CFD Markets News and Forecasts — 28-02-2024

• GBP/USD loses traction near 1.2660 in Thursday’s early Asian session. 
• US economic growth was slightly weaker than previously forecast in the fourth quarter of 2023. 
• BoE policymakers said they need more incoming data to consider before lowering interest rates.
• The US Core Personal Consumption Expenditures Index (Core PCE) will be in the spotlight on Thursday. 

The GBP/USD pair bounces off the multi-day lows near 1.2620 and recovers to 1.2660 during the early Asian session on Thursday. The renewed US Dollar (USD) demand ahead of the key US event weighs on the major pair. Investors await the US January Personal Consumption Expenditures Price Index (PCE) on Thursday for fresh impetus. At press time, GBP/USD is trading at 1.2660, down 0.01% for the day.

The New York Federal Reserve (Fed) President John Williams said on Wednesday that even though there's still some distance to cover in achieving the Fed 2% inflation target, the door is opening to interest rate cuts this year, depending on how the data come in. 

The recent inflation data has caused financial markets to push back the timing of the first rate cut, which provides some support for the Greenback. Nonetheless, the US PCE data due later in the day might offer some hints about the inflation trajectory in the United States. 

On Wednesday, the US Gross Domestic Product (GDP) for the fourth quarter grew at a 3.2% annualized rate from 3.3% in the previous reading, according to the US Bureau of Economic Analysis (BEA). The figure came in weaker than the estimation of a 3.3% expansion for Q4. 

The Bank of England (BoE) policymakers said they need more evidence that inflation will come down to the 2% target before they decide to lower the key lending rates. The BoE expects year-over-year inflation to decline from 4% last month to 2% in the second quarter of this year, but then rise to 3% by the end of 2024 as the disinflationary effect of lower natural gas prices fades.

Looking ahead, traders will keep an eye on the Fed's preferred inflation measure, the Core Personal Consumption Expenditures Index (Core PCE), due on Thursday. Additionally, the UK Nationwide Housing Prices and Consumer Credit will be released later in the day. 

• AUD/USD falls 0.73% as RBNZ's cautious rate decision overshadows Australia's inflation report.
• US economic data reveals growth, with GDP at 3.2% YoY, influencing global market sentiment.
• Upcoming Australian Retail Sales expected to show recovery, with market forecasting a 1.5% rise MoM.

The Australian Dollar (AUD) dropped 0.73%, against the US Dollar (USD) on Wednesday/s session, courtesy of a dovish hold by the Reserve Bank of New Zealand (RBNZ), which followed a solid inflation report from Australia. As the Asian session begins, the AUD/USD trades at 0.6496, virtually unchanged.

AUD/USD retreats as investors weigh RBNZ's rate hold and anticipate Australian retail sales data

Wall Street finished with losses, as depicted by the S&P 500, down 0.30%. Economic data from the United States (US) showed the US economy is growing above the trend needed to drive inflation toward the US Federal Reserve's 2% target. the Gross Domestic Product (GDP) for the last quarter of 2023 grew by 3.2% YoY, below estimates of 3.3% and Q3 4.9%.

Besides that, Fed speakers stuck to their cautious stance, with Boston Fed President Susan Collins and New York Fed President John Williams supporting rate cuts later in the year. Collins noted that the road to achieving the inflation target would be “bumpy,” Williams said, “We still have a ways to go on the journey to sustained 2% inflation.”

Aside from this, Australian inflation data adopted a back seat as the RBNZ grabbed the attention with its decision to hold rates at 5.50% while removing hawkish comments from the monetary policy statement. AUD/USD and NZD/USD traders gathered more signals from RBNZ Governor Adrian Orr's Q&A session. He said there were discussions about a rate hike. Still, the strong consensus aimed to keep the current level of tightening, adding that some variables revealed that monetary policy is working.

What to watch?

Ahead of the Asian session, the Aussie’s economic docket will feature Retail Sales data, with the consensus expecting a jump from -2.7% to 1.5% MoM in January.

AUD/USD Price Analysis: Technical outlook

The AUD/USD pair shifted bearish bias after hovering around a narrow range of 0.6520-0.6580 and failing to crack the 200-day Moving Average (DMA) at 0.6559. that, along with fundamental reasons, pushed the spot price below the 0.6500 figure and extended its losses to a 9-day low. A fall below that area would expose the February 13 low of 0.6442, which, once cleared, could pave the way to test 0.6400. Conversely, if buyers reclaim 0.6500, they must regain the 100-DMA at 0.6533.

• NZD/USD remains under selling pressure near 0.6100 in Thursday’s early Asian session. 
• The US economy expanded at a 3.2% annualized rate for the fourth quarter of last year. 
• The RBNZ maintained the interest rate steady at 5.5%, as widely expected on Wednesday.
• The US PCE inflation data will be a closely watched event on Thursday. 

The NZD/USD pair remains on the defensive around 0.6100 during the early Asian session on Thursday. The downtick of the pair is supported by the dovish shift from the Reserve Bank of New Zealand (RBNZ) following the monetary policy meeting. The attention will shift to the US inflation figures measured by the PCE on Thursday. 

Data released from the Commerce Department on Wednesday reported that the US economy grew at a 3.2% annual pace from October through December from a 3.3% initial estimate. The GDP growth rate has now surpassed 2% for six consecutive quarters, despite a forecast that rising interest rates may push the world's largest economy into a recession.

The RBNZ decided to hold the Official Cash Rate (OCR) unchanged at 5.5%, as widely expected in its February monetary policy meeting. However, the Monetary Policy Committee (MPC) stated that the central bank is no longer forecasting additional tightening, though they continue to see OCR risks as tilted to the upside. This, in turn, exerts some selling pressure on the New Zealand Dollar (NZD) and acts as a headwind for the NZD/USD pair. 

Moving on, market players will closely watch the US Personal Consumption Expenditures Price Index (PCE) for January on Thursday. Also, the US Personal Income, Personal Spending, Pending Home Sales, and the weekly Initial Jobless Claims are due later in the day and the Fed’s Bostic, Goolsbee, and Mester are due to speak. These events could give a clear direction to the NZD/USD pair. 

 

• The NZD/JPY is currently trading at 91.84, registering a significant drop of 1% in Wednesday's session.
• The RBNZ's dovish hold during the Asian session significantly weakened the NZD.
• The daily RSI indicates a possible shift in momentum, with NZD/JPY buyer strength declining from the overbought territory near 50..
• A short-term advantage for sellers is evident, with hourly RSI values oscillating near oversold territory.

In Wednesday's session, the NZD/JPY dived towards the 91.84 level, recording a notable decline of 1%. The main driver of this movement was the dovish decision from the Reserve Bank of New Zealand (RBNZ) which contributed to the Kiwi being the weakest currency in the session.

The RBNZ held the rates steady at 5.5%, with a revised outlook reducing the likelihood of another 25 bps hike from 75% to 40%. In addition, the bank cut down near-term Gross Domestic Product (GDP) growth projections, slightly adjusting inflation projections downwards. It expects, however, that inflation will return to the 1-3% target band in Q3 2025, implying the persistence of a tighter monetary policy. As a reaction, the combination of projections of a weaker economic activity with expectations of fewer hikes drove the Kiwi’s selloff.

NZD/JPY technical analysis

The daily Relative Strength Index (RSI) recently slid from the overbought territory and took a big hit in Wednesday’s session. This signals a potential turnaround moment, although the pair maintains a positive outlook within the broader technical landscape, as affirmed by its position above the 20,100,200-day Simple Moving Averages (SMAs). At the same time, the MACD histogram indicated a drop in bullish momentum, as marked by the shrinking green bars.

NZD/JPY daily chart

Interestingly, the hourly RSI values are oscillating within the negative territory, pointing to a short-term advantage for the sellers. Simultaneously, the MACD histogram on the hourly chart suggests the return of bullish momentum, as evidenced by the rising green bars. This hourly divergence hints at some level of intraday volatility for the NZD/JPY pair as indicators seem to be correcting oversold conditions.

NZD/JPY hourly chart

Treasurer of Australia Jom Edward Chalmers hit newswires early Thursday, noting that the assumed baseline of a global soft landing isn't a guarantee.

Key highlights

• Austalia's Q4 GDP data likely to be quite weak.
• Global soft landing is assumed to be the default case.
• Soft landing scenario isn't assured, risks still remain.
• Local economic figures in Australia run the same risk.

• Gold steadies at $2,030, buoyed by a dip in US Treasury yields and recent economic growth figures.
• Mixed US economic indicators and Fed statements on policy easing keep gold investors watchful.
• The 50-day SMA caps Gold's gains as Wall Street indices reflect cautious market sentiment.

Gold price remains steady near $2,030 on Wednesday, posting a gain of 0.17% after the US Bureau of Economic Analysis (BEA) revealed the country's economy expanded. A drop in US Treasury bond yields has kept the yellow metal near the current month and weekly highs, capped by the 50-day Simple Moving Average (SMA).

Wall Street treads water with most indices trading in the red. The Gross Domestic Product (GDP) for the last quarter in 2023 expanded a tick lower than the consensus and the preliminary reading, while Retail and Wholesale Inventories came in mixed.

Federal Reserve (Fed) Regional Presidents Susan Collins and John Williams crossed the newswires. They repeated previous remarks  regarding easing policy later in the year and emphasized they haven’t reached the 2% goal for core inflation.

Daily digest market movers: Gold climbs on falling US yields

• Boston Fed President Susan Collins said, “I believe it will likely become appropriate to begin easing policy later this year.” She added, “When this happens, a methodical, forward-looking approach to reducing rates gradually should provide the necessary flexibility to manage risks while promoting stable prices and maximum employment.”
• New York Fed President John Williams stated, “While the economy has come a long way toward achieving better balance and reaching our 2% inflation goal, we are not there yet.” Williams added that he would need to assess “the data, the economic outlook and the risks, in evaluating the appropriate path for monetary policy that best achieves our goals.”
• On Tuesday, Federal Reserve Governor Michelle Bowman said she’s in no rush to cut rates, given upside risks to inflation that could stall progress or cause a resurgence in price pressure.
• Bowman said that inflation would decline “slowly,” adding that she will remain “cautious in my approach to considering future changes in the stance of policy.”
• The Gross Domestic Product (GDP) for the final quarter of 2023 was reported at 3.2% YoY, slightly below the preliminary estimate of 3.3%.
• US Retail Sales Inventories rose 0.3% MoM in January, below 0.4% in the previous month's data, while Wholesale Inventories declined -0.1% MoM, missing estimates of 0.1%.
• Previous data releases in the week:
  • US Durable Goods Orders dropped -6.1% MoM, more than the -4.5% contraction expected and the -0.3% dip observed in December.
  • The S&P/Case Shiller Home Price Index for December rose 6.1% YoY, outpacing estimates of 6% and November’s 5.4% reading.
  • US New Home Sales rose by 1.5% from 0.651M to 0.661M, less than the 0.68M expected.
  • The Dallas Fed Manufacturing Index for February contracted -11.3, though it improved compared to January’s -27.4 shrinkage, suggesting that business activity is recovering.
• The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, edges up at 103.95 as uncertainty over US economic data has improved the appeal for safe-haven assets.
• The US 10-year Treasury note yield stands at 4.284%, down two basis points (bps).
• Interest rate speculators have priced out a Fed rate cut in March and May. For June, the odds of a 25 basis point rate cut are at 49.7%.
• Investors are pricing in 85 basis points of easing throughout 2024.

Technical analysis: Gold stays firm, fluctuating near the 50-day SMA

Gold is trading sideways as XAU/USD has failed to break above the $2,035 psychological resistance level for the last 12 days. Nevertheless, the upward bias remains intact, and if buyers reclaim the $2,035 level, that could open the door to challenge the psychological $2,050 figure. Key resistance levels up next would be the February 1 high at $2,065.60, ahead of the December 28 high at $2,088.48.

On the flipside, if Gold falls below the February 16 swing low of $2,016.15, XAU/USD would dive toward the October 27 daily high-turned-support at $2,009.42.  Once cleared, that will expose key technical support levels like the 100-day SMA at $2,009.42, followed by the 200-day SMA at $1,967.45.

• EUR/USD drifted below 1.0800 after EU sentiment missed the mark.
• US GDP came in mixed, driving EUR/USD back to baseline.
• US PCE inflation to be the key data release this week.

EUR/USD sagged early Friday after European sentiment indicators came in below expectations, and a lopsided print in US Gross Domestic Product (GDP) figures kept the pair in familiar territory midweek.

Thursday brings plenty of data for investors to chew on with German Retail Sales and Consumer Price Index (CPI) numbers, which will be closely followed by US Personal Consumption Expenditure Price Index (PCE) inflation. Friday will round out the week with pan-European Harmonized Index of Consumer Prices (HICP) inflation, as well as the US ISM Manufacturing Purchasing Managers Index (PMI) for February.

Daily digest market movers: EUR/USD churns near 1.0800 once again on mixed data

• Europe’s Economic Sentiment Indicator fell to 95.4 in February versus the expected 96.7. January printed at 96.1 after a slight revision from 96.2.
• US QOQ Q4 GDP printed at 1.7%, above the forecast of 1.5%.
• Despite the QoQ increase, Q4’s annualized US GDP slipped back to 3.2% versus the forecast of 3.3% after downside revisions to 2023’s first-quarter growth.
• German Retail Sales are expected to recover slightly, forecast to print at -1.5% YoY compared to the previous period’s -1.7%.
• Germany’s YoY CPI is forecast to come in at 2.6%, down from the previous 2.9%.
• February’s Core annualized US PCE is expected to come in at 2.8% YoY versus the previous print of 2.9%.

