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• The Dow Jones extended a bullish recovery on the back of rate cut hopes.
• US inflation remains above targets, but pressures may be easing slightly.
• Treasury yields are getting cheaper and rate cut bets are back on the rise.

The Dow Jones Industrial Average (DJIA) added over a full percentage point in value on Friday, climbing around 500 points and vaulting back over 43,500 as market expectations for further rate cuts increased. Tech stocks are back on the rise as traders pile back into their risk appetite ways, and the banking sector is broadly climbing after a wide swath of better-than-expected earnings reports from major investment banks this week.

The inauguration of US President Donald Trump will take place next week, on Monday, when US markets will be shuttered for Martin Luther King Day. Equities are poised to continue the exuberance train for the time being. Trump’s election night win in November sparked a massive rally as traders eyed a potential future with deregulation, lower taxes, and higher equity valuations.

Key inflation metrics gave just enough ground this week for Treasury yields to ease as investors look for signs of cooling inflation to reignite rate cut talk at the Federal Reserve (Fed). While some inflation segment accelerated recently, the figures overall came in below expectations, prompting markets to reassess the odds of a Fed rate trim in the first half of 2025.

According to the CME’s FedWatch Tool, rate markets are now seeing greater than even odds of a 25 bps rate cut in May, with a second rate cut expected in December. Investor hopes for rate cuts took a beating to kick off the new year, and equity traders needed to go through a tantrum period after hopes for four-plus rate cuts in 2025 disintegrated this December past.

Dow Jones news

Friday’s rally is firmly gripping the Dow Jones, with nearly every single listed security gaining ground for the day. Nvidia (NVDA) is back on the high side, climbing 3% and tapping $138 per share once again, with Salesforce (CRM) bumping another 2.5% higher to $328 per share.

Dow Jones price forecast

Bears just can’t have anything nice. The Dow Jones is back above the 50-day Exponential Moving Average (EMA), and bulls can now breathe a sigh of relief. The major equity index still has a long way to go to reclaim record highs set above 45,000 last December, but bidders will happily take a 4% gain in a single week.

Still, the near-term bull run cost a lot of ground on momentum oscillators, and buyers shouldn’t be surprised by any interim pullbacks as downside pressure turns elastic. The Dow Jones’ immediate technical floor is priced in at 42,000, but there’s still plenty of wiggle room at the 50-day EMA near 43,100.

Dow Jones daily chart

• EUR/USD dips and lands around 1.0285 amid fading upside impetus.
• RSI edges up, still confined in negative territory and signaling lukewarm buying interest.
• MACD histogram remains flat with green bars, highlighting a lack of compelling bullish follow-through.

The EUR/USD pair struggled to maintain upward momentum on Friday, slipping by 0.20% to settle around the 1.0285 mark. Efforts to break decisively above the 20-day Simple Moving Average (SMA) once again fell short, underscoring persistent headwinds facing any near-term recovery. While the pair has managed to avoid a more pronounced sell-off, the market’s appetite for stronger gains appears muted. On the technical front, the Relative Strength Index (RSI) has nudged mildly higher to 44, a level that still suggests lingering bearish undertones. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram continues to print flat green bars, indicating that buyers have yet to fully step in to reverse the pair’s recent rejection from overhead resistance.

Looking ahead, the 20-day SMA, situated around 1.0330, remains a pivotal hurdle for EUR/USD. A convincing move above this threshold would be needed to shift the short-term outlook in favor of the bulls. Failing that, further downside risks may emerge, with the next layer of support likely clustered near 1.0260–1.0250.

EUR/USD daily chart

• EUR/JPY finds support at Ichimoku cloud bottom, trading capped at upper edge at 161.45.
• Bearish momentum noted; faces resistance at 161.00 and 50-day SMA at 161.75.
• Decline below Ichimoku cloud could test deeper supports at 156.16 and 154.39.

The EUR/JPY bottomed near 159.69 and rose past 160.50 on Friday after registering two consecutive days of losses as risk appetite deteriorated. At the time of writing, the cross-pair trades at 160.82, up 0.69%.

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY trades sideways, capped on the downside by the Ichimoku cloud (Kumo) near the daily low and peaked at the top of the Kumo at 161.45.

Although momentum is slightly bearish, with the Relative Strength Index (RSI) below its neutral level, sellers must push the EUR/JPG beneath the bottom of the kumo toward 159.00.

A breach of the latter will exacerbate a December 3 swing low test of 156.16. On further weakness, 156.00 is up next, followed by the August 5 swing low of 154.39.

On the upside, the first resistance is 161.00, the top of the range at 161.45, and the 50-day Simple Moving Average (SMA) at 161.75. Once surpassed the next stoup would be the 162.00 mark.

EUR/JPY Price Chart - Daily

The Euro (EUR) is little changed against the US Dollar (USD) on Friday, holding around the mid-point of Wednesday’s wide range, Scotiabank's Chief FX Strategist Shaun Osborne notes.

Charts show tentatively positive signals

"ECB Governor Nagel commented a little earlier that the central bank should not rush rate cuts, echoing Holzmann’s remark earlier this week. Nagel said that inflation was still elevated and uncertainty was high. Eurozone CPI was finalized at 2.4% in the December year earlier, in line with the preliminary data."

"Spot has swung in a 50/60 tick range around 1.03 for much of the week. Short-term patterns suggest more range trading today as bear trend momentum weakens. Longer term patterns are still tilting positive for the EUR, however; I have noted the bullish 'morning star' pattern on the daily candle chart that developed around the turn of the week previously."

"That signal remains intact, even if progress has stalled since Wednesday. The weekly chart may also show a bull signal (“piercing line”) if the EUR can sustain gains into the close of the week. Ordinarily, this would be a strong sign that a push higher will develop but the macro backdrop rather suggests that directional risks are tipping in the other direction for the EUR."

The Pound Sterling (GBP) is down on the day and is all but unchanged over a week when most of its peers have managed to grind out a gain on the USD, Scotiabank's Chief FX Strategist Shaun Osborne notes.

GBP is little changed on the week

"UK Retail Sales fell 0.6% in December, significantly weaker than consensus estimates (+0.3%). November data were revised lower as well. The data suggest UK growth stalled (at best) in Q4."

"Markets continue to price in a near certain (23bps) chance of a rate cut in February and have added to expectations for easing over the coming year. But a total of 66bps priced in through next December still looks a bit too light. BoE Governor Bailey speaks at 16ET."

"GBP slipped out of a minor uptrend from the mid-week low yesterday but losses failed to develop. The GBP is little changed on the week but that may mean that the recent downtrend has stalled at 1.21. A positive week for the GBP next week will lift technical prospects."

• Euro strengthens, trades above 200-day SMA at 0.8425, signaling bullish momentum against Pound.
• Bulls target January 15 high at 0.8463; breaking this could extend to 0.8500 and higher.
• If EUR/GBP falls below 200-day SMA, may drop to 0.8400, with support at January 14 low of 0.8383.

The Euro extended its gains versus the Pound Sterling on Friday, posting back-to-back bullish bars and climbing above the crucial 200-day Simple Moving Average (SMA) at 0.8425. This indicates bullish momentum is building as the EUR/GBP trades at 0.8443.

EUR/GBP Price Forecast: Technical outlook

Bulls are in charge but must clear the January 15 peak at 0.8463. Once surpassed, the next stop will be 0.8500. A breach of the latter will expose intermediate resistance at the August 21 peak of 0.8544, followed by the August 14 high at 0.8593.

Conversely, if EUR/GBP falls below the 200-day SMA, sellers can challenge 0.8400. On further weakness, the next support will be the January 14 low of 0.8383.

EUR/GBP Price Chart - Daily

EIA weekly gas storage data shows that US gas storage fell by 258Bcf last week, which is the third largest weekly decline since early 2022, ING's commodity analysts Warren Patterson and Ewa Manthey note.

EU storage continues to trend below the five-year average

"Despite the large draw, it was largely in line with market expectations. Ahead of the release, the market was expecting a draw of around 260Bcf."

"Meanwhile, in Europe, storage continues to trend below the five-year average with it now a little over 63% full, down from 78% at the same stage last year and below the five-year average of 70% full. Milder weather is forecast in NW Europe next week, which could slow the pace of draws."

The Canadian Dollar (CAD) has drifted steadily lower since testing the 1.43 area mid-week. The USD is still trading slightly lower on the week, however, adding to last week’s small net loss despite obvious risks to the CAD, Scotiabank's Chief FX Strategist Shaun Osborne notes.

Spot is back to pivoting around the 1.44 point

"BoC DG Gravelle confirmed that the central bank would end its QT program by the middle of the year, in line with previous guidance and revert to “normal course” asset purchases slowly and well before September."

"In other remarks, Gravelle commented that US/Canada trade tensions risked having a 'big, negative' impact on the Canadian economy via higher inflation and slower growth. He said the BoC will detail more of its analysis on the impact of tariffs with the January 29th policy decision."

"Spot is back to pivoting around the 1.44 point. Short-term patterns lean somewhat bullish after the rejection of the 1.43 zone earlier this week but Monday’s bearish close for the USD and signals suggesting USD gains have stalled (if only temporarily) on the weekly chart should bolster USD resistance around the 1.4465 area. Support is 1.4280/00."

Oil prices traded weaker yesterday with ICE Brent falling back below US$82/bbl. From a technical point of view, the market is in overbought territory and so overdue a correction. However, mounting supply risks continue to provide broad support to oil prices, ING's commodity analysts Warren Patterson and Ewa Manthey note.

Oil buyers look for alternatives to Russian oil

"There are reports that the incoming Trump administration is looking at how to approach the recent sanctions placed against Russia and how they could be used as a tool to try to push Russia and Ukraine towards a peace deal. There are also suggestions that the incoming administration will take an aggressive approach towards Iran and Venezuela. The market should get more clarity following the inauguration next week."

"In terms of the impact of the latest US sanctions against Russia, buyers continue to look for potential alternatives. Bloomberg reports that Saudi Aramco has received requests from Chinese and Indian buyers for as much as 750k b/d of additional oil. And clearly, the Saudis would not be the only suppliers these buyers would have approached."

• AUD/USD dives to near 0.6180 as the USD strengthens, with investors focusing on Trump’s inauguration.
• Market experts believe that Trump’s policies will be pro-growth and inflationary for the US.
• The Chinese economy grew at a robust pace of 5.4% in the last quarter of 2024.

The AUD/USD pair falls sharply to near 0.6180 in Friday’s North American session. The Aussie pair slumps as the US Dollar (USD) gains ground after a three-day losing streak. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rises to near 109.20.

The Greenback gains as the market sentiment is cautious ahead of President-elect Donald Trump’s inauguration ceremony on Monday. Market participants expect Trump will release updated tariff plan sooner after joining the White House, a scenario that would lead to a global trade war. The impact will be favorable for growth and inflationary pressures in the United States (US), which would force the Federal Reserve (Fed) to keep interest rates at their current levels for a longer period.

Earlier, the US Dollar faced selling pressure after the release of the US Consumer Price Index (CPI) data for December, which showed that the core inflation decelerated to 3.2%, against estimates and the prior release of 3.3%. This led to a slight acceleration in Fed dovish bets.

According to the CME FedWatch tool, traders are pricing in more than one 25-bps interest rate reduction this year, seeing the first coming in the June meeting.

Meanwhile, the Australian Dollar (AUD) weakens despite China’s Q4 Gross Domestic Product (GDP) data came in stronger than expected. Compared to same quarter of the previous year, the Chinese economy expanded by 5.4%, faster than estimates of 5% and the reading of 4.6% recorded in the previous quarter.

