GBP/USD Dips While USD/CAD Could Extend Gains

Forex

Summary:

GBP/USD is moving lower from the 1.2650 resistance. USD/CAD is rising and might aim for more gains above the 1.3620 resistance.

Important Takeaways for GBP/USD and USD/CAD Analysis Today

The British Pound started a fresh decline below the 1.2615 support zone.

There is a key bearish trend line forming with resistance near 1.2565 on the hourly chart of GBP/USD at FXOpen.

USD/CAD is showing positive signs above the 1.3580 support zone.

There was a break above a major bearish trend line with resistance near 1.3585 on the hourly chart at FXOpen.

GBP/USD Technical Analysis

On the hourly chart of GBP/USD at FXOpen, the pair started a fresh decline from the 1.2650 zone. The British Pound traded below the 1.2615 support to move into further a bearish zone against the US Dollar.

The pair even traded below 1.2565 and the 50-hour simple moving average. Finally, the bulls appeared near the 1.2515 level. A low was formed near 1.2514 and the pair is now attempting a recovery wave.

GBP/USD Dips While USD/CAD Could Extend Gains_1

Immediate resistance on the upside is near a key bearish trend line at 1.2565 or the 50-hour simple moving average. It is close to the 50% Fib retracement level of the downward move from the 1.2615 swing high to the 1.2514 low.

The first major resistance on the GBP/USD chart is near the 76.4% Fib retracement level of the downward move from the 1.2615 swing high to the 1.2514 low at 1.2590.

A close above the 1.2590 resistance might spark a steady upward move. The next major resistance is near 1.2640. Any more gains could lead the pair toward the 1.2700 resistance in the near term.

Initial support sits near 1.2540. The next major support sits at 1.2515, below which there is a risk of another sharp decline. In the stated case, the pair could drop toward 1.2440.

USD/CAD Technical Analysis

On the hourly chart of USD/CAD at FXOpen, the pair formed a strong support base above the 1.3550 level. The US Dollar started a fresh increase above the 1.3575 resistance against the Canadian Dollar.

There was a break above a major bearish trend line with resistance near 1.3585. The pair cleared the 50-hour simple moving average and climbed above 1.3600. Finally, it tested the 1.3620 zone. A high was formed near 1.3618 before there was a downside correction.

GBP/USD Dips While USD/CAD Could Extend Gains_2

The pair dipped below the 1.3600 level and the 23.6% Fib retracement level of the upward move from the 1.3550 swing low to the 1.3620 high.

Initial support is near the 50-hour simple moving average and the 50% Fib retracement level of the upward move from the 1.3550 swing low to the 1.3620 high at 1.3580.

The next major support is near 1.3550 on the same USD/CAD chart. The main support sits near 1.3530. A downside break below the 1.3530 level could push the pair further lower. The next major support is near the 1.3480 support zone, below which the pair might visit 1.3420.

Initial resistance sits near the 1.3600 zone. A clear upside break above 1.3600 could start another steady increase. The next major resistance is the 1.3620 level. A close above the 1.3620 level might send the pair toward the 1.3680 level. Any more gains could open the doors for a test of the 1.3740 level.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Comments

Add to Favorites

Devin

Economic

Central Bank

Britain's economy shrank in October, official data showed on Wednesday, testing the Bank of England's resolve to stick to its tough line against signalling cuts to interest rates from their 15-year high.

Gross domestic product (GDP) fell by 0.3% from September, the Office for National Statistics said.

A Reuters poll of economists had pointed to no change in GDP in October.

It was the first time since July that GDP had shrunk on a month-by-month basis.

Sterling fell by about a third of a cent against the U.S. dollar and was weaker against the euro too.

Investors have responded to other signs of a cooling in Britain's economy by bringing forward their bets on when the BoE is likely to cut interest rates for the first time.

However, the central bank is widely expected to keep Bank Rate at 5.25% on Thursday and signal once again that it is not close to cutting them.

Paul Dales, chief UK economist at Capital Economics, said the October GDP reading suggested Britain might be in a recession.

"That may nudge the Bank of England a little closer to cutting interest rates, although when leaving rates at 5.25% tomorrow the Bank will probably push back against the idea of near-term rate cuts," Dales said.

In the three months to October, GDP flat-lined, the ONS said, weaker than the Reuters poll forecast of a 0.1% increase.

