- The US dollar rose for a fourth week, although momentum seems to lack enthusiasm looking at the small-ranged Doji on the weekly chart. Prices are also trapped between the 50 and 200-day EMA’s to underscore choppy trading conditions.
- AUD/USD fell for a fourth week and, like the US dollar index, remains in a choppy range on the daily chart. This serves as a reminder that forex traders may be best seeking intraday positions and not rely on a big breakout, especially with an FOMC meeting pending.
- Wall Street indices remain near their record highs, although it could take quite a set of positive earnings reports and a dovish FOMC meeting for them to simply extend those gains
- The Fed’s preferred CPI – CPE inflation – slowed to 2.9% y/y, below the 3.0% expected. Although rising shelter and healthcare costs lifted consumer prices in December by 0.2%. Whilst the trend in inflation seems to be on the right path, it remains questionable as to whether they are softening fast enough to justify multiple rate cuts.
- Fed fund futures implied a 97.9% chance the Fed will hold rates this week, a 51.9% of another pause in March, a 50.8% chance of a cut in May and a 50.2% chance of a cut in June. I suspect 2 cuts this year is more realistic than the five cuts markets were pricing in les than two weeks ago.
- Crude oil prices rose for a third day on Friday and closed above the 200-day average and EMA for a second day, after surpassing my $77 target.
Events in focus (AEDT):
- No major economic news is scheduled for today’s Asian session
- 02:30 – Dallas Fed manufacturing index and PCE inflation
ASX 200 at a glance:
- The ASX 200 rallied for a fifth day into Thursday’s close, ahead of the long weekend due to Australia day on Friday
- Forward testing around Australia day shows an average return of 0.1% o T+1 (the day after Australia day) and a media return of 0.2%. The win rate is 58.1%.
- However, with little economic data and a 5-day rally with prices closing just beneath the 223 high, I suspect a low-ranged day even if the odds slightly favour a bullish close.
USD/JPY technical analysis (daily chart):
Looking across the FX major pairs, USD/JPY appears to have the best odds of a breakout sooner than later, given its strong rally from the December. Prices have been consolidating for the A 3-day bullish reversal pattern has formed (morning star) to imply an upside breakout could be pending, and the 10-day EMA has provided support throughout the consolidation. Perhaps we’ll need to wait for the conclusion of the FOMC meeting for any such bullish breakout which would assume the meeting to be more hawkish than expected. Therefore, bulls may want to seek dips whilst prices remain above 146.68 and target the HVN (high-volume node) at 149.53, just below the 150 handle.
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