Tag: United States

  • Yen Weakens as US Yields Bounce, Markets Eye Trump’s Reciprocal Tariffs and US CPI

    Yen Weakens as US Yields Bounce, Markets Eye Trump’s Reciprocal Tariffs and US CPI


    Yen struggled in the Asian session and stayed weak, with renewed selling pressure driven by a combination of rising US Treasury yields and ongoing concerns over trade policy developments. Market participants are still digesting the implications of US President Donald Trump’s decision to reintroduce tariffs on steel and aluminum imports, with Canada and the EU voicing strong opposition. Japan has now joined Australia in formally requesting an exemption, but there is little clarity on whether any exceptions will be granted. The focus has now shifted to Trump’s impending announcement of “reciprocal tariffs,” which he indicated would be unveiled either yesterday or today. Until the full scope of these measures is known, uncertainty in currency markets is likely to persist.

    Meanwhile, Fed Chair Jerome Powell’s testimony overnight reinforced expectations that the central bank is in no rush to adjust its policy stance. His remarks confirmed that the current pause in rate cuts could last for an extended period, particularly if inflation remains sticky. Fed funds futures continue to price in roughly 50% probability of a rate cut occurring in June, suggesting that market participants are still divided on the timing of Fed’s next move.

    The upcoming release of US consumer inflation data will be a critical factor in shaping those expectations. Headline CPI is forecast to remain steady at 2.9%, while core CPI is projected to dip slightly from 3.2% to 3.1%. However, any upside surprise could further push expectations for rate cuts into the second half of the year.

    In the currency markets, Sterling has emerged as the strongest performer so far this week, followed by Euro and Aussie. At the other end of the spectrum, Yen is the weakest major currency, Swiss franc and Kiwi are also underperforming. Dollar and Loonie are trading in a more mixed manner.

    Technically, US 10-year Treasury yield has found strong support at 38.2% retracement of 3.603 to 4.809 at 4.348. The subsequent rebound has brought attention back to the 4.590 resistance. Firm break above this point would indicate that pullback from 4.809 has concluded, setting the stage for stronger rally to retest that high. Given the close correlation between US yields and USD/JPY, further bounce in Treasury yields could provide additional lift for the pair, pushing it back toward 158.86 high.

    In Asia, at the time of writing, Nikkei is up 0.34%. Hong Kong HSI is up 1.34%. China Shanghai SSE is down -0.12%. Singapore Strait Times is down -0.09%. Japan 10-year JGB yield is up 0.025 at 1.341, at the highest level since 2011. Overnight, DOW rose 0.28%. S&P 500 rose 0.03%. NASDAQ fell -0.36%. 10-year yield rose 0.044 to 4.537.

    Fed’s Williams: Current modestly restrictive policy well positioned to achieve dual mandate

    New York Fed President John Williams stated in a speech overnight that policy remains “well positioned” to balance the dual mandate. He added that the current “modestly restrictive” policy is expected to support a gradual return to 2% inflation while maintaining economic growth and labor market resilience.

    Nevertheless, Williams also acknowledged the high degree of uncertainty surrounding the economic outlook, particularly concerning fiscal, trade, immigration, and regulatory policies.

    On the labor market, Williams noted that it has reached a “good balance” after a period of “unsustainably tight conditions” in prior years. He highlighted that wage growth has now aligned with productivity gains, which should keep inflationary pressures contained. He projected inflation at around 2.5% this year and expects it to reach the Fed’s 2% target “in coming years.”

    Williams also forecasted that the unemployment rate would remain stable between 4% and 4.25% throughout the year, with GDP growth expected to hold around 2% both in 2025 and 2026.

    ECB’s Schnabel: Europe must rethink export-driven model amid geopolitical fragmentation

    ECB Executive Board member Isabel Schnabel emphasized in a speech that while interest rate cuts could help “mitigate economic weakness”, they are not a cure-all for the deeper “structural crises” facing Eurozone.

    She pointed to persistent issues such as high energy prices, declining competitiveness, and labor shortages, which continue to weigh on the region’s economic outlook.

    Schnabel acknowledged the growing pressures facing Europe’s economy, particularly in light of Donald Trump’s return to the White House and his trade policies.

    “The export-led growth model needs to be reconsidered in the face of this increasing geopolitical fragmentation,” she stated.

    USD/JPY Daily Outlook

    Daily Pivots: (S1) 151.90; (P) 152.25; (R1) 152.86; More…

    Immediate focus is now on 153.70 support turned resistance as USD/JPY’s rebound from 150.92 extends. Firm break of 153.70 will argue that correction from 158.86 has already completed after drawing support from 38.2% retracement of 139.57 to 158.86 at 151.49. Such development will also keep the rally from 139.57 intact. Further rise should then be seen to retest 158.86 next. ON the downside, however, sustained trading below 151.49 will suggest that whole rise from 139.57 has completed, and bring deeper fall to 61.8% retracement at 146.32 next.

    In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). In case of another fall, strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY Money Supply M2+CD Y/Y Jan 1.30% 1.30% 1.30%
    06:00 JPY Machine Tool Orders Y/Y Jan P 11.20%
    13:30 USD CPI M/M Jan 0.30% 0.40%
    13:30 USD CPI Y/Y Jan 2.90% 2.90%
    13:30 USD CPI Core M/M Jan 0.30% 0.20%
    13:30 USD CPI Core Y/Y Jan 3.10% 3.20%
    15:30 USD Crude Oil Inventories 2.4M 8.7M

     



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  • Cautious Trading Prevails as Markets Await Retaliations to US Tariffs

    Cautious Trading Prevails as Markets Await Retaliations to US Tariffs


    Trading is relatively subdued today across global markets as investors assess the fallout from the US steel and aluminum tariffs announced by President Donald Trump. Major European equity indexes are treading water, while US futures are slightly in the red. Treasury yields are recovering, though it remains too early to confirm a reversal of the recent downtrend. Meanwhile, Gold is having a notable pullback after an initial rejection at the key 3000 psychological level, suggesting profit-taking among traders.

    European Commission President Ursula von der Leyen responded to the US move, stating that the EU will not let the “unjustified tariffs” go unanswered and pledged “firm and proportionate countermeasures” to protect European interests. However, no specific retaliatory measures have been outlined yet. Canada’s Prime Minister Justin Trudeau also criticized the tariffs as “unacceptable,” reinforcing that “Canadians will stand up strongly and firmly if we need to.” Markets remain cautious, awaiting concrete details on countermeasures from key US trade partners.

    At a global level, IMF Managing Director Kristalina Georgieva addressed the uncertainty surrounding the tariff situation at the World Government Summit in Dubai, stating that it remains an “evolving story” and that it is “too early to say” what the full economic impact might be. This reinforces the broader market sentiment that investors are hesitant to make directional bets until more clarity emerges on trade retaliation and its economic implications.

    In the forex market, Dollar has turned mixed, losing some momentum against Euro and Sterling while firming up slightly against Yen and Swiss Franc. Market focus is now shifting to Fed Chair Jerome Powell’s Congressional testimony, with investors looking for signals on how long Fed’s current policy pause might last. Powell is also expected to be questioned on the impact of tariffs. Though it is unlikely he will provide any clear forward guidance on both fronts.

    GBP/CHF could see increased volatility this week as the UK prepares to release Q4 GDP data and Switzerland reports January CPI figures. The cross has been struggling in range trading since last September. Today’s bounce suggests that rise from 1.1086 is ready to resume through 1.1336 towards 1.1393. Strong resistance could be seen there to limit upside to start another falling leg. Meanwhile, break of 1.1243 should bring deeper fall through 1.1189 towards 1.1086.

    In Europe, at the time of writing, FTSE is flat. DAX is up 0.27%. CAC is up 0.16%. UK 10-year yield is up 0.0317 at 4.493. Germany 10-year yield is up 0.051 at 2.416. Earlier in Asia, Japan was on holiday. Hong Kong HSI fell -1.06%. China Shanghai SSE fell -0.12%. Singapore Strait Times fell -0.37%.

    US NFIB small business optimism drops as uncertainty rises, hiring challenges persist

    NFIB Small Business Optimism Index declined to 102.8 in January, missing market expectations of 104.6 and falling from December’s reading of 105.1.

    The decline reflects growing concerns among small business owners, as seven out of the 10 components of the index deteriorated, while only one improved. Additionally, the Uncertainty Index surged 14 points to 100, marking the third-highest reading in its history after two months of easing uncertainty.

    NFIB Chief Economist Bill Dunkelberg highlighted while there is still “optimism regarding future business conditions,” uncertainty is climbing. One major concern remains the persistent “hiring challenges,” as businesses struggle to find qualified workers to fill vacancies. Capital investment plans are also being reconsidered.

    Australia’s Westpac consumer sentiment ticks up, RBA to start cutting this month

    Australia’s Westpac Consumer Sentiment Index rose slightly by 0.1% mom to 92.2 in February. While consumer mood improved significantly in the second half of 2024, the past three months have shown stagnation.

    Westpac noted that financial pressures on households persist and a more uncertain global economic climate has also played a role in dampening optimism.

    RBA is likely to begin policy easing at its next meeting on February 17–18. Westpac highlighted that recent economic data on core inflation, wage growth, and household consumption indicate that inflation is “returning to target faster” than previously expected.

    These factors provide RBA with the confidence to initiate a 25bps rate cut this month, marking the first step in what is expected to be a “moderate” easing cycle through 2025.

    Australian NAB business confidence rebounds to 4, but conditions remain weak

    Australia’s NAB Business Confidence index made a strong recovery in January, rising from -2 to 4 and returning to positive territory. However, despite this uptick in sentiment, underlying business conditions deteriorated.

    Business Conditions index dropped from 6 to 3, marking a notable slowdown. Within this, trading conditions slipped from 10 to 6, while profitability conditions turned negative, falling from 4 to -2. On a more positive note, employment conditions edged up slightly from 4 to 5.

    Cost pressures remained a key concern for businesses. Purchase cost growth eased to 1.1% on a quarterly equivalent basis, down from 1.4%. Labor cost growth picked up slightly to 1.8%. Meanwhile, final product price growth held steady at 0.8%, while retail price inflation inched up to 0.9%. Businesses are struggling to fully pass on rising costs to consumers.

    NAB Chief Economist Alan Oster noted that while confidence improved, it is uncertain whether this momentum will be sustained. Elevated cost pressures, particularly on wages and input costs, continue to weigh on overall business conditions.

    EUR/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.0282; (P) 1.0310; (R1) 1.0334; More…

    EUR/USD recovers mildly today but stays in the middle of the near term established range above 1.0176. Intraday bias remains neutral for the moment. Outlook will remain bearish as long as 38.2% retracement of 1.1213 to 1.0176 at 1.0572 holds. On the downside, break of 1.0176 will resume whole fall from 1.1213. However, decisive break of 1.0572 will raise the chance of reversal, and target 61.8% retracement at 1.0817.

    In the bigger picture, immediate focus is on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. However, reversal from 1.0199 will argue that price actions from 1.1274 are merely a corrective pattern, and has already completed.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:30 AUD Westpac Consumer Confidence Feb 0.10% -0.70%
    00:30 AUD NAB Business Confidence Jan 4 -2
    00:30 AUD NAB Business Conditions Jan 3 6
    11:00 USD NFIB Business Optimism Jan 102.8 104.6 105.1
    13:30 CAD Building Permits M/M Dec 11.00% 2.30% -5.90%

     



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  • Gold Nears 3000 as Muted Reaction to Metal Tariffs Fades, Fed Powell in Focus

    Gold Nears 3000 as Muted Reaction to Metal Tariffs Fades, Fed Powell in Focus


    Dollar is trading is a mildly firmer tone while Gold inches closer to the key 3000 psychological level after US President Donald Trump officially raised tariffs on aluminum and steel imports. However, the broader market reaction has been relatively subdued. Major US equity indexes managed to post modest gains overnight, and 10-year Treasury yield also recovered. Investor sensitivity to trade war escalations has somewhat diminished. The next test will be whether Trump’s upcoming reciprocal tariff announcement will trigger a similar lackluster response.

    In his proclamation on Monday, Trump lifted tariff rate on aluminum to 25% from the previous 10% and eliminating previous country-specific exemptions, including quota agreements and product-specific exclusions for both metals. The measures are set to take effect on March 4.

    Although Trump insisted there would be “no exceptions,” he later softened the tone and indicated the possibility of an exemption for Australia, citing that nation’s trade deficit with the US. As a result, uncertainty remains over how many countries or products may ultimately be exempt from the higher tariffs.

    Markets are now awaiting further details on Trump’s reciprocal tariff plan, expected to be unveiled between Tuesday and Wednesday. The plan could impose new duties on a range of imports to match tariffs levied by trading partners, with the EU particularly at risk due to its 10% tariff on American cars—much higher than the US’s 2.5% tariff on imported vehicles.

    In addition to trade policy developments, the focus is also on Fed Chair Jerome Powell’s Congressional testimony later today, followed by release of key US CPI data tomorrow. Powell’s remarks could provide further insight into the Fed’s rate outlook, particularly whether policymakers are shifting toward an even longer pause in monetary easing given recent strength in the labor market and lingering inflation risks.

    On the currency front, Dollar is currently the strongest major currency so far this week, followed by Aussie and then Swiss franc. Kiwi is the worst performer, trailed by Sterling and then Yen. Euro and Loonie are trading in the middle.

    Technically, immediate focus in on Gold’s reaction from 3000 psychological level, as well as 38.2% projection of 1810.26 to 2789.92 from 2584.24 at 2958.47. Strong resistance could be seen from there to limit upside on first attempt. Break of 2852.31 support would indicate that pullback is underway back to 2789.92 resistance turned support and possibly below. However, sustained break of 3000 would pave the way to next target at 61.8% projection at 3189.66 before topping.

    In Asia, Japan is on holiday. Hong Kong HSI is down -0.72%. China Shanghai SSE is down -0.16%. Singapore Strait Times is down -0.41%. Overnight, DOW rose 0.38% S&P 500 rose 0.67%. NASDAQ rose 0.98%. 10-year yield rose 0.006 to 4.493.

    Australia’s Westpac consumer sentiment ticks up, RBA to start cutting this month

    Australia’s Westpac Consumer Sentiment Index rose slightly by 0.1% mom to 92.2 in February. While consumer mood improved significantly in the second half of 2024, the past three months have shown stagnation.

    Westpac noted that financial pressures on households persist and a more uncertain global economic climate has also played a role in dampening optimism.

    RBA is likely to begin policy easing at its next meeting on February 17–18. Westpac highlighted that recent economic data on core inflation, wage growth, and household consumption indicate that inflation is “returning to target faster” than previously expected.

    These factors provide RBA with the confidence to initiate a 25bps rate cut this month, marking the first step in what is expected to be a “moderate” easing cycle through 2025.

    Australian NAB business confidence rebounds to 4, but conditions remain weak

    Australia’s NAB Business Confidence index made a strong recovery in January, rising from -2 to 4 and returning to positive territory. However, despite this uptick in sentiment, underlying business conditions deteriorated.

    Business Conditions index dropped from 6 to 3, marking a notable slowdown. Within this, trading conditions slipped from 10 to 6, while profitability conditions turned negative, falling from 4 to -2. On a more positive note, employment conditions edged up slightly from 4 to 5.

    Cost pressures remained a key concern for businesses. Purchase cost growth eased to 1.1% on a quarterly equivalent basis, down from 1.4%. Labor cost growth picked up slightly to 1.8%. Meanwhile, final product price growth held steady at 0.8%, while retail price inflation inched up to 0.9%. Businesses are struggling to fully pass on rising costs to consumers.

    NAB Chief Economist Alan Oster noted that while confidence improved, it is uncertain whether this momentum will be sustained. Elevated cost pressures, particularly on wages and input costs, continue to weigh on overall business conditions.

    BoE’s Mann: Larger rate cut needed to send clear market signal

    BoE MPC member Catherine Mann explained her unexpected vote for a 50bps rate cut last week. Speaking to the Financial Times, she emphasized that “Demand conditions are quite a bit weaker than has been the case”, prompting a reassessment of her stance on inflation risks.

    She now sees inflationary pressures easing faster, with pricing trends aligning closely to 2% target in the year ahead. This marks a notable shift from her previously hawkish position, which had consistently supported maintaining restrictive monetary policy.

