The trading year for Japan officially began today after an extended new year’s holiday, and we are seeing the yen drop further. It seems like domestic banks are fueling the fire in saying that the supposed impossible task by the BOJ to perform an early policy pivot, has now just became even more impossible. In referring to the Ishikawa earthquake, this is what they have to say:

„Although there must be quite a few foreign investors who have been anticipating the end of negative rates in January, under these circumstances, the BOJ will almost certainly not move this month. Should negative rates not be lifted in January, ending it in the first half of 2024 will also become doubtful.“ — Mizuho Bank

„The January move seems even more impossible. The earthquake is likely to depress production activity while the government may have to set up a supplementary budget for recovery measures.“ — Daiwa Securities, also revising forecast for exit from negative rates to April from January previously

„Any lingering expectation for an end to negative rates in January is completely shattered.“ — SMBC Nikko Securities

Meanwhile, Morgan Stanley MUFG Securities also revised its call for a change to the BOJ rate decision this month and sees the central bank leaving policy unchanged instead. Adding that any exit from negative rates will only come on April at the earliest. Besides that, Nomura Holdings also chimes in by saying that the earthquake may delay the BOJ’s plans to exit from negative rates in January although it also depends on the extent of the economic damage from the incident.

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

Copper has been on a
retreat since last week as the US Dollar strength coupled with year-end flows
might have weighed a bit on the market. The sentiment around the Chinese
economy remains weak and the recent data from the US doesn’t look good either.
In fact, yesterday the inside data of the US ISM Manufacturing PMI report painting a weaker picture
compared to the headline beat and the upbeat comments. Moreover, the US Job Openings missed expectations with the hiring
rate now below the pre-pandemic levels which could be a bad omen.

Copper Technical Analysis –
Daily Timeframe

On the daily chart, we can see that Copper is
bouncing near a key trendline where we
can also find the confluence with the
Fibonacci retracement levels and the
red 21 moving average. This is
where the buyers are stepping in with a defined risk below the trendline to
position for a rally into the 4.03 resistance.

Copper Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see more closely the
bounce around the trendline as we have a strong support zone with many
technical confluences. The sellers will want to see the price breaking below
the trendline to invalidate the bullish setup and position for a drop back into
the 3.55 support.

Copper Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the
price has been diverging with
the MACD
falling into the key trendline. This is generally a sign of weakening momentum
often followed by pullbacks or reversals. We can also notice that the recent
downtrend got broken after the price breached the trendline. The buyers should
have even more conviction for a rally now while the sellers will need to wait
for the price to break below the key trendline.

Upcoming Events

Today we will have another slate of US labour market
data with the release of the US ADP and Jobless Claims figures. Tomorrow, we
conclude the week with the NFP report and the ISM Services PMI. Weak data is
likely to weigh on Copper due to lower future demand fears while strong data
should keep the market supported.

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

There seems to be a bit of pushing and pulling in markets at the moment, and I would say that something’s gotta give in due time. The dollar is mostly lower across the board, with it only gaining against the Japanese yen today. That comes as Treasury yields are pushing back higher on the session with 10-year yields now up 4.3 bps to near 3.95%.

Elsewhere, the dollar is down against the European currencies as noted here and also down just slightly against the commodity currencies. USD/CAD is down 0.3% to 1.3318 while AUD/USD is up 0.2% to 0.6740, though the latter has large option expiries at 0.6755 to contend with as well.

It is a bit of a mixed bag as equities are slightly higher but bond yields as well, then you couple that with the action in major currencies above. It seems like traders are trying to find some answers on the week but for the day itself, there are some conflicting convictions. I reckon it’s going to be all about where the data takes us in the closing stages this week it would seem.

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

While the UK economy arguably ended the year on a high, the Eurozone economy is still suffering a downturn even with the positive revisions to the French and German data earlier. But amid a steadier market mood today, the euro and pound are able to push a little higher against the dollar now.

EUR/USD is up 0.4% to 1.0960 while GBP/USD is also up 0.4% to 1.2710 on the day, keeping tabs with the gains in the commodity currencies. The greenback suffered a setback yesterday, with 10-year Treasury yields failing to hold a push at 4% and has since struggled to recapture the momentum from earlier this week.

