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The US dollar rallied after January’s nonfarm payrolls exceeded expectations. The latest pullback found support near the previous low at 0.9180.

A bullish RSI divergence suggests a loss of momentum in the sell-off. A close above 0.9275 would force short-term sellers to cover and pave the way for a broader rebound.

Then the double top (0.9360) on the daily chart would be the next target. On the downside, a bearish breakout may send the pair to 0.9110.

EUR/USD

At the end of last week, the rally lost its momentum and the currency pair made an unsuccessful test of the important resistance level of 1.1480. The forecast is for the pair to consolidate in the zone between 1.1362 and 1.1480, before the bulls are to re-test the resistance at 1.1480. In the negative direction, the first support lies at 1.1362. Among the important news for traders this week is the U.S. core CPI data, as well as the U.S. initial jobless claims report. Both of them are to be announced on Thursday at 13:30 GMT.

USD/JPY

At the end of last week, the Ninja breached the resistance level of 115.00 and is now expected to continue rising towards the next resistance zone at 115.63. In case this zone is tested and violated, then the next target for the pair would be found at 116.16. In the negative direction, the former resistance at 115.00 is now acting as support.

GBP/USD

The appreciation of the British pound against the dollar was limited slightly below the resistance zone of 1.3650 and the pair subsequently failed to stay above 1.3570. The expectations are for the pair to continue losing ground and to consecutively test the support levels at 1.3444 and at 1.3370. In the positive direction, the first significant resistance lies at 1.3570. This week, increased trading activity can be expected around the announcement of the U.K. manufacturing production data and the U.K. GDP data. Both of them are to be announced on Friday at 07:00 GMT.

EUGERMANY40

During the last trading session of the previous week, the German index breached the support level of 15273 and, at the time of writing the analysis, is consolidating in the zone between 15000 and 15273. The forecast is for the index to continue trading in this zone as it waits for a catalyst, which could help either the bulls or the bears prevail and determine the future direction of the EUGERMANY40.

US30

At the end of last week, the appreciation of the U.S. blue-chip stock index was limited around the resistance at 35524 and the index started to depreciate afterwards. At the time of writing, the US30 is headed towards a test of the support level at 34995. A possible breach of this support would deepen the retracement, pushing the US30 towards a test of 34445. If the support at 34995 withstands the bearish pressure, then the most likely scenario would be for the index to re-test the resistance at 35524. Among the important news for traders this week is the U.S. core CPI data, as well as the U.S. initial jobless claims report. Both of them are to be announced on Thursday at 13:30 GMT.

Markets

Ahead of Friday’s US payrolls, at least part of the market cautioned for a soft interrupt in the labour market recovery as omicron potentially dampened contact sensitive economic activity. However, contrary to the ADP report, the pause in the job recovery wasn’t visible in the official labour market statistics. All sub-indicators point to a further US labour market tightening. January payrolls growth printed at a very strong 467 000 with an even more impressive 709 000 upward revision. Wage growth also accelerated 0.7% M/M and 5.7% Y/Y AHE. The unemployment rate rose from 3.9% to 4.0% but this was due to a higher participation rate (62.2 from 61.9%) that policy makers were hoping for.

Investors had every reason to believe Fed Powell’s warning that this tightening cycle will be different from previous ones. An initial stabilization/cautious decline in US yield was swapped for an astonishing bear flattening. The 2-y jumped another 11.4 bp with the 30-y rising ‘only’ 5.8 bps. The rise was entirely due to a higher real yield. The 2-y yield reached 1.32. The US 10-y also touched a new cycle top (1.93%). US interest rates rise post-payrolls outpaced EMU.

Even so, after Thursday’s inflation U-turn of ECB’s Lagarde, any dovish positioning left in the euro market was also further squeezed out with German yields rising between 9.1 bps (5-y) and 2.3 bps (30-y). Markets now discount that ECB policy rates might already leave negative territory by the end of this year.

The prospect of tightening financial conditions initially weighed on the equity markets with the EuroStoxx50 losing 1.31% at the close. However, US indices later found their composure finishing unchanged (Dow) to even with a gain of 1.58 % (Nasdaq).