Technical analysis: EUR/USD continues to drift around 1.0800

EUR/USD fell to an intraday low of 1.0796 before recovering into familiar technical churn as the pair cycles 1.0800. The 1.0840 level is the pair’s key sticking point on Wednesday. A heavy supply zone is priced in between 1.0860 and 1.0840. 

Daily candlesticks remain hamstrung on the 200-day Simple Moving Average (SMA) near 1.0830, and the EUR/USD continues to drift into median bids despite a bullish recovery from the last swing low into 1.0700. The pair remains down nearly 3% from December’s peak at 1.1140.

EUR/USD hourly chart

EUR/USD daily chart

• The AUD/JPY is currently trading at around 97.90, reflecting a decrease of 0.55% in Wednesday's session.
• Although the daily RSI MACD on the AUD/JPY hints at fading momentum, buyers continue establishing their upper hand.
• However, the hourly chart indicators suggest stronger selling activity with the RSI venturing into oversold regions.

In Wednesday's session, the AUD/JPY fell to around 97.90, losing 0.55%. The short-term technical outlook hints towards a shift in command from the bears to the bulls while the overall bullish trend remains positive.

On the daily chart, the Relative Strength Index (RSI) for the AUD/JPY pair remains in positive territory, although with a declining trend. Despite the recent dip in the RSI, considering it still sits above the 50 mark, the buying pressure somewhat outweighs the selling pressure in the prevailing market conditions. However, a continuous downtrend, indicated by the RSI's negative slope since its recent peak, signifies a weakening in the buying momentum.

On the other hand, witnessing decreased green bars in the Moving Average Convergence Divergence (MACD) histogram indicates cues for a potential shift in trend. A falling MACD histogram generally means that the positive momentum is dwindling, indicating the sellers might be set to take control.

AUD/JPY daily chart

On the hourly chart, the RSI fluctuates in the negative territory, signaling increased selling activity. However, presenting a sharp contrast to the daily chart data, the hourly RSI ventures into the oversold area, which often points to a potential price correction in the near term to the upside. Also, the hourly MACD illustrates a weakening bearish momentum as suggested by the decreasing red bars which may suggest that an upward correction may be incoming..

AUD/JPY hourly chart

In retrospect, while the daily data illustrates a bullish trend, the hourly data presents that the bears took control but a slight upward correction shouldn’t be taken off the table for the rest of the session. The pair remains above the key Simple Moving Averages of 20,100 and 200 days, indicating a long-term bullish sentiment, despite short-term bearish glimpses.

The Greenback gathered some fresh upside traction against the backdrop of rising cautiousness prior to the release of US inflation figures measured by the PCE on Thursday. The renewed strengthening of the US Dollar weighed on sentiment and prompted some corrective moves in the risk complex.

Here is what you need to know on Thursday, February 29:

The Greenback regained further balance and prompted the USD Index (DXY) to reclaim the area beyond the 104.00 hurdle despite lower yields. On February 29, all the attention will be on the inflation gauged by the PCE, along with Personal Income, Personal Spending, Pending Home Sales and the usual weekly Initial Jobless Claims. Furthermore, Fed’s Bostic, Goolsbee, and Mester are due to speak.

EUR/USD traded on the defensive for the second straight session, although it managed to bounce off lows near 1.0800. The preliminary Inflation rate tracked by the CPI in the broader euro area takes centre stage on February 29, followed by Germany’s Retail Sales, flash Inflation Rate and the labour market report.

GBP/USD retreated to multi-day lows near 1.2620 on the back of renewed buying interest in the Greenback. Mortgage Approvals and Mortgage Lending are due on February 28.

USD/JPY kept its weekly choppiness well in place above the 150.00 barrier. On February 29, the usual weekly Foreign Bond Investment figures are due, seconded by flash Industrial Production, Retail Sales, Housing Starts and the speech by BoJ’s Hajime.

AUD/USD deflated to two-week lows in the sub-0.6500 region, maintaining its trade below the 200-day SMA. Data-wise, in Oz, comes Housing Credit and advanced Retail Sales on February 29.

Prices of WTI traded in a volatile session after hitting a new 2024 peak around $79.60 per barrel as traders assessed another unexpected build in US inventories, the likelihood of delayed rate cuts by the Fed, and the persistent crisis in the Middle East and the Red Sea, all coupled with speculation of the continuation of supply cuts by the OPEC+.

Prices of Gold clung to their daily gains around the $2,030 region, while Silver prices extended their leg lower, leaving the door open to a potential test of the $22.00 mark per ounce sooner rather than later.

President of New York Federal Reserve (Fed) John Williams noted on Wednesday that the Fed is likely to begin cutting interest rates in 2024, albeit in the latter half of the year.

Key highlights

• Inflation pressures have fallen amid broad-based improvement.
• The path back to 2% inflation is likely uneven.
• Incoming economic data will determine monetary policy.
• Remains fully committed to achieving 2% inflation target.
• Still a ways to go before hitting 2%.
• Current unemployment of 2.7% is around the long-term level.
• Economy and labor market remain strong, imbalances are waning.
• Fed's Williams predicts inflation will hit 2.0-2.25% in 2024, finally hit 2.0% in 2025.
• Sees growth at 1.5% this year, unemployment to peak around 4%.
• Risks exist on both the up and down sides.
• Expected to see more of a decline in Fed reserves, will be paying attention to what point it will be appropriate to revisit Quanititative Tightening (QT).
• Debate over rate cuts is a sign of progress on inflation.
• Too early to tell if Fed is extracting the right signals from housing inflation.
• Fed is likely to cut rates later this year.
• Pandemic aftermath is still affecting economy, but remains optimistic.

• USD/JPY trades slightly up, navigating through intervention concerns and US economic data impact.
• Technical analysis shows potential for uptrend continuation if the 151.00 level is reclaimed by buyers.
• Key support levels identified, with a drop below 150.26 possibly signaling a shift towards 150.00 and lower.

The USD/JPY remains subdued during the North American session, trading at around 150.71, up by 013% on Wednesday. Economic data releases from the United States (US) maintain the pair within familiar levels despite threats by Japanese authorities to step into the Forex markets.

USD/JPY Price Analysis: Technical outlook

As the USD/JPY daily chart depicts, the upward bias remains intact. The Relative Strength Index (RSI) is bullish but flat, an indication of consolidation, at around the current year-to-date (YTD) high of 150.88. If buyers would like to extend the uptrend, they must reclaim the 151.00 figure, so they could challenge last year’s high of 151.91.

Conversely, if sellers’ step into the market and drive the exchange rate below the Tenkan-Sen at 150.26, that would expose the 150.00 figure. Further downside is seen below the Senkou Span A at 149.32, followed by 149.00, and the Kijun-Sen at 148.39.

USD/JPY Price Action – Daily Chart

• DXY index is showing gains, currently standing at 103.90, after hitting a high of 104.20.
• The second estimate of Q4 US GDP came in at 3.2%, lower than expected.
• Expectations of the Fed delaying cuts favor the Greenback.

The US Dollar Index (DXY) is trading around 104.00, experiencing its first significant rise since mid-February after hitting 104.20 earlier in the session. This increase can largely be attributed to a decline in foreign currencies in response to a dovish hold by the Reserve Bank of New Zealand (RBNZ), which seems to be overshadowing soft Q4 Gross Domestic Product (GDP) revisions from the US.

Meanwhile, the US Federal Reserve (Fed) maintains a notably consistent, reluctant stance on cutting rates prematurely, signaling a hawkish bias via its officials. Market sensitivity to this stance has reduced expectations of an imminent rate cut, with odds for March at zero, May at 20%, and June around 50%. This seems to be providing a cushion for the Greenback. 

Daily digest market movers: US Dollar gains as markets push back rate cut outlook

• The US reported that the GDP annualized growth rate was revised down to 3.2%, slightly below the consensus of 3.3%.
• To continue placing bets on the next Fed decisions, market participants are now awaiting the release of the Personal Consumption Expenditures (PCE) Price Index due on Thursday.
• Market expectations for the Fed's decisive actions have converged. The market now anticipates only 75 bps of total easing in 2024, down from 150 bps at the start of the year, and this aligns with the Fed’s rate projections. 

Technical analysis: DXY bulls gain some ground, but must conquer 20-day SMA

On the daily chart, the Relative Strength Index (RSI) shows a positive slope in positive territory, indicating buyers have started gaining momentum. Nonetheless, bulls  struggle to capture further ground, suggesting a possible exhaustion in their momentum.

The Moving Average Convergence Divergence (MACD) reflects a set of decreasing red bars. This tells us that, despite the buyer's force in the market, there is a palpable selling pressure visible. Looking at the Simple Moving Averages (SMAs), the index is beneath the 20-day and 100-day SMAs, affirming the short-term bearish outlook. Conversely, its position above the 200-day SMA implies that bulls are maintaining their strength in the grander time frames.

In summary, the current technical indicators suggest a precarious balance between buying and selling forces with a short-term bearish bias, which might be starting to wane. However, the long-term view remains bullish, evidenced by the pair's stance above the 200-day SMA. 

• Mexican Peso declines slightly against the Dollar, traders focus on upcoming Banxico monetary policy insights.
• Market anticipates 75 basis points of rate cuts from Banxico in the first half of 2024, eyeing a shift to 10.50%.
• US economic data and Federal Reserve officials' speeches set the backdrop for MXN's movements against the USD.

Mexican Peso edges lower against the US Dollar on Wednesday, posting modest losses ahead of the Bank of Mexico (Banxico) Q4 2023 report, which would update the view of monetary policy and projections. Data from the United States showed the economy expanded at a slower pace. The USD/MXN exchanges hands at 17.09, up 0.21%.

Mexico’s economic docket is light, except for Banxico’s release. Expectations that the Mexican central bank would ease monetary policy in March remain high with market participants estimating 75 basis points of easing over the next six months. This means the Mexican interest rates, currently standing at 11.25%, would be lowered to 10.50% in the first half of 2024.

Across the border, the US schedule featured the release of Gross Domestic Product (GDP) data for Q4 2023 and Retail and Wholesale Inventories for January. Meanwhile, Federal Reserve (Fed) policymakers will cross the wires, led by regional Fed Presidents Raphael Bostic, Susan Collins and John C. Williams.

Daily digest market movers: Mexican Peso drifts lower ahead of Banxico’s Q4 2023 report

• Mexico’s economy is expected to slow down due to higher interest rates set by Banxico at 11.25%. That’s the main reason that sparked a shift in three of the five governors of the Mexican Central Bank, who are eyeing the first rate cut at the March 21 meeting.
• In that event, the Mexican Peso could depreciate, opening the door for further upside on the USD/MXN pair.
• The latest inflation report in Mexico showed that headline and underlying inflation continued to dip toward Banxico’s goal of 3%, plus or minus 1%, while economic growth exceeded estimates but finished below Q3’s 3.3%.
• Mexico’s economic data released during the week from February 26 to March 1.
  • The Balance of Trade for January revealed the country posted a trade deficit of $302 million.
  • Mexico’s Consumer Price Index (CPI) in the first half of February was 4.45%, down from 4.9% YoY.
  • Mexico’s Core CPI slowed from 4.78% to 4.63% on an annual basis.
  • Mexico’s GDP for Q4 2023 exceeded estimates of 2.4% YoY and hit 2.5%, less than Q3 2023 print of 3.3%.
• Economic trade issues between Mexico and the US could depreciate the Mexican currency if the Mexican government fails to resolve its steel and aluminum dispute with the United States. US Trade Representative Katherine Tai warned the US could reimpose tariffs on the commodities.
• Across the border, Gross Domestic Product (GDP) for the last quarter of 2023 missed estimates by a tick, though it came at 3.2% YoY, down from Q3 4.9%.
• US Retail Sales Inventories rose 0.3% MoM in January, below 0.4% in the previous month's data, while Wholesale Inventories declined -0.1% MoM, missing estimates of 0.1%
• In January, US Durable Goods Orders significantly declined to -6.1% MoM, exceeding the anticipated contraction of -4.5% and marking a steeper fall compared to December's -0.3% decrease.
• In December, the S&P/Case-Shiller Home Price Index indicated a monthly decline of -0.3%, a slight acceleration in the contraction pace from November's -0.2%. On an annual basis, home prices rose by 6.1%, surpassing both expectations and the growth rate from the previous month.
• Market players had trimmed the odds for the first 25 basis point (bps) rate cut in June, with odds lying at 49%, down from 53% a day ago, while 39% of investors expected the Fed to keep rates unchanged at the current level of 5.25%-5.50%.

Technical analysis: Mexican Peso trips down as USD/MXN meanders above 50-day SMA

The USD/MXN is trading above the 50-day Simple Moving Average (SMA), which stands at 17.06, after the pair posted three days of losses. Relative Strength Index (RSI) studies are about to turn bullish, which could exacerbate a leg up toward the 17.10 area. Once cleared, traders could target 17.20. Further upside would be expected if buyers reclaim the 200-day SMA at 17.25 and the 100-day SMA at 17.33.

On the flip side, if USD/MXN drops below the 50-day SMA, look for a challenge of the 17.00 mark. A breach of the latter, and the pair would tumble to test yearly lows of 16.78, followed by last year’s low of 16.62.

USD/MXN Price Action – Daily Chart

Boston Federal Reserve (Fed) President Susan Collins still expects the Fed to begin easing later this year, but progress on inflation has slowed and policymakers need to wait for more evidence that the road to 2% remains clear.

