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An account of the deliberations of the Bank of Canada?s Governing Council leading to the monetary policy decision on January 25, 2023 has been release

An account of the deliberations of the Bank of Canada’s Governing Council leading to the monetary policy decision on January 25, 2023 has been released as follows:

"While Governing Council was acutely aware of ongoing uncertainty, they concluded that data since the October MPR had largely reinforced their confidence that inflation would come down through 2023.

"Members framed the decision along two dimensions: • whether to leave the policy rate where it was or to increase it by 25 basis points • whether to maintain similar forward-looking language as in the previous policy statement or to adjust it to signal a pause

"The case for leaving the policy rate at 4.25% was that developments with respect to both the economy and inflation were beginning to move in the right direction and that policy had been forceful and just needed more time to do its work.

"The case for raising the rate by an additional 25 basis points was twofold. First, doing so reflected the fact that developments in the real economy since the December decision had been quite strong:

• Labour market data continued to indicate tightness. • Third quarter GDP growth was stronger than expected, and fourth quarter economic activity was also likely to be stronger than previously projected.

"In other words, data on both the labour market and economic activity suggested that there was more excess demand in the economy in the fourth quarter of 2022 than previously forecast.

"A second rationale for raising the rate by an additional 25 basis points related to the risk of inflation getting stuck somewhere above 2% later in the projection.

 

"Putting in place some additional tightening now could help insure against that outcome.

"Members were in broad agreement that, going forward, it would be appropriate to pause any additional tightening to allow economic developments to unfold. The Bank had been forceful to date in tightening monetary policy, and the full impact was still to come. In addition, there were enough “green shoots” of progress. Allowing time for further progress to occur would recognize the lags in the transmission of monetary policy and balance the risk of over- versus under-tightening.

"Members discussed how to communicate this need to pause. They reflected on their previous communication in December, which had indicated Governing Council would consider whether the policy interest rate needs to rise further. That communication had also articulated three developments Council would be assessing:

• How tighter monetary policy is working to slow demand • how supply challenges are resolving • how inflation and inflation expectations are responding

"They agreed that the December communication conveyed more of a data-dependent, “decision-by-decision” stance about whether to raise the policy rate further. They debated whether that remained appropriate. Through further discussion, they drew a few conclusions:

• Council wanted to convey that the bar for additional rate increases was now higher. If the economy and inflation were to unfold broadly in line with the projection, they agreed they would probably not need to raise rates further. • Council also wanted to give a clear sense that they would need an accumulation of evidence to determine whether further rate increases would be required to return inflation to the 2% target. • Members also felt it was important to be clear about the conditionality of any pause. Given inflation was still well above the target, Governing Council continued to be more concerned about upside risks. In its determination to return inflation to the 2% target, Governing Council would be prepared to raise the policy rate further if these upside risks materialized.

"Governing Council reached a consensus to increase the policy rate by 25 basis points and adjust its communications to indicate a conditional pause on any further policy tightening.

USD/CAD update

The bulls are putting up a last-ditch effort to contain the price above the key structure around the 1.3420 as follows: 

The USD/CHF drops for two consecutive days, though buyers are reclaiming the February 7 daily low of 0.9191, as they are eyeing to reclaim the 50-day
  • USD/CHF remains range-bound though it meanders slightly below the 0.9200 figure.
  • USD/CHF: If it reclaims the 50-day EMA, it will shift neutral; otherwise, a resumption of the downtrend is likely.

The USD/CHF drops for two consecutive days, though buyers are reclaiming the February 7 daily low of 0.9191, as they are eyeing to reclaim the 50-day EMA at 0.9299. At the time of writing, the USD/CHF exchanges hands at around 0.9200.

USD/CHF Price Analysis: Technical outlook

After dropping beneath 0.9200, the USD/CHF encountered solid support at around 0.9180s, beneath a two-month-old downslope resistance trendline, that turned support. It should be said that the USD/CHF pair is still neutral to downward biased, but with the 20-day Exponential Moving Average (EMA) resting at 0.9215, the USD/CHF could rally in the near term.

Nevertheless, oscillators like the Relative Strength Index (RSI) suggest that a bearish continuation is expected after crossing beneath the 50 mid-line. Contrarily, the Rate of Change (RoC) indicates sideways action.

For the USD/CHF to shift neutral, buyers must reclaim the 50-day EMA at 0.9299. Once that happens, then USD/CHF buyers could be poised to test the 100-day EMA at 0.9416. ahead of the 200-day EMA at 0.9478.