Europe finally being perceived as joining a more anti-inflationary course limited post-payrolls gains of the dollar. EUR/USD after testing the 1.1483 January top before the payrolls finished marginally stronger at 1.1449. DXY closed at 95.48 (from 95.30). Underlying euro strength further propelled EUR/GBP to close at 0.8461.

This morning, Asian equities are mostly trading with modest losses. Mainly China markets are the exception to the rule after the reopen from the Lunar New year holidays. The PBOC fixed the yuan at a relatively weak level. Even so, yuan is holding resilient near 6.36. The dollar this morning is gaining a few ticks, both trade-weighted as against the euro (EUR/USD 1.143).

Today, the eco calendar is thin. ECB’s Lagarde gives an introductory  statement at the hearing before the EU parliament. ECB’s Knot in press comments this weekend indicated that the ECB could raise interest rates as soon as Q4 as he expects EMU inflation above 4.0% for most of 2022.

Regarding this week’s data, the US January CPI release on Thursday takes center stage (headline expected at 7.30%, core at 5.9%). We also keep a close eye at comments from the ECB and the Fed. Are policy makers (still) happy with recent sharp market repricing or will they advocate some caution?

The Ukraine-Russia tensions remain an important source of uncertainty, with oil rising further (brent $ 93 b/p). For now, there is no reason to row against the hawkish global repricing, but the pace of the move might al least take a breather. This week’s US inflation might call some kind of a peak in the ‘inflation hype’.

On the currency markets, Lagarde’s U-turn finally restores some balance between the euro and the dollar. A break of EUR/USD beyond 1.1483 would improve the technical picture. Maybe some further clarification on the expected ECB path is needed for a protracted further euro comeback.

New Headlines

The EU is forging contingency plans should Russian/Ukrainian tensions erupt into a military conflict. Measures include shielding consumers and businesses from surging gas prices, a possible migratory crisis and cyber security threats. The Commission is a.o. examining how it could intervene temporarily to weaken the link between high gas prices and the cost of electricity. It is also exploring to secure more and diversified flows of LNG from big producing countries, including the US, Qatar, Azerbaijan and Nigeria.

Australian PM Morrison announced today the reopening of the country’s borders to international travelers. Since March 2020 borders were closed almost entirely for non-citizens to stem the spread of Covid, hurting the tourism sector which contributed about 3% to the economy prior to the pandemic. Morrison said that tourists and visa holders are allowed back in the country from February 21 provided they have been vaccinated twice.

The US dollar and the Nasdaq 100 index tilted higher on Friday after strong American jobs numbers. The data showed that the American economy added more than 467k jobs in January, in a sign that the economy was doing well. The number was better than the median estimates of less than 200k. On Wednesday, data by ADP estimated that the economy lost over 300k jobs in January. These numbers, coupled with the performance of real yields point to the fact that the Fed will likely start hiking interest rates in March this year.

Cryptocurrency prices continued their bullish rally during the weekend as sentiment improved. Bitcoin crossed the $40,000 level for the first time in almost three weeks. Other coins like Solana, Cardano, and Sandbox continued rallying. As a result, the total market capitalization of all cryptocurrencies tracked by CoinGecko jumped to more than $1.9 trillion. The rally is also because of the ongoing market activity in the industry. For example, last week, FTX announced that it was acquiring Liquid, a Japanese cryptocurrency exchange.

The economic calendar will be a bit muted today, meaning that investors will continue focusing on last week’s decisions by the ECB and the Bank of England. The two banks sounded hawkish, with the BOE hiking interest rates for the second straight meeting. In her press conference, Christine Lagarde refused to rule out that the bank will hike rates later this year. The only key numbers to watch today will be the Swiss unemployment rate and the Halifax house price index (HPI).

EURUSD

The EURUSD pair jumped to a high of 1.1483 after the ECB decision. This was a notable level in January this year. On the four-hour chart, the pair moved above the 25-day and 15-day moving averages while the Relative Strength Index (RSI) has moved above the overbought level. It is also above the dots of the Parabolic SAR. Therefore, the pair will likely retreat slightly as investors start taking profit.

