Daily Market Notes Tickmill UK

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Fed dovish pivot expectations shift to 1Q 2024 as November US CPI shows resilience

The foreign exchange market is churning today, with several key currencies experiencing volatility as investors digest the latest economic data and anticipate upcoming central bank decisions. Gold, the safe-haven asset, is feeling the heat after the release of US inflation figures, which reinforced expectations that the Federal Reserve won’t rush with much anticipated dovish pivot, preferring instead to leave this risk for 1Q 2024 meetings. This has boosted the US Dollar against a basket of currencies, while the UK Pound is under pressure following disappointing economic data. Meanwhile, the Japanese Yen is finding limited support despite improved business confidence, as risk-on sentiment prevails.

Gold Price Stumbles After US Inflation Data

Gold prices are struggling this Wednesday, losing its recent gains after the release of US inflation figures. While the 0.1% MoM increase was in line with market expectations, the annual figure of 3.1% suggests that inflation pressures in the US economy remain stubborn. This has somewhat provided floor for the USD, making gold a little bit less attractive as a hedge against inflation.

Fed Policy In Focus, USD Holds Firm

The US Dollar Index is hovering around 103.80, buoyed by the Fed’s anticipated policy stance. While the central bank is widely expected to keep rates unchanged this week, market players are pricing in an 80% chance of a rate cut by May. This has pushed the US Treasury yields lower, but the USD remains supported in anticipation of the Federal Open Market Committee (FOMC) meeting and Chair Jerome Powell’s comments.

UK Economic Data Dampens Pound Sentiment

The British Pound has taken a tumble after data revealed a sharper-than-expected contraction in UK GDP in October. This, coupled with a slowdown in wage growth (7.2% actual vs. 7.7% exp.), has fueled concerns about the country’s economic outlook. Investors are now looking towards the Bank of England’s monetary policy meeting on Thursday, hoping for clues about a potential shift towards a dovish stance.

JPY Struggles Despite Improved Business Confidence

The Japanese Yen is facing headwinds despite the release of positive Tankan survey data, which showed improved business confidence among large manufacturers. The prevailing risk-on environment is undermining the JPY’s safe-haven appeal, while traders are also awaiting the Bank of Japan’s monetary policy decision next week.

All Eyes on Fed and BoJ Meetings

The global forex market will remain fixated on central banks this week, with the Fed’s policy decision and Chair Powell’s press conference taking center stage today. The focus will be on the updated economic projections and any hints about the future path of interest rates. Investors will then turn their attention to the BoJ’s meeting next week, seeking clarity on the future of the central bank’s negative interest rate policy.
Overall, the forex market is navigating crosscurrents as investors weigh the latest economic data and central bank policies. While the US Dollar is finding support from the Fed’s hawkish stance, the Pound and Yen are facing headwinds from their respective economic challenges. The upcoming central bank meetings will be crucial for determining the future direction of these currencies and the broader forex market.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Central Bank Meetings Overview: Igniting the Chase for Yield

This week saw a series of central bank meetings that delivered a plethora of surprises. In particular, the communication from both the Federal Reserve and the European Central Bank diverged from market consensus expectations. Strong data on the U.S. economy, including service activity indices (PMI), employment and wage growth in November, and changes in unemployment benefit claims in recent weeks, shaped expectations that the Fed would maintain a pause at its Wednesday meeting and initiate a discussion on monetary policy easing only in the first quarter of 2024. Additionally, there were hypotheses that the sharp decline in bond yields (risk-free rates, benchmarks for all other rates in the economy) in October-November would have a “heating” effect on the economy, delaying the onset of central bank rate cuts. However, the Fed didn’t hold back; Powell, during the press conference, clearly stated that FOMC members had already begun contemplating and discussing how the rate would decrease in 2024. This became the first major surprise for the market. The updated central bank economic forecasts also worked against the dollar: Core PCE for 2023 and 2024 were revised downward compared to September, while real output increased for 2024. This provided an additional stimulus for market participants to increase demand for risk assets.

The second surprise was the signal of resistance from the ECB to market expectations of aggressive easing of credit conditions in 2024. Although the European Central Bank left the main policy parameters unchanged yesterday, Lagarde’s statement at the press conference that the members of the Governing Council had not discussed rate cuts at all was a surprise. The element of surprise here was that incoming data on the European economy for October-November seemed to indicate a much more significant slowing impulse than in the U.S. For example, core inflation sharply slowed from 4.2% in October to 3.6% in November (forecast 3.9%), and GDP contracted by 0.1% in the third quarter. Considering that the ECB’s sole mandate is to maintain price stability (inflation targeting), the fact that the sharp decline in inflation in November did not prompt a change in rhetoric became an additional argument in favor of the strengthening of the Euro yesterday.

One tangible result of the sharp shift in market expectations after the meetings of the two leading central banks was the decline in the spread in short-term bond yields between the U.S. and the EU, by more than 20 basis points over the last two days:

The pound sterling strengthened on Wednesday and Thursday by more than two percent after the Fed signaled a softer stance on rates ahead, while the Bank of England, at Thursday’s meeting, emphasized that inflation risks persisted, so ruling out further rate hikes was not possible. Three officials out of nine advocated for a rate hike on Thursday, which was also a rather hawkish signal for the market (especially against the backdrop of the Fed decision). Both the bond market and interest rate derivatives revised their expectations for central bank policy easing in 2024 by approximately 7-10 basis points. This was enough to attract investors to British fixed-income assets, triggering an upward movement in GBP:

A highly successful combination for risk assets, particularly the U.S. stock market, was the combination of the Fed’s dovish signal and strong U.S. reports on Thursday. Retail sales in October grew by 0.3% for the month, beating the forecast of -0.1%, and initial jobless claims sharply fell again – to 202K against a forecast of 220K. The data unequivocally increase risk appetite in the market, and the prospect that this will be compounded by a chase for yield (i.e., speculative momentum) shifts short-term risks for the U.S. market towards further growth, at least until the end of the year.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Weak US GDP data points to dovish surprise in Core PCE report

The US dollar found itself on the back foot Thursday after a mixed bag of economic releases, including a downward revision to the third-quarter GDP growth estimate from 5.2% to 4.9%. The GDP Price Index also saw a downward adjustment, from 3.5% to 3.3%, indicating a smaller inflationary impact on growth than initially anticipated. While Initial Jobless Claims came in slightly below expectations at 205,000, the overall data failed to impress, contributing to a broad-based USD selloff in the afternoon.