Historically, the Australian Dollar gets benefitted by China’s upbeat economic data, being a close trading partner to China.

The US Dollar (USD) is trading steady to slightly firmer on the session but is heading for its first weekly drop since late November in DXY terms. Trading appears relatively slow ahead of the weekend as market participants eye Monday’s inauguration and ponder what might follow, Scotiabank's Chief FX Strategist Shaun Osborne notes.

USD mixed versus majors

"Strongly bullish sentiment and positioning may leave the USD prone to profit-taking if the early hours/days of the new Trump administration do not deliver the sort of policy initiatives that the president-elect has promised. Global stocks are firmer while bonds are also tracking a little higher, with Gilts outperforming slightly after more soft UK data. Crude prices are firming modestly."

"US Treasury Secretary nominee Bessent sailed through his confirmation hearing yesterday, telling lawmakers that the Fed should maintain its monetary policy independence and arguing that tax cuts need to be extended to avert a sudden stop to the US economy."

"He also said that exchange rates will cushion the impact of tariffs on US consumers, suggesting he is OK with the USD appreciating in response to tariff action deployed by the incoming administration. Fed Governor Hammack said in a WSJ interview that the Fed can be “very patient” on further rate cuts."

USD/SGD continued to trade modestly softer as USD strength eased while JPY, CNH and risk sentiments found support. USD/SGD was last seen at 1.3658, OCBC's FX analyst Christopher Wong notes. The analyst expects the Monetary Authority of Singapore (MAS) to ease policy at the upcoming Monetary Policy Commitee (MPC) meeting.

Price action still shows a potential rising wedge

"Daily momentum is mild bearish while RSI fell. Price action still shows a potential rising wedge pattern in the making. This can be associated with a bearish reversal. Bearish divergence observed on RSI. Near term risks continued to suggest downside bias though conviction level is not strong. Support at 1.3645 (21 DMA). Resistance at 1.3760 levels, 1.38."

"The focus next is on NODX (Friday), CPI (next Thursday) and upcoming MAS MPC (no later than 31 Jan). We are looking for MAS to ease policy at the upcoming MPC by reducing the policy slope slightly but still maintain a mild appreciation stance."

"Given that the disinflation journey has made good progress, we believe MAS now has optionality to ease especially if it takes on a pre-emptive stance in the face of policy transmission lag. S$NEER was last at 0.59% above model-implied mid."

• USD/CAD rises sharply to near 1.4430, with investors remaining cautious as Trump is set to return White House on Monday.
• The outlook of the Canadian economy has weakened on the assumption that Trump will raise tariffs by 25%.
• The soft core CPI data for December forced traders to raise Fed dovish bets.

The USD/CAD pair climbs to near 1.4430 in Friday’s North American session. The Loonie pair strengthens as the Canadian Dollar (CAD) performs weakly, with investors turning cautious as United States (US) President-elect Donald Trump is scheduled to take oath on Monday.

Investors expect that the foremost job of Trump would be the release of a new tariff plan, a scenario that could lead to a global trade war. The Canadian economy is expected to face a 2% increase in tariffs on its exports to the US, as mentioned by Trump earlier.

Market participants expect large tariffs by the US on Canada could dampen their economic outlook. "If Canada gets hit with large tariffs and they don't retaliate then the disinflationary effects would likely prompt considerably more easing by the Bank of Canada (BoC)," said Derek Holt, economists at Scotiabank said.

The BoC was one of the leading central banks that eased policy restrictiveness aggressively. According to a January 10-16 period Reuters poll, the BoC is almost certain to cut interest rates by 25 basis points (bps) to 3%.

Meanwhile, the US Dollar (USD) moves higher as investors digest might acceleration in traders’ bets supporting more than one interest rate cut by the Federal Reserve (Fed). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rises to near 109.15.

Fed dovish bets rose after the release of the US Consumer Price Index (CPI) report for December, which showed that the annual core inflation surprisingly decelerated.

• The US Dollar consolidates further at current levels on Friday. 
• Markets are left clueless after Fed’s Waller comments a March rate cut is still in the cards. 
• The US Dollar Index (DXY) holds around 109.00 and is looking for direction. 

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, further consolidates around the 109.00 level on Friday, though positioning is being torn into two camps. After a pivotal move earlier this week on the back of the US Consumer Price Index (CPI) for December, Federal Reserve (Fed) Governor Christopher Waller added some more oil to the fire on Thursday, alluding that a March rate cut would still be appropriate. Traders are now left clueless ahead of President-elect Donald Trump’s inauguration on Monday. 

The US economic calendar is very slim this Friday, with some housing data for December on the agenda. Expect traders to consolidate their positions ahead of Monday, when US stock markets will be closed in observance of Martin Luther King Day. 

Daily digest market movers: Venture a bet before Monday

• Traders are torn on Friday by comments from Federal Reserve Governor Christopher Waller, who advocated for a Fed rate cut in March on Thursday. 
• Meanwhile, the Trump administration has confirmed a battery of executive orders that will be issued once President-elect Donald Trump takes office as the 47th President of the United States on Monday. Those orders include a whole batch of fiscal measures, tariff levies, and stimulus packages, which are bound to have an inflationary impact. 
• At 13:30 GMT, US Building Permits and Housing Starts for December will be released. Permits are expected to decline to 1.460 million from 1.493 million the previous month, while Housing Starts should soar to 1.32 million, coming from 1.289 million units in November. 
• At 14:15 GMT, US Industrial Production data is expected to show a 0.3% increase in December, compared to the slight contraction of 0.1% in the previous month.
• Equities are in the green on Friday after their hectic performance on Thursday. There are no real outliers to report, with all three main US indices futures comfortably booking gains ahead of the US opening bell. 
• The CME FedWatch Tool projects a 97.3% chance that interest rates will be kept unchanged at current levels in the January meeting. Expectations are for the Federal Reserve (Fed) to remain data-dependent with uncertainties that could influence the inflation path once President-elect Donald Trump takes office on Monday.
• The US 10-year yield is trading around 4.596%, plunging near 4.5% from its Tuesday’s peak of 4.807%.

US Dollar Index Technical Analysis: Someone is not sticking to the plan

The US Dollar Index (DXY) is taking it on the chin, and Federal Reserve Governor Christopher Waller delivered the possible knockout blow on the Greenback for now. Waller's bold call for a March rate cut surprised traders and was not priced into market expectations. A wrong-footed market could result now, as the Fed was supposed to remain data-dependent. This could set up markets for an erroneous positioning once President-elect Donald Trump starts to roll out his policy. 

On the upside, the 110.00 psychological level remains the key resistance to beat. Further up, the next big upside level to hit before advancing any further remains at 110.79. Once beyond there, it is quite a stretch to 113.91, the double top from October 2022.

On the downside, the DXY is testing the ascending trend line from December 2023, which currently comes in around 108.95 as nearby support. In case of more downside, the next support is 107.35. Further down, the next level that might halt any selling pressure is 106.52, with interim support at the 55-day Simple Moving Average (SMA) at 107.19. 

US Dollar Index: Daily Chart

• Gold price sees a small fade getting underway after its stellar three-day rally. 
• Fed governor Waller surprised friends and foes by saying a March rate cut should not be ruled out. 
• Gold tries to consolidate above $2,700 to try and hold on to weekly gains. 

Gold’s price (XAU/USD) slightly retraces but holds above the $2,700 level on Friday, with some profit-taking occurring after its three-day rally this week.  Federal Reserve (Fed) governor Christopher Waller spooked traders by commenting on Thursday that a March interest rate cut should not be ruled out. That triggered uncertainty among traders because markets were not pricing in a March rate cut at all.

Concerns are now swelling, with traders questioning whether they might have missed an important element or whether a knee-jerk reaction could occur once President-elect Donald Trump takes office on Monday. A large number of executive orders are set to be released by Trump’s administration, including quite a few that guarantee a surge in inflation. 

Daily digest market movers: Tailwind into headwind 

• Gold set a series of record highs last year as the Fed pivoted toward interest rate cuts, the world’s major central banks bought up the precious metal, and heightened tensions drove haven demand. The metal will rise to new peaks later this year on trade and geopolitical uncertainties, UBS Group AG said this week, Bloomberg reports. 
• At 20:30 GMT, the Commodity Futures Trading Commission (CFTC) will release its weekly Commitment of Traders (COT) report. The report provides information on the size and direction of the positions taken across all maturities by participants primarily based in Chicago and New York futures markets in "non-commercial" or speculative positions. No forecast is available, but the release last Friday showed a jump to $254.9K, up from $247.3K the previous week. 
• The US 10-year yield trades around 4.596%, over 4.5% lower than its weekly peak of 4.807% seen on Tuesday.

Technical Analysis: Scrambled eggs

Gold bulls are confused after comments from Fed Governor Waller that an interest rate cut in March should not be ignored. Traders were enjoying a supportive tailwind in Bullion fueled by easing rate-cut bets. With the Fed’s Waller call now for a possible move in March, concern grows that the Fed is seeing issues ahead in the US economy, which traders might have missed. 

All eyes will be on the $2,708 pivotal level to see if it can keep the rally at elevated levels before heading into the weekend. If traders are unable to keep the Gold price above that level by the closing bell on Friday, rather look for $2,671 as the next support. In case more downside occurs, the 55-day Simple Moving Average (SMA) at $2,648 is next, followed by the 100-day SMA at $2,643. 

The first upside level to look at is $2,721, which is a sort of a double top in November and December. In case Bullion powers through that level, the all-time high of $2,790 is the key upside barrier. 

XAU/USD: Daily Chart

Flat momentum suggests further range trading, most likely between 7.3380 and 7.3550. Upward momentum is beginning to fade; a breach of 7.3250 would suggest that 7.3700 is not coming into view, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

Upward momentum is beginning to fade

24-HOUR VIEW: "Yesterday, we expected USD to 'continue to trade in a range, most likely between 7.3350 and 7.3550.' USD then traded in a subdued manner, closing largely unchanged at 7.3450 (-0.05%). Flat momentum indicators continue to suggest range trading, most likely between 7.3380 and 7.3550."

1-3 WEEKS VIEW: "We have held the view that 'there is room for USD to retest the 7.3700' since early last week. On Tuesday (14 Jan, spot at 7.3410), we noted that 'upward momentum is beginning to fade, and a breach of 7.3250 (‘strong support’ level) would suggest that 7.3700 is not coming into view.' USD traded in a quiet manner over the past few days, and we continue to hold the same view for now."

USD/JPY continued to trade lower, as expectations on BoJ hike next week continues to build. Markets are pricing in 22bp hike at the upcoming MPC (vs. 11bp hike expectations at the start of the new year). Pair was last at 155.69 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Risks remain skewed to the downside

"The shift this week in particular was due to comments from BoJ officials and a report in Japanese media, that said BoJ officials see good chance of an interest rate hike next week as long as Trump administration does not trigger too many negative surprises. Earlier this week, Governor Ueda spoke about making decision whether to raise rate at the upcoming BoJ meeting. He also shared there is positive views on wage hikes gathering momentum."

"Deputy Governor Himino also said MPC will discuss next week whether to raise rate or not and to raise rate if economic outlook is realized. All seem to point to high likelihood of a hike at the upcoming MPC (24 Jan). We continue to look for a hike as data continues to support policy normalization. Wage growth pressure remains intact, alongside broadening services inflation."

