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Daily Pivots: (S1) 1.2009; (P) 1.2072; (R1) 1.2110; More...

Outlook in GBP/USD remains unchanged and intraday bias stays neutral. Another decline is in favor with 1.2269 resistance intact. On the downside, break of 1.1914 will resume the fall from 1.2446, as the third leg of the corrective pattern from 1.2445, to 1.1840 support and possibly below. Nevertheless, firm break of 1.2269 will bring retest of 1.2445/6 resistance.

In the bigger picture, rise from 1.0351 medium term bottom is at least correcting whole down trend from 1.4248 (2021 high). Further rise is expected as long as 1.1644 resistance turned support holds. Next target is 61.8% retracement of 1.4248 to 1.0351 at 1.2759. Sustained break there will pave the way back to 1.4248.

Daily Pivots: (S1) 134.50; (P) 134.78; (R1) 135.19; More...

USD/JPY's rally continues today and intraday bias stays on the upside. But strong resistance could be seen from 38.2% retracement of 151.93 to 127.20 at 136.64 to complete the corrective rebound from 127.20. On the downside, break of 133.91 minor support will turn bias back to the downside for 129.79/132.89 support zone.

In the bigger picture, prior break of 55 week EMA (now at 131.54) raises the chance of medium term bearish reversal, but that's not confirmed yet. Strong rebound from current level, followed by sustained break of 38.2% retracement of 151.93 to 127.20 at 136.64 will argue that price actions from 151.93 is merely a corrective pattern. However, rejection by 136.64 will solidify medium term bearishness for 61.8% retracement of 102.58 to 151.93 at 121.43 and 38.2% retracement of 75.56 to 151.93 at 122.75.

Daily Pivots: (S1) 0.9271; (P) 0.9295; (R1) 0.9337; More...

USD/CHF's rise from 0.9058 is resuming by taking out 0.9931 resistance. Intraday bias is back on the upside for 38.2% retracement of 1.0146 to 0.9058 at 0.9474. For now, break of 0.9219 support is needed to indicate completion of the rebound. Otherwise, further rally will remain in favor in case of retreat.

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 1.0146 again.

Swiss Franc is trading broadly lower today while Yen and Aussie are also turning weaker. The theme for now is interesting will stay higher for longer due to resilience in major economies. Monetary policy in Japan and Swiss will be lagging behind. Dollar is staying generally firm and looks set to extend recent rally. Rising US treasury yields are giving the greenback a hand. But the main driver will continue to be overall risk sentiment.

Technically, Gold's fall from 1959.47 is trying to resume and it's now pressing 1818.69 support. Firm break there, and sustained trading below 38.2% retracement of 1614.60 to 1959.47 at 1827.72 will pave the way to 1746.34. On the other hand, rebound from current level, followed by break of 1847.27 minor resistance will confirm short term bottoming and bring stronger rebound.

In Europe, at the time of writing, FTSE is down -0.21%. DAX is up 0.46%. CAC is up 0.25%. Germany 10-year yield is up 0.027 at 2.551. Earlier in Asia, Hong Kong HSI dropped -0.35%. China Shanghai SSE dropped -0.11%. Singapore Strait Times dropped -1.06%. Japan was on holiday.

US initial jobless claims dropped to 192k, better than expectations

US initial jobless claims dropped -3k to 192k in the week ending February 18, better than expectation of 200k. Four-week moving average of initial claims rose 1.5k to 191k.

Continuing claims dropped -37k to 1654k in the week ending February 11. Four-week moving average of continuing claims dropped -3k to 1669k.

Also released, Q4 GDP growth was revised down to 2.7% annualized.

BoE Mann: More tightening is needed, a pivot is not imminent

BoE MPC member Catherine Mann said in a speech that while monetary policy taken has been historically aggressive, it's perhaps "insufficiently so relative to the multiple shocks, the behaviours pushing up inflation, and the initial accommodative starting point".

"The stage was set for a transmission of monetary policy to financial markets that has been quick, but also has been partially absorbed," she said. "And... are already incorporating the expected future inflection in monetary stance.

"All this adds up to financial conditions that are now looser than what likely will be needed to moderate the embedding of on-going inflation into the wage- and price-setting paths."

"This constellation could yield extended persistence of inflation into this year and the next. The resulting long period of time above the 2% target could increase the degree of backward-lookingness, or catch-up behaviour, in the system."

