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Dollar lacklustre as markets look to Bank of Canada meeting

The world’s premier reserve currency continues to languish near its recent lows with price action remaining relatively rangebound and choppy so far this year.

Dollar lacklustre as markets look to Bank of Canada meeting

We had mixed data releases yesterday (Tuesday, January 24th) while geopolitical tensions ratcheted up after reports the US is leaning towards sending Abrams tanks to Ukraine to support the war effort.

The aussie has ignited overnight on hotter than expected inflation data, while focus next turns to the Bank of Canada meeting and hints of a pause in rate hikes after one last 25bp rate rise this afternoon.

Important PMI data yesterday gave us clues as to how the global economy is looking in the first few months of the new year. The flash US PMIs did tick higher, but the levels remain consistent with a modest recession.

The FOMC is forecast to hike rates by 25bps next week although markets are focusing on the looming rate cuts at the end of the year.

 

Positive Eurozone data – can EUR/USD break 1.09?

European PMI figures were stronger than expected and pushed the composite index above 50 indicating the region is no longer in economic contraction territory.

This is the first PMI print north of the boom-or-bust 50 mark since June last year.

Going forward strong labour markets and improved consumer confidence, along with the China reopening boost should help activity. But higher output prices continue to rise at an elevated pace signalling a potentially tricky environment for the ECB.

The euro continues to knock on the 1.09 door in EUR/USD but can’t break through as yet.

There seems to be a lot of good news baked into the euro at present with ECB speakers also maintaining the hawkish line ahead of the ECB meeting next Thursday.

Markets are pricing in a 50bp rate hike with the meeting and President Lagarde’s press conference to decide if the bank goes again with a similar sized hike in March.

Gains through the low 1.09s should revive bullish momentum for a move to 1.10 and above, with the 78.6% Fib level perhaps being the most significant resistance line.

Support is seen on modest dips towards the 1.07465 where the 61.8% Fib level resides, which acted as support/resistance across several episodes in 2022.

Can EUR/USD break 1.09 on positive Eurozone data?

 

BoC to hike for one final time?

The Bank of Canada meets this afternoon with one more 25bp rate hike expected. That would take the overnight rate to 4.50%.

Markets will be looking to Governor Macklem to lay the groundwork for a pause as policymakers want to assess the inflationary and labour market conditions after the aggressive front-loading of rate rises over the past 10 months.

The BoC is expected to stay flexible and data dependent going forward, with core inflation still sticky while the job market remains hot. The flip side has been some economic slowdown and pressure on the housing market from the sharp rise in mortgage rates.

A more bullish Macklem will see USD/CAD sell off and break its recent range. Support is initially the near-term rising trendline, followed by the cycle low from a couple of weeks ago at 1.332 14.

A breakdown sees sellers test 1.3223, a price region which comprises the 38.2% Fib line, the spike high from last July, and the November lows.

Last week’s top at 1.3520 needs to break to see more upside, with the 50- and 100-day simple moving averages, as well as the 23.6% Fib line all combining to mark a notable resistance zone.

BoC to hike for one final time?

 

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