U.S. Business growth in Services, Low U.S. jobless claims, New Zealand’s and Canada’s labour market growth ahead: All eyes on U.S. CPI data and retail sales

PREVIOUS WEEK’S EVENTS (Week 05-09.02.2024)

Announcements:

U.S. Economy

The U.S. shows significant services sector growth. The PMI increased to 53.4 last month from 50.5 in December. A reading above 50 indicates growth in the services industry, which accounts for more than two-thirds of the economy.

The report suggests that economic growth momentum from the fourth quarter continues, reassuring that cuts in March will not take place. The Federal Reserve left interest rates unchanged last week, but Chair Jerome Powell told reporters that rates had peaked.

New claims for unemployment benefits fell slightly more than expected last week, confirming the views for labour market strength, coinciding with the previous month’s strong NFP data. As long as the labour market remains stable, the economy will continue to grow but inflation is unlikely to continue lowering significantly.

New Zealand Economy

New Zealand’s labour market data showed higher-than-expected employment growth. Employment increased by 0.4%, with the unemployment rate rising to 4.0% in the fourth quarter, below the expectations of a 4.2% unemployment rate.

Canada Economy

Labour market-related reports on Friday showed that Canada added 37K in January, more than double the expected figure, while wage growth slowed slightly and the unemployment rate edged down to 5.7% from 5.8% in December, posting its first decline in 13 months. Its labour market seems resilient. The Bank of Canada (BoC) has kept its key overnight interest rate at a 22-year high of 5% since July, as it strives to bring inflation back to its 2% target. Inflation was 3.4% in December.

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Interest Rates

RBA Rates

The Reserve Bank of Australia (RBA) held interest rates steady as it faces high inflation and stated that further increases are not ruled out. This signals that an easing policy is not coming soon for the RBA. The Board needs to be confident that inflation is moving sustainably towards the target range,” said the RBA Board in a statement.

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Sources:

https://www.reuters.com/markets/australias-central-bank-holds-rates-warns-further-hike-might-be-needed-2024-02-06/

https://www.reuters.com/world/americas/canada-adds-37300-jobs-january-wage-growth-slows-2024-02-09/

https://www.reuters.com/markets/us/us-weekly-jobless-claims-fall-more-than-expected-last-week-2024-02-08/\

https://www.reuters.com/markets/us/us-service-sector-growth-picks-up-january-ism-survey-2024-02-05/

https://www.reuters.com/markets/new-zealands-jobless-rate-rises-40-fourth-quarter-2024-02-06/

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 Currency Markets Impact – Past Releases (Week 05-09.02.2024)

Server Time / Timezone EEST (UTC+02:00)

Services PMIs:

Eurozone PMIs:

Spanish services remain in expansion, with a PMI figure of 52.1. The growth of the Spanish service sector improved during January amid better market conditions and higher sales. Job growth picked up, accelerating to its best level since May 2023.

In Italy, the PMI shows a turn to the expansion area as it was reported above the 50 threshold, 51.2 from the previous 49.8 points. A sign of recovery across the Italian service sector economy. It experienced improved overall demand conditions and a rise in workforce numbers in January, the third increase in successive months.

The French services sector saw more contraction instead. The downturn extended into January, marking its longest period of contraction in over a decade.  Businesses faced generally subdued demand conditions, lower activity and no new business opportunities. However, business confidence ticked up.

The German service sector business activity also contracted for the fourth consecutive month in January. The sector faces an ongoing weakness in demand. Firms improved expectations for activity in the coming year though having a positive impact on labour.

The Eurozone downturn continues, however, at a slower pace. PMI remains at 48.4 points. Contractions in business activity and new orders softened, while growth expectations strengthened to a nine-month high.

United Kingdom PMIs:

The U.K. sees the strongest service sector performance since May 2023. A significant increase in business activity extended the current period of expansion to three months. Higher levels of output, rise in new orders and improved confidence among clients due to strengthening economic conditions and expected interest rate cuts.

