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The Pound Sterling (GBP) strengthens against most currencies but edges lower against the US Dollar (USD), trading near 1.2660. Bank of England's Dhingra predicts more than four interest rate cuts this year, adding to market uncertainty. The USD rebounds as US Treasury yields rise, with 10-year yields recovering to 4.33% after hitting a two-month low of 4.28%. The US Dollar Index (DXY) also bounces back after touching an 11-week low of 106.10 earlier in the day. Investors are now looking ahead to the US PCE inflation data for January, which is set for release on Friday. The US administration's approval of a $4.5 trillion tax cut plan further supports the USD.

GBPAUD – D1 Timeframe

The previous bearish swing's failure to break below the last low on the daily timeframe chart of GBPAUD renders the recent high a liquidity sweet spot. As a result, the price is expected to raid this liquidity area before reacting to the supply region. The overall sentiment here is bearish.

GBPAUD – H4 Timeframe

The price action on the 4-hour timeframe chart of GBPAUD reveals that the highlighted supply area overlaps the daily timeframe pivot zone, with an FVG just before the supply zone. The double bearish break of structure to the left of the chart further affirms the higher timeframe bearish sentiment.

Analyst's Expectations:

• Direction: Bearish
• Target- 1.96650
• Invalidation- 2.03084

The US Dollar (USD) continues its upward trend, with USDCAD reaching around 1.4330 as US Treasury yields rise. The US Dollar Index (DXY) is nearing 106.50, boosted by higher Treasury yields of 4.13% for 2-year bonds and 4.33% for 10-year bonds. Federal Reserve official Thomas Barkin predicted a drop in inflation but emphasized a cautious approach due to ongoing uncertainties. The Canadian Dollar (CAD) is under pressure due to US President Trump's confirmation of tariffs on Canadian and Mexican imports. Falling crude oil prices also weigh on the CAD, as Canada is a major oil exporter to the US. Oil prices are falling due to concerns over the US economy and market uncertainty, further impacting the CAD.

GBPCAD – D1 Timeframe

As sketchy as the price action on the daily timeframe chart of GBPCAD looks, a closer look at the trading range reveals that the price swept liquidity from the previous high before breaking structure downwards, creating a classic SBR pattern. In addition, the supply region at the peak of the SBR pattern overlaps the 88% region of the Fibonacci retracement tool, increasing the chance of a bearish reaction from the highlighted supply zone.

GBPCAD – H4 Timeframe

The significant detail from the 4-hour timeframe chart of GBPCAD's price action is the presence of liquidity at the tip of the recent high. The sentiment remains bearish unless the price successfully breaks above the supply zone.

Analyst's Expectations:

• Direction: Bearish
• Target- 1.76802
• Invalidation- 1.82598

Extreme fear is driving US stock indexes, according to a popular CNN Business index. Their index has fallen to 22, repeating December’s lows. Only in early August last year did the indicator dip below 22 for a few days. An area of extreme fear is often seen as an attractive time to buy. However, the dynamics of the past year are forcing some adjustments to this rule. In both August and December, the lows of the Fear and Greed Index were well ahead of the market lows and would have forced rash investors to endure several anxious sessions, even if they were able to buy at the peak of fear effectively.

It was much more rational to stay on the sidelines and join the rally only after the sentiment index had risen sharply out of fear territory.

Let’s look at the individual indices. The S&P500 was back below 6000 at the start of the week and below its 50-day moving average. Since the second half of January, it had been heavily bought on touching this curve, but the buying strength was clearly not enough to push it further into historical highs. At Tuesday’s low, the S&P500 was close to the lower boundary of the ascending channel that has been in place since late 2023. A break below 5900 could trigger a broader sell-off in equities well beyond the US. An even more dramatic scenario could be triggered by a break below the 200-day moving average (now at 5750).

Indirect warning signals include the double tops on the Nasdaq100 and Dow Jones indices, which is a trend reversal pattern. It is important to note that the tops on the indices were formed at different times, which reduces their correlation and thus increases their significance.

At the same time, the basic scenario in such cases is still a rebound from the lower boundary and a move towards the upper boundary, which is now above 6600. The bulls are temporarily favoured by the relatively subdued dynamics of the VIX. This volatility index remains below 20, the level above which is often the first signal that the market is going into selling mode.

Markets

The three-day rally in US Treasuries came to a halt today. An empty eco calendar played a part in that following three days of stagflationary worries (PMI’s, Michigan consumer confidence, Conference Board consumer confidence). More importantly, the US House passed a budget resolution that could pave the way for huge spending and especially tax cuts. The resolution is now headed to Senate where it will likely be amended as Senators target even more than the $4.5tn of lower taxes. Once the House and Senate are on the same line, legislation can pass via simple majority reconciliation process. US treasury yields are close to unchanged suggesting it’s way too soon to call the correction already over. Q4 Nvidia earnings after US close tonight could already be an important test for general sentiment. European trading lacked guidance from the eco calendar as well. Solid corporate earnings and the mineral-rights deal between the US and Ukraine (to be signed in Washington on Friday) pushed European stock markets up to 1% higher. Changes on bond markets were minimal with EUR/USD camping just below the 1.0533 resistance (YTD top).