    A key reason for her preference for a larger cut was the need to deliver a stronger signal to financial markets. She argued that a half-point move would help “cut through the noise” and provide clearer guidance on the need for looser financial conditions in the UK.

    “To the extent that we can communicate what we think are the appropriate financial conditions for the UK economy, a larger move is a superior communication device,” she noted.

    Mann’s stance aligns her with Swati Dhingra, the most dovish member of the MPC, who also advocated for a 50bps cut to 4.25% at last week’s meeting. The final decision was a more measured 25bps reduction to 4.50%.

    AUD/USD Daily Report

    Daily Pivots: (S1) 0.6245; (P) 0.6267; (R1) 0.6299; More…

    AUD/USD is bounded in sideway trading in tight range and intraday bias remains neutral. With 0.6329 resistance intact, outlook will stay bearish. On the downside, break of 0.6239 minor support will turn bias back to the downside for retesting 0.6087 low. However, firm break of 0.6329 will bring stronger rebound to 38.2% retracement of 0.6941 to 0.6087 at 0.6413, even just as a corrective move.

    In the bigger picture, fall from 0.6941 (2024 high) is seen as part of the down trend from 0.8006 (2021 high). Next medium term target is 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.6516) holds.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:30 AUD Westpac Consumer Confidence Feb 0.10% -0.70%
    00:30 AUD NAB Business Confidence Jan 4 -2
    00:30 AUD NAB Business Conditions Jan 3 6
    11:00 USD NFIB Business Optimism Jan 104.6 105.1
    13:30 CAD Building Permits M/M Dec 2.30% -5.90%

     



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  • Tariff Wave Expands with Metals and Reciprocal Duties, Dollar Strengthens Slightly

    Tariff Wave Expands with Metals and Reciprocal Duties, Dollar Strengthens Slightly


    Trade tensions remain at the forefront of market concerns as the US prepares to roll out another wave of tariffs. Over the weekend, President Donald Trump confirmed plans to impose a 25% tariff on all steel and aluminum imports, adding to the existing duties on these metals. The official announcement is expected today. Meanwhile, “reciprocal tariffs”—which would match the import duties imposed by other countries—are set to be unveiled between Tuesday and Wednesday, with immediate implementation.

    The largest suppliers of steel and aluminum to the US are Canada, Brazil, and Mexico, followed by South Korea and Vietnam. Canada, in particular, dominates the aluminum export market to the US, contributing 79% of total imports in the first 11 months of 2024. The announcement raises questions about how these countries might respond, given that Canada and Mexico only recently secured a temporary reprieve from tariffs on other goods.

    Interestingly, Hong Kong’s stock market has shown resilience, posting extended gains despite escalating trade tensions. Investors appear unfazed by the recent flurry of US tariff news, as well as China’s retaliatory levies on select American products. The factors supporting Hong Kong’s optimism remain unclear, and more time would be required to assess whether regional equities can maintain this momentum if trade frictions intensify further.

    Technically, HSI’s break of 21070.05 resistance last week suggests that correction from 23241.74 has completed at 18671.59 already, despite being deeper than expected. The medium term up trend from 14794.16 should remain intact, with notable support from 55 W EMA too. Retest of 23241.74 resistance should be seen next and firm break there will target 25k handle, which is close to 100% projection of 16964.28 to 23241.74 from 18671.49.

    Looking ahead, markets will keep a close watch on Fed Chair Jerome Powell’s upcoming Congressional testimonies, particularly any remarks concerning inflation and labor market conditions. Major data releases this week include US CPI, UK GDP, Swiss CPI, and key confidence reports from Australia and New Zealand.

    In Asia, at the time of writing, Nikkei is down -0.10%. Hong Kong HSI is up 1.15%. China Shanghai SSE is up 0.23%. Singapore Strait Times is up 0.63%. Japan 10-year JGB yield is up 0.0193 at 1.322, hitting a fresh high since 2011.

    China’s CPI picks up to 0.5%, but factory prices remain stuck in deflation

    China’s consumer inflation accelerated at the start of 2025, with CPI rising from 0.1% yoy to 0.5% yoy in January, slightly exceeding market expectations of 0.4%. This marked the fastest annual increase in five months. On a monthly basis, CPI surged 0.7% mom, the strongest rise in over three years.

    Core inflation, which strips out food and fuel prices, edged up from 0.4% yoy to 0.6% yoy, reflecting a modest pickup in underlying demand. Food prices climbed by 0.4% yoy, while non-food categories also posted a 0.5% yoy increase.

    However, despite these gains, consumer inflation remains well below the government’s target, with full-year 2024 CPI growth coming in at just 0.2%, the lowest since 2009, and reinforcing the persistent weakness in domestic consumption.

    Meanwhile, producer prices remained firmly in deflationary territory. PPI held steady at -2.3% yoy in January, missing expectations of a slight improvement to -2.2% yoy. This marks the 28th consecutive month of factory-gate deflation, highlighting ongoing struggles within the manufacturing sector and pricing pressures stemming from weak external demand and excess capacity.

    Powell’s testimony, US inflation data, and UK GDP in focus this week

    Fed Chair Jerome Powell’s upcoming Congressional testimony will be a key event this week as markets seek further clarity on Fed’s path. In particular, the main question is whether Fed’s hold at the last meeting is the start of a longer pause in the easing cycle.

    Following January’s FOMC decision to hold rates steady, Powell stated explicitly that Fed is in “no hurry” to cut interest rates. Several Fed officials have since emphasized that declining inflation alone may not be sufficient for additional rate reductions, with the labor market’s performance playing a crucial role. Lawmakers are expected to press Powell for further details on how Fed will balance these factors in shaping monetary policy.

    Meanwhile, Friday’s Monetary Policy Report offered minimal commentary on the impact of US tariff policies. It merely noted that “some market participants” cited tariff-related uncertainties as a factor driving the dollar higher in recent months. Given the evolving nature of Trump’s trade strategy and the lack of clear direction, Powell is unlikely to provide definitive answers on how tariffs will influence Fed policy. Nonetheless, market participants will closely follow any indication that trade-related uncertainties might alter the Fed’s rate outlook.

    US CPI and retail sales data will also be closely watched. Headline inflation is expected to remain at 2.9% in January, with core CPI easing slightly from 3.2% to 3.1%. Risks remain that inflation could remain sticky as businesses begin adjusting for potential tariff impacts. If inflation prints in line with expectations or surprises to the upside, it would reinforce Fed’s cautious approach and likely prolong the current pause in rate cuts.

    Elsewhere, UK GDP report will be another highlight. The economy is expected to contract by -0.1% in Q4, raising concerns about a potential recession. After last week’s dovish 25bps rate cut by BoE, speculation has increased that another cut could come as early as March. While this is not yet the consensus view, any downside surprise in GDP data could fuel expectations of a back-to-back rate reduction, particularly as known hawk Catherine Mann has already shifted to a more dovish stance.

    Here are some highlights for the week:

    • Monday: Japan bank lending, current account, Eco Watcher sentiment; Eurozone Sentix Investor confidence.
    • Tuesday: Australia Westpac consumer sentiment, NAB business confidence; Canada building permits.
    • Wednesday: Japan machine tool orders; US CPI; BoC summary of deliberations.
    • Thursday: Japan PPI; New Zealand inflation expectations; Germany CPI final; UK GDP, trade balance; Swiss CPI; Eurozone industrial production; US PPI, jobless claims.
    • Friday: New Zealand BNZ manufacturing; Swiss PPI; Eurozone GDP revision; Canada manufacturing sales, wholesales sales; US retail sales, industrial production.

    AUD/USD Daily Report

    Daily Pivots: (S1) 0.6251; (P) 0.6275; (R1) 0.6296; More…

    AUD/USD dips mildly today but stays above 0.6239 minor support. Intraday bas stays neutral first. With 0.6329 resistance intact, outlook will stay bearish. On the downside, break of 0.6239 minor support will turn bias back to the downside for retesting 0.6087 low. However, firm break of 0.6329 will bring stronger rebound to 38.2% retracement of 0.6941 to 0.6087 at 0.6413, even just as a corrective move.

    In the bigger picture, fall from 0.6941 (2024 high) is seen as part of the down trend from 0.8006 (2021 high). Next medium term target is 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.6516) holds.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY Bank Lending Y/Y Jan 3.00% 3.10% 3.10% 3.00%
    23:50 JPY Current Account (JPY) Dec 2.73T 2.73T 3.03T
    05:00 JPY Eco Watchers Survey: Current Jan 49.7 49.9
    09:30 EUR Eurozone Sentix Investor Confidence Feb -16.4 -17.7

     



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  • Dollar’s Wild Week Ends in Uncertainty, Awaits Next Tariff Cue

    Dollar’s Wild Week Ends in Uncertainty, Awaits Next Tariff Cue


    Dollar faced significant volatility last week as shifting trade policy signals from the White House left investors scrambling for clarity. Initially, tariffs on Canadian and Mexican imports were imposed, only to be quickly suspended for 30 days following new agreements on border security and fentanyl control. Now, the focus turns to “reciprocal tariffs,” a move that could see the US impose duties equivalent to those faced by American exports in key markets.

    While traders hope for clarity once the reciprocal tariffs are officially announced, the risk of another abrupt reversal remains high. The unpredictability of the administration’s trade stance, particularly regarding its approach toward key partners like the European Union, suggests continued volatility in currency markets. Until the full scope of Trump’s trade strategy is revealed, market sentiment is likely to remain fragile, with investors hesitant to commit to a firm direction.

    Amid these confusions, Yen stood out as the strongest performer, supported by positive economic data that reinforced expectations of further BoJ rate hikes. Canadian Dollar followed behind, benefiting from a temporary tariff reprieve and stronger-than-expected employment report. Meanwhile, Australian and New Zealand Dollars managed to recover some ground, but their gains were limited by the continued US tariffs on Chinese goods and the lack of any progress in US-China trade negotiations.

    On the weaker side, Euro was the worst-performing currency, struggling under the weight of tariff threats. Despite its late-week bounce, Dollar ended the week near the bottom of the performance rankings. British Pound also weakened after the BoE delivered a surprisingly dovish rate cut, while the Swiss Franc was also soft.

    Duel Uncertainty of Trade War and Hawkish Fed Outlook in the US

    Investors in US financial markets are grappling with two major uncertainties—President Donald Trump’s evolving tariff strategy and Fed’s interest rate outlook. This dual uncertainty has led to volatile but indecisive trading in major equity indices and large price swings in Dollar, reflecting broader confusion in the markets.

    Trump’s Tariff Play: Economic Policy or Political Leverage?

    The core intention behind Trump’s tariff policies remains unclear. His administration initially imposed 25% tariffs on imports from Canada and Mexico, only to suspend them for 30 days following agreements with both nations on border security and fentanyl control measures. This move suggests that Trump may be using tariffs as a tool for securing non-trade-related concessions rather than purely as an economic strategy. The immediate delay in enforcement highlights that these tariffs could be more of a negotiation tactic than an outright protectionist measure.

    However, fresh concerns emerged on Friday when Trump said that the US would announce, in the coming days, “reciprocal tariffs” on a range of trading partners to ensure American exports are treated “evenly.” This move, if implemented broadly, could have far-reaching economic consequences, particularly if the US targets major trade partners like the European Union. Unlike the previous round of tariffs during Trump’s first term, which were primarily aimed at China, this time the scope appears much wider, raising the specter of more extensive trade disruptions.

    The biggest risk is that tariffs could become an ongoing feature of US trade policy rather than a temporary bargaining tool. With Trump also eyeing the EU as a target, the outlook for global trade is highly uncertain. For now, investors are clearly staying in wait-and-see mode, monitoring Trump’s next steps closely.

    Strong US Job Market to Keep Fed on Hold, Inflation Risks Re-Emerging?

    While trade concerns dominate the headlines, the strength of the US labor market has reinforced expectations that Fed will remain in a prolonged pause on rate cuts.

    Dallas Fed President Lorie Logan articulated a noteworthy point last week. She argued falling inflation with robust labor market means interest rates are already near neutral. That would leave little room for further easing in the near term. Fed would then stay on hold until there is clear evidence of a labor market slowdown, not just declining inflation.

    Friday’s non-farm payroll report added weight to this narrative. While job growth slowed to 143K, falling short of expectations, revisions to previous months were significant, with December’s figure being adjusted upward to 307K. Additionally, the unemployment rate unexpectedly declined from 4.1% to 4.0%, suggesting that the labor market remains resilient. Wage growth also accelerated, with average hourly earnings rising 0.5% mom —above expectations—bringing the annual increase to 4.1%.

    Another concerning development in recent data was the sharp rise in consumer inflation expectations. University of Michigan’s Surveys of Consumers revealed that short-term inflation expectations jumped from 3.3% to 4.3%, the highest level since November 2023. Long-term inflation expectations also ticked higher, reaching 3.3%, marking the highest reading since June 2008.

    If inflation expectations continue rising alongside strong wage growth, Fed could face renewed pressure to reconsider its monetary policy stance. A scenario where inflation remains stubbornly above target while employment stays strong could force Fed to maintain high rates longer than markets currently anticipate. In an extreme case, policymakers may even have to consider reintroducing rate hikes—an outcome that is not currently priced into the market but remains a potential risk, albeit minor.

    S&P 500 Stuck in Range, Upside Appears Limited

    Technically, S&P 500’s price actions from 6128.18 (Jan high) are still corrective looking, suggesting larger up trend remains intact. However, even in case of up trend resumption, loss of momentum as seen in D MACD could limit upside at 61.8% projection of 5119.26 to 6099.97 from 5773.31 at 6379.38.

    On the other hand, strong break of 55 D EMA (now at 5970.70) would put 5773.31 structural support into focus. Firm break of 5773.31 will argue that a medium term top was already in place, and larger scale correction is underway.

    Sideway Trading to Continue in Dollar Index and 10-Year Yield

    Dollar Index’s initial spike was capped below 110.17 resistance, and followed by steep pull back. Overall outlook is unchanged that consolidation pattern from 110.17 is still extending. In case of another selloff, downside should be contained by 38.2% retracement of 100.15 to 110.17 at 106.34 to bring rebound. However, firm break of 110.17 is needed to confirm up trend resumption, which is unlikely for the near term. Hence, sideway trading is set to continue for a while.

    10-year yield’s fall from 4.809 extended lower last week but recovered notably on Friday to close at 4.487. As long as 38.2% retracement of 3.603 to 4.809 at 4.348 stays intact, price actions from 4.809 are viewed as a corrective pattern. Break of 4.590 will bring stronger rebound. But upside should be limited by 4.809, at least on first attempt. That is, similar to Dollar Index, range trading will likely continue for a while.

    EUR/JPY and GBP/JPY Tumble as Yen Rides Rate Expectations and Trade Uncertainty

    Yen emerged as a dominant force in the forex markets last week, with EUR/JPY and GBP/JPY among the biggest losers, down -2.7% and -2.3% respectively. The shift was driven by a combination of declining US and European benchmark yields, alongside increasing expectations of further BoJ rate hikes. These factors reinforced the Yen’s bullish momentum and kept both EUR/JPY and GBP/JPY under heavy selling pressure.

    BoJ board member Naoki Tamura, the most hawkish voices within the central bank, continued to advocate his view that interest rates should rise to at least 1% by the end of fiscal 2025. His stance gained additional credibility after IMF also backed a gradual rate hike approach, recommending that the policy rate reach the midpoint of 1.5% within the 1-2% neutral range by the end of 2027.

    The case for BoJ tightening has been reinforced by strong nominal wage growth, with real wages increasing for a second consecutive month. More importantly, the wage gains are feeding into stronger consumption, a critical factor in sustaining inflation at the central bank’s 2% target. If this trend continues, BoJ will have even more reason to proceed with further hikes.

    Meanwhile, Euro came under additional pressure from Trump’s tariff threats. With a formal reciprocal tariff announcement expected soon, the EU is almost certain to be included, raising fears of another prolonged trade conflict. Given the region’s reliance on exports, such a development could have a significant negative impact on Eurozone already sluggish growth prospects, forcing ECB to take a more dovish stance than currently anticipated.

