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The United States officials said that three seafarers had been killed and at least four others were in critical condition in a Houthi missile attack on a merchant ship in the Gulf of Aden. The US military statement added that the missile hit caused significant damage to the ship.

Market reaction

At the time of writing, the US Dollar Index (DXY) is trading near 103.34, down 0.02% on the day.

• NZD/USD posts modest gains near 0.6130 in Thursday’s early Asian session. 
• Fed’s Powell said he expects rate cuts later this year, but the number of cuts will depend on the economy. 
• RBNZ’s Conway said it might begin to cut rates sooner than expected if the Fed starts easing later this year.

The NZD/USD pair trades with a mild positive bias below the mid-0.6100s during the early Asian session on Thursday. The softer US Dollar (USD) to multi-week lows after Chair Powell’s first testimony provides some support to the NZD/USD pair. At press time, the pair is trading at 0.6130, gaining 0.02% on the day. 

The US ADP private sector employment rose 140K in February from 111K in January, below the market expectation of 150K. Meanwhile, January JOLTS job openings dropped to 8.863M versus 9.026 prior, below the consensus of 8.900M. Investors expect the US Nonfarm Payrolls (NFP) to rise by 200K in February from the previous reading of 353K.

On Wednesday, Federal Reserve (Fed) Chair Jerome Powell said during three hours of testimony that interest rate cuts are likely at some point in 2024, but is not yet ready to say when. Powell noted that the central bank thinks it’s not appropriate to cut the rate until they have confidence that inflation is moving sustainably toward 2%. The rising prospects of a rate cut by the Fed in June drag the Greenback lower and create a tailwind for NZD/USD. 

The Reserve Bank of New Zealand (RBNZ) chief economist Paul Conway said the central bank might begin to cut interest rates sooner than it expects if the US Fed starts easing later this year. Conway further stated that Fed rate cuts could boost the New Zealand Dollar (NZD), which reduces inflationary pressures.

Moving on, traders will keep an eye on the Chinese Trade Balance data for February. Later in the day, the US weekly Initial Jobless Claims, the second testimony by Chair Powell, and Balance Trade figures will be due. Also, the Fed’s L. Mester is set to speak.

• AUD/USD tested into nine-day high after Fed knocked the Greenback lower.
• Soft Aussie GDP limits gains as markets await another Fed outing.
• US NFP Friday still looms over the horizon.

AUD/USD knocked into a two-week high near 0.6580 after Federal Reserve (Fed) Chairman Jerome Powell kicked the legs out from underneath the US Dollar (USD) on Wednesday. Fed Chair Powell noted that the Fed doesn’t see increased risk of an economic recession in the US this year while testifying before the US Congressional House Financial Services Committee. The head of the US central bank is expected to deliver further comments on Thursday when he appears for day two of the Fed’s Semi-Annual Monetary Policy Report.

Jerome Powell Speech: Fed Chair says they are not climate change policymakers

Australia’s latest Gross Domestic Product (GDP) print early Wednesday capped gains for the Aussie (AUD), coming in below market expectations to print at 0.2% for the fourth quarter compared to the previous quarter’s 0.3%, which was revised slightly higher from 0.2%. Australia’s Trade Balance for February lands early Thursday at 00:30 GMT, and is expected to print at 11.5 billion after the previous month’s 10.959 billion.

China’s Trade Balance (in USD terms) is also expected early Thursday at 03:00 GMT, and is expected to drive market sentiment in the Asia market session. China’s USD-denominated Trade Balance for February is forecast to jump to $103.7 billion versus January’s $75.34 billion on mixed trade results. Chinese Imports are expected to climb 1.5% versus the previous 0.2%, while Exports growth is expected to slow to 1.9% from the previous 2.3%.

Friday’s US Nonfarm Payrolls (NFP) will wrap up the trading week, and markets are expecting the key jobs data to print at 200K for February compared to January’s 11-month high of 353K.

AUD/USD technical outlook

The AUD/USD climbed into a familiar technical resistance zone near 0.6580 before facing a rejection, dragging the pair back into 0.6560 and keeping the Aussie hung up in a thin chart region in the near-term.

Wednesday’s bullish candle represents one of the pair’s strongest performances since December, but the pair has run into a technical ceiling at the 200-day Simple Moving Average (SMA) near 0.6560, and bullish momentum is set to falter back into the 0.6500 handle is sellers return to the fold.

AUD/USD hourly chart

AUD/USD daily chart

• EUR/JPY marks third consecutive day of losses, trading near 162.70 with eyes set on crucial 162.00 support level.
• Technical analysis shows potential for rebound towards 163.00 if it breaches the Tenkan-Sen level, with higher resistance in sight.
• Sellers aiming below 162.50 could see the pair targeting 162.00 support, with further downside risks to February lows.

The EUR/JPY drops for the third straight day as Thursday’s Asian session begins, following Wednesday’s losses of 0.07%. At the time of writing, the cross-pair trades at 162.70, down 0.05%.

EUR/JPY Price Analysis: Technical outlook

The EUR/JPY has printed a new two-day low at 162.21, but it failed to close below the March 4 swing low of 162.53, which could open the door to challenge the 162.00 figure. After bouncing off the weekly lows, the pair hovers around the Tenkan-Sen level at 162.70. A decisive breach could open the door to test the 163.00 mark, followed by the November 27 high at 163.72, followed by the 164.00 figure.

On the other hand, if sellers push the exchange rate below 162.50, they could drag the spot price toward 162.00. Once cleared, the next support would be the February 29 low of 161.68, followed by the Kijun-Sen at 160.90.

EUR/JPY Price Action – Daily Chart

New Zealand's Manufacturing Sales activity decreased -0.6%, or $226 million in NZD terms compared to the third quarter's $900 million backslide, equating to a 3.2% decline.

According to Stats NZ: 

• Gold price surges to historic $2,152.24 level, underpinned by Fed Chair Powell's hints at rate cuts this year.
• Declining US Treasury yields bolster bullion’s appeal with the market pricing in a higher likelihood of a June rate reduction.
• Escalating tensions between Israel and Hamas contribute to Gold's safe-haven demand amidst uncertain geopolitical climate.

Gold rallied for the fifth straight day and reached an all-time high (ATH) at $2,152.24 during the North American session amid US Federal Reserve Chair Jerome Powell's congressional testimony at Capitol Hill. At the time of writing, XAU/USD trades at $2,146.27, gains 0.87% ahead of Wall Street’s close.

The yellow metal rose sharply amid remarks by Jerome Powell, who said that the US central bank is ready to lower borrowing costs “at some point this year.” He added that the US economy is nowhere near falling into recession and expects inflation to continue to trend toward the 2% goal. Powell commented that the Fed would remain data-dependent and wouldn’t reduce rates until they [the Fed] are convinced that inflation moves sustainably to 2%.

Therefore, US Treasury bond yields are dropping, a tailwind for bullion. US Treasury yields along the short and long end of the curve dive, as seen on the 10-year benchmark note rate at 4.108%, down four basis points (bps). After Powell’s words, the swaps market shows odds at 67% for a 25-basis-point rate cut in June, up from 58% at the end of February.

Besides that, geopolitical tensions escalating in the Middle East between Israel and Hamas are a tailwind for the safe-haven status of Gold.

Daily digest market movers: Gold price skyrockets as US yields drop despite mixed US jobs data

• Private companies hired less than forecast but exceeded January’s reading at 111K as they added 140K jobs to the workforce, below estimates of 150K, according to ADP Employment Change report.
• The US Job Openings and Labor Turnover Survey (JOLTS) for January showed that there were 8.863 million job openings, a figure that fell short of expectations and was marginally lower than the previous month's report of 8.9 million and 8.889 million, respectively.
• US economic data previously released during the week:
  • The S&P Global Services PMI experienced a slight decrease to 52.3, falling from January's 52.5, while the Composite PMI, which includes both manufacturing and service sectors, registered at 53.8. This figure did not meet expectations and was lower than the previous reading of 54.2.
  • Additionally, the ISM Services PMI reported a decline to 52.6 from 53.4, coming in below the anticipated consensus of 53. This resulted in a negative impact on the US Dollar.
  • Factory Orders in January fell more than expected, from 0.2% to -3.6% MoM.
• Gold prices remain supported by strong central bank buying in emerging markets.
• The near-term demand for Gold will be influenced by Fed Chair Jerome Powell’s testimony before Congress on Wednesday and an array of United States economic data released later this week.
• On Monday, Atlanta Fed Bank President Raphael Bostic said a strong labor market and decent economic growth have bought time for the Federal Open Market Committee (FOMC) to decide on when rate cuts will be optimal. Bostic added that the Fed is having a “rebounding success” as inflation slowly returns to the desired target without hurting labor demand.
• The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, fell 0.38% to 103.38.

Technical analysis: Gold surges to all-time highs amid Powell’s comments

Gold is rallying sharply, though it appears that buying bullion near the current level is a hard decision due to the move's extent of around 5%. A decisive breach of the $2,150.00 mark could pave the way to challenge $2,200.00, but caution is warranted. For buyers, it’s better to wait for a pullback that could offer a better risk-reward ratio.

On the other hand, if XAU/USD drops below March’s 6 low of $2,123.80, that would pave the way for a correction toward $2,100.00. If that level is surpassed, the next supports would be the December 28 high at $2,088.48 and the February 1 high at $2,065.60.

According to Minneapolis Federal Reserve (Fed) President Neel Kashkari, markets may be overstepping their rate cut expectations, highlighting the disconnect between the US' current economic situation and investors' broader rate expectations.

Key highlights:

• Fed's Kashkari currently thinks only two rate cuts overall, and possibly only one in 2024.
• The base case is no more rate hikes, but another inflation flareup could justify a rate hike.
• If inflation proves to be more entrenched than initially thought, the first move is to hold higher for longer.
• Fed's Kashkari had initially expected two rate cuts through 2024 in December, hard to see how he would expect more rate cuts now.
• If the US economy continues to be healthy, why would Fed cut rates?
• The US labor market continues to move into better balance.

• Fed Chair Powell doesn’t foresee high risk of recession this year.
• European Retail Sales figures beat expectations.
• US labor numbers eased ahead of Friday’s NFP.

EUR/USD tested into its highest bids since late January, briefly crossing 1.0900 to tap 1.0915 before settling back slightly but still well into the green for Wednesday. The pair is on pace to close in the green for a fourth consecutive trading day as markets gear up for another outing from Federal Reserve (Fed) Chairman Jerome Powell on Thursday and Friday’s Nonfarm Payrolls (NFP) labor report.

Fed Chair Powell will be speaking again on Thursday for the second half of two-day testimony before the US Congressional House Financial Services Committee. Friday’s US NFP jobs additions figure is expected to ease to 200K in February, down from January’s 11-month peak of 353K. Before Friday’s NFP, markets will be looking out for the European Central Bank’s (ECB) latest rate call, due at 13:15 GMT on Thursday.

Daily digest market movers: EUR/USD finds room up top after Fed talks down Greenback

• Pan-European Retail Sales fell less than expected for the year ended January, printing at -1.0% compared to the forecast -1.3%, but still down from the previous print of -0.5% (revised up slightly from -0.8%).
• US ADP Employment Change for February came in at 140K, below the forecast 150K but still higher than the previous month’s 111K, which was also revised higher from 107K.
• Fed Chair Powell: 
  • There is no reason to think the economy is in or faces significant near-term risk of recession.
  • Fed sees ongoing solid growth, should continue moving forward.
  • Would like to have more confidence on inflation. Fed has some confidence but needs more.
  • Jerome Powell Speech: Fed Chair doesn't see elevated risk of recession

Technical analysis: EUR/USD attempts to push off of recent 1.0850 congestion

EUR/USD saw a five-week high at 1.0915 on Wednesday, climbing roughly two-thirds of a percent over the day to end the day just below 1.0900. Intraday price action broke through a near-term resistance zone to pierce the 1.0900 handle.

The pair is set to close in the green for a fourth straight trading day, and EUR/USD has risen nearly 2% from the last swing low into the 1.0700 handle.

EUR/USD hourly chart

EUR/USD daily chart

• The daily chart of the NZD/JPY shows a period of consolidation following last week’s sharp losses.
• Red bars seen consistently on the daily MACD further depict a steady selling momentum.
• RSI values on the hourly chart signal short-term buyer domination.

In Wednesday’s session, the NZD/JPY showed some gains. Bears seem to be consolidating last week’s losses but for the short term, the outlook is turning negative. The overall trend, however, remains bullish.

On the daily chart, the Relative Strength Index (RSI) displays a positive slope in negative territory. It quickly corrected overbought conditions reached last week and fell below 50. This indicates a shift in momentum with sellers gaining ground. The consistently flat red bars on the Moving Average Convergence Divergence (MACD) histogram further show a decline in positive momentum, reinforcing the selling pressure taking place.

NZD/JPY daily chart

Examining the hourly chart, RSI values hover within positive territory suggesting buyers dominate shorter-term trades. Simultaneously, the decreasing green bars on the MACD histogram indicate a drop in positive momentum. Despite temporary bearish pressure, the pair displays strength in a broader perspective, given its position above the 100 and 200-day Simple Moving Averages (SMAs).

NZD/JPY hourly chart

In conclusion, while sellers appear to have gained traction intraday according to the daily RSI and MACD, the overarching trend remains bullish. The pair holds resilience above the long-term averages.

• Crude Oil spiked higher on Wednesday before falling back again.
• WTI climbed to $80.00 before backsliding into $78.50.
• Midweek Fedspeak sends Crude Oil up then back down.

West Texas Intermediate (WTI) US Crude Oil rose to its highest bids in a week after US Federal Reserve (Fed) Chairman Jerome Powell noted that the Fed doesn’t see an increased risk of recession in the US economy. WTI quickly reverse course and pulled back down into the $78.50 region, but barrel bids remain in the green on Wednesday after Energy Information Administration (EIA) Crude Oil Stocks Change came in below expectations. This adds to a smaller-than-expected increase in US barrel counts from the American Petroleum Institute (API) late Tuesday.

Fed Chair Powell testified before the US Congressional House Financial Services Committee on Wednesday in the first of a two-day Q&A session on the Fed’s Semi-Annual Monetary Policy Report. Fed Chairman Powell noted that he doesn’t see a high risk of a recession in the US economy this year, and that policy easing should begin later this year as long as inflation continues to ease towards the Fed’s 2% target.

Jerome Powell Speech: Fed Chair doesn't see elevated risk of recession

Despite a temporary pop in interest rate cut expectations, markets are trimming their risk appetite hopes ahead of Friday’s US Nonfarm Payrolls (NFP) labor figures, which are expected to soften to 200K for February compared to January’s 11-month peak of 353K.

According to the API late Tuesday, the US Weekly Crude Oil Stock for the week ended March 1 grew by a scant 423K barrels, down from the forecast 2.6 million increase and well below the previous week’s addition of 8.428 million barrels. The EIA’s own Crude Oil Stocks Change for the same period added 1.367 million barrels to the week-on-week count, below the 2.116 million forecast and easing back from the previous week’s nearly 4.2 million barrel surplus. Easing barrel counts have bolstered hopes that US refining will begin to eat away at Crude Oil supplies filling the pipeline, but only enough to keep WTI in the green by about a percent after peaking at 3.25% bottom-to-top for the day on Wednesday.

WTI technical outlook

WTI caught a clean bearish rejection from the $80.00 handle on Wednesday, tumbling back into $78.50 after rallying three and a quarter percent from the day’s low near $77.50. US Crude Oil still remains in the green for the day, up around a full percent from the day’s opening prices near $77.72, but near-term momentum rests in the hands of the sellers with an intraday technical floor at the 200-hour Simple Moving Average (SMA) near $78.00.

Daily candlesticks continue to get hung up on the 200-day SMA at $77.85, and $80.00 per barrel is firming up into a signficant resistance zone.

WTI hourly chart

WTI daily chart

Further weakness hurt the Greenback amidst rising prospects of a rate cut by the Fed in June, a view that was propped up by further easing of the US labour market. In the meantime, further gains lifted Gold to a new record high, and EUR/USD broke above 1.0900.

