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Daily Pivots: (S1) 0.9286; (P) 0.9330; (R1) 0.9353; More...

USD/CHF recovered notably after brief breach of 0.9289 resistance turned support, and intraday bias is turned neutral first. The favored case is still that corrective rebound from 0.9058 has completed at 0.9439, ahead of 38.2% retracement of 1.0146 to 0.9058 at 0.9474. Sustained break of 0.9289 resistance turned support will pave the way to retest 0.9058 low. However, break of 0.9358 minor resistance will revive near term bullishness and turn bias back to the upside for 0.9439 again.

In the bigger picture, decline from 1.0146 is seen as part of a long term sideway pattern. As long as 38.2% retracement of 1.0146 to 0.9058 at 0.9474 holds, another fall is in favor through 0.9058. However, sustained trading above 0.9474 will indicate that the medium term trend has reversed, and open up further rally to 61.8% retracement at 0.9730 and above.

Dollar is gaining strength across the board as markets prepare for Fed Chair Jerome Powell's semi-annual testimony in Congress. Powell's views on the disinflationary process are expected to be a key focus, with traders also hoping for hints on the size of the upcoming rate hike and the outlook for the terminal rate.

Quick update: Fed Powell: Higher ultimate rate, ready to hike faster, no premature loosening

Australian Dollar is the worst performing currency of the day, following a sell-off post RBA meeting. Sterling and Swiss franc follow closely behind as the second weakest performers. Meanwhile, Kiwi and Euro are the second strongest. Canadian Dollar and Yen remain mixed, awaiting the BoC and BoJ rate decisions later in the week.

Technically, Gold's pull back from 1858.06 gains some momentum today. Focus is now on 1829.78 support. Firm break there will argue that rebound from 1804.48 has completed, ahead of 38.2% retracement of 1959.47 to 1804.48. If that happens, the development will keep near term outlook in Gold bearish for another fall through 1804.48 low. That could be a leading signal of revival in Dollar's rally.

In Europe, at the time of writing, FTSE is up 0.35%. DAX is up 0.11%. CAC is up 0.09%. Germany 10-year yield is down -0.0711 at 2.675. Earlier in Asia, Nikkei rose 0.25%. Hong Kong HSI dropped -0.33%. China Shanghai SSE dropped -1.11%. Singapore Strait Times rose 0.18%. Japan 10-year JGB yield rose 0.0017 to 0.505.

BoE Mann: There could be depreciation pressure on Sterling

BoE MPC member Catherine Mann warned that there could be depreciation pressure on Pound exchange rate if investor haven't fully priced in recent hawkish message from Fed and ECB. Meanwhile, she reiterated that more are needed to be done regarding inflation.

"The important question for me with regard to the pound is how much of that existing hawkish tone (of Fed and ECB) is already priced into the pound", Mann told BloombergTV. If it's already priced in, then what we see is what we get. But if it's not completely priced in, then there could be depreciation pressure" on Sterling.

Regarding interest rates, Mann said, "I've had recent speeches where I've indicated that I thought more needed to be done in order to ensure that expectations in particular are for a declining rate of inflation and the embeddedness to be mitigated."

RBA hikes 25bps, notes lower risk of prices-wages spiral

RBA raised the cash rate target by 25bps to 3.60%, which was widely anticipated. The bank also signaled the need for further tightening of monetary policy. Nevertheless, there was a notable dovish twist in the the statement about a lower risk of prices-wages spiral.

The central bank said monthly CPI indicator suggested that "inflation has peaked in Australia". The central forecasts is for inflation to decline this year and next to around 3% in mid-2025. Medium-term inflation expectations remain "well anchored".

Growth over the next couple of years is expected to be "below trend". Labor markets remains "very tight, although conditions have eased a little". Wage growth is "still consistent with the inflation target" and "recent data suggest a lower risk of a cycle in which prices and wages chase one another".

It indicated that "further tightening of monetary policy will be needed". The timing and extent of further interest rate hikes will depend on "developments in the global economy, trends in household spending and the outlook for inflation and the labour market".

China exports and imports continued to contract, but trade with Russia surged

Latest trade data from China showed that both exports and imports continued to declined in the first two months of the year. Trade with the US and the EU contracted, but trade with Russia was having extraordinary growth.

