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Daily Pivots: (S1) 1.3270; (P) 1.3309; (R1) 1.3355; More…

Intraday bias in USD/CAD is turned neutral with current recovery. Outlook is unchanged that while choppy decline from 1.3704 might extend, strong support is expected from 1.3224 key support to bring rebound. On the upside, above 1.3470 minor resistance will turn intraday bias back to the upside for 1.3519 resistance and above. However, decisive break of 1.3224 would carry larger bearish implication.

In the bigger picture, as long as 1.3222 cluster support (38.2% retracement of 1.2005 to 1.3976 at 1.3223) holds, larger up trend from 1.2005 (2021 low) is still expected to resume through 1.3976 high at a later stage. However, firm break of 1.3222/3 will indicate that the trend might have reversed. Deeper fall would be seen to next cluster support at 1.2726 (61.8% retracement at 1.2758).

Daily Pivots: (S1) 0.7045; (P) 0.7101; (R1) 0.7134; More…

Intraday bias in AUD/USD is turned neutral again as it retreated after hitting 0.7156. On the upside, break of 0.7156 will resume the up trend from 0.6169 to 0.7304 fibonacci level. On the downside, break of 0.6982 support should confirm short term topping, and turn bias back to the downside for 0.6871 support and below.

In the bigger picture, corrective decline from 0.8006 (2021 high) should have completed with three waves down to 0.6169 (2022 low). Further rally should be seen to 61.8% retracement of 0.8006 to 0.6169 at 0.7304. Sustained break there will pave the way to retest 0.8006. This will now remain the favored case as long as 0.6721 support holds.

USDCAD has declined considerably after touching the 1.3700 round number, losing more than 3%. During Thursday’s trading session, it posted an almost three-month low of 1.3260, while it is currently not far above that nadir.

The negatively aligned Tenkan- and Kijun-sen lines serve as a testament to the negative short-term momentum that is in place. The Chikou Span, though, is signaling a potentially oversold market; a near-term reversal should thus not be ruled out. The RSI is heading north in the negative region, while the stochastic oscillator posted a bullish crossover within its %K and %D lines in the oversold territory.

Immediate support to further declines may be taking place around the 1.3225 figure, which overlaps with the 200-day simple moving average (SMA). Below that, the 1.2950 barrier could provide additional support in case of steeper losses.

A move to the upside may meet resistance around the 20-day SMA at 1.3375 before challenging the 50-day SMA at 1.3490 and the 1.3515 barrier. The region around the 1.3700 handle could act as an additional level in case of stronger bullish movement.

The short-term picture is looking predominantly bearish at the moment, with price action taking place below the 20- and 50-day SMAs, as well as below the Ichimoku cloud. Any moves beneath the 200-day SMA could switch the longer-term outlook to negative as well.

The Nasdaq 100 rallies as investors keep going risk-on. The rally further gained traction after its surge above December’s high of 12200. Strong momentum is a sign that the bears are staying on the sidelines. The bullish drive supported by a rising trend line has made an attempt at last September’s peak of 12880. The RSI’s overbought condition may lead to a brief pause but trend followers might be eager to keep the direction intact. 12050 at the base of the latest rally sits on the trend line, making it an important floor.

The US dollar recoups some losses as traders await nonfarm payrolls. On the daily chart, the 20 and 30-day SMAs have acted as strong resistance, and the consolidation area around 0.9100 from late 2021 so far has failed to offer meaningful support. The short-term price action led to a bounce as the RSI’s double dip in the oversold area prompted some sellers to take profit, driving the price up momentarily. 0.9200 is the first hurdle ahead and a fall back below 0.9050 would expose the psychological level of 0.9000.

The pound fell back after the BoE hinted at a slower tightening as inflation seemed to have peaked. The medium-term outlook still supports the recovery theme after the pair bounced off 1.1900. The recent choppy action below the mid-December high of 1.2450 could be a mere consolidation phase even though short-term volatility cannot be ruled out. On the hourly chart, a break below 1.2270 would lead to 1.2170, forcing intraday bulls to reconsider. A close above 1.2300 is needed to alleviate the downward pressure.

Daily Pivots: (S1) 1.0854; (P) 1.0943; (R1) 1.1001; More…

Intraday bias in EUR/USD is turned neutral again with current retreat. Further rally will remain in favor as long as 1.0800 minor support holds. Break of 1.1032 will resume the up trend from 0.9534, and target 61.8% projection of 0.9630 to 1.0733 from 1.0482 at 1.1164 next. Nevertheless, break of 1.0800 should confirm short term topping and turn bias back to the downside for deeper correction towards 1.0482 support.

In the bigger picture, current development suggests that 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) 1.2164; (P) 1.2282; (R1) 1.2342; More…

GBP/USD's break of 1.2252 minor support indicates that corrective pattern from 1.2445 has finally started the third leg. Intraday bias is back on the downside for 1.1840 support. But downside should be contained by 38.2% retracement of 1.0351 to 1.2445 at 1.1645 to bring rebound. For now, risk will stay mildly on the downside as long as 1.2445/6 holds, in case of recovery.