For a resumption of the downtrend, the USD/CHF needs to crack the February 3 daily low of 0.9112, which could pave the way for a retest of the YTD low at 0.9059.

USD/CHF key technical levels

 

Federal Reserve Governor Christopher Waller said on Wednesday that inflation seems poised to continue slowing this year but the US central bank's batt

Federal Reserve Governor Christopher Waller said on Wednesday that inflation seems poised to continue slowing this year but the US central bank's battle to reach its 2% target "might be a long fight" with monetary policy kept tighter for longer than anticipated, as Reuters reported.

Key comments

"There are signs that food, energy, and shelter prices will moderate this year," Waller said in remarks prepared for delivery at an Arkansas State University conference, and that the Fed's rapid increases in interest rates had begun "to pay off."

"But I'm not seeing signals of ... quick decline in the economic data, and I am prepared for a longer fight," Waller said.

The surprisingly strong gain of 517,000 jobs in January showed the economy was holding up well, for example, Waller said, but also meant that "labor income will also be robust and buoy consumer spending, which could maintain upward pressure on inflation in the months ahead."

Though wage growth has slowed, the decline is "not enough," Waller said.

"The Fed will need to keep a tight stance of monetary policy for some time."

US Dollar update

The bulls are in charge while above 103.00 but the price is testing the dynamic trendline support. If this were to give way, a bearish thesis can be drawn for a continuation lower below 103.00.

USD/JPY is starting to break down the bullish structure and the bears are moving in as the US Dollar comes under pressure following a Federal Reserve-
  • USD/JPY bears are testing structure support that guards yesterday's closing price.
  • Bears will remain in control while below the micro-trendline resistance. 

USD/JPY is starting to break down the bullish structure and the bears are moving in as the US Dollar comes under pressure following a Federal Reserve-speaker-fueled rally in the US session. The following illustrates a bias to the downside based on the week's closing prices so far with Tuesday snapping the Friday Nonfarm Payrolls-induced rally that had led to two days of higher closes. 

USD/JPY daily charts

The thesis is bullish now that the price has broken to the backside of the old bearish trendline resistance. However, following Friday's bullish breakout, a correction is in play and the question is how far has this got to run still? 

The thesis is that it is more common, following such a strong bearish close that the next day(s) will continue lower on the momentum of the first day. Therefore, Wednesday would be a high probability short set-up:

However, so far the bulls have been able to make a comeback on the day, moving in on the London session's lows around 130.60 and driving the bears all the way back to a high of 131.53 in the US session. For the thesis to play out, the bears need to get back below Tuesday's closing price of 130.99 and at the time of writing, there are some 20 pips to go. The ATR is around 170 pips and the range of the day so far has been 94 pips so there is room for a further push from the bears.

USD/JPY M15 chart

The bears are testing structure support that guards yesterday's closing price but they will remain in control while below the micro-trendline resistance. 

United States 10-Year Note Auction climbed from previous 3.575% to 3.613%
Western Texas Intermediate (WTI), the US crude oil benchmark, edges up by a margin of 0.50% as a risk-on impulse hits the market, which, worried about
  • WTI is registering solid gains of 0.43% on Wednesday.
  • Less hawkish comments by Fed Chair Jerome Powell underpinned oil prices.
  • WTI Technical Analysis: Neutral- downward, though a leg-up can get as high as $80.00.

Western Texas Intermediate (WTI), the US crude oil benchmark, edges up by a margin of 0.50% as a risk-on impulse hits the market, which, worried about an astonishing US jobs report, expected a hawkish tilt of Federal Reserve (Fed) Chair Jerome Powell, on Tuesday. Nevertheless, Powell’s muted response gave the green light to traders seeking risk. At the time of writing, WTI is trading at $77.93 per barrel.

WTI has recovered from diving toward the weekly lows of $72.30 on Monday. Expectations after last Friday’s Nonfarm Payrolls report for January added that the US economy added more than 500K jobs, pressured investors as they scrambled to square off their positions in riskier assets ahead of yesterday’s speech by Jerome Powell.

Powell said interest rates would need to increase if solid labor market data threatened to derail the Fed’s progress to curb inflation. However, he declined to give any forward guidance regarding future rate hikes and their size.

That said, investors’ worries faded as higher interest rates in the United States (US) suggested the greenback could strengthen, which means oil prices are high for buyers holding other currencies.