EURUSD seized the opportunity to extend its recent rally, soaring above 1.1000 for the first time since early November. The softer dollar, coupled with growing expectations for a dovish surprise in the upcoming PCE data, fuelled the euro’s ascent. Markets anticipate a smaller-than-forecast rise in the core PCE Price Index, potentially paving the way for a slower pace of Fed tightening and further euro gains. Should the data confirm these expectations, parity could be within reach for the EUR/USD pair.

GBPUSD fluctuated around 1.2700 after UK retail sales defied expectations with a 1.3% jump in November. This seemingly positive development was offset by a downward revision to Q3 GDP growth, which tempered sterling’s enthusiasm. The pair’s near-term direction likely hinges on the PCE data and broader risk sentiment. A dovish surprise from the data could lift the pound alongside global equities, while a hawkish tilt could trigger a pullback for GBPUSD.

The Japanese yen weakened after minutes from the Bank of Japan’s October meeting reiterated its commitment to ultra-loose monetary policy. This stance, coupled with a modest dollar uptick, pushed USDJPY higher despite speculation about a potential policy shift in early 2024. The divergence in Fed and BoJ policy paths could cap further gains for the USDJPY pair, with yen bulls awaiting any hawkish signals from the BoJ in the coming months.

Gold prices climbed to a near three-week high above $2,055 before retreating slightly on a firmer dollar. However, the precious metal’s appeal remains underpinned by the prospect of a global rate-cutting cycle in 2024, with the Fed potentially softening its hawkish stance after the PCE data release. Any dovish surprise could trigger a further rally for gold, while a hawkish tilt could lead to a temporary dip, presenting a buying opportunity for investors.

The Personal Consumption Expenditures Price Index takes center stage later today, with investors dissecting every detail for clues about the Fed’s future rate trajectory. A dovish surprise could send the dollar tumbling and propel risk assets higher, while a hawkish tilt could trigger a reversal of recent trends. With central bank policies and economic data taking center stage across major economies, buckle up for a potentially volatile ride in global markets.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Mixed Signals in the Markets: US Employment and PMI Reports Shake Things Up

The job report and Services PMI in the US gave the market a bit of a rollercoaster ride last Friday. The dollar flexed its muscles after the employment stats revealed the US added 216K jobs in December, beating the expected 170K. However, the November job figure got a downgrade to 173K. Unemployment held steady at 3.7%, defying expectations of a slight increase to 3.8%. The real surprise came with wage growth, shooting up by 0.4% for the month, outpacing the expected 0.3%. As we know, wage growth is a leading indicator for inflation, making the future outlook and the possibility of a Fed rate cut in March less clear-cut. Over the year, average wages in the US grew by 4.1%, beating the expected 3.9%.

But the dollar rally on the report was short-lived. EURUSD briefly dipped to 1.0880, but within an hour not only recovered but also trended upward. The US Services PMI report played a part in this turnaround. Service sector activity is a key leading indicator for economic expansion, responsible for about 70% of the US GDP and employing around 70% of the workforce. The overall Services PMI dropped from 52.7 to 50.6 points, but the hiring sub-index plummeted from 50.7 to 43.3. In other words, a significant number of respondents reported sharp hiring cuts in December compared to the previous month.

The component of new orders in the report also declined in December compared to November but remained in the expansion zone, i.e., above 50 points.

Analyzing the overall market reaction to Friday’s stats, it seems the market put more weight on the PMI report. This isn’t surprising, considering labor market indicators are lagging indicators – they reflect peaks and troughs later than business cycle indicators. On the contrary, survey indicators like PMI can preemptively signal a shift in a business cycle.

The mixed US stats were offset by Eurozone data. European inflation in December accelerated but less than expected – 2.9% against a forecast of 3.0%. Signs of slowing inflation increased the likelihood of the ECB adopting a softer policy earlier than anticipated, weakening the upward momentum of the euro. As a result, EURUSD continues to stabilize in the 1.09-1.10 range it occupied before the release of fundamental data.

An important event this week will be the release of the US inflation report on Thursday. The consensus forecast anticipates a slowdown in core inflation from 4 to 3.8% and an acceleration in overall inflation from 3.1% to 3.2%. Also, on this day, we’ll get a batch of labor market data – initial claims for unemployment benefits. In recent weeks, their behavior has become ambiguous again – the weekly increase has started to decline and is nearing the minimum of the current business cycle:

As seen, US statistics remain quite contradictory, possibly because the disparity is evident when comparing leading indicators (survey data) and lagging indicators (such as labor market data). Therefore, markets are not rushing to reassess the chances of a Fed policy easing, which remains the main driver for all asset classes.

The dynamics of the dollar this week will likely hinge on the inflation report. Until Thursday, we can expect stabilization in current ranges. The EURUSD retest of the 1.10 level and the subsequent pullback vividly show that the market is not ready to determine the trend for the main currency pair just yet.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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AUDUSD: Potential U-Turn at the Start of the New Year Fueled by Continued CPI Slowdown

The EURUSD’s mid-term uptrend has hit the pause button, chilling in a tight range of 1.09-1.10 for the sixth day straight, hugging the lower edge of the trend channel:

Last Friday’s dollar-buying signal, triggered by a robust NFP report that outperformed expectations in job growth, unemployment, and wage increase, got dampened by a pretty weak US Services PMI, especially the hiring component. It plummeted below 50 to 43.7 points, raising concerns that official labor market stats in the early months of the new year might take a hit (as PMI indicators are forward-looking). This, in turn, cranks up the pressure on the Fed to ease policy in March. So, last Friday, EURUSD reacted with a ‘sawtooth’ pattern, dropping to 1.0880 and later bouncing back to 1.10. This week’s consolidation likely stems from uncertainty ahead of Thursday’s US inflation report (CPI), which could set the forex trend for several days or even a week.

