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US stock turned positive after Fed’s Bullard stated that markets might be over-pricing US recession risk. ​ Bullard said his projections for rates are to reach 5.375%, which implies 75 bps more in rate increases. ​ Bullard is one of the more hawkish members, so if he thinks we only have a little ways to go here, the peak in rates might be properly priced in. ​ The disagreement between the Fed and markets on how high rates to go might be over and that could provide a tentative boost for stocks. ​

China

China’s top diplomat, Wang Yi said China is willing to deepen ties with Russia. Wang is expected to meet President Putin on Wednesday. China is well aware that more sanctions could be coming their way. The West is concerned China could be providing weapons to Russia. ​ China has continued to deny claims that they are supporting Russia with weapons.

​Russia President Putin’s comments on China emphasized that ‘everything is progressing, developing’. It appears Putin is confident that whatever extra Western sanctions come towards China won’t derail their relationship. ​

Deglobalization is not going away anytime soon and that ultimately should prove to be very inflationary.

RBNZ

The New Zealand central bank (RBNZ) raised its key rate by a half-point to 4.75% and kept its forecast for it to peak at 5.50%. ​ Rates are at 14-year high after the downshift 50 bps rate rise. ​ They noted a consideration for a 75-basis point increase, but not a quarter point hike. ​

RBNZ Governor Orr still expects a recession over a 9–12-month period, which means they expect growth to take ​ a big hit as policy gets even more restrictive.

Oil

Crude prices pared losses after interruptions with the Caspian Pipeline Consortium could make Kazakhstan curb output. ​ The CPC terminal is vital for taking oil from Kazakh and Russian fields and bad weather has stopped it from loading tankers on February 19th. ​

​Oil is still feeling heavy as energy traders anticipate a hawkish Fed will contemplate larger rate hikes that will likely send the US economy into a recession. ​ Energy traders not only have to keep up with all the latest supply and demand drivers, but also on how much the dollar might rebound given the Fed’s tightening path. ​ Oil will likely remain heavy here as inventories are up, refinery maintenance is here, and on global growth concerns. ​

Gold

Gold prices are slightly higher as the bond market selloff takes a break ahead of the FOMC minutes. ​ The bond market will need very hawkish minutes for the 10-year to break above the 4.00%, which could spell trouble for gold. ​ The big question is if the minutes will open the door for some to expect four more Fed rate hikes. ​ After Fed Bullard's peak of 5.375% comment, traders might not expect them to be that hawkish.

Very hawkish Fed minutes could happen, but will it take gold back below last week’s lows of $1827 is the big question? ​ ​ ​ ​

Bitcoin

Bitcoin edges lower ahead of FOMC minutes. Bitcoin’s small decline is meaningless as traders brace for what a lot of traders believe could be hawkish Fed minutes. Bitcoin’s rally has stalled at $25,250 and depending on what happens with risk appetite at 2pm EST could determine if we see the February consolidation continue or if we have a breakout. ​ If the $25,500 is reached, momentum traders might try to support a rally towards the psychological $30,000 level. ​ If bearish momentum returns, Bitcoin has strong support at the $22,500 region. ​

Risk sentiment appears to have stabilized as markets enter into US session. There have been increasing speculation that Fed would revert to a 50bps rate hike in March. Traders might try to scrutinize FOMC minutes to get more hints on the chance. But overall, that's not the majority's opinion for now. In the currency markets, Sterling remains the strongest one for the week, followed by Dollar and Kiwi. Aussie is the worst followed by Euro and then Canadian.

Technically, USD/CAD has resumed near term rally yesterday. It could be AUD/USD's turn in the current session. Break of 0.6810 temporary low will resume whole corrective fall from 0.7156 to 100% projection of 0.6854 to 0.7028 from 0.6854 at 0.6736, which is close to 0.6721 key structural support. Breakout in AUD/USD could be triggered by resumed selloff in stocks after FOMC minutes.

In Europe, at the time of writing, FTSE is down -0.78%. DAX is down -0.09%. CAC is down -0.18%. Germany 10-year yield is up 0.0008 at 2.532. Earlier in Asia, Nikkei dropped -1.34%. Hong Kong HSI dropped -0.51%. China Shanghai SSE dropped -0.47%. Singapore Strait Times dropped -0.21%. Japan 10-year JGB yield dropped -0.0001 to 0.503.

Fed Bullard: Let's be sharp and get inflation under control in 2023

St. Louis Fed President James Bullard told CNBC, "Our risk now is inflation doesn't come down and reaccelerates and then what do we do.