USDCHF

The USDCHF pair rallied ahead of the latest Swiss unemployment rate data. It is trading at 0.9255, which was the highest level since February 1. It has managed to move above the key resistance at 0.9233. It has moved above the 25-day moving average while the Relative Strength Index has moved above the overbought level. Therefore, the pair will likely keep rising as bulls target the key resistance at 0.9300.

EURJPY

The EURJPY has been in a strong bullish trend as investors focus on the divergence between the ECB and the BOJ. It rose to a high of 132.10, which was the highest level in months. It has moved above the key resistance at 131.60, which was the highest level in January. It is also along the upper side of the Bollinger Bands while the Relative Strength Index (RSI) has been rising. Therefore, the pair may soon have a pullback on profit-taking.

US futures traded flat in the overnight trading session, as the Federal Reserve (Fed) hawks came back in charge following strong job additions, and solid wages growth in the latest US jobs data.

The US 2-year yield peaked above the 1.30% for the first time since the beginning of the pandemic. The short end of the US yield curve is rebounding fast, but we are still at the pre-pandemic levels meaning that there is more room for a further yield flattening in the coming weeks. Therefore, the risks are still touted to the downside for equity markets.

Week ahead

This week the attention will shift from corporate earnings to macroeconomic data, more specifically to latest US consumer price index that could have advanced to 7.3% in the US in January. Fear of a stronger inflation will likely keep the investor appetite limited until the data release. Thursday’s US CPI figure is expected to have advanced to a fresh 40-year high of 7.3% in January, as energy prices kept souring during the first month of the year, and they show no signs of easing. The barrel of US crude is now consolidating gains above the $92 mark.

The S&P00 closed last week above its 200-DMA, while Nasdaq gained more than 2% during the week, although we are still below the 200-DMA, and with a 50-DMA which is now plunging toward the 200-DMA as a sign that a death cross formation will soon be what we will be discussing.

Overall

Chinese stocks rallied as Chinese investors returned from a week-long Lunar New Year break, and they had some gains to catch up with. Plus, the better-than-expected Caixin services PMI offered a roaring start to the Tiger Year, but the rest of Asia looks much less promising with stock in Japan, Hong Kong and Australia trading in the red due to the stronger hawkish Fed expectations.

The US dollar rebounded from its 100-DMA, Bitcoin finally cleared the $40K resistance.

The Bitcoin relief comes with a slight delay to the rebound in stocks, but gains could remain limited as the worries that initially sent the cryptocurrency valuations lower are still in play and should be watched closely.

Market movers today

Monday's data calendar is light with only German industrial production data for December due. Consensus expects stabilisation in monthly figures after a contraction in November.

Today's EP hearing with ECB president Lagarde starting at 16:45 CET will attract more than the usual attention in light of ECB hawkish turnaround last week.

Later in the week, we get the US CPI data from January on Thursday, which is extremely important for what the Fed will do at the March meeting. UK Q4 GDP data is out on Friday.

We are looking forward to hearing from the Riksbank on Thursday, not least now that other central banks are turning more hawkish.

We will have ECB Villeroy on the wires on Tuesday and Thursday, while Fed's Bowman and Mester will speak on Wednesday. In the context of aggressive market repricing, we will pay close attention to any clues regarding the pace of monetary policy tightening.

Any headlines regarding the Russia-Ukraine stand-off will also remain in focus. French President Macron is heading to Moscow to discuss a de-escalation with President Putin.

The 60 second overview

Strong US jobs report: Non-farm payrolls were quite strong in January taking into account the high number of sick days due to omicron (also highlighted by the difference between employment growth in the establishment and household surveys). There were also very large revisions to employment. Wage sum growth remains higher than before COVID-19 and the wage sum level is now above the old pre-COVID trend path, suggesting very strong demand in the US. As a result, the implied probability of a 50bp rate hike in March rose from ~20% to ~40% (a total of 5.3 rate hikes this year), which seems fair given the current economic condition, see Fed Update: Different economy, different hiking cycle - a comparison with December 2015, 3 February.