United States PMI:

The U.S. business activity continues to grow aggressively. The services PMI reported in the expansion area once more, at 52.5 points. The U.S. services business activity expanded at the fastest pace since June 2023. A quicker rise in new orders, improved demand conditions and an increase in export orders. The U.S. ISM Services PMI is showing expansion at its fastest pace in four months.

RBA decided to leave the cash rate target unchanged at 4.35%. The market reacted with a low-impact intraday shock that caused some AUD The AUDUSD only jumped around 20 pips at that time.

New Zealand’s employment data showed that the employment change for the December quarter increased by 0.4%, beating expectations. The quarterly unemployment rate was reported higher despite the employment increase. The market reacted with strong NZD appreciation at the time of the releases. The NZDUSD jumped

In China, Consumer Prices have dropped at the fastest pace since the global financial crisis. China’s producer prices also declined for the 16th month in January. No major impact was recorded at the time of the release at 3:30, on the 8th Fed.

Unemployment claims for the U.S. were reported lower. Employment growth was reported way higher than expected in January, however, the unemployment claims are experiencing mixed results. The market reacted with moderate volatility and the USD was affected with further appreciation. The EURUSD dropped 15 pips at that time. After the news, the USD experienced strong depreciation.

Canada’s labour data release shook the market as it showed quite strong labour market indications. The employment growth for January 2024 was reported to be way higher than expected, 37.3K versus the expected 16K, while unemployment lowered to 5.7%. The market reacted with CAD appreciation and USD depreciation at first, but readjusted their positions soon after, the USD in particular, with the USD gaining back some strength eventually. The USDCAD dropped near 30 pips, before immediately reversing fully from the downside drop and very soon after went back to the intraday MA.

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FOREX MARKETS MONITOR

Dollar Index (US_DX)

The dollar remained on the same level in general last week, after a long volatile path, with volatility levels lowering while approaching the end of the week. From the 6th to the 7th of Feb, the dollar index dropped and found support near 104 points. After consecutively testing that support it did not break it but rather moved to the upside on the 8th rapidly until it found resistance before eventually reversing to the 30-period MA. During that trading day, the dollar gained strength before the unemployment claims data release but after the release (lower Claims) it weakened significantly. With the Fed spreading the commitment to lower rates this year, the dollar index can not stay at high levels. After the 8th Feb the dollar continued to weaken further however, the dollar index remained above the 104 points support.

EURUSD

The pair experience an unusual upward path in general. The ECB stated that talks regarding interest rate cuts are still premature to take place. The EUR is gaining ground against the dollar and it is clear that most of the volatility that the pair experienced while going to the upside is curved by the USD. The drop on the 8th is because of USD appreciation and a following USD depreciation the same day. The pair climbed higher from the USD’s further strong depreciation against other currencies. However, it is important to note that the labour market in the U.S. is showing significant growth which contradicts the views for cuts soon. This probably keeps the dollar stable.

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CRYPTO MARKETS MONITOR

BTCUSD

On the 7th Feb, Bitcoin moved to the upside aggressively. The momentum is quite strong as it seems to break all the Fibo levels, 100 and 161.8 without any significant retracement. Its price continued to the upside aggressively breaking further resistance and eventually reaching the strong resistance at near 48,900 USD, levels last seen during the SEC news regarding the approval of Bitcoin ETFs. Currently, the RSI14 (H1 time frame) shows quite bearish signals for now (lower highs).

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NEXT WEEK’S EVENTS (12 – 16.02.2024)

Coming up:

Big news for the United Kingdom ahead: Inflation, Claimant Count Change, Employment and Average Earnings reports.

The United States Inflation-related data are going to be reported this week (CPI and PPI), figures greatly anticipated by the market and the Central Bank.

Retail Sales reports for both the U.K. and the U.S. are going to be reported as well, giving more information related to the area of spending.

Currency Markets Impact:

On the 13th of Feb, New Zealand’s inflation expectation report (quarterly) is going to be released and it is important because expectations of future inflation can manifest into real inflation. No major intraday shock is expected to take place but the NZD pairs could see some moderate impact.