    ECB Chief Economist Philip Lane has been advocating for a “middle path” in policy easing, balancing inflation risks with economic headwinds. However, should tariffs materialize, ECB might be forced to accelerate rate cuts to cushion the economy from external shocks

    The UK has fared somewhat better as it is not a primary target of Trump’s trade measures. However, BOE’s unexpectedly dovish rate cut last week has left the Pound vulnerable too. Notably, hawkish policymaker Catherine Mann made a surprising U-turn, voting for a 50bps rate cut, a sharp departure from her previous stance. The base case still remains a quarterly 25bps cut throughout 2025 for BoE, but the risk is now tilted slightly toward a more aggressive easing cycle.

    Technically, as selloff in EUR/JPY intensified, the development in the next few weeks would be crucial. Attention will be on 100% projection of 100% projection of 166.7 to 156.16 from 164.89 at 154.38, which is close to 154.40 key support.

    Firm break there will resume whole pattern from 175.41 medium term top. More importantly, that would make 38.2% retracement of 114.42 to 175.41 at 152.11 key long term fibonacci level vulnerable.

    For GBP/JPY, the focus will be on 100% projection of 198.94 to 189.31 from 194.73 at 185.10. Decisive break there could prompt downside acceleration through 180.00 low to resume whole decline from 208.09 medium term top. That would at least put 38.2% retracement of 123.94 to 208.09 at 175.94 as next target.

    USD/CAD Weekly Outlook

    USD/CAD spiked higher to 1.4791 last week but reversed sharply from there. Nevertheless, downside is contained by 1.4260 cluster support (38.2% retracement of 1.3418 to 1.4791 at 1.4267), which is also close to 55 D EMA (now at 1.4264). There is no sign of reversal yet. Initial bias remains neutral this week first. On the upside, above 1.4501 minor resistance will turn bias back to the upside for stronger rebound. Larger up trend is expected to resume through 1.4791 at a later stage. However, firm break of 1.4260 will indicate that deeper correction is underway.

    In the bigger picture, long term up trend is tentatively seen as resuming with breach of 1.4667/89 key resistance zone (2020/2015 highs). Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. This will remain the favored case as long as 1.3976 resistance turned holds (2022 high), even in case of deep pullback.

    In the longer term picture, up trend from 0.9506 (2007 low) is in progress and possibly resuming. Next target is 61.8% projections of 0.9406 to 1.4689 from 1.2005 at 1.5270. While rejection by 1.4689 will delay the bullish case, further rally will remain in favor as long as 55 M EMA (1.3392) holds.



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  • Dollar Gains Modestly on NFP, But Lacks Momentum

    Dollar Gains Modestly on NFP, But Lacks Momentum


    Dollar edged higher in early US session following the non-farm payrolls (NFP) report, but the overall momentum remains lackluster. Stock futures are flat, while 10-year Treasury yield is staging a slight recovery, suggesting a measured market response as traders hold back from aggressive positioning ahead of next week’s key economic events including US CPI and Fed Chair Jerome Powell’s testimony.

    While headline NFP figure of 143k fell short of expectations, the dip in the unemployment rate to 4.0% and strong wage growth at 0.5% mom have reinforced the Fed’s cautious stance towards further policy easing. Markets now see over 90% chance that Fed will keep rates unchanged in March, while expectations for another hold in May stands at 70%.

    Overall, despite today’s recovery, Dollar is still trading as the worst performer for the week, followed by Euro, and then Swiss Franc. Yen continues to sit at the top of the ladder, followed by Canadian, and then Aussie. Kiwi and Sterling are mixed in the middle.

    In Europe, at the time of writing, FTSE is down -0.18%. DAX is down -0.06%. CAC is down -0.02%. UK 10-year yield is down -0.0014 at 4.489. Germany 10-year yield s up 0.0149 at 2.395. Earlier in Asia, Nikkei fell -0.72%. Hong Kong HSI rose 1.16%. China Shanghai SSE rose 1.01%. Singapore Strait Times rose 0.81%. Japan 10-year JGB yield rose 0.0357 to 1.303.

    US NFP grows 143k, wages growth strong

    US non-farm payroll job growth fell short of expectations but wage growth exceeding forecasts. Employers added 143k jobs, missing the 169k estimate and coming in below the 2024 monthly average of 166k. However, the downward surprise was offset by a significant upward revision to December’s number, which was adjusted from 256k to 307k.

    Unemployment rate unexpectedly dropped from 4.1% to 4.0%. At the same time, the labor force participation rate ticked slightly higher to 62.6%, reinforcing signs of a still-active workforce. While the decline in headline job creation might signal a cooling labor market, the improvement in unemployment suggests that the slowdown is not yet severe.

    The standout data point in the report was wage growth, with average hourly earnings surging 0.5% mom, surpassing the expected 0.3% mom increase. On an annual basis, wages rose 4.1% yoy, a sign that businesses are still competing for workers despite moderation in hiring.

    Canada’s employment grows 76k, unemployment rate down to 6.6%

    Canada’s labor market significantly outperformed expectations in January, with employment rising by 76.0k, far exceeding 26.5k forecast. The biggest job gains were seen in manufacturing (+33k, +1.8%) and professional, scientific, and technical services (+22k, +1.1%).

    The unexpected strength in employment was further reinforced by decline in the unemployment rate from 6.7% to 6.6%, beating market expectations of a slight uptick to 6.8%.

    Despite the surge in hiring, wage growth showed signs of moderation, with average hourly earnings rising 3.5% yoy, down from 4.0% yoy in December. Total actual hours worked rose 0.9% mom, with a 2.2% annual increase.

    IMF backs BoJ’s gradual rate hikes, sees policy rate moving toward neutral by 2027

    Nada Choueiri, deputy director of IMF’s Asia-Pacific Department and mission chief for Japan, stated that IMF remains “supportive” of BoJ’s current monetary policy course. She emphasized that rate hikes should be implemented in a gradual and flexible manner to ensure that domestic demand continues to recover.

    Choueiri projected that BoJ’s policy rate could rise “beyond 0.5%” by the end of this year, with a longer-term path toward the “neutral level” by the end of 2027.

    IMF estimates Japan’s neutral rate to be within a band of 1% to 2%, with a midpoint of 1.5%.

    Also, IMF maintains an optimistic outlook for Japan’s economy, forecasting 1.1% GDP growth in 2025, supported by increasing wages and stronger consumer spending.

    Given these projections, IMF expects BoJ to continue its tightening cycle in a controlled manner.

    EUR/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.0355; (P) 1.0381; (R1) 1.0410; More…

    EUR/USD dips mildly but stays well inside range of 1.0176/0531. Intraday bias remains neutral and more consolidations could be seen. Strong resistance is expected from 1.0531 to limit upside. On the downside, break of 1.0176 will resume whole fall from 1.1213. However, sustained break of 1.0531 will rise the chance of bullish reversal and turn bias back to the upside for stronger rally.

    In the bigger picture, immediate focus is back on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. However, strong support from 1.0199 will argue that price actions from 1.1274 are merely a corrective pattern, and has already completed.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:30 JPY Household Spending Y/Y Dec 2.70% 0.30% -0.40%
    05:00 JPY Leading Economic Index Dec P 108.9 108.1 107.5
    07:00 EUR Germany Industrial Production M/M Dec -2.40% -0.70% 1.50% 1.30%
    07:00 EUR Germany Trade Balance (EUR) Dec 20.7B 17.1B 19.7B
    07:45 EUR France Trade Balance (EUR) Dec -3.9B -5.3B -7.1B -6.3B
    08:00 CHF Foreign Currency Reserves (CHF) Jan 736B 731B
    13:30 CAD Net Change in Employment Jan 76.0K 26.5K 90.9K
    13:30 CAD Unemployment Rate Jan 6.60% 6.80% 6.70%
    13:30 USD Nonfarm Payrolls Jan 143K 169K 256K 307K
    13:30 USD Unemployment Rate Jan 4.00% 4.10% 4.10%
    13:30 USD Average Hourly Earnings M/M Jan 0.50% 0.30% 0.30%
    15:00 USD Wholesale Inventories Dec F -0.50% -0.50%

     



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  • Yen Rises Further as IMF Backs Gradual BoJ Tightening; Dollar Awaits NFP Impact

    Yen Rises Further as IMF Backs Gradual BoJ Tightening; Dollar Awaits NFP Impact


    The forex market was relatively subdued during Asian session, with one clear exception: Japanese Yen continues to outperform. Fresh data from Japan showed a 2.7% yoy increase in household spending, not only marking the first rise in five months, but also the fastest pace since August 2022. Paired with this week’s solid wage growth figures, the numbers suggest real wage gains are driving consumption—a development that could reinforce BoJ’s push toward gradual policy normalization.

    Additionally, IMF offered further support for Yen by endorsing a gradual rise in BoJ rates to a neutral range of 1-2% by the end of 2027. Although this view appears somewhat conservative compared to hawkish BoJ board member Naoki Tamura’s call for a 1% rate by the second half of fiscal 2025, the gap isn’t significant. If Japan’s inflation and wage growth hold up, it’s feasible that interest rates could reach the midpoint of 1.5% within a few quarters from Tamura’s target.

    Attention now shifts to the US non-farm payroll report, with prospects of upside surprise. Dallas Fed President Lorie Logan raised an interesting argument that Fed may not ease policy further unless the labor market noticeably softens, even if inflation trends lower. A strong NFP reading would bolster expectations for an extended Fed pause. However, it may not be enough to spark an upside breakout in the Dollar from recent ranges, given ongoing uncertainties tied to US trade policies.

    Overall for the week so far, Dollar is currently the worst performer, followed by Euro, and then Sterling. Yen is the best, followed by Loonie, and then Aussie. Swiss Franc and Kiwi are positioning in the middle.

    Technically, CHF/JPY’s break of 168.02 support confirms resumption of fall from 177.29. This decline is seen as the third leg of the corrective pattern from 180.05 high. Further fall is expected as long as 168.54 support turned resistance holds. Firm break of 100% projection of 177.29 to 168.02 from 175.80 at 166.53 should bring deeper fall through 165.28 support to 138.2% projection at 162.98.

    In Asia, at the time of writing, Nikkei is down -0.72%. Hong Kong HSI is up 1.05%. China Shanghai SSE is up 1.02%. Singapore Strait Times is up 0.83%. Japan 10-year JGB yield is up 0.0339 at 1.301. Overnght, DOW fell -0.28%. S&P 500 rose 0.36%. NASDAQ rose 0.51%. 10-year yeld rose 0.018 to 4.440.

    NFP may beat expectations, but unlikely to trigger Dollar range breakout

    Today’s US Non-Farm Payroll report is the focal point for market participants, with consensus estimates pointing to 169k new jobs in January and an unemployment rate holding steady at 4.1%. Average hourly earnings growth is expected at 0.3% month-over-month, maintaining the robust wage gains of recent months.

    There are indications the data could surprise to the upside. Latest ISM surveys showed employment components improving, with manufacturing’s gauge jumping from 45.4 back into expansion at 50.3, and services employment rising to 52.3 from 51.3. ADP private payrolls number also showed a solid 183k increase, little changed from December’s 176k. Meanwhile, initial jobless claims remain near historical lows, with the four-week moving average inching up only slightly from 213k to 217k.

    If today’s jobs report beats expectations, the case for Fed to maintain its pause on easing for longer would strengthen. However, persistent uncertainties—especially US trade policies—may limit the Dollar’s ability to rally significantly. While a strong labor market may keep rate cuts at bay, investors will weigh other geopolitical and economic factors before pushing the greenback through key near term resistance levels.

    Technically, Dollar Index is currently extending the consolidation pattern from 110.17 short term top. In case of deeper pull back, downside should be contained by 38.2% retracement of 110.15 to 110.17 at 106.34 to bring rebound. On the upside, firm break of 110.17 is needed to confirm resumption of recent up trend. Otherwise, outlook would remains neutral for more sideway trading.

    Fed’s Logan sees rates on hold “for quite some time” even if inflation drops

    Dallas Fed President Lorie Logan suggested at a BIS conference overnight that interest rates may remain on hold for “quite some time,” even if inflation continues to move closer to the 2% target. She emphasized that a decline in inflation alone would not be a sufficient trigger for policy easing, as long as labor market conditions remain strong.

    She argued that such a scenario would “strongly suggest that” interest rate is already pretty close to neutral, “without much near-term room for further cuts”.

    Instead, Logan highlighted that signs of a weakening labor market or a slowdown in demand would be more relevant factors in determining when easing should begin.

    BoC’s Macklem warns tariff threats already weighing on confidence

    Speaking at a conference in Mexico City, BoC Governor Tiff Macklem raised concerns over the economic uncertainty stemming from U.S. President Donald Trump’s tariff threats. He noted that “threats of new tariffs are already affecting business and household confidence, particularly in Canada and Mexico.”

    “The longer this uncertainty persists, the more it will weigh on economic activity in our countries,”  he warned.

    Macklem stressed that central banks face a challenging task in managing the economic fallout. He explained that policymakers cannot counteract both “weaker output” and “higher inflation” simultaneously.

    The challenge will be to assess the downward pressure on inflation from reduced economic activity while balancing it against the upward pressure from higher input costs and supply chain disruptions caused by tariffs.

    IMF backs BoJ’s gradual rate hikes, sees policy rate moving toward neutral by 2027

    Nada Choueiri, deputy director of IMF’s Asia-Pacific Department and mission chief for Japan, stated that IMF remains “supportive” of BoJ’s current monetary policy course. She emphasized that rate hikes should be implemented in a gradual and flexible manner to ensure that domestic demand continues to recover.

    Choueiri projected that BoJ’s policy rate could rise “beyond 0.5%” by the end of this year, with a longer-term path toward the “neutral level” by the end of 2027.

    IMF estimates Japan’s neutral rate to be within a band of 1% to 2%, with a midpoint of 1.5%.

    Also, IMF maintains an optimistic outlook for Japan’s economy, forecasting 1.1% GDP growth in 2025, supported by increasing wages and stronger consumer spending.

    Given these projections, IMF expects BoJ to continue its tightening cycle in a controlled manner.

    USD/JPY Daily Outlook

    Daily Pivots: (S1) 150.83; (P) 151.86; (R1) 152.48; More…

    USD/JPY is now pressing 38.2% retracement of 139.57 to 158.86 at 151.49 as fall from 158.86 extended. Strong bounce from current level will keep this decline as a correction, and retain near term bullishness. Firm break of 153.70 support turned resistance will turn bias back to the upside for stronger rebound. However, sustained break of 151.49 will raise the chance of bearish reversal, and target 61.8% retracement at 146.32 next.

    In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:30 JPY Household Spending Y/Y Dec 2.70% 0.30% -0.40%
    05:00 JPY Leading Economic Index Dec P 108.9 108.1 107.5
    07:00 EUR Germany Industrial Production M/M Dec -2.40% -0.70% 1.50% 1.30%
    07:00 EUR Germany Trade Balance (EUR) Dec 20.7B 17.1B 19.7B
    07:45 EUR France Trade Balance (EUR) Dec -5.3B -7.1B
    08:00 CHF Foreign Currency Reserves (CHF) Jan 731B
    13:30 CAD Net Change in Employment Jan 26.5K 90.9K
    13:30 CAD Unemployment Rate Jan 6.80% 6.70%
    13:30 USD Nonfarm Payrolls Jan 169K 256K
    13:30 USD Unemployment Rate Jan 4.10% 4.10%
    13:30 USD Average Hourly Earnings M/M Jan 0.30% 0.30%
    15:00 USD Wholesale Inventories Dec F -0.50% -0.50%

     



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  • Sterling Tumbles on BoE’s Dovish Rate Cut

    Sterling Tumbles on BoE’s Dovish Rate Cut


    The British Pound weakened significantly after BoE delivered a 25bps rate cut. The policy decision was more dovish than anticipated, primarily due to the unexpected shift in the MPC voting split. Catherine Mann, previously one of the most hawkish members of the committee, reversed course and joined Swati Dhingra in voting for a more aggressive 50bps cut.

    Adding to the bearish sentiment on Sterling, BoE’s updated economic projections painted a complicated macroeconomic outlook. The central bank sharply downgraded its 2025 GDP growth forecast. At the same time, inflation forecasts were revised higher. Facing the increased uncertainty, BoE emphasized its commitment to a “gradual and careful” approach to policy easing.

    Overall with today’s announcement, risk is clearly tilted toward a more dovish policy stance. The base case remains as one 25bps cut per quarter throughout 2025,. But today’s decision raises the probability of a faster easing cycle, in particular if growth conditions worsen further.

