Sample Category Title

Daily Pivots: (S1) 1.3118; (P) 1.3154; (R1) 1.3219; More...

Intraday bias in GBP/USD remains neutral as consolidation form 1.3080 is still extending. Upside of recovery should be limited by 1.3270 support turned resistance. On the downside, sustained break of 61.8% projection of 1.4248 to 1.3158 from 1.3748 at 1.3074 will extend the down trend from 1.4248 to 100% projection at 1.2658. However, strong break of 1.3270 should indicate short term bottoming and bring stronger rebound.

In the bigger picture, current development suggests that the up trend from 1.1409 (2020 low) has completed at 1.4248. Decline from 1.4248 could still be a corrective move, or it could be the start of a long term down trend. In either case, deeper decline would now be seen back to 61.8% retracement of 2.1161 to 1.1409 at 1.2493. In case, break of 1.3748 resistance is needed to indicate medium term bottoming, or outlook will stay bearish.

Euro's rebound stalls after ECB policy announcement, mainly because risk markets turned softer again. Another round of negotiations between Russia and Ukraine failed and Russia will clearly continue its attack. Dollar is trading slightly higher after CPI came in expected, extending its run on making multi-decade high. Though, as for the day, Aussie is leading commodity currencies higher, Swiss Franc and Yen are weak.

Technically, we'll keep focusing on USD/JPY as it should be ready to break through 116.34 to resume the larger up trend to 118.65 resistance. Also, focus will be on whether EUR/USD would be firmly rejected by 1.1120 resistance, to retain its near term bearishness.

In Europe, at the time of writing, FTSE is down -1.37%. DAX is down -2.92%. CAC is down -2.68%. Germany 10-year yield is up 0.057 at 0.275. Earlier in Asia, Nikkei rose 3.94%. Hong Kong HSI rose 1.27%. China Shanghai SSE rose 1.22%. Singapore Strait Times rose 1.42%. Japan 10-year JGB yield closed flat at 0.192.

ECB sets faster APP purchase wind-down schedule

ECB left interest rate unchanged as widely expected. Main refinancing, marginal lending facility and deposit rate are held at 0.00%, 0.25%, and -0.50% respectively. ECB added that "Any adjustments to the key ECB interest rates will take place some time after the end of the Governing Council's net purchases under the APP and will be gradual."

The pandemic emergency purchase program (PEPP) will stop net purchases as planned at the end of March. The purchase schedule for the regular asset purchase program (APP) is revised, with monthly net purchase at EUR 40B in April, EUR 30B in May and EUR 20B in June.

ECB added that the calibration for APP net purchases in Q3 will be "data-dependent and reflect its evolving assessment of the outlook". If medium term inflation outlook "will not weaken after the end of the net purchases, ECB will conclude net APP purchases in Q3. Also, ECB leaves it open to revise the schedule, size and duration of the purchases.

ECB upgrade inflation forecasts significantly, downgrades GDP forecasts

ECB President Christine Lagarde said in the post meeting press conference, inflation has "continued to surprise on the upside because of unexpectedly high energy costs.", and prices rises became "more broadly based". GDP growth was revised down for the near term, owing to the war in Ukraine.

Inflation projections were revised up "significantly" to 5.1% in 2022 (up from 2.6%), 2.1% in 2023 (up form 1.8%), and 1.9% in 2024 (up from 1.8%).

Excluding food and energy, inflation is projected to average 2.6% in 2022 (up from 1.9%), 1.8% in 2023 (up from 1.7%), and 1.9% in 2024 (up from 1.8%).

The economy is projected to grow 3.7% in 2022 (down from 4.2%), 2.8% in 2023 (down from 2.9%), and 1.6% in 2024 (unchanged).

Lagarde also said, "the Russia-Ukraine war will have a material impact on economic activity and inflation through higher energy and commodity prices, the disruption of international commerce and weaker confidence. The extent of these effects will depend on how the conflict evolves, on the impact of current sanctions and on possible further measures."

