Tag: Fed

  • Forex Steadies Despite Fresh Tariff Escalations, Euro Starting to Retreat

    Forex Steadies Despite Fresh Tariff Escalations, Euro Starting to Retreat


    Forex markets are holding steady in Asian session today, with major currency pairs and crosses all confined within yesterday’s ranges. This lack of movement comes despite a significant escalation in the US-led trade war, as newly effective 25% tariffs on all imported steel and aluminum products have prompted swift retaliation from key trading partners.

    In swift response, European Commission President Ursula von der Leyen announced that the EU would implement retaliatory tariffs of equal value, totaling USD 28B, on a range of U.S. goods beyond just metals. These measures, set to take effect on April 1, will target products including textiles, home appliances, and agricultural goods. Meanwhile, Canada—the largest supplier of steel and aluminum to the U.S.—is hitting back with USD 20.7B in countermeasures, including a 25% tariff on steel products and increased taxes on US imports ranging from computers and servers to sports equipment and cast-iron products.

    The UK has so far taken a more measured stance, with Prime Minister Keir Starmer stating that his government is adopting a “pragmatic approach” while keeping “all options on the table.” Australia, on the other hand, has opted against imposing retaliatory tariffs for now. Instead, Prime Minister Anthony Albanese has urged Australians to support local industries in response to Trump’s refusal to grant an exemption for Australian steel and aluminum.

    On the currency front, Swiss Franc is so far the weakest performer this week, followed by Loonie and then Dollar. Euro remains the strongest but has begun to pull back in some crosses, with Sterling and Kiwi following. Yen and Aussie are positioned in the middle.

    Technically, EUR/CAD could have formed a short term top at 1.5856, ahead of 200% projection of 1.4483 to 1.5058 from 1.4740 at 1.5890. Some consolidations would be seen with risk of deeper retreat to 55 4H EMA (now at 1.5470). But downside should be contained by 1.5401 support to bring rebound, and up trend resumption later.

    In Asia, at the time of writing, Nikkei is up 0.09%. Hong Kong HSI is down -1.44%. China Shanghai SSE is down -0.73%. Singapore Strait Times is down -0.03%. Japan 10-year JGB yield is up 0.017 at 1.541. Overnight, DOW fell -0.20%. S&P 500 rose 0.49%. NASDAQ rose 1.22%. 10-year yield rose 0.030 to 4.318.

    BoJ’s Ueda expects real wages to rise, boosting consumption

    BoJ Governor Kazuo Ueda signaled optimism about Japan’s economic outlook, telling the parliament today that “import-cost-driven inflation” is expected to moderate while wages continue to “rise steadily.” This shift could lead to an improvement in real wages and consumption, a critical factor for sustaining domestic demand.

    Ueda’s comments align with recent developments in Japan’s annual “shunto” wage negotiations, which have resulted in record pay hikes across major companies.

    Hitachi announced a record 6.2% rise in monthly wages, fully meeting union demands. Toyota’s key auto parts supplier, Denso, also committed to historic pay hikes, while Toyota itself stated that the overall wage increase for its manufacturing staff would match last year’s levels—the highest seen since 1999.

    Further clarity on the scale of wage hikes will come on March 14, when Rengo, Japan’s largest labor union federation representing 7 million workers, releases its preliminary report. Rengo had been seeking an average wage increase of 6.09%, up from last year’s 5.85%.

    US stocks find temporary support, but downside risks persist

    Risk sentiment showed signs of stabilization in the US overnight, with S&P 500 and NASDAQ posting gains. However, stocks are merely digesting recent steep losses rather than having a decisive turnaround.

    The reaction to lower-than-expected US consumer inflation data was relatively muted. The market’s cautious interpretation of the data is justified, as the latest CPI figures do not yet capture the full effects of tariff-related price pressures. There is still a lack clarity on how inflation will evolve under the new tariff regime, particularly when reciprocal tariffs come into play on April 2. Nevertheless, for the moment at least, disinflationary momentum is leaning in the Fed’s favor.

    Interestingly, market pricing has shifted the expected timing of Fed’s next rate cut back from May to June. Futures now show just 31% probability of a 25bps cut in May, while the odds for a June cut have climbed to 78%.

    Traders appear to believe Fed will need additional time to assess the economic impact of tariffs before making a policy move. From a timing perspective, June would align better with Fed’s next round of economic projections, allowing policymakers to incorporate more data into their decision-making.

    As for NASDAQ, oversold condition as seen in D RSI could start to slow downside momentum, and some near term consolidations cannot be ruled out. But risk will stay on the downside as long as 18604.46 resistance holds. Fall from 20204.58 is seen as a correction to the whole up trend from 10088.82 (2022 low) at least. It should extend to 38.2% retracement of 10088.82 to 20204.58 at 16340.36 before bottoming.

    Gold gains as markets await Russia’s response to ceasefire proposal

    Gold picked up momentum as investors closely monitor Kremlin’s response to the proposed ceasefire deal in Ukraine, as US officials head to Russia for negotiations.

    Russia has yet to publicly endorse an immediate ceasefire, but has indicated that it is reviewing the plan, and a phone call between US President Donald Trump and Russian President Vladimir Putin is on the table.

    However, Trump remains skeptical, stating that while he has received “positive messages” about the ceasefire, such reassurances “mean nothing” without concrete action from Putin.

    Trump also warned that if Putin refuses to sign the deal, the US could take “financially very bad” actions against Russia, likely hinting at severe sanctions.

    Ukrainian President Volodymyr Zelenskyy said earlier in the week that stronger Western financial and military support would follow should the ceasefire negotiations fail.

    Technically, Gold’s near term rebound from 2832.41 extended higher today and focus is now on 2956.09 resistance. Decisive break there will resume the larger up trend to 3000 psychological, and possibly further to 61.8% projection of 2584.24 to 2956.09 from 2832.41 at 3062.21.

    However, break of 2905.80 support should extend the corrective pattern from 2956.09 with another falling leg back to 2832.41 and possibly below.

    USD/JPY Daily Outlook

    Daily Pivots: (S1) 147.51; (P) 148.35; (R1) 149.10; More…

    Intraday bias in USD/JPY remains neutral for the moment, and more consolidations could be seen above 146.52. Upside of recovery should be limited by 150.92 support turned resistance. On the downside, sustained trading below 61.8% retracement of 139.57 to 158.86 at 146.32 will pave the way to 139.57 support.

    In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low), with fall from 158.86 as the third leg. Strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    00:00 AUD Consumer Inflation Expectations Mar 3.60% 4.60%
    00:01 GBP RICS Housing Price Balance Feb 11% 20% 22%
    07:30 CHF Producer and Import Prices M/M Feb 0.20% 0.10%
    07:30 CHF Producer and Import Prices Y/Y Feb -0.30%
    10:00 EUR Eurozone Industrial Production M/M Jan 0.80% -1.10%
    12:30 USD Initial Jobless Claims (Mar 7) 224K 221K
    12:30 CAD Building Permits M/M Jan -4.80% 11.00%
    12:30 USD PPI M/M Feb 0.30% 0.40%
    12:30 USD PPI Y/Y Feb 3.30% 3.50%
    12:30 USD PPI Core M/M Feb 0.30% 0.30%
    12:30 USD PPI Core Y/Y Feb 3.60% 3.60%
    14:30 USD Natural Gas Storage -46B -80B

     



    Source link

  • Recession Fears Weigh on Markets as Risk-Off Trade Intensifies

    Recession Fears Weigh on Markets as Risk-Off Trade Intensifies


    The risk-off sentiment that triggered the biggest US stock market selloff in months has spilled over into Asian markets, leading to broad declines across the region. The currency markets reflect this shift too, with traditional safe havens such as Japanese Yen and Swiss franc leading gains in Asia, while risk-sensitive currencies like the Australian and New Zealand Dollars face pressure.

    Unlike previous bouts of risk aversion, Dollar is not benefiting from the current flight to safety. This time, the core of the problem originates from the US economy itself, where recession worries are intensifying. Rather than flocking to the greenback, investors appear to be diversifying into other safe havens or moving to the sidelines until the dust settles.

    The uncertainty surrounding US trade policies has left businesses and consumers hesitant, potentially dragging economic growth lower. In response to the changing economic outlook, market participants are increasingly convinced that Fed will resume policy easing within the first half of the year. The only question is whether the next rate cut will arrive in May or June.

    Another driver of Dollar weakness is the extending decline in yields since mid January. Technically, there is prospect for 10-year yield to draw support from 4.000 psychological level, which is slightly below 61.8% retracement of 3.603 to 4.809 at 4.063, to form a near term bottom. However, there is little prospect for 10-year yield to rebound strongly through 55 D EMA (now at 4.412). But at least, sideway movement in 10-year yield could help lift the pressure on Dollar.

    Overall for the week so far, Yen is the best performer, followed by Euro, and then Swiss Franc. Aussie is the worst, followed by Loonie and then Kiwi. Dollar and Sterling are positioning in the middle.

    In Asia, at the time of writing, Nikkei is down -1.02%. Hong Kong HSI is down -1.02%. China Shanghai SSE is down -0.50%. Singapore Strait Times is down -2.02%. Japan 10-year JGB yield is down -0.063 at 1.509. Overnight, DOW fell -2.08%. S&P 500 fell -2.70%. NASDAQ fell -4.00%. 10-year yield fell -0.104 to 4.213.

    US stock market correction deepens as recession fears take hold

    The US stock market suffered its most significant setback in months, with the S&P 500 dropping -2.7%, its biggest one-day decline since December 18. NASDAQ also lost -4.0%, marking its worst single-day percentage loss since September 2022. Analysts widely point to mounting recession worries as the primary catalyst behind the selloff.

    Initial concerns emerged over the past month following a series of weaker economic data points, believed by some to be early reactions to an increasingly contentious tariff policy. These worries intensified after recent remarks from the White House suggested a bumpy economic outlook ahead.

    In an interview aired on Sunday, US President Donald Trump fueled apprehensions further by describing the economy as going through “a period of transition.” When pressed about an impending recession, he avoided a direct prediction but acknowledged potential “disruption.” His remarks—“Look, we’re going to have disruption, but we’re OK with that”—did little to reassure investors already on edge about growth prospects.

    Adding further weight to recession fears, historical bond market indicators have been flashing warning signs. The 10-year to 2-year US yield curve inverted in mid-2022—a classic recession signal—and only turned positive again in September 2024. Historically, a U.S. recession tends to follow within months after the yield curve normalizes (i.e., turned positive again). If this trend holds true, the US economy could be inching closer to a downturn.

    However, another view posits that tariffs are a distraction and that the real driver behind the US selloff is the recent surge in Japanese government bond yields, which have hit a 16-year high. As the carry trade unwinds—where investors borrow in low-yield currencies, often involving Japanese Yen, to fund investments in higher-yield or high-growth assets—capital is flowing out of big tech names, contributing to the NASDAQ’s outsized losses.

    Technically, NASDAQ’s strong break of 55 W EMA (now at 17864.01) suggests that it’s already in correction to the up trend from 10088.82 (2022 low). Deeper fall should be seen to 38.2% retracement of 10088.82 to 20204.58 at 16340.36. Reaction from there will decide whether it’s merely in a medium consolidations phase or in an out-right bearish trend reversal.

    As for DOW, immediate focus is now on 41844.89 support. Firm break there will complete a double top reversal pattern (45073.63, 45054.36). That should set up deeper fall to 38.2% retracement of 32327.20 to 45073.63 at 40204.49 at least, even it’s just a correction to the rise from 32327.20.

    Australia Westpac consumer sentiment jumps to 95.9, soft landing achieved

    Australian consumer sentiment saw a strong rebound in March, with Westpac Consumer Sentiment Index jumping 4.0% mom to 95.9, the highest level in three years and not far from neutral 100 mark.

    Westpac attributed the improvement to slowing inflation and February’s RBA interest rate cut which have lifted confidence across households. positive views on job security suggest that “soft landing has been achieved”. Nevertheless, “unsettling overseas news” continues to weigh on the broader economic outlook.

    Looking ahead to RBA’s upcoming meeting on March 31-April 1, Westpac expects the central bank to keep the cash rate unchanged. RBA was clear that the 25bps cut in February “did not mean further reductions could be expected at subsequent meetings.”

    Westpac added, “further slowing in inflation will give the RBA sufficient confidence to deliver more rate cuts this year with the next move coming at the May meeting”.

    Australia’s NAB business confidence slips back into negative as cost pressures persist

    Australia’s NAB Business Confidence fell from 5 to -1 in February, erasing last month’s gain and returning to below-average levels. While business conditions improved slightly from 3 to 4, the decline in confidence suggests that businesses remain cautious despite RBA’s recent rate cut and positive Q4 GDP data.

    NAB Chief Economist Alan Oster noted that the lift in sentiment seen in January was not sustained, signaling ongoing uncertainty in the business environment. Persistent cost pressures and subdued profitability appear to be key factors weighing on sentiment, keeping confidence below long-term norms.

    Within business conditions, trading conditions ticked up from 7 to 8, and profitability conditions rose slightly from -2 to -1, though still remaining in negative territory. Employment conditions, however, weakened from 5 to 4.

    Cost pressures remain a concern, with purchase cost growth accelerating from 1.1% to 1.5% in quarterly equivalent terms. On the positive side, labor cost growth eased from 1.7% to 1.5%, indicating that wage price pressures are gradually cooling. Meanwhile, final product price growth slowed from 0.8% to 0.5%, though retail price inflation held steady at 1.0%.

