Month to date, versus the US dollar, Europe's single currency is lower by -1.3% and has erased all of December's upside. Multi-timeframe technical approach highlights nearby resistance The Research Team acknowledged the following in recent analysis regarding the monthly timeframe: Overall, the currency pair has been in a downward trend since 2008, fashioned through a series of lower lows and lower highs evident on the monthly chart. Also apparent from this chart, the pullback from the September (2022) low of $0.9536 could be viewed as a long-term sell-on-rally scenario. Monthly resistance warrants attention overhead at $1.1233 and shares chart space with a 50-month simple moving average (SMA) at $1.1149. Equally, support from $1.0516 is noteworthy, a level that welcomed buyers in November 2023. Ultimately, given the downtrend in the EUR/USD, $1.1233 resistance will likely be a difficult barrier to penetrate and, thus, perhaps encourage selling if challenged again. Breaching current support, therefore, might be the long-term technical objective as of now, opening the door towards monthly support at $0.9873.  From the daily timeframe, you will note that price movement concluded the week flanked by the 50-day and 200-day simple moving averages at $1.0896 and $1.0845, respectively. You may recognise the pair discovered support from the latter in the second half of last week, and a Golden Cross materialised earlier this month—a long-term trend reversal signal, which somewhat conflicts against current price action: a fresh lower low that indicates the early phase of a downtrend. Beyond the moving averages, resistance is at $1.1011 and support falls in at $1.0758 (complemented by a 61.8% Fibonacci projection ratio and a 100% projection ratio at $1.0739 [a simple harmonic AB=CD pattern]). Meanwhile, the short-term H1 chart finished the week on the doorstep of a resistance zone between $1.0907 and $1.0900. Albeit small, the area consists of several technical tools to form rather meaningful confluence, including trendline resistance extended from the high of $1.1139, a double-bottom pattern's neckline and Fibonacci retracement ratios. Should price engulf this resistance area this week, buyers could enter the fray based on the double-bottom pattern's ($1.0845) completion (neckline breach), in which a profit objective tends to be derived from the base value and extended from the breakout point (in this case, $1.0969). Direction for the week ahead? Having noted the longer-term monthly trend facing south, and price action on the daily timeframe showing signs of an early downtrend (lower high followed by a subsequent lower low), as well as daily price ending the week testing the underside of the 50-day SMA at $1.0896, the H1 resistance zone between $1.0907 and $1.0900 could be a location sellers draw to in early trading this week. However, in the event of a breakout higher, not only would this see daily price navigate terrain north of the 50-day SMA, it would also essentially deliver the green light for short-term longs based on the H1 double-bottom pattern, targeting $1.0969. Source: TradingView

In the upcoming sessions, the direction of US interest rates is expected to be influenced by economic data releases and the market's response to the Treasury supply dynamics. When the Fed goes silent ahead of the January policy meeting, the market does not necessarily fly blind; instead, it creates an environment where market participants will zero in on incoming economic data. Additionally, the market's response to the issuance of new bonds, reflecting the supply of government debt dynamics, will be closely watched. Investors will assess how demand for these bonds impacts yields for short-, medium-, and long-term interest rate expectations. In the early months of 2024, Treasury prices have declined, leading to higher yields. Despite the rise in bond yields, equities have not been significantly impacted, and the S&P 500 even achieved a new record high. This occurred despite the notable yield increase at the front end of the yield curve against a backdrop of resistance from policymakers who expressed concerns about aggressive pricing for potential rate cuts. But as discussed at length last week, the prevailing sentiment suggests that the path of least resistance for the Fed is leaning toward a minimum of 75 bp of insurance rate cuts