Investors have resumed buying the dollar after a brief pause, continuing to expect that the Federal Reserve will exercise caution in reducing interest rates, given the ongoing stability of the U.S. economy. The probability of a rate cut in March has decreased from 80% to 47%.
The EUR/USD pair shows a slight increase, recovering from a moderate decline the day before, which briefly updated local lows from December 13. Immediate resistance can be seen at the level of 1.0875, a breakthrough upwards may lead to a rise to 1.0916. On the other hand, the nearest support is seen at the level of 1.0822, a breakthrough below may lead the pair to 1.0800.
The focus of traders today will be on the January business activity statistics from S&P Global in the EU and the U.S. Forecasts suggest that the Eurozone services sector index will strengthen from 48.8 points to 49.0 points, and in manufacturing, it will rise from 44.4 points to 44.8 points. Meanwhile, the U.S. services index may adjust from 51.4 points to 51.0 points, and in manufacturing, it is expected to remain unchanged at 47.9 points. Also, during the day, the monthly report from the Bundesbank will be presented, reflecting the current state of the German economy, and tomorrow, data from the Institute for Economic Research (IFO) on the level of business optimism will be released. Investors are preparing for the first ECB meeting of the year, which will take place on Thursday at 15:15 (GMT+2). It is expected that the regulator will keep interest rates unchanged: the key rate at 4.50%, the deposit rate at 4.00%, and the marginal rate at 4.75%, anticipating additional signals regarding possible easing of monetary policy in the coming months.
Technical analysis of EUR/USD shows that a new descending channel has formed over the lows of the past two days. Currently, the price is in the middle of the channel and may continue moving towards the upper boundary.
The GBP/USD pair is trading with an upward trend, regaining the positions lost the day before and once again attempting to settle above the 1.2700 level. Immediate resistance can be seen at 1.2714, a breakthrough upwards may trigger a rise to 1.2747. On the other hand, the nearest support is seen at 1.2649, a breakthrough below may lead the pair to 1.2596.
Support for the British currency continues to come from expectations that the Bank of England will be among the last to begin easing monetary conditions this year. Currently, investors are pricing in approximately a 50.0% probability of a rate cut during the May meeting, but recent regulator comments regarding inflation in the country indicate that it may not happen so soon. Last week, December retail sales data in the UK was released, which may lead to a reassessment of initial forecasts for price growth dynamics. The monthly retail sales indicator declined by 3.2% after an increase of 1.4% in the previous month, while analysts expected -0.5%. In annual terms, the sales indicator was -2.4% compared to 0.2% in November with preliminary estimates at 1.1%. Today, January business activity statistics from S&P Global will be presented in the UK. It is expected that the manufacturing sector index will rise from 46.2 points to 46.7 points, and in the services sector, it will decrease from 53.4 points to 53.2 points. In turn, the composite index may adjust from 52.1 points to 52.2 points.
A new descending channel has formed on the GBP/USD chart over the lows of the past two days. Currently, the price is approaching the upper boundary of the channel, from where it may continue to decline.
The USD/JPY pair is showing moderate negative dynamics, attempting to settle below the 148.00 level. Strong resistance can be seen at 148.80, a breakthrough upwards may trigger a rise to 149.60. On the other hand, on the USD/JPY chart, the nearest support is seen at 147.61. A breakthrough below may lead the pair to 146.97.
Yesterday, the pair reacted noticeably to the Bank of Japan's decision to leave interest rates unchanged, after which the yen began to strengthen as investors paid attention to signals from officials that the period of negative borrowing costs is approaching its end. In particular, the head of the regulator, Kadsuo Ueda, noted that the probability of achieving inflation above the 2.0% target is constantly increasing. Today, some support for the yen is provided by macroeconomic statistics from Japan. Export volumes in December increased by 9.8%, while analysts expected 9.1%. Imports decreased by 6.8% compared to -11.9% in November, with a forecast of -5.3%. The Jibun Bank business activity index in the manufacturing sector in January adjusted from 47.9 points to 48.0 points, while experts expected 48.2 points.
A new descending channel has formed on the USD/JPY chart over the lows of the week. Currently, the price is in the middle of the channel and may continue to decline.
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