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The Federal Reserve (Fed) meeting went better than many expected. The Fed left interest rates unchanged as planned, but Chair Jerome Powell repeated that the rate cuts will begin ‘sometime this year’ and that it would be appropriate to slow the pace of QT ‘fairly soon’. There is no particular time regarding when the Fed will start giveaways, but we know that the recent uptick in inflation, the strong NFP figures, or the above-target growth don’t seem to be a concern for most Fed members. 10 of them plotted three or more rate cuts for this year, and 9 of them plotted two rate cuts or fewer. The median forecast is three rate cuts, unchanged from the December plot. The only hawkish tilt was for 2025. In 2025, the Fed members expect three cuts and not four. Voila.

Yesterday’s Fed decision was such a relief for the market, where the fear of seeing the Fed turn hawkish was reigning. The probability of a June rate cut spiked past 75% after the meeting from around 60% on Monday. The US 2-year yield sank below 4.60% after having approached the 4.80% earlier this week. The 10-year yield retreated below 4.30%, the dollar index gave back last week’s gains, and returned to February to March descending channel. Equities soared, of course, the S&P500 rallied past the 5200 mark and closed at a fresh ATH, while Nasdaq jumped more than 1% as well following such a dovish surprise from the Fed.

Ouch, Gucci

In Europe, mood was much less cheery, as the 11% plunge of Kering, the owner of Gucci, raised questions regarding the health of the rest of the European luxury stocks. Kering revealed that Gucci sales will fall 34% in Asia and about 20% worldwide versus a 4% dip predicted by analysts. Gucci makes up around 60% of the company’s total profit, hence Kering now expects global sales to fall by around 10% this quarter, versus only 3% penciled in by analysts. No wonder the news is quite a shocker for Kering and a strong warning for other luxury brands like LVMH, Hermes and Richmond. LVMH lost more than 1.50% yesterday, while Hermes remained near flat.

On the central bank front, European Central Bank (ECB) head Christine Lagarde didn’t enchant Europeans when she said that the ECB can’t commit to rate cuts beyond a first cut in June. She repeated that they ‘will know a bit more by April and a lot more by June’. The EURUSD jumped on the back of more dovish Fed and more hawkish ECB news, should extend gains above the 1.10 level and steady within 1.10/1.12 range as the US dollar should extend losses across the board, unless a big surprise derails the dovish Fed expectations. For now, there is no reason to doubt the Fed’s determination to cut in summer.

BoE decides following soft inflation report

Today, it’s the Bank of England’s (BoE) turn to announce decision. Yesterday’s softer-than-expected inflation figures and last week’s softer-than-expected jobs data are supportive of the BoE doves. Of course, the BoE is not expected to change rates today, but the MPC members’ votes will be the key takeaway from today’s announcement. If more MPC members vote in favour of a rage cut, we will likely see the BoE rate cut expectations pulled earlier this summer. For now, a 25bp cut is fully priced in for August – unchanged after yesterday’s inflation report. Cable jumped yesterday despite a soft inflation report as the selloff in the US dollar weighed heavier on the balance. And the same reasoning than with the EURUSD applies here. Cable is set to extend gains further, and the bulls could eye a rise to 1.30 if the US dollar remains under pressure on the back of strongly dovish Fed expectations.
Swiss can act earlier than European peers

The Swiss National Bank (SNB) also gives its policy decision today. The Swiss will likely follow in the footsteps of the ECB, but they could act slightly earlier than European peers given that inflation is now below target and letting the franc giveaway some strength wouldn’t be bad for the Swiss economy and exporters – especially after the Kering’s warning that Asian customers are not necessarily hungry for expensive European brands right now. The EURCHF rebounded more than 4% since the beginning of the year, but the pair has not even reached the minor 23.6% Fibonacci retracement on 2021 to 2024 selloff - the period where the SNB decided to let the franc strengthen to fight inflation. Therefore, there is a good upside opportunity for the EURCHF, if of course, the SNB remains convinced that inflation in Switzerland is under control. For now, it is.

Reddit starts trading today

Reddit will start trading on NYSE today after having raised $748 million priced at $34 per share – which is the top marketed range. Fundamentally, Reddit is not Nvidia – huh – they haven’t had a profitable year since the 2005 launch and the user growth has stalled near 500 mio for the past three years. Therefore, Redditers should give a supportive hand to make buzzy headlines. Note that the weather conditions are ideal for a first day facing the public – especially for speculative trades. The Fed has been accommodative, risk appetite is strong and there are no clouds in the sky. So, the Redditers could enjoy the ride.

