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• In the US, minutes from the latest FOMC meeting will be scrutinized for clues on whether a pause in rate hikes is indeed in order
• In Canada, the BoC will meet and attention may fall on whether policymakers are growing more cautious
• Overnight, China releases its updated inflation data

FOMC minutes eyed for rate guidance amid recession fears

The dollar advanced nearly across the board on Tuesday without any major US-specific catalyst, instead capitalizing on weakness in the euro, which softened after German industrial data disappointed, amplifying worries that Eurozone’s powerhouse is slowing. Today, the main event in the US will be the release of the December FOMC meeting minutes (1900 GMT), though speeches by regional Fed Presidents Evans (1400 GMT) and Rosengren (1630 GMT) could also attract attention.

Markets seem to be pricing in a severe slowdown or even outright recession by 2020, and while the Fed until recently seemed adamant about continuing to raise rates, Chair Powell softened that position last week, indicating the Fed will be “flexible” in setting policy. The message was that if market concerns are vindicated by incoming data, his central bank won’t hesitate to pause rate increases, or even reverse them by cutting rates.

Against this backdrop, investors will look for clues around the key issues: how worried is the Fed about a slowdown? Are such worries shared among all officials, or are some still determined to normalize further? Since market pricing now points to no rate hikes at all in 2019, anything that suggests policymakers may raise rates even once more could be met with a spike higher in the dollar, and a tumble in stocks. On the flipside, if policymakers make it clear Powell’s “flexible” approach reflects the entire Committee’s thinking, that could weigh on the greenback and boost equities.

Soaring loonie looks to BoC decision for fresh impetus

The Canadian dollar has been on a tear lately, recovering significant ground against its major peers on the back of a notable rebound in oil prices. Although crude movements may remain the main driver for the loonie, market attention could briefly shift back to monetary policy today, when the Bank of Canada announces its rate decision at 1500 GMT.

No action is expected, so attention will likely fall on the accompanying statement and Governor Poloz’s press conference. Canadian economic data have been treading water, and while oil is recovering, the recent plunge will no doubt curb investments in the nation’s energy sector. Meanwhile, a deteriorating global outlook and market volatility pose external risks. All in all, Poloz & Co. seem to have more incentive to deliver a cautious-sounding narrative today, with any hints the Bank could pause its hiking cycle likely to trigger profit-taking on long-loonie positions. The key risk is that the Bank remains adamant about hiking further, in which case the loonie could extend its recent gains.

Risk appetite lifted by signs of US-China trade progress

US stock markets closed in the green for a third consecutive session yesterday, and Asian markets followed suit on Wednesday, buoyed by reports that US and Chinese negotiators decided to extend their trade talks for one more day. This was taken as a sign of progress, though neither side officially confirmed as much yet. While it still appears early for an actual deal to be struck, optimistic comments from both sides may be enough to keep risk sentiment supported in the very short term.

China’s inflation data in focus overnight

Besides the FOMC minutes and the BoC rate decision, the economic calendar is relatively light of market-moving events today. During the Asian session on Thursday, focus may turn to China’s CPI and PPI data for December, with producer prices in particular being eyed for signs of whether factory demand – and thereby the broader economy – continues to slow. The aussie, which is viewed as a liquid proxy for “China plays”, could take its cue from these prints.

Daily Pivots: (S1) 138.02; (P) 138.47; (R1) 139.34; More...

Outlook in GBP/JPY remains unchanged. We'd expect strong resistance from 139.88 key resistance to limit upside. On the downside, break of 136.61 minor support will turn bias to the downside for retesting 131.51 low. Overall, larger down trend from 155.59 is expected to resume later after the consolidation completes.

In the bigger picture, corrective medium term rise from 122.36 (2016 low) has completed at 156.69 already. That came after failing to break through 55 month EMA. Fall from 156.59 (2018 high) is seen as resuming the long term down trend from 195.86 (2015 high). Below 131.51 will target 122.36 low first. Break of 122.36 will target 116.83 low first (2011 low). And this will now remain the preferred case as long as 139.88 support turned resistance holds. Sustained break of 139.88 will mix up the outlook and we'll reassess on the final structure of the rebound from 131.51.

