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Daily Pivots: (S1) 154.61; (P) 155.30; (R1) 156.21; More...

Outlook in USD/JPY remains unchanged and intraday bias stays neutral. On the upside, break of 156.74 resistance will indicate that fall from 158.86 has completed as a correction. Intraday bias will be back on the upside for 158.86 and above to resume the whole rally from 138.57. On the downside, below 153.70 will resume the fall from 158.86 to 38.2% retracement of 139.57 to 158.86 at 151.49.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

The Bank of Canada (BoC) slowed down the pace of rate cuts, with a 25 basis point move today, bringing the policy rate to 3.0%. It also stated that it will end Quantitative Tightening (QT) and restart asset purchases in March - This isn't a stimulative policy but rather helps match liquidity with the size of the economy.

The bank noted "more-than-usual uncertainty" surrounding its outlook due to the threat of trade tariffs. Although no specific tariff assumption was included within their forecast, it does recognize the threat has an impact on financial markets and business decisions. The bank is forecasting solid economic growth, averaging 1.8% in 2025 and 2026, while core inflation is forecasted to reach 2.1% by end-2025.

In explaining why the BoC decided to slow the pace of cuts, it highlighted the cumulative reduction in the policy rate since June, which has boosted consumer spending and housing. This means the economy requires less monetary support from the central bank.

Key Implications

The slowdown in the pace of rate cuts was widely expected. This more conservative approach makes sense for an economy that churned out 91k jobs last month and is likely to see solid GDP growth for the fourth quarter of 2024 of around 2%. At the same time, inflation remains under control, allowing the BoC to focus on the state of the economy. This approach also mitigates the risk that the policy rate diverges too much from the Fed (which is clearly on hold). The loonie remains under pressure, but seems to have stabilized at around 69 U.S. cents.

The economic outlook has become highly uncertain with Donald Trump threatening to make an announcement on tariffs this Saturday. Canada exports $1.9 billion daily in goods and services south of the border. This sums to around 20% of Canada's economy, with nearly two million jobs dependent on U.S. trade. We are still hopeful that tariff threats are more of a negotiation tactic, meaning they would be temporary and carry less long term impacts. Yet, this is a tail risk that remains front and center in the mind of the BoC. Our baseline forecasts remains that the BoC will cut rates to 2.25% by year-end, but should 25% tariffs come into play for more than a few months, we'd expect the central bank to cut more aggressively in order to cushion the economy.

Daily Pivots: (S1) 1.4367; (P) 1.4394; (R1) 1.4428; More...

USD/CAD rebounded notably today but stays in range below 1.4516 short term top. Intraday bias remains neutral and more consolidations could be seen. Further rally is expected as long as 1.4260 support holds. On the upside, firm break of 1.4516 will resume larger up trend to 1.4667/89 key resistance zone. Nevertheless, firm break of 1.4260 will turn bias to the downside for deeper pullback to 55 D EMA (now at 1.4235) and below.

In the bigger picture, up trend from 1.2005 (2021) is in progress for retesting 1.4667/89 key resistance zone (2020/2015 highs). Decisive break there will confirm long term up trend resumption. Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. Medium term outlook will remain bullish as long as 1.3976 resistance turned holds (2022 high), even in case of deep pullback.

Canadian Dollar is steady after BoC delivered its sixth consecutive rate cut, lowering its policy rate by 25bps to 3.00% as expected. The pace of easing has slowed from December’s 50bps reduction, reflecting a more measured approach as interest rate sits inside neutral zone. BoC explicitly warned of risks stemming from potential US tariffs, noting that a prolonged trade conflict could weigh on economic growth while simultaneously exerting upward pressure on inflation.

Governor Tiff Macklem reinforced this concern in his press conference, describing US trade policy as a "major source of uncertainty," with multiple possible outcomes. He also noted that tariffs reduce economic efficiency and cannot be offset by monetary policy alone, adding that with only one policy tool—the interest rate—the BoC cannot simultaneously combat "weaker output and higher inflation."

Attention now shifts to Fed, which is widely expected to hold its policy rate steady at 4.25–4.50% today. The key question is whether Fed will signal an extended pause in its rate-cutting cycle, either through its statement or Chair Jerome Powell’s press conference. Powell’s tone will be crucial in shaping market expectations—any indication of a prolonged pause could bolster the Dollar and weigh on risk assets, while a more dovish stance could encourage renewed risk-taking.

