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Markets

Weakness in core bonds was the sole exemption to another wise dull trading day yesterday. It’s hard to point an exact reason. The move already started ahead of ECB Wunsch and Fed Bowman comments, the release of January FOMC Minutes or a weak 20-yr Bond auction. ECB Wunsch recently moderated his hawkish tone, but yesterday showed his true colors again. He calls it too early to get hopes up on (lower) rates with high wage pressure and a tight labour market suggesting that policy might stay tight for longer. Fed Bowman, usually scarce with comments, said that the time for lower rates is certainly not now. January FOMC Minutes confirmed that view with most participants noting the risk of moving too quickly to ease the stance of policy. Only two of them highlighted the risks of keeping rates too high for too long. On the balance sheet, many participants suggested that it would be appropriate to begin in-depth discussions at the March meeting to guide an eventual decision to slow the pace of its runoff (at some point later in time). Finally, the US Treasury’s 20-yr bond auction tailed significantly with below average demand (2.39 bid cover). Daily changes on the US yield curve varied between +2.9 bps (30-yr) and +5.4 bps (2-yr) in the close. Yields tested last week’s post-CPI and YTD highs, but technical breaks didn’t occur. Several tenors are bumping into 100d moving averages as well (eg 4.67% at 2-yr and 4.32% at 10-yr). German yields added 5.6 bps (30-yr) to 8 bps (5-yr) in a daily perspective. German yields managed new YTD highs across the curve.

Strong Nvidia earnings after WS close lifts risk sentiment in Asia this morning. The Japanese Nikkei 225 finally sets a new record high after 34 years! EUR/USD profits from general sentiment, leaving the 1.08-zone slowly behind. Global PMI’s, ECB Minutes of the January meeting and an avalanche of Fed speakers feature on today’s agenda. With both US and EMU money markets now finally convinced that central bankers will conduct a first rate cut at the earliest in June, we fear that the scope for a big market reaction on the data is limited. If any, market moves could be strongest in case of positive European surprises. This could cause some more underperformance of German Bunds against US Treasuries and together with positive risk sentiment extend EUR/USD’s recent rebound.

News & Views

News agency Bloomberg suggests that the EU is poised to approve the release of €6.3bn in post-pandemic aid to Poland as early as next week. People familiar with the discussion indicate that the EC will accept a package of recent political commitments as sufficient to trigger the first payment from almost € 60bn in grants and loans that have been blocked over rule-of law concerns as the previous government failed to meet a series of milestones on reversing changes in the judiciary. However, the final decision hasn’t been taken yet as some details still have to be ironed out. Any decision of the EC also needs to be rubberstamped by EU member states. Approval of post-pandemic aid would ultimately pave the way for unlocking an additional €76bn in cohesion funds. The zloty reversed intraday losses after the Bloomberg report to close at EUR/PLN 4.3175.

The Indian HSBC composite PMI suggests that activity will continue growing at a strong pace. The PMI rose from 61.2 to 61.5, the highest level in 7 months. The move was supported by a gain both in the manufacturing measure (56.7 from 56.5) and the services index (62 from 61.8). New orders across India's private sector rose for the 31st successive month. International markets again made a positive contribution to companies' order books, as seen by the fastest expansion in new export work since last September, mainly driven by orders for goods.. Despite the solid growth performance, the rate of charged inflation for Indian goods and services receded to the weakest in a year as companies were said to have generally observed a lack of cost pressures. Input prices increased at the slowest pace in three-and-a-half years. Overall business confidence eased from January, but remained solid. The Indian Rupee is captured in a very slow strengthening trend against the dollar since end last year trading near USD/INR 82.93, compared to 83.40 mid-December.

Daily Pivots: (S1) 1.0799; (P) 1.0811; (R1) 1.0833; More...

Intraday bias in EUR/USD stays on the upside for the moment. Sustained trading above above 55 D EMA (now at 1.0832) will argue that fall from 1.1138 has completed and target this resistance. Meanwhile, rejection by 55 D EMA, followed by break of 1.0761 minor support will retain near term bearishness, and bring retest of 1.0694 first.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern to rise from 0.9534 (2022 low). Rise from 1.0447 is seen as the second leg. While further rally could cannot be ruled out, upside should be limited by 1.1274 to bring the third leg of the pattern. Meanwhile, sustained break of 1.0722 support will argue that the third leg has already started for 1.0447 and possibly below.

Daily Pivots: (S1) 149.96; (P) 150.18; (R1) 150.50; More...

Intraday bias in USD/JPY remains neutral as consolidation from 150.87 is extending. In case of another retreat, downside should be contained by 148.79 resistance turned support to bring another rally. Above 150.87 will resume the rise from 140.25 to 151.89/93 key resistance zone. Decisive break there will confirm larger up trend resumption of 155.50 projection level next. However, firm break of 148.79 will turn bias to the downside for 145.88 support.

In the bigger picture, fall from 151.89 is seen as a correction to the rally from 127.20, which might have completed at 140.25 already. Firm break of 151.89/93 resistance zone will confirm up trend resumption, and next target will be 61.8% projection of 127.20 to 151.89 from 140.25 at 155.50. This will now remain the favored case as long as 140.25 support holds.

