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• GBP/USD attracts some buyers to a fresh 2024 high above 1.2800 on the weaker USD. 
• Fed Chair Powell said interest rate cuts may not be too far off if inflation signals cooperate. 
• Investors expect the BoE to lower interest rates after the Fed, which boost the Pound Sterling. 
• The US February labor market report will be a closely watched event. 

The GBP/USD pair holds ground above the 1.2800 psychological barrier during the early Asian trading hours on Friday. The selling pressure in the US Dollar (USD) provides some support to the major pair. The highlight on Friday will be the US labor market data for February. GBP/USD currently trades around 1.2810, up 0.01% on the day. 

The Federal Reserve (Fed) Chairman Jerome Powell presents the Monetary Policy Report and responds to questions before the Senate Banking Committee on Thursday. Powell said that interest rate cuts may not be too far off if inflation signals cooperate. Fed Chair didn’t provide a precise timetable for rate cuts but noted that the day could be coming soon. Investors expect the first cut to come in June, with four reductions totaling a full percentage point by the end of 2024.

On the other hand, the financial markets anticipate that the Bank of England (BoE) to lower interest rates after the Fed. This, in turn, boosts the Pound Sterling (GBP) and acts as a tailwind for the GBP/USD pair. Investors expect the BoE to start easing in the August meeting. Nonetheless, BoE policymakers will see more evidence of inflation before making a decision. 

Moving on, traders will keep an eye on the US February Nonfarm-Payrolls, Unemployment Rate, and Average Hourly Earning, due on Friday. These events could trigger volatility in the market. Market players will take cues from the data and find trading opportunities around the GBP/USD pair. 

• NZD/USD gains ground near 0.6175 in Friday’s early Asian session. 
• US weekly Initial Jobless Claims last week came in at 217K, worse than expected. 
• RBNZ’s Conway said it might cut interest rates sooner than expected if the Fed begins easing later this year.
• The US February Nonfarm Payrolls (NFP) will be in the spotlight on Friday. 

The NZD/USD pair gains momentum above the mid-0.6100s during the early Asian session on Friday. The uptick of the pair is supported by the sell-off of the US Dollar Index (DXY) below the 103.00 mark for the first time since early February. Investors will closely monitor the highly-anticipated US Nonfarm Payrolls (NFP) due on Friday. This event could trigger volatility in the market. At press time, NZD/USD is trading at 0.6175, up 0.01% on the day.

On Thursday, the US weekly Initial Jobless Claims for the week ended March 2 held at a seasonally adjusted 217,000, worse than the market expectation of 215,000 in the previous week. Meanwhile,  Continuing Claims rose by 8,000 to 1.906M in the week ended February 24 from 1.899M prior. 

The strong labor market and hot inflation data since the beginning of the year have lowered the likelihood that the Federal Reserve (Fed) will lower interest rates in May. Fed Chair Jerome Powell said to the Senate Banking Committee on Wednesday that he thought the interest rate in the US had reached its peak and would be cut later this year.

The Reserve Bank of New Zealand (RBNZ) kept interest rates unchanged at 5.5% at its February meeting and stated that it will keep monetary conditions tight in the near term to further bring down inflation. RBNZ Chief Economist Conway said on Wednesday that the Fed rate cuts could drive up the New Zealand Dollar (NZD) and reduce inflationary pressure. Conway added that the RBNZ might cut interest rates sooner than expected if the Fed begins easing later this year.

Looking ahead, the US February labor market report will be due on Friday, including Nonfarm-Payrolls, Unemployment Rate, and Average Hourly Earnings. The NFP figure is estimated to see 200,000 jobs added to the US economy, while the unemployment rate is expected to hold steady at 3.7%. 

• EUR/JPY bounces from three-week low to 161.96, forming a 'hammer' pattern suggesting potential upside.
• Mixed technical indicators prompt caution, with the RSI nearing a bearish shift as the pair eyes the 162.04 Tenkan-Sen.
• Bears and bulls vie for control, with critical supports and resistances set around key psychological and technical marks.

On Thursday, the EUR/JPY registered a volatile session that saw the pair dive to a three-week low of 160.55. However, the losses were short-lived amidst the ECB’s hawkish hold, and the session finished with losses of 0.43%. As the Friday Asian session begins, the cross trades at 161.96, down 0.10%.

EUR/JPY Price Analysis: Technical outlook

The EUR/JPY formed a 230 pip ‘hammer,’ which indicates the pair is edged to the upside. However, mixed signals between price action and the Relative Strength Index (RSI) are closing to the 50-midline about to shift bearish, suggesting caution is warranted.

On the upside, the pair is capped by the Tenkan-Sen at 162.04, which, once cleared, could open the door to testing the March 7 high at 162.81, followed by the psychological 163.00 mark. Nevertheless, should bears keep the EUR/JPY from climbing above 162.00, the pair could extend its losses.

The first support would be the Senkou Span A at 161.67, followed by the Kijun-Sen at 161.31. Once surpassed, the 160.55 March 7 low emerges as the demand area, followed by 160.00.

EUR/JPY Price Action – Daily Chart

• Decreasing RSI on the daily chart, along with rising MACD red bars, signal an increase in selling pressure.
• On the hourly chart, there are signs of a steady positive momentum.

On Thursday, the GBP/JPY pair declined to 189.58, recording a 0.27% loss. It's noted a somewhat subdued bullish drive, with bears starting to gain ground. The negative tone is more clear on the daily chart while on the hourly chart buyers remain resilient.

On the daily chart, the GBP/JPY's Relative Strength Index (RSI) has been hovering in the positive terrain, with a decline in the latest reading, suggesting a moderation in buying pressure. Moreover, the Moving Average Convergence Divergence (MACD) also indicates a dampened bullish sentiment, as the red bars are on the rise.

GBP/JPY daily chart

Turning to the hourly chart, the RSI similarly operates within the positive zone, trending flat in its last readings. The MACD histogram, however, reflects decreasing positive momentum, as it prints declining green bars.

GBP/JPY hourly chart

Altogether, the chart seems to be pointing to weakening bullish traction and a resurgence of the bears. However, given that the pair is above the 20,100 and 200-day Simple Moving Averages (SMAs) the overall trend remains bullish.

• EUR/USD rallies on renewed Euro strength.
• Fed holds the line, says rates will come down eventually.
• Friday’s US NFP to be the key data print this week.

EUR/USD rallied into 1.0950 on Thursday, bolstered by prospects of movement from the European Central Bank (ECB) and an easing US Dollar (USD) on the back of a steady showing from Federal Reserve (Fed) Chairman Jerome Powell who reiterated most of his statements from Wednesday’s Semi-Annual Monetary Policy Report to the US Congressional House Financial Services Committee.

Thursday’s Fed outing before the Senate Banking Committee found little new material for markets as Fed Chair Powell stuck closely to familiar narrative elements. The Fed sees rate cuts coming, possibly later this year, as long as inflation continues to recede.

Daily digest market movers: EUR/USD climbs as lack of Fed news drops the Greenback

• ECB held rates as markets broadly expected.
• European inflation continues to ease, ECB President Christine Lagarde teases June rate cut.
• ECB Press Conference: Lagarde speaks on policy outlook
• ECB to reveal new framework for monetary policy implementation, possibly as soon as next week.
• Fed Chair Powell revealed little new on Thursday.
• Jerome Powell Speech: Fed Chair says removing restrictive stance of policy could begin this year
• Friday’s US Nonfarm Payrolls (NFP) expected to come in at 200K versus the previous month’s 353K, its highest print since January of 2022.
• NFP Preview: Forecasts from 10 major banks

Technical analysis: EUR/USD extends into bullish territory, but obstacles remain

EUR/USD rallied into 1.0950 on Thursday, and the pair is set for a fifth consecutive bullish close. The pair is up overt 2.3% from the last swing low into 1.0700, and EUR/USD has closed in the green for all but three of the last 17 trading days.

The last notable high set late in December at 1.1140 remains a far-off technical ceiling, but the pair is stretching away from the 200-day Simple Moving Average (SMA) at 1.0832. A pullback could see another bullish leg form up off a rising trendline.

EUR/USD hourly chart

EUR/USD daily chart

• AUD/USD climbs above 0.6600, rallying 0.82% after Powell hints at upcoming Fed rate adjustments.
• ECB's resistance to early easing contrasts with Powell's openness to rate cuts based on inflation trends.
• US labor market shows resilience with steady unemployment claims; trade deficit widens more than expected.

The Australian Dollar rallied against the US Dollar in late trading on Thursday after Fed Chair Jerome Powell's second day of testimony before the US Congress. The AUD/USD trades above the 0.6600 figure, posting gains of 0.82% as investors look for the Fed’s first rate cut.

AUD/USD strengthens amid Fed’s rate cut speculations

The financial markets' narrative revolves around when the major central banks will cut rates. On Thursday, the European Central Bank (ECB) pushed back against easing in April, sticking to its data dependence and noted that it would have more data to assess the appropriate restrictiveness of monetary policy in June.

Meanwhile, Fed Chair Jerome Powell reiterated the US central bank stance, suggesting they would begin to cut borrowing costs at some point in the year. Nevertheless, he added that it would depend on the inflation path, moving sustainably towards the Fed’s 2% goal.

Regarding the labor market, which, according to Powell, remains robust, the number of Americans filling for unemployment claims rose by 217,000, unchanged from the previous week, an exceeded estimate of 215,000.

Other data showed that the US trade deficit widened from $-64.2 billion to $-67.4 billion, exceeding forecasts, according to the US Department of Commerce.

What to watch?

The Australian economic docket is empty. In the US, February’s Nonfarm Payrolls are expected to drop from 353K to 200K, in tune with the ongoing economic slowdown. The Unemployment Rate is expected to remain unchanged at 3.7%.

AUD/USD Price Analysis: Technical outlook

the AUD/USD has risen more than 1.50% during the last two days, clearing key resistance levels on its way up. For a bullish continuation, buyers need to reclaim the January 5 low-turned resistance at 0.6640, ahead of challenging 0.6650. Further upside is seen at 0.6747, the January 5 high. On the other hand, if sellers push prices below 0.6600, look for a correction towards the confluence of the 100 and 200-day moving averages (DMAs) at 0.6560/65.

• Dow Jones gains, but thinly in easy Thursday trading.
• Fed’s Powell repeat appearance delivers little of note to investors.
• Market focus pivots to Friday’s US NFP jobs report.

The Dow Jones Industrial Average (DJIA) is up a little over a quarter of a percent on Thursday as investors take the opportunity to bid up equities and readjust their exposure after Federal Reserve (Fed) Chairman Jerome Powell’s second appearance before US government oversight committees produced little of note. Markets are now gearing up for Friday’s US Nonfarm Payrolls (NFP) jobs report.

Fed Chair Powell reiterated most of his statement from Wednesday’s appearance before the US Congressional House Financial Services Committee. Thursday’s Q&A with the Senate Banking Committee largely echoes information the market has already heard. Equities are paring away recent losses, and the DJIA seeks to reclaim the 39,000.00 handle.

Technology stocks are leading the market rebound, with the Technology Sector climbing over 2% on Thursday. The Real Estate and Financials Sectors are the market’s soft spots on the day, shedding around a third and a tenth of a percent, respectively.

Dow Jones News: Investors thankful for no Fed surprises turn to focus on US NFP 

The DJIA is on the higher side for Thursday but still lagging behind the Standard & Poor’s 500 and NASDAQ Composite indexes, which are up around 1.7% and 1.10%, respectively. Fed Chair Powell’s repeat appearance gave investors little new to chew on, with the Fed head sticking to the “eventually, but not right now” stance on when the Fed might begin cutting interest rates.

Read more: Fed Chair says removing restrictive stance of policy could begin this year

Markets are gearing up for another US NFP print on Friday, and investors expect the February jobs additions to be 200K, down from January’s 11-month peak of 353K new payroll positions.

NFP Preview: Forecasts from 10 major banks, employment continues to rise strongly

Intel Corp. (INTC) is leading the Tech Sector charge on the Dow Jones on Thursday, climbing nearly 4% to trade above $46.00 per share. On the downside, the day’s weakest performer on the Dow 30 is Amgen Inc. (AMGN), falling around 1.75% to trade below $272.00 per share after the biotech company’s board revealed a $2.25 per share dividend. The dividend is slated to be paid out on June 7. AMGN’s stock sees further discounting as Amgen currently holds a Forward P/E ratio of 14.39 compared to the industry average of 22.45 by similar companies in the same sector.

DJIA technical outlook

The Dow Jones Industrial Average (DJIA) is struggling to chalk in further ground above 38,800.00 as the index sees intraday technical rejection from a resistance zone priced in from 38,800.00 to 38,950.00. The major equity index is up for Thursday, but gains are looking capped as markets flows pull into the midrange ahead of Friday.

The DJIA is set to etch in a second day in the green after falling for two consecutive sessions, but the index is still down around 1.4% from February’s peak near 39,250.00.

DJIA 5-minute chart

• The daily chart of the NZD/JPY suggests a growing selling momentum.
• In contrast, indicators at the hourly chart show a mild recovery, with an improving RSI.
• Whilst the pair have been subject to short-term selling pressure, the dominant bullish trend still prevails.

The NZD/JPY pair was trading at 91.36 in Thursday's session, experiencing a decline of 0.18%. From a technical perspective, bearish signals are evident on the daily chart, whereas the hourly chart shows potential improvement.

On the daily chart, the Relative Strength Index (RSI) has been residing in negative territory for the past few sessions. The most recent RSI value stands at 45, indicating a slightly bearish bias daily. This bearish stance is further reinforced by the MACD, which shows rising red bars, indicating negative momentum in the pair.

NZD/JPY daily chart

However, when in the hourly chart, the RSI has been showing signs of improvement with the latest RSI level of 55 sitting in the positive territory. Despite this, the MACD is presenting green bars, indicating a steady positive momentum.

NZD/JPY hourly chart

Regarding broader technical aspects, the NZD/JPY sits below its 20-day Simple Moving Average (SMA). However, it remains above its longer-term 100 and 200-day SMAs. This suggests that the longer-term bullish trend could still remain intact despite the recent short-term selling pressure. Thus, the divergence between the daily and hourly readings may imply that the underlying bullish bias could resurface, especially if the hourly indicators continue to improve.

The continuation of the solid sentiment surrounding the risk-associated universe kept the US Dollar under extra pressure. On the central banks’ front, the ECB left its policy rates intact, while President Lagarde delivered an apathetic press conference. Next on tap comes the key US Non-farm Payrolls amidst rising bets for a Fed’s rate cut in June.

Here is what you need to know on Friday, March 8:

The greenback intensified its decline and prompted the USD Index (DXY) to break below the 103.00 support for the first time since early February. On March 8, the release of Non-farm Payrolls will take centre stage, seconded by the Unemployment Rate. In addition, the Fed’s J. Williams is due to speak.

EUR/USD rose further and printed new multi-week tops near 1.0950 after the ECB left its monetary conditions unchanged. Another revision of the GDP Growth Rate in the broader Euroland is expected at the end of the week.

GBP/USD clinched fresh 2024 highs in levels just above 1.2800 the figure amidst extra selling pressure in the Greenback. The next event of note across the Channel will be the publication of the labour market report on March 12.

USD/JPY tumbled to fresh five-week lows well south of the 148.00 support on the back of lower US yields and further speculation of the BoJ’s potential lift-off as soon as at its March meeting. A busy docket on March 8 will see Household Spending, Bank Lending, preliminary prints of the Coincident Index and the Leading Economic Index and finally the release of the Eco Watchers Survey.

