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BoE left the Bank Rate unchanged at 5.25% as widely expected. However, two MPC hawks (Jonathan Haskel and Catherine Mann) voted for another 25bps to 5.50%. Meanwhile, one dove (Swati Dhingra) voted for a 25bps cut to 5.00%. That resulted in a 6-3 vote for the decision.

Nevertheless, the central bank dropped tightening bias by omitting the language that "Further tightening in monetary policy would be required...." Instead, it's now "prepared to adjust monetary policy as warranted by economic data".

BoE will continue monitor a range of measures of "the underlying tightness of labour market conditions, wage growth and services price inflation."

CPI is projected to fall temporarily to 2% in Q2 2024, before rising again in Q3 and Q4. BoE sees CPI to be at to be at 2.8% in Q1 2025 (up from prior 2.5%), then 2.3% in Q1 2026 ( up from 1.9%), then 1.9% in Q1 2027 (new).

Four-quarter GDP growth is seen at 0.5% in Q1 2025 (up from 0.0%), the 0.8% in Q1 2026 (up from 0.6%), and 1.5% in Q1 2027 (new).

These are conditioned on a lowered market-implied path for Bank Rate that declines from 5.1% in Q1 2024 (prior 5.3%), then falls to 3.9% in Q1 2025 (down from 5.0%), and then 3.3% in Q1 2026 (down from 4.4%), and 3.2% in Q1 2027 (new).

Full BoE statement here.

Monetary Policy Summary, February 2024

The Bank of England's Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 31 January 2024, the MPC voted by a majority of 6–3 to maintain Bank Rate at 5.25%. Two members preferred to increase Bank Rate by 0.25 percentage points, to 5.5%. One member preferred to reduce Bank Rate by 0.25 percentage points, to 5%.

The Committee's updated projections for activity and inflation are set out in the accompanying February Monetary Policy Report. These are conditioned on a market-implied path for Bank Rate that declines from 5¼% to around 3¼% by the end of the forecast period, almost 1 percentage point lower on average than in the November Report.

Since the MPC's previous meeting, global GDP growth has remained subdued, although activity continues to be stronger in the United States. Inflationary pressures are abating across the euro area and United States. Wholesale energy prices have fallen significantly. Material risks remain from developments in the Middle East and from disruption to shipping through the Red Sea.

Following recent weakness, GDP growth is expected to pick up gradually during the forecast period, in large part reflecting a waning drag on the rate of growth from past increases in Bank Rate. Business surveys are consistent with an improving outlook for activity in the near term.

The labour market has continued to ease, but remains tight by historical standards. In the February Report projections, the continuing relative weakness of demand, despite subdued supply growth by historical standards, leads a margin of economic slack to emerge during the first half of the forecast period. Unemployment is expected to rise somewhat further.

Twelve-month CPI inflation fell to 4.0% in December 2023, below expectations in the November Report. This downside news has been broad-based, reflecting lower fuel, core goods and services price inflation. Although still elevated, wage growth has eased across a number of measures and is projected to decline further in coming quarters.

CPI inflation is projected to fall temporarily to the 2% target in 2024 Q2 before increasing again in Q3 and Q4. This profile of inflation over the second half of the year is accounted for by developments in the direct energy price contribution to 12-month inflation, which becomes less negative. In the MPC's latest most likely, or modal, projection conditioned on the lower market-implied path for Bank Rate, CPI inflation is around 2¾% by the end of this year. It then remains above target over nearly all of the remainder of the forecast period. This reflects the persistence of domestic inflationary pressures, despite an increasing degree of slack in the economy. CPI inflation is projected to be 2.3% in two years' time and 1.9% in three years.

The Committee judges that the risks around its modal CPI inflation projection are skewed to the upside over the first half of the forecast period, stemming from geopolitical factors. It now judges that the risks from domestic price and wage pressures are more evenly balanced, meaning that, unlike in previous forecasts, there is no difference between the MPC's modal and mean projections at the two and three-year horizons.