    EUR/AUD Daily Outlook

    Daily Pivots: (S1) 1.7149; (P) 1.7213; (R1) 1.7320; More…

    EUR/AUD’s rally resumed and brief consolidations and intraday is back on the upside. Rise from 1.6335 should now target 161.8% projection of 1.5963 to 1.6800 from 1.6355 at 1.7709 next. On the downside, below 1.7102 minor support will turn intraday bias neutral again and bring consolidations, before staging another rally.

    In the bigger picture, up trend from 1.4281 (2022 low) is resuming. Sustained trading above 1.7180 key resistance will pave the way to 61.8% projection of 1.4281 to 1.7062 from 1.5963 at 1.7682, which is also close to 61.8% retracement of 1.9799 (2020 high) to 1.4281 at 1.7691. For now, this will remain the favored case as long as 1.6355 support holds, even in case of deep pullback.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:45 NZD Manufacturing Sales Q4 2.60% -1.20% 0.20%
    23:30 AUD Westpac Consumer Confidence Mar 4.00% 0.10%
    23:30 JPY Overall Household Spending Y/Y Jan 0.80% 3.60% 2.70%
    23:50 JPY GDP Q/Q Q4 F 0.60% 0.70% 0.70%
    23:50 JPY GDP Deflator Y/Y Q4 F 2.90% 2.80% 2.80%
    23:50 JPY Money Supply M2+CD Y/Y Feb 1.20% 1.40% 1.30%
    00:30 AUD NAB Business Confidence Feb -1 4 5
    00:30 AUD NAB Business Conditions Feb 4 3
    06:00 JPY Machine Tool Orders Y/Y Feb P 4.70%
    10:00 USD NFIB Business Optimism Index Feb 101 102.8

     



    Source link

  • Dollar Stays Soft as Forex Markets Quiet, US CPI Highlights the Week

    Dollar Stays Soft as Forex Markets Quiet, US CPI Highlights the Week


    Forex markets are trading quietly in the Asian session, remaining within Friday’s range and showing little impetus to move decisively in either direction. Dollar is staying on the back foot, with a lack of substantial buying interest to sustain a meaningful rebound. While last week’s non-farm payroll data helped calm fears of a rapid labor market slowdown, market sentiment remains cautious in the face of escalating uncertainties.

    Late last Friday, Morgan Stanley lowered its 2025 economic growth forecast for the US and highlighted mounting concerns about trade tensions. The bank noted that “earlier and broader tariffs should translate into softer growth this year.” In contrast to its previous assumption that any tariff-related drag on growth would be more pronounced in 2026. Morgan Stanley now projects Q4/Q4 2025 growth at 1.5% (down from 1.9%), and 2026 growth at 1.2% (down from 1.3%).

    Goldman Sachs also joined the wave of downward revisions, cutting its 2025 Q4/Q4 GDP growth forecast from 2.2% to 1.7%. Moreover, it raised its 12-month recession probability to 20%. While the odd is still low, it’s a noticeable shift from the previously estimated 15%.

    So far this month, Dollar is the weakest performer among the major currencies. It is trailed by Canadian Dollar and then Australian Dollar. On the other end, Euro leads the pack, followed by Swiss Franc and then British Pound, indicating broad European strength in the current environment. Both Yen and New Zealand Dollar hold the middle ground.

    Looking ahead, the upcoming US CPI release will be the major data focal point this week Meanwhile, BoC is widely expected to deliver another rate cut. UK GDP data will also be a feature.

    Technically, AUD/NZD appears to be building up downside momentum as seen in D MACD. Break of 1.1001 support will pace the way to 1.0940 cluster support zone (38.2% retracement of 1.0567 to 1.1177 at 1.0944). Such development would give Aussie some additional pressure elsewhere.

    In Asia, at the time of writing, Nikkei is up 0.47%. Hong Kong HSI is down -1.53%. China Shanghai SSE is down -0.37%. Singapore Strait Times is down -0.52.

     

    Japan’s nominal wages rises 2.8% yoy in Jan, real wages fall -1.8% yoy

    Japan’s labor cash earnings rose 2.8% yoy in January, falling short of market expectations of 3.2% yoy. Nominal wage growth remained positive for the 37th month.

    Real wages, adjusted for inflation, fell -1.8% yoy, reversing two months of slight gains. The decline was largely driven by a sharp rise in consumer inflation.

    The inflation rate used by the Ministry of Health, Labor and Welfare to calculate real wages—which includes fresh food prices but excludes rent—accelerated to 4.7% yoy, its highest level since January 2023.

    Regular pay, or base salary, rose 3.1% yoy, the largest gain since 1992. This was overshadowed by a sharp -3.7% yoy decline in special payments, which consist largely of one-off bonuses.

    China’s inflation turns negative, but seasonal factors skew the picture

    Released over the weekend, China’s consumer inflation dipped into negative territory for the first time in over a year, with February’s CPI coming in at -0.7% yoy, weaker than the expected -0.5% yoy, and a sharp reversal from January’s 0.5% yoy gain.

    Core CPI, which strips out food and energy prices, also slipped by -0.1% yoy—its first decline since January 2021—signaling weak underlying demand.

    On a month-over-month basis, consumer prices fell -0.2%, more than the expected -0.1%, reversing some of January’s 0.7% increase.

    While the decline may raise concerns about deflationary pressures, NBS attributed much of the drop to seasonal distortions tied to the timing of the Lunar New Year. Stripping out this factor, NBS estimates that CPI actually rose 0.1% yoy.

    Given these distortions, a clearer picture of China’s inflation trajectory will likely emerge in March when seasonal effects fade.

    Meanwhile, producer prices remained in contraction for the 29th consecutive month, with PPU declining -2.2% yoy, slightly better than January’s -2.3% yoy but still below expectations of -2.1% yoy.

    BoC rate cut, US inflation and consumer sentiment

    Expectations for BoC to continue easing policy have surged following weak February job data, which showed that tariff-related uncertainty is already taking a toll on employment. Markets now widely expect BoC to lower its policy rate by another 25bps this week to to 2.75%, This would serve as an insurance move against further trade disruptions. With inflation well-contained, some analysts believe the central bank would continue cutting at this pace in upcoming meetings until rates reach 2%.

    BoC’s rhetoric will be closely scrutinized to gauge how policymakers assess the risks posed by tariffs and trade disputes. If the central bank signals greater concern over the economic fallout, expectations for a sustained easing cycle will strengthen. The stance will be critical in shaping near-term movements in Canadian Dollar, which has just had a roller-coaster ride last week on tariff news.

    Looking south, US inflation data are another pivot point for global markets. Both headline and core CPI rates are expected to edge lower, from 3.0% to 2.9% and from 3.3% to 3.2%, respectively. Yet the outcome remains uncertain due to possible tariff-induced price hikes—or, conversely, weaker consumption dampening inflation. With a surprise in either direction, Fed’s near-term policy path could be thrown into disarray. March is still widely expected to be a hold, but May is increasingly up in the air.

    Adding to the US economic picture is the University of Michigan consumer sentiment survey, which carries added significance. The recent stock market selloff was closely tied to poor January consumer sentiment. Any notable deterioration in confidence could drive renewed risk aversion, compounding existing concerns about trade and growth.

    Elsewhere, other key data, including UK GDP, Japan cash earnings, and household spending, will round out a relatively less busy week for global markets.

    Here are some highlights for the week:

    • Monday: Japan average cash earnings; Germany industrial production, trade balance; Swiss SECO consumer climate; Eurozone Sentix investor confidence.
    • Tuesday: New Zealand manufacturing sales; Australia Westpac consumer sentiment, NAB business sentiment; Japan household spending, GDP final.
    • Wednesday: Japan BSI manufacturing, PPI; US CPI, BoC rate decision.
    • Thursday: Swiss PPI; Eurozone industrial production; US PPI, jobless claims.
    • Friday: New Zealand BNZ manufacturing; Germany GDP final; UK GDP, production, goods trade balance; Canada manufacturing sales, wholesale sales; US U of Michigan consumer sentiment.

    USD/JPY Daily Outlook

    Daily Pivots: (S1) 147.26; (P) 147.73; (R1) 148.51; More…

    Intraday bias in USD/JPY stays on the downside at this point. Sustained trading below 61.8% retracement of 139.57 to 158.86 at 146.32 will pave the way to 139.57 support. On the upside, 149.32 minor resistance will turn intraday bias neutral and bring consolidations again, before staging another fall.

    In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low), with fall from 158.86 as the third leg. Strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:30 JPY Labor Cash Earnings Y/Y Jan 2.80% 3.20% 4.80% 4.40%
    23:50 JPY Bank Lending Y/Y Feb 3.10% 3.10% 3% 2.90%
    23:50 JPY Current Account (JPY) Jan 1.94T 1.99T 2.73T
    05:00 JPY Leading Economic Index Jan P 108 108.1 108.4 108.3
    05:00 JPY Eco Watchers Survey: Current Feb 48.5 48.6
    07:00 EUR Germany Industrial Production M/M Jan 1.50% -2.40%
    07:00 EUR Germany Trade Balance (EUR) Jan 21.2B 20.7B
    09:30 EUR Eurozone Sentix Investor Confidence Mar -10 -12.7

     



    Source link

  • A Multi-Decade Trend Reversal Underway in EUR/USD?

    A Multi-Decade Trend Reversal Underway in EUR/USD?


    The sharp contrast between Europe’s newfound unity and the ongoing tariff chaos in the US has been a defining theme in the financial markets. Euro’s extraordinary strength last week reflected growing investor confidence in the region’s strategic shift toward fiscal expansion and defense spending. From the formation of the “Coalition of the Willing” to the ReArm Europe initiative, they highlighted a strong, coordinated response to challenges, be it geopolitical or economic. That could set the stage for a long-term structural shift in European markets.

    Meanwhile, the US continued to grapple with trade policy uncertainty, with tariffs now more seen as a drag on sentiment and economic growth rather than a source of inflationary pressure. The recent exemptions granted to Canada and Mexico only reinforced the perception of inconsistency in Washington’s trade strategy. The lack of clarity on future policy moves has started to weigh on investor sentiment. That, if persists, could lead to a outflow of capital from the US and weakening the Dollar further.

    From a technical points of view, EUR/USD has shown clear signs of a potential long-term bullish reversal. The pair’s strong surge last week suggests that the multi-year downtrend may have bottomed out, with further upside potential if Europe successfully executes its ambitious fiscal and defense spending plans. However, challenges remain, including implementation risks and the broader impact of trade tensions on European exports.

    Currency market performance last week reflected the shifting sentiment. Euro ended as the strongest performer, followed by Sterling and Swiss Franc, which also benefited from Europe’s renewed economic confidence.

    On the other hand, Dollar closed as the worst performer, struggling under the weight of investor skepticism and diminishing safe-haven appeal. Elsewhere, Canadian Dollar and Australian Dollar also underperformed, indicating that risk-off sentiment remains present, particularly in the US. Yen and Kiwi positioned themselves in the middle of the performance spectrum.

    Europe’s Bold Shift Ignites Market Optimism

    Last week brought a seismic shift in Europe’s geopolitical, defense, and fiscal policies. In a move not seen in decades, the region is asserting greater strategic independence while ramping up economic stimulus. The changes were embraced by investors with enthusiasm, fueling rallies in European assets, particularly in Euro and German equities.

    Euro surged 4.4% against Dollar, its best weekly performance since 2009. Meanwhile, Germany’s 10-year yield posted its biggest jump since the fall of the Berlin Wall. DAX hit fresh record highs, with cyclical and defense-related stocks leading the charge.

    At the heart of this shift is the “ReArm Europe” initiative, which commits the EU to a significant defense buildup. European Commission President Ursula von der Leyen has proposed mechanisms to mobilize up to EUR 800B in special funds. This landmark decision not only strengthens military readiness, but also reduces reliance on external allies.

    Further reinforcing this new direction, EU leaders took a bold stand against Hungarian Prime Minister Viktor Orbán, overriding his veto on aid to Ukraine. In an unusual move, member states issued a separate statement reaffirming their unified support for Kyiv.

    Meanwhile, in Germany, despite ongoing coalition talks, CDU leader Friedrich Merz wasted no time aligning with the SPD to push for loosening of the “debt brake”, which would unlock EUR 500B for infrastructure projects. Additionally, defense spending above 1% of GDP will be permanently exempt from fiscal constraints. Over the next decade, these measures could increase government spending by a staggering 20% of GDP. The scale surpasses even that seen after German reunification in the 1990s.

    This massive fiscal shift in Germany carries significant upside potential for both domestic and Eurozone growth. With a sharp boost in public spending, it could also act as a buffer against potential US tariffs. For years, European growth has been held back by fiscal conservatism—but now, these bold new policies could reshape the region’s economic future for years to come.

    Technically, DAX might be rebuilding upside momentum as seen in D MACD. Current up trend should head to take on 161.8% projection of 14630.21 to 18892.92 from 17024.82 at 23921.87. Decisive break there would target 200% projection at 25550.22 next. Nevertheless, firm break of 22226.34 support will suggest DAX has topped for the near term at least, and consolidations should follow first.

    Is Euro Entering a Long-Term Bull Cycle?

    As Europe embarks on a new era of fiscal expansion and policy coordination, Euro’s looks well-positioned for a prolonged rally and with prospects of long term bullish trend reversal.

    Another key factor supporting Euro is the growing belief that ECB is nearing a pause in its policy easing cycle. With monetary policy now “meaningfully less restrictive”, as described by President Christine Lagarde, a pause could start as soon as in April. ECB could opt for a wait-and-see approach, to assess how trade policy, fiscal initiatives, and broader geopolitical risks play out.