ECB market pricing: In Europe, markets eye the end of negative rates in the euro area with 2yr €STR now in positive territory. ECB's Klaas Knot expects the first rate hike as early as Q4 2022 and the second one in spring 2023, in line with our new ECB call, as we call for 25bp rate hikes in December 2022 and March 2023, see ECB Review: New call - ECB to hike in December 2022 and March 2023, 3 February.

Oil: Oil prices continue to move higher and are now close to 94 USD/barrel, the highest level since 2014. The upward trend in oil prices is also putting more pressure on central banks around the world.

Emerging markets: This morning we published our new Emerging Markets Monthly - Will Fed tightening trigger an EM crisis?, 7 February, where we argue that EM FX could be up for broad-based weakness if and when US financial conditions tighten. Historically, US rate hikes alone have not led to a sustained tightening in financial conditions, but EM weakness has been more pronounced during times of market stress, i.e. when wider credit spreads and weaker equity valuations imply tighter financial conditions.

Equities: Very mixed performance on global equity markets Friday. Some markets in Asia lifted by the post New Year holiday reopening, Europe hit by a negative catch-up to the Thursday US session and finally yet importantly US lifted by some very strong earnings by few giants. To put it into perspective, cyclicals outperforming in the US while underperforming in Europe. Growth outperformed although bond yields were higher, but earnings reports were sufficient to off-set the macro drivers Friday. Asian stocks are mostly lower this morning with mainland China going against the tide as it reopens after Lunar New Year. Futures in Europe are higher while US futures are close to unchanged this morning.

FI: A continuation of Thursday's blood bath in rates markets continued on Friday after the hawkish turnaround from the ECB (the pace was accelerated on the strong US jobs report). European bonds yields took another leg higher in yields (by 6-7bp) in core countries, while peripheral bond yields rose an additional 3bp in the 10y area. However, the 5y point suffered the most with 5y Germany turning positive for the first time since 2018. The Friday close of BTPs-Bund spread at 154bp is the widest since the summer 2020, in the aftermath of the PEPP announcement. 10s30s part of the curve flattened yet again, with the EUR swap flattening 3.5bp to -7.5bp, while the cash curve flattened 4bp to 14.9bp. Inflation forward curves flattened again with the 5y5y down 3bp to 1.75%.

FX: On Friday, EUR/USD rose closer to 1.15 but erased some of the gains after the strong US jobs report. Both EUR/NOK and EUR/SEK moved higher. EUR/GBP moved higher and is now closer to 0.85 than 0.84.

Credit: Friday, the very bad risk sentiment we saw post the hawkish CB announcements continued. The hawkish expectations got further fuel during the day after the strong US NFP. Main widened by 2.7bp to 64.8bp while Xover widened 14.3bp to 314.5bp. The latter marks some 29bp widening during last week. The liquidity in cash space is very thin currently, but the few trades that got done pointed to markedly wider spreads during Friday.

ECB Governing Council member Martins Kazaks said in a Reuters interview that a July rate hike "would imply an extremely and unlikely quick pace of tapering". Overall, "at the current juncture, naming a specific month would be much premature."

"If we see that inflation remains high and the labor market remains strong or strengthens further, if we see that the economy keeps going, the direction is clear: we may act sooner than we assumed in the past," he added.

Over the weekend, another Governing Council member Klass Knot said, "personally I expect our first rate increase to take place around the fourth quarter of this year.... Normally we would raise rates by a quarter percentage point, I have no reason to expect we would take a different step."

The US Dollar started a steady increase from the 1.2650 support zone against the Canadian Dollar. The USD/CAD pair gained pace for a move above the 1.2700 level.

The pair even cleared the 1.2740 level and settled above the 50 hourly simple moving average. A high was formed near 1.2787 and the pair is now correcting gains. An immediate support is near 1.2725 on FXOpen.

The next major support is near the 1.2710 level and the 50 hourly simple moving average. Any more losses might call for a move towards the 1.2650 support zone.

On the upside, the pair is facing resistance near a connecting bearish trend line at 1.2740 on the hourly chart. If there is a clear upside break, USD/CAD might start a steady increase towards the 1.2785 and 1.2800 levels in the near term.

Although the dollar index fell to the lowest level in two years, it has room to recover.