Britain's economy avoided a contraction in the July-to-September period - when it also showed no change - but some analysts think it remains at risk of a shallow recession in late 2023 and early 2024 after the BoE's increases in interest rates.

The economy has flat-lined through most of 2023, with the level of economic output now back at its January level.

The ONS data on Wednesday showed Britain's dominant services sector shrank by 0.2% in October while manufacturing and construction contracted by 1.1% and 0.5% respectively.

The economy was 2.0% bigger than immediately before the COVID-19 pandemic hit Britain in early 2020, a stronger performance than thought before recent ONS data revisions but another weak period for living standards nonetheless.

Prime Minister Rishi Sunak and finance minister Jeremy Hunt have promised to speed up economic growth but no significant pickup is expected before a national election that Sunak must call before January 2025.

"October's negative outturn puts the prime minister's target to get the economy growing in jeopardy, with high inflation and borrowing costs likely to suppress economic activity in November and December," Suren Thiru, economics director at ICAEW, an accountancy body, said.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

ING

Forex

USD: Powell can still help the dollar

Part of the move that we would have expected to be triggered by a hawkish hold by the FOMC today in the dollar and other assets has likely already materialised after strong US payrolls and the consensus CPI print yesterday. Markets have trimmed around 11bp of easing from the 6m section of the Fed Funds future curve, but still fully price in a first cut in May, and we think Chair Jerome Powell and the majority of FOMC members will still consider those expectations as too dovish for their objectives.

As discussed in our FOMC preview, the main tool the Fed will have to steer the market is the new set of Dot Plot projections. We estimate that the 2024 plot will be revised lower to 4.9% from 5.1%, meaning 50bp of cuts next year from the current rate. That would be a quite clear pushback against the over 100bp of easing priced in by end of next year, although the “pushback” narrative is likely well-telegraphed by now and our rates team does not expect a huge impact on the rates market. On the FX side, the balance of risks appears tilted to the upside anyway, as risk sentiment may face a rougher environment and favour a USD strengthening via the safe-haven channel, if rates don’t move much. We think that the most recent dataflow in the US and a hawkish tone by the Fed today will keep the dollar from another major slide into the Christmas holiday period. Instead, a stabilisation around 104/105 in DXY seems more plausible in our view.

Incidentally, overnight news from China are favouring some dollar demand into today’s key risk event. At the annual Communist Party’s conference, the government set industrial policy as a top priority for next year, slightly sidelining the boost to domestic demand that some investors were counting on to stimulate the struggling Chinese economy. That confirms our expectations that China-related sentiment will not recover rapidly, and that risks persist.

Today, PPI figures out of the US will be watched closely too, although the FX impact could be limited due to the vicinity to the FOMC announcement.

EUR: Fed can favour reconnection with rate differentials

This will be another day where EUR/USD is entirely driven by the USD leg, with the eurozone calendar only including the non-market-moving industrial production numbers. We see downside risks for the pair this week despite our view that the ECB will follow the Fed with a rate cut pushback of its own.

The main reason for this is that this “coordinated” hawkish recalibration by central bankers before Christmas cause a softening of the risk environment, whose resilience has allowed EUR/USD to stay around current levels despite the EUR-USD short-term swap rate differential being at the lowest of the year (around 130-135bp). A hawkish hold by both the ECB and the Fed may not move the rate differential much, and the spread would anyway have to retighten significantly to technically justify a sustainable rally in EUR/USD. We think EUR/USD bulls should be happy with the pair finding support at 1.0700 before Christmas.

GBP: Soft GDP figures not key for the BoE

UK monthly GDP for October came in weaker than expected at -0.3% MoM, which was mostly due to a decline in manufacturing activity: the production sector has been unusually volatile this summer.

The October figures mean that we are on track for a marginally negative 4Q GDP print in the UK, although that is not at the top of the Bank of England’s concerns at the moment. We still expect a hawkish tone tomorrow to give some help to sterling, especially in the crosses. Today, GBP/USD may well break below the 1.2500 gravity level.

SEK: Declining inflation expectations point to end of tightening cycle

The Prospera surveys – which are highly regarded by the Riksbank – showed long-term (5-year) CPIF inflation expectations in Sweden remained unchanged at 2.1%, while two-year inflation expectations eased from 2.6% to 2.2%. The Riksbank will probably look with favour at this latest figure.

