Sample Category Title

Daily Pivots: (S1) 161.54; (P) 161.77; (R1) 162.05; More...

EUR/JPY's rally is in progress even though upside momentum is not too convincing. Intraday bias stays on the upside. Rise from 153.15 should target a retest on 164.29 high. On the downside, however, below 161.46 minor support will turn intraday bias neutral first.

In the bigger picture, price actions from 164.29 medium term top are seen as a correction to rise from 139.05 only. As long as 148.38 resistance turned support holds (2022 high), larger up trend from 114.42 (2020 low) is expected to resume through 164.29 at a later stage. Next target would be 169.96 (2008 high).

Daily Pivots: (S1) 0.8543; (P) 0.8552; (R1) 0.8565; More...

No change in EUR/GBP and intraday bias remains neutral for the moment. 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) 1.6458; (P) 1.6484; (R1) 1.6509; More...

Outlook in EUR/AUD is unchanged as range trading continues. Intraday bias stays 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.

Daily Pivots: (S1) 0.9494; (P) 0.9504; (R1) 0.9522; More...

EUR/CHF's rise from 0.9252 is trying to resume by breaching 0.9510 and intraday bias is back on the upside. Further rally should be seen to 0.9574 fibonacci level next. On the downside, below 0.9466 minor support will turn intraday bias neutral again first.

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.

In focus today

This morning we will get the National Accounts for Q4 2023 in Denmark. We expect the numbers to show a sharp rebound in GDP growth to 1.0% q/q in Q4 after the 0.7% decline in Q3. Both the decline and the rebound are driven by industrial production which again is primarily driven by pharmaceuticals. Outside of pharma, the economy appears to be stagnating as we see elsewhere in Europe.

In Sweden the monthly Prospera survey results is also out this morning. The latest print from January showed a decline in inflation expectations for all tenors (1-, 2- and 5y) whereas the 2y mean was below the 2% target at 1.86%. Later in the day we have speeches from the Riksbank's executive board members Flodén (CET 09:45), Breman (CET 12:00) and Thedéen (CET 17:55).

Later today, we receive the ECB's Q4 2023 negotiated wages indicator. We expect that wage growth decelerated from 4.7% y/y in Q3 2023 as indicated by more timely wage trackers. The ECBs wage tracker suggest a large decline in negotiated wages from 5% y/y in Q3 to 3.7% in Q4. However, the wage tracker including one-offs only marginally recedes from Q3 to Q4 so one should be cautious with conclusions on the aggregate wage pressure from negotiated wages before we receive the compensation per employee wage indicator that covers all wage expenditures.

Economic and market news

What happened overnight

The PBOC cut the 5-year Loan Prime Rate (LPR) by 25bp to 3.95%, signalling support to the property market as the 5-year LPR mainly affects mortgage rates. The Bank kept the 1-year LPR unchanged, however, after also keeping the 1-year medium-term lending facility rate unchanged on Sunday. We think the Central Bank is reluctant to conduct broad rate cuts until the FED has eased policy to avoid a widening spread, opting instead for more targeted cuts like we have seen with the 5-year LPR.

In the just published edition of Reading the Markets USD, we tweak our expected path for US monetary policy a bit. After the recent upside surprises in macro data, and not least last week's CPI, we revise our Fed call and now look for the first 25bp rate cut in May (from March). Our longer-term view of solid structural growth and continuing disinflation still holds, and we think the Fed will opt for gradual quarterly reductions afterwards. In total, we see three cuts in 2024 in May, July and November (previously 4).

What happened yesterday

Yesterday we saw signs that consumer spending might be picking up in China, after the number of holiday trips for the Chinese New Year set a 5-year record. Reports also show increased travelling abroad. It is, though, yet too early to draw conclusions and we will have to wait for actual spending data released in mid-March.