this year. But the key uncertainties revolve around the pace of cuts and, perhaps significantly, the timing of such monetary policy adjustments. However, we will likely have a better idea of where March cut probabilities sit after Friday's release of the US PCE deflator report for December, which is anticipated to provide evidence that inflation is slowing and possibly tipping the scales in favour of the March rate cut. Nonetheless, it was somewhat refreshing to witness stocks moving higher in response to positive macroeconomic data, suggesting that good news may once again be interpreted positively in the market. To the degree this good news is good news, the environment holds up. We will soon find out by the end of the week. The upcoming critical macroeconomic event leading to this month's Federal Open Market Committee (FOMC) meeting is the advance reading on the fourth-quarter US Gross Domestic Product (GDP). Consensus forecasts anticipate a 2% growth rate for the headline GDP figure and a 2.5% expansion in the personal consumption component. Investors will closely watch these figures as they provide insights into the overall economic performance and consumer spending trends, potentially influencing market sentiment and expectations leading to the FOMC meeting. As of January 19, the Atlanta Federal Reserve's GDPNow forecast stands at 2.4%, offering an early indication of the potential growth rate for the current quarter. While there may be a temptation to anticipate the risk associated with a strong GDP reading leading markets to adjust their expectations for a March rate cut, the broader focus could shift toward the core Personal Consumption Expenditures (PCE) metric. Notably, the final reading for the third quarter GDP revealed a downward revision in the core PCE print to 2%. Investors will likely pay close attention to this inflation measure, which is crucial in shaping monetary policy decisions. The impact of these developments on the likelihood of a March Fed rate cut remains a matter of debate. The upcoming pivotal event is Jerome Powell's press conference on January 31, where his messaging could significantly influence the betting odds for a Q1 rate reduction. The Federal Reserve will have input from additional data points by March, which will likely substantially impact market expectations more than the events in the coming week. There is a conceivable threshold regarding equities where a reduced expectation of Fed cuts could turn negative without a corresponding acceleration in earnings growth expectations. However, the stock market has experienced a positive trend in 2024, with traders trimming March rate-cut odds to around 40% last week and implied cuts for 2024 by approximately 30 basis points. Surprisingly, this adjustment did not hinder equities from reaching new highs.

Forget about the Federal Reserve (Fed) dovish expectations that should be dialed back because the American economy is too strong to require a rate cut as early as March from the Fed. Forget that strong US economic data is not good news for the market. And forget about the fact that the rally in tech stocks should temper, to let the rest of the market catch up with the Magnificent 7. Because it isn't happening. Nasdaq 100 hit a fresh ATH yesterday, even though the latest US data showed that the initial jobless claims fell more than expected to the lowest level in more than a year, the mortgage rates slipped after a two-week rise, and home data was better than expected, as well. TSM, the main chipmaker of Apple and Nvidia, jumped nearly 10% yesterday, after the company said that it expects a return to solid growth this quarter. Nvidia hit a fresh record. The US dollar index consolidates gains near its 200-DMA. The EURUSD is rangebound between its 50 and 200-DMAs, near the limit of the major 38.2% retracement on October to January rally, which should distinguish between the continuation of the positive trend or a medium term bearish reversal. I think that the latter is more likely and the USDJPY continues to extend gains above the 148 level, boosted by weak inflation data. The BoJ meets next week and will certainly push back on the normalization bets. Yet at the current levels, the USDJPY is subject to verbal intervention from the BoJ to cool down the selling pressure. Therefore, buying the USDJPY at the current levels is risky.

