• The BoE kept interest rates
  unchanged as expected at the last meeting.
• The central bank is leaning towards
  keeping interest rates “higher for longer”, although it keeps a door open for
  further tightening if inflationary pressures were to be more persistent.
• BoE Governor Bailey repeated that
  they will keep rates high for long enough to get inflation back to target.
• The latest employment report beat
  expectations across the board with the unemployment rate ticking lower and wage
  growth ticking higher.
• The UK CPI today missed expectations
  across the board which favours the BoE’s “on hold” stance.
• The UK PMIs showed further
  contraction in the services sector, which accounts for 80% of UK’s economic
  activity.
• The market doesn’t expect the BoE to
  hike anymore.

JPY

• The BoJ kept its monetary policy basically
  unchanged but formally widened the YCC to 1% on the 10-year JGBs stating that
  it will be a reference cap.
• Governor Ueda repeated once again
  that they won’t hesitate to take easing measures if needed and that they are
  not foreseeing sustainable price increases.
• The recent Japanese CPI showed that inflationary pressures remain high with
  the core-core reading hovering at the cycle highs.
• The Unemployment Rate remained
  unchanged near cycle lows.
• The Japanese Manufacturing PMI
  matched the prior reading remaining in contraction with the Services PMI
  falling but holding on in expansion.
• The latest Japanese wage data beat
  expectations. As a reminder the BoJ is focusing on wage growth to decide
  whether to tweak its monetary policy.
• The market expects the BoJ to keep
  interest rates unchanged at the next meeting as well.

GBPJPY Technical Analysis –
Daily Timeframe

On the daily chart, we can see that GBPJPY broke
above the key resistance around the 183.70 level and continued higher targeting
the high. The pair yesterday broke right through the high following the miss in
the US CPI data which weakened the USD across the board and strengthened the
other currencies.

GBPJPY Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that from a risk
management perspective the buyers will be better off waiting for a pullback
into the trendline where they will also find the confluence with the broken
high, the 38.2% Fibonacci retracement level and the red 21 moving average. This
is where the buyers should step in with a defined risk below the trendline to
position for another rally into new highs.

GBPJPY Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see more
closely the bullish setup with the support zones marked with green boxes. Given
that there’s also a good support around the 61.8% Fibonacci retracement level,
the buyers might want to split their long position in half and place orders
both at the 38.2% and the 61.8% Fibonacci retracement levels. The sellers, on
the other hand, will want to see the price breaking below the trendline to
invalidate the bullish setup and position for a drop into the 183.50 level.

Upcoming Events

Today, we have the US
Retail Sales and PPI data with the market likely giving more importance to the
Retail Sales data. Tomorrow, we will see the latest US Jobless Claims figures
where the market will want to see how fast the labour market is softening.
Finally, on Friday we conclude with the UK Retail Sales figures.

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

• 2023 economic growth forecast lowered to 0.6% from 0.8% previously
• 2024 economic growth forecast seen at 1.2%, then 1.6% in 2025
• 2023 inflation forecast seen at 5.6%, then 3.2% in 2024, then 2.2% in 2025
• High inflation, interest rates, and weaker external demand took a heavier toll on growth than anticipated

The Commission said that while the economy is to grow more slowly this year, a technical recession should be avoided. Adding that „economic activity is expected to gradually pick up as consumption recovers on the back of a steadily robust labour market, sustained wage growth and continued easing of inflation“.

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

• Prior €6.7 billion

The year-to-date euro area trade balance is seen at €16.3 billion and that marks a drastic improvement to last year, which was a deficit of €278.3 billion (which was heavily impacted by high energy imports).

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

• Prior 90.8

This marks the 22nd straight month that the index sits below its 50-year average of 98. As such, it reaffirms that small business sentiment is still struggling somewhat and that most of the growth in the US economy is powered by the strong consumer again. Of note, 22% of business owners are still reporting that inflation is their single most important problem – down 1% from September.

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

• The Fed left interest rates unchanged as
  expected with basically no change to the statement.
• Fed Chair Powell stressed
  once again that they are proceeding carefully as the full effects of policy
  tightening have yet to be felt.
• The recent US Core PCE came
  in line with expectations.
• The labour market is
  starting to show some weakness as Continuing Claims are now
  rising at a fast pace and the recent NFP report
  missed across the board.
• The US Consumer
  Confidence and University of
  Michigan Consumer Sentiment continue to fall.
• The recent US ISM
  Manufacturing PMI missed expectations by a big margin,
  followed by a disappointing ISM Services PMI,
  although the latter remained in expansion.
• The recent Fedspeak has been leaning on
  the hawkish side, but the inflation and labour market reports before the next
  meeting will decide whether they will indeed hike or not.
• The market doesn’t
  expect the Fed to hike anymore.

AUD

• The
  RBA raised the cash rate by 25 bps as expected as the central bank
  judged that the move was warranted to be more assured that inflation would
  return to target in a reasonable timeframe.
• The
  CPI report recently surprised to the upside
  prompting the market to price in a higher chance of another rate hike from the
  RBA in November, which is what we eventually got.
• The
  RBA Governor Bullock downplayed the beat in the CPI data
  and made the market to pare back the rate hike bets.
• The
  labour market continues to weaken as seen also
  recently with the miss in the employment change and the losses in full-time
  employment.
• The
  Australian Manufacturing PMI fell further into contraction with
  the Services PMI plummeting back into contraction as well.
• The
  market expects the RBA to hold rates steady at the next meeting.

AUDUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that AUDUSD rejected
the key resistance around
the 0.65 handle and erased all the gains seen after the FOMC and the NFP
report. The pair has been ranging for months as the uncertainty in the market
remains high. We will likely need some strong fundamental catalyst to trigger a
more sustained trend.

AUDUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that the selloff
from the key resistance found some support around the upward trendline and the
0.64 handle, but eventually the price fell below it triggering even more
selling. The price since then pulled back into support now turned resistance where
the sellers stepped in once again with a defined risk above the level to
position for another drop into the lows.

AUDUSD Technical Analysis –
1 hour Timeframe

On the
1 hour chart, we can see that the last leg lower diverged with
the MACD which
is generally a sign of weakening momentum often followed by pullbacks or
reversals. In this case, we got a pullback into the resistance, but the break
above the trendline is making things less clear. We should now have a mini
range between the 0.64 resistance and the 0.6365 support. A break on either
side is likely to lead to a more sustained move with the buyers targeting the
0.65 handle on the upside and the sellers targeting the 0.63 handle on the
downside.

Upcoming Events

This week we have some top tier economic releases. We
begin today with the US CPI report which might be one of the most important
events of the week. Tomorrow, we have the Australian Wages data and later in
the day the US Retail Sales and PPI reports. On Thursday, we conclude with the
Australian labour market report and the latest US Jobless Claims figures.

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

• Some measures of economic uncertainty, particularly for inflation, are elevated
• Policy decisions taken under uncertainty may look different from those optimal under certainty

The headline remarks points to the ongoing narrative that they are keeping the door open just in case inflation is stickier than expected. That is the playbook now for all major central banks, with the Fed taking the lead.

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

This will be a much anticipated meeting as Kishida had previously touted for big wage hikes next year that will exceed what we have seen this year. Considering what is at stake, this is something worth keeping an eye out for as it tees up the upcoming spring wage negotiations next March. In turn, that will act as a cornerstone for the BOJ to start normalising monetary policy.

The meeting tomorrow will involve representatives from Japan’s largest labour group, Rengo, and business lobby, Keidanren, alongside other business leaders and labour unions.

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

The movement among major currencies has been rather dull in European morning trade but the dollar is losing some slight ground now against the euro and pound notably. EUR/USD is up 0.3% on the day to 1.0726 while GBP/USD is up 0.2% to 1.2305 currently. The moves aren’t much but it reaffirms the more bullish near-term bias in the former at least.

As seen in the chart above, buyers have been stepping in at the 200-hour moving average (blue line) to prevent any break of the upside momentum since Friday. But overall, the pair is still largely consolidating in and around the 1.0700 mark ahead of the US CPI data later today.

The next key technical upside level to watch will be the confluence of the 100 and 200-day moving averages at 1.0790-01.

Barring any surprises, the data later today should not offer much of an impetus for the dollar to melt away to that level. But if anything else, keep an eye out on the bond market and Treasury yields as any major moves there will have a spillover impact instead.

Besides the above, there’s not much else happening so far in the major currencies space as other dollar pairs remain more muted currently.

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

• Sees risk of spillover into inflation
• No clear peak of wage growth seen yet

They need to play it this way in order to keep the door open to more rate hikes, or at least keep up that appearance. But for now, as the economy moves to the brink of a recession, the timing to tighten policy further would not be the best suited.

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

At some point last week, it looked like the bond market rally was about to get going again. And then we got a turn on Thursday and Friday, and suddenly traders aren’t sure anymore that the rally would be a sustainable one. So, what’s the verdict right now as we get into the new week?

Things are looking more tentative as we await key US data releases in the coming days. The big one is the consumer price inflation report tomorrow but barring any surprises, there shouldn’t be much change to the Fed outlook right now.

Markets are anticipating the first rate cut at around June to July and that is actually not too much different from two months ago. In fact, the implied rate shown on the curve right now is higher than it was back then:

As much as it looks like traders are kicking back after months of angst amid the rout and selling, the fundamental picture hasn’t really changed. The Fed is still on course to keep interest rates higher for longer and there is still the risk of them doing more if inflationary pressures are not receding as much as they’d like heading into next year.

However, the key factor driving yields higher is arguably the flood of supply of Treasuries. And even though the quarterly refunding announcement was not as bad as feared, the trend is still set to continue. There will be more bonds coming into the market and that will make for more waves of supply in the months ahead. The Fed and US Treasury are not going to change that.

Taking that into consideration, there will always be a counter-force to keep the selling pressure in Treasuries and prop up yields.

Right now, it looks like we might be caught in a bind between 4.50% and 5.00% for 10-year yields as seen in the chart above. But the longer it takes for this latest rally to stamp their mark and break any significant levels, it seems that there will be an increasing likelihood that we get to revisit 5% yields again at some point in the weeks ahead.

I mean, 2-year yields itself are still hanging in there at 5.05% today. If anything, that shows the latest rally in bonds hasn’t really accomplished anything too notable just yet.

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