• Disinflation is happening, is strong and will continue
• Monetary conditions should adjust but awaiting data first to confirm disinflation outlook

This just reaffirms the current ECB stance of being data-dependent. Amid all the pushback by policymakers though, traders are still well convinced of a April rate cut at this stage. The odds of that are no longer fully priced in but are still sitting at ~94% currently.

This article was written by Justin Low at www.forexlive.com.

The euro and pound are trading little changed against the dollar on the session now, while other major currencies are still looking fairly sluggish against the greenback. Cable rose to a high of 1.2675 earlier after the UK inflation data but has pared that advance to 1.2640 levels currently.

For now, the dollar remains in charge with USD/JPY especially keeping higher by 0.4% at 147.75 and still angling for a break above its 100-day moving average (red line):

USD/CAD is seen up 0.2% to 1.3523, still keeping a break above its own 200-day moving average of 1.3480. Meanwhile, the antipodean currencies are also struggling amid a more defensive risk mood and poor China data from earlier. AUD/USD is down 0.6% to 0.6545 while NZD/USD is down 0.4% to to 0.6113 and inching closer towards a test of its own 200-day moving average at 0.6092.

The bond market remains mostly steady so far today with 10-year Treasury yields flattish at 4.065%. Equities are still struggling hard with European indices holding well over 1% losses across the board while S&P 500 futures are down 0.5% currently.

In other markets, gold is down 0.4% to $2,019 while Bitcoin is also marked down by 1.5% to $42,770 on the day.

It’s all still to play for in trading today, with US retail sales data coming up later. That is set to be the next key hurdle for markets to work through. A stronger report there will solidify chances of a soft landing in the economy, while reaffirming added flexibility for the Fed to play around with the timing of a policy pivot.

This article was written by Justin Low at www.forexlive.com.

The dollar continues to stay strongly bid in European trading today and that is pitting the antipodean currencies at the lows for the day up against the greenback. AUD/USD is down 1% to 0.6595 currently and NZD/USD down 0.8% to 0.6150 as both currency pairs are seeing a major breakdown on the week. They are both trading to fresh five-week lows now and eyeing a steeper drop. Here’s a look at both charts:

There are similarities to both charts but the scale of the drop in AUD/USD looks to be more intense, as the pair now draws closer towards a test of its 200-day moving average (blue line) at 0.6581 next. As for NZD/USD, the drop today carries over the technical breakdown that was preluded already in trading yesterday here. As mentioned then:

„In any case, the fall now looks to potentially move away from the 23.6 Fib retracement level at 0.6228 and could angle towards the 38.2 Fib retracement level at 0.6141 as the next technical test.“

Adding to the technical setback for NZD/USD is a drop below its own 100-week moving average at 0.6213. That will give sellers an added edge to keep the downside momentum on the week going.

For trading today, the softer risk tone in markets is not really helping with the mood for the aussie and kiwi. European indices are lower across the board while S&P 500 futures are down 0.5% on the day currently.

Add that to higher yields and the potential technical breaches in other dollar pairs as well, and that is all setting up for a likely further decline in both AUD/USD and NZD/USD in the short-term.

This article was written by Justin Low at www.forexlive.com.

USD

• The Fed left interest rates unchanged as expected at the last meeting with a shift in
  the statement that indicated the end of the tightening cycle.
• The Summary of Economic Projections showed a
  downward revision to Growth and Core PCE in 2024 while the Unemployment Rate
  was left unchanged. Moreover, the Dot Plot was revised to show three rate cuts
  in 2024 compared to just two in the last projection.
• Fed Chair Powell didn’t push back against the strong dovish pricing
  and even said that they are focused on not making the mistake of holding rates
  high for too long.
• The latest US CPI slightly beat expectations but analysts
  expect the Core PCE to print at 0.2% M/M again following the CPI data.
• The US PPI missed expectations across the board
  supporting the disinflationary impulse.
• The labour market continues to soften although Initial Claims keep on hovering around cycle lows while
  Continuing Claims are ranging at a higher level.
• The latest ISM Manufacturing PMI beat expectations, while the ISM Services PMI missed by a big margin.
• The hawkish Fed members have been leaning
  on a more neutral side lately.
• The market expects the Fed to start cutting rates
  in March 2024.

CAD

• The BoC kept the interest rate steady at
  5.00% as expected at the last meeting with
  the usual caveat that it’s prepared to raise the policy rate further if needed.
• BoC Governor Macklem recently has been leaning on a more
  neutral side and even started to talk about rate cuts although he remains
  uncertain on the timing.
• The latest Canadian CPI beat expectations across the board with
  the underlying inflation measures remaining elevated, which should give the BoC
  a reason to wait for more data before considering rate cuts.
• On the labour market side, the latest report missed
  expectations although wage growth spiked to the highest level since 2021.
• The Canadian PMIs continue to fall
  further into contraction as the economy keeps on weakening amid restrictive
  monetary policy.
• The market expects the BoC to start
  cutting rates in March 2024.

USDCAD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that USDCAD broke
through the key trendline and
extended the rally into the 1.35 handle. This breakout opened the door for a
move into the swing high resistance around
the 1.36 handle. The buyers will look for dip-buying opportunities on the lower
timeframes while the sellers will want to see the momentum changing before
piling in more aggressively.