Key highlights

• Need to see more evidence that the disinflationary process will continue before carefully normalizing policy.
• More time is needed to discern if the economy is sustainably on the path to stability, while still maintaining a healthy labor market.
• Fed's Collins wants to see continued evidence that wage growth is not contributing to inflation.
• Return to 2% likely requires a moderating of the pace of demand growth.
• Looking for well-anchored inflation expectations and an orderly moderation in labor demand.
• Wants to see continued declines in housing price inflation and non-shelter services inflation.
• The threat of inflation remaining above 2% has receded.

• EIA reported another Crude Oil inventory build.
• The API also reported an increase in barrel counts late Tuesday.
• OPEC officially weighs extending Q1 production caps through Q2.

West Texas Intermediate (WTI) US Crude Oil found further room on the top end on Wednesday, briefly climbing above $79.00 before getting pulled back down by another surprise buildup in US Crude Oil inventories according to the Energy Information Administration (EIA). The EIA’s uptick in barrel counts adds to another reported buildup from the American Petroleum Institute (API) which came through late Tuesday.

According to the EIA, US Crude Stocks Change for the week ended February 23 rose 4.199 million barrels, above the 2.743 million forecast and adding to the previous week’s 3.514 million buildup. This also adds to the API Weekly Crude Oil Stock count for the same period, which added another 8.428 million barrels compared to the previous week’s 7.168 million.

With inventories on the rise, the Organization of the Petroleum Exporting Countries (OPEC) has extended the first quarter’s production caps through June, and the Crude Oil cartel is formally weighing extending pumping reductions through the second quarter. The consortium is trying to bolster Crude prices by stemming the tide of Crude Oil supply getting pumped into markets by non-OPEC countries, specifically the US which recently became the single largest exporter of Crude Oil to Europe.

WTI technical outlook

WTI briefly tested into its highest prices since late November, etching in a daily high of $79.27 before falling back into the low end for Wednesday. 

WTI continues to run aground of the 200-day Simple Moving Average (SMA) at $77.67. US Crude Oil is struggling to develop further bullish momentum, but is still up around 9% from the last swing low into $72.00 in early February.

WTI hourly chart

WTI daily chart

• USD/CAD flubs recovery above 1.3600 due to mixed US Q4 GDP.
• Canada sees soured Current Account print that misses expectations.
• Thursday’s Canada GDP to be eclipsed by US PCE.

USD/CAD saw an early Wednesday rally above the 1.3600 handle pull back into recent congestion after US Gross Domestic Product (GDP) figures were mixed on release. Markets will be pivoting to focus on Thursday’s US Personal Consumption Expenditure Price Index (PCE) as the Federal Reserve’s (Fed) inflation metric of choice.

Canada saw a worse-than-expected print in the fourth quarter Current Account, but the figure still recovered from the previous decline. Canadian Q4 GDP is also slated for Thursday, but it is set to be entirely overshadowed by the US PCE inflation update.

Daily digest market movers: USD/CAD sours but still on the high side

• Canada’s Q4 Current Account came in at -1.62 billion, missing the forecast recovery of -1.25 billion but still improved on the previous quarter’s -4.74 billion, which was revised lower from -3.22 billion.
• US Q4 GDP accelerated QoQ to 1.7% from the previous 1.5%.
• Annualized Q4 US GDP ticked lower to 3.2% from the steady forecast of 3.3% after late revisions to Q1 GDP dragged the yearly average lower.
• Read more: US Q4 GDP growth revised lower to 3.2% from 3.3%.
• Early US PCE numbers came in slightly higher than expected, with QoQ Core PCE for Q4 rising to 2.1% from the forecasted flat print at 2.0%, and PCE Prices ticked up to 1.8% from the expected flat print at 1.7%.
• Markets will be pivoting to Thursday’s US PCE Price Index, scheduled for 13:30 GMT.
• US Core PCE Preview: Forecasts from nine major banks, a hot reading.
• Core PCE Price Index for the year ended January is forecast to tick down to 2.8% from the previous 2.9%.
• Q4’s Canadian GDP Annualized is expected to rebound to 0.8% from the previous -1.1%.

Technical analysis: USD/CAD hesitates on the top end after testing 1.3600

USD/CAD rallied on Wednesday, briefly crossing the 1.3600 handle before paring back into recent technical levels. The pair found a fresh ten-week high at 1.3606, but 1.3580 remains a tricky barrier to break.

Daily candlesticks continue to etch out a rough pattern of higher highs as momentum runs aground of the 200-day Simple Moving Average (SMA) at 1.3478. Despite near-term congestion, USD/CAD has closed in the green for all but one of the last eight consecutive weeks.

USD/CAD hourly chart

USD/CAD daily chart

The Fed’s preferred inflation gauge, the Core Personal Consumption Expenditure (PCE), will be released by the US Bureau of Economic Analysis (BEA) on Thursday, February 29 at 13:30 GMT and as we get closer to the release time, here are the forecasts of economists and researchers of nine major banks.

Core PCE price index is expected to have grown by 0.4% on a month-on-month basis in January against a 0.2% increase in December. If so, it would be the largest gain since last January. Annually, the underlying inflation data is forecast to have fallen a tick to 2.8%. Meanwhile, headline PCE is expected to fall two ticks to 2.4% YoY.

Commerzbank

ING

Deutsche Bank

TDS

NBF

SocGen

CIBC

Citi

Wells Fargo

Next week brings the UK budget. The budget has the potential to impact the Pound Sterling (GBP) – which is currently the second best performing G10 currency in 2024 after the US Dollar, economists at Rabobank say.

EUR/GBP to edge lower to 0.8500 on a three-month view

• EUR/USD declines amid signs of US economic resilience, despite slight GDP adjustment to 3.2% YoY.
• Fed's inflation measure, PCE, anticipated to show deceleration, potentially impacting rate cut expectations.
• Eurozone economic sentiment dips, highlighting stagnation as traders await critical Eurozone inflation figures.

The Euro stumbles for the second straight day against the US Dollar as investors assess recent data from the United States, revealing the economy remains strong. At the time of writing, the EUR/USD edges lower 0.12% and exchanges hands at 1.0830.

EUR/USD falls as US GDP shows economy losses momentum, inflation data in focus

The US Bureau of Economic Analysis (BEA) reported the second estimate of the Gross Domestic Product (GDP) for the last quarter of 2023, coming a tenth lower at 3.2% YoY compared to the 3.3% preliminary reading. Although the economy remains robust, recent data suggests the economy is losing momentum, as Retail Sales and Durable Goods Orders declined in January.

EUR/USD traders’ eyes are laser-focused on the release of the inflation figures for January. The Federal Reserve’s (Fed) preferred gauge for inflation is the Personal Consumption Expenditure (PCE). The consensus sees the PCE at 2.4% YoY and the Core PCE at 2.8%, with both cases slowing compared to December’s data.

If the data eases, look for a more aggressive re-pricing of rate cut expectations by the swaps market, which converged towards the Fed’s projections of three rate cuts towards the end of 2024.

Across the pond, the Eurozone economy is stagnating, as Economic Sentiment fell again in February, from 96.1 to 95.4, below estimates of an improvement to 96.7. According to ING analysts, “The eurozone economy has been stagnant since late 2022, and surveys have shown that there is no meaningful improvement happening in the first quarter.” In the meantime, traders would be eyeing the release of the latest inflation data from the Eurozone, with estimates for the Harmonized Index of Consumer Prices (HICP) at 2.5%, while core HICP at 2.9%.

EUR/USD Price Analysis: Technical outlook

From a technical perspective, the EUR/USD is trading sideways, though in the last couple of days, achieved remained above the 200-day moving average (DMA), which lies at 1.0827. A daily close above that level could pave the way to test the 50-DMA at 1.0878 before testing 1.0900. On the flip side, a daily close below the aforementioned level could pave the way to test the 1.0800 mark.

Economists at HSBC see modest downside risks for the Euro (EUR) and the Pound Sterling (GBP).

The ECB and BoE are likely to pivot more explicitly towards policy easing in the months ahead

The Reserve Bank of New Zealand (RBNZ) held its Official Cash Rate (OCR) unchanged. Economists at Danske Bank analyze NZD/USD outlook after the decision.

RBNZ holds rates steady

The FOMC has kept rates on hold since its last rate hike in July. Economists at ABN Amro still expect the Fed to start cutting rates from June.

Upper bound of the FFR to reach 4.25% by end-2024, and 3% by mid-2025

The US Dollar Index (DXY) recovers above 104.00. Economists at Scotiabank analyze Greenback’s outlook. 

Spreads have moved only marginally in the USD’s favour over the past month

• US GDP growth for Q4 is revised lower to 3.2% from 3.3%.
• US Dollar Index stays in positive territory above 104.00.

The United States' Gross Domestic Product (GDP) grew at an annual rate of 3.2% in the fourth quarter, the US Bureau of Economic Analysis (BEA) said in its second estimate on Wednesday. The BEA reported in its advanced estimate the real GDP growth was 3.3%.

"The update primarily reflected a downward revision to private inventory investment that was partly offset by upward revisions to state and local government spending and consumer spending," the BEA explained in the press release. 

Market reaction

The US Dollar Index (DXY) edged slightly lower with the immediate reaction and was last seen rising 0.26% on the day at 104.07.

EUR/USD looks soft again in the low 1.0800s. Economists at Scotiabank analyze the pair’s outlook.

Support below the 1.0800 figure should firm up in the 1.0770/1.0790 zone

USD/CAD is retesting the mid-February high at 1.3590. Economists at Scotiabank analyze the pair’s outlook.

Loonie likely to remain soft for now

• The US Dollar trades in the green across the board.
• Market sentiment turns into risk-off, with equities in the red in both Asia and Europe.
• The US Dollar Index recovers above 104.00, posting a fresh five-day high. 

The US Dollar (USD) is recovering on Wednesday to a five-day high driven by safe-haven inflows. Markets got shaken by a mix of elements coming from China and New Zealand. In China, additional measures were issued to support the housing, leisure and gaming sector, although stimulus was far less than what markets were expecting.

On the economic front, markets had to digest a surprisingly dovish stance from the Reserve Bank of New Zealand (RBNZ), which limited the odds of future rate hikes. In the US calendar, all eyes will be on the second reading for the US Gross Domestic Product (GDP) for the fourth quarter, although not much movement is expected. Rather, some volatility can be expected near the European close as no less than three Fed speakers will take the stage within a one-hour timeframe. 

Daily digest market movers: Risk off sets the scene

• Ahead of the US session, some European Central Bank (ECB) comments from ECB's Peter Kazimir, who said that disinflation is taking place much quicker than expected, and that there is no reason to rush for a rate cut, with June as best guess from the ECB member. 
• The Mortgage Bankers Association (MBA) has released its Mortgage Applications Index for this week. Last week there was a decline of 10.6%, with this week another 5.6% decline.
• At 13:30 GMT, the second reading  of the US Gross Domestic Product (GDP) for the fourth quarter will be released:
  • Headline GDP is expected to grow at an annualized rate of 3.3%, unchanged from the first estimate.
  • Core Personal Consumption Expenditures is also set to remain unchanged from the previous estimate at 2%.
  • The quarterly Personal Consumption Expenditures Price Index is expected to remain unchanged at 1.7%.
• Between 17:00 and 17:45 GMT, three US Federal Reserve officials are due to take the stage. 
  • At 17:00 GMT, Atlanta Fed President Raphael Bostic will speak first.
  • Near 17:15 GMT, Boston Fed President Susan Collins will follow.
  • At 17:45 GMT, New York Fed President John Williams will take the stage. 
• Equities are in the red across the board. Especially the Chinese equities, with both major indices down over 1% after disappointing supportive measures for the construction, leisure and gaming sector.  European and US equities are all in the red, though less than 0.50%.
• According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the March 20 meeting are at 99.5%, while chances of a rate cut stand at 0.5%. 
• The benchmark 10-year US Treasury Note trades around 4.29%, and is not far off this week’s peak at 4.32%.

US Dollar Index Technical Analysis: Risk remains for another leg lower

The US Dollar Index (DXY) has brushed off over five days of losses, setting a new five-day high on Wednesday. The move comes with the risk-off inflows after both Chinese stimulus measures and a dovish Reserve Bank of New Zealand rate decision disappointed markets. Do bear in mind that month-end flows are often negative for the US Dollar, so current gains possibly will be given up by Thursday. 

To the upside, the 100-day Simple Moving Average (SMA) near 104.00 is being tested as its resistance got broken, though could still shape into a bull trap. Should the US Dollar be able to cross 104.60, 105.12 is the next key level to keep an eye on. One step beyond there comes 105.88, the high from November 2023. Ultimately, 107.20 – the high of 2023 – could even come back into scope, but that would be when markets reprice the timing of a Fed rate cut again, possibly delaying it to the last quarter of 2024. 

Looking down, the 200-day Simple Moving Average at 103.74 has been broken twice recently, making it a weak support. The 200-day SMA should not let go that easily, so a small retreat back to that level could be more than granted. Ultimately, it will lose its force with the ongoing selling pressure and could fall to 103.16, the 55-day SMA, before testing 103.00. 

GBP/USD slides in line with peers but rebound from low looks constructive, economists at Scotiabank say.

Support is 1.2580/1.2590

Is it time to normalize the BoJ's monetary policy? Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, analyzes how the end of ultra-expansionary monetary policy could impact the Japanese Yen (JPY).

If the BoJ begins to exit in three weeks, JPY may initially benefit

• Natural Gas prices are flat halfway through the European session but with upside potential. 
• Traders see the risk of overcrowded demand for cheap European Gas contracts. 
• The US Dollar Index rallies above 104.00 and sets a three-day high. 

Natural Gas (XNG/USD) is trading back above $1.80 after a two-day winning streak. Traders are seeing more room for some upside with the European Gas trading market becoming very crowded. Due to the recent multi-year low in prices, several foreign traders are making their way into the European Gas trading market, with Asia being very active in buying up contracts. 