Technically speaking, the current EURUSD pattern – consolidation near the lower edge of a fairly lengthy uptrend (over two months) – often precedes a breakthrough below the lower boundary.

A slightly wider range is still forming for GBPUSD – the price has been waltzing between 1.26 and 1.28 for almost a month. The preceding trend to this range, like with EURUSD, popped up in mid-November when the market started to factor in a change in the Fed’s QE stance in Q1 2024:

Today, the head of the Bank of England, Bailey, will speak, and the market will be watching to see if he leans towards taming inflation or preventing further economic slowdown. Recent economic output data showed that the UK teetered on the edge of a recession in Q3 2023 – GDP shrank by 0.1%. The BoE’s latest communication expressed uncertainty about growth prospects in Q4, indicating rising pressure to shift the tone towards a more market-friendly monetary policy that boosts credit growth. However, compared to the EU and the US, inflation in the UK is higher, making the dilemma sharper for the BoE than for counterparts in other leading countries. Friday’s data on monthly GDP changes, construction volumes, and trade balances in the UK should shed light on which alternative the BoE will ultimately lean towards.

A more intriguing situation is unfolding on the AUDUSD chart – since the new year kicked in, the price has switched to a downtrend, bouncing off a long-term resistance line:

Today, Australia’s monthly CPI indicator was released – inflation continued to slow down in November, beating expectations at 4.3% on an annual basis against the forecasted 4.4%. In the recent RBA meeting, rate hikes were put on hold, citing the need to assess the effectiveness of the previous series of increases. The new price data increases the likelihood that the tightening pause will be extended, which should negatively impact the attractiveness of the AUD. Considering the technical aspect of the AUDUSD chart, the risks of further decline are growing.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

[Tickmill-News]

US CPI: analysis of preliminary data points to potential upside surprise

The currency market and the US bond market are in a bit of a pickle, prices moving in tight ranges or resembling fading oscillations. It seems like all the hot info that came out recently is already baked into the prices:

Hopes for figuring out the next trend are pinned on today’s US inflation report. Overall inflation is expected to pick up slightly, going from 3.1% in November to 3.2% in December. At the same time, core inflation (excluding food, fuel, and other volatile components), according to the consensus forecast, will continue to slow down, hitting 3.8% versus 4% last month. Markets are more sensitive to surprises in core inflation, as its changes have a stronger impact on the Fed’s policy - central bank folks, including Powell, have pointed this out multiple times. The deal is, if you base monetary policy on highly volatile data, it’s clear that the volatility of interest rates and other Fed policy parameters will increase. Clearly, this volatility will spill over into the economy and financial markets, which is definitely not in the interest of the central bank, whose task is to smooth out fluctuations. Check out the graph below showing overall and core inflation: the first one resembles swings around the trend, which is represented by core inflation.

To understand what to expect from today’s report, consider the following points:

• The NFP report showed that wage growth exceeded expectations in December, coming in at 0.4% MoM compared to the forecast of 0.3%. Wage growth correlates with changes in consumer inflation.
• The New York Fed, which weekly forecasts the quarterly GDP growth of the US based on incoming stats, raised the forecast for the fourth quarter from 2.26% in early December 2023 to 2.54% at the beginning of January 2024.

Overall improvements in December data may indirectly suggest that inflationary pressure in the economy may have increased in December.

• Initial claims for unemployment benefits in December (an employment indicator) again fell in December.
• Consumer credit sharply increased in November - $23.75 billion (forecast $5.13 billion). This can be seen as a leading indicator of increased consumer spending in December.
• The University of Michigan Consumer Confidence Index jumped to 69.7 points in December - the second-highest reading for 2023.

Among the reports that could indicate a negative surprise in December inflation, only the US Services PMI stands out. The overall index dropped to 50.6 points, but a significant contribution to the decline came from the employment component, which plummeted to 43.7 points.

In general, preliminary data and the seasonal surge in consumer spending at the end of November and in December tilt the risks for the CPI report towards a positive surprise. However, in my view, this won’t significantly and for long change the market expectations for the March easing of the Fed’s policy: the market will prefer to wait for data for January and February. If the report disappoints, an asymmetric reaction is likely: the market will be much more willing to factor in a Fed rate cut in March. In this case, the dollar could start to decline intensively along with bond yields, and the search for yield will sharply intensify, allowing the US stock market to refresh recent highs: the S&P could head towards 5000 points.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Global Markets React to Economic Data and Central Bank Actions: EUR/USD, GBP, AUD in Focus

The EUR/USD pair faced slight downward pressure during the European session, however later recovered to the equilibrium rate of 1.0950 which has been sustained by the market from the last week amid of lack of conclusive signals from the Fed or the ECB:

Dollar index (DXY) rose amidst a thin-volume trading session marked by elevated volatility due to the extended weekend in the United States for Martin Luther King Birthday. US equity futures trade slightly in the red, signaling a risk-averse market sentiment. Investors remain wary about the risk that recent improvement in the US data (CPI, labor market indicators) will translate into inflation persistence in other economies, hence steering clear from aggressive dollar bids.

The focus now shifts to the eagerly anticipated US monthly Retail Sales data for December, scheduled for Thursday. Analysts expect a 0.4% growth, surpassing the 0.3% increase recorded in November. The trajectory of the USD Index remains closely tied to market perceptions of March rate cut by the Federal Reserve. According to the CME Fedwatch tool, traders are currently assigning a 70% probability of a rate cut by the Fed in March.

On the Eurozone front, Germany’s preliminary GDP for the fourth quarter of 2023 contracted by 0.3%, in line with expectations. This comes after a notable 1.8% growth in the previous period. While market participants foresee the European Central Bank contemplating interest rate cuts, ECB Chief Economist Philip Lane downplayed the possibility, citing recent inflation data.

Turning to the Pound Sterling, it faces a sell-off ahead of the United Kingdom labor market data for the three months ending November due on Tuesday. Soft wage growth data could potentially contribute to a decline in households’ spending power, aiding in the gradual return of inflation towards the 2% target. The demand for labor remains vulnerable, with job postings in the UK declining by 32% in December compared to a year ago, according to the Recruitment and Employment Confederation (REC).