In equities, DOW’s response to FOMC decision will be closely watched. The index has remained resilient despite this week’s tech sector volatility and is now approaching the record high of 45073.63.

Decisive break above this level would confirm long-term uptrend resumption, and target 61.8% projection of 38499.27 to 45073.63 from 41844.89 at 45907.85. In this bullish scenario, risk-on sentiment could spread to other sectors and take S&P 500 and NASDAQ higher too.

However, break of 44026.27 support will delay the bullish case and bring another fall to extend the consolidation from 45073.63 instead.

Overall in the currency markets, Yen is trading as the strongest for the week so far, followed by Dollar and then Swiss Franc. Aussie is the worst, followed by Kiwi, and then Euro. Sterling and Loonie are positioning in the middle.

BoC cuts rates to 3.00%, flags trade risks and ends QT

BoC lowered its overnight rate target by 25bps to 3.00% as widely expected. In accompanying statement, the central bank warned that a prolonged trade conflict with the US could strain economic growth and drive inflation higher.

BoC noted that "if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested." Policymakers emphasized that they will closely monitor trade developments and assess their impact on economic activity, inflation, and future policy decisions.

The updated projections suggest a modest recovery in economic growth. Following an estimated 1.3% expansion in 2024, GDP is now expected to grow by 1.8% in both 2025 and 2026, slightly exceeding potential growth. Inflation is projected to remain near the 2% target over the next two years, reinforcing expectations that BoC will maintain a cautious approach to policy easing.

The central bank also announced plans to complete the normalization of its balance sheet by ending quantitative tightening. BoC will restart asset purchases in early March, adopting a gradual pace to ensure balance sheet stabilization while aligning with economic growth.

German Gfk consumer sentiment falls to -22.4, recovery hopes fade

Germany’s GfK Consumer Sentiment Index for February fell to -22.4, down from -21.4 and missing expectations of -20.5.

In January, economic expectations dropped by 1.9 points to -1.6, while income expectations declined by 2.5 points to -1.1. The most concerning development came from willingness to buy, which fell 3 points to -8.4, its lowest level since August 2024,.

Rolf Bürkl, consumer expert at NIM, noted that “the Consumer Climate has suffered another setback and starts gloomy into the new year.”

The moderate optimism seen in late 2024 has faded, with Bürkl adding that the trend since mid-2024 has been stagnation at best. A key concern is inflation, which has recently picked up again, limiting prospects for a meaningful rebound in consumer demand.

Australia's CPI slows to 2.4% in Q4, trimmed mean CPI down to 3.2%

Australia’s Q4 CPI rose just 0.2% qoq, same as the prior quarter, falling short of expectations of 0.4% yoy. Trimmed mean CPI also undershot forecasts, rising 0.5% qoq versus the expected 0.6% qoq.

On an annual basis, headline CPI slowed from 2.8% yoy to 2.4% yoy, slightly below 2.5% yoy consensus. Trimmed mean CPI fell from 3.6% yoy to 3.2% yoy, missing 3.3% yoy estimate.

These weaker inflation prints reinforce expectations that RBA may begin easing policy as early as its February 17-18 meeting.

The decline in annual inflation was largely driven by steep drops in electricity prices (-25.2%) and automotive fuel (-7.9%). Goods inflation slowed sharply to 0.8% yoy, down from 1.4% yoy in Q3. Meanwhile, services inflation remained elevated at 4.3% yoy, though slightly lower than the 4.6% yoy in the previous quarter.

In December, monthly CPI rebounded from 2.3% yoy to 2.5% yoy, matched expectations.

RBNZ's Conway sees cautious OCR path to neutral

RBNZ Chief Economist Paul Conway stated in a speech today that Official Cash Rate at 4.25% remains "north of neutral". The central bank estimates the neutral rate between 2.5% and 3.5%.

"Easing domestic pricing intentions and the recent drop in inflation expectations help open the way for some further easing," Conway added.

However, Conway emphasized a cautious approach, noting that policymakers will "feel our way" as rates approach neutral. RBNZ will continuously reassess its neutral rate estimate, adjusting based on economic conditions.

If neutral is underestimated, stronger-than-expected activity and inflation would signal a less restrictive policy than intended, prompting recalibration, he added.