The reopening of China after relaxing Covid-19 restrictions is expected to support the demand for fuel. In the meantime, the Organization of Petroleum Export Countries and its allies (OPEC+) decided to keep crude output unchanged, as an Iranian official said the cartel is likely to stick to its current policy on Wednesday.

Nevertheless, a solid inventory report from the US capped oil prices, as an increment in supply makes oil cheaper. The US Energy Information Administration (EIA) revealed that oil production in the US rose to its highest level since April 2020.

WTI technical analysis

Technically speaking, WTI remains neutral to downward biased, and the ongoing correction might offer sellers better entry prices. Nevertheless, if WTI’s bulls reclaim the 50-day Exponential Moving Average (EMA) at $78.71, a move toward the $80.00 figure is up for grabs. However, a resumption of the downtrend is likely to happen once WTI dives below the 20-day EMA at $77.70. Once cleared, oil prices could slide towards the February 7 low of $74.40, ahead of the weekly low of $72.30.

 

British fighter jet deliveries to Ukraine would have military and political ramifications for the entire European continent - Tass cites the Russian e

British fighter jet deliveries to Ukraine would have military and political ramifications for the entire European continent - Tass cites the Russian embassy.

The headlines follow  Ukrainian President Volodymyr Zelensky's call for deliveries of British warplanes to ensure a victory that would “change the world.”

Speaking to both houses of Parliament, Zelensky said that when he visited the United Kingdom two years ago, he thanked officials for the “delicious English tea … and I will be leaving Parliament today thanking all of you in advance for powerful English planes.”

The Washington Post wrote that ''after the United States, Britain is the largest donor of military assistance to Ukraine. It has committed $2.8 billion so far and has pledged to match that in 2023, according to a recent parliamentary briefing paper. Last month it agreed to send Challenger 2 tanks.''

Market reaction

There has been little reaction to the headlines as traders wait and see how this develops. at the time of writing, the S&P 500 is still down on the day, losing some 0.66% at 4,129 after falling from a high of 4,168 to a low of 4,113 with Federal Reserve speakers advocating for further interest rate hikes. Nevertheless, the index is correcting higher from the lows and the US dollar is under pressure. 

 

As per the prior analysis, GBP/USD Price Analysis: Bulls moving in on the bear's break of 1.2090 structure, the price rallied in a continuation of the
  • GBP/USD is making tracks higher and bulls eye the 38.2% Fibonacci target of around the 1.2120s.
  • On the 15-minute chart, GBP/USD is breaking the structure after putting in a higher low for the New York session.
  • A break of 1.2092 is now what the bulls need to solidify the prospects of a push higher for the end of the day.

As per the prior analysis, GBP/USD Price Analysis: Bulls moving in on the bear's break of 1.2090 structure, the price rallied in a continuation of the bullish correction into the Daily bearish impulse as outlined in the article. We are now in the throws of a bullish reversal of the New York session with targets for a second bullish close for the middle of the week's trade as the following will illustrate. 

GBP/USD prior analysis

GBP/USD bulls moved in on Tuesday and were setting the foundations for a bullish correction of the slide from the 1.23s at the start of February. The following illustrated the bullish bias for Wednesday (today):

The price had rallied from a low of 1.1960 to a high of 1.2095, taking out Monday's high, MH, and breaking structures, BoS, along the way, The price had also moved to the backside of the prior bearish dynamic resistance, (bearish trendline), that was expected to act as a counter-trendline. 

The breakout of those structures left the directional bias in favour of a meanwhile bullish correction on the daily chart for Wednesday, pending a bullish close on Tuesday (yesterday): 

Zoomed in...

This left the foundations of a long trade for whichever session traders were. Asia was a sideways session, setting the foundations for an explosive move to the upside in the London day whereby GBP/USD rallied from a low of 1.2037 to a high of 1.2109. 

GBP/USD, what now?

The question is whether there is anything left in the tank from the bulls in the US session. For the day to close bullish, which was yesterday's thesis, the price must close higher than Tuesday's closing price of 1.2046. The daily ATR is 122 pips and for the day so far the range has been between 1.2030 and 1.2109, 79 pips. This leaves further to go on the upside if the minimum of the daily ATR is to be reached coming in at around 1.2250. 