Interestingly, the survey also shows interviewees see the benchmark rate being cut by 50bp in the next year, much less than the over 100bp priced in. Also, there are no expectations for another hike in February, despite the Riksbank still keeping it as a possibility in their latest projections. We agree that another hike looks unlikely, and given that FX hedging operations – that have contributed a lot to SEK’s relative outperformance recently – will end by mid-February in our estimates, we think that SEK will start underperforming its peers like NOK from early next year.

Risk Warnings and Disclaimers

Comments

Add to Favorites

ING

Economic

Central Bank

A 4% core inflation environment with a 200k jobs increase is a valid argument against material falls in market rates

The mere 0.1% increase in headline prices seen in the past two months paints a subdued picture for US inflation. Then again, 4% core and 3% headline inflation readings remain elevated and far too deviant from the preferred 2% rate. There is still a job to get done here. If you combine a 4% core inflation environment and a 200k jobs increase (as we saw in Friday's payrolls), there is a valid argument against material falls in market rates.

Following Monday's tailed US 10yr auction, the 30yr auction on Tuesday went better. Or at least pricing was tidier, which proved a relief for a market that was fearful of another larger tail. Events like those have had a material negative impact on Treasuries. But today's auction was followed by a downward move in market rates. That's the auction test complete, which leaves the market focus now on the FOMC ahead.

The Fed last raised rates in July and we think that marked the peak. If, as we expect, the Fed sticks to the hawkish tilt and does not give the market too much to get excited about, then expect minimal impact. As it is, the structure of the curve, as telegraphed by the richness of the 5yr, is telling us that a rate cut is not yet in the six-month countdown window. That will slowly change, and we'll morph towards a point where we are three months out from a cut and the 2yr yield really collapses lower.

The ongoing deepening inversion theme is in part a result of the Fed's success in telegraphing the outlook for official rates. The 2yr yield does not yet have the green light to really break lower and drastically steepen the curve from the front end. We need to see either material falls in inflation (and we've not yet had enough of this) and/or a heightened sense of labour market vulnerability. And we're still waiting.

One of the issues that the market is looking at is the stress in commercial real estate. While nothing material has come to the fore, we run the risk every day with the funds rate at 5.5% that at some point, something gives. Emerging stories of growing angst in the multifamily residential rental sector are also having an impact, as is the ongoing monitoring of private credit and its nature of leveraged floating financing.

The market thought process here is a rate cut could not come fast enough because if it doesn't, something could well break. Over to Fed policymakers to hear what they have to say.

Today's events and market view

The market is discounting around 110bp of policy easing from the Fed over 2024 with a first rate cut fully priced by May. Pricing has eased off its most aggressive levels but it will likely still remain in stark contrast to the FOMC's own median policy rate estimate as reflected in the new dot plot. Here we expect the Fed to retain the same 50bp of rate cuts in 2024 that it signalled in the September forecasts, albeit from a lower level given the final 25bp December hike forecast last time is not going to happen.

In today's primary markets, Italy will tap 3Y and 7Y bonds. This will also mark the final supply for the current year.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

Swissquote

Economic

Central Bank

US headline inflation fell to 3.1% as expected, thanks to an almost 9% fall in gasoline prices since last year, although shelter inflation – which is where everyone sees the biggest potential for easing – remained sticky yet another month. Core inflation eased to 4% on a yearly basis, BUT headline inflation was slightly higher-than-expected on a monthly basis. And that small uptick has raised suspicions that the Federal Reserve's (Fed) final stretch in combating inflation may be more challenging than anticipated.

The latter triggered a mini selloff in the 2-year bond right after the data, yet the selloff didn't last long. The US 2-year yield is about where it was yesterday morning. Crude oil fell to $68pb even though the US oil inventories fell 2.3 mio barrels according to the API.

With the latest inflation report behind us with minimal fanfare, the Fed officials will lightheartedly keep interest rates steady this month. Economic forecasts and the dot plot will play a crucial role in providing insight into the perspectives of Federal Reserve officials regarding expectations for rate cuts.

According to activity on Fed funds futures, the Fed should gently start cutting the rates by May; that possibility is given around 75% probability, slightly less than 80% before yesterday's CPI print, while the probability of a March hike fell to around 44% from nearly 50% on that mini spike in monthly headline inflation. In summary, rate cut bets are being placed for a rate cut in March or May 2024. May the best win.