In the January-February period, China's exports contracted -6.8% yoy, better than expectation of -9.4% yoy. Imports contracted -10.2% yoy, much worse than expectation of -5.5% yoy. Trade surplus ballooned to USD 116.9B, much larger than expectation of USD 82.5B

The data also revealed that exports to the US decreased by -21.8% yoy while imports dropped -5% yoy. Exports to the EU were also down -12.2% yoy while imports decreased -5.5% yoy. On the other hand, exports to Russia surged 19.8% yoy while imports also jumped by 31.3% yoy

In related news, Chinese Foreign Minister Qin Gang stated today the need to strengthen ties with Russia and suggested using "whatever currency that is efficient, safe and credible."

Japan's Wage Growth Disappoints in January, Real Earnings Fall the Most Since 2014

Japan's nominal labor cash earnings rose by 0.8% yoy in January, below expectations of 1.9% yoy. The strong growth rate of 4.1% yoy in December was an anomaly due to lump-sum payments, rather than regular wage rises. The level of wage growth is far below the required level needed to maintain a 2% inflation rate, as indicated by outgoing BoJ Governor Haruhiko Kuroda.

Moreover, real cash earnings of workers have declined by -4.1% yoy, indicating that their real wages have fallen the most since 2014. The continuous decline in real wages for ten consecutive months shows that inflation has surpassed earnings.

Later in the week, BoJ is expected to keep its ultra-loose monetary policy unchanged, including the negative short-term interest rate of -0.10% and the 10-year yield cap at 0.50% at Kuroda's final meeting before handing over the reins to Kazuo Ueda. The declining real wages poses a challenge for the incoming governor to achieve the inflation target set by the central bank.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9286; (P) 0.9330; (R1) 0.9353; More...

USD/CHF recovered notably after brief breach of 0.9289 resistance turned support, and intraday bias is turned neutral first. The favored case is still that corrective rebound from 0.9058 has completed at 0.9439, ahead of 38.2% retracement of 1.0146 to 0.9058 at 0.9474. Sustained break of 0.9289 resistance turned support will pave the way to retest 0.9058 low. However, break of 0.9358 minor resistance will revive near term bullishness and turn bias back to the upside for 0.9439 again.

In the bigger picture, decline from 1.0146 is seen as part of a long term sideway pattern. As long as 38.2% retracement of 1.0146 to 0.9058 at 0.9474 holds, another fall is in favor through 0.9058. However, sustained trading above 0.9474 will indicate that the medium term trend has reversed, and open up further rally to 61.8% retracement at 0.9730 and above.

Economic Indicators Update

USD/CHF has rebounded on Tuesday, ending a rally that saw the Swiss franc climb over 1%. In the European session, USD/CHF is trading at 0.9344, up 0.40%.

Swiss inflation higher than expected

Switzerland released the February inflation report on Monday and the reading was higher than expected. CPI rose 0.7% m/m, up from 0.6% in February and above the 0.4% forecast. On an annualized basis, CPI climbed 3.4%, edging up from 3.3% and higher than the forecast of 3.1%.

These inflation numbers would be a dream come true for most major central banks, which are struggling with inflation levels two or three times higher. Still, the Swiss National Bank is concerned about high inflation, as its target is 0-2%. The SNB was widely expected to raise rate by 50 basis points at the rate meeting on March 23 and the uptick in February inflation cements the likelihood of such a move. Swiss National Bank Chair Jordan will make an appearance later today and is likely to address the rise in inflation.

The SNB does not provide forward guidance for its rate policy, but the central bank has projected an inflation rate of 2.4% for 2023. With the cash rate currently at 1%, it’s a safe bet that we’ll see another hike in June of either 25 or 50 basis points. The continuing tightening should provide a boost to the Swiss franc, but traders should keep in mind that the SNB has not hesitated to intervene in the foreign exchange market when the Swiss franc became too strong for its liking.

In the US, Federal Reserve Chair Powell will be in the spotlight as he testifies before a Senate committee later today. The Fed has remained hawkish and after a host of strong January releases, the markets have shifted their expectations closer to the Fed’s stance. It was only a few weeks ago that the markets were projecting a pause followed by rate cuts, but this has changed to pricing in three more rate hikes this year. There is a lot of uncertainty in the air about inflation and interest rates and the markets are hoping that Powell’s comments will provide some clarity.

USD/CHF Technical

• There is resistance at 0.9381 and 0.9420
• 0.9304 and 0.9224 are providing support

For the past six trading sessions, an ounce of silver has been trading above $21.0 in both directions. The price has been falling for most of February, losing more than 17% from its high ($24.62) to its low ($20.41).

Last month’s sell-off brought the price back to the 200-day moving average and created a medium-term oversold condition, which promises to be positive in the short term, creating the potential for a return to $24.0.

