US Dollar Bumped by Hawkish Fed and the RBA Joins the Rate Hike Party. Higher USD?

US Dollar, Crude Oil, Gold – Talking Points

US Dollar resumed strengthening yesterday but has slipped todayThe Fed reminded markets of their intention and yields respondedIf Fed Chair Powell is hawkish today, will that drive the DXY (USD) Index up?

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The US Dollar is treading water so far today after massive gains across the board thanks to Fed commentary for higher rates raising the prospect of a hawkish Fed Chair later today.

Yesterday, Atlanta Fed President Raphael Bostic highlighted that the tight labour market seen in Friday’s data might mean that the peak in rates could be higher than where the market is currently pricing.

Futures and swaps markets are now pricing a 2023 peak in US rates above 5.10%, up from below 4.90% last week.

The comments lifted Treasury yields across the curve with the short end seeing the largest bump. The benchmark 2-year note fell just short of 4.50% in the US session and all bond yields have eased a touch in the Asian session so far today, in line with a softening US Dollar.

Wall Street finished their day lower with the Nasdaq notching a 1% decline. APAC equities have had a quiet day with Australia’s ASX 200 slightly in the red, Japan’s Nikkei 225 fairly flat and Chinese markets scratched out small gains

The RBA hiked rates by 25 basis points today in a somewhat pastiche approach to monetary policy after the Fed’s re-acceleration toward hawkishness. The move boosted the Aussie Dollar and has been the biggest gainer against the greenback.

It is being reported that Washington is planning to slap a 200% tariff on Russian Aluminium in the next week or 2.

The Japanese Yen is firmer after solid wage data raised speculation that the Bank of Japan might reconsider its ultra-loose monetary policy stance.

Crude oil is slightly firmer with the WTI futures contract near US$ 74.75 bbl and the Brent contract is a touch above US$ 81.50 bbl. Gold is steady at around US$ 1,875 an ounce at the time of going to print.

In other news, the New York Stock Exchange (NYSE) has agreed to pay 60% of claims from the trading glitch last month.

The focus later today will be Fed Chair Jerome Powell’s speech at the Economic Council in Washington. The very strong labour market, and Bostic’s comments yesterday might have laid the groundwork for stronger hawkish rhetoric from the chief rate setter.

The full economic calendar can be viewed here.

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DXY (USD) INDEX TECHNICAL ANALYSIS

The DXY Index is testing the upper band of an ascending trend channel today after it recovered from a seven-month low seen last week.

The 55-day simple moving average (SMA) is just above the trend line and may offer resistance.

Further resistance could be at the prior peaks of 105.63, 105.82, 107.20 and 107.99.

On the downside, support may lie at the breakpoint of 101.30 or down at the previous lows of 100.82, 9957 and 99.42.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

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US Dollar Blazes Higher on Solid Data as Geopolitics Play Out. Where to for USD?

US Dollar, DXY Index, USD, NFP, Fed, BoJ, USD/JPY, Nikkei 225, China – Talking Points

US Dollar resumed strengthening today after Friday’s massive rallyRisk assets appear vulnerable as Fed rate hike expectations re-accelerateIf the US economy is booming, will the Fed act and what will it mean for USD?

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The US Dollar continues to fight back after a blistering jobs report on Friday showed that the Fed might have more heavy lifting ahead to rein in inflationary pressures.

The ramifications of the massive beat of US total nonfarm payrolls (NFP) data continued to play out through the Asian session on Monday.

517k jobs were added in January according to the US Bureau of Labour Statistics, way above the 188k anticipated and last month’s read of 223k was also revised up to 260k. This put the unemployment rate at 3.4%, below the 3.6% forecast and 3.5% previously.

Treasury yields are higher, adding to large gains seen at the end of last week with the 2-year part of the curve seeing a generous uptick as it traded back above 4.35% after visiting 4.04% last week.

The Aussie and Kiwi Dollars have been hardest hit in the currency space as high beta risk assets tumble on the prospect of tighter monetary policy from the Fed.

USD/JPY is notably higher after the Nikkei newspaper reported that the Bank of Japan (BOJ) Deputy Governor Masayoshi Amamiya has been sounded out to take the top job when Haruhiko Kuroda steps down in April.

