Last week, the Dow Jones couldn’t extend the rally
into a new all-time high as the stronger than expected inflation data and the
quick rise in Treasury yields weighed on the stock market. There’s been also
some profit-taking as we approach the FOMC rate decision on Wednesday with the
risk of a hawkish surprise. Overall, the market is likely to remain supported
as long as the Fed does not restart to hike rates, or the economy does not
falter.

Dow Jones Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the Dow Jones broke
out of the rising wedge recently
and started to consolidate just beneath the bottom trendline. The
breakout opened the door for a bigger correction into the 38043 level, but the
strong battle between buyers and sellers led to a rangebound price action ahead
of the FOMC rate decision. There are no catalysts now trading into the event,
so the technicals will likely lead the price action.

Dow Jones Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that
the price managed to break above the downward trendline but got smacked back
down following some strong US data that raised the risk of a hawkish Fed on Wednesday.
We now have a range between the 38461 support and
the 39119 resistance, so the market participants will likely “play the range”
by buying at support and selling at resistance until we get a breakout.

Dow Jones Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see more
closely the recent rangebound price action. If the dip-buyers come into the
market strongly, then a break above the recent swing high at 38930 could lead
to a break above the 39119 resistance, although it might be better to wait for
the FOMC before taking new trades.

Upcoming Events

This week we have the FOMC rate decision on Wednesday
where the Fed is expected to keep rates unchanged. The market will be on the
lookout for hawkish surprises though following the stronger than expected
inflation data. On Thursday, we conclude with the latest US PMIs and Jobless
Claims figures.

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

After having dropped from 150.00 to 146.00 levels in early March, it looked like the BOJ finally got the ball rolling in USD/JPY. But amid a combination of more cautious trades and higher Treasury yields, the pair failed to muster much strength in chasing any major downside momentum. Today, the pair is trading at 149.20 now as we look towards the BOJ policy decision tomorrow. So, what’s next?

The writing is in the sand already that the BOJ is set to put an end to negative rates tomorrow. Adding to that, it is likely that they will also scrap its yield curve control (YCC) policy. However, they are still to retain bond buying operations and one can expect the statement to also lean more dovishly. That considering the central bank will not want to spook investors with a drastic and major change of narrative at the central bank.

In short, the moves tomorrow can be seen as baby steps for the BOJ to start moving in the other direction. But are these small steps enough to trigger a much stronger rally in the yen currency? There is potential but personally, I’d like to see other market forces corroborate to this story as well.

The thing about USD/JPY shorts or any other shorts in yen pairs is that they are producing a negative carry. And right now, 10-year Treasury yields are still up by some 45 bps so far this year, sitting around 4.30% presently. That’s not quite something that will get investors to thinking that they should move their money away from the dollar so quickly.

And if the BOJ is taking just small and prolonged measures in tightening policy, it will take some time for rate differentials to narrow. That is not something that will benefit the yen all too much.

For the yen to crack the code, I reckon it also needs much softer US economic data to follow. That will likely prompt the Fed to cut sooner and that will also show up in the rates market. So, unless we do see Treasury yields start to drop more meaningfully, it may be tough to argue for any steep downside in USD/JPY even as the BOJ looks to act tomorrow.

That being said, the yen does have some good news to work with as we approach the latter stages of March. This is the time when we do see a repatriation of funds back to Japan as the fiscal year-end looks to wrap up. Most of the time, the flows are staggered but it could be a supportive factor for the currency in the final two weeks.

As for the technical perspective, there is also plenty of work for USD/JPY sellers to do. The confluence of the 100 and 200-hour moving averages at 148.01-16 currently is the first area that needs to be broken. That will then establish a more bearish near-term bias.

Following which, the 100-day moving average at 147.59 currently is the next key level to get past. Only then can we start talking about a chase towards its 200-day moving average at around 146.41 at the moment.

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

The euro area trade surplus narrowed in January on a non-seasonally adjusted basis. But after accounting for seasonal adjustments, the total trade surplus grew from €14.3 billion in December to €28.1 billion in January. This comes as exports grew by 2.1% on the month while imports fell by 4.0% on the month.

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

EURUSD: 1:25GBPUSD: 4:50USDJPY: 8:50USDCHF: 13:50USDCAD: 17:00NZDUSD: 20:23

This article was written by Greg Michalowski at www.forexlive.com.

The Bank of Japan meets on March 18 and 19. Like the subheading says, the news flow on a likely tightening of policy is relentless.