The US Dollar (USD) is delivering a gut-punch to the markets by stretching to a three-day high in the European trading session. Ahead of the second reading of the US Gross Domestic Product (GDP), the Greenback is making its way back up against most major peers. Risk-off sentiment in Asia was the main trigger for the start of the US Dollar strength this Wednesday. 

Natural Gas is trading at $1.84 per MMBtu at the time of writing.  

Natural Gas market movers: Europe’s LNG markets get crowded

• Recent declines in European Gas prices have spurred other parts of the world into buying. This could push prices higher in Europe, and spillover into global Gas prices. 
• China’s Gas imports are expected to climb by 8.2% this year. Buyers are buying more Gas than needed, especially at current cheap prices.
• Turkey’s Natural Gas imports have declined by 8% in 2023, with Russia being the biggest supplier.
• This Wednesday morning EU President Ursula Von Der Leyen proposed to start using the frozen Russian assets for Ukrainian support. 

Natural Gas Technical Analysis: European Gas market getting crowded

Natural Gas in Europe is set to face a hot summer with more and more market participants entering the bloc’s Gas trading market. All new additions are buyers, mainly from Asia, interested in the European Gas market with at the moment multi-year low prices and the guaranteed price cap the EU has put in place to protect households from rising Gas prices after Russia decreased its supplies to Europe. Although Europe looks well equipped to refuel ahead of the next heating season, the risk of some volatile spikes could be on the horizon over the summer period. 

On the upside, Natural Gas is facing some pivotal technical levels to get back to. The next step is $1.99, – the level which, when broken on the way down, saw an accelerated decline. After that, the green line at $2.13 comes into view, with the triple bottoms from 2023. If Natural Gas sees sudden demand pick up, $2.40 could come into play. 

On the downside, $1.64 and $1.53 (the low of 2020) are targets to look out for. Another leg lower could come if global growth starts to shrink and there is less demand. Add to that equation both the US and Canada trying to free up more volume of Natural Gas mining, and the scale could quickly tip into an oversupplied market with more downside prices at hand. 

XNG/USD (Daily Chart)

EUR/USD has been trading within a narrow band between 1.0500 and 1.1000 since December 2022. Economists at Goldman Sachs analyze the pair’s outlook.

Significant economic or policy shifts are necessary to catalyze a breakout in either direction

• US stock index futures trade in negative territory on Wednesday.
• US economic calendar will feature Q4 GDP revision.
• PCE inflation and Jobless Claims data will be released on Thursday.

S&P 500 futures fall 0.37%, Dow Jones futures drop 0.35%, and Nasdaq futures lose 0.46%.

S&P 500 (SPX), Dow Jones (DJIA), and Nasdaq (IXIC) indexes closed on Tuesday with a 0.17% gain, a 0.25% drop, and a 0.37% rise, respectively.

What to know before stock market opens

The Utilities Sector climbed 1.9% on Tuesday as the best-performing sector for the day, followed by the Communication Services Sector, which rose 1%. The Energy Sector recovered from daily lows but lost 0.43%.

Norwegian Cruise Line Holdings Ltd. (NCLH) and Carnival Corp. (CCL) were the biggest gainers for the day. NCLH rose 19.8%, while CCL added nearly 17%. Tuesday's worst performer was the NASDAQ-listed Workday Inc. (WDAY), which backslid 4% to hit $295.05 at the closing bell.

Assessing the latest developments in financial markets, “among equities, there were some modest movements, with the S&P 500 (+0.17%) closing just below its all-time high, having basically been in a narrow band since the Nvidia results last week. Currently it’s down -0.21% for the week, meaning it still needs to recover a bit in order to achieve a joint record of 16 weekly advances in the last 18 (currently on 15/17 for first time since 1989),” said Jim Reid, global head of economics and thematic research at Deutsche Bank, and continued:

“Small-cap stocks continued to outperform, with the Russell 2000 up +1.34%, in contrast to the Dow Jones, which was down -0.25%. Tech stocks saw a marginal outperformance, with the NASDAQ up +0.37% and Magnificent 7 up +0.22%. It shows the signs of the times that Apple yesterday announced the closure of its electric car unit which it set up in 2014 that at one point promised autonomous driving within a reasonable timeframe. The fact that they did this partly to divert resources to AI shows how trends can change.”

European Central Bank (ECB) Governing Council member Peter Kazimir said on Wednesday that he would prefer the ECB to start cutting rates in June, followed by a smooth and steady cycle of policy easing, per Reuters.

Key takeaways

"Headline disinflation is going quicker than expected but core is still uncertain."

"ECB to acknowledge improved inflation outlook but should avoid forward guidance on rates in March."

"Market's rate cut pricing now is more realistic, pleased with recent shift in expectations."

"Economic soft landing base case but growth problems structural, not due to high rates."

"Framework review should resurrect interbank funding market, limit size of structural portfolio."

Market reaction

EUR/USD edged slightly higher from session lows after these remarks and was last seen losing 0.3% on the day at 1.0812.

The Reserve Bank of New Zealand (RBNZ) changed its tone only moderately, keeping the threat of another hike on. However, the New Zealand Dollar (NZD) fell. Economists at ING analyze Kiwi’s outlook.

New Zealand’s inflation issues point to extended hawkish outlook

• GBP/JPY gauges an intermediate cushion near 190.40 as the BoE sees no rush for rate cuts.
• UK’s high wage growth and service inflation keep the inflation outlook stubborn.
• Japan’s National CPI remains higher at 2% than expectations.

The GBP/JPY pair discovers a temporary cushion near 190.40 in Wednesday’s European session. The asset remains broadly upbeat as the Bank of England (BoE) is not ready for imminent rate cuts due to a stubborn inflation outlook.

BoE policymakers want to see more evidence to gain confidence that inflation will sustainably return to the 2% target to begin reducing interest rates.

On Tuesday, BoE Deputy Governor Dave Ramsden, who voted for holding interest rates at 5.25% in the last monetary policy meeting, said he wants to see how long inflation will remain persistent. Ramsden added the duration of inflation remaining persistent will determine how long interest rates will be maintained at 5.25%.

This week, the British Retail Consortium (BRC) reported that the annual shop price inflation retreated to 2.5% in February, the lowest since March 2022, which seems to offer some relief to households. However, strong wage growth and high service inflation continue to keep the outlook of consumer price inflation sticky.

The United Kingdom’s economic calendar is light this week. Therefore, the Pound Sterling will be guided by market expectations for rate cuts by the BoE.

Meanwhile, the Japanese Yen finds some buying interest as Japan’s inflation remains more stubborn than expectations in January. The annual National Consumer Price Index (CPI) rises by 2.0% against expectations of 1.8% but decelerates from December’s reading of 2.3%.

Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, analyzes the last Bank of England’s (BoE) move and its implications for the Pound Sterling (GBP).

Money should always and everywhere be scarce

• AUD/USD meets with heavy supply following the release of the softer Australian CPI report.
• A strong pickup in the USD demand exerts additional pressure and contributes to the fall.
• Traders now look to the US Q4 GDP for some impetus ahead of the US PCE on Thursday.

The AUD/USD pair comes under intense selling pressure following the previous day's directionless price action and dives to a nearly two-week low during the first half of the European session. Spot prices slide back below the 0.6500 psychological mark in the last hour and seem vulnerable to waken further amid broad-based US Dollar (USD) strength.e

The initial market reaction to Tuesday's disappointing US Durable Goods Orders turns out to be short-lived amid expectations that the Federal Reserve (Fed) will keep interest rates higher for longer. Furthermore, a turnaround in the global risk sentiment – as depicted by a pullback in the equity markets – benefits the Greenback's relative safe-haven status and drives flows away from the perceived riskier Aussie.

The Australian Dollar (AUD), on the other hand, is undermined by domestic consumer inflation figures, which held steady at a two-year low in January as against consensus estimates for an uptick. In fact, the Australian Bureau of Statistics (ABS) reported that the headline CPI rose by the 3.4% YoY rate during the reported month, matching the lowest reading since November 2021 touched in December.

Adding to this, the Core CPI, which excludes volatile items such as fuel, fresh food and holiday travel, eased from the 4.2% YoY rate seen in the previous month to 4.1% in January. The data fuelled speculations that price pressures could abate more rapidly than expected and reduce the possibility of another interest rate hike by the Reserve Bank of Australia (RBA), which, in turn, weighs heavily on the AUD.

Meanwhile, the flight to safety triggers a fresh leg down in the US Treasury bond yields and might hold back the USD bulls from placing aggressive bets. This could lend support to the AUD/USD pair ahead of the crucial US Personal Consumption Expenditure (PCE) Price Index on Thursday. In the meantime, traders on Wednesday will take cues from the prelim US Q4 GDP print and Fed speaks for some impetus.

The Australian Dollar (AUD) is under the gun after below forecast Aussie Consumer Price Index (CPI) data. Economists at Société Générale analyze AUD/USD outlook. 

Australia’s CPI steady at 3.4% in January, core eases to 4.1%  

• Gold price falls sharply as Fed policymakers maintain a hawkish narrative.
• The US Dollar strengthens as market expectations for early Fed rate cuts ease.
• Investors await the US core PCE inflation data for fresh guidance.

Gold price (XAU/USD) comes under pressure in Wednesday’s European session as Federal Reserve (Fed) policymakers are not interested in lowering interest rates anytime in the first half of 2024. Higher interest rates are negative for non-yielding Gold as they increase the opportunity cost of holding the precious metal

For fresh cues about the timing for rate cuts, investors will focus on the United States core Personal Consumption Expenditure price index (PCE) data for January, which will be published on Thursday. Market expectations for rate cuts will be trimmed if the underlying inflation data turns out stickier than expectations. Such an outcome could trigger a downside move in Gold price. 

Downbeat US Durable Goods Orders data for January released on Tuesday failed to catalyze gains in Gold price. Fresh orders for Durable Goods were down by 6.1%, while investors projected a decline of 4.5%. Weak demand for durable goods indicates a poor outlook for consumer spending.

Daily Digest Market Movers: Gold price eases while US Dollar strengthens

• Gold price trades lower below $2,030, while the US Dollar strengthens ahead of the United States core PCE price index data for January, which will be published on Thursday.
• The underlying inflation data will provide cues about when the Federal Reserve could consider a dovish shift in its monetary policy stance.
• Expectations are for the core PCE price index to have grown by 0.4% on a month-on-month basis in January against a 0.2% increase in December. Annually, the underlying inflation data is forecast to have decelerated to 2.8% from 2.9% in December. 
• Sticky price pressures would allow Fed policymakers to argue in favor of keeping interest rates restrictive in the first half of 2024.
• Most Fed policymakers want to see more evidence to confirm that inflation will return sustainably to the 2% target before cutting rates.
• Currently, market expectations for rate cuts are considerably aligned with Fed policymakers who see no need to rush to reduce interest rates.
• The CME FedWatch tool shows that interest rates will remain unchanged in the range of 5.25%-5.50% in the March and May policy meetings. For the June meeting, traders see a 50% chance for a rate cut by 25 basis points (bps).
• On Tuesday, Federal Reserve Governor Michelle Bowman also supported keeping interest rates steady as early rate cuts could stall progress in inflation easing towards 2% or resurge price pressures.
• Michelle Bowman added that strong inflation readings in January and a tight labor market suggest slowing progress in inflation declining to 2%.
• Meanwhile, the US Dollar will be guided by the second estimate of Q4 Gross Domestic Product (GDP), which will be published at 13:30 GMT on Wednesday.
• The Q4 annualized GDP is expected to come out unchanged at 3.3%.
• The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, soars above 104.00 as uncertainty over US economic data has improved the appeal for safe-haven assets.

Technical Analysis: Gold price fails to sustain above $2,040

Gold price drops after failing to climb above the downward-sloping border of the Symmetrical Triangle pattern, which is plotted from the December 28 high at $2,088. The upward-sloping border of the chart pattern is placed from the December 13 low at $1,973.

The triangle could break out in either direction. However, the odds marginally favor a move in the direction of the trend before the formation of the triangle – in this case, up. A decisive break above or below the triangle boundary lines would indicate a breakout is underway. 

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 region, which indicates indecisiveness among investors.

The New Zealand Dollar (NZD) is losing its ground after the Reserve Bank of New Zealand (RBNZ) poured cold water on further rate increases this year. Economists at TD Securities analyze Kiwi’s outlook.

RBNZ on hold till May'25

• Silver loses ground for the third straight day and drops to over a two-week low.
• The technical setup favours bears and supports prospects for additional losses.
• A sustained move above the 200-day SMA is needed to negate the negative bias.

Silver (XAG/USD) remains under heavy selling pressure for the third successive day on Wednesday – also marking the fifth day of a negative move in the previous six and drops to over a two-week low during the first half of the European session. The white metal currently trades around the $22.30 region and seems vulnerable to prolonging its recent downfall witnessed over the past two weeks or so.

From a technical perspective, the recent failure to find acceptance above the very important and significant 200-day Simple Moving Average (SMA) and the subsequent decline validate the near-term negative outlook. Moreover, oscillators on the daily chart have just started gaining negative traction and further suggest that the path of least resistance for the XAG/USD remains to the downside.

Hence, some follow-through weakness towards retesting sub-$22.00 levels, or the two-month low touched in January, looks like a distinct possibility. A convincing break below the latter will be seen as a fresh trigger for bearish traders and pave the way for additional losses, dragging the XAG/USD towards the $21.40-$21.35 support zone.

