Monthly Archives: March 2024

The economic calendar has a handful of high-importance releases and events next week with the two standouts, the ECB policy meeting and US Nonfarm Payrolls likely to gather the most interest. The ECB will keep all policy settings unchanged but may hint when rate cuts are expected to start. Financial markets are pricing in the first 25 basis point ECB rate cut at the June meeting and it will be interesting to note if ECB President Lagarde, or any of the other ECB voting members, push back against this.

On Friday the latest US Jobs Report will be released with market forecast of +190k. Last month’s report saw a blockbuster 353k new jobs announced and if history is any guide, last month’s number is likely to be revised lower.

EUR/USD is currently trading around the 200-day simple moving average, and next week’s releases and events are likely to help the pair make a more decisive move. Support for the pair is seen between 1.0787 to 1.0800 – this week’s lows, the 20-day sma, and an old swing high – and if this breaks then the February 14th multi-month low at 1.0695 may come into play. A clean break above the 200-day sma will bring a cluster of recent highs, the 50-day sma, and the 23.6% Fibonacci retracement level all around the 1.0850/60 level back into focus.

EUR/USD Daily Price Chart

EUR/GBP has nudged higher all week and now changes hands around 0.8564 and back above the 20-day sma. This week’s move higher has bought a cluster of recent highs – all the way up to 0.8578 and the 50-day sma at 0.8588 back into focus. Above here, the 200-day sma at 0.8610 and a cluster of early-mid January highs around 0.8620 should be noted.

EUR/GBP Daily Price Chart

Retail trader data shows 67.32% of traders are net-long with the ratio of traders long to short at 2.06 to 1.The number of traders net-long is 3.47% lower than yesterday and 18.20% lower than last week, while the number of traders net-short is 7.69% lower than yesterday and 16.76% higher than last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/GBPprices may continue to fall. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/GBP trading bias.

The Japanese Yen remains under the influence of the Bank of Japan and the Ministry of Finance for now as traders monitor language from the two official institutions. In contrast to the ECB, traders are looking for any hints as to when the Bank of Japan will begin to raise rates after keeping them at ultra-low levels for years.

Japanese Yen Grabs a Bid, Emboldened by Bank of Japan Talk

EUR/JPY will also be under the Euro’s influence next week and the outlook looks choppy for the pair. The recent run higher from the February 7th low looks broken and the 20-day sma at 161.70 looks vulnerable. Below here, the 161 zone comes into focus ahead of the 50-day sma and big support around 160.00. The February 26th high at 163.72 should cap any break higher.

EUR/JPY Daily Price Chart

Gold prices (XAU/USD) staged a remarkable rally this past week, breaking past key technical thresholds to reach their highest point since December 2023. By Friday’s close, the precious metal had notched a substantial weekly gain of 2.33%, settling near $2,082.

Bullion’s bullish momentum can be attributed in part to a moderate pullback in U.S. Treasury yields, a reaction triggered by two significant economic reports that left investors pondering their implications for the Federal Reserve’s monetary policy stance.

To start, January’s core PCE deflator came in at 0.4% m/m and 2.8% y/y, meeting consensus estimates. Wall Street, rattled by recent CPI and PPI data, had been bracing for another upside inflation surprise, but was relieved when the FOMC‘s preferred price gauge landed precisely on its expected mark.

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Adding to the narrative, disappointing manufacturing PMI (ISM) figures showed an accelerated contraction last month, reinforcing the retreat in yields. Traders speculated that weak factory sector output may lead the U.S. central bank to start easing its stance earlier than initially envisioned.

Looking ahead, traders should be attentive to the upcoming February U.S. jobs data for insights into the market’s trajectory. A blockbuster report mirroring January’s robust numbers would undermine hopes of an early Fed pivot toward rate cuts, potentially sending gold prices tumbling.

On the other hand, if nonfarm payrolls figures underwhelm projections and hint at mounting economic headwinds, interest rate expectations are likely to recalibrate toward a more dovish outlook, weighing on yields. This scenario is poised to support precious metals.

UPCOMING US JOBS REPORT

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GOLD PRICE (XAU/USD) TECHNICAL ANALYSIS

Gold surged beyond trendline resistance at $2,035 and breached another key ceiling at $2,065 this past week, edging closer to surpassing late December’s swing high around $2,085. Failure by bears to contain the price at this point might trigger a rally toward the yellow metal’s record in the vicinity of $2,150.

On the flip side, if sellers stage a comeback and spark a bearish reversal, initial support appears at $2,065. Further losses below this level could lead to a retracement towards the 50-day simple moving average at $2,035. If weakness persists, attention will turn to the $2,010/$2,005 range.

GOLD PRICE TECHNICAL CHART

Concerning Forward-Looking Data to Translate into a Lower Start Next Week?

