Forex Signals Brief March 7: Will the ECB Announce the Rate Cut Date?
Today the ECB can send the Euro in either direction, depending on rate cut projections
Yesterday began with the release of Australia’s Q4 2023 GDP, indicating a 0.2% increase, which was lower than the 0.2% expected. Notably, the preliminary reading for the third quarter had also shown a 0.2% increase, but the revision elevated Q3 GDP to 0.3%, effectively offsetting the Q4 GDP miss.
The USD ended the day down across the board, which was influenced by weaker US data, including the ADP employment report and US JOLTS job openings, which came in slightly weaker than expected, contributing to the overall USD sentiment. Additionally, wholesale inventories and sales were also softer.
Later on, in his testimony to Congress, FED Chair Powell reiterated the central bank’s cautious stance on the economic outlook and policy rate adjustments. Powell emphasized that the Fed is unlikely to reduce the policy rate until there is greater confidence that inflation will sustainably move toward the 2% target. However, he indicated a potential easing of policy restraint later in the year, suggesting that significant rate reductions could occur in the coming years if the economy evolves as anticipated. However they have been repeating these comments for some time now and didn’t bring anything new o the table.
Meanwhile, Canada, the Bank of Canada announced its rate decision, choosing to keep rates unchanged as expected. However, the central bank’s official statement and comments from Governor Macklem were less dovish than anticipated. They noted the significant impact of shelter price inflation on the Bank of Canada’s decision-making process and tempered expectations regarding the timeline for achieving the 2% inflation target, suggesting it is unlikely to be met this year, which sent the CAD higher.
Today’s Market Expectations
The day began with the release of the Japanese Average Cash Earnings Year over Year (Y/Y), a crucial data point monitored by the Bank of Japan in anticipation of the outcome of the Spring Wage Negotiation Round scheduled for about a week from now. The February report showed mixed results. Cash earnings were up 2% year over year, surpassing expectations of +1.3% and increasing from the previous +0.8%. However, inflation-adjusted (real) salaries declined by 0.6% year on year, although this was better than the expected -1.5% and the previous -2.0%. The JPY jumped 30 pips higher after the report.
The US Jobless Claims report will be released later which is one of the most essential releases each week as it provides a more up-to-date view of the jobs market’s condition. Initial Claims remain at cycle lows, while Continuing Claims remain solidly near cycle highs. This week jobless claims are expected to increase slightly to 217K from last week’s Initial Claims which came in at 251K.
The ECB meeting will be the focal point of the day, with markets anticipating a 94% chance of the central bank maintaining unchanged interest rates. In the previous meeting, the Governing Council adopted a largely wait-and-see approach as officials monitored inflation’s return to the 2% target. Compared to the last meeting, there have been some changes in economic indicators. The headline Harmonized Index of Consumer Prices (HICP) decreased to 2.6% in February from 2.8%, while the core metric fell to 3.3% from 3.6%. In terms of growth, Q4 GDP showed no change, compared to the 0.1% contraction recorded in the previous quarter. However, more recent Purchasing Managers’ Index (PMI) data revealed an improvement, with the EZ-wide services PMI climbing to 50.0 from 48.4.
Yesterday the USD went through a sudden move, falling 50 pis across the board after the softer JOLTS job openings and ADP employment figures. We were long on two trades and got caught on the wrong side, so we had two losses but closed a winning forex signal later in the day.
Gold Stalls After making New All-Time Highs
The demand for gold remains robust as investors seek it as a hedge against inflation. XAU/USD continues its upward trajectory, with buyers consistently driving the gold price higher. Breaking through successive resistance levels, gold surged above $2,100 earlier this week and reached $2,150 today before retracing slightly to $2,142. With technical resistance seemingly overcome, gold prices reached as high as $2,140 per troy ounce previously.
XAU/USD – 60 minute chart
The 200 SMA Holds in USD/CAD
Yesterday, the Bank of Canada convened its meeting, resulting in a notable shift in the CAD to USD rate, with USD/CAD dropping from 1.35 to 1.34. While the central bank has halted its interest rate hikes, it has not yet initiated the monetary policy easing process. This decision is predicated on the persistence of underlying inflation, which the bank perceives as resilient. Consequently, these remarks caused USD/CAD to plummet by 80 pips; however, the descent was arrested precisely at the 200-period Simple Moving Average (SMA) on the H4 chart as shown below.
USD/CAD – 240 minute chart
Cryptocurrency Update
Bitcoin Stays Close to $70,000
Bitcoin (BTC) surged to a new all-time high (ATH) of $69,200 on Tuesday. However, the rally was short-lived as the price quickly dropped by 10% due to a series of liquidations, causing BTC to fall just below $60,000. Fortunately, it found support at the 50-period Simple Moving Average (SMA) indicated by the yellow line on the chart. Recognizing the support level, we initiated a buy signal for Bitcoin (BTC). Today, the price rebounded from the support level, but buyers were unable to propel it above the significant psychological level of $70,000.
BTC/USD – 60 minute chart
Ethereum Touches $3,900
Ethereum (ETH) faced a downward correction on Wednesday after encountering robust demand in the preceding weeks, nearing the $4,000 mark. Despite the decline yesterday, the price found support just above the 50-period Simple Moving Average (yellow) on the H4 chart. ETH managed to bounce and climb to new highs for the year, touching $3,900.
ETH/USD – 240 minute chart
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