Down under in Australia, higher TD Securities Inflation data indicates mounting price pressures in the coming months. Additionally, job advertisements increased in December after three consecutive declines. However, these positive figures failed to offer significant support to the Australian Dollar. The People’s Bank of China’s decision to leave its benchmark rate unchanged disappointed investors who were expecting a rate cut to bolster the country’s economic recovery. Consequently, the China-proxy Australian Dollar is under increasing bearish pressure, with key supports at 0.6620 (50-day SMA) and 0.6580 (100-day SMA). The pair witnessed reversal of the bullish trend at the start of new year which adds to the view that pair might have entered medium-term downward trend.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

[Tickmill-News]

First batch of US labor market data trims chances for Fed rate cut in March

The EURUSD is attempting to develop the ascending impulse that emerged in the second half of the American session yesterday. However, resistance appeared above the 1.09 level, causing the price to drop below, and it is consolidating near the round level. Higher timeframes indicate a breakout of the ascending corridor, which strengthened after the release of the US retail sales report on Thursday. The data exceeded expectations, with both the overall and core sales indicators growing significantly stronger than forecasts. As a result, the market was forced to reassess the chances of a Fed rate cut: futures are now pricing in a 60% chance, down from 70% the previous week:

Since the beginning of the year, data on the US economy has consistently improved. The trend was set by the December NFP (Non-Farm Payrolls) report – job growth, wage payments, and the unemployment rate exceeded expectations positively, indicating that the labor market in December was stronger than anticipated. This was followed by the December CPI (Consumer Price Index), which showed that a significant component, such as prices for housing-related services, accelerated growth in December. Yesterday’s retail sales and comments from Fed officials convinced the market that it had jumped ahead of ‘dovish’ rate expectations. The first batch of labor market data in January – initial unemployment claims for the week ending January 13 – showed an increase of only 187K, compared to expectations of 207K. This is close to the minimum of the current business cycle and should be interpreted as a strong argument in favor of the Fed extending the pause in March.

However, the market’s reaction in the form of a strengthening dollar and rising bond yields still appears disproportionate to the improvement in December data. It is likely that the market is trying to attribute the strong indicators to a seasonal effect, based on increased consumer spending in December. Therefore, the market is likely to wait for January figures to make a final conclusion about the outcome of the March Fed meeting.

The ECB, in turn, is also trying to convey to the market that expectations for monetary policy easing in the EU are somewhat exaggerated. Several heads of European banks, predominantly known for their hawkish positions, have slightly adjusted their stance on the easing cycle this year, indicating that the market’s expectations for a cumulative rate cut of 150 basis points this year appear overstated. However, in an interview with Bloomberg on Wednesday, Lagarde did not actively resist dovish expectations. As a result, the risk balance for EURUSD, considering the positions of central banks and taking into account data on unemployment benefit claims, looks biased towards a slightly greater decline, probably towards the 1.0750 area (December’s low):

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

[Tickmill-News]

EURUSD and USJDPY analysis: strong dollar caps any upside but situation could quickly change

The Bank of Japan left the parameters of monetary policy unchanged at today’s meeting. BOJ Governor Ueda adopted an ambiguous position regarding withdrawal from QE policy and interest rate hikes, even though in the last quarter of last year, the Japanese yen significantly strengthened on expectations that the BOJ would begin tapering its accommodative policy and ‘catch up’ with its counterparts in monetary tightening. Trying to explain the indecision, the BOJ chief referred to the uncertainty associated with negotiations on wage hikes by major Japanese companies. Without wage hikes, raising interest rates would be risky, as the BOJ could inadvertently trigger deflationary pressure in the economy and undermine all progress on inflation. Fragility of the situation is underscored by the fact that wage growth in Japan slowed to just 0.2% in November of last year after decent figures in several previous months:

Societe Generale believes that, at the moment, USDJPY is overvalued, and alignment with current yield spreads between Japanese and American bonds (one of the main factors driving yen demand) would be achieved at a cheaper USDJPY rate. However, it is worth noting that current rates in the U.S. reflect the shift in market expectations that the first rate cut in the U.S. is being pushed from March to May, following a series of strong reports on the American economy in January. If the positive series of fundamental data on the U.S. is interrupted, USDJPY should move lower, aligning with the yield differentials.

From a technical analysis perspective, the upward trend in USDJPY that started early last year was disrupted at the end of October when speculation arose that the Bank of Japan would begin unwinding its ultra-accommodative policy. The price broke the ascending channel, declined until the end of the year, but turned around at the beginning of the new year. The reversal zone was around 140 yen per dollar, where a long-term support line also passed (orange line on the chart):

The fact that the price held above the long-term uptrend line and energetically began to rise after the New Year indicates that there are long-term investors in the market expecting the overall trend of yen depreciation to continue. Short-term and medium-term resistance levels for the pair will be 148 (where the price is currently) and the area of 152 yen per dollar. In case of a breakthrough and consolidation, the rally may only accelerate.

The EURUSD pair continues to fluctuate in a narrow range of 1.085-1.09 on Tuesday, to which it shifted after the release of the U.S. inflation report and strong labor market data (initial unemployment claims) last week. The earlier range was 1.09-1.10. Interestingly, the pair still cannot determine its direction and simply moves from range to range. This indicates that both the ECB and the Fed have not formed a market consensus that they are transitioning to a policy easing cycle. This week, clarity is expected to come from the ECB on Thursday, as well as EU services and manufacturing PMI on Wednesday. These will be preliminary PMI readings from HCOB for the first month of this year. A slight improvement is expected for the EU and Germany (more precisely, the pace of activity deterioration will slow down slightly). As for the ECB meeting, the market will assess whose side Lagarde will ultimately take – the hawks or doves of the Governing Council. Unlike the Fed, where there is a relative consensus, ECB officials are divided – some are eager to cut rates, while others prefer to wait for more convincing signals from the inflation front before changing rates.

