The case for a continuance in restrictive monetary policy by the ECB and the Fed

Over in Europe, ECB Schnabel during her remarks yesterday, stated that the tensions in the Red Sea, warrant caution against “adjusting the policy stance soon” and as such may imply that the bank may keep interest rates, higher for longer. The comments made by ECB Schnabel, may have aided the common currency, as they may have been perceived as predominantly hawkish in nature. In the US, we note the comments made by Minneapolis Fed President Kashkari stated that the US is “not all the way there yet”, when referring to inflation. Furthermore, Fed Kashkari’s comments could be perceived as predominantly hawkish in nature, which could provide support for the dollar should more Fed officials continue pushing back on the market’s current expectations of 5 rate cuts by the Fed this year.  In the US Equities markets, the bad news for Boeing (#BA) doesn’t seem to be stopping any time soon. According to various media outlets, the NTSB stated that door plug bolts meant to hold down a door panel in the Alaska Airlines’ Boeing 737 Max 9 Jet, appeared to be missing. The report by the NTSB could further weigh on Boeing’s (#BA) stock price even further.

New Zealand’s employment data for Q4 of 2023, came in better than expected, implying that New Zealand’s employment market remains tight and as such may have aided the NZD.

WTICash appears to continue moving in a sideways fashion, after bouncing off the 71.60 (S1) support level. We maintain a sideways bias for the commodity and supporting our case is the RSI indicator below our chart which currently registers a figure near 50, implying a neutral market sentiment. In addition, Bollinger Bands since yesterday appear to be narrowing, implying low market volatility. For our sideways bias to continue, we would like to see the pair remain confined between the 71.60 (S1) support level and the 75.25 (R1) resistance line. On the other hand, for a bearish outlook, we would like to see a clear break below the 71.60 (S1) support level, with the next possible target for the bears being the 68.20 (S2) support base. Lastly, for a bullish outlook, we would like to see a clear break above the 75.25 (R1) resistance line, with the next possible target for the bulls being the 78.65 (R2) resistance ceiling.

EUR/USD appears to be moving in a relatively tight sideways fashion between the 1.0730 (S1) support level and the 1.0795 (R1) resistance line. We maintain a sideways bias for the pair and supporting our case is the RSI indicator below our chart, which currently registers a figure near 50, implying a neutral market sentiment. Yet we stress that the distance between the S1 and R1 levels are fairly close to each other and could easily be broken to the upside or to the downside respectively. Thus, for a bullish outlook, we would like to see a clear break above the 1.0795 (R1) resistance level, with the next possible target for the bulls being the 1.0890 (R2) resistance level. Lastly, for a bearish outlook, we would like to see a clear break below the 1.0730 (S1) support level, with the next possible target for the bears being the 1.0645 (S2) support line.

Other highlights for the day:

We note in the European session today, the release of Germany’s industrial output for December and UK’s January Halifax House prices, while BoE Deputy Governor Breeden is scheduled to speak. In the American session, we note the release of Canada’s December trade data, while oil traders may be more interested in the release of EIA weekly crude oil inventories figure. On the monetary front, note that BoE Deputy Governor Woods, Fed Board Governor Kugler, Boston Fed Governor Collins, Richmond Fed President Barkin and Fed Board Governor Bowman are scheduled to make statements, while BoC is top release the minutes of its last meeting. During tomorrow’s Asian session, we note the release Japan’s current account balance for December and China’s inflation metrics for January. 

WTICash H4 Chart

Support: 71.60 (S1), 68.20 (S2), 65.05 (S3)

Resistance: 75.25 (R1), 78.65 (R2), 81.65 (R3)

EUR/USD H4 Chart

Support: 1.0730 (S1), 1.0645 (S2), 1.0530 (S3)

Resistance: 1.0795 (R1), 1.0890 (R2), 1.0985 (R3)

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