The central bank expects potential output growth to range between 1.5% and 2% annually over the next three years, reflecting a lower economic "speed limit." This weaker outlook stems from sluggish productivity and reduced net immigration, limiting long-term economic capacity.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.4367; (P) 1.4394; (R1) 1.4428; More...

USD/CAD rebounded notably today but stays in range below 1.4516 short term top. Intraday bias remains neutral and more consolidations could be seen. Further rally is expected as long as 1.4260 support holds. On the upside, firm break of 1.4516 will resume larger up trend to 1.4667/89 key resistance zone. Nevertheless, firm break of 1.4260 will turn bias to the downside for deeper pullback to 55 D EMA (now at 1.4235) and below.

In the bigger picture, up trend from 1.2005 (2021) is in progress for retesting 1.4667/89 key resistance zone (2020/2015 highs). Decisive break there will confirm long term up trend resumption. Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. Medium term outlook will remain bullish as long as 1.3976 resistance turned holds (2022 high), even in case of deep pullback.

Markets

UK Chancellor Reeves in a keynote speech today failed to persuade sterling of her growth-reviving plans. It’s her first high-profile appearance since delivering the October Budget. A series of tax increases caused consumer and business confidence to have plummeted while her spending plans co-triggered sharply higher UK bond yields. Reeves defended the measures as taking on responsibility for repairing public finances while her pledge for going “further and faster” mostly relies on infrastructure projects. UK gilt yields ease a few basis points (up to 3 bps in the 10-yr) in a move shared by peers. German rates are down between 0.5-1.8 bps in a bull steepener. US rates barely budged with net daily changes of less than 1.5 bp. An early-morning attempt by the pound to eke out some gains ran into resistance pretty soon. EUR/GBP is now marginally lower for the day to change hands in the 0.838 region. The US dollar extends yesterday’s comeback with gains against every major currency but JPY. EUR/USD dives back sub 1.04. The trade-weighted greenback takes out the 108 lever. The Aussie dollar underperforms. This morning’s Q4 inflation print all but paved the way for the central bank to kick off its easing cycle at its February policy meeting. Stock optimism is back. If the EuroStoxx50 holds on to its 0.6% gain it will close at the highest level since 2000. Wall Street opens mixed ahead of tonight’s Fed policy meeting.

The Fed will hold rates steady at 4.25-4.5% against the backdrop of a healthy economy and still-above target inflation. Economic data since the Fed’s and chair Powell’s hawkish pivot in December has been outright strong and offered no reason to scale down the rhetoric. That should place a bottom below US yields and the dollar. Trump is a wildcard. Powell will probably keep his cards close to his chest in terms of what the central bank expects of his (yet-to-be-announced) policies going forward. Given the state of the economy the Fed has and will use the time to be at the sidelines. US money markets currently discount the first reduction not before June – a reasonable assumption for now. But POTUS will surely have a say on the Fed’s decision not to cut rates after doing so three times straight. Trump pressed for lower (global) policy rates during his virtual appearance in Davos last week. He might well trigger more market volatility than the decision itself.

News & Views

The Swedish Riksbank (RB) today as expected reduced its policy rate by 25 bps to 2.25%. This brings the cumulative amount of interest rate cuts since the start of the easing cycle in May last year at 175 bps. The Riksbank sees the outlook for inflation and growth broadly in line with the forecasts from December. Inflationary pressures are deemed to be consistent with inflation around two% (CPIF inflation was 0.3% M/M and 1.5% Y/Y in December). There are signs that an economic rebound is on the way, but activity remain weak for now. Interest rate cuts have yet to reach their full positive impact on households’ and companies’ finances. The RB didn’t change guidance from December that today’s rate cut might be the end of the easing cycle, but remains prepared to act if the outlook for inflation and economic activity changes. Amongst a long list of factors of uncertainty, the RB mentions the risks related to the recovery of the Swedish economy and the krona exchange rate. Markets are still pondering the chances of an additional RB rate cut later this year, e.g. if growth would turn out weaker than expected. The krone today gains marginally but the EUR/SEK cross rate remains blocked in a very tight range near 11.50 (currently 11.456).