US CPI rose to 7.9% yoy in Feb, highest since 1982

US CPI rose 0.8% mom in February, matched expectations. Over the 12-month period, CPI accelerated from 7.5% yoy to 7.9% yoy, matched expectations. The 12-month increase is the largest since January 1982.

CPI core rose 0.5% mom. For the 12-month period, CPI core accelerated from 6.0% yoy to 6.4% yoy, matched expectations. The 12-month increase was the highest since August 1982.

Energy index rose 25.6% yoy. Food index rose 7.9% yoy, highest since July 1981.

US initial jobless claims rose to 227k, above expectations

US initial jobless claims rose 11k to 227k in the week ending March 5, above expectation of 205k. Four-week moving average of initial claims rose 500 to 231k.

Continuing claims rose 25k to 1494k in the week ending February 26. Four-week moving average of continuing claims dropped -31k to 157k, lowest since March 28, 1970.

Japan PPI rose record 9.3% yoy in Feb, led by energy and commodities

Japan corporate goods price index rose 9.3% yoy in February, above expectation of 8.7% yoy. At 110.7, the index hit the highest level marked since 1985. That's also the highest rise on record, as led by skyrocketing energy prices. Coal and petroleum prices jumped 34.2% yoy. Electricity, city gas and water prices also surged 27.5% yoy.

Commodity prices also surged with iron and steel up 24.5% yoy. Nonferrous metal rose 24.9% yoy. Lumber and wood products rose 58.0% yoy.

Import prices rose 34.0% yoy while export prices rose 12.7% yoy.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0944; (P) 1.1019; (R1) 1.1149; More...

Intraday bias in EUR/USD remains neutral at this point. As long as 1.1120 support turned resistance holds, larger down trend from 1.1494 is still expected to continue. On the downside, firm break of 61.8% projection of 1.2265 to 1.1120 from 1.1494 at 1.0786 will pave they way to 100% projection at 1.0349 next. However, strong break of 1.1120 will confirm short term bottoming, at least, and bring stronger rebound back towards 1.1494 structural resistance instead.

In the bigger picture, the decline from 1.2348 (2021 high) is expected to continue as long as 1.1494 resistance holds. Firm break of 1.0635 (2020 low) will raise the chance of long term down trend resumption and target a retest on 1.0339 (2017 low) next. Nevertheless, break of 1.1494 will maintain medium term neutral outlook, and extend range trading first.

Economic Indicators Update

Daily Pivots: (S1) 1.0944; (P) 1.1019; (R1) 1.1149; More...

Intraday bias in EUR/USD remains neutral at this point. As long as 1.1120 support turned resistance holds, larger down trend from 1.1494 is still expected to continue. On the downside, firm break of 61.8% projection of 1.2265 to 1.1120 from 1.1494 at 1.0786 will pave they way to 100% projection at 1.0349 next. However, strong break of 1.1120 will confirm short term bottoming, at least, and bring stronger rebound back towards 1.1494 structural resistance instead.

In the bigger picture, the decline from 1.2348 (2021 high) is expected to continue as long as 1.1494 resistance holds. Firm break of 1.0635 (2020 low) will raise the chance of long term down trend resumption and target a retest on 1.0339 (2017 low) next. Nevertheless, break of 1.1494 will maintain medium term neutral outlook, and extend range trading first.

ECB President Christine Lagarde said in the post meeting press conference, inflation has "continued to surprise on the upside because of unexpectedly high energy costs.", and prices rises became "more broadly based". GDP growth was revised down for the near term, owing to the war in Ukraine.

Inflation projections were revised up "significantly" to 5.1% in 2022 (up from 2.6%), 2.1% in 2023 (up form 1.8%), and 1.9% in 2024 (up from 1.8%).

