XtreamForex | Daily Technical Analysis

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EUR/USD Stays Under 1.1000 as Market Anticipates US PPI Data Release

The EUR/USD currency pair maintains its positive stance, displaying resilience against a renewed demand for the US dollar (USD) in the early Asian trading session on Friday. Currently, the major currency pair is trading at 1.0983, marking a modest gain of 0.11% for the day. This uptick is largely attributed to a risk-on sentiment prevailing in the market, as investors eagerly await key economic data from the United States.

On Thursday, the US Labor Department released data indicating that Initial Jobless Claims for the week ending January 6 had dropped to their lowest since mid-October. The figure decreased by 1,000 to 202,000, slightly down from the previous week’s revised count of 203,000. This decline suggests a strengthening labor market, a critical factor in economic assessments and monetary policy decisions.

Inflation figures also painted a notable picture. The US Consumer Price Index (CPI) for December reported a year-over-year increase of 3.4%, exceeding both the previous 3.1% reading and the market consensus of 3.2%. The Core CPI, which strips out the volatile food and energy prices, registered a 3.9% year-over-year rise in December, surpassing the expected 3.8%. These inflation metrics are closely monitored as they significantly influence the Federal Reserve’s monetary policy. Current market speculation, as per CME Group’s FedWatch tool, indicates about a 64% chance of a rate cut by the Fed in March, a slight decrease from last week’s expectations.

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USD/CAD Stays Below 1.3400, Focus on BoC Business Outlook Survey

During early European trading on Monday, the USD/CAD pair has been unable to break above the 1.3400 level. This stagnation can be attributed to a combination of a weakening US Dollar (USD) and disappointing US Producer Price Index (PPI) data. Currently hovering around 1.3391, the pair has seen a modest gain of 0.19% over the course of the day.

The market’s expectations for a more dovish Federal Reserve (Fed) have been on the rise. Data from the World Interest Rate Probability (WIRP) indicates that the probability of a rate cut at the Fed’s March meeting has jumped from 75% at the beginning of last week to nearly 85%. Furthermore, the swaps market is now anticipating around 175 basis points (bps) of easing from the Fed this year, a significant increase from less than 150 bps expected earlier. The upcoming release of the US December Retail Sales data on Wednesday is garnering significant attention, with forecasts predicting a monthly increase of 0.4%, up from November’s 0.3%.

In Canada, expectations are mounting for the Bank of Canada (BoC) to reverse its course of rate hikes and begin cutting interest rates as early as this spring. Current market pricing, as per WIRP, fully anticipates a rate cut at the BoC’s April meeting, with a total of nearly 150 bps in cuts expected for the year. The upcoming Canadian Consumer Price Index (CPI) for December, set to be released on Tuesday, is eagerly awaited as it could provide further insights into the BoC’s future monetary policy direction. Analysts are forecasting the headline inflation rate to rise to 3.3% year-over-year, up from 3.1% in November.

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WTI Rises to $72.70 Amid Supply Disruptions, Strikes Near US Consulate in Iraq

West Texas Intermediate (WTI) crude oil prices are showing signs of recovery, trading around $72.70 per barrel during the Asian session on Tuesday. This rebound comes after recent losses, driven by a series of geopolitical events affecting global oil supply routes and security concerns.

A key factor in the price surge is the ongoing supply disruptions in the Red Sea. The region has seen an increase in maritime security threats, primarily due to attacks by Yemen’s Houthi movement. These security concerns have forced many shipping vessels to alter their usual routes, leading to higher shipping costs and longer transit times for crude oil transportation. This disruption is significantly impacting the global oil supply chain, as the Red Sea is a crucial route for oil transportation.

In response to these threats, the US-led Combined Maritime Forces (CMF), based in Bahrain, issued an advisory last Friday. They warned all maritime vessels to avoid the Bab al-Mandab Strait, a key maritime chokepoint, highlighting the severity of the situation.

Further escalating tensions, Iranian state media reported that the Islamic Revolutionary Guard Corps (IRGC) launched missile strikes near the US Consulate in Erbil, northern Iraq. The missiles reportedly targeted areas believed to be espionage centers and bases for anti-Iranian groups. This development adds to the regional instability and raises concerns over potential broader conflicts.

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NZD/USD Rebounds Near 0.6150 After Chinese Data, Ending Two-Day Decline

During the Asian trading session on Wednesday, the NZD/USD currency pair saw a modest uptick. Despite mixed economic signals from China, the pair, often viewed as a proxy for Chinese economic performance, experienced some growth. Investors are now keenly awaiting the US Retail Sales data, expected later in the day, for further direction. Currently, the NZD/USD is trading at 0.6150, marking a 0.22% increase for the day.