AUD/USD added to Wednesday’s strong rebound and finally left behind the key 0.6600 hurdle in response to the sour sentiment around the US Dollar. The RBA’s S. Hunter is due to speak on March 11.  

Prices of WTI extended their consolidative mood near the $80.00 region per barrel amidst expectations of a Fed’s rate cut and larger crude oil imports in China during January and February.

Gold prices rose further and clinched an all-time high past the $2,160 mark per troy ounce. Its cousin Silver followed suit and flirted with the $24.50 zone per ounce, or three-month highs.

• Gold's rally propels it to an unprecedented $2,164.78, buoyed by expectations of easing policies from ECB and Fed.
• Despite ECB's hawkish hold, Lagarde's openness to June adjustments contrasts with rising US Treasury yields.
• Powell hints at easing, increasing June rate cut odds amid cooling US labor market signs.

Gold witnessed an extension of the incumbent rally, hitting an all-time high of $2,164.78 and remaining on the path toward $2,200. The US Dollar tumbled across the board as major central banks like the European Central Bank (ECB) and the Federal Reserve (Fed) prepare to ease policy.

On Thursday, the ECB decided to hold rates unchanged and delivered hawkish remarks led by the ECB President Christine Lagarde. Even though she prepared a possible policy adjustment, she disregarded a possible cut by the April meeting, though June looks possible.  Consequently, US Treasury yields rose, sparking a pullback in yellow metal prices.

Across the pond, Fed Chair Jerome Powell appeared at the US Congress and reiterated yesterday’s speech. He said they would adjust borrowing costs and added the Fed was “not far” from being able to ease policy. Although he pushed back against a cut in March, the window is open for June’s meeting. Odds for a quarter of a percent rate cut in that meeting increased.

Yields on US Treasuries tumbled throughout the week with the 10-year benchmark note rate at 4.116%, down six basis points. Besides that, soft US economic data suggests the economy isn’t faring as solidly as expected. Americans filing for unemployment claims rose as expected by 217K, though this suggests the labor market is cooling, a consequence of tighter policies.

Daily digest market movers: Gold price skyrockets as the Greenback tumbles

• The US Dollar Index tumbled 0.48% and is at 102.85, its lowest level since January 24. This is a tailwind for the non-yielding metal.
• The CME FedWatch Tool shows odds for a 25-basis-point rate cut in June are at 73%.
• On Wednesday, Minnesota Fed President Neel Kashkari said that he expects only one rate cut if it’s appropriate as economic data remains robust. He put into the table the chance of keeping rates unchanged through 2024.
• The Initial Jobless Claims for the week ending March 2 were 217K, surpassing estimates and the previous reading of 215K.
• The US Balance of Trade was $-67.4 billion, exceeding estimates of $-63.5 billion and higher than December’s $-64.2 billion.
• US economic data previously released during the week:
  • 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.
  • 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.
• 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.

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

The Gold rally is extending past the psychological $2,150 mark and hit an ATH at $2,164.78. Even though the Relative Strength Index (RSI) suggests the uptrend is overextended, it makes it difficult for sellers to step in and push prices lower. On the other hand, buyers could step in, though they need a pullback toward the $2,150 area or the $2,100 mark, before targeting the $2,200 figure.

In another scenario, if XAU/USD drops below March’s 6 low of $2,123.80, that would pave the way for a correction toward $2,100. If that level is surpassed, the next support would be the December 28 high at $2,088.48 and the February 1 high at $2,065.60.

• US Crude Oil stocks rose less than expected this week.
• China saw an uptick in Crude Oil demand.
• Market shrugs off more productive US Crude Oil well efficiency.

West Texas Intermediate (WTI) fell towards $77.60 per barrel early Thursday before a firm rally in the US trading session dragged US Crude Oil back into the high end for the day. US Crude Oil supplies rose less than expected this week, and a drawdown in US gasoline reserves is propping up hopes of demand outrunning supply.

China’s Crude Oil imports rose over 5% in January and February according to Chinese government data published on Thursday. The Lunar New Year holiday saw Chinese demand for fuel surge as holiday travel bolstered consumption.

US Crude Oil production continues to rise into record levels, and according to the Energy Information Administration (EIA), that trend is set to continue. As noted by the EIA, increasing efficiency in already-existing US Crude OIl production facilities is driving the total output volume into higher numbers despite a bearish outlook on the total number of production facilities. Counts on US oil rigs are steadily decreasing and the number of new wells being produced has been easing for over a decade. 

However, previously built or “legacy” wells continue to produce higher amounts of Crude Oil as the US energy market becomes increasingly efficient.

WTI technical outlook 

WTI’s near-term churn keeps US Crude Oil bids trapped in a rough range with the $80.00 handle acting as a technical ceiling, and Thursday’s rebound has WTI struggling to etch in chart paper above $79.00.

Daily candlesticks are stuck in a close pattern with the 200-day Simple Moving Average (SMA) near $77.90. US Crude Oil has risen around 10% from early February’s swing low into $71.50, but further topside moment has drained out of WTI.

WTI hourly chart

WTI daily chart

• A neutral outlook is seen on the daily chart.
• The hourly chart for AUD/JPY paints a different picture, showcasing mounting buying pressure.

The AUD/JPY pair is currently trading at 97.99, showcasing slight losses. The currency pair is experiencing a delicate dynamic between short-term buyers, who are starting to become more active, while on the daily chart, the outlook is mixed. However, the overall trend remains bullish as the pair hovers above key Simple Moving Averages (SMAs) of 20,100 and 200 days.

On the daily chart, the AUD/JPY pair is displaying a neutral momentum, underpinned by the Relative Strength Index (RSI) falling to negative territory this week. However, a slight increase was observed in the latest reading, suggesting a balanced market. Moreover, the fading red bars of the Moving Average Convergence Divergence (MACD) histogram indicate softening bearish momentum, casting doubt on the durability of the latest bearish move.

AUD/JPY daily chart

Taking a look at the AUD/JPY hourly chart, an interesting contrast comes into the picture. The recent positivity in the hourly Relative Strength Index (RSI), now within positive territory, underscores the mounting buying pressure at a granular level. Additionally, the rising green bars on the MACD histogram reveal escalating bullish momentum in this shorter timeframe, dispelling the cloud of bearishness cast by the daily chart.

AUD/JPY hourly chart

When combining daily and hourly views, it appears that the AUD/JPY is about to experience a period of consolidation after hitting multi-year highs in late February.

• Silver's nearly 1% gain drives it to around $24.40, as market bets on a June Federal Reserve rate cut.
• Technical indicators bullish as silver surpasses 50, 100, and 200-day DMAs, eyeing December highs.
• Despite bullish trend, potential pullback risks exist if silver dips below $24.50, with supports at $24.00 and $23.57.

Silver price advances during Thursday’s session, gains almost 1% and stays above the $24.00 figure as investors expect a rate cut by the Federal Reserve in June. Therefore, XAG/USD exchanges hands at $24.40.

XAG/USD Price Analysis: Technical outlook

After bottoming at around $22.50, the grey metal extended its gains due to fundamental news. That opened the door to clear key resistance levels seen at the 50, 100, and 200-day moving averages (DMAs). If buyers push prices above the December 28 high of $24.48, look for a leg-up toward the December 22 peak at $24.60, ahead of the $25.00 psychological figure.

On a bearish scenario, the less likely as Relative Strength Index (RSI) studies show bullish momentum, XAG/USD’s daily close below $24.50, could sponsor a pullback. The first support would be the $24.00, followed by the March 6 low of $23.57,

XAG/USD Price Action – Daily Chart

• Mexican Peso gains as February's lower-than-expected inflation fuels speculation of an upcoming Banxico rate cut.
• Mixed signals from Mexico's CPI data leave markets anticipating key Banxico decision on March 21.
• Cooling US job market and widening trade deficit add complexity to Fed's policy outlook as Powell reiterates cautious stance.

The Mexican Peso posted minuscule gains against the US Dollar after Mexico’s National Statistics Agency (INEGI) revealed that inflation cooled in February. Therefore, speculation for the Bank of Mexico's (Banxico) first rate cut looms large. This should weigh on the emerging market currency and underpin the USD/MXN pair. Hence, the exotic pair exchanges hands at 16.88, down 0.13%.

Mexico’s Consumer Price Index (CPI) for February was lower than expected on monthly and annual figures. Nevertheless, underlying CPI came as expected in MoM data, a tick higher compared to January’s reading, but inflation dipped in the annual readings. It remains to be seen whether the conditions are met for Banxico’s first rate cut at the March 21 meeting, and there’s a tranche of data to be released ahead of that date.

In the United States, the job market is cooling. Americans filing for unemployment claims rose above estimates, aligned with the previous week’s data, suggesting the labor market is getting more balanced. At the same time, the US trade deficit widened in January as imports grew more than in December.

At the time of this writing, US Fed Chair Jerome Powell is testifying before the US Senate Banking Committee on Capitol Hill. He is echoing some of Wednesday’s comments, saying that if the economy evolves as expected, the Fed will carefully remove its restrictive policy stance.

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

• Mexico’s inflation was 4.40% YoY, below estimates of 4.42% and January’s 4.88%. On a monthly basis, CPI was down from 0.11% to 0.09%.
• Excluding volatile items, the so-called Core CPI rose by 4.64% above forecasts but lower than the previous reading of 4.76%, while monthly figures were aligned with estimates of 0.49%, up from 0.40%.
• Mexican data released previously:
  • On Wednesday, Mexico’s consumer confidence index was 47.0 in February when adjusted for seasonal factors. 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%.
• 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 between 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.
• 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 private analytics poll projections for February were revealed. They expect inflation at 4.10%, core CPI at 4.06%, and the economy to grow 2.40%, unchanged from January. Regarding monetary policy, they see Banxico lowering rates to 9.50% and the USD/MXN exchange rate at 18.31, down from 18.50.
• 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.
• 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.
• The Initial Jobless Claims for the week ending March 2 were 217K, surpassing estimates and the previous reading of 215 K.
• The US Balance of Trade was $-67.4 billion, exceeding estimates of $-63.5 billion and higher than December’s $-64.2 billion.
• 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 71.9%.

Technical analysis: Mexican Peso advance continues as USD/MXN holds firm below 16.90

The USD/MXN downtrend remains intact, with sellers keeping the exchange rate below 16.90. If they push the pair below the year-to-date (YTD) low of 16.78, look for a deeper correction past last year’s 16.62 low. Initial targets are October 2015’s low of 16.32 and the 16.00 mark.

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

• Canadian Dollar mixed on the day but climbs over US Dollar.
• Canada brings its own labor figures to US NFP Friday.
• USD/CAD breaks down below 1.3500 on weaker Greenback flows.

The Canadian Dollar (CAD) found some room on the high end above the US Dollar (USD) on Thursday. The USD/CAD pair slipped below the 1.3500 handle as markets buckle down for the wait to Friday’s US Nonfarm Payrolls (NFP) jobs report.

Canada answers the US NFP print with labor figures of its own on Friday. American markets will be switching to Daylight Savings Time this weekend, while Canada will be largely absent from the economic calendar with strictly low-tier data on offer next week. However, plenty of US data will arrive to drive the markets, with February’s US Consumer Price Index (CPI) inflation slated for next Tuesday.

Daily digest market movers: Markets pull away from Greenback as investors await key data

• Canada’s MoM Building Permits jumped to a seven-month high of 13.5% in January, well above the 5.5% forecast and recovering from the previous month’s -11.5% decline (which was revised upward from -14.0%).
• US Initial Jobless Claims for the week ended March 1 printed slightly above expectations, coming in at 217K versus the forecast 215K, while the previous week saw a revision to 217K from 215K.
• Initial Jobless Claims came in above the four-week average of 212.25K.
• US Nonfarm Productivity in the fourth quarter held steady at 3.2% compared to the forecast of a tick lower to 3.1%.
• US Q4 Unit Labor Costs ticked down to 0.4% from the previous 0.5%, missing the forecasted uptick to 0.6%.
• Federal Reserve (Fed) Chairman Jerome Powell testifies before the US Senate Banking Committee in the second of a two-day Q&A about the Fed’s Semi-Annual Monetary Policy Report.
• Canada’s Unemployment Rate is expected to tick higher from 5.7% to 5.8% on Friday.
• Canadian Net Change in Employment in February is forecast to print at 20K versus the previous month’s 37.3K.
• Friday’s US NFP print is expected to come in at 200K for February, down from January’s 11-month peak of 353K.
• NFP Preview: Forecasts from 10 major banks, employment continues to rise strongly.

Appearances from multiple Federal Reserve (Fed) policymakers crossed the newswires on Thursday. Fed Chairman Jerome Powell added to earlier comments while testifying before the US Senate Banking Committee, and Cleveland Fed President Loretta Mester struck similar chords while speaking at the Virtual European Economics and Financial Center.

Key highlights:

• Powell:
  • Waiting to be more confident, we are not far from it.
  • Expects bank failures from commercial real estate, but not any big banks. Small and medium-sized banks have biggest exposure.
  • Believes Fed is in the right place on policy.
  • Could see a case for shortening maturity of Fed holdings.
  • Expects food inflation to continue flattening.

• Mester:
  • Inflation may prove persistent this year.
  • If the economy meets forecasts, rate cuts would be likely later this year.
  • The biggest mistake would be premature Fed rate cuts.
  • Fed has the luxury of holding steady while taking in more data.
  • Expects Fed rate reduction to be very gradual.

• EUR/GBP falls after Eurozone growth is expected to slow in 2024 whilst UK growth revised up. 
• ECB concludes its March policy meeting and in the UK the Chancellor delivers the spring budget. 
• The technical outlook is bearish but with important caveats. 

The Euro (EUR) is down over a tenth of a percent, trading in the 0.8540s against the Pound Sterling (GBP) on Thursday, on the back of diverging growth forecasts for the Eurozone and UK economy. 

EUR/GBP slides on diverging growth stories 

In Frankfurt, the European Central Bank (ECB) concluded its March policy meeting and announced its decision to keep interest rates unchanged. The ECB staff projections, however, indicated lower growth and inflation going forward, with the growth rate projected to average 0.6% for the region in 2024, and inflation 2.3%. This was below the 0.8% and 2.7% respectively of the ECB’s previous forecasts. 

Across the channel in Britain, the UK’s Chancellor of the Exchequer, Jeremy Hunt, was sounding more optimistic, however. In his spring budget, presented to the House of Commons, Hunt estimated the UK economy growing by 0.8% in 2024 – stronger than the 0.7% forecast by the Office for Budget Responsibility (OBR) in November. Whilst Hunt may not be an independent source the forecast revision may still have bolstered GBP in the short-term. 

The outcome appears to have been a slight depreciation of the Euro against the Pound as reflected in the EUR/GBP exchange rate. 

Technical Analysis: Possible Inverse Head and Shoulders

The long-term technical outlook for the pair is sideways with a slight bearish bias in the intermediate and short-term. 

At the same time, there are some signs on the daily chart indicating that the pair has the potential to reverse the bearish trend and recover. It is too early to say for sure, however, and confirmation from price action first would be required to alter the bearish outlook. 

Euro vs Pound Sterling: Daily chart

The first hint is that the Moving Average Convergence/ Divergence (MACD) is converging bullishly with price action, suggesting the possibility of a recovery on the horizon.