Excluding food and energy, inflation is projected to average 2.6% in 2022 (up from 1.9%), 1.8% in 2023 (up from 1.7%), and 1.9% in 2024 (up from 1.8%).

The economy is projected to grow 3.7% in 2022 (down from 4.2%), 2.8% in 2023 (down from 2.9%), and 1.6% in 2024 (unchanged).

Lagarde also said, "the Russia-Ukraine war will have a material impact on economic activity and inflation through higher energy and commodity prices, the disruption of international commerce and weaker confidence. The extent of these effects will depend on how the conflict evolves, on the impact of current sanctions and on possible further measures."

Full introductory statement here.

Christine Lagarde, President of the ECB,
Luis de Guindos, Vice-President of the ECB

Frankfurt am Main, 10 March 2022

Good afternoon, the Vice-President and I welcome you to our press conference.

The Russian invasion of Ukraine is a watershed for Europe. The Governing Council expresses its full support to the people of Ukraine. We will ensure smooth liquidity conditions and implement the sanctions decided by the European Union and European governments. We will take whatever action is needed to fulfil the ECB's mandate to pursue price stability and to safeguard financial stability.

The Russia-Ukraine war will have a material impact on economic activity and inflation through higher energy and commodity prices, the disruption of international commerce and weaker confidence. The extent of these effects will depend on how the conflict evolves, on the impact of current sanctions and on possible further measures. In recognition of the highly uncertain environment, the Governing Council considered a range of scenarios in today's meeting.

The impact of the Russia-Ukraine war has to be assessed in the context of solid underlying conditions for the euro area economy, helped by ample policy support. The recovery of the economy is boosted by the fading impact of the Omicron coronavirus variant. Supply bottlenecks have been showing some signs of easing and the labour market has been improving further. In the baseline of the new staff projections, which incorporate a first assessment of the implications of the war, GDP growth has been revised downwards for the near term, owing to the war in Ukraine. The projections foresee the economy growing at 3.7 per cent in 2022, 2.8 per cent in 2023 and 1.6 per cent in 2024.

Inflation has continued to surprise on the upside because of unexpectedly high energy costs. Price rises have also become more broadly based. The baseline for inflation in the new staff projections has been revised upwards significantly, with annual inflation at 5.1 per cent in 2022, 2.1 per cent in 2023 and 1.9 per cent in 2024. Inflation excluding food and energy is projected to average 2.6 per cent in 2022, 1.8 per cent in 2023 and 1.9 per cent in 2024, also higher than in the December projections. Longer-term inflation expectations across a range of measures have re-anchored at our inflation target. The Governing Council sees it as increasingly likely that inflation will stabilise at its two per cent target over the medium term.

In alternative scenarios for the economic and financial impact of the war, which will be published together with the staff projections on our website, economic activity could be dampened significantly by a steeper rise in energy and commodity prices and a more severe drag on trade and sentiment. Inflation could be considerably higher in the near term. However, in all scenarios, inflation is still expected to decrease progressively and settle at levels around our two per cent inflation target in 2024.

Based on our updated assessment and taking into account the uncertain environment, the Governing Council today revised the purchase schedule for its asset purchase programme (APP) for the coming months. Monthly net purchases under the APP will amount to €40 billion in April, €30 billion in May and €20 billion in June. The calibration of net purchases for the third quarter will be data-dependent and reflect our evolving assessment of the outlook. If the incoming data support the expectation that the medium-term inflation outlook will not weaken even after the end of our net asset purchases, the Governing Council will conclude net purchases under the APP in the third quarter. If the medium-term inflation outlook changes and if financing conditions become inconsistent with further progress towards our two per cent target, we stand ready to revise our schedule for net asset purchases in terms of size and/or duration.

Any adjustments to the key ECB interest rates will take place some time after the end of our net purchases under the APP and will be gradual. The path for the key ECB interest rates will continue to be determined by the Governing Council's forward guidance and by its strategic commitment to stabilise inflation at two per cent over the medium term. Accordingly, the Governing Council expects the key ECB interest rates to remain at their present levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term.

