• US February PCE core inflation +2.8% y/y vs +2.8% expected
• Fed’s Powell: Today’s PCE report is ‚pretty much in line with our expectations‘
• Dallas Fed February trimmed mean PCE price index +3.4% vs +5.7% prior
• US oil output fell 6% in January — EIA
• A cryptic comment from Xi Jinping is making waves
• US February wholesale inventories +0.5% vs -0.3% prior
• US February advance goods trade balance -91.84B vs -90.51B prior
• Goldman Sachs: Anticipated Fed and ECB policy trajectories through 2025

Markets:

• Markets closed for Good Friday
• FX essentially unchanged

A holiday throughout global markets usually makes for a quiet news day but that wasn’t the case today with US PCE, Powell and some other odds-and-ends.

The PCE report had something for everyone but there was some US dollar selling in the aftermath. I suspect some of that was a sigh of relief that it wasn’t hot and some was due to the m/m core unrounded at +0.261% compared to +0.3% expected. Now some of that might have been because of an upward revision to January to +0.5% from +0.4% but the market will take the help where it can get it.

Powell himself struck me as incrementally more hawkish, though he did say that today’s PCE report was „pretty much in line with our expectations“ and „good to see“. At the same time, he said the Fed wants to see more inflation reports like last year, which indicates it’s not enough.

What struck me was that he didn’t highlight the opportunity to cut rates this year, though he wasn’t really asked about it. In the longer term, he said that if inflation stays sticky for longer, they will hold for longer (importantly, he didn’t say they would hike).

In any case, the early US dollar selling was slowly faded and we’re winding down the day exactly where it began. Monday is also a holiday in parts of the world (Europe in particular) so we might not be back to full throttle in markets. Watch Asia though with the BOJ’s Tankan and China’s manufacturing PMI.

Have a happy Easter.

This article was written by Adam Button at www.forexlive.com.

Traditional markets are closed today but bitcoin continues to tick over. Crypto often offers a view into risk sentiment and the 2% fall in BTC today might indicate some bearishness creeping in, particularly as the selling accelerated after Powell’s comments in San Francisco.

The Fed Chairman mostly stuck to the recent script.

„The economy is strong, we see very strong growth,“ he said, adding that risks are two-sided and that they will be watching data. Notably, he didn’t highlight that the Fed plans to cut rates this year as he previously had; though he wasn’t asked directly about it.

BTC was trading right at $70,000 before the comments and fell afterwards, though some of that might have been stops as the big figure and the European lows gave way.

For what it’s worth, I don’t think this move in BTC means too much, given where liquidity is and the size of the move (which is entirely within the range of the past 4 days).

This article was written by Adam Button at www.forexlive.com.

Goldman Sachs outlines its projections for the monetary policy paths of both the Federal Reserve and the European Central Bank (ECB) over the coming years. The firm expects the Fed to initiate a series of rate cuts starting in June 2024, eventually reaching a terminal rate range of 3.25-3.5%. In contrast, the ECB is forecasted to begin cutting rates in June 2024, with a series of reductions leading to a policy rate of 2.25%.

Key Points:

• Federal Reserve Outlook:
  • Holding Pattern: Anticipated to maintain the current fed funds rate range (5.25-5.5%) until June.
  • Rate Cuts: Projected to cut rates by 25 basis points in June, September, and December 2024, followed by four additional cuts in 2025, and one final cut in 2026.
  • Balance Sheet Adjustment: Expected reduction of the Treasury runoff cap from $60 billion to $30 billion monthly post-May FOMC meeting.

• European Central Bank Forecast:

  • Steady Stance: Predicted to hold the policy rate at 4.00% until a June cut.
  • Rate Reductions: Foreseen series of 25 basis point cuts per meeting, reducing the policy rate to 2.25% with a total of five cuts in 2024 and two more in 2025.

Conclusion:

Goldman Sachs provides a detailed forecast for the future actions of the Fed and ECB, suggesting a cautious approach towards easing monetary policy. While both central banks are projected to start cutting rates in June 2024, the pace and extent of these cuts differ, reflecting divergent economic conditions and policy considerations. This analysis offers valuable insights for market participants navigating the evolving interest rate environment.

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This article was written by Adam Button at www.forexlive.com.

Here is a great chart today from Jim Bianco who illustrates what will happen to year-over-year core PCE if it runs at 0.33% m/m, which is the two-year average.

It also highlights that a series of lower numbers will roll off, particularly in June, July and August.

The good news is that today’s PCE core number was +0.261%, which is already putting downward pressure on this projection.

It also shouldn’t be too big of a surprise that inflation will be high with 0.33% monthly inflation. That’s a pace that would imply 4% annual inflation.

Digging through the details of today’s inflation report, much of it is focused in health care. Could those be one-off increases? Or will they be persistent as they work their way through different providers?