EUR/USD extends its sideways consolidative price move amid mixed fundamental cues. Mixed signals from ECB policymakers hold back traders from placing directional bets. Subdued USD price action also does little to provide any meaningful impetus to the pair. The EUR/USD pair oscillates in a narrow range through the early European session on Friday and remains within the striking distance of over a one-month trough touched on Wednesday. The European Central Bank (ECB) policymakers have struggled to send a clear message if they will raise interest rates or lower them, which is holding back traders from placing directional bets around the shared currency. In fact, Bundesbank President Joachim Nagel said on Monday that it is too early for the ECB to discuss cutting interest rates as inflation remains high. In contrast, ECB Governing Council Member Tuomas Valimaki on Tuesday signalled his openness to consider lowering interest rates sooner than most of his colleagues. Furthermore, ECB President Christine Lagarde declined to push back against bets for a cumulative of over 150 basis points (bps) rate cuts this year. Lagarde, however, cautioned against premature optimism in markets amid a rise in the Eurozone inflation, to the 2.9% YoY rate in December. Apart from this, subdued US Dollar (USD) price action failed to provide any meaningful impetus to the EUR/USD pair on the last day of the week. The better-than-expected US Retail Sales data released on Wednesday, along with Thursday's robust labor-market report, suggested that the economy is in good shape. Moreover, the recent hawkish remarks by several Fed officials tempered expectations for an early interest rate cut. Meanwhile, diminishing odds for a more aggressive policy easing by the US central bank lift the yield on the benchmark 10-year US government bond to its highest in over five weeks and lend some support to the buck. That said, the markets are still pricing in a 50% chance of a Fed rate cut in March. This, along with a stable performance around the equity markets, caps the upside for the safe-haven Greenback and lends some support to the EUR/USD pair. Hence, it will be prudent to wait for a sustained move in either direction before determining the near-term trajectory for the currency pair. Market participants now look forward to ECB President Christine Lagarde's comments at the World Economic Forum for some impetus. Later during the early North American session, traders will take cues from the US economic docket – featuring the release of the Preliminary Michigan Consumer Sentiment and Inflation Expectations, along with Existing Home Sales data. Apart from this, speeches by influential FOMC members, along with the US bond yields and the broader risk sentiment, could drive the USD demand and produce short-term trading opportunities around the EUR/USD pair. Nevertheless, spot prices remain on track to register weekly losses in the wake of the underlying bullish tone surrounding the USD. Technical Outlook From a technical perspective, this week's breakdown below the 61.8% Fibonacci retracement level of the December move-up favours bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and suggest that the path of least resistance for the EUR/USD pair is to the downside. That said, a convincing break below the very important 200-day Simple Moving Average (SMA), currently pegged near the 1.0845 region, is needed to reaffirm the negative outlook. Spot prices might then accelerate the fall further towards the 100-day SMA, around the 1.0765 region, before aiming to challenge the December swing low, near the 1.0725-1.0720 area. This is closely followed by the 1.0700 mark, which if broken decisively should pave the way for an extension of the recent corrective decline from a multi-month peak touched in December. On the flip side, the 1.0900 mark might continue to act as an immediate barrier ahead of the 1.0920 horizontal zone, representing a nearly two-week-old trading range support breakpoint. Any further recovery is more likely to attract fresh sellers and remain capped near the 1.0970-1.0975 supply zone. The latter should act as a key pivotal point, which if cleared decisively might trigger a short-covering rally. The subsequent move-up has the potential to lift the EUR/USD pair beyond the 1.1000 psychological mark, towards the next relevant hurdle near the 1.1060 area. The momentum could extend further towards the 1.1100 mark en route to the multi-month peak, around the 1.1135-1.1140 region. EUR/USD daily chart