Here is what you need to know on Thursday, March 7:

The greenback dropped to multi-week lows and dragged the USD Index (DXY) to the low 103.00s following disappointing data and Chair Powell’s first testimony. On March 7, weekly Initial Jobless Claims are due, seconded by the second testimony by Chief Powell and Balance Trade figures. In addition, the Fed’s L. Mester is also due to speak.

EUR/USD advanced north of 1.0900 the figure to print fresh six-week tops on the back of a persistent USD sell-off. The ECB meets on March 7, followed by the usual press conference by President C. Lagarde.

GBP/USD managed to break above the 1.2700 barrier and chart fresh tops, always amidst increasing weakness in the US Dollar and encouraging news from the Spring Budget.

USD/JPY retreated to the boundaries of the 149.00 neighbourhood, or three-week lows, amidst the extra decline in US yields and the intense move lower in the Greenback. On March 7, weekly Foreign Bond Investment figures are due, seconded by the speech of BoJ Nakagawa.

In line with the rest of the risk-associated assets, AUD/USD rose markedly and approached the key 0.6600 hurdle. In the Australian docket, Balance of Trade results, Home Loans, and Investment Lending for Homes readings are next on March 7.  

WTI printed decent gains and briefly surpassed the key $80.00 mark per barrel on the back of a smaller-than-expected weekly build of US crude oil inventories and rising bets of a Fed’s rate cut later in the year.

Another positive session saw Gold prices reach an all-time high of around $2,150 per troy ounce. Silver also rose sharply and tested the $24.30 area per ounce for the first time since late December.

• GBP/USD rallies, buoyed by UK's positive spring budget outlook and Powell's testimony on US economic strength.
• UK Chancellor Hunt's budget reveals tax cuts and economic growth projections, boosting confidence in sterling's trajectory.
• Despite mixed US job data, Powell's reassurances on inflation and economic growth support GBP/USD's upward movement.

The GBP/USD climbed 0.31% during the North American session and traded at 1.2746 after bouncing off daily lows of 1.2690. UK’s spring budget announcement and US Federal Reserve’s Chair Jerome Powell's testimony sponsored a leg-up in the pair, which is set to test the 1.2800 mark.

Serling post gains in optimistic UK’s budget

The UK’s Chancellor of the Exchequer, Jeremy Hunt, presented the spring budget to the House of Commons. Hunt said that according to the Office for Budget Responsibility (OBR), the economy is expected to grow 0.8% in 2024 and 1.9% next year, 0.5% higher than the autumn forecast. Regarding debt, the OBR foresaw headline debt would rise above 100% of GDP, though they noted that it would fall every year to just 94.3% by 2028-29.

Hunt announced a tax rate cut in employees' National Insurance from 10% to 8%, while frozen fuel and alcohol duty, as rumored before the announcement.

Across the pond, US Federal Reserve Chair Jerome Powell said the US economy is nowhere near falling into recession, though the Fed failed to provide guidance regarding future interest rate cuts. Powell expects inflation to converge toward the Fed’s 2% goal while the economy grows. He added, “If that's the case, it will be appropriate for interest rates to come down significantly over the coming years.”

Data-wise, the US economic docket featured the US ADP National Employment report for February, a poll showing private companies hiring. The figures missed estimates but were above January’s data, suggesting the labor market remains tight. Nevertheless, the US Job Openings and Labor Turnover Survey (JOLTS) for January showed that there were 8.863 million job openings, a figure that fell short of expectations and was marginally lower than the previous month's reports of 8.9 million and 8.889 million, respectively.

After the data, the GBP/USD jumped from around 1.2720s toward the day highs before trimming some of its gains. UK Gilts were little changed, an indication that the UK’s Budget was well received amongst investors.

GBP/USD Price Analysis: Technical outlook

The pair has resumed to the upside, though it remains shy of testing 1.2800. With that said, buyers failing to reclaim the latter and the GBP/USD could be up for a pullback. The next support would be the 1.2700 figure, followed by the 50-day moving average (DMA) at 1.2673. On the other hand, if buyers prolong the rally, the next stop would be the 1.2900 mark.

• Building momentum is indicated by the RSI on the daily chart.
• The hourly chart also strengthens the positive outlook, with the presence of bullish momentum but hinting at a slight wobble.
• The pair recovered the 20-day SMA affirming the continued bullish sentiment.

During Wednesday's session, the AUD/JPY edged higher. The strength of the buyers primarily on the daily chart fuels this bullish sentiment. However, the hourly chart flashes signs of short-term contention, suggesting a potential consolidation for the rest of the session.

On the daily chart, the AUD/JPY pair indicates some bullish momentum. The Relative Strength Index (RSI) has moved into positive territory, which marks an upbeat momentum, with its latest reading standing slightly above the midpoint. Simultaneously, the Moving Average Convergence Divergence (MACD) histogram printing flat red bars indicates a decreasing bearish momentum in the short term.

AUD/JPY daily chart

Switching to the hourly chart, the RSI is treading in the positive region, confirming the bullish daily scenario. However, the index seems to be consolidating after nearing overbought conditions earlier in the session. In addition, the MACD histogram reveals decreasing green bars, suggesting the bullish momentum is waning on the hourly chart.

AUD/JPY hourly chart

In conclusion, both the daily and hourly charts suggest a bullish momentum, notwithstanding the short-term signs of a pullback. Given the pair's position being above the 20,100,200-day SMAs, the overall trend remains in favor of the buyers, unless a significant shift in momentum is seen.

• Dow Jones pares recent declines as Fed Chair Powell bolsters risk appetite.
• Fed Chair Powell doesn’t see high risk of recession, upbeat on inflation.
• US ADP Employment Change misses forecasts.

The Dow Jones Industrial Average (DJIA) tried to steal back recently-lost ground on Wednesday after Federal Reserve (Fed) Chairman Jerome Powell appeared before the US Congressional House Financial Services Committee on Wednesday in the first day of the two-day testimony. Fed Chair Powell noted that the Fed doesn’t see high risk of a US recession, and the Fed is hopeful on inflation eventually achieving the 2% target. 

Market sentiment rose after the Fed head’s statements, dragging equities higher and giving the DJIA room to recover into 38,840.00. The major equity index ran into profit-taking, and the DJIA remains hampered near 38,750.00.

At current cut, Intel Corp. (INC) is up a little over 3% as the best-performing DJIA-listed stock, while the DJIA’s top decliner on Wednesday is Walt Disney Co. (DIS), down 2.8% on the day. Of the 30 components on the DJIA index, 21 are in the green on Wednesday with nine on the low side.

Dow Jones News: Equities catch a bid after jobs come in softer than expected, Fed head Powell testifies

US ADP Employment Change printed below expectations, coming in at 140K for February versus the forecast 150K, while January’s print saw a revision to 11K from the initial print of 107K. Underperforming releases against forecasts are helping to bolster investor bets that the US economy might soften enough to push the Fed closer to cutting rates.

Fed Chair Powell noted that while the Fed is looking for further signs of disinflation before pulling the trigger, the Fed Chairman qualified the position, noting that the Fed is looking for more of what it has already seen in terms of disinflation, and not waiting for deeper signs of inflation easing.

Another NFP Friday looms ahead

The next round of monthly US Nonfarm Payrolls (NFP) is slated for this Friday, and median market forecasts currently expect the print to come in at 200K for February, compared to January’s 11-month peak of 353K. MoM Average Hourly Earnings in February are also expected to ease to 0.3% from the previous month’s 0.6%. 

Before Friday’s labor figures, Fed Chairman Jerome Powell makes his second appearance before the Congressional House Financial Services Committee on Thursday. Nothing new is expected, but markets will be keeping an eye out for any further qualifications on the Fed’s stance heading into NFP Friday.

Dow Jones Industrial Average technical outlook

The upside is increasingly limited on the Dow Jones Industrial Average’s daily candlesticks, with the index struggling to claw back into recent technical highs, and the near-term trend is threatening to fall back into the 50-day Simple Moving Average (SMA) at 38,230.00 for the first time since November.

Despite near-term technical struggles, the DJIA remains firmly buried in bull country, with the major equity index trading well above the 200-day SMA at 35,472.97. If bidders can overcome technical congestion at the 38,800.00 handle, the way will be clear for another push into all-time highs above 39,200.00.

DJIA daily chart

• AUD/USD surpasses key resistance levels, as Powell's testimony suggests peak interest rates.
• Soft US job data and Powell's cautious stance on rate cuts fuel optimism for AUD, highlighting a shift in Fed policy outlook.
• US ADP report and JOLTS data show job market resilience, adding a complex layer to economic evaluations.

The Australian Dollar soars against the US Dollar in the mid-North American session as Federal Reserve Chair Jerome Powell testifies at the US Senate and opens the door for rate cuts later in the year. That and “soft” jobs data underpins the AUD/USD above a key resistance level and trades at 0.6573, up more than 1%.

AUD/USD conquers key technical confluence of 100 and 200-DMAs, amid soft US data and Powell comments

In his testimony before the US Senate Banking Committee on Capitol Hill, US Federal Reserve Chair Jerome Powell indicated that interest rates had reached their peak and suggested that it would be premature to consider reducing rates in the near future. He expressed confidence in the progress towards achieving the Fed's inflation target of 2%.

In the Q&A session, Chair Powell emphasized that any future rate cuts would be data-dependent, underscoring the importance of precise monetary policy adjustments over rapid rate reductions. He noted that inflation is on a downward trend and conveyed optimism about the economy, stating there is no imminent risk of recession in the near term.

On the data front, the February US ADP National Employment Report revealed that private companies added 140,000 jobs, falling short of the anticipated 150,000 hires but still surpassing the 111,000 job increase reported in January. Recently, the US Job Openings and Labor Turnover Survey (JOLTS) for January reported 8.863 million job openings, which did not meet expectations and was slightly below the previous month's figures of 8.9 million and 8.889 million, respectively.

Meanwhile, AUD/USD traders will consider the Australian Balance of Trade and Chinese economic data. On the US front, traders are eyeing the Initial Jobless Claims report, the Balance of Trade, and the testimony of Fed Chair Powell at the US House of Representatives.

AUD/USD Price Analysis: Technical outlook

The AUD/USD bounced off the week's lows and reclaimed the 100 and 200-day moving averages (DMAs) at around 0.6560/61, extending its gains toward 0.6581. Despite that, buyers failed to conquer the 50-DMA at 0.6591, which could open the door for a pullback. A breach of the latter will expose 0.6600. On the other hand, if sellers stepped in and pushed the price below 0.6560, that could pave the way to challenge 0.6500, ahead of the March 5 swing low of 0.6477.

• JOLTs Job Openings data for January disclosed lower-than-expected figures.
• ADP Employment Change for February also came in weak.
• Powell confirms that the Fed needs additional evidence to start cutting.

The US Dollar Index (DXY), trading at the 103.20 level, is experiencing losses on Wednesday. Contributing to these dynamics is the report of soft January's JOLTs Job Quits and Job Openings reports, along with the ADP Employment Change report for February. Following the testimony before the US Congress, Federal Reserve (Fed) Chair Jerome Powell confirmed that the bank isn’t ready to start cutting rates.

The US labor market data coming on Thursday and Friday will continue shaping the expectations on the Fed’s timing of the easing cycle. As for now, the consensus is that the first cut will likely come in June.

Daily digest market movers: DXY trades lower, anchored by soft labor market data

• JOLTs Job Openings for January turned out to be 8.863M, which was marginally below the expected 8.9M but was virtually identical to December's figure of 8.889M.
• ADP Employment Change for February displayed an actual increase of 140K jobs but came in below the forecast 150K growth.
• Before Congress, Powell stated that he would like to have more confidence in inflation coming down and that with “a little bit more of data”, the bank would likely be confident to start cutting.
• US Treasury bond yields continue to decline, with the 2-year yield at 4.52%, the 5-year yield at 4.08%, and the 10-year yield at 4.09%.
• On Thursday, markets will monitor weekly Jobless Claims figures, and on Friday, Nonfarm Payroll data from February.

DXY technical analysis: DXY under bearish pressure, bulls fail to recover 200-day SMA

The technical situation reflects the bears gaining ground. The indicator readings on the daily chart show the Relative Strength Index (RSI) maintaining a negative slope and existing in negative territory. Looking at the histogram of the Moving Average Convergence Divergence (MACD), its rising red bars further underline this bearish scenario. This trend is an indicator not only of the selling pressure but also of its increasing strength. 

Assessing the DXY’s position in relation to its Simple Moving Averages (SMAs), the DXY is positioned below the 20, 100 and 200-day SMAs. From an overall technical standpoint, this is typically a quite bearish indication, providing further evidence of the dominance of selling pressure at present. 

In this light, the short-term technical outlook for DXY appears predominantly bearish, with the selling momentum seemingly overriding the buying momentum.

• Spot Gold bids set a new record high on Wednesday.
• XAU/USD touches $2,150 as markets devour Fed Chair Powell’s words.
• Fed’s Powell sees no recession, qualifies inflation outlook.

Spot Gold prices are pushing deeply into bullish territory on Wednesday, with XAU/USD setting a tentative all-time high at $2,150.00. Markets are bidding up Gold following the first of a two-day appearance from Federal Reserve (Fed) Chair Jerome Powell.

Jerome Powell Speech: Fed Chair doesn't see elevated risk of recession

Fed Chair Jerome Powell noted on Wednesday that the Fed doesn’t see any imminent risk of a US recession. The Fed head also clarified the US central bank’s outlook on inflation, tipping the hat to investors hoping for rate cuts. Fed Chair Powell noted that progress on inflation is ongoing, and while the Fed is waiting for more evidence that inflation will reach 2%, US policymakers are looking for more of what they’ve already seen, not necessarily better overall inflation readings.

Markets took the opportunity to bid Spot Gold into record prices on Fed headlines, and February’s miss in ADP Employment Change is helping to bolster market hopes for easing economic conditions in the US.

ADP Employment Change in February came in at 140K versus the 150K forecast, while the previous month’s print saw a revision to 111K from 107K. US Nonfarm Payrolls (NFP) still loom ahead on Friday, and markets are expecting the headline print to ease back to 200K from last month’s 11-month high of 353K.

XAU/USD technical outlook

With XAU/USD trading into all-time highs, technical barriers are difficult to draw into the charts, though intraday price action is seeing some hesitation at $2,150.00, a level that saw a sharp rejection recently. Spot Gold has traded on the bullish side since crossing above the 200-hour Simple Moving Average (SMA) in mid-February near $2,015.00.

XAU/USD caught several bounces from the 200-hour SMA near $2,030.00, and the key technical barrier is rising towards $2,070.00 as the closest near-term price floor for any bearish pullbacks.

Spot Gold prices are on pace to close bullish for a sixth consecutive day, and XAU/USD has closed in the green or close to flat for all but two of the last fourteen trading days straight.

XAU/USD hourly chart

XAU/USD daily chart

• Mexican Peso soars to seven-week high courtesy of a weak US Dollar.
• Mexico's Consumer Confidence falters, yet Automotive Production and Exports see a rise, reflecting a mixed economic landscape.
• Jerome Powell's Senate testimony hints at no imminent rate cuts.
• US political landscape heats up post-Super Tuesday, with Trump and Biden leading their respective party delegate counts.

The Mexican Peso rallied against the US Dollar during the North American session on Wednesday as US Federal Reserve (Fed) Chair Jerome Powell testified before the US Senate Banking Committee on Capitol Hill. That and soft jobs data from the United States (US) pressured the Greenback and US Treasury yields. Therefore, the USD/MXN exchanges hands at 16.85, plunging 0.91%.

Mexico’s economic docket revealed that Consumer Confidence dipped in seasonal and non-seasonal figures, according to the National Statistics Agency (INEGI). In other data, INEGI revealed that Automotive Production and Exports increased in February from a year earlier.

Across the border, the US Fed Chair Jerome Powell testifies before the US Senate Banking Committee on Capitol Hill. In prepared remarks, he said that interest rates had peaked, that it’s not appropriate to reduce rates soon, and that he has confidence that inflation is moving toward the Fed’s 2% goal.

