of the monthly Australian inflation and Retail Sales data. The Australian Bureau of Statistics reported monthly inflation at 7.4% that the consensus of 7.3% and the former release of 6.9%. Apart from that, monthly Retail Sales (Nov) have jumped to 1.4% against the projections of 0.6%.

This might result in unrest for Reserve Bank of Australia (RBA) policymakers as they are putting ‘blood and sweat’ into taming healthy inflation.

Meanwhile, market participants are continuously chattering over the reopening of China after stretched lockdown led by the Covid-19 epidemic. Economists at JP Morgan are of the view that China’s reopening from the Covid restrictions will likely boost Australian economic growth by around 1.0%. It is worth noting that Australia is a leading trading partner of China and economic prospects in China impact the Australian Dollar.

This week, the United States Consumer Price Index (CPI) will remain spotlight. As per the consensus, the headline CPI will drop to 6.5% from the former release of 7.1% while the core inflation that doesn’t inculcate food and energy prices may scale lower to 5.7% vs. the prior release of 6.0%.

• USD/CAD extends the previous day’s rebound from six-week low.
• WTI crude oil drops half a percent to $74.90 amid World Bank’s grim economic forecasts.
• Risk catalysts could direct intraday moves ahead of Thursday’s US inflation data.

USD/CAD picks up bids to refresh intraday high near 1.3440 while stretching the previous day’s rebound from a 1.5-month low during early Wednesday. In doing so, the Loonie pair fails to portray the US Dollar's weakness as prices of Canada’s main export item, WTI crude oil, return to the bear’s radar after a brief absence.

That said, WTI crude oil drops 0.50% to $74.90, printing the first loss-making day in three, as energy traders fear slower demand due to the likely taxing economic transition. The reason could be linked to the World Bank’s downbeat economic forecasts.

On Tuesday, the World Bank (WB) came out with its revised economic forecasts and signaled a favor to the traditional haven US Dollar, which weighed on the commodity prices. That said, the WB stated that it expects the global economy to grow by 1.7% in 2023, down sharply from 3% in June's forecast, as reported by Reuters. The Washington-based institute also raised fears of global recession by citing the scale of recent slowdowns.

It should be noted that Federal Reserve (Fed) Chair Jerome Powell's inability to provide and clear directions for the US central bank’s next moves at Riksbank's International Symposium on Tuesday joins a pullback in the US Treasury yields to weigh on the US Dollar Index. That said, the DXY remains lackluster near 103.30 as the US 10-year Treasury yields fade Tuesday’s rebound from a three-week low.

Elsewhere, market sentiment remains sluggish, as portrayed by the mostly unchanged S&P 500 Futures, as traders await the key inflation data from China and the US. Also likely to have probed the USD/CAD traders could be the absence of any important comments from Bank of Canada (BOC) Governor Tiff Macklem during the previous day’s Riksbank event.

Moving on, the inflation data will be crucial for short-term USD/CAD directions but the risk catalysts shouldn’t be ignored.

Technical analysis

USD/CAD needs to remain beyond the 100-day EMA level of 1.3430 to keep the buyers on board.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.7756 vs. the last close of 6.7780.

About the fix

China maintains strict control of the yuan’s rate on the mainland.

The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.

Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day's closing level and quotations taken from the inter-bank dealer.

• The risk profile seems positive led by the continuation of upside movement in the S&P500.
• A rangebound auction is expected from the USD Index ahead of the US inflation data.
• The Cable has picked strength after dropping to near the round-level support around 1.2100.

The GBP/USD pair has picked up demand after dropping to near 1.2140 in the Asian session. The Cable is attempting to come out of the woods but might first approach 1.2200 to regain sheer strength. The risk appetite of the market participants is improving further as S&P500 futures have carry-forwarded Tuesday’s gains in early Tokyo.

Meanwhile, the 10-year US Treasury yields are facing minor pressure and have eased to 3.61%, portraying a recovery in risk appetite theme. The US Dollar Index (DXY) is expected to continue its lackluster performance till the release of the United States Consumer Price Index (CPI) data.

On a four-hour scale, the Cable has picked strength after dropping to near the horizontal support plotted from December 27 high around 1.2100. Correction in cable seems healthy amid the absence of wider ticks, which resulted in a resumption of the upside journey going ahead.

A bull cross, represented by the 20-and 50-period Exponential Moving Averages (EMAs) at 1.2040, adds to the upside filters.

Meanwhile, the Relative Strength Index (RSI) (14) is struggling to sustain in the bullish range of 60.00-80.00, which will trigger the bullish momentum.

