London Forex Report: All Eyes on US Inflation

London Forex Report: All Eyes on US Inflation

London Forex Report: New Fed chair Powell stated that “we are in the process of gradually normalising both interest rate policy and our balance sheet” and “we will remain alert to any developing risks to financial stability”. Fed’s Mester also noted that “if economic conditions evolve as expected, we’ll need to make some further increases in interest rates this year and next year, at a pace similar to last year’s”. This cemented market conviction of the next Fed hike at the March FOMC and that the recent market volatility did not derail the planned trajectory. Markets volatility continued to retreat even though global financial markets continued to see varying performance. Today’s calendar brings US Jan CPI and retail sales numbers, traders are fixated on the US CPI numbers and any resultant implications on the Fed’s projected trajectory this year.

NORTH AMERICA US NFIB small business optimism rose more than expected to 106.9 in January, a sign small businesses are optimistic about future outlook. The percentage of companies expecting a better economy climbed higher to 41% (from 37%) as more indicated that it is a good time to expand.

EUROPE UK inflation softened somewhat in Jan, suggesting protracted subdued inflation will complicate the policy normalization task by BOE. CPI held steady at 3.0% YoY while RPI and PPI Output tapered off to 4.0% and 2.8% YoY respectively in Jan. Core PPI Output also moderated to 2.2% YoY (Dec: +2.4%) but core CPI was the only reading that showed an uptick to 2.7% YoY in Jan (Dec: +2.5%).

ASIA Japan preliminary reading on 4Q GDP disappointing with a sharper than expected deceleration to 0.1% QoQ, its slowest in two years. Despite a rebound in private consumption to +0.5% QoQ (3Q: – 0.6%), business spending grew at a slower pace of 0.7% QoQ in 4Q (3Q: +1.0%), contrary to recent reports in business and capex spending. Negative net exports also exerted a drag on 4Q growth. In a separate release, machine tool orders sustained a 48.8% YoY increase in January, marking its 11th straight month of hefty doubledigit growth driven by continued hefty capital spending by both domestic and foreign manufacturers.

Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Daily close below 1.2290 concerns bullish bias delaying the 1.2635 target, the failure to recapture 1.23 handle on the weekly close suggests further weakness to test 1.2165. Near term resistance sited at 1.2395

1-3 Week View – As 1.2130 now acts as support expect a test of 1.2635 as the next upside objective. Weekly close below 1.19 neutralises bullish objectives opening a test of 1.14.
Retail Sentiment: Bearish
Trading Take-away: Long

Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Neutral

Technical: 1-3 Day View – The daily closing breach of 1.39 range support opens 1.3710, over 1.40 on a closing basis would stabilise the pair and suggest a return to focusing on upside objectives, near term resistance is sited at 1.3970

1-3 Week View – As 1.3836 supports 1.45 becomes the next upside objective, only a close back below 1.34 would jeopardise the bullish advance.
Retail Sentiment: Neutral
Trading Take-away: Neutral

Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – Anticipated breach 108.44 saw 107.20 test overnight as 108.44 acts as resistance 103.22 is the next downside objective, only over 110 stabilises pair and opens 111

1-3 Week View – As 108.40 equidistant swing support survives on a weekly closing basis bulls will look for a grind higher to retest 115, a close below 108 negates the broader bullish theme and opens the psychological 100 magnet
Retail Sentiment: Bullish
Trading Take-away: Short

Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – Breach of 132.90 opens 131.60/40 next near term resistance sited at 133.30/60

1-3 Week View – 136.10 is the principle upside objective , rotation within the broader range persists breach of 132.20 sets a retest of 131.50, a closing breach of 131 concerns the bullish consolidation bias
Retail Sentiment: Bullish
Trading Take-away: Short

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