What happened in the Asia session?
Australia’s retail sales grew only 1.1% MoM in January as it missed the consensus of 1.6%. All retail industries such as clothing, footwear and household goods bounced back relatively strongly after declining in December. Despite the miss in sales growth, the Aussie was buoyed by this latest report as it climbed from 0.6490 to hit a high of 0.6522.
Moving over to Japan, core inflation surprised the market forecast of 2.3% as January’s reading increased at an annual rate of 2.6%. Despite coming in higher than the forecast, the core CPI remained unchanged from the previous month’s reading. However, all attention was on hawkish rhetoric by Bank of Japan board member Hajime Takata who called for an overhaul of the current ultra-loose monetary policy as the inflation target of 2% is “finally in sight”. His statements strengthened the Japanese yen significantly causing USD/JPY to plunge as much as 100 pips to hit a low of 149.70.
What does it mean for the Europe & US sessions?
Following hotter-than-expected CPI and PPI data last week, it is anticipated that the PCE Price Index – which is the Federal Reserve’s preferred measure of inflation – will also indicate a re-acceleration of inflationary pressures. Should January’s readings print higher than anticipated, demand for the dollar is likely to skyrocket.
Meanwhile, unemployment claims have trended lower over the past three weeks to highlight the robustness of the US labour market. Should claims once again come in lower than this week’s estimate of 209K, it could potentially fuel a strong rally for the greenback.
The Dollar Index (DXY)
Key news events today
PCE Price Index (1:30 pm GMT)
Unemployment Claims (1:30 pm GMT)
What can we expect from DXY today?
Following hotter-than-expected CPI and PPI data last week, it is anticipated that the PCE Price Index – which is the Federal Reserve’s preferred measure of inflation – will also indicate a re-acceleration of inflationary pressures. Should January’s readings print higher than anticipated, demand for the dollar is likely to skyrocket.
Meanwhile, unemployment claims have trended lower over the past three weeks to highlight the robustness of the US labour market. Should claims once again come in lower than this week’s estimate of 209K, it could potentially fuel a strong rally for the greenback.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the third meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- Recent indicators suggest that economic activity has been expanding at a solid pace.
- Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low.
- Inflation has eased over the past year but remains elevated.
- In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2.0%.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.
- Next meeting runs from 19 to 30 March 2024.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
PCE Price Index (1:30 pm GMT)
Unemployment Claims (1:30 pm GMT)
What can we expect from Gold today?
Following hotter-than-expected CPI and PPI data last week, it is anticipated that the PCE Price Index – which is the Federal Reserve’s preferred measure of inflation – will also indicate a re-acceleration of inflationary pressures. Should January’s readings print higher than anticipated, demand for the dollar is likely to skyrocket.
Meanwhile, unemployment claims have trended lower over the past three weeks to highlight the robustness of the US labour market. Should claims once again come in lower than this week’s estimate of 209K, it could potentially fuel a strong rally for the greenback. Gold prices could come under immense selling pressures during the US session should the data create a strong tailwind for the dollar.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Retail Sales (12:30 am GMT)
What can we expect from AUD today?
Australia’s retail sales grew only 1.1% MoM in January as it missed the consensus of 1.6%. All retail industries such as clothing, footwear and household goods bounced back relatively strongly after declining in December. Despite the miss in sales growth, the Aussie was buoyed by this latest report as it climbed from 0.6490 to hit a high of 0.6522.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the sixth pause out of the last seven board meetings.
- Inflation continues to ease in the December quarter but remains high at 4.1% YoY.
- The central forecasts are for inflation to return to the target range of 2 to 3% in 2025, and to the midpoint in 2026.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.
- Next meeting is on 19 March 2024.
Next 24 Hours Bias
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi nose dived after the release of the RBNZ’s monetary policy statement as well as during the press conference yesterday, plunging nearly 1.2% to shed 90 pips in the process. Overhead pressures remain for this currency as it fell under the threshold of 0.6100 yesterday.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fifth meeting in a row.
- The Committee remains confident that the current level of the OCR is restricting demand. However, a sustained decline in capacity pressures in the New Zealand economy is required to ensure that headline inflation returns to the 1 to 3% target.
- Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced.
- However, headline inflation remains above the 1 to 3% target band, limiting the Committee’s ability to tolerate upside inflation surprises.
- The outlook for the China economy, New Zealand’s top trading partner, remains particularly weak relative to recent historical norms, with structural factors constraining long-term growth.
- Next meeting is on 22 May 2024.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
Core CPI (5:00 am GMT)
What can we expect from JPY today?