The mainstream psyche has latched onto a Goldilocks scenario where inflation dies, interest rates fall, and the economy glides to a soft landing. People should probably read the end of the story because Goldilocks dies. Also – it's a fairytale. When they hear the name Goldilocks, most people think of porridge and a little girl's quest for the "just right" bowl. As a result, Goldilocks is generally associated with the ideal. In the Goldilocks economic scenario, the Federal Reserve wins the inflation fight. It cuts interest rates and eases pressure on corporations, consumers, and governments all buried in debt, and the economy never dips into a recession. The Fed is the hero in this story. In a recent interview, economic commentator Jim Grant said he thinks Jerome Powell and other members of the Federal Reserve look in the mirror and see themselves as Captain Chesley Burnett "Sully" Sullenberger who landed a crippled U.S. Airways jet on the Hudson River.  The Fed has arrogated to itself the role of  central planning agency. … It's going to try to balance economic growth with the stability and integrity of the currency. How do they do that? I don't think it's given to mortal man and woman to do these things. And as Grant said in an interview last summer, "He's a nice guy, Jay Powell, but I think he is not Sully." And as I've already mentioned in the original Goldilocks story written by Eleanor Mure in 1831, the bears throw Goldilocks in a fire, then douse her with water and finally impale her on the church steeple. All of this is to say maybe the mainstream should give up on the Goldilocks fairytale. An economic reality check Occasionally, the mainstream gets a dose of reality.  On Wednesday (Jan. 17) gold was pressured to a one-month-plus low when, as a ZeroHedge headline put it, "Goldilocks Reality-Check Wrecks Dovish Dreams." The reality check was stronger than expected economic data, including better-than-expected retail sales report, unexpected homebuilder optimism, and higher than projected industrial production. We live in an upside-down world where good economic data is bad news. That's because the mainstream wants the Federal Reserve to think the economy is slowing so it will pull back interest rates. Why? Because everybody knows deep down that easy money is the mother's milk of the economy. The recent run of "strong" data along with recent comments by Federal Reserve Governor Chris Waller dampened rate cut hopes. As ZeroHedge put it, "Nothing there screams 'six rate-cuts or we all die' as the issue remains: the current growth trajectory of the economy does not suggest that rates need to come down at all." The December CPI report showing price inflation remains well above the 2 percent target reinforces this reality check. Indeed, the market expectation of a quick rate-cutting cycle has dropped precipitously this week. Waller reinforced market fears on Tuesday when he delivered a speech at The Brookings Institution and it was widely perceived to be a bit hawkish. Hawkish means that the Fed might not deliver the desperately sought-after rate cuts as quickly as hoped. That prospect sends traders into a panic. Waller said he does not see the need for aggressive cuts priced into the market. In other words, he was cautioning that you probably shouldn't be banking on cuts right now. When the time is right to begin lowering rates, he said, I believe it can and should be lowered methodically and carefully. With economic activity and labor markets in good shape and inflation coming down gradually to 2 percent, I see no reason to move as quickly or cut as rapidly as in the past. All of this put upward pressure on bond yields and the dollar. 10-year Treasuries crept higher up four basis points to 4.10 percent on Wednesday. The prospect of higher-for-longer interest rates pressured gold down to close to $2,000 per ounce. It also drove a stock market selloff with the Dow Jones falling 94 points and the NASDAQ shedding .59 percent. A reality check for the reality check The market is panicking needlessly. It's going to get its rate cuts. But it's not going to get the Goldilocks fairytale. The Federal Reserve isn't going to cut rates because inflation is beat. (Although it will probably try to spin it that way.) The Fed is going to cut rates because something breaks in the economy due to the high interest rates. I'm talking about an economic collapse or a financial crisis. You're probably thinking, but Mike, you just said the economic data looks good. How can you be talking about an economic collapse or a financial crisis? Everything is fine.  Yes. The economic data looks fine now. But the central bank broke things a long time ago. It just hasn't reared its ugly head – yet. History serves as an excellent teacher.  Interest rates are at the same levels as...