Should the asset break above Thursday’s high at 1.2210, Pound Sterling bulls will drive Cable towards December 5 high at 1.2344 followed by December 14 high at 1.2446.

Alternatively, a slippage below Thursday's at 1.1873 will drag the major toward November 21 low around 1.1778. A breakdown of the latter will expose Cable for more downside towards the round-level support at 1.1700.

GBP/USD four-hour chart

• EUR/USD picks up bids to reverse the previous day’s pullback inside weekly rectangle formation.
• Short-term ascending trend line, bull cross keeps buyers hopeful amid firmer RSI.
• Late December top adds to the downside filters.

EUR/USD renews its intraday high around 1.0750 as it extends the day-start recovery during a sluggish mid-Asian session of Wednesday. In doing so, the major currency pair prints mild gains inside a three-day-old rectangle formation.

Even so, the pair’s successful rebound from the weekly support line and firmer RSI (14) keeps the buyers hopeful. Adding strength to the upside bias is the 100-HMA’s crossing of the 200-HMA from below, also known as the bull cross.

As a result, the EUR/USD pair is likely to overcome the 1.0760 immediate hurdle, which in turn could propel prices towards May 2022 peak surrounding 1.0785. However, the 1.0800 round figure and the likely overbought RSI (14) conditions at that level could challenge the pair buyers afterward.

Should the EUR/USD price remains firmer past 1.0800, March 2022 low near 1.0810 could act as the last defense of the sellers before highlighting the 1.1000 psychological magnet for the bulls.

On the flip side, an upward-sloping support line from Monday, around 1.0735 by the press time, restricts immediate EUR/USD downside ahead of the stated rectangle’s bottom, around 1.0710. That said, the tops marked during late December add strength to the 1.0710 support level.

Even if the quote drops below the 1.0710 level, the 100-HMA and the 200-HMA could challenge the pair’s further downside near 1.0645-40.

EUR/USD: Hourly chart

Trend: Further upside expected

• AUD/JPY jumps to near 91.40 on higher Australian inflation and Retail Sales data.
• Australian inflation inched higher to 7.4% and Retail Sales soared to 1.4% for November.
• China’s reopening from the Covid restrictions will likely boost Australian economic growth by around 1.0%.

The AUD/JPY pair has sensed a stellar buying interest as the Australian Bureau of Statistics has reported higher-than-anticipated monthly Consumer Price Index (CPI) (Nov) data. The price Index in the Australian economy has landed at 7.4% that the consensus of 7.3% and the former release of 6.9%. Apart from that, monthly Retail Sales (Nov) have jumped to 1.4% against the projections of 0.6%.

Stronger-than-anticipated inflation and retail demand by households are going to compel the Reserve Bank of Australia (RBA) to continue hiking interest rates further to tame soaring inflation. Currently, the Official Cash Rate (OCR) of the RBA is at 3.10%.

Meanwhile, the reopening of China after a stretched lockdown due to the Covid-19 epidemic has strengthened the Australian Dollar. Economists at JP Morgan are of the view that China’s reopening from the Covid restrictions will likely boost Australian economic growth by around 1.0%.

Ultra-pace adopted for reopening of the economy by the Chinese administration has forced think tanks of the market to revise their growth projections on the upside. Analysts at Morgan Stanley have raised their forecast for China’s GDP this year to above 5.0%. A note from Morgan Stanley states that the removal of barriers to the housing/property sectors and recovery from COVID zero will strengthen China's economic recovery, which will solidify starting from the second quarter of CY2023. It is worth noting that the Chinese administration is easing property and tech sector regulations.

On the Tokyo front, the Japanese yen sensed pressure on a lower-than-projected jump in Tokyo’s Consumer Price Index (CPI). The headline annual CPI has landed at 4.0% lower than the consensus of 4.5% but higher than the prior release of 3.8%. While the core CPI has remained in line with expectations at 2.7%.

• AUD/USD remains mildly bid but fails to cheer strong Aussie data.
• Australia’s Retail Sales, Monthly Consumer Price Index crossed market forecasts and priors in November.
• China inflation numbers are eyed for clear directions ahead of US CPI.

AUD/USD pierces 0.6900 while printing a small tick towards the north on upbeat Australia data on early Wednesday. The Aussie pair buyers, however, appear cautious ahead of the key China inflation numbers.

Australia’s seasonally adjusted Retail Sales grew 1.4% MoM versus 0.6% expected and -0.2% prior while the Monthly Consumer Price Index rose 7.4% compared to -5.7% market forecasts and -3.9% previous readings.

It’s worth noting that the US Dollar’s failure to keep the previous day’s corrective bounce also underpins the AUD/USD pair’s recovery amid sluggish markets.

