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Daily Pivots: (S1) 1.0365; (P) 1.0430; (R1) 1.0462; More...

Intraday bias in EUR/USD stays on the downside at this point. Consolidations from 1.0176 should have completed with three waves up to 1.0527. Deeper fall should be seen to retest 1.0176/0210 support zone. Firm break there will resume whole decline from 1.1213. For now, risk will stay on the downside as long as 1.0527 holds, in case of recovery.

In the bigger picture, immediate focus is on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. However, reversal from 1.0199 will argue that price actions from 1.1274 are merely a corrective pattern, and has already completed.

Risk sentiment received a boost in early US trading as January’s PCE inflation data came in line with expectations, lifting hopes that Fed may have room to cut rates in the first half of the year. Both headline and core PCE inflation slowed, adding to expectations that disinflation remains on track. Fed fund futures now indicate a roughly 70% chance of a 25bps rate cut in June, up from around 63% just a week ago.

However, it remains to be seen whether the bounce in equities, as suggested by higher futures, can hold. Market sentiment remains fragile, particularly with ongoing uncertainty surrounding US tariff policies. Investors are cautious about the economic fallout from trade measures, which could overshadow any optimism from cooling inflation data.

In the currency markets, Dollar is on track to close the week as the best performer, followed by Sterling and Swiss Franc. Meanwhile, Kiwi remains the weakest, followed by Aussie and Loonie, with little sign of a reversal. Euro and Yen are positioning in the middle.

In Europe, at the time of writing, FTSE is up 0.36%. DAX is down -0.57%. CAC is down -0.55%. UK 10-year yield is down -0.024 at 4.490. Germany 10-year yield is down -0.026 at 2.394. Earlier in Asia, Nikkei fell -2.88% Hong Kong HSI fell -3.28%. China Shanghai SSE fell -1.98%. Singapore Strait Times fell -0.65%. Japan 10-year JGB yield fell -0.02 to 1.376.

US PCE inflation slows as expected, personal income surges but spending contracts

The latest US PCE inflation data showed price pressures moderating slightly in January. Both headline and core PCE (excluding food and energy) price indices rose 0.3% month-over-month, aligning with market expectations.

On an annual basis, headline PCE inflation slowed to 2.5% yoy from 2.6% yoy, while core PCE eased to 2.6% yoy from 2.9% yoy, reinforcing the view that disinflation remains on track despite persistent price pressures in some sectors.

However, the consumer sector showed signs of strain. Personal income surged 0.9% mom, far exceeding expectations of 0.3%, but personal spending unexpectedly declined by -0.2%, missing the anticipated 0.2% gain.

Canada's GDP grows 0.2% mom in Dec, misses expectations

Canada's GDP expanded by 0.2% mom in December, falling short of the expected 0.3% growth. Both services-producing (+0.2%) and goods-producing industries (+0.3%) contributed to the increase, marking the fifth gain in the past six months. A total of 11 out of 20 industrial sectors posted growth.

Looking ahead, preliminary data suggests GDP grew by 0.3% mom in January, with gains led by mining, quarrying, oil and gas extraction, wholesale trade, and transportation. However, retail trade remained a weak spot, partially offsetting the overall growth.

BoE’s Ramsden sees inflation risks two-sided

BoE Deputy Governor Dave Ramsden indicated a shift in his inflation outlook, stating that he no longer views risks to achieving the 2% target as skewed to the downside. Instead, he now sees inflation risks as "two-sided," acknowledging the potential for "more inflationary as well as disinflationary scenarios".

Ramsden also raised concerns about the UK's sluggish economic growth, highlighting the possibility that the economy's supply capacity might be "even weaker" than previously assessed by BoE.

If this proves true, the UK’s "speed limit" for growth would be lower, leading to prolonged tightness in the labor market and sustained wage pressures. That would result in "greater persistence in domestic inflationary pressures."

Swiss KOF falls to 101.7, manufacturing and services under pressure

Switzerland's KOF Economic Barometer declined from 103.0 to 101.7 in February, missing expectations of 102.1.

The data suggests weakening momentum in the economy, with most production-side sectors facing increasing pressure. According to KOF, manufacturing and services sectors saw the most notable deterioration.

However, the report also pointed to some stabilizing factors, as foreign demand and private consumption showed resilience, helping to offset some of the negative trends.

BoJ’s Uchida: Yield rise reflects market’s views on economic and global developments

Speaking in parliament today, BoJ Deputy Governor Shinichi Uchida said recent rise in JGB yields "reflects the market's view on the economic and price outlook, as well as overseas developments."

"There's no change to our stance on short-term policy rates and government bond operations," he emphasized, adding that the bond holdings "continue to exert a strong monetary easing effect" on the economy.

When asked whether the prospect of further rate hikes and tapering would continue to drive yields higher, Uchida responded that it is ultimately “up to markets to decide.”

Japan's Tokyo CPI slows to 2.2% yoy in Feb, industrial production down -1.1% mom in Jan

Tokyo’s core CPI (ex-food) slowed to 2.2% yoy in February, down from 2.5% yoy and below market expectations of 2.3% yoy. This marks the first decline in four months, largely due to the reintroduction of energy subsidies. Meanwhile, core-core CPI (ex-food and energy) held steady at 1.9% yoy. Headline CPI slowed from 3.4% yoy to 2.9% yoy.

