FOREX: Late Trump/Zelenskyy Headlines Sour Risk Sentiment / Boost Greenback
Feb-28 18:51
- Latest tariff developments this week have prompted a solid 1.40% recovery for the USD index from the week’s lows as markets digest the potential impact of a more protectionist US trade policy. Furthermore, latest negative developments from the White House as discussions between Trump and Zelenskyy sour have weighed on risk sentiment, further boosting the dollar.
- It’s emerging markets where the real pain has been late Friday, with the likes of ZAR and HUF the weakest global currencies. EURHUF rallied from around 400 to 407 on the headlines, as the latest optimism to a Russia/Ukraine ceasefire evaporated.
- Underlying this theme, it is the risk sensitive AUD and NZD which have significantly underperformed in G10. Weekly losses now total 2.57% and 2.69% respectively, with the doubling of China tariffs adding to the bearish momentum.
- This has seen NZDUSD slide back below 0.5600, and a daily close here would be the weakest since mid-Jan. Price action will keep markets pondering a revisit to the YTD lows of 0.5516 in the near-term.
- For AUDUSD, the steep sell-off yesterday and the follow through today is signalling scope for a deeper retracement. Downside momentum is bolstered by spot comfortably back below the 20- and 50-day EMAs, exposing support at 0.6171, the Feb 4 low. A break of this level would suggest scope for test of the bear trigger at 0.6088, the Feb 3 low.
- The Japanese Yen is also among the weakest performers in G10 Friday despite the lower US yields, as markets suggest the bullish yen narrative in recent weeks could be losing steam. USDJPY rose from overnight lows of 149.10 to reach as highs as 150.99 before moderating into the close.
- Eurozone inflation data and US ISM Manufacturing PMI headline Monday’s economic calendar.
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GBPUSD TECHS: Trading Below Resistance At The 50-Day EMA
Jan-29 18:30
- RES 4: 1.2667 High Dec 19
- RES 3: 1.2610 38.2% retracement of the Sep 26 ‘24 - Jan 13 swing
- RES 2: 1.2576 High Jan 7
- RES 1: 1.2517/23 50-day EMA / High Jan 27
- PRICE: 1.2432 @ 16:27 GMT Jan 29
- SUP 1: 1.2392/2294 20-day EMA / Low Jan 23
- SUP 2: 1.2229 Low Jan 21
- SUP 3: 1.2100 Low Jan 10 and the bear trigger
- SUP 4: 1.2087 0.764 proj of the Sep 26 - Nov 22 - Dec 6 price swing
A bull cycle in GBPUSD remains in play and the pair is trading closer to its recent highs. The 20-day EMA has been breached and attention is on the 50-day EMA, at 1.2517 and an important resistance. Clearance of the average would highlight a stronger bull cycle. Medium-term trend signals are unchanged, they remain bearish. A reversal lower would refocus attention on 1.2100, the Jan 10 low and bear trigger.
US: FED Reverse Repo Operation
Jan-29 18:28
RRP usage inches up to $121.842B this afternoon from $112.760B yesterday. Compares to Monday's usage of $92.863B - the lowest level since mid-April 2021. The number of counterparties rises to 35 from 28 prior.
FED: Uncertainty To Keep Fed Patient, Inflation Key To March Cut Potential(2/2)
Jan-29 18:20
That being said, there have been no concrete announcements on the trade front, only proposals. The most immediate is the potential imposition of tariffs on Mexico and Canada on February 1, whose near-term nature alone merits a cautious approach by the Fed this month (and even here, the deadline and the tariffs don't seem to be set in stone).
- April 1 is another key date, by which time Trump has ordered reports on a broad variety of trade related topics, which are expected to lay the groundwork for future tariffs. So uncertainty will probably prevail until well into Q2, giving the Fed yet more reason to hold off on action.
- A less onerous tariff regime than feared could provide some impetus for the Fed to resume cuts. But the other two major areas of relevant policy – fiscal and immigration – aren’t likely to provide a clear picture for at least a few months either, and arguably these will have the larger macro impact. And indeed a relief on the tariff front could have a growth-positive, dollar-negative angle that adds to the case for being patient on cuts.
- Fiscal expansion was a key factor behind higher inflation in the pandemic cycle, and a fresh round of tax cuts on top of the long-assumed extensions are a big reason for post-election private sector exuberance. It could take months for Congress and the White House to emerge with a concrete fiscal package.
- And on immigration, FOMC members from hawks to doves have noted that supply-side labor market expansion helped keep the labor market from getting too tight in the recovery from pandemic recovery– the implication being that slower (or negative) immigration growth could lead to weaker growth and higher inflation.
- Powell’s unlikely to be pinned down on any of these matters: we expect vague language as usual, with some variation of his November press conference comment “we don’t guess, we don’t speculate, and we don’t assume”.
- It looks likely at this point that they will not be in a position to make any concrete assumptions until at least the May meeting. As we noted previously, that doesn't preclude a March cut, but such a decision will probably depend on two convincingly weak inflation reports between now and then.