"Daily momentum is bearish while RSI fell. Risks remain skewed to the downside. Next support at 154.80 (50 DMA), 154.30 (23.6% fibo retracement of Sep low to Jan high) and 152.80 (200 DMA). Resistance at 156.40, 157.40 (21 DMA). Tactically, in our FX Weekly sent on Wed, we look for short SGDJPY targeting a move lower towards 110. Spot ref then at 115.10 with SL at 117.12. Cross was last at 113.70 levels."

Weakness has not stabilized, but any further US Dollar (USD) decline is likely part of a lower range of 154.90/156.15. In the longer run, USD remains weak; if it breaks below 154.90, the next objective will be at 154.40, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

USD remains weak

24-HOUR VIEW: "We expected USD to 'trade with a downward bias yesterday,' but we were of the view that 'any decline is likely part of a lower trading range of 155.80/157.00.' Our view was incorrect, as USD plunged, reaching a low of 155.09. While the sharp drop appears to be excessive, the weakness has not stabilized just yet. However, any further decline is likely part of a lower range of 154.90/156.15. In other words, a sustained break below 154.90 is unlikely."

1-3 WEEKS VIEW: "We revised our USD view to negative yesterday (16 Jan, spot at 156.35), highlighting that 'the rapid increase in momentum indicates further USD weakness, with a technical target at 154.90.' We did not expect USD to approach 154.90 so quickly, as it plummeted for the second day in a row, reaching a low of 155.09. Our view bearish view remains unchanged, and if USD breaks below 154.90, the next objective will be at 154.40. On the upside, should USD rise above 156.70 (‘strong resistance’ level was at 157.60 yesterday), it would mean that USD is not declining further."

US Dollar (USD) was a touch softer overnight, helped by dovish comments from Fed’s Waller. He said that Fed may cut rates more this year and sooner than investors expect if future inflation data fall in line with Dec CPI report. DXY was last seen trading at 109.01 levels, OCBC's FX analyst Frances Cheung and Christopher Wong notes.

Risk of pullback still likely

"He also added that Fed could lower rates again in 1H 2025 if data remains favorable. Timing of next rate cut shifted earlier to Jun (vs. Oct previously) while the quantum of rate cut expectations have also risen back to 42bps. This morning’s release of data shows China growth and activity data came in better than expected. This helped to keep Asian FX supported."

"But into the weekend and ahead of Trump inauguration (20 Jan), markets may turn slight cautious on positions (USD dip maybe shallow), fearing that tariffs may soon be announced. On Truth social platform, President-elect Trump recently said that he will create an external revenue service to collect tariffs, duties and all revenue that come from foreign sources. That said, tariff uncertainty remains in terms of timing, magnitude and scope of products."

"Daily momentum turned mild bearish while RSI eased. Bearish divergence observed on RSI. Risk of pullback still likely. Support at 108.70 (21 DMA), 107.33 (50DMA). Resistance at 110.10, 110.90 levels. Today brings housing starts, building permits and IP data."

New Zealand Dollar (NZD) is expected to trade sideways between 0.5580 and 0.5630. In the longer run, NZD must break and remain above 0.5650 before a move to 0.5695 is likely, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

Above 0.5650 NZD/USD can move to 0.5695

24-HOUR VIEW: "Yesterday, we expected NZD to 'trade in a sideways range of 0.5600/0.5650.' However, NZD traded in a lower range of 0.5582/0.5633, closing at 0.5608 (0.14%). The price action did not result in any increase in either downward or upward momentum. In other words, we continue to expect NZD to trade sideways, most likely between 0.5580 and 0.5630."

1-3 WEEKS VIEW: "We indicated yesterday (15 Jan, spot at 0.5620) that “although there has been a slight increase in momentum, NZD must break and remain above 0.5650 before a move to 0.5695 is likely.” There is no change in our view. The likelihood of NZD breaking clearly above 0.5650 will remain intact, provided that it remains above 0.5580 (‘strong support’ level)."

In other markets, China's fourth quarter 2024 GDP surged to 5.4% year-on-year, up from 4.6% YoY and marking the highest level of the year, and the fastest YoY growth of any quarter since 2Q23, ING's FX analyst Francesco Pesole notes.

Fourth quarter growth level is a significant beat

"This was also a much more impressive reading given that 2Q23 benefited heavily from a favourable base effect. The fourth quarter growth level was a significant beat and moving the full-year growth back to 5.0% will put to rest any potential debate on whether or not a lower growth level would have been sufficient to fulfil the 'around 5%' growth target."

Price movements are likely part of a range trading phase, expected to be between 0.6185 and 0.6230. In the longer run, upward momentum is building, but AUD must close above 0.6245 before a move to 0.6300 can be expected, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

Above 0.6245, AUD can move to 0.6300

24-HOUR VIEW: "Following AUD rise to 0.6247 two days ago, we noted yesterday that it 'seems to have enough momentum to retest the 0.6245 level.' We pointed out that 'given the overbought conditions, the chance of a sustained rise above this major resistance is not high.' Our assessment was not wrong, as AUD rose to 0.6248, pulling back to close lower by 0.22% at 0.6213. The current price movements are likely part of a range trading phase, expected to be between 0.6185 and 0.6230."

1-3 WEEKS VIEW: "We noted that yesterday (16 Jan, spot at 0.6225) that 'upward momentum is building.' However, we pointed out that AUD 'must close above 0.6245 before a move to 0.6300 can be expected.' We also pointed out that 'the probability of AUD closing above 0.6245 will remain intact as long as the ‘strong support’ level, currently at 0.6170, is not breached.” Our assessment remains unchanged."

• USD/JPY rebounds from 156.00 as the upside move in the Japanese Yen pause after a two-day runup.
• US Trump is expected to announce policies on tariffs and taxes sooner.
• The BoJ is confirmed to discuss raising interest rates in the policy meeting next week.

The USD/JPY pair discovers buying interest after posting a fresh four-week low of 156.00 in Friday’s European session. The asset rebounds as the US Dollar (USD) gains ground, with investors turning cautious ahead of United States (US) President-elect Donald Trump’s inauguration on Monday.

Investors expect that Trump will announce tariff and taxation policies right after returning to the White House. Market experts believe that these policies will be pro-growth and inflationary for the US economy, a scenario that will allow the Federal Reserve (Fed) to keep interest rates at their current levels.

At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, wobbles above the key support of 109.00.

This week, the US Dollar remains broadly under pressure as traders raised Federal Reserve (Fed) dovish bets after the release of the US Consumer Price Index (CPI) data for December, which showed that the annual core inflation surprisingly decelerated to 3.2% from the former reading of 3.3%, which is the lowest reading in over three years.

On the Tokyo front, the Japanese Yen (JPY) performs weakly on Friday after a strong two-day upside move even though Nikkei has reported that a majority of Bank of Japan (BoJ) officials are expected to raise interest rates at the policy meeting on January 23-24. This week, BoJ Governor Kazuo Ueda confirmed that the central bank will discuss raising interest rates in the policy meeting next week. Ueda said that the central bank is currently “analyzing data thoroughly” and will compile the findings in the quarterly outlook report, and based on that, the bank will discuss whether to “raise interest rates at next week's policy meeting.”

China’s 4Q24 GDP growth accelerated to 5.4% y/y, 1.6% q/q sa. The 2024 full year growth of 5.0% has met official target, coming in slightly higher than our forecast of 4.9%. The stronger recovery was driven by the industrial sector, UOB Group's economist Ho Woei Chen notes.

4Q24 GDP growth beat estimates

"China’s stimulus measures have continued to stabilise its economy. Frontloading of industrial production and exports ahead of Trump’s second term likely contributed to the strong manufacturing output but this is unlikely to be sustained and we expect some payback later this year."

"Private consumption was more moderate and tilted towards consumption under the government’s subsidy program while the property market continued to stabilize on the back of stimulus measures. We keep our forecast for China’s growth in 2025 at 4.3% until we get better clarity of Trump’s plans for potential tariffs and the extent of China’s fiscal boost."

"The depreciation pressure on the CNY may bring about some delay to rate cuts as PBOC stepped up efforts to support the local currency. In the near-term, there is more room for an RRR cut given that PBOC skipped a move flagged for December."

Mark Carney formally announced yesterday that he will run for Canada’s Liberal Party leadership to replace Justin Trudeau. The consensus appears to be that the leadership contest will be a close one between Carney and former finance minister Chrystia Freeland. Recent opinion polls show Carney has a small advantage over Freeland, while betting markets give him a 70-30 lead, ING's FX analyst Francesco Pesole notes.

Markets expect some support around 1.430 in USD/CAD

"In our view, Carney remains the more market-friendly alternative, considering Freeland’s conflicting terms with Trump on trade. That said, it is likely that the new Liberal leader will face a parliament no-confidence vote and the probability of elections before the October statutory deadline remains high. The Conservative party, led by Pierre Poilievre, holds a huge lead in the polls, so we believe Poilievre's plan for the US-Canada trade relationship may be more relevant for Canadian markets than that of the new Liberal leader."

"For now, the loonie remains in limbo. USD/CAD has been flat since the start of the year, and still embedding a 3% risk premium associated with the risk of Trump’s tariffs – according to our short-term fair value model. Even if unilateral 25% tariffs on Canada don’t materialize, smaller universal tariffs would still asymmetrically damage the economy of the main US trade partners. In 2023, exports to the US accounted for roughly 20% of Canadian GDP."

"To rebound at this stage, CAD requires more reports suggesting a lighter-touch approach by Trump on trade. Barring that, we expect the risk premium to linger and some support around 1.430 in USD/CAD."

The Pound Sterling (GBP) is expected to continue to trade in a range, probably between 1.2190 and 1.2280. In the longer run, weakness in GBP has stabilized; it is likely to trade in a range between 1.2130 and 1.2390, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

Likely to trade in a range between 1.2130 and 1.2390

24-HOUR VIEW: "We indicated yesterday that GBP 'may trade in a range, probably between 1.2180 and 1.2290.' GBP subsequently traded in a 1.2173/1.2260 range, closing little changed at 1.2239 (-0.04%). The price action provides no fresh clues, and we continue to expect GBP to trade in a range, probably between 1.2190 and 1.2280."

1-3 WEEKS VIEW: "We revised our GBP view to neutral yesterday (16 Jan, spot at 1.2240), indicating that the recent 'weakness has stabilised.' We indicated that GBP 'is likely to trade in a range between 1.2130 and 1.2390.' We continue to hold the same view."

EUR/USD appears to have found a short-term anchor at the 1.0300 handle., ING's FX analyst Francesco Pesole notes.

Expect EUR/USD stability around 1.0300

"That is a level that embeds a 2.5-3% risk premium (i.e. undervaluation), which we suspect will not be materially trimmed until more clarity on Trump’s protectionism policy emerges. That said, that stretched valuation and the latest speculative net short EUR/USD positioning at 11% of open interest (CFTC data) makes us lean against another big leg lower in the pair. That, in fact, may require some big USD-positive headlines from Trump on Monday."

"There has been no shift to a less dovish tone by the European Central Bank from the already dovish December meeting (the minutes were released yesterday), even after a tick higher in inflation; and we can expect monetary policy to remain a net negative factor for the euro at least in the coming weeks. We expect EUR/USD stability around 1.0300 today."

FX markets may enter holding mode today as the US data flow slows and some wait-and-see approach prevails ahead of Monday’s presidential inauguration, OCBC's FX analyst Francesco Pesole notes.

Fed enters the communication blackout period tomorrow

"The perception at the end of a busy week in macro news is that the optimism around a month-on-month slowdown in core inflation is cautious at best. The inherently forward-looking markets are factoring in Trump’s inflationary policies from a starting point that is already significantly above the target. So, despite stretched positioning and short-term overvaluation, the dollar continues to dodge true catalysts for a correction."