We also confirmed our other policy measures, as detailed in the press release published at 13:45 today.

I will now outline in more detail how we see the economy and inflation developing, and will then explain our assessment of financial and monetary conditions.

Economic activity

The economy grew by 5.3 per cent in 2021, with GDP returning to its pre-pandemic level at the end of the year. However, growth slowed to 0.3 per cent in the final quarter of 2021 and is expected to remain weak during the first quarter of 2022.

The prospects for the economy will depend on the course of the Russia-Ukraine war and on the impact of economic and financial sanctions and other measures. At the same time, other headwinds to growth are now waning. In the baseline of the staff projections, the euro area economy should still grow robustly in 2022 but the pace will be slower than was expected before the outbreak of the war. Measures to contain the spread of the Omicron coronavirus variant have had a milder impact than during previous waves and are now being lifted. The supply disruptions caused by the pandemic also show some signs of easing. The impact of the massive energy price shock on people and businesses may be partly cushioned by drawing on savings accumulated during the pandemic and by compensatory fiscal measures.

Over the medium term, according to the baseline of the staff projections, growth will be driven by robust domestic demand, supported by a stronger labour market. With more people in jobs, households should earn higher incomes and spend more. The global recovery and the ongoing fiscal and monetary policy support are also contributing to this growth outlook. Fiscal and monetary support remains critical, especially in this difficult geopolitical situation.

Inflation

Inflation increased to 5.8 per cent in February, from 5.1 per cent in January.We expect it to rise further in the near term. Energy prices, which surged by 31.7 per cent in February, continue to be the main reason for this high rate of inflation and are also pushing up prices across many other sectors. Food prices have also increased, owing to seasonal factors, elevated transportation costs and the higher price of fertilisers. Energy costs have risen further in recent weeks and there will be further pressure on some food and commodity prices owing to the war in Ukraine.

Price rises have become more widespread. Most measures of underlying inflation have risen over recent months to levels above two per cent. However, it is uncertain how persistent the rise in these indicators will be, given the role of temporary pandemic-related factors and the indirect effects of higher energy prices. Market-based indicators suggest that energy prices will stay high for longer than previously expected but will moderate over the course of the projection horizon. Price pressures stemming from global supply bottlenecks should also subside.

Labour market conditions have continued to improve, with unemployment falling to 6.8 per cent in January. Even though labour shortages are affecting more and more sectors, wage growth remains muted overall. Over time, the return of the economy to full capacity should support somewhat faster growth in wages. Various measures of longer-term inflation expectations derived from financial markets and from surveys stand at around two per cent. These factors will also contribute further to underlying inflation and will help headline inflation to settle durably at our two per cent target.

Risk assessment

The risks to the economic outlook have increased substantially with the Russian invasion of Ukraine and are tilted to the downside. While risks relating to the pandemic have declined, the war in Ukraine may have a stronger effect on economic sentiment and could worsen supply-side constraints again. Persistently high energy costs, together with a loss of confidence, could drag down demand more than expected and constrain consumption and investment.

The same factors are risks to the outlook for inflation, which are on the upside in the near term. The war in Ukraine is a substantial upside risk, especially to energy prices. If price pressures feed through into higher than anticipated wage rises or if there are adverse persistent supply-side implications, inflation could also turn out to be higher over the medium term. However, if demand were to weaken over the medium term, this could also lower pressures on prices.

Financial and monetary conditions

The Russian invasion of Ukraine has caused substantial volatility in financial markets. Following the outbreak of the war, risk-free market interest rates have partially reversed the increase observed since our February meeting and equity prices have fallen.

The financial sanctions against Russia, including the exclusion of some Russian banks from SWIFT, have so far not caused severe strains in money markets or liquidity shortages in the euro area banking system. Bank balance sheets remain healthy overall, owing to robust capital positions and fewer non-performing loans. Banks are now as profitable as they were before the pandemic.

