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New Zealand's inflation data for the fourth quarter was released overnight, showing the headline CPI remained steady at 2.2%, slightly higher than the expected 2.1%. However, the non-tradable inflation index, which is closely watched, dropped more than expected to 4.5%, its lowest level since late 2021 and below the Reserve Bank of New Zealand's (RBNZ) previous forecast. This has increased the chances of a 0.50% interest rate cut by the RBNZ at their February 19 meeting, with further cuts expected later this year. In the short term, the NZDUSD pair may find some support above 0.570, helped by reduced concerns over US tariffs on China and technical factors favoring the NZD after recent heavy selling. However, the RBNZ's focus on supporting economic growth will unlikely provide much strength to the currency in the long run.

NZDCHF – H4 Timeframe

By now, I've written so many references to the SBR (Sweep-break-Retest) pattern that any avid reader of my work must be familiar with the pattern already. The SBR pattern shown on the 4-hour timeframe chart of NZDCHF begins with the sweep above the previous high, followed by the immediate break below the previous low. Based on this, the supply zone at the origin of the bearish impulse serves as the supply zone of interest. In addition, the Fibonacci retracement tool places the supply zone near the 88% level, further increasing the likelihood of a reaction from the highlighted supply area.

NZDCHF – H2 Timeframe

The two-hour timeframe chart of NZDCHF shows price consolidating within the wedge pattern presented near the 88% Fibonacci retracement level and the supply zone of the SBR pattern. The price should take a bearish turn from the said region on this ground.

Analyst's Expectations:

• Direction: Bearish
• Target: 0.50626
• Invalidation: 0.51837

• USDCAD reversed from pivotal support level 1.4290
• Likely to rise to resistance level 1.4455

USDCAD currency pair recently reversed up from the pivotal support level 1.4290 (lower border of the sideways price range from December, which stopped previous waves A and (4)).

The support level 1.4290 was also strengthened by the lower daily Bollinger Band and by the 38.2% Fibonacci correction of the previous upward impulse from December.

Given the clear daily uptrend, USDCAD currency pair can be expected to rise in the active impulse wave (5) to the next resistance level 1.4455 (upper border of the active sideways price range).

• S&P 500 index broke resistance levels 6000.00 and 6060.00
• Likely to rise to resistance level 6110.00

S&P 500 index recently broke the resistance levels 6000.00 (top of the previous minor correction) and 6060.00 (top of the previous wave B from December).

The breakout of these resistance levels accelerated the active intermediate impulse sequence (3) from the start of January.

Given the strong multi-month uptrend, S&P 500 index can be expected to rise to the next resistance level 6110.00, top of the previous impulse wave (1).

The Japanese yen is in negative territory on Wednesday. In the North American session, USD/JPY is trading at 156.53, up 0.68% on the day.

Trump shakes up dollar on Day 1

There are no key releases in the US today. On Thursday, the US releases unemployment claims and President Trump will address the World Economic Forum. Trump has vowed to levy tariffs on US trading partners, including China and the European Union. The financial markets are taking his threats seriously, and on Monday, his first day in office as President, Trump announced that he was delaying applying tariffs until Feb. 1. That announcement was a relief for the market and the US dollar fell sharply against many of the majors, although the yen failed to gain ground. Will Trump’s comments at the World Economic Forum shake up the financial markets?

Market awaits BoJ decision, core CPI

Investors are keeping a close eye on the Bank of Japan rate decision and December Core CPI on Friday. The central bank has hinted at a rate hike at the rate meeting and is widely expected to raise rates to 0.50%, which would be the highest level since the 2008 global financial crisis. After decades of deflation and an ultra-loose monetary policy, inflation has taken root and the BoJ is slowly moving towards normalization. The BoJ’s tightening cycle makes it an outlier among the major central banks, most of which are easing rates in response to lower inflation.

Japan’s core inflation rate has been steadily rising and is expected to climb to 3% y/y in December 2024, up from 2.7% in November which was a three-month high. The core rate, which is a key gauge of inflation trends, has remained above the BoJ target of 2% for over two years and is a key reason why the BoJ is tightening policy.

USD/JPY Technical

• USD/JPY has pushed above resistance at 155.51 and 156.24. Above, there is resistance at 156.97
• 154.78 and 154.05 are the next support levels

Daily Pivots: (S1) 1.0368; (P) 1.0401; (R1) 1.0461; More...

