STIR: Significant Dovish Repricing In US Rates This Week

The FOMC's January meeting delivered a slightly hawkish hold, tipping the balance away from a March rate cut but not really suggesting that the Committee's assessment of the monetary policy path had changed since the December meeting. 

• The Statement brought a hawkish market reaction upon release with its apparent signalling of greater concern over the path of inflation, removing language that said inflation "has made progress toward the Committee's 2 percent objective, while retaining the more worrisome clause "remains somewhat elevated". This came alongside a change in the characterization of the labor market, no longer saying that conditions "have generally eased" but rather "remain solid", while noting that the unemployment rate has stabilized at a low level (vs having "moved up").
• With those characterizations of the dual mandate variables, the bar to further cuts appeared to have been raised, or at least, the FOMC was saying it could have to wait longer to receive enough progress to ease again.
• But Chair Powell - in one of his more neutral press conferences - played down that interpretation of the Statement change, "calling it "a little language cleanup" including a shortening of the labor market sentence. He noted that, contrary to the interpretation that the Fed was concerned with incoming data, "we got two good readings in a row consistent with 2% inflation... we're not going to over interpret too good or too bad readings, but this was not meant to send a signal other than this. You can take away from all of this that we remain committed to achieving our 2% inflation goal sustainably."
• In fact, it doesn't sound like Powell's tone has changed much since December's unambiguously hawkish cut, which in any case left the door open to a couple of cuts in 2025.
• When asked about what the Fed was looking for to ease further, he provided variations of needing to see more progress on inflation, though they stood ready to ease were there an unexpected deterioration in the labor market.

• We have published and e-mailed to subscribers the MNI BoC Review.  
• Please find the full report here: https://media.marketnews.com/BOC_Review_Jan2025_b4ade17abf.pdf
• (Please ignore Dec 2024 at the top of the pdf)

• RES 4: 1.4660 2.0% 10-dma envelope
• RES 3: 1.4564 3.500 proj of the Oct 17 - Nov 1 - 6 price swing
• RES 2: 1.4539 3.382 proj of the Oct 17 - Nov 1 - 6 price swing
• RES 1: 1.4516 High Jan 21  
• PRICE: 1.4439 @ 16:32 GMT Jan 29 
• SUP 1: 1.4261 Low Jan 20
• SUP 2: 1.4259 50-day EMA
• SUP 3: 1.4120 Low Dec 11 
• SUP 4: 1.4011 Low Dec 5

USDCAD continues to trade inside a range. Recent price action highlights resistance at 1.4516, the Jan 21 low, and support at 1.4261, the Jan 20 low. Both levels represent important short-term directional triggers. The trend condition is bullish and a clear breach of 1.4516 would confirm a resumption of the bull cycle. For bears, a move through 1.4261 and 1.4259, the 50-day EMA, would instead highlight a possible reversal.