Sample Category Title

Gold has hit record highs, moving into territory above 2800. Strong buying following the November-December correction suggests the end of the correction phase and the beginning of a new growth cycle.

A breakout to new highs activates a Fibonacci expansion pattern. The fundamental upside momentum in gold started in October 2023 and formed a peak at the end of October 2024. This was followed by a correction to 76.4% of the initial rally, which is typical of strong bull markets. The formal technical target now looks to be the $3,400 per troy ounce area. This is more than 20% above current levels but is achievable in the two- to four-quarter timeframe.

Canadian Highlights

• President Trump continues to threaten Canada with a 25% tariff on its U.S. exports as early as Saturday. A prolonged U.S.-Canada trade skirmish could dampen growth significantly and lift inflation.
• The Bank of Canada cut its policy rate by 25 basis points this week, bringing it to 3.0%. A trade battle would likely warrant more rate cuts than we built into our December baseline.
• The November GDP report suggests that Canada’s economy performed well in Q4, indicating solid momentum heading into the potential trade shock.

U.S. Highlights

• The U.S. economy ended 2024 on solid footing, expanding at a 2.3% annualized pace. The consumer did the heavy lifting, with spending accelerating in the fourth quarter.
• The Fed’s preferred inflation gauge, the core PCE deflator, continued to hover somewhat above target in December, growing at 2.8% year-on-year. But trends over the past few months suggest further cooling ahead.
• Major action may come on the trade policy front as early as this weekend, with President Trump reiterating his intentions to impose tariffs on Canada and Mexico – America’s largest trading partners.

Canada – Tariffying

On Thursday President Trump reiterated his threat of a 25% tariff on Canadian imports as early as Saturday. This opens the strong possibility that Canada will retaliate with tariffs of its own, although the dollar amount of U.S. imports targeted by these tariffs isn’t yet public news. There is still some time left for lawmakers in both countries to negotiate a deal to avoid this outcome, but it seems increasingly likely that tariffs are imminent. The Canadian dollar sagged a bit on the news but is holding at around 0.69 U.S. cents as of writing. There could be even more downside if the tariffs do indeed hit.

Amid this swirling uncertainty, the Bank of Canada (BoC) cut its policy rate by 25 basis points this week, bringing it to 3.0%. This reflected the Bank’s desire to soak up excess supply in the economy. It also made sense from a risk management perspective given the potential for a significant trade shock. Because of the uncertainty on the level and extent of any imposed tariffs, the Bank’s accompanying economic forecast didn’t explicitly build them in. In this “optimistic” scenario, GDP was seen as expanding by 1.8% both in 2025 and 2026. Inflation, meanwhile, was seen as hitting 2.1% by 2025 Q4, capping off what was a solid outlook. Alas, this goldilocks outcome is now under heavy threat, and may end up being a reminder of what could have been.

Ultimately, the damage to the Canadian economy from this skirmish will be determined by how long it lasts. To get a sense of potential impacts, it’s helpful to highlight a BoC study accompanying its interest rate decision which analyzed 25% across-the-board tariffs permanently applied by the U.S. on all its trading partners, with Canada retaliating with 25% tariffs of its own. In this scenario, GDP growth was about 2 percentage points (ppts) lower than a no-tariff situation and inflation was about 0.3 ppts higher, on average, in the first two years (Chart 1). This implies that 2025 GDP growth would flip from being firmly positive, to slightly negative, using the Bank’s baseline forecast.

The Bank didn’t have to wait long for fresh news on the state of the economy. This morning’s GDP report showed a 0.2% monthly decline in November. However, GDP looks to have picked up by the same amount in December, according to Statcan’s preliminary estimate. All told, these dynamics suggest that 2024 Q4 growth was firm at around 2% (Chart 2). At least the economy had decent momentum heading into this potentially damaging trade skirmish.

How will monetary policy respond in this backdrop? According to the BoC, the answer is complicated by the fact that tariffs will negatively impact growth and lift inflation. At a minimum, tariffs would cause a one-time increase in price levels, with a potential to morph into a more sustained problem if inflation expectations are impacted. Our initial thought is that a prolonged trade battle would bolster the case for the Bank’s policy rate fall by more than what we’d imbedded in our December projection.

U.S. – Stock Market Rowdy, Economy Steady

The last week of January began on a soft note for stock markets. As it became apparent that a low-cost Chinese artificial intelligence start-up (DeepSeek) could threaten the dominance of American rivals, the valuations of several large tech firms took a hit, weighing on major indexes. Some recovery ensued later in the week, with the S&P 500 and tech-heavy NASDAQ nearly erasing the losses from last week’s close (at the time of writing). In contrast to the rowdiness of the stock market, signals out of the economy continued to point to steadiness.