EUR/USD is still struggling to take out 1.0435 resistance decisively and intraday bias stays neutral. Firm break there will extend the rebound from 1.0176 to 38.2% retracement of 1.1213 to 1.0176 at 1.0572. Rejection by 1.0435 will keep the correction from 1.0176 relatively short. Firm break of 1.0176 will resume whole fall from 1.1213.

In the bigger picture, fall from 1.1274 (2023 high) should either be the second leg of the corrective pattern from 0.9534 (2022 low), or another down leg of the long term down trend. In both cases, sustained break of 61.8 retracement of 0.9534 to 1.1274 at 1.0199 will pave the way back to 0.9534. For now, outlook will stay bearish as long as 1.0629 resistance holds, even in case of strong rebound.

Daily Pivots: (S1) 1.2267; (P) 1.2313; (R1) 1.2398; More...

Intraday bias in GBP/USD remains neutral as consolidation from 1.2099 is still extending. Further decline is expected with 1.2486 support turned resistance intact. On the downside, break of 1.2099 will resume the fall from 1.3433 to 100% projection of 1.3433 to 1.2486 from 1.2810 at 1.1863.

In the bigger picture, rise from 1.0351 (2022 low) should have already completed at 1.3433, 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.

Daily Pivots: (S1) 154.78; (P) 155.51; (R1) 156.24; More...

Intraday bias in USD/JPY stays neutral first. Correction from 158.86 could still extend with another falling leg. Sustained trading below 55 D EMA (now at 154.64) will target 38.2% retracement of 139.57 to 158.86 at 151.49 next. However, firm break of 158.86 will resume the whole rally from 139.67 to retest 161.94 high.

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.

Daily Pivots: (S1) 0.9032; (P) 0.9077; (R1) 0.9102; More…

Intraday bias in USD/CHF stays neutral for now, as the pair is in mild recovery. Price actions from 0.9200 are seen as a near term corrective pattern only. Further rally is expected with 0.9007 support intact. On the upside, decisive break of 0.9223 will carry larger bullish implications. However, break of 0.9007 will turn bias back to the downside for deeper pull back to 55 D EMA (now at 0.8950).

In the bigger picture, as long as 0.9223 resistance holds, price actions from 0.8332 (2023 low) are seen as a medium term corrective pattern. That is, long term down trend is in favor to resume through 0.8332 at a later stage. However, sustained break of 0.9223 will be an important sign of bullish trend reversal.

Despite being pressured in the past few days, Dollar remains relatively resilient, refusing to drop despite renewed selling pressure earlier today. US President Donald Trump’s tariff rhetoric is having a diminishing effect on markets, as traders shift their attention back to fundamental and intermarket dynamics. The first significant market reaction to tariffs is likely to come only after actual implementation, with the initial measures on Canada, Mexico, and China anticipated on February 1.

A key intermarket factor aiding Dollar’s stability is recovery in US Treasury yields, which is providing some support. However, upside momentum of the greenback is clearly capped by strong risk-on sentiment in equity markets. In particular, S&P 500, currently hovering just inch below its all-time high of 6099.97, is showing robust upward momentum. Decisive break above this level would confirm the resumption of the index’s long term up trend, with upper channel resistance (now at around 6380) as next target.

For the week so far, Japanese Yen is the weakest performer as markets look past BoJ’s expected rate hike on Friday. Dollar follows as the second worst performer, trailed Loonie. In contrast, Kiwi is still leading gains, despite expectations of another 50bps RBNZ rate cut after inflation data. Euro is supported by ECB officials’ reassurances of gradual easing, making it the second-best performer. Aussie Australian Dollar comes in third strongest, with Sterling and Swiss Franc positioned in the middle of the pack.

ECB's Lagarde highlights regular, gradual rate cuts as policy diverges from Fed

ECB President Christine Lagarde emphasized the central bank’s commitment to a “regular, gradual path” of monetary easing, citing progress in disinflation across the Eurozone.

Speaking to CNBC, Lagarde reiterated that the pace of rate cuts will depend on incoming data. Meanwhile, she described the neutral rate — where monetary policy neither stimulates nor restricts the economy — as between 1.75% and 2.25%.