After two days of traders seemingly correcting the moves in November and December, we might be in for a return to the norm today if risk trades can hold up. European stocks are up slightly by around 0.3% to 0.7% while S&P 500 futures are marginally higher, up 0.2% on the day currently.

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

Yesterday, the Nasdaq Composite extended the fall
with all the gains from the Fed pivot now basically erased. The economic data
didn’t help the market either with the inside data in the US ISM Manufacturing PMI painting
a weaker picture than the headline beat and the US Job Openings coming
in lower than expected with the hiring rate now below the pre-pandemic levels. There
are still key data to be released this week, but the new year is starting on a
negative note.

Nasdaq Composite Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the Nasdaq Composite
dropped below the swing low around the 14770 level and the red 21 moving average. This
has opened the door for a bigger fall into the 14050 level. The sellers are
likely to keep piling in, especially if the data continues to disappoint, while
the buyers will need the price to rise back above the 14770 level to get back
some conviction.

Nasdaq Composite Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that the Nasdaq
Composite has been trading inside a rising channel with the lower bound of the
channel being a strong support zone
given that we had also the confluence with the
swing low and the 38.2% Fibonacci retracement level.
This support zone got breached with more bearish bets piling in to target the
14050 level.

Nasdaq Composite Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see more
closely the current price action and the support zone around the 14770 level. From
a risk management perspective, a pullback into the support now turned
resistance will offer a better risk to reward setup
with the sellers finding also the red 21 moving average for confluence.

Upcoming
Events

Today we will have another slate of US labour market
data with the release of the US ADP and Jobless Claims figures. Tomorrow, we
conclude the week with the NFP report and the ISM Services PMI.

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

• Prior -1.5%
• Market index 173.5 vs 191.6 prior
• Purchase index 140.7 vs 148.7 prior
• Refinance index 358.2 vs 437.6 prior
• 30-year mortgage rate 6.76% vs 6.83% prior

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

The last two months can be characterised by the theme of sell the dollar, buy everything else. Upon coming back to the new year yesterday, we got a treat of the opposite. And then in trading today, we’re seeing more of the same once again. It’s hard to read into opening week flows at times but what if the price action we’re seeing is no fluke?

Are market players starting to realise that they have brought the euphoria a little too far at the end of last year?

Looking at broader markets today, the dollar is higher while almost everything else is lower. Stocks are struggling again as bonds are also offered i.e. higher yields, while we are seeing gold and Bitcoin also track lower on the day. What gives?

When you look at the CME Fedwatch tool here, the odds of a March rate cut have dwindled down to ~67% currently. Just a little over a week ago, it was ~85%. It points to some unwinding of the aggressive rate cut pricing by traders in recent weeks and if that continues, it looks like there may be more pain to come for risk trades.

In turn, that itself will set up the dollar for a stronger correction of sorts – especially if the FOMC meeting minutes today conforms to the thinking that the Fed is not preparing for such an early rate cut.

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

Equities are feeling a bit of a squeeze once again for a second day running, as we are looking to see more of a retracement move to the price action in November and December. US futures are nudging lower with S&P 500 futures down 0.3% and Nasdaq futures down 0.4%. European indices are also seeing red now, down by 0.7% to 1.0% across the board. Ouch.

It’s now just stocks that are being squeezed at the moment though. Oil is down as well to test the $70 mark, threatening a break below its 200-week moving average of $70.83. The key technical level has been a major support for oil all through 2023, so that will be one to watch going into the weekly close this week.

Besides that, Bitcoin is also down over 1% to $44,580 and we are seeing the dollar catch more of a bid as well. It’s a case of traders reversing course from the sell the dollar, buy everything else in the past two months. That is the case as gold is also down 0.3% to $2,052 and 10-year Treasury yields up another 3 bps to 3.978% on the day.

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 PCE missed expectations across the board with
  the Core 6-month annualised rate falling below the Fed’s target at 1.9%.
• The labour market has been softening via less job
  opportunities rather than more layoffs with the Initial Claims hovering around cycle lows and Continuing Claims
  remaining high.
• The latest ISM Manufacturing PMI missed expectations falling further into
  contraction, while the ISM Services PMI beat forecasts holding on in expansion.
• The market expects the Fed to start cutting rates
  in Q1 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 beat expectations
  although the unemployment rate ticked higher again.
• 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 Q2 2024.