The National Bank of Belgium’s flash estimate of 2024 Q4 GDP growth amounted to 0.2% Q/Q. Activity was 1.1% higher compared the final quarter of 2023. An initial analysis shows that, in comparison to the previous quarter, value added was down by 0.1% in industry. Value added rose by 0.7% in the construction industry. The services sector continued to report positive growth of 0.2%. For 2024 as a whole, GDP grew by 1.0%. Value added fell by 1.0% in industry. Value added was up by 1.0% in construction and 1.3% in services.

BoC lowered its overnight rate target by 25bps to 3.00% as widely expected. In accompanying statement, the central bank warned that a prolonged trade conflict with the US could strain economic growth and drive inflation higher.

BoC noted that "if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested." Policymakers emphasized that they will closely monitor trade developments and assess their impact on economic activity, inflation, and future policy decisions.

The updated projections suggest a modest recovery in economic growth. Following an estimated 1.3% expansion in 2024, GDP is now expected to grow by 1.8% in both 2025 and 2026, slightly exceeding potential growth. Inflation is projected to remain near the 2% target over the next two years, reinforcing expectations that BoC will maintain a cautious approach to policy easing.

The central bank also announced plans to complete the normalization of its balance sheet by ending quantitative tightening. BoC will restart asset purchases in early March, adopting a gradual pace to ensure balance sheet stabilization while aligning with economic growth.

Full BoC statement here.

The Bank of Canada today reduced its target for the overnight rate to 3%, with the Bank Rate at 3.25% and the deposit rate at 2.95%. The Bank is also announcing its plan to complete the normalization of its balance sheet, ending quantitative tightening. The Bank will restart asset purchases in early March, beginning gradually so that its balance sheet stabilizes and then grows modestly, in line with growth in the economy.

Projections in the January Monetary Policy Report (MPR) published today are subject to more-than-usual uncertainty because of the rapidly evolving policy landscape, particularly the threat of trade tariffs by the new administration in the United States. Since the scope and duration of a possible trade conflict are impossible to predict, this MPR provides a baseline forecast in the absence of new tariffs.

In the MPR projection, the global economy is expected to continue growing by about 3% over the next two years. Growth in the United States has been revised up, mainly due to stronger consumption. Growth in the euro area is likely to be subdued as the region copes with competitiveness pressures. In China, recent policy actions are boosting demand and supporting near-term growth, although structural challenges remain. Since October, financial conditions have diverged across countries. US bond yields have risen, supported by strong growth and more persistent inflation. In contrast, yields in Canada are down slightly. The Canadian dollar has depreciated materially against the US dollar, largely reflecting trade uncertainty and broader strength in the US currency. Oil prices have been volatile and in recent weeks have been about $5 higher than was assumed in the October MPR.

In Canada, past cuts to interest rates have started to boost the economy. The recent strengthening in both consumption and housing activity is expected to continue. However, business investment remains weak. The outlook for exports is being supported by new export capacity for oil and gas.

Canada’s labour market remains soft, with the unemployment rate at 6.7% in December. Job growth has strengthened in recent months, after lagging growth in the labour force for more than a year. Wage pressures, which have proven sticky, are showing some signs of easing.

The Bank forecasts GDP growth will strengthen in 2025. However, with slower population growth because of reduced immigration targets, both GDP and potential growth will be more moderate than was expected in October. Following growth of 1.3% in 2024, the Bank now projects GDP will grow by 1.8% in both 2025 and 2026, somewhat higher than potential growth. As a result, excess supply in the economy is gradually absorbed over the projection horizon.

CPI inflation remains close to 2%, with some volatility due to the temporary suspension of the GST/HST on some consumer products. Shelter price inflation is still elevated but it is easing gradually, as expected. A broad range of indicators, including surveys of inflation expectations and the distribution of price changes among components of the CPI, suggests that underlying inflation is close to 2%. The Bank forecasts CPI inflation will be around the 2% target over the next two years.

Setting aside threatened US tariffs, the upside and downside risks around the outlook are reasonably balanced. However, as discussed in the MPR, a protracted trade conflict would most likely lead to weaker GDP and higher prices in Canada.

With inflation around 2% and the economy in excess supply, Governing Council decided to reduce the policy rate a further 25 basis points to 3%. The cumulative reduction in the policy rate since last June is substantial. Lower interest rates are boosting household spending and, in the outlook published today, the economy is expected to strengthen gradually and inflation to stay close to target. However, if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested. We will be following developments closely and assessing the implications for economic activity, inflation and monetary policy in Canada. The Bank is committed to maintaining price stability for Canadians.