"Yesterday’s Senate hearing of Treasury Secretary nominee Scott Bessent was not particularly eventful for markets. He predictably stressed the need to cut discretionary government spending – a flagship Trump policy – but did not sound as hawkish as Trump on delivering new tax cuts. In the first Trump administration, cabinet members often had to temper the President’s strong statements, and we can probably expect Bessent to deliver more balanced remarks on fiscal policy, considering the impeding debt constraints."

"Today’s calendar includes housing starts and industrial production in the US, which are both expected on the strong side. The Federal Reserve enters the communication blackout period tomorrow ahead of the 29 January meeting. We expect some stabilisation in most dollar crosses today."

• USD/CHF edges lower even though the US Dollar holds ground ahead of US Trump’s inauguration ceremony.
• Traders have raised Fed dovish bets after surprisingly soft annual US CPI reading for December.
• The SNB is expected to continue reducing interest rates to avoid risks of inflation remaining lower.

The USD/CHF pair edges lower to near the round-level support of 0.9100 in Friday’s European session. The Swiss Franc pair falls marginally as the Swiss Franc (CHF) performs strongly against its major peers even though market participants expect the Swiss National Bank (SNB) to continue easing the monetary policy further.

Growing risks of Swiss inflation undershooting the SNB’s target have accelerated, resulting in the need for more interest rate cuts. The SNB has already reduced its key borrowing rates to 0.5%.

Meanwhile, the US Dollar (USD) gains as investors are cautious ahead of President-elect Donald Trump’s swearing-in ceremony on Monday. Investors expect Trump to announce economic policies, such as higher tariffs and lower taxes, soon after returning to the White House. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks higher to near 109.15.

The Greenback remains firm even though an unexpected deceleration in the core Consumer Price Index (CPI) data for December has forced traders to raise Federal Reserve (Fed) dovish bets.

USD/CHF is on track to revisit its 15-month high, around 0.9200. The outlook of the Swiss Franc pair remains firm as the 20-week Exponential Moving Average (EMA) near 0.8900 is sloping higher.

The 14-week Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, suggesting a strong upside momentum.

For a fresh upside toward the round-level resistance of 0.9300 and the 16 March 2023 high of 0.9342, the asset needs to break decisively above the October 2023 high of 0.9244.

On the flip side, a downside move below the psychological support of 0.9000 would drag the asset towards the November 22 high of 0.8958, followed by the December 16 low of 0.8900.

USD/CHF weekly chart

The Euro (EUR) is likely to consolidate further, expected to be in a range of 1.0270/1.0330. In the longer run, EUR has entered a range trading phase; it is likely to trade between 1.0220 and 1.0400 for the time being, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

EUR is likely to consolidate further

24-HOUR VIEW: "EUR briefly rose to 1.0354 two days ago and then pulled back. Yesterday, we indicated that 'the brief advance did not result in any increase in momentum.' We held the view that EUR 'is likely to consolidate in a 1.0255/1.0345 range.' Our view of consolidation was not wrong, even though EUR traded in a narrower range than expected (1.0260/1.0314), closing largely unchanged (1.0298, +0.09%). The price movements still appear to be part of a consolidation phase. Today, we expect EUR to trade in a 1.0270/1.0330 range."

1-3 WEEKS VIEW: "Our latest narrative was from Wednesday (15 Jan, spot at 1.0300), wherein EUR 'has likely entered a range trading phase, and it is likely to trade between 1.0220 and 1.0400 for the time being.' There is no change in our view."

Citing multiple unnamed sources, the Nikkei Asian Review reported on Friday, a majority of Bank of Japan (BoJ) board members is expected to approve an interest rate hike at the Bank’s policy review meeting next week.

However, sources said that “some board members remain cautious of rate hike,” the Nikkei added.

Market reaction

USD/JPY paused its rebound near 155.90 following these headlines. At the press time, the pair is up 0.30% on the day at 155.75.

• EUR/USD wobbles around 1.0300 as investors shift focus to the US President-elect Donald Trump’s inauguration ceremony.
• Trump is expected to release policies on raising tariffs and lowering taxes soon after re-joining the White House. 
• The ECB minutes showed that officials debated over reducing the Deposit Facility rate by 50 bps in December.

EUR/USD trades with caution in a narrow range near the key level of 1.0300 in Friday’s European session. The major currency pair oscillates inside Thursday’s trading range, with investors focusing on United States (US) President-elect Donald Trump’s inauguration on Monday.

Investors await Trump’s announcement of new economic policies for fresh cues about the United States (US) economic outlook and the likely global trade environment. Market experts believe that Trump’s policies will boost inflation and economic growth and lead to a global trade war.

While testifying at a Senate Finance Committee on Wednesday, Trump’s treasury pick, Scott Bessent, said there is an urgent need to conclude the current tax regime to avoid the burden of a $4 trillion tax on the middle class. "If we do not renew and extend, then we will be facing an economic calamity,” Bessent said. He also supported Trump’s protectionist policies as they would help combat unfair trade practices and increase the US’s negotiating power.

Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks higher and holds the key support of 109.00. The US Dollar remains broadly firm even though traders started pricing in at least one interest rate cut by the Federal Reserve (Fed) this year. Traders have raised Fed dovish bets as the core Consumer Price Index (CPI) – which excludes volatile food and energy prices – decelerated to 3.2% in December, the lowest level in over four years.

Daily digest market movers: EUR/USD faces pressure due to ECB dovish bets

• EUR/USD stays under pressure as the Euro’s (EUR) outlook remains weak amid firm European Central Bank (ECB) dovish bets. Traders are pricing in a 25 basis points (bps) interest rate cut by the ECB in each of the following four policy meetings amid growing concerns over the Eurozone economic outlook and price pressures remaining under control.
• ECB officials are also comfortable with more interest rate cuts. The ECB minutes of the December meeting showed on Thursday that policymakers discussed the pace of policy-easing this year more than pausing or continuing the interest rate cut cycle. The minutes also showed that officials heavily debated announcing a larger-than-usual interest rate cut of 50 bps to provide insurance against the downside risks to growth, which are exacerbated by global and domestic political uncertainties. However, the ECB cut interest rates by 25 bps.
• There was a clear shift of communication from the “return of inflation to ECB’s target of 2%” to “keeping inflation sustainably at their target”. The ECB minutes also showed that officials were worried about growing risks to inflation undershooting the central bank’s target of 2%. 
• Meanwhile, worries about the EUR/USD pair falling to parity have accelerated as Trump’s return to the White House is on the horizon. Trump is expected to decide to push import tariffs higher soon, a scenario that will be unfavorable for the European Union (EU) export sector.

Technical Analysis: EUR/USD consolidates around 1.0300

EUR/USD stays sideways near 1.0300 on Friday after gaining ground from the over-two-year low of 1.0175 reached on Monday. The major currency pair bounces back on divergence in momentum and price action. The 14-day Relative Strength Index (RSI) formed a higher low near 35.00, while the pair made lower lows.

However, the outlook of the shared currency pair is still bearish as all short-to-long-term Exponential Moving Averages (EMAs) are sloping downwards.

Looking down, Monday’s low of 1.0175 will be the key support zone for the pair. Conversely, the January 6 high of 1.0437 will be the key barrier for the Euro bulls.

Silver prices (XAG/USD) fell on Friday, according to FXStreet data. Silver trades at $30.54 per troy ounce, down 0.87% from the $30.80 it cost on Thursday.

Silver prices have increased by 5.68% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 88.74 on Friday, up from 88.17 on Thursday.

(An automation tool was used in creating this post.)

• Silver faces rejection near the $31.00 confluence and snaps a three-day winning streak.
• Any further slide could be seen as a buying opportunity near the $30.40-$30.35 support.
• Bulls need to wait for a move beyond the trend-channel hurdle before placing fresh bets.

Silver (XAG/USD) attracts some sellers on Friday and for now, seems to have snapped a three-day winning streak to the $31.00 neighborhood, or over a one-month high touched the previous day. The white metal remains depressed through the first half of the European session and currently trades around the $30.60-$30.55 area, down 0.70% for the day. 

From a technical perspective, the recent move-up witnessed since the beginning of this month stalls near a confluence hurdle comprising the 100-day Simple Moving Average (SMA) and the top end of a descending channel extending from a multi-year top touched in October. A sustained breakout through the said barrier should pave the way for a further near-term appreciating move for the XAG/USD.

Given that oscillators on the daily chart are holding comfortably in positive territory and are away from being in the overbought zone, the commodity might then accelerate the momentum towards the $31.70 hurdle. The subsequent move-up should allow the XAG/USD to reclaim the $32.00 round-figure mark and climb further towards testing the December monthly swing high, around the $32.30-$32.35 region. 

On the flip side, any further decline could be seen as a buying opportunity near the $30.40-$30.35 region, which, in turn, should help limit the downside near the $30.00 psychological mark. A convincing break below the latter might prompt technical selling and drag the XAG/USD towards the $29.55-$29.50 support en route to the $29.00 mark and the $28.75-$28.70 area, or a multi-month low touched in December.

XAG/USD daily chart

• The Pound Sterling underperforms its major peers as weak UK Retail Sales data strengthens the case for a BoE interest rate cut in February.
• UK monthly Retail Sales contracted by 0.3% in December despite being expected to grow strongly by 0.4%.
• The US Dollar strengthens despite a slight acceleration in Fed dovish bets.

The Pound Sterling (GBP) falls sharply against its major peers on Friday as the United Kingdom (UK) Office for National Statistics (ONS) reported that Retail Sales surprisingly contracted in December, another data that adds to the weak economic outlook. The Retail Sales data, a key measure of consumer spending, declined by 0.3% month-on-month. Economists expected the consumer spending measure to have risen at a faster pace of 0.4% than 0.2% growth in November.

According to the ONS’s Retail Sales report, food store sales volumes fell 1.9% in the month, putting index levels at their lowest since April 2013. The monthly fall was strongest in supermarkets, but sales volumes also fell in specialist food stores (such as butchers and bakers) and alcohol and tobacco stores (including vaping shops).

Lower individual spending adds to expectations that the Bank of England (BoE) will be forced to cut interest rates by 25 basis points (bps) to 4.5% in the policy meeting in February. Market speculation that the BoE will reduce borrowing rates next month has already escalated due to cooling inflationary pressures and rising government borrowing costs.

The Consumer Price Index (CPI) report for December showed that headline inflation surprisingly decelerated and the core reading grew at a slower-than-projected pace.

Meanwhile, surging yields on UK gilts remain the pivotal factor for the need for policy-easing. The 30-year UK gilt yields soared to 5.48%, the highest level seen in over 26 years. UK gilt yields rallied as investors were cautious over the economic outlook due to stubborn inflation and a likely trade war with the United States (US) under the administration of President-elect Donald Trump on the assumption that he will raise import tariffs significantly, a scenario that will falter the exports sector.

Going forward, the major trigger for the Pound Sterling will be the labor market data for the three months ending November, which will be released on Tuesday. Investors will pay close attention to the employment data to determine the impact of the announcement of an increase in employer contributions to National Insurance (NI) in Chancellor of the Exchequer Rachel Reeves’s first Autumn budget.