On Tuesday, looking for a bullish setup,  the 1.2180s were eyed in a 50% mean reversion target. On the way there, a 38.2% Fibonacci retracement was located at 1.2129 which is still vulnerable for today and certainly for the remainder of the week: 

On the 15-minute chart, the price is breaking the structure after putting in a higher low for the New York session. A break of 1.2092 is now what the bulls need to solidify the prospects of a push higher for the end of the day towards the 38.2% Fibonacci target of around the 1.2120s:

Gold price is almost flat during the North American session, meandering around the $1870 area after hitting a daily high of $1886.35, though it failed
  • Gold price is printing minimal gains of 0.14%, bolstered by lower US real yields.
  • Federal Reserve officials remain committed to tackling high inflation in the US, as said by Fed’s Williams and Cook.
  • Gold Price Forecast: Sideways, after diving from the YTD high to the 50-DMA.

Gold price is almost flat during the North American session, meandering around the $1870 area after hitting a daily high of $1886.35, though it failed to gain traction as the US Dollar (USD) pares some of its earlier losses. At the time of writing, XAU/USD is trading at around $1875, above its opening price.

Gold remains firm, even though Fed officials underpinned the US Dollar

US equity futures continued to trade negatively amidst a slew of Federal Reserve (Fed) officials emphasizing the need to raise rates to curb elevated inflation. Policymakers led by the New York Fed President John Williams said there’s “uncertainty” around inflation. He added that a jump in inflation could trigger a reaction by the US central bank.

Later, Fed Governor Lisa Cook said that even though the Fed sees improvement in inflation, it’s still running too high. She added that the US central bank is focusing on restoring price stability and reiterated the Fed is not done raising interest rates.

Market participants reacted, sending US Treasury bond yields higher, with the 10-year benchmark note rate at 3.679%. Consequently, the greenback, as shown by the US Dollar Index, registers minuscule gains of 0.09%, at 103.42.

Despite US Treasury yields being up and the buck too, the yellow metal clings to gains, underpinned by falling US Real Yields. The US 10-year TIPS, a proxy for Real Yields, stumbles from 1.351% to 1.326%, a tailwind for precious metals. The XAU/USD meanders around $1874, within the boundaries of the 20 and 50-day Exponential Moving Averages (EMAs), each at $1895.18 and $1856.20, respectively.

Gold Price Forecast: XAU/USD Technical Outlook

Gold’s daily timeframe suggests the yellow metal remains upward biased, though on an ongoing pullback. XAU/USD’s dip from the YTD high of S1959.74 towards Monday’s low of S1860.44 was capped by the 50-day EMA presence. Nevertheless, uncertainty clouds the outlook, as observed by XAU/USD’s price action, registering three successive candles with small bodies but longer upper wicks. That suggests that selling pressure remains.

Downwards, the XAU/USD first support would be $1869.16, followed by $1865.08 and $1860.44. Upwards,  Gold’s first resistance would be $1886.35, followed by the 20-day EMA at $1895.30, ahead of the $1900 figure.

 

Russia Unemployment Rate came in at 3.7%, below expectations (4%) in December
EUR/USD dropped to its lowest level since January 9 at 1.0667 on Tuesday. Economists at Rabobank maintain their three-month EUR/USD forecast of 1.06.

EUR/USD dropped to its lowest level since January 9 at 1.0667 on Tuesday. Economists at Rabobank maintain their three-month EUR/USD forecast of 1.06. 

Fed’s rates unlikely to shift lower

“On the back of the remarks from Powell yesterday, Friday’s labour data release and our ongoing concerns surrounding the impact of tight labour market conditions, we have revised up our forecast for the top of the target range for the Fed funds rate to 5.5% from 5.0%. This underpins our expectation that EUR/USD will dip back to 1.06 on a three-month view and potentially to 1.03 in six-months.” 

“Given that the market is positioned long EUR, we expect the upside for the EUR to remain capped.”

 

The Swiss Franc is in the doghouse, underperforming the Euro. Economists at HSBC expect this trend to continue over the coming month. USD/CHF to move

The Swiss Franc is in the doghouse, underperforming the Euro. Economists at HSBC expect this trend to continue over the coming month.

USD/CHF to move sideways over the coming month

“We look for modest CHF weakness against the EUR in the month ahead, given the rate market is prepared for additional tightening with 40 bps already priced in for the 23 March Swiss National Bank (SNB) meeting. 

“We do not expect the CHF’s safe haven allure to be especially in demand for the next few weeks, as concerns over a possible Eurozone recession are on the retreat.”

“One upside risk to the CHF remains any shift in risk aversion owing to, for example, a potential escalation in the conflict in Ukraine.”

“We expect USD/CHF to move sideways over the coming month.”