The first read on fourth quarter GDP showed that the U.S. economy ended last year on a solid footing as it grew at 2.3% quarter-on-quarter annualized. The consumer did the heavy lifting, offsetting a notable drag from gross fixed private investment (Chart 1). Goods spending carried the torch once again, propelled forward by a double-digit increase in durable goods, but services also notched a mild acceleration. Meanwhile, within the softness of the broad private investment category, residential investment was a bright spot for a change, lifted by a double-digit gain in housing starts last quarter. Looking at the big picture, the fact that the economy essentially sustained 2023’s pace through 2024, despite the still elevated interest rate environment, is an impressive accomplishment.

Friday morning’s monthly PCE report provided some more detail with respect to consumption and inflation trends at the turn of the year. The handoff to the start of 2025 is solid, as real spending growth remained robust in December, growing at nearly 5% annualized. This, as strength in services helped offset some cooldown in goods spending from the double-digit gain in the month prior. Additionally, the Fed’s preferred inflation gauge – core PCE – held at 2.8% in year-on-year terms. The fact that the 3-month and 6-month annualized rate of change in core PCE inflation gravitated lower toward the target, was a welcome development (Chart 2).

With inflation still somewhat elevated (though appearing to head in the right direction) and the economy remaining on solid footing, the Fed can afford to take a cautious approach to further loosening monetary policy. The FOMC left the policy rate unchanged at this week’s meeting – a move that was widely anticipated. Fed Chair Powell acknowledged that “we don’t need to be in a hurry to adjust our policy stance”, while nodding to the uncertainties and the risks related to major policy changes out of Washington, such as on trade policy. Powell reiterated a wait-and-see approach, stating that they’d need any new policy changes to be articulated first, before assessing their impacts on the economy.

Major action on the trade front may come as early as this weekend, with President Trump reiterating his intention to impose 25% tariffs on Mexico and Canada on February 1st. There’s still a possibility that cooler heads will prevail, as President Trump’s top pick for commerce secretary suggested that tariffs could be avoided if swift action was taken on the border issues. Still, the deadline is fast approaching and any trade skirmishes with its neighbors will be problematic – the two countries are America’s largest trading partners and are deeply integrated in supply chains.

Summary

United States: Economic Momentum Holding, for Now

• The economy ended 2024 on a solid note with a 2.3% Q4 increase in real GDP. Volatile inventory swings lowered the headline, but real final sales to domestic private purchasers rose by a robust 3.2%. Fervent consumer spending continues to drive economic activity, while inflation is receding at a snail’s pace. That said, trends in the Employment Cost Index suggest that the labor market is no longer a meaningful source of price pressures.
• Next week: ISM Manufacturing & Services (Mon. & Wed.), Employment (Fri.)

International: Foreign Central Bank Bonanza!

• It was a busy week for foreign central banks, with several institutions offering their first monetary policy assessments of 2025. The European Central Bank lowered its Deposit Rate by 25 bps to 2.75% and delivered commentary that was, in our view, consistent with further easing at upcoming meetings. The Bank of Canada and Sweden's Riksbank also lowered their policy rates by 25 bps, and we have updated our forecast to look for an earlier start to Reserve Bank of Australia policy easing. In the emerging economies, Brazil's central bank delivered a hawkish-leaning 100 bps rate hike, and China's PMI data disappointed.
• Next week: Eurozone CPI (Mon.), Bank of England Policy Rate (Thu.), Banxico Policy Rate (Thu.)

Interest Rate Watch: In Little Hurry to Cut Further

• As universally expected, the Federal Open Market Committee (FOMC) left its target range for the federal funds rate unchanged at 4.25%-4.50% on Wednesday. With inflation remaining stubbornly above target and real economic activity holding up reasonably well, we see little reason for the FOMC to cut rates in the near term.

Topic of the Week: Nobody Puts ASI in the Corner...Except Tariffs

• The Animal Spirits Index (ASI) finished out 2024 on a soft note, hitting its lowest level since November 2023. The index dropped 0.44 points in December to 0.31—the largest monthly decrease in over a year. Though the ASI remained in positive territory for all of 2024, it has softened considerably from a five-year high of 0.96 in March.

Full report here.

Canada’s labour market likely continued to underperform in January as it has consistently shown a more pronounced deterioration than the U.S. job market.

