Forex Today: The Countdown to This Week's and Next Week's Major Events Will Begin
Here's what you need to know about Thursday, January 26:
As we approach the end of the month and the Federal Reserve/European Central Bank meetings, the clock is ticking. A storm is brewing in the FX market, and Thursday's data events will be crucial in this respect.
It was slightly muted in some pairs, but active in others, as investors and traders prepared for today's spate of critical economic data that will contribute to the Federal Reserve's interest rate decision on February 1.
The US Commerce Department is slated to issue its preliminary fourth-quarter GDP estimates at the same time as the country's Core PCE prices, likely accelerating to a 0.3% moM pace in December, while a 0.4% growth cannot be ruled out, according to analysts at TD Securities.
"The year-on-year pace is likely to have slowed to 4.5%, indicating that prices continue to moderate but remain sticky at high levels," the experts contended. "We also expect Gross Domestic Product growth to have remained solid in Q4, producing another above-trend rise," the analyst added to the growth statistics. Consumer and inventory performance was likely supportive to growth."
WIRP implies that a 25 basis point increase on February 1 is completely priced in, with less than a 5% chance of a greater 50 basis point shift. Another 25 basis point boost on March 22 is around 80% priced in, whereas a previous 25 basis point hike in Q2 is only 35% priced in.
The dovish view caused the US Dollar to decline against the euro once more on Wednesday, but markets did not follow suit, as EUR/USD remained trapped in a 1.0875 / 1.0923 range for the day.
There was some better action in USD/JPY elsewhere. The previous day's finish provided the bear's fuel to continue selling against pullbacks, denying the bulls room into the top pattern formed earlier in the week. USD/JPY plummeted from a high of 130.58 to a new low of 129.26 as New York dealers got online, extending London's supply. This created excellent trading possibilities targeting past support structures on the way down to 129.50 and eventually the 129.20s.
USD/CAD was another pair that provided traders with possibilities of two-way movement on the day of the Bank of Canada's interest rate decision. The Bank of Canada lifted the main interest rate by 25 basis points to 4.5%, as predicted. The central banks stated in the statement that rates will likely remain at this level as they examine the effect of recent policy adjustments.
As a result, the Loonie fell across the board, but it quickly found buyers as Bank of Canada governor Tiff Macklem issued remarks on the policy outlook and reacted to questions, indicating that additional raises are not ruled out and are data-dependent. The USD/CAD exchange rate increased from 1.3365 to 1.3426. In a 50% mean reversion of the BoC rise, it then drew back into a previous support structure in the 1.3375s.
The Australian Dollar and Kiwi were higher on Wednesday following shockingly hot inflation data for Australia. As for yesterday's Q4 CPI inflation from NZ, analysts at ANZ Bank believe that it "was substantially better beneath the hood than the RBNZ feared at the time of the hawkish November MPS."
The New Zealand dollar traded between 0.6450 and 0.6504, while the Australian dollar moved between 0.7032 and 0.7122 (a crucial mark for the day ahead that defends 0.7150). In other news, the US 10-year yield fell 1 basis point to 3.45%, and WTI fell 0.1% to USD80/bbl. Gold rose 0.8% to $1940.4 per ounce.