Yesterday, the S&P 500 extended the gains as
the market continues to trade into the CPI release today probably expecting good
inflation figures. This raises the risk of a bigger selloff in case the data
surprises to the upside given that we should also see Treasury yields rising
and the aggressive rate cuts expectations getting trimmed. At the same time, we
will see the latest Jobless Claims figures and that will also be something to
factor in as strong numbers might double down on a hot CPI report. The
best-case scenario for the S&P 500 is probably benign inflation data and
not too weak Jobless Claims.

S&P 500 Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the S&P 500
eventually bounced on the swing level around the 4700 level where we had also
the red 21 moving average for confluence. The
price is now approaching the all-time high and we might see it breaking it
today with the key economic data releases on the agenda. The sellers are likely
to step in around the all-time high with a defined risk above it to position
for a drop back into the 4700 level.

S&P 500 Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can notice that
we will likely see the price diverging with
the MACD right
at the all-time high. This is generally a sign of weakening momentum often
followed by pullbacks or reversals. This is another bearish confluence for the
sellers and should give them a bit more conviction, although the data might
invalidate the setup. The buyers, on the other hand, will likely increase the
bullish bets on a break of the all-time high.

S&P 500 Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see more
closely the current price action and we can see that we have a minor trendline
defining the current bullish momentum. If the price spikes to the upside and
then breaks below the trendline, we can expect the sellers to increase the
bearish bets into the 4700 support. The
buyers, on the other hand, will likely lean on the trendline and the 21 moving
average to position for another rally.

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

The lower bond yields today is helping to see the dollar keep more sluggish to start European trading. At the same time, equities are also keeping slightly higher on the day. However, it’s tough to read much into it when everything could still change after we get to the US CPI data later.

That is still the key risk event for markets today as highlighted here. The bond market will be the main spot to watch as it will have reverberations to broader markets. For now, yields are nudging lower but it’s too early to make any calls that it will keep that way before the day ends. That being said, it will be a tall order to continue the price action from last week – especially up against a market that will hang on to anything to keep the disinflation narrative running.

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

GBP

• The BoE left interest rates unchanged as expected at the last meeting
  with no dovish language as they reaffirmed that they will keep rates high for
  sufficiently long to return to the 2% target.
• Governor Bailey pushed back against rate cuts
  expectations as he said that they cannot state if interest rates have
  peaked.
• The latest employment report missed forecasts with wage growth
  coming in much lower than expected and job losses in November.
• The UK CPI missed expectations across the board, which is
  another welcome development for the BoE.
• The UK PMIs showed the Manufacturing sector falling
  further into contraction while the Services sector continues to expand.
• The latest UK Retail Sales missed expectations across the
  board by a big margin as consumer spending remains weak.
• The market expects the BoE to start
  cutting rates in Q2 2024

JPY

• The BoJ kept its monetary policy unchanged at the last meeting with interest
  rates at -0.10% and the 10 year JGB yield target at 0% with 1% as 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 unless wage growth picks up.
• The latest Japanese CPIshowed that inflationary pressures
  are easing although they remain well above the BoJ’s 2% target.
• The latest Unemployment Rate remained unchanged near cycle lows.
• The Japanese Manufacturing PMI fell further into contraction but
  the Services PMI ticked higher remaining in expansion.
• The latest Japanese wage data missed expectations by a big margin
  and as a reminder the BoJ is focusing on wage growth to decide whether to tweak
  its monetary policy.
• The Tokyo CPI, which is seen as leading indicator
  for National CPI, eased further but the Core-Core measure remains stuck at
  cycle highs.
• The market expects the BoJ to hike
  rates in Q2 2024.

GBPJPY Technical Analysis –
Daily Timeframe

On the daily chart, we can see that GBPJPY is now
at a key resistance around
the 184.45 level. This is where we can expect the sellers to step in with a
defined risk above the level to position for a drop into the 178.00 support.
The buyers, on the other hand, will want to see the price breaking higher to
increase the bullish bets into new highs.

