U.S. Services in expansion, Fed needs more inflation data for cuts, ECB and BOC keep rates steady, Germany’s business conditions suffer, Higher NFP and jobless rate beat expectations, Bitcoin upward breakout over 70K USD, U.S. inflation reports ahead

PREVIOUS WEEK’S EVENTS (Week 04 – 08.03.2024)

Announcements:

Crypto

Bitcoin continued with the uptrend beating 68K USD last week. Today it reached over 72K USD.

The Financial Conduct Authority said in a notice that it would not object to requests from recognized investment exchanges to create a U.K.-listed market segment for crypto-backed exchange-traded notes, or ETNs.

The London Stock Exchange acknowledged the FCA’s announcement, saying that it would accept applications for the admission of Bitcoin and Ether ETNs from the second quarter of this year.

U.S. Economy

According to the ISM report last week, the U.S. services industry grew but slower in February. The ISM said its non-manufacturing PMI slipped to 52.6 last month from 53.4 in January amid a decline in employment. The PMI figure, however, was consistent with continued economic expansion.

There were also no signs that inflation was picking up after a jump in prices at the start of the year, welcome news for Federal Reserve officials. Though financial markets expect the U.S. central bank to start cutting interest rates this year, the timing is uncertain because inflation remains high, with most of the price pressures coming from services.

U.S. job openings fell marginally in January according to the JOLTS report, while the number of workers quitting their jobs dropped to a three-year low, indicating that labour market conditions were gradually easing.

Powell said policymakers expected “inflation to come down, the economy to keep growing,” but shied away from committing to any timetable for interest rate cuts.

A separate report from the Fed said “labour market tightness eased further,” in February, but noted that “difficulties persisted attracting workers for highly skilled positions.

Fed’s Chair Jerome Powell

We’re waiting to become more confident that inflation is moving sustainably at 2%,” Powell said while answering questions from the Senate Banking Committee last week. “When we do get that confidence — and we’re not far from it — it’ll be appropriate to begin to dial back the level of restriction.”

Powell repeated his testimony of the previous day: that it would likely be appropriate to cut interest rates “at some point this year,” but made clear officials are not ready yet. Policymakers need more evidence that inflation is heading sustainably to the central bank’s 2% goal before acting, he said.

The U.S. dollar has been weakening against a basket of currencies quite significantly.

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Interest Rates

BOC

The Bank of Canada (BoC) kept its key overnight rate steady at 5% as expected saying underlying inflation is still high and no cuts are considered yet, causing the CAD to appreciate significantly at the time of the news release.

Overall inflation stands at 2.9%, still well above the bank’s 2% target. Shortly after the rate announcement, data showed that Canadian money markets saw a 23% chance of a rate cut in April, down from 43%.

ECB

The European Central Bank (ECB) kept borrowing costs at record highs with the decision to hold all three key rates steady, saying it had made good progress in bringing down inflation and that cuts could take place this year.

New forecasts are pointing to lower inflation and growth. ECB policymakers are preparing for a first cut in interest rates, probably in June, provided incoming data, especially on wages, confirms the trend.

“We did not discuss cuts for this meeting, but we are just beginning to discuss the dialling back of our restrictive stance,” ECB President Christine Lagarde told a press conference.

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Sources:

https://www.cnbc.com/2024/03/11/bitcoin-btc-tops-71000-as-uk-fca-opens-door-to-crypto-etns.html

https://www.reuters.com/world/europe/ecb-hold-rates-take-baby-steps-towards-first-cut-2024-03-06/

https://www.reuters.com/markets/us/us-services-sector-cools-february-ism-survey-shows-2024-03-05/

https://www.reuters.com/markets/us/us-private-payrolls-rise-slightly-less-than-expected-february-adp-report-shows-2024-03-06/

https://www.reuters.com/markets/us/feds-powell-says-aware-policy-risks-workers-cuts-depend-inflation-2024-03-07/

https://www.reuters.com/markets/bank-canada-keeps-rates-hold-says-too-early-consider-cut-2024-03-06/

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Currency Markets Impact – Past Releases (Week 04 – 08.03.2024)

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

On the 4th of March, the Swiss consumer price index (CPI) increased by 0.6% in February 2024 compared with the previous month. Inflation was +1.2% compared with the same month of the previous year. CHF appreciated at the time of the release. USDCHF dropped nearly 25 pips and retracement followed.

On the 5th of March, the Tokyo Core CPI figure was reported as expected. The annual inflation rate picked up from 1.6% to 2.6%. A low-level shock was recorded at that time at 1:30, with a sudden JPY depreciation, however the effect faded soon.

