• If Q1 2024 numbers continue to be encouraging, that will be important
• Need to be more confident that disinflation is sustainable
• ECB is independent of moves by other central banks

This ties together with Nagel’s earlier remarks here. And it reaffirms the narrative that the ECB wants to wait on the next set of wages data in May before acting in June at the earliest.

This article was written by Justin Low at www.forexlive.com.

• The Fed left interest rates unchanged as
  expected at the last meeting while dropping the tightening bias in the
  statement but adding a slight pushback against a March rate cut.
• The US CPI beat
  expectations for the second consecutive month with the disinflationary trend
  reversing.
• The US PPI beat
  expectations across the board by a big margin.
• The US Jobless Claims beat
  expectations with the data remaining steady.
• The latest US PMIs
  increased further from the prior month with the Manufacturing PMI beating
  expectations and the Services PMI missing.
• The US Retail Sales missed
  expectations across the board by a big margin.
• The market now expects the first rate cut in June.

CAD

• The BoC left interest rates unchanged at
  5.00% as expected and dropped the language about being prepared to hike if
  needed.
• The latest Canadian CPI missed expectations across the
  board with the underlying inflation measures falling, which will be a welcome
  development for the BoC.
• On the labour market side, the latest report beat
  expectations but we saw a contraction in full-time employment and a fall in
  wage growth.
• The Canadian PMIs improved in
  January although they remain both in contractionary territory.
• The market expects the first rate
  cut in June.

USDCAD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that USDCAD probed
below the trendline and red
21 moving average but
reversed the move quickly, eventually finishing back above it. This might have
been a fakeout, which is generally a reversal pattern, so the buyers could
start to pile in with more conviction to position for a rally into the 1.3620
level. The sellers, on the other hand, will want to see the price falling back
below the trendline to position for a drop into the 1.3360 level.

USDCAD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see more closely the price
action around the trendline with the break and the quick rebound. We can also
notice that the latest leg lower diverged with the
MACD which is
generally a sign of weakening momentum often followed by pullbacks or
reversals. In this case, it might be a signal for a pullback into the downward
trendline where we will likely find the sellers stepping in to target a break
below the major upward trendline. The buyers, on the other hand, will want to
see the price breaking higher to increase the bullish bets into the 1.3620
level.

USDCAD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that we had
a counter-trendline for the pullback into the major trendline which was eventually
breached this morning. The buyers should keep on bidding the price into the
downward trendline but if the price were to reverse and break below the support zone
around the 1.3460 level though, we can expect the sellers to pile in more
aggressively to extend an eventual selloff into the 1.3360 level.

This article was written by FL Contributors at www.forexlive.com.

It’s been a quiet one in terms of movement in European trading today. The dollar is steady as major currencies are showing very little appetite, with most dollar pairs seeing less than 10 pips change at the moment. It is only USD/JPY which is up slightly to 150.71, helped by slightly higher yields.

Besides that, there really isn’t much to work with on the session thus far. Risk tones are more muted as well with European indices seeing light changes while US futures are flattish. It seems like stocks are consolidating gains for now after the surging run higher yesterday.

Going back to FX, EUR/USD is still keeping just under its 200-day moving average of 1.0827 for now. Similarly, AUD/USD also attempted a run above its own 200-day moving average yesterday only to fall short amid the dollar reversal as well. The pair now trades little changed at 0.6559, below the key technical level at 0.6561.

As we look to wrap things up on the week, do keep an eye out on the bond market. 10-year Treasury yields are up 1.6 bps to 4.342% and that is just above its 100-day moving average of 4.327% currently. Further selling in bonds when we get to US trading could inspire some broader market moves before the weekend.

This article was written by Justin Low at www.forexlive.com.

• Will only get key price pressure data in Q2, then only we can „contemplate a cut in interest rates“
• Price outlook is not yet clear enough
• Some setbacks on inflation may be possible

The Q4 2023 wages data was released earlier this week here. But as mentioned at the time, policymakers are likely to want to wait on the Q1 2024 data – which will only be out in May – before proceeding with rate cuts. And Nagel’s comments serve to reaffirm that sentiment.

This article was written by Justin Low at www.forexlive.com.

• Confident that risks of de-anchoring of inflation expectations have come down
• There is hope to achieve soft landing and taming inflation without causing a recession

The question now is whether is it enough to get inflation back down towards the desired 2% target. For now, we can still expect rate cuts in the near future but the pace of the trajectory may still be in question.

This article was written by Justin Low at www.forexlive.com.

The surge higher continues as Nvidia carries the world on its back. Since the turn of the year, no other stock has mattered more in the equities space. The latest news in the last few minutes is that Nvidia CEO is saying that they have begun sampling two new AI chips for the Chinese market. And that seems to be giving stocks another jolt higher.

Nasdaq futures are now up over 2% and looks poised to try and take a run at the 2021 highs.

In Europe, the optimism may not be as cheerful amid the lack of tech focus. But still, regional indices are able to benefit from the improved risk mood in general. The DAX and CAC 40 are at fresh record highs as the run higher since November last year looks to take on a new leg.

This article was written by Justin Low at www.forexlive.com.