"Given that the risk of increasingly persistent inflation rises disproportionately with the share of backward-lookingness, I believe that more tightening is needed, and caution that a pivot is not imminent. In my view, a preponderance of turning points (Mann, 2023) is not yet in the data."

Eurozone CPI finalized at 8.6% yoy in Jan, core CPI at 5.3% yoy

Eurozone PMI was finalized at 8.6% yoy in January, down from 9.2% yoy in December. CPI core (all items ex-food, alcohol and tobacco) was finalized at 5.3% yoy, up from prior month's 5.2% yoy.

In January, the highest contribution to the annual Eurozone inflation rate came from food, alcohol & tobacco (+2.94%), followed by energy (+2.17%), services (+1.80%) and non-energy industrial goods (+1.73%).

RBNZ Orr: Cyclone rebuilding could add 1% to GDP over coming years

RBNZ Governor Adrian Orr told Bloomberg TV that rebuilding after the damage by cyclone Gabrielle is expected to boost activity and raise price pressure. There is a risk that OCR might be required to stay higher for longer as a result.

"We're looking at about a 1% addition to GDP over coming years," Orr said. "That is well manageable within the current monetary settings. But if inflation expectations continue, if core inflation is more persistent, then tighter for longer is certainly an outcome."

On the other hand, some of the global downside risks are "actually assisting on the inflation battle," Orr noted. "Economies are evolving broadly as  anticipated, excluding these ongoing shocks. So I'm very confident that low and stable inflation will return."

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9271; (P) 0.9295; (R1) 0.9337; More...

USD/CHF's rise from 0.9058 is resuming by taking out 0.9931 resistance. Intraday bias is back on the upside for 38.2% retracement of 1.0146 to 0.9058 at 0.9474. For now, break of 0.9219 support is needed to indicate completion of the rebound. Otherwise, further rally will remain in favor in case of retreat.

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 1.0146 again.

Economic Indicators Update

US initial jobless claims dropped -3k to 192k in the week ending February 18, better than expectation of 200k. Four-week moving average of initial claims rose 1.5k to 191k.

Continuing claims dropped -37k to 1654k in the week ending February 11. Four-week moving average of continuing claims dropped -3k to 1669k.

Full release here.

The Australian dollar has rebounded on Thursday, after a 2-day slide in which AUD/USD lost 100 points. In European trade, AUD/USD is trading at 0.6830, up 0.37%. On Wednesday, the Australian dollar fell to 0.6794, its lowest level since Jan. 6.

Australian Capex rebounds in Q4

Australia’s private capital expenditure jumped 2.2% q/q in Q4 2022, rebounding from 0.6% in Q3 and above the estimate of 1.3%. Building capex sparkled with a 3.6% gain, after declining by 1.6% in the third quarter. The strong numbers have pushed the Aussie higher on Thursday.

The capex release comes on the heels of wage growth, which slowed to 0.8% q/q in Q4 2022. This was lower than the 1.1% gain and the estimate of 1.0%. On an annualized basis, wage growth edged up to 3.3%, up from 3.2% but lower than the estimate of 3.5%. The RBA is keeping a close eye on wage growth, concerned that stubbornly high inflation could trigger a price-wage spiral that would entrench inflation expectations and complicate efforts to curb inflation.

FOMC minutes signal more rate hikes

The FOMC minutes reiterated what we’ve been hearing from Powell & Co. for months. FOMC members said there were signs that inflation was heading lower but more rate hikes were needed to bring inflation back to the 2% target. The minutes noted that the labour market remains robust, which is contributing to continuing upward pressures on wages and prices.” It should be noted that the minutes are somewhat stale, given the blowout employment report and the jump in retail sales which were released after the February meeting. These releases point to a surprisingly resilient US economy and could mean that members will become even more hawkish.

An important takeaway is that although the vote to hike by 0.25% was unanimous, two members (Bullard and Mester) saw a case for a 0.50% increase. The markets widely expect another 0.25% hike in March, but the host of unexpectedly strong releases in recent weeks has raised the likelihood of a 0.50% move. We can expect market pricing to continue to shift as the US releases key data in the coming weeks ahead of the Mar. 22 meeting.

AUD/USD Technical

• AUD/USD has support at 0.6784 and 0.6690
• There is resistance at 0.6907 and 0.7001

The Dollar Index has risen 3.8% to 104.5 from its lows in early February. Prior to that, the dollar index had been falling since late September, giving back half of the gains from the global rally triggered by the Fed’s sharp monetary tightening.

