Market news

25 January 2023

Forex Today: The count down to the big events this and next week is underway

Here is what you need to know for Thursday 26 January: 

The clock is ticking down as we head towards the end of the month and the Federal Reserve/ European Central Bank meetings. A storm is potentially building in the forex space and Thursday's data events will be critical in that regard. 

It was somewhat subdued across some pairs, but lively in others as investors and traders roll up their sleeves ahead of today's slew of key economic numbers that will go towards the Federal Reserve's interest rate decision on February 1. 

The US Commerce Department set to release its initial advance fourth-quarter Gross Domestic Product estimates at the same time that the nation's Core PCE prices will be due, likely accelerating to a 0.3% moM pace in December, though a 0.4% gain can't be discarded, analysts at TD Securities argued. ''The yoY rate likely slowed to 4.5%, suggesting prices continue to moderate but remain sticky at high levels,'' the analysts argued. In regards to the growth data, the analyst said, ''we also look for Gross Domestic Product growth to have stayed strong in Q4, posting another above-trend gain. Growth was likely supported by firm showings from the consumer and inventories.''

Ahead of this data, WIRP suggests a 25 bp hike on February 1 is fully priced in, with less than 5% odds of a larger 50 bp move.  Another 25 bp hike on March 22 is about 80% priced in, while one last 25 bp hike in Q2 is only 35% priced in. 

The dovish outlook saw the US Dollar once again fall against the euro on Wednesday, although traders are not seeing this through and EUR/USD stuck to a 1.0875 / 1.0923 range on the day. 

Elsewhere, there was some better movement in USD/JPY. The pair closed down the prior day which gave the bears the fuel to continue selling against pullbacks, denying the bulls space into the peak formation set earlier in the week USD/JPY fell from a high of 130.58 to a fresh low of 129.26 when the NY traders came on line, extending London's supply. this made for great opportunities for trades targeting prior support structures on the way down to 129.50 and then the 129.20s. 

USD/CAD was another pair that offered traders opportunities with two-way action on the day over the course of the Bank of Canada's interest rate decision. The Bank of Canada, as expected, raised the key interest rate by 25 basis points to 4.5%. In the statement, the central banks mentioned that will likely hold rates at this level while assessing the impact of recent policy moves. The Loonie weakened across the board as a result but soon r found buyers as the BoC's governor  Tiff Macklem delivered his remarks on the policy outlook and responded to questions, warning that they are not ruling out further hikes and are data dependent. The USD/CAD rose from 1.3365 to 1.3426. It then pulled back into a prior support structure in the 1.3375s in a 50% mean reversion of the BoC rally.

The Australian Dollar and Kiwi were higher on Wednesday after a surprisingly red-hot inflation report for Australia and as for Yesterday’s Q4 CPI inflation from NZ, (while still far too strong at 7.2% YoY in Q4) analysts at ANZ Bank argue that it ''was much better under the hood than the RBNZ feared at the time of the hawkish November MPS.'' The Kiwi traded between 0.6450 and 0.6504 while the Aussie between 0.7032 and 0.7122 (a key level for the day ahead that guards 0.7150. 

Elsewhere, the US 10-year yield was 1bp lower at 3.45% and WTI was down 0.1% to USD80/bbl. Gold popped 0.8% to $1940.4/oz.

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