That said, the US Dollar Index (DXY) remains pressured towards the 103.00 round figure, around 103.20 by the press time, as it fails to extend Tuesday’s bounce off the seven-month low. In doing so, the greenback traces the downbeat US Treasury yields while also portraying the market’s inaction ahead of the US Consumer Price Index (CPI) data.

US 10-year Treasury bond yields rose 10 basis points (bps) to 3.61%, following a corrective bounce to snap the two-day downtrend marked the previous day. However, the benchmark bond coupons retreat to 3.60% by the press time. The same join the upbeat Wall Street closing to help S&P 500 Futures print mild gains and weigh on the US Dollar’s safe-haven demand.

It should be noted, however, that the downbeat economic forecasts from the World Bank (WB) seem to challenge AUD/USD buyers due to the pair’s risk-barometer status, as well as close ties with China. On Tuesday, The WB stated that it expects the global economy to grow by 1.7% in 2023, down sharply from 3% in June's forecast, as reported by Reuters. The Washington-based institute also raised fears of global recession by citing the scale of recent slowdowns. Further, "China's 2022 growth slowed to 2.7% due to COVID lockdowns but will recover to 4.3% for 2023," stated World Bank, per Reuters.

Looking forward, China’s headline inflation numbers will be crucial for the AUD/USD pair traders ahead of the US Consumer Price Index (CPI), up for publishing on Thursday. Forecasts suggest that China's CPI is likely to rise to 1.8% YoY versus 1.6% prior while the Producer Price Index (PPI) could improve from -1.3% previous readings to -0.1%. Should the scheduled data match upbeat market forecasts, the AUD/USD may witness further upside, mainly due to its trade ties with China.

Technical analysis

AUD/USD bulls remain hopeful of reaching the 0.7000 psychological magnet unless witnessing a daily close below the 200-DMA, at 0.6835 by the press time.

Australia's Retail Sales and the monthly Consumer Price Index indicator are falling in at the same time as follows:

Australia Retail Sales MoM Nov: 1.4% (est 0.6%, prev -0.2%).

Australia CPI YoY Nov: 7.4% (est 7.2%, prev 6.9%) - Australia Trimmed Mean YoY Nov: 5.6% (est 5.5%, prev 5.3%).

AUD/USD update

We have seen a knee-jerk pop to the upside on the data as follows:

As per the prior analysis, AUD/USD Price Analysis: Bears move in on key 0.6905 support structure, whereby it was stated that traders could be monitoring for bearish structure on the lower time frames, such as the hourly chart illustrated as follows:

... there has been a development that was forecasted to break the 0.6870 structure which, ahead of the data dump today, left the bias to the downside:

This data could be a meanwhile positive for the Aussie in an otherwise bearish technical environment.

However, we have more red news on the calendar this week. US Consumer Price Index comes out on Thursday and could be a major catalyst for the US Dollar and risk sentiment. More consolidation in the form of distribution could be playing out until then. So long as the bears keep control below 0.6950, the bulls will likely feel trapped and throw in the towel leading to a sell-off. On the other hand, a break of 0.6950 leave steh bulls back in control. 

About Aussie Retail Sales

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

About Aussie monthly CPI

The monthly Consumer Price Index (YoY), released by the RBA and republished by the Australian Bureau of Statistics, is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of AUD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. A high reading is seen as positive (or bullish) for the AUD, while a low reading is seen as negative (or bearish). Note: This indicator started to be published in 2022 and it updates the price change for the last 12 months in Australia on a monthly basis, instead of the quarterly period of the main Australian CPI.

• USD/JPY is in a sideways consolidation between hourly resistance and support
• There is red news on the calendar on Thursday so it will not be surprising to see the forex space tread water until the event.
•  A break of resistance would be expected to see the price volt through price imbalances to the upside. 

USD/JPY is biased to the upside as per the following technical analysis that would marry with the two Federal Reserve official's comments on Monday that had issued a stark reminder that interest rates will have to keep rising, no matter what investors have priced in.

USD/JPY weekly chart

The weekly outlook is bearish while on the front side of the bearish trendline and a target of the 126's could be in order for the medium term. We have already seen a correction of the bearish impulse and selling pressure from the 134s, the prior support structure and the 50% mean reversion mark into the advances.

USD/JPY daily chart

With that being said, the inverse head and shoulders pattern that is starting to draw the right-hand shoulder is a bullish bottoming formation. A break of the trendline resistance is needed and a subsequent break into the 135s would confirm a change in character from bearish to meanwhile bullish.