Core inflation surprised the market forecast of 2.3% as January’s reading increased at an annual rate of 2.6%. Despite coming in higher than the forecast, the core CPI remained unchanged from the previous month’s reading. However, all attention was on hawkish rhetoric by Bank of Japan board member Hajime Takata who called for an overhaul of the current ultra-loose monetary policy as the inflation target of 2% is “finally in sight”. His statements strengthened the Japanese yen significantly causing USD/JPY to plunge as much as 100 pips to hit a low of 149.70.
Central Bank Notes:
- The Bank will continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC), aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a sustainable and stable manner.
- The Bank of Japan decided on the following measures:
- YCC: Negative interest rate of -0.1% on policy-rate balances and purchase of Japanese government bonds to keep 10-year JGB yields at around 0% while regarding the upper bound of 1.0% for 10-year JGB yields as a reference in its market operations.
- Inflation expectations are expected to rise moderately toward the end of the projection period, with continued improvement in the output gap and changes in firms’ wage- and price-setting behaviour and in labour-management wage negotiations.
- Japan’s economy is likely to continue recovering moderately for the time being, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies.
- Next meeting is on 19 March 2024.
Next 24 Hours Bias
Strong Bearish
The Euro (EUR)
Key news events today
Germany CPI (Tentative)
What can we expect from EUR today?
Inflation in Germany has eased considerably over the past five months with both headline and core CPI readings falling closer to the target of 2%. Should the latest preliminary CPI readings for the month of February point to further dissipation of inflationary pressures, it could create downward pressure on the Euro.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a third consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- The incoming information has broadly confirmed its previous assessment of the medium-term inflation outlook.
- Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued, and the past interest rate increases keep being transmitted forcefully into financing conditions.
- Tight financing conditions are dampening demand, and this is helping to push down inflation.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Next meeting is on 7 March 2024.
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
GDP (8:00 am GMT)
What can we expect from CHF today?
After marginally contracting in the second quarter of 2023, Switzerland’s GDP grew at an annual rate of 0.3% in the third quarter. This trend is likely to continue with the estimate for the fourth quarter pointing to a second consecutive quarter of growth, albeit at a slower pace of 0.1%. Should this latest GDP reading miss its estimate, it could cause the Swiss franc to weaken and push USD/CHF higher.
Central Bank Notes:
- The SNB kept the policy rate unchanged at 1.75% for a second consecutive meeting in December.
- The inflation forecast puts average annual inflation at 2.1% for 2023, 1.9% for
2024 and 1.6% for 2025.
- GDP growth is likely to be weak in the coming quarters; subdued demand from abroad and the tighter financing conditions are having a dampening effect.
- Switzerland’s GDP is likely to grow by around 1% this year. For 2024, the SNB currently expects growth of between 0.5% and 1%.
- Next meeting is on 21 March 2024.
Next 24 Hours Bias
Weak Bearsh
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound fell to a low of 1.2620 yesterday to rebound strongly off this level to climb as high as 1.2670 during the US session. This currency pulled slightly towards the end of the US session before resuming the uptrend as Asian markets came online – it was trading around 1.2665.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6-to-3 to maintain its Official Bank Rate at 5.25% for the fourth consecutive meeting.
- Two members preferred to increase the Bank Rate by 0.25% to 5.50% while one member preferred to reduce Bank Rate by 0.25% to 5.00%.
- CPI inflation remains well above the 2% target, with twelve-month CPI inflation increasing from 3.9% in November to 4.0% in December 2023 while wage growth has eased across a number of measures and is projected to decline further in coming quarters, although still elevated.
- This downside news has been broad-based, reflecting lower fuel, core goods and services price inflation.
- CPI inflation is projected to be 2.3% in two years’ time and 1.9% in three years.
- Next meeting is on 21 March 2024.
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
GDP (1:30 pm GMT)
What can we expect from CAD today?
After stagnating from August through October, economic growth in Canada grew relatively strongly for the months of November and December. January’s estimate of a 0.2%-growth rate shows this trend gaining traction and a higher result could function as a short-term bullish catalyst for the Loonie and potentially cause USD/CAD to pull back.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the fourth meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy has stalled since the middle of 2023 with real GDP forecasted to grow 0.8% in 2024 and 2.4% in 2025.
- The slowdown in demand is reducing price pressures in a broader number of CPI components, with CPI inflation expected to remain close to 3% in the first half of 2024 before gradually easing, returning to the target of 2% in 2025.
- The Governing Council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation, and wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- Next meeting is on 10 April 2024.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
After hitting a high of $79.75 per barrel overnight, prices for WTI oil pulled back sharply towards $78.20 as another round of higher-than-anticipated inventory build in the US capped the recent gains in crude oil. The EIA inventories increased by 4.2M barrels versus the estimate of 3.1M. Following the larger-than-expected build in API stockpiles earlier this week, these recent inventory builds suggest that demand for crude oil in the US is waning and could put some downward pressure on this commodity in the near-term.
Next 24 Hours Bias
Weak Bullish