 

United States EIA Crude Oil Stocks Change below forecasts (2.457M) in February 3: Actual (2.423M)
Gold price is building on its recovery from four-week troughs of $1,860. Still, buyers seem to lack conviction, economists at TD Securities report. Go

Gold price is building on its recovery from four-week troughs of $1,860. Still, buyers seem to lack conviction, economists at TD Securities report.

Gold prices still remain overbought

?Shanghai Gold trader liquidations continue to suggest that behemoth Chinese buying activity over the last few months was likely exacerbated by Lunar New Year celebrations amid China's reopening, but is now on track to normalize. Still, with positioning now slightly below average, the pace of liquidations from this cohort could slow. This leaves investors as the marginal buyer or seller, which in the recent context increases the market's focus on upcoming data.? 

?We don't expect substantial downside flow from CTAs until prices break the $1,840 range, but the margin of safety against a marginal buying program is razor-thin above $1,900. In turn, while prices still remain overbought, we don't see imminent downside flow without data corroborating a more hawkish path ahead.?

In an interview with MNI Market News, European Central Bank (ECB) policymaker Klaas Knot said that the headline inflation appears to have peaked, as r

In an interview with MNI Market News, European Central Bank (ECB) policymaker Klaas Knot said that the headline inflation appears to have peaked, as reported by Reuters. Knot, however, added that keeping current pace of hikes into May could well be needed if underlying inflation does not materially abate.

Additional takeaways

"Sharp decrease in energy prices could bring down headline inflation faster than projected by the ECB."

"Slowdown in growth seems even more shallow, short-lived than expected."

"Increased activity may improve workers' bargaining power, lead to more inflation down the road."

"ECB focus has shifted from energy, headline inflation to breaking underlying inflation."

"Would expect inflation in core goods to start falling first."

"Core services inflation could prove more persistent."

"It will take some time before core inflation slows down."

"Forward-looking wage indicators confirm wage growth will increase further in 2023."

"Policy rates have swiftly been brought into the neutral range."

"Once we see a clear, decisive turn in underlying inflation dynamics, I expect us to move to smaller steps."

Market reaction

These comments don't seem to be helping the Euro gather strength against its rivals. As of writing, the EUR/USD pair was posting small daily losses at 1.0716.

The upside bias in the British pound weighs on EUR/GBP and drags it to weekly lows near 0.8470 on Wednesday. EUR/GBP weaker on GBP recovery EUR/GBP re
  • EUR/GBP retreats further south of the 0.8900 yardstick.
  • The appetite for the risky assets loses momentum on Wednesday.
  • Flash German CPI, UK GDP figures take centre stage later in the week.

The upside bias in the British pound weighs on EUR/GBP and drags it to weekly lows near 0.8870 on Wednesday.

EUR/GBP weaker on GBP recovery

EUR/GBP retreats for the third session in a row midweek and extend the offered bias following recent 5-month peaks near 0.8980 (February 3).

Indeed, the recent sharp decline in the European currency, particularly in the wake of the US NFP results, put the cross under heavy downside pressure and sponsored the ongoing drop to 4-day lows.

Moving forward, the next steps from both the ECB and the BoE are expected to drive the price action around the cross as well as the progress of the Fed?s normalization process.

So far, the ECB has already anticipated a 25 bps rate hike in March, while investors also appear to lean towards a similar rate hike by the ?Old Lady? following the bank?s more optimistic projections unveiled at the latest gathering.

EUR/GBP key levels

The cross is losing 0.15% at 0.8889 and the breakdown of 0.8758 (55-day SMA) would expose 0.8721 (2023 low January 19) and finally 0.8636 (200-day SMA). On the other hand, the next up barrier emerges at 0.8978 (2023 high February 3) followed by 0.9000 (round level) and then 0.9277 (2022 high September 26).

 

Federal Reserve Governor Lisa Cook said on Wednesday that inflation is still running too high even though it has moderated, as reported by Reuters. Ke

Federal Reserve Governor Lisa Cook said on Wednesday that inflation is still running too high even though it has moderated, as reported by Reuters.

Key takeaways

"Strongly committed to both price stability and employment mandates of the Fed."

"Data are telling a pretty clear story of a historically strong labor market, with still elevated inflation."

"Fed is focused on restoring price stability, will need restrictive monetary policy for some time."

"Without stable prices it will be hard to maintain maximum employment."

"Fed recognizes the benefits a sustained expansion will bring to low and moderate income communities."

"Inflation has severe costs and falls hardest on those living paycheck to paycheck."

"Inflation can be contained without a large increase in unemployment."

