Markets Quiet as Traders Hold Off Significant Moves For Now

In the Asian session, forex markets are quiet with most pairs and crosses trading within yesterday’s range. Although Fed Chair Jerome Powell softened his hawkish tone slightly, noting that “no decision has been made” on the next rate move, the markets remain convinced of a 50bps rate hike later this month. Traders are holding off on making any significant moves until tomorrow’s non-farm payroll report, and the even more significant move could come after next Tuesday’s US CPI.

Sterling has been sluggish due to uncertainty over BoE’s rate outlook. The MPC is clearly split with hawks like Catherine Mann wanting more to be done. Doves like Swati Dhingra prefer to hold. Governor Andrew Bailey sounding non-committal. But there’s potential of a clearer move after tomorrow’s UK GDP release.

Technically, GBP/CHF is still considered to be in sideway consolidation from 1.1574 only. That is, rise from 1.0183 is expected to resume sooner or later through 1.1574. However, sustained break of 38.2% retracement of 1.0183 to 1.1574 at 1.1043 will open up deeper decline to 61.8% retracement at 1.0714 and possibly below.

In Asia, Nikkei closed up 0.63%. Hong Kong HSI is up 0.37%. China Shanghai SSE is down -0.01%. Singapore Strait Times is down -0.29%. Japan 10-year JGB yield is up 0.0084 at 0.515. Overnight, DOW dropped -0.18%. S&P 500 rose 0.14%. NASDAQ rose 0.40%. 10-year yield rose 0.001 to 3.976.

Fed Beige Book: Economy in slight growth, inflation to moderate

According to the Fed’s recent Beige Book report, US economy experienced slight growth at the beginning of the year. However, consumers’ purchasing power and discretionary income have been affected by high inflation and higher interest rates. The labor market conditions were solid, with moderate wage increases expected in the coming year. Inflationary pressures persisted throughout various districts, but the rate of price increases has moderated, with many contacts anticipating this trend to continue.

Overall economic activity “increased slightly” in early 2023 with six of twelve districts reported that activity ” expanded at modest pace”. Several districts said “high inflation and higher interest rates continued to reduce consumers’ discretionary income and purchasing power”. Manufacturing activity “stabilized following a period of contraction”.

Labor market conditions “remained solid” while ages “generally increased at a moderate pace”. Wages increases are expected to “moderate further in the coming year”.

Inflationary pressures “remained wide spread” but price increased “moderated” in many districts. Looking ahead, “contacts expected price increases to continue to moderate over the year.”

Bitcoin extends pull back after voluntary liquidation of crypto-friendly bank

Bitcoin has continued to experience a near-term pullback this week due to a decline in risk appetite following hawkish comments by Fed Chair Jerome Powell. Additionally, the voluntary liquidation of Silvergate Bank, a major player in cryptocurrency markets, has weighed down the digital currency, marking a setback for wider adoption of cryptocurrencies in the economy.

From a technical perspective, Bitcoin’s rebound from 15452 could have ended at 25242 in February, after being rejected by 25198 resistance. The daily MACD shows a bearish divergence, and the 55-day EMA was broken this week.

However, confirmation of a near-term reversal would require a firm break of 21357 support. Otherwise, outlook remains neutral. Alternatively, a firm break of 21357 would signal a deeper decline back to the 15452 low.

Looking ahead

The European calendar is empty today. US will release Challenger job cuts and jobless claims.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3760; (P) 1.3788; (R1) 1.3831; More….

USD/CAD’s rally continues to high as 1.3816 so far. Intraday bias remains on the upside for retesting 1.3976 high. Firm break there will resume larger up trend and target 1.4234 projection level. On the downside, break of 1.3744 minor support will turn intraday bias neutral and bring consolidations. But retreat should be contained well above 1.3554 support to bring another rally.

In the bigger picture, the up trend from 1.2005 (2021 low) is still in progress. Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3261 at 1.4234. Firm break there will pave the way to long term resistance zone at 1.4667/89 (2016, 2020 highs). On the downside, break of 1.3261 support is needed to confirm medium term topping. Otherwise, outlook remains bullish even in case of deep pull back.

Economic Indicators Update