Forex

ISM Manufacturing data was released yesterday, printing at 47.7. A value under 50 shows contraction, whilst values above 50 are expansionary. There is concern over one component of the data - ISM Manufacturing Prices. This ticked higher at 51.3. This is a big jump from the previous 44.5 and is much higher than the 45.5 expected.

The pair started the day strong, but erases much of its earlier gains, as BoE Governor Bailey does not commit to more rate increases

Overnight, Australian CPI y/y showed signs of moderation, printing at 7.4%, lower than the expected 8.1% and the previous 8.4%. GDP was also softer at 0.5% q/q - 0.8% q/q was expected. After the release, the spread between the AU and US 2-year notes declined (red rectangle). This suggests that the RBA is less hawkish than the Fed. Markets still expects the RBA to lift rates next week, even if…

FXCM’s dollar basket is trading in its bullish channel between the upper blue and red bands. This is in the daily timeframe. Its stochastic is trading above 80. This denotes a strong underlying upwards momentum.

The top chart shows the US 10-Year real rate and the middle chart is the EURUSD. The correlation coefficient (cc) between the two series is -61% (bottom indicator). This correlation does not always hold true, but it has been the dominant relationship since March 2022.

Core PCE ticked up to 4.7% y/y from the previous 4.6% y/y. Markets are now betting on 25bps hikes by the Fed for March, May and June, which would take the target rate to the 5.25%-5.50% range. The monthly core PCE printed at 0.6% m/m, greater than the previous 0.4% m/m and larger than the 0.4% consensus. Annualised, this gives a worrying 7.44%, much higher than the Fed 2% average…

Money is seeking the safety of the dollar ahead of the core PCE release. On the hourly chart, the trend following EMAs and the momentum-based stochastic have crossed up. Market participants are worried that inflation remains resilient. Here, the Fed will need to remain hawkish and tighten further, which will negatively affect the present value of risk assets.

The pair is choppy amidst another surge in Japan’s inflation and comments from the BoJ Governor nominee, as markets now brace for the US PCE inflation update

The pair trades with caution as investors appear to be on the sidelines, awaiting today’s accounts of the Fed’s last policy meeting, amidst heightened expectations around the terminal rate

GBPUSD has charted a lower peak followed by a lower trough on the daily time frame (left). This is a defined down trend. Yesterday, GBPUSD appreciated following its flash PMI beats. However, there is no follow through today.

The Canadian trimmed CPI y/y came in at 5.1%, less than the previous 5.3% y/y and below the consensus of 5.2% y/y. This measures consumer inflation but excludes the 40% most volatile items. Core retail sales also declined, printing at -0.6% m/m/ against the -0.1% expected.