We expect Canada added 15K jobs in January, but with a larger increase in the labour force nudging the unemployment rate higher. We expect it will rise to 6.8%, partially retracing a pullback to 6.7% in November from 6.9% in October but still up more than a percentage point from a year ago. Canadian household spending has shown signs of life, but sentiment among businesses remains lethargic as firms continue to face challenges with spare capacity after a prolonged string of slow demand growth. Companies reported limited hiring intentions for the year ahead in the Q4 Bank of Canada Business Outlook Survey.

Hiring demand has fallen sharply – job openings were still running 23% below year-ago levels in November. Wage growth has shown signs of slowing and smaller increases in wages in job postings argue for further slowing ahead. The rise in the unemployment rate to-date has been driven more than usual by students and new job seekers, but layoffs have still accounted for almost 40% of the increase in the unemployment rate over the last two and a half years.

Over the past year, job gains have been largely concentrated in the services sector – almost half from public sector education and healthcare jobs. We expect this will continue as the manufacturing sector faces weaker demand and threats of disruption from tariffs. With weaker population growth expected from reduced immigration targets, the pace of job creation is expected to continue to slow throughout 2025.

U.S. labour markets, however, continue to look solid by comparison. We expect January payroll numbers to show the U.S. added 190K jobs on Friday, and for the unemployment rate to tick down to 4.0%. We continue to expect resilience in the U.S. jobs market through 2025 but hiring rates continue to fall, indicating tight conditions have eased. The pace of job creation will be challenged over the medium term by an ageing population and slower population growth (made worse if mass deportations of migrants materializes).

Week ahead data watch

We expect the U.S. trade deficits to widen to $97.4B in December. According to the advance economic indicator report, the goods deficit widened by $18.6B from last month, mainly driven by higher imports and weaker exports.

We expect Canadian exports expanded by 1.9% in December, in line with stronger rail carloading data. We expect imports to dip slightly given motor vehicle shipments weakened.

• Dollar continues to be driven by tariff headlines.
• Nonfarm Payrolls to reshape Fed expectations.
• BoE to cut by 25bps; focus to fall on forward guidance.
• Canadian jobs report key for BoC’s next move.

In the mercy of tariffs

The US dollar has staged a recovery this week, corroborating the notion that the latest pullback on news that Trump may adopt a softer stance on tariffs than his pre-inauguration rhetoric suggested, was just a corrective phase.

Tariffs remained the main driver, with Wednesday’s Fed decision adding some extra fuel to the rebound. After Colombia succumbed to Trump’s threats, investors’ concerns were amplified again, with many perhaps thinking that the US President may harden his rhetoric to get what he wants from the rest of the world. And indeed, Trump himself confirmed that view after he rejected reports that US Treasury secretary Scott Bessent is pushing for only 2.5% tariffs that would be gradually lifted to 20%, saying that tariffs would be “much bigger.”

In the shadows of the first imposition of 25% tariffs on Canadian and Mexican imports on February 1, the Fed decided on Wednesday to keep interest rates unchanged. At the press conference following the decision, Fed Chair Powell acknowledged signs of progress in reducing inflation, adding though that “non-market” prices remain stubbornly high and stressing that they are in no hurry to make further adjustments. They will wait for more clarity on the economic front as well as on government policy.

From around 50bps worth of rate reductions for this year, Fed fund futures are now pointing to 45bps as investors lifted only slightly the implied rate path. The next quarter-point reduction is still nearly fully priced in by June.

Nonfarm Payrolls enter the limelight

With all that in mind, attention next week is likely to fall on the NFP employment report for January. Powell noted that further labor market weakening is not needed for the inflation target to be met as the path for continued disinflation remains intact. However, he did not mention what will happen in the case of unexpected labor market tightening.

In December, the economy added 256k jobs, with average hourly earnings ticking down, but remaining elevated close to 4.0% y/y. Another round of strong employment and wage growth could intensify concerns about a resurgence of inflation in the months to come, especially if Trump kicks off the tariff game on February 1. Market participants are likely to start doubting again whether two rate cuts will be needed this year, which could allow the US dollar to extend its latest recovery.

The ISM manufacturing and non-manufacturing PMIs on Monday and Wednesday, as well as the ADP private employment report on Wednesday will also be closely monitored ahead of Friday’s NFP data.

Will the BoE opt for a hawkish cut?