AUD/USD bounces off YTD lows near 0.6520. The Australian jobs report disappointed investors. Extra pullbacks are likely below the 200-day SMA. In quite a volatile session, AUD/USD managed to reverse several sessions of losses and advance marginally on Thursday. The daily recovery in the Aussie dollar came despite the intense march north in the greenback and disheartening prints from the domestic labour market report for the month of December. On the latter, the Unemployment Rate held steady at 3.9%, while Employment Change shrank by 65.1K individuals. Of note is that Full-Time Employment Change dropped by 106.6K, the largest single-month drop since May 2020. Meanwhile, the pair fully faded the rally seen in the second half of December, while the recent break below the 200-day SMA leaves the door wide open to further retracements in the short-term horizon. Back to the monetary policy front, recent inflation figures tracked by the Monthly CPI Indicator in combination with soft readings from the jobs report allow us to infer that the RBA will most likely keep its OCR unchanged at its February meeting. In the meantime, US dollar dynamics, persistent disappointment from Chinese fundamentals, intense weakness in commodity prices (especially copper and iron ore), and the expected steady hand by the RBA should all contribute to the continuation of the bearish tone in AUD/USD, at least in the short-term horizon. AUD/USD daily chart AUD/USD short-term technical outlook A drop below the 2024 low of 0.6524 (January 17) could motivate AUD/USD to dispute the transitory 100-day SMA at 0.6513. Further deterioration in the outlook should drag the pair to the 2023 bottom of 0.6270 (October 26). If bulls regain control, the attention will shift to the December 2023 high of 0.6871 (December 28), which comes before the July 2023 high of 0.6894 (July 14) and the June peak of 0.6899 (June 16), all of which are before the critical 0.7000 level. Spot seems to have entered a consolidative phase on the 4-hour chart. In fact, the breach of the year-to-date lows raises the prospect of a move to 0.6452. The MACD remains in the negative zone, while the RSI rebounds above 32, allowing for some near-term bounce. The bullish trend, on the other hand, may encounter first resistance at the 200-SMA at 0.6684, followed by the 100-SMA at 0.6715, which is considered the final line of defense before the previous high at 0.6870. View Live Chart for the AUD/USD

XAU/USD Current price: 2,015.53 Federal Reserve´s Raphael Bostic repeated rate cuts may come in the third quarter. Wall Street shrugged off the negative tone of its overseas counterparts, posting modest gains. XAU/USD corrects near-term oversold conditions, bears hold the grip. Gold consolidates weekly losses, trading at around $2,015 a troy ounce. XAU/USD posted a multi-week low on Wednesday at $2,001.68, bouncing back amid a modest improvement in the market's mood. The US Dollar maintained its positive tone throughout the first half of the day as Asian shares fell, with Chinese headlines leading the way. Turmoil in the housing sector and tepid growth-related data suggest the economy is in worse shape than previously believed. Market players became more optimistic with Wall Street's opening, as United States (US) data was generally better than expected. Housing Starts and Building Permits were up more than anticipated in December, while Initial Jobless Claims printed at 187K in the week ending January 12, beating the 207K expected. On a negative note, the Philadelphia Fed Manufacturing Survey Index posted -10.6, worse than the expected -7 but improving from the previous -12.8. Meanwhile, Federal Reserve (Fed) officials fail to provide fresh clues. Different authorities hit the wires but made no fresh comments on the future of monetary policy. Fed's Bank of Atlanta President Raphael Bostic was maybe the most aggressive, reiterating he does not expect policymakers to cut interest rates until the third quarter of this year, a message he already delivered in previous appearances. XAU/USD short-term technical outlook XAU/USD is still at risk of falling. The daily chart shows that the bright metal develops below a mildly bearish 20 Simple Moving Average (SMA), while the 100 and 200 SMAs offer no directional clues well below the current level. At the same time, technical indicators have lost their bearish strength but remain well into negative territory, falling short of suggesting an interim bottom. In the near term, and according to the 4-hour chart, the recovery seems corrective. XAU/USD holds far below all its moving averages, with the 20 SMA heading firmly south below directionless longer ones. Finally, technical indicators are bouncing from oversold readings but with limited strength and still far below their midlines. The pair would need to recover at least beyond 2,049.20 to have a chance of recovering its bullish strength. Support levels: 2,001.60 1,988.60 1,973.00 Resistance levels: 2,017.50 2,033.10 2,049.20