During the Q&A session, Fed Chair Powell said that rate cuts will depend on data, and that it’s more important to get monetary policy right than to cut rates quickly. He commented that inflation is easing and that there’s no reason to think the economy is in or faces a near-term risk of recession.

Aside from this, the political race is almost defined in the United States after Super Tuesday. Former President Donald Trump leads the Republicans with 995 delegates, shy of the 1,215 needed. On the Democratic side, US President Joe Biden leads with 1,497 delegates, short of the 1,968 needed.

Daily digest market movers: Mexican Peso boosted by broad US Dollar weakness

• According to the data, Mexican Automotive Production increased by 7.76% to 318,735 vehicles and auto exports by 22.62% to 282,608 vehicles.
• Mexico’s consumer confidence index was 47.0 in February when adjusted for seasonal factors, the national statistics agency said on Wednesday. The unadjusted index was 47.1.
• On Monday, Mexico’s economic docket revealed that Gross Fixed Investment in December remained flat MoM. Nevertheless, on an annual basis, it dipped from 19.2% to 13.4%, according to INEGI.
• A Reuters poll sees the Mexican Peso depreciating 7% to 18.24 in 12 months from 16.96 on Monday, according to the median of 20 FX strategists polled on March 1-4. The forecast ranged from 15.50 to 19.00.
• A Reuters poll shows 15 analysts estimate that inflation will slow down in February, corroborating bets that the Bank of Mexico (Banxico) could cut rates as soon as the March 21 meeting.
• The survey showed that the Consumer Price Index (CPI) is expected to dip from 4.88% to 4.42%, while underlying CPI is seen falling to 4.62%, its lowest level since June 2021.
• Mexico’s General Election campaign started on March 1. Polls suggest the ruling party’s nominee, Claudia Sheinbaum, maintains her lead over Xochitl Galvez. Parametria’s poll shows Sheinbaum's support at 49%, while Galvez, the opposition candidate, stands at 29%.
• Banxico’s February private analysts poll projections for 2024:
  • General inflation is foreseen at 4.10%, while underlying inflation is expected at 4.06%.
  • The economy is expected to grow 2.40%, unchanged from January.
  • The USD/MXN exchange rate would end the year at 18.31, down from 18.50.
  • Interest rates are expected to be lowered from 11.25% to 9.50%.
• During Banxico’s quarterly report, policymakers acknowledged the progress on inflation and urged caution against premature interest rate cuts. Governor Victoria Rodriguez Ceja said adjustments would be gradual, while Deputy Governors Galia Borja and Jonathan Heath called for prudence. The latter specifically warned against the risks of an early rate cut.
• Banxico updated its economic growth projections for 2024 from 3.0% to 2.8% YoY and maintained 1.5% for 2025. The slowdown is blamed on higher interest rates at 11.25%, which 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.
• 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.
• US economic data hurt the prospects for a higher USD/MXN, with buyers failing to keep the exchange rate above 17.00.
• February’s US ADP National Employment Report showed that private companies hired fewer people than the 150K expected, with figures increasing by 140K. Nevertheless, the reading exceeded January’s 111K increase.
• The US JOLTS job openings report for January came in at 8.863 million, missing estimates and the previous month’s readings of 8.9 million and 8.889 million, respectively.
• As Fed Chair Jerome Powell testifies, the CME FedWatch Tool shows traders increased their bets for a 25-basis-point rate cut in June, from 52.7% a week ago to 59.5%.

Technical analysis: Mexican Peso rally extends as USD/MXN tumbles below 16.90

The USD/MXN downtrend continued, with sellers pushing the exchange rate below the 16.90 figure, opening the door to challenge the current year-to-date low of 16.78, followed by last year’s 16.62. Further downside is seen, once those two levels are cleared, with October’s 2015 low of 16.32.

On the other hand, if buyers reclaim the 17.00 figure, that could open the door to testing the 50-day Simple Moving Average (SMA) at 17.05, followed by the 200-day SMA at 17.24 and the 100-SMA at 17.38.

USD/MXN Price Action – Daily Chart

• BoC holds rates at 5%, doesn’t expect 2% inflation in 2024.
• Canada releases labor figures on Friday that will be overshadowed by US NFP.
• Fed Chair Powell doesn’t see recession, Greenback eases on Wednesday.

The Canadian Dollar (CAD) surged half a percent against the US Dollar (USD) on Wednesday after the Bank of Canada (BoC) held rates at 5.0% as markets had broadly expected. Federal Reserve (Fed) Chair Jerome Powell added to downside Greenback pressure, noting that the Fed needs more evidence of inflation reaching 2%, but doesn’t see risk of a US recession on the cards.

Canada’s next key data print will be Friday’s labor figures, but the US Nonfarm Payrolls (NFP) report is likely to engulf market attention to end the trading week. Markets are expecting the Canadian Unemployment Rate to tick slightly higher to 5.8% from 5.7%. February’s US NFP print is expected to ease back to 200K from January’s 11-month high of 353K.

Daily digest market movers: Canadian Dollar climbs, Greenback slides on CB-heavy Wednesday

• BoC Governor Tiff Macklem:
  • Most likely won’t achieve 2% inflation this year.
  • Shelter price inflation weighs on BoC decisions.
  • Overwhelming consensus within BoC that rates need to stay at 5%.
  • Looking for consistency across all inflation indicators.
  • BoC's Tiff Macklem: The governing council unanimously agreed to maintain rates at 5%
• Federal Reserve Chair Jerome Powell:
  • There is no reason to think the economy is in or faces significant near-term risk of recession.
  • Fed sees ongoing solid growth, should continue moving forward.
  • Would like to have more confidence on inflation. Fed has some confidence but needs more.
  • Jerome Powell Speech: Fed Chair doesn't see elevated risk of recession
• According to Canadian money markets, there is less than 25% odds of a BoC rate cut in April, down from over 40% before Tiff Macklem’s appearance on Wednesday.
• The US ADP Employment Change came in below expectations, printing at 140K for February versus the forecast of 150K, while the previous print saw a revision up to 111K from 107K.
• Canada’s seasonally-adjusted Ivey Purchasing Managers Index (PMI) eased to 53.9 in February versus the previous month’s 56.5.

Technical analysis: Canadian Dollar surges to within reach of 1.3500 against Greenback

The Canadian Dollar (CAD) is broadly higher on Wednesday, gaining over half a percent against the US Dollar (USD) and around a third of a percent against the Swiss Franc (CHF). The CAD is down around half a percent against the Australian Dollar (AUD) as the Aussie stands as the market’s best-performing currency for the day.

USD/CAD tumbled into 1.3510 from Wednesday’s intraday high near the 1.3600 handle. The pair is within range of slipping back into 1.3500 after falling through the 200-hour Simple Moving Average (SMA) at 1.3551.

Daily candlesticks are on pace to see one of their worst performances since December, with USD/CAD falling over 0.6% top-to-bottom on Wednesday. The technical floor underneath USD/CAD sits at the 200-day SMA at 1.3477.

USD/CAD hourly chart

USD/CAD daily chart

• The USD/JPY has climbed back to near previous peaks above 150, could this be a sign it is topping?
• Indicators remain mostly ambivalent and price action relatively muted so it’s too early to say. 
• Rumors the BoJ may be about to raise interest rates have stimulated talk of a USD/JPY breakdown

The USD/JPY pair has been a broad, sweeping sideways trend since peaking in October 2022. Although higher lows have suggested an underlying bullish bias the pair has failed to surpass the 2022 highs, indicating an overall balanced market. 

Rumors that the Bank of Japan (BoJ) could be preparing to raise interest rates have reignited speculative interest in the Yen and led many to hail a renaissance in the currency. 

Japan’s negative interest rates have long made the Yen a popular funding currency for the carry trade. This is an operation in which investors borrow in a currency with a low interest rate, like the JPY, and use the relatively cheap loan to fund the purchase of a currency with a higher interest rate, such as the US Dollar (USD), pocketing the difference in rates as profit. Over time this has acted as a negative factor for JPY and driven the USD/JPY to new highs. 

US Dollar vs Swiss Franc: Weekly chart

From a technical perspective the pair overall remains in a sideways trend, with some bearish signs appearing on the horizon. 

As can be seen on the weekly chart above, after peaking at 150.84 last week, USD/JPY has entered the zone of previous major highs in the 151s – possibly a sign it is topping – however, there has so far been insufficient downside price action to definitively say it is rolling over. 

The lack of upside momentum, however, is a sign the uptrend could be waning. The Moving Average Convergence/Divergence (MACD) has shown much less progress higher during the 2024 rally compared to the 2023 rally, suggesting bulls are tired. Still, without a concomitant decline in price as well, the long-term technical conclusion is neutral. 

US Dollar vs Swiss Franc: Daily chart

The daily chart above shows more compelling evidence the pair could be about to move lower. The MACD has just given a sell signal after the blue MACD line crossed below the red signal line at the end of February. 

The indicator has reliably signaled the turning points in the medium-term sideways trend – both after the November 2023 highs and the January 2024 lows – so it is possible it may be correctly signaling the next move down. If so, the next downside target lower would be at around 148.00 where the 100 and 50-day Simple Moving Averages (SMA) are situated. 

US Dollar vs Swiss Franc: 4-hour chart

The 4-hour chart, used to assess the short-term trend, is showing the formation of a long sideways range since February 12. Whilst price is currently knocking at the floor of this range and risks a downside break, it is still too early to say this is the case for sure. 

The MACD is relatively low at the moment, suggesting strong downside momentum, however, it would require a break below the base of the range at 149.00, and the 200-4-hour SMA at the same level, to signal a breakdown was actually occurring. Until that happens the short-term trend remains neutral with the potential for a recovery back inside the range. 

If a clear breakout lower did materialize, however, it would suggest a decline to the next target at 148.00 which is equivalent to the height of the range extrapolated lower, and also sits at the confluence of MAs on the daily chart. 
 

Federal Reserve Chairman Jerome Powell testifies before the House Financial Services Committee.

Key takeaways

"We are making sure banks with commercial real estate sector exposure can manage any losses."

"This fallout will last over next several years."

"Our Fed supervisors are engaged with small and medium-sized banks on their exposure risks."

"Immigration and labor force participation both contributed to strong economic growth we had last year."

"Silicon Valley Bank's failure was due to a too-concentrated funding structure."

"We are not climate change policymakers."

"We are starting very carefully with large institutions on their climate exposure; not for imposing it on small banks."

"Compensation incentives were not a main driver of Silicon Valley Bank's failure."

"Climate change is real and poses risks over the longer term."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."
 

The European Central Bank (ECB) is set to announce its Monetary Policy Decision on Thursday, March 7 at 13:15 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of 10 major banks.

The ECB is widely expected to leave rates unchanged for the fourth time in a row. Alongside the statement, the ECB also publishes fresh economic forecasts. ECB President Christine Lagarde’s post-meeting press conference will be key.  Her comments will be scrutinized for any hints about the timing and scope of future interest rate cuts.

Nordea

Danske Bank

Commerzbank 

TDS

SocGen

ING

ABN Amro

Rabobank

Wells Fargo

BMO

Federal Reserve Chairman Jerome Powell testifies before the House Financial Services Committee.

Key takeaways

"So far we have economy growing at solid pace, labor market still tight and strong."

"Inflation has come down sharply."

"These are very attractive conditions we want to continue."

"I think we can achieve a soft landing."

"We are using our tools to keep a strong labor market and strong growth while making progress on inflation."

"We are on a good path so far in being able to get there."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."
 

Federal Reserve Chairman Jerome Powell testifies before the House Financial Services Committee.

Key takeaways

"Pandemic may have changed in a sustained way how we target inflation."

"We are seeing continued solid growth, which should continue."

"No reason to think the economy is in or faces significant near-term risk of recession."

"I don't think possibility of recession is elevated right now."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."
 

Economists at CIBC Capital Markets expect the USD/MXN pair to edge higher as Banxico is set to decouple from the Fed with a rate cut this month.

Banxico will decouple from the Fed in March

Federal Reserve Chairman Jerome Powell testifies before the House Financial Services Committee.

Key takeaways

"Rate cuts will depend on path of the economy."

"Incoming data will determine when rate cuts begin."

"We would like to have more confidence on inflation; we have some confidence but want more."

"Let's see a little bit more data so we can become confident."

"Strength of economy and labor market means we can approach that carefully, thoughtfully."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."
 

The Australian Dollar (AUD) weakened modestly in February against the US Dollar (USD) from 0.6596 to 0.6503. Economists at MUFG Bank analyze Aussie’s outlook.

Gradual appreciation beyond short-term risks

• JOLTS Job Openings were little changed slightly below 9 million in January.
• US Dollar Index stays deep in red at around 103.50.

The number of job openings on the last business day of January stood at 8.86 million, the US Bureau of Labor Statistics (BLS) reported in the Job Openings and Labor Turnover Survey (JOLTS) on Wednesday. This reading followed 8.88 million (revised from 9.02 million) openings in December and came in slightly below the market expectation of 8.9 million.

"Over the month, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively," the BLS noted in its press release. "Within separations, quits (3.4 million) and layoffs and discharges (1.6 million) changed little."

Market reaction

This report failed to trigger a noticeable market reaction. At the time of press, the US Dollar Index was down 0.3% on the day at 103.45.

USD/JPY is back in the 150.00 range. Economists at CIBC Capital Markets analyze the pair’s outlook.

USD strength could lead to a mildly hawkish BoJ

• EUR/USD climbs 0.42%, spurred by ADP data and Powell’s remarks.
• US ADP February’s report was solid at 140K, improved compared to January, but missed estimates.
• Fed’s Powell remarks in testimony at Capitol Hill hint at no immediate rate cuts.

The Euro extended its gains against the US Dollar early during the North American session, sponsored by softer-than-expected ADP jobs report in the United States (US). Thus, the EUR/USD edges up 0.42% and trades at 1.0881 after hitting a two-week high of 1.0887.

EUR/USD hits two-week peak, gains momentum ahead of the European Central Bank’s decision

In February, private companies hired fewer people than the 150K expected, with figures increasing by 140K. Nevertheless, compared to January’s 111K reading, the jobs market remains strong, as noted by Nela Richardson, chief economist of ADP. Richardson said “Job gains remain solid. Pay gains are trending lower but are still above inflation.”

Nevertheless, the data was overshadowed by prepared remarks that the US Federal Reserve (Fed) Chairman Jerome Powell will deliver at Capitol Hill. He said the Fed doesn’t expect it will be appropriate to reduce rates until they [Fed] have greater confidence in inflation moving sustainably towards 2%.

Powell said rates had peaked, acknowledged the progress on inflation, and added that the current restrictive stance puts downward pressure on economic activity and inflation. He said they would ease policy at some point in the year, though they would assess incoming data. He added that the risks to achieving the Fed’s dual goal are moving into better balance.

Following the data and Fed’s Powell remarks, the EUR/USD rose sharply. The US Dollar Index (DXY), which tracks the performance of six other currencies against the buck, tumbled more than 0.30% to 103.47. US Treasury bond yields are diving across the short and long ends of the curve.

In addition, traders brace for the European Central Bank's (ECB) monetary policy decision on Thursday, with analysts expecting no change to their monetary policy. However, traders would look for hints, about a possible rate cut towards the June meeting.

EUR/USD Price Analysis: Technical outlook

The pair has broken above a downslope resistance trendline drawn from January’s highs and the 50-day moving average (DMA) at around 1.0860/70, opening the door to challenge 1.0900. Once that level is cleared, the next resistance emerges at 1.0932, the January 24 swing high, followed by the January 11 high at 1.0999, shy of 1.10. On the other hand, if prices fail to stay above the 1.0860 area, look for a deeper pullback towards the confluence of the 100 and 200-DMAs at around 1.0831/34 before testing 1.0800.

The FX market continues to be an extension of market expectations on Fed policy. Economists at ING explain why their medium-term FX views remain broadly unchanged and centred around a Dollar depreciation.

A Dollar decline is delayed, not deterred

The timing and pace of the easing cycle will be crucial for the Gold price, economists at ANZ Bank say. 

