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• WTI crude oil reversed from support level 72.25
• Likely to rise to resistance level 74.60

WTI crude oil recently reversed up from the key support level 72.25 (former resistance from October and November, as can be seen below).

The upward reversal from the support level 72.25 continues the c-wave of the active ABC correction 2 from the middle of November.

WTI crude oil can be expected to rise in the active minor c-wave to the next resistance level 74.60, coinciding with the resistance trendline of the narrow daily up channel from last month.

• USDCAD reversed from support zone
• Likely to rise to resistance level 1.4450

USDCAD currency pair recently reversed up from the support zone located between the support level 1.43000, 20-day moving average and the support trendline of the sharp daily up channel from September.

This support zone was further strengthened by the 38.2% Fibonacci correction of the upward impulse from last month.

Given the clear daily uptrend, USDCAD currency pair can be expected to rise to the next resistance level 1.4450 (which stopped the previous waves (3) and B).

BoE Deputy Governor Sarah Breeden today reinforced expectations for gradual easing of monetary policy, citing the abating effects of past economic shocks.

"I expect to continue to remove restrictiveness gradually over time," she added.

However, she cautioned against prescriptive timelines, remarking that it is "difficult to know" how quickly rates should fall.

Philadelphia Fed President Patrick Harker reaffirmed his view today that Fed remains on a “downward policy rate path,” but emphasized flexibility based on future data.

“Looking at everything before me now, I am not about to walk off this path or turn around,” he stated at an event.

However, Harker suggested that the current stage of the policy cycle calls for some patience. “I think it’s appropriate for us to take a bit of a pause right now and see how things shake out,” he said, hinting at a temporary hold in rate adjustments to assess the economic impact of past cuts.

While advocating for a short pause, Harker added that Fed likely won’t remain in this holding pattern for long.

Boston Fed President Susan Collins noted in a speech today that the economy is overall in a "good place" and inflation steadily retreating from its 2022 peak. She added that current monetary policy is already closer to a neutral stance, allowing Fed to proceed with a "gradual and patient approach" as it evaluates further steps.

Collins acknowledged the significant progress in lowering inflation, describing it as moving "gradually, if unevenly," toward Fed’s 2% target. Importantly, this progress has been achieved alongside a "healthy overall" labor market that has shown signs of rebalancing from previously overheated conditions.

Reflecting on Fed’s decision to cut rates last month, Collins her support as a “close call,” as the move provided "some additional insurance" to support the labor market while maintaining a restrictive stance necessary to restore price stability.

Markets

The spotlights remain squarely focused on the UK. Gilts yields gapped another 12 bps higher across the curve at the open this morning before calm returned somewhat. While net daily changes are close to zero today, the sharp uptick over the previous days and increased media attention did force the UK government to respond to urgent questions in parliament today. Treasury’s number two, Darren Jones, said the bond market is functioning in an orderly way and stressed that “There should be no doubt of the government’s commitment to economic stability and sound public finances. This is why meeting the fiscal rules is non-negotiable.” The material yield increase is eroding the limited fiscal headroom Chancellor Reeves has to comply with her self-imposed rule to fund day-to-day public spending with tax receipts by 2029-30. People familiar already told Bloomberg that if updated OBR forecasts end March would indeed show fiscal headroom has been absorbed by risen debt costs, Reeves would resort to spending cuts instead of higher taxes or even worse: change the rules of the game once again as she did back in October. Sterling is headed for back-to-back losses with EUR/GBP briefly topping the 0.84 big figure. The pair is currently trading around 0.838. Cable slipped to the lowest level since November 2023 to hit an intraday low around 1.224 but then paring losses to 1.23.

Moves in other core areas remain very limited. German rates barely budge and US yields ease a few basis points. Yesterday’s successful 30-yr auction underscored solid demand, especially at such attractive yields. That offered some respite for bonds on a day that had little to offer otherwise. The eco calendar is empty and US markets have either a shortened (bond markets) or no trading session at all (stocks) on this national day of mourning for ex-president Carter. USD changes are confined to tight ranges. JPY outperforms in one of the “bigger” moves today.