The dollar limped into the end of the trading week after US manufacturing data posted some slightly concerning results, as the overall sector continued to contract for the 16th straight month.

Notable standouts in the report surfaced via sub-indices, ‘employment’, ‘production’ and the forward-looking metric ‘new orders’ as they all declined compared to January. While the surveyed results provide ‘soft data’, it is something the market has viewed as noteworthy – judging by the reaction. The chart below depicts the immediate reaction to the data from the dollar basket’s (DXY) perspective.

US Dollar Benchmark (DXY) 5-Minute Chart

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Next week’s US services PMI carries greater importance as the services sector makes up the majority of US GDP

The move also had US Treasury yields moving lower, extending the weekly slide. The 2-year treasury yield is known to be sensitive to fluctuation in Fed funds bets, and the recent move lower suggests a renewed focus on inevitable rate cuts which could arrive in June or July this year.

US 2-Year Treasury Yield Daily Chart

US Dollar Finds Support, The Fed Continues its Cautious Approach to Rate Cuts

The Fed must be holding back the temptation to say, ‘we told you so’ now that market expectations match those released in the Fed’s December summary of economic projections. Three rate cuts in 2024 is the new expectation, down from six and potentially seven at one stage. As such, the dollar has found its footing in the early weeks of 2024 but has weakened since the February high.

The shorter-term bearish direction appears to have found support at the 200-day simple moving average (SMA) and if not for the weaker manufacturing data, the dollar would have seen reasonable gain.

However, sustained directional moves, outside of yen pairs, have been hard to come by. As we get closer to D-day for the first interest rate cut, markets appear reactive to the incoming data but often lack the necessary follow through to prolong the move. Such market conditions are typically conducive to range trading strategies and setups.

ISM services PMI data next week is forecast slightly lower than in January, meaning a small deviation from expectations or a move higher, may be enough to see the dollar edge higher again. The zone of resistance comprises of the 104.70 level and the 61.8% Fibonacci retracement of the 2023 major decline. This presents the next challenge for USD bulls. Downside levels to watch include the dynamic support provided by the 200 SMA followed by 103.00.

US Dollar Basket (DXY) Daily Chart

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Markets now envision a little over 75 basis points worth of cuts (82) this year, with the March meeting highly unlikely to provide the date of the very first cut.

Implied Rate Cuts Derived from the Fed Funds Futures Market

US Dollar Event Risk for the Week Ahead: Services PMI, NFP

In the week to come, ISM services PMI data will attract an even greater focus after Friday’s manufacturing print weakened further into contractionary territory, with ‘new orders’ and ‘employment’ sub-indices declining. However, the manufacturing sector makes up roughly 10% of the economy so a strong services print is likely to allay any concerns from Friday.

Then, the ECB is scheduled to kick off the major central bank meetings for March which is likely to filter into the dollar index via its substantial weighting in the EUR/USD pair.

Tuesday: Eyes on U.S. Services Activity

The U.S. ISM Services PMI for February will offer an early glimpse into the health of the dominant services sector. While a modest decline to 53.0 is projected, any significant deviation from this estimate in the final result could spark large price swings in the U.S. dollar by shifting FOMC interest rate expectations.

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Bank of Canada (BoC): No change in interest rates is anticipated, with traders largely prepared for another dovish hold. The bank’s tone and guidance on future rate policy should be closely watched for clues as to when the easing cycle might begin. Surprises here could create waves for the Canadian dollar.

Fed Focus: Fed Chair Powell delivers the Semiannual Monetary Policy Report to Congress and later testifies before the House Financial Services Committee. This offers an opportunity for Powell to give further insight into policymakers’ current thinking, particularly the timing of future rate cuts.

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ECB Decision: While no rate changes are anticipated from the ECB, recent weak European data could lead the institution to adopt a more dovish tone. Any signals that policymakers are starting to contemplate rate cuts in the near future should exert downward pressure on the euro.

Powell’s Testimony Redux: Powell is scheduled to present his Semiannual Monetary Policy Report to U.S. legislators, but this time, he’ll address the Senate Banking Committee. However, with his Wednesday testimony still fresh in memory, this event shouldn’t bring groundbreaking revelations.

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The week culminates with the February U.S. nonfarm payrolls report. Consensus forecasts point to 200K jobs added, but remember, employment data has a history of delivering upside surprises recently.

A significantly stronger-than-expected report could signal continued labor market strength, potentially delaying the Fed’s rate-cutting cycle. This would be bullish for the U.S. dollar, but bearish for gold and risk assets.

Conversely, weak job growth could fuel expectations of a more dovish Fed, sending interest rate expectations lower. In this scenario, gold could rise as the U.S. dollar slides.

For a comprehensive overview of the factors that could impact financial markets and contribute to volatility in the upcoming trading sessions, peruse the thoughtfully curated selection of key forecasts by the DailyFX team.

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