XAU/USD to move sideways until the Fed confirms the timing and pace of its easing cycle

Economists at Danske Bank expect core inflation to remain somewhat sticky, which allows the Fed to initiate rate cuts from May.

US economy on a structurally solid footing

EUR/USD retests upper 1.0800s. Economists at Scotiabank analyze the pair’s outlook.

Bullish technical momentum builds

• The US Dollar trades softer across the board on Wednesday. 
• US Federal Reserve Chairman Jerome Powell is heading to Capitol Hill for his semi-annual testimony. 
• The US Dollar Index snaps an important support, looking bleak ahead of the ECB decision and NFP data.

The US Dollar (USD) is facing some firm selling pressure on Wednesday ahead of the semi-annual testimony from US Federal Reserve Chairman Jerome Powell at Capitol Hill. Traders are being thrown left and right by mixt data, blurring the projections on the timing of the expected rate cuts from the Fed, if any for this year. This results in a four-day losing streak for the Greenback ahead of Powell’s testimony, the European Central Bank (ECB) meeting on Thursday and the US Nonfarm Payrolls data on Friday. 

On the economic calendar front, some appetizers are being provided for traders to dig their teeth in. The ADP Private Payrolls and the JOLTS job openings reports will shed some more light on how the job market is doing. However, traders are expected to keep their powder dry before Powell’s speech, which is expected to be published when he takes his seat before the Congressional hearing committee. 

Daily digest market movers: Going to the Capitol

• At 12:00 GMT, the weekly Mortgage Applications number will be released. The previous number was a 5.6% decline.
• ADP will release its Private Employment number for February at 13:15 GMT. Job creation is expected to increase from 107,000 to 150,000.
• At 15:00 GMT, Wholesale Inventories for January will be released, with expectations of another mild 0.1% contraction as was seen in December. 
• JOLTS Job Openings data for January, also at 15:00 GMT, are expected to fall from 9.026 million to 8.9 million.
• US Federal Reserve Chairman Jerome Powell will make his statement and reply to questions from Congress at 15:00 GMT. Normally markets will react even before he sits as the statement will be released by the Federal Reserve just minutes before the speech takes place. 
• The Fed speak for this Wednesday does not stop with Powell. San Francisco Fed President Mary Daly will be speaking around 17:00 GMT, followed by Minneapolis Fed President Neel Kashkari around 21:15 GMT. In between both speakers, the Fed’s Beige Book will be released as well.  
• Equities are recovering from their meltdown on Tuesday, though the current gains are far too little to make good on this week’s losses. Besides the Hong Kong Hang Seng Index, which is up over 1.70%, all other major indices are holding on to less than 0.50% of gains. 
• According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the March 20 meeting are at 97%, while chances of a rate cut stand at 3%. 
• The benchmark 10-year US Treasury Note trades around 4.16%, roughly sideways seeing last week’s range. 

US Dollar Index Technical Analysis: DXY tests support too soon

The US Dollar Index (DXY) is seeing traders getting a bit ahead of themselves with pressure building on a pivotal support level in the DXY. The 200-day Simple Moving Average at 103.73 is being snapped again, already the fifth time in three weeks. With the actual three main events still to take place, it looks like a few traders fear missing out and might get caught up on the wrong side of the trade with their prepositioning. 

The 100-day Simple Moving Average (SMA) near 103.88 got snapped on Tuesday, though it still needs a daily close above it to deliver a bullish signal. Should the US Dollar be able to cross above it, 104.60 is the next first target ahead. A firm step beyond there 105.88 comes into reach, the high from November 2023. Ultimately, 107.20 – the high of 2023 – could come back into scope. 

Looking down, the 200-day Simple Moving Average at 103.73 is being snapped again. Adding the element that it has not seen a daily close below it last week, it showcases its importance. The 200-day SMA should not let go that easily, so a small retreat back to that level could be more than granted. Ultimately, should it lose its force, prices could fall to 103.22, the 55-day SMA, before testing 103.00. 

UK Chancellor of the Exchequer Jeremy Hunt presents the Spring Budget to Parliament.

Key takeaways

"We can now help families with permanent cuts in tax."

"We need to boost GDP per capita, not just GDP."

"The OBR sees CPI below 2% target in just a few months' time."

"The OBR expects real household disposable income to rise by 0.8%."

"Will extend household support fund at current levels for 6 months."

"Will extend freeze in alcohol duty to February 2025."

"Will freeze fuel duty for a further year."

"Alcohol and fuel duty freezes will lower headline inflation by 0.2 percentage points in 2024/25."

"Will allow full expensing to apply to leased assets, as soon as it is affordable."

"Will increase VAT registration threshold to 90,000 pounds from April 1."

"The OBR forecasts 2024/25 underlying public debt-to-GDP ratio of 91.7% (November forecast 91.6%)."

"The OBR forecasts 2025/26 underlying public debt to GDP ratio of 92.8% (November forecast 92.7%)."

"The OBR forecasts 2026/27 underlying public debt to GDP ratio of 93.2% (November forecast 93.2%)."

"The OBR forecasts headline debt will fall in every year of forecast."

"Borrowing is forecast to drop to the lowest share of GDP since 2001 at the end of forecast."

"The OBR forecasts show 8.9 bln stg of headroom vs target to reduce debt-to-GDP ratio (November forecast: 13.0 bln stg)."

"The OBR forecasts show 2024 GDP growth of 0.8% (November forecast 0.7%), 2025 GDP growth of 1.9% (November forecast 1.4%), 2026 GDP growth of 2.2% (November forecast 2.0%)."

"The OBR forecasts show budget deficit to fall to 2.7% in 2025/26, 2.3% in 2026/27, 1.6% in 2027/28 and 1.2% in 2028-29."

Developing story, please refresh the page for updates.

Market reaction

GBP/USD showed no immediate reaction to these remarks and the pair was last seen rising 0.15% on the day at 1.2720.

USD/CAD continues to struggle to surpass the 1.3600 level. Economists at Scotiabank analyze the pair’s outlook.

Key support remains at 1.3540

Strong central bank buying has helped to offset ETF outflows in the Gold market. Demand is set to continue as central banks increase their allocation towards safe assets, economists at ING say.

China leads central bank buying

• The Swiss Franc edges lower against the US Dollar on the back of relatively low inflation in Switzerland, which indicates interest rates remaining low. 
• SNB’s Jordan says Swiss Franc rising in real terms is hurting Swiss exporters, SNB unlikely to pursue CHF-strengthening policies. 
• USD/CHF hits resistance at falling trendline, 50-week SMA. 

The Swiss Franc (CHF) edges lower against the US Dollar (USD) on Wednesday as traders continue to bet on a less-inflationary outlook for Switzerland, supporting a relatively low interest rate policy and dampening foreign capital inflows. 

Inflation figures from Switzerland’s Federal Statistics Office released on Monday showed prices rising 1.2% in February, down from the 1.3% increase in January. Whilst not as low as the 1.1% forecast by economists, the data extended the trend lower in inflation, and positions the neutral country as one of the least inflationary in the western world. 

Declining inflation suggests the Swiss National Bank (SNB) will not have to raise base interest rates from the current 1.75% level in order to combat inflation, which in turn is likely to lower demand for the Swiss Franc from foreign investors seeking to park their capital where it can reap the highest return.

Swiss Franc too expensive, says SNB’s Jordan

In an interview with Bloomberg in February, the president of the Swiss National Bank, Thomas Jordan, said the Swiss Franc had been rising in nominal terms for several years, and that this had been “helpful”, as it has “shielded us from inflationary pressures from abroad.” Jordan added, however, that at the end of 2023 the Franc had started to rise in real terms, and that this was now a problem for Swiss businesses, many of whom are exporters.

His comments suggest the SNB is unlikely to introduce policy changes that will further appreciate the Swiss Franc, chief amongst them the elevation of interest rates. 

On the Horizon

The next key event for the USD/CHF is likely to be one that moves the US Dollar. The testimony of Federal Reserve chairman Jerome Powell before the US Congress on Wednesday at 15:00 GMT could impact USD. 

The Federal Reserve is currently expected to cut interest rates sometime in the summer, possibly in June. A run of poor macroeconomic data over the past few days increases that possibility. Traders will be watching the Fed Chair’s speech, therefore, for any hints the Fed is more closely aligning to a definite time line for lowering interest rates or even a set date.

If Powell intimates cuts are coming – either sooner than foreseen or in June – this could have a dramatic impact on the US Dollar, weakening it against most counterparts. 

Technical Analysis: Swiss Franc hits key chart level against US Dollar

The USD/CHF – the number of Swiss Francs one US Dollar can buy – bumps up against a key technical level on the charts which could mark a possible reversal point back down in line with the long-term downtrend.

The weekly chart below shows the price currently butting up against the falling trendline of a descending channel, as well as the key 50-week Simple Moving Average (SMA). It is possible this could mark the inflection point of a reversal where the pair starts moving down again within the falling channel. 

US Dollar vs Swiss Franc: weekly chart

The daily chart below shows a bearish divergence between price at the two peaks on February 14 and March 3. Although the March high was higher than the February high, the Moving Average Convergence/Divergence indicator (MACD) failed to make a higher high to match, suggesting waning strength in the up move. This could further indicate the possibility of a reversal back down being on the cards. 

It is also possible to see a possible topping pattern taking shape during late February and early March, perhaps a kind of bearish Double Top, further adding credence to the possibility of a reversal. 

US Dollar vs Swiss Franc: 1-day chart

The Shooting Star Japanese candlestick pattern on March 3 is another bearish indicator. 

Nevertheless, price has not yet started to reverse and there is still a possibility it could continue higher. A break above the high of the Shooting Star at 0.8892 would indicate a continuation of the short-term uptrend to a possible target at 0.9056. 

For confirmation of a reversal back down, on the other hand, price should break below the February 22 low of 0.8742, leading to a likely decline to 0.8645. 

• Jerome Powell testimony in the US Congress will be a top-tier market moving event.
• New clues on the Federal Reserve interest rate path are awaited.
• US Dollar, stock markets and other asset classes could see big swings on Fed Chair words. 

Jerome Powell, Chairman of the Federal Reserve System, will testify on March 6 in the US Congress, before the Senate Committe on Banking, Housing and Urban Affairs. The hearing, entitled as “The Semi-Annual Monetary Policy Report to the Congress”, will start at 15:00 GMT (10:00 US Eastern Standard Time), and it will have the full attention of all financial market players. 

Jerome Powell is expected to address the main takeaways of the semi-annual Federal Reserve Monetary Policy Report, published last Friday. In that report, the Fed mentioned that it remains inappropriate to reduce the target range until policymakers have greater confidence inflation will move sustainably toward 2%, adding that they remain attentive to inflation risks. The publication also reiterated that risks to achieving the goals have moved into a better balance.

US representatives are expected to ask Powell about the interest rate outlook, inflation developments and a long Q&A session about the future path of interest rates and how will the Fed assess how much more monetary policy tightening is needed. Markets could see strong moves to the US Dollar, US Treasury bond yields, stock markets and all asset classes, including Gold price and all major currency pairs, during Powell’s testimony. 

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."

USD/CAD has risen significantly since the beginning of the year. Economists at Commerzbank analyze the pair’s outlook ahead of the Bank of Canada (BoC) meeting.

Can the BoC give the CAD a new boost?

• Natural Gas price is trying to hold ground above $2.00.
• Gas exports from Norway are increasing again after unplanned maintenance. 
• The US Dollar Index trades below 104.00, though the level is still within reach. 

Natural Gas (XNG/USD) trades above the key $2.00 level on Wednesday after it was able to eke out another gain on Tuesday. However, Gas bulls do not get much time to enjoy the recent rally as dark clouds are forming above the commodity. With politicians scrambling to eke out a ceasefire deal ahead of the Rammadam in Gaza, Norwegian Gas is back finding its way towards the UK and Europe after unforeseen outages in recent weeks. 

Meanwhile, the US Dollar (USD) is seeing some prepositions ahead of three eventful days ahead. This Wednesday, US Federal Reserve Chairman Jerome Powell heads to Capitol Hill to keep his semi-annual testimony in front of Congress. On Thursday, markets will hear from European Central Bank President Christine Lagarde after the bank’s latest rate decision, and on Friday the  US Employment Report will be released. 

Natural Gas is trading at $2.01 per MMBtu at the time of writing.  

Natural Gas market movers: Near term turns bearish

• Europe is reporting the highest Gas storage levels in years with the heating season ending and less need to refuel ahead of the next heating season. 
• Norwegian Gas flows to the UK and Northwest Europe are rising after some unplanned maintenance. 
• Meanwhile, more demand comes out of Asia, where Coal prices have rallied and Gas is now cheaper for electricity production. 
• Ukraine Energy Minister German Galushchenko said on Tuesday that expiring Russian Gas contracts for deliveries will not be rolled over for another period, further reducing Russian gas inflows into Europe. 

Natural Gas Technical Analysis: Balance shifts again

Natural Gas prices have quickly repriced the supply decrease by the US and Qatar. Meanwhile, traders are looking to the downside again with Europe confirming that it does not need that much Gas over the summer to be prepared for the next heating season. This could mean that prices remain at the current level or lower.

On the upside, Natural Gas has broken that $1.99-$2.00 marker, which already proved to be some support. After that, the green line at $2.13 comes into view, where the triple bottoms from 2023 are placed. If Natural Gas sees a sudden demand pickup, $2.40 could come into play. 

On the downside, $1.64 and $1.53 (the low of 2020) are targets to look out for. Ahead of those levels, the recently-created pivotal levels at $1.86 and $1.80 should be able to provide some support and slow down any downside moves.

XNG/USD (Daily Chart)

Today’s budget is the next scheduled event on the UK political calendar. A budget in line with expectations would offer little incentive for the Pound Sterling (GBP), economists at Rabobank say.

EUR/GBP to edge lower in H2 to 0.6400

USD/CAD is challenging, still without taking out the 1.3600 level. Economists at HSBC analyze the pair’s outlook ahead of the Bank of Canada (BoC) meeting.

USD/CAD is likely to continue its choppy sideways path in the coming weeks

• EUR/GBP finds support as monthly Eurozone Retail Sales grew by 0.1% as expected.
• The ECB is expected to keep key lending rates unchanged at 4.5% on Thursday.
• The Pound Sterling will dance to the tunes of UK Spring budget.

The EUR/GBP pair finds some buying interest around 0.8550 as the Eurozone Retail Sales data for January remains better than expectations. The Eurostat reported that monthly Retail Sales grew by 0.1% as expected. In December, the Retail Sales were down by 0.6%. The annual Retail Sales contracted at a slower pace of 1.0% against 1.3% decline expected by market participants.

While the pace of decline in Retail Sales was slower than expectation, it cannot be denied that individuals are facing the cost-of-living crisis due to higher interest rates by the European Central Bank (ECB) and sticky price pressures.

Market participants remain uncertain about when the ECB will start reducing interest rates as the outlook of the shared continent is vulnerable. The Eurozone economy didn’t show growth in the second half of 2023 as the ECB is maintaining interest rates in the restrictive trajectory so that inflation must return to the desired target of 2%.

Going forward, the interest rate decision from the ECB on Thursday will guide the Euro. The ECB is expected to keep its Main Refinancing Operations Rate unchanged at 4.5%.

On the Pound Sterling front, investors await the United Kingdom’s budget 2024 to be released by Chancellor Jeremy Hunt at 12:30 GMT. Hunt is expected to announce a two percentage-point cut to National Insurance Contributions (NICs), which will result in additional saving of 450 pounds to salaried individuals.

It is expected that the scope of fiscal stimulus would be limited as the government is worried about high price pressures.

For almost a week now, it has seemed as if the US data is moderating somewhat. This is not a good sign for the US Dollar, economists at Commerzbank say.

USD risks remain asymmetrical

• Gold price drops slightly as the focus shifts to Fed Powell’s testimony.
• The appeal for the US Dollar weakens as February’s PMI figures cast doubts over the strong US economic outlook.
• US ADP Employment and JOLTS Job Openings data will provide fresh cues over job growth.

