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Swiss Franc climbed against major currencies following the release of stronger-than-expected inflation data, which is expected to bolster the case for SNB to raise interest rates by 50bps during their upcoming meeting this month. Euro also gained ground, supported by hawkish comments from ECB officials, while Dollar trailed behind.

Conversely, Australian Dollar is trading as the worst performer,weighed down by China's 5% growth target for the year, which is the lowest rate in decades. Despite expectations of a 25bps interest rate hike by the RBA in the upcoming Asian session, Aussie is facing pressure from the cautious outlook on China's economy. Meanwhile, the New Zealand Dollar and Sterling are also trading lower.

Technically, USD/CHF has broken 0.9340 support to confirm short term topping at 0.9439. Focus will turn to 135.24 support in USD/JPY. Break of the level should indicate short term topping at 137.09. If that happens, the chance for a near term reversal in Dollar will growth. Further break of 1.0690 resistance in EUR/USD could trigger deeper selloff in the greenback.

In Europe, at the time of writing, FTSE is down -0.54%. DAX is up 0.44%. CAC is up 0.33%. Germany 10-year yield is down -0.0649 at 2.655. Earlier in Asia, Japan 10-year JGB yield dropped -0.0020 to 0.504. Nikkei rose 1.11%. Hong Kong HSI rose 0.17%. China Shanghai SSE dropped -0.19%. Singapore Strait Times rose 0.23%.

ECB Lane: Appropriate to raise interest rates further beyond March

ECB Chief Economist Philip Lane indicated that it's "appropriate" to raise interest rates further beyond March meeting. But the "exact calibration" will depend on the upcoming macroeconomic projections and incoming data on inflation and the monetary transmission mechanism.

Lane said in a speech, "the current information on underlying inflation pressures suggests that it will be appropriate to raise rates further beyond our March meeting".

"By bringing the key policy rates to a sufficiently restrictive level and fostering a period of below-trend growth through the dampening of demand, we will counter-act above-target medium-term inflation pressures and also ensure that the prolonged phase of above-target inflation does not become embedded through a de-anchoring of inflation expectations," he explained.

ECB Holzmann calls for four more 50bps hikes

ECB Governing council member Robert Holzmann said he would like to have 50bps rates hikes in all of the March, May, June and July meetings.

"I expect it to take a very long time for inflation to come down," the Austrian central bank Governor told Handelsblatt. "My hope is that within the next 12 months we will have reached the peak of interest rates."

"If we want to get inflation back to two percent in the foreseeable future, we have to be restrictive," Holzmann said, arguing that only a 4% deposit rate will start restricting growth.

Eurozone Sentix dropped to -11.3, stagnation could turn into renewed recession worries

Eurozone Sentix Investor Confidence index dropped from -8 to -11.1, much worst than expectation of an improvement to -5.6.

Current Situation index rose from -10.0 to -9.3, hitting the highest level since June 2022. But that means the economy is "currently in a stagnation phase at best".

Expectations index dropped notably from -6.0 to -13.0. "Over the next six months, investors expect the Eurozone economy to deteriorate."

Sentix added, "this stagnation phase could soon turn into renewed recession worries if the negative economic expectations materialise."

Eurozone retail sales volume rose 0.3% mom in Feb

Eurozone retail sales volume rose 0.3% mom in February, well below expectation of 1.0% mom. Volume of retail trade increased by 1.8% for food, drinks and tobacco and by 0.8% for non-food products, while it decreased by -1.5% for automotive fuels.

EU retail sales volume rose 0.3% mom. Among Member States for which data are available, the highest monthly increases in the total retail trade volume were registered in the Netherlands (+4.9%), Luxembourg (+4.6%) and Slovenia (+4.1%). The largest decreases were observed in Austria (-9.8%), Slovakia (-1.4%) and Hungary (-0.6%).

UK PMI construction rose to 54.6, returned to growth with increasing optimism

UK PMI Construction rose sharply from 48.4 to 54.6 in February, well above expectation of 48.5. It's also the first expansion reading in three months, and highest since May 2022. S&P Global also noted greater commercial work helped to offset drop in housing activity. Input cost inflation was the lowest since November 2020.

The construction sector returned to growth as commercial work and civil engineering output increased, offsetting a continued weakness in the housing market. Firms attributed the growth to improving global economic conditions and increased client confidence in the commercial segment. Construction companies are increasingly optimistic about the year ahead and expect business to expand, helped by softer inflationary pressures and fewer supplier delays.