Conditioned on the alternative assumption of constant interest rates at 5.25%, the path for CPI inflation is significantly lower than in the Committee's modal projection conditioned on the declining path of market rates, falling below the 2% target from 2025 Q4 onwards.

The MPC's remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term.

At this meeting, the Committee voted to maintain Bank Rate at 5.25%. Headline CPI inflation has fallen back relatively sharply. The restrictive stance of monetary policy is weighing on activity in the real economy and is leading to a looser labour market. In the Committee's February forecast, the risks to inflation are more balanced. Although services price inflation and wage growth have fallen by somewhat more than expected, key indicators of inflation persistence remain elevated.

As a result, monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC's remit. The Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates.

The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. On that basis, the Committee will keep under review for how long Bank Rate should be maintained at its current level.

Minutes of the Monetary Policy Committee meeting ending on 31 January 2024

1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The latest data on these topics were set out in the accompanying February 2024 Monetary Policy Report.

2: Consumer price inflation across major advanced economies had declined by more than had been expected in the November Report, with continued easing of both goods and services price inflation. The Committee compared features of the disinflation seen across the United States, the euro area and the United Kingdom, and the risks around the inflation outlook. The Committee judged that the divergence seen across economies reflected differences in energy price dynamics and variation in the impact and timing of recent global shocks and their subsequent dissipation, alongside distinct profiles for spare capacity. Disinflation in core goods prices had been comparatively more pronounced so far in the United States because in the euro area and the United Kingdom the lag between falls in producer output price inflation and core consumer goods inflation had shown signs that it might have been longer than in previous cycles.

3: There had also been some differences, as well as commonalities, in the development of services price inflation and wage growth across these economies. Bank staff analysis suggested that the recent falls in services inflation across the three economies had been accounted for largely by declining non-labour input costs, including energy. Labour costs, by contrast, had remained elevated across countries, although there were some signs of easing emerging, particularly in the United States. To the extent that they were broadly comparable, measures of wage inflation had remained considerably higher in the United Kingdom than elsewhere.

4: In the United Kingdom, all of the respondents to the Bank's latest Market Participants Survey (MaPS) expected Bank Rate to be left unchanged at this MPC meeting. They also all expected the next move in the Bank Rate to be downward. The median expected profile for Bank Rate from the MaPS implied a cumulative 100 basis point reduction in Bank Rate this year starting from June 2024, broadly in line with market pricing. Market contacts had suggested that disinflationary news in recent economic data outturns both in other jurisdictions and in the United Kingdom had been a significant factor in the downward moves in UK short-term rates in recent months. Similar downward moves in short-term rates had also occurred in other advanced economies over this period.

5: UK GDP growth had weakened in 2023, with this weakness particularly pronounced in market sector output. This reflected the significant tightening of monetary policy implemented since the end of 2021 to contain the persistence of second-round effects on inflation as well as continued weakness in potential supply growth. Cumulative GDP growth over 2023 as a whole had been materially weaker than expected at the time of the November Report, with the path for household consumption notably below expectations. Timelier indicators suggested that activity would edge up in 2024 Q1.

6: The Committee had completed its annual supply stocktake, as set out in Section 3 of the February Report, and judged that potential supply growth remained weak by historical standards. The MPC also now judged that the degree of excess demand had been a little higher over the recent past than had been assumed in the November Report, implying weaker supply growth in the past. At the same time, it had revised up slightly its view of potential supply growth in the future, although this was still expected to be weaker than the rates seen pre-Covid.

7: The Committee discussed the degree of persistence in wage growth and domestic price inflation. There had been downside news in headline CPI inflation relative to the November Report, accounted for by a combination of fuel, core goods and services prices. In absolute terms, services price inflation remained significantly elevated. There had been a common signal from a range of indicators that wage growth had eased somewhat recently, although it had remained significantly elevated overall. This downward trend had been most pronounced in the annual rate of growth of private sector regular average weekly earnings (AWE), although that had brought the AWE series more into line with other indicators.