"Possible the path of the unemployment rate will be lower than most recent Fed projections."

"In times of uncertainty important not to take too much signal from two or three data points."

"Appropriate now to move in smaller steps as Fed assesses cumulative impact of rate increases so far."

"Fed will stay the course until inflation is contained."

"Fed is starting to see some improvement in inflation data."

"Expect inflation will continue falling this year and next, though progress may be uneven."

"Path of policy rates will depend on how quickly inflation moves towards the 2% goal.

Market reaction

The US Dollar Index edged slightly higher and was last seen posting small daily gains at 103.42.

United States Wholesale Inventories meets forecasts (0.1%) in December
The Mexican peso (MXN) is losing ground against the US Dollar (USD) after recovering some ground on Tuesday, following ?dovish? perceived remarks by t
  • USD/MXN recovers some ground after dropping to weekly lows of 18.8231.
  • Despite the ongoing upward correction, the USD/MXN is still downward biased.
  • USD/MXN: Failure to crack 19.0000 could exacerbate a retest of the YTD lows of 18.50.

The Mexican peso (MXN) is losing ground against the US Dollar (USD) after recovering some ground on Tuesday, following “dovish” perceived remarks by the  US Federal Reserve (Fed) Chair Jerome Powell. The USD/MXN dropped from around 19.1783 towards the week’s lows at 18.8691, but on Wednesday, the buck is recovering. At the time of writing, the USD/MXN exchanges hands at 18.9475, above its opening price by 0.17%.

USD/MXN Price Analysis: Technical outlook

Before Wall Street opened, the USD/MXN pair was trading at around the day’s lows, around 18.8231. However, a risk-off impulse increased demand for the US Dollar, so the USD/MXN is moving upwards.

The USD/MXN daily chart suggests further downside is expected, but the ongoing correction could open the door for further gains. At the time of typing, the USD/MXN has broken the 20-day Exponential Moving Average (EMA) at $18.9134 and could extend its gains towards 19.0000, a psychological resistance. A breach of the latter and the USD/MXN could rally toward January 19 daily high at 19.1085.

For the resumption of the downtrend, the USD/MXN needs a break below the 20-day EMA at 18.9134. Once cleared, that would expose critical support levels. Firstly, the February 7 low of 18.8691, followed by the day’s low at 18.8231, and then the YTD low at 18.50

USD/MXN Key Technical Levels

 

Economists at Wells Fargo forecast a softer greenback than previously and believe the US Dollar has already embarked upon a prolonged period of deprec

Economists at Wells Fargo forecast a softer greenback than previously and believe the US Dollar has already embarked upon a prolonged period of depreciation.

US Dollar's depreciation to gather pace in 2024

“Given more resilient growth internationally and a hawkish shift by some foreign central banks in recent months (notably the European Central Bank and Bank of Japan), we believe the USD has embarked upon a prolonged period of depreciation.”

“In the short term, we expect USD depreciation to be gradual as the US economy falls into recession, while the Fed hesitates to lower interest rates prematurely. 

“We expect the US Dollar's depreciation to gather pace in 2024 as we believe the Fed will start cutting interest rates quicker than foreign central banks.”

 

New York Federal Reserve President John Williams said on Wednesday that the labor market is still very strong and added that they have more work to do

New York Federal Reserve President John Williams said on Wednesday that the labor market is still very strong and added that they have more work to do on rates, as reported by Reuters.

"The Fed will watch the data to determine the path of rate rises," Williams added and argued that inflation could prove more persistent. "Maybe services prices stay elevated, and if that happens we'll need higher rates."

Market reaction

The US Dollar Index showed no immediate reaction to these remarks and was last seen posting small daily losses at 103.25.

Additional takeaways

"Last year we had a long way to go on rates and that needed big steps."

"We are likely now closer to peak and can take smaller steps."

"25 bps rate hikes seem the best option for now, they allow us to more easily assess rates."

"A peak rate of 5%-5.25% is still a reasonable view."

"Fed policy is barely restrictive right now."

"Financial conditions have gotten tighter."

"Financial conditions seem broadly consistent with the Fed's outlook on policy."

"If financial conditions loosen too much, we would have to go higher on rates."

"We need to take long-term view of data, not get caught up in the day to day."

"Seeing more positive signs globally about growth."

"Some signs US economy is also showing more resilience."

"Signs suggest we still have some work to do to get economy back into balance."

"Lags in our actions also take time; we take that into consideration."

"Demand in our economy is much stronger right now than in normal times."

