Yesterday started with the employment report from the UK, which came in softer than expected overall. The Claimant Count Change showed that the number of jobs increased more than expected, but the Unemployment Rate ticked higher to 3.9% while the Average Earnings Index 3m/y fell to 5.6% from 5.8% previously. That kept the GBP bearish for most of the day.

Then in the US session, we had the main event of the week, the CPI inflation report which garnered significant attention from the market. However, the price action following the event was not favorable. Despite the usual caution exercised by traders, the reported numbers slightly exceeded expectations, leading to a predictable initial market reaction.

The US dollar strengthened by 40-60 pips across various currency pairs. The focus remained on the Consumer Price Index (CPI), which indicated higher inflationary pressures. This was supported by movements in US Treasuries, where 2-year rates increased by 6 basis points, while the Fed rate cut market pricing for 2024 declined to 83 basis points, from 89 before the release.

Following the initial strengthening, the US dollar continued to rise, approaching its previous highs observed after the CPI release. However, it was unable to surpass those levels, and equities received significant buying interest. The market found it challenging to overlook the enthusiasm surrounding artificial intelligence (AI) stocks, which contributed to a decline in the US dollar. This decrease in the dollar’s value offset most of the earlier increase driven by the CPI data, although not entirely. Overall, the market reaction to the CPI data was dynamic, with initial strength in the US dollar followed by a reversal as attention shifted to other factors such as AI stocks and equity markets.

Today’s Market Expectations

Today the economic calendar is light during the Asian and the US sessions, but we have the UK GDP report for January in the European session. The monthly Gross Domestic Product in the UK is expected to grow by 0.2% in January, a turnaround from the 0.1% decrease observed in December. The December release marked a contraction following a 0.2% gain in November, aligning with Q4 data that indicated the UK entered a technical recession at the end of 2024.

However, analysts anticipate that the January data will signal the UK’s departure from the minor recession of the previous year. Pantheon Macro attributes much of the anticipated 0.2% month-on-month expansion in January to the robust 3.4% increase in retail sales during the same period. They suggest that this surge in retail sales will account for “almost all” of the expected growth in January’s GDP figures.

Moreover, economists believe that the strength observed in the forthcoming release is sustainable, as Purchasing Managers’ Index (PMI) data has shown consistent improvement since October. The February composite PMI metric of 53.0 points is indicative of 0.25% quarter-on-quarter growth. From a policy perspective, a positive GDP announcement for January could position the UK to outperform the Bank of England’s (BoE) modest 0.1% prediction for Q1 quarter-on-quarter GDP growth. However, this positive economic outlook is unlikely to significantly influence market pricing, given the BoE’s continued focus on real wages and service inflation as key determinants of monetary policy.

Forex Signals Update

Yesterday markets picked up pace after the US CPI inflation, however the volatility was not too high and we only ended up with two closed forex signals, both of which ended up in profit. We opened five trading signals in total, going long on the S&P 500 as well, but the rest of the signals remained open.

Gold Retreats Off the Highs 

Last week, gold (XAU) experienced an extraordinary surge, with its price rising by $150 to reach record high levels. However, today, we are witnessing a retreat in the price of gold, which was expected given the recent rapid increase. The improved readings for February Consumer Price Index (CPI) inflation in the United States are also contributing to the decline in gold prices, as the US dollar gains strength. Yesterday, gold faced selling pressure as its price fell below the tight range observed over the previous three days, which was between $2,170 and $2,195. The price of gold dropped below $2,160, and the first support zone emerged around the previous high of $2,134-35.

XAU/USD – 240 minute chart

GBP/USD Gets Away from 1.30

The GBP/USD pair reversed sharply this week, following a strong surge observed in the previous week. Yesterday, the pair faced downward pressure due to a combination of factors, including a poorer UK employment report and stronger US Consumer Price Index (CPI) inflation numbers. This led to a significant decline of 150 pips in the GBP/USD pair. However, the downward momentum paused at the level of 1.2748, as traders awaited today’s UK Gross Domestic Product (GDP) announcement for January. The GDP announcement is expected to provide further insights into the economic performance of the UK, which could influence the direction of the GBP/USD pair in the near term.

GBP/USD – 240 minute chart

Cryptocurrency Update

MAs Keeping Bitcoin Supported During Pullbacks

BTC (Bitcoin) experienced a tumultuous day yesterday, following its attainment of a new all-time high the day prior. The cryptocurrency found support near the 50-period Simple Moving Average (SMA), indicating a potential reversal in the short term. The decision to initiate a buy signal at this support level appears to have been well-timed, as evidenced by the subsequent price recovery. However, the failure to surpass the $70,000 level suggests significant market resistance. As a result, BTC temporarily dropped, dipping below to $68,500 but the 50 SMA (yellow) held as support and the price rebounded above $70,000 later in the day.

BTC/USD – 240 minute chart

Ethereum Dips Below $4,000 but Maintains Uptrend

ETH (Ethereum) exhibited continued upward momentum last week, even after experiencing a bearish reversal upon reaching the $4,000 mark. Despite this reversal, ETH found support above the 50-period Simple Moving Average (SMA) on the H4 chart, a significant technical indicator. This support level likely attracted buyers, resulting in a rebound in price. ETH subsequently achieved a fresh yearly high of $3,900, signaling sustained optimism in the market sentiment. Traders are anticipated to closely monitor the price behavior of ETH to ascertain if it can uphold its upward trajectory and potentially surpass the $4,000 barrier in the near future. There is speculation among traders that if ETH manages to break through the $4,000 level, it may set its sights on reaching $5,000.

ETH/USD – 240 minute chart