Article by: ETO Markets
The US inflation report was greater than anticipated, which supported the Federal Reserve's cautious strategy of reducing interest rates in 2024. The Federal Open Market Committee is still optimistic that US inflation will reach the central bank's 2% objective. However, before Fed supports rate reduction, they want to see more consistent positive evidence.
Before loosening monetary policy, the Fed, according to Fed Chair Jerome Powell and other Fed officials, needs to see more positive data and validate the direction of inflation. The markets are now pricing in a roughly 80% chance that the Fed will lower rates in June, reversing earlier wagers that the central bank would start doing so in May. It's important to remember that a high interest rate makes higher-yielding assets more competitive and less appealing to investors seeking higher yields on their investments.
On Wednesday Israel responded to a fatal rocket attack on northern Israel with widespread and deadly airstrikes in southern Lebanon. Israeli officials have issued a warning, stating that should the cross-border violence persist, they will respond with far more force on the ground in Lebanon. The price of gold, a classic safe-haven asset, may rise due to the continued geopolitical turmoil in the Middle East.
Traders will be concentrating on US retail sales, which are predicted to decline by 0.1% in January. Thursday also marks the deadline for the weekly Initial Jobless Claims, Industrial Production, and US Philly Fed Manufacturing Index. Additionally, traders will be more aware of the Bostic and Waller speeches made by the FOMC. These occurrences might provide the gold price with a definite direction.
Following the announcement of the seasonally adjusted Eurozone GDP statistics, which came in line with market forecasts for the fourth quarter, the EUR/USD pair had some challenges on Wednesday. In accordance with market expectations, the preliminary Gross Domestic Product for the Eurozone was stable at 0.1% year over year. The figure stayed at 0.0% from quarter to quarter, matching the reading from the prior quarter. Furthermore, ECB emphasized that wage pressures remain significant and that there is currently insufficient information to show a decline in these pressures.
Following Tuesday's US inflation-driven decline, EUR/USD fell as low as … early on Wednesday. A short-term rebound puts the pair capped on the negative side of the 200-HMA around …. A bearish Friday close would see the pair close lower for five of the previous six trading weeks. EUR/USD is headed for a fourth straight week of declines. The pair has dropped about 3.7% from the peak bids in December, which were about …, and negative momentum is still dragging it down from the 200-DMA, which is around ….
Investors are waiting for the preliminary Q4 GDP report, which has the Japanese Yen on edge. Investors anticipated 0.3% growth in the Japanese economy following a 0.7% decline in the third quarter. Positive data would help the Bank of Japan unwind its expansionary monetary policy stance and set a positive tone for the year.
Technically speaking, the USD/JPY pair may find some support close to the psychological mark of …. The possibility exists that some follow-through selling may push spot prices even down toward the … area on their way to the … area and the … round number. Conversely, the multi-month high, which was touched near … appears to be an immediate barrier. A prolonged uptrend might push the USD/JPY pair closer to the multi-decade top established in October 2022 and retested in November 2023, as well as the … intermediate hurdle on the way to the … zone.
