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Daily Pivots: (S1) 1.0840; (P) 1.0858; (R1) 1.0875; More...

Immediate focus is now on 1.0887 resistance in EUR/USD with today's rally. Firm break there will resume whole rise from 1.0694. Also, sustained trading above 55 D EMA (now at 1.0831) will affirm the case that fall from 1.1138 has completed. In this case, intraday bias will be back on the upside for retesting 1.1138 high. Nevertheless, on the downside, break of 1.0795 minor support will turn bias back to the downside for retesting 1.0694 support.

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.

Dollar is trading broadly lower as markets enter into US session, with minimal backing from Fed Chair Jerome Powell's prepared remarks for his Congressional testimony. Instead, the currency's weakest is accentuated by extended drop in treasury yields and slightly disappointing ADP private job data. Amidst this backdrop, Swiss Franc emerges as the only currency performing worse than the greenback, with Canadian Dollar also lagging but drawing attention ahead of BoC's impending rate decision.

Japanese Yen staged a robust rebound earlier today but has since faced challenges in overcoming near-term resistance against its primary counterparts. Yen also finds itself overshadowed by Australian and New Zealand Dollar's strong comeback. Euro and Sterling are also gaining ground against Dollar, Canadian Dollar, and Swiss Franc, though they face difficulties when pitted against other currencies.

Technically, immediate focus is now on 149.20 in USD/JPY with today's steep decline. Firm break there will argue that price actions from 150.87 are at least developing into a correction to whole rise from 140.25. There is also prospect of reversing whole rise too. But in either case, that would lead to deeper decline to 38.2% retracement of 140.25 to 150.87 at 146.81.

In Europe, at the time of writing, FTSE is up 0.32%. DAX is up 0.05%. CAC is up 0.16%. UK 19-year yield is up 0.006 at 4.112. Germany 10-year yield is up 0.017 at 2.339. Earlier in Asia, Nikkei fell -0.02%. Hong Kong HSI rose 1.70%. China Shanghai SSE fell -0.26%. Singapore Strait Times rose 0.93%. Japan 10-year JGB yield rose 0.0100 to 0.718.

Fed Powell stands firm: No rate cuts without greater confidence

In his semiannual Congressional testimony, Fed Chair Jerome Powell's prepared remarks highlighted the necessity for Fed to await "greater confidence" in inflation's sustainable movement towards 2 % target before considering any reduction in policy rates.

Powell acknowledged the policy rate is "likely at its peak" for the current cycle, and it's appropriate for "dialing back policy restraint at some point this year." However, he also stressed the "uncertain" economic outlook and noted that the path to 2% inflation is "not assured,"

The Fed Chair warned of the consequences of prematurely or excessively loosening policy, noting that such actions could jeopardize the progress made in inflation control, possibly necessitating "even tighter policy" in the future. Conversely, delaying or minimizing the reduction of policy restraint risks harming economic activity and employment.

US ADP employment rises 140k in Feb, gains remain solid

US ADP private employment rose 140k in February, below expectation of 140k. By sector, goods-producing jobs rose 30k while service-providing jobs rose 110k. By establishment size, small companies added 13k jobs, medium companies added 69k, large companies added 61k.

Annual pay for job-stayers rose 5.1% yoy, lowest since August 2021. Annual pay for job-changers rose 7.6% yoy, faster than the prior month for the first time since November 2022.

"Job gains remain solid. Pay gains are trending lower but are still above inflation," said Nela Richardson, chief economist, ADP. "In short, the labor market is dynamic, but doesn't tip the scales in terms of a Fed rate decision this year."

Eurozone retail sales rises 0.1% mom in Jan, EU up 0.3% mom

Eurozone retail sales volume rose 0.1% mom in January, matched expectations. The volume of retail trade increased for food, drinks, tobacco by 1.0%, decreased for non-food products (except automotive fuel) by -0.2%, increased for automotive fuel in specialised stores by 1.7%.

EU retail sales rose 0.3% mom. Among Member States for which data are available, the highest monthly increases in the total retail trade volume were recorded in Luxembourg (+7.6%), Romania (+3.8%) and Cyprus (+1.5%). The largest decreases were observed in Estonia (-2.6%), Slovakia (-1.0%) and Latvia (-0.8%).

IfW slashes 2024 German growth forecast to 0.1% due to multiple challenges

Kiel Institute for the World Economy significantly downgraded its growth expectations for German economy, projecting a mere 0.1% increase in 2024, a sharp downward revision from its previous forecast of 0.9%. Slight improvement is anticipated in 2025, with growth expected to accelerate to 1.2%. On the inflation front, decline to 2.3% is projected for this year, down from 5.9% in 2023, with further reduction anticipated to 1.7% in 2025. Unemployment rate is expected to marginally decrease from 5.8% in 2024 to 5.6% in 2025.