    However, key risks remain, including escalation in trade disputes with the US, as well as how effectively Europe executes its ambitious spending plans. The coming months will be crucial in determining whether this historic shift translates into sustained economic momentum or if internal and external headwinds slow down the Euro’s resurgence.

    Technically, EUR/USD’s strong rally suggests that fall from 1.1274 (2023 high) has completed as a correction, with three waves down to 1.0176. Firm break of 1.1274 would resume larger rally from 0.9534 (2022 low), to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916.

    More significantly, if the bullish case is realized, that would push EUR/USD through the two-decade falling channel resistance, which could be an important sign of long term trend reversal.

    US Stocks at Risk of Bearish Trend Reversal Amid Tariff Chaos

    US stocks endured a turbulent week as investors wrestled with the unpredictable nature of President Donald Trump’s trade policies. The volatility has taken a clear toll on market sentiment, with technical indicators increasingly pointing to bearish trend reversal in major indexes. The coming weeks could prove decisive in determining whether the strong uptrend that has defined the past few months has reversed or if equities can regain their footing.

    S&P 500 logged its worst week since September, falling -3.1%, while DOW dropped -2.4%. NASDAQ was hit hardest, tumbling -3.5%.

    The implementation of 25% tariffs on Canadian and Mexican imports on March 4, had initially sent markets into a tailspin. However, Trump’s decision on Thursday to pause tariffs on USMCA-covered goods for another month only added to the confusion, as investors struggled to decipher the long-term direction of trade policy.

    This chaotic cycle of tariff imposition followed by temporary reversals has created an uncertain and fragile investment environment. Businesses remain hesitant to make forward-looking decisions, while consumer confidence is showing signs of strain. The erratic nature of US trade policy has left markets with little clarity, and the risk of further deterioration in sentiment remains high.

    Nevertheless, Friday’s non-farm payroll report provided some relief, as job growth remained near its recent average, unemployment stayed within its recent range, and wage growth held robust. The data suggested that, at least for now, the feared economic fallout from tariffs has not yet materialized in a meaningful way. However, lingering uncertainty around trade and global economic conditions continues to weigh on sentiment.

    Meanwhile, Fed Chair Jerome Powell reiterated on Friday that the central bank is in no rush to cut rates, stating that the Fed is “well-positioned to wait for clarity.” Powell’s cautious stance contrasts with growing market expectations for rate cuts, as investors bet on economic weakness forcing the Fed’s hand.

    While a hold in March remains the base case, with 88% odds, Fed fund futures now price in a 52% probability of a 25bps rate cut in May, up sharply from 33% a week ago and 26% a month ago. This suggests that investors are bracing for the possibility of further economic softening, with Fed being forced to act sooner than its current guidance suggests.

    Technically, DOW’s up trend should still be intact as long as 41844.89 support holds. However, firm break there will argues that it’s already in correction to the up trend from 28660.93 (2022 low). Sustained trading below 55 W EMA (now at 41332.86) will further solidify this bearish case. Next target will be 38.2% retracement of 28660.94 to 45087.75 at 38812.71.

    As for NASDAQ, it’s now pressing 55 W EMA (at 17878.67). Sustained break there will also indicate that it’s already correcting the up trend from 10088.82 (2022 low). Next target is 38.2% retracement of 10088.82 to 20204.58 at 16340.36.

    As for Dollar Index, last week’s steep decline and strong break of 55 W EMA (now at 105.31) argues that corrective pattern from 99.57 (2023 low) has completed with three waves up to 110.17. Near term risk will now stay on the downside as long as 55 D EMA (now at 106.91) holds. Further downside acceleration will raise the chance that Dollar Index is indeed resuming the whole down trend from 114.77 (2022 high) .

    While it’s still too early to confirm the bearish case, firm break of 100.15 support could set up further medium term fall to 100% projection of 114.77 to 99.57 from 110.17 at 94.97.

    The challenge for Dollar is that risk aversion no longer seems to be offering support. Tariffs are providing little help unlike what it did this year. Meanwhile, Fed appears poised to resume rate cuts sooner than expected. With these factors in play, it’s unclear what could drive a rebound for the greenback, other then implosion of Euro and other currencies

    EUR/CHF Weekly Outlook

    EUR/CHF surged to as high as 0.9634 last week but faced strong resistance from long term falling channel and retreated. Initial bias stays neutral this week first and some more consolidations could be seen. Further rally will be expected as long as 55 4H EMA (now at 0.9467) holds. On the upside, above 0.9634, and sustained trading above 0.9651 fibonacci level will pave the way back to 0.9928 key resistance next.

    In the bigger picture, the strong break of 55 W EMA (now at 0.9482) is a medium term bullish sign. Sustained break trading above long-term falling channel resistance (at around 0.9620) would suggest that the downtrend from 1.2004 (2018 high) has bottomed at 0.9204. Stronger rally should then be see to 0.9928 key resistance at least.

    In the long term picture, bullish signs are emerging. However, the important hurdle at 0.9928 resistance, which is close to 55 M EMA (now at 0.9960), is needed to be taken out decisively before considering long term trend reversal. Otherwise, outlook is neutral at best.



    Source link

  • Rate decisions will look at jobs, economic activity

    Rate decisions will look at jobs, economic activity


    Federal Reserve Governor Michelle Bowman, regarded as one of the bank’s most hawkish policymakers, indicated that she might place greater emphasis on labour market indicators when considering future policy decisions.

    Key Quotes

    Labor market, economic activity will become a larger factor in US central bank policy discussions going forward.

    Shocks, structural changes since Covid-19 pandemic may have masked transmission of Fed policy to the economy.



    Source link

  • US Dollar Index breaks below 104.00 as Treasury yields fall ahead of Nonfarm Payrolls

    US Dollar Index breaks below 104.00 as Treasury yields fall ahead of Nonfarm Payrolls


    • The US Dollar Index depreciates as market expectations grow for more aggressive Fed rate cuts amid US growth concerns.
    • President Trump exempted Mexican and Canadian goods under the USMCA from his proposed 25% tariffs.
    • The US Nonfarm Payrolls is projected to show job growth, with employment rising to 160K in February.

    The US Dollar Index (DXY), which tracks the US Dollar (USD) against six major currencies, continues its losing streak for the fifth consecutive day, pressured by declining US Treasury yields. Market expectations of more aggressive Federal Reserve (Fed) rate cuts amid concerns over US economic growth are contributing to the weakness. The DXY is trading around 103.90 with 2- and 10-year yields on US Treasury bonds standing at 3.94% and 4.24%, respectively, during the early European hours on Friday.

    Traders are closely watching global trade developments, particularly Canada’s decision to delay its second round of retaliatory tariffs on US products until April 2. This move follows US President Donald Trump’s exemption of Mexican and Canadian goods under the USMCA from his proposed 25% tariffs.

    On the labor market front, US Initial Jobless Claims for the week ending March 1 fell to 221K, down from 242K the previous week, according to the US Department of Labor (DOL). The figure came in below market expectations of 235K. Meanwhile, the upcoming US Non-Farm Payrolls (NFP) report is projected to show a modest rebound, with job additions expected to rise to 160K in February, up from 143K in January.

    Atlanta Fed President Raphael Bostic commented on Thursday that the US economy remains in a state of flux, making it difficult to predict future developments. Bostic reiterated the Fed’s commitment to bringing inflation down to 2% while minimizing labor market disruptions. He also stressed the importance of business sentiment in shaping monetary policy decisions.

    US Dollar PRICE Today

    The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Euro.

      USD EUR GBP JPY CAD AUD NZD CHF
    USD   -0.31% -0.10% -0.12% 0.04% 0.46% 0.35% -0.25%
    EUR 0.31%   0.20% 0.21% 0.35% 0.78% 0.67% 0.06%
    GBP 0.10% -0.20%   0.00% 0.14% 0.57% 0.46% -0.11%
    JPY 0.12% -0.21% 0.00%   0.17% 0.60% 0.49% -0.08%
    CAD -0.04% -0.35% -0.14% -0.17%   0.42% 0.32% -0.25%
    AUD -0.46% -0.78% -0.57% -0.60% -0.42%   -0.10% -0.66%
    NZD -0.35% -0.67% -0.46% -0.49% -0.32% 0.10%   -0.56%
    CHF 0.25% -0.06% 0.11% 0.08% 0.25% 0.66% 0.56%  

    The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

     



    Source link

  • Risk Aversion Creeps Back as Markets Unconvinced by Trump’s Temporary Tariff Exemptions

    Risk Aversion Creeps Back as Markets Unconvinced by Trump’s Temporary Tariff Exemptions


    Risk sentiment in the forex markets appears to be tilting towards risk aversion in Asian trading, marking a shift from the broad Dollar selloff earlier in the week. Overnight, US President Donald Trump granted temporary tariff exemptions for Canadian and Mexican goods under the USMCA, delaying a full-scale implementation until April 2. While this provided some relief for Canadian Dollar, overall market sentiment remained fragile, with major US equity indexes closing in the red, led by losses in NASDAQ.

    The temporary exemption covers roughly 50% of Mexican imports and 38% of Canadian imports. However, Trump’s move has done little to inspire confidence, as markets remain skeptical about his erratic trade policies. Investors have become wary of his inconsistent messaging—one day insisting on strict tariff enforcement, the next day granting exemptions. This unpredictability has left traders cautious, unsure of how to position for potential future shifts in trade policy.

    Despite the tariff delay, risk-sensitive currencies like Australian and New Zealand Dollars have come under renewed selling pressure in Asia. The broader market focus has shifted toward the April 2 deadline, when Trump’s proposed “reciprocal tariffs” are set to take effect. These tariffs will target foreign nations that impose import taxes on US goods, keeping trade war fears firmly in play.

    Adding to market unease is the upcoming US non-farm payrolls report. With sentiment already on shaky ground, any significant weakness in the jobs data could deepen risk aversion. While a weaker NFP might increase expectations for a Fed rate cut, traders are growing concerned that deteriorating labor market conditions could signal a sharper economic slowdown. This dynamic suggests that even rising Fed cut bets may not be enough to offset broader recession fears.

    So far for the week, Dollar remains the worst-performing currency, struggling to find any solid footing. Canadian Dollar follows closely as the second weakest, alongside Australian Dollar. On the stronger side, Euro continues to outperform, driven by optimism over fiscal expansion plans in Europe. Sterling and Swiss Franc are also holding firm, while Yen and Kiwi are settling in the middle.

    In Asia, the time of writing, Nikkei is down -2.07%. Hong Kong HSI is down -0.06%. China Shanghai SSE is up 0.15%. Singapore Strait Times is down -0.01%. Japan 10-year JGB yield is up 0.023 at 1.535. Overnight, DOW fell -0.99%. S&P 500 fell -1.78%. NASDAQ fell -2.61%. 10-year yield rose 0.021 to 4.286.

    NFP in focus: NASDAQ and S&P 500 at risk of deeper correction

    US markets are standing on precarious footing, with investors attention on the February non-farm payrolls report due later in the day. There has been noticeable anxieties surrounding the impact of fiscal and trade policies changes. A set of weaker-than-expected NFP data could be taken as another signal of swift deceleration in the economy and rattle market sentiment further.

    Cooldown in the job market might prompt Fed to resume rate cuts earlier. Markets are currently pricing in 53% chance of a 25bps rate cut in March, reflecting growing belief that Fed will need to act sooner rather than later. However, the immediate market response to downside surprises may not be relief over monetary easing but rather heightened concerns about the pace of economic weakening, given recent policy uncertainties and trade disruptions.

    Markets anticipate 156k increase in NFP for February, up from 143k in January. The unemployment rate is forecast to remain at 4.0%, while average hourly earnings should hold steady at 0.3% m/m.

    The latest indicators paint a mixed picture: ISM Manufacturing PMI Employment subindex dropped to 47.6 from 50.3, while ISM Services PMI Employment inched up to 53.9 from 52.3. Meanwhile, ADP Employment reading of 77k missed last month’s 186k, and the 4-week moving average of jobless claims rose to 224k—its highest level so far this year.

    Technically, NASDAQ has been sliding for two consecutive weeks, now testing its 55-week EMA at 17,874.13. A decisive break below this level would confirm that the index is at least in a correction relative to the broader uptrend from the 10,088.82 low in 2022. The next key support to watch is the 38.2% Fibonacci retracement of 10,088.82 to 20,204.58, which comes in at 16,340.36. Extended losses here could set a negative tone for broader U.S. equities.

    The S&P 500, still trading comfortably above its 55-week EMA at 5,590.31, may follow in the NASDAQ’s footsteps if sentiment sours further. Should the index breach this EMA convincingly, it would likely confirm that the fall from 6,147.43 is a correction of the uptrend from the 3,491.58 low in 2022. This scenario would set a 38.2% retracement target around 5,132.89, marking a significant downside pivot.

    Overall, whether today’s NFP meets, misses, or exceeds expectations, the market’s reaction will hinge on how investors interpret the labor data in the context of looming trade uncertainties and weakening growth momentum. A softer reading could drive near-term Fed cut bets higher but might also deepen concerns that the U.S. economy is losing steam, thereby raising the stakes for traders and policymakers alike.

    Technically, NASDAQ is now eyeing 55 W EMA (now at 17874.13) with the extended decline in the past two weeks. Sustained break there will confirm that it’s at least in correction to the up trend from 10088.82 (2022 low). Next target will be 38.2% retracement of 10088.82 to 20204.58 at 16340.36.