EUR/USD Current price: 1.0882 ECB President Christine Lagarde will participate in a panel discussion in Davos. The United States will publish housing and employment-related data. EUR/USD at risk of falling further, support at around 1.0845. The EUR/USD pair trades little changed for a second consecutive day, changing hands at around 1.0880 ahead of the United States (US) opening. The trading range is limited, as EUR/USD peaked at 1.0906, while it met a bottom at 1.0876. The soft tone of Asian share markets limited the upside for the Euro, while demand for the US Dollar receded on the back of more stable government bond yields that put a halt to their latest rally. Chinese headlines weigh on the market mood after the country released tepid macroeconomic data, spiced with trouble in the housing sector. At the same time, a resilient US economy weighed down the odds for a March rate cut, further undermining the sentiment. Meanwhile, the Eurozone released the November Current Account, which posted a seasonally adjusted surplus of €24.6 billion, while Construction Output in the same month was down 1%. The American session will bring US Initial Jobless Claims, the Philadelphia Fed Manufacturing Survey, Building Permits and Housing Starts.  Also, European Central Bank (ECB) President Christine Lagarde will participate in a panel discussion titled "Uniting Europe's Markets" at the World Economic Forum in Davos. EUR/USD short-term technical outlook The daily chart for the EUR/USD pair shows it trades a handful of pips above a flat 200 Simple Moving Average (SMA), providing dynamic support at around 1.0845. The 20 SMA remains far above the current level, losing its bearish strength but still suggesting bears hold the grip. Finally, technical indicators lost directional strength but remain within negative levels, maintaining the risk skewed to the downside. The pair is at risk of falling further in the near term. EUR/USD develops below a firmly bearish 20 SMA, which extends its slide below the larger ones. The moving average attracts sellers, currently at around 1.0900. At the same time, technical indicators remain below their midlines, with uneven strength, anyway reflecting the absence of buying interest. Support levels: 1.0845 1.0800 1.0760 Resistance levels: 1.0900 1.0940 1.0980  

The eurozone as a whole is still struggling to break free from sluggish growth. And with numerous elections this year, efficient decision-making is becoming increasingly difficult. But some countries are doing quite a bit better than others. The war in Ukraine will soon enter its third year. New geopolitical events like the war in Gaza, tensions in the Red Sea, and the energy and green transition at home are still shaping the eurozone economy. Restrictive monetary policy, at least in the first months of this year, are weighing on the bloc's growth outlook. As are less expansionary fiscal policies. So, here we go again: another year of sluggish growth is in the offing, at best. While many of the external factors have and will continue to hit all eurozone countries, though not to the same extent, there are clearly some differences across the continent. So, let's start with those common features: the still-unfolding impact of the European Central Bank's rate hikes and potential new supply chain frictions. These are both growth-limiting. On the flip side, relatively solid labour markets and improving real wages could support growth. Where countries differ more significantly is, for example, around the energy transition and the share of industry and fiscal support, be it national or European. Contrary to past experience, reforms, relief and resilience will not come from the ECB, which is entirely preoccupied with getting inflation back to target. No, it will have to come from businesses, households and governments. Behavioural changes, different risk-taking, innovation and investments are only a few drivers that would improve the eurozone's growth outlook. We'll soon discover whether this super-election year in Europe will be a blessing or a curse. We've got six parliamentary elections in the eurozone this year, including the European Elections, plus three regional state elections of great importance in Germany. Political fragmentation is the most likely outcome of most elections. As a result, decision-making is becoming increasingly difficult, leading to more instability or faster government collapses. All in all, this is another year for Europe with lots of economic and political action, and we'll be following every twist and turn. Read the original analysis: EZQ Intro: Eurozone – Still caught between stagnation, transition and geopolitics

Investors continue to come back to their senses and the latter involves trimming the interest rate cut expectations that went ahead of themselves over the past few months. Yesterday, the Federal Reserve's (Fed) Beige Book survey suggested that resilient consumer spending during the holiday season helped propel the US economy, and another solid rise in the US retail sales confirmed that spending in the US didn't slow by the end of last year. The probability of a March cut fell to around 60% from around 80% at the start of the year. The market and the central bankers have started to move toward each other, even though the time gap between when investors price in the first cuts and when central bankers contemplate rate reductions should continue narrowing to find an optimal balance and that should involve a deeper downside correction in stock and bonds, and a further recovery in the US dollar. The euro gives back field, sterling is cautiously bid following surprise jump in UK inflation last month while the Aussie falls of the bed on soft China, soft domestic data and strong dollar. In energy, crude oil is better bid and the barrel of American crude is testing the $73pb – again this morning on the Red Sea tensions and on OPEC forecast that global oil demand will grow by a robust 1.8 mio barrels per day next year, exceed growth in supplies and keep the market in deficit. Solid floor is seen at $70bp.