Price made a lower low in February compared to December 2023, but the MACD failed to reflect this and made a higher low on the second trough in February instead. This nonconfirmation and convergence between the indicator and the exchange rate is a bullish sign. 

Another bullish sign is that EUR/GBP may have formed a bottoming pattern called an Inverse Head and Shoulders (H&S) in January and February. This could be a sign the market may be reversing on the intermediate time frame. 

If an inverse H&S is forming then it will break higher if price confirms the pattern by pushing above what is known as “the neckline”. The neckline is drawn as a resistance line at the highs. On EUR/GBP this is at 0.8750. 

A break above the neckline could be followed by a rise of either the same length as the height of the pattern extrapolated higher, or a Fibonacci 61.8%. 

Given the confluence of resistance from the 100 and 200-day Simple Moving Averages (SMA) at around 0.8615, as well as resistance from the trendline nearby, this zone provides a potential conservative estimate for the pattern, although it may well go higher if accompanied by a major shift in fundamentals. 

• Initial Jobless Claims released by the US Department of Labor were slightly higher than expected.
• Unit Labor Costs from Q4 also came in weak.
• Markets await February’s Nonfarm Payrolls figures on Friday.

The US Dollar Index (DXY) dipped to the 103.1 level on Thursday, so far tallying a near 0.60% weekly decline. This downward movement can be attributed to the rise in Initial Jobless Claims for the week ending March 2 and the lower-than-expected Unit Labour Costs from Q4. On Friday, data on the Unemployment Rate, Average Hourly Earnings and NonFarm Payrolls from February arrive, and they will likely set the pace of the DXY in the short term. 

In case the US reports additional labor market data on Friday, hopes of rate cuts arriving soon may add further pressure to the Greenback.

Daily digest market movers: DXY sees drop in soft labor market figures

• ADP jobs report hints at fewer than anticipated jobs, but JOLTS suggests a tight labor market.
• For the week that ended on March 2, Initial Jobless Claims were mildly above the consensus at 217,000.
• Q4 Unit Labour Costs from the US were lower than anticipated, rising by 0.4% vs. the estimate of 0.6%.
•  US Treasury bond yields continue to decline with 2-year yield falling to 4.54%.
• Markets still see the start of the easing of the Federal Reserve (Fed) in June. However, Friday’s data will shape those expectations.

DXY technical analysis: DXY bears advance as buyers are nowhere to be found

The DXY's technical aspects paint a rather bearish picture. The negative slope and territory of the Relative Strength Index (RSI) indicate weakening buying momentum. Concurrently, the Moving Average Convergence Divergence (MACD) is displaying red bars, a sign that sellers are taking control of the DXY's direction.

In terms of price movement, the currency index stands below its 20,100 and 200-day Simple Moving Averages (SMAs). This position shows a broad-scale bearish outlook, as it typically signals an overall selling trend. 

The US Bureau of Labor Statistics (BLS) will release the February jobs report on Friday, March 8 at 13:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of 10 major banks regarding the upcoming employment data.

Expectations are for a 200K rise in Nonfarm Payrolls following the stronger-than-expected 353K increase recorded in January. Meanwhile, Average Hourly Earnings are expected to slow to 4.3% vs. 4.5% in January and the Unemployment Rate is set to remain steady at 3.7%.

Commerzbank

Deutsche Bank

Danske Bank

TDS

RBC Economics

NBF

SocGen

Wells Fargo

CIBC

Citi

Federal Reserve Chairman Jerome Powell testifies before the Senate Banking Committee.

Key takeaways

"If the economy does as expected, we think carefully removing the restrictive stance of policy will begin over the course of this year."

"We are working hard to develop a new rule book for supervision, will involve earlier, more effective interventions."

"Surge-pricing works both ways, in slow periods prices go down."

"We need to give companies freedom to set prices."

"The Fed is independent, and the way we do that is by staying out of political issues, like immigration policy."

"When rates are normalized, underlying housing shortage will still put upward pressure on prices."

"I believe we will have a consensus on capital proposal, we are in process of digesting comments, making appropriate changes."

"We are not at the stage of making a decision on reproposing Basel 3."

"Our job is to restore price stability, that's what we are doing."

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 Commerzbank expect the Federal Reserve (Fed) to cut rates only five times by 25 basis points (bps) each cut.

Fed to adjust key rates

As broadly expected, the ECB left policy on hold today. Very little new news for the Euro (EUR) to consume here, analysts at TD Securities say.

ECB is a bit of a nothing burger for the EUR

The Federal Reserve (Fed) is priced to start easing a month too soon. Therefore, economists at CIBC Capital Markets expect the US Dollar (USD) to remain strong in the near term.

USD to gradually depreciate through the end of 2024

• Sterling climbs, benefiting from a weaker dollar after disappointing US employment figures.
• Initial Jobless Claims rise to 217K, underscoring cooling US labor market despite Powell's openness to future policy easing.
• UK's economic growth forecasts bolster GBP, with Chancellor Hunt presenting optimistic projections for 2024 and 2025.

The Pound Sterling moderately advanced in the North American session on Thursday, as the Greenback remains on the defensive after a soft jobs report from the United States (US). Therefore, the GBP/USD trades at 1.2756, up 0.19%.

GBP/USD edges up on weak US economic data

US economic data is not helping the US Dollar, which is failing to gain traction following Federal Reserve Chair Jerome Powell's speech on Wednesday. Powell didn’t say anything dovish other than acknowledging that the Federal Reserve would ease policy “at some point this year,” though he emphasized that it would depend on data. He would speak again on Thursday at around 15:00 GMT.

In the meantime, the labor market is cooling. The Initial Jobless Claims for the week ending March 2 came at 217K, surpassing estimates and the previous reading of 215 K. Today’s data confirms Wednesday’s US Job Openings and Labor Turnover Survey (JOLTS), which revealed that there were 8.863 M job openings, which fell short of estimates and was lower than December’s 8.889M.

Other data showed that private hiring improved by 140K, less than forecasts of 150K. On Friday, the US Department of Labor will release the Nonfarm Payrolls for February, which are expected to rise by 200K, less than January’s 353K.

Across the pond, the UK’s Chancellor of the Exchequer, Jeremy Hunt, presented the spring budget to the House of Commons. Hunt stated the UK economy is estimated to grow by 0.8% in 2024 and 1.9% in 2025, stronger than the 0.7% and 1.4% growth rates forecast by the Office for Budget Responsibility (OBR) in November.

GBP/USD Price Analysis: Technical outlook

The GBP/USD resumed its uptrend following Powell’s speech and US economic data, with buyers targeting the 1.2800 figure. It should be said that Relative Strength Index (RSI) studies are bullish and not in overbought territory, an indication that the rally has legs. Above 1.2800, the next resistance would be the psychological 1.2850, followed by the 1.2900 mark. On the other hand, if sellers drag the exchange rate below the March 6 high of 1.2761, that could open the door for a correction. The next support would be today’s low at 1.2722, followed by the 1.2700 figure.

Fed Chairman Jerome Powell’s remarks stuck to the recent script from the Federal Reserve before the Congress. Economists at Rabobank analyze the expectations for rate cuts. 

First Fed policy rate cut in June

USD/CAD has declined below the 1.3500 level. Economists at ING anlayze the pair’s outlook.

USD/CAD to head towards the 1.3000 mark in the second half of 2024

Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to leave the key interest rates unchanged in March and responds to questions from the press.

Key quotes

"We have not discussed rate cuts at this meeting."

"We have just begun discussing the dialing back of our restrictive stance."

"It matters that we have more data in June."

About ECB's press conference

Following the ECB´s monetary policy decisions, the ECB President delivers a prepared statement and responds to questions from the press on the policy outlook. Her comments may influence the volatility of EUR and determine a short-term positive or negative trend. Her hawkish view is considered as positive, or bullish for the EUR, whereas her dovish view is considered as negative, or bearish.

• AUD/USD jumps to 0.6600 as the appeal for risk-sensitive assets improves.
• The US Dollar will be guided by Fed Powell’s testimony and US NFP data.
• Market expectations for Fed rate cuts in June escalate.

The AUD/USD pair rallies to the round-level resistance of 0.6600 in the early New York session on Thursday. The Aussie asset witnesses significant buying interest as the risk appetite of the market participants has increased on expectations that the Federal Reserve (Fed) will start reducing interest rates from the June policy meeting.

Considering positive overnight futures, the S&P 500 is expected to open on a bullish note, indicating an upbeat market mood. 10-year US Treasury yields have dropped to 4.07%. Increasing market expectations for a Fed rate cut in June have reduced yields on interest-bearing government bonds. The US Dollar Index (DXY) slumps to 103.20 as uncertainty deepens over United States growth momentum outlook.

The US Employment data, released on Wednesday, indicated that labor market conditions are easing. The ADP Research Institute reported that hiring by private employers was lower at 140K against expectations of 150K in February. In January, jobs posted by US employers were slightly lower at 8.863 million vs. 8.9 million in December.

Going forward, investors will get more insights into the labor market after the release of the US Nonfarm Payrolls (NFP) data for February, which will be published on Friday.

Meanwhile, investors await Federal Reserve (Fed) Chair Jerome Powell's testimony before Congress at 15:00 GMT. Investors would like to know when the Fed will start reducing interest rates.

In the Asia-Pacific region, investors await China’s inflation data for February, which will be published on Saturday. The monthly Consumer Price Index (CPI) data is forecasted to have risen by 0.4%. The annual CPI data is expected to have increased at a higher pace of 0.5% against 0.3% in January. Higher price pressures would indicate an increase in consumer spending.

It is worth noting that Australia is the leading trading partner of China, and improving China’s economic prospects strengthen the Australian Dollar.

Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to leave the key interest rates unchanged in March and responds to questions from the press.

Key quotes

"Particularly vigilant about wages and profits."

"Only underlying indicator that isn't declining is domestic inflation."

"We will not wait until we are at 2% to make a decision."

"Market expectations seem to be converging better."

"We discussed framework, my strong expectation is that it will be completed on March 13."

About ECB's press conference

Following the ECB´s monetary policy decisions, the ECB President delivers a prepared statement and responds to questions from the press on the policy outlook. Her comments may influence the volatility of EUR and determine a short-term positive or negative trend. Her hawkish view is considered as positive, or bullish for the EUR, whereas her dovish view is considered as negative, or bearish.

The Mexican Peso (MXN) is not likely to have such an easy time this year as it has had in the past two years, economists at Commerzbank say.

MXN remains supported, but the next few months are likely to be bumpier

Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to leave the key interest rates unchanged in March and responds to questions from the press.

Key quotes

"We're making progress in disinflationary process."

"We're more confident about hitting goal, but not sufficiently confident."

"Data will come in next few months, we will know a lot more in June."

"We're seeing general moderation in underlying inflation."

"It's clearly a positive signal but not enough yet."

"Broad agreement we won't change view on single data point."

"Data directionally good but not strong or durable enough."

About ECB's press conference

Following the ECB´s monetary policy decisions, the ECB President delivers a prepared statement and responds to questions from the press on the policy outlook. Her comments may influence the volatility of EUR and determine a short-term positive or negative trend. Her hawkish view is considered as positive, or bullish for the EUR, whereas her dovish view is considered as negative, or bearish.

Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to leave the key interest rates unchanged in March and responds to questions from the press.

Key quotes

"The economy remains weak."

"Surveys point to a gradual recovery over the course of this year."

"Impact of past rate increases will gradually fade." 

"Demand for labour is slowing."

"Domestic price pressures are elevated."

"There are signs that growth in wages is starting to moderate."

"Inflation is expected to continue the downward trend in coming months." 

"Longer-term inflation expectations broadly stable around 2%."

"Risks to economic growth remain tilted to the downside."

About ECB's press conference

Following the ECB´s monetary policy decisions, the ECB President delivers a prepared statement and responds to questions from the press on the policy outlook. Her comments may influence the volatility of EUR and determine a short-term positive or negative trend. Her hawkish view is considered as positive, or bullish for the EUR, whereas her dovish view is considered as negative, or bearish.

The Pound Sterling (GBP) is the second best performing G10 currency so far this year. But as the Bank of England (BoE) catches up on the dovish side with other central banks, the GBP could face more downward pressure, economists at HSBC say.

Cable likely to track sideways over the near term

• Initial Jobless Claims rose by 217K from a week earlier.
• Continuing Jobless Claims also rose above estimates.

US citizens that applied for unemployment insurance benefits increased by 217K in the week ending March 2, according to the US Department of Labor (DoL) on Thursday. The prints came in just above initial estimates (215K) and matched the previous weekly gain.

Further details of the publication revealed that the advance seasonally adjusted insured unemployment rate was 1.3% and the 4-week moving average stood at 212.25, a decrease of 0.750K from the previous week's revised average.

In addition, Continuing Claims increased by 8K to 1.906M in the week ended February 24.

Market reaction

The US Dollar Index (DXY) manages to trim some earlier losses and approaches the 103.30 region ahead of the second congressional testimony by Chair J. Powell.

• EUR/JPY plummets to 161.00 as the ECB keeps lending rates unchanged at 4.5% as expected.
• The ECB has revised down inflation forecasts and near-term growth projections.
• Investors see the BoJ exiting dovish rate stance sooner.

The EUR/JPY pair witnesses an intense sell-off, falling to 161.00 in Thursday’s early New York session. The asset drops as the European Central Bank (ECB) has kept its Main Refinancing Operations Rate unchanged at 4.5% for the fourth time in a row.

Market participants widely anticipated the ECB's decision to maintain a steady interest rate. ECB policymakers have reiterated that the central bank will not shift to policy normalization until it is confident that inflation will sustainably fall below the 2% target.

Meanwhile, the ECB has also released growth forecasts for 2025 and 2026. The ECB staff expect the economy to pick up and to grow at 1.5% in 2025 and 1.6% in 2026, supported initially by consumption and later also by investment. The ECB has revised down growth rate projections to 0.6% for the current year. The ECB expects that near-term performance will be subdued.

Projections for core inflation that exclude volatile energy and food prices have also been revised down to 2.6% for 2024, 2.1% for 2025, and 2.0% for 2026.

Going forward, investors will focus on the monetary policy statement from ECB President Christine Lagarde. Market participants want to know when the ECB is expected to start reducing interest rates.

The major reason behind a sharp sell-off in the EUR/JPY pair is the sheer strength in the Japanese Yen on firm Bank of Japan (BoJ) rate hike bets. The expectations for the BoJ exiting the negative interest rates territory rose after BoJ board member Junko Nakagawa said “prospects for the economy to achieve a positive cycle of inflation and wages are in sight.”

• New Zealand Dollar rises over 0.5% after the release of much. better-than-expected trade data from chief trading partner. 
• The data indicates a probable increase in demand for New Zealand goods from mainland China. 
• The charts are showing NZD/USD in a messy range-bound market, which is difficult to forecast. 

The New Zealand Dollar (NZD) is rallying strongly on Thursday after the release of much better-than-expected trade data from its largest export partner China. 

The NZD/USD pair is up over half a percent at time of publication, trading at 0.6161. The New Zealand Dollar versus the Euro is up 0.55%, trading at 0.5654, and NZD/GBP is trading at 0.4829, up a third of a percent. 

New Zealand Dollar enjoys stardust of China data

The New Zealand Dollar is gaining after the release of Chinese Trade Balance data, which showed an unexpected rise in the trade surplus to $125.16 billion in February, according to data from the General Administration of Customs for the People’s Republic of China, released during Thursday’s Asian session. 