He is seen as maintaining the current relatively loose monetary policy. The Nikkei 225 equity index bucked the broader weakness in stock markets, trading in the green. Hong Kong’s Hang Seng index was down over 2.3% at one stage. Futures are pointing to a soft start to the Wall Street cash session.

The backdrop to market gyrations today is engulfed by the Chinese balloon saga that has Sino-US relations turning icy once more. The cancellation of Secretary of State Antony Blinken’s visit to Beijing might disrupt China’s smooth economic transition out of the pandemic era.

Gold is languishing near Friday’s low under US$ 1,870 an ounce. Similarly, crude oil is struggling to make headway with the WTI futures contract trading near US$ 73.50 bbl while the Brent contract is around US$ 80 bbl.

Looking ahead, there will be a number of speakers from the Bank of England today.

The full economic calendar can be viewed here.

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How to Trade EUR/USD

DXY (USD) INDEX TECHNICAL ANALYSIS

The DXY Index has recovered from a seven-month low but remains within a descending trend channel.

Resistance could be at the breakpoint 103.42 or further up and the prior peaks of 105.63, 105.82, 107.20 and 107.99.

On the downside, support may lie at the breakpoint of 101.30 or down at the previous lows of 100.82, 9957 and 99.42.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

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Dow’s Skepticism Anchors Nasdaq Volatility, Dollar Charged by NFPs and Rate Forecasts

Dow, Nasdaq 100, Dollar, USDJPY and Rate Forecasts Talking Points:

The Market Perspective: USDJPY Bullish Above 132.00; EURUSD Bearish Below 108In a week packed with event risk, the strong US NFPs and service sector activity shaped the Fed rate hike interpretation for a distinct Dollar takeWhere the Greenback’s fundamentals seem more direct, the bearings for risk trends as the Dow broods and Nasdaq jumps around are unresolved

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As we look ahead to a new trading week, what is the background mood of the market? An argument can be made by the bulls who point to the general progress made by benchmarks like the Nasdaq 100 over the entirety of this past week – a general push to four-month highs – with justification developed around an impending peak in the major central banks’ tightening cycle and improvement in growth forecasts. Alternatively, bears can draw on the late retreat Friday from the same measures with backing through the erosion of terminal rate discounts. However, these are debate points founded more on belief than tangibility. That means that the ultimate bearing the market takes will be highly contentious and founded more on the collective speculative view and less on scheduled developments.

I long ago resolved myself to the reality that the communal view of the market is what ultimately directs price action. As the saying goes, the ‘market can remain irrational longer than you can solvent’; but the perception of irrationality is itself judgement. That said, there are some underlying aspects to the market that I believe will factor into the overwhelming current of sentiment. The Dow Jones Industrial Average’s refusal to participate in the swell of enthusiasm is remarkable. It wasn’t the only ‘risk’ connected asset not to take part, but the disparity between the Dow (‘value index’) and Nasdaq 100 (‘growth index’) was striking. It perhaps is a result of a resurgence in speculative participation relative to larger market players. The former typically holds a shorter duration and acts on more unconventional reasoning. The latter is more often the foundation for trend development. How can we distinguish market groups? Beyond comparison of close counterparts like Dow-NDX, options activity of retail traders (as a percentage of the entire market) surged to overtake the ‘meme stock’ craze peak this past week.




of clients are net long.




of clients are net short.

Change in

Longs

Shorts

OI

Daily
-9%
0%
-4%

Weekly
4%
-8%
-4%

Chart of Dow Jones Industrial Average and ‘Wicks’, Overlaid with the Nasdaq 100 (Daily)

Chart Created on Tradingview Platform

Looking out over next week’s fundamental docket, there is nothing of prominence that would readily be considered capable of redefining broader risk trends – not like the FOMC decision or NFPs that we had this past week. That means that the winds already to our back will converge with unpredictable headlines and organic speculative trends to form whatever systemic trends we ultimately find. For the current fundamental mix, two major events on Friday seemed to materially change the tone of speculation. After the Federal Reserve’s decision this past Wednesday to hike rates 25 basis points and offer rhetoric to suggest it was still on pace for its projected terminal rate, the market was happy to once again discount the authority’s forecast. That changed, however, when the ISM services report for January was released. The world’s largest economy is heavily dependent on service-based businesses for growth and employment, and the past month’s measure jumped much more sharply than expected – alleviating much of the concern of recession associated to the previous month’s surprise slump (below 50.0). While that can be a boon for growth potential, it is also a capital market burden in supporting the Fed’s drive.