EUR/USD ticks higher for the second straight day amid a modest USD weakness. Reduced bets for a March Fed rate cut should limit any meaningful USD decline. Mixed signals from ECB policymakers to cap the upside for the shared currency. The EUR/USD pair builds on the overnight bounce from its lowest level since December 13, around the 1.0845 region, which coincides with the 200-day Simple Moving Average (SMA) and gains some follow-through traction on Thursday. Spot prices draw support from a softer US Dollar (USD) and stick to modest intraday gains around the 1.0900 round-figure mark through the early European session. That said, the fundamental backdrop warrants caution for aggressive bullish traders and before positioning for any further appreciating move. The USD downtick could be attributed to some profit-taking following the recent run-up to over a one-month peak and is likely to be limited amid doubts over an early interest rate cut by the Federal Reserve (Fed). Against the backdrop of the recent hawkish remarks by Fed officials, the US Retail Sales data released on Wednesday pointed to a still-resilient consumer spending and suggested that the economy is in good shape. This gives the US central bank more headroom to keep rates higher for longer, which should act as a tailwind for the buck. Adding to this, a weaker risk tone could benefit the Greenback's relative safe-haven status and further contribute to capping the upside for the EUR/USD pair. The market sentiment remains fragile amid concerns about China's weak economic recovery and geopolitical tensions. Yemen-based Houthi rebels claimed their second attack this week on a US-operated vessel in the Red Sea and have threatened to expand attacks in response to the American and British strikes. This keeps investors on the edge and should lend some support to the USD. Bulls might also refrain from placing aggressive bets around the shared currency in the wake of mixed views on inflation and interest rates by the European Central Bank (ECB) policymakers. In fact, ECB President Christine Lagarde, during a discussion at the Bloomberg House in Davos on Wednesday, declined to push back against bets for a cumulative of over 150 basis points (bps) rate cuts this year. Lagarde, however, cautioned against premature optimism in markets amid a rise in the Eurozone inflation, to the 2.9% YoY rate in December. The aforementioned fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that the EUR/USD pair has formed a near-term bottom around the 1.0850-1.0845 region. Market participants now look to the release of the ECB Monetary Policy Meeting Accounts, which, along with Lagarde's comments at the World Economic Forum, will influence the Euro. Traders will further take cues from the US economic docket, featuring Initial Jobless Claims, the Philly Fed Manufacturing Index and housing market data. Technical Outlook From a technical perspective, the recent breakdown through a short-term trading range favours bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and suggest that the path of least resistance for the EUR/USD pair is to the downside. Hence, any subsequent move-up is more likely to attract fresh sellers near the 1.0920 area or the trading range support breakpoint. Some follow-through buying, however, might trigger a short-covering rally towards the 1.0970-1.0975 region en route to the 1.1000 psychological mark. The latter should act as a key pivotal point, which if cleared will negate any near-term negative bias. On the flip side, the 1.0845 region, or the 200-day SMA, might continue to act as an immediate strong support. A convincing break below should pave the way for a slide towards the 1.0800 round figure. The next relevant support is pegged near the 100-day SMA, currently around the 1.0765 region, below which the EUR/USD pair could accelerate the downfall towards testing the December monthly swing low, around the 1.0725-1.0720 zone.