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) 0.9082; (P) 0.9110; (R1) 0.9161; More…

USD/CHF recovered again ahead of 61.8% projection of 1.0146 to 0.9355 from 0.9545 at 0.9056 and intraday bias is turned neutral. On the downside, sustained break of 0.9056 will resume the whole fall from 1.0146 to 100% projection at 0.8754, which is close to 0.8756 long term support. Nevertheless, strong rebound from current level, followed by 0.9287 resistance, should confirm short term bottoming, and turn bias back to the upside.

In the bigger picture, rise from 0.8756 (2021 low) has completed at 1.0146, well ahead of 1.0342 long term resistance (2016 high). Based on current downside momentum, fall from 1.0146 should be a medium term down trend itself. Next target is a test on 0.8756 low. Strong support should be seen there to bring rebound. Still, further decline will now be expected as long as 0.9407 resistance holds, in any case.

Markets

It didn’t quite turn out how we expected it to be. Especially on bond markets. Fed Chair Powell and ECB Lagarde missed out on the opportunity to talk up markets towards their envisioned monetary policy paths. In case of the US, we follow some of Powell’s “caution” given the absolute level of the policy rate and the fact that core inflation starts showing signs of coming down. Nevertheless, market pricing still doesn’t stroke with Fed intentions to deliver multiple rate increases (2 times 25 bps as envisioned in December dot plots). In case of Europe, we are totally flabbergasted by the bond rally seen yesterday, even as ECB Lagarde during the Q&A initially reluctantly, but later on more decisively, pushed back against the notion of hitting a potential peak rate (soon) after March and against the idea of cutting back rates soon after. EMU core inflation is still rising and the ECB wants to be absolutely sure that inflation is back at 2% - “not just for weeks or even months” – before reversing the current course. Our longer term view remains bearish on especially European bonds, but we acknowledge that short term momentum could be more neutral or even bullish especially in case we get some negative economic surprises. This afternoon’s US payrolls report and US non-manufacturing ISM could be a litmus test. Consensus expects another strong job gain (+189k) with wages expected to keep their monthly dynamic (0.3% M/M; down to 4.3% Y/Y). Markets over the past months zoomed in on the weaker parts of payrolls and household survey, whether it was job growth or wage growth. The services ISM is forecast to return just above the 50 boom/bust mark. Stock markets are flying high this week. Main European indices gained up to 2% yesterday with the US’s performance ranging between flat (Dow) and +3.25% (Nasdaq; following Meta earnings). Our longer term view is similar as the one for bond markets. Disappointing earnings by other big tech names (Apple, Amazon, Alphabet) already pull US equity futures significantly lower this morning. China underperforms despite a better-than-expected Caixin services PMI (52.9 from 48 vs 51 expected). In FX, we’ve seen a (so far) failed attempt of EUR/USD to take out 1.10 (close 1.0910). A balance of weakness with the single currency eventually reversing course on a post-ECB bond outperformance. German yields lost a whopping 12.7 bps (30-yr) to 22 bps (7-yr) yesterday compared with maximum 2.8 bps (5-yr) for the US. 10-yr yield spreads vs Germany narrowed around 9 bps for the likes of Greece, Portugal and Spain with Italy outperforming (-19 bps). EUR/GBP took out the 0.8897 January high as the Bank of England effectively suggested that a March rate hike will be (conditionally) the last one. Relative yield dynamics will play in the disadvantage of sterling, which faces the most dire economic outlook as well. The break – if confirmed – suggests a rapid return to EUR/GBP 0.90+ levels. Last year’s high stands at 0.9266.

News Headlines

A Bank of England CFO survey showed that UK businesses in January expected their own output prices to rise by an average 5.8%, unchanged from December. Expectations for the one-year ahead CPI inflation dropped from 7.4% to 6.4%. Three-year ahead inflation eased 0.3% to 3.7%.Businesses expect unit costs to grow by 8% over the coming year, down from 8.1%. Realized unit cost growth was estimated to have fallen from 10.1% to 9.9%. Expected year-ahead wage growth eased 0.6% to 5.7% in January. Recruitment difficulties continued to ease, with 35% of firms currently finding recruitment ‘much harder’ than usual, the lowest since the question was introduced in October 2021 (peak at 66% in June 2022). Expectations for year-ahead employment growth eased 0.7 percentage points to 1.2% and were weaker than realized employment growth, which was 3.4% in the year to January. 57% of firms reported that uncertainty for their business was high or very high.

SNB governor Jordan reiterated yesterday that inflationary pressures remain higher than the Swiss central bank can tolerate. In this respect, the possibility of further interest rates can’t be excluded. The Swiss job market remains strong as the unemployment rate dropped below the 2019 level, which might translate into higher (wage) costs for companies. Jordan indicated that the Swiss economy could see two quarters of contraction, but there is a chance for 2023 overall growth prints positive. The Swiss policy rate since June has been raised from -0.75% to 1.0%. The next policy meeting is scheduled for March 23. The Swiss franc recently showed signs of bottoming (against the euro). EUR/CHF dropped back to 0.996, after a brief journey north of parity in January.