On the flip side, the daily swing high, around the mid-$22.00s, now seems to act as an immediate hurdle ahead of the $22.70-$22.75 region. This is closely followed by the $23.00 round figure, which if cleared decisively might trigger a short-covering rally, though is likely to attract fresh sellers near the 200-day SMA, currently pegged around the $23.30 zone, and remain capped near mid-$23.00, or the monthly peak.

Silver daily chart

The Australian Dollar (AUD) declined after lower-than-expected Australian Monthly Consumer Price Index (CPI). Economists at ING analyze Aussie’s outlook.

Not trusting AUD weakness

• EUR/USD drifts lower for the second straight day amid resurgent USD demand.
• Hawkish Fed expectations and the cautious mood boost the safe-haven buck.
• Reduced bets for more aggressive ECB rate cuts could limit any further losses.

The EUR/USD pair extends the previous day's modest pullback from the 1.0865 region and remains under some selling pressure for the second successive day on Wednesday. The downward trajectory drags spot prices closer to a fresh weekly low, around the 1.0800 mark during the early European session,  driven by a pickup in the US Dollar (USD) demand. Against the backdrop of the Federal Reserve's (Fed) higher-for-longer interest rates narrative, the market nervousness ahead of the crucial US Personal Consumption Expenditure (PCE) Price Index on Thursday appears to be benefiting the safe-haven buck.

Investors this week will also confront a slew of inflation reports from Germany, France and Spain on Thursday, followed by the flash Eurozone CPI print on Friday. In the meantime, the flight to safety triggers a fresh leg down in the US Treasury bond yields and might hold back the USD bulls from placing aggressive bets. Moreover, European Central Bank (ECB) officials have been pushing back against market expectations for a rapid monetary policy easing. This could support the shared currency and limit any meaningful depreciating move for the EUR/USD pair.

Daily digest market movers: Bulls remain on the sidelines despite delayed ECB rate cut bets

• The Federal Reserve's hawkish outlook on interest rates, along with the cautious market mood, boosts the safe-haven US Dollar and drags the EUR/USD pair lower for the second successive day on Wednesday.
• Fed Governor Michelle Bowman said on Tuesday that she was in no rush to cut interest rates and that the slower-than-expected progress on inflation has left policymakers cautious about monetary policy stance. This reaffirms bets that the US central bank will wait until June before cutting rates and tempers investors' appetite for riskier assets ahead of the US Personal Consumption Expenditure Price Index on Thursday.
• Meanwhile, the looming US government shutdown and Tuesday's disappointing release of US Durable Goods Orders do little to influence the USD uptick, though retreating US Treasury bond yields might cap gains.
• US President Joe Biden urged Congress leaders to move quickly and emphasized the necessity of finding a solution to avert a detrimental government shutdown as a legislative logjam showed no signs of abating.
• The US Census Bureau reported that orders for long-lasting US manufactured goods registered a steep fall of 6.1% in January, the most in nearly four years and worse than the 4.5% decline anticipated.
• Separately, the Conference Board's Consumer Sentiment Index fell to 106.7 for February after three straight months of gains amid anxiety over potential recession, despite declining inflation expectations.
• Furthermore, the Richmond Fed's Manufacturing Index recorded the fourth successive month of a negative reading, though it improved to -5 in February as compared to  -15 in the previous month.
• Traders have scaled back their bets for a rapid reduction in borrowing costs by the European Central Bank and now expect less than 100 bps of rate cuts this year, down from around 150 bps at the start of February.
• The market focus remains on the country-level consumer inflation data from Germany, France and Spain, to be published on Thursday. These data will be followed by the Eurozone region-wide flash CPI print on Friday.

Technical analysis: Mixed setup warrants some caution before placing aggressive bearish bets

From a technical perspective, the recent failure ahead of the 1.0900 mark and the subsequent slide below the 200-day Simple Moving Average (SMA) could be seen as a fresh trigger for bearish traders. That said, oscillators on the daily chart are yet to confirm the negative outlook and warrant some caution before positioning for any further losses. Hence, any further downfall is more likely to find decent support near the 1.0785 horizontal zone. The said area should act as a key pivotal point, which if broken decisively could make the EUR/USD pair vulnerable to accelerate the fall back towards retesting sub-1.0700 levels, or a three-month low touched on February 14.

On the flip side, the 1.0850 region seems to act as an immediate resistance, above which the EUR/USD pair could make a fresh attempt to conquer the 1.0900 round figure. Some follow-through buying should pave the way for a further near-term appreciating move towards reclaiming the 1.1000 psychological mark for the first time since January 11.

European Central Bank (ECB) Vice President Luis de Guindos expressed his view on the central bank’s policy outlook during his appearance on Wednesday.

Key takeaways

Market reaction

At the time of writing, EUR/USD is attacking 1.0800, down  0.37% on the day.

• USD/CAD continues to gain ground on risk-off sentiment ahead of GDP data from both nations.
• The Canadian Dollar faces challenges due to the decline in the WTI price.
• CME FedWatch Tool suggests a 1.0% probability of rate cuts in March.

USD/CAD continues its winning streak for the fourth consecutive session, trading higher around 1.3570 during the European session on Wednesday. The Canadian Dollar (CAD) received downward pressure due to the decline in Crude oil prices, consequently, underpinning the USD/CAD pair. Furthermore, Canada’s Gross Domestic Product data will be eyed on Thursday.

West Texas Intermediate (WTI) oil prices snap its two-day winning streak, dropping to near $77.80 per barrel, at the time of writing. The challenges facing the oil market due to higher borrowing costs are indeed impacting global economic growth and reducing oil demand.

Additionally, the ongoing uncertainty surrounding ceasefire talks between Israel and Hamas, along with the continued targeting of civilian shipping vessels in the Red Sea by Iran-backed Houthis, adds further complexity to the situation.

The US Dollar Index (DXY) gains ground despite the subdued US Treasury yields. The DXY rises to nearly 104.10, while the 2-year and 10-year yields on US Treasury bonds stand at 4.69% and 4.29%, respectively, by the press time.

The improved US Dollar (USD) is bolstering the USD/CAD pair, possibly due to prevailing risk-off sentiment in the market ahead of the release of the preliminary Gross Domestic Product Annualized data from the United States scheduled for Wednesday. However, market expectations anticipate that the US GDP will remain steady at 3.3% in the fourth quarter of 2023.

The Federal Reserve’s (Fed) officials have signaled caution regarding any rapid reductions in interest rates, resulting in a reduced likelihood of a rate cut in the upcoming meetings. According to the CME FedWatch Tool, the probability of rate cuts in March has decreased to 1.0%, while the likelihood of cuts in May and June stands at 21% and 49.8%, respectively.

The US Dollar moves decisively higher early Wednesday. Economists at ING analyze Greenback’s outlook.

Evidence of resilient inflation in the PCE will offer more support to USD into the end of the week

EUR/USD remained stable in the mid 1.0800-1.0900 range but it has come under pressure early Wednesday. Economists at ING analyze the pair’s outlook. 

1.0800 test in sight

• USD/MXN snaps its losing streak on risk-off sentiment on Wednesday.
• US Gross Domestic Product Annualized (Q4) is expected to be unchanged at 3.3%.
• Mexico’s Trade Balance posted a trade deficit of $4.315 billion in January, against the expected deficit of $2.286 billion.

USD/MXN rebounds after experiencing losses in the prior two sessions, with the pair advancing to around 17.08 during European trading hours on Wednesday. The strength of the US Dollar (USD) is driving the movement in the USD/MXN pair, possibly influenced by a risk-off sentiment prevailing in the market ahead of the release of the preliminary Gross Domestic Product Annualized (Q4) data from the United States scheduled for later in the day.

The US Dollar Index (DXY) continues to strengthen despite the subdued US Treasury yields. The DXY has risen to nearly 104.10, while the 2-year and 10-year yields on US Treasury bonds stand at 4.69% and 4.29%, respectively, at the time of reporting.

In economic news, the US Housing Price Index (MoM) saw a modest increase of 0.1% in December, falling short of expectations for a 0.3% increase and below the prior month's increase of 0.4%. Additionally, US Durable Goods Orders experienced a significant decline of 6.1%, contrasting sharply with expectations for a decrease of 4.5% and the previous month's decrease of 0.3%.

On Mexico’s side, the higher interest rates set by the Bank of Mexico (Banxico) at 11.25% may have had an impact on economic activities. The Jobless Rate data by INEGI is expected to be released on Thursday, with an anticipated slight increase to 2.8% in January from the previous increase of 2.6%.

On Tuesday, Mexico reported the Trade Balance for January, revealing a trade deficit of $4.315 billion, surpassing the expected deficit of $2.286 billion and exceeding the previous deficit of $4.242 billion. The seasonally adjusted figures reported a deficit of $0.302 billion compared to the previous surplus of $1.659 billion. These subdued trade figures may have contributed to undermining the Mexican Peso (MXN), consequently providing support for the USD/MXN pair.

• NZD/USD drops vertically to 0.6100 on dismal mood, RBNZ signals peak for interest rates.
• The RBNZ sees inflation declining to the 1%-3% range by Q32024.
• Investors await the US core PCE price index data for fresh guidance.

The NZD/USD pair witnesses an intense sell-off amid multiple headwinds. The Kiwi asset plunges to the round-level support of 0.6100 due to dismal market sentiment and a dovish guidance from the Reserve Bank of New Zealand (RBNZ).

The RBNZ kept its Official Cash Rate (OCR) unchanged at 5.50% for the fifth time in a row to maintain downward pressures on sticky inflation. The central bank sees the consumer price inflation returning to the desired range of 1%-3% by the third quarter of 2024.

Meanwhile, chances of further policy tightening by the RBNZ have eased dramatically as it has warned about potential risks to the New Zealand economy. However, latest forecasts from the RBNZ show that no rate cuts are expected before 2025.

In addition to that, dismal market sentiment has weighed heavily on the New Zealand Dollar. The market mood has turned cautious as investors await the United States core Personal Consumption Expenditure price index (PCE) data for January, which will be published on Thursday. The underlying inflation data will provide more cues about when the Federal Reserve (Fed) will start reducing interest rates.

The consensus from economists shows that the core PCE price index grew by 0.4% on a month-on-month basis against a 0.2% increase in December. Annually, the underlying inflation data decelerated to 2.8% from 2.9% in December. Soft inflation data would prompt expectations of rate cuts by the Fed.

The Reserve Bank of New Zealand (RBNZ) left interest rates unchanged and revised its forecasts downward. NZD/USD is down nearly 1% after the announcement. Economists at Commerzbank analyze Kiwi’s outlook.

Sharper economic slowdown this year

• Pound Sterling faces a sell-off as market sentiment turns volatile.
• BoE Ramsden wants to see how long price pressures will remain sticky.
• The US Dollar rises ahead of US core PCE price index data.

The Pound Sterling (GBP) dips in Wednesday’s European session as the market sentiment remains volatile ahead of critical United States core Personal Consumption Expenditure price index (PCE) data for January. The GBP/USD pair falls on the back foot despite expectations that the Bank of England (BoE) will begin reducing interest rates later than the Federal Reserve (Fed). This supports the Pound Sterling as higher interest rates generally attract greater foreign capital inflows.

Investors see the BoE considering a change in monetary policy stance later than other central banks as price pressures in the United Kingdom economy are stubborn due to high wage growth – a plus for Sterling. BoE policymakers have warned that the pace at which Average Earnings are decelerating is half of what is required to achieve price stability.

Going ahead, the Pound Sterling will be guided by market expectations for rate cuts by the BoE. Stock investors hope that the BoE will start reducing interest rates from August as this will support the wider stock market. This might be the time when inflation flares up again after declining to 2%, as projected by the BoE, revealed in the latest monetary policy statement.

Daily Digest Market Movers: Pound Sterling weakens on subdued market sentiment

• Pound Sterling falls sharply after failing to recapture the round-level resistance of 1.2700 amid a cautious market mood.
• Investors are holding to the sidelines ahead of the crucial United States core PCE price index data for January, which will be published on Thursday.
• This crucial inflation data will provide more cues on when the Federal Reserve (Fed) could begin reducing interest rates.
• Projections from market participants show that the underlying inflation data decelerated to 2.8% from 2.9% in December on a year-on-year basis.
• The US Dollar Index (DXY), which values the Greenback against six major currencies, rises to the crucial resistance of 104.00.
• On the domestic front, the Pound Sterling will be guided by market expectations for rate cuts by the Bank of England.
• BoE policymakers are less interested in lowering key lending rates currently as they need more evidence that inflation will come down to the 2% target.
• On Tuesday, BoE Deputy Governor Dave Ramsden, who voted for holding interest rates at 5.25% in the last monetary policy meeting, said he wants to see how long inflation will remain persistent.
• Dave Ramsden added the duration of inflation remaining persistent will determine how long interest rates will be maintained at 5.25%.
• Price pressures in the United Kingdom economy are stubborn due to higher wage growth and service inflation.
• These key inflation indicators have come down sharply, but the pace of decline is still inconsistent, with inflation declining towards the 2% target.

Technical Analysis: Pound Sterling falls from 1.2700

Pound Sterling drops sharply after facing stiff resistance near 1.2700. The GBP/USD pair is consistently facing barricades near the downward-sloping border of the Descending Triangle pattern formed on a daily time frame, with the upper border line traced from the December 28 high at 1.2827. The triangle’s horizontal support is plotted from December 13 low near 1.2500.

A Descending Triangle pattern demonstrates indecisiveness among market participants but with a slight downside bias due to lower highs and flat lows formation.

The pair declines toward the 20 and 50-day Exponential Moving Averages (EMAs), which trade around 1.2630. Meanwhile, the 14-period Relative Strength Index (RSI) remains inside the 40.00-60.00 region, which indicates a sharp contraction in volatility.