"Job market is extraordinarily tight right now."

"Future Fed rate cuts more about adjusting to lower inflation."

"Fed will need to maintain restrictive rates for a few years."

Will USD/CAD eventually fall in 2023? Economists at Bank of America Global Research expect the pair to dive towards 1.25 by the end of the year. USD/C

Will USD/CAD eventually fall in 2023? Economists at Bank of America Global Research expect the pair to dive towards 1.25 by the end of the year.

USD/CAD Q1 forecast remains at 1.32 

?We maintain our downtrend USD/CAD forecast for the year despite the Bank of Canada rate hike pause.?

?We believe the Canadian Dollar will benefit from supportive equity factor, energy factor, and seasonality in the coming months.?

?We maintain our Q1 forecast of 1.32 and year-end forecast of 1.25 for the USD/CAD pair.?

EUR/USD bounces off Tuesday?s lows near 1.0670, although the bullish attempt runs out of steam near 1.0760. As long as the 3-month resistance line nea
  • EUR/USD fails to extend the bounce past the 1.0780 level.
  • The 3-month line near 1.0780 keeps capping the upside.

EUR/USD bounces off Tuesday’s lows near 1.0670, although the bullish attempt runs out of steam near 1.0760.

As long as the 3-month resistance line near 1.0780 continues to cap the upside, the pair is expected to remain under pressure and thus another move to the February low near 1.0670 should not be discarded just yet.

In the longer run, the constructive view remains unchanged while above the 200-day SMA, today at 1.0319.

EUR/USD daily chart

 

 

Equity investors appear optimistic, but US government bonds, Gold and Oil tell a less encouraging story, Lisa Shalett, Chief Investment Officer, Wealt

Equity investors appear optimistic, but US government bonds, Gold and Oil tell a less encouraging story,  Lisa Shalett, Chief Investment Officer, Wealth Management at Morgan Stanley, reports.

Equity gains are merely another bear market bounce

“Recent equity gains are merely another bear market bounce – not the beginning of a sustainable bull market. The current rally seems to be based not on improving economic fundamentals but on easing financial conditions, which we believe are likely to reverse later this year.”

“Even as stocks trade higher, recent market action for other asset classes paints a starkly different picture. US government bonds: Treasury yield curves remain deeply inverted, a time-tested signal that an economic downturn is on the horizon. Gold: Since the October low for the S&P 500, Gold continues to outperform both the S&P 500 and the Nasdaq. Oil: If equity investors are expecting a ‘soft landing’ and potential rebound in economic growth later in 2023, oil prices do not reflect that.”

 

The GBP/USD pair builds on the overnight bounce from the 1.1960 area, or over a one-month low and gains some positive traction for the second successi
  • GBP/USD scales higher for the second straight day, albeit lacks follow-through buying.
  • The risk-off mood drives some haven flows towards the USD and caps gains for the pair.
  • The technical setup supports prospects for an eventual break below the 200-day SMA.

The GBP/USD pair builds on the overnight bounce from the 1.1960 area, or over a one-month low and gains some positive traction for the second successive day on Wednesday. Spot prices, however, struggle to capitalize on the move or find acceptance above the 1.2100 mark and retreat around 35 pips from the daily top. The pair is currently placed around the 1.2075 region, still up over 0.30% for the day.

The prevalent risk-off environment - as depicted by a generally weaker tone around the equity markets - assists the safe-haven US Dollar to recover a major part of its intraday losses. This, in turn, is seen as a key factor acting as a headwind for the GBP/USD pair. That said, the prospects for an imminent pause in the Fed's rate-hiking cycle hold back the USD bulls from placing aggressive bets and remain supportive of the bid tone surrounding the major.

Looking at the broader picture, the recent repeated failures near the 1.2450 supply zone constitute the formation of a bearish multiple-top pattern on the daily chart. That said, the emergence of some buying near a technically significant 200-day SMA warrants some caution for bearish traders. This makes it prudent to wait for strong follow-through selling below the overnight swing low, around the 1.1960 zone before positioning for a further depreciating move.

With oscillators on the daily chart holding in the negative territory, the GBP/USD pair might then turn vulnerable to accelerate the fall towards the 1.1900 round figure. The downward trajectory could get extended further towards testing the YTD low, around the 1.1840 region touched on January 6, en route to the 100-day SMA, currently near the 1.1815-1.1810 area.