News & Views

UK CFOs in December assumed a slight rise in inflations expectations, the Bank of England Decision Maker Panel survey revealed. Year ahead own price inflation was expected to be 3.8% up from 3.7% in November. 3.8% was also the reported level of realized annual output price inflation in the three months to December of last year. A similar trend was seen in CFO’s CPI inflation expectations. Perceived CPI was 2.5% in the three months to December, down 0.1% from 2.6% but the one year ahead expectations rose from 2.7% to 2.8% in the three months to December. The corresponding measure for three-year ahead CPI inflation expectations was 2.7% from 2.6% in November. Reported annual wage growth eased 0.1% to 5.4%. Expected year-ahead wage growth remained unchanged at 4.0%. Asked about their reaction to the increase in employer national insurance contributions in the Autumn Budget, on average over the November and December surveys, 61% of firms expect to lower profit margins, 54% expect to raise prices, 53% expect lower employment and 39% expect to pay lower wages than they otherwise would have done.

Eco data in Hungary published today showed a mixed picture. Industrial production in November declined 1.9% M/M (SA) resulting in a 2.9% contraction compared to the same month last year. The statistical office reported falling production volumes in November 2024 in the great majority of the manufacturing subsections, with growth seen only in three subsections including the manufacture of coke and refined petroleum products. In the first 11 months of the year production was 3.9% lower than in the same period last year. Retail sales showed a slightly better picture rising 0.6% M/M and 4.1% Y/Y. YTD November sales growth was reported at 2.9%. The finance Ministry today also indicated that the 2024 budget shortfall probably came out at 4.8%, missing the deficit target of 4.5%. Despite the 2024 overshoot, the government still intends to reduce the budget deficit to 3.7% this year. This budget target however is based on an assumption of 3.4% 2025 GDP growth and 3.2% Inflation, which might be challenging to realize. After being under pressure due to global market sentiment, the forint regains modest ground trading near EUR/HUF 415 compared to reaching weakest levels since end 2022 (416.6 area) earlier this week.

The Australian dollar has edged lower on Thursday. In the North American session, AUD/USD is trading at 0.6198, down 0.28% on the day.

Australian retail sales point to cautious consumers

Australian retail sales rose 0.8% m/m in November 2024, higher than the downwardly revised 0.5% gain in October but shy of the market estimate of 1%. This was the strongest pace since January but there was some disappointment that pre-Christmas and Black Friday discounts didn’t result in stronger sales. Despite retailer incentives, consumers remained cautious, as high inflation and elevated interest rates have squeezed households and dampened consumer spending.

The Australian economy is struggling and today’s weaker-than-expected retail sales report along with the drop in underlying inflation in December is bolstering the case for a February rate cut. The Reserve Bank of Australia has highlighted household spending and inflation as key factors in its rate decisions and the central bank hasn’t budged from a cash rate of 4.35% for over a year. The RBA is sounding less hawkish but hasn’t hinted at the timeline for a rate cut, saying rate decisions will be data-dependent. The RBA hold its first meeting of the year on Feb. 18 and the money markets have priced in a rate cut at over 70%.

Fed minutes: Concern about Trump

The minutes of the Federal Reserve’s December meeting indicated that members were concerned about the upside risks of inflation due to President-elect Trump’s policies. Members stated that inflation could rise to “the likely effects of potential changes in trade and immigration policy”. Trump has pledged to slap tariffs on China and other US trading partners and has threatened the mass deportation of illegal immigrants.

The minutes also indicated that the Fed plans to “go slow” with further rate cuts in 2025, after starting the easing cycle last September with an oversized 50-basis point cut. The Fed’s December rate projection calls for only two rate cuts in 2025, down from four in the September forecast.

AUD/USD Technical

• AUD/USD tested support at 0.6189 earlier. Below, there is support at 0.6161
• 0.6215 and 0.6243 are the next resistance lines

Daily Pivots: (S1) 1.0276; (P) 1.0317; (R1) 1.0361; More...

Sideway trading continues in EUR/USD and intraday bias remains neutral. Outlook also stays bearish with 1.0457 resistance intact. Firm break of 1.0223 will resume the fall from 1.1213. However, sustained break of 1.0457 will confirm short term bottoming, and turn bias to the upside for 55 D EMA (now at 1.0542).

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) 1.2292; (P) 1.2393; (R1) 1.2465; More...

Intraday bias in GBP/USD remains on the downside for the moment. There is no clear sign of bottoming yet. Sustained trading below 1.2256 fibonacci level will carry larger bearish implications. On the upside, break of 1.2376 will turn intraday bias neutral first. Further break of 1.2486 support turned resistance should confirm short term bottoming.

In the bigger picture, price actions from 1.3433 medium term are seen as correcting whole up trend from 1.0351 (2022 low). Strong support is still expected from 38.2% retracement of 1.0351 to 1.3433 at 1.2256 to bring rebound to extend the corrective pattern. However, firm break of 1.2256 will argue that the trend has reversed and target 61.8% retracement at 1.1528.