Chart of S&P 500 with US Mfg and Service Activity, Overlaid with Official Recessions (Monthly)

image2.png

Chart Created by John Kicklighter

The prop to Fed forecasts was even more distinctly bolstered by the January labor report. Nonfarm payrolls (NFPs) increased by a net 517,000 which was substantially higher (by 332,000 positions) than the economist consensus. With average hourly earnings growing another 0.3 percent and the jobless rate dropping to a seven decade low, there was a clear divergence in the focus of the central bank’s dual mandate for full employment and stable inflation.

Chart of US Change in Nonfarm Payrolls with Level of ‘Surprise’ Relative to Forecasts (Monthly)

image3.png

Chart Created by John Kicklighter

There were some remarkable moves to come out of this fundamental mix outside of the US indices. In single shares, the top tech stocks which reported earnings after the close Thursday found Google and Amazon sporting serious reversals while top market cap company Apple weathered the storm with a 2.4 percent gain. US 2-year yields charged 19 basis points higher while gold suffered its biggest drop in six months. From the Dollar, there was a notable rally registered across the spectrum as rate forecasts climbed. From a technical perspective, EURUSD through its break of the rising wedge from November and the 20-day moving average. That said, its fundamental backdrop is not as steady. While the Dollar is looking to maintain a yield advantage through their respective terminal rates, the ECB peak is still ambiguous. USDJPY on the other hand is fairly clear with its yield focus on the US side of the equation (though it is an outlier risk the BOJ surprises again like December). What’s more, this pair is also better aligned to risk trends. Looking into next week, it is possible that ‘risk appetite’ is restored but given we are already buoyant on that front with VIX very low, that development would likely be choppy with limited stretch. A spell of fear on the other hand could come swiftly and exact a serious toll. While we often treat the Yen as a ‘haven’; with USDJPY, there is a positive correlation to the VIX.




of clients are net long.




of clients are net short.

Change in

Longs

Shorts

OI

Daily
-26%
10%
-8%

Weekly
-12%
-3%
-7%

Chart of USDJPY with 20-Day SMA and Spot-20SMA Disparity (Daily)

image4.png

Chart Created on Tradingview Platform

While the forthcoming economic docket doesn’t offer much in the way of systemic guidance for the global capital markets, there are nevertheless events for which we should keep track. Monetary policy will likely manifest in more relative consideration rather than a collective perspective (unless sentiment sours). With that said, central bank speak will be a moving target while the Reserve Bank of Australia (RBA) decision will offer the only update from a major player. With AUDUSD dropping, a dovish outlook after an expected hike could exacerbate the rebalance. On the growth / recession side of the conversation, there are secondary indicators galore such as Canadian manufacturing, German industrial production, US economic sentiment and Japanese household spending. Standouts will be Chinese foreign exchange reserves, UK GDP and US consumer sentiment (from the UofM).

Top Global Macro Economic Event Risk for Next Week

image5.png

Calendar Created by John Kicklighter

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Crude Oil Price Under the Pump in the Face of Fed, ECB and BoE Hikes. Lower WTI?

Crude Oil, US Dollar, WTI, Brent, FOMC, Fed, BoE, ECB. OPEC+ China – Talking Points

Crude oil prices have found some support after a tumultuous weekThe Fed, BoE and ECB tightening has raised recession concernsOPEC+ maintain its target while China resurfaces. Where to for WTI?

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Crude oil has had a torrid week so far with wider market movements overshadowing the optimism of China re-joining the global economy.

The Federal Reserve, the European Central Bank (ECB) and the Bank of England (BoE) all tightened monetary policy in the last few days. While stocks have broadly rallied, black gold has struggled to find support.

The increasingly restrictive stance from central banks globally has contributed to speculation around the probability of a recession in these major economies.

The market interpreted the Fed as potentially nearing the end of its rate hike cycle despite Fed Chair Jerome Powell specifically saying that he did not see a rate cut this year. Interest rate futures and the swaps market have priced in a cut for November.