USDCAD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that USDCAD bounced
on the 1.32 handle and started to correct higher after an aggressive selloff in
the past few weeks. We can see that we have a good resistance zone
around the 1.3382 level where we can also find the confluence with the
50% Fibonacci retracement level
and the red 21 moving average. This is
where we can expect the sellers to step in again to target a new low.

USDCAD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that the latest leg
lower diverged with the
MACD which is
generally a sign of weakening momentum often followed by pullbacks or
reversals. In this case, the target for the pullback should come right around
the resistance zone where we can expect the sellers to start piling in. If the
price breaks above the resistance zone, the bearish setup would be invalidated,
and the buyers will likely increase the bullish bets to start targeting the
1.36 handle.

USDCAD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that from
a risk management perspective, late buyers might want to wait for a pullback
into the 1.3270 level where we can find the confluence of the recent swing
high, the 50% Fibonacci retracement level and the 4-hour 21 moving average.

Upcoming Events

This week is full of key economic data which will
culminate with the NFP report on Friday. We begin today with the US ISM
Manufacturing PMI and Job Openings and given the recent trends there could be
room for disappointment. Later in the day, we will get the release of the FOMC
Minutes, but it’s not expected to be market-moving given that it’s three weeks
old data. Tomorrow, we will have another slate of US labour market data with
the release of the US ADP and Jobless Claims figures. Finally, on Friday, we
conclude the week with the Canadian Jobs data, the NFP report and the ISM
Services PMI.

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

The recent upsurge in Houthi and
Hezbollah attacks on ships in the Red Sea has prompted the world’s two largest
container shipping lines, Moller-Maersk and Hapag-Lloyd, to halt transit.

Subsequently, two oil majors have
insisted on adding a clause to their contracts allowing them to divert their
vessels through Africa if they deem the waters near Yemen unsafe.

Now, most of the major shipping lines,
responsible for more than 60% of the world’s container transport, have given up
using the Bab-el-Mandeb Strait and the Suez Canal, respectively.

What
will be the result of all this?

Locally, this could turn into an economic disaster for Egypt. Thirty percent of the world’s container
traffic passes through the Suez Canal, generating some $10 billion a year in
tolls for Egypt.

In addition, the conflict in the
neighboring Gaza Strip threatens to disrupt tourist stocks and natural gas
imports. As a result, prices will rise in the country, while people’s incomes
will fall.

In the long term, this could lead to
social unrest.

On a larger scale, it could lead to
widespread trade disruption and increased logistics costs, triggering another
round of price hikes and forcing central banks to delay changes in monetary
policy.

What
do countries plan to do in response?

No one wants to jeopardize the progress
made in the fight against inflation. So, it is no surprise that the United States has officially
announced the launch of Operation Prosperity Guardian to ensure safe navigation
in the Red Sea.

To achieve this, an international naval
coalition comprising the United States, the United Kingdom, Canada, Italy,
France, the Netherlands, Spain, Seychelles, and Bahrain has formed.

These ships will escort merchant ships
and protect them from Houthi attacks.

In response to his U.S. counterpart
Austin’s announcement of the launch of an operation, Yemen’s Defense Minister
Al-Atifi declared, „We will turn the Red Sea into your graveyard.“

What
next?

The Houthis will continue to send drones
and rockets. These drones and missiles will be successfully intercepted 99% of
the time. However, unfortunately, 1% of the time, the targets will still be
hit.

Further down the road, this could become
a new trigger for the continuation of the bloody conflict. And there is a
possibility that, again against its will, Iran will sooner or later be drawn
into it.

What
should an investor do?

Usually, when the geopolitical situation
worsens, gold (XAUUSD) tends to benefit. Oil could also have seen a
significant rise, but the markets see no real reason to do so for now.

Yes, some 7 million barrels of oil pass
daily through the Red Sea from north to south and vice versa. If logistics were
to change for a long time, spot prices could rise by $3 to $4 per barrel.

The good news is that there is still
capacity to reroute shipments, so Goldman Sachs analysts do not expect the
situation in the Red Sea to have much influence on oil prices.

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