In focus today

It is rate review day for several central banks, as we look to both the Swiss National Bank (SNB, 9.30 CET), Norges Bank (10.00 CET), and Bank of England (BoE, 13.00 CET) to publish their decisions.

We believe that inflation within the target rate (and below the SNB's forecast), a strong CHF, and quarterly meetings favour a 25bp rate cut from the SNB.

The BoE should keep the policy rate unchanged in line with both consensus and market pricing (for more details, see our Bank of England Preview, 15 March).

We expect Norges Bank to keep the policy rate unchanged at 4.50% and reiterate the signals that the first rate cut will most likely come in September. Most tension is linked to whether the low inflation figures for February imply that Norges Bank can open the possibility for an earlier cut.

We also receive a slew of March PMIs from the US and euro area. In the US we broadly expect to see signs of gradually cooling services growth and modest recovery in manufacturing. Euro area PMIs will also be very interesting as February service PMIs rose above the 50 mark, which indicates positive growth, for the first time since July. We expect that services remained above 50 in March as rising real wages and a strong labour market set the scene for decent services consumption. Manufacturing PMIs unexpectedly declined to 46.5 in February. However, this was entirely driven by Germany, whereas euro area manufacturing PMIs excluding Germany increased to 49.1. Based on inventory dynamics and leading indicators from Asia, we anticipate manufacturing PMIs increased in March. Yet, the German industry likely remained a drag on the euro area PMI.

Overnight, Japanese CPI inflation for February is released. Tokyo inflation indicated that price pressures remain aligned with an annual 2% inflation.

Economic and market news

What happened overnight

Dovish signals from Asia, with China's central bank deputy governor saying there was "room" to cut the reserve requirement ratio, and BoJ governor Ueda saying the BoJ would maintain "accommodative" monetary policy to support the economy.

Japanese PMIs improved with services at 54.9 (prior: 52.9) and manufacturing at 48.2 (prior: 47.2). A tourism rebound has provided benign demand conditions for services despite domestic consumers' loss of purchasing power. Manufacturing remains in contraction, but the decline seems to be slowing, with firms helped along by the weak yen. Since the BoJ hike earlier this week the yen has weakened further, especially vis-á-vis the euro, although price action against the dollar reversed slightly after yesterday's FOMC meeting.

What happened yesterday

As expected, the Fed kept its monetary policy unchanged, with the updated dot-plot still showing three 25bp rate cuts for 2024. Markets took this as a dovish signal, as recent upside surprises in inflation and growth have sown doubt whether the US is on its way to target inflation. The EUR/USD traded higher as of this morning and US equity markets rallied with several indices hitting record highs.

UK headline CPI printed slightly lower than expected at 3.4% (cons: 3.5%) and core at 4.5% (cons: 4.6%). EUR/GBP was a touch higher on release, but the price action reversed again as service inflation printed slightly higher than expected and in line with BoE forecasts.

Lagarde reiterated that we will know much more by June about monetary policy and highlighted wage growth, profit margins and productivity growth as key factors in assessing when the ECB can exit the "holding" phase and enter the "dialing-back" phase of monetary policy.

Equities: Global equities were higher yesterday with yet another set of all-time-high closings. FOCM and not least a dovish, very positive, joking, and importantly "higher for longer" Powell was the big driver behind the increase. It was no surprise that it resulted in a strong cyclical rotation where maybe the most surprising part was growth stocks doing fairly well and small caps outperforming. In US yesterday, Dow +1.0%, S&P 500 +0.9%, Nasdaq +1.3% and Russell 2000 +1.9%. Asian markets are sharply higher this morning led by South Korea up almost 3%. Flash PMI out of Japan boosting the already positive sentiment following FOMC. US and not least European futures are higher this morning.

FI: The US curve bull steepened yesterday as the FOMC stuck with the median projection of 75bp worth of rate cuts in 2024, though the policy rate trajectory for 2025 and beyond was lifted slightly. Markets added 8bp to the front-end pricing of US rate cuts in 2024, now standing at 82bp. 2Y UST yields dropped 7bp throughout the session, while the 10Y point slipped 2bp. EGB markets were in a waiting mode ahead of the FOMC with only marginal changes throughout the day.

FX: A dovish Fed sent US rates lower and EUR/USD higher yesterday. EUR/USD climbed back above 1.09. JPY dropped further yesterday - in particular vis-à-vis the EUR with EUR/JPY rising above 165. The big central bank week continues today, where we look for a rate cut from the SNB to weigh on CHF.

