Sentiment has stabilized somewhat but the euro remains under pressure

Market sentiment stabilized a bit following reports that Russia is suggesting holding another round of peace talks with Ukraine, while Vladimir Putin’s forces continue to bombard several crowded Ukrainian cities. Stocks are recovering but remain vulnerable to further sell-offs. In the currency markets, the Swiss franc pared some gains but remained the strongest for the week. The euro remains under enormous pressure. The Canadian dollar is mixed, waiting for the BoC rate hike. In other markets, gold is dipping slightly after the rally stalled around 1950. WTI Crude Oil continues to rise towards 115.

Technically, the pound is not performing much better than the euro. GBP/CHF’s decline from 1.2598 is accelerating towards support at 1.2134. The breakout will resume a larger downtrend from 1.3070. This, if it happens, could be accompanied by a break of the low of 1.3158 on the pair GBP/USD and a support of 148.94 on the pair GBP/JPY.

In Europe, at the time of writing, the FTSE is up 0.67%. The DAX is up 0.11%. The CAC is up 0.47%. Germany’s 10-year yield is up from 0.0058 to -0.015. Earlier in Asia, the Nikkei fell -1.68%. Hong Kong’s HSI index fell -1.84%. China Shanghai SSE fell -0.13%. The Singapore Strait fell -1.04%. Japan’s 10-year JGB yield fell from -0.0474 to 0.134.

US ADP jobs rose by 475,000 in February, hiring remains robust but has capped labor supply

Private ADP employment in the United States rose by 475,000 in February, above expectations of 320,000. By company size, small businesses lost -96,000 jobs, medium 18,000 while large businesses added 522,000. By sector, goods-producing jobs increased by 57,000 and services jobs increased by 417,000.

“Hiring remains robust but capped by reduced labor supply post-pandemic. Last month, large companies showed they are well placed to compete with higher wages and benefits high, and posted the strongest reading since the early days of the pandemic recovery,” said Nela Richardson, chief economist, ADP. “Small businesses have lost ground as they continue to struggle to keep pace wages and benefits needed to attract a limited pool of skilled workers.”

Guindos ECB: Global financial exposure to Russia somewhat limited

European Central Bank (ECB) Vice-President Luis de Guindos said that “Russia’s invasion of Ukraine will have an impact on the eurozone economy, will also have an impact on the inflation”.

“Global financial exposure to Russia is somewhat limited,” he said. “The biggest risks are energy shocks.”

De Guindos also said February’s eurozone inflation data came as a “negative surprise.”

Eurozone CPI hit a new high of 5.8% YoY in February

Eurozone CPI accelerated from 5.1% y/y to 5.8% y/y in February, well above expectations of 5.3% y/y. It is also a new record. Core CPI also rose from 2.3% yoy to 2.7% yoy, above expectations of 2.5% yoy.

Energy is expected to experience the highest annual rate in February (31.7%, compared to 28.8% in January), followed by food, alcohol and tobacco (4.1%, compared to 3.5 % in January), non-energy industrial goods (3.0%, against 2.1% in January) and services (2.5%, against 2.3% in January).

Australia’s GDP grew 3.4% quarter-on-quarter in the fourth quarter, with no significant impact from Omicron

Australia’s GDP rose 3.4% quarter-on-quarter in the fourth quarter, above expectations of 2.9% quarter-on-quarter. Real net national disposable income increased by 1.7%. The terms of trade fell by -5.1%. GDP for the December 2021 quarter was 3.4% higher than the pre-pandemic levels of December 2019. The emergence of the Omicron variant in the second half of December 2021 did not have a significant impact on activity this trimester.

Since New Zealand, the terms of trade index fell -1.0% in the fourth quarter, below expectations of 0.9%. building permits fell -9.2% m/m in January.

In Japan, capital spending rose 4.3% in the fourth quarter, above expectations of 2.9%. Base money rose 7.6% y/y in February, below expectations of 8.6% y/y.

EUR/USD mid-day outlook

Daily Pivots: (S1) 1.1065; (P) 1.1149; (R1) 1.1208; Continued…

The intraday bias on EUR/USD remains to the downside at this point. The current decline is part of the downtrend from 1.2348. The next target is a 61.8% projection of 1.2265 to 1.1120 from 1.1494 to 1.0786. On the upside, a break of the 1.1273 resistance is needed to be the first sign of a bottom. Otherwise, the outlook remains bearish in the event of a rally.

Overall decline from 1.2348 (2021 high) is likely to continue as long as 1.1494 resistance holds. A firm break of 1.0635 (2020 low) will increase the chances of a resumption of the long-term downtrend and target a retest at 1.0339 (2017 low) thereafter. Nonetheless, the breakout of 1.1494 will keep the medium-term outlook neutral and extend the trading range first.

Economic Indicators Update

GMT Ccy Events Real Forecast Previous amended
21:45 NZD Building permit H/M Jan -9.20% 0.60% 0.40%
21:45 NZD Q4 Terms of Trade Index -1.00% 0.90% 0.70% 0.40%
23:50 JPY T4 capital expenditure 4.30% 2.90% 1.20%
23:50 JPY Monetary base Y/Y Feb 7.60% 8.60% 8.40%
00:01 GBP BRC Shop Price Index Y/Y Jan 1.80% 1.50%
00:30 USD GDP Q/Q Q4 3.40% 2.90% -1.90%
08:55 USD Germany Unemployment Change Feb -33K -23K -48K
08:55 USD Germany Unemployment rate February 5.00% 5.10% 5.10%
10:00 USD Eurozone CPI Feb P 5.80% 5.30% 5.10%
10:00 USD Euro zone core CPI P Feb. 2.70% 2.50% 2.30%
13:15 USD Job change ADP February 475K 320K -301K
15:00 BODY Bank of Canada Interest Rate Decision 0.50% 0.25%
15:30 USD crude oil inventories 2.5M 4.5M
19:00 USD Fed Beige Book

Comments are closed.