    Technically, EUR/GBP’s strong break of 0.8353 minor resistance argue that the pullback from 0.8472 might have completed at 0.8290 already. This also revives that case that rebound from 0.8221 is not totally completed. Further rise is now in favor back to 0.8472 resistance next.

    Overall in the currency markets, Yen is currently the strongest one, followed by Canadian, and then Dollar. Sterling is the worst, followed by Kiwi, and then Swiss Franc. Euro and Aussie are positioning in the middle. The picture is rather mixed with the exception of clear strength in Yen and weakness in Sterling. Other parts of the markets might need tomorrow’s US NFP data to provide more clarity.

    In Europe at the time of writing, FTSE is up 1.53%. DAX is up 0.82%. CAC is up 0.97%, UK 10-year yield is down -0.0249 at 4.416. Germany 10-year yield is up 0.004 at 2.369. Earlier in Asia, Nikkei rose 0.61%. Hong Kong HSI rose 1.43%. China Shanghai SSE rose 1.27%. Singapore Strait Times rose 0.39%. Japan 10-year JGB yield fell -0.0166 to 1.267.

    US initial jobless claims rises to 219k vs exp 214k

    US initial jobless claims rose 11k to 219k in the week ending February 1, above expectation of 214k. Four-week moving average of initial claims rose 4k to 217k.

    Continuing claims rose 36k to 1886k in the week ending January 25. Four-week moving average of continuing claims rose 2k to 1872k.

    BoE cuts rates to 4.50% in surprisingly dovish vote

    BoE lowered its policy rate by 25 basis points to 4.50%, as widely expected, but the tone of the decision was unexpectedly dovish.

    The Monetary Policy Committee vote split at 7-2, with Swati Dhingra advocating for a more aggressive 50bps cut—as expected—but hawkish member Catherine Mann surprisingly joining her, marking a significant shift in her stance.

    BoE emphasized a “gradual and careful” approach to easing, a slight adjustment from December’s messaging, which only referenced “gradual” reductions. This shift highlights policymakers’ growing concerns over inflation persistence and economic fragility. Governor Andrew Bailey reaffirmed that rate adjustments would be assessed on a “meeting-by-meeting” basis, with no pre-determined path for cuts.

    In its updated economic projections, BoE raised its inflation outlook, now expecting headline CPI to peak at 3.7% in Q3 2025, up from a prior forecast of 2.8%. The revision reflects higher energy costs and expected increases in regulated utility and transport prices. Inflation is not anticipated to return to the 2% target until Q4 2027, six months later than previously projected.

    Growth forecasts were also downgraded sharply for 2025, with expected GDP expansion halved to 0.75%, citing weak business sentiment, sluggish consumer activity, and poor productivity growth. However, projections for 2026 and 2027 were revised slightly upward to 1.5% from 1.25%, suggesting policymakers see a slow but eventual economic recovery.

    ECB’s Cipollone open to March cut, flags risks of full US-China trade war

    ECB Executive Board member Piero Cipollone indicating that while “there is still room for adjusting rates downwards”, the March decision remains uncertain. He stated that ECB must be “extremely careful” in its assessment, and he will enter the meeting “with an open mind”.

    Discussing the concept of the neutral rate in a Reuters interview, Cipollone downplayed its practical significance in policy setting. He pointed out that when estimates for the neutral rate vary widely—such as between 1.75% and 2.25%—it becomes “not terribly useful for setting monetary policy.” If ECB operates near either end of the range, it could risk either undershooting or overshooting its inflation target.

    Cipollone also raised concerns about the evolving global trade situation. The immediate impact of US tariffs depends on European retaliation and specific product categories affected, He warned that a “full trade war” between the US and China poses a more significant threat.

    With China accounting for 35% of global manufacturing capacity, broad trade restrictions could flood European markets with Chinese goods. This would create a dual challenge— “deflationary” pressures from lower-priced imports and a “contractionary” effect as European producers struggle to compete.

    Eurozone retail sales falls -0.2% mom in Dec, EU down -0.3% mom

    Eurozone retail sales slipped by -0.2% mom in December, missing market expectations of -0.1% decline and pointing to continued weakness in consumer demand. The drop was largely driven by -0.7% contraction in food, drinks, and tobacco sales, while non-food products saw a modest 0.3% increase. Automotive fuel sales in specialized stores also ticked up 0.2%, providing some offset to the broader decline.

    At the EU-wide level, retail sales fell even further, down 0.3% mom. The country-level breakdown highlights stark contrasts in retail activity. Slovenia (-2.2%), Germany (-1.6%), and Poland (-1.5%) saw the sharpest contractions, while Slovakia (+8.2%), Finland (+2.1%), and Spain (+1.4%) registered solid gains.

    BoJ’s Tamura advocates rate hike to 1% by late fiscal 2025

    BoJ board member Naoki Tamura, a known hawk, reinforced his stance on the need for tighter monetary policy, stating that Japan’s short-term interest rates should rise to at least 1% by the second half of fiscal 2025 to mitigate inflation risks.

    Tamura explained that inflationary pressures are mounting, necessitating a shift away toward a more neutral rate. He highlighted that by late fiscal 2025, the Japanese economy is expected to reach a point where the 2% inflation target can be considered sustainably achieved, supported by broad-based wage increases, including among smaller firms.

    “Bearing in mind that short-term interest rates should be at 1% by the second half of fiscal 2025, I think the Bank needs to raise rates in a timely and gradual manner, in response to the increasing likelihood of achieving its price target,” he said.

    Australia’s NAB business confidence improves, but profitability weakens

    Australia’s NAB Business Confidence rose from -7 to -4 in Q4, reflecting a slight improvement in sentiment. However, Business Conditions remained unchanged at 3, as trading conditions slipped from 6 to 5, and profitability turned negative from 0 to -1. Employment conditions as steady at 3.

    Forward-looking indicators showed a mixed picture. Expected business conditions for the next three months edged lower, but sentiment for the 12-month horizon improved by five points, aligning with a three-point increase in capital expenditure plans, suggesting firms are cautiously optimistic about long-term prospects.

    Cost pressures moderated, with labor cost growth slowing to 0.9% qoq from 1.2%, and purchase costs easing to 0.7% qoq from 1.0%. Retail price growth also softened to 0.5% qoq from 0.7%, though overall product price growth remained stable at 0.4% qoq, indicating ongoing margin pressure despite easing input costs. Wage costs remained the top concern for businesses, while demand constraints and labor shortages persisted as key challenges.

    GBP/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.2462; (P) 1.2506; (R1) 1.2548; More…

    GBP/USD dips notably today but stays above 1.2248 support and intraday bias remains neutral. While corrective rebound from 1.2099 could still extend, upside should be limited by 38.2% retracement of 1.3433 to 1.2099 at 1.2609. On the downside, break of 1.2248 support will bring retest of 1.2099 first. Firm break there will resume whole decline from 1.3433. However, decisive break of 1.2609 will raise the chance of near term reversal, and target 61.8% retracement at 1.2923.

    In the bigger picture, rise from 1.0351 (2022 low) should have already completed at 1.3433 (2024 high), and the trend has reversed. Further fall is now expected as long as 1.2810 resistance holds. Deeper decline should be seen to 61.8% retracement of 1.0351 to 1.3433 at 1.1528, even as a corrective move. However, firm break of 1.2810 will dampen this bearish view and bring retest of 1.3433 high instead.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    00:30 AUD NAB Business Confidence Q4 -4 -6 -7
    00:30 AUD Trade Balance (AUD) Dec 5.09B 6.73B 7.08B 6.79B
    06:45 CHF Unemployment Rate M/M Jan 2.70% 2.70% 2.60% 2.70%
    07:00 EUR Germany Factory Orders M/M Dec 6.90% 1.70% -5.40% -5.20%
    09:30 GBP Construction PMI Jan 48.1 53.7 53.3
    10:00 EUR Eurozone Retail Sales M/M Dec -0.20% -0.10% 0.10% 0.00%
    12:00 GBP BoE Interest Rate Decision 4.50% 4.50% 4.75%
    12:00 GBP MPC Official Bank Rate Votes 0–9–0 0–8–1 0–3–6
    12:30 USD Challenger Job Cuts Y/Y Jan -39.50% 11.40%
    13:30 USD Initial Jobless Claims (Jan 31) 219K 214K 207K 208K
    13:30 USD Nonfarm Productivity Q4 P 1.20% 1.80% 2.20%
    13:30 USD Unit Labor Costs Q4 P 3.00% 3.30% 0.80%
    15:00 CAD Ivey PMI Jan 53 54.7
    15:30 USD Natural Gas Storage -167B -321B

     



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  • Dollar Struggles Continue Despite Strong ADP, Caution Prevails

    Dollar Struggles Continue Despite Strong ADP, Caution Prevails


    Dollar remains on the backfoot in early US session, despite the strong ADP private employment report. The data highlights continued resilience in the labor market, with services-driven job growth and sustained wage pressures. While this should theoretically reinforce the case for Fed to maintain its pause in easing for longer, traders appear reluctant to react decisively ahead of Friday’s Non-Farm Payroll report, which will provide a more comprehensive labor market picture.

    Beyond economic data, uncertainty surrounding US-China trade relations is another key factor keeping traders from placing larger bets on the greenback. The additional 10% duties on Chinese goods remain firmly in place. Traders are monitoring the anticipated phone call between US President Donald Trump and Chinese President Xi Jinping, but no official timeline has been set. The lack of diplomatic engagement has kept market caution elevated.

    Adding to the confusion, the US Postal Service reversed its earlier suspension of inbound packages from China and Hong Kong. Instead, it will now work closely with US Customs and Border Protection to enforce the new tariff collection measures more effectively. This aligns with Trump’s decision to close the “de minimis” trade loophole, which previously allowed Chinese e-commerce giants like Temu and Shein to ship goods into the US duty-free in high volumes.

    Overall in the forex markets, Canadian Dollar continues to lead gains this week, supported by the avoidance of US tariffs. Japanese Yen follows closely, buoyed by strong wage growth data, which is raising expectations for further rate hikes from BoC. Australian Dollar has also shown some resilience too. Dollar remains the weakest performer, followed by Euro and New Zealand Dollar. Sterling and Swiss Franc are positioned in the middle of the pack.

    Technically, USD/CAD is now pressing an important cluster support level at 1.4260, with 38.2% retracement of 1.3418 to 1.4791 at 1.4267, and 55 D EMA at 1.4267. Strong support is expected there to complete the pull back from 1.4791 and bring rebound. However, decisive break of 1.4260 will be a sign of broad-based weakness in Dollar for the near term. USD/CAD could dive further to 618% retracement at 1.3942, along with extended selloff in Dollar elsewhere.

    In Europe, at the time of writing, FTSE is up 0.37%. DAX is up 0.15%. CAC is down -0.21%. UK 10-year yield is down -0.061 at 4.464. Germany 10-year yield is down -0.0391 at 2.364. Earlier in Asia,Nikkei rose 0.09%. Hong Kong HSI fell -0.93%. China Shanghai SSE fell -0.65%. Singapore Strait Times fell -0.20%. Japan 10-year JGB yield rose 0.0076 to 1.284.

    US ADP jobs beats expectations with 183k gain, led by services

    US ADP private employment report showed a stronger-than-expected job gain of 183K in January, surpassing market forecasts of 149K.

    Service sector was the clear driver of employment, adding 190K jobs, while goods-producing industries shed -6K positions. By company size, small businesses contributed 39K jobs, medium-sized firms led with 92K, and large corporations added 69K.

    Wage growth remained elevated, with annual pay increases for job-stayers at 4.7% yoy, while job-changers saw an even stronger 6.8% yoy rise.

    According to Nela Richardson, Chief Economist at ADP, the report reveals a “dichotomy” in the labor market, with consumer-facing industries leading the way, while business services and production lag behind.

    Eurozone PPI rises 0.4% in Dec, flat annually

    Eurozone PPI increased by 0.4% mom in December, slightly below market expectations of 0.5% MoM. On a year-over-year basis, PPI was unchanged, above expectations of a -0.1% yoy decline.

    Breaking down the monthly price changes in Eurozone, energy prices saw the biggest increase at 1.4%, followed by durable consumer goods (+0.2%). Capital goods, intermediate goods, and non-durable consumer goods all edged up by 0.1%.

    At the EU level, PPI rose 0.4% mom and 0.1% yoy. The biggest price gains were seen in Bulgaria (+5.1%), Croatia (+2.4%), and Slovakia (+1.5%). On the other hand, Ireland (-1.5%), Romania (-1.3%), and the Netherlands (-0.4%) saw the largest declines.

    Eurozone PMI services finalized at 51.3, no major growth leap expected

    Eurozone Composite PMI was finalized at 50.2 in January, up from 49.6 in December, marking the first month of economic expansion since August. However, PMI Services Index was finalized at 51.3, down from prior month’s1.6, suggesting that while the services sector remains in growth territory, momentum is fading.

    Among individual countries, Spain led the expansion with a Composite PMI of 54.0. Germany’s index climbed to 50.5, hitting an eight-month high, signaling tentative stabilization. Italy remained in contraction at 49.7, while France improved slightly to 47.6.

    According to Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, the services sector has been instrumental in preventing a broader economic contraction in the Eurozone. Modest but accelerating new orders and employment offer some optimism that the sector could gain momentum in Q1 2025. However, rising costs in services, particularly due to wage pressures, remain a concern for the ECB.

    The services outlook is “modest”, with business expectations declining slightly and staying below historical averages since mid-2024. Political uncertainties in the Eurozone, including Germany’s upcoming elections and France’s fragile government, continue to weigh on sentiment.

    “No major growth leaps are expected in this sector for now,” de la Rubia added.

    UK PMI services finalized at 15-month low, stagflation concerns rise

    UK PMI Services was finalized at 50.8 in January, slipping from December’s 51.1, marking its joint-lowest level in 15 months. PMI Composite edged up slightly to 50.6, indicating that overall economic activity remains stagnant, with minimal expansion.

    According to Tim Moore, Economics Director at S&P Global Market Intelligence, “stagflation conditions appeared to take a firmer hold”, with weak output growth coupled with persistent cost pressures. Input cost inflation accelerated for the fifth consecutive month, reaching its highest level since April 2024.

    Renewed decline in new business volumes adds to signs that the UK’s economic outlook remains weak, as firms report softening demand conditions. Business confidence has also taken a hit, with expectations for future activity dropping to their lowest level since December 2022.

    The most concerning development is the sharp deterioration in employment trends, as service providers cut jobs at the fastest pace in four years. The “twin perils” of shrinking workloads and rising payroll costs has forced many firms to halt recruitment.

    Japan’s nominal wage growth surges 4.8% yoy in Dec, real wages rise for second month

    Japan’s labor market showed strong wage growth in December, with labor cash earnings surging 4.8% yoy, significantly above expectations of 3.8% yoy and accelerating from 3.9% yoy in the prior month. This marks the 36th consecutive month of annual wage increases.

    Regular pay, which includes base salaries, rose 2.7% yoy, while special cash earnings—mainly reflecting winter bonuses—jumped 6.8% yoy, providing an additional boost to workers’ disposable income.

    Real wages, which adjust for inflation, climbed 0.6% yoy, marking the second straight month of positive growth. This improvement comes despite a notable acceleration in consumer inflation, with the price index used to calculate real wages—excluding rent but including fresh food—rising 4.2% yoy, up from 3.4% yoy in November and reaching the highest level since January 2023.

    China’s Caixin PMI services PMI drops to 51.0

    China’s Caixin Services PMI slipped to 51.0 in January, down from 52.2 and below expectations of 52.3. PMI Composite also edged lower from 51.4 to 51.1, marking a four-month low, as both manufacturing and services sectors struggled to gain momentum.

    According to Caixin Insight Group, while supply and demand conditions showed improvement, services growth lagged behind, pointing to weaker consumer activity.

    Wang Zhe, Senior Economist added, “Employment in both sectors fell significantly, and overall price levels remained subdued, particularly factory-gate prices in manufacturing.”

    New Zealand’s unemployment rate rises to 5.1%

    New Zealand’s labor market softened further in Q4, with unemployment rate climbing from 4.8% to 5.1%, in line with expectations and marking the highest level since 2016, excluding the brief spike following the 2020 Covid lockdown.

    Employment fell by -0.1% in the quarter, slightly better than the expected -0.2% decline, but still reflecting ongoing weakness in job creation. Meanwhile, wage growth continued to moderate, with the labor cost index rising 0.6% qoq, bringing the annual rate down to 3.3% from 3.8%.