8: The majority of this year's wage setting processes would conclude in the next few months. A survey of firms conducted by the Bank's Agents suggested that the average pay settlement in 2024 would be for a rise only slightly lower than in 2023, at 5.4%. It remained to be seen to what degree the falls in CPI inflation and short-term inflation expectations would influence this year's wage setting, although this could also be influenced by a catch-up effect following the high rates of CPI inflation seen over the past couple of years. Evidence from the Agents suggested some possible upward pressures on wages from indirect effects of the increase in the National Living Wage. Intelligence from the Agents, however, also suggested that companies would not be able to pass on increased costs into prices as much as they had done in 2023.

The immediate policy decision

9: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.

10: In the MPC's February Monetary Policy Report projections, UK GDP was expected to have been flat in 2023 Q4. Growth was expected to pick up gradually during the forecast period, in large part reflecting a waning drag from past increases in Bank Rate. In the medium term, the lower market-implied interest rate path, on which the forecast was conditioned, pushed up on GDP materially compared with the November projection.

11: The labour market had continued to ease, but had remained tight. In the February Report projections, the continuing relative weakness of demand, despite subdued supply growth by historical standards, led to a margin of economic slack emerging during the first half of the forecast period. Relative to November, the output gap projection had been pushed up by the boost to demand from the lower market path of interest rates. Equivalently, this implied that, if monetary policy were to follow the yield curve, then the stance of policy would be less restrictive than at the time of the November Report.

12: Twelve-month CPI inflation had remained above the 2% target. Inflation had fallen to 4.0% in December, below expectations in the November Report. The downside news had been broad-based, reflecting lower fuel, core goods and services price inflation. Although still elevated, wage growth had eased across a number of measures and was projected to decline further in coming quarters.

13: In the MPC's latest most likely, or modal, projections, CPI inflation was expected to fall temporarily to the 2% target in 2024 Q2 before increasing again in Q3 and Q4. This profile of inflation over the second half of the year was accounted for by developments in the direct energy price contribution to 12-month inflation, which becomes less negative. Conditioned on a lower market-implied path for Bank Rate than had underpinned the November Report, CPI inflation was then projected to remain above the 2% target over nearly all of the remainder of the forecast period, owing to persistence in domestic inflationary pressures.

14: The Committee judged that the risks around the modal inflation projection were skewed to the upside over the first half of the forecast period, stemming from geopolitical factors. Risks from domestic price and wage pressures were now more evenly balanced, however. Taken together, this meant there was no difference between the MPC's modal and mean projections at the two and three-year horizons.

15: The MPC judged that monetary policy would need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the MPC's remit. The Committee had judged since last autumn that monetary policy needed to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipated.

16: Six members judged that maintaining Bank Rate at 5.25% was warranted at this meeting. Headline CPI inflation had fallen back relatively sharply. The restrictive stance of monetary policy was weighing on activity and was leading to a looser labour market. In the Committee's February forecast, the risks to inflation were more balanced. Although services price inflation and wage growth had fallen by somewhat more than had been expected, key indicators of inflation persistence remained elevated. There were questions, on which further evidence would be required, about how entrenched this persistence would be, and therefore about how long the current level of Bank Rate would need to be maintained.

17: Two members preferred a 0.25 percentage point increase in Bank Rate, to 5.5%, at this meeting. Although headline inflation had fallen by more than had been expected, this was not necessarily informative about inflation persistence. Current indicators of economic activity had remained subdued, but real household incomes had continued to edge up, and forward-looking indicators of output had remained positive. The labour market was still relatively tight, consistent with a rise in the medium-term equilibrium rate of unemployment, and a range of indicators suggested that the pace of loosening had been slow. Measures of wage growth had moderated further but remained at rates above those consistent with the inflation target. Underlying services price inflation had slowed but remained elevated. These members continued to judge that there was evidence of more persistent inflationary pressures than included within the forecast. Financial conditions had eased since the MPC's December meeting. An increase in Bank Rate at this meeting was necessary to address the risks of more deeply embedded inflation persistence and to return inflation to target sustainably in the medium term.