Today, we will probably face a satisfied, calm but cautious Powell, who will say that the Fed has done a great job fighting inflation, but that the rates will remain restrictive as long as needed. One dovish tweak could be deleting ‘additional policy firming' from the post-meeting communication.

In the best-case scenario, the doves will make a mountain out of the smallest dovish details that could justify a further fall in yields. The US dollar will likely remain under pressure below the 104.30 level, the major 38.2% Fibonacci resistance that should keep the US dollar index in the bearish consolidation zone. We could see the US 10-year retreat and even – shortly – test the 4% mark to the downside, and the 2-year yield – which captures the Fed expectations – to remain between 4.50/4.70 zone. Lower than that becomes unreasonably overstretched.

In a more down-to-earth scenario, Powell will contain market optimism and rectify the rate cut bets. If so, we should see correction and consolidation in bond and stock valuations during the final weeks of the year.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

Samantha Luan

Economic

Central Bank

Forex

Stocks

As the markets eagerly await FOMC rate decision and the release of new economic projections, Dollar is currently holding steady within a narrow range. The spotlight is particularly on the revised dot plot, as it is expected to provide crucial insights into the pace of monetary policy easing by Fed in the coming year. Investors are keenly looking for any signs of dovish policy shifts that could trigger risk-on sentiment, dragging down treasury yields and the greenback.

In the European trading session, the focus shifts momentarily to UK's GDP data, which is crucial for understanding the trajectory of the UK economy. This data will offer insights into whether the UK economy is cooling sufficiently to bring inflation down, possibly negating the need for additional policy interventions by BoE. Concurrently, European majors are range bound against each other. Their next moves hinge on the outcomes of today's UK data and probably even more on the upcoming central bank meetings of SNB, BoE, and ECB tomorrow.

In other currency market developments, commodity currencies, along with Yen, are showing weakness. Australian and New Zealand Dollar traders faced some disappointment following China's Central Economic Work Conference, which refrained from announcing substantial stimulus programs, opting instead for policy adjustments focused on "stabilizing expectations, stabilizing growth, and stabilizing employment." Canadian Dollar is also under pressure due to a renewed decline in oil prices.

From a technical analysis standpoint, the performance of commodity currencies relative to the Dollar warrants attention today, especially since movements in European majors might be constrained ahead of the central bank announcements tomorrow. In particular, a break below the 0.6524 minor support in AUD/USD and above 1.3625 minor resistance in USD/CAD would indicate that Dollar is regaining momentum and for extending its near-term rebound.

Dollar in Wait-and-See Mode, Awaiting Federal Reserve’s Policy Cue_1

In Asia, Nikkei rose 0.25%. Hong Kong HSI is down -0.87%. China Shanghai SSE is down -0.83%. Singapore Strait Times is down -0.01%. Japan 10-year JGB yield is down -0.0474 at -0.691, back below 0.7 handle. Overnight, DOW Rose 0.48%. S&P 500 rose 0.46%. NASDAQ rose 0.70%. 10-year yield fell -0.033 to 4.206.

Record highs on the horizon for DOW as market awaits FOMC dot plot

U.S. stock market closed generally higher overnight. In particular, DOW now stands just about 1% shy of its all-time high after recent rally. The current uptrend in major indexes is primarily fueled by an increasing speculation among investors that Fed would start cutting interest rates. Today's FOMC statement and the accompanying "dot plot" are eagerly awaited, as any signs of a dovish stance or indications of policy easing could further fuel the market's ascent, potentially catapulting the DOW to new record heights before year-end.

Expectations are leaning overwhelmingly towards Fed maintaining federal funds rate at the 5.25-5.50% range at today's meeting. Should Fed decide to keep rates unchanged, it would mark the third successive meeting without a rate hike. Such a decision could be interpreted as a signal that the Fed views its cycle of rate hikes as effectively complete. This sentiment is likely to be mirrored in the revised dot plot, which is anticipated to exclude the rate increase previously suggested for this year. There remains, however, a much less probable scenario where the median dots may indicate a postponed hike.