Here is what you need to know on Wednesday, February 28:

The New Zealand Dollar (NZD) came under heavy bearish pressure following the Reserve Bank of New Zealand's (RBNZ) policy announcements early Wednesday. Meanwhile, the US Dollar recovers modestly as market focus shifts to the second estimate of the annualized fourth-quarter Gross Domestic Product (GDP) growth. The European economic docket will feature business and consumer sentiment data. Later in the American session, markets will pay close attention to comments from Federal Reserve (Fed) policymakers.

RBNZ board members decided to keep the Official Cash Rate (OCR) unchanged at 5.5% following the February policy meeting as expected. "Ongoing restrictive monetary policy settings are necessary to guard against the risk of a rise in inflation expectations," the RBNZ said in its policy statement. On a dovish note, the RBNZ lowered the peak cast rate projection to 5.59% in June 2024 from 5.67% in the previous forecast. Commenting on the policy outlook in a press conference, RBNZ Governor Adrian Orr said there was strong consensus among policymakers that rates were sufficient. NZD/USD declined sharply during the Asian trading hours and it was last seen losing more than 1% on the day at 0.6103.

Orr Speech: RBNZ Governor speaks on policy outlook after holding interest rate.

The benchmark 10-year US Treasury bond yield edged slightly higher on Tuesday before stabilizing slightly below 4.3% midweek. In the meantime, US stock index futures trade marginally lower after Wall Street's main indexes closed mixed on Tuesday. 

The data from Australia showed earlier in the day that the Consumer Price Index (CPI) held steady at 3.4% on a yearly basis in January. This reading came in below the market expectation of 3.5%. AUD/USD stays on the back foot and trades deep in negative territory near 0.6500 in the early European morning.

Australian Dollar depreciates amid an improved US Dollar ahead of US GDP Annualized.

EUR/USD continues to push lower toward 1.0800 on Wednesday after closing in negative territory on Tuesday. European Commission will release Economic Sentiment Indicator, Industrial Confidence, Consumer Confidence, Services Sentiment and Business Climate data for February.

USD/JPY declined toward 150.00 but erased a large portion of its losses to close marginally lower at around 150.50 on Tuesday. The pair fluctuates above this level in the European morning on Wednesday. Earlier in the day, the data from Japan showed that the Leading Economic Index improved slightly to 110.2 in December from 110.0.

Japanese Yen hangs near weekly low against USD, looks to US GDP/Fedspeak for fresh impetus.

GBP/USD lost its traction and dropped toward 1.2650 to start the European session on Wednesday following Tuesday's indecisive action. 

Gold met resistance near $2,040 on Tuesday and retreated to the $2,030 area by the end of the day on Tuesday. XAU/USD fluctuates in a tight range slightly below $2,030 on Wednesday.

• EUR/GBP gains ground ahead of the Eurozone Economic Sentiment Indicator on Wednesday.
• Commerzbank's economists observe no clear trend suggesting a weaker Euro.
• BoE’s Dave Ramsden stated that UK inflation is more homegrown.

EUR/GBP recovers recent losses registered on Tuesday, edging higher to near 0.8550 during the early European hours on Wednesday. The pair experiences upward support while traders adopt a cautious stance ahead of the Eurozone Economic Sentiment Indicator for February.

European Commission is expected to report that the consumers' confidence, in economic activity, may slightly improve to a reading of 96.7 from 96.2 prior. However, on Tuesday, the Gfk German Consumer Confidence Survey for March printed a reading of -29 as expected, compared to the previous reading of -29.6 in February. Later in the week, the focus will be on the Harmonized Index of Consumer Prices data from the Eurozone and Germany for further insights into the economic landscape.

Economists at Commerzbank mention that Friday's inflation figures would be crucial but no discernible trend indicating a weaker Euro. Earlier this week, European Central Bank (ECB) President Christine Lagarde mentioned that although inflation is steadily approaching the central bank's targets, the ECB is committed to keeping its current policy measures unchanged for the foreseeable future.

Bank of England (BoE) Deputy Governor for Markets and Banking, Dave Ramsden, attended the High-Level Conference hosted by the Hong Kong Monetary Authority and the Bank for International Settlements in Hong Kong on Tuesday. Ramsden highlighted persistent inflationary pressures, noting that inflation in the United Kingdom (UK) is primarily domestically driven. He suggested that monetary policy may need to remain restrictive for an extended period to return inflation to the 2% target.

Investors are likely to closely monitor the speech by Catherine L Mann of the Bank of England for further insights into the central bank's stance on monetary policy and inflation management.

Year-to-date, the Indian Rupee is up 0.4% vs, the US Dollar (USD) while Asia ex-Japan currencies are down on average by 2.3%. Economists at Commerzbank analyze USD/INR outlook.

RBI to stay on hold for the foreseeable future

Source: Commerzbank Research

FX option expiries for Feb 28 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts

• 1.0825 580m
• 1.0550 5.2b

- GBP/USD: GBP amounts     

• 1.3000 800m

- USD/JPY: USD amounts                     

• 149.00 1.9b
• 151.00 1.8b

• EUR/JPY trades on a softer note around 163.05 in Wednesday’s early European session.
• The positive outlook of the cross remains intact above the key EMA; RSI indicator supports the bullish momentum.
• The immediate resistance level is seen at 163.21; the key support level is located at the 162.60–162.70 zone.

The EUR/JPY cross finds support above the 163.00 psychological figure during the early European trading hours on Wednesday. The upbeat Japanese inflation data for January surprised the upside and sparked speculation that the Bank of Japan (BoJ) will exit negative interest rates by June this year. This, in turn, lifts the Japanese Yen (JPY) and weighs on the EUR/JPY cross. The cross currently trades near 163.05, down 0.09% on the day. 

Technically, EUR/JPY maintains the bullish bias unchanged as the cross holds above the 50- and 100-period Exponential Moving Averages (EMA) on the four-hour chart. The upward momentum is supported by the Relative Strength Index (RSI), which lies above the 50-midline, indicating the path of least resistance is to the upside. 

A high of February at 163.21 acts as an immediate resistance level for EUR/JPY. Further north, the upper boundary of the Bollinger Band at 163.60 will be the next upside barrier. A bullish breakout above this level will pave the way to a psychological mark at 164.00. 

On the flip side, the crucial support level will emerge at the 162.60–162.70 region, portraying the confluence of the lower limit of the Bollinger Band and the 50-period EMA. The additional downside filter to watch is the 100-period EMA at 161.90. The next contention level is seen at a low of February 15 at 160.91, followed by a low of February 12 at 160.38.

EUR/JPY four-hour chart

• The US Dollar Index (DXY) attracts some buyers near 103.95 in Wednesday’s early European session. 
• Several Fed officials suggested a cautious and slow approach to the policy stance, which lends some support to the USD. 
• US Durable Goods Orders fell 6.1% in January from a 0.3% decline in December, weaker than estimated. 
• US GDP growth numbers for Q4 will be the highlight on Wednesday. 

The US Dollar Index (DXY) rebounds to nearly the 104.00 mark during the early European session on Wednesday. Investors await the US Gross Domestic Product (GDP) data for the fourth quarter (Q4). Meanwhile, the hawkish comments from Federal Reserve (Fed) officials provide some support for the US Dollar (USD). At press time, DXY is trading at 103.95, up 0.12% on the day. 

Several Fed officials have hinted in recent days about a cautious and slow approach. Philadelphia Fed President Patrick Harker advocated last week for steady and slow rate cuts to minimize risk and general uncertainty. Fed Governor Bowman said inflation will continue to drop with interest rates maintained at the current levels, but it is not yet time to start cutting rates, while Kansas City Fed President Schmid stated that with inflation running above target, labor markets tight, and demand showing considerable momentum, there is no need to preemptively adjust the stance of monetary policy.

The Fed has held its benchmark interest rate steady at its highest level since 2001. Policymakers said they prefer to wait for more data showing inflation returns to their target of annualized 2% before they will begin to cut the fed funds rate, despite inflation having fallen significantly since its summer peak. Financial markets expected the first rate cut will come in June meeting, from anticipation for a rate cut as early as March

Data released from the US Census Bureau on Tuesday showed that US Durable Goods Orders fell 6.1% in January from a 0.3% decline in December, weaker than the market expectation of a 4.5% drop. The Goods New Orders ex Defense, a proxy for capital spending, rose +0.1% MoM, matching the expectations. Finally, the US Consumer Confidence Index by the Conference Board arrived at 106.7, below the market consensus of 115.0.

Market participants will focus on the US GDP growth number for Q4, preliminary Goods Trade Balance, and Fed’s Bostic, Collins, and Williams speeches, due on Wednesday. The US Core Personal Consumption Expenditures Price Index (PCE) will take center stage on Thursday. Traders will take cues from the data and find trading opportunities around the Dollar Index. 

• USD/CHF improves to near 0.8800 ahead of Swiss ZEW Survey Expectations.
• Swiss GDP is expected to report a decline in the fourth quarter of 2023.
• US GDP is anticipated to remain unchanged at 3.3% in the fourth quarter of 2023.

USD/CHF rebounds after two days of losses, improving to near psychological level of 0.8800 during the Asian trading hours on Wednesday. The Swiss Franc (CHF) receives downward pressure ahead of the Swiss ZEW Survey – Expectations, scheduled to be released later in the day.

Furthermore, investors await the Gross Domestic Product (GDP) by the Swiss State Secretariat for Economic Affairs (SECO) on Thursday, which is expected to report a decline in the fourth quarter of 2023.

Furthermore, the Swiss Real Retail Sales conducted by the Swiss Federal Statistical Office will be released on Thursday. The market expectation is to grow by 0.4% year-over-year in January, swinging from the previous decline of 0.8% in December.

On the other side, market expectations anticipate that the US GDP will remain steady at 3.3% in the fourth quarter of 2023. The Federal Reserve (Fed) has signaled caution regarding any hasty reductions in interest rates, leading to a decreased likelihood of a rate cut in March. This has exerted downward pressure on the US Dollar (USD).

According to the CME FedWatch Tool, the probability of rate cuts in March has decreased to 1.0%, while the likelihood of cuts in May and June stands at 21% and 49.8%, respectively.

US Housing Price Index (MoM) increased by 0.1% in December, falling short of both the expected 0.3% increase and the prior 0.4% increase. Additionally, US Durable Goods Orders declined by 6.1%, contrasting with an expected decrease of 4.5% and a previous decrease of 0.3%.

• GBP/USD meets with some supply on Wednesday amid a modest pickup in the USD demand.
• The mixed technical setup warrants caution for bears and before positioning for further losses.
• A sustained move beyond the 1.2700 mark is needed to support prospects for additional gains.

The GBP/USD pair comes under heavy selling pressure following the previous day's two-way directionless price moves and drops to the 1.2665 region during the Asian session on Wednesday.

Despite Tuesday’s disappointing release of the US Durable Goods Orders, investors seem convinced that the Federal Reserve (Fed) will wait until the June policy meeting before cutting interest rates. This helps revive the US Dollar (USD) demand, which, in turn, is seen as a key factor exerting downward pressure on the GBP/USD pair. The downfall, meanwhile, seems unaffected by the overnight hawkish remarks by the Bank of England (BoE) Deputy Governor Dave Ramsden, saying that he wanted more evidence that inflationary pressures were easing to consider a cut in interest rates.

From a technical perspective, the recent repeated failures to find acceptance above the 50-day Simple Moving Average (SMA) and a slide below the 23.6% Fibonacci retracement level of a nearly two-week-old uptrend favours bearish traders. That said, oscillators on the daily chart are holding in the positive territory and warrant some caution. Hence, any subsequent decline is more likely to find decent support near the 1.2645 area, representing 38.2% Fibo. level. A convincing break below, however, will set the stage for a further near-term depreciating move for the GBP/USD pair.

Spot prices might then accelerate the slide towards the 50% Fibo. level, around the 1.2625 region, before dropping to the 1.2600 mark, or the 61.8% Fibo. level, and the 1.2575 confluence. The latter comprises the 78.6% Fibo. level and the very important 200-day SMA, which if broken decisively will be seen as a fresh trigger for bearish traders and prompt aggressive technical selling around the GBP/USD pair.

On the flip side, momentum beyond the 50-day SMA might continue to confront some resistance ahead of the 1.2700 mark. Some follow-through buying beyond last week's swing high, around the 1.2710 area, however, could trigger a short-covering rally and lift the GBP/USD pair back towards the monthly swing high, around the 1.2770 supply zone. A sustained strength beyond the latter has the potential to lift spot prices beyond the 1.2800 mark, towards the December 2023 peak, around the 1.2825-1.2830 region.

GBP/USD daily chart

• WTI price depreciates as OPEC+ could extend voluntary oil output cuts into Q2.
• Geopolitical supply risks in the Middle East help to offset the concerns about global oil demand.
• API Weekly Crude Oil Stock increased to 8.428 million barrels from the previous 7.168 million barrels.

West Texas Intermediate (WTI) oil prices decline after two consecutive days of gains, with trading around $78.30 per barrel during the Asian session on Wednesday. The oil market is facing challenges due to higher borrowing costs, which are dampening global economic growth and subsequently reducing oil demand. Additionally, uncertainty persists regarding the outcome of ceasefire talks between Israel and Hamas, while Iran-backed Houthis continue to target civilian shipping vessels in the Red Sea.

Crude benchmarks received upward support following a Reuters report stating that the Organization of the Petroleum Exporting Countries and allies (OPEC+) are contemplating extending voluntary oil output cuts into the second quarter. In November, OPEC+ had agreed to voluntary cuts amounting to around 2.2 million barrels per day (bpd) for the first quarter of this year. Additionally, Russia has announced a six-month ban on gasoline exports starting from March 1. This decision, as reported by Russia’s RBC, is aimed at stabilizing oil prices.