GBPJPY
Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we can see more clearly the
range between the 178.00 support and the 184.45 resistance. The buyers will
also need to be careful as we might get a fakeout, which could be confirmed if
the price after the breakout falls and breaks below the most recent higher low
around the 182.80 level.

GBPJPY Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see more
closely the current price action with the JPY losing ground since the miss in
the wage data. It looks more and more likely that the sellers can count only on
rate cuts from the BoE as the BoJ is unlikely to do much with lower inflation
and low wage growth. We can see that we have also a minor trendline that
is supporting the current uptrend. If we see a fakeout and the price breaks
below the trendline, the sellers are likely to pile in again targeting a break
below the 182.80 swing low.

Upcoming Events

Tomorrow we get the US CPI report and the US Jobless
Claims figures, while on Friday we conclude the week with the UK GDP and the US
PPI data.

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

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

10-year Treasury yields are now trading closer to the 4% mark and the Reuters poll of 62 bond strategists sees that yields should keep around 4.10% in three months‘ time. Although the forecast is trimmed from the previous poll in December by about 15 bps, it does point to the thinking that the recent bounce in yields may hold for a while longer.

HSBC’s global head of fixed income research, Steven Major, argues that: „Our forecast is for yields to remain unchanged in the first three months; and while that may sound really boring, that’s how bonds work. I feel very strongly the next big move in yields is downwards and will come in the second half of the year because markets need to see actual moves from the central bank rather than working on pure expectations.“

The forecast from the rest of the pollsters show that 10-year yields are expected to be at around 3.93% by the end of June before falling further to 3.75% by year-end.

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

It is much easier to take a straight comparison on how the odds have changed. Here’s a look at things back at the end of December i.e. just two weeks ago:

• Federal Reserve: -156 bps (first -25 bps in March)
• European Central Bank: -161 bps (first -25 bps in April)
• Bank of England: -141 bps (first -25 bps in May)
• Swiss National Bank: -66 bps (first -25 bps in June)
• Bank of Canada: -120 bps (first -25 bps in April)
• Reserve Bank of Australia: -53 bps (first -25 bps in June)
• Reserve Bank of New Zealand: -93 bps (first -25 bps in May)

And here is how that has changed as of now:

• Federal Reserve: -140 bps (first -25 bps in May)
• European Central Bank: -138 bps (first -25 bps in April)
• Bank of England: -116 bps (first -25 bps in June)
• Swiss National Bank: -54 bps (first -25 bps in June)
• Bank of Canada: -122 bps (first -25 bps in April)
• Reserve Bank of Australia: -46 bps (first -25 bps in September)
• Reserve Bank of New Zealand: -85 bps (first -25 bps in July)

Besides the Bank of Canada, every other central bank have seen rate cut odds slashed with most also seeing the timing of the first rate cut shift. That speaks to the consideration put into the market moves last week and it is now down to the US CPI data tomorrow to bring all of that together.

Will we get more of a pushback on the aggressive rate cut pricing similar to the week before? Or are we going to revert back to the euphoric run in markets in November and December?

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 NFP report beat
  expectations although there was more weakness under the hood.
• 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 Q1 2024.

NZD

• The RBNZ kept its official cash rate
  unchanged at the
  last meeting stating that demand growth continues to ease and it’s expected to
  decline further with monetary conditions remaining restrictive.
• The New Zealand inflation data missed expectations supporting the
  RBNZ’s stance.
• The latest labour market report showed a notable increase in
  the unemployment rate and a slowdown in wage growth which is something that will
  keep the RBNZ on the sidelines.
• The Manufacturing PMI improved although it remains in
  contractionary territory. The Services PMI, on the other hand, jumped back
  into expansion.
• The market expects the RBNZ to start
  cutting rates in Q2 2024.

NZDUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that NZDUSD is now
trading at a key support zone
around the 0.6215 level where we can also find the 50% Fibonacci retracement level
for confluence. This is
where the buyers are stepping in to target a rally into the 0.64 resistance.
The recent break below the trendline might be a bad omen for the buyers though.
In fact, if the price breaks below the support, we can expect the sellers to
pile in more aggressively and extend the drop into the 0.61 level next.

NZDUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see more clearly the recent
price action. We can notice 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 buyers piled in to defend the support zone and
position for the rally into the 0.64 resistance, but the pair got stuck in a
consolidation.

NZDUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see more
closely the price action between the 0.6215 support and the 0.6280 resistance.
This rangebound market gives us a clear setup:

• A break to the upside is likely to lead to
  a rally into the 0.64 resistance.
• A break to the downside should trigger a
  selloff into the 0.61 support.

Upcoming Events

Tomorrow we will get the latest US CPI report and the
US Jobless Claims figures, while on Friday we conclude the week with the US PPI
data.

This article was written by FL Contributors 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 NFP report beat
  expectations although there was more weakness under the hood.
• 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 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 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 Q2 2024.

USDCAD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that USDCAD rallied
all the way back to the key trendline around
the 1.34 handle where we can also find the confluence with the
red 21 moving average and the
50% Fibonacci retracement level.
This is where the sellers are piling in with a defined risk above the trendline
to position for a drop into new lows. The buyers, on the other hand, will want
to see the price breaking higher to invalidate the bearish setup and position
for a rally into the 1.36 handle.

USDCAD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that the latest leg
higher into the trendline diverged with the
MACD, which
is generally a sign of weakening momentum often followed by pullbacks or
reversals. In this case, it’s another layer of confluence for the sellers and
increases the chances of seeing another drop from these levels. If the price
breaks below the upward counter-trendline, we can expect the sellers to
increase their bearish bets into new lows.

USDCAD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see more
closely the current price action with the pair now compressed between the
downward and upward trendlines. This gives us a clear setup:

• A break above the 1.34 handle should lead
  to a rally into the 1.36 handle next.
• A break below the downward trendline is
  likely to trigger a selloff into new lows.

Upcoming Events

This week is basically empty on the data front with the
only two notable releases scheduled for Thursday when we will get the US CPI
report and the US Jobless Claims figures, and then we conclude the week with
the US PPI data on Friday.

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

This is the 24th straight month that the index remains below the 50-year moving average of 98. NFIB notes that small businesses remain very pessimistic about the outlook coming into this year, with 23% of firms reporting inflation to be their single-most important problem in business operations – up 1% from November. Adding that while 2023 is now „in the rearview mirror, it will weigh heavily on the
2024 economy“.

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

There’s not much in terms of action so far in European morning trade, with the market moves so far looking rather tentative at best. 10-year Treasury yields are holding steady at around 4.04% after the drop yesterday and that is keeping traders on edge today:

The limiting factor so far looks to be the 200-day moving average (blue line) but also the 23.6 Fib retracement level from the swing lower since the end of October to December. That is the first key hurdle for bond sellers to break through in order to validate further the recent bounce in yields to start the new year.

As yields keep steadier today, the dollar is also finding itself in a similar position. USD/JPY is down slightly by 0.2% to 143.90 but it has been weaving in and around the 144.00 mark so far in European trading. Besides that, EUR/USD is flat at 1.0945 and GBP/USD down 0.1% to 1.2735.

Looking at the commodity currencies, AUD/USD is down 0.2% to 0.6700 despite a stronger Australian retail sales report here. However, the data comes with a big caveat amid a boost from the Black Friday sales.

In the equities space, stocks are also not really following through on the gains yesterday – at least not yet. S&P 500 futures are down 0.3% and European indices are also slightly lower so far on the day. That isn’t leaving much for risk trades to work with on the session as such.

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