Euro Lags in Muted Markets; Eyes on Upcoming PMI Data

Euro is currently the weakest major currency in very quiet markets today, with little of note from the economic calendar. Meanwhile, other European majors are soft too, with Sterling just performing slightly better than Swiss Franc. Meanwhile, the rebound in metal prices is helping Aussie recover, while Kiwi is following. Yen is reversing earlier selloff but there is no sign of a sustainable rebound yet. The markets might just wait for tomorrow’s PMI data from major economies to come back to life.

Technically, Dollar is mixed for now without a clear near term direction. USD/CHF continues to press 0.8818 support turned resistance, which now coincides with 55 D EMA (now at 0.8818). Sustained break there will be a strong signal that it’s at least correcting the down trend from 1.0146. Stronger rally should be seen to 0.9146 cluster resistance (38.2% retracement of 1.0146 to 0.8551 at 0.9160). However, rejection by 0.8818 and 55 D EMA will maintain near term bearishness for another fall through 0.8551 low. Clarity on the direction should emerge in the next few days.

In Europe, at the time of writing, FTSE is up 0.51%. DAX is up 0.99%. CAC is up 0.97%. Germany 10-year yield is down -0.0246 at 2.677. Earlier in Asia, Nikkei rose 0.92%. Hong Kong HSI rose 0.95%. China Shanghai SSE rose 0.88%. Singapore Strait Times rose 0.19%. Japan 10-year JGB yield rose 0.0163 to 0.672.

Fed Barkin emphasizes need to uphold 2% inflation target for credibility

Richmond Fed President Thomas Barkin voiced his perspective on the importance of adhering to its 2% inflation target today. He emphasized the paramountcy of maintaining the institution’s credibility with the public, noting, “We have one big weapon and that is credibility.”

Elucidating on the choice of the 2% benchmark, Barkin said, “There is nothing magic about 2 except that when you set that as a target you probably want to achieve it.”

In the broader discussion on the economy, Barkin offered a tempered view. Should the US head into a recession, he anticipates it to be on the “less-severe” side of the spectrum. Moreover, he indicated that while the Fed remains vigilant, it aims to not get overly swayed by transient market fluctuations.

BoJ Ueda meets PM Kishida: Exchange-rate volatility not discussed

In a meeting today, BoJ Governor Kazuo Ueda and Prime Minister Fumio Kishida discussed a range of financial topics. However, in a post-meeting address to the media, Ueda clarified that the recent volatility of exchange rates was not a focal point of their conversation. He stated, “There wasn’t anything in particular discussed today,” in response to inquiries regarding the topic.

The backdrop to this meeting was Dollar’s significant surge over 145 Yen mark. To provide some historical context, when the currency reached this level in September 2022, it prompted Japan’s inaugural Yen-buying intervention operation in nearly a quarter of a century, since 1998.

During their dialogue, Ueda shed light on BoJ’s recent decision to ease its hold on long-term interest rates, lifting the cap on 10-year JGB yield from 0.50% to 1.00%. Prime Minister Kishida expressed understanding and agreement with the central bank’s decision, Ueda remarked.

Highlighting the periodic nature of such high-level meetings, Ueda noted that the recent gathering was in line with the tradition maintained by his predecessor, Haruhiko Kuroda. Such consultations, held once every few months, aim to facilitate discussions on prevailing economic and financial landscapes.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0873; (P) 1.0893; (R1) 1.0917; More…

EUR/USD dips notably after rejection by 55 4H EMA, but stays above 1.0832 support. Intraday bias remains neutral first. On the downside, decisive break of 1.0832 support will resume the fall from 1.1274 and target 1.0609/34 cluster support next. On the upside, above 1.0951 minor resistance will turn intraday bias to the upside for stronger recovery.

In the bigger picture, a medium term top should be formed at 1.1274, after failing to break through 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273 decisively, on bearish divergence condition in D MACD. Fall from there is seen as a correction to the uptrend from 0.9534 (2022 low). Deeper decline would be seen to 1.0634 cluster support (38.2% retracement of 0.9534 to 1.1274 at 1.0609). Strong support could be seen there, at least on first attempt, to set the range for consolidation. Yet, medium term outlook will be neutral for now, as long as 1.1274 resistance holds.

Economic Indicators Update