On the flip side, any meaningful rally beyond the 1.2100 mark is likely to confront stiff resistance ahead of the 1.2200 round figure. The latter coincides with the 100-day SMA, which if cleared might negate the bearish outlook and prompt some short-covering. The GBP/USD pair could then climb to the 1.2235-1.2280 barrier before aiming to reclaim the 1.2300 mark.

GBP/USD daily chart

fxsoriginal

Key levels to watch

 

Poland NBP Base rate meets forecasts (6.75%)
The USD/CAD pair rebounds from the weekly low touched this Wednesday and climbs to a fresh daily high, which bulls now looking to build on the momentu
  • USD/CAD attracts some buyers near the 1.3360 area, or the weekly low touched on Wednesday.
  • A modest pullback in Crude Oil prices undermines the Loonie and lends some support to the pair.
  • A weaker risk tone benefits the USD?s safe-haven status and contributes to the intraday bounce.

The USD/CAD pair rebounds from the weekly low touched this Wednesday and climbs to a fresh daily high, which bulls now looking to build on the momentum beyond the 1.3400 mark.

Crude Oil prices surrender a major part of the intraday gains to a one-week low, which, in turn, is seen undermining the commodity-linked Loonie. Apart from this, the prevalent risk-off mood benefits the US Dollar's relative safe-haven status and assists the USD/CAD pair to attract some buyers near the 1.3360 region.

From a technical perspective, any subsequent move up might continue to confront stiff resistance near the top end of over a two-month-old descending channel. The said hurdle is pegged near the 1.3455 area and is followed by the last week's swing high, around the 1.3475 zone, which should now act as a pivotal point.

A sustained strength beyond will be seen as a fresh trigger for bullish traders and set the stage for an extension of the recent recovery move from the lowest level since November 16. Some follow-through buying beyond the 50-day SMA will reaffirm the positive bias and push the USD/CAD pair beyond the 1.3500 psychological mark.

The momentum could get extended towards a technically significant 100-day SMA support breakpoint, now turned resistance near the 1.3530 region, above which bulls might aim to reclaim the 1.3600 mark.

On the flip side, the daily low, around the 1.3360 area, now becomes immediate support to defend ahead of the 1.3300 mark. A convincing break below will make the USD/CAD pair vulnerable to fall below the YTD low, around the 1.3265-1.3266 zone, and test the 1.3200 mark en route to the channel support, around the 1.3160-1.3155 zone.

USD/CAD daily chart

fxsoriginal

Key levels to watch

 

DXY loses some momentum and adds to the rejection from Tuesday?s monthly highs just ahead of the 104.00 hurdle. While above the 3-month support line n
  • The index struggles to extend the upside and returns to the low-103.00s.
  • Bullish attempts should meet the next hurdle around 104.00.

DXY loses some momentum and adds to the rejection from Tuesday’s monthly highs just ahead of the 104.00 hurdle.

While above the 3-month support line near 102.00, further gains look likely, although the index needs to clear the February high at 103.96 (February 7) to allow for the continuation of the uptrend to the 2023 top at 105.63 (January 6).

In the longer run, while below the 200-day SMA at 106.45, the outlook for the index remains negative.

DXY daily chart

 

EUR/USD losses appear to be steadying around the 1.07 point. A break past the 1.0765/70 area could lift the pair to the 1.08 level, economists at Scot

EUR/USD losses appear to be steadying around the 1.07 point. A break past the 1.0765/70 area could lift the pair to the 1.08 level, economists at Scotiabank report.

Hawkish messaging from the ECB to keep the EUR underpinned

“We think the relatively hawkish messaging from the ECB will serve to keep the EUR underpinned in the short run and that losses to the 1.07 area may provide an opportunity for bargain-hunters to step up to re-establish long positions that were squeezed out by the past week’s volatility.”

“Intraday gains through 1.0765/70 should see spot pick up a little more support towards 1.08.” 

EUR/JPY navigates within a narrow range in the mid-140.00s following Tuesday?s sharp sell-off. While the cross is expected to maintain the side-lined
  • EUR/JPY alternates gains with losses around 140.50 midweek.
  • The 143.00 region remains a tough near-term resistance zone.

EUR/JPY navigates within a narrow range in the mid-140.00s following Tuesday’s sharp sell-off.

While the cross is expected to maintain the side-lined theme in the short term, the 143.00 area remains a solid barrier for bulls. This key resistance zone also appears reinforced by the 100-day SMA, today at 142.89

If the cross breaches the 200-day SMA at 141.00 on a sustainable fashion, the outlook is expected to shift to bearish.

EUR/JPY daily chart

 

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