In the industrial sector, production contracted by -1.1% mom in January, a sharper decline than the expected -0.9%. Manufacturers surveyed by Japan’s Ministry of Economy, Trade, and Industry anticipate a strong 5.0% mom rebound in February, followed by a -2.0% mom drop in March.

On the consumer front, retail sales grew 3.9% yoy in January, slightly missing the 4.0% yoy forecast, but still pointing to resilient domestic demand.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0365; (P) 1.0430; (R1) 1.0462; More...

Intraday bias in EUR/USD stays on the downside at this point. Consolidations from 1.0176 should have completed with three waves up to 1.0527. Deeper fall should be seen to retest 1.0176/0210 support zone. Firm break there will resume whole decline from 1.1213. For now, risk will stay on the downside as long as 1.0527 holds, in case of recovery.

In the bigger picture, immediate focus is on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. However, reversal from 1.0199 will argue that price actions from 1.1274 are merely a corrective pattern, and has already completed.

The latest US PCE inflation data showed price pressures moderating slightly in January. Both headline and core PCE (excluding food and energy) price indices rose 0.3% month-over-month, aligning with market expectations.

On an annual basis, headline PCE inflation slowed to 2.5% yoy from 2.6% yoy, while core PCE eased to 2.6% yoy from 2.9% yoy, reinforcing the view that disinflation remains on track despite persistent price pressures in some sectors.

However, the consumer sector showed signs of strain. Personal income surged 0.9% mom, far exceeding expectations of 0.3%, but personal spending unexpectedly declined by -0.2%, missing the anticipated 0.2% gain.

Full US Personal Income and Outlays release here.

Canada's GDP expanded by 0.2% mom in December, falling short of the expected 0.3% growth. Both services-producing (+0.2%) and goods-producing industries (+0.3%) contributed to the increase, marking the fifth gain in the past six months. A total of 11 out of 20 industrial sectors posted growth.

Looking ahead, preliminary data suggests GDP grew by 0.3% mom in January, with gains led by mining, quarrying, oil and gas extraction, wholesale trade, and transportation. However, retail trade remained a weak spot, partially offsetting the overall growth.

Full Canada GDP release here.

The Canadian dollar is calm in the European session, trading at 1.4438, up 0.02% on the day. Later today, Canada releases GDP and the US publishes the Core PCE Price Index. USD/CAD has rallied for five straight trading days, gaining 1.8% during that time and hitting a three-week high.

Canada’s GDP expected to rebound in January

Canada’s economy is projected to have gained 0.3% m/m in December, following a 0.2% decline in November. Canada will also release GDP for fourth-quarter 2024, which is expected at 1.8% y/y, up from 1% in the third quarter. The forecast for an improvement in GDP is based on a busy December shopping season, as consumers took advantage of a sales tax holiday which started on December 15.

The Bank of Canada has also projected at 1.8% gain in GDP for Q4 2024 but remains concerned about the damage from potential US tariffs on Canadian products. The Trump administration has sent mixed messages as to whether the tariffs will take effect on March 4, leaving Canadian officials in the dark. The US imposed and then revoked 25% tariffs on Canada on Feb. 4 and suspended the tariffs for 30 days.

The BoC has said that a trade war with the US would inflict “permanent” damage on Canada’s GDP and raise inflation. Canada sends about 75% of its exports to the US and is extremely vulnerable to US tariffs. The BoC lowered rates by a quarter-point at the January 29 meeting but if the US reinstates tariffs against Canada next week, it would complicate any plans to continue lowering rates. The BoC meets next on March 12.

The US delivers core PCE inflation, the Fed’s preferred inflation gauge, later today. The market estimates for January stand at 2.6% y/y (vs. 2.8% in December) and 0.2% m/m (vs. 0.3% in December). This would indicate that inflation remains sticky and is above the Federal Reserve’s target of 2%. The Fed is in no rush to cut rates, unless inflation drops more than expected or the labor market, which has been cooling slowly, suddenly deteriorates.

• USD/CAD recoups drop below EMAs as March tariffs become reality.
• Technical indicators suggest quick rebound is fragile; focus on 1.4470.

USD/CAD made a strong comeback just when traders were getting nervous about the bearish correction below the 20- and 50-day exponential moving averages (EMAs). Surprising news that the US president will not extend the monthly pause, and tariffs on Canadian, Mexican and Chinese imports could happen next week after the March 4 deadline fueled fresh demand for the greenback. Having set a solid footing near the 1.4150 support area, the pair accelerated straight towards the key resistance of 1.4470.

While the rebound is encouraging, technical indicators suggest that this could be a fragile recovery. The RSI and the stochastic oscillator are already knocking on overbought territory, meaning the rally could run out of steam unless there is a solid push past 1.4470. If that level breaks, the price may initially test the 1.4530 level before surging towards the 2020 peak of 1.4667. And if the bulls stay in control, the elusive 1.4800 round level could be back on the radar.