Gold price (XAU/USD) edges down in Wednesday’s European session after failing to recapture the all-time high of around $2,145.00. The precious metal is expected to stay on the sidelines as investors await Federal Reserve (Fed) Chair Jerome Powell’s testimony before Congress, starting at around 15:00 GMT.

Investors expect that Jerome Powell will support keeping interest rates in the range of 5.25%-5.50% until he gets evidence that inflation will return to the desired rate of 2%. Non-yielding assets, such as Gold, face outflows when the Fed favors a hawkish interest rate stance for an extended period.

Market participants will also focus on the United States ADP Employment Change and JOLTS Job Openings data for February and January, respectively, which will provide more insights into labor demand.

Daily digest market movers: Gold price awaits Fed Powell’s guidance on interest rates

• Gold price falls slightly from a near record high of $2,141.85 amid caution among market participants ahead of Federal Reserve Chair Jerome Powell’s testimony before Congress. Investors will keenly watch the guidance from Jerome Powell on inflation, the labor market, and interest rates. 
• While market participants want to know about the time frame and the degree of rate cuts this year, Powell is likely to be reluctant to offer in-depth information on rate cuts. Fed policymakers are less likely to focus on policy normalization before gaining confidence that inflation will come down to the 2% target. The Fed wants to see inflation declining for months as evidence before considering rate cuts.
• Jerome Powell is expected to maintain hawkish rhetoric as the progress in price pressures decelerating towards the 2% target is slow and labor market conditions are resilient.
• Powell’s guidance will impact market expectations for rate cuts in the June policy meeting. As per the CME Fedwatch tool, the chances for a 25 basis points (bps) rate cut for June’s policy meeting have increased to 58% from 53% on Tuesday.
• Apart from Powell’s testimony, market participants will focus on the US ADP Employment Change for February and JOLTS Job Openings for January, which will be published at 13:15 and 15:00 GMT, respectively. US private employers are forecasted to have hired 150K job-seekers against the prior reading of 107K and have posted 8.9 million new job openings in January against 9.027 million in December.
• The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, continues its losing spell for the fourth trading session on Wednesday. The USD Index hovers near a weekly low of around 103.60 as weak ISM Manufacturing and Services PMIs for February have pointed to slowing economic growth.

Technical Analysis: Pound Sterling consolidates around $2,125

Gold price falls gradually after failing to test the all-time high near $2,145. The yellow metal trades inside Tuesday’s trading range. The near-term appeal for Gold remains bullish as it has delivered a breakout of the Symmetrical Triangle pattern formed on a daily time frame. The breakout of the aforementioned chart pattern exhibits a volatility expansion, which leads to wider ticks on the upside and heavy volume.

The 14-period Relative Strength Index (RSI) holds above 60.00, indicating a bullish momentum ahead. The RSI (14) is not showing any divergence signals but has reached overbought territory.

The 1.3500 magnet theory continues to dominate USD/CAD forecast and trading views, economists at Rabobank say.

Fading any move down towards 1.3300 and any move up towards 1.3700

• Eurozone Retail Sales came in at -1.0% YoY in January vs. -1.3% forecast.
• Retail Sales in the bloc arrived at 0.1% MoM in January, as expected.

Eurozone’s Retail Sales fell by 1.0% YoY in January, as against a 0.5% decrease in December, the official data released by Eurostat showed on Wednesday. The market had expected a decline of 1.3%.

Retail Sales in the old continent rose 0.1% over the month in the same period vs. -0.6% in December and 0.1% expected.

FX implications

Mixed Eurozone data failed to deter Euro bulls. At the time of writing, the EUR/USD pair is trading at 1.0876, adding 0.20% on the day.

Today sees UK Chancellor, Jeremy Hunt, present a pre-election budget. The Pound Sterling (GBP) is the only G10 currency to print positive total returns against the US Dollar (USD) this year. An expansionary UK budget would support the GBP, economists at ING say.

Chancellor Hunt to keep Sterling show on the road

• AUD/JPY recovers intraday losses on improved S&P/ASX 200 Index.
• Aussie GDP grew by 0.2% in Q4 2023, against the anticipated 0.3%.
• Attendees of the BoJ could advocate for lifting negative interest rates in the March meeting.

AUD/JPY reverses its daily losses on the improved ASX 200 Index and moves into the positive territory on Wednesday. The cross hovers around 97.60 during the European trading hours. During the Asian hours, the AUD faced downward pressure as the S&P/ASX 200 Index encountered challenges, reflecting a sell-off in technology stocks on Wall Street and lower mining stocks.

Despite softer-than-expected Gross Domestic Product (GDP) (Q4), the Australian Dollar remained relatively unaffected. The GDP grew by 0.2% quarter-on-quarter in the fourth quarter of 2023, slightly below market expectations of no change at 0.3%. However, on a year-on-year basis, GDP expanded by 1.5%, surpassing the expected 1.4%, albeit falling short of the previous growth of 2.1%.

The AUD/JPY cross could encounter resistance following reports from Jiji Press suggesting that attendees of the upcoming Bank of Japan (BoJ) policy meeting on March 19 may advocate for "lifting negative interest rates." However, BoJ Governor Kazuo Ueda expressed skepticism on Friday regarding the sustainability of Japanese inflation reaching the 2% target. With the unexpected possibility of a recession, the BoJ may delay its plans for monetary policy tightening.

According to Reuters, an unnamed source indicates that the BoJ is likely to maintain its forecast for a moderate economic recovery but may revise its assessment of consumption and factory output at the March meeting.

Tuesday’s data showed a rebound in the Tokyo Consumer Price Index (CPI) from a 22-month low in February. This development has reignited discussions about the possibility of the Bank of Japan (BoJ) exiting the negative interest rates regime, which, in turn, has bolstered the Japanese Yen.

• Germany’s trade surplus comes out much higher than expected, signaling increased Euro demand for its exports.
• The Euro is the most popular currency amongst global central banks, according to a recent survey. 
• The EUR/USD price charts show an extension of the short-term uptrend. 

The EUR/USD pair is seeing a slight lift on Wednesday, trading in the 1.0860s against the US Dollar (USD), just after the release of strong German trade data, which showed a greater-than-expected rise in the country’s trade surplus. 

Germany’s Trade Balance rose to €27.8 billion in January, beating estimates of €21.5 billion and the previous surplus of €23.3 billion, according to data from Statistisches Bundesamt Deutschland (SBD).

The release suggests more demand for Euros from foreign importers of German goods. It follows strong Eurozone PMI data released on Tuesday, and contrasts with lackluster US factory and PMI data, which has taken the wind out of the Dollar’s sails. 

Euro gains appeal

The Euro is the most popular currency among global central banks, the big fish players in the currency markets, according to a recent survey by a London-based think tank. 

Roughly 15 central banks anticipate increasing their reserves of Euros in 2024-25, according to a survey of 75 major central bank reserve managers by the think tank OMFIF. 

“Net demand was higher than for any other currency during the period and a jump from the 2021 and 2022 surveys of reserve managers controlling nearly $5 trillion,” said a report by Reuters, citing the survey. 

The resurfacing of Eurozone bond yields into positive territory after years of negative rates, as well as a relatively more robust outlook going forward – despite expectations of interest rate cuts – was the reason given by central bankers for their pursuit of the Euro.  

On the Horizon

Eurozone Retail Sales data is released later today at 10:00 GMT and expected to show a slide of 1.3% in January YoY but a 0.1% rise MoM. A much higher than expected reading would be positive for the Euro. 

The key event for the week, however, is the European Central Bank (ECB) policy meeting on Thursday. Analysts are looking for a shift in communication: so far the ECB has kept schtum about when it anticipates cutting rates, in contrast with less reserved peers. However, some analysts are saying March could be the time it throws caution to the wind. 

Euro Technical Analysis: Short-term uptrend continues

The EUR/USD pair continues its half-hearted recovery from the February lows. The longer-term trend is sideways and difficult to forecast – short-term, however, the peaks and troughs are rising, suggesting a tentative uptrend is in progress and slightly favoring bulls. 

Euro vs US Dollar: 4-hour chart

The pair is currently encountering resistance from the 50-day Simple Moving Average (SMA) at 1.0859 but seems to be slowly penetrating it and establishing a foothold above. 

Euro vs US Dollar: 1-day chart

The next key hurdle is the 1.0888 February high. If it can break above that level it will continue the short-term uptrend. After that the next target is the 50% Fibonacci retracement of the early 2024 decline, at 1.0918, followed by the 61.8% retracement at 1.0972. 

A break beneath the 1.0795 lows would spoil the buyer’s party and indicate a vulnerability to break down. 

The Bank of Canada (BoC) announces monetary policy today, without releasing new economic projections. Economists at ING analyze USD/CAD outlook ahead of the meeting.

Cautious about a rebound in CAD in the near term

• USD/MXN faces a challenge on improved risk sentiment on Wednesday.
• CME FedWatch Tool suggests a 4.0% chance of a 25 bps Fed rate cut in March.
• Banxico is expected to reduce interest rates in the March meeting as per a Reuters poll.

USD/MXN continues its losing streak that began on February 29, declining to near 16.90 during the European session on Wednesday. The decline in the US Dollar (USD) puts pressure on the USD/MXN pair, which could be attributed to the improved risk appetite.

Additionally, the softer-than-expected ISM Services Purchasing Managers Index (PMI) from the United States (US), contributed pressure for the Greenback. The ISM Services PMI decreased to 52.6 from 53.4 prior, falling short of the expected 53.0 in February. Additionally, Factory Orders (MoM) decreased by 3.6% in January, more than the expected 2.9%.

Market participants will likely monitor Federal Reserve (Fed) Chairman Jerome Powell's testimony before the US Congress' House Financial Services Committee on Wednesday. Market attention is also focused on the ADP Employment Change report for February. According to the CME FedWatch Tool, there is a 4.0% probability of a 25 basis points rate cut in March, while the likelihood of cuts in May and June stands at 23.9% and 53.3%, respectively.

On the Mexican side, as per a Reuters poll, 15 analysts estimate that inflation will slow down in February, reinforcing expectations that the Bank of Mexico (Banxico) could cut rates as soon as the March 21 meeting. Moreover, market expectations remain high for Banxico to implement monetary policy easing in March, with investors anticipating a reduction of 75 basis points (bps) over the next six months.

On Monday, the data showed that Gross fixed investment in Mexico grew 13.4% year-on-year in December 2023, decelerating from a 19.2% rise in the previous month. Consumer confidence data is scheduled for release on Wednesday, followed by inflation data on Thursday.

Chancellor of the Exchequer Jeremy Hunt will present the new budget today. Economists at Commerzbank analyze how the Pound Sterling (GBP) could react to the economic plans and changes to fiscal policy.

New British budget might result in a volatile Pound

• AUD/USD gains some positive traction and builds on the overnight recovery from a multi-week low.
• Optimistic remarks by China’s NDRC and PBoC Governor boost the Aussie amid a softer Greenback.
• Traders now look to the US macro data for some impetus ahead of Fed Chair Powell’s testimony.

The AUD/USD pair attracts some buying following an intraday dip to sub-0.6500 levels on Wednesday and moves further away from a three-week low touched the previous day. The momentum lifts spot prices to the 0.6525 region during the early part of the European session, though lacks follow-through or bullish conviction.

The Australian Dollar (AUD) gets a minor lift in reaction to optimistic remarks by China’s National Development and Reform Commission (NDRC), saying that the country’s 2024 growth target is in line with the economic potential. The NDRC added that the economy is likely to see a good start in Q1 and that the recovery will be consolidated and strengthened. Adding to this, the People’s Bank of China (PBoC) Governor Pan Gongsheng noted that the central bank still has sufficient room for monetary policy and there is room for cutting RRR. This, to a larger extent, overshadows unimpressive domestic data, showing that Australia's economy eked out a modest 0.2% growth in the December quarter.

Apart from this, a modest US Dollar (USD) weakness turns out to be a key factor pushing the AUD/USD pair higher. The markets have been pricing in a greater chance, around 70% for the first interest rate cut by the Federal Reserve (Fed) in June. Moreover, the US ISM PMI showed on Tuesday that growth in the services sector slowed in February, which further keeps the USD bulls on the defensive and remains supportive of the AUD/USD pair's intraday uptick. Traders, however, might refrain from placing fresh USD bearish bets ahead of Fed Chair Jerome Powell's congressional testimony, which will be scrutinized closely for fresh cues about the rate-cut path and provide some meaningful impetus.

Market participants on Wednesday will also confront the release of the US ADP report on private-sector employment and JOLTS Job Openings data, due later during the early North American session. This, along with the broader risk sentiment, will drive the USD and produce short-term opportunities around the AUD/USD pair ahead of Chinese trade balance data on Thursday. The attention will then turn to the closely watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday. Nevertheless, spot prices, for now, seem to snapped a two-day losing streak and remain at the mercy of the USD price dynamics. 

• USD/JPY drops sharply to 149.50 as bets in favor of BoJ lifting negative rate escalate.
• Improving outlook for Japan’s wage growth would keep inflation sustainably above 2%.
• Investors await Fed Powell’s testimony for fresh guidance on US interest rates.

The USD/JPY pair falls sharply to 149.50 in Wednesday’s London session. The asset come under pressure as the Japanese Yen strengthens after the Jiji News Agency reported that some members of Bank of Japan’s (BoJ) Monetary Policy Committee (MPC) would favor an exit from ultra-loose monetary policy stance at the March policy meeting.

Last week, BoJ board member Hajime Takata said that the central bank’s goal of maintaining inflation above 2% inflation on a sustainable basis is ‘finally in sight’.

The Japanese Yen is expected to broadly outperform if the BoJ lifts negative interest rates, which it has been maintaining from more than a decade as inflationary pressures were unable to sustainably remain above 2%. The reasoning behind inflation remaining below 2% has been vulnerable wage growth. The outlook for wage growth is improving, fanning discussions of quitting the expansionary policy stance. 

Meanwhile, the US Dollar weakens as market expectations for Federal Reserve (Fed) rate cuts in the June policy meeting escalate. The CME FedWatch tool shows that that traders see a little over 57% chance for a rate cut by 25 basis points (bps) in the June meeting. The chances for a rate cut were around 52% on Tuesday.

Going forward, the US Dollar will be guided by Fed Chair Jerome Powell’s testimony before Congress at 15:00 GMT. Fed Powell will provide fresh guidance on when the central bank will start reducing interest rates.

• The ADP survey is expected to show the US private sector added 150K new jobs in February. 
• Upbeat jobs data in January caused investors to price in a delay in the Fed policy pivot.
• Wage inflation figures will be watched closely by market participants.

The Automatic Data Processing (ADP) Research Institute will release the private employment data for February on Wednesday. The survey is an independent estimate of private-sector employment and pay, usually released two days ahead of the Bureau of Labor Statistics’ (BLS) official jobs report, which features Nonfarm Payrolls (NFP) data.

The correlation between the ADP Employment Change and NFP numbers is not always the most reliable and its results tend to diverge from the official job creation numbers provided by the BLS. Still, market participants pay attention to the ADP figures as part of the multiple employment-related releases that take place in the days preceding the NFP publication.

In January, the ADP reported that employment in the private sector rose by 107,000, missing the market expectation of 145,000, and annual pay was up 5.2% year-over-year. In the same period, NFP increased by 353,000 to surpass analysts’ estimate of 180,000 by a wide margin.

After leaving the policy settings unchanged in January, Federal Reserve (Fed) Chairman Jerome Powell said in the post-meeting press conference that it was not likely for them to start reducing the policy rate as early as March. "If we saw an unexpected weakening in the labor market, that would make us cut rates sooner," Powell added. Impressive labor market data for January reaffirmed a delay in the Fed’s policy pivot and helped the US Dollar stay resilient against its rivals in early February.

When will the ADP Jobs Survey will be released and how could it affect EUR/USD?

The ADP Research Institute is expected to report on Wednesday that the private sector added 150,000 new positions in February.  

In case the data comes in below 100,000, this could be seen as a sign of a weakening labor market and make it difficult for the USD to find demand. On the other hand, a print between 150,000 and 200,000 could provide a boost to the currency with the immediate reaction. If the data arrives near the market consensus, wage inflation figures could drive the USD’s valuation. An increase of 5.5% or higher in annual pay could be seen as a USD-positive print.