From a technical point of view, short-term risks for EURUSD are tilted towards the downside, albeit slightly. Attempting to go long on the pair can be considered in the area of 1.08 (the December low of last year):

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

[Tickmill-News]

European PMI aids the Euro in overcoming bearish retracement

The US Dollar faced a broad decline against major currencies on Wednesday, driven by positive developments in European economic indicators and uncertainties surrounding the upcoming US PMI release. The initial shift occurred with the release of German and European PMI numbers, indicating improvements in various sectors, albeit remaining in contraction territory.

Euro Gains Ground on Upbeat German PMI:

German Purchase Manager Index figures propelled the Euro higher against the US Dollar, with German Manufacturing rising from 43.3 to 45.4. French Manufacturing also delivered an optimistic surprise, climbing from 44.4 to 46.6. These positive data points contributed to a boost in European indices, with all major markets showing gains of over 1%. The upward jump of EURUSD coincided with the release of PMI data which hints that the data managed to surprise investors and was the cause of buying:

US Economic Indicators and Equity Markets:
Contrasting with the positive European data, the US Mortgage Applications, as reported by the Mortgage Bankers Association, came in at 3.7%, a significant drop from the previous week’s 10.4%. A potential further contraction in US PMI numbers later in the day could spell trouble for the US Dollar.

UK Economic Activity Accelerates:

In the UK, private sector economic activity continued to expand at an accelerating pace in January, with the S&P Global Composite PMI rising to 52.5 from 52.1 in December, surpassing the market consensus of 52.2. S&P Global Manufacturing PMI edged higher to 47.3 from 46.2, while the Services PMI advanced to 53.8 from 53.4.

Currency Pairs in Focus: GBP/USD and USD/CAD

The GBP/USD gathered bullish momentum on the back of the upbeat PMI readings, rising 0.6% on the day to 1.2760.
On the other hand, the USD/CAD faced challenges in capitalizing on intraday gains ahead of Canada’s interest rate decision. The pair extended its losing streak, trading near 1.3450 during the European session inside the pullback channel after testing 1.35. It is worth noting that major resistance slope line has been broken in the pair after which corrective channel ensued, which creates opportunity to bet on extension of the rally upon completion of the pullback:

The decline in crude oil prices could exert pressure on the Canadian Dollar, limiting the losses of the USD/CAD pair.

Bank of Canada’s Expected Hold:

The Canadian Dollar receives upward support amid expectations that the Bank of Canada will maintain its policy rate during its first meeting of the year. This would mark the fourth consecutive time the BoC keeps the interest rate at 5.0%. The anticipation for a steady policy is reinforced by December’s inflation figures, revealing an unexpected increase of 3.4% in consumer prices over the last twelve months.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Selling risks persist for EURUSD as key bearish targets are yet to be met

The EUR/USD pair isn’t catching a break, heading south for the second day straight and hovering around 1.0790 during the European session on Thursday. The mighty US Dollar is gaining traction against the Euro, riding high on the words of Federal Reserve Chair Jerome Powell, who slammed the door on a rate cut in the upcoming March meeting. Powell’s skepticism that the committee will be ready to slash rates by March is also giving a boost to US Treasury yields. However, the Euro attempts to make a comeback attempt following the release of mixed Eurozone inflation data.

In the technical realm of EUR/USD, the setup signals that the selling pressure might stick around until the price hits the support area near December 2023’s lowest point at 1.0740. Brace for a potential rebound from there, pushing the price towards the upper boundary of the current bearish channel:

The Euro faced challenges after softer preliminary CPI data from Germany hit the wires on Wednesday. This has raised expectations of a potential interest rate cut by the ECB in June. However, ECB member Mario Centeno suggested that if inflation keeps heading in its current direction in the upcoming months, the ECB’s next move might involve cutting rates, potentially marking the beginning of a cycle aimed at normalizing interest rates. ECB Vice President Luis de Guindos hinted that interest rate cuts would only be on the table when there’s confidence that inflation aligns with the central bank’s 2% goal.

In terms of economic indicators, the Eurozone HICP showed a 3.3% increase in January, surpassing consensus estimate of 3.2%. The annual CPI met expectations at 2.8%, in line with the previous reading of 2.9%. The month-over-month report displayed a 0.4% decline, reversing the 0.2% rise observed in December:

In Germany, the CPI for January showed a year-on-year increase of 2.9%, falling short of the anticipated 3.0% and marking a substantial drop from December’s 3.7%. Monthly consumer inflation, however, met expectations, rising to 0.2% from the previous 0.1%. The German HICP increased by 3.1%, lower than the previous figure of 3.8%.

The US Dollar continues to flex its muscles amid a growing consensus that the Federal Reserve’s policy easing action might not happen until May. Fed funds futures indicate an increased likelihood that the Fed will maintain its stance in March, with odds jumping from 45.5% before the FOMC meeting to over 65% on Thursday. Furthermore, the probability of a quarter-point rate cut in May exceeds 60%:

Thursday’s spotlight is expected to be on significant economic indicators such as US Initial Jobless Claims, Nonfarm Productivity, and ISM Manufacturing PMI. The recent report of a 107K jobs increase for January in the ADP Employment Change fell short of the expected 145K and marked a decrease from the previous reading of 158K in December.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Dollar Rises on Strong Data, Technicals Signal Near Pullback Point

The latest data on the American economy show that it is growing significantly faster than previously thought: over the past two weeks, the estimate of the quarterly GDP growth rate, calculated by the New York Federal Reserve, has been revised upwards by almost 1% - from 2.42% to 3.31%:

This reassessment was driven by four key reports: NFP, January consumer spending, PMI for services and manufacturing, as well as real GDP for the fourth quarter of 2023. All four indicators significantly exceeded expectations.