While the US Dollar has gained ground in the last 24 hours, it continues to languish against other currencies and gold. The DXY index, a broad measure of the US Dollar against a basket of currencies, remains near a 10-month low.

The lower dollar may assist other countries to increase oil demand as it becomes cheaper in their domestic currency.

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Prior to the Fed meeting, data from the Energy Information Administration (EIA) showed inventories increased by 4.1 million barrels last week, well above market estimates.

OPEC+ left production targets unchanged at their gathering this week.

Elsewhere, it is anticipated that Europe will soon introduce further restrictions on Russian refined oil products.

It appears that the outlook for crude is heavily dependent on the smooth transition of China away from its zero-case Covid-19 policy. An increase in demand from the Middle Kingdom might be enough to counterbalance a decrease in consumption in other parts of the world.

WTI CRUDE OIL TECHNICAL ANALYSIS

After making a 12-month low in December, crude oil has rallied to establish higher highs and higher lows in an ascending trend channel.

Yesterday’s sell-off tested the lower trend line support and that move was rejected. That trend line and the low may provide support near 75.00 ahead of the previous lows at 72.46 and 70.08.

The price has moved below all short, medium and long-term Simple Moving Averages (SMA) this week and that bearish momentum could unfold should the trend line be broken.

While most SMAs have rolled over, the 21-day SMA maintains a positive gradient which might suggest that the market is unclear for directional momentum at this stage. Should that 21-day SMA turn negative, it may indicate that bearish momentum could be unimpeded.

On the topside, resistance might be in the 82.48 – 82.72 area where there is a cluster of prior peaks ahead of the December high of 83.34.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

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Gold Prices Rallied as Markets Kept Betting Against the Fed, Now What?

Gold, XAU/USD, Federal Reserve, Technical Analysis – Briefing:

Gold prices rallied the most in almost 2 weeks after the FedMarkets continue to bet against Powell’s rate outlook visionXAU/USD now turns to non-farm payrolls data on Friday

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Gold prices gained 1.14 percent on Wednesday, the most in almost 2 weeks. The yellow metal is on course for a 7th consecutive week of gains. That would be the longest winning streak since the summer of 2020. All eyes were on the Federal Reserve over the past 24 hours, which delivered a 25 basis point rate hike, as expected. That brought benchmark lending rates to a range of 4.50% – 4.75%.

As usual, the focus was on what could come rather than on what occurred. Since the end of last year, markets have been pricing in an increasingly dovish outlook. As a result, the US Dollar and Treasury yields fell as the S&P 500 gained. The Chicago Fed National Financial Conditions Index is at its lowest since the Fed started tightening last year – a sign of easing liquidity in markets despite quantitative tightening.

What did Chair Jerome Powell say? He acknowledged that inflation has eased somewhat but that ‘it remains elevated’. He stressed that the central bank ‘will need to stay restrictive for some time’ and that if the economy performs as expected, policymakers don’t see cuts this year. How did the markets respond?

Despite Powell’s rhetoric, financial markets continued to bet against the central bank. Fed Fund Futures point at 2 rate cuts towards the end of this year. This is as traders added in almost half a cut to the 2-year horizon. On the intraday chart below, you can see the US Dollar falling alongside front-end bond yields. Gold rallied, capitalizing as the ‘anti-fiat’ trading instrument.

Powell was questioned about the recent easing in financial conditions, but his answer left more to be desired. He said that the focus is “not on near-term moves, but on sustained changes”. All things considered; this continues to leave markets vulnerable to disappointment if a pivot becomes increasingly unlikely. To that end, the focus remains on economic data and non-farm payrolls on Friday.

Gold Surges During the Federal Reserve Rate Decision

Gold Technical Analysis

Gold closed at a new high this year, taking out the January peak at 1949.16. That placed XAU/USD closer to the key 1978 – 1998 resistance zone. Negative RSI divergence is present, showing that upside momentum is fading. That can at times precede a turn lower. In such a case, the 20-day Simple Moving Average (SMA) could maintain the upside focus.

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XAU/USD Daily Chart

XAU/USD Daily Chart

Chart Created Using TradingView

— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

To contact Daniel, follow him on Twitter:@ddubrovskyFX

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Gold Treads Water Ahead of a Cascade of Central Bank Hikes. Where to for XAU/USD?

