Germany’s HICP print expected later today

The USD eased yesterday starting the year in the reds, possibly being dragged down by the strength of the JPY which has been active over period of expected muted volatility. Investors brace for the Fed’s meeting minutes scheduled for tomorrow where they are expected to sift through the data for further clues into the Fed’s intentions going forward. Gold has been particularly active over the past few sessions as it managed to string three consecutive days in the greens and hit 6 months highs possibly capitalizing on the back of a weaker dollar. The Yen extended its winning streak yesterday and found itself strengthening to a 6-month high. The move was supported by speculations that the Bank of Japan will shift towards a gradual exit from its ultra-loose monetary policy stance. Speculations gained traction in late December where the central bank took the markets by surprise when it announced its YCC modifications, a move considered hawkish by analysts. Not only that, but reports also surfaced that the BOJ is now actively paying more attention to inflation metrics since November’s CPI print indicated a rise to the 3.7% level its highest since 1980’s and almost two times above the 2% target and it is considering raising its inflation forecasts for both 2023 and 2024. Shifting our attention towards today’s financial releases, Germany is expected to deliver its preliminary year on year HICP rate for the month of December and Euro traders will be looking closely at the results of the headline release. According to estimates the year-on-year rate is expected to ease to the 10.7% moving away from the peak of 11.3% reported last month. Should the actual figure meet expectations we may see the Euro weaken as the result would imply that inflation has eased in the month of December, yet the rate remains significantly higher, as much as four times higher than the ECB’s inflation target. Overall, the results should be considered a step towards the right direction however the central bank is by no means done with its tightening efforts. Drawing from President Lagarde’s hawkish press conference following the December interest rate decision and the comments made yesterday by a key ECB policy maker Joachim Nagel, the bank is expected to march on with more rate hikes in the coming meetings to contain runaway inflation. More specifically, the policymaker stated that “we’re not seeing any wage-price spiral in the sense of a further increase in the inflation rate due to current wage agreements” and highlighted that the central bank should continue tightening. In tomorrow’s early Asian session, yen traders would have to grapple with Japan’s final JibunBK Manufacturing PMI figure for December which will shed more light into how the Japanese manufacturing sector navigates a challenging environment. Should the result post an upside surprise beating the 48.8 figure of last month we may see the Yen strengthen further and find extra support against the dollar, extending its winning streak.

USD/JPY extended its fall and broke below the 130.60 previous support base now turned (R1) resistance level. We hold a bearish bias for the pair and supporting our case is the RSI indicator that registers a value of 20. Should the bears reign over, we may see the pair breaking the 128.60 (S1) support line and aim for the 126.60 (S2) support level. Should on the other hand buyers take charge of the pair’s direction, we may see the pair rising, breaking the 130.60 (R1) resistance line and head for the 132.00 (R2) resistance barrier.

XAU/USD capitalized on the dollar’s weakness and climbed above the 1840 level and we hold a bullish outlook bias. Should the bulls reign over, we may see the index break the 1847 (R1) line and aim for the 1860 (R2) level. Should the bears take over, we may see the price action break below 1833 (S1) line and aim for the 1818 (S2) support level.

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We would like to note the release of Turkey’s CPI print for December alongside the S&P Global manufacturing PMI figures for December for Canada, UK and the US.