    The latest data supports the case for further monetary easing by RBNZ, which remains committed to swiftly bringing the OCR down from the current 4.25% toward neutral level. A 50bps rate cut is still widely anticipated at the upcoming policy meeting this month.

    EUR/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.0305; (P) 1.0346; (R1) 1.0421; More…

    While EUR/USD’s recovery from 1.0210 continues today, upside is still limited below 1.0531 resistance. Intraday bias remains neutral and further decline is expected. On the downside, break of 1.0176 will resume whole fall from 1.1213. However, sustained break of 1.0531 will rise the chance of bullish reversal and turn bias back to the upside for stronger rally.

    In the bigger picture, immediate focus is back on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. However, strong support from 1.0199 will argue that price actions from 1.1274 are merely a corrective pattern, and has already completed.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:45 NZD Employment Change Q4 -0.10% -0.20% -0.50% -0.60%
    21:45 NZD Unemployment Rate Q4 5.10% 5.10% 4.80%
    21:45 NZD Labour Cost Index Q/Q Q4 0.60% 0.60% 0.60%
    23:30 JPY Labor Cash Earnings Y/Y Dec 4.80% 3.80% 3.00% 3.90%
    00:30 JPY Services PMI Jan F 53 52.7 52.7
    01:45 CNY Caixin Services PMI Jan 51 52.3 52.2
    07:45 EUR France Industrial Output M/M Dec -0.40% -0.10% 0.20% 0.10%
    08:50 EUR France Services PMI Jan F 48.2 48.9 48.9
    08:55 EUR Germany Services PMI Jan F 52.5 52.5 52.5
    09:00 EUR Eurozone Services PMI Jan F 51.3 51.4 51.4
    09:30 GBP Services PMI Jan F 50.8 51.2 51.2
    10:00 EUR Eurozone PPI M/M Dec 0.40% 0.50% 1.60% 1.70%
    10:00 EUR Eurozone PPI Y/Y Dec 0.00% -0.10% -1.20%
    13:15 USD ADP Employment Change Jan 183K 149K 122K 176K
    13:30 USD Trade Balance (USD) Dec -98.4B -97.1B -78.2B -78.9B
    13:30 CAD Trade Balance (CAD) Dec 0.7B 0.4B -0.3B -1.0B
    14:45 USD Services PMI Jan F 52.8 52.8
    15:00 USD ISM Services PMI Jan 54.2 54.1
    15:30 USD Crude Oil Inventories 2.4M 3.5M

     



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  • Yen Rises on Strong Wage Data, Gold Continues March to 3000

    Yen Rises on Strong Wage Data, Gold Continues March to 3000


    Japanese Yen gained significant ground in the Asian session, supported by stronger-than-expected nominal wage growth, which bolstered the likelihood of further BoJ rate hikes. Additionally, continued rise in real wages for the second consecutive month, despite being largely driven by seasonal bonuses, adds to the argument that wage pressures could help sustain inflation near the 2% target.

    Supporting this outlook, BoJ monetary affairs director Kazuhiro Masaki told parliament that the central bank is prepared to continue adjusting monetary support and raising rates if underlying inflation progresses toward its 2% target. These remarks reaffirm the expectation that Japan’s interest rate normalization will proceed gradually but steadily this year.

    While Yen leads gains in the forex market, overall sentiment is mixed, with trade war concerns temporarily fading into the background. Canadian Dollar is currently the strongest performer this week, followed by Yen and Swiss Franc. Dollar lags behind as the weakest, joined by Euro and New Zealand Dollar. Sterling and Australian Dollar are treading a middle ground .

    With trade-related uncertainty easing, attention is now shifting back toward key economic events. US ISM Services PMI is due later today. Tomorrow, BoE is expected to announce a 25bps rate cut, but the MPC voting split and economic projections will be crucial in setting future rate expectations. To close the week, US Non-Farm Payrolls and Canada’s employment report will be in focus on Friday.

    Technically, Gold’s record run continues with strong momentum and remains on track to 3000 psychological level, which is close to 38.2% projection of 1810.26 to 2789.92 from 2584.24 at 3074.07. Attention is on whether Gold would lose momentum on overbought condition as it approaches this level. But in any case, outlook will stay bullish as long as 2772.04 support holds.

    In Asia, at the time of writing, Nikkei is down -0.10%. Hong Kong HSI is down -0.69%. China Shanghai SSE is down -0.36%. Singapore Strait Times is down -0.14%. Japan 10-year JGB yield is up 0.0191 at 1.295. Overnight, DOW rose 0.30%. S&P 500 rose 0.72%. NASDAQ rose 1.35%. 10-year yield fell -0.030 to 4.513.

    Fed’s Jefferson and Daly signal no urgency for rate cuts

    Fed Vice Chair Philip Jefferson reaffirmed the cautious approach to policy easing, stating that while a “gradual reduction” in monetary policy restraint towards neutral remains the most likely scenario, there is no urgency to change the current stance.

    “I do not think we need to be in a hurry to change our stance,” he said in a speech overnght.

    He emphasized that policy decisions will continue to be guided by incoming data and the evolving economic outlook, noting that monetary policy is “not on a preset course.”

    Jefferson outlined a “range of scenarios” for future policy moves. If economic activity remains robust and inflation fails to sustainably decline toward 2% target, Fed could maintain its restrictive stance for longer. Conversely, if the labor market weakens unexpectedly or inflation cools faster than expected, the central bank may need to ease policy at a quicker pace.

    Meanwhile, San Francisco Fed President Mary Daly echoed similar sentiments, describing the US economy as “in a very good place.” She emphasized that the central bank is in a strong position to “wait and see” before making any policy moves.

    Japan’s nominal wage growth surges 4.8% yoy in Dec, real wages rise for second month

    Japan’s labor market showed strong wage growth in December, with labor cash earnings surging 4.8% yoy, significantly above expectations of 3.8% yoy and accelerating from 3.9% yoy in the prior month. This marks the 36th consecutive month of annual wage increases.

    Regular pay, which includes base salaries, rose 2.7% yoy, while special cash earnings—mainly reflecting winter bonuses—jumped 6.8% yoy, providing an additional boost to workers’ disposable income.

    Real wages, which adjust for inflation, climbed 0.6% yoy, marking the second straight month of positive growth. This improvement comes despite a notable acceleration in consumer inflation, with the price index used to calculate real wages—excluding rent but including fresh food—rising 4.2% yoy, up from 3.4% yoy in November and reaching the highest level since January 2023.

    China’s Caixin PMI services PMI drops to 51.0

    China’s Caixin Services PMI slipped to 51.0 in January, down from 52.2 and below expectations of 52.3. PMI Composite also edged lower from 51.4 to 51.1, marking a four-month low, as both manufacturing and services sectors struggled to gain momentum.

    According to Caixin Insight Group, while supply and demand conditions showed improvement, services growth lagged behind, pointing to weaker consumer activity.

    Wang Zhe, Senior Economist added, “Employment in both sectors fell significantly, and overall price levels remained subdued, particularly factory-gate prices in manufacturing.”

    New Zealand’s unemployment rate rises to 5.1%

    New Zealand’s labor market softened further in Q4, with unemployment rate climbing from 4.8% to 5.1%, in line with expectations and marking the highest level since 2016, excluding the brief spike following the 2020 Covid lockdown.

    Employment fell by -0.1% in the quarter, slightly better than the expected -0.2% decline, but still reflecting ongoing weakness in job creation. Meanwhile, wage growth continued to moderate, with the labor cost index rising 0.6% qoq, bringing the annual rate down to 3.3% from 3.8%.

    The latest data supports the case for further monetary easing by RBNZ, which remains committed to swiftly bringing the OCR down from the current 4.25% toward neutral level. A 50bps rate cut is still widely anticipated at the upcoming policy meeting this month.

    USD/JPY Daily Outlook

    Daily Pivots: (S1) 153.84; (P) 154.68; (R1) 155.18; More…

    USD/JPY’s fall from 158.86 short term top resumed by breaking through 153.70 and intraday bias is back on the downside. Deeper decline should be seen to 38.2% retracement of 139.57 to 158.86 at 151.49. Strong support could be seen from there to bring rebound. But further fall will remain in favor as long as 155.51 resistance holds, in case of recovery. Sustained break of 151.49 will raise the chance of bearish reversal.

    In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:45 NZD Employment Change Q4 -0.10% -0.20% -0.50% -0.60%
    21:45 NZD Unemployment Rate Q4 5.10% 5.10% 4.80%
    21:45 NZD Labour Cost Index Q/Q Q4 0.60% 0.60% 0.60%
    23:30 JPY Labor Cash Earnings Y/Y Dec 4.80% 3.80% 3.00% 3.90%
    00:30 JPY Services PMI Jan F 53 52.7 52.7
    01:45 CNY Caixin Services PMI Jan 51 52.3 52.2
    07:45 EUR France Industrial Output M/M Dec -0.10% 0.20%
    08:50 EUR France Services PMI Jan F 48.9 48.9
    08:55 EUR Germany Services PMI Jan F 52.5 52.5
    09:00 EUR Eurozone Services PMI Jan F 51.4 51.4
    09:30 GBP Services PMI Jan F 51.2 51.2
    10:00 EUR Eurozone PPI M/M Dec 0.50% 1.60%
    10:00 EUR Eurozone PPI Y/Y Dec -0.10% -1.20%
    13:15 USD ADP Employment Change Jan 149K 122K
    13:30 USD Trade Balance (USD) Dec -97.1B -78.2B
    13:30 CAD Trade Balance (CAD) Dec 0.4B -0.3B
    14:45 USD Services PMI Jan F 52.8 52.8
    15:00 USD ISM Services PMI Jan 54.2 54.1
    15:30 USD Crude Oil Inventories 2.4M 3.5M

     



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  • Markets Stay Calm, Await Clarity from Trump-Xi Call

    Markets Stay Calm, Await Clarity from Trump-Xi Call


    Global markets remain stable as US session begins, with sentiment lifted by the delay of tariffs on Canada and Mexico. Nonetheless, investors remain cautious about ongoing tensions between the US and China, as Washington’s additional 10% tariffs on Chinese imports have taken effect. So far, there has been no scheduled phone call between US President Donald Trump and Chinese President Xi Jinping, raising uncertainty over whether negotiations will take place anytime soon.

    China responded swiftly with retaliatory tariffs of up to 15% on U.S. coal and liquefied natural gas, along with a 10% increase in duties on crude oil, farm equipment, and select automobiles, set to begin on February 10. Additionally, Beijing has opened an antitrust investigation into Google, signaling that trade tensions may extend beyond tariffs and into regulatory action against US firms operating in China.

    Unlike the previous trade disputes during Trump’s first term, the current tariff measures appear to be more of a bargaining tool for non-trade-related concessions, making a near-term resolution less likely. Given Beijing’s firm stance, the US may keep the tariffs in place while shifting focus to another geopolitical or economic issue. As a result, investors should prepare for prolonged trade frictions, with potential spillover effects into other sectors.

    In the markets, one development to note is the strong bounce in US 10-year yield as safe-haven flows reversed. Technically, 55 D EMA (now at 4.478) could be a spot to provide enough support to end the corrective pull back from 4.809. Break of 4.664 resistance would argue that rise from 3.603 is ready to resume through 4.809. In case the correction extends, downside should be contained by 38.2% retracement of 3.603 to 4.809 at 4.348. Dollar would likely follow yield for its next move, in particular in USD/JPY.

    In Europe, at the time of writing, FTSE is down -0.10%. DAX is up 0.22%. CAC is up 0.36%. UK 10-year yield is up 0.062 at 4.551. Germany 10-year yield is up 0.038 at 2.429. Earlier in Asia, Nikkei rose 0.72%. Hong Kong HSI rose 2.83%. Singapore Strait Times fell -0.09%. Japan 10-year JGB yield rose 0.0265 to 1.276.

    BoJ’s Ueda prioritizes underlying inflation trends, not short-term volatility

    BoJ Governor Kazuo Ueda reiterated the central bank’s commitment to achieving its 2% inflation target on a sustained basis, emphasizing that the focus remains on underlying inflation rather than temporary price fluctuations.

    Speaking before parliament, Ueda highlighted that BoJ filters out one-off factors such as fuel and volatile fresh food prices when assessing inflation trends.

    However, he acknowledged “that process at times could be difficult”, reinforcing the need for careful analysis before making policy adjustments.

    USD/CHF Mid-Day Outlook

    Daily Pivots: (S1) 0.9065; (P) 0.9131; (R1) 0.9169; More…

    USD/CHF dips mildly today as consolidation from 0.9200 extends with another downleg. Deeper fall could be seen but outlook will stay bullish as long as 0.8956/64 support holds. Firm break of 0.9200/9223 will resume the whole rally from 0.8374 and carry larger bullish implication.

    In the bigger picture, decisive break of 0.9223 resistance will argue that whole down trend from 1.0342 (2017 high) has completed with three waves down to 0.8332 (2023 low). Outlook will be turned bullish for 1.0146 resistance next. Nevertheless, rejection by 0.9223 will retain medium term bearishness for another decline through 0.8332 at a later stage.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:45 NZD Building Permits M/M Dec -5.60% 5.30% 4.90%
    23:50 JPY Monetary Base Y/Y Jan -2.50% -0.50% -1.00%
    15:00 USD Factory Orders M/M Dec -0.70% -0.40%

     



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  • Markets Stabilize, But Trade Risks Persist as US Imposes China Tariffs, Beijing Strikes Back

    Markets Stabilize, But Trade Risks Persist as US Imposes China Tariffs, Beijing Strikes Back


    Global markets found some stability after the US agreed to a 30-day delay on tariffs against Mexico and Canada following agreements on fentanyl trafficking and border security measures. However, trade tensions remain elevated as Washington proceeded with the additional 10% tariff on all Chinese imports. In response, China retaliated by imposing a 15% tariff on US coal and LNG, along with a 10% levy on crude oil, farm equipment, and select automobiles, set to take effect on February 10.

    Further escalation could be on the horizon, as US President Donald Trump signaled that additional tariff hikes on China remain a possibility unless Beijing takes further steps to curb fentanyl exports. Meanwhile, trade friction with the EU is also building. Trump hinted over the weekend that European imports could be his next target, prompting EU leaders at a summit in Brussels to prepare countermeasures while expressing willingness for negotiations. Developments on both fronts will be closely monitored in the days ahead.

    In the currency markets, Canadian Dollar is leading gains for the week so far, rebounding strongly following the tariff delay. Japanese Yen follows as the second-strongest performer, benefiting from risk aversion, while British Pound holds up well. On the weaker side, New Zealand Dollar is underperforming, followed by Euro and Australian Dollar. Dollar has retraced most of its earlier gains and is now trading in the middle of the performance rankings alongside Swiss Franc.

    Technically, Gold hit another record high on risk aversion yesterday after initial volatility. For now, outlook will stay bullish as long as 2730.34 support holds. Next target is 38.2% projection of 1810.26 to 2789.92 from 2584.24 at 3074.07, which is close to 3000 psychological. This level will be crucial in determining the underlying momentum of Gold.

    In Asia, at the time of writing, Nikkei is up 0.82%. Hong Kong HSI is up 1.76%. China is still on holiday. Singapore Strait Times is down -0.13%. Japan 10-year JGB yield is up 0.0228 at 1.272. Overnight, DOW fell -0.28%. S&P 500 fell -0.76%. NASDAQ fell -1.20%. 10-year yield fell -0.026 to 4.543.

    CAD rebounds as US pauses tariffs for 30 days

    Canadian Dollar rebounded sharply after US President Donald Trump announced a 30-day pause on planned tariffs against Canadian imports, just hours after implementing a similar delay for Mexico.

    The decision came after negotiations between Trump and Canadian Prime Minister Justin Trudeau, who confirmed that Canada would take aggressive new measures to combat fentanyl trafficking, including deploying nearly 10,000 personnel to reinforce border security. Canada also committed to appointing a “Fentanyl Czar”, classifying cartels as terrorist organizations, and launching a Canada-US “Joint Strike Force” targeting organized crime and money laundering.

    Markets welcomed the de-escalation, as the tariff pause removes immediate downside risks for the Canadian economy. Trump emphasized that the suspension is conditional on further progress in security measures and that an “Economic deal with Canada” may still need to be structured.