Information note

The next scheduled date for announcing the overnight rate target is March 12, 2025. The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the MPR on April 16, 2025.

The Canadian dollar is steady on Wednesday. In the European session, USD/CAD is trading at 1.44236, up 0.23% on the day. It should be a busy day for the Canadian dollar, with the Bank of Canada and the Federal Reserve announcing rate decisions.

Bank of Canada expected to trim rates while Fed will hold

I can’t remember the last time that the Federal Reserve and the Bank of Canada held their rate meetings on the same day, which should make for a lively North American session. The Bank of Canada is expected to cut rates while the Fed is virtually certain to maintain rates.

The Bank of Canada has been aggressive in its easing cycle, chopping borrowing costs by 175 basis points since June 2024, including two consecutive oversize cuts of 50 basis points in October and December. This time, the BoC is expected to ease up and deliver a modest rate cut of 25 basis points, which would lower the cash rate to 3%, the lowest in over two years. It’s a very different world than a month ago, as US President Trump has clouded the global economic outlook with his threat of tariffs.

Trump’s tariffs could be devastating for the Canadian economy, which is heavily intertwined with its southern neighbor. The US is Canada’s biggest trade partner by far, with some 76% of Canada’s exports going to the US. Understandably, the prospect of a trade war with the US is a huge concern and Bank of Canada Governor Macklem called the trade threat a “major new uncertainty” in December, even before Trump took office.

Another headache for the BoC is the swooning loonie, which is down over 6% against the US dollar since September 2024. If the BoC cuts today and the Fed holds, as expected, there will be further downward pressure on the Canadian dollar as the US/Canada rate differential will widen.

The Federal Reserve is expected to maintain rates at the 4.25%-4.5% range today, after three straight reductions in 2024. The Fed has signaled that it plans to cut rates gradually, but the strong US economy could mean that the Fed will cut only once or twice in 2025.

USD/CAD Technical

• USD/CAD tested support at 1.4394 earlier. Next, there is support at 1.4341
• There is resistance at 1.4428 and 1.4455

Market Picture

The crypto market is not yet showing sustained growth. The positive momentum seen on Tuesday morning was replaced by selling pressure. The cryptocurrency market quickly recovered to the $3.50 trillion level, where it consolidated after reaching the $3.6 trillion mark late last week.

Bitcoin gained 2% on Wednesday, trading around the $102.5K mark. The previous four daily candles closed with declines, undermining investor confidence. Nevertheless, bitcoin remains above its 50-day moving average, and the current lull can be attributed to risk aversion ahead of the Fed meeting.

Ethereum bounced off the $3,000 level on Wednesday morning, near the 200-day moving average and 61.8% retracement level of the November rally. Ethereum may serve as the canary in the coal mine: a significant drop below the $3,000 mark could trigger a widespread sell-off in crypto assets.

News background

Experts at Standard Chartered see Bitcoin’s fall caused by DeepSeek as a buying opportunity ahead of potential market stabilisation. The Fed meeting and reports of high-tech companies on 30 January will play a key role in the dynamics.

Over the past week, MicroStrategy sold shares and additionally bought 10,107 BTC for about $1.1 billion at an average price of about $105,596. The company’s balance sheet shows 471,107 BTC purchased for $30.4 billion at an average price of $64,511 per coin.

Jim Cramer, former hedge fund manager at Cramer & Co. and host of the Mad Money show, said he’d rather invest in Bitcoin than MicroStrategy stock. MicroStrategy accounts for 76% of public company bitcoin reserves and 2.24% of its overall supply.

Tuttle Capital Management has filed a proposal with the SEC to register ten crypto-ETFs with leverage of 2x, including meme-based products TRUMP and MELANIA. Other ETFs will be based on XRP, Solana, Litecoin, Bonk, BNP, Cardano, Chainlink and Polkadot.

French law enforcement authorities have launched a judicial investigation against Binance, accusing the platform of money laundering and drug trafficking.

USDCHF, H4

USDCHF breaks above the descending channel and 0.9060 resistance.

• Currently the price faces the 50-MA, while the Momentum crosses the 100-line up, giving a power for the further growth.
• Consider a long trade if the price breaks above the 50-MA with the target at 0.9120.