Economists had expected the Trade Balance to come out at only $103.70 billion, from a lower $75.34 billion in the previous month of January. The higher surplus is a sign of economic health for the Republic of China and suggests greater prosperity, leading to increased demand for New Zealand exports, primarily milk and dairy products. This, in turn, is likely to result in an increase in demand for New Zealand’s currency from Chinese importers. 

On the horizon

There are no major releases for the New Zealand Dollar on the horizon. Electronic Card Retail Sales, the Food Price Index and Visitor Arrivals, next week, are minor data points that are unlikely to move the dial. 

The NZD/USD is likely to see volatility after the release of Nonfarm Payrolls (NFP) on Friday, however, and possibly from the second day of Federal Reserve (Fed) Chairman Jerome Powell’s testimony to lawmakers on Thursday. 

A lower-than-expected NFP result would play into the narrative of the Fed bringing forward interest rate cuts to make sure the economy has a “soft landing”. Earlier interest rate cuts would weigh on the USD, supporting more gains for NZD/USD since lower interest rates are less attractive to investors seeking a place to park their cash. 

Technical Analysis: NZD/USD in a messy range

NZD/USD is plum in the middle of a messy sideways consolidation that has lasted for over a year. Whilst it is rising at the moment, the trend is too opaque to guess suggesting little overall directional bias. 

New Zealand Dollar vs US Dollar: Daily chart

The top of the range lies far and away at 0.6400 and only a break above it would suggest a bullish trend developing. The range bottom – if one can be deduced amongst all the ups and downs – lies at around 0.5800, and it would require a break below that to ignite bears. 

During late February, the volatile move down was supported by the 100 and 200-day Simple Moving Averages (SMA) acting in concert at around 0.6090. They managed to catch the falling price and turn the market around. Since Wednesday price has bounced back strongly but it’s not enough to deduce a short-term uptrend is in play. 

If Thursday (today) and Friday (tomorrow) end as green up days, a bullish Three White Soldier Japanese candlestick pattern will have formed, suggesting a greater chance of a bullish continuation. However, we are still far from that, and given the generally sideways nature of the pair, even such a pattern might not be so reliable unless accompanied by a key shift in fundamentals. 

Economists at CIBC Capital Markets expect the AUD/USD pair to hover around the 0.6600 level over the coming months.

The RBA will maintain a mildly hawkish tone, but less so than the RBNZ

• The US Dollar extends losses, depreciating near 1% in one week.
• US Federal Reserve Chairman Jerome Powell triggered the sell-off by confirming that rate cuts will come this year. 
• The US Dollar Index snapped substantial support, increasing the selling pressure. 

The US Dollar (USD) extends losses on Thursday for a fifth consecutive trading session after downbeat macroeconomic data and increasing expectations of interest-rate cuts by the Federal Reserve (Fed) later this year. On Wednesday, US Fed Chairman Jerome Powell said in his semi-annual testimony before Congress that cuts will be coming this year. Markets sold the Greenback in the idea that the interest rate differential against other currencies will start to close or might even flip as other central banks are expected to take longer to lower rates compared with the Fed. . 

On the economic calendar front, some light data is ahead for Thursday, which will probably be overshadowed by the European Central Bank (ECB) meeting and a speech by ECB President Christine Lagarde. The tone and wording of the speech will be vital as the Euro could advance further against the Greenback should the ECB say that it will maintain current rate levels, in contrast with Fed’s Powell confirmation that cuts are coming. The weekly US Jobless Claims data could have a bit of impact, though not much market movements are expected on the back of it. Meanwhile, Fed’s Powell will head to the US Senate for a second day of testimony. 

Daily digest market movers: Rate differential moves market again

• The US economic calendar kicks off at 12:30 GMT with the Challenger Job Cuts report for February. The previous number was 82,307.
• The European Central Bank rate decision will take place at 13:15 GMT, and Lagarde’s  press conference will start at 13:45 GMT. 
• Weekly Jobless Claims are next, at 13:30 GMT:
  • Initial Claims are expected to remain stable at 215,000.
  • Continuing Claims are expected to fall from 1.905 million to 1.885 million. 
• US trade data for January is set to be released as well at 13:30 GMT:
  • The Goods and Services Trade deficit is set to widen to $63.5 billion from $62.2 billion.
  • The Goods Trade deficit stood at $92.2 billion a month earlier, with no forecast available.
  • Unit Labor Costs data for Q4, also due at 13:30 GMT, are seen accelerating slightly  from 0.5% to 0.6%. Nonfarm Productivity for Q4 is seen heading from 3.2% to 3.1%.
• US Federal Reserve Chairman Jerome Powell heads back to Capitol Hill for a second day of testimony before Congress. Comments are expected to come in around 15:00 GMT. 
• Fed Cleveland President Loretta Mester will speak near 16:30 GMT. 
• Equities are in the red after the blurry rate hike communication from the Bank of Japan (BoJ). BoJ members are unable to form a consensus on when to hike, which sees the Yen soaring and in its inverse correlation triggers selling in stock markets. All equity markets are down, from Japan over China and across Europe. Even the US futures are in red territory. 
• According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the March 20 meeting are at 95%, while chances of a rate cut stand at 5%. 
• The benchmark 10-year US Treasury Note trades around 4.11%, the lowest level in over a week. 

US Dollar Index Technical Analysis: Open the flood gates

The US Dollar Index (DXY) is trading at a crucial level, just above 103.00 and near the 55-day Simple Moving Average (SMA) at 103.28. Once that level gives way, it opens the door to a nosedive all the way to 100.00. With the rate differential gap starting to close, the risk is that the gap could flip in favor of other major currencies, which could mean longer-term weakness ahead for the Greenback. 

On the upside, there is a long road to recovery for the Greenback, with the first reclaiming ground at the 200-day SMA near 103.73. Once broken through, the 100-day SMA is popping up at 103.85, so a bit of a double cap in that region. Depending on the catalyst that pushes the DXY back further upwards, 104.60 remains the key level on the topside. 

It is a bit of an abyss for the DXY where it hangs at the moment, dangling around the 55-day SMA at 103.28. Should it move further away, 103.00 is the first thin line in the sand, though rather look for 101.75, which bears some pivotal relevance. Once through there, the road is open for another leg lower to 100.61, the low of 2023.

Egypt’s central bank hiked rates by 600 bps causing the Egyptian Pound (EGP) to drop almost 40% versus the US Dollar (USD) to the 50.00 mark. Economists at ING analyze USD/EGP outlook.

Key reforms point to Egyptian Pound stabilisation

Gold rises to a new record as US Fed rate cut bets help drive the prices up. Economists at MUFG Bank analyze the yellow metal’s outlook. 

Macro funds were a new force of buying in Gold’s rally

The US Dollar (USD) suffered a sharp decline on Wednesday. Antje Praefcke, FX Analyst at Commerzbank, analyzes Greenback’s outlook. 

More and more cracks?

• WTI Oil fails to consolidate above $80 for a third time in two weeks. 
• Oil traders are surprised to see a very light auction ahead for the US Strategic Oil Reserve.
• The US Dollar Index sinks for a fifth straight day ahead of the ECB decision. 

Oil prices are retreating in both Brent and WTI on Thursday after markets were surprised by the small auction from the US  Energy Department. The US is seeking only 3 million barrels, which, seeing its own production volume, is a very minor amount. A similar story is being portrayed in the European Gas market, where sluggish demand puts downward pressure on prices as the European Union needs less Gas to restock its reserves ahead of the next heating season. 

Meanwhile, the US Dollar Index (DXY) has printed a new monthly low after US Federal Reserve Chairman Jerome Powell confirmed to the US Congress that rate cuts are coming this year. That confirmation for markets was enough to narrow the rate differential gap between the US Dollar and other currencies, which led to a substantial depreciation of the Greenback against most of its peers. With a light data calendar ahead, markets will be rather focused on the other side of the Atlantic, with the European Central Bank (ECB) holding its rate decision and press release with traders looking for similar clues on rate cut timing for the Euro. 

Crude Oil (WTI) trades at $78.10 per barrel, and Brent Oil trades at $82.08 per barrel at the time of writing. 

Oil news and market movers: US Strategic Reserves well equipped

• The US Energy Department already bought 26.28 million barrels this year for its Strategic Oil Reserves and is, for now, only looking to buy another 3 million barrels by September. This could point to tepid demand expectations for the coming months. 
• BP Plc. is set to reduce the crude production at its German refineries in 2025. The main reason is the falling demand in the region. 
• The Energy Information Administration (EIA) released on Wednesday its recent stockpile numbers, with Crude inventories printing another build by 1.37 million barrels. 
• Several tanker companies are reporting substantially more bookings from China. The tankers are carrying crude from the Persian Gulf. The move coincides with the pickup in leisure and travelling by plane in China and Asia overall. 

Oil Technical Analysis: US needs less than expected

Oil prices have difficulties to break above $80.This happens despite the improvement in sentiment and the fact that Russia is reducing its Oil supply, instead of limiting exports of certain oil derivatives. However, expectations for markets have always been that the US would need far more supply to restock its Strategic Oil Reserves, which now turns out not to be the case and creates a bit of headwinds in the current bullish stance of traders. 

Oil bulls still clearly see more upside potential. The break above $80 though does not seem to be taking place that quickly, and $85 is offering quite quickly as the next cap. Further up, $86.90 quickly follows suit before targeting $89.64 and $90.00 as top levels. 

On the downside, the 200-day Simple Moving average (SMA) near $77.89 is the first point of contact to provide some support. Quite close behind are the 100-day and the 55-day SMAs near $75.90 and $75.17, respectively. Add the pivotal level near $75.27, and it looks like the downside is very limited and well-equipped to resist the selling pressure. 

US WTI Crude Oil: Daily Chart

Economists at ING analyze EUR/USD outlook going into the March ECB meeting.

EUR/USD should remain a Dollar story

• USD/JPY falls vertically to 148.00 as hawkish BoJ bets strengthen the Japanese Yen outlook.
• BoJ Nakagawa said a positive cycle for wages and inflation seems now achievable.
• Higher expectations for Fed rate cuts in June have built downward pressure on the US Dollar.

The USD/JPY plummets to 148.00 in Thursday’s European session as expectations for the Bank of Japan (BoJ) lifting negative interest rates have escalated. Increased bets for the BoJ turning to policy normalization due to improved wage outlook have strengthened the Japanese Yen.

Japan’s administration and some BoJ policymakers admit they expect a positive wage cycle, which could keep inflation steadily above the 2% target. In the Asian session, BoJ board member Junko Nakagawa said, “Prospects for the economy to achieve a positive cycle of inflation and wages are in sight.”

On Wednesday, Jiji News Agency reported that some members of the Bank of Japan’s (BoJ) Monetary Policy Committee (MPC) would favor an exit from an ultra-loose monetary policy stance at the March policy meeting. Also, BoJ board member Hajime Takata said last week that the central bank’s goal of maintaining inflation above 2% on a sustainable basis is ‘finally in sight’.

On the contrary, BoJ Governor Kazuo Ueda believes that the central bank will not abandon its ultra-dovish policy stance until he is convinced that inflation will sustainably remain above 2%.

Meanwhile, weak US Dollar has also resulted in downward pressure on the USD/JPY pair. The US Dollar Index (DXY) hovers near a monthly low of around 103.20 as expectations for the Federal Reserve (Fed) reducing interest rates in the June policy meeting have increased. In the semi-annual report to Congress, Fed Chair Jerome Powell said, "It will likely be appropriate to begin dialing back policy restraint at some point this year."

Going forward, the US Dollar will dance to the tunes of the United States Nonfarm Payrolls (NFP) for February, which will be published on Friday. The economic data will provide fresh insights into the labor market conditions.

• Negative comments from Chairman Powell have weakened the US Dollar. 
• USD/CAD is selling-off to a key trendline and is threatening to break below it.
• The MACD indicator, useful in a range bound market, is issuing a sell signal. 

The USD/CAD is down a tenth of a percent on Thursday in line with widespread US Dollar (USD) weakness, as traders digest Federal Reserve (Fed) Chairman Jerome Powell’s comments to US lawmakers on the Wednesday, during the first day of his testimony to Congress. 

The Greenback sold-off steeply on Wednesday after Powell affirmed that the Fed was planning to cut interest rates subject to inflation falling closer to target. USD/CAD was particularly hit as the Fed’s stance contrasts with the hawkish hold adopted by the Bank of Canada (BoC) at its last meeting. 

The technical picture on the daily chart of USD/CAD is showing some interesting developments in line with the fundamentals. 

US Dollar vs Canadian Dollar: Daily chart

The chart above shows how the pair has been in a long sideways market since the end of 2022. 

The Moving Average Convergence/ Divergence (MACD) momentum indicator is especially useful to analyze range bound asset prices, as it tends to accurately mirror and predict the key turning points of prices oscillating in a range. This can be seen to be the case in the chart above. 

More recently USD/CAD has been rising up in the range since the turn at the end of 2023. Although it has not yet reached the range highs, the MACD has just crossed below the signal line, giving a sell signal and suggesting the trend may be about to change. The steep sell-off on Wednesday adds credence to the idea the market may be reversing. 

US Dollar vs Canadian Dollar: Daily chart

Price has fallen to the level of a key trendline for the 2024 rally. This is likely to be an important make-or-break support zone for the pair. The strength of the preceding day’s sell-off adds evidence to the possibility price could penetrate the trendline and begin moving south. 

A decisive break below the trendline – characterized by a long red candle that closes well below the trendline and near its low of the day, for example – would be the confirmation signal of a reversal of the 2024 uptrend and a probable new phase of weakness, targeting the range lows in lower 1.30s. If the pair prints three down days in a row and also breaks below the trendline that would be another confirmation of a “decisive break”. 

US Dollar vs Canadian Dollar: Daily chart

The possible evolution of a bearish Wedge price pattern in the move higher, as shown on the chart above, is another potentially negative motif. Such a pattern recommends a breakdown to a target equal to its widest point, extrapolated from the breakout point lower. This gives a target of roughly 1.3350. 

In the event that the trendline manages to hold, however, the pair may continue its slow upside grind, targeting the top of the wedge at roughly 1.3640 initially, and on a breakout higher, the top of the long-term range at 1.3900. 

Federal Reserve Chairman Jerome Powell presented the Monetary Policy Report and responded to questions before the House Financial Services Committee on Wednesday. Powell will appear before the Senate Banking Committee in the second day of his semi-annual testimony at 15:00 GMT on Thursday.

Powell told the House on Wednesday that incoming data will determine when they will start reducing the policy rate and repeated that they would like to have greater confidence inflation will move sustainably toward 2% before taking action. Commenting on the economic outlook, Powell noted that there was no reason to think the economy was "in or facing a significant near-term risk of recession."

The benchmark 10-year US Treasury bond yield declined to 4.1% in the American session on Wednesday and the US Dollar (USD) suffered large losses against its major rivals. According to the CME FedWatch Tool, markets are currently pricing in a nearly 90% probability of a rate cut in June.

This section below covers highlights from Fed Chairman Powell's prepared remarks and the Q&A session on the first day of his testimony. 

Main takeaways from Powell's Q&A session in the US House

"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."

"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."

"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."

"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."

Highlights from Powell's prepared statement

"It will likely be appropriate to begin dialing back policy restraint at some point this year."

"Policy rate likely at its peak for this cycle."

"The Economic outlook is uncertain; ongoing progress to 2% inflation is not assured."

"We will carefully assess incoming data, evolving outlook, balance of risks."

"Risks to both cutting rates too early and too fast as well as too late or too little."