    Technically, a short term top is likely formed at 1.4791 in USD/CAD after this week’s strong volatility. More sideway trading should now be seen in the near term. However, outlook will continue to stay bullish as long as 1.4260 cluster support holds (38.2% retracement of 1.3418 to 1.4791 at 1.4267), which is also close to 55 D EMA (now at 1.4267). USD/CAD’s up trend is still in favor to resume at a later stage when the consolidation completes.

    Fed officials stress patience on rate cuts amid tariff uncertainty

    A trio of Fed officials cautioned that new broad-based tariffs could add upward pressure to consumer and producer prices, suggesting a slower pace of rate cuts than previously anticipated.

    Boston Fed President Susan Collins highlighted yesterday that tariffs on both final and intermediate goods risk inflating costs throughout supply chains, requiring “patient” policy decisions.

    “It’s really appropriate for policy to be patient, careful, and there’s no urgency for making additional adjustments, especially given all of the uncertainty, even though, of course, we’re still somewhat restrictive,” Collins said.

    Chicago Fed President Austan Goolsbee also stressed “a ton of uncertainty,” warning that a premature return to lower rates could reignite inflation.

    “We’ve got to be a little more careful and more prudent of how fast rates could come down because there are risks that inflation is about to start kicking back up again,” Goolsbee said.

    Meanwhile, Atlanta Fed President Raphael Bostic noted that any tariff-related surge in prices or inflation expectations might warrant close monitoring before further easing steps are taken.

    BoJ’s Ueda prioritizes underlying inflation trends, not short-term volatility

    BoJ Governor Kazuo Ueda reiterated the central bank’s commitment to achieving its 2% inflation target on a sustained basis, emphasizing that the focus remains on underlying inflation rather than temporary price fluctuations.

    Speaking before parliament, Ueda highlighted that BoJ filters out one-off factors such as fuel and volatile fresh food prices when assessing inflation trends.

    However, he acknowledged “that process at times could be difficult”, reinforcing the need for careful analysis before making policy adjustments.

    AUD/USD Daily Report

    Daily Pivots: (S1) 0.6130; (P) 0.6184; (R1) 0.6279; More…

    Intraday bias in AUD/USD is turned neutral as it recovered notably after dipping to 0.6087. Some consolidations would be seen first. But outlook will stay bearish as long as 0.6329 resistance holds. Break of 0.6087 will resume larger decline from 0.6941. Next target is 61.8% projection of 0.6687 to 0.6130 from 0.6329 at 0.5985.

    In the bigger picture, fall from 0.6941 (2024 high) is seen as part of the down trend from 0.8006 (2021 high). Next medium term target is 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.6511) holds.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:45 NZD Building Permits M/M Dec -5.60% 5.30% 4.90%
    23:50 JPY Monetary Base Y/Y Jan -2.50% -0.50% -1.00%
    15:00 USD Factory Orders M/M Dec -0.70% -0.40%

     



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  • US-Canada Talks Offer Hope, But Risk Aversion Keeps Yen in Demand

    US-Canada Talks Offer Hope, But Risk Aversion Keeps Yen in Demand


    After a burst of volatility earlier in the session, currency markets are taking a breather as traders reassess the evolving US tariff situation. Comments from White House National Economic Council Director Kevin Hassett helped cool tensions when he clarified that, “This is not a trade war, this is a drug war,” directing the focus toward fentanyl imports rather than a sweeping escalation of protectionist policies. His remarks have provided a temporary sense of relief, as markets take a step back to evaluate whether tariff measures could be adjusted or reversed if progress is made on fentanyl control.

    President Donald Trump’s updates on discussions with Canadian Prime Minister Justin Trudeau have also offered a glimmer of hope that a negotiated outcome could avert more severe tariff measures. Market sentiment hangs on the possibility that resolving fentanyl-related disputes could defuse tensions, but the risks for a breakdown in talks still looms. A failure to find common ground would likely re-energize the recent selloff and send safe-haven flows back into assets like the Japanese Yen, Swiss Franc and Dollar.

    Speaking of currencies, the Yen stands out as the day’s strongest performer so far, benefiting from sliding US Treasury yields and ongoing risk aversion. Dollar remains firm in second place. Sterling is surprising the third strongest, drawing relative support since it appears less threatened by new US tariffs than the European Union. Meanwhile, Swiss Franc has also gained ground on renewed risk-off sentiment. Kiwi, Euro, and Loonie lag behind while Aussie remains under pressure, despite taking a brief pause from its recent downward spiral.

    Technically, AUD/JPY’s fall from 102.39 resumed today by powering through 95.50 support. Immediate focus is now on 61.8% projection of 102.39 to 95.50 from 98.75 at 94.49. Decisive break there could prompt downside acceleration to 100% projection at 91.86. For now, risk will stay on the downside as long as 96.05 support turned resistance holds, in case of recovery.

    In Europe, at the time of writing, FTSE is down -1.57%. DAX is down -2.00%. CAC is down -1.76%. UK 10-year yield is down -0.0996 at 4.440. Germany 10-year yield is down -0.091 at 2.370. Earlier in Asia, Nikkei fell -2.66%. Hong Kong HSI fell -0.04%. China was on holiday. Singapore Strait Times fell -0.76%. Japan 10-year JGB yield rose 0.0075 to 1.249.

    US ISM manufacturing rises to 50.9, ending 26-month contraction

    The US manufacturing sector returned to expansion in January, with ISM Manufacturing PMI rising to 50.9 from 49.2, breaking a 26-month streak of contraction, above expectation of 49.3.

    The improvement was broad-based, signaling stronger demand and increased production capacity. Notably, new orders climbed to 55.1 from 52.1, reflecting growing demand, while production rose to 52.5 from 49.9, indicating that manufacturers are ramping up output in response.

    The employment index also showed a meaningful recovery, rebounding to 50.3 from 45.4, suggesting that firms are hiring again after months of labor market weakness. Meanwhile, input costs rose, with the prices index increasing to 54.9 from 52.5, signaling that inflationary pressures may be creeping back into the supply chain.

    Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee, highlighted that the January PMI reading aligns with a projected 2.4% annualized GDP growth rate.

    Eurozone CPI rises to 2.5% in Jan, core unchanged at 2.7%

    Eurozone CPI rose from 2.4% yoy to 2.5% yoy in January, above expectation of 2.4% yoy. CPI core (ex-energy, food, alcohol & tobacco) was unchanged at 2.7% yoy, above expectation of 2.6% yoy.

    Looking at the main components, services is expected to have the highest annual rate in January (3.9%, compared with 4.0% in December), followed by food, alcohol & tobacco (2.3%, compared with 2.6% in December), energy (1.8%, compared with 0.1% in December) and non-energy industrial goods (0.5%, stable compared with December).

    Eurozone PMI manufacturing finalized at 46.6, still too early to talk about greenshoots

    Eurozone PMI Manufacturing was finalized at 46.6, up from December’s 45.1, marking an eight-month high. While still in contraction, the data suggests a slowdown in the sector’s decline. Germany’s PMI rose to 45.0, while France rose to 45.0. Austria (45.7) and Italy (46.3) also saw multi-month highs. Greece (52.8) and Spain (50.9) remained in expansion.

    According to Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, despite the improvement, manufacturing remains under pressure. It is “too early” to signal a full recovery. Rising input costs, driven by nearly 7% increase in oil prices, pose risks for firms already facing weak demand. ECB’s easing path could also be complicated if inflationary pressures persist.

    The US is expected to impose tariffs on European exports. However, business confidence has improved, with future output expectations rising four points above the long-term average, partly driven by optimism surrounding upcoming elections in Germany and possibly France.

    While Germany and France remain the weakest performers, the pace of contraction has slowed across multiple sectors. De la Rubia noted that over 90% of Eurozone exports go to markets outside the US, limiting the immediate impact of potential tariffs.

    UK PMI manufacturing finalized at 48.3, outlook remains weak

    UK manufacturing sector remained in contraction at the start of 2025, with January’s final PMI rising slightly to 48.3 from December’s 11-month low of 47.0. Despite the modest improvement, four of the five key components—output, new orders, employment, and stocks of purchases—declined. The only positive indicator was longer average vendor lead times, which typically reflect supply chain constraints rather than stronger demand.

    Rob Dobson, Director at S&P Global Market Intelligence noted that Weak domestic and international demand remains a key drag on the sector, with no clear signs of recovery in sight. Rising cost pressures are also adding to the strain, with input price inflation reaching a two-year high.

    The effects of last year’s Budget changes, particularly increases in the minimum wage and employer National Insurance contributions, are expected to feed further into rising costs. These factors could keep pressure on profit margins and limit any near-term rebound in manufacturing activity. Business confidence remains low, hovering near December’s two-year low, reflecting ongoing uncertainty in both economic conditions and policy direction.

    BoJ opinions signal more rate hikes as inflation risks tilt higher

    BoJ’s Summary of Opinions from the January 23-24 meeting indicates a growing shift toward policy normalization, as multiple board members highlighted mounting inflationary pressures.

    Rising import costs driven by the weak yen have led more businesses to raise prices, prompting concerns that inflation could overshoot expectations.

    One member noted that with economic activity and prices remaining stable, “risks to prices have become more skewed to the upside,” emphasizing that rate hikes should be “timely and gradual.”

    Some policymakers warned that continued Yen depreciation and excessive risk-taking could lead to an overheating of financial activities. To counter this, one board member argued for additional rate hikes to stabilize the currency and prevent further distortions in market expectations regarding BoJ policy.

    At the January meeting, the BoJ raised its short-term policy rate from 0.25% to 0.50%, marking another step away from ultra-loose monetary policy. The central bank also revised its price forecasts higher, reinforcing its confidence that rising wages will sustain inflation near the 2% target.

    Japan’s PMI manufacturing finalized at 48.7, deepest contraction in 10 Months

    Japan’s PMI Manufacturing was finalized at 48.7 in January, down from December’s 49.6. This marks the sharpest decline in output since March 2024, as firms faced a steeper drop in new orders. Weak demand conditions forced manufacturers to scale back production, reflecting ongoing headwinds for the sector.

    According to S&P Global, businesses reacted to falling demand by cutting both inventories and raw material holdings, while also reducing input purchases at the fastest pace in nearly a year. Employment growth also slowed, highlighting a cautious approach to hiring amid economic uncertainty.

    Despite the downturn, manufacturers maintained a positive outlook for future output, though confidence fell to its lowest level since December 2022. While firms expect a recovery in demand, concerns persist over when such an improvement will materialize. The slowdown in input price inflation to a nine-month low provides some relief, but overall, sentiment remains fragile.

    Australia’s retail sales dip -0.1% mom in Dec, less than expected

    Australia’s retail sales turnover edged down by -0.1% mom in December, a smaller decline than the expected -0.7% mom. While the contraction marks a pullback from the strong growth seen in previous months—0.7% mom in November and 0.5% in October mom—it suggests that consumer spending remains relatively resilient.

    According to Robert Ewing, head of business statistics at the Australian Bureau of Statistics, retail activity was supported by extended promotional events, helping to smooth spending patterns over the quarter. He noted that Cyber Monday, which fell in early December, boosted demand for discretionary items, particularly furniture, homewares, electronics, and electrical goods.

    China’s Caixin PMI manufacturing slips to 50.1, growth momentum weakens

    China’s Caixin Manufacturing PMI edged down to 50.1 in January from 50.5 in December.

    According to Caixin Insight Group, manufacturers saw improved logistics and a slight pickup in supply and demand. However, employment levels deteriorated notably, and new export orders remained weak, reflecting sluggish global demand.

    External risks also remain a key concern, with rising geopolitical uncertainty adding pressure to China’s export environment. Disruptions in global trade policies could further dampen overseas demand, making it difficult for manufacturers to sustain current production levels.

    Domestically, consumer spending remains sluggish, highlighting the need for policy measures aimed at boosting disposable income and restoring confidence.

    EUR/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.0328; (P) 1.0381; (R1) 1.0412; More…

    Intraday bias in EUR/USD remains on the downside for the moment. Decisive break of 1.0176 will resume whole fall from 1.1213. Next target will be 61.8% projection of 1.1213 to 1.0176 from 1.0531 at 0.9890. On the upside, above 1.0349 resistance will turn intraday bias neutral again first. But outlook will stay bearish as long as 1.0531 resistance holds, in case of strong recovery.

    In the bigger picture, immediate focus is back on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. For now, risk will stay on the downside as long as 1.0531 resistance holds, in case of rebound.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY BOJ Summary of Opinions
    00:30 AUD Retail Sales M/M Dec -0.10% -0.70% 0.80% 0.70%
    00:30 AUD Building Permits M/M Dec 0.70% 1.00% -3.60% -3.40%
    00:30 JPY Manufacturing PMI Jan F 48.7 48.8 48.8
    01:45 CNY Caixin Manufacturing PMI Jan 50.1 50.5 50.5
    08:30 CHF Manufacturing PMI Jan 47.5 48.4
    08:50 EUR France Manufacturing PMI Jan F 45 45.3 45.3
    08:55 EUR Germany Manufacturing PMI Jan F 45 44.1 44.1
    09:00 EUR Eurozone Manufacturing PMI Jan F 46.6 46.1 46.1
    09:30 GBP Manufacturing PMI Jan F 48.3 48.2 48.2
    10:00 EUR Eurozone CPI Y/Y Jan P 2.50% 2.40% 2.40%
    10:00 EUR Eurozone CPI Core Y/Y Jan P 2.70% 2.60% 2.70%
    14:30 CAD Manufacturing PMI Jan 51.6 52.2
    14:45 USD Manufacturing PMI Jan F 51.2 50.1 50.1
    15:00 USD ISM Manufacturing PMI Jan 50.9 49.3 49.3
    15:00 USD ISM Manufacturing Prices Paid Jan 54.9 52.6 52.5
    15:00 USD ISM Manufacturing Employment Index Jan 50.3 45.3
    15:00 USD Construction Spending M/M Dec 0.50% 0.30% 0.00%

     



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  • Trade War 2.0 Shakes Global Markets as Dollar Rallies

    Trade War 2.0 Shakes Global Markets as Dollar Rallies


    Global markets kicked off February under heavy strain as US President Donald Trump’s long-anticipated tariffs on Canada, Mexico, and China came into full effect. Investor sentiment turned sharply negative, with Japan’s Nikkei tumbling over 1,000 points in response. Dollar opened the week with a strong gap higher and maintained solid gains throughout Asian session. Commodity-linked currencies bore the brunt of the selloff, particularly New Zealand and Australian Dollars, which struggled even more than Canadian Dollar—despite Canada being directly targeted by the new tariffs. Meanwhile, Euro and Pound also weakened, though not as severely as the major commodity currencies.

    Looking ahead, the trade dispute theme should continue to dominate market sentiment for the foreseeable future. The US administration has hinted at the likelihood of expanding tariffs to Europe and possibly the UK, though there appears to be some willingness to discuss matters further with London. Beyond trade tensions, upcoming events such as BoE’s policy decision—which is widely expected to involve a 25bps rate reduction—will also command attention. Additionally, a series of key US data releases, including the ISM manufacturing and services indexes plus non-farm payrolls, could further influence the risk mood.

    Another noteworthy shift is taking shape in the cryptocurrency market, where both Bitcoin and Ethereum have taken a steep hit. Although the new tariffs reaffirm Trump’s commitment to his promises—such as turning the US into a major crypto hub—virtual currencies have not benefitted. Instead, global uncertainty has driven investors toward safer assets, prompting a retreat from riskier corners of the market.

    Technically, for now, there’s no panic for Bitcoin yet as 89127 support remains intact. The recent up trend is still in favor to resume for another take on 100k market at a later stage. However, firm break of 89127 support will complete a double top pattern, and could trigger deeper correction back to 73812 resistance turned support and possibly below.

    In Asia, at the time of writing, Nikkei is down -2.74%. Hong Kong HSI is down -0.74%. China is on holiday. Singapore Strait Times is down -0.29%. Japan 10-year JGB yield is down -0.0118 at 1.230.

    Trade War 2.0 kicks off, USD/CAD breaks key resistance with 1.50 in sight

    The long-anticipated escalation in trade tensions has officially materialized as US President Donald Trump imposed sweeping tariffs over the weekend. A 25% tariff is now in effect on imports from Canada and Mexico, while China faces a 10% levy on its exports to the US. The move, widely expected, marks the formal start of what is being called Trade War 2.0.