 
Services PMI Releases:

Eurozone PMIs:

In Spain, the services sector is expanding as it recorded a positive performance in February with a good PMI figure of 54.7 points. Both activity and new business are rising at their best rates since May 2023. Expectations for the future are improved. Firms took on additional staff at a solid pace.

In February, the Italian service sector showed sustainable growth with a PMI reported at 52.2 points. New business, increase in new work and rising activity. Improvement in demand conditions with new job creation.

The French PMI was reported in contraction but at least showed improvement. The service sector downturn cools with demand getting back on track. New export sales expanded for the first time since last May. More optimism towards the outlook for business activity, with growth expectations reaching a seven-month high.

Germany is suffering as services business activity remains under pressure. Reporting services PMI in contraction at 48.3 points. However, firms’ expectations for activity over the year ahead improved to the highest since last April resulting in job creation growth. Notable to say that rates of increase in input costs and output prices reached the highest for ten and six months respectively.

U.K PMI:

In the U.K. the service sector output growth was maintained in February. Reporting PMI at 53.8 in expansion. A sustained increase in business activity in February, supported by stronger new order growth and aided by another modest rise in employment.

U.S. PMIs:

Sustained expansion in February for the U.S. services sector with a recorded PMI figure at 52.3, an improvement from the previous period. Output rose for a thirteenth successive month. New business inflows have now risen for four straight months.

The ISM Services PMI showed a registered figure of 52.6. According to this report, business activity and new orders improved. However, employment was particularly soft, dropping into contraction territory. The USD suffered depreciation at the time of the release because of a lower reported figure showing deterioration instead (52.6 versus 53.4). The U.S. dollar index dropped but soon after the news it reversed to the intraday mean.

On the 6th of March, the Australian GDP was reported to have risen 0.2% in Q4 as expected. No major impact was recorded in the market.

The ADP report showed that private sector employment increased by 140K jobs in February, less than expected, and annual pay was up 5.1% year-over-year. Employment growth continues. The market did not react significantly. JOLTS Job openings report showed a slight decrease however not something important to consider.

The Fed Chair Powell in his speech last week mentioned the downfall of inflation, the strong labour market and that the rate cuts path will be determined by the upcoming data. The USD was depreciating significantly probably because the Fed has more chances of an interest rate policy sooner than the other Central Banks.

The Bank of Canada (BOC) decided to keep interest rate policy unchanged. This caused the market to react with strong CAD The USDCAD fell more than 60 pips since the time of the release and reached support.

The ECB decided to keep the three key ECB interest rates unchanged. Since the meeting in January, inflation has declined further. In the latest ECB staff projections, inflation has been revised down, in particular for 2024. The market reacted with moderate EUR depreciation at the time of the news release.

The U.S. unemployment claims figures remained stable and as expected.

The Fed Chair Powel further testified last week with comments: “If the economy does as expected we think carefully about removing the restrictive stance of policy. Will begin over the course of this year”. The dollar index started to drop heavily after these comments.

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FOREX MARKETS MONITOR

Dollar Index (US_DX)

The dollar index moved downwards at a steady pace. That is quite remarkable when we take into account that the Fed is actually not sure if inflation is lowering and thus towards the target 2% level. They state that they need more evidence of that. Despite this, the market decided to unload U.S. dollars and invest in other alternative assets. We saw a surprising Gold strengthening and U.S. Stock demand last week. The NFP showed higher employment, beating expectations but also higher unemployment rate. This mixed data puzzled the market causing a U.S. dollar weakening slowdown.

EURUSD

The pair moved to the upside significantly last week but experienced a quite volatile path along the way. Despite the obvious dollar weakening driving the pair to higher levels, the EUR has been also experiencing some strength as the market responded with occasional appreciation due to the fact that the ECB did not clearly state that cuts will indeed take place soon. The ECB kept the interest rates steady on the 7th March and that caused moderate EUR weakening. However, expectations changed soon after and with the dollar experiencing significant weakening the EURUSD jumped above the 30-period MA and remained high. This may change soon. The Eurozone clearly sees inflation retreat while the U.S. does not. In addition, the Eurozone economy suffers from the worst PMIs, especially in Germany. We could see significant EUR depreciation soon and further Fed cut delays could bring down the EURUSD.

USDCAD

The pair experienced a drop on the 6th of March when the BOC decided to announce that they would keep interest rates steady. The U.S. dollar had already started to weaken against other currencies and the CAD experienced strength during that time. As the dollar weakened further during the rest of the week, the pair moved further downwards until when the employment data releases for the U.S. and Canada took place on the 8th of March. The strong NFP data caused more uncertainty about the U.S. dollar keeping it strong while the CAD depreciated moderately causing an overall retracement of the USDCAD to the upside.