After the BoJ, the Fed, the ECB and the BoC, it will be the BoE’s turn to hold its first policy decision for 2025. Following the concerns over the sustainability of the new government’s fiscal plans, where UK bonds and the pound tumbled on fears of a Truss 2.0 budget crisis, investors became more convinced that a rate cut would be appropriate at this gathering.

Taking also into account the cooler-than-expected CPI numbers for December and the sluggish UK growth, investors are now penciling in around a 90% chance of a quarter-point rate cut at this gathering, while anticipating nearly another two by the end of the year.

That said, both the headline and the core inflation rates remain above the Bank’s objective of 2%, with the latter standing at 3.2% y/y. What’s more, although the surge in bold yields was largely reversed, the pound recovered only a portion of its losses. It is actually the worst performing major currency so far this year, posing upside risks to UK inflation.

Therefore, even if the well-anticipated rate cut is delivered, it may be a hawkish cut, with the Bank revising up its inflation projections, especially with rent inflation remaining stagnant at 7.6% y/y and services inflation still above 4.0% y/y. Officials may signal that they will take their decisions meeting by meeting, avoiding to pre-commit to any future rate cuts. This may disappoint those expecting another two reductions this year and thereby allow the pound to gain some more ground.

Will the jobs data allow the BoC to take the sidelines?

At the same time with the US jobs data, Canada releases its own employment report for January. This week, the Bank of Canada trimmed interest rates by another 25bps and revised down its growth forecasts, noting that they are concerned about US tariffs.

However, they also added that tariffs could also stoke persistently high inflation, which led market participants to pencil in around a 50% probability for policymakers to take the sidelines at the next policy gathering in March.

In other words, the BoC will find itself between a rock and a hard place and Friday’s jobs report may help tilt the scale towards a pause or another rate cut, depending on whether it will come in strong or soft.

Eurozone CPIs, NZ employment and Japan’s wages

Flying from Canada to the Eurozone, the ECB also decided to reduce interest rates this week, noting that the disinflationary process is well on track and that the economy is still facing headwinds. In the statement, it was noted that the Bank is still not pre-committing to a particular rate path. At the post-decision conference, President Lagarde said that interest rates are still in restrictive territory and that there was no discussion on whether it's time to stop reducing rates.

The market was quick to price in around an 85% chance for another quarter-point cut in March and should Monday’s flash CPI data reveal cooling inflation, that probability could go even higher, thereby weighing on the euro. Eurozone’s retail sales are also on next week’s agenda.

Elsewhere, during Tuesday’s Asian session, New Zealand’s employment report for Q4 could prove crucial on whether the RBNZ will cut by 25 or 50bps, while the following day, Japan’s wage data for December could shape expectations about the BoJ’s next rate increase.

On the earnings front, the tech-related reporting continues with Alphabet and AMD on Tuesday, and Amazon on Thursday.

Soft US and euro area data weighed slightly on rates, which largely did not move much through the week, at least until German inflation unexpectedly declined significantly in several of the big Bundesländer, which drove 2Y Bund yields 10bpslower. This puts the spotlight on the euro area total released Monday. January is always a special month setting the stage for the year, because many prices are adjusted only at new year.

After a long period of some serious zigzagging the dollar has been steadier this week. The fallout of US tariff plans will continue to be a key driver of volatility in FX markets, though. European equities outperformed US in a week when the Chinese AI start-up DeepSeek took the spotlight as it poses a challenge to US AI developers to compete without relying on the most advanced chips.

The ECB cut its key interest rates by 25bp in a unanimous decision as widely expected. Despite several attempts from journalists, we did not get much colour on the final destination for this cutting cycle.

The decision followed data showing that the euro area stalled in Q4 with shrinking French and German economies still weighing down. The new year has started off a bit stronger as the current situation index from the IFO data supported the better-than-expected German PMI data for January. Expectations declined further to the lowest level in a year though, and we continue to expect the economy to stagnate in the first half of this year.

The FOMC meeting was as uneventful as the one in Frankfurt. The Fed kept rates unchanged, and Powell delivered a balanced message to markets while steering clear of toxic political questions. He noted that the committee is in no hurry to adjust the policy stance. Data out of the US ticked in a bit weaker than expected, with q/q Q4 GDP growth of 0.6%, slightly below expectations and softer vibes from the labour market with the "jobs plentiful"-index declining to the lowest level since September.

The calendar is packed with interesting highlights next week. Besides inflation data, on Monday French lawmakers will discuss the 2025 budget, and likely adopt it without a majority. Later in the week, we will see if PM Bayrou survives a no-confidence vote. On Friday, the ECB publishes a new paper on the neutral rate of interest, which might give us some further insight into where we should expect the cutting cycle to end up.