Against the backdrop of improvements in the data, the dollar has launched a major offensive. On the daily chart of the DXY (dollar index), one can see how the price reversed in late December of last year. Classic for market price dynamics at the beginning of the year. The strengthening of the dollar reflects a higher potential for the US economy compared to other economies, and given that some market participants are still trying to attribute positive surprises to a temporary phenomenon, the growth is clearly not exhausted. In an attempt to identify the point where growth will at least slow down, one can turn to technical analysis: a rebound could occur in the area of the trend line formed by the two previous peaks - in October 2022 and October 2023. This will roughly correspond to the level of 105 on the DXY:

It turns out that the decline of the major pairs EURUSD and GBPUSD may continue: to 1.0680-1.0690 for the first pair and 1.24 for the second. The catalyst for movement could be the CPI for January, which will be released next week, February 13th. Preliminary data, including a sharp increase in jobs in January and wages, suggest that the risks are skewed towards higher CPI values than forecast (core inflation 0.3% m/m).

But before the CPI, markets may pay attention to the BLS annual report on seasonal adjustments to inflation. The release is scheduled for today. Since seasonality is not taken into account in the calculation of annual inflation indicators, there will be no changes to them. But when it comes to monthly inflation figures, seasonality begins to be taken into account, so the monthly inflation rates for November and December of last year may be revised. Considering that the basis for optimistic market sentiments is precisely the surprises of the last two months, including inflation indicators, the market is likely to be sensitive to surprises in the data today. It is worth noting, for example, that adjustments for last year showed that inflation growth rates in the second half of the year were underestimated, leading to the conclusion that the Fed needs to make more efforts to contain inflation. Therefore, today’s report may have important implications for both Fed policy and market prices.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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US Dollar Wavers as Disinflation Narrative Persists Amid Mixed Economic Signals

The US Dollar (USD) finds itself in a precarious position, relinquishing its recent gains following a surge triggered by a red-hot inflation report earlier in the week. However Fed members are cautioning against overinterpretation of this singular CPI data point, emphasizing the broader disinflationary trajectory that persists. Austan Goolsbee, a member of the US Federal Reserve, echoed sentiments urging markets not to tether their expectations solely to the CPI figure, hinting at the underlying factors shaping monetary policy.

Amidst a flurry of economic data releases, markets’ attention is fixated on Retail Sales figures, viewed as a litmus test for the resilience of consumer spending. Complementing this heavyweight data, Industrial Production and Import/Export Prices offer supplementary insights into the prevailing disinflationary undercurrents, reinforcing the notion that the recent CPI spike may indeed be an aberration. Additionally, market participants eagerly await remarks from Fed member Christopher Waller, slated to provide further clarity on the central bank’s stance.

The US Dollar Index now finds itself in a holding pattern, faltering in its attempt to breach the elusive 105 threshold. With expectations of imminent rate adjustments looming, the DXY is poised to retreat, potentially revisiting support levels at 104 or lower.

Technical setup of DXY played out as expected: price recoiled from medium-term crucial resistance line, validating its importance. Potential selling target could be the support line that guided recovery of the USD since the start of the year, corresponding to 104 level on this instrument:

The Pound Sterling (GBP) grapples with its own set of challenges, tumbling amid news of the United Kingdom slipping into a technical recession. Preliminary Gross Domestic Product (GDP) data from the UK Office for National Statistics underscored a contraction of 0.3% in the fourth quarter, marking the second consecutive quarterly decline—a telltale sign of recession. The bleak economic backdrop intensifies speculation of preemptive rate cuts by the Bank of England, aimed at resuscitating growth momentum.

As economic indicators flash warning signals, the Pound Sterling braces for further downside pressure, exacerbated by foreign outflows amid mounting expectations of dovish policy maneuvers by the BoE. Despite steady consumer price inflation in January, diverging from investor projections of acceleration, BoE Governor Andrew Bailey remains sanguine about price pressures converging toward the target threshold by spring. Nevertheless, the specter of stubborn wage growth and service inflation poses formidable hurdles to achieving the coveted 2% inflation benchmark.

The GBP/USD pair retraces from intraday highs, eyeing a downward trajectory towards the 200-day Exponential Moving Average (EMA) positioned around 1.2520. From there, however the pair has good chances to rebound on the back of broad weakness of the USD described in the previous paragraph:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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EURUSD remains range-bound as markets look for fresh upside catalysts

EUR/USD advanced slightly on Friday following strong bearish backlash after the pair tested horizontal resistance level on Thursday. Despite the intensive pullback, managed to sustain pricing above 1.08, with technical indicators signaling a lack of significant bearish momentum. The reversal was instigated by a weakening US Dollar fueled by improved risk appetite in the market. However, the US Treasury bond yields’ upward trajectory, supported by favorable US data, limited bearish momentum in the greenback, restraining EUR/USD’s bullish aspirations.

Meanwhile, GBP/USD demonstrated resilience as it surged above 1.2700, marking its highest level in three weeks. The momentum, propelled by robust UK private sector activity, encountered headwinds in the American session on Thursday, leading to a partial retracement. Despite early stability above 1.2650, GBP/USD remains vulnerable to fluctuations, especially in the absence of significant data releases from both the UK and the US.

Key economic data releases played a pivotal role in shaping market sentiments. Notably, the decline in first-time jobless claims in the US to its lowest level since early January, coupled with the S&P Global Composite PMI maintaining expansion territory, underscored the resilience of the US economy. Similarly, upbeat PMI data from the UK fueled optimism surrounding the Pound Sterling. However, the surge in the benchmark 10-year US Treasury bond yield to its highest level since late November acted as a catalyst for the US Dollar’s resurgence, exerting pressure on GBP/USD’s upward trajectory.

Gold prices experienced a retreat from weekly highs, hovering around $2,025 during Friday’s London session. The downward pressure stemmed from tempered expectations of imminent rate cuts by the Fed. As Fed policymakers express reservations regarding inflation reaching the coveted 2% target, gold struggles to significantly extend its upside momentum.

The Fed’s stance on interest rates, characterized by a preference for maintaining rates within the 5.25%-5.50% range for some time in order to properly assess monetary policy transmission, reflects a cautious approach towards monetary policy. Amidst January’s persistent inflation figures, policymakers exhibit a reluctance to hastily implement rate cuts, fearing potential repercussions on consumer price inflation. This cautious demeanor underscores the Fed’s commitment to a balanced approach in navigating economic uncertainties.