Meanwhile, there has been some helpful disinflation in autos and food. But will that run out before the inflation in healthcare and auto repair does?

This article was written by Adam Button at www.forexlive.com.

The question here is: Do you take comfort in the step down from January or do you worry that core inflation is still above 3%?

• One month annualized trimmed mean 3.4% vs 5.7% prior
• Six month 3.1% vs 3.0% prior
• 12 month 3.1% vs 3.2% prior

One of the drivers of inflation (and a 5.15% weigh in the index) was a 1.4% m/m rise in ‚other purchased meals‘, which highlights how tough it is to eat out.

Other notable components included:

• Physician services +1.8%
• Financial service charges, fees, and commissions +3.5%
• Nonprofit hospitals‘ services to households +3.8%
• Government hospitals+3.8%
• Electricity +4.0%
• Motor vehicle maintenance and repair+4.8%
• Other purchased meals +4.1%
• Dental services +5.3%

Note the preponderance of rising health care costs.

Some sources of inflation trimmed out:

• Computer software and accessories +52.6%
• Shoes and other footwear +21.6%
• Net health insurance +15.5%
• Tenant-occupied stationary homes and landlord durables+5.7%

This article was written by Adam Button at www.forexlive.com.

USD

• The Fed left interest rates unchanged as
  expected at the last meeting with basically no change to the statement. The Dot
  Plot still showed three rate cuts for 2024 and the economic projections were
  upgraded with growth and inflation higher and the unemployment rate lower.
• Fed Chair Powell
  maintained a neutral stance as he said that it was premature to react to the
  recent inflation data given possible bumps on the way to their 2% target.
• The US CPI and
  the US PPI beat
  expectations for the second consecutive month.
• The US Jobless Claims beat
  expectations.
• The latest US Manufacturing
  PMI
  beat expectations while the Services PMI missed slightly. Both the measures
  remain in expansion though.
• The US Consumer
  Confidence missed expectations although the labour
  market details improved.
• The market expects the first rate cut in June.

AUD

• The
  RBA left interest rates unchanged as expected at the last meeting and
  finally dropped the tightening bias.
• The
  last Monthly CPI report came in line with
  expectations although the underlying inflation measure increased from the prior
  month.
• The
  latest labour market report missed expectations by a big
  margin.
• The
  wage price index surprised to the upside as wage
  growth in Australia remains strong.
• The
  latest Australian PMIs showed the Manufacturing PMI falling
  further into contraction while the Services PMI continue to increase and remain
  in expansion.
• The
  market expects the first rate cut in August.

AUDUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that AUDUSD has
tested the key support zone
around the 0.65 level several times in the last couple of weeks, and yesterday
finally fell below it. The sellers should now have even more conviction for a
drop into the 0.6443 low and will likely increase the bearish bets. The buyers,
on the other hand, will want to see the price getting back above the key
support to invalidate the bearish setup and position for a rally into the
0.6623 resistance.

AUDUSD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that we have the
red 21 moving average acting
as dynamic resistance and the black minor trendline defining
the current downtrend. If the price were to pull back into the trendline, we
can expect the sellers to lean onto it to position for a drop into the 0.6443
level with a better risk to reward setup. The buyers, on the other hand, will
want to see the price breaking higher to invalidate the bearish setup and
position for a rally into the 0.6623 resistance.

AUDUSD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see more
closely the recent price action with the price yesterday breaking below the key
support and coming back to retest it. We will likely see some consolidation
here as we head into the US PCE report.

Upcoming Events

Today we conclude the week with the US PCE and Fed
Chair Powell.

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

• Prior +0.8%
• HICP +1.3% vs +1.5% y/y expected
• Prior +0.8%

Istat notes that the slight acceleration in inflation this month was partly caused by an easing in the recent trend of declining prices for energy goods. Meanwhile, core annual inflation is seen at 2.5% – marginally lower from 2.6% in February.

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

The pressure is most definitely on for the Japanese yen as the Easter break approaches. The barrage of verbal interventions by Tokyo officials have helped to stem the bleeding in trading this week. But is merely just a band aid at this point in time?

The BOJ took a big step in putting an end to negative rates and scrapping its yield curve control policy this month. That being said, one can argue that they should have already started that process some time last year already. I mean, even they themselves are finding that the inflation trend in Japan is perhaps turning now.

Taking that into consideration, it will make it tougher to justify any further normalisation steps. They are very much in a race against the clock, despite all the recent positive wage developments.

From a technical standpoint, traders were also cautious and took profit when USD/JPY tested the 2022 and 2023 highs as seen above. The 151.90-94 region remains a key technical ceiling for price now as we settle down ahead of the weekend break.

So, what’s next for USD/JPY?

If you look at the psychological perspective, traders are definitely being more wary and cautious now after the many warnings by Tokyo. But if the BOJ faces an uphill task to normalise policy further while the Fed may still have a 50-50 chance of not acting in June, there is an argument for USD/JPY to move up further as the pressure keeps up.