In the US, the first tariffs should take effect over the weekend. On the data front, we have a packed schedule with ISM data, JOLTs and jobs report as the key highlights. After a long period of solid job market data, it will be interesting to see if it continues. We expect nonfarm payrolls growth to slow down to +150k. We expect the Bank of England to cut the policy rate by 25bp to 4.50% on Thursday. We expect a cautious message, focusing on a gradual cutting cycle.

Full report in PDF.

Markets

Disappointing EMU Q4 growth yesterday triggered a bull steepening on EMU yield’s markets. Today, softer than expected domestic price data continued this dynamic. French HICP inflation declined 0.2% M/M, slowing the Y/Y measure from 1.9% to 1.8% (1.9% expected). German Länder data published throughout the morning also suggested a downside CPI surprise. The domestic measure indeed declined (-0.2% M/M and 2.3% Y/Y vs 2.6% expected). Core inflation excluding food and energy after the December uptick fell back to 2.9% from 3.3%. It was especially goods inflation easing (0.9%). Services inflation remained elevated (4.0%). Still, due to a different statistical set-up, the harmonized measure printed as expected (-0.2 M/M and 2.8% Y/Y, unchanged from December). Yesterday, at the post-meeting ECB press conference, Chair Lagarde indicated the bank is confident inflation will return to target, most likely resulting in an additional 25 bps cut at the March meeting. At the same, cumulative ECB easing has become substantial and policy is becoming ever less restrictive. This will trigger a debate on what is a neutral policy rate and whether the ECB should move below this level from March on. Whatever the outcome of this debate, German yields today again are ceding between 7.0 bps (2-y) and 3.0 bps (30-y). After this week’s setback, EMU money markets again embrace the scenario of the ECB lowering its policy rate to 2.0% by the end of this year. The jury is still out, but for this to happen inflation will probably will have to follow an almost perfect trajectory. US yields today again hold to the established ranges with yields change less than 1 bp aligning with the Fed’s wait-and-see stance. US December income (0.4%) and especially spending (0.7%) were solid as indicated in yesterday’s GDP report. The monthly core PCE deflator was unchanged at 2.8% Y/Y, supporting the Fed assessment that ‘inflation remains somewhat elevated’. US and EMU equities again are trading in positive territory (EuroStoxx 50 +0.3%, S&P 500 +0.5%) as solid earnings outweigh geopolitical uncertainty (the threat of tariffs in particular). In this respect, investors keep a eye on the White House, awaiting more concrete news regarding potential tariffs on Canada, Mexico and China this weekend. Brent oil trades little changed near $77 p/b.

In line with the market reaction function of late, uncertainty on tariffs again results in by default USD strength. DXY again holds north of 108(35). EUR/USD is also ceding ground (1.037), but losses could have been more outspoken given the sharp decline in EMU yields yesterday and today. Sterling marginally outperforms the euro (EUR/GBP 0.8365) as markets look forward to next week’s BoE policy meeting. The Canadian dollar (USD/CAD 1.4530) is trading near the ‘panic levels’ briefly touched at the peak of the corona sell-off early 2020.

News & Views

The ECB in a regular survey found that Euro area manufacturers are more worried about cheaper imports from China than tariffs from the US. Only half of the manufacturers contacted believed US levies would impact their business, with many of them noting they were already producing “local for local”. Some also said they are only exporting highly sophisticated goods which are difficult to substitute. Instead, though, they are more concerned about trade flows redirecting in case of disruptions to the US-Sino trade relationship. "In the absence of protective EU measures, this led more contacts to expect a negative effect on prices in their sector in the euro area than a positive one," the survey reported, adding that "In the event of protective measures and retaliation leading to a more generalised tariff war, it was much more likely that costs and prices would rise."

UK’s Nationwide reported house prices rising marginally at the start of the new year. House prices in January inched 0.1% m/m higher compared to the 0.3% analyst estimate. The yearly print slowed from 4.7% to 4.1% as a result. Nationwide’s chief economist Gardner said the market nevertheless continues to show resilience despite ongoing affordability pressures. While there has been an improvement in affordability over the last year, they remain stretched by historic standards. Monthly mortgage payments currently equal about 36% of an average UK net income, which is well above the long-run average of 30%. House prices remain high relative to average earnings too, posing high hurdles for the initial deposit households need to cover upfront. “This is a challenge that has been made worse by the record increase in rents in recent years, which, together with the cost-of-living crisis more generally, has hampered the ability of many in the private rented sector to save.”, Gardner said.