    Extended selloff in NASDAQ could be a prelude to the similar development in S&P 500. While it’s still well above 55 W EMA (now at 5590.31), sustained break there will align the outlook with NASDAQ. Fall from 6147.43 would then be correcting the up trend from 3491.58 (2022 low) at least, and target 38.2% retracement of 3491.58 to 6147.43 at 5132.89.

    Fed’s Waller: No immediate rate cut, but open to future easing

    Fed Governor Christopher Waller suggested that another rate cut at the next FOMC meeting is unlikely, but he remains open to further easing down the line.

    “I would’t say at the next meeting, but could certainly see [cuts] going forward,” he noted. Waller particularly highlighted the February inflation report and the evolving impact of trade policies as key factors in shaping the Fed’s outlook.

    Waller acknowledged the challenges in assessing the economic effects of tariffs, citing changing economic conditions and President Trump’s harder trade stance as factors complicating policy decisions.

    He noted that evaluating the impact of tariffs is more difficult this time, adding, “It’s very hard to eat a 25% tariff out of the profit margins.”

    Fed’s Bostic: Economy in flux, no rush to adjust policy

    Atlanta Fed President Raphael Bostic emphasized the high level of uncertainty in the US economy due to evolving policies under the Trump administration. With inflation, trade policies, and government spending all in flux, he suggested that meaningful clarity may not emerge until “late spring or summer”. Given this, he reiterated “We’ll have to just sort of really be patient.”

    Speaking overnight, he described the situation as being in “incredible flux,” with rapid shifts in trade and fiscal policies making it difficult to predict economic trends. Given this backdrop, Bostic urged caution, stating, “You’ve got to be patient and not want to get too far ahead.”

    He noted that just this week, there have been significant swings in expectations regarding economic policy. “If I was waiting before to see and get a clear signal about where the economy is going to go, I’m definitely waiting now,” he said.

    BoE’s Mann: Larger rate cuts needed as global spillovers worsen

    BoE MPC member Catherine Mann argued that recent monetary policy actions have been overshadowed by “international spillovers.” Financial market volatility, particularly from cross-border shocks, has disrupted traditional policy signals, making “founding premise for a gradualist approach to monetary policy is no longer valid”.

    Mann said that larger rate cuts, like the 50bps reduction she supported at the last BoE meeting, would better “cut through this turbulence” and provide clearer guidance to the economy.

    She believes that a more decisive policy stance would help steer inflation expectations and stabilize economic conditions, rather than allowing uncertainty to linger with smaller, incremental moves.

    Despite her stance, the BoE opted for a smaller 25bps rate cut in its latest decision, with Mann and dovish member Swati Dhingra being outvoted 7-2.

    China’s exports rise 2.3% yoy, imports fall -8.4% yoy

    China’s exports rose just 2.3% yoy to USD 539.9B in the January–February period, coming in below forecasts of 5.0% yoy and down sharply from December’s 10.7% yoy.

    Meanwhile, imports sank -8.4% yoy to USD 369.4B, missing expectations of 1.0% yoy growth and marking a noticeable drop from December’s 1.0% yoy.

    As a result, trade balance resulted in USD 170.5B surplus exceeding projections of USD 147.5B.

    Looking ahead

    Germany factory orders, Swiss foreign currency reserves and Eurozone GDP revision will be released in European session. Later in the day, Canada employment will also be published alongside US NFP.

    USD/CHF Daily Outlook

    Daily Pivots: (S1) 0.8800; (P) 0.8863; (R1) 0.8900; More…

    Intraday bias in USD/CHF remains on the downside for the moment. Rise from 0.8374 should have completed at 0.9222, after rejection by 0.9223 key resistance. Deeper fall should be seen to 61.8% retracement of 0.8374 to 0.9200 at 0.8690 next. On the upside, above 0.8924 minor resistance will turn intraday bias neutral first. But rise will now stay on the downside as long as 0.9035 resistance holds, in case of recovery.

    In the bigger picture, rejection by 0.9223 key resistance keep medium term outlook bearish. That is, larger fall from 1.0342 (2017 high) is not completed yet. Firm break of 0.8332 (2023 low) will confirm down trend resumption.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    03:02 CNY Trade Balance (USD) Feb 170.5B 147.5B 104.8B
    07:00 EUR Germany Factory Orders M/M Jan -2.40% 6.90%
    07:45 EUR France Trade Balance (EUR) Jan -4.1B -3.9B
    08:00 CHF Foreign Currency Reserves (CHF) Feb 736B
    10:00 EUR Eurozone GDP Q/Q Q4 0.10% 0.10%
    13:30 CAD Net Change in Employment Feb 17.8K 76K
    13:30 CAD Unemployment Rate Feb 6.70% 6.60%
    13:30 CAD Capacity Utilization Q4 79.00% 79.30%
    13:30 USD Nonfarm Payrolls Feb 156K 143K
    13:30 USD Unemployment Rate Feb 4% 4%
    13:30 USD Average Hourly Earnings M/M Feb 0.30% 0.50%

     



    Source link

  • Tariff Pause for Automakers Soothes Markets, Euro Stands Tall Ahead of ECB Cut

    Tariff Pause for Automakers Soothes Markets, Euro Stands Tall Ahead of ECB Cut


    Risk sentiment is mildly positive in Asian session today, as investors digest the latest developments in US trade policy and Chinese economic measures. Markets welcomed the news that the US has granted a one-month exemption for imports from Mexico and Canada for auto makers. The decision came after US President Donald Trump met with executives from Ford, General Motors, and Stellantis, who urged him to delay the levies to avoid disruptions in the industry.

    Meanwhile, Hong Kong stocks surged to a three-month high, with optimism fueled by hints from China’s National People’s Congress about looser monetary policies, along with expectations for further stimulus. Adding to the bullish momentum, tech giant Alibaba saw its stock soar after unveiling a new AI model, which it claims is competitive with DeepSeek, a major player in the artificial intelligence race. The rally in Chinese markets is adding to overall risk appetite in Asia, though uncertainties remain around US-China trade tensions.

    In the currency markets, Euro continues to lead gains for the week as investors anticipate today’s ECB policy decision. The central bank is widely expected to deliver a 25-basis-point rate cut, but the outlook for further easing is more uncertain than ever. A trade war with the US is adding downside risks to growth, while Europe’s major economies are making historic shifts in fiscal policy, particularly in Germany, where new spending initiatives could support economic expansion. These conflicting factors make it challenging to predict ECB’s path beyond today’s meeting.

    ECB President Christine Lagarde’s press conference is unlikely to provide strong forward guidance, as policymakers will want to maintain flexibility amid rising geopolitical and trade uncertainties. However, despite the upcoming rate cut, Euro’s rally looks well-supported in the near term, particularly as markets focus on Europe’s growing fiscal momentum and rearmament plans.

    Sterling is the second strongest performer, followed by New Zealand Dollar. In contrast, Dollar remains at the bottom of the performance ladder, looking increasingly vulnerable ahead of tomorrow’s Non-Farm Payrolls report. Canadian Dollar is the second-worst performer of the week and Japanese Yen is also under pressure. Swiss Franc and Australian Dollar are positioned in the middle of the pack.

    In Asia, at the time of writing, Nikkei is up 0.82%. Hong Kong HSI is up 3.03%. China Shanghai SSE is up 0.78%. Singapore Strait Times is up 0.72%. Japan 10-year JGB yield is up 0.053 at 1.499, hitting a 16-year high. Overnight, DOW rose 1.14%. S&P 500 rose 1.12%. NASDAQ rose 1.46%. 10-year yield rose 0.055 to 4.265.

    ECB to cut rates, but trade war and fiscal shifts cloud outlook

    ECB is widely expected to continue its “regular, gradual” easing cycle today, reducing the deposit rate by 25bps to 2.50%. Markets are still pricing in two more cuts this year, but the path forward has become murkier in light of recent geopolitical and economic shifts. Also, interest rates are approaching neutral levels, making further easing a more delicate decision.

    On one hand, trade tensions with the US loom large, and the fallout from fresh tariffs and retaliatory measures could weigh on Eurozone’s already fragile economic recovery. On the other hand, the announcement of transformational fiscal changes in both Germany and at the European Commission level—aimed at boosting defense and infrastructure spending—could have a significant long-term impact on growth, partially offsetting the headwinds from a trade war.

    ECB’s new economic projections, to be released alongside today’s decision, are expected to show weaker growth and marginally higher inflation. However, data collection for these forecasts took place weeks ago, rendering them less reflective of the rapidly evolving environment. Thus, their usefulness for predicting medium-term policy moves may be limited, with markets keeping an even closer eye on the ECB’s forward guidance instead.

    Euro has been exceptionally strong this week, with recent optimism boosted by developments in European fiscal policy. It’s rally is unlikely to be deter by today’s ECB outcome.

    Technically, EUR/CHF has surged aggressively, now pressing long-term falling channel resistance (at around 0.9620), after decisively breaking above 55 W EMA. Sustained break above this resistance would suggest that the downtrend from 1.2004 (2018 high) has finally bottomed at 0.9204.

    Sustained trading above the channel resistance will be argue that whole down trend from 1.2004 (2018 high) has completed at 0.9204, on bullish convergence condition in W MACD.

    In this bullish case, further rise should be seen to 0.9928 structural resistance at least, with prospect of stronger rally, even still as a medium term corrective move.

    Fed’s Beige Book: Modest growth, rising price pressures, and tariff concerns

    Fed’s Beige Book report indicated that “economic activity rose slightly” since mid-January, with mixed regional performances. While four Districts saw modest or moderate growth, six reported no change, and two experienced slight contractions.

    Consumer spending was generally lower, with essential goods seeing steady demand but discretionary spending weakening, particularly among lower-income consumers. However, business expectations remained “slightly optimistic” for the coming months.

    On the labor front, employment “nudged slightly higher” overall, though wage growth slowed modestly compared to the previous report.

    While price pressures remained moderate, several Districts noted an uptick in the pace of increase, particularly in manufacturing and construction. Many firms struggled to pass higher input costs onto customers, but expectations of tariffs on imports were already prompting preemptive price hikes in some sectors.

    On the data front

    Swiss unemployment rate, UK PMI construction and Eurozone retail sales will be released in European session. Later in the day, Canada will release trade balance and Ivey PMI. US will publish jobless claims, trade balance, and non-farm productivity.

    EUR/USD Daily Outlook

    Daily Pivots: (S1) 1.0662; (P) 1.0729; (R1) 1.0857; More…

    Intraday bias in EUR/USD remains on the upside as current rally from 1.0176 is still in progress. Next target is 161.8% projection of 1.0176 to 1.0531 from 1.0358 at 1.0932 On the downside, below 1.0721 minor support will turn intraday bias neutral and bring consolidations first, before staging another rise.

    In the bigger picture, the strong break of 55 W EMA (now at 1.0668) suggests that fall from 1.1274 (2024 high) has completed as a three wave correction to 1.0176. That came after drawing support from 0.9534 (2022 low) to 1.1274 at 1.0199. Rise from 0.9534 is still intact, and might be ready to resume through 1.1274. This will now be the favored case as long as 1.0531 resistance turned support holds.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    00:30 AUD Building Permits M/M Jan 6.30% -0.10% 0.70% 1.70%
    00:30 AUD Trade Balance (AUD) Jan 5.62B 5.68B 5.09B 4.92B
    06:45 CHF Unemployment Rate Feb 2.70% 2.70%
    09:30 GBP Construction PMI Feb 49.8 48.1
    10:00 EUR Eurozone Retail Sales M/M Jan 0.10% -0.20%
    12:30 USD Challenger Job Cuts Y/Y Feb -39.50%
    13:15 EUR ECB Deposit Rate 2.50% 2.75%
    13:15 EUR ECB Main Refinancing Rate 2.65% 2.90%
    13:30 CAD Trade Balance (CAD) Jan 1.4B 0.7B
    13:30 USD Initial Jobless Claims (Feb 28) 236K 242K
    13:30 USD Trade Balance (USD) Jan -93.1B -98.4B
    13:30 USD Nonfarm Productivity Q4 1.20% 1.20%
    13:30 USD Unit Labor Costs Q4 3% 3%
    13:45 EUR ECB Press Conference
    15:00 USD Wholesale Inventories Jan F 0.70% 0.70%
    15:00 CAD Ivey PMI Feb 50.6 47.1
    15:30 USD Natural Gas Storage -96B -261B

     



    Source link

  • Euro Stays Strong, While Markets Stabilize on China’s Stimulus and Hopes for Trump’s Tariff Compromise

    Euro Stays Strong, While Markets Stabilize on China’s Stimulus and Hopes for Trump’s Tariff Compromise


    Despite the steep selloff on Wall Street overnight, sentiment appears to have improved somewhat in Asia. Investors found reasons for optimism as China set a 2025 GDP growth target of around 5% and announced stimulus measures to counter escalating tensions with the U.S. In a notable shift, Beijing raised its budget deficit target to roughly 4% of GDP, marking the highest level since at least 2010. Stocks in Hong Kong led regional gains, reflecting hopes that China’s commitment to boosting domestic growth will help offset some global headwinds.

    In the US, there is cautious optimism following remarks from Commerce Secretary Howard Lutnick, who revealed that President Donald Trump may unveil a compromise deal with Canada and Mexico as early as Wednesday. Such a pact could potentially scale back the recently enacted 25% tariffs. However, any progress on that front may be overshadowed by the looming threat of reciprocal tariffs, particularly on the EU, set to be announced in early April.