Ahead of Fed Chairman Powell’s testimony and Friday’s jobs report, however, investors could refrain from taking large positions based only on the ADP data. Hence, the market reaction could remain short-lived.

Eren Sengezer, European Session Lead Analyst, shares a brief technical outlook for EUR/USD:

“The 100-day and the 200-day Simple Moving Averages (SMA) form a pivot level for the pair at 1.0830. Technical buyers could remain interested as long as this level holds as support. On the upside, 1.0950 (Fibonacci 23.6% retracement of the October-December uptrend) could be seen as the next resistance ahead of 1.1000 (psychological level, static level). If the pair returns below 1.0830 and starts using this level as resistance, 1.0800 (Fibonacci 50% retracement) could be seen as interim support before 1.0700 (Fibonacci 61.8% retracement).

• The Pound Sterling could see a decisive break after a two-month consolidation depending on the outcome of the UK Spring Budget announcement.
• Measures outlined in the UK Budget could significantly impact the inflation outlook.
• The US Dollar will be guided by US private payrolls and Fed Powell’s testimony.

The Pound Sterling (GBP) strengthens slightly against the US Dollar in Wednesday’s European session ahead of the United Kingdom’s 2024 budget statement by the Chancellor of the Exchequer Jeremy Hunt. Investors will keenly watch the scope of fiscal stimulus as it could drastically impact the outlook on inflation and the interest rate outlook by the Bank of England (BoE). 

Jeremy Hunt, who will present the budget from 12:30 GMT, needs to make a balancing act between measures to keep inflation at bay and cheering the public through tax cuts, with general elections expected later this year. 

The Times reported that Jeremy Hunt is expected to announce a two-percentage-point cut to National Insurance Contributions (NICs), which should save the average earner around 450 pounds this year. Combined with last year’s cut, total savings for workers would be 900 pounds.

In the United States, investors will focus on the ADP Employment Change for February and Federal Reserve (Fed) Chair Jerome Powell’s testimony before Congress at 13:15 and 15:00 GMT, respectively. Powell’s guidance on the interest rate outlook could influence market expectations for Fed rate cuts as markets currently price in the first one in June.

Daily digest market movers: Pound Sterling edges up as US Dollar weakens

• The Pound Sterling rebounds from 1.2690 after a corrective move. The GBP/USD pair is expected to remain on its toes ahead of Chancellor Jeremy Hunt Spring budget announcement at 12:30 GMT.
• In the 2024 budget statement, Hunt will present economic forecasts, fiscal stimulus measures, and borrowing outlook, among others. Market participants will keenly focus on the fiscal scope as it could be a game changer for inflation and the interest rate outlook. Large and unfunded fiscal stimulus could deepen fears of persistent price pressures, prompting the Bank of England to maintain the hawkish rhetoric. 
• On Sunday at BBC News, Jeremy Hunt said, “We’ve always said we would only cut taxes in a way that’s responsible and prudent.” The statement indicates that the exposure of the fiscal budget to tax cuts could be limited. However,  many members of the Conservative Party want Hunt to convince the public that the economy will be out of the recession via higher stimulus offerings ahead of general elections later this year. 
• The Times reported on Tuesday that there will be an announcement of a two-percentage-point cut to NICs, which will result in an additional saving of 450 pounds for an average salaried worker in 2024. On the contrary, former Cabinet minister Priti Patel said on a broadcast that income tax cuts would be a better way to show that the government backs working households.
• On the economic data front, S&P Global/CIPS reported Tuesday that the Services PMI came in lower than expected, dropping to 53.8 from the prior reading of 54.3. The performance was downbeat; however, the index was higher than every month in the second half of 2023. The agency said, “Another solid expansion of business activity across the service sector in February adds to signs that the UK economy has turned a corner after entering a technical recession during the second half of 2023.”
• Meanwhile, the US Dollar remains on the back foot ahead of the Federal Reserve Chair Jerome Powell’s testimony before Congress at 15:00 GMT. Fed Powell is expected to reiterate that there is no urgency for rate cuts. The Fed is less likely to shift to policy normalization until it gets convinced that inflation will sustainably return to the 2% target.

Technical Analysis: Pound Sterling trades close to 1.2700

The Pound Sterling has remained confined in a tight range for the last two months. The GBP/USD pair could make a decisive move after the release of the UK’s budget. The pair hovers near the downward-sloping border of the Descending Triangle pattern formed on a daily time frame, placed from December 28 high at 1.2827. A decisive break above the same could result in a sharp upside move. The horizontal support of the aforementioned chart pattern is plotted from December 13 low near 1.2500.

Generally, a Descending Triangle pattern exhibits indecisiveness among market participants but with a nominal downside bias due to lower highs and flat lows.

The 14-period Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, indicating a sharp volatility contraction.

• GBP/JPY depreciates on news about BoJ to lift negative interest rates in March’s meeting.
• UK Chancellor Jeremy Hunt is anticipated to announce a reduction in national insurance contributions.
• Traders will observe the S&P Global/CIPS Construction PMI for February on Wednesday.

GBP/JPY depreciates to near 190.10 during the early European hours on Wednesday. The Japanese Yen (JPY) received a boost after reports from Jiji Press suggested that some attendees of the upcoming Bank of Japan (BoJ) policy meeting on March 19 may advocate for "lifting negative interest rates," which undermines the GBP/JPY cross.

BoJ Governor Kazuo Ueda has expressed skepticism about the sustainability of Japanese inflation reaching the 2% target. With the unexpected possibility of a recession, the BoJ may delay its plans for monetary policy tightening. According to Reuters, an unnamed source indicates that the BoJ is likely to maintain its forecast for a moderate economic recovery but may revise its assessment of consumption and factory output at the March meeting.

The release of data on Tuesday indicated a rebound in the Tokyo Consumer Price Index (CPI) from a 22-month low in February. This development has reignited discussions about the possibility of the Bank of Japan (BoJ) exiting the negative interest rates regime, which in turn has provided a boost to the Japanese Yen.

The Pound Sterling (GBP) strengthens in anticipation of the UK Chancellor Jeremy Hunt's Budget Report scheduled for Wednesday. Hunt is expected to present the government's fiscal agenda, detailing tax and spending plans. There is speculation that he may announce a reduction in national insurance contributions for employees, similar to the 2p reduction announced in the autumn statement.

UK’s BRC Like-For-Like Retail Sales (YoY) for February disappointed, registering a figure of 1.0%, below the anticipated 1.6%. This contrasts with the previous period's 1.4%. Later today, the S&P Global/CIPS Construction PMI for February will be observed by traders to gain insights into the UK's economic activity.

EUR/USD enjoyed a small rally on Tuesday. Economists at ING analyze the world’s most popular currency pair outlook.

Biding time ahead of the ECB

A lot is going on in FX markets today. We have some important US Job Openings data and key testimony from Fed Chair Jay Powell. Economists at ING analyze Dollar’s outlook ahead of these two key events.

Some key inputs to the Dollar story for this year

People’s Bank of China (PBOC) Governor Pan Gongsheng said on Wednesday that “there is still room for cutting RRR.”

Additional quotes

Market reaction

AUD/USD is holding higher ground near 0.6520 following the above comments, adding 0.27% on the day.

Zheng Shanjie, Head of China’s National Development and Reform Commission, said on Wednesday that the country’s “2024 growth target is in line with the economic potential.”

Additional quotes

Market reaction

The above comments are providing an extra boost to the AUD/USD upswing, with the pair rising 0.29% on the day to 0.6520, as of writing.

FX option expiries for Mar 6 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts

• 1.0760 1.2b
• 1.0800 1.8b
• 1.0850 2.8b
• 1.0865 4.1b
• 1.0950 1.8b

- USD/JPY: USD amounts                     

• 149.50 524m           
• 149.80 907m
• 150.00 684m
• 150.20 800m

- AUD/USD: AUD amounts

• 0.6500 687m

Economists at TD Securities discuss the Bank of Canada (BoC) Interest Rate Decision and its implications for the USD/CAD pair.

Base Case: Mildly Hawkish (65%)

Slightly Dovish: (30%)

Extremely Dovish (5%)

Citing sources familiar with the Bank of Japan’s (BoJ) thinking, Jiji News Agency reported on Wednesday that some BoJ members are likely to say lifting negative interest is reasonable at the March policy meeting.

No further details are provided about the same.

Market reaction

The above report put a fresh bid under the Japanese Yen, knocking USD/JPY lower to near 149.50, where it now wavers. The pair is down 0.34% on the day.

• USD/CHF edges higher to 0.8845 in Wednesday’s early Asian session. 
• The US ISM Services PMI came in weaker than expected, falling to 52.6 in February vs. 53.4 prior. 
• The Swiss CPI inflation rate registered the lowest inflation rate since October 2021.

The USD/CHF pair trades on a stronger note around the mid-0.8800s during the early European trading hours on Wednesday. The testimony of the Federal Reserve Chairman Jerome Powell at Capitol Hill later in the day will be a closely watched event. The hawkish comments from the Fed could lift the US Dollar (USD) against its rivals. At press time, USD/CHF is trading at 0.8845, gaining 0.15% on the day. 

Financial markets expect the Fed to start cutting rates in the June meeting and forecast four quarter-percentage-point cuts in total this year, according to the CME FedWatch Tools. However, the timetable is uncertain, and Fed officials want to see more data before starting to lower the interest rate. 

On Tuesday, the US ISM Services PMI came in weaker than expected, falling to 52.6 in February from 53.4 in the previous month. Meanwhile, the New Orders Index rose to 56.1 from 55.0 in the previous reading. The Employment Index declined to 48.0 versus 50.5 prior, and the Prices Paid Index dropped to 58.6 from 64.0 in the previous reading. 

Earlier this week, Switzerland’s Consumer Price Index (CPI) dipped to 1.2% YoY in February from 1.3% in January, above the market estimate of 1.1%. This figure registered the lowest inflation rate since October 2021. The Swiss National Bank (SNB) will hold its next meeting on March 21 and February and will influence SNB about interest rates. 

Here is what you need to know on Wednesday, March 6:

Following another day of choppy action in financial markets, volatility is set to rise on key data releases and macroeconomic events on Wednesday. The UK will publish the Spring budget and Eurostat will release January Retail Sales data for January. Later in the session, ADP Employment Change for February and January JOLTS Job Openings will be featured in the US economic docket. The Bank of Canada (BoC) will announce monetary policy decisions, and Federal Reserve Chairman Jerome Powell will testify before the House Financial Services Committee.

The US Dollar (USD) Index declined toward 103.50 as the benchmark 10-year US Treasury bond yield broke below 4.2% in the early American session on Tuesday. The negative shift seen in risk mood, as reflected by the bearish action in Wall Street, however, helped the USD benefit from safe-haven flows and find a foothold. Early Wednesday, the USD Index fluctuates slightly below 104.00 and the 10-year yield holds steady at around 4.15%. Meanwhile, US stock index futures trade mixed.

EUR/USD closed virtually unchanged on Tuesday and extended its sideways grind near 1.0850 into the European session on Wednesday. 

EUR/USD consolidates around mid-1.0800s ahead of US data, Fed’s Powell.

GBP/USD touched its highest level since early February at 1.2735 on Tuesday closed in positive territory for the third consecutive day. The pair stays in a consolidation phase in the European morning on Wednesday.

GBP/USD improves to near 1.2700 ahead of UK Budget Report.

The BoC is widely expected to leave its policy rate unchanged at 5% following the March meeting. USD/CAD registered small gains on Tuesday and registered its highest daily close of 2024 near 1.3600.

BoC Preview: Forecasts from seven major banks, another dovish hold.

The data from Australia showed earlier in the day that the Gross Domestic Product expanded at an annual rate of 1.5% in the fourth quarter. This reading followed the 2.1% growth recorded in the previous quarter and came in slightly better than the market expectation for an expansion of 1.4%. AUD/USD started to edge higher in the Asian trading hours and was last seen trading in positive territory above 0.6500.

Australian Dollar gains ground amid a stable US Dollar, Fed Powell’s testimony awaited.

USD/JPY came under bearish pressure and snapped a two-day winning streak on Tuesday. The pair continues to inch lower early Wednesday and was last seen trading below 150.00.

Japanese Yen remains on the front foot against USD, traders await Fed Chair Powell's testimony.

Gold staged a correction after coming in within a touching distance of a new record high above $2,040 in the American session on Tuesday. XAU/USD holds steady slightly below $2,030 in the European morning on Wednesday.

Gold price remains depressed below all-time peak, looks to Fed's Powell for fresh impetus.

• The Bank of Canada (BoC) is expected to keep its rates unchanged.
• The Canadian Dollar has met a tough resistance at around 1.3600.
• Canadian inflation remains sticky, although on a downward path.

There is widespread expectation that the Bank of Canada (BoC) will keep its policy rate steady at 5.0% for the fifth consecutive time during its upcoming policy meeting on Wednesday. The Canadian Dollar (CAD) has experienced significant depreciation against the US Dollar (USD) since the start of the new year, following a sharp rise from its November lows around 1.3900. This week, USD/CAD has maintained a consolidative theme in the upper end of the range, in line with the rest of the FX universe.

Headline inflation, tracked by the Consumer Price Index (CPI), kept its downtrend in the first month of the year even as the BOC’s Core CPI showed signs of sticky price pressures. In this context, the central bank is predicted to deliver a prudent approach, highlighting the need to assess further incoming data as well as their sustainability before deciding on any move on rates, namely the start of the easing cycle. This last view matches that of most of the bank’s G10 peers (the Federal Reserve, ECB, Bank of England, and Reserve Bank of Australia).

A hint of caution looms

Since its January gathering, the BoC is expected to maintain a conservative outlook on GDP growth. Back to that meeting, the bank anticipated a growth rate of 0.8% this year and 2.4% in 2025, aligning with their previous forecast released in October.

Regarding inflation, Governor Tiff Macklem said at his press conference in January that the surge in shelter prices is the primary driver of inflation exceeding the target, adding that the journey towards achieving 2% inflation is expected to be gradual with lingering risks. He argued that the policy interest rate of 5% is deemed necessary to further subdue inflationary pressures, while the focus of discussions regarding future policy is shifting from whether monetary policy is sufficiently restrictive to how long the current stance should be maintained.

From the latest news, fifteen out of twenty economists warned that there is a higher likelihood of the first rate cut by the Bank of Canada occurring later than initially predicted rather than sooner. Additionally, nineteen out of thirty-one economists anticipate that the Bank of Canada will reduce the overnight rate from 5.00% to 4.75% in June.

According to analysts at TD Securities: “We look for the BoC to stick to the recent script as it holds the overnight rate at 5.00% and continues to seek more evidence that inflation is on track for a sustained return to 2%. We look for the overall message to remain one of cautious optimism, and while the January CPI report skews risks towards a more dovish outcome, we do not expect the Bank will overreact to a single data point.”

When will the BoC release its monetary policy decision and how could it affect USD/CAD?

The Bank of Canada will announce its policy decision at 14:45 GMT on Wednesday, followed by the usual press conference by Governor Macklem at 15:30 GMT.

Banning surprises, any anticipated effect on the Canadian currency is expected to be minimal, if any. A cautious decision to maintain current conditions might lead to a short-term, reflexive decline in USD/CAD, although its duration and magnitude are unlikely to be significant. It's worth noting that much of the upward movement in the spot rate so far this year is attributed to the dynamics of the USD.

According to Pablo Piovano, Senior Analyst at FXStreet.com, “the gradual uptrend in USD/CAD in place since the beginning of the year appears reinforced by the recent surpass of the key 200-day SMA at 1.3479. However, this trend has so far met quite a decent barrier at the 1.3600 neighbourhood. A sustainable break above this region could motivate the pair to set sails to the November 2023 peak of 1.3898 (November 1).”

Piovano adds: “If sellers regain the upper hand, the 55-day SMA at 1.3428 should offer temporary contention prior to the weekly low of 1.3358 (January 31). Extra weakness from here could open the door to a move to the December 2023 bottom of 1.3177 (December 27).”