18: One member preferred a 0.25 percentage point reduction in Bank Rate at this meeting. For this member, the increments applied on the way up, together with lags in transmission, meant that Bank Rate needed to become less restrictive now. Waiting for lagging indicators of domestic relative price growth to fall sharply before reducing rates would come with a risk of overtightening. There might be potential upside risks from geopolitics. That said, consumer price inflation was already, and had been for some time, on a firm downward trajectory. Moreover, leading indicators, such as those from granular producer prices data, pointed to an easing in consumer prices. The outlook for demand remained weak, and less resilient than previously assumed, with vacancies falling more sharply than in some other advanced economies and consumption not having recovered to pre-pandemic levels. This further reduced the prospects of embedded persistence, shown in forward-looking indicators of domestic relative prices, such as monthly annualised rates of nominal pay growth and the Bank's Agents' surveys, and suggested lower pass-through of costs to prices.

19: The MPC remained prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It would, therefore, continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. On that basis, the Committee would keep under review for how long Bank Rate should be maintained at its current level.

20: The Chair invited the Committee to vote on the proposition that:

• Bank Rate should be maintained at 5.25%.

21: Six members (Andrew Bailey, Sarah Breeden, Ben Broadbent, Megan Greene, Huw Pill and Dave Ramsden) voted in favour of the proposition. Three members voted against the proposition. Two members (Jonathan Haskel and Catherine L Mann) preferred to increase Bank Rate by 0.25 percentage points, to 5.5%. One member (Swati Dhingra) preferred to reduce Bank Rate by 0.25 percentage points, to 5%.

Operational considerations

22: On 31 January, the total stock of assets held for monetary policy purposes was £738.0 billion, comprising £737.6 billion of UK government bond purchases and £0.4 billion of sterling non‐financial investment‐grade corporate bond purchases.

23: The following members of the Committee were present:

• Andrew Bailey, Chair
• Sarah Breeden
• Ben Broadbent
• Swati Dhingra
• Megan Greene
• Jonathan Haskel
• Catherine L Mann
• Huw Pill
• Dave Ramsden

Sam Beckett was present as the Treasury representative.

David Roberts was also present on 24 and 26 January, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank's Court of Directors.

• The US Federal Reserve pushed back the first Fed funds rate cut and Fed Chair Powell indicated that the “highly anticipated” March rate cut is not the base case for now.
• The dovish Fed Pivot narrative is still alive as both the 2-year and 10-year Treasury yields continued to inch lower and closed near their session lows.
• The continuation of down-trending US Treasury yields put pressure on JPY carry trades indirectly; AUD/JPY is the worst performing among the G-10 currencies so far.

The US Federal Reserve left its Fed funds rate unchanged at 5.25% to 5.50%, a 22-year high for the fourth consecutive FOMC meeting yesterday and reinforced the guidance that it has likely reached the peak of its current interest rate hike cycle via including a new reference to considering “any adjustments” to the Fed funds rate on its latest monetary policy statement, a shift away from its previous tightening bias.

In addition, Fed officials have thrown cold water to the earlier much anticipated March’s first Fed funds rate cut (from around 70% chance priced-in earlier a month ago to a current 35% odds by the 30-day Fed funds rate futures according to CME FedWatch Tool). They have signaled that a rate cut in the March FOMC meeting is unlikely as such a move is not appropriate until they gain more confidence that inflation is moving sustainably towards 2%.

However, the dovish Fed Pivot narrative for 2024 has not been totally “killed off”. During the Q&A session of the FOMC press conference, Fed Chair Powell painted a balanced tonality on the timing and pace of the upcoming expected interest rate cut cycle.