Moritz Schularick, President of the Kiel Institute, pointed to a "whole range of factors" currently dampening sentiment and economic performance in Germany. These include global economic slowdown impacting exports, ECB's restrictive monetary policy expected to extend into the next year, and German government's austerity measures, which Schularick believes are being implemented at an inopportune time, fostering additional pessimism.

Stefan Kooths, Head of Economic Research at the Kiel Institute, added that despite gradual recovery expected over the year, the overall economic dynamism in Germany remains subdued. He underscored the emergence of signs indicating that structural issues are mainly to blame for the economic slowdown, with private investment falling short, partly due to the significant uncertainty provoked by current economic policies.

RBNZ's Conway: OCR to stay restrictive for some time into the future

RBNZ Chief Economist Paul Conway, speaking at a webinar today, noted that emphasizing the contractionary nature of current interest rates is effectively "tapping the brakes" on the economy to moderate its pace of growth and address inflationary pressures.

Conway expressed optimism about the recent declines in core inflation and business inflation expectations. However, he also highlighted ongoing concerns regarding elevated household inflation expectations, which pose a potential risk to the inflation outlook.

Looking forward, Conway underscored the necessity for OCR to maintain a restrictive level "for some time into the future" to get headline inflation, currently at 4.7%, back into the 1-3% target band.

An interesting consideration Conway raised was the impact of Fed's policy moves on New Zealand's monetary policy trajectory. He suggested that if Fed were to initiate rate cuts towards the end of the year, and RBNZ did not follow suit, the resulting appreciation in NZD could alleviate inflationary pressures in New Zealand. This scenario might prompt RBNZ to reassess its rate cut timeline, leading to earlier-than-anticipated adjustments depending on the broader economic implications.

Australia's GDP up 0.2% qoq in Q4, continuing consistent slowdown

Australia GDP grew 0.2% qoq in Q4, slightly below expectation of 0.3% qoq. On an annual basis, the economy expanded by 1.5% yoy.

The data indicates deceleration in economic momentum as the year progressed, with Katherine Keenan, the head of national accounts at ABS, noting a consistent slowdown across each quarter of 2023.

The main pillars supporting GDP growth were identified as government spending and private business investment. Government final consumption expenditure saw 0.6% qoq increase , while private business investment grew 0.7% qoq.

The significant contribution of net trade, which added 0.6 percentage points to the overall GDP growth, was largely attributed to a -3.4% qoq decrease in import.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0840; (P) 1.0858; (R1) 1.0875; More...

Immediate focus is now on 1.0887 resistance in EUR/USD with today's rally. Firm break there will resume whole rise from 1.0694. Also, sustained trading above 55 D EMA (now at 1.0831) will affirm the case that fall from 1.1138 has completed. In this case, intraday bias will be back on the upside for retesting 1.1138 high. Nevertheless, on the downside, break of 1.0795 minor support will turn bias back to the downside for retesting 1.0694 support.

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.

Economic Indicators Update

In his semiannual Congressional testimony, Fed Chair Jerome Powell's prepared remarks highlighted the necessity for Fed to await "greater confidence" in inflation's sustainable movement towards 2 % target before considering any reduction in policy rates.

Powell acknowledged the policy rate is "likely at its peak" for the current cycle, and it's appropriate for "dialing back policy restraint at some point this year." However, he also stressed the "uncertain" economic outlook and noted that the path to 2% inflation is "not assured,"

The Fed Chair warned of the consequences of prematurely or excessively loosening policy, noting that such actions could jeopardize the progress made in inflation control, possibly necessitating "even tighter policy" in the future. Conversely, delaying or minimizing the reduction of policy restraint risks harming economic activity and employment.

Full remarks of Fed Powell here.

US ADP private employment rose 140k in February, below expectation of 140k. By sector, goods-producing jobs rose 30k while service-providing jobs rose 110k. By establishment size, small companies added 13k jobs, medium companies added 69k, large companies added 61k.

Annual pay for job-stayers rose 5.1% yoy, lowest since August 2021. Annual pay for job-changers rose 7.6% yoy, faster than the prior month for the first time since November 2022.

"Job gains remain solid. Pay gains are trending lower but are still above inflation," said Nela Richardson, chief economist, ADP. "In short, the labor market is dynamic, but doesn't tip the scales in terms of a Fed rate decision this year."