"The labor market remains relatively tight."

"Fed’s restrictive stance is putting downward pressure on economic activity and inflation."

"Labor demand still exceeds supply; nominal wage growth has been easing."

"Risks to achieving dual goals moving into better balance."

"While inflation is still above 2%, it has eased substantially."

"The economy has made considerable progress over past year on dual mandate."

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."

• Gold price trades close to all-time highs near $2,160 as expectations for a Fed rate cut in June increase.
• The US Dollar has weakened as recent data doubts the strong momentum of US growth.
• Investors will keenly focus on the US NFP data for fresh impetus.

Gold price (XAU/USD) extends its winning streak for the seventh trading session on Thursday. The precious metal refreshes all-time highs near $2,160 amid multiple tailwinds. Firm expectations for a rate-cut decision by the Federal Reserve (Fed) in the June monetary policy meeting have strengthened the appeal for Gold. Improved safe-haven demand due to uncertain global financial conditions has also strengthened demand for Gold. 

A sharp decline in US Treasury yields has reduced the opportunity cost of holding investments in non-yielding assets, such as Gold. 10-year US Treasury yields are slightly up by 0.2% at 4.11% in Thursday’s European session, but have dropped sharply from 4.22% in the last two trading sessions. 

Yields on interest-bearing government bonds slumped as Fed Chair Jerome Powell said in his semi-annual report presented to Congress that rate cuts would be appropriate sometime this year, even though he also said it is not assured that inflation will return sustainably to 2%.

The US Dollar Index (DXY) has dropped to a monthly low near 103.20 amid uncertainty over the United States economic outlook. Going forward, the US Dollar will be guided by the US Nonfarm Payrolls (NFP) data for February, which will be published on Friday. Also, Fed Powell will testify before Congress for the second day at 15:00 GMT.

Daily digest market movers: Gold price capitalizes as Fed rate-cut hopes improve

• Gold price prints a fresh all-time high around $2,160 as market expectations for Federal Reserve rate cuts in the June meeting increase, and global growth prospects remain uncertain. The CME Fedwatch tool shows that the chances for a 25 basis points (bp) rate cut for June’s policy meeting have increased to 60% from 58% on Wednesday.
• The expectations for a rate-cut decision in the June meeting were affirmed despite Fed chair Jerome Powell reiterating that rate cuts are appropriate only if they get convinced that inflation will sustainably return to the 2% target. Powell didn’t offer any specific timing for rate cuts but said, "It will likely be appropriate to begin dialing back policy restraint at some point this year."
• Contrary to market expectations, Minneapolis Federal Reserve Bank President Neel Kashkari delivered a more hawkish stance on Wednesday. Kashkari said that he expects only one rate cut is appropriate due to robust economic data since the start of the year. In December’s economic projections, Kashkari penciled two rate cuts for 2024.
• Meanwhile, uncertainty over global growth has also improved the appeal of Gold. Jerome Powell warned in his prepared remarks that the economic outlook is uncertain. A few economic indicators signal that the United States economy is losing momentum. The Institute of Supply Management (ISM) PMIs reported a decline in growth in February. In the same period, hiring by private employers was lower at 140K against expectations of 150K. In January, jobs posted by US employers were slightly lower at 8.863 million against the 8.9 million in December.
• Across the globe, the outlook of the United Kingdom and the Eurozone economy is uncertain. The former fell into a technical recession in the second half of 2023, while the latter remained stagnant in the same period. On the Asian side, the Chinese economy has vowed to transform its growth model and set an ambitious growth target of 5% for 2024. However, economists have voiced doubts about the chances of reaching this target due to weak retail domestic demand, disinflation, and the real-estate crisis.

Technical Analysis: Gold price trades close to all-time high near $2,161.60

Gold price prints a fresh all-time high at $2,161.60 after breaking above the horizontal resistance plotted from December 4 high near $2,145. The Gold price is trading in unchartered territory and is expected to remain broadly bullish. However, a corrective move in the asset cannot be ruled out as momentum oscillators have reached overbought territory. On the downside, December 4 high near $2,145 and December 28 high at $2,088 will be major support levels.

The 14-period Relative Strength Index (RSI) reaches 82.00, the highest level in the last two years, indicating that fresh bids should not be considered. 

EUR/USD has surged above 1.0900 ahead of today’s ECB policy meeting. Economists at MUFG Bank analyze Euro’s outlook.

Will the ECB indicate that rate cuts are moving closer?

USD/JPY has fallen back below the 148.00 level. Economists at Société Générale analyze the pair’s outlook.

Yen shorts are finally being cut back for the BoJ meeting

• The European Central Bank is set to announce its policy decision and projections on Thursday. 
• ECB’s Lagarde will hold a press conference and volatility for EUR/USD is expected. 
• The short-term uptrend continues to struggle higher even as positive Eurozone data contrasts with US results.  

EUR/USD is trading in the 1.0890s on Thursday prior to a fanfare event for the FX markets this week – the European Central Bank (ECB) policy announcement, scheduled for 13:15 GMT. 

The EUR/USD pair made it all the way up to ding-a-ling 1.0900 on Wednesday after the release of better-than-expected German trade and Eurozone Retail Sales data boosted the Single Currency. Now traders appear to be in wait-and-see mode prior to hearing the results of the ECB’s roundtable. 

Euro could weaken on talk of conditions for a cut

It is highly unlikely the gentlefolk of Frankfurt will decide to cut the ECB’s main refinancing operations rate from 4.5% at the meeting. Current market expectations are for the first interest rate cut to come in June. 

According to analysts at ING bank, what is more likely is that the bank will clarify the economic conditions that would prompt a cut. Such talk will probably have a slightly negative impact on EUR/USD, though it is not seen breaking below 1.0800. 

“President Lagarde may start laying out the conditions for easing policy. That may be perceived as slightly dovish, meaning a softer EUR and a re-flattening of the money market curve are tangible risks.” Says Benjamin Schroeder, Senior Rates Strategist at ING. 

February inflation data for the Eurozone showed a decline to 2.6% from 2.8%. This is not far from the ECB’s 2.0% target, however, core inflation remains sticky at 3.1%, notes FXStreet’s Yohay Elam in his preview, suggesting persistent base effects will act as a restraint on the ECB. At the same time, flatlining growth in the region is a compelling counter-reason for the ECB to lower interest rates. 

On the Horizon

Apart from the ECB meeting, the next big event for the pair is US Nonfarm Payroll data out on Friday at 13:30 GMT. If the jobs data is soft, in line with the ADP and JOLTS Job Openings data from earlier in the week, it could weigh on the USD and give EUR/USD another boost. 

Also on Friday is the final estimate of Eurozone GDP data out at 10:00 GMT, with no-change in the run of sclerotic growth foreseen for the fourth quarter. If the revision tips into negative territory it will make the argument for a rate cut sooner all the more compelling, weighing on EUR/USD. 

Technical Analysis: Euro’s slow ascent continues

Turning to the charts, the EUR/USD continues its laborious climb from February’s 1.06 base-camp lows. In the short term, the peaks and troughs are rising, suggesting a tentative uptrend is in progress that slightly favors bulls. The longer-term trend is sideways and difficult to forecast. 

Euro vs US Dollar: 4-hour chart

The daily chart below shows buyers seem to have now successfully slain key resistance from the 50-day Simple Moving Average (SMA) at 1.0859 (orange line) and established a tentative foothold above. This is a bullish sign, reinforcing the validity of the short-term uptrend.  

Euro vs US Dollar: 1-day chart

The next target to the upside now is the 61.8% Fibonacci retracement of the early 2024 decline, at 1.0972. A break above that level would further encourage confidence from bulls. 

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

 The latest Bank of England (BoE) Decision Maker Panel (DMP) survey for February showed on Thursday that UK firms expect their output price inflation to decline over the next year.

Key takeaways

Market reaction

The Pound Sterling is little affected by the UK businesses’ falling inflation expectations, as GBP/USD gains 0.18% on the day to trade at 1.2750, as of writing.

Today, the European Central Bank (ECB) is set to announce its latest policy decision. But we are unlikely to hear much more than what many ECB members told us back in February, Antje Praefcke, FX Analyst at Commerzbank, says.

A bit of disappointment is possible

With speculation building again about a BoJ hike, EUR/JPY should move lower, analysts at ING say.

Time for EUR/JPY to move lower

• AUD/JPY loses ground on hawkish comments from BoJ officials on Thursday.
• Traders await the Japanese GDP Annualized due on Friday to gain further cues on the economy.
• Aussie Trade Balance (MoM) increased to 11,027M in February, lower than the expected 11,500M.

AUD/JPY plunges to near 97.50 during the European session on Thursday, retracing its recent gains registered in the previous session. The AUD/JPY cross lost ground after Bank of Japan (BoJ) Governor Kazuo Ueda mentioned that it is "fully possible to seek an exit from stimulus while striving to achieve the 2% inflation target." He also said that the extent of rate hikes would be determined by the situation at the time if negative rates are lifted.

BoJ policy board member Junko Nakagawa highlighted that the possibility of achieving the 2% inflation target sustainably is gradually improving. Nakagawa stressed the importance of scrutinizing data analysis duration for policy decisions. Additionally, Tuesday's data showed a rebound in the Tokyo Consumer Price Index (CPI) from a 22-month low in February. This has reignited discussions about the Bank of Japan potentially exiting the negative interest rates regime, thus bolstering the Japanese Yen against other currencies.

On the other side, the Australian Trade Balance showed that the surplus fell short of expected. The monthly data showed that the surplus increased to 11,027M in February, from 10,743M prior. The market expectation was an increase to 11,500M. Aussie Imports (MoM) increased by 1.3% in February, from the previous figure of 4.8%. Monthly Exports grew by 1.6%, exceeding the previous rise of 1.5%.

Australia's economy expanded less than expected in the fourth quarter, as shown by the latest Gross Domestic Product (GDP) data released on Wednesday. These softer numbers support the case for the Reserve Bank of Australia (RBA) to adopt an easing bias, which weakens the Australian Dollar (AUD) and, consequently, undermines the AUD/JPY cross.

Additionally, the positive Chinese Trade Balance data likely boosted the Australian Dollar, given Australia's close business ties with China. Additionally, the optimistic outlook for the Chinese economy could hinder the Japanese economy, thereby weakening the JPY and restricting losses in the AUD/JPY cross. China's Trade Balance for February surged to $125.16 billion, surpassing expectations of $103.7 billion and the previous figure of $75.34 billion. Additionally, year-on-year imports and exports increased by 3.5% and 7.1%, respectively. Japanese GDP Annualized for the fourth quarter of 2023 will be eyed on Friday.

The Loonie benefited significantly from Wednesday's BoC decision with USD/CAD nosediving a full figure lower to 1.3500. Economists at Commerzbank analyze the pair’s outlook.

Fairly hawkish decision

• USD/MXN continues its losing streak that began on February 29.
• US Dollar struggles on risk-on sentiment amid lower US Treasury yields.
• Mexican Headline inflation is anticipated to decelerate in February.

USD/MXN faces downward pressure due to the subdued US Dollar (USD), which could be attributed to the risk-on sentiment amid subdued US Treasury yields. The pair inches lower to near 16.90 during the European session on Thursday, with lower US Dollar Index (DXY) trading lower around 103.30.

US Treasury yields faced challenges as Federal Reserve (Fed) Chair Jerome Powell commented on rate cuts possibility at some point in 2024 during his testimony before the House Financial Services Committee. However, Powell stated that it is not suitable to lower the target range until it has attained a higher level of assurance that inflation is consistently progressing towards the 2% target.

Weaker employment data from the United States contributed to the downward pressure on the US Dollar (USD), which in turn, acts as a headwind for the USD/MXN pair. February's US ADP Employment Change was reported at 140K, slightly below the anticipated 150K but an improvement from the previous 111K.

On the Mexican side, INEGI released Consumer Confidence for February, showing a slight decrease to 47.1 from 47.6. The seasonally adjusted also came lower at 47.0 from 47.1. Traders await February’s inflation data scheduled to be released on Thursday. Headline Inflation is expected to slow down, with an expected increase of 0.11%, compared to the previous rise of 0.89%.

Economists at CIBC Capital Markets anticipate that the USD/MXN pair will rise as the Bank of Mexico (Banxico) is poised to diverge from the Federal Reserve by implementing a rate cut this month. Given the lack of adjustments in the trajectory toward achieving the 3% inflation target and Banxico's indication of a potential rate cut in March, they maintain their projection for successive rate reductions beginning next month, with an overnight rate forecast of 9.25% by year-end.

• AUD/USD attracts buyers for the second straight day amid subdued US Dollar price action.
• Bets that the Fed will start cutting interest rates in June keep the USD bulls on the defensive.
• The upbeat Chinese Trade Balance also lend support, though a softer risk tone might cap gains.

The AUD/USD pair gains positive traction for the second successive day on Thursday and climbs back closer to the 0.6600 mark during the early part of the European session. Bulls are now looking to build on the momentum beyond a technically significant 200-day Simple Moving Average (SMA) and the recent recovery from the 0.6480-0.6475 area, or a multi-week low touched on Tuesday amid subdued US Dollar (USD) demand.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, languishes near its lowest level since early February amid the uncertainty over the Federal Reserve's (Fed) rate cut path. In fact, Fed Chair Jerome Powell, during his semi-annual congressional testimony on Wednesday, told lawmakers that the central bank will cut interest rates this year if there is more evidence that inflation is falling to the 2% target. Minneapolis Fed President Neel Kashkari, however, downplayed bets for a more aggressive policy easing and said that he may reduce the number of cuts in 2024, to only one in the wake of the incoming stronger macro data.

The mixed signals, meanwhile, limit the downside for the US Treasury bond yields, which, along with a generally weaker tone around the equity markets, could act as a tailwind for the safe-haven Greenback. That said, China's stronger export and import growth in the January-February period, to a larger extent, helps offset the negative factor and supports prospects for a further near-term appreciating move for the AUD/USD pair. Traders now look to Fed Chair Powell's second day of testimony, which, along with the US Weekly Initial Jobless Claims and Trade Balance data, will drive the USD, though the focus remains glued to the US NFP report on Friday.

The US Dollar (USD) softened across the board on Wednesday. Economists at ING analyze Greenback’s outlook.

NFP data will be the bigger catalyst for a move

• EUR/GBP drops to 0.8550 as Euro drops amid caution ahead of the ECB’s policy decision.
• The ECB is expected to keep the key lending rate at 4.5%.
• The Pound Sterling strengths on UK’s stubborn inflation outlook.

The EUR/GBP pair slumps toward 0.8550 in the European session on Thursday amid uncertainty ahead of the European Central Bank's (ECB) interest rate decision, which will be announced at 13:15 GMT.

The ECB is widely anticipated to keep its Main Refinancing Operations Rate unchanged at 4.5% for the fourth time in a row and the Rate on Deposit Facility at 4%.

While an unchanged interest rate decision from the ECB is widely anticipated, investors would like to know when the central bank will start reducing key lending rates. In an interview with Bloomberg in January on the sidelines of the World Economic Forum (WEF) Annual Meeting in Davos, ECB President Christine Lagarde commented that rate cuts are likely by the Summer. However, she warned that risks of premature rate cuts would be higher than holding them for longer at their current level.

ECB Lagarde might reiterate that rate cuts are likely after getting evidence that inflation will return to the 2% target. Lagarde is expected to warn that some inflation indicators are still higher than the level the central bank wants to see them. The uncertainty over inflation remains high as the slowdown in wage growth is lower than the level, which should be consistent with achieving price stability.