Traders are aggressively pricing in the prospect of Fed beginning its rate-cutting cycle as early as May, with the odds exceeding 50%, as indicated by fed funds futures. Moreover, there's a similar probability assigned to the expectation of a cumulative one percent rate cut by the end of 2024. It's important to note, however, that market predictions often tend to be rather unreliable for periods extending beyond one or two months.

As for DOW, near term outlook will stay bullish as long as 36010.85 support holds. Next target is 36952.65 record high. Clearing of this record high would pave the way to 100% projection of 28660.94 to 34712.28 from 32327.20 at 38378.54. Dollar in Wait-and-See Mode, Awaiting Federal Reserve’s Policy Cue_2

Dollar in Wait-and-See Mode, Awaiting Federal Reserve’s Policy Cue_2

Japan's Tankan manufacturing index rose to 12, highest in nearly 2 years

Japan's Tankan survey for Q4 show signs of strength in both manufacturing and non-manufacturing sectors. Yet, the cautious outlook among manufacturers suggests uncertainty about future economic conditions.

Large Manufacturing Index rose from 9 to 12, surpassing the expected figure of 10. This increase marks the third consecutive quarter of improvement and the highest level since Q1 2022. The Non-Manufacturing Index also showed positive development, rising from 27 to 30, exceeding the forecast of 27. This improvement represents the seventh consecutive quarter of growth, reaching its highest point since 1991.

However, the outlook for the next three months tells a different story. Large Manufacturing Outlook Index fell from 10 to 8, falling short of the expected 9, indicating less optimism among manufacturers for the near future. In contrast, Non-Manufacturing Outlook Index did improve from 21 to 24, yet it missed the anticipated mark of 25.

In terms of capital expenditure, big firms in Japan are projecting an increase of 13.5% for the current fiscal year ending in March 2024. This projection is more optimistic than the median market forecast, which anticipated a 12.4% increase.

ADB raises 2023 growth forecast, driven by stronger performance in China and India

Asian Development Bank upgrades growth forecasts Developing Asia for 2023, raising projection from 4.7% to 4.9%. This upgrade is primarily attributed to stronger than expected growth in two of the region's largest economies, China and India. On the other hand, growth forecast for 2024 remains unchanged at 4.8%.

Specifically, for China, ADB now projects growth to reach 5.2% in 2023, an increase from previous forecast of 4.9% made in September. Growth rate for China in 2024 is expected to slow to 4.5%, unchanged from prior predictions. In contrast, India's growth forecast for 2023 is raised from 6.3% to 6.7%, and the country is anticipated to maintain this robust growth rate of 6.7% in 2024.

In terms of inflation, ADB made slight adjustments to its forecasts for Developing Asia. Inflation expectation for 2023 is reduced from 3.6% to 3.5%, while forecast for 2024 sees a minor increase from 3.5% to 3.6%.

ADB, in its release, highlighted several downside risks to these forecasts. Key among these are the potential for "higher-for-longer interest rates in advanced economies," which could lead to financial instability. Additionally, potential supply disruptions from factors like El Niño and the ongoing Russian invasion of Ukraine pose risks of renewing energy and food security challenges, which could reignite inflationary pressures.

Elsewhere

UK GDP, production and trade balance in focus in European session, together with Eurozone industrial production. UK will release PPI and crude oil inventories before FOMC rate decision.

USD/CAD Daily Outlook

Intraday bias in USD/CAD remains neutral at this point as range trading continues. On the upside, firm break of 1.3265 minor resistance will confirm short term bottoming at 1.3479. More importantly, whole correction from 1.3897 could have completed too. Intraday bias will be back on the upside for strong rally back to 1.3853/3897 resistance zone. However, break of 1.3544 minor support will turned bias back to the downside for 1.3479 and below, to resume the decline from 1.3897. Dollar in Wait-and-See Mode, Awaiting Federal Reserve’s Policy Cue_4

Dollar in Wait-and-See Mode, Awaiting Federal Reserve’s Policy Cue_4

In the bigger picture, rise from 1.3091 is seen as the fifth leg of the whole rise from 1.2005 (2021 low). Further rally is expected as long as 1.3378 support holds, to 61.8% projection of 1.2401 to 1.3976 from 1.3091 at 1.4064. However, decisive break of 1.3378 will dampen this view and bring deeper fall back to 1.3091 instead.

Source: ActionForex

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

Thomas

Palestinian-Israeli conflict

Latest news on the Israeli-Palestinian conflict