Daily digest market movers: Pound Sterling drops sharply against USD

• The Pound Sterling tumbles to near 1.2160 against the US Dollar (USD) in Friday’s session. The GBP/USD pair falls sharply due to multiple headwinds, such as weak UK Retail Sales data and the US Dollar’s strength. The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, gains sharply above 109.20. The Greenback remains broadly firm even though investors digest a slight acceleration in Federal Reserve’s dovish bets, which were boosted by a slower-than-projected growth in the core Consumer Price Index (CPI) data for December.
• According to the CME FedWatch tool, traders are pricing in more than one 25-bps interest rate cut this year, seeing the first in the June meeting. Fed Governor Christopher Waller said in an interview with CNBC on Thursday, "If we continue getting soft inflation numbers, as we have seen in December, it is reasonable to think rate cuts could happen in the first half of the year.” Waller also kept expectations of an interest rate cut in March on the table if the Fed continues to progress in inflation and the labor market stays solid.
• Going forward, investors will focus on President-elect Donald Trump's announcement of economic policies after his swearing-in ceremony on Monday. Market participants expect Trump to release a new import tariff plan and cut individuals’ taxes sooner after taking office. Trump’s Treasury pick, Scott Bessent, said on Wednesday that there is an urgent need to lower individual taxes to prevent the economy from facing an economic calamity.

Technical Analysis: Pound Sterling faces selling pressure near 10-day EMA

The Pound Sterling resumes its downside journey against the US Dollar after a short-lived pullback move to near the 10-day Exponential Moving Average (EMA) at 1.2313 earlier this week, which currently trades around 1.2278. The outlook of the GBP/USD pair remains bearish as the 50-day EMA slopes downwards around 1.2552.

The 14-day Relative Strength Index (RSI) remains inside the 20.00-40.00 range, suggesting a strong bearish momentum.

Looking down, the pair is expected to find support near the October 2023 low of 1.2050. On the upside, Wednesday's high of 1.2306 will act as key resistance.

Here is what you need to know on Friday, January 17:

Markets remain in a cautiously optimistic mood, digesting the stronger-than-expected Chinese growth and activity data, while staying nervous before US President-elect Donald Trump’s inaugaration and amid looming tariffs.

China’s economy expanded by 5.4% in the fourth quarter of 2024, exceeding the market’s expectation of 5%. In December, Retail Sales climbed 3.7% from a year earlier, beating forecast of 3.5%,, while Industrial Production increased 6.2% from a year earlier versus expectations of 5.4%.

Mixed market sentiment seems to help revive the haven demand for the US Dollar (USD). Traders resort to short-covering, following the recent USD correction, triggering a minor recovery.

Meanwhile, the US Treasury bond yields continue their lacklustre performance, consolidating weekly losses due to renewed bets that the Federal Reserve (Fed) will deliver two interest rate cuts this year.

Across the FX board, AUD/USD keeps its offered tone intact at around 0.6200 amid lingering US-China trade concerns, shrugging off a strong Chinese data deluge. USD/JPY extends its rebound from monthly lows of 154.98 amid easing China’s economic concerns and a modest US Dollar rebound. But sellers could jump in at higher levels due to increased expectations of an interest rate hike by the Bank of Japan (BoJ) next week.

GBP/USD accelerated its decline toward 1.2150 after the UK Retail Sales unexpectedly fell 0.3% over the month in December, against the estimated 0.4% growth. The annual Retail Sales data also undermined expectations. Soft UK inflation and Retail Sales data fan expectations of aggressive Bank of England (BoE) rate cuts this year.

EUR/USD also incurrs losses to trade under 1.0300 as dovish European Central Bank (ECB) commentary continues to boost the odds for further rate cuts.

USD/CAD recaptures 1.4400 amid USD demand but the upside could remain capped by rebounding Oil prices. WTI oil price is up 0.68% on the day, approaching $78.50 as of writing.

Gold price consolidates weekly gains above $2,700 in the European session, having hit a monthly high of $2,725 on Thursday.

• NZD/USD depreciates as the US Dollar Index halts its four-day losing streak on Friday.
• Softer US Retail Sales and underlying inflation data reinforced the odds of the Fed cutting rates twice this year.
• The NZD could regain its ground due to the robust economic data from China.

NZD/USD extends its losses for the second successive day, trading around 0.5590 during the European hours on Friday. The downside of the NZD/USD pair can be attributed to a technical improvement in the US Dollar (USD).

The US Dollar Index (DXY), which tracks the US Dollar’s (USD) performance against six major currencies, halts its four-day losing streak, trading near 109.20 at the time of writing. However, the Greenback encountered difficulties as weaker US Retail Sales and underlying inflation data bolstered market expectations that the Fed will reduce interest rates twice this year.

US Retail Sales rose by 0.4% MoM in December, reaching $729.2 billion. This reading was weaker than the market expectations of a 0.6% rise and lower than the previous reading of a 0.8% increase (revised from 0.7%).

Moreover, the US core Consumer Price Index (CPI), which excludes volatile food and energy prices, rose by 3.2% year-over-year (YoY) in December, slightly below both the previous month's 3.3% increase and market forecasts of 3.3%. On a monthly basis, the core CPI grew by 0.2%, compared to a 0.3% rise in the prior month.

Chicago Federal Reserve Bank President Austan Goolsbee stated on Thursday that he has grown increasingly confident over the past several months that the job market is stabilizing at a level resembling full employment, rather than deteriorating into something worse, according to Reuters.

However, the NZD/USD pair faced challenges as the New Zealand Dollar (NZD) gained ground due to the robust economic data from New Zealand’s close trading partner China. China’s Gross Domestic Product (GDP) grew 5.4% over the year in the fourth quarter of 2024 after reporting a 4.6% expansion in the third quarter. Data beat the market consensus of 5% in the reported period, by a wide margin.

Chinese GDP rate rose 1.6% QoQ in Q4 2024, having increased 0.9% in the previous quarter. This figure matched the expectations of 1.6%. The annual December Retail Sales increased by 3.7% vs. the 3.5% expected and 3.0% prior, while Industrial Production arrived at 6.2% vs. the 5.4% forecast and November’s 5.4%.

European Central Bank (ECB) Governing Council member Yannis Stournaras said on Thursday that “policy should continue with a series of rate cuts at the next meetings.”

Additional quotes

Market reaction 

At the time of writing, EUR/USD is testing intraday lows near 1.0280, down 0.21% on the day.  

• EUR/GBP rises to near 0.8450 in Friday’s early European session, adding 0.30% on the day. 
• The UK Retail Sales declined 0.3% MoM in December, weaker than expected. 
• The ECB emphasised gradual rate cuts amid economic uncertainties.

The EUR/GBP cross extends its upside to around 0.8450 on Friday during the early European trading hours. The Pound Sterling (GBP) weakens after the UK Retail Sales data for December. The attention will shift to the Eurozone Current Account and Harmonized Index of Consumer Prices (HICP), which are due later on Friday. 

Data released by the Office for National Statistics on Friday showed that UK Retail Sales unexpectedly declined 0.3% MoM in December after growing 0.2% in November. Markets estimated an increase of 0.4% in the reported month. 

On an annual basis, Retail Sales in the UK climbed 3.6% in December, compared to 0% in November (revised from 0.5%), below the market consensus of 4.2%. The GBP attracts some sellers in an immediate reaction to the downbeat Retail Sales report. 

Meanwhile, the Bank of England (BoE) has room to ease further and support economic activity as inflation is cooling. The BoE policymaker Alan Taylor said on Wednesday, “We are in the last half mile on inflation, but with the economy weakening, it’s time to get interest rates back toward normal to sustain a soft landing.” 

The market is pricing almost 90% odds of a 25 bp cut in February and a total of 50 bp of cuts over the next 12 months (but now edging towards 75 bp). Traders see a nearly 90% chance that the BoE will cut interest rates by 25 basis points (bps) to 4.5% at the February meeting and a total of 50 bps reductions over the next 12 months. 

On the Euro front, the European Central Bank (ECB) Monetary Policy Meeting Accounts released on Thursday showed that policymakers agreed in the December meeting that interest rate cuts should be approached cautiously and gradually, but they also noted that further rate cuts were likely coming given weakening price pressures. 

• GBP/JPY weakened as the UK Retail Sales reported an unexpected 0.3% MoM decline in December.
• The Pound Sterling faced challenges as UK GDP fell short of the anticipated growth in November.
• Japan’s Kato voiced his expectation that the BoJ will manage monetary policy effectively to achieve the 2% inflation target.

GBP/JPY extends its losses for the third successive day, trading around 189.60 during the early European hours on Friday. The GBP/JPY cross loses ground as the Pound Sterling (GBP) depreciates following disappointing Retail Sales data from the United Kingdom (UK).

UK Retail Sales unexpectedly fell by 0.3% month-on-month in December, following a 0.1% increase in November, with markets anticipating a 0.4% rise. Core Retail Sales, excluding auto fuel, declined by 0.6% MoM, contrasting with the previous growth of 0.1% and the expected 0.1% increase. On an annual basis, UK Retail Sales rose 3.6% in December compared to 0% in November, while core Retail Sales increased by 2.9%, up from the previous decline of 0.5%. Both figures missed market expectations.

However, the British Pound faced selling pressure amid rising expectations of lower interest rates in the United Kingdom (UK), where economic data showed mixed signals. British GDP grew by 0.1% month-over-month (MoM) in November 2024, rebounding from contractions of 0.1% in both October and September. However, this growth fell short of the anticipated 0.2% increase.

The upside of the GBP/JPY cross could be restrained as the Japanese Yen may find support amid growing expectations that the Bank of Japan (BoJ) will hike interest rates next week. These speculations have driven yields on Japanese Government Bonds (JGBs) to multi-year highs.

Japan’s Finance Minister Katsunobu Kato reiterated on Friday that monetary policy decisions are the responsibility of the Bank of Japan (BoJ). He also expressed his expectation that the BoJ will conduct monetary policy effectively to meet the 2% inflation target.

Bloomberg reported on Thursday, citing unnamed sources, that the BoJ is likely to raise interest rates next week unless a significant market disruption occurs following the inauguration of US President-elect Donald Trump.

• The UK Retail Sales fell 0.3% MoM in December, a negative surprise.
• Monthly core Retail Sales for the UK declined 0.6% in December.
• GBP/USD gives up 1.2200 after downbeat UK consumer data.

The United Kingdom (UK) Retail Sales decreased at a monthly pace of 0.3% in December after growing 0.2% in November, the latest data published by the Office for National Statistics (ONS) showed Friday. Markets expected a 0.4% increase in the reported month.

The core Retail Sales, stripping the auto motor fuel sales, dropped by 0.6% MoM, against the previous growth of 0.1% and the estimated 0.1% figure.

The annual Retail Sales in the UK climbed 3.6% in December versus November’s 0%, while the core Retail Sales advanced 2.9% in the same month versus -0.5% previous. Both readings fell short of market expectations.

Market reaction to UK Retail Sales report

GBP/USD is meeting fresh supply following the disappointing UK data, falling 0.41% on the day to near 1.2190, as of writing.

(This story was corrected on January 17 at 7:21 GMT to say that "after growing 0.2% in November," not 0.1%.)

FX option expiries for Jan 17 NY cut at 10:00 Eastern Time via DTCC can be found below.