In a detailed look at the Chinese economic data, the National Bureau of Statistics of China released figures indicating a mixed economic scenario. December’s Industrial Production in China saw a year-over-year increase of 6.8%, slightly above both the expected and previous figure of 6.6%. However, Retail Sales for the same month fell to 7.4% from a prior 10.1%, underperforming against the market consensus of 8.0%. This decline in Retail Sales suggests a potential slowing in consumer spending, a vital component of economic health.

The Gross Domestic Product (GDP) data from China also painted a complex picture. For the fourth quarter, China’s GDP expanded by 5.2% on an annual basis. This growth rate, while an improvement from the 4.9% expansion in the third quarter, was below the anticipated 5.3%. On a quarter-over-quarter basis, the GDP growth was 1.0% in Q3, aligning with expectations but down from the previous 1.3%.

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U.S. Stock Market Declines as Robust Economic Data Delays Expectations for Interest Rate Cuts

U.S. stocks experienced a downturn while bond yields surged on Wednesday, as the market absorbed robust economic data that appears to challenge expectations for quick interest rate reductions by the U.S. Federal Reserve.

The leading stock indices closed with losses, reacting to unexpectedly high holiday spending figures. Retail sales in December showed a significant 0.6% increase, surpassing economists’ projections of a 0.4% rise. This surge in consumer spending, a key driver of the U.S. economy, contributed to a noticeable climb in the 10-year Treasury yield, which ascended by three basis points to reach 4.104%.

This strong consumer expenditure has been a cornerstone in sustaining the U.S. economy, ensuring a resilient GDP growth in the face of tightening financial conditions. However, this latest set of data might increase the likelihood of the Federal Reserve maintaining a stringent monetary policy. The Fed has been closely monitoring for signs of economic slowdown and a definitive reduction in inflation rates. Adding to this complexity, the Consumer Price Index data for December indicated a higher-than-anticipated acceleration in inflation, climbing by 3.4% on a year-over-year basis.

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USD/CHF Approaches 0.8680 as SNB Chairman Expresses Swiss Franc Concerns

USD/CHF is maintaining its impressive upward trend that commenced on January 11, driven in part by concerns expressed by Swiss National Bank (SNB) Chairman Thomas Jordan regarding the appreciating Swiss Franc (CHF). Jordan’s remarks, delivered at the World Economic Forum (WEF) in Davos, focused on the potential impact of the CHF’s appreciation on the SNB’s ability to maintain positive inflation in the Swiss domestic economy. These comments have played a role in driving the USD/CHF pair slightly higher, with trading hovering around the 0.8680 mark during the Asian session on Friday.

The Swiss Franc experienced rapid appreciation towards the end of 2023, prompting the SNB to sound the alarm. The central bank emphasized that excessive strengthening of the CHF could pose a significant threat to the Swiss economy, potentially leading to a swift decrease in inflation. This warning has placed market participants on high alert, as they await key data releases such as Swiss Producer and Import Prices, which could provide further insights into the direction of consumer price inflation in Switzerland.

Meanwhile, the US Dollar Index (DXY) has been holding steady, maintaining recent gains and showing a positive bias. This strength in the USD is primarily attributed to robust US Treasury yields. The DXY is currently trading around the 103.40 level, and the 2-year and 10-year yields on US bond coupons stand at 4.36% and 4.16%, respectively, at the time of writing.

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USD/CHF Nears 0.8680 Amid Hawkish Fed Stance

The USD/CHF currency pair has embarked on a remarkable winning streak since its journey began on January 11. As of the Asian trading hours on Monday, it finds itself trading in close proximity to the 0.8680 mark. While this uptrend is a testament to the strength of the pair, it’s not without its challenges and dynamics that demand attention.

One significant factor affecting the USD/CHF exchange rate is the mounting anticipation among market participants regarding potential policy rate adjustments by the US Federal Reserve (Fed) in the year 2024. This expectation hinges on the belief that the Fed may opt for more substantial rate reductions compared to major central banks worldwide. This sentiment has the potential to exert downward pressure on the US Dollar (USD), impacting the USD/CHF pair.