Lagarde also acknowledged the divergence in monetary policy paths between ECB and Fed. She attributed this gap to differing economic circumstances, noting that the two central banks “did not reduce rates at the same pace.” Markets, she said, are pricing in “vastly different monetary policy moves” over the next few months, reflecting these fundamental differences.

On external risks, Lagarde played down concerns about inflation being exported to Europe from the US, suggesting that any reigniting of U.S. inflation would primarily impact the U.S. economy. She added, “We are not overly concerned by the export of inflation to Europe.” However, she acknowledged potential spillover effects through the exchange rate, which “may have consequences.”

SNB's Schlegel: Negative rates remain a tool, despite being unpopular

SNB Chair Martin Schlegel said today at the World Economic Forum in Davos that with the policy rate currently at 0.50%, "we still have some room" for adjustments. But he ruled out any firm commitment on future rate moves.

While negative rates remain an unpopular tool in Switzerland, Schlegel noted that the SNB would reintroduce them if deemed necessary to stabilize monetary conditions.

Looking ahead to the SNB’s next policy meeting in March, Schlegel indicated that the central bank will evaluate whether further rate adjustments are warranted.

"At the moment monetary conditions are appropriate. We decide from quarter to quarter and then we will see," he said, refraining from estimating the likelihood of rates turning negative again.

Schlegel also addressed risks stemming from global uncertainties, particularly the tariff hikes proposed by Trump administration. While he downplayed the direct impact of such measures on Swiss inflation, he acknowledged that heightened global risks could bolster the safe-haven appeal of the Swiss Franc.

"Whenever there is a crisis, investors tend to buy the Swiss Franc," Schlegel said, highlighting the currency’s role in monetary conditions alongside interest rates.

New Zealand CPI unchanged at 2.2% yoy, non-tradeable pressures persist

New Zealand’s CPI rose 0.5% qoq in Q4 2024, in line with expectations, as tradeable inflation increased 0.3% qoq and non-tradeable inflation rose 0.7% qoq. Annually, CPI was unchanged at 2.2% yoy, slightly exceeding the anticipated 2.1% yoy. This marks the second consecutive quarter that inflation has stayed within RBNZ's target range of 1% to 3%.

The data highlights diverging trends within inflation components. Non-tradeable inflation, which reflects domestic demand and supply conditions and excludes foreign competition, stood at 4.5% yoy, highlighting persistent internal price pressures. Tradeable inflation, influenced by global factors, recorded a -1.1% yoy decline.

Rent prices were the largest contributor to the annual CPI increase, rising 4.2% and accounting for nearly 20% of the overall 2.2% gain. Lower petrol prices, down -9.2% yoy, offset some of the upward momentum, with CPI excluding petrol increasing 2.7% yoy.

Australia's Westpac Leading Index falls to 0.25%, signals gradual growth pickup

Westpac Leading Index for Australia dipped slightly in December, moving from 0.33% to 0.25%. Westpac noted that while the growth signal remains modest, it reflects a marked improvement from the consistently negative and below-trend readings observed over the past two years. This uptick hints at a gradual lift in economic momentum through the first half of 2025.

Westpac forecasts GDP growth to improve steadily over the course of 2025, projecting a year-end expansion of 2.2%—a notable recovery from the weak 0.8% growth recorded in the year to September 2024. However, the bank noted that while this represents progress, it remains below the economy’s long-term potential.

Westpac highlighted that recent improvements in the Leading Index coincide with mixed signals on broader economy. A key concern for RBA is the labor market, where the "rebalancing" stalled in H2 2024.

"A further slowdown in underlying measures of inflation could still see the Bank ease in February or April but we suspect the RBA will need to be more comfortable about some of these risks before it is prepared to begin easing," Westpac noted.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9032; (P) 0.9077; (R1) 0.9102; More…

Intraday bias in USD/CHF stays neutral for now, as the pair is in mild recovery. Price actions from 0.9200 are seen as a near term corrective pattern only. Further rally is expected with 0.9007 support intact. On the upside, decisive break of 0.9223 will carry larger bullish implications. However, break of 0.9007 will turn bias back to the downside for deeper pull back to 55 D EMA (now at 0.8950).

In the bigger picture, as long as 0.9223 resistance holds, price actions from 0.8332 (2023 low) are seen as a medium term corrective pattern. That is, long term down trend is in favor to resume through 0.8332 at a later stage. However, sustained break of 0.9223 will be an important sign of bullish trend reversal.