• The Fed left interest rates unchanged as
  expected at the last meeting while dropping the tightening bias in the
  statement but adding a slight pushback against a March rate cut.
• Fed Chair Powell stressed
  that they want to see more evidence of inflation falling back to target and
  that a rate cut in March is not their base case.
• The US CPI beat
  expectations for the second consecutive month with the disinflationary trend
  reversing.
• The US PPI beat
  expectations across the board by a big margin.
• The US Initial Claims beat
  expectations while Continuing Claims missed. Overall, the data remains steady.
• The ISM Manufacturing
  PMI
  surprised to the upside with the new orders index, which is considered a
  leading indicator, jumping back into expansion. Similarly, the ISM Services PMI beat
  expectations across the board with the employment sub-index erasing the prior
  drop and prices paid jumping above 60.
• The US Retail Sales missed
  expectations across the board by a big margin.
• The market now expects the first rate cut in June.

EUR

• The ECB left interest rates unchanged as
  expected at the last meeting maintaining the usual data dependent language.
• The recent Eurozone CPI came
  in line with expectations with the disinflationary process continuing steady.
• The labour market remains historically
  tight with the unemployment rate hovering at record lows.
• The Eurozone PMIs beat
  expectations on the Services side with the measure jumping back into expansion while
  the Manufacturing one missed dragged lower by Germany’s performance.
• The ECB members recently have been pushing back
  against the aggressive rate cuts expectations placing more weight on wage
  growth and data dependency.
• The market expects the ECB to cut rates in June.

EURUSD Technical Analysis –
Daily Timeframe

On the
daily chart, we can see that EURUSD broke through the key trendline and the
red 21 moving average and
extended the rally into the 1.09 handle. This is where we can expect the
sellers to step in with a defined risk above the resistance to position for a
drop into the lows. The buyers, on the other hand, will want to see the price
breaking higher to increase the bullish bets into the 1.10 handle.

EURUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see more clearly the
breakout of the key resistance zone
around the 1.08 handle. The price pulled back at some point to retest the resistance turned support and
extended the rally into the 1.09 handle. From a risk management perspective,
the buyers will now have a much better risk to reward setup around the upward
trendline where they will also find the red 21 moving average for confluence. The
sellers, on the other hand, will want to see the price breaking below the
trendline to invalidate the bullish setup and increase the bearish bets into
the lows.

EURUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the latest
leg higher diverged with
the MACD which
is generally a sign of weakening momentum often followed by pullbacks or
reversals. In this case, it might be a signal for a pullback into the trendline.

Upcoming Events

Today we will see the latest US Jobless Claims figures
and the US PMIs.

This article was written by FL Contributors at www.forexlive.com.

• Prior +2.9%
• Core CPI +3.3% vs +3.3% y/y prelim
• Prior +3.4%

No changes to the initial estimates, so there’s not much to extrapolate from this. Although core inflation is nearing 3%, it remains a tall order to get from here back down to the 2% mark in the months ahead.

This article was written by Justin Low at www.forexlive.com.

If you need a refresher, the total rate cuts priced in for the ECB this year at the end of December was 161 bps. Right now, it is standing at just 96 bps after the PMI data today. What a difference two months make, eh?

Meanwhile, the odds of an April rate cut have slipped further to just ~39%. And that is likely to be narrowed down further when we get to the March policy meeting in two weeks‘ time. It seems like traders are aligning with the narrative put out by major central banks, and not just for the Fed.

In the case of the ECB, this now sees a June rate cut as being the most plausible. The balance between the give and take for such pricing seems to be one that markets and the central bank can agree with currently.

This article was written by Justin Low at www.forexlive.com.

• Prior 54.3
• Manufacturing PMI 47.1 vs 47.5 expected
• Prior 47.0
• Composite PMI 53.3 vs 52.9 expected
• Prior 52.9

This should allay any recession fears about the UK economy to start the new year at least. Demand conditions continue to show an improvement but inflationary pressures remain elevated on the month. The rate of input price inflation in particular was the highest since August last year. And that’s not much of a welcome development for the BOE. S&P Global notes that:

“UK economic growth has accelerated in February, with
the early PMI survey data pointing to the largest rise in
business activity for nine months. This is by no means a
one-off improvement, as faster growth has now been
recorded for four straight months after a brief spell of
decline late last year.

“The survey data point to the economy growing at a
quarterly rate of 0.2-3% in the first quarter of 2024, allaying
fears that last year’s downturn will have spilled over into
2024 and suggesting that the UK’s ‘recession’ is already
over.

“It’s particularly encouraging to see that the upturn in
growth has been accompanied by a surge in optimism
about year-ahead prospects to the highest for two years,
in turn encouraging a second month of increased
employment.

“However, there are a number of areas of concern. First,
the upturn is being driven to a large extent by resurgent
demand for financial services, in turn predicated on hopes
of an imminent pivot to rate cutting by the Bank of England.
In contrast, manufacturing remains mired in contraction
and consumer-facing service providers are reporting
falling activity amid the ongoing cost of living crisis.

“Second, February saw the highest degree of supply chain
delays for over one and a half years, linked to Red Sea
shipping disruptions. The resulting increased cost of
shipping contributed to the largest monthly rise in selling
prices for goods seen over the past nine months.

“Service sector inflation also ticked higher, remaining
stubbornly elevated thanks to higher wage costs and the
pass-through of some higher goods prices. The survey
data signal consumer price inflation running around the 4%
level in the coming months – double the Bank of England’s
target.

“With growth accelerating and prices on the rise again,
February’s data mean policymakers are increasingly likely
to err on the side of caution when considering the
appropriateness of cutting interest rates.”

This article was written by Justin Low at www.forexlive.com.