FED: Richmond's Barkin: Current Stance A "Good Place To Be"
Richmond Fed President Barkin (non 2025 FOMC voter, leans hawk) remains cautious on the rate path ahead, likening the current uncertainty over economic policy to a "fog" in suggesting that Fed policy is in an appropriate place. He would appear to be one of the 8 FOMC members who at the March meeting pencilled in either one or no cuts by the end of 2025.
- He writes in a new essay: "With the labor market still solid and inflation still above target, our moderately restrictive stance is a good place to be. If conditions start to shift, we are well positioned to adjust. Until then, like businesses and consumers, we are waiting for the fog to clear.... How does one drive in fog? Carefully and slowly, and if there’s a safe place to pull over, you do so to avoid getting in trouble. That’s where we are."
- This is similar to his comments last month before the Fed's March hold ("It makes sense to stay modestly restrictive until we are more confident inflation is returning to our 2 percent target…if headwinds persist, we may well need to use policy to lean against that wind.")
- Government policy uncertainty is at the center of the uncertainty: "we know we likely are headed toward more tariffs, lower net migration, an extension of the 2017 tax cuts, deregulation, lower growth in government spending and more efforts to promote traditional energy sources. We also know what typically happens when you move policy in each of those directions. What we don’t know is how far these efforts will go, how they will net out and when they will land with enough clarity for participants in the economy to act."
- He notes increasing uncertainty among private sector actors, with weakening consumer confidence and potentially weaker demand. "Wage growth expectations are normalizing at the same time as tariff talk is pushing up near-term inflation expectations. The net is that expected real wages are dropping. At the same time, equity markets have been volatile. Both would signal less strength in consumer spending."
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USDCAD TECHS: Bearish Theme Under Threat
- RES 4: 1.4948 High Mar 2003
- RES 3: 1.4814 High Apr 2003
- RES 2: 1.4503/1.4793 High Fb 4 / 3 and key resistance
- RES 1: 1.4380 High Feb 10
- PRICE: 1.4303 @ 16:50 GMT Feb 25
- SUP 1: 1.4151/4107 Low Feb 14 / 50.0% of Sep 25 - Feb 3 bull run
- SUP 2: 1.4011 Low Dec 5 ‘24
- SUP 3: 1.3944 61.8% retracement of the Sep 25 ‘24 - Feb 3 bull cycle
- SUP 4: 1.3894 Low Nov 11 ‘24
The bear theme in USDCAD has weakened, however remains intact despite the rally off lows this week. The pair has recently cleared key support at 1.4261, the Jan 20 low. This strengthens a bearish set-up and signals scope for an extension of the current downtrend - a correction. Sights are on 1.4107, a Fibonacci retracement. Initial firm resistance to watch is 1.4380, the Feb 10 high. A move above this hurdle would highlight an early reversal signal.
US DATA: Services Activity Looks More Moderate In Feb, But Prices Look Steady
The three regional Fed services/non-manufacturing surveys for February (NY, Dallas, Philadelphia) are consistent with a slight moderation in national services activity versus January. Each of those three surveys' current activity indices fell in the month.
- However, they did not decline to the degree implied by the surprise 3.2 point pullback in the flash S&P PMI for the month (to 49.7). Conversely, February's ISM Services Index is currently estimated to print 53.0 in next week's release, an uptick from 52.8 in January.
- There is no consensus yet for ISM services prices paid (60.4 January). but prices in the regional services surveys were mixed: Philly Fed prices paid fell to 3-month lows but Dallas and NY Fed prices paid rose to multi-month highs.
- On aggregate regional services prices point to fairly steady inflationary pressures compared with the previous 6 months - in contrast to the clear increase in manufacturing prices paid in February amid tariff concerns.
AUDUSD TECHS: Bullish Outlook
- RES 4: 0.6471 High Dec 9 ‘24
- RES 3: 0.6429 High Dec 12 ‘24
- RES 2: 0.6414 38.2% retracement of the Sep 30 ‘24 - Feb 3 bear leg
- RES 1: 0.6409 High Feb 21
- PRICE: 0.6332 @ 16:49 GMT Feb 25
- SUP 1: 0.6315/6231 50-day EMA / Low Feb 10
- SUP 3: 0.6171/6088 Low Feb 4 / 3
- SUP 3: 0.6045 1.500 proj of the Sep 30 - Nov 6 - 7 price swing
- SUP 4: 0.6000 Round number support
A bullish condition in AUDUSD remains intact despite the fade off highs this week. Sights are on key resistance at 0.6406/14 - the 100-dma and the 38.2% retracement of the Sep 30 ‘24 - Feb 3 bear leg respectively. A clear break of both levels would set the scene for the next leg higher for the pair, making 0.6429 the next target, the Dec 12 ‘24 high. The 50-day EMA undercuts as support, crossing at 0.6315.