The Canadian dollar is steady on Friday. In the North American session, USD/CAD is trading at 1.4523, up 0.23% on the day.

The week wrapped up with Canada’s GDP, a report card on the strength of the economy. The November reading of -0.2% was a disappointment. This marked the first contraction of the year. There was better news in December, with an initial estimate of a 0.2% gain.

Will Trump impose 25% tariffs on Feb. 1?

US President Trump has barely warmed the chair in the Oval Office but he has managed to disrupt financial markets with his threat of tariffs against US trading partners. There was some relief in the market when Trump did not announce tariffs on his first day in office but he has reiterated that he will slap Canada and Mexico with 25% tariffs on Feb. 1. Canada and Mexico are the two largest trade partners of the US and a trade war would be damaging for all sides.

Canada would be particularly hit hard by US tariffs, as some 76% of Canada’s exports are sent to its southern neighbor. Bank of Canada Governor Macklem called the trade threat a “major new uncertainty” in December, even before Trump took office and Canada is bracing for a new, nasty reality if Trump makes good on his tariff threats.

The prospect of a trading war between Canada and the US is weighing on the Canadian dollar, which has plunged around 7% since October 1. The Bank of Canada lowered rates by a quarter point on Wednesday while the Federal Reserve maintained rates on the same day. With the BOC expected to make more cuts than the Fed this year, the US/Canada rate differential would widen even further and that could push the Canadian dollar lower.

USD/CAD Technical

• USD/CAD is testing resistance at 1.4493. Above, there is resistance at 1.4593
• There is support at 1.4390 and 1.4290

Personal income continued to grow robustly in December, rising by 0.4% month-over-month. Real disposable income, which excludes the impact of taxes and inflation, also edged higher, rising by 0.1% m/m.

Income gains continued to support consumer spending. Coming on the heeds of solid gains in the prior two months, nominal spending increased 0.7% in December. Stripping out inflation, the volume of spending also rose, increasing by 0.4% on the month and 3.1% from the year ago.

December marked another strong month of spending on goods (+0.7% m/m), led by durables (+1.1% m/m). The gain in services spending was more modest (+0.3%).

Inflationary pressures were little changed in December. The Fed's preferred inflation metric, the core PCE price deflator, rose 0.2% m/m, up slightly from the 0.1% increase seen in November. In year-over-year terms, core PCE inflation remained unchanged at 2.8%.

With spending outpacing income growth, the personal savings rate edged lower in December, declining to 3.8% down from 4.1% in November.

Key Implications

It appears that U.S. consumers were off to the races at the end of last year. Yesterday's GDP report had already telegraphed that consumer spending ended 2024 with bang, rising by 4.2% (annualized) in the fourth quarter. However, today's release provided additional color, showing that spending outpaced income growth yet again in December. In fact, this was the case in 9 out of 12 months of last year, coming at the expense consumers' ability to set money aside for the rainy day. As a result, personal saving rate declined from 5.5% at the start of 2024 to 3.8% last month.

Last year's strong consumer spending is even more impressive given that it happened alongside high interest rates and a cooler labor market. Some of the recent strength in spending on durable goods could be due to post-hurricanes replacement demand, and consumers racing to buy electric vehicles ahead of incentives being cancelled. We are still expecting real consumer spending to moderate closer to 2% this year, although the recent performance makes us wonder if U.S. consumers will once again surprise to the upside, helped by large stockpile of wealth they've accumulated since the pandemic.

Daily Pivots: (S1) 1.0363; (P) 1.0415; (R1) 1.0445; More...

No change in EUR/USD's outlook and intraday bias stays neutral at this point. On the downside, break of 1.0371 support will indicate rejection by 38.2% retracement of 1.1213 to 1.0176 at 1.0572 and retain near term bearishness. Retest of 1.0176 low should be seen next. On the upside, though, decisive break of 1.0572 will raise the chance of bullish reversal, and target 61.8% retracement at 1.0817.

In the bigger picture, outlook is mixed as fall from 1.1274 (2023 high) could either be the second leg of the corrective pattern from 0.9534 (2022 low), or another down leg of the long term down trend. Strong support from 61.8 retracement of 0.9534 to 1.1274 at 1.0199 will favor the former case, and sustained break of 55 W EMA (now at 1.0722) will argue that the third leg might have started. However, sustained trading below 1.0199 will favor the latter case and bring retest of 0.9534 low.