14.01.202610:17 Forex Analysis & Reviews: Let's Not Rush

Musalem noted that after last year's interest rate cuts, monetary policy is well positioned to respond to risks to price stability or employment. He added that rates are now at a neutral level that neither stimulates nor restrains the economy, and confirmed that there is no particular need for further rate cuts as long as inflation remains elevated.

"I expect inflation to resume converging toward our 2% target over the course of this year. Today's inflation data are encouraging in this regard," Musalem said on Tuesday. "I think policy is currently very well positioned, balancing both the expected trajectory of the economy and the risks on both sides."

At the same time, Musalem emphasized that the central bank is closely monitoring economic developments and is ready to promptly adjust its policy if necessary. Special attention is being paid to factors affecting inflation expectations, such as energy and food prices, as well as movements in the national currency's exchange rate.

Musalem's remarks indicate that the central bank is prepared to take a wait-and-see approach while assessing the potential impact of external shocks on the domestic economy. Keeping rates at current levels helps avoid excessive stimulation of inflation, while at the same time preserving room for maneuver should economic conditions deteriorate, including the possibility of supporting labor market growth.

Let me remind you that according to data from the Bureau of Labor Statistics, the U.S. core consumer price index, which excludes volatile food and energy categories, rose 2.6% year over year, reaching a four-year low.

Recently, quite a large number of Fed officials have signaled that they are likely to keep interest rates unchanged this month after cutting the benchmark rate by three-quarters of a percentage point last year. However, policymakers remain divided over the optimal future path for interest rates, as the labor market continues to weaken while inflation remains above target. Some officials have urged their colleagues to prioritize curbing inflation, while another group insists on further rate cuts to support employment.

As for the current technical picture in EUR/USD, buyers now need to focus on taking the 1.1650 level. Only this will allow them to target a test of 1.1680. From there, it would be possible to climb to 1.1710, but doing so without support from major players will be quite difficult. The most distant target would be the 1.1740 high. In the event of a decline in the trading instrument, I expect any serious action from large buyers only around the 1.1630 level. If there is no activity there, it would be preferable to wait for a retest of the 1.1610 low or to open long positions from 1.1591.

As for the current technical picture in GBP/USD, pound buyers need to take the nearest resistance at 1.3450. Only this will allow them to target 1.3480, above which a breakout will be quite difficult. The furthest target would be the 1.3515 level. In the event of a decline in the pair, bears will try to seize control of 1.3420. If they succeed, a break of the range will deal a serious blow to bullish positions and push GBP/USD down to the 1.3390 low, with the prospect of a move toward 1.3370.