Daily Pivots: (S1) 192.29; (P) 192.91; (R1) 194.02; More.....

Intraday bias in GBP/JPY remains on the upside for the moment. Current up trend should target 61.8% projection of 178.32 to 191.29 from 187.94 at 195.95, which is close to 195.86 long term resistance. On the downside, below 191.78 minor support will turn intraday bias neutral and bring consolidations first, before staging another rally.

In the bigger picture, current rally is part of the uptrend from 123.94 (2020 low), and is in progress for long term resistance (2015 high). Break of 187.94 support is needed to be the first sign of medium term topping. Otherwise, outlook will remain bullish in case of retreat.

Daily Pivots: (S1) 164.21; (P) 164.79; (R1) 165.77; More...

Intraday bias in EUR/JPY remains on the upside for the moment. Current rally should target 61.8% projection of 153.15 to 163.70 from 160.20 at 166.71. On the downside, Below 163.81 minor support will turn intraday bias neutral and bring consolidations first, before staging another rally.

In the bigger picture, current rally is part of the up trend from 114.42 (2020 low), which is still in progress. Next target is 169.96 (2008 high). Break of 160.20 support is needed to be the first sign of medium term topping. Otherwise, outlook will stay bullish in case of retreat.

Daily Pivots: (S1) 0.8532; (P) 0.8546; (R1) 0.8555; More...

Range trading continues in EUR/GBP and intraday bias remains neutral. On the downside, decisive break of 0.8491/7 support zone will confirm larger down trend resumption and target 0.8464 projection level first. However, firm break of 0.8577 will 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) 1.6558; (P) 1.6607; (R1) 1.6634; More...

EUR/AUD reversed after hitting 1.6677 and intraday bias is turned neutral first. Near term outlook will stay cautiously bullish as long as 1.6439 support holds. On the upside, above 1.6677 will target 1.6742 first. Decisive break there will resume whole rise from 1.6127 and target 1.6844 resistance next.

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) 0.9656; (P) 0.9672; (R1) 0.9703; More..

Intraday bias in EUR/CHF stays on the upside with focus on 0.9683 resistance. Sustained break there will carry larger bullish implication and target 0.9773 fibonacci resistance. On the downside, though, break of 0.9618 support will indicate short term topping. In this case, intraday bias will be back on the downside for 55 D EMA (now at 0.9527).

In the bigger picture, as long as 0.9683 resistance holds, rebound from 0.9252 are seen as a corrective move only. Larger down trend is expected to resume through 0.9252 after the correction completes. However, firm break of 0.9683 and sustained trading above 55 W EMA (now at 0.9620) will argue that 0.9252 is already a medium term bottom. Stronger rise would then be seen 61.8% retracement of 1.0095 to 0.9252 at 0.9773 and above.

Daily Pivots: (S1) 1.0864; (P) 1.0894; (R1) 1.0951; More...

EUR/USD's strong rebound and break of 1.0905 resistance suggests that pull back from 1.0980 has completed at 1.0834, after drawing support from 55 D EMA. Intraday bias is back on the upside for retesting 1.0980 first. Firm break there will resume whole rise from 1.0694. On the downside, sustained trading below 55 D EMA (now at 1.0861) will argue that rebound from 1.0694 has completed and bring retest of this low.

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 1.0694 support will argue that the third leg has already started for 1.0447 and possibly below.

Daily Pivots: (S1) 1.2718; (P) 1.2753; (R1) 1.2820; More...

GBP/USD's rebound from 1.2666 extended higher but stays below 1.2822. Intraday bias remains neutral first. On the downside, break of 1.2666 support and sustained break of 55 D EMA (now at 1.2685) will target 1.2517 structural support next. However, break of 1.2822 will bring further rally to retest 1.2892 instead.

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 is still in progress. But upside should be limited by 1.3141 to bring the third leg of the pattern. Meanwhile, break of 1.2517 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) 0.8846; (P) 0.8882; (R1) 0.8905; More....

Intraday bias in USD/CHF is turned neutral first with current retreat. Some consolidations would be seen, but further rally is expected as long as 0.8728 support holds. On the upside, above 0.8917 will target 61.8% projection of 0.8550 to 0.8884 from 0.8728 at 0.8934. Firm break there will target 100% projection at 0.9062 next.

In the bigger picture, price actions from 0.8332 medium term bottom as seen as developing into a corrective pattern to the down trend from 1.0146 (2022 high). Further rise would be seen as long as 0.8555 support holds. But upside should be limited by 0.9243 resistance, at least on first attempt.