    While US equity futures received a minor lift from Lutnick’s comments, investors remain wary that ongoing protectionist policies could still drive the economy toward recession. Upcoming US ISM services data will be a crucial test for investor confidence, as weak results could deepen economic concerns and overshadow any positive developments on trade negotiations.

    Meanwhile, Euro is lifted by Europe’s increasing focus on rearmament. The European Commission has proposed borrowing up to EUR 150B to lend to EU governments under a new defense initiative, citing growing threats from Russia and diminishing confidence in US security commitments. The package, championed by Commission President Ursula von der Leyen, could mobilize up to EUR 800B for European defense priorities, including air defense, missile systems, and drone technology.

    Germany is also making significant moves, with the prospective coalition between the CDU/CSU and SPD pledging to loosen the country’s debt brake. This reform would allow higher defense spending and facilitate the creation of a EUR 500B infrastructure fund over the next decade. By exempting defense spending above 1% of GDP from debt limits, Berlin is positioning itself for a substantial boost in military expenditure—a development viewed positively by market participants anticipating a multi-year European rearmament cycle.

    In the currency markets, Dollar remains the worst performer for the week, despite some respite today. Canadian Dollar and Japanese Yen are also under pressure. Conversely, Euro continues to top the leader board, bolstered by optimism around Europe’s defense plans, while Sterling and Swiss Franc follow. Caught in the middle are the Australian and New Zealand Dollars, which face mixed prospects. On one hand, they remain vulnerable to US-China trade friction, but on the other, they could gain support if China’s stimulus measures help stabilize demand for commodities.

    Technically, EUR/CAD’s strong break of 1.5225 resistance this week confirms resumption of long term up trend from 1.2867 (2022 low). Further rise is now expected to 61.8% projection of 1.2867 to 1.5111 from 1.4483 at 1.5870 in the medium term. This will now remain the favored case as long as this week’s low at 1.5002 holds.

    In Asia, at the time of writing, Nikkei is up 0.44%. Hong Kong HSI is up 2.27%. China Shanghai SSE is up 0.44%. Singapore Strait Times is up 0.30%. Japan 10-year JGB yield is up 0.017 at 1.443. Overnight, DOW fell -1.55%. S&P 500 fell -1.22%. NASDAQ fell -0.35%. 10-year yield rose 0.030 to 4.210.

    BoJ’s Uchida: Interest rate to gradually approach neutral by late FY 2025 to FY 2026

    BoJ Deputy Governor Shinichi Uchida reinforced today that interest rates will continue to rise if the bank’s economic projections hold. He highlighted in a speech that BoJ expects inflation to stabilize around the 2% target in the second half of fiscal 2025 to fiscal 2026, with “effects of the cost-push wane” while underlying inflation strengthens with wages growth.

    “The policy interest rate at that time is considered to approach an interest rate level that is neutral to economic activity and prices,” he added.

    However, Uchida acknowledged that determining the “neutral” interest rate level remains uncertain. While in theory, it should be around 2% plus Japan’s natural rate of interest, estimates for the latter vary significantly from -1% to +0.5%.

    Given this wide range and estimation errors, BoJ will avoid relying solely on theoretical models and instead “examine the response of economic activity and prices as it raises the policy interest rate”

    Japan’s PMI service finalized at 53.7, sector strengthens but confidence wanes on labor shortages and trade risks

    Japan’s PMI Services was finalized at 53.7 in February, up from January’s 53.0, marking a six-month high. PMI Composite also improved from 51.1 to 52.0, the strongest reading since September 2024.

    According to Usamah Bhatti, Economist at S&P Global Market Intelligence, service sector businesses saw higher sales volumes, with export demand contributing to the expansion. Meanwhile, the broader private sector recorded its steepest rise in activity in five months, supported by a milder contraction in manufacturing.

    Despite the growth, overall business confidence showed signs of softening. Bhatti noted Firms expressed concerns over labor shortages and uncertainty stemming from US trade policies, leading to the weakest sentiment since January 2021.

    RBA’s Hauser: Uncertain on further easing disputes market’s rate-cut outlook

    RBA Deputy Governor Andrew Hauser emphasized in a speech today that monetary policy is set to ensure inflation returns to the midpoint of the target range, which is crucial for maintaining price stability over the long run.

    He justified the February rate cut, stating that it “reduces the risks of inflation undershooting that midpoint.”

    However, Hauser pushed back against market expectations of a sustained easing cycle, saying the “Board does not currently share the market’s confidence that a sequence of further cuts will be required”.

    While Hauser acknowledged that interest rates will go where they need to go to balance inflation control with full employment, he made it clear that progress so far does not warrant complacency.

    He stressed that RBA will continue to assess economic developments on a “meeting by meeting” basis.

    Australia’s GDP grows 0.6% qoq in Q4, ending per capita contraction streak

    Australia’s GDP grew by 0.6% qoq in Q4, exceeding expectations of 0.5% qoq, while annual growth stood at 1.3% yoy. A key highlight was the 0.1% qoq per capita GDP growth, marking the first increase after seven consecutive quarters of contraction.

    According to Katherine Keenan, head of national accounts at the ABS, “Modest growth was seen broadly across the economy this quarter.” She noted that both public and private spending contributed positively, alongside a rise in exports of goods and services.

    China’s Caixin PMI services rises to 5.14, but uncertainties rising in employment and income

    China’s Caixin Services PMI climbed to 51.4 in February, up from 51.0, beating market expectations of 50.8. Composite PMI also improved slightly to 51.5, signaling steady expansion across both manufacturing and services for the 16th consecutive month.

    According to Wang Zhe, Senior Economist at Caixin Insight Group, supply and demand showed improvement in both sectors, supported by robust consumption during the Chinese New Year holiday and technological innovations in select industries. However, “employment saw a slight contraction”, mainly due to weakness in the manufacturing sector.

    Concerns remain over China’s broader economic recovery. Wang noted that overall price levels “remained subdued”, with declining sales prices in both manufacturing and services. “Rising uncertainties in employment and household income constraining efforts to boost domestic demand and stabilize the economy,” he added.

    Fed’s Williams: Tariff adds to inflation risks, no rush for rate cuts

    New York Fed President John Williams acknowledged that tariffs could contribute to inflation pressures later this year, noting that consumer goods could likely see immediate price increases while other sectors may experience a more gradual impact.

    However, he emphasized the high level of uncertainty surrounding trade policies, stating, “We don’t know how long the tariffs will apply. We don’t know what other countries may do in response to this.”

    Beyond tariffs, Williams pointed out that fiscal and regulatory policies under the Trump administration would also play a key role in shaping the economic outlook and monetary policy decisions.

    Williams also reiterated that the current policy stance remains appropriate. “I think the current place for policy is good. I don’t see any need to change it right away,” he noted.

    While acknowledging that rate cuts could be a possibility later this year, he was noncommittal, adding that it’s “really hard to know” if further easing will be necessary.

    Looking ahead

    Swiss CPI, Eurozone PMI services final and PPI, UK PMI services final will be released in European session. Later in the day, main focus will be on US ADP private employment and ISM services. Fed will also publish Beige Book economic report.

    EUR/USD Daily Outlook

    Daily Pivots: (S1) 1.0522; (P) 1.0575; (R1) 1.0679; More…

    EUR/USD’s current upside acceleration argues that bullish trend reversal is probably already underway. Intraday bias stays on the upside for 100% projection of 1.0176 to 1.0531 from 1.0358 at 1.0173. Decisive break there will solidify this bullish case and target 161.8% projection at 1.0932 next. On the downside, below 1.0527 resistance turned support will turn intraday bias neutral again first.

    In the bigger picture, the strong rebound from 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199 argues that fall from 1.1274 might be a correction only. Sustained trading above 55 W EMA (now at 1.0668) should indicate that this correction has already completed with three waves down to 1.0176. Rise from 0.9534 (2022 low) might then be ready to resume through 1.1274. Nevertheless, rejection by 55 W EMA would keep outlook bearish for another fall through 1.0176 at a later stage.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    00:30 AUD GDP Q/Q Q4 0.60% 0.50% 0.30%
    00:30 JPY Services PMI Feb F 53.7 53.1 53.1
    01:45 CNY Caixin Services PMI Feb 51.4 50.8 51
    07:30 CHF CPI M/M Feb 0.50% -0.10%
    07:30 CHF CPI Y/Y Feb 0.20% 0.40%
    08:50 EUR France Services PMI Feb F 44.5 44.5
    08:55 EUR Germany Services PMI Feb F 52.2 52.2
    09:00 EUR Eurozone Services PMI Feb F 50.7 50.7
    09:30 GBP Services PMI Feb F 51.1 51.1
    10:00 EUR Eurozone PPI M/M Jan 0.30% 0.40%
    10:00 EUR Eurozone PPI Y/Y Jan 1.40% 0%
    13:15 USD ADP Employment Change Feb 140K 183K
    13:30 CAD Labor Productivity Q/Q Q4 0.30% -0.40%
    14:45 USD Services PMI Feb F 49.7 49.7
    15:00 USD ISM Services PMI Feb 53 52.8
    15:00 USD Factory Orders M/M Jan 1.50% -0.90%
    15:30 USD Crude Oil Inventories 0.6M -2.3M
    19:00 USD Fed’s Beige Book

     



    Source link

  • ‘Trumpcession’ Concerns Drag Dollar Down, Fed Rate Cut Bets Surge

    ‘Trumpcession’ Concerns Drag Dollar Down, Fed Rate Cut Bets Surge


    Dollar fell broadly today, an unusual development in contrast to recent rallies on escalating trade tensions and tariff announcements. Market sentiment soured as traders began to weigh the risks of a “Trumpcession,” a new term coined to describe the potential for US President Donald Trump’s policies to drive the economy into contraction or a full-blown recession.

    A major trigger for today’s shift in risk sentiment was the latest Atlanta Fed GDPNow estimate, which plummeted to -2.8% for Q1 2025, compared to -1.5% just days ago on February 28. This marks a dramatic deterioration in economic expectations, signaling that growth could already be already contracting at an alarming pace. Markets are increasingly recognizing that the tariff impact is not just theoretical—it is already weighing on consumption and business investment, and the effects could worsen in the coming months.

    The first round of US tariffs officially took effect today, with a 25% levy imposed on Canada and Mexico, alongside a 20% additional tariff on Chinese imports. While this was expected, the concern now is the snowball effect. With more tariffs looming—including reciprocal tariffs set for April 2 and possible new levies on Japan and China for alleged currency devaluation.

    Market pricing for Fed rate cuts is accelerating too. Fed fund futures now assign a 47% probability of a rate cut in May, up from just 26% a week ago. If economic data continues to deteriorate, expectations could quickly rise above 50%, signaling that markets believe Fed will have little choice but to step in and resume monetary easing sooner than anticipated.

    With overall sentiment on shakier ground, upcoming releases including tomorrow’s ISM services PMI and Friday’s non-farm payroll report have taken on added importance.

    In the currency markets, Dollar is currently the worst performer of the day, followed by Aussie and Sterling. Meanwhile, Swiss Franc is leading gains, followed by Yen and Euro. Kiwi and Loonie are trading in the middle of the pack.

    Technically, Gold reboounded strongly today following Dollar’s selloff. The development suggests that pull back from 2956.09 is merely a near term correction, and has completed at 2832.41, ahead of 38.2% retracement of 2584.24 to 2956.09 at 2814.04. Retest of 2956.09 should be seen next and break there will resume larger up trend towards 3000 psychological level.

    In Europe, at the time of writing, FTSE is down -0.75%. DAX is down -2.60%. CAC is down -1.68%. UK 10-year yield is down -0.068 at 4.444. Germanyu 10-year yield is down -0.027 at 2.466. Earlier in Asia, Nikkei fell -1.20%. Hong Kong HSI fell -0.20%. China Shanghai SSE rose 0.22%. Singapore Strait Times fell -0.28%. Japan 10-year JGB yield rose 0.018 to 1.428.

    Eurozone unemployment rate unchanged at 6.2% in Jan

    Eurozone unemployment rate was unchanged at 6.2% in January, coming in better than expectations of 6.3%. Across the broader EU, unemployment rate also held firm at 5.8%.

    According to Eurostat, the number of unemployed individuals stood at 12.824 million in the EU, of which 10.655 million were in the Eurozone.

    On a monthly basis, Eurozone unemployment fell by -42k, while the overall EU saw a more modest decline of -8k.

    RBA minutes: No commitment to further rate cuts

    The minutes from RBA’s February meeting reinforced the central bank’s cautious approach to monetary easing, making it clear that the recent 25bps rate cut to 4.10% does “not commit them to further reductions” in subsequent meetings.

    Policymakers acknowledged that inflation has been falling at a “somewhat faster pace than expected,” which helped ease concerns over upside risks. However, they stressed that the path to returning inflation to target while maintaining labor market gains is “not yet assured.” The Board ultimately deemed that the stronger case was to ease policy, given the downside risks to the economy.

    Despite the decision to cut, RBA members debated the risks of “easing policy too soon”, recognizing that a premature policy shift could lead to resurgence in inflation.

    They noted that if inflation proved “more persistent than expected,” holding the cash rate at 4.1% for an “extended period” or even tightening policy would be warranted.

    Australia retail sales rises 0.3% mom, driving by food-related spending

    Australia’s retail sales turnover rose 0.3% mom to AUD 37.08B in January, matched expectations.

    Robert Ewing, ABS head of business statistics, said: “While the pick-up in retail spending since mid-2024 has been boosted by more discretionary spending, this month’s rise is mostly driven by food-related spending.”

