Market gets more cautious, USD supported

The USD edged a bit higher yesterday against its counterparts as the market has started to be more cautious ahead of the announcement of the Fed’s interest rate decision tomorrow. Market expectations that the bank will downshift its rate-hiking path to a 25-basis points rate hike may have started to be countered by the possibility that the Fed may maintain its hawkishness for a prolonged period. The same sentiment may have also had an adverse effect on US stock markets given that all three major US stock market indexes the Dow Jones, Nasdaq and S&P 500 ended their day in the reds. In addition to that US stock markets have also to worry about the earnings releases with the highlight for the week being on Thursday when we get a number of mega tech companies’ earnings reports, such as Apple, Alphabet and Amazon while Meta platforms releases its earnings report on Wednesday. Back in the FX market, market focus is also placed on the common currency given the high-impact financial releases related to the EUR this week and ECB’s interest rate decision on Thursday.

We made a start with Germany’s preliminary GDP rate for Q4, which showed that the growth in the largest economy in the Eurozone slowed down on a year-on-year level, yet even contracted on a quarter-on-quarter level which in conjunction with ECB’s hawkishness tended to intensify some worries for the economic outlook of the area as a whole. Also worrying for the German economy is the expected contraction of retail sales should it be realized for December which implies that the average consumer is less willing and or able to actually spend in the German economy. On the other hand, the market sentiment for the economic outlook and the conditions on the ground for Eurozone’s economy seems to be improving which could be considered as a positive for the area. Last but not least across the world China’s manufacturing sector seems to have increased economic activity for the first time since September which is an encouraging sign for the global economy, after China’s reopening.

EUR/USD edged lower yesterday breaking the 1.0855 (R1) support line, now turned to resistance. Given that the pair’s price-action broke the 1.0855, which formed a floor for the past few days and also that the RSI indicator has dropped below the reading of 50, we tend to switch our sideways bias in favour of a bearish outlook. Should the bears actually take charge, we may see the pair aiming if not breaking the 1.0715 (S1) support line. Should the bulls take over, we may see EUR/USD breaking the 1.0855 (R1) resistance line and aim for the 1.1000 (R2) resistance level.

USD/CAD was on the rise yesterday showing some impressive bullish tendencies. Yet for us to adopt a clear bullish scenario we would require a clear breaking of the 1.3465 (R1) resistance line. Should buyers be in control of the pair’s direction we may see USD/CAD breaking the 1.3465 (R1) and aim for the 1.3570 (R2) resistance level. Should a selling interest be expressed by the market we may see the pair breaking the 1.3335 (S1) support line and aim for the 1.3230 (S2) support level.

Other highlights for the day:

Today in the European session we note the release of the preliminary GDP rate for Q4 of France, the preliminary GDP rate for Q4 of the Czech Republic, France’s preliminary HICP rate for January, Eurozone’s preliminary GDP rate for Q4 and Germany’s preliminary HICP rate for January. In the American session, we get from Canada of the GDP rate for November and the US consumer confidence for January, while just before the Asian session starts oil traders may be more interested in the release of the API weekly crude oil inventories figure and Kiwi traders at the release of New Zealand’s labour Cost index for Q4. During tomorrow’s Asian session, we are to get China’s Caixin manufacturing PMI figure for January.

EUR/USD H4 Chart

Support: 1.0715 (S1), 1.0585 (S2), 1.0440 (S3)

Resistance: 1.0855 (R1), 1.1000 (R2), 1.1180 (R3)

USD/CAD H4 Chart

Support: 1.3335 (S1), 1.3230 (S2), 1.3140 (S3)

Resistance: 1.3465 (R1), 1.3570 (R2), 1.3685 (R3)

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