Dovish Fed Pivot is still alive & JPY carry trades are losing positive carry

Fig 1: 1-month rolling performances of G-10 JPY crosses as of 1 Feb 2024 (Source: TradingView, click to enlarge chart)

The net effect is liquidity conditions are not being squeezed tightly as the Fed’s monetary policy-sensitive 2-year US Treasury yield ended yesterday, 31 January US session near its session low at 4.21% (-13 bps), and similar observations can be seen in the 10-year Treasury yield, the benchmark for long-term funding rate as it closed down by -12 bps to 3.92%, and traded below its 200-day moving average for the third consecutive day.

Given that the US Fed is still on the path of embarking on an accommodating monetary policy with the first interest rate cut now being pushed further to May’s FOMC (62% chance now at this time of the writing, up from 50% chance priced in a week ago according to the CME FedWatch Tool), in contrast to the Bank of Japan’s recent hawkish guidance on the “soon to be removed” short-term negative interest rates in Japan.

Hence, the 2-year US Treasury yield premium over the 2-year Japanese Government Bond (JGB) has continued to shrink significantly to trade now at 4.15%, a 10-month low from a high of 5.16% printed in mid-October 2023.

The persistent bout of US Treasury-JGB yield premium shrinkage has continued to put downside pressure on long-biased JPY-denominated carry trades in the foreign market as the positive carry diminishes due to higher funding costs as well from a rising 2-year JGB yield since mid-January 2024 (from 0% to 0.08%).

Among the G-10 JPY crosses, the worst hit so far is the AUD/JPY (-0.2%) based on a 1-month rolling performance basis (see Fig 1).

AUD/JPY bearish breakdown below 50-day moving average

Fig 2: AUD/JPY medium-term trend as of 1 Feb 2024 (Source: TradingView, click to enlarge chart)

Fig 3: AUD/JPY short-term trend as of 1 Feb 2024 (Source: TradingView, click to enlarge chart)

After a recent retest close to the 98.10 long-term secular range resistance from the October 2007 swing high on 22 January 2024 (printed an intraday high of 97.88), the momentum has been bearish on the AUD/JPY as illustrated by the downward sloping daily RSI momentum indicator.

Yesterday’s price action has broken below the 20-day and 50-day moving averages which reinforces at least a short to medium-term negative feedback loop into the AUD/JPY.

Right now, the hourly RSI momentum indicator has collapsed into its oversold region (without any clear bullish divergence condition) after a rapid decline inflicted during today’s 1 February Asian session which in turn may see a minor snap-back rebound for AUD/JPY towards around the near-term resistance at 96.30.

If the 97.00 key short-term pivotal resistance is not surpassed to the upside, the odds are still skewed towards the bearish side for AUD/JPY to expose the next intermediate supports at 95.40 and 95.00 (also the 200-day moving average) in the first step.

However, a clearance above 97.00 invalidates the bearish tone for AUD/JPY to see the next intermediate resistance coming in at 97.75.

Hello fellow traders. In this technical article we’re going to take a quick look at the Elliott Wave charts of USDCHF published in members area of the website. As our members know, the pair is bearish against the 0.9246 pivot. Our team recommended members to avoid buying , while keep favoring the short side in the pair. Recently we got recovery that reached our selling zone. The pair found sellers and made reaction from the blue box as expected. In the further text we are going to explain the Elliott Wave Forecast and trading strategy.

USDCHF Elliott Wave 4 Hour Chart 01.23.2024

The pair ended cycle from the 0.92483 peak as 5 waves structure -(1) blue. Currently USDCHF is giving us (2) blue recovery which is unfolding as Elliott Wave Zig Zag Pattern. The price has reached extreme zone at 0.8706-0.8859 ( Blue Box – sellers zone). We don’t recommend buying the pair and prefer the short side from the blue box- equal legs zone. As the main trend is bearish, we expect to see at least 3 waves pull back from our selling zone. Once decline reaches 50 Fibs against the B red low , we will make short position risk free ( put SL at BE) and take partial profits. Invalidation for the short trades is break above 1.618 fib ext : 0.8859