    USD/JPY Mid-Day Outlook

    Daily Pivots: (S1) 148.63; (P) 149.97; (R1) 150.83; More…

    USD/JPY’s fall from 158.86 resumed after brief consolidations and intraday bias is back on the downside. This decline is as the third leg of the corrective pattern from 161.94 high. Next target is 61.8% retracement of 139.57 to 158.86 at 146.32. Sustained break there will pave the way back to 139.57 low. For now, risk will remain on the downside as long as 151.29 resistance holds, in case of recovery.

    In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). In case of another fall, strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:45 NZD Building Permits M/M Jan 2.60% -5.60%
    23:30 JPY Unemployment Rate Jan 2.50% 2.40% 2.40%
    23:50 JPY Capital Spending Q4 -0.20% 4.90% 8.10%
    23:50 JPY Monetary Base Y/Y Feb -1.80% -1.80% -2.50%
    00:30 AUD RBA Meeting Minutes
    00:30 AUD Current Account (AUD) Q4 -12.5B -11.0B -14.1B -13.9B
    00:30 AUD Retail Sales M/M Jan 0.30% 0.30% -0.10%
    05:00 JPY Consumer Confidence Index Feb 35 35.7 35.2
    10:00 EUR Eurozone Unemployment Rate Jan 6.20% 6.30% 6.30% 6.20%

     



    Source link

  • Pound Sterling gains as Ukraine peace plan increases investors’ risk appetite

    Pound Sterling gains as Ukraine peace plan increases investors’ risk appetite


    • The Pound Sterling rises to near 1.2650 against the US Dollar due to positive developments in the Russia-Ukraine peace truce.
    • Fears of US President Trump’s tariffs on Canada, Mexico, and China loom large.
    • The BoE is expected to follow a careful and gradual policy-easing approach.

    The Pound Sterling (GBP) trades higher against its major peers, except the Euro, at the start of the week due to a potential Russia-Ukraine peace truce. Over the weekend, United Kingdom (UK) Prime Minister Keir Starmer said European leaders agreed to present a peace plan to Washington. The meeting between European leaders and Starmer was also attended by Ukrainian President Volodymyr Zelenskyy, potentially a big positive step towards ending the three-year-long war in Ukraine. Technically, signs of easing geopolitical tensions improve demand for risky assets.

    Additionally, firm expectations that the Bank of England (BoE) will follow a moderate policy-easing cycle and a likely healthy trade deal between the US and the UK have kept the British currency on the frontfoot. On Friday, BoE Deputy Governor Dave Ramsden said that the central bank should keep a “careful and gradual” approach to the monetary policy expansion amid uncertainty over the labor market and global trade.

    Ramsden warned that inflationary pressures are still elevated due to persistent wage growth. “I no longer think that risks to hitting the 2% inflation target sustainably in the medium term are to the downside,” Ramsden said. Meanwhile, trades have fully priced in two interest rate cuts this year.

    The meeting between US President Trump and UK Prime Minister Starmer on Thursday didn’t end with a trade deal, but Trump was confident that an agreement could be made “pretty quickly” where tariffs “wouldn’t be necessary”.

    Daily digest market movers: Pound Sterling recovers against US Dollar

    • The Pound Sterling gains ground against the US Dollar (USD) after a two-day correction and rebounds to near 1.2650 in European trading hours on Monday. The GBP/USD pair bounces back as the risk premium of the US Dollar diminishes on optimism over a peace truce between Russia and Ukraine. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls to near 107.25 from an over two-week high of 107.65 posted on Friday.
    • However, investors should be cautious about betting big against the US Dollar due to looming tariff fears. United States (US) President Donald Trump is poised to slap tariffs on Canada, Mexico, and China for failing to restrict the flow of fentanyl into the US.
    • US Commerce Secretary Howard Lutnick confirmed over the weekend that the President’s plans of imposing tariffs on Canada and Mexico on Tuesday are on. However, his comments indicated that there is room for negotiation over the degree of tariffs. 
    • US President Trump threatened to impose a 25% levy on Canada and Mexico and an additional 10% on China. Trump also slapped 10% tariffs on China in the first week of February.
    • This week, investors will pay close attention to a slew of US economic data, notably on the Nonfarm Payrolls (NFP) data for February, which will be released on Friday. The labor market data will influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook. The Fed is expected to keep interest rates steady in the March and May policy meetings, and there is a 77% chance that it will cut them in June, according to the CME FedWatch tool.
    • In Monday’s session, investors will focus on the US ISM and revised S&P Global Manufacturing Purchasing Managers Index (PMI) data for February, which will be published during North American trading hours. The ISM Manufacturing PMI is estimated to have grown at a marginally slower pace of 50.8 from 50.9 in January.

    Technical Analysis: Pound Sterling bounces back from 20-day EMA

    The Pound Sterling movers higher above 1.2650 against the US Dollar on Monday. The GBP/USD pair finds buying interest after a mean-reversion move to the 20-day Exponential Moving Average (EMA) near 1.2560.

    The 14-day Relative Strength Index (RSI) falls back within the 40.00-60.00 range, suggesting that the bullish momentum has concluded for now. However, the positive bias remains intact.

    Looking down, the February 11 low of 1.2333 will act as a key support zone for the pair. On the upside, the 50% Fibonacci retracement at 1.2765 will act as a key resistance zone.



    Source link

  • Safe-Haven Demand Fuels Dollar Rally Amid Trade, Geopolitical Turmoil

    Safe-Haven Demand Fuels Dollar Rally Amid Trade, Geopolitical Turmoil


    Market sentiment took a decisive turn for the worse last week, with risk aversion dominating across asset classes. The combination of deteriorating domestic economic conditions in the US and heightened global uncertainties has fueled concerns that risk appetite could weaken further. Equities faced renewed selling pressure, yields dropped sharply.

    Domestically, US economic data painted a troubling picture. Consumer confidence deteriorated sharply, while weak personal spending data and a rise in jobless claims suggested that the labor market could be facing new headwinds. With the economy looking increasingly fragile, concerns are mounting that the economy may struggle to maintain momentum, reinforcing speculation about Fed rate cuts.

    Externally, the risk of a full-blown trade war continues to escalate. US President Donald Trump doubled down on his aggressive tariff agenda, reaffirming the March 4 deadline for 25% tariffs on Canada and Mexico and indicating that the EU would be next in line with reciprocal tariffs.

    Geopolitical tensions also worsened, particularly after a dramatic Oval Office showdown between Trump, Vice President JD Vance, and Ukrainian President Volodymyr Zelenskiy. The meeting, initially expected to pave the way for a mineral deal between the US and Ukraine—potentially a step toward resolving the Russian invasion—ended in failure. With US-Ukraine relations strained and no clear resolution in sight, uncertainty in the region remains elevated.

    On the bright side, markets have scaled up expectations for a Fed rate cut in the first half of the year. However, it’s unclear whether additional monetary easing will truly bolster risk sentiment or simply underscore the extent of the economic challenges ahead. A rate cut could offer short-term relief for risk assets, but it might also underscore fears of an impending downturn in domestic activity.

    In the forex market, Dollar emerged as the clear winner for the week, benefiting from risk aversion rather than rate expectations. Sterling and Swiss Franc followed as the next strongest currencies, with the UK seemingly avoiding US tariff threats and the Franc gaining from both risk aversion and Euro weakness. At the other end of the spectrum, commodity currencies struggled, with New Zealand Dollar leading the declines, followed by Australian and Canadian Dollars. Meanwhile, Euro ended in a mixed manner, with the initial post-German election boost fading as tariff threats weighed. Yen also struggled to extend its rally, leaving it stuck in the middle of the performance ladder.

    Investors Pin Hopes on Fed Easing as Stocks Sell Off, But Is Relief Temporary?

    US equity markets ended February on a weak note, with NASDAQ suffering a sharp -3.5% weekly decline despite a late recovery. S&P 500 also lost nearly -1%, while DOW managed to close about 1% higher, benefiting from recovery after leading the selloff earlier in the month. However, the broader market sentiment remained fragile.

    For the entire month, NASDAQ dropped -4%, marking its worst monthly performance since April 2024. S&P 500 fell -1.5%, while the DOW ended down -1.6%. Several factors weighed on market sentiment, including intensifying trade war risks, particularly as the scheduled 25% tariffs on Canada and Mexico approach on March 4. The more consequential reciprocal tariffs, set to take effect on April 2, also remain a source of significant uncertainty.

    US economic data further exacerbated concerns, with sharp decline in consumer confidence, jump in jobless claims, and contraction in personal spending, all pointing to risk of extended weakness in household demand. These indicators have fueled doubts about the strength of US consumption, which remains a critical driver of economic growth.

    With these headwinds and decline in PCE core inflation as released on Friday, expectations for another Fed rate cut in the first half of the year continued to rise. Fed fund futures now price in a 94% probability of a 25bps cut to 4.00%-4.25% in June, up significantly from 63% just a week ago. This growing optimism about resumed Fed easing has provided some support to market sentiment. But it remains unclear whether it will be enough to reverse the pre-dominating risk-off mood or merely slow the pace of decline.

    Technically, NASDAQ is tentatively drawing support from 38.2% retracement of 15708.53 to 20204.58 at 18487.09. Strong rebound from current level, followed by firm break of 55 D EMA (now at 19440.85) will suggest that the corrective pattern from 20204.58 has completed. That will also keep the medium term up trend intact for another rally through 20204.58 at a later stage.

    However, sustained break of 18487.09 will raise the chance that a larger scale correction has already started. In the bearish case, NASDAQ should be correcting whole uptrend from 10088.82 (2022 low). Further break of 55 W EMA (now at 17866.91) will confirm this bearish case and pave the way to 38.2% retracement of 10088.82 to 20204.58 at 16340.36.

    Risk Aversion Drags Yields Down, But Lifts Dollar Higher

    Risk aversion was also evident in the US bond markets, with 10-year Treasury yield tumbling sharply to its lowest level since December. The sharp drop highlights growing concerns over economic uncertainty and trade tensions.

    Technically, current development suggests that rise from 3.603 (2024 low) has completed at 4.809 already, well ahead of 4.997 (2023 high). Current fall is seen as another downleg in the sideway corrective pattern from 4.997. Deeper decline is expected to 61.8% retracement of 3.603 to 4.809 at 4.063 next. Risk will stay on the downside as long as 55 D EMA (now at 4.452) holds, in case of recovery.

    Dollar Index clear reacted more to risk aversion than falling yields and Fed cut expectations. The’s strong bounce towards the end of the week and the break of 55 D EMA (now at 107.31) suggests that fall from 110.17 has completed at 106.12. That came after defending 38.2% retracement of 100.15 to 110.17 at 106.34. Further rise should be seen to 108.52 resistance. Firm break there will target a retest on 110.17 high.

    In the bigger picture, Dollar Index is holding comfortably above 55 W EMA (now at 105.37), and thus rise from 100.15 and 99.57 should still be intact. Break of 110.17 will pave the way back to 114.77 (2022 high) at a later stage.

    NZD/USD and AUD/USD Sink, Eye 2025 Lows for Support

    Kiwi and Aussie were the worst-performing currencies last week, each losing around -2.4% against the greenback. With risk sentiment deteriorating downside pressure on these two currencies could persistent. The key focus now is whether risk aversion would intensify and push NZD/USD and AUD/USD through this year’s lows to resume the long term down trend. There these key support levels could offer a breather to them.

    Technically, NZD/USD’s steep decline last week suggests that corrective rebound from 0.5515 should have completed at 0.5571 already. Retest of 0.5515 should be seen next. Strong support from there could bring rebound to extend the corrective pattern with another rising leg. But outlook will stay bearish as long as 38.2% retracement of 0.6378 to 0.5515 at 0.5848 holds. Firm break of 0.5515 will resume the long term down trend to 61.8% projection of 0.7463 to 0.5511 from 0.6378 at 0.5172.

    Similarly, AUD/USD’s corrective rebound from 0.6087 should have completed at 0.6407. Retest of 0.6087 low should be seen next. Strong rebound from there would extend the corrective pattern with another rising leg. But outlook will stay bearish as long as 38.2% retracement of 0.6941 to 0.6087 at 0.6413 holds. Firm break of 0.6087 will resume the long term down trend to 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806.

    Bitcoin and Gold Tumble on Risk-Off Sentiment

    Bitcoin and Gold struggled under renewed risk aversion last week, extending their losses in line with broader market weakness. While Gold retains a comparatively better outlook, both assets remain vulnerable to ongoing volatility.

    Bitcoin suffered a sharp fall, decisively breaking 89127 support, confirming medium-term topping at 109571. The current slide is seen as a correction of the entire uptrend from the 15452 (2022 low). Deeper decline toward 55 W EMA (now at 74129) is expected.

    Strong support could emerge from the 73812 cluster zone (38.2% retracement of 15452 to 109571 at 73617) to bring rebound, at least first attempt. However, downside risks remain as long as 55 D EMA (now at 95288) caps any recovery.

    Decisive break of 73617/73812 zone could extended the decline to 50k mark, which is close to 49008 support and 61.8% retracement at 51405.

    By contrast, Gold’s outlook is less overtly bearish. 2956.09 is seen as a short term top only, for now. Subsequent pullback is viewed primarily as a correction of the rise from 2584.24. Strong support might be seen from 55 D EMA (now at 2792.05) to bring rebound, and set the base for uptrend resumption at a later stage.

    However, considering that Gold was just rejected by 3000 psychological level sustained trading below 55 D EMA would argue that larger scale correction in underway. In the bearish case, Gold could be starting a medium term decline back to 55 W EMA (now at 2522.33).