The Nikkei had this:

• Bank of Japan to end negative interest rates on Tuesday with rates to rise to 0.00-0.10% … Yet-another Bank of Japan leak

Bloomberg (gated) has canvassed MUFG (Mitsubishi UFJ Financial Group is a Japanese financial services group that is the largest in the world measured by assets) and reports this:

• „Given the stronger-than-expected wage talk outcome, the BOJ will likely ditch negative rates and yield curve control next week,“ said veteran BOJ watcher Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities.
• „The BOJ could have waited until April if the wage talk outcome wasn’t this strong. But with markets already pricing in the chance of an exit, it would actually be a surprise if the bank forgoes ditching negative rates next week,“ she said.

From a separate report, on Rengo, a federation of unions, saying its members have so far secured deals averaging 5.28%, a figure that far outpaces the initial 3.8% tally from a year ago and easily the highest in 30 years:

• “This clears the last hurdle for the BOJ and I think it will scrap its negative rate next week and make a shift toward policy normalization,” said Taro Saito, head of economic research at NLI Research Institute. “If they stand pat now, markets will get volatile and the yen is likely to plunge.”

And, Reuters:

• Upon exiting its negative rate policy, the BOJ will also ditch its bond yield control and discontinue purchases of risky assets such as exchange-traded funds (ETF), sources have told Reuters

I did convey more cautious thoughts from UBS:

• Bank of Japan won’t tighten policy next week – here’s why they’ll wait until April

But I think they may be standing in front of a freight train.

—

The BOJ announcement will come sometime after 0230 GMT on Tuesday 19 March. The Bank doesn’t have a firmly scheduled time for its meeting statement, it never does.

This article was written by Eamonn Sheridan at www.forexlive.com.

• NY Fed empire manufacturing survey for March -20.90 vs -7.00 estimate
• UMich March prelim consumer sentiment 76.5 vs 76.9 expected
• Canada January wholesale trade +0.1% vs -0.6% expected
• US February industrial production +0.1% vs 0.0% expected
• ECB’s Makhlouf: Picture should be sufficiently clear in June
• ECB’s Lane: Labor market is softening in many ways
• ECB’s Vujcic says prefers 25 bps pace of cuts but weaker economy could speed the pace
• Goldman Sachs raises average gold price forecast for 2024 to $2180 from $2090.
• US February import prices +0.3% vs +0.3% expected
• Canada February housing starts 253K vs 230K expected

Markets:

• Gold down $4 to $2156
• US 10-year yields up 2.3 bps to 4.33%
• WTI crude oil down 28-cents to $80.98
• S&P 500 down 0.6%
• EUR leads, NZD lags

The Ides of March passed without much drama this year as the dollar made gains in Asia and Europe then largely hung onto them in North American trade. The empire survey was soft and UMich was generally in line but neither one left ripples.

The market appears to have been driven by fixed income flows and angst about the BOJ and Fed next week. Those two central banks are headed in opposite directions but you wouldn’t know if from USD/JPY, which rose again. That pair appears to be more worried about bond market structural changes from the BOJ than rate differentials. That pushed US 10s to a retest of the highs of the year (but not above). USD/JPY climbed to a high of 149.17 in a 30 pip rally in US trade and is slated to finish near the highs.

Another BOJ leak suggests that a hike is priced in, though I imagine there are still fears about mechanical breaks on the first hike in 17 years.

There was some moderate USD buying elsewhere on higher yields and risk aversion. US equities were hit for the second day with many pointing to quad witching as a driver. Adobe was also beaten up in a sign that AI hype might be flagging.

We look forward to the BOJ and Fed meetings next week. Until then, have a great weekend.

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

The three major indices are closing lower both on the day and for the trading week. The declines are led by the NASDAQ index. A snapshot of the final numbers shows:

• Dow industrial average -190.91 point or -0.49% at 38714.76
• S&P index -33.37 points or -0.65% at 5117.10
• NASDAQ index -155.37 points or -0.96% at 15973.16

For the trading week, the Dow Industrial Average was near unchanged. The NASDAQ index was the weakest of the three:

• Dow industrial average, -0.02%.
• S&P index -0.13%
• NASDAQ index, -0.70%

Looking at the small-cap Russell 2000 index it rose today but was down sharply on the week:

• Russell 2000+8.146 points or 0.40% at 2039.32. For the trading week, the index fell -2.08%

This article was written by Greg Michalowski at www.forexlive.com.