    In immediate response, Canada announced retaliatory tariffs of 25% on USD 155B worth of US goods, while China indicated that it would file a case against the US at the World Trade Organization.

    Dollar gapped higher as the week started in response to the development. USD/CAD broke through 1.4689 key resistance (2016 high) to resume the long term up trend. Technically, the next medium term target for USD/CAD is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993.

    Though given the scale of uncertainty surrounding the trade dispute, further upside cannot be ruled out. A lack of near-term resolution could see USD/CAD extend even higher toward 61.8% projection of 0.9406 to 1.4689 from 1.2005 at 1.5270 before topping.

    BoJ opinions signal more rate hikes as inflation risks tilt higher

    BoJ’s Summary of Opinions from the January 23-24 meeting indicates a growing shift toward policy normalization, as multiple board members highlighted mounting inflationary pressures.

    Rising import costs driven by the weak yen have led more businesses to raise prices, prompting concerns that inflation could overshoot expectations.

    One member noted that with economic activity and prices remaining stable, “risks to prices have become more skewed to the upside,” emphasizing that rate hikes should be “timely and gradual.”

    Some policymakers warned that continued Yen depreciation and excessive risk-taking could lead to an overheating of financial activities. To counter this, one board member argued for additional rate hikes to stabilize the currency and prevent further distortions in market expectations regarding BoJ policy.

    At the January meeting, the BoJ raised its short-term policy rate from 0.25% to 0.50%, marking another step away from ultra-loose monetary policy. The central bank also revised its price forecasts higher, reinforcing its confidence that rising wages will sustain inflation near the 2% target.

    Japan’s PMI manufacturing finalized at 48.7, deepest contraction in 10 Months

    Japan’s PMI Manufacturing was finalized at 48.7 in January, down from December’s 49.6. This marks the sharpest decline in output since March 2024, as firms faced a steeper drop in new orders. Weak demand conditions forced manufacturers to scale back production, reflecting ongoing headwinds for the sector.

    According to S&P Global, businesses reacted to falling demand by cutting both inventories and raw material holdings, while also reducing input purchases at the fastest pace in nearly a year. Employment growth also slowed, highlighting a cautious approach to hiring amid economic uncertainty.

    Despite the downturn, manufacturers maintained a positive outlook for future output, though confidence fell to its lowest level since December 2022. While firms expect a recovery in demand, concerns persist over when such an improvement will materialize. The slowdown in input price inflation to a nine-month low provides some relief, but overall, sentiment remains fragile.

    Australia’s retail sales dip -0.1% mom in Dec, less than expected

    Australia’s retail sales turnover edged down by -0.1% mom in December, a smaller decline than the expected -0.7% mom. While the contraction marks a pullback from the strong growth seen in previous months—0.7% mom in November and 0.5% in October mom—it suggests that consumer spending remains relatively resilient.

    According to Robert Ewing, head of business statistics at the Australian Bureau of Statistics, retail activity was supported by extended promotional events, helping to smooth spending patterns over the quarter. He noted that Cyber Monday, which fell in early December, boosted demand for discretionary items, particularly furniture, homewares, electronics, and electrical goods.

    China’s Caixin PMI manufacturing slips to 50.1, growth momentum weakens

    China’s Caixin Manufacturing PMI edged down to 50.1 in January from 50.5 in December.

    According to Caixin Insight Group, manufacturers saw improved logistics and a slight pickup in supply and demand. However, employment levels deteriorated notably, and new export orders remained weak, reflecting sluggish global demand.

    External risks also remain a key concern, with rising geopolitical uncertainty adding pressure to China’s export environment. Disruptions in global trade policies could further dampen overseas demand, making it difficult for manufacturers to sustain current production levels.

    Domestically, consumer spending remains sluggish, highlighting the need for policy measures aimed at boosting disposable income and restoring confidence.

    BoE Set to Cut, NFP to Steer Dollar Outlook

    This week’s forex market focus will largely center on BoE upcoming policy decision, where a 25bps rate cut to 4.50% is widely anticipated. Along with the rate announcement, traders will closely watch the MPC voting breakdown and the release of new economic projections.

    Data from the UK since November’s rate cut have painted a mixed picture: GDP growth has stagnated, inflation has eased, but wage growth has unexpectedly picked up. These conflicting signals leave the door open for surprises when the MPC releases its updated forecasts.

    The general consensus favors a gradual easing path for BoE, with a quarterly tempo of 25bps cuts, totaling 100bps for the entire year. However, market expectations are somewhat more conservative, pricing in just over 75bps of easing in 2025.

    Heightened uncertainty stems from several factors, including the domestic effects of the Autumn budget and the fallout from US tariff threats. The new projections and the voting details could help clarify the BoE’s assessment of these risks, especially regarding inflation and growth outlooks.

    MPC voting will be a prime area of focus. Known hawk Catherine Mann aligning with the broader committee in supporting a cut would send a notably dovish signal. Conversely, if the typically dovish Swati Dhingra refrains from advocating a 50bps cut, markets could interpret that as unexpectedly “hawkish”. The interplay of these votes will likely set the tone for Sterling, as traders decipher how unified or divided the committee is on monetary policy strategy.

    Beyond BoE decision, US non-farm payrolls report and ISM manufacturing and services data will grab attention too. After last week’s FOMC hold, Fed Chair Jerome Powell indicated explicitly that the central bank is not in a hurry to cut rates further, even though policy easing remains on course.

    The futures market currently suggests a better-than-even chance that Fed will keep policy on pause at least until May. Unless this week’s data delivers significant surprises—either in job growth or wage pressures—this expectation is unlikely to shift meaningfully.

    The key question revolves around the pace of easing in the second half of the year and the eventual terminal rate. However, given Powell’s recent comments, it’s unlikely that these questions will be answered in the near term.

    Elsewhere, key economic indicators from Eurozone, Japan, Canada, Australia, and New Zealand will also contribute to currency market movements. In particular, Eurozone’s CPI flash, Japan’s wage and household spending, Canada’s employment report, Australia’s retail sales and New Zealand’s employment data will be closely watched.

    Here are some highlights for the week:

    • Monday: BoJ summary of opinions, Japan PMI manufacturing final; Australia retail sales, build approvals; China Caixin PMI manufacturing; Swiss PMI manufacturing; Eurozone PMI manufacturing final, CPI flash; UK PMI manufacturing final; US ISM manufacturing.
    • Tuesday: Japan monetary base; US factory orders.
    • Wednesday: New Zealand employment; Japan labor cash earnings; China Caixin PMI services; Eurozone PMI services final, PPI; UK PMI services final; US ADP employment, trade balance, ISM services; Canada trade balance.
    • Thursday: Australia trade balance, NAB quarterly business confidence; Swiss unemployment rate; Eurozone retail sales; BoE rate decision; US jobless claims, non-farm productivity; Canada Ivey PMI.
    • Friday: Japan household spending, leading indicators; Germany industrial production, trade balance; Swiss foreign currency reserves; Canada employment; US non-farm payrolls.

    AUD/USD Daily Report

    Daily Pivots: (S1) 0.6189; (P) 0.6226; (R1) 0.6249; More…

    AUD/USD’s fall from 0.6941 resumed by breaking through 0.6130 support today. Intraday bias is back on the downside fro 61.8% projection of 0.6687 to 0.6130 from 0.6329 at 0.5985 next. For now, outlook will stay bearish as long as 0.6329 resistance holds, in case of recovery.

    In the bigger picture, fall from 0.6941 (2024 high) is seen as part of the down trend from 0.8006 (2021 high). Next medium term target is 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.6511) holds.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY BOJ Summary of Opinions
    00:30 AUD Retail Sales M/M Dec -0.10% -0.70% 0.80% 0.70%
    00:30 AUD Building Permits M/M Dec 0.70% 1.00% -3.60% -3.40%
    00:30 JPY Manufacturing PMI Jan F 48.7 48.8 48.8
    01:45 CNY Caixin Manufacturing PMI Jan 50.1 50.5 50.5
    08:30 CHF Manufacturing PMI Jan 48.4
    08:50 EUR France Manufacturing PMI Jan F 45.3 45.3
    08:55 EUR Germany Manufacturing PMI Jan F 44.1 44.1
    09:00 EUR Eurozone Manufacturing PMI Jan F 46.1 46.1
    09:30 GBP Manufacturing PMI Jan F 48.2 48.2
    10:00 EUR Eurozone CPI Y/Y Jan P 2.40% 2.40%
    10:00 EUR Eurozone CPI Core Y/Y Jan P 2.60% 2.70%
    14:30 CAD Manufacturing PMI Jan 52.2
    14:45 USD Manufacturing PMI Jan F 50.1 50.1
    15:00 USD ISM Manufacturing PMI Jan 49.3 49.3
    15:00 USD ISM Manufacturing Prices Paid Jan 52.6 52.5
    15:00 USD ISM Manufacturing Employment Index Jan 45.3
    15:00 USD Construction Spending M/M Dec 0.30% 0.00%

     



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  • Dollar Unfazed by Core Inflation Uptick, Loonie Muted on GDP Contraction

    Dollar Unfazed by Core Inflation Uptick, Loonie Muted on GDP Contraction


    Forex markets remain largely subdued today, with Canadian Dollar being the exception as volatility rises ahead of the implementation of US tariffs tomorrow. Canada is reportedly well prepared to respond with retaliatory measures on US imports worth up to CAD 150B. This comes at a time when Canada’s economy is already under pressure, with November’s GDP data showing a larger-than-expected contraction. However, despite the looming economic strain, Loonie’s selloff remains contained for now, as traders assess the full impact of trade retaliation.

    Meanwhile, Dollar shrugged off the latest PCE inflation data, which showed an uptick in the headline rate while core inflation remained at elevated levels. Fed Governor Michelle Bowman noted at an event that while rate cuts are still expected, their timing will depend on incoming data, given persistent inflation risks. The latest data reinforces Fed’s cautious approach, suggesting that policymakers are unlikely to act at least until Q2.

    For the week, the broader currency market picture remains unchanged. Yen continues to lead as the strongest performer, followed by Dollar and Swiss Franc. Aussie remains the weakest, followed by Kiwi and Euro. British Pound and Loonie sit in the middle.

    Technically, as Gold is extending its record run, Silver is also picking up momentum. Immediate focus is now on 32.30 resistance in Silver. Firm break there should confirm that corrective fall from 34.84 has completed with three waves down to 28.74. While it may be early to confirm larger up trend resumption, in this case, further rally should at least be seen to retest 34.84 high.

    US PCE inflation rises to 2.6% in Dec, core PCE unchanged at 2.8%

    In December in the US, headline PCE price index rose 0.3% mom while core PCE price index rose 0.2% mom, both matched expectations.

    In the 12-month period, PCE price index accelerated from 2.4% yoy to 2.6% yoy. Core PCE price index (Excluding food and energy) was unchanged at 2.8% yoy. Both matched expectations.

    Personal income rose 0.4% mom or USD 92.0B, matched expectations. Personal spending rose 0.7% mom or USD 133.6B, stronger than expected 0.5% mom.

    Canada’s GDP contracts -0.2% mom in Nov, but Dec outlook improves

    Canada’s economy shrank by -0.2% mom in November, marking the largest contraction since December 2023 and coming in weaker than expectations of -0.1% mom decline. The downturn was broad-based, with 13 of 20 sectors reporting declines, underscoring underlying weakness across multiple industries.

    Goods-producing industries led the slowdown, contracting by -0.6% after a strong 0.9% expansion in October. Services sector, which had posted steady gains in previous months, also slipped by -0.1%, marking its first decline in six months.

    Advance estimates suggest that real GDP expanded by 0.2% mom in December, pointing to a rebound. Growth was driven by gains in retail trade, manufacturing, and construction, though this was partially offset by weakness in transportation, real estate, and wholesale trade.

    Tokyo inflation accelerates, keeping BoJ hikes alive

    Japan’s inflationary pressures picked up in January, with Tokyo’s core CPI (excluding fresh food) rising to 2.5% yoy from 2.4%, marking its fastest pace in nearly a year. Core-core measure (excluding food and energy) also edged higher to 1.9% from 1.8%. Meanwhile, headline CPI surged to 3.4% from 3.0%, its highest level in nearly two years, largely driven by rising prices for vegetables and rice.

    The data reinforces expectations that inflation in Japan could continue rising toward 3% in the coming months, as persistently weak yen drives up import costs. Some analysts see room for one or two more rate hikes by BoJ this year, particularly if inflation remains sticky and real wage growth improves. However, with Tokyo services inflation slowing to 0.6% yoy from 1.0% yoy, concerns remain about the sustainability of domestic price pressures.

    On the production side, industrial output rose 0.3% mom in December, matching forecasts. The Ministry of Economy retained its cautious assessment, stating that production “fluctuates indecisively,” though manufacturers expect a 1.0% rise in January and a further 1.2% increase in February.

    Retail sales, however, showed resilience, climbing 3.7% yoy, exceeding expectations of 2.9%. This suggests that consumer demand remains strong despite higher living costs.

    BoJ’s Ueda reaffirms support for economy while keeping rate hikes on the table

    BoJ Governor Kazuo Ueda reiterated the central bank’s is aiming for “gradual pickup” in prices, supported by a “solid increase in wages.” He emphasized that maintaining easy monetary conditions remains necessary to “support economic activity” and ensure that underlying inflation continues rising toward the 2% target.

    However, he also made it clear that BoJ’s stance remains unchanged, noting that it will “continue raising interest rates” and adjust monetary support if the economy and prices “move in line with our forecasts.”

    At the same parliamentary session, Prime Minister Shigeru reinforced the government’s priority of achieving sustainable inflation alongside wage growth. He highlighted that while stable price increases are important, “we must aim for wage growth higher than inflation while prices rise stably.” He also warned against the perception that falling prices are beneficial, arguing that such views prolonged Japan’s deflationary struggles in the past.

    USD/CHF Mid-Day Outlook

    Daily Pivots: (S1) 0.9069; (P) 0.9087; (R1) 0.9114; More…

    Intraday bias in USD/CHF stays mildly on the upside for the moment. Correction from 0.9200 could have completed at 0.8964 already. Further rise should be seen to retest 0.9200 and then 0.9223 key resistance. On the downside, below 0.9058 minor support will turn intraday bias neutral first. Further break of 0.8964 will resume the fall from 0.9200 to 38.2% retracement of 0.8374 to 0.9200 at 0.8884 next.

    In the bigger picture, as long as 0.9223 resistance holds, price actions from 0.8332 (2023 low) are seen as a medium term corrective pattern. That is, long term down trend is in favor to resume through 0.8332 at a later stage. However, sustained break of 0.9223 will be an important sign of bullish trend reversal.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:30 JPY Tokyo CPI Y/Y Jan 3.40% 3.00%
    23:30 JPY Tokyo CPI Core Y/Y Jan 2.50% 2.50% 2.40%
    23:30 JPY Tokyo CPI Core-Core Y/Y Jan 1.90% 1.80%
    23:30 JPY Unemployment Rate Dec 2.40% 2.50% 2.50%
    23:50 JPY Industrial Production M/M Dec P 0.30% 0.30% -2.20%
    23:50 JPY Retail Trade Y/Y Dec 3.70% 2.90% 2.80%
    00:30 AUD PPI Q/Q Q4 0.80% 0.90% 1.00%
    00:30 AUD PPI Y/Y Q4 3.70% 3.90%
    05:00 JPY Housing Starts Y/Y Dec -2.50% -3.40% -1.80%
    07:00 EUR Germany Retail Sales M/M Dec -1.60% -0.20% -0.60% 0.00%
    07:30 CHF Real Retail Sales Y/Y Dec 2.60% 0.60% 0.80% 1.40%
    08:55 EUR Germany Unemployment Change Dec 11K 14K 10K
    08:55 EUR Germany Unemployment Rate Dec 6.20% 6.20% 6.10%
    13:00 EUR Germany CPI M/M Jan P -0.20% 0.10% 0.50%
    13:00 EUR Germany CPI Y/Y Jan P 2.30% 2.60% 2.60%
    13:30 CAD GDP M/M Nov -0.20% -0.10% 0.30%
    13:30 USD Personal Income M/M Dec 0.40% 0.40% 0.30%
    13:30 USD Personal Spending M/M Dec 0.70% 0.50% 0.40% 0.60%
    13:30 USD PCE Price Index M/M Dec 0.30% 0.30% 0.10%
    13:30 USD PCE Price Index Y/Y Dec 2.60% 2.60% 2.40%
    13:30 USD Core PCE Price Index M/M Dec 0.20% 0.20% 0.10%
    13:30 USD Core PCE Price Index Y/Y Dec 2.80% 2.80% 2.80%
    13:30 USD Employment Cost Index Q4 0.90% 1.00% 0.80%
    14:45 USD Chicago PMI Jan 39.9 36.9

     



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  • Euro Gains Modestly After ECB Cut, Dollar Soft on GDP Miss

    Euro Gains Modestly After ECB Cut, Dollar Soft on GDP Miss


    Euro is trading slightly higher following the ECB’s widely expected 25bps rate cut, though the move lacks strong momentum. In her post-meeting press conference, President Christine Lagarde reinforced the bank’s “gradual easing path”.