Bank lending rates for firms have increased somewhat, while lending rates for household mortgages remain steady at historically low levels. Lending flows to firms have declined after increasing strongly in the last quarter of 2021. Lending to households is holding up, especially for house purchases.

Conclusion

Summing up, the Russian invasion of Ukraine will negatively affect the euro area economy and has significantly increased uncertainty. If the baseline of the staff projections materialises, the economy should continue to rebound thanks to the declining impact of the pandemic and the prospect of solid domestic demand and strong labour markets. Fiscal measures, including at the European Union level, would also help to shield the economy. Based on our updated assessment of the inflation outlook and taking into account the uncertain environment, we revised our schedule for net asset purchases over the coming months and confirmed all our other policy measures.We are very attentive to the prevailing uncertainties. The calibration of our policies will remain data-dependent and reflect our evolving assessment of the outlook. We stand ready to adjust all of our instruments to ensure that inflation stabilises at our two per cent target over the medium term.

We are now ready to take your questions.

US initial jobless claims rose 11k to 227k in the week ending March 5, above expectation of 205k. Four-week moving average of initial claims rose 500 to 231k.

Continuing claims rose 25k to 1494k in the week ending February 26. Four-week moving average of continuing claims dropped -31k to 157k, lowest since March 28, 1970.

Full release here.

US CPI rose 0.8% mom in February, matched expectations. Over the 12-month period, CPI accelerated from 7.5% yoy to 7.9% yoy, matched expectations. The 12-month increase is the largest since January 1982.

CPI core rose 0.5% mom. For the 12-month period, CPI core accelerated from 6.0% yoy to 6.4% yoy, matched expectations. The 12-month increase was the highest since August 1982.

Energy index rose 25.6% yoy. Food index rose 7.9% yoy, highest since July 1981.

Full release here.

• Latest peace talks fail, no progress on ceasefire
  • Kuleba: Russia seeks surrender, Ukraine won't surrender
  • Lavrov: Ukraine seems to want to have meetings for the sake of meetings
• Sanctions on Russia pile up: UK freezes assets of Russian oligarchs
• Last US CPI print coming up before the Fed hikes next week
• ECB has a big dilemma

After the big rally for equities and the euro and even bigger plunge for some key commodity prices on Wednesday, there has been a complete lack of follow-through in those moves at the time of writing this Thursday morning. The latest talks between Russia and Ukraine failed to provide breakthrough in ending the war. Markets have reacted in the way you would expect. Later today, we will have the ECB’s decision on monetary policy and press conference, as well as the last US CPI print before the Fed hikes rates next week. While these events may provide some volatility, the focus for the wider markets remains firmly fixated on Russia’s invasion of Ukraine and whether there will be any progress in peace talks in the coming days.

Kuleba has said that they are ready to meet again but added that they cannot stop the war if the country that started it, meaning Russia, has no desire to do so. He added that Russia is seeking a surrender, but Ukraine won't surrender.

A couple of days ago, Russia had said the aim of its operations do not include overthrowing Ukrainian government and that it would be better if their goals are achieved through talks than military conflict. Talks are indeed always better than going to war, especially if there are no intentions of overthrowing the government. This might be a sign that Russia is blinking. But actions speak louder than words and Russia will have to do more than this. There is also the issue of trust, as this is the same people who told us that the troops on the Ukrainian border returned to base, only to then invade Ukraine shortly after.

