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On a monetary level, we highlight the release of BoE’s interest rate decision today. The bank is widely expected to remain on hold, with GBP OIS implying a probability of 98.81% for such a scenario to materialise. It should be noted that the UK CPI rate slowed down considerably over the past year yet jumped slightly in December at which period prices rose at the rate of 4% yoy. The release tended to showcase that there is still work to be done before inflation returns to the bank’s 2% target. It’s characteristic that GBP OIS imply that the market expects the bank to start cutting rates in the June meeting and deliver in total, 4 rate cuts within the year. Hence, we would expect the bank to maintain a confident tone in the accompanying statement, implying that rate cuts may happen within the year, yet that it would be premature to start discussing them. Such a scenario may provide some support for the pound, especially if it’s implied that the rate cuts are due after the summer. On the other hand, should the bank seem uncertain we may see the pound slipping. Also, we note the vote count in taking the decision, as should more MPC members vote in favour of rate hikes, we may see the pound getting some support.
On a technical level, we note that GBP/USD edged lower yesterday yet the overall picture of a sideways motion between the 1.2725 (R1) and the 1.2600 (S1) levels seems to remain undisturbed. We tend to maintain our bias for the sideways motion to continue yet note the RSI indicator which tends to aim for the reading of 30, implying the build up of bearish tendencies in the market sentiment for the pair. Yet for a clear cut bearish outlook we would require cable to break the 1.2600 (S1) support line and aim for the 1.2445 (S2) support base. Should the bulls take over, we may see GBP/USD breaking the 1.2725 (R1) resistance line and aiming for the 1.2880 (R2) resistance barrier.
Also, in the FX market the Fed yesterday remained on hold as was widely expected, failing to excite the markets either way. In its accompanying statement, the bank seems to be taking its time regarding the possibility of any rate cuts. Fed Chairman Powell in his press conference stated that March is not a base scenario for rate cuts. Please note that the market had already shifted before the release, expecting the first rate cut in May. We tend to be even less dovish and suspect that the bank may start cutting rates in the summer, a scenario that if materialized could keep USD supported on a monetary level.
The USD weakened against the JPY yesterday with the pair testing the 146.30 (S1) support line. Yet given that the S1 held its ground and the pair bounced on it, we tend to maintain our bias for the sideways motion to continue, yet we note that the RSI indicator remains between the reading of 50 and 30, implying a bearish predesposition on behalf of the market. Should a selling interest be expressed by the market, we may see the pair breaking the 146.30 (S1) support line and aim for the 144.45 (S2) support level. Should buyers be in charge of the pair’s direction, we may see USD/JPY breaking the 148.25 (R1) resistance line and aiming for the 149.70 (R2) resistance nest which has not been visited by the pair’s price action since the 23rd of November.
Other highlights for the day:
In today’s European session, we note the release of Germany’s and the UK’s final manufacturing PMI figures for January and highlight the release of Eurozone’s preliminary HICP rate for the same month. On the monetary front, we note that ECB’s chief strategist Lane and President Christine Lagarde are scheduled to speak. In the American session, we note from the US the weekly initial jobless claims figure and the ISM manufacturing PMI figure for January, while from Canada we get January’s manufacturing PMI figure. During tomorrow’s Asian session, we note the release of Australia’s PPI rates for Q4.
GBP/USD H4 Chart
Support: 1.2600 (S1), 1.2445 (S2), 1.2310 (S3)
Resistance: 1.2725 (R1), 1.2880 (R2), 1.2995 (R3)
USD/JPY H4 Chart
Support: 146.30 (S1), 144.45 (S2), 143.00 (S3)
Resistance: 148.25 (R1), 149.70 (R2), 151.85 (R3)
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JA 
