After the hotter consumer price data, last week’s activity data indicates that underlying demand in the final months of 2023 remained robust. December witnessed an increase in industrial production and retail sales that surpassed initial projections.
Five Fed officials, including four current voting members of the FOMC, held public appearances despite the truncated holiday week. The salient aspects of these remarks are examined in the Interest Rate Watch for this week.
In China, in the fourth quarter of 2023, the gross domestic product (GDP) expanded by 5.2% year-over-year and 1.0% quarter-over-quarter, which was marginally below the consensus estimate. China's economy has been constrained by weaknesses in the property sector and consumption.
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Forex Technical Outlook for 22 January 2024 to 26 January 2024
Let’s see the list of events to look at this week:
- JPY Monetary Policy Statement on Tuesday
- NZD CPI q/q on Wednesday
- German and French PMIs on Wednesday
- BOC Overnight Rate and Rate Statement on Wednesday
- EUR Main Refinancing Rate and Rate Statement on Thursday
- Core PCE Price Index m/m on Friday
Let’s see the market outlook from the weekly forecast:
The EUR/USD pair abandoned the 1.0900 level last week, as pessimistic market sentiment supported the US Dollar. The majority of market decisions were determined by two crucial factors. Initially, investors retracted certain wagers regarding the United States (US) reducing interest rates in March, in light of economic data that suggested the resilience of the domestic economy. Furthermore, concerns emerged as a result of subpar Chinese data and instability in the domestic housing industry, which advised investors against investing in high-yielding stocks.
As the two-year anniversary approaches, property investments and transactions in China have continued to decline for the past two years. In November, the National Bureau of Statistics of China (NBS) reported that the price of newly constructed homes decreased by 0.2% annually, the fifth consecutive monthly decline.
Since May 2022, prices have been declining, with only one positive reading interspersed throughout. As a result, the markets are becoming increasingly apprehensive regarding the possibility of a significant economic recession within the nation and the potential negative repercussions it may have on other prominent economies.
The downside pressure remains intact for the EUR/USD price, as the latest weekly candle formed a new low at the 1.0844 level. Moreover, the downside pressure got pressure from the 200 Simple Moving Average level at the end of December 2023. Meanwhile, the RSI shows a downward slope at the 52.00 level, while the Momentum is flat at the positive level.
In the daily chart, bears remain in the limelight as the recent price formed three consecutive bearish pressures at the beginning of the week, above the flat 200 DMA. Meanwhile, the 20-day EMA shows a decline, showing a confluence selling pressure.
Based on the current weekly forecast, EUR/USD price could lower toward the 1.0700 psychological level, after moving below the 1.0845 support level. On the bullish side, bulls might defend the price, where a stable market above the 1.0900 level could open the room for testing the 1.1020 level.
After a lackluster final day of the first week of the new trading year, the value of the pound was a bit against the US Dollar. The US Dollar's recovery was slowed as buyers re-entered the GBP/USD market in response to the widening monetary policy divide between the Bank of England (BoE) and the US Federal Reserve (Fed).
Despite the December Consumer Price Index (CPI) figures exceeding initial expectations, there was a decline in the demand for the US dollar. The sustained market sentiment, which maintained an approximate 70% probability of a rate cut by the Federal Reserve in March, was the cause of this. The headline CPI increased by 0.3% in the preceding month, as indicated by the data, for a total annual growth rate of 3.4%. The observed values exceeded initial projections of 0.2% and 3.2%, correspondingly.
Furthermore, according to market projections, it is expected that the Federal Reserve will reduce interest rates by around 140 basis points in 2024.
GBP/USD trades within the long-term descending triangle pattern, with the static support level at the 1.2600 area.
Meanwhile, the 14-day RSI reached the 50.00 level, indicating that the ongoing buying pressure has more space upwards.
Based on the weekly market structure, a weekly close above 21-day SMA could validate the long opportunity. Above this line, the next resistance is at the 1.2767 level, from where a bullish breakout could see the 1.2828 level.
On the other hand, if Pound buyers fail to make a stable momentum above these levels, we may expect a downside correction at the 1.2620 demand level. Also, a deeper decline could take the price to the 1.2500 psychological level.