JPMorgan believes that the US dollar can continue its upward journey even after the Federal Reserve starts raising interest rates. The Fed has been struggling with taming the fastest inflation since the 1980s. The dollar index has risen about 5% in the past year, raising questions about whether the uptrend is over.

However, in our view, the USD has more room to rise and make bigger gains. The markets are still in a mode of price discovery, and pricing economic data and Fed decisions. Notice that the dollar's peak usually comes a month or two after the Fed hike rates.

Market expectations of five rate hikes this year have strengthened, following hawkish comments from President Jerome Powell during the last meeting. The US central bank may choose to start raising rates by 50 basis points at the March meeting.

The market is chasing the Fed, trying to anticipate its next moves, because this is clearly a very unconventional cycle. For example, the Fed initially predicted that inflation would calm down if the supply chain problems related to the pandemic subside. However, it recently acknowledged that this process is taking longer than expected.
Obstacles for the US dollar

The dollar may face obstacles that will hamper the upward trend, with a significant shift in tone from the European Central Bank and the Bank of England.

The Bank of England and the European Central Bank both met market expectations. The BoE raised the interest rate by 25 basis points to 0.50% for the second time in a row. At the same time, the ECB kept its policy unchanged but shifted its tone in addressing the risks of inflation attacking the Eurozone.

The dollar index recorded its worst week in nearly two years last Friday, after the euro settled at its highest in three weeks at the beginning of this week, while the pound rose after strong shifts from ECB and BoE. EUR/USD saw a significant upward shift in price action last Friday (largest one-day move since December 2020) after ECB President Christine Lagarde acknowledged rising inflation risks and declined to repeat earlier guidance that a rate hike this year is highly unlikely. That marks a sharp shift in the tone of monetary policy for one of the world's most dovish central banks. With that, the decision to raise rates in the Eurozone in 2022, which was previously unacceptable, is now available on the table.

Nevertheless, the euro's gains will not continue in the short term, with a looming Fed tightening, which will support the dollar strongly.
US economy is improving

US jobs data, stronger than expected, supported the dollar last Friday, pushing the dollar index back to 95.46 after a week full of bruises for the US currency. As the US economy and labor market improve, this will lead the Fed to tighten policies and raise rates at the March meeting.

In the end, the dollar is expected to continue its bullish trend, as it has not reached its peak yet. However, the USD might struggle with some EUR strength with the support of ECB tightening, which may curb its gains. Nevertheless, it will not kill the uptrend.

DXY:

On the H4 timeframe, prices are on bearish momentum and abiding to our descending trendline. We see the potential for a dip from our 1st resistance at 95.713 in line with 23.6% Fibonacci retracement and 127.2% Fibonacci extension towards our 1st support at 95.216 in line with 78.6% Fibonacci retracement. RSI and Ichimoku clouds are also showing bearish momentum.

Areas of consideration:

• H4 time frame, 1st resistance at 95.713
• H4 time frame, 1st support at 95216

XAU/USD (GOLD):

On the H4 chart, prices are abiding to an ascending parallel channel. We see potential for prices to dip from our 1st resistance at 1819.920 in line with 100% Fibonacci extension towards our 1st support at 1795.280 in line with 61.8% Fibonacci retracement. RSI are at levels where dips previously occurred and also prices are facing resistance at our Ichimoku cloud support.

Areas of consideration:

• 4h 1st support at 1795.280
• 4h 1st resistance at 1819.920

GBP/USD

On the H4 chart , price is trading in an ascending channel , price is in the middle of the 1st resistance level of 1.36644 which is also 78.6% Fibonacci projection and 1st support level of 1.34562 which is also 61.8% Fibonacci projection and 61.8% Fibonacci retracement. Price can potentially go to its 1st resistance level. Our bullish bias is supported by the ichimoku cloud indicator.

Areas of consideration:

• H4 1st resistance at 1.36644
• H4 1st support at 1.34562

USD/CHF:

On the H4 timeframe,in reference to last week’s analysis price indeed bounced at the 1st Support level. Price is abiding to the daily ascending channel signifying an overall bullish momentum. We can expect the price to bounce from 1st Support in line with 78.6% Fibonacci projection and 61.8% fibonacci retracement towards 1st Resistance in line with 61.8% Fibonacci projection and previous swing high. Our bullish bias is further supported by the RSI indicator where it is at the support level. Traders should wait for prices to swing higher or lower before entering.