As we have seen in trading this week, this is a market that is very much driven by big data. I mean, the lack of releases this week shows how languid price action can be. This makes the US jobs report on Friday next week an even more critical factor for USD/JPY right now.

The tricky part is identifying when Tokyo might step in to intervene, if need be. Times of lesser liquidity are mostly preferred and the Easter break does present such an opportunity. However, traders are not really giving Japanese officials much of a sniff at the moment. USD/JPY has backed away slightly from the above high points, but is still looking poised.

That could see traders look to slowly push the same threshold again when we get to trading next week, all else being equal. But in doing so, the risk now is that we’re getting closer and closer to the point where Tokyo might say enough is enough.

As much as Japanese officials want to fight the uptrend, they also have to be realistic. Unless USD/JPY oversteps by surging to 153 to 154 before the US jobs report, they might want to wait until Friday before acting. And if there is reason to, I reckon they might actually do so in the late stages of the day.

For now, buyers can take heart in the fact that the pair is set to close flat this week. There is some consolidation now around 151.15 to 151.50 over the last two days. Meanwhile, key near-term levels are also starting to build closer with the 200-hour moving average at 151.28 currently. Keep above that and buyers will stay poised going into next week.

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

Yesterday,
the Nasdaq Composite finished another day basically flat as the lack of
catalysts and the holiday-shortened week led to a rangebound price action. Today we get the US PCE report and some time later
we will have Fed Chair Powell speaking. Both shouldn’t offer any surprises as
the PCE figures generally come in line with expectations and Powell is unlikely
to say anything different from his press conference. As a reminder, today the
market is closed for Good Friday holiday, so if we do get a surprising PCE
release, it will be traded when the market reopens on Monday.

Nasdaq Composite Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the Nasdaq
Composite has
been diverging with
the MACD for a
long time. This is generally a sign of weakening momentum often followed by
pullbacks or reversals. We continue to trade inside the rising wedge, and
it’s worth to keep an eye on it because if the price were to break below the trendline, the
sellers will have much more conviction to look for new lows with the base of
the wedge at 14477 being the ultimate target.

Nasdaq Composite Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that the
price bounced near the bottom trendline recently where we had the confluence of the
red 21 moving average and
the 50% Fibonacci
retracement level. The buyers keep on stepping in
with a defined risk below the trendline to position for a rally into a new
all-time high. The sellers, on the other hand, will want to wait for the price to
break below the trendline before considering short positions.

Nasdaq Composite Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see more
closely the recent price action with the price consolidating around the major
trendline. We can also see that we have now a black counter-trendline. The
buyers will want to see the price breaking above the counter-trendline to gain
even more conviction and increase the bullish bets into a new all-time high.

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

Towards the end of last year, it was a case of traders being overly aggressive in pricing in rate cuts. And in the first two months of this year, we saw that pricing course correct a fair bit. But where does that leave us now? The SNB has already surprised with action and there are perhaps rate cuts coming in Q2. So, let’s take stock of the situation.

Here was how things looked like at the end of December, in terms of what is priced in for the whole of 2024:

• Federal Reserve: -156 bps (first -25 bps in March)
• European Central Bank: -161 bps (first -25 bps in April)
• Bank of England: -141 bps (first -25 bps in May)
• Swiss National Bank: -66 bps (first -25 bps in June)
• Bank of Canada: -120 bps (first -25 bps in April)
• Reserve Bank of Australia: -53 bps (first -25 bps in June)
• Reserve Bank of New Zealand: -93 bps (first -25 bps in May)

And this is how things are playing out right now:

• Federal Reserve: -58 bps (first -25 bps in July)
• European Central Bank: -89 bps (first full -25 bps in July, although June is 96% priced in)
• Bank of England: -70 bps (first -25 bps in August)
• Swiss National Bank: -45 bps (second -25 bps in September)
• Bank of Canada: -69 bps (first -25 bps in July)
• Reserve Bank of Australia: -38 bps (first full -25 bps in November, although September is 97% priced in)
• Reserve Bank of New Zealand: -74 bps (first -25 bps in August)

Those are definitely considerable shifts in pricing when compared to the end of last year. But during the course of the first three months, they might’ve been hardly felt. That especially if you’re looking at risk trades and stocks.

The dollar is one of the beneficiaries though, especially in March. That considering US economic developments might warrant the Fed to hold rates higher for longer compared to most other major economies. The odds of a June move for the Fed are only roughly 68% now. If anything, it speaks to the uncertainty in play as opposed to market pricing for the ECB.

In that lieu, we could be starting to see some diverging trade opportunities from hereon. The SNB has already kick started the race to cut rates. And we’re already seeing what that is doing to the Swiss franc. So, the winning currency now will be the one whose central bank will be most resistant in conforming to the above rate cut expectations.

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