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USDJPY was the big mover overnight


Central banks are the story again.

Gold hit a fresh record in Asian trading overnight as Jay Powell, the chair of the Federal Reserve, talked up rate cuts; the yen rallied amid chatter about the Bank of Japan ending negative rates soon; and attention now shifts to the European Central Bank’s policy meeting later today.

Stocks firmed with the FTSE 100 rising 0.4% amid the Budget moves in the UK, but it’s giving it back this morning in early trade. The DAX also slipped 0.4% on Thursday morning. Wall Street was higher on Wednesday with the S&P 500 and Nasdaq Composite both rising by around half a percent on a slightly dovish Powell.

Fed chair Powell indicated cuts were coming this year and only needed "a little bit more data" before the FOMC would decide to move. He basically ignored the hot January CPI (Feb next week) and Treasury yields declined, with the 10-year at around a one-month low at 4.11%, whilst 10-year TIPS also dropped to 1.8%, a level last seen at the start of February.

The dollar index tumbled through its 200-day line to its lowest level since the start of Feb and is trying to hold the 50-day line this morning at 103.20.


Jobs may be a concern

ISM’s manufacturing and services employment components are in contraction, whilst a falling quits rate is a sign of cooling in the labour market. ADP payrolls came in lighter than expected yesterday, whilst even the last NFP report showed a work week at 34.1 hours, which is recessionary territory.

Falling real income, weaker disposable spending, high borrowing costs and depletion of savings generated during the pandemic are going to weigh in later this year. Weekly unemployment claims data today is seen at 217k, whilst we hear again from Powell and it’s NFP day tomorrow.



Gold surged to new highs as Treasury yields and the dollar softened. Why is gold up? Yields have come down a lot, the dollar has edged off, central banks are buying, China is driving physical demand...and there is this overriding ‘debt debasement’ trade – US and others running ever-higher deficits, debasing their currencies in the process as they seek to finance more wars, ageing populations and unfettered immigration – someone has to pay for all this excess.

If you’d bought a gold ring to propose on Valentine’s Day, you are doing OK. Sharp move higher looks a bit overextended now with the RSI at 82 and MACD at levels associated with near-term pullbacks.

gold asian surge



USDJPY was the big mover overnight amid talk of an imminent policy shift. BOJ policymaker Nakagawa said: “There are clear signs of change in how companies set wages. Japan is moving steadily towards sustainably and stably achieving our 2% inflation target”.

Spring wage negotiations are the key - Japan’s largest industrial union, UA Zensen, said 25 of its member unions had won a pay raise for their full-time workers of 6.7%. So, this is pointing to the BoJ indeed moving to normalise policy in April – the yen has been waiting around a bit for this and now seems to be the green light.

The market has suddenly woken up to the idea that the BoJ will end negative rates in a matter of weeks. 
USDJPY ripped lower to break 148 on the downside, a month low for the cross as the yen picked up steam. The Nikkei moved in reverse to this, slipping 1.3% having earlier touched a fresh record high.

USDJPY ripped lower to break 148



And up later it’s the turn of the European Central Bank. The EBC is going to be on hold but may start clearing the decks for a cut in June. On the face of it, we will have a central bank holding rates for won't of evidence inflation is coming down enough.

A key question is the extent of any pushback by Lagarde in terms of the market pricing of cuts and to what extent she leans into this June cut narrative. We are also looking at the updated staff forecasts – a lower growth profile and signal that inflation may reach 2% before Q3 2025 would be a signal that the ECB is preparing to cut sooner.

The ECB is walking a tightrope here with recession fears growing and inflation not coming down fast enough. Core is at 3.1% still and this should stay the ECB’s hand until June. 

EURUSD is holding yesterday’s gains but could see some selling if Lagarde misses the mark?

EURUSD is holding



Oil prices spiked and then pared gains as Saudi Arabia unexpectedly hiked. Overnight data was also encouraging for crude as China’s exports and imports for the first two months of the year beat expectations.

Part of this was down to increased trade with that is working well then. Copper also bounced to a two-week high on the better trade data, which is encouraging for industrial demand outlook for crude etc.

However, data at the start of the morning session in Europe was less impressive as German industrial orders fell a lot more than expected in January, declining 11.3%.

WTI futures are higher but retreated a bit since yesterday afternoon. Brent is now also above its 200-day line.


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