What we are looking for

  • USD clawing back losses: USD started to rebound yesterday and this move has continued this morning. This is showing across major forex pairs, although the JPY is outperforming.
  • Indices mixed to slightly lower: After falling on Monday, the near-term move lower has steadied on US futures this morning but European indices are lower as they catch up on last night’s Wall Street close.
  • Commodities pull decisively lower: Silver is leading the decline with precious metals testing near-term support levels. Oil is also continuing the recent pullback. 
  • Data traders: There is a clutch of data to drive volatility for traders today. EUR traders will watch Eurozone flash GDP initially and then German inflation for any hints at surprises in euro area inflation tomorrow. USD traders will need to watch for the Employment Cost Index, with any reduction being USD negative. US Consumer Confidence is also important.


Just as we approach the latest FOMC meeting there has been a sense of caution taking hold in major markets. Markets are pricing almost 100% probability of a 25 basis points hike, but what then? Inflation has been falling and survey data is less encouraging for the US economy, but Q4 GDP was higher than expected and the labour market remains tight. The Fed is still likely to border on the hawkish side with a message “the job’s not done yet”. This could add some near-term recovery momentum to an uptick in US Treasury yields and a USD rebound.

Commodities had been rallying well in recent weeks, but have just eased back as markets have turned more cautious. It is a similar situation for equity markets too. The Fed meeting on Wednesday could prove to be a near-term catalyst to lock in some profits on these gains.

There is much to watch out for throughout today on the economic calendar Flash Eurozone GDP is expected to show stagnation with zero growth in Q4. German inflation is forecast to have jumped back higher in January to 10%. The US Employment Cost Index is an important gauge of wage pressure for inflation. The ECI is expected to tick slightly lower in Q4 from Q3, suggesting a mild reduction in inflationary pressure. The Conference Board’s US Consumer Confidence is expected to show a mild improvement in sentiment.

Today’s news

Market sentiment continues to look cautious: Yesterday’s pullback in risk assets has sustained momentum.  

US Treasury yields ease back after yesterday’s move higher: US 10-year Treasury yields hit a two-week high yesterday but have just eased back slightly this morning.

Chinese PMIs jump higher than expected: With China re-opening, there has been a big leap in the PMIs. They are all back above 50 and have beaten expectations. China’s General PMI increased to 52.9 in January (from 41.6 in December), much better than the 46.0 expected.

IMF increases its global growth forecast for 2023: The IMF’s forecast for global GDP growth has increased to 2.9% from 2.7% previously. The IMF cited China’s re-opening as being an important factor, along with resilient advanced economies.

Cryptocurrencies have stabilised after yesterday’s sharp decline: Crypto fell back significantly on Monday, completely erasing the weekend rally. However, coins have been more stable this morning. Bitcoin is +0.7% at $22900, with Ethereum +0.9% at $1571.

Federal Reserve still in its “blackout period”: There will be no Fed speakers until after the meeting which concludes on Wednesday.

Major Economic Data:

  • Eurozone Flash GDP (at 10:00 GMT) Growth is expected to be flat in Q4 (+0.3% in Q3). This would mean YoY growth would be +1.8%.
  • German inflation (at 13:00 GMT) German HICP is expected to jump by +1.3% MoM in January which would increase YoY inflation to +10.0% (from +9.6% in December).
  • US Employment Cost Index (at 13:30 GMT) The ECI for Q4 is expected to be +1.1% (after being +1.2% in Q3).
  • US Consumer Confidence (at 15:00 GMT) Confidence is expected to improve to 109.00 in January (from 108.3 in December)

Major markets outlook

Forex: USD and JPY are performing well once more. AUD and NZD are underperforming.

  • EUR/USD has drifted back in recent days but this move has gathered pace this morning. A retreat towards good support between 1.0715/1.0765 is developing. This also comes with the support of a three-month uptrend channel and the 21-day moving average. Momentum is positively configured on a medium-term basis but is reflecting the near-term unwind, with the daily RSI retreating into the mid-50s. We look to use supported weakness as an opportunity to buy. Resistance is mounting at 1.0925/1.0935. 


  • GBP/USD has eased back from the resistance at 1.2445 and is just unwinding within a four-month uptrend channel. Rising moving averages and medium-term positively configured RSI momentum all point towards using supported weakness as a chance to buy. Initial support comes in at 1.2263 with good support between 1.2170/1.2260. The bulls will still be looking for a close above 1.2445 to open 1.2600/1.2660.


  • USD/JPY has been consolidating for over a week now and this has breached the three-month downtrend. This consolidation is likely to be resolved on the outcome of the Fed meeting tomorrow. For now, though, the technical outlook remains negative. The falling 21-day moving average (c. 130.51) has flattened with the consolidation but is still a basis of resistance. Also, the daily RSI remains negatively configured and has failed consistently around 40/45 in recent months. If resistance at 131.55 remains intact after the Fed, we continue to favour a test of the low at 127.22. Above 131.10/131.55 opens a rally towards 133.60/134.75. 

Commodities: Consolidation could now be turning corrective.

  • Gold has been consolidating under $1949 but this is now looking to turn corrective amid a decisive early pullback this morning. Initial support at $1911 has been breached and this has opened the support at $1896. This is the first significant higher low of the rally and if that is breached it would be a corrective signal. Momentum is reflecting this as the RSI is unwinding back towards neutral. A move below 50 would be a negative signal. The support of the near three-month uptrend and the rising 21-day moving average are also being tested today. We continue to favour buying into near-term weakness but look for this unwind to build support first.


  • Silver has pulled sharply lower to once more test the lows of the consolidation rectangle between $23.11/$24.55. Buyers have consistently returned to sustain the rectangle support in recent weeks. However, the deterioration in the RSI now sharply below 50 is leading the market lower. A closing break of the range would complete a top and imply $21.70 as a corrective target. Initial resistance is now at $23.80. 


  • Brent Crude oil has seen the rally decisively roll over from $89.00 in recent sessions. The number of negative daily candles is mounting and their magnitude is also increasing. The initial support at $83.65 has been breached this morning and if this comes on a closing basis it would turn the outlook corrective again. The next support is around $81.20. The daily RSI has fallen below 50 and is leading the market lower. Old support is now new resistance, leaving overhead supply now between $83.65/$85.40.


Indices: Wall Street rally is pulling back, with European indices drifting lower. 

  • S&P 500 futures have pulled lower after the sharp recent gains have hit a bout of near-term profit-taking. This has left resistance at 4109. Corrections have been seen as a chance to buy since late December. Momentum reflects the unwinding of a positive bias with the daily RSI pulling back from around 60 but still above 50. However, the reaction to this weakness will now be an important factor. There is a risk of correction with upside traction having consistently failed in recent months and the market is at risk of a deeper pullback. Moving below the 3963 reaction low would be a concern.


  • German DAX has been in a consolidation range between 14910/15275 and this morning’s pullback is a continuation of this. It is interesting to see that the neutral to negative candles of recent sessions also has the daily RSI momentum now tailing off decisively. This favours a test of the 14910/14970 support. We would though still see near-term corrective moves into support as a chance to buy. Holding the support of the breakouts between 14604/14810 is important. Initial resistance is now 15070 below the key 15275 reaction highs.


  • FTSE 100 is once more failing to hold on to intraday gains as the near-term drift lower of the past two weeks continues. Yesterday’s lower high at 7800 is adding to 7818 as the lower high. This looks to be a drift back towards the support of the old highs between 7635/7695 and a retracement within the two-and-a-half-month uptrend. The daily RSI is unwinding towards 50 but is now coming towards an area where support needs to build if it is to be seen as simply renewing upside.


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