At the end of last month, silver was buying back on declines to $21.0. This level also acted as local support (May and November) and resistance (August and October) several times last year. Silver was also held above this level in 2014 and 2016, reinforcing the importance of this area. In our case, silver could find extended downside support here or quickly reverse to the upside.

In addition to the historical significance of current price levels, the mid-points of key moving averages are also worth noting. Last week, the 50-week moving average fell below the 200-week moving average at $21.50. Technically, this is a bearish signal, but we now see that the 200-week is pointing up, and the price has corrected significantly in recent weeks.

On the daily timeframe, silver is now struggling around the 200-day average. It is worth noting that silver experienced strong buying from this level in late November. This level is now a magnet for bargain hunters.

The February sell-off in silver took the daily chart’s RSI into the oversold territory. A stabilisation in recent days has taken the index above 30, which often signals the exhaustion of selling momentum and the start of a corrective bounce.

Silver has a chance of forming much more than just a corrective bounce. The dollar is losing traction in the currency market, creating a new bearish reversal. Equity indices defended key technical levels last week and are enjoying an influx of new money. However, a rebound in risk appetite may need to be faster to support silver and gold as key players continue to operate in more liquid markets.

BoE MPC member Catherine Mann warned that there could be depreciation pressure on Pound exchange rate if investor haven't fully priced in recent hawkish message from Fed and ECB. Meanwhile, she reiterated that more are needed to be done regarding inflation.

"The important question for me with regard to the pound is how much of that existing hawkish tone (of Fed and ECB) is already priced into the pound", Mann told BloombergTV. If it's already priced in, then what we see is what we get. But if it's not completely priced in, then there could be depreciation pressure" on Sterling.

Regarding interest rates, Mann said, "I've had recent speeches where I've indicated that I thought more needed to be done in order to ensure that expectations in particular are for a declining rate of inflation and the embeddedness to be mitigated."

The Australian dollar continues to lose ground and is sharply lower on Tuesday. In the European session, AUD/USD is trading at 0.6676, down 0.81%. Earlier, the Australian dollar fell as low as 0.6674, its lowest level since December 23^rd.

RBA delivers a ‘dovish hike’

There were no surprises from the RBA, which hiked rates by 25 basis points and raised the cash rate to 3.6%. This marked a fifth consecutive increase of 25 bp, as the central bank continues to raise rates in modest increments in a bid to curb inflation without choking economic growth.

This rate decision was noteworthy in the language of the rate statement, which suggested that the RBA could be nearing the end of the current rate cycle. The statement removed a reference in the February statement to needing to raise rates “over the months ahead”, and instead stated that “tightening of monetary policy will be needed to ensure that inflation returns to target. The markets picked up on this change in language as a dovish signal. As well, the statement explicitly said that inflation had peaked, another hint that multiple rate hikes may not be needed. The dovish tone of the statement has sent the Australian dollar considerably lower today.

In the US, Federal Reserve Chair Powell testifies today on the semi-annual monetary policy report. The Fed has been consistently hawkish about the need to continue raising rates and the markets have aligned their expectations closer to the Fed. It was only a few weeks ago that the markets were projecting a pause followed by rate cuts, but this has changed to expectations for three more rate hikes this year.

There is a lot of uncertainty in the air about inflation and interest rates after a host of stronger-than-expected data in January, such as a blowout employment report. These strong numbers may have been a blip, and it will be interesting to see if Powell reiterates a hawkish stance and ignores the January numbers. The markets are widely expecting a 25-basis point hike at the March 22 meeting, but a 50 bp increase cannot be discounted, as the Fed has said that the pace of rate hikes could be ‘higher and longer’.

AUD/USD Technical

• AUD/USD is testing support at 0.6749. Below, there is support at 0.6660
• There is resistance at 0.6862 and 0.7025

On Friday, Haruhiko Kuroda will sit at the helm of the Bank of Japan for the last time and investors may be eager to find out whether his exit will be accompanied by fireworks, or whether he will prefer to pass the torch to the incoming Governor untouched. With several officials arguing that there is no immediate need to take additional steps, will this decision prove just a stepping stone for the meetings led by the new Governor Kazuo Ueda?

No rush to take more tightening steps

When they last met, BoJ policymakers decided not to further tweak their yield curve control policy, after stunning the financial world in December by widening the target band around the 10-year yield target from ±25 to ±50 basis points around 0%.