Gold, XAU/USD, US Dollar, FOMC, DXY Index, ECB, BoE, Crude Oil – Talking Points

The gold price is steady today as markets await central banks actionsThe US Dollar tried higher but pulled back into the range amid uncertaintyThe market is eyeing today’s FOMC meeting. What will it mean for XAU/USD?

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Gold had a look lower at the US$ 1,900 handle in the US session but quickly recovered back above US$ 1,925. At the same time, the DXY Index, a benchmark measure of the US Dollar, moved to higher ground before collapsing into the New York close.

Wall Street had a stellar session on hopes that the Fed Chair Jerome Powell might soften the hawkish stance at today’s Federal Open Market Committee (FOMC) meeting.

Prior to the media blackout, several committee members had been sprouting the message that 25 basis points seemed like the appropriate dosage for tightening and that rates will need to remain high for ‘a long period’.

Interest rate markets have a 25 bp lift baked in. It is the post-meeting commentary that has the potential to set off market moves.

In addition, the European Central Bank (ECB) and the Bank of England (BoE) will be meeting tomorrow, and the market expects both banks to tighten by 50 bp.

Treasury yields slipped a few bps overnight but have done very little through the Asian session today.

The Nasdaq posted a 1.67% gain in its cash session, but futures are indicating a soft start to their day trading.

APAC equities have had a quiet day, although most indices are slightly positive. Likewise, currency markets are lying in wait to see what comes of the Fed meeting, although the Swiss Franc posted solid gains yesterday.

After testing lower levels yesterday, crude oil has held onto the consequent recovery. The WTI futures contract is above US$ 79 bbl while the Brent contract is around US$ 85.80 bbl at the time of going to print.

After the European CPI number, the US will see figures on mortgage applications, employment and the ISM survey. The Fed remains the focus late in the day.

The full economic calendar can be viewed here.

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GOLD TECHNICAL ANALYSIS

Gold has dipped below the 10-day simple moving averages (SMA), but remains above all other short, medium and long-term daily SMAs.

This may suggest a pause in short-term bullish momentum, but that underlying medium and long-term bullish momentum remains intact for now. The price remains in an ascending trend channel.

Resistance might be at the recent peak of 1949 or the April 2022 high of 1998.

On the downside, support may lie at the lows of 1900 and 1897 or the breakpoints of 1865 and 1825.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

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Euro Steadies Ahead of Crucial Fed and ECB Meetings This Week. Higher EUR/USD?

Euro, EUR/USD, US Dollar, Fed, ECB, China PMI, AUD/USD. Crude Oil – Talking Points

Euro support eased as markets look toward rate changes this week.A strong Chinese PMI wasn’t enough to overcome weak local data for the AussieThe Fed, ECB and BoE are in the box seat this week. Where will EUR/USD end up?

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The Euro is steady going into the European session today and is looking to notch up a fourth straight monthly gain after making a 20-year low last September.

The US Dollar losing ground across the board has aided the rally thanks to perceptions that the Federal Reserve might be less aggressive in its tightening regime.

The move up for EUR/USD has also received some tailwinds from the European Central Bank (ECB) stepping up its fight against inflation.

Tomorrow the Fed will be fine-tuning its stance, followed by the ECB on Thursday. Markets are anticipating a hike of 25 basis points(bp) and 50 bp respectively.

Markets in general appear to be bracing for these key events with APAC equities having a quiet Tuesday after a stellar January performance to the topside.

Wall Street finished its session lower, with the Nasdaq down 1.96%. Futures are pointing to a soft start to their cash session later.

Currency markets are relatively subdued with the exception of the Aussie Dollar. It slid lower after disappointing domestic retail sales and credit data. The move also dragged the Kiwi Dollar down.

A strong Chinese PMI number for January revealed the uptick in sentiment after the Communist party unshackled the economy from Covid-19 restrictions at the end of last year.

The manufacturing PMI for January was in line with forecasts at 50.1 and the non-manufacturing read came in at 54.4, notably above the 52.0 anticipated. This combined to give a composite PMI read of 52.9 against 42.6 previously.

Treasury yields have held onto overnight gains with the benchmark 10-year note back 3.50%

Elsewhere, the Adani saga continues to play out as the conglomerates’ rebuke of criticism is yet to allay markets. The company has lost around US$ 70 billion of market capitalisation since an active investor, Hindenburg Research, listed a series of concerns.