    She stated that a larger 50bps cut was not even considered today, making it clear that an aggressive rate-cutting cycle is off the table for now.

    At the same time, Lagarde also emphasized that rates remain in “restrictive territory,” and ECB has not yet discussed ending its easing cycle, confirming that further rate cuts remain the way to go.

    Meanwhile, Dollar is under mild pressure after weaker-than-expected Q4 GDP data weighed on sentiment. The greenback slipped alongside US Treasury yields, with the 10-year yield briefly falling below 4.5% mark before recovering. Despite this, Dollar’s decline has been relatively contained outside of USD/JPY, where the Yen is benefiting from falling yields. There is little indication of a sustained Dollar decline at this stage.

    Across the broader forex market, Yen is currently the strongest performer of the day, followed by Euro and Pound. On the weaker side, Kiwi leads losses, followed by Dollar and Aussie. Loonie and Swiss Franc are trading in the middle of the pack.

    Technically, AUD/JPY’s decline is making progress today and breached 96.05 support. The development affirms the case that consolidation from 95.50 has completed at 98.75. Fall from 102.39 is likely ready to resume. Further decline should be seen through 95.50 to 61.8% projection of 102.39 to 95.50 from 98.75 at 94.49. However, touching of 55 4H EMA (now at 97.17) will delay the bearish case, and bring more consolidations first.

    US GDP growth slows to 2.3% in Q4, inflation pressures tick higher

    The US economy expanded at a 2.3% annualized rate in Q4, missing expectations of 2.6% and slowing from Q3’s 3.1% growth.

    The deceleration in growth was primarily driven by weaker investment activity, which offset gains in consumer and government spending. Meanwhile, imports declined, providing a slight boost to the overall GDP figure.

    Inflation data within the report signaled a modest pickup in price pressures. GDP price index rose 2.2% in Q4, up from 1.9% in the previous quarter, though below forecasts of 2.5%.

    PCE price index accelerated to 2.3% from 1.5%, while the core PCE price index (excluding food and energy), a key measure of inflation tracked by Fed, rose to 2.5% from 2.2%.

    US initial jobless claims falls to 207k vs exp 225k

    US initial jobless claims fell -16k to 207k in the week ending January 25, below expectation of 225k. Four-week moving average of initial claims fell -1k to 213k.

    Continuing claims fell -42k to 1858k in the week ending January 18. Four-week moving average of continuing claims rose 6k to 1872k.

    ECB cuts 25bps, disinflation well on track

    ECB delivered a widely expected 25bps rate cut, bringing main refinancing rate to 2.75%,  marginal lending rate  to 2.90%, and deposit rate to 3.15%.

    In its statement, ECB noted that the “disinflation process is well on track,” with inflation evolving broadly in line with projections. Policymakers expect inflation to reach the 2% medium-term target this year, with underlying inflation measures indicating price stability on a “sustained basis.”

    ECB acknowledged that domestic inflation remains elevated due to “wages and prices in certain sectors still adjusting to the past inflation surge with a substantial delay.” Despite this, the central bank noted that wage growth is “moderating,” and corporate profit margins are absorbing part of the cost pressures, preventing a stronger inflation rebound.

    Swiss KOF rises to 101.6, led by manufacturing and services

    Switzerland’s KOF Economic Barometer climbed to 101.6 in January, up from 99.6 and surpassing market expectations of 100.5. This data suggests modest pickup in economic momentum, particularly in production-side sectors.

    According to KOF, “the majority of the production-side indicator bundles included in the KOF Economic Barometer show positive developments.”

    The strongest contributions came from manufacturing, financial and insurance services, hospitality, and other service industries, signaling resilience in key sectors of the Swiss economy.

    However, the outlook remains uneven. While production indicators strengthened, demand-side indicators showed signs of weakness. KOF noted that both “the indicator bundles for foreign demand as well as for private consumption indicate a downward tendency,” highlighting subdued consumer activity and external trade concerns.

    BoJ’s Himino reiterates further hike possible if economic forecasts hold

    BoJ Deputy Governor Ryozo Himino reinforced expectations that the central bank could raise interest rates further if its economic and price projections are met.

    Speaking today, Himino stated, “If our economic and price forecasts are achieved, we will raise our policy rate accordingly and adjust the degree of monetary support.”

    Himino also highlighted concerns about Japan’s prolonged period of negative real interest rates, describing the situation as “not normal.”

    He explained that an ideal economic scenario for Japan would involve rising wages and corporate profits, fueling stronger consumption and investment, which would then support moderate and stable inflation. In such a case, Japan could see real interest rates turn positive.

    EUR/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.0387; (P) 1.0415; (R1) 1.0449; More…

    EUR/USD recovers slightly but stays in range below 1.0531. Intraday bias remains neutral for the moment. Outlook is unchanged for now. On the downside, break of 1.0371 support will indicate rejection by 38.2% retracement of 1.1213 to 1.0176 at 1.0572 and retain near term bearishness. Retest of 1.0176 low should be seen next. On the upside, though, decisive break of 1.0572 will raise the chance of bullish reversal, and target 61.8% retracement at 1.0817.

    In the bigger picture, outlook is mixed as fall from 1.1274 (2023 high) could either be the second leg of the corrective pattern from 0.9534 (2022 low), or another down leg of the long term down trend. Strong support from 61.8 retracement of 0.9534 to 1.1274 at 1.0199 will favor the former case, and sustained break of 55 W EMA (now at 1.0722) will argue that the third leg might have started. However, sustained trading below 1.0199 will favor the latter case and bring retest of 0.9534 low.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:45 NZD Trade Balance (NZD) Dec 219M -1363M -437M -435M
    00:00 NZD ANZ Business Confidence Jan 54.4 62.3
    00:30 AUD Import Price Index Q/Q Q4 0.20% 1.50% -1.40%
    06:30 EUR France Consumer Spending M/M Dec 0.70% 0.10% 0.30% 0.20%
    06:30 EUR France GDP Q/Q Q4 P -0.10% 0.00% 0.40%
    07:00 CHF Trade Balance (CHF) Dec 3.49B 4.50B 5.42B 6.11B
    08:00 CHF KOF Economic Barometer Jan 101.6 100.5 99.5 99.6
    09:00 EUR Germany GDP Q/Q Q4 P -0.20% -0.10% 0.10%
    09:30 GBP Mortgage Approvals Dec 67K 65K 66K
    09:30 GBP M4 Money Supply M/M Dec 0.10% 0.20% 0.00%
    10:00 EUR Eurozone GDP Q/Q Q4 P 0.00% 0.10% 0.40%
    10:00 EUR Eurozone Unemployment Rate Dec 6.30% 6.30% 6.30%
    10:00 EUR Eurozone Economic Sentiment Indicator Jan 95.2 94.1 93.7
    10:00 EUR Eurozone Industrial Confidence Jan -12.9 -13.8 -14.1
    10:00 EUR Eurozone Services Sentiment Jan 6.6 6 5.9 5.7
    10:00 EUR Eurozone Consumer Confidence Jan F -14.2 -14.2 -14.2
    13:15 EUR ECB Deposit Rate 2.75% 2.75% 3.00%
    13:15 EUR ECB Main Refinancing Rate 2.90% 2.90% 3.15%
    13:30 USD Initial Jobless Claims (Jan 24) 207K 225K 223K
    13:30 USD GDP Annualized Q4 P 2.30% 2.60% 3.10%
    13:30 USD GDP Price Index Q4 P 2.20% 2.50% 1.90%
    13:45 EUR ECB Press Conference
    15:00 USD Pending Home Sales M/M Dec -0.90% 2.20%
    15:30 USD Natural Gas Storage -317B -223B

     



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  • CAD Steady After BoC Cut, DOW Nears Record Ahead of FOMC Hold

    CAD Steady After BoC Cut, DOW Nears Record Ahead of FOMC Hold


    Canadian Dollar is steady after BoC delivered its sixth consecutive rate cut, lowering its policy rate by 25bps to 3.00% as expected. The pace of easing has slowed from December’s 50bps reduction, reflecting a more measured approach as interest rate sits inside neutral zone. BoC explicitly warned of risks stemming from potential US tariffs, noting that a prolonged trade conflict could weigh on economic growth while simultaneously exerting upward pressure on inflation.

    Governor Tiff Macklem reinforced this concern in his press conference, describing US trade policy as a “major source of uncertainty,” with multiple possible outcomes. He also noted that tariffs reduce economic efficiency and cannot be offset by monetary policy alone, adding that with only one policy tool—the interest rate—the BoC cannot simultaneously combat “weaker output and higher inflation.”

    Attention now shifts to Fed, which is widely expected to hold its policy rate steady at 4.25–4.50% today. The key question is whether Fed will signal an extended pause in its rate-cutting cycle, either through its statement or Chair Jerome Powell’s press conference. Powell’s tone will be crucial in shaping market expectations—any indication of a prolonged pause could bolster the Dollar and weigh on risk assets, while a more dovish stance could encourage renewed risk-taking.

    In equities, DOW’s response to FOMC decision will be closely watched. The index has remained resilient despite this week’s tech sector volatility and is now approaching the record high of 45073.63.

    Decisive break above this level would confirm long-term uptrend resumption, and target 61.8% projection of 38499.27 to 45073.63 from 41844.89 at 45907.85. In this bullish scenario, risk-on sentiment could spread to other sectors and take S&P 500 and NASDAQ higher too.

    However, break of 44026.27 support will delay the bullish case and bring another fall to extend the consolidation from 45073.63 instead.

    Overall in the currency markets, Yen is trading as the strongest for the week so far, followed by Dollar and then Swiss Franc. Aussie is the worst, followed by Kiwi, and then Euro. Sterling and Loonie are positioning in the middle.

    BoC cuts rates to 3.00%, flags trade risks and ends QT

    BoC lowered its overnight rate target by 25bps to 3.00% as widely expected. In accompanying statement, the central bank warned that a prolonged trade conflict with the US could strain economic growth and drive inflation higher.

    BoC noted that “if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested.” Policymakers emphasized that they will closely monitor trade developments and assess their impact on economic activity, inflation, and future policy decisions.

    The updated projections suggest a modest recovery in economic growth. Following an estimated 1.3% expansion in 2024, GDP is now expected to grow by 1.8% in both 2025 and 2026, slightly exceeding potential growth. Inflation is projected to remain near the 2% target over the next two years, reinforcing expectations that BoC will maintain a cautious approach to policy easing.

    The central bank also announced plans to complete the normalization of its balance sheet by ending quantitative tightening. BoC will restart asset purchases in early March, adopting a gradual pace to ensure balance sheet stabilization while aligning with economic growth.

    German Gfk consumer sentiment falls to -22.4, recovery hopes fade

    Germany’s GfK Consumer Sentiment Index for February fell to -22.4, down from -21.4 and missing expectations of -20.5.

    In January, economic expectations dropped by 1.9 points to -1.6, while income expectations declined by 2.5 points to -1.1. The most concerning development came from willingness to buy, which fell 3 points to -8.4, its lowest level since August 2024,.

    Rolf Bürkl, consumer expert at NIM, noted that “the Consumer Climate has suffered another setback and starts gloomy into the new year.”

    The moderate optimism seen in late 2024 has faded, with Bürkl adding that the trend since mid-2024 has been stagnation at best. A key concern is inflation, which has recently picked up again, limiting prospects for a meaningful rebound in consumer demand.

    Australia’s CPI slows to 2.4% in Q4, trimmed mean CPI down to 3.2%

    Australia’s Q4 CPI rose just 0.2% qoq, same as the prior quarter, falling short of expectations of 0.4% yoy. Trimmed mean CPI also undershot forecasts, rising 0.5% qoq versus the expected 0.6% qoq.

    On an annual basis, headline CPI slowed from 2.8% yoy to 2.4% yoy, slightly below 2.5% yoy consensus. Trimmed mean CPI fell from 3.6% yoy to 3.2% yoy, missing 3.3% yoy estimate.

    These weaker inflation prints reinforce expectations that RBA may begin easing policy as early as its February 17-18 meeting.

    The decline in annual inflation was largely driven by steep drops in electricity prices (-25.2%) and automotive fuel (-7.9%). Goods inflation slowed sharply to 0.8% yoy, down from 1.4% yoy in Q3. Meanwhile, services inflation remained elevated at 4.3% yoy, though slightly lower than the 4.6% yoy in the previous quarter.

    In December, monthly CPI rebounded from 2.3% yoy to 2.5% yoy, matched expectations.

    RBNZ’s Conway sees cautious OCR path to neutral

    RBNZ Chief Economist Paul Conway stated in a speech today that Official Cash Rate at 4.25% remains “north of neutral”. The central bank estimates the neutral rate between 2.5% and 3.5%.

    “Easing domestic pricing intentions and the recent drop in inflation expectations help open the way for some further easing,” Conway added.

    However, Conway emphasized a cautious approach, noting that policymakers will “feel our way” as rates approach neutral. RBNZ will continuously reassess its neutral rate estimate, adjusting based on economic conditions.

    If neutral is underestimated, stronger-than-expected activity and inflation would signal a less restrictive policy than intended, prompting recalibration, he added.

    The central bank expects potential output growth to range between 1.5% and 2% annually over the next three years, reflecting a lower economic “speed limit.” This weaker outlook stems from sluggish productivity and reduced net immigration, limiting long-term economic capacity.

    USD/CAD Mid-Day Outlook

    Daily Pivots: (S1) 1.4367; (P) 1.4394; (R1) 1.4428; More…

    USD/CAD rebounded notably today but stays in range below 1.4516 short term top. Intraday bias remains neutral and more consolidations could be seen. Further rally is expected as long as 1.4260 support holds. On the upside, firm break of 1.4516 will resume larger up trend to 1.4667/89 key resistance zone. Nevertheless, firm break of 1.4260 will turn bias to the downside for deeper pullback to 55 D EMA (now at 1.4235) and below.

    In the bigger picture, up trend from 1.2005 (2021) is in progress for retesting 1.4667/89 key resistance zone (2020/2015 highs). Decisive break there will confirm long term up trend resumption. Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. Medium term outlook will remain bullish as long as 1.3976 resistance turned holds (2022 high), even in case of deep pullback.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY BoJ Meeting Minutes
    00:30 AUD Monthly CPI Y/Y Dec 2.50% 2.50% 2.30%
    00:30 AUD CPI Q/Q Q4 0.20% 0.40% 0.20%
    00:30 AUD CPI Y/Y Q4 2.40% 2.50% 2.80%
    00:30 AUD RBA Trimmed Mean CPI Q/Q Q4 0.50% 0.60% 0.80%
    00:30 AUD RBA Trimmed Mean CPI Y/Y Q4 3.20% 3.30% 3.50% 3.60%
    05:00 JPY Consumer Confidence Jan 35.2 36.5 36.2
    07:00 EUR Germany GfK Consumer Sentiment Feb -22.4 -20.5 -21.3 -21.4
    09:00 CHF UBS Economic Expectations Jan 17.7 -20
    09:00 EUR Eurozone M3 Money Supply Y/Y Dec 3.50% 4.10% 3.80%
    13:30 USD Goods Trade Balance (USD) Dec P -122.1B -105.4B -102.9B -103.5B
    13:30 USD Wholesale Inventories Dec P -0.50% 0.10% -0.20% -0.10%
    14:45 CAD BoC Rate Decision 3.00% 3.00% 3.25%
    15:30 CAD BoC Press Conference
    15:30 USD Crude Oil Inventories   2.2M -1.0M
    19:00 USD Fed Rate Decision 4.50% 4.50%
    19:30 USD FOMC Press Conference

     



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