On the downside, the 20- and 50-day EMAs coupled with the 38.2% Fibonacci mark of 1.4270 could limit selling pressures. A clear close below this floor could send the pair sliding back to 1.4100-1.4150. Failure to hold there may confirm an extension towards the 1.4000 psychological level and the 200-day SMA.

In brief, USD/CAD’s latest bounce is promising but don’t pop the champagne just yet. If the pair can’t decisively clear 1.4470, this could turn into a classic bull trap.

As we reported on 3 February, Trump’s tariffs pushed USD/CAD to a 22-year high.

However, a one-month tariff delay led to a sharp drop, sending USD/CAD to its 2025 low near 1.41550. As the end of the delay approaches, the pair has been climbing again since mid-February (as shown by the arrow).

Yesterday, President Trump confirmed that his proposed 25% tariffs on Mexican and Canadian goods will take effect on 4 March. This dashed hopes for another delay and triggered a breakout above the 1.43600 resistance level.

Technical Analysis of USD/CAD

Above current levels, key resistance lies at 1.44600, which has held firm since mid-December. However, drastic measures from Trump’s administration could drive further price movement within the blue-marked channel.

Expect volatility spikes ahead of Canada’s GDP release, scheduled for today at 16:30 GMT+3.

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The Japanese yen has extended its losses on Friday. In the European session, USD/JPY is trading at 150.39, up 0.40% on the day.

Tokyo core CPI edges lower to 2.2%

After a string of releases that pointed to an upswing in inflation, Tokyo core CPI for February reversed the trend on Friday. Japan’s CPI, PPI and the Bank of Japan Core CPI all accelerated in the most recent releases but Tokyo Core CPI surprised to the downside, with a gain of 2.2% y/y. This was down from 2.5% in January and below the market estimate of 2.3%.

The soft Tokyo Core CPI reading is unlikely to raise many eyebrows at the Bank of Japan. The index remained above the BoJ’s 2% target for a fourth consecutive month and Bank policymakers are expected to remain hawkish about monetary policy. The BoJ raised rates in January and also revised its inflation forecasts upwards, a signal that further rate hikes are on the table.

The markets are expecting the BoJ to continue tightening and this has been resulted in higher yields for Japanese government bonds, which hit a 15-year high earlier this month. Governor Kazuo Ueda responded to the sharp rise in bond yields with a warning that the central bank stood ready to intervene in the bond markets. Ueda’s threat appears to have worked as bond yields have retreated slightly.

US Core PCE expected to tick lower

The US wraps up the week with core PCE inflation, the Fed’s peferred inflation gauge. The market estimates for January stand at 2.6% y/y (vs. 2.8% in December) and 0.2% m/m (vs. 0.3% in December). This would still be above the Federal Reserve’s target of 2%. The Fed is not expected to lower rates before May, barring an unexpected surprise from inflation or employment data.

USD/JPY Technical

• USD/JPY tested resistance at 150.39 earlier. Above, there is resistance at 150.98
• There is support at 149.57 and 148.98

Market Picture

Crypto market capitalization collapsed by 7.5% in the last 24 hours to $2.65 trillion, the lowest level since November 10th. Unlike the dynamics of the previous two days, there was no rebound at the beginning of Friday; there was just a timid attempt at consolidation. It seems that the market has found the pain point of short-term buyers, knocking out the “weak hands.”

Bitcoin has lost 8.6% over the last day, having pulled back under $79,000. The formal bearish trend boundary and the 200-day moving average remain above the current price level. Bitcoin will completely nullify Trump’s rally if it pulls back to the $70K area, which has acted as resistance for most of the past year. Going below will not be easy—the market is too oversold.

Ethereum has pulled back below $2100, trading in the area of last year’s lows and attempting to break lower. This bad news is amplified by the “death cross,” a bearish signal that occurs when the 50-day moving average dips below the 200-day moving average. Ironically, this signal was followed by stabilization last August, although a full-fledged return of buyers had to wait three months.

News Background

Presto Research attributes the sharp drop in Bitcoin in recent days to hedge funds winding down positions focused on “basis spread” arbitrage. Basis on CME and Binance, in terms of annualized rates, are not yet showing signs of recovery.

SignalPlus draws attention to the weakening of Bitcoin’s implied volatility as prices fall, which acts as a symptom of speculators abandoning near-term growth expectations.

Gemini cryptocurrency exchange co-founder Cameron Winklevoss said that the US SEC has stopped investigating the platform and will not recommend any enforcement action.

Tether’s USDT stablecoin will soon support transactions on the Tron blockchain with no fees in TRX. According to Justin Sun, founder of the Tron ecosystem, the new option will become available in early March.

Switzerland's KOF Economic Barometer declined from 103.0 to 101.7 in February, missing expectations of 102.1.

The data suggests weakening momentum in the economy, with most production-side sectors facing increasing pressure. According to KOF, manufacturing and services sectors saw the most notable deterioration.

However, the report also pointed to some stabilizing factors, as foreign demand and private consumption showed resilience, helping to offset some of the negative trends.

Full Swiss KOF release here.