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CRYPTO MARKETS MONITOR

BTCUSD

Bitcoin continues with the uptrend. Just passed the 70K resistance aggressively and jumped further breaking all-time highs without any indication of a significant resistance at the moment. Technically it could rapidly increase by 4K before any notable retracement takes place.

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NEXT WEEK’S EVENTS (11 – 15.03.2024)

Coming up:

U.K.’s labour data release includes the Average Earnings, Claimant Count and Unemployment rate figures.

U.S. inflation rate monthly plus annual figures will probably shake the markets.

U.S. PPI figures are expected to be reported at the same time as the retail sales reports figures. These are expected to be reported higher and could affect the dollar positively at that time significantly if the PPI figures also show an unexpected increase.

Currency Markets Impact:

Japan’s Final GDP report shows that it managed to avert technical recession as revised fourth-quarter data shows that the economy grew 0.4%. The Japanese economy expanded 0.1% in the fourth quarter from the previous three months, compared with the provisional data that showed a 0.1% contraction.

The U.K.’s Claimant Count Change is expected to be reported lower and average earnings to be reported also lower with a stable unemployment rate in the U.K. This shows a clear expectation of further labour market cooling. there is a high chance of an intraday shock concerning GBP pairs during that time at 9:00 on the 12th of March.

The US Federal Reserve doesn’t meet until March 20 for its next policy decision and all eyes are now on the CPI numbers for February. The report takes place on the same day 12th March at 14:30 and the USD pairs are expected to be affected by an intraday shock regardless if there is a surprise or not.

On the 13th of March, the U.K.’s monthly change in GDP will be reported which is expected to have grown. The GBP pairs might experience higher volatility during the release but an intraday shock could not take place.

U.S. PPI figures are going to be released on the 14th of March and are expected to be reported steady with the Core figure expectation to be lower. They serve as inflation-related data and the market could react upon release with USD pairs to experience higher volatility than normal. The CPI figures are released first this week and that is why the effect might not be so strong with the PPI release. A surprise increase is actually quite possible and thus USD appreciation due to the fact that the labour market shows unusual strength according to the latest reports.

U.S. retail sales figures are expected obviously to show higher changes as business conditions are getting better in the U.S. recently with reported PMIs to be in expansion. At that time an intraday USD appreciation could take place at the time of the release if we also take this information into account..

The preliminary consumer sentiment report on the 15th will show if Americans changed their expectations about future business or if the short-run inflation expectations remained within the 2.3-3.0% range. The Preliminary release is the earlier and thus tends to have the most impact affecting mostly the USD.

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COMMODITIES MARKETS MONITOR

U.S. Crude Oil

On the 6th of March, a surprise increase in the price took place causing a breakout of the depicted channel with the price reaching the resistance at near 80 USD/b before retracing and back to the 30-period MA. On the 7th of March, the price was on a quite volatile path but closed the trading day higher. Crude oil fell rapidly from the 8th March peak of 79.5 to 76.85 USD/b. Considering that deviations from means are roughly 10 USD currently the retracement about that amount to the 61.8 Fibo level is quite probable. Now, the fundamentals: Demand from China looks to be lagging causing the dive, however, supplies have remained on the tighter side given OPEC’s production cuts and Russian sanctions slowing exports causing price resilience excluding the probabilities of sharp drops, keeping price in balance.

Gold (XAUUSD)

On the 6th of March, support remained strong and the dollar depreciation pushed Gold to higher and higher levels reaching over 2,150 USD/oz. On the 7th of March, the RSI continued with lower highs but the USD weakening kept Gold stable and leaning more to the upside instead. On the 8th of March, Gold climbed further aggressively upon the NFP release and after it found resistance it retraced to the 61.8 Fibo Level. Currently, it is quite uncertain if the price will see a strong reversal.

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EQUITY MARKETS MONITOR

NAS100 (NDX)

Price Movement

On the 7th of March, the market moved to the upside as future borrowing costs could lower significantly and as Powell reassures that cuts will take place as long as the economy continues to show resilience and progress in regards to inflation. The dollar weakened significantly while stocks gained. The index jumped out of the triangle formation reaching the resistance near 18,350 USD before retracing to the 61.8 Fibo. As predicted in our previous analysis, the index moved higher before the NFP report release and soon later after the exchange opening it fell rapidly and heavily to the support near 17,980 USD. Retracement is possible to follow, back to the 30-period MA and 61.8 Fibo level if support is kept strong.

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