EUR/USD: EUR amounts

• 1.1000 1.4b
• 1.0150 1.6b
• 1.0200 4.4b
• 1.0250 1.1b
• 1.0275 3.1b
• 1.0285 2.6b
• 1.0300 4.5b
• 1.0350 1.7b
• 1.0400 3.6b

GBP/USD: GBP amounts     

• 1.2200 930m
• 1.2500 1.1b

USD/JPY: USD amounts                     

• 155.00 2.1b
• 155.50 958m
• 157.00 2.5b
• 160.00 4.2b

USD/CHF: USD amounts     

• 0.9000 500m
• 0.9100 1b

AUD/USD: AUD amounts

• 0.6110 659m
• 0.6250 1.1b

USD/CAD: USD amounts       

• 1.4300 1.8b
• 1.4350 1.3b
• 1.4400 1b
• 1.4415 752m

EUR/GBP: EUR amounts        

• 0.8325 1b

• USD/CAD extends the rally to around 1.4405 in Friday’s early European session. 
• The pair resumes its upside above the 100-period EMA with the bullish RSI indicator. 
• The first resistance level to watch is 1.4410; the initial support level emerges at 1.4363.

The USD/CAD pair gains traction to near 1.4405 during the early European session on Friday. The recovery of the US Dollar (USD) broadly provides some support to the pair. Nonetheless, the rising bets that the US Federal Reserve (Fed) would reduce interest rates twice this year might cap the upside for the pair. 

Technically, USD/CAD resumes its upside journey as the price holds the key 100-period Exponential Moving Average (EMA) on the 4-hour chart. The upward momentum is also supported by the Relative Strength Index (RSI), which is located above the midline near 61.50, suggesting further upside looks favorable in the near term.

The first upside barrier for the pair is seen at 1.4410, the upper boundary of the Bollinger Band. Sustained trading above the mentioned level could pave the way to 1.4447, the high of January 13. Further north, the next hurdle to watch is the 1.4500 psychological level. 

On the flip side, the initial support level for USD/CAD emerges at 1.4363, the 100-period EMA. A breach of this level could see a drop to 1.4322, the low of January 16. The additional downside filter to watch is 1.4279, the low of January 6. 

USD/CAD 4-hour chart

• The US Dollar Index could struggle due to the increased likelihood of the Fed lowering interest rates twice this year.
• US Retail Sales rose by 0.4% MoM in December, falling short of the market expectations of a 0.6% rise.
• US Treasury yields are expected to see a weekly decline of over 3%.

The US Dollar Index (DXY), which tracks the US Dollar’s (USD) performance against six major currencies, halts its four-day losing streak, trading near 109.10 during the Asian hours on Friday. However, the Greenback encountered difficulties as weaker US Retail Sales and persistent inflation data bolstered market expectations that the Fed will reduce interest rates twice this year.

US Retail Sales rose by 0.4% MoM in December, reaching $729.2 billion. This reading was weaker than the market expectations of a 0.6% rise and lower than the previous reading of a 0.8% increase (revised from 0.7%).

US core Consumer Price Index (CPI), which excludes volatile food and energy prices, rose by 3.2% year-over-year (YoY) in December, slightly below both the previous month's 3.3% increase and market forecasts of 3.3%. Monthly, the core CPI grew by 0.2%, compared to a 0.3% rise in the prior month.

The increasing dovish sentiment surrounding the Fed led to a drop in US Treasury bond yields, with the 2-year and 10-year notes now at 4.23% and 4.60%, respectively. Both yields are set to experience a weekly decline of more than 3%.

Chicago Federal Reserve Bank President Austan Goolsbee stated on Thursday that he has grown increasingly confident over the past several months that the job market is stabilizing at a level resembling full employment, rather than deteriorating into something worse, according to Reuters.

A quarterly survey conducted by the Bank of Japan (BoJ) showed on Friday that “Japanese households expect inflation to rise by an average of 11.5% a year from now, with a median expectation of 10.0%.”

Additional takeaways

• EUR/USD trades in negative territory around 1.0290 in Friday’s early European session. 
• The ECB highlighted gradual rate cuts amid economic uncertainties. 
• Uncertainty over Trump's policies dampens prospects for Fed rate cuts despite easing US inflation. 

The EUR/USD pair weakens to near 1.0290 during the early European session on Friday. The expectation of further rate cuts by the European Central Bank (ECB) drags the Euro (EUR) lower against the Greenback. Traders await the Eurozone Current Account and Harmonized Index of Consumer Prices (HICP) for fresh impetuses, which will be released later on Friday. Also, the ECB board member Piero Cipollone is set to speak on the same day. 

The ECB Monetary Policy Meeting Accounts released on Thursday showed that policymakers agreed last month that interest rate cuts should be approached cautiously and gradually, but they also noted that further rate cuts remain on the cards. 

The ECB will next meet on January 30 and investors have fully priced another 25 basis points (bps) cut. According to Reuters polls conducted between January 10-15, all 77 economists expect the ECB to cut the Deposit Facility rate by 25 bps to 2.75% at the January meeting, with 60% anticipating three additional 25-bps interest rate reductions by the middle of the year. Rising bets on further ECB reductions could weigh on the shared currency in the near term.

Across the pond, the US Federal Reserve (Fed) next monetary policy meeting is scheduled for January 28-29 and traders are nearly unanimous in their view the US central bank will hold the interest rates steady after cutting them by a full percentage point in late 2024.

Analysts believe that the uncertainty surrounding potential fiscal, trade, immigration, and regulatory policies from the incoming Donald Trump administration could dampen prospects for Fed rate cuts despite easing US inflation. This, in turn, might provide some support to the US Dollar (USD) and act as a headwind for EUR/USD. 

• USD/CHF may continue to decline as market sentiment increases that the Fed will lower interest rates twice this year.
• US Retail Sales rose by 0.4% MoM in December, falling short of the market expectations of a 0.6% rise.
• The safe-haven Swiss Franc may struggle as Israel and Hamas have reportedly agreed to a peace deal.

USD/CHF remains steady following three days of losses, hovering near 0.9110 during the Asian trading hours on Friday. However, the pair faced challenges as the US Dollar (USD) extended losses after the weaker US Retail Sales data released on Thursday.

US Retail Sales rose by 0.4% MoM in December, reaching $729.2 billion. This reading was weaker than the market expectations of a 0.6% rise and lower than the previous reading of a 0.8% increase (revised from 0.7%).

Growing expectations that the Federal Reserve (Fed) will cut interest rates twice this year have driven US Treasury bond yields lower, with the 2-year and 10-year notes currently at 4.23% and 4.60%, respectively. Both yields are on course for a weekly decline of over 3%.

The USD/CHF pair faces challenges as the US Dollar Index (DXY), which tracks the USD's performance against six major currencies, remains under pressure for the fifth consecutive session, trading near 109.00.

Chicago Federal Reserve Bank President Austan Goolsbee stated on Thursday that he has grown increasingly confident over the past several months that the job market is stabilizing at a level resembling full employment, rather than deteriorating into something worse, according to Reuters.

The safe-haven Swiss Franc (CHF) may face headwinds as geopolitical tensions in the Middle East ease. Israel and Hamas have reportedly agreed to a deal to pause the conflict in Gaza after 15 months of war. According to CNN, the agreement is expected to take effect on Sunday, pending approval by the Israeli cabinet.

• EUR/JPY attracts some buyers on Friday, though the upside potential seems limited.
• Bets that the BoJ will hike rates next week should underpin the JPY and cap the cross.
• The ECB’s dovish bias continues to weigh on the Euro and warrants caution for bulls.

The EUR/JPY cross recovers a few pips from a nearly one-month low touched during the Asian session on Friday and currently trades around the 160.00 psychological mark. The uptick, however, lacks bullish conviction amid the divergent Bank of Japan (BoJ)-European Central Bank (ECB) policy outlook, suggesting that any further move up might be seen as a selling opportunity. 

The recent remarks from BoJ Governor Kazuo Ueda and Deputy Governor Ryozo Himino lifted market bets that the central bank will hike interest rates at its upcoming policy meeting next week. Furthermore, the broadening inflationary pressure in Japan supports prospects for further policy tightening by the BoJ, which might continue to underpin the JPY and keep a lid on the EUR/JPY cross. 

The shared currency, on the other hand, continues with its struggle to attract any meaningful buyers growing acceptance that the ECB will lower borrowing costs further amid concerns about the faltering Eurozone economy. Adding to this, a rise in German core annual inflation raises stagflation worries for the Eurozone's largest economy, which might further contribute to capping the EUR/JPY cross. 

Traders now look forward to the release of the final Eurozone CPI print for short-term opportunities. Nevertheless, spot prices remain on track to register losses for the third consecutive week. Moreover, the aforementioned fundamental backdrop seems tilted firmly in favor of bearish traders and supports prospects for an extension of a multi-week-old downtrend.

• Gold price stands firm near a one-month high amid bets for additional rate cuts by the Fed.
• The recent pullback in the US bond yields and the USD further underpin the precious metal.
• Israel-Hamas ceasefire deal holds back bulls from placing fresh bets around the XAU/USD pair.

Gold price (XAU/USD) enters a bullish consolidation phase during the Asian session on Friday and oscillates in a range around the $2,715 region, just below a one-month high touched the previous day. Expectations that softer inflation in the US will allow the Federal Reserve (Fed) to cut interest rates further this year led to the recent decline in the US Treasury bond yields and the US Dollar (USD). This, in turn, is seen as a key factor that continues to underpin the non-yielding yellow metal and supports prospects for additional gains. 

That said, easing fears about US President-elect Donald Trump's disruptive trade tariffs, along with the Israel-Hamas ceasefire deal, keep a lid on the safe-haven Gold price. Apart from this, growing acceptance that the Fed will pause its rate-cutting cycle later this month, a modest US Dollar (USD) uptick and bets for a Bank of Japan (BoJ) rate hike next week cap the precious metal. Nevertheless, the XAU/USD remains on track to register gains for the third straight week as traders look to the US housing market data for some impetus. 

Gold price draws support from expectations that the Fed will cut rates twice this year

• US data released this week pointed to signs of abating inflation and fueled speculations that the Federal Reserve will cut rates twice this year, which, in turn, benefitted the non-yielding Gold price. 
• Adding to this, Fed Governor Christopher Waller said on Thursday that inflation is likely to continue to ease and three or four rate cuts are still possible this year if US economic data weakens further.
• The outlook for the Fed's rate cuts this year led to a further decline in the US Treasury bond yields and kept the US Dollar close to a one-week low, lending additional support to the XAU/USD. 
• Meanwhile, a report published by the US Commerce Department showed that Retail Sales increased 0.4% in December and the previous month's reading was also revised higher to show a 0.8% gain. 
• Furthermore, the Philly Fed's Manufacturing Index surpassed even the most optimistic estimates and surged to the highest level since April 2021, to 44.3 this month from a revised -10.9 in December.
• Separately, the US Labor Department reported that Jobless Claims – a key indicator of the health of the U.S. labor market – rose from 203K previous to 217K during the week ending January 10.
• The data reaffirmed expectations that the Fed will pause its rate cycle later this month amid worries that US President-elect Donald Trump's policies will stoke inflation.
• Israeli Prime Minister Benjamin Netanyahu announced on Friday that a ceasefire deal that would pause 15 months of war with Hamas and release hostages held in Gaza has been reached.
• Friday's US economic docket features the release of Building Permits, Housing Starts and Industrial Production figures, which might influence the USD and the precious metal. 

Gold price bulls need to wait for acceptance above $2,720 before placing fresh bets

From a technical perspective, positive oscillators on the daily chart favor bullish traders and support prospects for additional gains. That said, it will still be prudent to wait for sustained strength and acceptance above the $2,715-2,720 supply zone before placing fresh bullish bets. The Gold price might then climb to the $2,745 intermediate hurdle en route to the $2,760-2,762 area, before aiming to challenge the all-time peak, around the $2,790 region touched in October 2024.

