FOMC Outlook Turns Less Hawkish
Pricing for the upcoming March FOMC has shifted again in recent days. Hawkish comments from Fed’s Powell last Tuesday saw pricing for a larger .5% hike jump from around 25% to 75%. On the back of recent data strength and a fresh uptick in January inflation, traders were looking for the Fed to strike a more hawkish tone this month, in line with Powell’s comments that rates would likely need to rise faster and further than previously thought.
Wages Growth Weakens – Inflation Next
However, the latest round of US jobs data on Friday has poured cold water on these expectations. While the NFP was seen coming in above forecasts, jobs growth was down sharply from the prior month and with wages seen falling short of expectations, there are signs that inflation will likely have cooled a little also. The unemployment rate was seen unexpectedly jumping by 0.2%, adding to this view. Tomorrow’s US inflation data will now be closely watched. If CPI is seen to have cooled last month, as expected, this should cement a smaller .25% hike from the Fed.
SVB Collapse
Another key element informing the Fed’s decision is the situation around the sudden collapse of SVB. With markets still digesting the news, alongside fears of further such events stemming from contagion around the collapse, the Fed is now much less likely to want to tighten financial conditions too aggressively. Indeed, Goldman Sachs is now saying that on the back of the SVB collapse it thinks the Fed won’t hike at all this month. Against this backdrop, USD looks likely to remain under pressure this week particularly if tomorrow’s CPI data is weaker.
Technical Views
USDJPY
Following the break of the bear channel from last year’s highs, USDJPY has since stalled just ahead of the 139.33 level with price moving sharply lower within the bull channel which has framed the recent upswing. The pair is now testing support at 132.91 which is a key level. While this level holds, the broader bull view remains intact. Below here, focus shifts to the 127.24 level next.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.