Euro opens the week higher on support from hawkish comments from ECB officials over the weekend. Overall, despite some market speculation, the ECB is more likely to make two more 50bp hikes before slowing down. The dollar and yen softened again. However, trading is subdued as many Asian markets are closed on the Lunar New Year holiday.
Technically GBP/CHF advance from 1.1094 is progressing as expected and further rally should be seen as long as 1.2181 support holds. Current upside momentum does not justify a range break yet. That said, there could be resistance below the 1.1543/1574 zone to bring another falling leg and complete a five wave triangle pattern. Let’s see if that’s the case, or GBP/CHF would just shoot through the roof.
In Asia, the Nikkei is up 1.30% at the time of writing. Japan 10-year JGB yield fell -0.0196 to 0.385. Hong Kong, China and Singapore are on vacation.
ECB Node: Expect 50 basis points in February and March and more in May and June
Governing Council member Klaas Knot said in a WNL interview: “Expect that we will hike rates by 0.5% in February and March and expect that we will not be done by then and that further steps will be taken in May and.” will follow in June.”
“In the December data, we saw a first decline in headline inflation, but that was entirely due to base effects and lower energy inflation,” Knot said. “We focus on core inflation, where unfortunately there is no good news. Because things keep going up. Underlying inflationary pressures are not yet showing signs of abating.”
In a separate interview with La Stampa, Knot said: “Eventually, of course, the risks surrounding the inflation outlook will become more balanced… That would also be a time when we could take another step down from 50 to 25 basis points, for example.” But we are still a long way from that.”
ECB Rehn: There are reasons for significant rate hikes
ECB Council member Olli Rehn said there was “reason for significant increases” in the key interest rate in winter and spring.
Rehn declined to guess the final rate. “It is certain that the rate hikes that we have already made and the forward guidance for future rate hikes will cause markets to price much of that into Euribor rates,” he said.
BoJ minutes: meeting suspended at government request
today released the minutes of the December 19-20 meeting that raised the 10-year JGB yield cap to 0.50% from 0.25%.
“Many members noted that there was a distortion in the pricing of 10-year bonds and that the functioning of bond markets had deteriorated, particularly with regard to the relative relationships between interest rates on bonds of different maturities and the arbitrage relationships between Spot and futures markets,” the minutes read.
“Members agreed that, in order to implement yield curve control, the measure should widen the range of 10-year JGB yield swings to around plus and minus 0.5 percentage points from the target level, while significantly increasing the amount of JGB buying, was appropriate.”
Meanwhile, government officials requested that the meeting be adjourned after the discussions. You are probably surprised by the agreed adjustment to YCC. The session adjourned from 10:51 a.m. to 11:28 a.m. before closing at 11:54 a.m
BoC Rate Hike, BoJ Minutes and Opinion plus lots of data
The BoC interest rate decision is the focus of the week. The central bank has already indicated that after December’s 50 basis point hike it will “consider whether interest rates need to be raised further”. However, with inflation still high at 6.3% in December, markets are expecting the BoC to make another 25 basis point hike to bring the policy rate to 4.50%. The majority expects a pause after that, but that’s not a clear consensus. Therefore, most attention is paid to the guidance of whether the next time would be a break.
In terms of central bank activity, the BoJ will release the minutes of the December meeting when it doubled the 10-year JGB yield cap to 0.50%. A summary of the views of the January meeting will also be published. The main focus is on discussions of removing the cap and maintaining it at subsequent meetings, views on yield curve distortion and indications of upcoming changes in yield curve control.
The economic data schedule is also very busy with PMIs from Australia, Japan, Eurozone, UK and US. CPI data from Australia and New Zealand are presented, with PCE inflation in US and Japan Tokyo CPI. The US will also release Q4 GDP advance. Here are some highlights of the week:
- Monday: BoJ Minutes; Canada new home price index; Eurozone Consumer Confidence; US leading index.
- Tuesday: New Zealand BusinessNZ Services Index; Australia PMIs, NAB Business Confidence; Japan PMI manufacturing; Swiss trade balance; Germany Gfk consumer climate; Eurozone Purchasing Managers Indices; UK PMI’s; US PMIs.
- Wednesday: New Zealand CPI; Australia CPI; UK PPI; economic expectations of the Swiss Credit Suisse; Germany ifo Business Climate; BoC rate decision.
- Thursday: BoJ round-up opinion, business services prices; US GDP, Durable Goods Orders, Unemployment Claims, Goods Trade Balance, New Home Sales.
- Friday: CPI Japan Tokyo; New Zealand ANZ Business Confidence; Australia Import Prices, PPI; euro area M3 money supply; US Personal Income and Expenditure with PCE Inflation, Pending Home Sales.
EUR/USD daily outlook
Daily Pivots: (S1) 1.0819; (P) 1.0839; (R1) 1.0876; More…
The EUR/USD rally continued after brief consolidations and the intraday bias is back to the upside. Current rise from 0.9534 should aim for 61.8% forecast from 0.9630 to 1.0733 from 1.0482 at 1.1164. On the downside, however, the break of the 1.0765 support should now suggest a near-term top and turn the bias for the 55-day EMA (now at 1.0532) back down.
Overall, recent action suggests that the rally off the 0.9534 low (2022 low) is more of a medium-term uptrend than a correction. Further rise calls for a 61.8% retracement from 1.2348 (2021 high) to 0.9534 at 1.1273 next. This will remain the preferred case as long as 1.0482 support holds.
Update of economic indicators
| Greenwich Mean Time | Ccy | events | Indeed | forecast | previous | Revised |
|---|---|---|---|---|---|---|
| 11:50 p.m | JPY | BoJ Minutes | ||||
| 1:30 p.m | CAD | New housing price index M/M Dec | -0.20% | |||
| 15:00 | EUR | Eurozone Consumer Confidence Jan P | -20 | -22 |
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