Areas of consideration:

• Watch 1st Support at 0.91750
• Watch 1st Resistance at 0.93175

EUR/USD :

On the H4 chart , price is near the 1st resistance level of 1.14784 which is the graphical swing high. Price can potentially dip to the 1st support level of 1.13608 which is also 38.2% Fibonacci retracement and 127.2% Fibonacci projection. Our bearish bias is supported by the stochastic indicator as it is near resistance level,

Areas of consideration

• H4 1st support at 1.14784
• H4 1st resistance at 1.13608

USD/JPY:

On the H4 chart,in reference to last week’s analysis, price indeed bounced at 1st Support and it is reaching our potential 1st Resistance level @ 115.598.

Price is trading in an ascending channel signifying an overall bullish momentum, however, we can expect a short-term bearish drop from 1st Resistance level in line with horizontal resistance and 78.6% Fibonacci projection towards 1st Support in line with previous swing low and 100% Fibonacci projection. Our bearish bias is further supported by the stochastic indicator where the %K line is at the resistance level.

Areas of consideration:

• H4 1st support at 114.025
• H4 1st resistance at 115.598

AUD/USD:

On the H4 timeframe, in reference to last week’s analysis, price indeed dropped from the resistance level. Price is abiding to the descending channel, signifying an overall bearish momentum. We can expect price to drop from 1st Resistance in line with 50% Fibonacci retracement towards 1st Support in line with previous swing low and 78.6% Fibonacci projection. Our bearish bias is further supported by the stochastic indicator where the %K line is at the resistance level. Traders should wait for prices to swing higher or lower before entering.

Areas of consideration:

• H4 1st Support level 0.69865
• H4 1st resistance level 0.71734

NZD/USD:

On the H4 timeframe, prices were on bearish momentum and have bounced off 1st support. We see potential for prices to bounce from our 1st support at 0.65950 in line with 61.8% Fibonacci retracement towards our 1st resistance at 0.66475 in line with 61.8% Fibonacci retracement. Our bias is further supported by the Ichimoku Clouds forecasting a bullishness and also RSI being at levels where bounces previously occurred. Alternatively, our stop loss will be placed at 2nd support at 0.65659 in line with 78.6% Fibonacci retracement.

Areas of consideration:

• H4 time frame, 1st resistance at 0.66475
• H4 time frame, 1st support at 0.65950

USD/CAD:

On the H4, with prices moving above the ichimoku cloud, we see the potential for a bounce from our 1st support at 1.27100 in line with horizontal overlap support and 61.8% Fibonacci retracement towards our 1st resistance at 1.28360 in line with horizontal swing high resistance and 78.6% Fibonacci retracement. Alternatively, price may break 1st support structure and head for 2nd support at 1.26519, in line with the horizontal swing low support.

Areas of consideration:

• H4 time frame, 1st support at 1.27100
• H4 time frame, 1st resistance at 1.28360

OIL:

On the H4, with prices moving above the ichimoku cloud, we see the potential for a bounce from our 1st support at 91.27 in line with horizontal overlap support towards our 1st resistance at 95.76 in line with the 127.2% Fibonacci extension and -61.8% Fibonacci expansion. Alternatively, price may break 1st support structure and head for 2nd support at 88.13, in line with the horizontal swing low support.

Areas of consideration:

• H4 time frame, 1st resistance of 95.76
• H4 time frame, 1st support of 91.27

Dow Jones Industrial Average:

On the H4, with price moving above the ichimoku cloud, signifying an overall bullish momentum. We can expect price to rise to our 1st resistance at 35728 in line horizontal graphical swing high resistance and 78.6% Fibonacci retracement from our 1st support in line with horizontal overlap support and 23.6% Fibonacci retracement level at 35024. Alternatively, price may break 1st support structure and head for 2nd support, which coincides with 50% Fibonacci retracement level at 34430.

Areas of consideration:

• H4 time frame, 1st resistance of 35728
• H4 time frame, 1st support of 35024