Gold, often viewed as a safe-haven asset, faces headwinds as the opportunity cost of holding non-yielding assets escalates amidst the Fed’s inclination towards prolonging higher interest rates. The diminished prospects of rate cuts diminish the attractiveness of gold as an investment avenue, prompting investors to reassess their portfolios. Consequently, gold prices experience downward pressure amidst the prevailing market sentiment favoring the US Dollar.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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EUR/USD Sees Modest Rise Amidst Dollar Weakness

At the dawn of the trading week, the EUR/USD pair has started on a modestly positive note, edging higher by 0.2%, however remaining below the intraday resistance level at 1.0850. This upward movement comes against the backdrop of a weakened US Dollar, driven primarily by the surprising move from the Chinese central bank, which fixed the Renminbi higher on Monday morning, sparking broad-based USD selling.

While today’s uptick suggests a slight recovery, the pair remains ensnared within a new short-term downtrend, trying to regain ground above the critical 200-day SMA line. This downtrend was further exacerbated by last week’s decline following the release of Eurozone and US flash PMI data, which underscored the resilience of the US economy, contrasting with Eurozone performance.

The resilience of the US economy has reignited discussions regarding the Federal Reserve’s monetary policy trajectory. Despite earlier expectations of three interest rate cuts this year, recent data indicating US economic strength has prompted reassessment. If the Fed opts for a slower rate-cutting pace, it could buoy the US Dollar, drawing increased foreign capital inflows seeking higher returns.

Short-term technical analysis of the Dollar index (DXY) shows that the FOMC-induced decline towards 103 was followed by sharp rebound to 104 and breakout of the medium-term resistance line. This recovery occurred after Friday encouraging PMI data which could be a sign that the market cast doubts on the dovish Fed signals made during the FOMC meeting. In turn, this increases risk that the rally will continue after retest of the line which flipped into support level:

Adding to the market’s speculation, the surprise decision by the Swiss National Bank to cut interest rates has raised concerns that the European Central Bank might follow suit. Historically, the ECB and SNB have mirrored each other’s policy moves, albeit with the SNB typically following the ECB. However, the recent SNB decision has flipped this narrative, prompting investors to anticipate potential ECB rate adjustments on signs of easing inflation pressures on the European continent, as indicated by the SNB move.

The statements from ECB Chief Economist Philip Lane affirming confidence in wage inflation converging towards the 2% inflation target further underscore the likelihood of impending rate cuts, adding another layer of complexity to the currency markets. Wage pressures have often been cited by the ECB officials as the key variable that explains persistence of inflation due to the self-reinforcing “wage-consumption-inflation” cycle.

Further complicating the currency landscape is the intervention talk emanating from Japan, with Masato Kanda, Japan’s currency chief, hinting at potential market operations to support the Yen. USD/JPY has dipped, hovering in the 151.300s, spurred by the historical precedent of Bank of Japan (BoJ) intervention when the pair breaches the 150.000 mark. This sentiment is bolstered by data from the currency futures market, revealing an increase in bearish bets on the Yen during the BoJ’s March meeting week, despite rumors of a rate hike.

The vicinity around the 150 level on USDJPY has consistently posed a formidable obstacle for buyers, with the pair failing to maintain any substantial upward momentum amid concerns of currency interventions. It seems probable that this scenario will persist, and any data indicating weakness in the USD is likely to trigger a surge in bearish momentum, pushing the pair towards levels more favorable for the Japanese government. From a technical standpoint, it appears that the near-term selling target for the pair could lie within the range of 148-148.50:

In the realm of upcoming events, attention turns to the Federal Reserve Bank of Atlanta President Raphael Bostic’s scheduled speech, which could offer insights into the Fed’s policy stance. Additionally, US New Home Sales and the Chicago Fed National Activity Index releases are poised to influence market sentiment.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Dollar rally stalls as market participants wait for more signals of the strength of the US economy

The EUR/USD pair is showing resilience, defending its near-term support level at 1.08. Broad, albeit slight dollar weakness contributed to the strength of the pair. However, recent economic data releases from both the United States and Europe have injected fresh dynamics into the forex landscape, influencing market sentiment and shaping expectations regarding central bank policies.

The release of US Durable Goods Orders for February presented a positive surprise, with headline figures surpassing expectations. Headline Durable Goods Orders rose by 1.4%, exceeding the forecast of 1.3%. Moreover, various components, including Durable Goods Orders ex Defense and Nondefense Capital Goods ex Aircraft, outperformed market estimates.

Furthermore, commentary from Federal Reserve officials, particularly from Raphael Bostic, President of the Federal Reserve Bank of Atlanta, has been notably hawkish. Bostic’s assertion that the Fed is likely to cut interest rates only once in 2024 contrasts with the market’s expectation of three cuts. Such comments temper the extent of dollar sell-offs and contribute positively to the upside potential of the currency.

Conversely, European Central Bank officials have adopted a more dovish tone, signaling a potential shift towards earlier interest rate cuts. ECB Member Fabio Panetta’s remarks regarding the emerging consensus for a rate cut, possibly as early as June, have weighed on the Euro’s outlook. Additionally, ECB Chief Economist Philip Lane’s confidence in wage inflation reaching levels consistent with the ECB’s target suggests a forthcoming start of a policy easing cycle.

The prospect of lower interest rates in Europe, coupled with the likelihood of a dovish stance from the ECB, rein in upward momentum in the pair. A rate cut in April, as hinted by Panetta, could further undermine the Euro’s attractiveness, potentially leading to decreased inflows of foreign capital.

Short-term technical analysis suggests that the resurgence of buying pressure, signaling a potential pullback, may occur specifically around the medium-support line, aligning with the 1.0750 level:

Meanwhile, the Pound Sterling has exhibited strength against the US Dollar, extending its gains above 1.2650. Despite concerns regarding the Bank of England’s (BoE) dovish stance, driven by lower-than-anticipated inflation data, the GBP/USD pair has shown resilience. The BoE’s recent monetary policy statement indicated a reluctance to reduce interest rates immediately, although market expectations of rate cuts persist.