"We are going to have to react, and if inflation doesn't start to come down, you know, you risk this replay of the 1970s where you had 15 years and you're trying to battle the drag, and you don't want to get into that.

"Let's be sharp now, let's get inflation under control in 2023 and it's a good time to fight inflation because the labor market is still strong," He added.

Bullard reiterated his view that Federal funds rate at 5.25-5.50% rate would be adequate for the task.

Germany Ifo rose to 91.1, gradually working out of weakness

Germany Ifo Business Climate rose from 90.2 to 91.1 in February, matched expectations. Current Assessment Index dropped from 94.1 to 93.0, below expectation of 94.3. Expectations Index rose from 86.4 to 88.5, above expectation of 94.7.

By sector, manufacturing rose form -0.7 to 1.5. Services rose from 0.2 to 1.3. Trade rose from -15.4 to -10.6. Construction rose from -21.7 to -19.6.

Ifo said: "The German economy is gradually working its way out of a period of weakness."

Villeroy: ECB in no way obliged to hike at every meeting

ECB governor François Villeroy de Galhau told French daily Les Echos that investors have "overreacted" to ECB communication since last week.

"There is an excess of volatility in the terminal rate expectations," he said. "Put differently, markets have overreacted a little since Thursday."

Villeroy also noted that while interest rate could peak by the end of summer, ECB is "in no way" obliged to raise borrowing costs at every meeting between now and September.

RBNZ hikes 50bps, sees OCR peaking at 5.5%

RBNZ raises the Official Cash Rate by 50bps to 4.75% as widely expected. It also maintained hawkish bias and noted, "monetary conditions need to tighten further".

Regarding cyclone Gabrielle, it's "too early to accurately assess the monetary policy implications".. The committee will also "look through" the "short-term output variations and direct price effects" related to the weather event.

In the economic projections, RBNZ sees OCR peaking at 5.5% in Q4 2023, and stays above 5% until Q1 2025. GDP is projected to contract in Q2, Q3 and Q4 this year. Inflation is projected to drop gradually from 7.3% in Q1, but only falls back below 3% in Q3 2024.

In the post meeting press conference, RBNZ Governor Adrian Orr said that all options remain on the table today, "including 25, 50 and 75 bps hikes." There was "very little discussion of a 25bp rate hike", while "most focus was on 50bp".

Australia Westpac leading index ticked up, growth below trend through most of 2023

Australia Westpac-MI leading index ticked up slightly in January. Growth in the three to nine months period is estimated to be -1.04% below trend, comparing to -1.09% in December.

Westpac added that growth would remain below trend through most of 2023, with global factors, monetary policy and, recently, hours worked have weighed heavily on the Index.

Regarding RBA policy, Westpac expects another 25bps hike at March meeting to 3.60%. The cash rate is expected to peak at 3.85%, but recent communications from RBA "imply upside risks to that forecast".

BoJ Tamura: Appropriate to maintain monetary easing for now

BoJ board member Naoki Tamura said, "we're now in a phase where we need to scrutinise whether Japan can achieve a positive wage-inflation cycle. As such, it's appropriate to maintain monetary easing for now."

Tamura also noted that December's decision to double to yield cap was aimed at making monetary easing more sustainable, not at tightening. "At this stage, it's important to follow carefully and humbly how markets would stabilise and to what extent market functions will improve," he said.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0623; (P) 1.0661; (R1) 1.0683; More...

Range trading continues in EUR/USD and intraday bias stays neutral first. Further decline is in favor with 1.0803 resistance intact. On the downside, break of 1.0610 will resume the corrective fall from 1.1032 and 38.2% retracement of 0.9534 to 1.1032 at 1.0463. Strong support should be seen around there to bring rebound, at least on first attempt.

In the bigger picture, the rally from 0.9534 low (2022 low) is a medium term up trend rather than a correction. Further rise is in favor to 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273 next. This will remain the favored case as long as 1.0482 support holds.

Economic Indicators Update

Daily Pivots: (S1) 1.0623; (P) 1.0661; (R1) 1.0683; More...

Range trading continues in EUR/USD and intraday bias stays neutral first. Further decline is in favor with 1.0803 resistance intact. On the downside, break of 1.0610 will resume the corrective fall from 1.1032 and 38.2% retracement of 0.9534 to 1.1032 at 1.0463. Strong support should be seen around there to bring rebound, at least on first attempt.

In the bigger picture, the rally from 0.9534 low (2022 low) is a medium term up trend rather than a correction. Further rise is in favor to 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273 next. This will remain the favored case as long as 1.0482 support holds.

Daily Pivots: (S1) 1.2017; (P) 1.2082; (R1) 1.2177; More...