Daily Pivots: (S1) 124.06; (P) 124.46; (R1) 124.81; More....

At this point, we're still looking at strong resistance around 124.61 to limit the rebound from 118.62. And, on the downside, On the downside, break of 122.84 minor support will turn bias back to the downside for retesting 118.62 low first. However, sustained break of 124.61 will extend the rebound to 127.09 resistance next.

In the bigger picture, medium term rebound from 109.03 (2016 low) has completed at 137.49 already, with corrective structure. Fall from 137.39 is seen as a medium term fall, resuming the decline from 149.76 (2014 high). Such decline should break through 109.03 low next. This will remain the preferred case as long as 124.61 support turned resistance holds. Sustained break of 124.61 will mix up the outlook and we'll reassess on the final structure of the rebound from 118.62.

The price of crude oil gained sharply in overnight trading as Saudi Arabia announced plans to reduce supplies. This is in line with the statement released in December after the meeting of OPEC member countries in Austria. Saudi wants the price of crude to be about $80. Another minor issue bullish for crude oil is the political instability in Gabon, which is OPEC’s smallest member. This week, a group of armed officers attempted a coup, which failed. Investors are also bullish on crude because of the ongoing negotiations between the United States and China. Another reason is that the US stocks declined by more than 6.2 million barrels in the past week.

Yesterday, optimism for a China-US trade deal fueled a stock rally that saw the Dow gain more than 250 points. This was a continuation of a rally that started last week. Meanwhile, in Asia, stocks rose sharply with the Shanghai, Nikkei, and Hang Seng gaining by 40, 250, and 650 points respectively. In Australia and New Zealand, the main indices rose by 50 and 4 points respectively while US and European futures point to a higher open. Bloomberg reported that Trump was hopeful that a deal will be reached so that it can boost the stock prices.

The biggest economic news today will be the Bank of Canada’s monetary policy meeting. This will be the first major monetary policy decision this year. The bank is expected to leave interest rates unchanged at 1.75%. Still, traders will want to hear what the bank plans this year. This comes as the Canadian dollar continues to strengthen against the USD. Other big news expected today will be the Fed’s minutes, which will give traders insights about the bank’s thinking.

EUR/USD

The EUR/USD is in consolidation mode as traders wait for the Fed minutes and the inflation numbers from the US. The pair is trading at 1.1455, which is higher than the year’s low of 1.1307 but lower than the weekly high of 1.1485. On the hourly chart, the price is close to the upper line of the Bollinger Bands while the momentum indicator is above the 100 level. A breakout for the pair could happen in either direction today.

XBR/USD

This year, crude oil has been an excellent performer, with Brent price rising from $50 to almost $60. On the hourly chart, the price of crude oil is above the 21-day and 42-day EMA while the Parabolic SAR points to more increases. The RSI, continues to remain below the overbought level of 70 as the MACD continues to rise. There is a likelihood that the price will continue moving up as the market sentiment remains bullish.

USD/CAD

The USD/CAD has been declining as the Canadian dollar continues its strength. The USD/CAD pair is now trading along the 1.3228 level, which is below the major moving averages as shown below. The RSI remains below the oversold level of 30 while the average directional index increased sharply. With no major support in sight, the pair will likely continue falling though this could change depending on the statement by BOC.

Daily Pivots: (S1) 0.8961; (P) 0.8985; (R1) 0.9021; More...

Intraday bias in EUR/GBP remains neutral as consolidation from 0.9101 continues in range above 0.8927 support. . Further rally is expected with 0.8927 support intact. On the upside, firm break of 0.9098 resistance will extend the whole rise from 0.8655 to 0.9304 key resistance next. However, on the downside, break of 0.8927 support will suggest near term reversal and turn bias to the downside for 0.8810 support and below.

In the bigger picture, EUR/GBP is seen as staying in long term range pattern started at 0.9304 (2016 high). It should be in medium term rising leg for 0.9304. Meanwhile, in case of another fall, downside should be contained by 0.8620/55 support zone to bring rebound.