Swiss CPI accelerated to 3.4% yoy in Feb, core rose to 2.4% yoy

Swiss CPI rose 0.7% mom in February, above expectation of 0.4% mom. Core CPI (excluding fresh and seasonal products, energy and fuel), rose 0.8% mom. Prices of domestic products rose 0.6% mom. Imported products rose 1.1% mom.

Compared with the same month a year ago, CPI accelerated to 3.4% yoy, up from January's 3.3% yoy, well above expectation of slowing to 2.9% yoy. Core CPI accelerated to 2.4% yoy, up from 2.2% yoy. Domestic prices accelerated to 2.9% yoy, up from 2.6% yoy. Imported prices slowed to 4.9% yoy, down from 5.2% yoy.

The data should reinforce the case for SNB to maintain its tightening pace and raise interest rates by 50bps to 1.50% on March 23. While some analysts expect a slowdown to 25bps in June, SNB may continue to tighten at the current speed if inflation remains high.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9336; (P) 0.9384; (R1) 0.9408; More...

USD/CHF's break of 0.9340 support indicate short term topping at 0.9439, on bearish divergence condition in 4 hour MACD. More importantly, the corrective rebound from 0.9058 could have completed ahead of 38.2% retracement of 1.0146 to 0.9058 at 0.9474. Intraday bias is back on the downside for 0.9289 resistance turned support first. Decisive break there will bring retest of 0.9058 low. For now, risk will stay on the downside as long as 0.9439 resistance holds, in case of recovery.

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

ECB Governing council member Robert Holzmann said he would like to have 50bps rates hikes in all of the March, May, June and July meetings.

"I expect it to take a very long time for inflation to come down," the Austrian central bank Governor told Handelsblatt. "My hope is that within the next 12 months we will have reached the peak of interest rates."

"If we want to get inflation back to two percent in the foreseeable future, we have to be restrictive," Holzmann said, arguing that only a 4% deposit rate will start restricting growth.

The Canadian dollar is coming off a relatively quiet week but that could change as there a host of key releases this week. Ivey PMI kicks things off later today, followed by the Bank of Canada rate decision on Wednesday and the February employment report on Friday.

Canada’s Ivey PMI recorded a massive rebound in January, climbing from 33.4 all the way to 60.1 points. A reading above 50.0 points to expansion. The reading is expected to remain strong in February, with an estimate of 57.7 points.

Canada’s economy ended 2022 in an unimpressive fashion, posting a growth rate of 0.0% y/y in the fourth quarter, compared to 2.3% in Q3. This was much lower than the market estimate of 1.5% and the Bank of Canada’s projection of 1.3%. On a monthly basis, December GDP contracted by 0.1%, down from 0.0% in November and below the estimate of 0.0%.

BoC expected to pause

The Bank of Canada meets on Tuesday and is widely expected to hold rates at 4.50%. A non-move would be significant, as the BoC hasn’t taken a pause since the current rate-tightening cycle began in January 2023. Governor Macklem has signalled to the markets that he wants to take a pause in tightening, and the weak GDP report will support the BoC easing off the rate pedal as the economy shows signs of slowing. The steep hike in rates has pushed inflation lower, as it fell to 5.9% in January, down from 6.3% a month earlier.

What will the BoC do after tomorrow’s rate decision? The BoC would love to pause rates throughout the year, but Macklem has made clear that a pause is dependent on supportive data. There is also the complication that the Federal Reserve is likely to continue hiking several more times this year, and the BoC does not want to fall too far out of sync with rate levels in the US.

In the US, this week’s key events are Fed Chair Powell’s semi-annual testimony before Congress and the nonfarm payroll report, both of which could move the US dollar. If Powell provides any hints about further rate hikes, the US dollar could respond with gains.

Nonfarm payrolls was red-hot in January with 517,000 new jobs, but this is expected to be a one-time bump, with the estimate for February standing at 200,000. The surprisingly resilient labour market has the Fed concerned about wage pressures, and a strong wage growth release could raise market expectations of higher rates.

USD/CAD Technical

• 1.3701 and 1.3784 are the next resistance lines
• 1.3571 is a weak support line, followed by 1.3478

Australian dollar dips on Monday, dragged lower by weaker Chinese yuan, but remains within a congestion which extends into sixth straight day.

Traders await RBA’s policy meeting (due early on Tuesday) for fresh signals, as the central bank is widely expected to raise interest rates by 25 basis points to 3.60% (the highest since Jan 2012).