Full US ADP release here.

Market picture

The cryptocurrency market is building capitalisation towards the 24-hour level, but it’s a relatively modest +0.6% to $2.51 trillion. That’s close to, but still below Tuesday’s highs.

Bitcoin briefly topped $69K on Tuesday, setting a new all-time high, but has since corrected by more than 15%.

The size, speed and nature of the decline indicate a desire for “weak hands” to exit Bitcoin. At its lowest point, the price fell below $59K due to large orders that the market was unable to quickly digest. Excluding this spike, we can assume that the price fell to $62K – last week’s consolidation area – wiping out all the recent gains.

We saw these 15% corrections for a long time after the first update of the highs in the last cycle in 2020. It’s worth bracing for up to several weeks of consolidation in the 15-20% range.

Many altcoins have pulled back significantly from recent highs, looking back at BTC. But not Ethereum, which hit new highs since January 2022 at $3865 on Wednesday morning. The second most important cryptocurrency very quickly crossed the key $3500 threshold (161.8% of the year-end rally and local April 2022 high). According to the Fibonacci model, the next upside target is the 261.8% level, which is just above $4600 and close to historical highs.

News background

Ethereum’s cumulative stakes have surpassed $117 billion. Ethereum validators have blocked more than 31.5 million ETH in stakes, according to The Block. The total ETH supply is around 120 million coins with a capitalisation of ~$450 billion, so around 26% of the asset issuance is involved in securing the network.

The SEC has delayed a decision on BlackRock and Fidelity’s spot Ethereum ETFs. The commission will continue to gather comments from the public. Experts are divided on when the regulator will make a positive decision on Ethereum ETFs.

Over the past 90 days, investors have invested the equivalent of 133,000 BTC in various regulated bitcoin products. Their total assets under management (AuM) rose to 1 million BTC, according to ByteTree. Outflows from gold and bond-based ETFs accompanied the trend.

Michael van de Poppe, founder of MN Trading, pointed out that this is the first time in history that a new ATN has been reached before rather than after a halving.

The upcoming halving in April will reduce the daily mining of new bitcoins from 900 BTC to 450 BTC, which will affect trading strategies, market cycles and mining, according to Glassnode. Historically, halves have preceded bullish rallies. Heavy buying of spot bitcoin ETFs could add to the increased demand.

Deutsche Börse has launched an institutional-focused regulated platform for spot trading, settlement and custody of cryptocurrency assets, Deutsche Börse Digital Exchange (DBDX). Settlement and custody services will be provided by Crypto Finance (Deutschland), a BaFin-licensed subsidiary.

The Canadian dollar is trading quietly on Wednesday. In the North American session, USD/CAD is trading at 1.3580, down 0.08%

On the economic calendar, the Bank of Canada holds its rate meeting. The US will release JOLTS Job Openings, which is expected to tick lower to 8.9 million in February, compared to 9.02 million a month earlier.

Bank of Canada likely to stand pat again

There isn’t much excitement ahead of today’s rate announcement from the Bank of Canada. The BOC is widely expected to hold the current cash at 5% for a fifth straight time.

BOC policy makers face a significant challenge as they chart a rate path. Canada’s economy is relatively weak, but fears of a recession have largely receded, in no small measure due to the US economy’s surprisingly strong performance. Inflation slowed to 2.9% in January, mostly due to a sharp drop in gasoline prices. This is still well above the BOC’s inflation target of 2%.

The markets are looking for a rate cut in the summer but the BOC has good reason to remain cautious before it starts to lower rates. Wage growth remains high and core inflation, which is a better indicator of inflation trends than the headline rate, is above 3%. The central bank doesn’t want to add to the misery of home owners and raise rates, but a rate cut is premature with inflation still high. This means that the BOC will likely stay on the sidelines today and wait for key economic releases before deciding on its next move.

In the US, Federal Reserve Chair Jerome Powell testifies before the Senate Banking Committee later today. Powell is expected to reiterate that inflation is moving lower but needs to come down further before the Fed will feel comfortable in lowering rates.

USD/CAD Technical

• USD/CAD remains range-bound. There is resistance at 1.3616 and 1.3671
• 1.3550 and 1.3495 are providing support

• Gold’s impressive appreciation stabilizes near record high
• The bulls might take a break, but stay in play above 2,100

Gold bulls staged a comeback with a bang, driving the price vertically as high as 2,141 on Tuesday. This is marginally below December’s record high of 2,144 and could induce some consolidation ahead of Powell’s testimony before Congress and Friday’s US jobs data.