AUD/USD formed a bearish pressure from having a daily close below the near-term support level and showed a decent downside recovery.
The AUD/USD weekly price, a bearish continuation is visible as there are three consecutive bearish weekly candle forms. Moreover, the weekly RSI moved down to the 50.00 line, suggesting more selling pressure this week.
In the daily chart, the price found support at the 0.6524 level with a bullish two-bar rebound. However, the RSI rebounded without tapping to the 30.00 level.
Based on this outlook, a daily close below the 0.6520 level could be a short opportunity in this pair, targeting the 0.6400 psychological level. However, a bullish recovery with a consolidation above the 20 DMA could be a long opportunity, targeting the 0.6800 area.
USD/JPY continued pushing higher and made a remarkable break above the near-term resistance level.
In the weekly USD/JPY chart, the recent candlestick came as a bullish rebound with a continuation opportunity. Moreover, the weekly RSI is bullish, with more space to reach the 70.00 line.
In the daily chart, a bullish rally-base-rally formation is seen where the recent price closed at the multi-week high. Also, the RSI is bullish with an opportunity to reach the 70.00 line.
Based on this structure, a bullish continuation is potent after having a downside recovery to the 145.0 area. However, a bearish recovery below the 143.00 level could lower the price towards the 140.24 support level.
The gold price (XAU/USD) effectively rebounded from an initial decline of the week, regaining ground from a five-week low in proximity to the critical $2,000.
Gold initially encountered support near the $2,000 level, but encountered adverse pressure as a result of a significant resurgence in demand for the US Dollar and a concurrent rise in US yields across multiple periods.
Gold was further depressed by unfavorable Chinese data releases in the first half of the week, which reinforced the notion that a Chinese economic recovery is an extremely remote prospect.
This circumstance in China contributed to the extension of weekly declines in gold and other risk-averse assets. This transpired during a period when the US Dollar was experiencing substantial ascent, as evidenced by the USD Index (DXY) attaining annual highs of approximately 103.70 on January 17.
A further contributor to the substantial decline in gold's value was the sustained strength of the U.S. economy, which was bolstered by solid data readings. This included Retail Sales, Industrial Production, and the Philadelphia Fed Manufacturing gauge all exceeding expectations. These favorable indicators undermine excessively sanguine anticipations regarding a reduction in interest rates by the Federal Reserve during its March 20 meeting.
As per the data compiled by CME Group's FedWatch Tool, the probability of a rate reduction declined from more than 80% at the start of the week to slightly more than 50% by Friday.
In the daily chart, XAU/USD is trading within a descending channel, where the 20 DMA is an immediate resistance.
A range extension with a bearish daily close below the 2000.00 level could be an alarming sign to bulls as it may lower the price towards the 1973.00 support level.
The daily RSI reached the 50.00 line, which could indicate a bullish recovery. For a long opportunity, investors should wait for a daily close above the 2088.00 level, aiming for the 2150.00 level.
The selling pressure in BTC/USD coincides with the findings of a prominent crypto analyst, noting that Bitcoin's volatility has reached a new low for the month. Significantly, both the Realised Volatility (RZ) and the Short-Term Implied Volatility (IV) have declined below -45%.
This decrease in volatility is logical, particularly considering that investors frequently partake in speculative endeavors preceding prospective ETF approvals. As a result of this turning point, it is anticipated that a significant number of speculators will close their positions and transition to more recent, trending narratives.
While the temporary decrease in volatility may give rise to apprehensions, the Chinese New Year commencing in February and speculative trading may serve to mitigate these concerns.
According to data from CoinGlass, the recent short-term correction in Bitcoin instigated extensive market liquidations amounting to over $200 million, notwithstanding the unfolding events.
BTC/USDT made an ascending channel breakout, where the current price trades below the dynamic 20-day EMA. In that case, a downside recovery is possible if bulls fail to recover the price above the 43288.80 level.
A bearish reversal from the 20 DMA or 43288.80 resistance level could be a short opportunity in this pair, targeting the 36000.00 level.