More important signal for Aussie is expectation that the RBA will hike again in the second quarter and push the interest rate higher than initially estimated.

The central bank’s action should offer fresh support to the currency, although, the US Federal Reserve is also seen remaining on extended policy tightening path, with more aggressive action not ruled out that would offer stronger support to the greenback and limit gains of its Australian counterpart.

Bearish daily studies (rising negative momentum / MA’s back to full bearish setup) keep Aussie under pressure for renewed attack at recent range floor (0.6694) and extension towards 0.6663/29 (50% retracement of 0.6170/0.7157 ascend / Dec 20 low).

Converging 100/10DMA’s (0.6752/62 respectively) are about to form a bear-cross and mark initial resistance, guarding more significant range top / broken Fibo 38.2% (0.6783) and 200DMA (0.6788).

Firm break of these barriers is needed to sideline downside risk and open way for stronger recovery.

Res: 0.6762; 0.6788; 0.6843; 0.6878.
Sup: 0.6694; 0.6663; 0.6629; 0.6584.

ECB Chief Economist Philip Lane indicated that it's "appropriate" to raise interest rates further beyond March meeting. But the "exact calibration" will depend on the upcoming macroeconomic projections and incoming data on inflation and the monetary transmission mechanism.

Lane said in a speech, "the current information on underlying inflation pressures suggests that it will be appropriate to raise rates further beyond our March meeting".

"By bringing the key policy rates to a sufficiently restrictive level and fostering a period of below-trend growth through the dampening of demand, we will counter-act above-target medium-term inflation pressures and also ensure that the prolonged phase of above-target inflation does not become embedded through a de-anchoring of inflation expectations," he explained.

Full speech here.

Eurozone retail sales volume rose 0.3% mom in February, well below expectation of 1.0% mom. Volume of retail trade increased by 1.8% for food, drinks and tobacco and by 0.8% for non-food products, while it decreased by -1.5% for automotive fuels.

EU retail sales volume rose 0.3% mom. Among Member States for which data are available, the highest monthly increases in the total retail trade volume were registered in the Netherlands (+4.9%), Luxembourg (+4.6%) and Slovenia (+4.1%). The largest decreases were observed in Austria (-9.8%), Slovakia (-1.4%) and Hungary (-0.6%).

Full release here.

Market Picture

Bitcoin fell 5.2% last week to close at $22,400. Ethereum lost 4.4% to $1570. Other leading altcoins in the top 10 fell between 2.9% (XRP) and 11.5% (Polygon).

The total capitalisation of the crypto market fell 5% over the week to $1.03 trillion, according to CoinMarketCap.

Bitcoin’s most significant drop last week came on Friday amid reports of the possible bankruptcy of Silvergate, a bank that services major cryptocurrency companies. The bank announced the closure of its cryptocurrency payment service.

While BTCUSD has held up during furious sellers’ attacks, it is in no hurry to bounce back from the bottom. Technically, the 50-week moving average continues to act as a valid resistance from which the selling intensifies. The Death Cross formed on the weekly timeframe makes for a cautious view of the near-term outlook and keeps the potential for a return to the $16.3-18.0 level.

News Background

According to media reports, global giant market-maker Citadel Securities plans to increase its stake in Silvergate Bank to help it out of its liquidity crisis. Other rumours suggest that Wells Fargo is a potential buyer.

SEC chief Gary Gensler has warned cryptocurrency exchanges against failing to comply with custodian status. He said that if an exchange collapses, “customer funds often become the property of the bankrupt entity”.

Brad Garlinghouse, CEO of Ripple, said that more and more cryptocurrency and fintech companies are leaving the US, which is stifling innovation in the country. Around 300 payment providers from 45 countries believe blockchain and cryptocurrencies can improve traditional finance, according to a survey conducted by Ripple.

The UK’s Nationwide Building Society and HSBC have imposed restrictions on card purchases of cryptocurrencies.

The US 500 stock index (cash) experienced a significant pullback after its latest advance came to a halt at the 4,195 region. However, the index managed to bounce back and recoup some losses in the last couple of daily sessions, jumping decisively above its 50-day simple moving average (SMA).

The momentum indicators currently suggest that the buying interest is intensifying. Specifically, the RSI crossed above its 50-neutral mark, while the stochastic oscillator is ascending steeply near the 80-overbought zone.

If bullish pressures persist, the December resistance of 4,102 might act as the first upside barrier. Piercing through that zone, the price could challenge the September peak of 4,155. Even higher, the bulls could aim for the 4,195 region, which is the 23.6% retracement of the 2,183-4,818 uptrend that extended from the pandemic low till the all-time high in November 2021.