Since then, investors have been trying to figure out whether and when the Bank will decide to further remove accommodation, with the nomination of Kazuo Ueda and subsequent comments of his making the picture blurrier instead of clearing it. While he highlighted last year the difficulty of maintaining yield curve control as inflation bites harder, just after his nomination he seemed in no rush to make another step towards ending years of ultra-loose monetary policy, adding that inflation seems mostly fueled by surging import costs of raw materials rather than strong domestic demand. Apart from Ueda, several other, active policymakers also said they see no immediate need to take additional steps.

Inflation and wages slow

Economic data also support the notion for not taking any action at this week’s gathering. Yes, wage growth surged to above 4% in December, exceeding inflation and thereby resulting in positive real wage growth for the first time since March 2022, but just on Tuesday, data showed that Japan’s cash earnings for January slumped to 0.8% y/y from 4.1%, taking the real growth rate to the lowest since May 2014. What’s more, last week, the more forward-looking Tokyo headline CPI for February slowed by a whole percentage point, while the excluding food and energy rate just ticked up 1.8% y/y from 1.7%, which is still below the BoJ’s 2% objective. What also adds credence to choosing patience for now is the fact that the “shunto” wage negotiations have yet to conclude.

Having said all that though, even if there is ample reason for Kuroda to step down silently, the BoJ’s quarterly survey for the bond market showed that that an index measuring the degree of the market’s functioning slipped to a new record low in February, which means that the widening of the yield band by 0.25bps in December has failed to reduce market distortions. This may have allowed some participants to increase their bets that officials could eventually decide to raise the yield cap at this meeting.

How can the yen react?

Therefore, if the Bank decides to wait for a while longer before taking further steps towards normalization, those expecting action at this gathering will become disappointed and the yen could slip. However, it may be too early to chuck up the sponge on the yen. Despite not being in a rush, officials have repeatedly signaled that they stand ready to adjust policy when deemed necessary, with Ueda saying that he already has ideas on how the central bank could exit its massively stimulative policy. Therefore, it may be a matter of time before policymakers decide to further remove accommodation. For the yen to stay pressured for long, the BoJ may need to maintain a dovish stance beyond April, when other major central banks like the Fed and the ECB continue to raise interest rates to higher-than-previously-estimated levels.

Dollar/yen seems poised to climb higher

From a technical standpoint, dollar/yen has been trading in a consolidative manner since February 27, staying slightly above both the 50- and 200-day exponential moving averages and the key support zone of 134.50. In the bigger picture, the pair is trading well above the prior downtrend line drawn from the high of October 21, as well as above a newly born uptrend line taken from the low of January 16. This keeps the short-term bias positive for now.

If indeed the BoJ refrains from acting on Friday, dollar/yen could emerge above the 138.15 barrier, marked by the high of December 15, and perhaps travel towards the 142.25 zone, defined as resistance by the highs of November 21 and 22. If the bulls don’t stop there either, they may then climb to the 146.65 territory, which provided support between October 24 and November 8.

On the downside, the move signaling that the bears are staging a comeback may be a dip below the round number of 130.00. Such a move may also confirm the break below the short-term uptrend line and may initially pave the way towards the 127.20 barrier, marked by the low of January 16. Should that territory fail to hold, its break would confirm a lower low on bigger timeframes and perhaps pave the way towards the 121.25 zone, marked by the lows of March 30 and 31, 2022.

Economic output stats for January will kick off this month’s data releases for the UK on Friday (07:00 GMT), providing investors fresh clues on whether the British economy is still teetering on the edge of a recession. Recent indicators suggest that the outlook has brightened slightly, but the Bank of England nevertheless is undecided about how much further it will have to tighten policy. Subsequently, the pound has been somewhat adrift lately. Can the data provide traders with some direction?

Recession risks are subsiding

The UK economy narrowly avoided recession last year and likely eked out growth of 0.1% month-on-month in January, having shrunk by 0.5% in December. The meagre rebound is expected to have been driven by a 0.3% expansion in the services sector, as industrial production is forecast to have declined by 0.1% over the period. The manufacturing sub-sector is also expected to have contracted by the same amount.

If these estimates turn out to be correct, or even bettered, the timing of any recession would likely get pushed back to late 2023 or early 2024, which is what has been the case for the predictions about the United States and Eurozone economies. This is assuming of course that the growth numbers for 2022 do not get trimmed down at a future point to show two consecutive quarters of contraction, as UK GDP data is notoriously prone to multiple revisions.