USDCAD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that we have an
upward trendline now that will define the current uptrend. From a risk
management perspective, the buyers will have a much better risk to reward setup
around the trendline where they will also find the red 21 moving average for confluence. The sellers,
on the other hand, will want to see the price breaking lower to invalidate the
bullish setup and position for a drop into new lows.

USDCAD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that we
have another minor trendline that should offer a good support for the buyers with
the red 21 moving average for extra confluence. If the price were to break
lower, the sellers will pile in and target the major upward trendline around
the 1.34 handle.

Upcoming Events

Today, we have the Canadian CPI report on the agenda
and later in the day all eyes will be on Fed’s Waller as the market will be
eager to see if he decides to pushback against the aggressive rate cuts
expectations. Tomorrow, we will get the US Retail Sales report while on
Thursday we will see the latest US Jobless Claims figures. On Friday, we
conclude the week with the Canadian Retail Sales data and the University of
Michigan Consumer Sentiment survey.

This article was written by FL Contributors at www.forexlive.com.

• Chinese economy has rebounded and moved upward
• Economy had estimated growth of 5.2% in 2023, higher than target of 5%
• Economy is making steady progress, can handle ups and downs in its performance
• Overall trend of long-term growth has not changed

When it comes to China, typically whatever number that is touted by top officials will be the certified statistical figure at the end of the day. And I don’t expect this to be any different, especially with Li making such remarks amid an international audience in Davos. In any case, there are big challenges for the Chinese economy looking to this year, with deflationary pressures and the fallout from the property market crisis still reverberating.

This article was written by Justin Low at www.forexlive.com.

• Prior 12.8
• Current conditions -77.3 vs -77.0 expected
• Prior -77.1
• Expectations 15.2
• Prior 12.8

The reading marks an improvement in German economic sentiment, with the expectations reading showing yet another decent bump higher. ZEW notes that the more upbeat take is due to more than half of the respondents assuming the ECB will cut interest rates in the first half of this year. Adding to that is two-thirds of respondents also anticipating rate cuts by the Fed in the next six months as well.

This article was written by Justin Low at www.forexlive.com.

The epicenter is one that strikes on land, though the maximum seismic intensity is 5- this time around (the town of Shika is the one most impacted). It’s been two weeks already and still, there is ongoing earthquakes and aftershocks hitting the Western Japan region so far in the new year. This one isn’t of much impact but it is something to at least be informed about just in case. From before:

• Magnitude 7.6 earthquake hits Japan
• Aftershocks continue in Ishikawa as magnitude 4.6 earthquake reported
• Magnitude 6.0 earthquake reported in Western Japan region

This article was written by Justin Low at www.forexlive.com.

Last week, the Dow Jones closed around the highs as
the market continued to trade on the soft-landing narrative. In fact, despite
the slightly higher than expected US CPI figures,
the US Jobless Claims improved
further and the US PPI data
missed forecasts. Moreover, the Fedspeak has been generally neutral with no
strong pushback against the market’s rate cuts expectations. Today, the market
will be closed for MLK Day, but we will have some important events throughout
the week.

Dow Jones Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the Dow Jones recently
bounced on the red 21 moving average and managed
to print a new all-time high. The sellers stepped in to position for a
correction into the 37066 level, but they will need a break below the moving
average to further increase their bearish bets. The buyers, on the other hand,
are likely to lean again on the moving average to position for a rally into
another all-time high.

Dow Jones Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that the
trendline that’s
been defining the uptrend since last November got breached recently. We can
also notice that the price is diverging even
more with the MACD after
posting a new all-time high last week. This is generally a sign of weakening
momentum often followed by pullbacks or reversals. In this case, it might be
another bearish confluence for
the sellers.

Dow Jones Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see more
closely the current price action and the divergence with the MACD. We can also notice
that the price had a hard time breaking above the 37777 high with multiple
rejections and eventually a pullback. The sellers will want to see the price
breaking below the swing low around the 37425 level to increase the bearish
bets, while the buyers will likely lean on the swing low level to try another
breakout.

Upcoming Events

Tomorrow, all eyes will be on Fed’s Waller as the
market will be eager to see if he decides to pushback against the aggressive
rate cuts expectations. On Wednesday, we will get the US Retail Sales report
while on Thursday we will see the latest US Jobless Claims figures. Finally, on
Friday, we conclude the week with the University of Michigan Consumer Sentiment
survey.

This article was written by FL Contributors at www.forexlive.com.

There is no particular headline driving the move but at the same time, risk appetite looks to be sapped after a mildly positive open earlier. European indices are now down around 0.1% to 0.3% with bond yields sitting a little higher on the day. The early flows are translating to a positive start for the dollar, gaining across the major currencies board.

USD/JPY is up 0.6% to 145.75 and is pushing back towards a test of the 50.0 Fib retracement level of the swing lower from November to December, seen at 146.07.

Elsewhere, GBP/USD is down 0.3% to 1.2715 at the lows for the day while USD/CAD is also up 0.1% to 1.3420 from around 1.3390 earlier. The antipodeans are also struggling with AUD/USD down 0.4% to 0.6655 and NZD/USD down 0.9% to 0.6185. The latter is threatening a steeper technical drop as highlighted earlier here.

This article was written by Justin Low at www.forexlive.com.

• Prior -0.7%

The reading matches estimates with the breakdown as per the following:

• Durable consumer goods -2.0%
• Capital goods -0.8%
• Intermediate goods -0.6%
• Energy +0.9%
• Non-durable consumer goods +1.2%

This article was written by Justin Low at www.forexlive.com.