    EUR/USD Weekly Outlook

    EUR/USD reversed after edging higher to 1.0527 last week, and the development suggests that consolidation from from 1.0176 has already completed. Initial bias stays on the downside this week for retesting 1.0176/0210 support zone first. Firm break there will resume whole fall from 1.1213, and carry larger bearish implications. On the upside, above 1.0419 minor resistance will turn intraday bias neutral. But outlook will stay bearish as long as 38.2% retracement of 1.1213 to 1.0176 at 1.0572 holds.

    In the bigger picture, immediate focus is on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. However, reversal from 1.0199 will argue that price actions from 1.1274 are merely a corrective pattern, and has already completed.

    In the long term picture, down trend from 1.6039 remains in force with EUR/USD staying well inside falling channel, and upside of rebound capped by 55 M EMA (now at 1.0929). Consolidation from 0.9534 could extend further and another rising leg might be seem. But as long as 1.1274 resistance holds, eventual downside breakout would be mildly in favor.



    Source link

  • Markets Reel Under Trade War Fears, Dollar Gains Traction, Gold Falls

    Markets Reel Under Trade War Fears, Dollar Gains Traction, Gold Falls


    Global stock markets are under heavy selling pressure as risk-off sentiment dominates the final trading day of February. The selloff intensified across major indices, with Japan’s Nikkei plunging -3% and Hong Kong’s Hang Seng Index down -2.8%, following the steep declines in US equities overnight. Investors are increasingly wary of escalating trade tensions, which could further weigh on the fragile global recovery.

    Market sentiment took a sharp hit after confirmation that the 25% US tariffs on Mexico and Canada will take effect on March 4. The more consequential reciprocal tariffs, set for April 2, have also drawn attention, particularly with US President Donald Trump threatening to extend a 25% tariff on European Union imports.

    NASDAQ was the hardest hit among US indices, tumbling -2.78%, with semiconductor giant Nvidia leading the declines with an -8.5% drop. Despite reporting strong quarterly earnings, the company is facing increased concerns that it won’t be immune to the broader trade war, particularly if Taiwan’s chip industry comes under new US tariff measures. Given Nvidia’s dominant role in the AI sector, any disruption in its supply chain could ripple through the entire tech sector.

    In the currency markets, Dollar is now firmly leading the weekly performance rankings after its sharp rally overnight. Swiss Franc follows as the second-strongest, while Sterling also benefits from the broader selloff in Euro. Meanwhile, commodity-linked currencies are bearing the brunt of risk aversion, with New Zealand Dollar plunging the most, followed by Australian and Canadian Dollars. While Euro and Yen are positioned in the middle of the performance spectrum, the single currency is looking rather vulnerable.

    Technically, Gold’s extended decline is another confirmation of the Dollar’s underlying strength. The break of 2876.93 support confirms short-term topping at 2956.09, just below the key psychological 3000 level, with bearish divergence in 4H MACD.

    Deeper correction should be seen to 38.2% retracement of 2584.24 to 2956.09 at 2814.04. Rebound from there indicate that it’s just a near term correction, and keep the larger up trend intact. However, sustained break of 2814.04 will suggest that a larger scale correction is already unfolding.

    In Asia, at the time of writing, Nikkei is down -2.97%. Hong Kong HSI is down -2.58%. China Shanghai SSE is down -1.11%. Singapore Strait Times is down -0.72%. Japan 10-year JGB yield is down -0.023 at 1.373. Overnight, DOW fell -0.45%. S&P 500 fell -1.59%. NASDAQ fell -2.78%. 10-year yield rose 0.036 to 4.285.

    BoJ’s Uchida: Yield rise reflects market’s views on economic and global developments

    Speaking in parliament today, BoJ Deputy Governor Shinichi Uchida said recent rise in JGB yields “reflects the market’s view on the economic and price outlook, as well as overseas developments.”

    “There’s no change to our stance on short-term policy rates and government bond operations,” he emphasized, adding that the bond holdings “continue to exert a strong monetary easing effect” on the economy.

    When asked whether the prospect of further rate hikes and tapering would continue to drive yields higher, Uchida responded that it is ultimately “up to markets to decide.”

    Japan’s Tokyo CPI slows to 2.2% yoy in Feb, industrial production down -1.1% mom in Jan

    Tokyo’s core CPI (ex-food) slowed to 2.2% yoy in February, down from 2.5% yoy and below market expectations of 2.3% yoy. This marks the first decline in four months, largely due to the reintroduction of energy subsidies. Meanwhile, core-core CPI (ex-food and energy) held steady at 1.9% yoy. Headline CPI slowed from 3.4% yoy to 2.9% yoy.

    In the industrial sector, production contracted by -1.1% mom in January, a sharper decline than the expected -0.9%. Manufacturers surveyed by Japan’s Ministry of Economy, Trade, and Industry anticipate a strong 5.0% mom rebound in February, followed by a -2.0% mom drop in March.

    On the consumer front, retail sales grew 3.9% yoy in January, slightly missing the 4.0% yoy forecast, but still pointing to resilient domestic demand.

    Fed’s Hammack signals cautious approach, stresses policy patience

    Cleveland Fed President Beth Hammack said Fed has the “luxury of being patient” given the strength of the labor market and the uneven progress in reducing inflation.

    In a speech overnight, she noted that while inflation has moderated, it remains above the 2% target, and policymakers are not yet confident that price pressures will fully subside. As a result, she expects the federal funds rate to stay steady “for some time”.

    Hammack acknowledged that the current policy stance has helped ease inflation, but she warned that risks remain. While Fed anticipates a gradual return to 2% inflation over the medium term, she stressed that this is “far from a certainty.”

    She suggested Fed will need to take a “patient approach” in monitoring how inflation and the labor market adjust before making any policy changes.

    Fed’s Harker says one inflation report shouldn’t sway policy in either direction

    Philadelphia Fed President Patrick Harker noted in a speech overnight that recent inflation data continues to show an uneven path toward the 2% target. He acknowledged that January’s consumer price data came in hotter than expected, marking the fastest increase in 18 months.

    However, he stressed that policymakers should “not be moved to act, in either direction” based on a single month’s data.

    Harker reaffirmed his stance that the Fed’s current policy rate remains sufficiently restrictive to keep inflation in check without undermining overall economic stability.

    Despite inflation’s persistence, Harker remains optimistic about the economic outlook. He stated, “I am of a position that we let monetary policy continue to work.”

    Looking ahead

    Germany will release CPI flash, import prices, retail sales and unemployment in European session. Swiss will release KOF economic barometer.

    Later in the day, Canada will publish GDP. Focus is also on US PCE inflation, goods trade balance and Chicago PMI.

    AUD/USD Daily Report

    Daily Pivots: (S1) 0.6207; (P) 0.6261; (R1) 0.6291; More…

    AUD/USD’s fall from 0.6407 accelerated lower today and intraday bias stays on the downside for retesting 0.6087 low. Decisive break there will resume larger decline from 0.6941. On the upside, above 0.6284 minor resistance will turn intraday bias neutral first. But outlook will remain bearish as long as 38.2% retracement of 0.6941 to 0.6087 at 0.6413 holds, in case of recovery.

    In the bigger picture, fall from 0.6941 (2024 high) is seen as part of the down trend from 0.8006 (2021 high). Next medium term target is 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.6505) holds.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:30 JPY Tokyo CPI Y/Y Feb 2.90% 3.40%
    23:30 JPY Tokyo CPI Core Y/Y Feb 2.20% 2.30% 2.50%
    23:30 JPY Tokyo CPI Core-Core Y/Y Feb 1.90% 1.90%
    23:50 JPY Industrial Production M/M Jan P -1.10% -0.90% -0.20%
    23:50 JPY Retail Trade Y/Y Jan 3.90% 4.00% 3.70% 3.50%
    00:30 AUD Private Sector Credit M/M Jan 0.50% 0.60% 0.60%
    05:00 JPY Housing Starts Y/Y Jan -2.60% -2.50%
    07:00 EUR Germany Import Price Index M/M Jan 0.70% 0.40%
    07:00 EUR Germany Retail Sales M/M Jan 0.10% -1.60%
    07:45 EUR France Consumer Spending M/M Jan -0.80% 0.70%
    07:45 EUR France GDP Q/Q Q4 -0.10% -0.10%
    08:00 CHF KOF Economic Barometer Feb 102.1 101.6
    08:55 EUR Germany Unemployment Change Jan 15K 11K
    08:55 EUR Germany Unemployment Rate Jan 6.20% 6.20%
    13:00 EUR Germany CPI M/M Feb P 0.40% -0.20%
    13:00 EUR Germany CPI Y/Y Feb P 2.30% 2.30%
    13:30 CAD GDP M/M Dec 0.30% -0.20%
    13:30 USD Personal Income M/M Jan 0.30% 0.40%
    13:30 USD Personal Spending Jan 0.20% 0.70%
    13:30 USD PCE Price Index M/M Jan 0.30% 0.30%
    13:30 USD PCE Price Index Y/Y Jan 2.50% 2.60%
    13:30 USD Core PCE Price Index M/M Jan 0.30% 0.20%
    13:30 USD Core PCE Price Index Y/Y Jan 2.60% 2.80%
    13:30 USD Goods Trade Balance (USD) Jan P -114.9B -122.0B
    13:30 USD Wholesale Inventories Jan P 0.10% -0.50%
    14:45 USD Chicago PMI Feb 40.3 39.5

     



    Source link

  • BP fails to impress the market, as Fed rate cuts get priced back in

    BP fails to impress the market, as Fed rate cuts get priced back in


    BP has released what it calls its reset, with a renewed focus on oil and gas, reallocated capital and more cost cutting.  All of this is  aimed at driving shareholder returns in the long term. Unfortunately, this means reduced shareholder returns in the short term, which has triggered a small sell off in the stock price. The shareholder presentation will be delivered later today, but the company had to announce its plans to the LSE earlier this morning.

    The highlights from the ‘reset’ include reducing capex spend by $1-3bn compared to 2024 levels, with capex expected to be $15bn this year. The bulk of this spend will be on oil and gas investment projects, with $10bn currently allocated. Net zero/ transition investment has been dramatically slashed to $1.5bn – 2bn, down from the $5bn that was previously announced.

    Although there were no new job cuts announced, the plan includes cutting costs by $4-5bn, which is likely to include job losses in the future. These will likely hit non-oil and gas sectors and the energy transition  teams. As expected, the company will also make $20bn of divestments over the next 2 years, including Castrol oil, which will go some way to reducing the company’s net debt pile by $14-18bn by 2027.

    The company is optimistic for shareholder returns. The guidance included in the reset includes a distribution of 30-40% of operating cash flow over time to shareholders, through share buybacks and what it calls a ‘resilient dividend’ which could rise by up to 4% a year.

    The company is also setting a primary target of generating higher returns of more than 16% by 2027 . However, if the company hoped to get a head start on this, it hasn’t worked as yet. The stock has reversed earlier gains and is now down nearly 1% on Wednesday. This could be a reaction to the pledges on shareholder returns: 1, BP has cuts its current share buyback plan and 2, it has failed to give a concrete timeline for when it can deliver shareholder distributions of 30%-40% of free cash flow.

    Slashing shareholder returns in the near term could be a tough pill for investors to swallow

    In Q4, BP’s share buyback programme totaled $1.75bn, this has been slashed to $0.75-$1bn in Q1. The fact that the company is saying it wants to boost shareholder returns at some point in the future, at the same time as slashing its buybacks for this quarter could be hard for some investors to swallow.

    Added to that, for BP to meet its goals of increasing free cash flow and raising returns, it needs a Brent crude price of $70 per barrel or more, the Brent price is currently just above $73 per barrel, which may be too close for comfort, which may also curb investor enthusiasm for this stock.

    BP’s timing is wrong, yet again

    The problem for BP is that it flip flopped away from net zero and back to oil and gas too late. Added to this, the reset could not come at a worse time, when the price of oil is falling. The key event will not be the presentation from BP CEO Murray Auchincloss, but the judgement from Elliott Management, the activist investor who has built a near 5% stake in BP and is threatening to oust management if the company does not pivot back to oil and if performance does not improve. Its Elliott’s time scale that really matters for BP, and whether the investor will give the company time to see if its reset will work.

    For now, the reaction to the reset has been tepid, and we do not think that this alone can boost the share price or narrow the valuation gap with its peers.

    Chart: BP, Shell and S&P 500 Oil and Gas sector, normalized for five years

    Source: XTB and Bloomberg

    US economic weakness: Focus on rate cuts and FX so far, but could stocks be next?

    Elsewhere, there has been a turnaround in US Fed rate cut expectations.  As economic data has surprised on the downside, the market has priced in more rate cuts by the Fed by year end. The market now expects US interest rates to end the year at 3.78%, this is the lowest level of the year so far. The market is now expecting just over 2 rate cuts from the Fed this year. There is now a 50% chance of a rate cut in July, a month ago it was 42%. Added to this, there is also a 36% chance of two rate cuts by October, this was 26% a week ago. The increase in Fed rate cut expectations explains the weakness in the dollar. The USD is the weakest performer in the G10 FX space so far this year, especially vs. the yen.

    The weakness in the economic data has played out in the FX market and in the interest rate futures market. Although US stock markets have underperformed European markets, they are still higher on the year. If weakness in US economic data accelerates, stocks could be next to come under downward pressure. However, it’s worth remembering that most US blue chip and mid cap stocks have international exposure, and this could protect them from a domestic US economic downturn, which explains US stock market outperformance relative to other US assets.