In the shared continent, the Pound Sterling strengthens on sticky United Kingdom’s inflation outlook, allowing the Bank of England (BoE) to keep interest rates higher for longer than other central banks in the Group of Seven (G-7) economies. The EUR/GBP pair will be guided by action in the Euro as the UK economic calendar is light this week.

Economists at ING analyze the Pound Sterling (GBP) outlook after Chancellor of the Exchequer Jeremy Hunt delivered the Spring Budget.

Budget has not moved the needle

• GBP/JPY extends its downward trajectory, declining by approximately 0.90% on Thursday.
• BoJ Governor Ueda emphasized the possibility of pursuing an exit from stimulus measures while achieving the 2% inflation target.
• UK Chancellor of the Exchequer Jeremy Hunt mentioned the BoE's commitment to keeping rates high to curb inflation.

GBP/JPY plunges to near 188.40 during the European session on Thursday, extending its losing streak for the third day. The hawkish comments from the Bank of Japan’s (BoJ) officials reinforced the Japanese Yen (JPY), which in turn, undermines the GBP/JPY cross.

Bank of Japan (BoJ) Governor Kazuo Ueda stated on Thursday that it is "fully possible to seek an exit from stimulus while striving to achieve the 2% inflation target." He emphasized considering rolling back the massive stimulus program once a positive cycle of wages and inflation is confirmed. The extent of rate hikes would be determined by the situation at the time if negative rates are lifted.

Additionally, Bank of Japan (BoJ) policy board member Junko Nakagawa shared his perspective on the Japanese inflation and economic outlook. He mentioned that the prospects of sustainably achieving the 2% inflation target are gradually increasing. Nakagawa emphasized the need to scrutinize whether and for how long data should be analyzed in deciding a policy shift. He also clarified that there is no preset idea on whether to end Yield Curve Control (YCC) in tandem with the exit from negative rates.

On Wednesday, UK Chancellor of the Exchequer Jeremy Hunt presented the Spring Budget to Parliament. The Pound Sterling (GBP) likely gained from positive sentiment surrounding the United Kingdom’s (UK) budget, especially as the Office for Budget Responsibility (OBR) projects stronger economic growth. According to the OBR, the UK economy is expected to grow by 0.8% in 2024 and 1.9% in 2025, surpassing the growth rates forecasted in November of 0.7% and 1.4%, respectively.

Hunt's acknowledgment of the challenges confronting the UK economy, such as the financial crisis, the pandemic, and the energy crisis stemming from the conflict in Europe, likely influenced market sentiment. His mention of the central bank's commitment to keeping interest rates high to address inflation concerns may have provided support for the British Pound (GBP). As a result, the GBP/JPY cross might have experienced a slowdown in its losses.

• The Pound Sterling remains upbeat amid hopes that the Fed will cut interest rates before the Bank of England.
• The UK budget for 2024 was broadly in line with market expectations.
• Easing US labor market conditions have built downward pressure on the US Dollar.

The Pound Sterling (GBP) exhibits strength against the US Dollar in Thursday’s London session as investors hope that the Bank of England (BoE) will start reducing interest rates after the Federal Reserve (Fed). Market expectations for a rate cut by the BoE and the Fed are for June and August policy meetings, respectively.

Apart from expectations that the BoE will choose to cut interest rates later than other central banks of the Group of Seven economies (G-7), the announcement of the scope of fiscal stimulus in the United Kingdom’s budget for 2024 has also strengthened the Pound Sterling.

The Chancellor of the Exchequer, Jeremy Hunt, said on Wednesday that the UK administration intends to reduce public sector net debt and budgetary deficit while supporting economic growth.  

Going forward, the UK’s Average Earnings data for the three months ending in January, which will be published early next week, will provide a fresh outlook on inflation. Wage growth has remained at a level that almost doubles what is required to be consistent for the return of inflation to 2%. Strong wage growth momentum would dampen market expectations for rate cuts, which could benefit the Pound Sterling.

Daily digest market movers: Pound Sterling extends winning spell

• The Pound Sterling edges higher above 1.2700 as investors seek fresh insights on the interest rate outlook.
• The measures outlined in the United Kingdom budget 2024, announced by the Chancellor of the Exchequer Jeremy Hunt, were majorly aligned with expectations. Hunt announced a two-percentage cut to National Insurance Contributions (NICs), saving the average earner around 450 pounds this year. Combined with last year’s cut, total savings for workers would be 900 pounds.
• Jeremy Hunt announced that the OBR had raised growth forecasts for 2024 and 2025 to 0.9% and 1.9%, respectively. The administration intends to increase defense spending to 2.5% of the Gross Domestic Product (GDP). Capital gains tax on property sales will be lowered to 24% from 28%. The government has extended the freeze on fuel and alcohol duty.
• Going forward, market expectations for rate cuts by the Bank of England will guide the Pound Sterling. Investors expect the BoE to start reducing interest rates in August. However, BoE policymakers have said that they want evidence of inflation returning sustainably to 2% before taking such a decision.
• On the other side of the Atlantic, the United States ADP Employment Change for February and JOLTS Job Openings data for January pointed to slowing labor demand. This has built downside pressure on the US Dollar. The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, has revisited a monthly low near 103.20.
• The uncertainty over the timing of the Federal Reserve rate cut continues, as Chair Jerome Powell said, "We do not expect it will be appropriate to reduce policy rates until we have greater confidence in inflation moving sustainably toward 2%," in his prepared statement in the semi-annual monetary policy report delivered to Congress.

Technical Analysis: Pound Sterling trades close to monthly high

Pound Sterling continues its winning spell for the fifth trading session on Thursday. The GBP/USD pair strengthens after an upside break of the Descending Triangle pattern formed on a daily time frame. The pair has printed a fresh monthly high near 1.2760. An upside break of the aforementioned chart pattern indicates that ticks forming on the upside will be wider than average. The 20-day Exponential Moving Average (EMA) near 1.2670 has tilted towards the north, indicating that the near-term appeal is strong.

The 14-period Relative Strength Index (RSI) climbs above 60.00 for the first time in over two months. This indicates a strong upside momentum ahead as overbought and divergence signals are absent.

• The European Central Bank is set to hold interest rates for the fourth meeting in a row.
• ECB President Christine Lagarde could dismiss early rate cut expectations once again.
• The Euro’s reaction is likely to depend on the ECB’s updated forecasts and Lagarde’s speech. 

The European Central Bank (ECB) is widely expected to keep the key interest rates on hold for the fourth policy meeting in a row, in a decision that will be published on Thursday at 13:15 GMT.

The policy announcements will be accompanied by the updated economic projections, followed by ECB President Christine Lagarde’s press conference at 13:45 GMT.

What to expect from the European Central Bank interest rate decision?

Economists are expecting the ECB to keep its three key interest rates steady, with the benchmark Deposit Rate at 4.0%, following the conclusion of the Governing Council’s March monetary policy meeting.

The central bank is likely to downgrade its forecasts for inflation and growth in its staff projections. The economic forecasts unveiled at the December meeting showed that the ECB estimated GDP to expand by 0.8% in 2024 from 1% previously estimated. Headline inflation was expected to average 2.7% in 2024 and 2.1% in 2025. The Bank had previously forecast price growth of 3.2% in 2024 and 2.1% in 2025.

Data published by Eurostat showed on Friday that the Eurozone annual Harmonised Index of Consumer Prices (HICP) rose 2.6% in February, cooling from a 2.8% increase in January but above the expected 2.5% growth in the reported period. The Core HICP inflation declined to 3.1% YoY in February, compared with January’s 3.3% reading while beating expectations of 2.9%.

Further, ECB’s closely watched indicator of Euro area’s negotiated wages grew at an annual rate of 4.50% in Q4 2023, slowing from a 4.70% increase in the third quarter.

With inflationary pressures easing and many ECB policymakers making it clear they want to see a further deceleration in wage growth, money markets are pricing in an interest rate cut for the June meeting, as against the previous expectations of a September rate cut.

Speaking in a Bloomberg interview on the sidelines of the World Economic Forum (WEF) Annual Meeting in Davos, back in January, ECB President Christine Lagarde said, “it is likely that we will cut rates by the summer.”

However, when asked about the timing of cuts at the post-policy meeting press conference a week later, Lagarde said that the central bank was “data dependent, not time dependent.”

That said, Lagarde is likely to maintain its hawkish bias until the Eurozone indicator of negotiated wage rate for the first quarter is released on May 23.

Testifying before the European Parliament last month, President Lagarde said "our restrictive monetary policy stance, the ensuing strong decline in headline inflation and firmly anchored longer-term inflation expectations act as a safeguard against a sustained wage-price spiral.”

How could the ECB meeting impact EUR/USD?

In a scenario where Lagarde sticks to the Bank’s “data-dependent approach”, pushing back against expectations of an early policy pivot, the Euro is likely to attract a strong bid against the US Dollar, as the markets would perceive it as a hawkish hold.

However, a dovish shift in Lagarde’s tone, acknowledging softening wage pressures, could take the wind out of the recent EUR/USD recovery.  

Her comments will hold the key for determining the timing and scope of future interest rate cuts, significantly impacting the value of the main currency pair.

Dhwani Mehta, FXStreet’s Senior Analyst, offers a brief technical outlook for trading the Euro on the ECB policy announcements: “The EUR/USD pair broke through the critical 50-day Simple Moving Average (SMA) at 1.0857 on Wednesday, opening the door for further upside. The 14-day Relative Strength Index (RSI) holds comfortable above the midline, backing the pair’s bullish potential.”

“Acceptance above the 1.0950 level is likely to refuel the upside momentum toward the 1.1000 psychological level. EUR buyers will then aim for the 1.1050 key level. Conversely, the initial demand area is seen around the 50-day SMA at 1.0857, below which a test of the 1.0835 support will be inevitable. That level is the confluence of the 100- and 200-day SMAs. Further south, the 21-day SMA at 1.0811 could come to the rescue of EUR/USD,” Dhwani adds.

Thursday's FX focus will be on the ECB. Here economists at ING see some downside risks to the Euro (EUR).

Three things to watch at the ECB meeting

Economists at TD Securities discuss the European Central Bank (ECB) Interest Rate Decision and their implications for the EUR/USD pair.

Base Case (65%)

Hawkish (20%)

Dovish (15%)

FX option expiries for Mar 7 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts

• 1.0775 1.9b
• 1.0810 2.5b

- GBP/USD: GBP amounts     

• 1.2485 2.1b
• 1.2650 538m

- USD/JPY: USD amounts                     

• 149.50 1.1b             
• 150.00 858m
• 150.25 1.6b
• 150.50 1.1b

- AUD/USD: AUD amounts

• 0.6520 1.1b

- USD/CAD: USD amounts       

• 1.3605 1b
• 1.3635 1.1b

• NZD/USD extends gains on risk appetite after Fed Powell commented on rate cuts.
• CME FedWatch Tool indicates a 55.8% probability of a 25 bps rate cut in June.
• New Zealand Dollar might have received support from upbeat Chinese Trade data.

NZD/USD continues to advance for a second consecutive session on Thursday, largely driven by weakness in the US dollar (USD) amid improved risk appetite. The pair clings to near 0.6150 during the early European session on Thursday.

Federal Reserve (Fed) Chair Jerome Powell indicated that the central bank could initiate rate cuts at some point in 2024 during his testimony before the House Financial Services Committee. However, Powell stated that the Federal Open Market Committee (FOMC) does not anticipate it being suitable to lower the target range until it has attained a higher level of assurance that inflation is consistently progressing towards the 2% target.

The US Dollar Index (DXY) loses ground for the fifth successive session despite stable US Treasury yields. The DXY trades lower to near 103.23 with 2-year and 10-year yields on US bond coupons standing at 4.56% and 4.11%, respectively. CME FedWatch Tool suggests a 5.0% probability of a 25 basis points rate cut in March, while the likelihood of cuts in May and June stands at 19.3% and 55.8%, respectively.

The antipodean currency New Zealand Dollar (NZD) could have cheered the positive bias surrounding the Chinese economy, highlighted by the Trade Balance data. China's Trade Balance for February surged to $125.16 billion, surpassing expectations of $103.7 billion and the previous figure of $75.34 billion. Additionally, year-on-year imports and exports increased by 3.5% and 7.1%, respectively.

Paul Conway, the chief economist at the Reserve Bank of New Zealand (RBNZ), hinted that the central bank could move to cut interest rates sooner than previously expected should the US Federal Reserve opt for monetary easing later in the year. However, RBNZ Governor Adrian Orr's recent affirmation of the central bank's intention to commence policy normalization in 2025. Orr cited persistent inflationary pressures as grounds for maintaining a restrictive monetary policy stance in the near term.

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

The European Central Bank (ECB) will announce monetary policy decisions and publish the revised macroeconomic projections on Thursday. The US economic docket will feature weekly Initial Jobless Claims, Q4 Unit Labor Costs and January Trade Balance data. Later in the American session, Federal Reserve Chairman Jerome Powell will testify before the Senate Banking Committee.

ECB Preview: Forecasts from 10 major banks, not on the verge of cutting yet, June moving into focus.

The US Dollar (USD) came under selling pressure during Fed Chairman Powell's testimony before the House Financial Services Committee. Powell said that incoming data will determine when they will start reducing the policy rate. Commenting on the economic outlook, Powell noted that there was no reason to think the economy was in or facing a significant near-term risk of recession. The USD Index fell 0.4% on Wednesday and registered losses for the fourth consecutive day. At the time of press, the index was trading modestly lower on the day at around 103.20. Meanwhile, the benchmark 10-year US Treasury bond yield holds steady near 4.1% after losing more than 1% on Wednesday. 

EUR/USD gathered bullish momentum and reached its highest level since late January above 1.0900 on Wednesday. The ECB is widely expected to leave key rates unchanged following the March policy meeting. ECB President Christine Lagarde comments on the policy outlook and respond to questions in a press conference starting at 13:45 GMT.

EUR/USD holds steady near 1.0900 ahead of ECB interest rate decision.

Bank of Japan (BoJ) policy board member Junko Nakagawa said early Thursday that prospects of sustainably achieving the 2% inflation were gradually heightening and argued that they didn't necessarily need to wait for all small, mid-sized firms' wage talks outcome in deciding when to end negative rates. Additionally, BoJ Governor Kazuo Ueda noted that it was “fully possible to seek exit from stimulus while striving to achieve 2% inflation target.” USD/JPY declined sharply during during the Asian trading hours on Thursday and was last seen trading slightly above 148.00, where it was down nearly 1% on a daily basis.

Japanese Yen clings to strong intraday gains near multi-week top against USD.

The data from China showed early Thursday that the trade surplus widened to $125.16 billion in January-February period from $75.34 billion. After rising 0.9% on Wednesday, AUD/USD continued to edge higher early Thursday and was last seen trading near 0.6600.

Australian Dollar extends gains after upbeat Chinese Trade data.

GBP/USD struggles to gather bullish momentum during the European trading hours on Wednesday as investors assessed the details of the Sprint Budget. Later in the day, the broad-based USD weakness helped the pair push higher. Early Thursday, GBP/USD consolidates its weekly gains slightly below 1.2750.

UK's Hunt: Will extend energy windfall tax by 1 year.

Gold extended its rally as US Treasury bond yields edged lower and touched a new all-time high of $2,161 early Thursday. XAU/USD stages a technical correction and holds steady at around $2.155 in the European morning.