On the flip side, any corrective pullback now seems to find decent support near the $2,700-2,690 area. A further decline could be seen as a buying opportunity and remain limited near the $2,662-2,660 region. The latter should act as a pivotal point, below which the Gold price could fall to the $2,635 zone en route to the $2,650 confluence – comprising the 100-day Exponential Moving Average (EMA) and a short-term ascending trend-line extending from the November swing low.

• GBP/USD faces challenges as it is confined within a descending channel pattern.
• The pair could test its initial resistance at the nine-day EMA of 1.2278 level.
• The primary support appears at the psychological level of 1.2100, aligned with the 14-month low at 1.2099.

The GBP/USD pair remains subdued for the second successive day, trading near 1.2230 during the Asian session on Friday. However, technical analysis of the daily chart suggests a persistent bearish bias, with the pair continuing to move within a descending channel pattern.

The 14-day Relative Strength Index (RSI) sits just above the 30 level, indicating increased bearish momentum. Moreover, the pair remains below the nine- and 14-day Exponential Moving Averages (EMAs), signaling weak short-term price dynamics and reinforcing the downward trend. 

On the downside, the GBP/USD pair could navigate the region around the psychological level of 1.2100, aligned with the 14-month low at 1.2099, recorded on January 13. A break below this level could strengthen the bearish bias, potentially driving the pair toward the lower boundary of the descending channel near 1.1950.

The GBP/USD pair may encounter immediate resistance at the nine-day EMA at 1.2278, followed by the 14-day EMA at 1.2328. A decisive breakout above these levels could enhance short-term price momentum, paving the way for a potential move toward the descending channel’s upper boundary at the 1.2500 level.

GBP/USD: Daily Chart

Gold prices remained broadly unchanged in India on Friday, according to data compiled by FXStreet.

The price for Gold stood at 7,559.54 Indian Rupees (INR) per gram, broadly stable compared with the INR 7,561.04 it cost on Thursday.

The price for Gold was broadly steady at INR 88,172.64 per tola from INR 88,190.49 per tola a day earlier.

FXStreet calculates Gold prices in India by adapting international prices (USD/INR) to the local currency and measurement units. Prices are updated daily based on the market rates taken at the time of publication. Prices are just for reference and local rates could diverge slightly.

(An automation tool was used in creating this post.)

• Silver price could appreciate further due to robust economic figures from China released on Friday.
• China's Industrial Production grew by 6.2% YoY in December, marking the fastest industrial output growth since April.
• The non-yielding Silver appreciated as softer US data sparked speculation of the Fed implementing two interest rate cuts in 2025.

Silver price (XAG/USD) holds steady after three consecutive days of gains, trading near $30.80 per troy ounce during the Asian session on Friday. The industrial demand for the grey metal may rise further, supported by strong economic data from China.

China's Industrial Production grew by 6.2% year-over-year in December, exceeding market expectations and the 5.4% growth rate recorded in November. This marks the fastest industrial output growth since April, driven largely by stronger manufacturing activity following stimulus measures introduced in September.

Additionally, China's Gross Domestic Product (GDP) expanded by 5.4% YoY in Q4 2024, up from 4.6% in Q3. Quarterly, the economy grew by 1.6% in Q4, aligning with market forecasts, compared to a 0.9% increase in the previous quarter.

The price of the non-yielding metal found support amid rising expectations that the Federal Reserve (Fed) will lower interest rates this year. This dovish outlook for the Fed gained traction following weaker-than-expected US Retail Sales data released on Thursday. Retail sales rose by 0.4% month-over-month (MoM) in December, totaling $729.2 billion. This figure fell short of market expectations for a 0.6% increase and was lower than the previous month's 0.8% rise (revised from 0.7%).

Furthermore, softer-than-expected underlying inflation in the US has fueled speculation that the Fed could implement two rate cuts this year. The core Consumer Price Index (CPI), which excludes volatile food and energy prices, rose by 3.2% year-over-year (YoY) in December, slightly below both the previous month's 3.3% increase and market forecasts of 3.3%. Monthly, the core CPI grew by 0.2%, compared to a 0.3% rise in the prior month.

Silver, a non-interest-bearing asset, finds additional support as US Treasury bond yields for the 2-year and 10-year notes stand at 4.23% and 4.60%, respectively, at the time of writing. Both yields are on track for a weekly decline of over 3%.

The US Dollar Index (DXY), which measures the USD's performance against six major currencies, hovers near 109.00 and remains subdued for the fifth consecutive session. A weaker USD makes Silver more affordable for buyers using foreign currencies, boosting demand for the precious metal.

In addition, expectations of lower interest rates extend to the United Kingdom (UK), where economic data showed mixed signals. British GDP grew by 0.1% month-over-month (MoM) in November 2024, rebounding from contractions of 0.1% in both October and September. However, this growth fell short of the anticipated 0.2% increase.

Following the publication of the high-impact China’s fourth-quarter growth and December activity data, the National Bureau of Statistics (NBS) expressed its outlook on the economy during its press conference on Friday.

Key quotes (via Reuters)

Market reaction

AUD/USD is defending gains above 0.6200, marginally higher on the day, at the press time.

• AUD/JPY stages a modest recovery from a nearly one-month low touched earlier this Friday.
• The mostly upbeat Chinese macro data underpins the Aussie and lends support to spot prices.
• Bets for another BoJ rate hike next week favors the JPY bulls and cap the upside for the cross.

The AUD/JPY cross recovers slightly from a nearly one-month low, around the 96.26 region touched during the Asian session on Friday and for now, seems to have snapped a two-day losing streak. Spot prices stick to modest intraday gains near mid-96.00s following the release of Chinese macro data, though the fundamental backdrop warrants some caution for bullish traders. 

The National Bureau of Statistics (NBS) reported that China's economy expanded by 5.4% over the year in the fourth quarter of 2024 after recording a 4.6% growth in the previous quarter. This was well above consensus estimates for a reading of 5% and was accompanied by better-than-expected Retail Sales, which increased by 3.7% in December as compared to 3% prior. Adding to this, Industrial Production arrived at 6.2% vs. 5.4% forecast, while the Fixed Asset Investment advanced 3.2% year-to-date (YTD) YoY in December, providing a modest lift to the China-proxy Aussie.

Apart from this, a modest downtick in the Japanese Yen (JPY) lends some support to the AUD/JPY cross. Any meaningful JPY depreciation, however, seems elusive in the wake of rising bets that the Bank of Japan (BoJ) will hike interest rates again next week. The expectations were reaffirmed by the recent remarks from BoJ Governor Kazuo Ueda and Deputy Governor Ryozo Himino. This, along with a softer risk tone and worries about US President-elect Donald Trump's tariff plans, could underpin the safe-haven JPY and cap the perceived riskier Australian Dollar (AUD). 

Furthermore, the Reserve Bank of Australia's (RBA) dovish shift warrants some caution before positioning for any further near-term appreciating move for the AUD/JPY cross. Traders might also opt to move to the sidelines and keenly await the highly-anticipated BoJ monetary policy meeting on January 23-24 to confirm the next leg of a directional move for spot prices.

• The Australian Dollar appreciates after the release of economic figures from China.
• China’s GDP grew 5.4% YoY in Q4 of 2024 after reporting a 4.6% expansion in Q3.
• US Retail Sales increased by 0.4% MoM in December, against the expected 0.6% growth.

The Australian Dollar (AUD) edges higher against the US Dollar (USD) following the economic data from China released on Friday. China’s economy grew 5.4% over the year in the fourth quarter of 2024 after reporting a 4.6% expansion in the third quarter. Data beat the market consensus of 5% in the reported period, by a wide margin.

Chinese Gross Domestic Product (GDP) rate rose 1.6% QoQ in Q4 2024, having increased 0.9% in the previous quarter. This figure matched the expectations of 1.6%. The annual December Retail Sales increased by 3.7% vs. the 3.5% expected and 3% prior, while Industrial Production arrived at 6.2% vs. the 5.4% forecast and November’s 5.4%.

Australia's seasonally adjusted Unemployment Rate rose to 4.0% in December, compared to 3.9% in November, aligning with market expectations. Employment increased by 56.3K in December, up from 28.2K in November (revised from 35.6K) and significantly exceeding the market forecast of 15.0K.

Bjorn Jarvis, head of labor statistics at the ABS, highlighted key data points: "The employment-to-population ratio rose 0.1% percentage points to a new record of 64.5%. This was 0.5 percentage points higher than a year ago and 2.3 percentage points above pre-COVID-19 levels. The increase in both employment and unemployment led to a further rise in the participation rate, which reflects the proportion of the population either employed or actively seeking work."

Australian Dollar advances as US Dollar remains subdued amid weaker US Retail Sales data

• The US Dollar Index (DXY), which measures the US Dollar’s performance against six major currencies, trades near 109.00. The Greenback edges lower after the weaker US Retail Sales data.
• US Retail Sales rose by 0.4% MoM in December, reaching $729.2 billion. This reading was weaker than the market expectations of a 0.6% rise and lower than the previous reading of a 0.8% increase (revised from 0.7%).
• Chicago Federal Reserve Bank President Austan Goolsbee stated on Thursday that he has grown increasingly confident over the past several months that the job market is stabilizing at a level resembling full employment, rather than deteriorating into something worse, according to Reuters.
• The US Consumer Price Index increased by 2.9% year-over-year in December, up from 2.7% in November, aligning with market expectations. On a monthly basis, CPI rose 0.4%, following a 0.3% increase in the previous month.
• US Core CPI, which excludes volatile food and energy prices, rose 3.2% annually in December, slightly below November's figure and analysts' forecasts of 3.3%. On a monthly basis, core CPI edged up 0.2% in December 2024.
• US Producer Price Index for final demand rose 0.2% MoM in December after an unrevised 0.4% advance in November, softer than the 0.3% expected. The PPI climbed 3.3% YoY in December, the most since February 2023, after increasing 3.0% in November. This reading came in below the consensus of 3.4%.
• On Wednesday, Scott Bessent, Donald Trump’s nominee for Treasury Secretary, emphasized the importance of maintaining the US Dollar as the world’s reserve currency for the nation's economic stability and future prosperity. Bessent stated “Productive investment that grows the economy must be prioritized over wasteful spending that drives inflation,” per Bloomberg.
• The Federal Reserve reported in its latest Beige Book survey, released on Wednesday, that economic activity saw slight to moderate growth across the twelve Federal Reserve Districts in late November and December. Consumer spending increased moderately, driven by strong holiday sales that surpassed expectations. However, manufacturing activity experienced a slight decline overall, as some manufacturers stockpiled inventories in anticipation of higher tariffs.
• Federal Reserve Board of Governors member Michelle Bowman added her voice to a chorus of Fed speakers last week as policymakers work double-duty to try and smooth over market reactions to a much tighter pace of rate cuts in 2025 than many market participants had previously anticipated.
• Australia’s Westpac Consumer Confidence Index dropped by 0.7% to 92.1 points, reflecting ongoing consumer pessimism. The decline in consumer confidence sparked concerns about the outlook for interest rates and Australia’s broader economic health. Markets are now pricing in a 67% likelihood that the Reserve Bank of Australia will lower its 4.35% cash rate by 25 basis points in February, with a full rate cut expected by April.

Technical Analysis: Australian Dollar remains above 0.6200 support near 14-day EMA

The AUD/USD pair trades near 0.6220 on Friday, attempting to break above the descending channel on the daily chart. A successful breakout would weaken the prevailing bearish bias. The 14-day Relative Strength Index (RSI) also trends upward toward the 50 level, signaling potential recovery momentum.