• GBP/USD recovers intraday losses ahead of the Budget Report from the United Kingdom on Wednesday.
• UK Chancellor Jeremy Hunt is expected to reduce national insurance contributions.
• Fed Chairman Jerome Powell will testify before the US Congress' House Financial Services Committee.

GBP/USD retraces daily losses and seems to continue its winning streak, hovering around 1.2700 during the Asian trading session before the UK Chancellor Jeremy Hunt's Budget Report on Wednesday. Hunt is slated to unveil the government's fiscal agenda, outlining tax and spending plans ahead of the general election. Speculation suggests he may reduce national insurance contributions for employees, following a 2p reduction announced in the autumn statement.

UK’s BRC Like-For-Like Retail Sales (YoY) for February fell short of expectations, posting a figure of 1.0% compared to the anticipated 1.6%. This figure contrasts with the previous period's 1.4%. Later in the day, the S&P Global/CIPS Construction PMI for February is scheduled to be released, offering further insights into the UK's economic performance.

The US Dollar Index (DXY) attempted to halt its three-day losing streak, but returned to near 103.80, driven by subdued US Treasury yields. The 2-year and 10-year yields on US Treasury bonds stand at 4.55% and 4.14%, respectively, by the press time.

Investors are closely watching Federal Reserve (Fed) Chairman Jerome Powell's testimony before the US Congress' House Financial Services Committee, scheduled for Wednesday and Thursday. However, the US Dollar (USD) encountered downward pressure following softer-than-expected data from the US ISM Services Purchasing Managers Index (PMI). Additionally, attention is on the ADP Employment Change report for February, set to be released in the North American session.

The ISM Services PMI fell to 52.6 in February, below the anticipated decrease to 53.0 from 53.4. Moreover, Factory Orders (MoM) declined by 3.6% in January, surpassing the expected drop of 2.9%. Former New York Fed economist Steven Friedman suggested that Federal Reserve policymakers are likely to remain cautious about interest rate cuts in 2024 due to growth and volatile inflation. He hinted at the possibility of fewer rate cuts than the three initially anticipated for 2024.

• USD/CAD loses ground near 1.3583 ahead of the BoC rate decision. 
• The pair maintains a bullish outlook unchanged as the pair is above the key EMA; RSI stands in bullish territory.
• The immediate resistance level will emerge at 1.3600; 1.3570 acts as an initial support level for the pair.

The USD/CAD pair remains capped under the 1.3500 barrier during the early European session on Wednesday. Market players await the Bank of Canada (BoC) interest rate decision and press conference later in the day. The Canadian central bank is widely expected to hold its key interest rate at 5.0% at its March meeting, and financial markets anticipate the first rate cut to come in around June. USD/CAD currently trades near 1.3583, down 0.08% on the day. 

According to the four-hour chart, USD/CAD keeps the bullish vibe unchanged as the pair is above 100-period Exponential Moving Averages (EMA). Additionally, the Relative Strength Index (RSI) stands in bullish territory above the 50.0 midlines, supporting the buyer for the time being. 

On the bright side, the immediate resistance level for USD/CAD will emerge near a high of February 6 and a psychological mark at 1.3600. The next hurdle is seen near a high of December 12 at 1.3618, en route to a high of November 27 at 1.3711. 

On the flip side, the confluence of the lower limit of the Bollinger Band and the 100-period EMA at 1.3570 acts as an initial support level for the pair. A bearish break below the latter will see a drop to a low of March 4 at 1.3545, followed by a low of February 26 at 1.3500. 

USD/CAD four-hour chart

• EUR/USD ticks lower on Wednesday, though the downside remains cushioned.
• Bets for a June Fed rate cut weigh o the USD and lend some support to the pair.
• Traders now look to Fed Chair Powell’s testimony ahead of the ECB on Thursday.

The EUR/USD pair extends its consolidative price move for the second straight day on Wednesday and remains confined in a narrow band around mid-1.0800s through the Asian session.

Spot prices did get a minor lift on Tuesday amid a modest US Dollar (USD) weakness led by the disappointing release of the US ISM Services PMI, though the momentum faltered near the 1.0875 region, or over a one-week high. Traders seem reluctant to place aggressive USD bearish bets and prefer to wait for more clarity about the Federal Reserve's (Fed) rate-cut path. Hence, Fed Chair Jerome Powell's congressional testimony will play a key role in influencing the USD price dynamics and provide a fresh impetus to the EUR/USD pair.

Apart from this, traders on Wednesday will take cues from the US macro data – the ADP report on private-sector employment and JOLTS Job Openings data. The focus will then shift to the European Central Bank (ECB) meeting on Thursday and the key US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday. In the meantime, reduced bets for more aggressive policy easing by the ECB might continue to underpin the shared currency and help limit any corrective decline for the EUR/USD pair.

From a technical perspective, the recent repeated failures ahead of the 1.0900 mark warrant caution for bullish traders. Hence, it will be prudent to wait for some follow-through buying beyond the said handle before traders start positioning for an extension of the EUR/USD pair's goodish recovery move from sub-1.0700 levels, or the YTD low touched on February 14. Nevertheless, the fundamental backdrop suggests that the path of least resistance for spot prices is to the upside and supports prospects for the emergence of some dip-buying.  

• NZD/USD treads water below the psychological level of 0.6100.
• The nine-day EMA at 0.6110 appears to be a key barrier, followed by the 23.6% Fibonacci retracement level at 0.6124.
• A break below the major support of 0.6050 level could lead to a revisiting of February’s low at 0.6037.

NZD/USD has recovered intraday losses and strives to move into positive territory, trading around 0.6090 during the Asian session on Wednesday. It is situated just below the immediate resistance level at the psychological barrier of 0.6100.

A decisive move above the latter could provide upward momentum for the NZD/USD pair, potentially testing key resistance levels. The first barrier lies at the nine-day Exponential Moving Average (EMA) of 0.6110, followed by the 23.6% Fibonacci retracement level at 0.6124. These levels will be closely monitored by traders for potential bullish signals.

The NZD/USD pair faces further resistance barriers as it seeks to climb higher, with key levels anticipated at 0.6150, followed by the psychological threshold of 0.6200 and February’s peak at 0.6219.

However, technical analysis using the Moving Average Convergence Divergence (MACD) suggests a prevailing downward sentiment for the NZD/USD pair. The MACD line is positioned below both the centerline and the signal line, indicating a bearish trend. Additionally, the 14-day Relative Strength Index (RSI) is below the 50 level, further confirming the bearish sentiment.

In the event of a downside movement, significant support levels for the NZD/USD pair are expected at the major support level of 0.6050, followed by February’s low at 0.6037. A breach below these levels could intensify downward pressure, potentially leading the pair toward the support region near the psychological level of 0.6000. Traders will closely monitor these levels for potential shifts in market sentiment.

NZD/USD: Daily Chart

• Gold price ticks lower on Wednesday amid some profit-taking ahead of Fed Chair Powell’s statement.
• Rising bets for a June Fed rate cut undermine the USD and lend support to the metal.
• Geopolitical risks and China’s economic woes also act as a tailwind for the XAU/USD.

Gold price (XAU/USD) edges lower during the Asian session on Wednesday and reverses a part of the previous day's positive move back closer to the all-time high reached in December 2023. The downtick could be attributed to some profit-taking amid extremely overbought conditions on the daily chart and some repositioning trade ahead of the Federal Reserve (Fed) Chair Jerome Powell's congressional testimony. Investors will closely scrutinize Powell's remarks for fresh cues about the Fed's rate-cut path, which will play a key role in influencing the US Dollar (USD) price dynamics and provide a fresh directional impetus to the non-yielding yellow metal.

Apart from this, the release of the ADP report on private-sector employment and JOLTS Job Openings data might contribute to producing some meaningful trading opportunities around the Gold price ahead of the US Nonfarm Payrolls (NFP) on Friday. In the meantime, the growing market conviction that the Fed will start cutting interest rates at the June policy meeting might continue to act as a tailwind for the XAU/USD. This, along with concerns about a slowdown in China – the world's second-largest economy – and geopolitical tensions should help limit the downside for the safe-haven precious metal, warranting some caution for aggressive bearish traders.

Daily digest market movers: Gold price might continue to draw support from Fed rate cut bets, softer risk tone

• Weaker US economic data released on Tuesday reaffirmed market expectations that the Federal Reserve will cut interest rates sooner rather than later and lifted the Gold price back closer to the all-time peak.
• The Institute for Supply Management (ISM) reported that economic activity in the services sector expanded in February for the 14th consecutive month, albeit at a slower pace amid a decline in employment.
• Separately, data published by the US Commerce Department's Census Bureau showed that total Factory Orders fell by 3.6% MoM (-2.0% YoY) in January following a 0.3% decline in the previous month.
• Apart from this, persistent geopolitical tensions and China's economic woes tempered investors' appetite for riskier assets and further contributed to driving flows towards the perceived safe-haven precious metal.
• Bulls, meanwhile, opt to lighten their positions ahead of Fed Chair Jerome Powell's congressional testimony, which will offer clarity on the interest rate path and provide a fresh impetus to the XAU/USD.
• According to the CME Group's FedWatch tool, the markets are pricing in a 70% chance that the Fed will start cutting rates by June, keeping the US Dollar bulls on the defensive and limiting the downside for the commodity.
• Traders on Wednesday will further take cues from the release of the US ADP report on private-sector employment and JOLTS Job Openings data ahead of the closely-watched Nonfarm Payrolls report on Friday.

Technical analysis: Gold price might consolidate or witness a modest pullback amid an overbought RSI on the daily chart

From a technical perspective, the Relative Strength Index (RSI) on the daily chart is already flashing overstretched conditions and warrants some caution for bullish traders. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for any further near-term appreciating move for the Gold price.

That said, any corrective slide is likely to find decent support near the $2,100 round figure. Any further decline might still be seen as a buying opportunity and remain limited near the $2,064-2,062 strong horizontal resistance breakpoint. The latter should act as a key pivotal point, which if broken decisively will suggest that the XAU/USD has topped out and shift the near-term bias in favour of bearish traders.

On the flip side, the $2,142-2,144 area, or the all-time peak retested on Tuesday, could offer some resistance and cap the upside for the Gold price. Some follow-through buying will push the yellow metal to uncharted territory and pave the way for a further near-term appreciating move, possibly towards the $2,200 psychological mark.

• Indian Rupee edges lower amid the modest USD rebound. 
• The RBI's cautious monetary policy approach should strengthen the Indian rupee over time.
• Investors await Fed Chair Powell’s testimony on Wednesday for fresh impetus. 

Indian Rupee (INR) trades on a weaker note on Wednesday as traders await fresh catalysts later in the week. The downbeat Indian Services PMI data for February exerts some selling pressure on the INR. The US ISM Services PMI fell to 52.6 in February from 53.4 in January, worse than the estimation of 53.0. The report indicated that inflationary pressures in India were coming down.

Nonetheless, the Reserve Bank of India (RBI) is likely to maintain a cautious stance on monetary policy, while the Federal Reserve (Fed) is likely to cut policy rates before the RBI. This, in turn, provides some support to the Indian Rupee (INR) and might cap the upside of USD/INR. 

Investors will closely monitor Fed Chair Powell’s testimony on Wednesday and Thursday, which offers some hints about the timing of the interest rate cuts. On Friday, the US labor market data will be released. The US Nonfarm Payrolls is estimated to add 200,000 jobs in February, while the Unemployment Rate is forecast to remain unchanged at 3.7%. 

Daily Digest Market Movers: Indian Rupee remains vulnerable amid the global factors  

• The recent HSBC Services PMI data showed the second-weakest cost pressures in the sector since August 2020 and the slowest pace increase in selling charges for two years.
• According to the global rating agency Moody’s, India’s 2024 GDP growth forecast has been raised to 6.8% from the earlier estimate of 6.1% in November 2023.
• The Reserve Bank of India’s (RBI) GDP growth estimate for FY24 is 7%, while the International Monetary Fund’s (IMF) forecast is 6.7%.
• The US ISM Services PMI slipped to 52.6 in February from 53.4 in January, weaker than the expectation of 53.0. 
• The New Orders Index improved to 56.1 from 55.0 in the previous reading. The Employment Index dropped to 48.0 versus 50.5 prior, and the Prices Paid Index declined to 58.6 from 64.0 in the previous reading. 

Technical Analysis: Indian Rupee remains confined within a longer-term range

Indian Rupee weakens on the day. USD/INR extends the range play around 82.65-83.15, a multi-month-old descending trend channel since December 8, 2023. 

The bearish outlook of USD/INR remains intact as the pair is below the 100-day Exponential Moving Average on the daily chart. It’s worth noting that the 14-day Relative Strength Index (RSI) confirms the bearish momentum as it lies below the 50.0 midlines, which supports the sellers for the time being. 

A decisive break above the crucial resistance at 83.00, portraying the 100-day EMA and a psychological round figure, USD/INR might climb to the next upside targets at the upper boundary of the descending trend channel at 83.15. Further north, the additional upside filter to watch is a high of January 2 at 83.35, en route to 84.00. 

On the downside, the initial support level is seen at the lower limit of the descending trend channel at 82.65. Any follow-through selling might set its sights on the bearish targets at a low of August 23 at 82.45, and finally a low of June 1 at 82.25.

• WTI price continues to lose ground on concerns over oil demand.
• US Factory Orders (MoM) dropped by 3.6% in January, against the expected decline of 2.9%.
• US API Weekly Crude Oil Stock reported 0.423 million barrels, contrary to the expected decrease of 2.6 million barrels.

West Texas Intermediate (WTI) oil price extends its losses for the third successive session, trading lower near $77.70 per barrel on Wednesday. Concerns about demand weigh on Crude oil prices following recent data indicating slowing economic activity in the United States, the world's largest oil consumer. However, the weaker US Dollar (USD) may provide some support to oil prices by increasing demand from buyers using other currencies.

The ISM Services PMI declined to 52.6 in February, falling short of expectations for a decrease to 53.0 from 53.4. Additionally, Factory Orders (MoM) dropped by 3.6% in January, surpassing the anticipated decline of 2.9%. Former New York Fed economist Steven Friedman noted that Federal Reserve policymakers are likely to remain cautious about cutting interest rates this year due to strong growth and volatile inflation. He expected the possibility of fewer than the three cuts anticipated for 2024.

Moreover, the prospect of major central banks maintaining higher interest rates adds pressure on global economic activities, consequently dampening oil consumption. Concerns about demand growth are further exacerbated by apprehensions surrounding the world's largest Crude importer, China. Although China has set an economic growth target of around 5% for 2024, traders remain apprehensive as robust stimulus measures are lacking to support the country's faltering economy.

The increased apprehension regarding oil demand has tempered the impact of efforts by OPEC+ countries, Russia included, to enact voluntary oil output cuts. While the Organization of the Petroleum Exporting Countries and its allies (OPEC+) have committed to extending voluntary oil output reductions amounting to 2.2 million barrels per day (bpd) into the second quarter, the impact is muted by concerns surrounding demand dynamics.

The US API Weekly Crude Oil Stock data reported build-in stockpiles of 0.423 million barrels for the week ending on March 1, contrary to market expectations of a decrease to 2.6 million barrels from the previous 8.428 million barrels. Traders will now turn their attention to the US EIA Crude Oil Stocks Change report, scheduled for release on Wednesday, with market expectations leaning towards a reduction in the number of barrels in stock of crude oil and its derivatives.

Reserve Bank of New Zealand (RBNZ) Chief Economist Conway is expressing his take on the impact of the US Federal Reserve (Fed) interest rate cuts on inflation and the New Zealand Dollar.

Key quotes (via Bloomberg)

“If the Fed, for example, did start to cut toward the end of this year and we didn’t” then “that would show up first and foremost in the exchange rate.”

“The exchange rate would start to appreciate, which would bring down inflationary pressures. So then you have to think about what are the flow-on effects of that inflation, and would that mean that we would end up cutting more quickly than what we are currently considering?”

On rate cuts, “there’s a bit of wiggle room in there for us, I think in terms of charting our own course. But I think it’s limited.”