ANZ highlights the unexpected resilience of physical gold demand despite the surge in prices, attributing steady global consumption levels to strong interest from China and India. The report discusses the potential limits to further demand growth due to the prolonged period of elevated prices.

Key Points:

1. Steady Global Consumption: Global gold demand remained consistent at 3,057t in 2023, closely aligning with the decade’s average despite record-high prices.
2. China’s Strong Demand: A 16% year-on-year increase in China’s gold consumption to 959t in 2023, driven by pent-up demand and a shift towards value preservation amidst economic uncertainties.
3. India’s Sustained Interest: India’s gold consumption slightly declined in 2023 but stayed near pre-pandemic levels, supported by a growing affluent population.
4. Price Sensitivity and Demand Outlook: While physical demand has shown resilience, the continued high price levels may challenge further growth in demand, especially in key markets like China and India.

Conclusion:

Despite the challenges posed by sustained high gold prices, physical demand for gold has shown remarkable resilience, particularly in major markets such as China and India. ANZ suggests that while this trend demonstrates the underlying strength and appeal of gold as an investment, the potential for significant demand growth may be curtailed unless there’s a notable change in price trends. Demand is expected to remain stable, reflecting the balance between value preservation motives and price sensitivity among consumers.

Gold today is down $4 to $2156.

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

The Bank of Japan will hike rates for the first time since 2017 on Tuesday, according to Nikkei.

„The Bank of Japan is expected to end its negative interest rates when its policy board meets on Monday and Tuesday, Nikkei has learned.“

They report that the BOJ began coordinating both within and outside the BOJ on Friday to end the policy. Rather than just hiking to 0.00%, as assumed, the BOJ will hike to a range in the 0.00-0.10% range.

The final piece of the puzzle appears to be the latest wage numbers, something we’ve been highlighting.

This year’s wage hikes „are of a level that even reflationists who are cautious about modifying monetary policy would accept a change in policy,“ according to a BOJ source.

There has been minimal market reaction to this report, which suggests that the moves are already priced in.

The moves will also end yield curve control and scrap purchases of ETFs and REITs.

USD/JPY last traded at 149.05, up 73 pips today and unchanged since this report.

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

Headlines:

• Japanese yen struggles despite nod for BOJ policy shift
• Japan’s largest trade union: Preliminary data shows average wage hike of 5.28% this year
• BOJ reportedly making final preparations to exit negative rates next week
• Bitcoin stumbles further, now down 6% on the day
• ECB’s Rehn: We have started discussing rate cuts
• France February final CPI +3.0% vs +2.9% y/y prelim
• Italy February final CPI +0.8% vs +0.8% y/y prelim
• China February M2 money supply +8.7% vs +8.8% y/y expected
• PBOC said to have no intention of actively draining cash from the banking system

Markets:

• CHF leads, NZD lags on the day
• European equities higher; S&P 500 futures up 0.2%
• US 10-year yields down 2.5 bps to 4.273%
• Gold up 0.2% to $2,166.74
• WTI crude down 0.6% to $80.31
• Bitcoin down 4.8% to $67,301

There wasn’t too much movement on the session but the most notable one was yen bulls being dealt a setback once again.

The disappointment from the BOJ last year is a scarring reminder that pricing in an imminent policy shift too soon for the Japanese central bank hasn’t always worked out. And so, even after a more positive development on the spring wage negotiations and a report that the BOJ is making final adjustments to end negative rates next week, the yen fell after a minor bump higher.

USD/JPY fell to a low of 148.03 on the headlines but quickly recovered that to 148.30, before extending its advance to 148.80.

As for the dollar, it is keeping steadier after the jump in Treasury yields yesterday. And even with the slight retreat in yields today, it isn’t factoring in too much for now. The aussie and kiwi are among the laggards as the Chinese yuan weakened further, following a move by the PBOC to drain liquidity via its medium-term loan operation for the first time in 16 months.

Besides that, equities are keeping cautiously optimistic after yesterday’s drop. European indices are consolidating at record highs while US futures are also pointing to light gains ahead of the Wall Street open.

And we also saw Bitcoin stumble further after selling pressures in late US trading yesterday. The cryptocurrency now looks to solidify a drop below $70,000 with the low earlier briefly hitting just under $66,000. It is now down nearly 5% to $67,301.

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