Crude oil continues to sink to 2-week lows on worries of the tightening coming from central banks this week. The WTI futures contract is under US$ 78 bbl while the Brent contract is below US$ 85 bbl. Gold is fairly steady near US$ 1,920.

A series of inflation, jobs and growth data across Europe is due out today.

The full economic calendar can be viewed here.

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How to Trade EUR/USD

EUR/USD TECHNICAL ANALYSIS

EUR/USD made a 9-month high this month at 1.0927 which was just shy of the historical resistance levels at 1.0936 and 1.0945 which are a breakpoint and prior peak respectively. These levels may continue to offer resistance.

The price is almost all period simple moving averages (SMA) with except for the 10-day SMA. A recovery back above it may see bullish momentum evolve.

On the downside, support could be at the previous lows and breakpoints of 1.0787, 1.0774, 1.0766 and 1.0736.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

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US Dollar Poised Ahead of Fed as China Returns. Where to for USD?

US Dollar, DXY Index, USD, Fed, FOMC, China, CSI 300, Hang Seng – Talking Points

The US Dollar remains range bound as the Fed meeting loomsAn impending tightening by the BoE and ECB also clouds expectationsChina’s re-opening might provide a bright spot. Will that send the DXY index lower?

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The US Dollar continues to tread water to start the week ahead of the Federal Open Market Committee (FOMC) meeting on Wednesday.

The market is anticipating a 25 basis point (bp) lift in the target rate. Friday’s PCE inflation data suggests that a slowing in the pace of hikes might be appropriate.

A crucial aspect will be the post-decision press conference where Fed Chair Jerome Powell will be speaking in a question-and-answer session. US Treasury Secretary Janet Yellen highlighted recession risks last Friday.

It is a big week ahead for central banks with the Bank of England (BoE) and the European Central Bank (ECB) also delivering a verdict for their respective rate paths on Thursday. A Bloomberg survey of economists forecasts a 50 bp hike from both banks.

Mainland Chinese markets re-opened today after a week off to celebrate the Lunar New Year. The CSI 300 equity index opened over 2% higher but then eased lower throughout the day. Hong Kong’s Hang Seng Index (HSI) went deep in the red, down over 1.6% at one stage.

Korea’s Kospi index was also notably lower while Australian and Japanese indices were little changed. Futures markets are pointing to a benign start to the Wall Street cash session later.

Currency markets have had a quiet start to the week while crude oil continues to languish after Friday’s sell-off. OPEC+ will be meeting on Wednesday to discuss production targets where most of the market is not anticipating a change.

Likewise, gold has been subdued so far, trading near US$ 1,930 at the time of going to print.

After the German GDP number today, the US will see the latest read of the Dallas Fed’s manufacturing activity index.

The full economic calendar can be viewed here.

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How to Trade EUR/USD

DXY (USD) INDEX TECHNICAL ANALYSIS

The DXY index continues to moulder near the 10-month low. This month’s low of 101.50 and the May 2020 low of 101.30 might provide support. The price has been in the 101.50 – 103.49 range for 3-weeks.

On the topside, resistance could be at the breakpoint of 103.42 or the prior peaks of 103.49, 105.63, 105.82, 107.20 and 108.00.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

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GBP Weekly Outlook: BoE & Fed to Dictate Pound Sentiment

POUND STERLING ANALYSIS & TALKING POINTS

More certainty around BoE leaves USD factors more interesting by means of Fed guidance (Jerome Powell).U.S. economic data including NFP and ISM to clarify the picture moving forward.Will the rising wedge strike again?

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GBP/USD FUNDAMENTAL FORECAST: BEARISH

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The British pound prepares itself for a stacked week ahead that include both Bank of England (BoE) and Federal Reserve interest rate decisions respectively (see economic calendar below). The BoE has hinted at yet another 50bps hike which is confirmed by money market pricing as seen in the table below. While this is largely priced into GBP crosses, the vote split shown in the February meeting may provide some price volatility. Last meeting saw a majority in favor of 50bps but considering new economic data there may be additional votes split between 50bps and 25bps with the BoE’s Tenreyro and Dhingra possibly remaining with their unchanged stance – this would likely result in a bearish reaction on the pound. On the contrary, softer energy prices may be limiting recessionary fears but with 2023 terminal rates expected around 4.5% (agreed to by Governor Bailey), the BoE may remain on this path maintain it’s institutional credibility.