However, persistent geopolitical supply risks in the Middle East, coupled with indications of a stronger US physical market, are helping to mitigate the effect of the concerns about global oil demand. As a result, the decline in Crude oil prices is being limited. Recent data reveals an increase in demand for US crude exports, while Chinese buyers are actively participating in the spot market following the Chinese Lunar New Year, boosting Crude oil consumption.

American Petroleum Institute (API) revealed that Weekly Crude Oil Stock increased to 8.428 million barrels for the week ending on February 23, from the previous 7.168 million barrels. Furthermore, the US Energy Information Administration (EIA) is expected to report a decline in the Crude Oil Stocks Change on Wednesday.

• USD/CAD gains positive traction for the fourth straight day amid a modest USD uptick.
• Bullish Crude Oil prices could underpin the Loonie and keep a lid on any further gains.
• The prelim US Q4 GDP could provide some impetus ahead of US PCE data on Thursday.

The USD/CAD pair scales higher for the fourth successive day on Wednesday and climbs to a nearly two-week high, around the 1.3545 region during the Asian session. The positive move is exclusively sponsored by a modest pickup in the US Dollar (USD) demand, though bullish Crude Oil prices might keep a lid on any further gains.

The initial market reaction to Tuesday's disappointing US Durable Goods Orders fades rather quickly amid growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer. This, in turn, assists the USD Index (DXY), which tracks the Greenback against a basket of currencies, to build on the overnight bounce from a technically significant 200-day Simple Moving Average (SMA) and acts as a tailwind for the USD/CAD pair.

That said, the looming US government shutdown, along with a fresh leg down in the US Treasury bond yields and the risk-on rally across the global equity markets, could act as a headwind for the safe-haven buck. Meanwhile, Crude Oil prices stand tall near the monthly peak touched on Tuesday and underpin the commodity-linked Loonie. This could further contribute to capping gains for the USD/CAD pair and warrants caution for bullish traders.

Talks of an extension to production cuts from OPEC+ come on top of attacks on ships in the Red Sea by Iran-aligned Houthis in Yemen and continue to lend support to Crude Oil prices. This, in turn, could underpin the commodity-linked Loonie and keep a lid on any further appreciating move for the USD/CAD pair. Traders might also prefer to wait on the sidelines ahead of the US Personal Consumption Expenditures Price Index on Thursday.

The crucial US inflation data should provide fresh cues about the Fed's rate-cut path, which, in turn, will drive the USD demand and help in determining the next leg of a directional move for the USD/CAD pair. In the meantime, traders will take cues from the release of the Prelim US Q4 GDP print, which, along with speeches by influential FOMC members, might produce short-term opportunities later during the North American session.

• Gold price attracts some buyers on Wednesday, albeit it lacks bullish conviction.
• Hawkish Fed expectations underpin the USD and act as a headwind for the metal.
• Traders also seem reluctant to place aggressive bets ahead of key US macro data.

Gold price (XAU/USD) edges higher during the Asian session on Wednesday and for now, seems to have stalled the previous day's modest pullback from the $2,040-$2,042 resistance. Despite the uptick, the precious metal remains confined in a familiar range as traders keenly await the US Personal Consumption Expenditures (PCE) Price Index on Thursday for cues about the Federal Reserve's (Fed) rate-cut path. This, in turn, will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide a fresh directional impetus to the non-yielding yellow metal.

In the meantime, the FOMC meeting minutes released last week, along with the recent comments by Fed officials, suggested that the US central bank is in no rush to cut interest rates. This assists the USD Index (DXY), which tracks the Greenback against a basket of currencies, to hold steady above a technically significant 200-day Simple Moving Average (SMA) and a multi-week low touched last Thursday. Apart from this, the recent risk-on rally across the global equity markets contributes to capping the safe-haven Gold price, though sliding US Treasury bond yields act as a tailwind.

Daily digest market movers: Gold price extends the range play amid mixed fundamental cues

• A combination of diverging forces fails to provide any meaningful impetus to the Gold price, which extends its consolidative price move in a nearly one-week-old trading range.
• The Federal Reserve's higher-for-longer interest rates narrative lends some support to the US Dollar and continues to undermine the non-yielding yellow metal on Wednesday.
• A fresh leg down in the US bond yields, along with the looming US government shutdown and Tuesday's disappointing release of US Durable Goods Orders, should cap the USD.
• US President Joe Biden emphasized the necessity of finding a solution to prevent a detrimental government shutdown on March 1 as a legislative logjam showed no signs of abating.
• The US Census Bureau reported that orders for long-lasting US manufactured goods experienced a larger-than-expected decline of 6.1% in January, the most in nearly four years.
• Meanwhile, the Conference Board's Consumer Sentiment Index fell after three straight months of gains and came in at 106.7 for February, despite declining inflation expectations.
• The Richmond Fed's Manufacturing Index recorded the fourth successive month of a negative reading, though improved to -5 in February as compared to  -15 in the previous month.
• Traders now look to the release of the Prelim US GDP print, which is expected to match the original estimates and show that the economy expanded by a 3.3% annualized pace in Q4.
• This, along with speeches by influential FOMC members, will play a key role in driving the USD demand and producing some meaningful trading opportunities around the XAU/USD.
• The focus, however, remains glued to the US Personal Consumption Expenditures Price Index on Thursday, which should provide fresh cues about the Fed's rate-cut path.

Technical analysis: Gold price needs to break through $2,040-42 barrier for bulls to seize control

From a technical perspective, the $2,041-2,042 area, or over a two-week high touched last Thursday, might continue to act as an immediate hurdle and cap gains for the Gold price. That said, a sustained strength beyond will confirm a break through the 50-day Simple Moving Average (SMA) barrier and pave the way for additional gains. Given that oscillators on the daily chart have just started gaining positive traction, the XAU/USD might then climb to the next relevant hurdle near the $2,065 region before aiming to reclaim the $2,100 round-figure mark.

On the flip side, the weekly trough. around the $2,025 region, now seems to protect the immediate downside ahead of the 100-day SMA, currently near the $2,011-2,010 area, and the $2,000 psychological mark. Some follow-through selling below the latter will shift the near-term bias back in favour of bearish traders and drag the Gold price to the $1,984 region en route to the very important 200-day SMA support near the $1,967 zone.

• NZD/USD plunges after the RBNZ decides to hold OCR at 5.5%.
• A break below 0.6100 could lead the pair to navigate the region around the major support of 0.6050 and February’s low at 0.6037.
• The immediate resistance appears around the 23.6% Fibonacci retracement level of 0.6124 followed by the major barrier at 0.6150.

NZD/USD extends its losing streak for the fourth consecutive session, plunging to near 0.6110 during the Asian trading hours on Wednesday. The pair faces challenges as the Reserve Bank of New Zealand (RBNZ) decided to hold the Official Cash Rate (OCR) unchanged at 5.5% in its February monetary policy meeting.

The immediate support for the NZD/USD pair is anticipated at the psychological level of 0.6100. A break below this psychological support could put downward pressure on the pair to navigate the region around the major support level of 0.6050 followed by February’s low at 0.6037.

The lagging indicator Moving Average Convergence Divergence (MACD) suggests a momentum shift toward the downward sentiment for the NZD/USD pair. The MACD line is positioned above the centerline but shows convergence above the signal line.

Additionally, the technical analysis of the 14-day Relative Strength Index (RSI) lies below the 50 level, suggesting a bearish sentiment.

On the upside, the NZD/USD pair could find the immediate resistance around the 23.6% Fibonacci retracement level of 0.6124 followed by the major barrier at 0.6150. A breakthrough above this level could lead the pair to explore the resistance zone around the 38.2% Fibonacci retracement level of 0.6179 and the psychological level of 0.6200.

Further improvement of the NZD/USD pair could retest February’s high at 0.6219.

NZD/USD: Daily Chart

• Indian Rupee trades on a softer note on the renewed USD demand. 
• India is expected to achieve real GDP growth of at least 6–6.5% in the long term, according to a Deutsche Bank report. 
• The US Gross Domestic Product (GDP) for the fourth quarter (Q4) will be released later on Wednesday. 

Indian Rupee (INR) edges lower on Wednesday amid the modest recovery of the US Dollar (USD). The pair is likely to remain in a tight range due to USD inflows from importers and the potential intervention by the Reserve Bank of India (RBI). 

According to the Deutsche Bank report, the Indian economy has shown remarkable resilience, with growth momentum holding up significantly better than expected despite the Russia-Ukraine war last year. Furthermore, India is anticipated to achieve real GDP growth of at least 6–6.5% over the long term. This is considerably higher than in similar developing nations. Investors will take more cues from the Indian GDP annual growth numbers on Thursday, followed by the S&P Global Manufacturing PMI for February on Friday. If the reports show stronger-than-expected results, this might boost the INR and act as a headwind for the USD/INR pair. 

Investors will monitor the US Gross Domestic Product (GDP) for the fourth quarter (Q4), due on Wednesday, along with preliminary Goods Trade Balance, Fed’s Bostic, Collins, and Williams speeches. The attention will shift to the Core Personal Consumption Expenditures Price Index (PCE), the Fed's preferred inflation gauge, due on Thursday.

Daily Digest Market Movers: Indian Rupee remains vulnerable to geopolitical risks

• India’s real GDP growth for the December quarter is forecast to grow 7% year-on-year, higher than previously anticipated, according to Deutsche Bank. 
• Indian Rupee is likely to have additional support this week from MSCI-rebalancing inflows, which are estimated to drive passive inflows of $1.2 billion into Indian equities, according to Nuvama Alternative & Quantitative Research.
• Foreign investors have net purchased over $2.4 billion of Indian bonds in February so far.
• Fed Governor Bowman said inflation will continue to decline with interest rates held at current levels, but it is not yet time to start lowering rates.
• Kansas City Fed President Schmid stated that there is no need to preemptively adjust the stance of monetary policy as inflation is running above target, labor markets are tight, and demand is showing considerable momentum.

Technical Analysis: Indian Rupee oscillates in a longer-term trading band of 82.70–83.20

Indian Rupee trades weaker on the day. USD/INR remains confined within a multi-month-old descending trend channel of 82.70–83.20 since December 8, 2023. 

In the near term, the negative outlook of USD/INR remains intact as the pair is below the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Additionally, the 14-day Relative Strength Index (RSI) lies in bearish territory below the 50.0 midline, indicating that a further decline looks favorable. 

In the case of a bearish environment, the lower limit of the descending trend channel at 82.70 acts as an initial support level for USD/INR. A breach of this level could put a move to a low of August 23 at 82.45 on the table, followed by a low of June 1 at 82.25.

On the upside, the crucial resistance level for the pair is seen at the confluence of a psychological round mark and the 100-day EMA at 83.00. A break above the mentioned level could attract bullish momentum that may take the pair to the upper boundary of the descending trend channel at 83.20, en route to a high of January 2 at 83.35, and finally at 84.00. 

Bank of Japan Executive Director Seiichi Shimizu made some comments on the central bank’s inflation target, in his speech following the Japanese Consumer Price Index (CPI) released on Tuesday.

Shimizu said that the “likelihood of inflation target achievement is still not sufficiently high.”

“The BoJ will review its massive monetary easing when it can foresee the achievement of inflation target confidently, and it will "rigorously" check wage trends along with price data,” he added.

Market reaction

At the press time, USD/JPY is keeping its sideway momentum intact near 150.50, down 0.04% on the day.

• EUR/USD faces downward pressure as investors adopt a cautious stance ahead of key data.
• The subdued US Treasury yields could weaken the US Dollar.
• Traders await the Eurozone Economic Sentiment Indicator for February on Wednesday.

EUR/USD extends losses to near 1.0840 during the Asian session on Wednesday as traders adopt a cautious stance ahead of the Euro Zone Economic Sentiment Indicator for February and the preliminary Gross Domestic Product Annualized (Q4) from the United States, scheduled to be released later in the day.

The US Dollar Index (DXY) attempts to extend its gains on risk-off sentiment, however, subdued US Treasury yields could have contributed to the downward pressure for the US Dollar (USD). The DXY improves to near 103.90 with the 2-year and 10-year yields on US Treasury bonds standing at 4.68% and 4.29%, respectively, by the press time.

In December, the US Housing Price Index (MoM) increased by 0.1%, below both the expected increase of 0.3% and the prior increase of 0.4%. Additionally, US Durable Goods Orders declined by 6.1%, contrasting with market expectations of a 4.5% decrease and a previous decrease of 0.3%. According to the CME FedWatch Tool, the probability of rate cuts in March has diminished to 1.0%, while the likelihood of cuts in May and June stands at 21% and 49.8%, respectively.

However, the Euro (EUR) could draw some gains from the recent comments made by the European Central Bank (ECB) President Christine Lagarde on Monday. Lagarde mentioned that although inflation is steadily approaching the central bank's targets, the ECB is committed to keeping its current policy measures unchanged for the foreseeable future.

The Gfk German Consumer Confidence Survey for March matched expectations with a print of -29, compared to the previous reading of -29.6 in February. Later in the week, the focus will be on Germany’s Retail Sales and Consumer Price Index (CPI) inflation data for further insights into the economic landscape.

Economists at Commerzbank emphasize the importance of Friday's inflation figures, yet they see no discernible trend indicating a weaker Euro. On the other hand, Kit Juckes, Chief Global FX Strategist at Société Générale, highlights the significance of whether the Federal Reserve or the European Central Bank cuts rates first or most aggressively in determining the direction of the EUR/USD pair this year.