BoE still gloomy

For the moment, policymakers at the Bank of England seem to be taking note of the slightly better-than-expected performance of the economy but they are still anticipating a recession in 2023, albeit a shallower one based on their February projections. Hence, should Friday’s GDP readings underscore the improving picture, the January numbers alone probably won’t sway many minds within the Monetary Policy Committee.

However, what could be more of a game changer is strong GDP data combined with hot inflation figures. The February CPI report is due on March 22 and there is great anxiety about how fast inflation is falling in the UK. Having been in double digits for much of the second half of 2022, inflation could finally dip below 10% in February.

The CPI update will come just in time for the BoE’s policy decision the following day and so it could be a waiting game for sterling until then. The pound has been hovering around the $1.20 mark for the last couple of weeks, confined within its moving averages.

Pound lacking momentum in both directions

There seems to be strong support in the $1.19 region, which came into formation as investors priced out the risk of a steep recession. However, there is a similarly strong barrier to the upside just beneath the $1.2450 level.

Cable’s trading range is perhaps an accurate illustration of the predicament the UK economy is in right now: the worst case scenario appears to have been averted but it is not completely out of the danger zone. Specifically, the economic outlook being upgraded from recession to stagnation is hardly grounds for a rally in the pound. Unless the US dollar were to fall victim to a Fed-sparked selloff, cable will struggle to resume its stalled uptrend as things stand.

The lack of any precise forward guidance by the Bank of England isn’t helping pound bulls either. At its last meeting, the Bank opened the door to a rate hike pause as early as March. But rather than this being an intentional bias towards a neutral stance, policymakers were merely acknowledging that the data and therefore the policy response could go either way. The BoE is probably right to resist the urge to make promises it can’t keep as other central banks have run into trouble doing this.

Politics matters

But for pound traders, they may have to rely on political headlines to guide them until the economic fog clears up a bit more. There was some boost recently with the announcement of the long-awaited deal between the UK and the EU on fixing the Northern Ireland protocol, the row over which had led to stalemate between Unionists and Republicans in the province’s power-sharing assembly.

The deal is not only positive for the pound because it strengthens ‘the Union’, but it also increases the prospect of deeper post-Brexit ties with the EU. In the more near-term horizon, Chancellor Jeremy Hunt will present his Spring Budget on March 15 and the big question is whether he will extend the energy price guarantee beyond April. UK consumers could be forced to tighten their purse strings again if the government stops subsidizing energy bills.

The WTI oil is consolidating under new five-week high ($80.90) in early Tuesday, following strong acceleration higher in past few sessions.

Oil price was lifted by fresh supply concerns, mainly due to growing concerns about the disruption to Russia’s exports of oil and refined products, which partially offset mixed trade data from China.

China’s exports improved significantly in February, boosting hopes that post-Covid recovery is picking up, but import dropped well below expectations and previous month’s level.

Recent rally improved daily technical studies, as momentum indicator broke into positive territory and moving averages (10/20/55) turned to bullish configuration, with fresh positive signal being generated on break above 100DMA ($79.79) and psychological $80 barrier.

However, overbought conditions warn of some profit-taking, which would pause bulls for consolidation / shallow correction.

Dips should find ground above solid supports at $78.00 zone (Fibo 38.2% of $73.77/$80.90 bull-leg / converged 55/20DMA’s) to keep fresh bulls intact for attack at key barriers at $81.91 (50% retracement of $93.72/$70.09 descend / $82.64/61 (January tops, also the ceiling of larger range since mid-December).

Weekly reports from American Petroleum Institute (API), due later today and Energy Information Administration (EIA) due on Wednesday, are eyed for fresh signals.

Res: 80.90; 81.17; 81.91; 82.61.
Sup: 80.00; 79.79; 79.22; 78.18.

Latest trade data from China showed that both exports and imports continued to declined in the first two months of the year. Trade with the US and the EU contracted, but trade with Russia was having extraordinary growth.

In the January-February period, China's exports contracted -6.8% yoy, better than expectation of -9.4% yoy. Imports contracted -10.2% yoy, much worse than expectation of -5.5% yoy. Trade surplus ballooned to USD 116.9B, much larger than expectation of USD 82.5B

The data also revealed that exports to the US decreased by -21.8% yoy while imports dropped -5% yoy. Exports to the EU were also down -12.2% yoy while imports decreased -5.5% yoy. On the other hand, exports to Russia surged 19.8% yoy while imports also jumped by 31.3% yoy

In related news, Chinese Foreign Minister Qin Gang stated the need to strengthen ties with Russia and suggested using "whatever currency that is efficient, safe and credible."