The AUD/USD pair encounters immediate resistance at the upper boundary of the descending channel, approximately at 0.6220.

On the downside, initial support is seen at the 14-day Exponential Moving Average (EMA) at 0.6213, followed by the nine-day EMA at 0.6206. A more substantial support level is located near the lower boundary of the descending channel, around the 0.5920 mark.

AUD/USD: Daily Chart

• NZD/USD attracts some buyers to near 0.5610 in Friday’s Asian session. 
• China’s Q4 GDP grew at 5.4%, beating market expectations. 
• Fed’s Waller sees potential for multiple rate cuts this year. 

The NZD/USD pair edges higher to around 0.5610 during the Asian trading hours on Friday. The New Zealand Dollar (NZD) strengthens after the stronger-than-expected Chinese economic data. Investors will take more cues from the US Building Permits, Housing Starts and Industrial Production for December, which are due later on Friday. 

China’s Gross Domestic Product (GDP) expanded by 5.4% YoY in the fourth quarter (Q4) of 2024, as a flurry of stimulus measures began and helped boost Beijing’s growth, the National Bureau of Statistics (NBS) showed on Friday. This reading was stronger than the estimation of 5%, by a wide margin. On a quarterly basis, the Chinese economy grew 1.6% in Q4, compared to an increase of 0.9% in Q3. This figure was in line with the expectations of 1.6%.

Meanwhile, the country’s Retail Sales increased by 3.7% YoY in December versus 3.0 prior. Industrial Production came in at 6.2% from the previous reading of 5.4%. Both figures were above the market consensus. The upbeat Chinese economic data could boost the China-proxy Kiwi, as China is a major trading partner to New Zealand. 

On the other hand, the dovish remark from the US Federal Reserve (Fed) officials could drag the Greenback lower against the NZD. On Thursday, Fed Governor Christopher Waller said that the US central bank could cut the interest rates multiple times this year if inflation eases as he expected. 

Traders raise their bets for a slightly more aggressive pace of rate reduction following Waller’s remarks. Market-implied chance for a May move rose to nearly 50%, according to CME Group data. 

• The Japanese Yen ticks lower and erodes a part of its strong weekly gains against the USD.
• Rising bets for a BoJ rate hike next week should help limit any meaningful JPY depreciation.
• Expectations that the Fed will cut rates further undermine the USD and should cap USD/JPY.

The Japanese Yen (JPY) attracts some intraday sellers after touching a nearly one-month top against its American counterpart during the Asian session on Friday. Any meaningful JPY depreciation, however, seems elusive in the wake of rising bets that the Bank of Japan (BoJ) will hike interest rates again next week. The expectations were reaffirmed by the recent remarks from BoJ Governor Kazuo Ueda and Deputy Governor Ryozo Himino. This, along with a softer risk tone, favors the JPY bulls.

Meanwhile, signs of abating inflation in the US suggest that the Federal Reserve (Fed) may not exclude the possibility of rate cuts by the end of this year. This led to a sharp decline in the US Treasury bond yields since early this week and the resultant narrowing of the US-Japan yield differential could underpin the JPY. Moreover, the Fed's rate cut outlook keeps the US Dollar (USD) depressed near a one-week low and should further contribute to capping the USD/JPY pair's attempted recovery move. 

Japanese Yen bulls have the upper hand amid firming BoJ rate hike expectations 

• Bank of Japan Governor Kazuo Ueda reiterated on Thursday that the central bank will raise the policy rate this year if economic, and price conditions continue to improve.
• Earlier this week, BoJ Deputy Governor Ryozo Himino said that a rate hike will be discussed at next week's meeting as prospects of sustained wage gains heighten.
• Data released on Thursday showed that producer prices in Japan increased for the 46th consecutive month and came in at the 3.8% YoY rate for December 2024.
• This comes on top of a decline in Japan's real wages and household spending for the fourth month in November, pointing to broadening inflationary pressures.
• Markets now see about a 79% chance of a 25-basis-point increase at the end of the January 23-24 meeting, which might continue to underpin the Japanese Yen. 
• Meanwhile, the softer US Producer Price Index and Consumer Price Index (CPI) released this week suggested that the underlying inflation slowed last month.
• This, in turn, fueled speculations that the Federal Reserve may not necessarily exclude the possibility of cutting interest rates further by the end of this year.
• The US Commerce Department reported that Retail Sales increased 0.4% in December and the previous month's reading was revised higher to show a 0.8% gain. 
• Moreover, the Philly Fed's Manufacturing Index surpassed even the most optimistic estimates and surged to the highest level since April 2021, to 44.3 this month.
• Separately, data published by the US Labor Department showed that Initial Jobless Claims rose more-than-expected, to 217,000 during the week ended January 11.
• Fed Governor Christopher Waller said on Thursday that inflation is likely to continue to ease and allow the US central bank to cut rates sooner and faster than expected.
• Waller added that as many as three or four quarter-percentage-point rate reductions could still be possible this year, dragging the US Treasury bond yields lower. 
• The Fed, however, might still adopt a more cautious approach towards cutting interest rates in 2025 on the back of the still resilient US economy and labor market. 

USD/JPY might struggle to capitalize on intraday recovery beyond 156.00

From a technical perspective, sustained break and acceptance below the 155.00 psychological mark could drag the USD/JPY pair towards the 154.60-154.55 region, representing the lower boundary of a multi-month-old ascending channel. Some follow-through selling will be seen as a fresh trigger for bearish traders and make spot prices vulnerable to accelerate the slide to the 154.00 mark en route to the next relevant support near the 153.35-153.30 horizontal zone.

On the flip side, attempted recovery might now confront stiff resistance near the 156.00 mark ahead of the 156.30-156.35 horizontal zone. The next relevant hurdle is pegged near the 156.65-156.70 region, above which the USD/JPY pair could aim to reclaim the 157.00 round figure. The subsequent move-up could lift spot prices further to the 157.40-157.45 intermediate barrier en route to the 158.00 mark and the 158.85 region, or a multi-month top touched last week.

Japan’s Finance Minister Katsunobu Kato reiterated on Friday that it’s “up to the Bank of Japan (BoJ) to decide on monetary policy..”

He further noted that he “expects the BoJ to conduct monetary policy appropriately to achieve the 2% inflation target.”

Market reaction

USD/JPY is maintaining the bounce to trade near 155.30 following these above comments, flat on the day.

China’s economy grew 5.4% over the year in the fourth quarter of 2024 after reporting a 4.6% expansion in the third quarter, the official data published by the National Bureau of Statistics (NBS) showed on Friday. Data beat the market consensus of 5% in the reported period, by a wide margin.

On a quarterly basis, the Chinese Gross Domestic Product (GDP) rate rose 1.6% in Q4 2024, having increased 0.9% in the previous quarter. This figure matched the expectations of 1.6%.

China’s annual December Retail Sales increased by 3.7% vs. 3.5% expected and 3% prior, while Industrial Production arrived at 6.2% vs. 5.4% forecast and November’s 5.4%.

Meanwhile, the Fixed Asset Investment advanced 3.2% year-to-date (YTD) YoY in December vs 3.3% expected and 3.3% previous.

AUD/USD reaction to China’s data dump

China’s GDP and activity data failed to inspire the Australian Dollar, as the AUD/USD pair keeps its range around 0.6210. At the time of writing, AUD/USD is trades modestly flat on the day.

• The Indian Rupee trades flat in Friday’s Asian session.
• USD demand from foreign banks might weigh on the INR, but the RBI’s intervention could help limit its losses. 
• The US housing data and Industrial Production for December are due later on Friday. 

The Indian Rupee (INR) steadies on Friday. The likely intervention from the Reserve Bank of India (RBI) to sell the US Dollar (USD) via state-run banks helps contain excess losses. Nonetheless, the USD bids from importers and foreign banks, particularly oil companies, could weigh on the local currency. Additionally, the geopolitical uncertainties and potential US trade tariffs by US President-elect Donald Trump could undermine the INR in the near term. 

Looking ahead, traders brace for the US housing data for December later on Friday, including Building Permits and Housing Starts. Also, the US Industrial Production will be published. 

Indian Rupee holds steady amid importer demand

• "Most foreign banks were buying dollars, while the RBI sold dollars to cap depreciation near 86.50/$1 levels, after which some more depreciation was seen up to 86.55/$1," said Anil Bhansali, head of treasury at Finrex Treasury Advisors.
• India's trade deficit narrowed to $21.94 billion in December from $37.84 billion in November, owing to a significant decline in gold and oil import bills, according to the Ministry of Commerce and Industry on Wednesday.
• US Retail Sales rose by 0.4% MoM in December versus a 0.8% increase prior (revised from 0.7%), according to the US Census Bureau on Thursday. This reading was weaker than the market expectations of a 0.6% rise. 
• The US Initial Jobless Claims rose to 217K for the week ending January 10, compared to the previous week's tally of 203K (revised from 201K). This reading came in above the market consensus of 210K. 
• Fed Governor Christopher Waller said on Thursday that the US central bank could cut the interest rates multiple times this year if inflation eases as he is expecting. 
• Fed Chicago President Austan Goolsbee noted that he becomes more comfortable that the labor market is stabilising, per Reuters.  

USD/INR keeps the constructive bias, overbought RSI warrants caution for bulls in the short term

The Indian Rupee trades on a flat note on the day. The path of least resistance is to the upside as the USD/INR pair has formed higher highs and higher lows while holding above the key 100-day Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI) reaches overbought territory beyond the 70.00 mark, potentially signalling a temporary weakness or further consolidation in the near term. 

In the bullish case, the immediate resistance level emerges at an all-time high of 86.69. A decisive break above the mentioned level potentially draws in some buyers to the 87.00 psychological level. 

If bearish momentum continues, the pair might see a drop to 86.30, the low of January 15. Further south, the next downside target to watch is 85.85, the low of January 10, followed by 85.65, the low of January 7. 

On Friday, the People’s Bank of China (PBOC) set the USD/CNY central rate for the trading session ahead at 7.1889 as compared to the previous day's fix of 7.1881 and 7.3275 Reuters estimates.

• WTI price loses traction to near $77.85 in Friday’s early Asian session. 
• Maritime security officials expect a halt to Houthi shipping attacks. 
• The expectation of rising oil demand during the Lunar New Year might support the WTI price. 

West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $77.85 on Friday. The WTI price edges lower on an expected halt to Houthi shipping attacks in the Red Sea after a ceasefire deal in the war in Gaza between Israel and the militant group Hamas.

Maritime security officials said on Thursday that they were expecting the Houthi militia to announce a halt in its attacks on ships in the Red Sea. "The Houthi development and the ceasefire in Gaza help the region stay calmer, taking some of the security premium out of oil prices," said John Kilduff, partner at Again Capital in New York.

The US Commerce Department reported on Thursday that US Retail Sales increased in December, pointing to strong demand in the economy. Additionally, the Federal Reserve's (Fed) cautious approach to cutting interest rates this year might support the Greenback in the near term and weigh on the USD-denominated commodity price. The Federal Open Market Committee (FOMC) members will meet again on January 28-29, with pricing in almost no chance of a move.

On the other hand, analysts estimate oil consumption to rise by 1.4 million bpd year on year in the next weeks, driven by increased travel activity in India, where a large festival is taking place, as well as travel for Lunar New Year festivities in China at the end of January.

Oil traders will closely monitor the release of China’s Gross Domestic Product (GDP) for the fourth quarter (Q4) of 2024, along with the Retail Sales and Industrial Production. Any signs of the recovery in the Chinese economy could underpin the WTI price as China is the world's second-largest consumer of oil.