Quick reminder:

Our charts are easy to trade and understand:
Red bearish stamp+ blue box = Selling Setup
Green bullish stamp+ blue box = Buying Setup
Charts with Black stamps are not tradable. 🚫

USDCHF Elliott Wave 4 Hour Chart 01.21.2024

The pair found sellers right at the Blue Box area : 0.8706-0.8859 . Recovery completed at the 0.8727 high and we are getting good reaction from the selling zone. Decline reached and exceeded 50 fibs against the connector’s low. So members who took the short trade are enjoying profits now in a risk free positions. While below 0.8727 high, next leg down can be in progress toward new lows. However we would need to see break of (1) blue low to confirm.

• EURCHF holds beneath the 20- and 50-day SMAs
• MACD and RSI strengthens negative momentum

EURCHF is posting a leg to the downside after the pullback from the 0.9470 resistance level, heading towards the previous record low of 0.9253. The technical oscillators are endorsing the current picture on the price. The RSI is falling within the 30 to 50 area, while the MACD is strengthening its bearish structure below zero.

Immediate support level could come from the all-time low of 0.9253 before the market tumbles to uncharted territory. The next psychological marks such as 0.9200 and 0.9100 may halt downside movements.

Alternatively, a rebound off 0.9253 may take the price towards the 20- and then the 50-day simple moving averages (SMAs) at 0.9370 and 0.9425 respectively. Beyond those lines, the previous peak of 0.9470 could be a key level to watch ahead of 0.9545 and the 200-day SMA at 0.9595.

Turning to the medium-term picture, the bearish outlook came back into play after the pair posted a fresh record low of 0.9253. A jump above the 200-day SMA would restore a neutral mode. For a bull market though traders need to wait for a clear close above 0.9840, taken from the top in June 2023.

Overall, EURCHF holds a bearish profile both in the short and the medium-term.

Market picture

Crypto followed equity indices lower on Wednesday evening. Cautious buying is seen in the market on Thursday. The crypto market capitalisation now stands at $1.62 trillion, 1.9% lower than 24 hours ago.

Solana remains one of the most volatile of the leading altcoins, down 4.7%. XRP, down 2.6%, continues to slide, losing nearly 20% in 30 days.

Bitcoin started the week on Thursday morning, getting support from buyers on the way down towards $42K. Technically, we saw a worrying pullback below the 50-day MA, suggesting an increased chance of further declines. We see evidence of the same on the weekly timeframe. After seven weeks of tight sideways trading and a spike higher, a move lower has been implied. This did not materialise last week, but the price is now cruising below the centre of gravity of the last consolidation.

News background

Bitcoin could reach a new high of $125K by the end of 2025, and its price fluctuations will become “more stable”, according to Marathon Digital CEO Fred Thiel. BTC will reach a new all-time high in late Q3 or early Q4 2024 but will then decline to $40K-$50K. A gradual rise to a new ATH of $120K will then follow in early 2025.

Ethereum developers have successfully implemented the Dencun (Deneb-Cancun) hard fork in the ecosystem’s second test network, Sepolia. On 17 January, the deployment of the upgrade in the Goerli testnet caused the chain to split. The Ethereum team was able to make the necessary changes and complete the hard fork within four hours.

The SEC will approve spot Ethereum ETFs on 23 May, by which time the price of the second cryptocurrency will reach $4,000, Standard Chartered predicts. The bank expects the regulator to follow the same strategy for Ethereum as it did for Bitcoin.

According to The Block, the trading volume of Ethereum options reached a record $20 billion in January. Most of the activity was concentrated on call options with a strike price of $2,500 on 23 February. In other words, a significant portion of traders expect ETH to break above $2500 by the end of the month.

Visa has partnered with Web3 payment infrastructure provider Transak to enable the conversion of cryptocurrencies into fiat money on bank cards. According to Transak, the service is available in more than 145 countries.