• he Japanese Yen draws some support from reviving bets for an eventual BoJ policy pivot.
• The looming US government shutdown undermines the USD and seems to cap USD/JPY.
• The Prelim US Q4 GDP could provide some impetus ahead of the PCE Price Index on Thursday.

The Japanese Yen (JPY) registered modest gains against its American counterpart on Tuesday and was underpinned by slightly stronger-than-expected domestic consumer inflation figures. In fact, Japan’s core CPI exceeded forecasts and revived bets that the Bank of Japan (BoJ) might end negative interest rates soon, which, in turn, provided a goodish lift to the JPY. The uptick, however, lacked bullish conviction amid expectations that a recession in Japan might force the BoJ to delay its plans to tighten monetary policy. This, in turn, assisted the USD/JPY pair to attract some dip-buyers near the 150.00 psychological mark and hold steady during the Asian session on Wednesday.

Meanwhile, the US Dollar (USD) continues with its struggle to gain any meaningful traction amid the looming US government shutdown and weaker US Durable Goods Orders. The downside, however, remains cushioned in the wake of expectations that the Federal Reserve (Fed) will wait until the June policy meeting before cutting interest rates in the wake of still sticky inflation and a resilient US economy. Traders might also prefer to wait for the release of the US Personal Consumption Expenditures (PCE) Price Index on Thursday for cues about the Fed's rate cut path. This, in turn, caps the upside for the USD/JPY pair and warrants some caution before positioning for any further gains.

Daily digest market movers: Japanese Yen bulls seem non-committed amid the BoJ policy uncertainty

• The Japanese Yen struggles to capitalize on Tuesday's slightly warmer domestic consumer inflation-inspired gains amid the uncertainty over the Bank of Japan's policy outlook.
• The latest CPI prints suggested that inflation is sticky even in Japan, fuelling speculations that the BoJ will eventually pivot away from its ultra-accommodative monetary policy settings.
• Japan's economy unexpectedly slipped into recession during the fourth quarter and might force the central bank to delay its plan to end negative interest rates in the coming months.
• US President Joe Biden emphasized the necessity of finding a solution to prevent a detrimental government shutdown on March 1 as a legislative logjam showed no signs of abating.
• The US Census Bureau reported on Tuesday that Durable Goods Orders declined by 6.1% in January, the most in nearly four years and worse than a contraction of 4.5% anticipated.
• The Conference Board's Consumer Sentiment Index fell to 106.7 in February despite a decline in inflation expectations for the next 12 months to the lowest level in almost four years.
• The Federal Reserve Bank of Richmond's manufacturing index registered the fourth straight month of a negative reading, though improved to -5 in February from the -15 previous.
• Apart from this, a modest downtick in the US Treasury bond yields keeps the US Dollar bulls on the defensive and is seen acting as a headwind for the USD/JPY pair on Wednesday.
• Traders now look to the release of the Prelim US Q4 GDP print, which, along with speeches by influential FOMC members, will drive the USD demand and provide a fresh impetus.
• The focus, however, will remain glued to the US Personal Consumption Expenditures (PCE) Price Index on Thursday, which could offer fresh cues about the Fed's rate-cut path.

Technical analysis: USD/JPY bulls not ready to give up yet, 150.00 psychological mark holds the key

From a technical perspective, the overnight swing low, around the 150.00 mark, might continue to act as immediate support ahead of the 149.70-149.65 region. A convincing break below the latter could drag the USD/JPY pair to the 149.35-149.30 area en route to the 149.00 mark and the 148.80-148.70 strong horizontal resistance breakpoint. Some follow-through selling will negate any near-term positive bias and pave the way for a further depreciating move.

On the flip side, bulls need to wait for a sustained strength beyond the multi-month top, around the 150.85-150.90 zone, before placing fresh bets. Given that oscillators on the daily chart are holding comfortably in the positive territory, the USD/JPY pair might then climb to the 151.45 intermediate hurdle before eventually climbing towards the 152.00 neighbourhood, or a multi-decade peak set in October 2022 and tested in November 2023.

Reserve Bank of New Zealand’s (RBNZ) Governor Adrian Orr is speaking on the policy outlook at a press conference following the announcement of the monetary policy decision on Wednesday.

Orr is responding to questions from the press.

Key quotes

developing story ....

Market reaction

NZD/USD is holding lower ground near 0.6100 on Orr’s comments, shedding 0.92% on the day.

• India’s Nifty and Sensex look to open in the green on Wednesday after the Tuesday turnaround.
• Nifty and Sensex cheered the upswing in IT and auto sector stocks on Tuesday.
• Wednesday’s US GDP revision eyed ahead of Thursday’s US PCE inflation, India’s Q3 GDP data.

The Sensex 30 and Nifty 50, India’s key benchmark indices, are set to open on the right side on Wednesday, having witnessed a Tuesday turnaround on the back of a rebound in IT and auto sector stocks.

Asian markets are looking to extend the previous recovery, led by gains in Chinese stocks. Gift Nifty futures rise 0.20% so far, suggesting the upbeat open on Nifty and Sensex.

Indian traders, however, remained jittery ahead of India’s third-quarter Gross Domestic Product (GDP) data and the expiry of monthly derivatives contracts due later this week. Also, of note remains the top-tier US economic news, including the second estimate of the GDP report on Wednesday.

On Tuesday, the National Stock Exchange (NSE) Nifty 50 and the Bombay Stock Exchange (BSE) Sensex 30 gained roughly 0.35% on the day to close at 22,193.80 and 73,066.91 respectively.

Stock market news

• The rebound in the auto and IT sector stocks aided the recovery in Nifty and Sensex. US stock futures flipped to gains, at the press time.
• The top performers on Nifty were TCS, Tata Motors, Powergrid, IndusInd Bank and Sunpharma. Meanwhile, the main losers included Divislab, SBI Bank, Bajaj FinServ, Bajaj Finance and Heromoto Corp.
• Key corporate news: Tata Consultancy Services (TCS) jumped 2.5% after UBS upgraded the stock to "buy".
• The National Company Law Tribunal (NCLT) approved the Hinduja Group firm's resolution plan for Reliance Capital.
• Paytm’s founder and chief executive officer Vijay Shekhar Sharma quit the payments bank board in a major shakeup. Paytm share price dips after rallying 5%.
• Union Bank of India raised 30 billion rupees, under QIP, at an issue price of 135.65 rupees.
• Wipro Company announced a joint 5G private wireless solution with Nokia to help enterprises scale their digital transformation.
• The US stock markets closed mixed on Tuesday, as markets digested a 6.1% slump in the US Durable Goods Orders data.
• Wednesday’s US GDP revision and personal spending data will be closely eyed before the key US PCE inflation data and India’s Gross Domestic Product (GDP) data due on Thursday.
• Markets are currently pricing in just about a 20% chance that the US Federal Reserve (Fed) could begin easing rates in May, much lower than an over 90% chance a month ago, according to the CME FedWatch Tool. For the June meeting, the probability for a rate cut now stands at about 60%, down from 70% seen a few days ago.

• Australian Dollar loses ground in response to cooler-than-expected inflation data.
• Australian Consumer Price Index was unchanged at 3.4% for January, against the expected 3.5%.
• RBNZ held the OCR unchanged at 5.5% in its February monetary policy meeting.
• The US Dollar could face a challenge on subdued US Treasury yields.

The Australian Dollar (AUD) faces challenges following the release of cooler-than-anticipated Monthly Consumer Price Index (CPI) data from Australia on Wednesday. Furthermore, the decline in the S&P/ASX 200, which followed subdued price action on Wall Street overnight, added to market uncertainty ahead of the release of a series of economic data from the United States (US).

Australian Bureau of Statistics showed no change in the price of a fixed basket of goods and services acquired by household consumers. The Monthly Consumer Price Index (CPI) was unchanged at 3.4% for January, which was below market expectations of 3.5%. Investors are now turning their attention to the release of Australian Retail Sales data on Thursday for additional insights into the economic outlook.

The US Dollar Index (DXY) maintains stability as investors await the release of the preliminary Gross Domestic Product Annualized (Q4) from the United States, scheduled for Wednesday. Market expectations anticipate the GDP to remain consistent at 3.3% in the fourth quarter of 2023. The Federal Reserve (Fed) has indicated caution regarding hastily reducing rates, leading to a reduced likelihood of any rate cut in March, which puts downward pressure on the US Dollar (USD).

Daily Digest Market Movers: Australian Dollar depreciates on cooler Aussie inflation data

• Australian Construction Work Done increased by 0.7% in the fourth quarter of 2023, against the expected 0.8% and 1.3% prior.
• ANZ-Roy Morgan Australian Consumer Confidence is nearly unchanged at 83.2 for the current week. This marks the 56th consecutive week that the index has remained below the threshold of 85. The index sits just 0.4 points below the 2024 weekly average of 83.6.
• The Reserve Bank of New Zealand (RBNZ) decided to hold the Official Cash Rate (OCR) unchanged at 5.5%, as widely expected in its February monetary policy meeting.
• RBA’s Meeting Minutes revealed that the Board deliberated on the possibility of raising rates by 25 basis points (bps) or keeping rates unchanged. While recent data indicated that inflation would return to target within a reasonable timeframe.
• It is anticipated that China will lift tariffs on Australian wine by the end of March. These tariffs were imposed by China in retaliation for actions taken by the United States against China during the Trump administration.
• Santander US Capital Markets suggested in a note, as reported by The Wall Street Journal, that the Federal Reserve's FOMC might postpone rate cuts until after the US election. They anticipate that the US economy and inflation will continue to surpass expectations, which could justify delaying monetary easing.
• As per the CME FedWatch Tool, the odds for March rate cuts have dropped to 1.0%, with the likelihood of a cut down in May and June to 21% and 49.8%, respectively.
• According to reports, US House Speaker James Michael Johnson has informed the White House of his willingness to adjust the two funding deadlines to March 8 and March 22. Currently, funding is set to expire for four bills on March 1, and for eight bills on March 8.
• US Housing Price Index (MoM) increased by 0.1% in December, falling short of the 0.3% expected and 0.4% prior.
• US Durable Goods Orders ex Transportation contracted by 0.3% in January, compared to the expected rise of 0.2% and the previous decline of 0.1%.
• US Durable Goods Orders ex Defense (Jan) reduced by 7.3% against the previous increase of 0.1%.
• US Durable Goods Orders decreased by 6.1% against the market expectation of a 4.5% decrease and a previous decrease of 0.3%.
• US New Home Sales Change (MoM) grew by 1.5% in January, falling short of the previous growth of 7.2%.
• US New Home Sales (MoM) came in at 0.661M in January against the expected 0.680M and 0.664 prior.

Technical Analysis: Australian Dollar moves below the major level of 0.6550

The Australian Dollar trades around 0.6540 on Wednesday with psychological support seen at 0.6500. A breach below this level could potentially prompt the AUD/USD pair to target the area around the major support level of 0.6450 and February’s low at 0.6442. Conversely, on the upside, the immediate resistance zone is observed around the 23.6% Fibonacci retracement at 0.6543 and the major level of 0.6550. A breakout above this resistance zone may lead the AUD/USD pair to test further barriers, including the 50-day Exponential Moving Average (EMA) at 0.6571. Subsequently, additional resistance zones lie around the psychological level of 0.6600 and the 38.2% Fibonacci retracement at 0.6606.

AUD/USD: Daily Chart

On Wednesday, the People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.1075 as compared to the previous day's fix of 7.1057 and 7.2023 Reuters estimates.
 

• NZD/USD meets with aggressive supply after the RBNZ decides to maintain the status quo.
• The sharp intraday downfall seems rather unaffected by the lack of any USD buying interest.
• Traders now look to RBNZ Governor Adrian Orr’s presser for some meaningful impetus.

The NZD/USD pair attracts heavy selling after the Reserve Bank of New Zealand (RBNZ) announced its policy decision and dives to over a one-week low in the last hour. Spot prices currently trade around the 0.6120 region and seem vulnerable to prolonging the recent retracement slide from over a one-month peak touched last week.

As was anticipated, the RBNZ decided to keep the Official Cash Rate (OCR) steady at 5.50% for the fifth time in a row at the end of the February policy meeting. This seems to have disappointed some investors anticipating further tightening in the wake of still-sticky inflation and turns out to be a key factor exerting downward pressure on the New Zealand Dollar (NZD). The focus now shifts to RBNZ Governor Adrian Orr’s press conference at 02:00 GMT, which should infuse some volatility and produce short-term trading opportunities around the NZD/USD pair.

In the meantime, bulls seem rather unaffected by subdued US Dollar (USD) price action, which continues with its struggle to gain any meaningful traction amid the looming US government shutdown. Apart from this, Tuesday's disappointing release of the US Durable Goods Orders and a softer tone surrounding the US Treasury bond yields keep the USD bulls on the defensive, albeit does little to lend any support to the NZD/USD pair. This, in turn, suggests that the path of least resistance for spot prices is to the downside and validates the near-term negative outlook.

Australia’s monthly Consumer Price Index (CPI) arrived at 3.4% in the year to January 2024, compared to the annual increase of 3.4% seen in December, the Australian Bureau of Statistics reported on Wednesday.

The market had expected an increase of 3.5% in the reported period.

Market reaction

At the time of press, the AUD/USD pair was up 0.02% on the day at 0.6543. 

About Australian CPI

The Monthly Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a monthly basis, measures the changes in the price of a fixed basket of goods and services acquired by household consumers. The indicator was developed to provide inflation data at a higher frequency than the quarterly CPI. The YoY reading compares prices in the reference month to the same month a year earlier. A high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.