BANK OF ENGLAND INTEREST RATE PROBABILITIES

Source: Refinitiv

From a USD point of view, markets are looking through the Fed’s guidance of a 5% terminal rate for 2023 on the basis of slowing inflationary pressures. The labor market on the other hand has been extremely resilient and will be closely watched next week via the Non-Farm Payroll (NFP) report. In addition, ISM services data is key bearing in mind that the U.S. is primarily a services driven economy (a close eye will be on wage statistics as well).

FEDERAL RESERVE INTEREST RATE PROBABILITIES

image2.png

Source: Refinitiv

GBP/USD ECONOMIC CALENDAR

image3.png

Source: DailyFX Economic Calendar

TECHNICAL ANALYSIS

Introduction to Technical Analysis

Candlestick Patterns

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GBP/USD DAILY CHART

image4.png

Chart prepared by Warren Venketas, IG

Daily GBP/USD price action has now been hovering around the December 2022 highs with no success from bulls to confidently push through this resistance zone just yet. Next week’s fundamental drivers could certainly provide the catalyst depending on the meeting outcomes. Bears will be looking closely at the developing rising wedge formation (black) for the second time since the December breakout played out in a textbook fashion. With the Relative Strength Index (RSI) level close to overbought territory, a leg lower is not impossible; while an invalidation of the wedge formation may occur should we see a daily candle close above the 1.2500 psychological handle.

Key resistance levels:

Key support levels:

Wedge support1.2154/200-day SMA1.2000

BEARISH IG CLIENT SENTIMENT

IG Client Sentiment Data (IGCS) shows retail traders are currently SHORT on GBP/USD, with 57% of traders currently holding short positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment but due to recent changes in long and short positioning, we arrive at a short-term downside bias.

Contact and followWarrenon Twitter:@WVenketas

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Australian Dollar May Rise After US GDP Boosted Dow Jones, S&P 500, Nasdaq 100

Australian Dollar, AUD/USD, US GDP, Fed, Doji – Asia Pacific Market Open:

Australian Dollar rose after US GDP data improved sentimentThe mixed report kept door open to both hard and soft landingAUD/USD may rise if Asia-Pacific equities follow the US lead

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Asia-Pacific Market Briefing – AUD/USD May Rise After Rosy US Session

The sentiment-linked Australian Dollar pulled cautiously higher on Thursday after US GDP data bolstered risk appetite on Wall Street. At the end of the session, the Dow Jones, S&P 500 and Nasdaq 100 gained 0.61%, 1.1% and 1.76%, respectively. This risk-on dynamic dented demand for haven assets, pushing the US Dollar lower.

In the fourth quarter of 2022, the US economy grew 2.9% q/q. That was higher than the 2.6% consensus. However, personal consumption – the largest segment of growth – expanded only 2.1% against the 2.9% estimate. The details of the report showed that the upside surprise in the headline rate was caused by volatile components, such as inventory growth and government outlays.

Overall, this likely painted a mixed picture. Arguments can be made here that point towards a hard and soft landing. This may keep the Federal Reserve on its current path with markets looking for the tightening cycle to soon conclude in the coming few months. The Australian Dollar has also been benefiting from a surprisingly strong local inflation report earlier this week that increased RBA rate hike bets.

Heading into Friday’s Asia-Pacific trading session, AUD/USD is eyeing Australian PPI data for the fourth quarter. Elevated readings that fall in line with the CPI report may keep markets focused on a more hawkish RBA. Furthermore, if traders extend the rosy Wall Street trading session in Asia, the Australian Dollar may continue benefiting.

Australian Dollar Technical Analysis

On the daily chart, AUD/USD appears to be trading within the boundaries of a bearish Rising Wedge. Meanwhile, a Doji candlestick pattern has emerged as prices tested the August high. The latter is a sign of indecision. Should prices reject resistance, a turn lower towards the floor of the wedge may occur. Otherwise, extending gains exposes the May high at 0.7283.

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AUD/USD Daily Chart

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— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

To contact Daniel, follow him on Twitter:@ddubrovskyFX

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