US GDP data incoming

Today, the market’s attention is expected to shift towards the crucial preliminary quarter-on-quarter GDP estimate for Q4 as the results could guide the rates outlook of the Fed. According to forecasts the rate is expected to ease to 2.6%, when compared to the previous quarter 3.2% rate. Should the actual rate meet the expectations, that would imply that the domestic growth of the US is decelerating, showcasing that the cumulative effect of the Fed’s tightening efforts has started to impact adversely the US economy. Another point of interest will be the Durable Goods orders for December which are expected to record a rebound from their recent slump, rising from -2.1% to 2.5% according to forecasts, and may dampen the potential negative effect of the GDP results. The uptick in demand for long lasting goods, could be attributed to the seasonality effect observed during the festivities season but also may be due to suppressed concerns in regards to the severity of the impending recession. Gold edged higher and reached its strongest levels in nine months as the dollar weakened, pressured by speculations that the Fed would downshift as well as mixed earnings results from top notch companies. US stock markets fell sharply lower at the open yesterday, yet they managed to pare most of their losses and close the day more or less unchanged. BoJ’s summary of opinions once again showcased the resolve of the bank at keeping an ultra-low stance despite inflation hovering at 41-year highs. Yesterday, the BoC hiked by 25 basis points as was widely anticipated, raising the overnight rate to 4.5%, the highest in 15 years and became the first major central bank to signal the end of its tightening cycle. In its press release following the decision the Governing Council noted “expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases” matching analysts’ expectations for a “hike and hold” scenario. It was also stated that the Council “is prepared to increase the policy rate further if needed to return inflation to the 2% target and remains resolute in its commitment to restoring price stability for Canadians”. The bank projects inflation will ease around the 3% level in the middle of 2023. Following the decision, the reaction towards the CAD was dovish as the Loonie weakened at the release, since the market assessed the depressing growth projections for 2023 by the central bank. “Growth is expected to stall through the middle of 2023, picking up later in the year. The Bank expects GDP growth of about 1% in 2023 and about 2% in 2024” it stated. The central bank acknowledged that housing market activity has declined substantially, as well as the pain inflicted on Canadians by high mortgage rates.

USDIndex slid lower yesterday and is currently closing in the 101.30 (S1) support base. We hold a bearish outlook bias given the descending trendline initiated on the 6^th of January. Should the bears reign over, we may see the index breaking the 101.30 (S1) support line and aim for the 100.30 (S2) support level. Should the bulls take over, we may see the pair breaking the 102.30 (R1) resistance line and head to the 103.20 (R2) level.

USD/JPY extended is sideways motion, confined between 129.00 (S1) support and 131.00 (R1) resistance levels. We hold our sideways bias for an extension of the price action between the two bounds. Should the bulls take over, we may see the pair breaking the 131.00 (R1) line and aim for the 132.80 (R2) resistance barrier. Should the bears take initiative, we may see break below the 129.00 (S1) and the move lower, closer to the 127.20 (S2) support base.

Other highlights for the day:

Today we would also like to highlight UK’s Distributive trades for December and the weekly US initial jobless claims figure for the last week.

USDIndex H4 Chart

Support: 101.30 (S1), 100.30 (S2), 99.20 (S3)

Resistance: 102.30 (R1), 103.20 (R2), 104.20 (R3)

USD/JPY H4 Chart

Support: 129.00 (S1), 127.20 (S2), 125.20 (S3)

Resistance: 131.00 (R1), 132.80 (R2), 134.80(R3)

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