Gold price prolongs its strong uptrend, hits fresh record high on rate cut bets.

Germany’s Factory Orders slumped in January, the official data published by the Federal Statistics Office showed Tuesday, suggesting that the German manufacturing sector has returned to contraction.

On a monthly basis, contracts for goods ‘Made in Germany’ plunged 11.3%, as against a 12.0% jump reported in December, missing the forecasts of -6.0%.

• EUR/JPY attracts some sellers near 161.80 in Thursday’s European early session. 
• BoJ’s Ueda said it’s possible to exit from its ultra-easy monetary policy while striving to achieve a 2% inflation target.
• The ECB is anticipated to maintain the rate steady at a record 4.0%.
• The ECB Interest Rate decision and press conference will be the highlights on Thursday. 

The EUR/JPY cross drops below the 162.00 psychological mark during the early European session on Thursday. Investors will closely monitor the European Central Bank (ECB) Interest Rate decision later in the day. The ECB is expected to hold its policy rate steady at a record 4.0%. After the March policy meeting, market players will shift their focus to the ECB press conference, which might offer some hints about inflation and the economic outlook. At press time, EUR/JPY is trading at 161.80, losing 0.62% on the day. 

On Thursday, Bank of Japan (BoJ) policymaker Junko Nakagawa said that the prospects of sustainably achieving a 2% inflation target are gradually heightening and the central bank will gather information to make monetary policy decisions despite risks and uncertainty. Additionally, BoJ Governor Kazuo Ueda stated that it is fully possible to seek an exit from stimulus while striving to achieve a 2% inflation target. That being said, the hawkish comments from the Japanese authorities provide some support to the Japanese Yen (JPY) and exert some selling pressure on the EUR/JPY cross. 

The ECB is unlikely to cut borrowing rates before its June meeting, given that crucial wage data will only be available in May. Furthermore, the policymakers would take a cautious approach and wait for more evidence of inflation data before considering changing the policy stance. Financial markets anticipate the ECB to wait until June for a first-rate cut of 25 basis points (bps). However, the number of rate cuts will depend on the incoming data.

The ECB Interest Rate decision and press conference will be in the spotlight on Thursday, and this event might trigger volatility in the market. On Friday, the Japanese Labor Cash Earnings, Gross Domestic Product Annualized (GDP) for Q4, and Current Account will be released. 

Bank of Japan (BoJ) Governor Kazuo Ueda said on Thursday, it is “fully possible to seek exit from stimulus while striving to achieve 2% inflation target.”

Additional comments

Market reaction

USD/JPY was last seen trading 0.50% lower at 148.60.

Bank of Japan (BoJ) policy board member Junko Nakagawa is back on the wires on Thursday, via Reuters, expressing his take on the Japanese inflation and economic outlook.

Key quotes

Market reaction

USD/JPY is off the lows but remains 0.53% lower on the day near 148.55, at the time of writing.

• USD/CHF loses momentum above 0.8800 in Thursday’s early European session. 
• Fed Chair Powell thought the US rate had reached its peak and it would be cut later this year.
• The fall in Swiss inflation data prompted speculation that the SNB could cut interest rates later this month. 
• Investors await the Swiss Unemployment Rate, US weekly initial Jobless Claims ahead of Fed Chair Powell's testimony on Thursday. 

The USD/CHF pair finds some support above the 0.8800 mark during the early European session on Thursday. The pair trades in negative territory for the third consecutive day as the rising prospects of a rate cut by the Fed in June drag the US dollar (USD) lower. USD/CHF currently trades near 0.8810, down 0.12% on the day. 

The Federal Reserve (Fed) Jerome Powell told the House Financial Services Committee on Wednesday that he thought the interest rate in the US had reached its peak and it would be cut later this year. However, Powell highlighted that the economic outlook is still uncertain. San Francisco Fed President Mary Daly stated that Fed policy is in a good position, but holding rates high for too long could hurt the economy. 

On the Swiss front, the Swiss CPI inflation data fell in February to its lowest level since October 2021, raising speculation that the Swiss National Bank (SNB) could lower the interest rates later this month. 

However, the downside of Swiss Franc (CHF) might be limited due to the escalating geopolitical tensions in the Middle East. Early Wednesday, US officials reported 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. This, in turn, might boost traditional safe-haven assets like CHF and weigh on the USD/CHF pair. 

Market players will monitor Switzerland’s February Unemployment Rate and the US weekly Initial Jobless Claims, due on Thursday. Additionally, the second testimony by Fed Chair Powell and the Fed’s Mester speech will be closely watched. Traders will find trading opportunities around the USD/CHF pair. 

• USD/CAD attracts some intraday sellers on Thursday amid a weaker US Dollar.
• The BoC’s hawkish pause underpins the CAD and contributes to the downtick.
• Rebounding US bond yields and a softer risk tone to limit further USD losses.

The USD/CAD pair struggles to capitalize on the Asian session uptick on Thursday and languishes near the 1.3500 psychological mark, just above a one-week low touched the previous day.

Mixed signals on the Federal Reserve's (Fed) rate-cut path fail to assist the US Dollar (USD) to register any meaningful recovery from its lowest level since early February, which, in turn, is seen acting as a headwind for the USD/CAD pair. Fed Chair Jerome Powell told US lawmakers on Wednesday that the central bank will cut interest rates this year, though wants to see more evidence that inflation is falling to the 2% target. Minneapolis Fed President Neel Kashkari, however, downplayed speculations about more aggressive policy easing and said that he may reduce the number of cuts this year, possibly to only one in the wake of the incoming stronger US macro data.

The Canadian Dollar (CAD), on the other hand, continues to draw support from a hawkish hold from the Bank of Canada (BoC) on Wednesday. Meanwhile, subdued Crude Oil prices do little to provide any meaningful impetus to the commodity-linked Loonie. Furthermore, the yield on the benchmark 10-year US government bond rebounds from a one-month low touched on Wednesday, which, along with a generally softer tone around the equity markets, acts as a tailwind for the safe-haven buck. This, in turn, should help limit any meaningful downside for the USD/CAD pair and warrants some caution before positioning for any further depreciating move.

Moving ahead, investors now look to Fed Chair Powell's second day of testimony before the Senate Banking Committee. Apart from this, traders will take cues from Thursday's economic docket – featuring the US Weekly Initial Jobless Claims, and Trade Balance figures from the US and Canada. This, along with the US bond yields and the broader risk sentiment, will influence the USD demand and provide some impetus to the USD/CAD pair.

• WTI price retreats after posting recent gains on downbeat US Crude stockpiles.
• US EIA Crude Oil Stocks Change built by 1.367 million barrels, lower than the expected 2.116 million barrels.
• Saudi Arabia decided to raise prices of its primary grade for Asian buyers.
• Chinese Trade Balance USD rose to $125.16B in February, from $75.34B prior.

West Texas Intermediate (WTI) oil price edges lower to near $78.50 per barrel during the Asian trading hours on Thursday. However, Crude oil prices surged on Wednesday after US oil stockpiles rose less than expected for the week ending on March 1.

US Energy Information Administration (EIA) showed that Crude Oil Stocks Change rose for a sixth week in a row, building by 1.367 million barrels against the expected 2.116 million barrels and 4.199 million barrels prior. Additionally, US API Weekly Crude Oil Stock data reported build-in stockpiles of 0.423 million barrels, contrary to market expectations of a decrease to 2.6 million barrels from the previous 8.428 million barrels.

Additionally, the prices of Crude oil received support for a weaker US Dollar (USD) after the Federal Reserve (Fed) Chair Jerome Powell’s indication that the central bank is prepared to lower borrowing costs "at some point this year," during his testimony before the House Financial Services Committee.

Also, the positive sentiment surrounding the Chinese economy, highlighted by the Trade Balance data, may buoy oil prices. China's Trade Balance for February surged to $125.16 billion, surpassing expectations of $103.7 billion and the previous figure of $75.34 billion. Additionally, year-on-year imports and exports increased by 3.5% and 7.1%, respectively.

Saudi Arabia's unexpected decision to raise prices of its primary grade for buyers in Asia comes after the Organization of the Petroleum Exporting Countries and its allies (OPEC+) decided to extend voluntary oil output cuts of 2.2 million barrels per day (bpd) into the second quarter.

• Gold price stands tall near an all-time peak amid bets for a June Fed rate cut.
• The USD languishes near a month low and acts as a tailwind for the commodity.
• Geopolitical risks also benefit the safe-haven metal, though bulls seem reluctant.
• Overbought RSI on the daily chart warrants caution ahead of the NFP release on Friday.

Gold price (XAU/USD) built on its recent breakout momentum and touched a fresh all-time peak, around the $2,152 region on Wednesday amid expectations for an imminent shift in the Federal Reserve's (Fed) policy stance. The bets were reaffirmed by Fed Chair Jerome Powell's comments, saying that the central bank expects to reduce its benchmark interest rate later this year. Minneapolis Fed President Neel Kashkari, however, downplays speculations about more aggressive policy easing and assists the US Dollar (USD) to stall its recent decline to its lowest level since early February. This, in turn, keeps a lid on any further gains for the precious metal amid extremely overstretched conditions on the daily chart.

Meanwhile, any meaningful corrective decline in the Gold price seems elusive amid persistent geopolitical tensions. Apart from this, concerns about a slowdown in China – the world's second-largest economy – might continue to act as a tailwind for the safe-haven precious metal. Investors might also prefer to wait on the sidelines ahead of Powell's second day of testimony before the Senate Banking Committee and the release of the closely-watched US monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report on Friday. In the meantime, traders on Thursday might take cues from the US Weekly Initial Jobless Claims data for short-term impetus later during the North American session.

Daily Digest Market Movers: Gold price remains well supported by Fed rate cut bets

• Bets that the Federal Reserve will start cutting interest rates in June, along with geopolitical risks and China's economic woes, lifted the non-yielding Gold price to a record high on Wednesday.
• Fed Chair Jerome Powell told US lawmakers on Wednesday that if the economy evolves broadly as expected, the central bank can be expected to cut its benchmark interest rates later this year.
• The current market pricing indicates a greater chance, around 70% for a June Fed rate cut, which dragged the yield on the 10-year US government bond to a one-month low on Wednesday.
• Minneapolis Fed President Neel Kashkari said that he had penciled in two rate cuts in 2024 and added that he may reduce the number of cuts amid the incoming stronger macro data.
• The uncertainty about the Fed's rate-cut path, meanwhile, keeps the US Dollar close to its lowest level since early February and should continue to act as a tailwind for the precious metal.
• Three crew members were killed in a Houthi missile strike on a cargo ship off southern Yemen, marking the first fatalities since the Iran-backed group's attacks on vessels in the Red Sea.
• This raises the risk of a further escalation of military actions in the Middle East and supports prospects for an extension of the well-established short-term uptrend for the safe-haven commodity.
• Traders now look to the release of the US Weekly Initial Jobless Claims data and Fed Chair Jerome Powell's second day of testimony for some impetus ahead of the US NFP report on Friday.

Technical Analysis: Gold price needs to consolidate amid overbought RSI before the next leg up

From a technical perspective, the recent breakout through the $2,064-2,062 strong horizontal barrier and a subsequent strength beyond the $2,100 mark was seen as a key trigger for bullish traders. That said, the Relative Strength Index (RSI) on the daily chart is already flashing extremely overbought conditions. This makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for an extension of the well-established short-term uptrend. Nevertheless, the Gold price seems poised to climb further towards the $2,200 psychological mark.

On the flip side, corrective declines might now be seen as a buying opportunity and remain limited near the $2,100 round figure. The said handle should act as a pivotal point, which if broken decisively could drag the Gold price back towards the $2,064-2,062 resistance-turned-support. Some follow-through selling will suggest that the XAU/USD has formed a near-term top and possibly shift the bias in favour of bearish traders.

China's Trade Balance for February, in Chinese Yuan terms, came in at CNY 890.8 billion, widening from the previous figure of CNY540.90 billion.

Exports rose sharply by  7.1%% YoY during the reported month vs. 2.3% seen in January and 1.9% expected. The country’s imports, meanwhile, climbed 3.5% YoY in February vs. 0.2% booked previously.

In US Dollar terms, China’s trade surplus rose to $125.16 billion in February versus the +103.7 billion expected and +75.34 billion previous.

FX implications

The AUD/USD pair reacts little to the upbeat data and sticks to its modest intraday gains just below a nearly two-week high touched on Wednesday. 

• Indian Rupee loses its recovery momentum despite the softer USD. 
• RBI’s Das said the Indian economy is likely to grow close to 8.0% in FY24, exceeding the estimate of 7.6%.
• Investors will focus on the US weekly Initial Jobless Claims and the second testimony by Fed Chair Powell on Thursday. 

Indian Rupee (INR) edges lower on Thursday despite the decline of the US Dollar Index (DXY). Economists anticipate USD/INR to trade in a narrow band in the next months and to rise modestly in a year as the Reserve Bank of India (RBI) continues to intervene in currency markets. 

On Wednesday, RBI governor Shaktikanta Das said the Indian economy is poised to grow more than the central government's second-advance estimate of 7.6% growth in the current financial year (FY24), and it might be closer to 8.0%. India's robust domestic growth along with stable external macros has been underpinning the strength in INR. Nonetheless, higher US Treasury bond yields and the rebound in oil prices might lift the US Dollar (USD) and cap the downside of the pair. 

Looking ahead, the US weekly Initial Jobless Claims and Trade Balance are due on Thursday, along with the second testimony by Chair Powell and the Fed’s Mester speech. On Friday, attention will shift to the highly-anticipated US Nonfarm Payrolls, which is forecast to see 200K job additions in February from 353K in January.

Daily Digest Market Movers: Indian Rupee remains vulnerable to higher bond yields and a rise in oil prices

• The government raised its growth forecast for the fiscal year 2024 to 7.6% from 7.3%. 
• India's GDP expanded at 8.4% in the final three months of 2023,  the strongest in 18 months, boosted by robust manufacturing and construction activities.
• US ADP private sector employment rose 140K in February from 111K in January, below the market expectation of 150K. 
• January JOLTS job openings dropped to 8.863M versus 9.026M prior, below the consensus of 8.900M.
• The Federal Reserve (Fed) Chair Jerome Powell said on Wednesday 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%. 

Technical Analysis: Indian Rupee remains capped in a longer band of 82.65-83.15

Indian Rupee trades softer on the day. USD/INR has been traded within a multi-month-old descending trend channel since December 8, 2023 around 82.65-83.15

USD/INR maintains the bearish outlook unchanged as the pair holds below the 100-day Exponential Moving Average (EMA) on the daily chart. It’s worth noting that the 14-day Relative Strength Index (RSI) supports the sellers for the time being as it lies below the 50.0 midline. 

If the pair breaks below the key support level near the lower limit of the descending trend channel at 82.65, then USD/INR may get enough bearish pressure to test lower near a low of August 23 at 82.45 and finally a low of June 1 at 82.25.

A bullish breakout above the confluence of the 100-day EMA and a psychological round figure of 83.00 could attract bulls to the upper boundary of the descending trend channel at 83.15. The additional upside filter to watch is a high of January 2 at 83.35, en route to 84.00. 

• EUR/USD sticks to a psychological level on Thursday post recent gains.
• ECB is expected to maintain the Rate on Deposit Facility at 4.0%.
• Fed Chair Powell has indicated the readiness to reduce interest rates at some point this year.