As the chart shows, the price of XNG fell below 2.040 on January 31 for the first time since August 2020. This was facilitated by:

→ seasonal trend, because towards the end of winter the price of natural gas tends to fall;

→ weather data. Temperatures could remain above average and snowfall amounts will decrease across North America, according to the U.S. Climate Prediction Center and AccuWeather.

However, the chart shows signs of increased demand:

→ the RSI indicator forms divergence;

→ the bears were unable to reach the lower boundary (shown on the chart) of the downward channel.

Signs of increased demand could come from short covering after the XNG price fell by more than 25% this year, as well as sentiment ahead of the release of news on gas reserves (today at 18:30 GMT+3).

It is possible that the news release will provoke even greater demand activity, and the XNG price will reach the median line of the shown channel.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

Eurozone CPI slowed from 2.9% yoy to 2.8% yoy in January, above expectation of 2.7% yoy. CPI core (excluding energy, food, alcohol & tobacco) slowed from 3.4% yoy to 3.3% yoy, above expectation of 3.2% yoy.

Looking at the main components, food, alcohol & tobacco is expected to have the highest annual rate in January (5.7%, compared with 6.1% in December), followed by services (4.0%, stable compared with December), non-energy industrial goods (2.0%, compared with 2.5% in December) and energy (-6.3%, compared with -6.7% in December).

Full Eurozone CPI release here.

UK PMI Manufacturing was finalized at 47.0 in January, up from December's 46.2. This modest improvement, however, did not signal an end to the sector's downturn, with continued contractions observed across key areas.

Rob Dobson, Director at S&P Global Market Intelligence, highlighted the pervasive nature of the contraction, noting declines in output, new orders, and employment across various manufacturing sub-industries. He pointed out that manufacturers are adopting a cost-cautious approach, focusing on cutting back on purchasing and stock holdings to improve efficiency, maintain cash flow, and protect margins in these challenging times.

The industry faces compounded difficulties due to the ongoing "Red Sea crisis", which is exacerbating supply chain disruptions. The rerouting of inputs from the Asia-Pacific region is leading to increased costs and longer supplier lead times, intensifying the strain on production schedules and amplifying inflationary pressures. This situation is particularly problematic as manufacturers grapple with weak domestic and international demand.

Full UK PMI manufacturing release here.

• GBPUSD exposed to more declines in the short-term
• Outlook to stay neutral as long as the price holds above 1.2485
• BoE policy announcement due at 12:00 GMT

GBPUSD came under renewed downside pressure on the first trading day of February, feeling the blues from Powell’s hawkish rate message.

The pair is currently testing the short-term support trendline from December’s lows at 1.2647, but the technical indicators cannot guarantee a rebound in the coming sessions. The RSI has slid below its 50 neutral mark, the stochastic oscillator is drifting southwards, and the MACD remains negatively charged below its red signal line.

Moreover, the pair could not successfully close above the 20-day simple moving average (SMA), nor it could reach the resistance trendline from July 2023 at 1.2760, increasing the risk for a bearish breakout ahead of the Bank of England’s rate announcement.

Despite the bearish vibes in the market, there are a couple of key support levels, which could still cool selling forces. The area of 1.2560-1.2600 could come first into view ahead of the crucial ascending trendline at 1.2485, which connects the September 2022 record low and the October 2023 trough. A decisive close below the latter would shift the outlook from neutral to bearish, likely intensifying the decline towards the 1.2370 bar.

In the event of an upside reversal, the bulls might attempt to push above the 20-day SMA at 1.2700 and beyond the resistance trendline from July 2023 at 1.2760. If they succeed, the price could increase straight up to December’s high of 1.2826, while higher, it could retest the 1.2870-1.2900 region before gearing up to meet the ascending line from November currently around 1.2970.

Summing up, downside pressures could persist in GBPUSD, but any potential declines may not upset traders unless the pair crosses below 1.2485.