USD/JPY H4 chart

Having already broken a daily bear trendline, the bulls are leaning against 4-hour support as illustrated above and below: 

The W-formation's neckline is holding up so far and this could lead to a burst to the upside as trapped bears throw in the towel and buy back their positions on repeated failures to break support. 

Zoomed in...

USD/JPY H1 chart

Meanwhile, the price is in a sideways consolidation between hourly resistance and support. We have red news on the calendar on Thursday so it will not be surprising to see the forex space tread water until the event that might use the data as a catalyst. In the case of USD/JPY, a break of resistance would be expected to see the price volt through price imbalances and target a break of the trendline resistance. 

• EUR/GBP will deliver a Flag breakout after surpassing the 0.8870 resistance.
• Advancing 200-EMA signals that the long-term trend is bullish.
• A 40.00-60.00 range oscillation by the RSI (14) conveys the unavailability of a potential trigger.

The EUR/GBP pair is displaying topsy-turvy moves below the crucial hurdle of 0.8840 in the Asian session. The cross trades directionless amid an absence of a potential trigger. Meanwhile, the European Central Bank (ECB) is expected to cease its policy tightening approach as ECB governing council member Mario Centeno cited that Eurozone inflation may face stiff resistance in January and February but will start falling from March.

On a four-hour scale, EUR/GBP is forming a Bullish Flag chart pattern that indicates a sheer consolidation, which is followed by a breakout in the same. Usually, the consolidation phase of the chart pattern serves as an inventory adjustment in which those participants initiate longs, which prefer to enter an auction after the establishment of a bullish bias.

The 50-period Exponential Moving Average (EMA) near 0.8820 has turned sideways, which indicates a consolidation ahead. While the 200-EMA at 0.8755 is still advancing, this signals that the long-term trend is bullish.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range. It conveys the unavailability of a potential trigger for a conviction move.

A break above January 6 high at 0.8871 will drive the asset towards the round-level resistance at 0.8900, followed by the September 29 high at 0.8979.

On the flip side, a downside move below Monday’s low at 0.8769 will drag the asset toward December 21 low at 0.8716. A slippage of the latter will drag the asset toward December 19 low at 0.8691.

EUR/GBP hourly chart

• US Dollar Index fades the previous day’s corrective bounce off seven-month low.
• US Treasury bond yields retreat after snapping two-day downtrend on Tuesday.
• Fed Chair Powell’s mum on future policy moves, mixed US data join anxiety ahead of CPI to probe DXY traders.

US Dollar Index (DXY) remains pressured towards the 103.00 round figure, around 103.25 by the press time, as it fails to extend the previous day’s bounce off the multi-day low. In doing so, the greenback’s gauge versus the six major currencies traces the downbeat US Treasury yields while also portraying the market’s inaction ahead of the US Consumer Price Index (CPI) data.

That said, the US 10-year Treasury bond yields rose 10 basis points (bps) to 3.61% at the latest, following a corrective bounce to snap the two-day downtrend marked the previous day. The same join the upbeat Wall Street closing to help S&P 500 Futures print mild gains and weigh on the US Dollar’s safe-haven demand.

It’s worth noting that Federal Reserve (Fed) Chair Jerome Powell's inability to provide and clear directions for the US central bank’s next moves at Riksbank's International Symposium on Central Bank Independence amplified the market’s uncertainty and weighed on the US Dollar. The policymaker highlighted the Fed’s autonomous nature and no obligation towards climate control while praising the US central bank’s latest moves in his latest public appearances. It’s worth noting that Federal Reserve Governor Michelle Bowman failed to impress DXY bulls despite appearing hawkish while stating that more rate rises are needed to combat high inflation.

Elsewhere, mixed US data also probes the US Dollar Index bulls as the US NFIB Business Optimism Index for December dropped to the lowest levels since 2013 if ignoring multiple jitters during the global Covid wave. Further, US Wholesale Inventories also remained unchanged with 1.0% growth for November.

Alternatively, recession woes and the Fed policymakers' hesitance in welcoming bearish bias keep the DXY bulls hopeful ahead of the key inflation data. On Tuesday, the World Bank (WB) came out with its revised economic forecasts and signaled a favor to the traditional haven. That said, the WB stated that it expects the global economy to grow by 1.7% in 2023, down sharply from 3% in June's forecast, as reported by Reuters. The Washington-based institute also raised fears of global recession by citing the scale of recent slowdowns.

Looking forward, China’s headlines CPI and Producer Price Index (PPI) data for December may offer immediate directions but major attention will be given to the US inflation numbers for clarity.

Technical analysis

Unless providing sustained trading beyond a downward-sloping support-turned-resistance line from mid-December 2022, around 103.40 by the press time, US Dollar Index remains vulnerable to further downside.