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Soft US jobs data see USD break down, ECB in focus

Vantage Updated Updated Wed, 2024 March 6 11:05

Headlines

* Fed’s Powell still expect to cut rates this year

* Bank of Canada stands pat, says still too early for rate cuts  

* Gold continues surge higher as yields fall, topping $2150

* EUR climbs to multi-week highs above 1.09 ahead of ECB meeting

FX: USD fell decisively below its 200-day SMA sits at 103.73 to a one-month low. Job data ahead of NFP was softer than expected. ADP posted a sub-consensus print, though this isn’t a good predictor of Friday’s figure. But the falling quits rate in the JOLTS numbers is encouraging for a better-balanced labour market. Powell’s testimony didn’t contain much new, but a cooling job market could help confirm impending rate cuts. Next support is 103.09.

EUR advanced strongly north above 1.09. January retail sales in the region were softer than expected. But all eyes are on the ECB meeting. A wait-and-see mode is expected with April’s wage data key for lining up a June rate cut which is fully priced.

GBP moved higher though lagged the performance of most of its major peers. The UK Budget didn’t bring any great surprises, with slight disappointment for GBP bulls that there wasn’t an income tax cut, only National Insurance. This year’s high is at 1.2828.

USD/JPY could be breaking down finally, after banging into resistance below 150.88 on several occasions recently. The 10-year Treasury yield is highly correlated to this major and has turned down after failing to break above strong resistance at 4.33%. It has fallen below both its 200-day and 50-day SMAs. There were also a couple of media reports out early in the session that some BoJ policymakers might support hiking rates in March.

Both AUD and NZD outperformed again on improved risk sentiment. Aussie GDP printed in line at 0.2%. USD/CAD fell and closed in on its 200-day SMA at 1.3478. The BoC stuck to its cautious stance, leaving the policy statement virtually unchanged which defied some predicting hints on rate cuts.

Stocks: US equities traded better after a two-day decline. The broad-based benchmark S&P 500 closed 0.51% higher at 5,104. The tech-laden Nasdaq 100 added 0.67% to finish at 18,044. The Dow Jones settled 0.20% up at 38,661. Nvidia surged to another record high of $892, with Meta the only other megacap tech titan in the green. Apple posted its sixth straight daily fall. The Dow was weighed down by a drop of more than 2% in Disney. US regional bank stocks swung between gains and losses during the session after troubled New York Community Bancorp announced a $1bn capital raise.

Asian futures are marginally in the green. APAC stocks traded choppy on Wednesday after tech-led losses on Wall Street. The Hang Seng outperformed helped by strong tech and healthcare, but the mainland was more muted amid some growth-related pessimism.

Gold surged for a fourth day in a row, breaking $2150 to a fresh all-time intraday high at $2152. Falling yields and the downside break in the greenback continued to please gold bugs. The recent move in the precious metal is parabolic and could correct potentially quite sharply.

Day Ahead – ECB meeting

Expectations are for the ECB to stand pat once again on rates. The previous meeting saw the Governing Council in wait-and-see mode as policymakers track progress in inflation returning towards the 2% mandate. Since then, headline inflation pulled back to 2.6% in February from 2.8%, whilst the core metric fell to 3.3% from 3.6%. Growth has been stagnant, whilst more timely PMI data saw the services rise to 50.0 from 48.4, manufacturing slip to 46.1 from 46.6, leaving the composite at 48.9 versus the prior 47.9.

Recent comments from ECB officials continue to point towards no imminent intention to lower rates. Most wish to see the outcome of the April wage data which will be released after the April meeting. Markets currently see the first rate cut in June and predict a total of 90bps of policy loosening. We do get fresh staff macro projections, with some economists expecting, for the first time in the hiking cycle, forecasts to show that inflation will hit the 2% target in both 2025 and 2026.

Chart of the Day – EUR/USD pushes north

The techncial trend in the world’s most popular currency pair remains positive. After breaking out of the two-month bear channel in late February, prices had been trading around the 200-day SMA at 1.0831 and supported by a major Fib retracement level at 1.0793. Yesterday’s upside break took the major beyond the next big Fib level and 50-day SMA. A sustained push above here could see more euro gains towards 1.10 if Lagarde is more cautious about rate cuts. Any solid hints of policy easing might see prices fall back towards1 .0850 and below.