Meanwhile, the West are continuing to add sanctions on Russia. Today, the UK government has announced a full asset freeze and travel ban on several of Russia’s oligarchs, whose business empires, wealth and connections are closely associated with the Kremlin. They include:

• Roman Abramovich owner of Chelsea FC and has stakes in steel giant Evraz and Norilsk Nickel
• Oleg Deripaska has stakes in En+ Group
• Igor Sechin is the Chief Executive of Rosneft
• Andrey Kostin is Chairman of VTB bank
• Alexei Miller is CEO of energy company Gazprom
• Nikolai Tokarev is president of the Russia state-owned pipeline company Transneft
• Dmitri Lebedev is Chairman of the Board of Directors of Bank Rossiya

The UK has already announced it will phase out the import of Russian oil and oil products by the end of the year. Don’t forget that the US also decided to launch an all-out economic war against Russia, banning imports of oil and gas from Russia. There will be consequences: high gas prices, even more inflation and retaliation from Russia.

Away from geopolitics, nothing else matters much, although we have the ECB policy decision coming up and the last US CPI inflation print before the Fed hikes rates next week.

US CPI is expected to come in 0.8% month-over-month following a 0.6% rise in January while core CPI is expected to have climbed 0.5% in February. On a year-over-year basis, head CPI is seen rising to 7.9% form 7.5%, while core CPI is expected to climb to 6.4% from 6.0% previously.

It will be interesting to hear how Christine Lagarde and her ECB colleagues will react to the big upsurge in key commodity prices given their conflicting impact on consumer inflation (positive) and the economy (negative).

ECB maintains interest rates, reduces APP

The ECB held its key interest rate at 0.00% at today’s meeting, as was expected. The central bank reduced purchases under the Asset Purchase Program (APP), which had been set in February at EUR 40 billion throughout the second quarter. Instead, the ECB will purchase EUR 40 billion in April, 30 billion in May and 20 billion in June. The APP purchases are scheduled to end in the third quarter, rather than in Q4. After that, the ECB will be in a position to raise interest rates.

The financial markets continue to be rocked by extreme volatility, and this has been the case with the euro, which soared 1.67% on Wednesday. The euro is risk-sensitive, especially towards the Ukraine crisis, which is in proximity to the eurozone. Risk appetite improved on Wednesday, as oil prices retreated and some Ukrainian civilians managed to utilize human corridors and get away from the fighting. The dollar was down broadly, although traders would be wise to keep in mind that we are only a (negative) headline away from risk sentiment evaporating and sending the safe-haven dollar to higher ground.

On the Ukraine front, a meeting between the foreign ministers of Russia and Ukraine earlier today did not result in any breakthroughs, although the sides agreed to continue to meet. The fighting continues, and with the Russian invasion force appearing to have stalled, there are fears that Russian President Putin could barrel down in frustration and hit more civilian targets. This would exacerbate the massive humanitarian crisis, which has displaced millions of Ukrainians.

Later in the day, the US releases inflation reports for February.  The markets are braced for a further acceleration in headline CPI, which is expected to hit 7.9% YoY, up from 7.5% beforehand. A print of 8.0% or higher will essentially cement a Fed rate hike next week and could result in the Fed members sending a hawkish message to the markets, as inflation continues to be one of the most important economic issues.

EUR/USD Technical

• EUR/USD continues to put pressure on resistance at 1.1053. Above, there is resistance at 1.1156
• There is support at 1.0886 and 1.0796

ECB left interest rate unchanged as widely expected. Main refinancing, marginal lending facility and deposit rate are held at 0.00%, 0.25%, and -0.50% respectively. ECB added that "Any adjustments to the key ECB interest rates will take place some time after the end of the Governing Council's net purchases under the APP and will be gradual."

The pandemic emergency purchase program (PEPP) will stop net purchases as planned at the end of March. The purchase schedule for the regular asset purchase program (APP) is revised, with monthly net purchase at EUR 40B in April, EUR 30B in May and EUR 20B in June.

ECB added that the calibration for APP net purchases in Q3 will be " data-dependent and reflect its evolving assessment of the outlook". If medium term inflation outlook "will not weaken after the end of the net purchases, ECB will conclude net APP purchases in Q3. Also, ECB leaves it open to revise the schedule, size and duration of the purchases.

Full statement here.