Alternatively, bearish actions could send the price towards its 200-day SMA, currently at 3,942. Should that floor collapse, the price could descend towards the January support of 3,885 before the 38.2% Fibo of 3,812 comes under examination. Failing to halt there, the December low of 3,763 could then provide downside protection.

To conclude,  the US 500 index bounced off the congested region that includes the 200-day SMA and the lower Bollinger band, indicating that its pullback could be overstretched. Nevertheless, a strong move above the recent rejection region of 4,195 is needed to alter its short-term picture back to bullish.

The Australian dollar is under pressure at the start of the new trading week. AUD/USD is trading at 0.6735 in Europe, down 0.50%.

RBA expected to hike by 25 bp

The RBA is widely expected to raise rates by 25 basis points on Tuesday, which would bring the cash rate to 3.60%, the highest level in a decade. The RBA’s aggressive rate tightening cycle has not been as effective as the central bank had hoped, as inflation has been stickier than expected. Australia’s monthly CPI for January dropped to 7.4%, down from 8.4% a month earlier. This drop indicates that rate hikes are having an impact on the economy, but there is a long road ahead before inflation falls back to the RBA’s target of 2-3%.

There was some positive news on Monday, as the Melbourne Inflation gauge for February showed a drop in core inflation to 4.9% y/y, down from 5.3% in January. The headline figure remained unchanged at 6.3% y/y.

Australian Treasurer Jim Chalmers has said he is “cautiously hopeful” that inflation has peaked, but it’s likely that the RBA will have to hike rates at least one more time before it can hit the pause button. Investors will be keeping a close eye on Governor Lowe’s rate statement, which will likely be hawkish given the stubbornly high inflation levels. Any hints about the need for further rate increases would likely be bullish for the Australian dollar.

In the US, it promises to be a busy week. The key events are Fed Chair Powell’s semi-annual testimony before Congress and the nonfarm payroll report, both of which could move the US dollar. The markets will be keeping a close eye on Powell’s remarks and whether he will sound less hawkish, given the recent string of unexpectedly strong US releases.

Nonfarm payrolls sizzled in January with 517,000 new jobs, but this is expected to be a one-time bump, with the estimate for February standing at 200,000. The surprisingly resilient labour market has the Fed concerned about wage pressures, and a strong wage growth release could raise expectations for further rate hikes.

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

Gold is holding positive tone in early Monday, with price action consolidating within a narrow range, under new three-week high.

The metal rallied 1.1% on Friday and advanced 2.5% last week, though investors remain cautious and focus on this week’s key events – Fed Chair Powell’s testimony to Congress on Tue/Wed and US labor report, due on Friday, which are expected to provide fresh direction signals.

Weaker dollar lifted gold in past few sessions, but the greenback’s outlook remains positive on prospects for further rise in US interest rates, which would diminish gold’s appeal.

Recent economic data showed that inflation is stubbornly high and the US economy remains resilient, setting the stage for the central bank’s action in further tightening of the monetary policy.

Bullish scenario for the yellow metal will require calmer tones from Fed Powell and weaker than expected US non-farm payrolls numbers in February, to offer fresh support and lift gold price further.

Conversely, recent bulls are expected to face strong headwinds and likely stall, if Fed’s Chief remains hawkish and NFP report beats expectations.

Technical studies on daily chart are bullishly aligned (14-d momentum broke into positive territory, price action closed above 20DMA on Friday and rose further into thick and ascending daily Ichimoku cloud), though still require more evidence to confirm bullish stance that keeps the downside vulnerable.

Last week’s rally formed a bullish engulfing pattern on weekly chart, which adds to supportive factors, with near-term bullish bias expected to hold while the price stays above daily cloud base ($1836).

Immediate resistance lays at $1863 (Fibo 38.2% retracement of $1959/$1804 descend / weekly Ichimoku cloud top), break of which would firm near-term structure for extension towards $1882 (50% retracement/daily Kijun-sen) and unmask next pivotal barriers $1894/$1900 (daily cloud top/Fibo 61.8%/psychological).

On the other hand, return below the base of rising daily cloud ($1836) would generate initial signal of recovery stall, with extension and close below 10DMA ($1832) to confirm and increase risk of renewed attack at key $1800 support zone.

Res: 1863; 1870; 1882; 1894.
Sup: 1850; 1843; 1836; 1832.