The U.K.’s Claimant Count figure (Change in the number of people claiming unemployment-related benefits) is expected to be reported higher while the Average Earnings Index is expected lower. The Unemployment Rate is expected to be reported lower, thus the expectations signal unclear market conditions currently. Britain’s labour market, however, cooled in January as pay growth in new permanent jobs eased to the lowest level in almost three years. These data releases take place at the start of the European session, thus not only an intraday shock, but high volatility is also expected to take place affecting the GBP pairs greatly during that time and long after the releases.

During the CPI data / Inflation report for the U.S. at 15:30 on the 13th Feb, the USD will be probably greatly affected. An intraday shock is expected to take place at that time. With the Fed stating that cuts will take place even if inflation is not lowering, great uncertainty is created. The yearly inflation figure is expected to be reported lower. A surprise to the upside is going to cause probably a great shock, causing the USD to strengthen significantly, at least during the time of the report release

On the 14th Feb, the U.K.’s Inflation figure is going to be reported during the start of the European session. It is expected that inflation will be reported higher despite the fact that it has experienced a significant decrease in recent months and interest rates are still kept at high levels. GBP pairs could see an intraday shock at that time.

On the 15th Feb, Australia’s labour market data is going to be released during the Asian session. Despite an expected higher unemployment rate figure, the employment change is expected to be reported relatively high. The AUD will probably be affected greatly by the release. In the case of a shock causing big deviation from the mean, retracements usually take place soon during that session.

On the same day at 15:30, important U.S. data releases are taking place including Retail Sales and Unemployment Claims. Due to their importance, higher volatility is expected with probable shock affecting the USD Retail sales are expected to be reported lower, indicating that the current Fed’s policy could still have a negative impact on spending and orders. However, it does not coincide with what the recent U.S. PMI reports are telling us, showing growth in both sectors of the economy and, thus, improvement.

On the 16th Feb, the Retail Sales report for the U.K. will take place, another major figure released at the start of the European session and affecting the GBP The expectation is optimistic, a turn to growth rather than decline, which was reported previously.

At 15:30 on the same day, the PPI data this time will affect the USD pairs greatly, probably. The PPI data are expected to be reported higher, surprisingly. That is the expected opposite direction, compared to the CPI data. An intraday shock at that time cannot be excluded.

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COMMODITIES MARKETS MONITOR

U.S. Crude Oil

Crude’s price reversed from the downtrend following the RSI’s signals of bullish divergence, as mentioned in the previous analysis. After it reached 74.5 USD/b on the 5th Feb, it reversed to the upside, crossing the 30-period MA on the way up and finding resistance at near 73.2 USD/b before retracing. On the 6th Feb, the price moved steadily upwards while being above the 30-period MA. The same happened on the 7th Feb. Surprisingly, crude oil moved significantly higher on the 8th Feb after it broke the apparent channel, as depicted on the chart, reaching the resistance near 76.5 UD/b. On the 9th Feb, the price remained on the same level after a quite volatile trading day. The RSI shows a bearish divergence, indicating that Crude might move significantly lower this week.

Gold (XAUUSD)

On the 8th Feb, Gold broke the upward channel moving to the downside and reaching the support 2020 USD/oz after the USD experienced strong early appreciation. It closed the trading day almost flat since the USD lost strength significantly causing Gold’s price to reverse fully. On the 9th Feb, it experienced another drop testing again that support at near 2020 USD/oz. After an unsuccessful breakout, it eventually retraced to the Fibo 61.8 level.

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EQUITY MARKETS MONITOR

NAS100 (NDX)

Price Movement

On the 6th Feb, the index did not manage to break the resistance at near 17,700 USD and a reversal again followed back to the support at near 17,500 USD. Another reversal sent the index back to the mean. A clear consolidation phase kept the index on the sideways, however experiencing high volatility on the way. On the 7th Feb, the index moved higher breaking the triangle as depicted on the chart and settling near 17,790 USD. On the 8th Feb, the index did not experience strong volatility closing the trading day almost flat, however, on the 9th Feb, it moved to the upside aggressively reaching the area near the 18,000 level. The RSI does not show any signal of the index reversing soon.

 

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