Intraday bias in GBP/USD stays neutral and outlook is unchanged. Another fall could be seen as long as 1.2269 resistance holds. 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) 0.9246; (P) 0.9265; (R1) 0.9296; More...

Intraday bias in USD/CHF stays neutral at this point. On the upside, break of 0.9331 will resume the rebound from 0.9058 to 38.2% retracement of 1.0146 to 0.9058 at 0.9474. However, break of 0.9135 will indicate that the rebound has completed and bring retest of 0.9058 low.

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.

Daily Pivots: (S1) 134.48; (P) 134.85; (R1) 135.40; More...

USD/JPY continues to lose upside momentum as seen in 4 hour MACD. But further rise is still in favor to 38.2% retracement of 151.93 to 127.20 at 136.64. Strong resistance could be seen there to complete the corrective rebound. 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.

St. Louis Fed President James Bullard told CNBC, "Our risk now is inflation doesn't come down and reaccelerates and then what do we do.

"We are going to have to react, and if inflation doesn't start to come down, you know, you risk this replay of the 1970s where you had 15 years and you're trying to battle the drag, and you don't want to get into that.

"Let's be sharp now, let's get inflation under control in 2023 and it's a good time to fight inflation because the labor market is still strong," He added.

Bullard reiterated his view that Federal funds rate at 5.25-5.50% rate would be adequate for the task.

The New Zealand dollar jumped after the Reserve Bank of New Zealand meeting but has pared most of these gains. In the European session, NZD/USD is almost unchanged at 0.6216.

RBNZ hikes by 50 basis points

The RBNZ delivered a 50 bp rate increase today, bringing the cash rate to 4.75%, its highest level since 2009. The move was widely expected, but a hawkish tone from the central bank gave the New Zealand dollar a brief boost. The rate statement noted that while there are signs that inflationary pressures are easing, CPI remains too high. The statement said that the cash rate “still needs to increase” in order to get inflation back to the Bank’s target of 1%-3%.

There is plenty of life left in the RBNZ’s rate-tightening cycle, as the central bank has forecast a peak rate of 5.5% later this year. The next rate meeting is in April, and as things stand, we can expect another 50-bp hike at that time. Inflation is running at a 7.2% clip and a 75-bp hike was a strong possibility at today’s meeting before Cyclone Gabrielle hit and caused damage in the billions of dollars. This is expected to dampen growth in the slow term, although the rebuild should boost inflation.

In the US, Manufacturing PMI was almost unchanged at 47.8, while Services PMI improved to 50.5, an 8-month high. The 50.0 level separates contraction from expansion, and both services and manufacturing have been in decline for months, as high inflation and rising interest rates have dampened activity in these sectors.

The Fed will release the minutes of its February meeting, when it delivered a 25-basis point hike. The markets will be interested in the extent of support for a 50-bp hike at the meeting. The blowout employment report and a strong retail sales release have forced the markets to come closer to the Fed’s stance, and there is now talk of more rate hikes this year, when only a few weeks ago the markets were confidently projecting rate cuts in late 2023.

NZD/USD Technical

• There is resistance at 0.6245 and 0.6357
• 0.6162 and 0.6049 are providing support

ECB governor François Villeroy de Galhau told French daily Les Echos that investors have "overreacted" to ECB communication since last week.

"There is an excess of volatility in the terminal rate expectations," he said. "Put differently, markets have overreacted a little since Thursday."

Villeroy also noted that while interest rate could peak by the end of summer, ECB is "in no way" obliged to raise borrowing costs at every meeting between now and September.

USDJPY had been trading within a downward sloping channel since mid-October when the price peaked at a 32-year high of 151.94. Nevertheless, the pair managed to break above this pattern in early February, with its strong advance currently approaching the 200-day simple moving average (SMA).

This positive short-term bias is also endorsed by the momentum indicators. Specifically, the RSI has jumped above its 50-neutral mark, while the stochastic oscillator posted a bullish cross within the 80-overbought zone.

If the upside tendency persists, initial resistance could be encountered at the 200-day SMA currently at 137.00. Piercing through that barrier, the price could ascend towards the December resistance region of 138.15. Should that barricade fail, the bulls might aim for the 142.24 peak registered in mid-November.

On the flipside, bearish actions could send the price to test the December support of 133.60. A break below that zone may shift the attention to 131.55, which acted as both support and resistance in the past two months. Failing to halt there, further declines could cease at the February support of 129.80.

Overall, USDJPY appears ready to recover a significant part of its losses after its bearish pattern broke to the upside. Therefore, the test of the 200-day SMA could prove to be the next decisive factor for the pair’s trajectory.