EURUSD TECHS: MA Studies Highlight A Dominant Downtrend

• MNI interviews premier of Canada's Northwest Territories -- On MNI Policy MainWire now, for more details please contact sales@marketnews.com

Fed Governor Barr (voter) has given a speech on “What Will Artificial Intelligence Mean for the Labor Market and the Economy?” (link), concluding that the Fed should hold rates steady for some time. That chimes with our existing view that he was likely one of the four dots looking for one cut across 2026 back at the Dec SEP (the median view). Going against a productivity argument that some expect potential incoming Fed Chair Warsh to make in enabling the Fed to lower rates, Barr sees the AI boom as unlikely to be a reason for lowering rates. 

• "The prudent course for monetary policy right now is to take the time necessary to assess conditions as they evolve. I would like to see evidence that goods price inflation is sustainably retreating before considering reducing the policy rate further, provided labor market conditions remain stable,"
• "Based on current conditions and the data in hand, it will likely be appropriate to hold rates steady for some time as we assess incoming data, the evolving outlook, and the balance of risks."
• “I see the risk of persistent inflation above our 2 percent target as significant, which means we need to remain vigilant.”
• The January jobs report offered assurance that the labor market is stabilizing, but "it is a delicate balance, and that means that the labor market could be especially vulnerable to negative shocks”.
• AI could disrupt the labor market in the short term but is likely to create new jobs and augment productivity and boost real wages over the long run, he said.
• AI investment and higher productivity growth would imply a higher neutral rate but also be inflationary in the short run. We list his argument in full here: "In the event that GenAI results in a long-lasting boost to productivity growth, wages and economic activity could grow more than would otherwise be the case without putting upward pressure on inflation. At the same time, demand for capital would rise because of the strong business investment required to take advantage of the technology, putting upward pressures on interest rates, and household savings could fall due to expectations of stronger real wage growth and thus higher lifetime earnings, also putting upward pressure on interest rates. All of this would imply a higher setting for the policy rate when the economy is at equilibrium, or what monetary economists call r*. Indeed, last year I raised my long-term estimate of r* modestly because of higher productivity. Moreover, in the short term, investment in AI could be inflationary—for example, if electricity supply constraints from inefficiencies in the power grid collide with strong energy demand from the building of data centers. For all of these reasons, I expect that the AI boom is unlikely to be a reason for lowering policy rates."

Tuesday's Europe rates/bond options flow included: 

• DUJ6 106.90/107.00/107.10c fly, bought for 1.75 up to 2 in 10k
• OEH6 117c vs OEJ6 118.50c, bought the April for -4 (receive) in 2k
• ERU6 98.06/98.00/97.87 broken p ladder, bought for 2.75 and 3 in 20k
• ERU6 97.75/97.62ps, bought for half in 10k
• ERZ6 98.06/97.93ps 1x2, bought for 2 in 10k
• ERZ7 98.50/99.00 call spread, bought for 4.5 in 20k
• 0RH6 97.9375/97.8125/97.75p fly, bought for 1.25 in 8k
• SFIM6 96.45/96.35/96.25p ladder, sold at 0.25 in 15.75k
• SFIM6 96.50/96.35ps 1x1.5, bought for 1.25 in 8k
• SFIZ6 96.85/97.00cs, bought for 5 in 10k vs SFIM6 96.45/96.60cs, sold at 11.5 in 4k
• 0NZ6 97.00/97.40 call spread, bought for 5.5 in +10k