Daily Pivots: (S1) 1.2613; (P) 1.2628; (R1) 1.2652; More...

Intraday bias in GBP/USD remains neutral for the moment, as range trading continues. On the upside, break of 1.2691 resistance will indicate that correction from 1.2826 has completed. Intraday bias will be back on the upside for retesting 1.2826. Nevertheless, decisive break of 1.2499 will argue that whole rise from 1.2036 has completed and turn near term outlook bearish.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern to up trend from 1.0351 (2022 low). Rise from 1.2036 is seen as the second leg, which could be still in progress. But upside should be limited by 1.3141 to bring the third leg of the pattern. Meanwhile, break of 1.2499 support will argue that the third leg has already started for 38.2% retracement of 1.0351 (2022 low) to 1.3141 at 1.2075 again.

Daily Pivots: (S1) 0.8783; (P) 0.8802; (R1) 0.8816; More....

USD/CHF is extending the consolidation from 0.8884 and intraday bias stays neutral. With 0.8727 resistance turned support intact, further rally is still expected. On the upside, break of 0.8885 will resume the rise from 0.8332 and target and 100% projection of 0.8332 to 0.8727 from 0.8550 at 0.8954. However, sustained break of 0.8727 will dampen this bullish view, and turn bias back to the downside for 0.8550 support instead.

In the bigger picture, a medium term bottom should be formed at 0.8332, on bullish convergence condition in W MACD, just ahead of 0.8317 long term fibonacci support. It's still early to decide if the larger down trend from 1.0146 (2022 high) is reversing. But further rise should be seen to 0.9243 resistance even as a correction.

Daily Pivots: (S1) 0.6532; (P) 0.6553; (R1) 0.6572; More...

Intraday bias in AUD/USD remains neutral for the moment, and further decline is in favor with 0.6621 resistance intact. On the downside, below 0.6520 minor support will turn bias to the downside for retesting 0.6442 first. Firm break there will resume the the decline from 0.6870 towards 0.6269 low. Nevertheless, considering bullish convergence condition in 4H MACD, decisive break of 0.6621 will turn near term outlook bullish for 0.6870 resistance instead.

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern to the down trend from 0.8006 (2021 high). Fall from 0.7156 (2023 high) is seen as the second leg, which might still be in progress. Overall, sideway trading could continue in range of 0.6169/7156 for some more time. But as long as 0.7156 holds, an eventual downside breakout would be mildly in favor.

Daily Pivots: (S1) 1.3487; (P) 1.3512; (R1) 1.3529; More...

Range trading continues in USD/CAD and intraday bias stays neutral. More consolidations could be seen, but further rally is expected as long as 1.3357 support holds. On the upside, firm break of 1.3585 will resume the rebound from 1.3176 for 1.3897 resistance.

In the bigger picture, price actions from 1.3976 (2022 high) are viewed as a corrective pattern only. In case of another fall, strong support should emerge above 1.2947 resistance turned support to bring rebound. Overall, larger up trend from 1.2005 (2021 low) is still expected to resume through 1.3976 at a later stage.

Daily Pivots: (S1) 0.9500; (P) 0.9518; (R1) 0.9534; More...

Intraday bias in EUR/CHF is turned with current retreat. Another rise could still be seen, by considering bearish divergence condition in 4H MACD, upside would be limited by 0.9574 fibonacci level. On the downside, break of 0.9466 support will indicate short term topping, and turn bias back to the downside.

In the bigger picture, price actions from 0.9252 are tentatively seen as a correction to the five-wave down trend from 1.0095 (2023 high). Further rise would be seen to 38.2% retracement of 1.0095 to 0.9252 at 0.9574 and possibly above. But overall medium term outlook will remain bearish as long as 0.9683 resistance holds.

Daily Pivots: (S1) 0.8555; (P) 0.8564; (R1) 0.8570; More...

Outlook in EUR/GBP is unchanged and intraday bias stays neutral. On the downside, break of 0.8497 will resume recent fall to 0.8464 projection level. However, considering bullish convergence condition in 4H MACD, sustained break of 0.8571 will confirm short term bottoming, and turn bias back to the upside for stronger rebound.

In the bigger picture, fall from 0.8764 is seen as another leg in the whole down trend from 0.9267 (2022 high). Outlook will stay bearish as long as 0.8713 resistance holds. Break of 0.8491 will target 61.8% projection of 0.8977 to 0.8491 from 0.8764 at 0.8464.

Daily Pivots: (S1) 1.6468; (P) 1.6501; (R1) 1.6546; More...

Range trading continues in EUR/AUD and intraday bias remains neutral for the moment. On the upside, decisive break of 1.6671 will revive the case that whole correction from 1.7062 has completed with three waves down to 1.6127. Further rally should then be seen to 1.6844 resistance for confirmation. Nevertheless, below 1.6455 minor support will turn bias to the downside for 1.6348 and possibly below.

In the bigger picture, fall from 1.7062 medium term top is seen as a correction to the up trend from 1.4281 (2022 low). Break of 1.6844 resistance will argue that this up trend is ready to resume through 1.7062 high. In case of another fall, strong support should be seen around 1.5846 and 38.2% retracement of 1.4281 to 1.7062 at 1.6000 to bring rebound.