Tensions in the Red Sea were boosted as a Houthi attack on a British vessel on Sunday reportedly forced the crew to abandon ship. Many major shipping companies, such as Maersk, are no longer sailing through the Suez Canal, and the latest attack underscores that this is not likely to change soon. The market impact was muted.

Finally, in an interview with CNBC at the Munich Security Conference, Democratic Senator Connolly said that sanctions on Chinese companies judged to help Russia's war efforts could come "very soon". This follows similar discussions in the EU, whose 13th sanctions package aimed at Russia, which could be ready later this month, might also include sanctions on Chinese companies.

Equities: Global equities marginally higher yesterday in a classic low vol session as US was closed for Presidents' Day. That being said, defensives clearly outperformed cyclicals and once again it was health care leading the advances. Looking at Stoxx600 the last 3 months, health care has outperformed utilities in the defensive space despite yields are down in the same period. This is a classic late cycle phenomenon to see health care outperforming other defensive sectors in the late part of the business cycle. Just for the record, health is the best performing sector of all in the S&P500 the last three months despite all the talks about magnificent seven. In Europe yesterday, STOXX 600 +0.2%, FTSE 100 +0.3%, DAX -0.2% and CAC -0.1%.

Asian markets are lower across the board this morning led by South Korea down 1.4%. Futures in both Europe and US point to a lower opening.

FI: It was a very calm day in FI markets yesterday with only marginal changes throughout the day. Long-end EGB yields ended marginally higher in general, while the short end of the curve was basically unchanged. US markets were closed for President's Day. Overnight, 10Y UST yields have risen a bit, now trading at 4.30%. We expect the level to range trade around 4.20% for the remainder of the year.

FX: SEK came out on top on a quiet-US-holiday-prone start to the week. Commodity currencies also performed well, while CHF lost some ground. EUR/USD held steady just below 1.08 and USD/JPY briefly slipped below 150.

• Canadian inflation expected to have fallen again in January
• Will the FOMC minutes shed any light on rate cuts?
• USDCAD higher but momentum remains weak

It’s no surprise that it’s been a quiet start to the week, with both countries observing a bank holiday but several events on the horizon should ensure things pick up.

Canadian inflation data on Tuesday is the first of those, with the headline rate expected to have eased slightly in January. While not nearly enough to make the next Bank of Canada meeting on 6 March a real possibility for a rate cut – markets view it as around a 17% chance – a beat to the downside could improve the odds in the second quarter of the year.

The release of the FOMC minutes on Wednesday could generate more interest than usual at a time when traders appear unusually unsure of the timing and pace of rate cuts. This comes after a start to the year in which the data has not been as favorable as the final weeks of last forcing markets to scale back expectations for rate cuts this year. Could the FOMC minutes offer some clarity on that?

Weak momentum in the recent moves again?

The US dollar is edging higher against its Canadian counterpart early in the week but may continue to face strong headwinds around last week’s peak.

USDCAD Daily

Source – OANDA

New highs over the last month have been matched with weakening momentum which has created a divergence between the price and the stochastic and MACD. It occurred initially around the 50% Fibonacci retracement level and then between it and the 61.8%, both potentially important areas of resistance. While momentum could pick up in any renewed push higher, the mild gains of the last three sessions aren’t particularly encouraging.

A longer meeting, but an expected outcome – the case to hold outweighed the case to hike.

This month’s minutes were the first under the new arrangements with longer meetings. While the list of attendees was longer – including the Chief Communications Officer – the minutes themselves were only marginally longer than the previous month’s version (just over 3000 words rather than just over 2800 in December) and scored similarly on standard readability statistics. Most of the additional text was devoted to some discussion about messaging, in the final section of the document.

Global growth has slowed to below trend, and the Board expects it to ease further this year. Outside the United States, consumption growth was slow despite positive growth in real household incomes. This is part of the normal response to tighter monetary policy. However, it stands in contrast to the two years of decline in real household disposable incomes in Australia.