EUR/USD remains steady around 1.0900 during the Asian session on Thursday, retracing slightly from its six-week high of 1.0915 reached in the prior session following dovish remarks by Federal Reserve (Fed) Chair Jerome Powell during his testimony before the House Financial Services Committee. The European Central Bank (ECB) is set to announce its Monetary Policy Decision later in the day.

The ECB is anticipated to maintain the Rate on Deposit Facility at 4.0%, marking the fourth consecutive meeting without a change. Alongside this decision, the ECB will release updated economic forecasts. ECB President Christine Lagarde's remarks during the post-meeting press conference will be closely scrutinized for insights into the central bank's monetary policy stance and economic outlook.

Moreover, the Euro possibly found some support from Eurozone Retail Sales figures released on Wednesday, which were less negative than anticipated. In January, Eurostat reported that the Eurozone retail sector continued to contract annually by 1%, remaining below the anticipated 1.3% decline. This follows a 0.5% decrease in December. However, there was a slight improvement in month-on-month Retail Sales, with a 0.1% rise as forecasted, compared to the previous contraction of 0.6%.

Federal Reserve Chair Powell has signaled the readiness of the US central bank to reduce borrowing costs "at some point this year," as indicated in the semi-annual Monetary Policy Report. However, the recent escalation of the regional banking crisis in the United States (US) may accelerate this timeline. Investors are eagerly awaiting additional insights from Fed Chair Jerome Powell on Thursday.

The US Dollar Index (DXY) faced a downturn, primarily influenced by reduced US Treasury yields. Weaker employment data from the United States (US) added to the downward pressure on the US Dollar (USD). February's US ADP Employment Change was reported at 140K, slightly below the anticipated 150K but an improvement from the previous 111K. Additionally, January's US JOLTS Job Openings declined to 8.863M from December's 9.026M, missing the market forecast of 8.900M. Friday's release of the Nonfarm Payrolls (NFP) labor report will be eyed next.

• India’s Sensex eyes a modest opening on Thursday, having rebounded firmly on Wednesday.
• Sensex hit fresh record highs above 74,000 on Wednesday, helped by banking stocks.
• US Nonfarm Payrolls and Fed Chair Powell testimony eyed after poor US ADP and JOLTs data.

The Sensex 30, one of India’s key benchmark indices, is set to open with modest gains on Thursday, having witnessed two-way business on Wednesday to finally settle in the green.  

Gift Nifty futures are trading listlessly, pointing to a flattish open for the Sensex 30 index.

On Wednesday, the Indian index witnessed an impressive turnaround after struggling on the back of weak market sentiment, courtesy of the poor Services PMI releases from India, China and the US. A rebound in the Indian banking sector stocks saved the day for Sensex traders, as the index clinched fresh record highs.

The Bombay Stock Exchange (BSE) Sensex 30 closed 0.55% higher on the day at 74,088.99, reversing from the all-time high of 74,151.27.

Stock market news

• The main gainers on Sensex were Kotak Mahindra Bank, HCL Tech, Bharti Airtel, Axis Bank and Sun Pharma. Meanwhile, the main laggards were Power Grid, Maruti Suzuki, Ultra Tech Cement, NTPC and JSW Steel.
• JM Financial lost nearly 14% in early trade as the Reserve Bank of India (RBI) directed JM Financial Products Ltd to cease and desist from doing any form of financing against shares and debentures.
• LTIMindtree Ltd and Aramco Digital collaborated to establish a digital and IT services company in Saudi Arabia, focusing on disruptive digital services and industry 4.0 integration. 
• Wipro acquired a 27% stake in B2B sales platform SDVerse LLC for $5.85 million in cash.
• Bharti Airtel approved the allotment of 56.8 lakh shares to FCCB holders at a conversion rate of Rs 518 per share.
• The US stock markets stayed afloat on Wednesday, following US Federal Reserve Chair Jerome Powell’s testimony before the House Financial Services Committee. Powell said that interest rate cuts are still likely in the coming months if inflation continues to ease.
• Meanwhile, the US private sector added 140,000 jobs in February, an increase from the upwardly revised 111,000 in January but a bit below the expected 150,000 additions, ADP reported on Wednesday.
• 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. The data followed 8.88 million (revised from 9.02 million) openings in December and came in slightly below the market forecast of 8.9 million.
• Markets are currently pricing in about a 70% chance that the Fed could begin easing rates in June, slightly higher than a 63% probability seen a day ago, 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. Powell will appear before the Senate Banking Committee later in the day.
• The focus continues to remain on the week-long China's National People's Congress (NPC) meeting which could flag new stimulus measures.

• The Japanese Yen attracts follow-through buying amid renewed BoJ rate hike bets.
• The uncertainty about the Fed’s rate-cut path keeps the USD bulls on the defensive.
• The market focus remains glued to the release of the crucial US NFP report on Friday.

The Japanese Yen (JPY) scales higher against its American counterpart for the third straight day and jumps to a nearly four-week high during the Asian session on Thursday. Data released earlier this week showed that the Consumer Price Index (CPI) in Tokyo – Japan's capital city – rebounded from a 22-month low and moved back above the Bank of Japan's (BoJ) 2% target in February. This, along with speculations that the ongoing annual wage negotiations will yield bumper pay hikes for the second year in a row and fuel demand-driven inflation, lifts bets for an imminent shift in the BoJ's policy stance and underpins the JPY.

Bulls, meanwhile, seem rather unaffected by reports that the BoJ could revise down its assessment on consumption and factory output this month amid signs of weakness in the economy that underscore the fragile state of its recovery. Moreover, real wages in Japan shrank in January for the 22nd consecutive month, albeit doing little to dent the bullish sentiment surrounding the JPY. The US Dollar (USD), on the other hand, languishes near its lowest level since early February amid the uncertainty about the Federal Reserve's (Fed) rate cut path. This further contributes to the USD/JPY pair's decline further below the 149.00 mark.

Daily Digest Market Movers: Japanese Yen is underpinned by hawkish BoJ talks

• A rise in Tokyo inflation revives bets that the Bank of Japan will pivot away from its ultra-easy monetary policy settings as soon as this month and continues to underpin the Japanese Yen.
• The Jiji News Agency reported on Wednesday that BoJ might consider ending negative interest rates amid expectations that this year's pay negotiations will yield solid results to boost consumption.
• Data released on Thursday showed that real wages for Japanese workers shrank in January for the 22nd straight month, albeit at the slowest pace in over a year on weakening price pressures.
• BoJ policymaker Junko Nakagawa noted that the central bank is gathering information to make policy decisions while Japan's economy makes steady progress toward the achievement of the price target.
• Federal Reserve Chair Jerome Powell told US lawmakers on Wednesday that the central bank will cut interest rates this year, though wants to see more evidence that inflation is falling to the 2% target.
• Minneapolis Fed President Neel Kashkari said that he had pencilled in two interest-rate cuts in 2024 and added that he may reduce the number of cuts in the wake of the incoming stronger macro data.
• The Automatic Data Processing (ADP) reported that private-sector employment in the US rose by 140K in February, less than the 150K expected, while wages increased at the slowest pace in 2-1/2 years.
• The data points to signs of a cooling labor market and keep the path open for Fed rate cuts later this year, which continues to undermine the US Dollar and further exerts pressure on the USD/JPY pair.
• Traders now look to Powell's second day of testimony before the Senate Banking Committee, which, along with the US Weekly Initial Jobless Claims and Trade Balance data, could provide some impetus.
• The focus, however, will remain glued to the release of the closely-watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday.

Technical Analysis: USD/JPY slides closer to 23.6% Fibo. level of December-February rally

From a technical perspective, the recent repeated failures ahead of the 151.00 mark, or the YTD peak, and the subsequent fall favours bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and support prospects for a further near-term depreciating move. Some follow-through selling below the 23.6% Fibonacci retracement level of the December-February rally, around the 148.40-148.35 region, will reaffirm the bearish setup and drag the USD/JPY pair to the 148.00 mark. This is closely followed by the 100-day Simple Moving Average (SMA), currently around the 147.80 zone, which if broken decisively will expose the 38.2% Fibo. level, near the 146.80 area, with some intermediate support near the 147.00 round figure.

On the flip side, the 149.00 mark might now act as an immediate strong barrier. Any further move up is more likely to attract fresh sellers and remain capped near the 149.70 horizontal support breakpoint, now turned resistance. That said, some follow-through buying, leading to a subsequent strength beyond the 150.00 psychological mark, will suggest that the recent corrective slide from the YTD peak has run its course and shift the bias in favour of bullish traders. The USD/JPY pair might then surpass the 150.40-150.50 hurdle and make a fresh attempt to conquer the 151.00 round-figure mark.

The Bank of Japan (BoJ) policymaker Junko Nakagawa said on Thursday that the central bank gathers information to make monetary policy decisions despite risks and uncertainty. Nakagawa also remarked that Japan's economy is making steady progress towards achieving the pricing target.

Market reaction

At the time of writing, USD/JPY is trading 0.45% lower on the day at 148.68.

• Australian Dollar appreciates on weaker US Dollar despite improved US Treasury yields.
• Australian Trade Balance (MoM) reduced to 11,027M in February, from 10,743M prior.
• Fed Chair Powell indicated that the Fed is prepared to lower borrowing costs "at some point this year."
• February’s US ADP Employment Change increased to 140K from 111K prior, falling short of the expected 150K.

The Australian Dollar (AUD) continues to advance for a second consecutive session on Thursday, largely driven by weakness in the US dollar (USD). This weakness stems from comments made by Federal Reserve (Fed) Chair Jerome Powell during his testimony before the House Financial Services Committee. Powell indicated that the Fed is prepared to lower borrowing costs "at some point this year," following the delivery of the semi-annual Monetary Policy Report. However, the recent escalation of the regional banking crisis in the United States (US) could potentially prompt Powell to expedite this process.

Australia's economy expanded less than expected in the fourth quarter, as revealed by the latest Gross Domestic Product (GDP) data released on Wednesday. Moreover, the Trade Balance showed that the surplus was reduced in February. These outcomes limit the gains for the AUD/USD pair and support the case for the Reserve Bank of Australia (RBA) to adopt an easing bias. Furthermore, The Commonwealth Bank of Australia (CBA) has reaffirmed its forecast of 75 basis points in rate cuts for this year following the release of the disappointing GDP figures.

The US Dollar Index (DXY) experienced a decline driven by lower US Treasury yields. Federal Reserve Chair Jerome Powell stated that the US economy is not on the verge of a recession and anticipates inflation to gradually approach the 2% target. Powell emphasized the Fed's commitment to data-driven decisions, stating that interest rates would only be reduced when there is convincing evidence. Further insights from Powell are anticipated during his remarks on Thursday.

Daily Digest Market Movers: Australian Dollar appreciates on improved risk appetite

• Australian Trade Balance (MoM) showed that the surplus has reduced to 11,027M in February, from 10,743M prior. The market expectation was an increase to 11,500M.
• Aussie Imports (MoM) increased by 1.3% in February, from the previous figure of 4.8%. Monthly Exports grew by 1.6%, exceeding the previous rise of 1.5%.
• Australian Gross Domestic Product (GDP) grew by 0.2% QoQ in the fourth quarter of 2023, slightly below market expectations of no change at 0.3%.
• GDP (YoY) expanded by 1.5%, surpassing the expected 1.4%, but falling short of the previous growth of 2.1%.
• AiG Industry Index reported a print of -14.9 for January, compared to the -27.3 prior.
• 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.
• 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.
• 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.
• 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.
• 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 5.0% probability of a 25 basis points rate cut in March, while the likelihood of cuts in May and June stands at 19.3% and 55.8%, respectively.
• February’s US ADP Employment Change came in at 140K against the expected 150K, increasing from 111K prior.
• January’s US JOLTS Job Openings fell to 8.863M from December’s figure of 9.026M, falling short of the market expectation of 8.900M.
• 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.

Technical Analysis: Australian Dollar rises to near 0.6570 before a psychological barrier

The Australian Dollar trades around 0.6570 on Thursday. Key resistance is noted near the psychological level of 0.6600, aligned with the 38.2% Fibonacci retracement level of 0.6606. A break above the latter could support the AUD/USD pair to explore the region around the major level of 0.6650. On the downside, the pair meet the major support at 0.6550 followed by the 21-day Exponential Moving Average (EMA) at 0.6539. A break below this level could prompt the AUD/USD pair to test the psychological level of 0.6500 before the previous week’s low at 0.6486.

AUD/USD: Daily Chart

The People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead on Thursday at 7.1002 as compared to the previous day's fix of 7.1016 and 7.1898 Reuters estimates.

Australia’s trade surplus widened to 11,027M MoM in February versus 11,500M expected and 10,743M in the previous reading, according to the latest Aussie foreign trade data published by the Australian Bureau of Statistics on Thursday.

Further details reveal that Australia's December Goods/Services Exports reprint 1.6% figures on a monthly basis versus 1.8% prior. The nation’s Goods/Services Imports grew 1.3% in February MoM versus 4.8% prior.

Market reaction

At the press time, the AUD/USD pair is up 0.03% on the day to trade at 0.6567.

About Australia Trade Balance

The trade balance released by the Australian Bureau of Statistics is the difference in the value of its imports and exports of Australian goods. Export data can give an important reflection of Australian growth, while imports provide an indication of domestic demand. Trade Balance gives an early indication of the net export performance. If a steady demand in exchange for Australian exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the AUD.

• GBP/USD trades in positive territory for the fifth consecutive day near 1.2735 on Thursday.  
• Fed's Chair Powell said rate cuts are likely at some point this year. 
• UK Chancellor Jeremy Hunt said the UK economy is estimated to grow by 0.8% in 2024 and 1.9% in 2025. 
• The US weekly Initial Jobless Claims and Trade Balance will be released on Thursday.

The GBP/USD pair breaks above the 1.2700 barrier and currently trades around 1.2735 during the early Asian session on Thursday. The uptick of the major pair is bolstered by the weaker US Dollar (USD) and encouraging news from the UK Spring Budget.

The Federal Reserve (Fed) Chair Jerome Powell told House lawmakers on Wednesday that interest rates might start coming down this year, but also cautioned that the Fed would take its time until the central bank gains greater confidence that inflation is moving sustainably toward the 2% target. Powell’s comment indicated that the Fed officials remain cautious about not losing the progress made against inflation, and the decision-making will be based on incoming data. 

About the data, the US JOLTS job openings fell to 8.863M in January from the previous reading of 9.026M, below the market consensus of 8.900M. The ADP private sector employment climbed 140,000 in February from 111,000 in January, weaker than the market expectation of 150,000. 

The UK’s Chancellor of the Exchequer, Jeremy Hunt, presented the spring budget to the House of Commons. Hunt said that the UK economy has dealt with the financial crisis, the pandemic, and the energy crisis caused by the war in Europe, while also adding that interest rates will remain high as the central bank tries to bring down inflation.

Additionally, Hunt said the UK economy is estimated to grow by 0.8% in 2024 and 1.9% in 2025, stronger than the 0.7% and 1.4% growth rates forecast by the Office for Budget Responsibility in November. That being said, the encouraging comments and the high-for-longer rate narrative in the UK lift the Pound Sterling (GBP) and act as a tailwind for the GBP/USD pair. 

The US weekly Initial Jobless Claims and Trade Balance are due on Thursday. Investors will also take more cues from the second testimony by Chair Powell and Fed’s Mester speech later in the day. On Friday, attention will shift to US Nonfarm Payrolls, which is projected to see 200K job additions in February from the previous reading of 353K.