However, it’s worth noting that amidst this backdrop of uncertainty, hawkish comments from Federal Reserve (Fed) members have emerged as potential stabilizers for the US Dollar. San Francisco Fed President Mary Daly, in her remarks delivered on a Friday, emphasized the central bank’s recognition of the substantial work required to achieve the goal of reining in inflation and returning it to the 2.0% target. This suggests a measured approach to policy changes rather than abrupt rate cuts, which could help mitigate potential losses for the USD.

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Asian Stocks Show General Growth as Chinese Market Rally Picks Up Again

In the dynamic landscape of Asian financial markets, there has been a notable upturn, primarily driven by significant positive movements within mainland China’s stock sector. This surge is attributed to the announcement of a new market support initiative, generating optimism among investors. Chinese stocks, particularly those listed in Hong Kong, have shown a remarkable increase of 3.2%, with the CSI 300 onshore benchmark reversing its initial downtrend to register a gain of 0.4%. This turnaround is largely a result of the Chinese government’s efforts to inject approximately 2 trillion yuan (equivalent to $278 billion) into the market. This funding, primarily sourced from offshore accounts of state-owned enterprises, is intended to stabilize the stock market by purchasing shares domestically.

Market experts, such as Daisy Li from EFG Asset Management HK Ltd., express a hopeful sentiment regarding the impact of the stabilization fund, especially considering the previous challenges faced by the market. This positive outlook is further supported by the gains observed in various currencies. The offshore yuan has appreciated by 0.4% against the US dollar, and the Australian dollar has also seen an increase of 0.5%.

Additionally, the Japanese yen continued to strengthen following remarks from Bank of Japan Governor Kazuo Ueda. Ueda acknowledged the increasing likelihood of the central bank achieving its inflation targets, although he noted the complexity in determining the exact timing for shifting away from the current ultra-loose monetary policy. These comments came in the backdrop of the Bank of Japan’s decision to maintain its policy settings and revise its economic forecasts .

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NZD/USD Drops Below 0.6100 After Brief Post-CPI Gains

The NZD/USD currency pair, commonly known as the Kiwi, has been facing challenges in leveraging its modest gains observed during the Asian trading session on Wednesday. The pair is hovering precariously close to a nearly two-month low, around the 0.6065-0.6060 region, a threshold it had encountered just the day before. Currently, the pair is trading slightly below the 0.6100 mark, showing little change over the day. However, a blend of economic factors may provide a buffer against more significant declines.

In a recent update, Statistics New Zealand disclosed a slowdown in domestic consumer inflation. The year-over-year rate dropped from 5.6% to 4.7% in the final quarter of 2023. Despite this deceleration, the inflation rate remains significantly higher than the Reserve Bank of New Zealand’s (RBNZ) target range of 1% to 3%. This persistent inflationary pressure reduces the likelihood of an imminent interest rate cut by the RBNZ. Such a scenario, coupled with a subdued performance of the US Dollar (USD), might offer some degree of support to the NZD/USD pair.

Conversely, the prospects for the US Dollar appear somewhat constrained, owing to expectations that the Federal Reserve (Fed) might not be quick to implement rate cuts, given the ongoing resilience of the US economy. This scenario is further compounded by geopolitical uncertainties, particularly in the Middle East, and a generally unstable global economic outlook. These factors collectively could bolster the USD, viewed as a safe-haven currency, and consequently limit the potential for significant gains in the risk-sensitive Kiwi.

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Gold Price Faces Difficulty Sustaining Gains, Awaits US GDP Data for New Momentum

The Gold price (XAU/USD) is exhibiting a slight upward trend in the early European trading session on Thursday. Despite this, the momentum remains tepid, with prices hovering near the weekly low reached the previous day. Investors appear cautious, opting to stay on the sidelines as they await the Advance US Q4 GDP growth figures. These figures are crucial as they could provide insights into the Federal Reserve’s (Fed) potential timeline for interest rate reductions. Any such adjustments by the Fed are likely to influence the trajectory of gold, a non-yielding asset, in the short term.

As the market gears up for this significant data release, the US Dollar (USD) is also under scrutiny. The USD has been struggling to gain substantial traction and remains below its peak since December 13, which was recorded on Tuesday. This relative weakness in the dollar is providing some degree of support to gold prices.

Additionally, the possibility of escalating geopolitical tensions in the Middle East is another factor bolstering gold’s appeal as a safe-haven asset. These tensions add to the complex global backdrop against which gold is currently being traded. However, the market’s reduced expectations for an aggressive policy easing by the Fed and anticipation of an early interest rate cut have contributed to keeping US Treasury bond yields at elevated levels. High yields on these bonds typically act as a deterrent for gold investments, as they offer returns, unlike the precious metal.

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