Although the dollar’s decline in recent months has been deeper than a typical Fibonacci retracement, this move looks like a profound correction within an uptrend. Early this month, the Dollar got support on the decline to the 100 area, a significant round level that acted as almost impregnable resistance in the pandemic. This time it proved to be no less solid support.

In addition, the dollar looked oversold, which provided initial support in early February. However, the US currency’s momentum against its rivals no longer looks like a technical fluctuation but rather a deliberate buying of dollar-denominated securities.

The fundamental reason for buying the US currency is the strong macroeconomic data, with inflation still alarmingly high, which should strengthen the central bank’s will to tighten. Judging by the tone of officials’ comments, the Fed is ready to do so.

The minutes of the last meeting showed that FOMC members felt that a 25-basis point hike was appropriate but that they were prepared to consider a sharper hike if needed. Even with the standard step, the Fed intends to stop tightening policy later than the markets have been expecting in recent months, which has helped to boost equities.

The long-term bullish trend in the dollar suggests that the DXY will return to multi-year highs near 115 by the end of this year.

Even without taking such a global view, the near-term outlook for the dollar remains bullish. Since the beginning of the week, the rally has taken the corrective pullback to a new level. A consolidation of the DXY above 104 opens the way to 106, a retreat to 61.8% of the last four months’ failure after failing to reverse downside resistance at 76.4% of that move. There is a 200-day moving average of 106. We will unlikely see a real bull-and-bear battle for the USD until these levels.

Market Picture

Bitcoin closed below $24K for the first time in 8 days on Wednesday. On Thursday morning, however, buyers regained the upper hand, pushing the coin up to $24.4K. BTC came under pressure on Tuesday and Wednesday amid falling stock indices. Last night, the decline paused, which helped the crypto market recover some of its losses, bringing its total capitalisation back to $1.11 trillion.

Interestingly, according to Bloomberg, the monthly correlation between bitcoin and the S&P 500 has fallen to its lowest level since 2021. And it was easy to see how long cryptocurrencies ignored the decline in equities.

In our view, these markets remain interconnected and only “hear” each other’s murmurs when they are persistent and pronounced. Less pronounced trends are perceived as noise that is filtered out.

The technical view of bitcoin’s short-term momentum leaves room for further upside, as the most recent downside momentum was stopped at 61.8% of the upside momentum from last week’s lows. Without the strong negative momentum of the equity indices, bitcoin retains a chance to test the 25,000 level before the end of the week. Such sustained attempts to climb higher could well take it there.

News Background

New York’s financial regulator is stepping up its crypto market oversight as its Department of Financial Services (NYDFS) has announced an update to its tools for monitoring illegal cryptocurrency activity among its regulated entities.

The Ethereum team has scheduled the rollout of the Shanghai-Capella (Shapella) update to the Sepolia test network for 28 February. This update will follow The Merge and allow validators to withdraw funds from stacks. After Sepolia, the hardfork will be tested on the Goerli network and then (probably in March) implemented on Mainnet.

Shops in France will start accepting bitcoin payments thanks to a partnership between the Binance exchange and credit card company Ingenico. The programme will later be extended to European countries where Binance is licensed to operate, including Italy, Lithuania, Spain, Cyprus, Poland, and Sweden.

Crude down 8% since last Monday, when Biden's administration said it is selling 26 m barr. of oil from SPR. Price testing key trendline support of a bearish triangle, which signals for more weakness in Elliott Wave terms. Daily/weekly closes below $72.50 makes room for 60-65.

BoE MPC member Catherine Mann said in a speech that while monetary policy taken has been historically aggressive, it's perhaps "insufficiently so relative to the multiple shocks, the behaviours pushing up inflation, and the initial accommodative starting point".

"The stage was set for a transmission of monetary policy to financial markets that has been quick, but also has been partially absorbed," she said. "And... are already incorporating the expected future inflection in monetary stance.

"All this adds up to financial conditions that are now looser than what likely will be needed to moderate the embedding of on-going inflation into the wage- and price-setting paths."

"This constellation could yield extended persistence of inflation into this year and the next. The resulting long period of time above the 2% target could increase the degree of backward-lookingness, or catch-up behaviour, in the system."

"Given that the risk of increasingly persistent inflation rises disproportionately with the share of backward-lookingness, I believe that more tightening is needed, and caution that a pivot is not imminent. In my view, a preponderance of turning points (Mann, 2023) is not yet in the data."

Full speech here.