The Board was encouraged by the slowing in inflation overseas. It drew attention to the decline in non-housing services inflation, attributing this to easing labour market conditions and an improved balance between demand and supply. On the face of it, this link points to reason for optimism that Australia might see a similar decline in non-housing services inflation with only a minor increase in unemployment. While the RBA’s assessment of labour market conditions goes beyond the unemployment rate, it would be unusual for overall conditions to ease significantly without some increase in this measure. At this point, most peer economies have seen only a small (or in the euro area as a whole, non-existent) increase in unemployment. This raises the question of just how far unemployment needs to rise to achieve the desired disinflation. Some overseas experience would suggest not much.

As in Australia, housing-related inflation has been very strong in a range of advanced economies, and not only those that have seen population surges.

Turning to the domestic situation, the minutes acknowledged that aggregate demand has slowed, and the role of inflation, tax and interest rates in producing this result. Still, the level of demand was assessed as exceeding supply. The presumption is that it is demand that must move to make up most of the gap. While the minutes recorded some discussion about the possibility that productivity might rebound from pandemic-affected levels, the implication that supply would thereby expand was left unmentioned.

Inflation in Australia declined more in the December quarter than the RBA had expected. However, the minutes highlighted that there was not much more disinflation to be had from the goods component, and that services inflation had declined only a little. (It should be noted that the RBA’s preferred measure of market services inflation, as shown in Graph 2.23 of the latest SMP, has declined by less than some other measures of services or market services inflation that are compiled on slightly different bases.)

Domestic financial conditions were acknowledged to be restrictive, but uneven. The effects on household cash flows and debt payments were noted, along with the incentives to save rather than spend induced by higher interest rates. Credit growth had slowed from its early-2022 peak and stabilised more recently.

The minutes mentioned that the Board considered two scenarios other than the central case: one where inflation expectations dislodge, and another where consumption is weaker than expected. Such scenarios have long been part of the RBA toolkit. Scenarios calibrated on different assumptions about social distancing restrictions were presented during the peak of the pandemic. Similarly, the SMP chapter on the outlook has for some time included a statement in the risk section outlining the effects on inflation of a larger unwind of the run-up in global goods prices.

As expected, the Board considered both the case to raise the cash rate target and the case to leave it unchanged. The Board was starting from a presumption that Australia has a problem of excess demand and that this will persist for a while. The central forecast was, however, that inflation would decline on the same path that the Board had previously deemed acceptable. Moreover, the risks that inflation will remain higher than forecast had diminished. The Board acknowledged that the data flow since the last meeting had given them more confidence in the central forecast of inflation returning to target. This strengthened the case to hold compared with the situation late last year.

Overall, this month’s minutes did not add much information to the raft of RBA written communication and Parliamentary appearances in the past two weeks. We continue to expect the RBA to be on hold for a number of months before beginning to cut rates later in the year. While the Board did not rule out a further rate increase, the recent data flow has been consistently pointing in the opposite direction. In our view, the most likely date for the first cut remains September. There are of course considerable uncertainties in the outlook. We will continue to monitor the data and outlook for any shifts in the risks around the trajectory for disinflation.

The Chinese returned from their Lunar New Year holiday having traveled and spent more this year than before the pandemic. The early trading hours were cheery, but enthusiasm left its place to doom and gloom quickly as the Chinese equities found it hard to extend gains on the back of looming Chinese problems, like deflation, aging population, a deepening property crisis and lost investors’ confidence. As such, yesterday’s 1% advance in CSI 300 couldn’t gain momentum today, even though China cut its 5-year LPR rate – which is the reference rate for mortgages - by most on record to prop up demand for its tumbling property market and hoping to stop the downturn. In vain, the equity markets didn’t react much. Nasdaq’s China real estate index continues its race to the bottom.