Investors continue to come back to their senses and the latter involves trimming the interest rate cut expectations that went ahead of themselves over the past few months. Yesterday, the Federal Reserve's (Fed) Beige Book survey suggested that resilient consumer spending during the holiday season helped propel the US economy, and another solid rise in the US retail sales confirmed that spending in the US didn't slow by the end of last year. On the contrary, the latest data printed its highest pace in three months. As such, robust economic data added to the thinking that, yes, maybe March is too early for the Fed to announce the first rate cut; there is no apparent reason for the Fed to rush to the rate cuts as early as in March. The Fed will likely start cutting in the H1 but March seems overly optimistic given the ongoing strength of the economic data. The probability of a March cut fell to around 60% from around 80% at the start of the year, the US 2-year yield advanced 25bp since the start of the week, the 10-year steadies above the 4%, the US dollar index is pushing higher, the S&P500 comes under fresh selling pressure near peak, and volatility is rising. Given how far the Fed doves and the market bulls pushed their rate cut bets over the past months, there is room for further downside correction in both stock and bond markets, and potential for a further recovery in the US dollar against most majors.   Davos vibes  Central bankers, bank CEOs and other influential figures continue to talk in Davos. They continue to push back on the interest rate cut expectations, they highlight the need to consider the upside risks for inflation due to the rising geopolitical tensions and they continue to warn that the market's optimism regarding the rate cuts may have the opposite impact on rate policies: too much optimism could delay the rate cuts. European Central Bank (ECB) Chief Christine Lagarde warned in Davos yesterday that overly optimistic rate cut expectations don't help the central banks' fight against inflation – as they loosen the financial conditions prematurely. She, however, hinted that the ECB will likely cut rates by, or in summer. And this was the first time we heard the ECB Chief loudly considering rate cuts.   The market and the central bankers have started to move toward each other, but the time gap between when investors price in the first cuts and when central bankers contemplate rate reductions should continue narrowing to find an optimal balance and that should involve a deeper downside correction in stock and bonds, and a further recovery in the US dollar.   Markets  The EURUSD tested the 200-DMA to the downside yesterday and price rebounds could be interesting opportunities for building fresh shorts targeting the 1.0770/1.08 range. Cable is better bid above the 50-DMA after a surprise rebound in the UK's December inflation numbers weakened the Bank of England (BoE) doves' hands yesterday. Cable is testing the 1.27 offers, with a limited upside potential, however, given that the Fed rate cut expectations are being cut, and when the Fed is in play, the other central bank expectations must wait their turn to speak up. In Japan, the USDJPY advanced to 148.50, a move that no one saw coming by the end of last year when the Bank of Japan (BoJ) normalization bets started fueling long positions in the Japanese yen. Data released this morning showed that the Japanese core machinery orders fell 5% in November, calling for a supportive BoJ, rather than a rate hike.   Earlier this week, China printed a 5.2% growth for last year - not a major achievement, mind you, as the 5% rebound from the pandemic crash matched nothing better than a meagre 2% growth compared to a non-Covid year. Industrial production was better than expected in December while retail sales grew slower. Chinese equities barely reacted to the news of a trillion-yuan worth stimulus earlier this week. The selloff in the CSI 300 accelerates as the focus remains on developing deflation and worsening property crisis. The Aussie feels the pinch of soft China, soft jobs figures and stronger US dollar. The AUDUSD sank below the 200-DMA and is preparing to test the 100-DMA, at 0.6510, to the downside. The AUDUSD outlook turns neutral from positive, the only thing that could slow the Aussie's selloff against the greenback is technical indicators hinting that the pair will soon step into the oversold conditions.   In energy, crude oil is better bid and the barrel of American crude is testing the $73pb – again this morning on the Red Sea tensions and on OPEC forecast that global oil demand will grow by a robust 1.8 mio barrels per...