After the sharp declines experienced in 2018, the crypto sector is enjoying a better start to 2019. The total market capitalization of cryptocurrencies has gone up from slightly above $120 billion to the current $137 billion. These gains have been led by Bitcoin, which has gone up by more than 500 points. Ethereum too has managed to move from below $90 to the current $150.

The recent price increases have come as developers and enthusiasts try to explore the next phase of the blockchain market. Stablecoins have been in the limelight of late. These are cryptocurrencies that are backed with other assets such as the US dollar. They help to reduce the amount of volatility that exists in the crypto market. Already, a number of stablecoins have been developed and Facebook is said to be working on one.

Tokenization has also come into focus. This is a strategy where liquid and illiquid investments are tokenized, making it easier for people to invest in and trade them. For example, stocks listed in New York could be tokenized and offered by a cryptocurrency exchange. The advantage of this is that it creates a new ‘asset class’. In addition, it allows traders to trade in these assets even during the weekends when global markets are closed. Further, developers believe that tokenization will create more liquidity in illiquid assets such as real estate investments.

The ETH/USD pair has moved up to more than 150. On the hourly chart, this price is above the 21-day and 42-day EMA while the RSI has been relatively stable below the 70 level. At this point, the pair will likely move in either direction.

Daily Pivots: (S1) 1.5998; (P) 1.6038; (R1) 1.6069; More....

EUR/AUD's fall resumed after brief consolidation and intraday bias back on the downside. Current correction from 1.6765 might extend to 55 day EMA (now at 1.5931) and possibly below. On the upside, above 1.6085 minor resistance will argue that the pull back is completed and turn bias back to the upside for retesting 1.6765.

In the bigger picture, the failure to sustain above 1.6587 key resistance (2015 high), argues that up trend from 1.1602 (2012 low), is not ready to resume yet. But still, as long as 1.5346 support holds, outlook will remain bullish. Break of 1.6765 will target 61.8% retracement of 2.1127 (2008 high) to 1.1602 at 1.7488 next.

Daily Pivots: (S1) 1.1214; (P) 1.1234; (R1) 1.1250; More...

Intraday bias in EUR/CHF remains neutral at this point. In case of another fall, we'd expect strong support from 1.1154/98 support zone to contain downside to bring reversal. On the upside, above 1.1348 resistance will turn bias to the upside for retesting 1.1501 resistance first. However, Sustained break of 1.1154/98 will carry larger bearish implications and extend the whole decline from 1.2004 high.

In the bigger picture, price actions from 1.2004 medium term top is seen as a correction only. Downside should be contained by support zone of 1.1198 (2016 high) and 61.8% retracement of 1.0629 to 1.2004 at 1.1154 to complete it and bring rebound. A break of 1.2 key resistance is still expected in the medium term long term. However, sustained break of the mentioned support zone will mark reversal of the long term trend. In that case, 1.0629 key support will be back into focus.

The GBP/USD remains in a downtrend channel but the angle is shallow and price could build a consolidation zone and triangle chart pattern before the UK parliament votes on the Brexit deal next week Tuesday 15 January 2019. The downtrend continuation could be part of wave 5 (pink) of wave 5 (purple).

The GBP/USD invalidates wave 2 (purple) if price breaks above the previous top and 100% Fibonacci level. A break below the support (blue) trend line confirms the potential bearish breakout but price could be building a larger ABCDE correction (blue).

Daily Pivots: (S1) 1.1414; (P) 1.1450; (R1) 1.1476; More.....

Intraday bias in EUR/USD remains neutral at this point. Price actions from 1.1215 are still viewed as a corrective pattern. Hence, downside breakout is favored. On the downside, break of 1.1307 minor support will turn bias back to the downside for 1.1215 low. Break will resume down trend from 1.2555 to 1.1186 key fibonacci level. Nevertheless, sustained break of 1.1499 resistance will suggest near term reversal and bring stronger rebound back to 1.1621 resistance first.

In the bigger picture, as long as 1.1814 resistance holds, down trend down trend from 1.2555 medium term top is still in progress and should target 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. However, break of 1.1814 will confirm completion of such down trend and turn medium term outlook bullish.