Market reaction

At the time of writing, NZD/USD is trading almost unchanged on the day at 0.6085, unperturbed by the above comments.

• India’s Sensex is set to open lower on Wednesday after a negative close on Tuesday.
• Sensex corrected from record highs on Tuesday, undermined by global risk-aversion and poor Indian PMI data.
• US jobs data and Fed Chair Powell speech eyed after disappointing US ISM Services PMI.

The Sensex 30, one of India’s key benchmark indices, is likely to open in the red on Wednesday, having witnessed a corrective decline from record highs on Tuesday.

Global risk-aversion amid downbeat Services PMI releases from India, China and the US sapped investors’ confidence ahead of the highly-anticipated testimony by US Federal Reserve (Fed) Chair Jerome Powell and employment data.

The Bombay Stock Exchange (BSE) Sensex 30 closed nearly 0.25% lower on the day at 73,677.13 on Tuesday.

Stock market news

• Among the top gainers on Sensex were Bharti Airtel, Tata Motors, SBI Bank, Mahindra & Mahindra and Sun Pharma. Meanwhile, the main laggards were Bajaj Finance, TCS, Wipro, Infosys and Bajaj FinServ.
• IT stocks fell as CLSA downgraded TCS, HCL; reiterates sell call on Wipro, LTIMindtree.
• Bharti Airtel expanded its network footprint in Ernakulam and Idukki District under its rural enhancement project
• Markets were disappointed by an unexpected drop in the Chinese Caixin Services PMI to 52.5 in February while China’s 2024 GDP growth target set at around 5.0% also weighs on risk sentiment.
• Further, the HSBC India Services Purchasing Managers' Index, compiled by S&P Global, fell to 60.6 last month from January's six-month high of 62.0, missing estimates of 62.0.
• The US ISM said on Tuesday that its Services PMI slipped to 52.6 last month from 53.4 in January. A gauge of prices paid for inputs by businesses fell to 58.6 from an 11-month high of 64.0 in January
• The US stock markets tumbled on Tuesday, following weak US economic data.
• Markets are currently pricing in about a 63% chance that the Fed could begin easing rates in June, slightly lower than a 67% probability seen at the start of the week, according to the CME FedWatch Tool.
• It’s a holiday-shortened week for the Indian markets, as they will be closed, in observance of the Mahashivratri festival on Friday.
• The main event risks for markets this week will be the US Federal Reserve (Fed) Chair Jerome Powell’s testimony and the all-important US Nonfarm Payrolls data.
• Another event of note includes the week-long China's National People's Congress (NPC) meeting which could flag new stimulus measures.

• Australian Dollar extends losses as ASX 200 Index loses ground for third consecutive session.
• Australian GDP (QoQ) grew by 0.2%, slightly below the expected 0.3% in the fourth quarter of 2023.
• ISM Services PMI declined to 52.6 against the forecasted 53.0 for February.
• US Dollar gains ground on higher US Treasury yields.

The Australian Dollar (AUD) continues its decline for the third consecutive session on Wednesday, facing downward pressure amid a weaker equity market. The S&P/ASX 200 Index has declined for three consecutive sessions, mirroring the sell-off in technology stocks on Wall Street and lower mining stocks.

Australian Dollar remains largely unaffected by the softer-than-expected Gross Domestic Product (GDP) data. The GDP grew by 0.2% quarter-on-quarter in the fourth quarter of 2023, slightly below market expectations of no change at 0.3%. However, on a year-on-year basis, GDP expanded by 1.5%, surpassing the expected 1.4%, but falling short of the previous growth of 2.1%.

The Reserve Bank of Australia (RBA) continues to monitor the economy for signs of a slowdown, aiming to bring inflation back to target. It anticipates a further moderation in economic growth to 1.3% by June 2024.

The US Dollar Index (DXY) attempts to halt its three-day losing streak, buoyed by the recovery in US Treasury yields ahead of Federal Reserve (Fed) Chairman Jerome Powell’s testimony before the US Congress' House Financial Services Committee scheduled for Wednesday and Thursday. However, the US Dollar (USD) faces downward pressure following softer-than-expected data from the US ISM Services Purchasing Managers Index (PMI). ADP Employment Change for February will be eyed on Wednesday.

Daily Digest Market Movers: Australian Dollar depreciates on lower ASX 200

• AiG Industry Index reported a print of -14.9 for January, compared to the -27.3 prior.
• AiG Construction PMI extended its contraction, declining to -18.4 from the previous reading of -11.5.
• AiG Manufacturing PMI posted a reading of -12.6 against the previous contraction of -23.8.
• Judo Bank Services PMI surged to a ten-month high of 53.1 in February. This increase pushed the index above the 50.0 threshold, indicating expansion, and surpassed the previous reading of 49.1.
• Judo Bank Composite PMI rose to 52.1 compared to the previous 49.0, marking a nine-month high.
• Australian Current Account Balance rose to 11.8 billion in the fourth quarter of 2023, against the expected 5.6 billion and 1.3 billion prior.
• ANZ-Roy Morgan Australian Consumer Confidence index declined to 81.0, from the previous reading of 83.2. This latest figure represents the lowest level recorded thus far in 2024.
• Australia Melbourne Institute Inflation for February showed a year-over-year rise of 4.0%, lower than the previous rise of 4.6%.
• Commerzbank economists anticipate that the Reserve Bank of Australia (RBA) will delay rate cuts, providing support for the Australian Dollar (AUD) in the interim. They do not foresee an imminent slowdown in the Australian economy. However, if clear indications of a slowdown emerge, possibly signaling a recession, the RBA may adjust its monetary policy stance sooner.
• According to Matthew De Pasquale, an Economist at Judo Bank, the February Services PMI suggests that the sector has achieved a soft landing in 2023 and is now witnessing a resurgence in activity in early 2024. While the resilience in business activity bodes well for economic growth and employment, it casts doubt on the likelihood of inflation returning to target within the Reserve Bank of Australia's forecast timeline.
• Atlanta Federal Reserve (Fed) President Raphael Bostic made headlines on Monday, expressing uncertainty about achieving a soft landing. He does not foresee consecutive rate cuts when they commence but expects two 25-basis point rate cuts in 2024. While inflation is expected to return to the 2% target, Bostic believes it is premature to declare victory.
• According to the CME FedWatch Tool, there is a 4.0% probability of a 25 basis points rate cut in March, while the likelihood of cuts in May and June stands at 23.9% and 53.3%, respectively.
• ISM Services PMI declined to 52.6 in February, against the forecasted downtick to 53.0 from 53.4.
• Factory Orders (MoM) decreased by 3.6% in January, exceeding the expected fall of 2.9%.
• S&P Global Composite PMI (Feb) increased to 52.5 from the previous reading of 51.4.
• US ISM Manufacturing PMI (Feb) dropped to 47.8 from 49.1, surprisingly missing the market expectation 49.5.
• The US Michigan Consumer Sentiment Index declined to 76.9 in February, falling below the market expectation of remaining unchanged at 79.6.
• US Personal Consumption Expenditure (PCE) Price Index grew by 2.4% YoY in January, against the 2.6% prior, in line with the market expectation. The index increased by 0.3% month-over-month, against 0.1% prior.

Technical Analysis: Australian Dollar hovers below the psychological level of 0.6500

The Australian Dollar trades around 0.6490 on Wednesday. Immediate resistance is noted near the psychological level of 0.6500. A break above this level could support the AUD/USD pair to reach the 21-day Exponential Moving Average (EMA) at 0.6529, followed by the 23.6% Fibonacci retracement level at 0.6543 and the major level of 0.6550. On the downside, key support is seen at the previous week’s low at 0.6486. If breached, the pair may target the area around the major support level of 0.6450 and February’s low at 0.6442.

AUD/USD: Daily Chart

• The Japanese Yen struggles to capitalize on Tuesday’s Tokyo CPI-inspired gains.
• The BoJ policy uncertainty is holding back the JPY bulls from placing fresh bets.
• Subdued USD price action caps USD/JPY ahead of US data, Powell’s testimony.

The Japanese Yen (JPY) gained some positive traction and snapped a two-day losing streak against its American counterpart on Tuesday, though the momentum lacked strong follow-through. A rise in consumer prices in Tokyo – Japan's capital city – comes on top of speculations that another substantial round of pay hikes by Japanese firms could fuel consumer spending and demand-driven inflation. This keeps the door open for an imminent shift in the Bank of Japan's (BoJ) policy stance, which, along with the overnight slump in the US equity markets, provided a goodish lift to the safe-haven JPY.

That said, an unexpected recession in Japan raises uncertainty about the BoJ's plan to exit its ultra-easy policy sometime this year, which, in turn, keeps a lid on any further gains for the JPY. The downside, however, remains cushioned in the wake of subdued US Dollar (USD) demand, undermined by Tuesday's disappointing US macro data. Furthermore, traders seem reluctant to place aggressive directional bets and prefer to wait for more cues about the Federal Reserve's (Fed) rate-cut path. Hence, the focus will remain on Fed chair Jerome Powell's two-day congressional testimony starting this Wednesday.

Apart from this, the US macro releases – the ADP report on private-sector employment and JOLTS Job Openings data – should provide some impetus to the USD/JPY pair later during the early North American session. The market attention will then shift to the closely-watched official US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday. Heading into the key event/data risks, traders might opt to wait on the sidelines. Moreover, the mixed fundamental backdrop warrants caution before positioning for a firm near-term direction for the currency pair.

Daily Digest Market Movers: Japanese Yen bulls seem non-committed despite reviving bets for an imminent BoJ pivot

• Data released on Tuesday showed that the Tokyo CPI rebounded from a 22-month low in February and revived talks that the Bank of Japan will soon exit the negative interest rates regime, boosting the Japanese Yen.
• Moreover, investors seem convinced that another bumper pay hike this year should allow the BoJ to end its ultra-loose policy settings in the coming months, which, along with the risk-off impulse, benefitted the JPY.
• The BoJ, however, is unlikely to rush into a rate hike and might wait until the June policy meeting before tightening, especially after two consecutive quarters of economic contraction, resulting in a technical recession.
• The US Dollar is undermined by Tuesday's disappointing release of the US ISM Services PMI, which showed that growth in the non-manufacturing sector slowed a bit in February amid a decline in employment.
• The markets, however, are still pricing in the possibility of the first interest rate cut by the Federal Reserve in June, which helps limit the downfall in the US Treasury bond yields and act as a tailwind for the buck.
• Traders also seem reluctant to place aggressive directional bets and look to Fed Chair Jerome Powell's congressional testimony for fresh cues about the rate-cut path, which should provide some impetus to the USD.
• Apart from this, Wednesday's release of the ADP report on private-sector employment and JOLTS Job Openings data should contribute to producing short-term trading opportunities around the USD/JPY pair.

Technical analysis: USD/JPY extends multi-week-old rangebound move, downside potential seems limited

From a technical perspective, the USD/JPY pair has been oscillating in a familiar band over the past three weeks or so. Against the backdrop of a rally from the December swing low, this might still be categorized as a bullish consolidation phase and supports prospects for an eventual break to the upside. Moreover, oscillators on the daily chart are holding in the positive territory and validate the constructive outlook. That said, it will still be prudent to wait for acceptance above the 150.75-150.85 resistance zone, or the YTD peak touched in February, before positioning for any further appreciating move. Some follow-through buying beyond the 151.00 mark will reaffirm the positive bias and lift the USD/JPY pair to the 151.45 hurdle. The upward trajectory could extend further towards the 152.00 neighbourhood, or a multi-decade peak set in October 2022 and retested in November 2023.

On the flip side, the overnight swing low, around the 149.70 area, could protect the immediate downside ahead of the 149.20 region, or last week's trough. This is followed by the 149.00 mark, which if broken decisively might shift the near-term bias in favour of bearish traders and prompt aggressive technical selling. The subsequent downfall could drag the USD/JPY pair to the 148.30 support en route to the 148.00 mark and the 100-day Simple Moving Average (SMA), currently pegged near the 147.75 region.

Australia’s Gross Domestic Product (GDP) grew 0.2% in the fourth quarter of 2023 compared with the 0.3% growth in Q3, the Australian Bureau of Statistics (ABS) showed on Wednesday. This reading came in below expectations of 0.3%.

The annual fourth-quarter GDP expanded by 1.5%, compared with the 2.1% growth in Q3 while beating estimates of a 1.4% increase.

Market reaction

Following the Australian growth numbers, the AUD/USD is down 0.15% on the day to trade at 0.6495, as of writing.

On Wednesday, the People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.1016 as compared to the previous day's fix of 7.1027 and 7.1939 Reuters estimates.

• USD/CAD extends the rally to 1.3600 amid the rebound of USD. 
• BoC is expected to keep rates steady at 5% for the fifth time in a row. 
• The US ISM Services PMI came in at 52.6 in February vs. 53.4 prior, weaker than the expectation of 53.0.

 The USD/CAD pair edges higher to nearly 1.3600 during the early Asian trading hours on Wednesday. The Bank of Canada (BoC) will announce the interest rate decision later in the day, with no rate change expected. The pair currently trades near 1.3598, adding 0.03% on the day. 

The BoC will release its Monetary Policy Statement on Wednesday, and markets expect the Canadian central bank to keep rates steady at 5% for the fifth time in a row. Financial markets see just a 19% odds of a surprise rate cut on Wednesday at its March Italee policy meeting. Traders will take core cues from the press conference about the economic and inflation outlook.

On the USD’s front, Federal Reserve (Fed) Chair Powell’s testimony to the Senate Banking Committee on Wednesday will be a closely watched event. The dovish tone from Fed officials might exert some selling pressure on the Greenback and create a headwind for the USD/CAD pair. 

About the data, the US February ISM Services PMI declined to 52.6 from 53.4 in January, below the market consensus of 53.0. The New Orders Index improved to 56.1 from 55.0 in the previous reading. The Employment Index dropped to 48.0 versus 50.5 prior, and the Prices Paid Index declined to 58.6 from 64.0 in the previous reading. 

Moving on, traders will watch the BoC interest rate decision and the Fed Chair Powell’s testimony on Wednesday. The attention will shift to US labor market data on Friday. The US Nonfarm Payrolls is estimated to add 200,000 jobs in February, while the Unemployment Rate is forecast unchanged at 3.7%.

• GBP/USD loses ground near 1.2695 amid renewed USD demand. 
• The US Services PMI fell to 52.6 in February, worse than expected. 
• Markets expect the Bank of England (BoE) to start cutting interest rates in August. 
• Investors await the UK S&P Global Construction PMI and Fed Jerome Powell’s testimony on Wednesday. 

The GBP/USD pair holds below the 1.2700 mark during the early Asian session on Wednesday. The downtick of the pair is backed by the renewed US Dollar (USD). Later on Wednesday, the UK S&P Global Construction PMI and the Federal Reserve’s (Fed) Jerome Powell’s testimony will be in the spotlight. GBP/USD currently trades near 1.2695, losing 0.08% on the day. 

Atlanta Fed President Raphael Bostic said on Monday that he expects the first interest rate cut from the Fed, scheduled for the third quarter, will be followed by a pause in the subsequent meeting to evaluate the impact of the policy adjustment on the economy. According to the CME FedWatch Tool, financial markets have priced in 3.0% odds of a 25 basis point (bps) rate cut at the FOMC meeting in March. 

The Institute for Supply Management (ISM) survey on Tuesday reported that US Services PMI slipped to 52.6 in February from 53.4 in January. The figures came in weaker than the expectation of 53.0.

On the other hand, the UK Chancellor Jeremy Hunt spoke at the Spring budget and cut national insurance by 2p in his budget on Wednesday. Apart from this, investors anticipate the Bank of England (BoE) to start cutting interest rates in August when inflation is expected to return to the 2% target before increasing again.

Later on Wednesday, Fed Chair Jerome Powell is set to speak before Congress for his semiannual testimony on Wednesday. The US Nonfarm Payrolls (NFP) on Friday will be the highlight for this week, which is forecast to add 200,000 jobs in February. Traders will take cues from the events and find trading opportunities around the GBP/USD pair.