The Flemish Community launched its first syndicated benchmark deal of the year. They issued a long 12y bond (Jun2037) which was priced 20 bps over the Belgian OLO curve. That’s 5 bps tighter than guidance in the OLO +25 bps area. Books were above €4.4bn allowing Flanders to print €1.5bn. Flanders Department of Finance estimates new funding needs for 2025 at roughly €11bn, the lion share of which is to cover new funding needs (€7.1bn). The funding need mainly stems from an estimated budget deficit of €3.4bn and other (recurring) funding needs such as the Flemish Social Housing Company (VMSW €0.8bn), the Flemish Housing Fund (VWF €1.41bn) and costs related to the Oosterweel link (LANTIS €0.8bn). Debt redemptions for 2025 are projected at €3.9bn. For its 2025 financing mix, Flanders hopes to raise €3.25-3.75bn via regular benchmarks, €1.25-1.50bn via sustainability (green) benchmarks, €0.75-1bn via private placements and €0.4bn through EIB loans.

News & Views

The Institute of International Finance (IIF) in its Global Debt Monitor reported the world’s debt stock rose to a new annual record high of $318tn in 2024. The debt-to-GDP ratio neared 328% in 2024, in what was the first (1.5 ppt) uptick since 2020 amid slowing economic growth. While the $7tn increase of last year was less than half of 2023’s, the IIF still warned persistent rising fiscal deficits are attracting growing market scrutiny. The governments’ share in the global stock of debt amounted to $95tn. The IIF forecasts a further $5tn rise this year though warned this could be even more due to calls for fiscal stimulus and defense spending in Europe. On a geographical level, emerging markets – driven by China, India, Saudi Arabia and Tukey – accounted for roughly two-thirds of 2024’s global debt growth.

Chief of staff to Hungary’s PM Orban Gulyas in an interview with news site 24.hu said GDP growth this year will likely be lower than the official government growth target of 3.4%. Economic growth of 2%-3% seemed more realistic, he said. As the 3.4% estimate still forms the basis of the 2025 budget approved end last year, it means the 3.7% deficit penciled in already appears outdated. That’s especially the case with the Orban administration trying to (fiscally) revive the economy ahead of next year’s parliamentary elections. Orban’s Fidesz party is trailing the Tisza Party since the end of 2024. The Tisza Party gained rapidly in popularity after former Fidesz member Peter Magyar resigned out of discontent with government functioning and took the lead of Tisza in early 2024.

Daily Pivots: (S1) 1.0474; (P) 1.0497; (R1) 1.0537; More...

Intraday bias in EUR/USD stays neutral at this point. Price actions from 1.0176 are seen as a corrective pattern only. Strong resistance is expected from 38.2% retracement of 1.1213 to 1.0176 at 1.0572 to limit upside. On the downside, break of 1.0400 support will turn bias back to the downside for 1.0176/0210 support zone. However, decisive break of 1.0572 will raise the chance of reversal, and target 61.8% retracement at 1.0817.

In the bigger picture, immediate focus is on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. However, reversal from 1.0199 will argue that price actions from 1.1274 are merely a corrective pattern, and has already completed.

Daily Pivots: (S1) 1.2623; (P) 1.2650; (R1) 1.2695; More...

Intraday bias in GBP/USD remains neutral for consolidation below 1.2689. Further rally is in favor as long as 1.2522 resistance turned support holds. Above 1.2689 will resume the rise from 1.2099 to 1.2810 resistance next. However, firm break below 1.2522 will argue that the rebound might have completed, and bring deeper fall to 1.2331 support.

In the bigger picture, rise from 1.0351 (2022 low) should have already completed at 1.3433 (2024 high), and the trend has reversed. Further fall is now expected as long as 1.2810 resistance holds. Deeper decline should be seen to 61.8% retracement of 1.0351 to 1.3433 at 1.1528, even as a corrective move. However, firm break of 1.2810 will dampen this bearish view and bring retest of 1.3433 high instead.

Daily Pivots: (S1) 0.8900; (P) 0.8941; (R1) 0.8971; More…

Outlook in USD/CHF is unchanged that price actions from 0.9200 are still seen as a corrective pattern only. Strong support should be seen from 38.2% retracement of 0.8374 to 0.9200 at 0.8884 to complete it, and bring larger rise resumption. On the upside, above 0.9053 will bring retest of 0.9200 resistance. However, sustained break of 0.8884 will indicate bearish reversal, and target 61.8% retracement at 0.8690 instead.

In the bigger picture, decisive break of 0.9223 resistance will argue that whole down trend from 1.0342 (2017 high) has completed with three waves down to 0.8332 (2023 low). Outlook will be turned bullish for 1.0146 resistance next. Nevertheless, rejection by 0.9223 will retain medium term bearishness for another decline through 0.8332 at a later stage.

Daily Pivots: (S1) 148.30; (P) 149.30; (R1) 150.03; More...

While downside momentum is not too convincing, further decline is expected in USD/JPY as long as 150.92 support turned resistance holds. Current fall from 158.86 is seen as the third leg of the pattern from 161.94 high. Deeper decline should be seen to 61.8% retracement of 139.57 to 158.86 at 146.32 next. On the upside, however, break of 150.92 will indicate short term bottoming and bring stronger rebound.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). In case of another fall, strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 0.6325; (P) 0.6341; (R1) 0.6360; More...

AUD/USD's break of 0.6327 support should confirm short term topping at 0.6407, on bearish divergence condition in 4H MACD. Corrective rebound should have completed just ahead of 38.2% retracement of 0.6941 to 0.6087 at 0.6413. Intraday bias is back on the downside for retesting 0.6087 low. For now, risk will stay on the downside as long as 0.6407 holds, in case of recovery.

In the bigger picture, fall from 0.6941 (2024 high) is seen as part of the down trend from 0.8006 (2021 high). Next medium term target is 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.6505) holds.