    Source link

  • Dollar Stuck Between Falling Yields and Risk Aversion, Struggles for Direction

    Dollar Stuck Between Falling Yields and Risk Aversion, Struggles for Direction


    Dollar remains stuck in a tug-of-war of conflicting forces. On one side, extended decline in US Treasury yields is pressuring the greenback, while on the other, risk aversion is offering some support.

    10-year Treasury yield fell to its lowest level since December, looks on track to test the next Fibonacci support at 4.2%. Bond markets appear to be betting on a downturn, reflecting growing fears that the US economy could be headed for a rough landing as the administration’s policies weigh on consumer confidence.

    Meanwhile, risk aversion is pressuring US stock markets, indirectly giving Dollar some support as a safe-haven asset. S&P 500 closed lower for the fourth straight session, while NASDAQ shed -1% following weak consumer confidence data. The uncertainty surrounding tariffs, fiscal policy, and economic growth is amplifying recession fears, leading investors to seek refuge in bonds and defensive assets.

    The key issue is that both declining yields and falling equities stem from the same core concerns—whether the US economy is losing steam faster than anticipated. Confidence in Washington’s economic policies is rapidly deteriorating. This dual pressure on stocks and yields is keeping markets on edge, with Dollar stuck between a weakening growth outlook and flight-to-safety flows.

    Adding to the market’s cautious stance is Nvidia’s highly anticipated earnings report, set to be released Wednesday after the bell. Given the company’s pivotal role in the AI-driven stock market rally, its results could have significant implications for risk sentiment for the near term.

    In the currency markets, European majors are leading the session, with Swiss Franc being the strongest, followed by Euro and Sterling. On the weaker side, commodity currencies are underperforming, with Loonie being the worst, followed by Aussie and Kiwi.

    Technically, the case of near term reversal in 10-year yield is building up after strong break of 38.2% retracement of 3.603 to 4.809 at 4.348. Further break of 50% retracement at 4.206 will argue that fall from 4.809 is indeed another leg inside the medium term corrective pattern from 4.997. That would set up deeper decline to 61.8% retracement at 4.063 and below.

    In Asia, at the time of writing, Nikkei is down -0.72%. Hong Kong HSI is up 3.03%. China Shanghai SSE is up 0.64%. Singapore Strait Times is down -0.18%. Japan 10-year JGB yield is down -0.0086 at 1.368. Overnight, DOW rose 0.37%. S&P 500 fell -0.47%. NASDAQ fell -1.35%. 10-year yield fell -0.095 to 4.298.

    Australia’s monthly CPI holds at 2.5%, core measures edge higher

    Australia’s monthly CPI was unchanged at 2.5% yoy in January, falling short of expectations for a slight uptick to 2.6%.

    However, underlying inflation pressures showed signs of persistence, with CPI excluding volatile items and holiday travel rising from 2.7% yoy to 2.9% yoy. Trimmed mean CPI edged up from 2.7% yoy to 2.8% yoy.

    These figures suggest that while headline inflation appears stable, core price pressures are still lingering, reinforcing RBA’s cautious stance on further easing.

    The largest contributors to annual inflation included food and non-alcoholic beverages (+3.3% yoy), housing (+2.1% yoy), and alcohol and tobacco (+6.4% yoy).This was partly offset by a notable decline in electricity prices, which fell -11.5% yoy.

    Fed’s Barkin: Staying modestly restrictive until inflation risks clear

    Richmond Fed President Tom Barkin highlighted the need for a “modestly restrictive” monetary policy stance until there is greater confidence that inflation is firmly returning to the 2% target.

    Speaking in a speech overnight, Barkin emphasized the importance of remaining “steadfast” in tackling inflation, warning that history has shown the risks of easing policy too soon.

    “We learned in the ’70s that if you back off inflation too soon, you can allow it to reemerge. No one wants to pay that price,” he cautioned.

    Barkin acknowledged the high level of uncertainty surrounding economic policy changes, geopolitical tensions, and natural disasters, all of which could influence inflation dynamics.

    He noted that tariffs imposed during Donald Trump’s first administration in 2018 added about 30 basis points to inflation. However, he cautioned that the effect of the latest round of trade policies is harder to predict, as firms may either pass costs onto consumers or absorb them.

    Beyond trade policies, Barkin also flagged uncertainties around deregulation, tax policies, government spending, and immigration reforms, all of which could shape labor market dynamics and broader economic conditions.

    Given these unknowns, he prefers to “wait and see how this uncertainty plays out” before advocating any adjustments to monetary policy.

    Looking ahead

    German Gfk consumer climate and Swiss UBS economic expectations will be released in European session. Later in the day, US will release new home sales.

    USD/CAD Daily Outlook

    Daily Pivots: (S1) 1.4266; (P) 1.4293; (R1) 1.4345; More…

    Intraday bias in USD/CAD stays neutral with focus turning to 1.4378 resistance as rebound from 1.4150 extends. Firm break there will suggest that the correction from 1.4791 has completed, and turn bias back to the upside for retesting 1.4791. On the downside, break of 1.4150 will target 1.3946 cluster support (61.8% retracement of 1.3418 to 1.4791 at 1.3942).

    In the bigger picture, long term up trend is tentatively seen as resuming with prior breach of 1.4667/89 key resistance zone (2020/2015 highs). Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. This will remain the favored case as long as 1.3976 resistance turned support holds (2022 high), even in case of deep pullback.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    00:30 AUD Monthly CPI Y/Y Jan 2.50% 2.60% 2.50%
    00:30 AUD Construction Work Done Q4 0.50% 0.80% 1.60% 2.00%
    07:00 EUR Germany GfK Consumer Sentiment Mar -21.1 -22.4
    09:00 CHF UBS Economic Expectations Feb 17.7
    15:00 USD New Home Sales Jan 677K 698K
    15:30 USD Crude Oil Inventories 2.5M 4.6M
    15:00 USD Consumer Confidence Feb 103.3 104.1

     



    Source link

  • Dollar Rises Slightly After Trump Reaffirms March 4 Tariff Plans for Mexico and Canada

    Dollar Rises Slightly After Trump Reaffirms March 4 Tariff Plans for Mexico and Canada


    Dollar gained slightly overnight, buoyed by mild risk aversion and ongoing tariff threats from President Donald Trump. However, the lack of follow-through momentum in the greenback suggests traders remain hesitant to commit to large directional bets amid persistent policy uncertainty.

    US stock market weakness has been most pronounced in the NASDAQ, which fell by more than -1%. Some of this pullback appears related to profit taking ahead of Nvidia’s quarterly results, due on Wednesday. There are concerned about lower demand for AI technology if China’s low-cost DeepSeek gains traction, posing competition to the industry’s current frontrunners.

    Adding to the cautious tone, Trump doubled down on his plan to impose 25% tariffs on Mexico and Canada, stating the levies are “on time, on schedule” for March 4, following a one-month delay. However, markets have been reluctant to react too strongly, given Trump’s history of sudden policy reversals, which adds to the uncertainty surrounding trade relations.

    In currency markets, Euro is currently the strongest performer for the week, followed by Swiss Franc and then Dollar. Meanwhile, Loonie is the worst so far, trailed by Yen and Kiwi. Aussie and Sterling are trading in the middle of the pack. Looking ahead, US consumer confidence data could provide the next directional cue for the market.

    USD/CAD stands out as a pair to watch, especially under the looming tariff threat. Technically, the fall from 1.4791 (considered a correction to the rally from 1.3418) is in favor to continue as long as 1.4378 resistance holds. Break below 1.4150 would open the way to 1.3946 cluster support ( 61.8% retracement of 1.3418 to 1.4791 at 1.3942).

    However, firm break above 1.4378 would suggest the pullback has ended, paving the way for a stronger rebound to retest 1.4791 high.

    In Asia, at the time of writing, Nikkei is down -1.34%. Hong Kong HSI is down -0.62%. China Shanghai SSE is down -0.14%. Singapore Strait Times is down -0.11%. Overnight, DOW rose 0.08%. S&P 500 fell -0.50%. NASDAQ fell -1.21%. 10-year yield fell -0.027 to 4.393.

    Fed’s Goolsbee: Rate cuts on hold until policy uncertainty clears

    Chicago Fed President Austan Goolsbee emphasized the need for caution before resuming rate cuts, citing uncertainty over the economic impact of the Trump administration’s policies.

    Speaking in a TV interview overnight, Goolsbee stated that Fed remains in “wait-and-see” mode as it assesses the effects of new tariffs, immigration policies, tax cuts, government spending reductions, and federal workforce changes.

    Goolsbee made it clear that if the administration’s policies push inflation higher, Fed is obligated by law to respond accordingly. However, he stressed that the overall policy package remains unclear, making it difficult for Fed to determine its next steps.

    “There’s a lot of uncertainty, a lot of kind of dust in the air, and before the Fed can go back to cutting the rates, I feel and have expressed that we got to get a little dust out of the air,” he said.

    BoE’s Dhingra reaffirms dovish stance, signals concern over weak consumption

    BoE MPC member Swati Dhingra, one of the most dovish voices on the committee, reinforced her call for faster rate cuts. She argued that policy remains overly restrictive despite ongoing disinflation.

    Dhingra, who voted for a 50bps rate cut earlier this month, pushed back against the common interpretation that gradual easing cycle means 25bps cuts per quarter, stating that “that’s not actually what the committee has said. That’s not my definition, clearly.” She emphasized that even under the assumption of quarterly 25bps cuts, monetary policy would still be “in restrictive territory all of this year”.

    Her primary concern remains the persistent weakness in consumer spending, stating that “consumption remains pretty weak, so we’re not seeing that resurgence of inflationary pressures.” She also noted that the slow recovery in demand justifies a more accommodative stance, as “we basically aren’t recovering fully.”

    Despite concerns about potential inflationary pressures in certain items, Dhingra maintained that the disinflation process remains intact. She believes the key takeaway is that monetary policy is still restrictive, and reducing the level of restraint would not necessarily derail inflation’s downward trend.

    Her remarks highlight a clear divide within the MPC, where some members advocate patience, while doves like Dhingra and Catherine Mann argue that rate cuts should come sooner and in larger increments.

    Looking ahead

    Germany GDP final will be released in European session. Later in the day, US consumer confidence will be the main focus, and house price index will be published too.

    AUD/USD Daily Report

    Daily Pivots: (S1) 0.6331; (P) 0.6362; (R1) 0.6379; More…

    AUD/USD is staying in tight range above 0.6327 support and intraday bias stays neutral. On the downside, firm break of 0.6327 will suggest that the corrective rebound from 0.6087 has completed ahead of 38.2% retracement of 0.6941 to 0.6087 at 0.6413. Intraday bias will be turned back to the downside for retesting 0.6087 low. Nevertheless, sustained break of 0.6413 will pave the way back to 61.8% retracement at 0.6615, even still as a correction.

    In the bigger picture, fall from 0.6941 (2024 high) is seen as part of the down trend from 0.8006 (2021 high). Next medium term target is 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.6505) holds.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY Corporate Service Price Index Y/Y Jan 3.10% 2.90% 2.90% 3.00%
    07:00 EUR Germany GDP Q/Q Q4 F -0.20% -0.20%
    14:00 USD S&P/CS Composite-20 HPI Y/Y Dec 4.30% 4.30%
    14:00 USD Housing Price Index M/M Dec 0.20% 0.30%
    15:00 USD Consumer Confidence Feb 103.3 104.1

     



    Source link

  • US data and Fedspeak come to the fore

    US data and Fedspeak come to the fore


    The US Dollar kicked off the new trading week slightly on the defensive, managing to rebound from fresh multi-week lows amid tariff concerns, lower yields, and renewed jitters on the health of the US economy.

    Here is what you need to know on Tuesday, February 25:

    The US Dollar Index (DXY) dropped to new two-month lows, trading at shouting distance from the key support at the 106.00 mark. The Consumer Confidence gauged by the Conference Bord will take centre stage seconded by the FHFA’s House Price Index, The Richmond Fed Manufacturing Index, and the API’s weekly report on US crude oil inventories. In addition, the Fed’s Logan, Barr and Barkin are due to speak.

    EUR/USD briefly surpassed the 1.0500 barrier on fresh optimism following the results of the German election on Sunday. The final Q4 GDP Growth Rate in Germany will be at the centre of the debate, along with the ECB’s Negotiated Wage Growth and the speech by the ECB’s Nagel.

    GBP/USD resumed its uptrend on Monday, rising to new highs in levels closer to the 1.2700 hurdle. The CBI Distributive Trades will be the only data release across the Channel, seconded by the speech by the BoE’s Pill.

    After three daily pullbacks in a row, USD/JPY finally regained the smile and charted decent gains to the proximity of the key 150.00 barrier. Next on tap on the Japanese calendar will be the final prints of the December Coincident Index and Leading Economic Index.

    AUD/USD treaded water around 0.6350 following an unsuccessful attempt to hit the 0.6400 level earlier in the day. The RBA’s Jones will speak on Tuesday, while the RBA’s Monthly CPI Indicator, and Construction Done figures, are expected on February 26.

    Once again, supply concerns lent some much-needed oxygen to crude oil prices, prompting the barrel of American WTI to clock acceptable gains above the $70.00 mark.

    Prices of Gold advanced to a record high closer to $2,960 per ounce troy on the back of intense uncertainty surrounding US tariffs. Silver prices added to Friday’s pullback, reaching multi-day lows near the £2.00 mark per ounce.

     



    Source link