In the meantime, the precious metal is looking for another upturn in the four-hour chart after posting a small doji candlestick around 2,125. The technical indicators are not promising at the moment, as the MACD seems to have entered a new negative phase and the stochastic oscillator continues to trend to the downside. Moreover, the RSI keeps moving sideways within the overbought zone, suggesting that the latest bullish action might soon run out of steam.

If the bulls stay in play, the price might attempt to breach the 2,144 ceiling with scope to reach the 161.8% Fibonacci extension of the previous downtrend at 2,152. The 2,175 region might be the next target as the resistance line, which connects the March highs, is positioned around the same territory. A break higher could see a test near the 2,200 psychological mark.

In the event the price flips backwards and beneath 2,125, the price might initially stabilize somewhere between yesterday’s support zone of 2,110 and the key 20-period exponential moving average (EMA) at 2,102. Even lower, the decline might pause around December’s resistance of 2,087 and then near the key constraining area of 2,079.

All in all, gold’s rocket rally might shift into a consolidation phase near the 2023 all-time high in the coming sessions. The two candlesticks, which followed yesterday's peak and have the same body size could be interpreted as a sign of indecisiveness. Nevertheless, the big picture remains positive and as long as the price keeps trading above the 2,100 level and the 20-period EMA, more bullish actions could develop. 

Eurozone retail sales volume rose 0.1% mom in January, matched expectations. The volume of retail trade increased for food, drinks, tobacco by 1.0%, decreased for non-food products (except automotive fuel) by -0.2%, increased for automotive fuel in specialised stores by 1.7%.

EU retail sales rose 0.3% mom. Among Member States for which data are available, the highest monthly increases in the total retail trade volume were recorded in Luxembourg (+7.6%), Romania (+3.8%) and Cyprus (+1.5%). The largest decreases were observed in Estonia (-2.6%), Slovakia (-1.0%) and Latvia (-0.8%).

Full Eurozone retail sales release here.

The dollar index holds in red but within a narrow range in early Wednesday, as traders reduce speed ahead of today’s key events, US labor data and the speech of Fed Chair Powell.

Weaker than expected US services PMI in February, released on Tuesday, added to negative sentiment, though dips were again contained by 200DMA (103.52) which keeps the downside protected for the third straight week.

Conflicting daily studies (momentum is negative, MA’s in mixed setup) lack clearer direction signal, suggesting that fundamentals will be key market drivers today.

Fed Chair Powell, in his testimony before Congress, is expected to reiterate the stance that the central bank will wait for more data before making decision to start easing monetary policy, as core inflation remains elevated, though this is unlikely to impact wide expectations for the first rate cut in June (current bets stand at 60%).

Releases of US Feb ADP private sector payrolls (149K f/c vs 107K Jan) and US JOLTS job openings report for January (8.8M f/c vs 9.02M in Dec) will provide more details about the condition in the US labor sector and contribute to Fed’s rate outlook.

Expect initial bearish signal on firm break of 200DMA, which would look for confirmation on extension and close below pivots at 103.11/05 (Fibo 38.2% of 100.29/104.85 rally/55DMA).

Conversely, bounce and close above 103.80 zone (broken bull-trendline/10DMA) would ease downside pressure, with lift and close above 104.00/20 zone (20DMA / Mar 1 lower top) to bring bulls back to play.

Res: 103.80; 104.02; 104.22; 104.56.
Sup: 103.52; 103.19; 103.05; 102.73.

Kiel Institute for the World Economy significantly downgraded its growth expectations for German economy, projecting a mere 0.1% increase in 2024, a sharp downward revision from its previous forecast of 0.9%. Slight improvement is anticipated in 2025, with growth expected to accelerate to 1.2%. On the inflation front, decline to 2.3% is projected for this year, down from 5.9% in 2023, with further reduction anticipated to 1.7% in 2025. Unemployment rate is expected to marginally decrease from 5.8% in 2024 to 5.6% in 2025.

Moritz Schularick, President of the Kiel Institute, pointed to a "whole range of factors" currently dampening sentiment and economic performance in Germany. These include global economic slowdown impacting exports, ECB's restrictive monetary policy expected to extend into the next year, and German government's austerity measures, which Schularick believes are being implemented at an inopportune time, fostering additional pessimism.

Stefan Kooths, Head of Economic Research at the Kiel Institute, added that despite gradual recovery expected over the year, the overall economic dynamism in Germany remains subdued. He underscored the emergence of signs indicating that structural issues are mainly to blame for the economic slowdown, with private investment falling short, partly due to the significant uncertainty provoked by current economic policies.

Full IfW Kiel release here.