Equities in Europe however extended gains to a fresh ytd high, and the Stoxx 600 index continues to trade at a spitting distance from an ATH even though France lowered its growth forecast for 2024 to 1% and Germany announced a 0.3% contraction lately. The energy crisis and higher rates are eating into the old continent and the European Central Bank (ECB) is not sure it would start cutting the rates soon enough, given that inflation risks remain tilted to the upside. Rising shipping costs, upside pressure in oil prices and the softening Federal Reserve (Fed) cut expectations threaten the price stability and some European policymakers think that it’s safer to wait for more evidence that inflation is easing sustainably than acting prematurely and looking foolish.

This is certainly what keeps the US dollar appetite contained, and the other currencies somehow supported: the fear that a delay in Fed rate cut would translate into a stronger dollar, a stronger dollar would send a fresh wave of high inflation across the globe and the latter would delay other central banks’ rate cut plans as well. But the latter reasoning will be just enough to contain the buying pressure in the dollar, and not to reverse the greenback’s positive trend. The dollar index saw support near its 100-DMA yesterday and the EURUSD failed to clear its own 100-DMA to the upside. The diverging fortunes between the US – where growth remains strong - and the euro area – where growth is nowhere to be found – justifies an earlier ECB cut compared to the Fed, but the ECB will cut only and if only inflation remains on a falling path.

Anyway, back to the European stocks, the Stoxx 600 performed surprisingly well this year despite the sputtering euro area economies and no guarantee that the ECB will start cutting rates before summer. Some think that the European valuations are just below their long-term average which makes them much cheaper and somehow appetizing. But AI makes the American stocks shine brighter than the European diamonds. Nvidia, for example, is worth more than the entire German DAX index today and the AI premium is justified by massive, concrete AI investments and the tech companies’ high ROI. Therefore, even if the European stock valuations are more reasonable than the tech-heavy US peers, the upside potential that the US tech giants offer is incomparable to the European counterparts.

Across the Channel, the energy and finance-heavy British FTSE 100 refused to return to last year’s negative trend and rallied 3% since last week, Cable remains under pressure as the Bank of England (BoE) doves stand up against Bailey’s cautious stance regarding premature cuts. The Bank’s former economist said that ‘it’s one thing to have missed inflation on the way up, it’s quite another to then have crushed the economy on the way down’. Premature easing, however, is not a risk that the central bankers are willing to take. The latest Reserve Bank of Australia (RBA) meeting minutes revealed that the policymakers considered to hold rates steady or a case for a 25 bp hike (scary!). And the latest FOMC minutes due Wednesday will give more clarity on if and how the Fed members reacted to last year’s skyrocketing rate cut expectations. From what they publicly say, they think that the expectations went well ahead of themselves. There will hardly be a rate cut announced from a major central bank before June.

Today, Walmart and Home Depot earnings will serve as amuse-bouche before Nvidia’s much-expected results due after the bell tomorrow.

In energy, nat gas futures took another dive yesterday while American crude cleared the 100 and 200-DMA offers last week and is testing a major Fibonacci resistance to the upside. Trend and momentum indicators remain supportive of a further rise toward the $80pb level as tensions in the Middle East, the Chinese stimulus, and OPEC’s efforts to restrict supply are supportive factors for the bulls. On the opposite camp, the rising supply from countries outside OPEC, China’s inability to boost growth and slowing demand growth for fossil fuel are arguments that will make the bulls’ life harder above the $80pb mark.

Daily Pivots: (S1) 1.0765; (P) 1.0777; (R1) 1.0792; More...

Intraday bias in EUR/USD remains as consolidation from 1.0694 is still extending. . Further decline is in favor with 1.0804 resistance intact. On the downside, below 1.0694 will resume the fall from 1.1138 to retest 1.0447 support. Nevertheless, considering bullish convergence condition in 4H MACD, above 1.0804 will turn bias to the upside for stronger rebound.

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) 1.2577; (P) 1.2604; (R1) 1.2623; More...

No change in GBP/USD's outlook as range trading continues. Intraday bias stays neutral at this point. 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.