Technically speaking, the recent price action has seen a breakdown below both the resistance line and the ascending support line, leaving the pair with limited prospects for an immediate recovery. Sellers are likely to target the 1.25 level before considering their triumph, potentially paving the way for bullish momentum thereafter:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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EUR/USD Dips as Diverging Central Bank Policies Drive Market Sentiment

In the ever-volatile currency markets, the EUR/USD pair demonstrated a downward trajectory on Wednesday, eventually stabilizing in a narrow band between 1.082 and 1.084. Despite Spanish inflation data for March meeting economists’ expectations at 3.2% for the headline reading, the pair struggles to meaningfully extend it upsides. In this scenario, Tuesday’s bearish reversal can be interpreted as a mere technical retreat from the psychological barrier of the 1.08 level, which swiftly lost momentum, reinstating the pair on its downward trajectory:

EURUSD’s bearish trend underscores the contrasting stances of two major central banks: the US Federal Reserve and the European Central Bank, shaping investor sentiment and currency flows.

The recent discourse among ECB officials suggests a growing likelihood of interest rate cuts in June. ECB Governing Council members, including Madis Muller and Fabio Panetta, hinted at an impending shift in monetary policy, emphasizing the emergence of a consensus favoring rate reductions. Moreover, ECB Chief Economist Philip Lane underscored that wage inflation is steadily converging towards normal levels, signaling a significant step toward removing the primary obstacle to ECB interest rate cuts in the near future.

Conversely, the Federal Reserve’s stance appears more divided. While Chairman Jerome Powell advocates for a June rate cut, dissenting voices within the Fed, such as Raphael Bostic and Lisa Cook, advocate for a cautious approach, emphasizing the need for sustainable inflation returns. The variance in viewpoints within the Federal Reserve underscores a heightened level of uncertainty regarding both the pace and magnitude of future interest rate adjustments, surpassing the level of uncertainty observed within the ECB’s discussions.

Looking ahead, market participants eagerly anticipate Friday’s release of the Core Personal Consumption Expenditures Price Index, considered the Fed’s preferred gauge of inflation. The result of this event is positioned to significantly impact the Fed’s decision-making process regarding interest rates, as it will complement CPI data by offering a comprehensive view of inflation from the perspective of demand side (compared to supply side as in the case with CPI).

In parallel, the gold market remains in a consolidative phase below the $2,200 mark, as traders await further clarity on the Fed’s policy trajectory. The upcoming PCE release on Friday is expected to provide meaningful insights into USD demand dynamics, thereby impacting gold prices. Moreover, upbeat US economic indicators, such as Tuesday’s Durable Goods Orders, coupled with persistent inflationary pressures, may prolong the Fed’s stance on maintaining higher interest rates, bolstering US Treasury bond yields and the USD.

Short-term price analysis in Gold reveals an initial failure to sustain a breakout above the $2200 level on March 21. Nevertheless, the price swiftly regained its upward momentum, positioning itself for a second attempt at testing this critical level. This resilience suggests robust demand near the all-time high, heightening the likelihood of a new record being established in the near future. A potential bullish target could reside in the mid-$2250 range, reflecting the market’s underlying strength and upward trajectory:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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EUR/USD Steadies Near 1.0850 Amid ECB and Fed Speculations

In Tuesday’s European session, the EUR/USD remains tethered near the 1.0850 mark, indicating a lull in market volatility. This stasis reflects the greenback’s stabilization as traders anticipate pivotal data releases later this week, notably the FOMC Minutes and the preliminary S&P Global PMI data for May.

On the technical side, pair recently broke out of a descending channel, signifying a potential shift in trend. However, the pair is currently experiencing a brief consolidation phase just below the 1.0900 level, as indicated by the recent price action. The Relative Strength Index is hovering near the 60 mark, suggesting that there is still some bullish momentum left in the market. If the pair manages to break above the immediate resistance around 1.0935, it could target higher levels. Conversely, a failure to maintain this breakout could see the pair retreating back towards the 1.0723 support level:

The Euro is holding its ground against the Dollar despite brewing uncertainties around the ECB potential rate cuts post-June. ECB policymakers exhibit a cautious stance, leaning towards initiating a rate reduction next month while refraining from committing to further cuts. They emphasize a data-dependent approach moving forward.

However, some ECB officials have voiced concerns that additional rate cuts in July could reignite price pressures, undermining efforts to control inflation. The ECB’s cautious optimism is juxtaposed against the backdrop of US inflation, which showed a predictable decline in April. Nonetheless, the Federal Reserve remains unconvinced that inflation is steadily retreating towards its 2% target.

Michael Barr, the Fed’s Vice Chair for Supervision, underscored on Monday that the first quarter’s inflation data was disheartening, lacking the reassurance needed to relax monetary policy. Barr’s remarks highlight the Fed’s commitment to a stringent policy stance until further evidence of disinflation emerges. Complementing this, Atlanta Fed President Raphael Bostic told Bloomberg TV that the Fed requires additional time to ascertain a consistent downtrend in inflation.

Investors are now keenly awaiting the FOMC minutes from May’s policy meeting, due Wednesday. These minutes are expected to convey a hawkish sentiment, driven by the stubborn inflation seen in early 2023, which suggests a stalled disinflationary trend.

Across the channel, the Pound Sterling is maintaining a solid position, trading slightly above 1.2700 in the European session. The trajectory of GBP/USD will likely be influenced by the upcoming UK CPI data for April and the FOMC minutes.

Should the anticipated decline in UK inflation materialize, it would bolster investor confidence that inflationary pressures are easing back towards the 2% target. This would fuel expectations for the Bank of England to initiate rate cuts sooner, with the debate centered around whether the first cut will occur in June or August.

The GBP/USD pair is currently trading within a short-term ascending channel, suggesting a bullish outlook in the near term. The pair is approaching the long-term key resistance around 1.2795, which, if breached, could open the door for further gains towards the 1.3000 level. The RSI is hovering near the 60 mark, indicating there is room for additional upward momentum. Immediate support is found at 1.2634, and a drop below this level could see the pair testing the lower boundary of the ascending channel around 1.2516. Overall, the bias remains slightly bullish as long as the pair stays above the 1.2634 support:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.